Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No.

173863 September 15, 2010 CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES, INC.), Petitioner, vs. BASES CONVERSION DEVELOPMENT AUTHORITY and CLARK DEVELOPMENT CORPORATION, Respondents. DECISION VILLARAMA, JR., J.: This petition for review on certiorari assails the Decision1 dated November 30, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 87117, which affirmed the Resolution2 dated August 2, 2004 and the Order3 dated September 30, 2004 of the Office of the President in O.P. Case No. 04-D-170. The facts follow. On June 28, 2002, the Board of Directors of respondent Clark Development Corporation (CDC) issued and approved Policy Guidelines on the Movement of Petroleum Fuel to and from the Clark Special Economic Zone (CSEZ)4 which provided, among others, for the following fees and charges: 1. Accreditation Fee xxxx 2. Annual Inspection Fee xxxx 3. Royalty Fees Suppliers delivering fuel from outside sources shall be assessed the following royalty fees: - Php0.50 per liter those delivering Coastal petroleum fuel to CSEZ locators not sanctioned by CDC - Php1.00 per liter those bringing-in petroleum fuel (except Jet A-1) from outside sources xxxx 4. Gate Pass Fee

x x x x5 The above policy guidelines were implemented effective July 27, 2002. On October 1, 2002, CDC sent a letter6 to herein petitioner Chevron Philippines, Inc. (formerly Caltex Philippines, Inc.), a domestic corporation which has been supplying fuel to Nanox Philippines, a locator inside the CSEZ since 2001, informing the petitioner that a royalty fee of P0.50 per liter shall be assessed on its deliveries to Nanox Philippines effective August 1, 2002. Thereafter, on October 21, 2002 a Statement of Account7 was sent by CDC billing the petitioner for royalty fees in the amount of P115,000.00 for its fuel sales from Coastal depot to Nanox Philippines from August 1-31 to September 3-21, 2002. Claiming that nothing in the law authorizes CDC to impose royalty fees or any fees based on a per unit measurement of any commodity sold within the special economic zone, petitioner sent a letter8 dated October 30, 2002 to the President and Chief Executive Officer of CDC, Mr. Emmanuel Y. Angeles, to protest the assessment for royalty fees. Petitioner nevertheless paid the said fees under protest on November 4, 2002. On August 18, 2003, CDC again wrote a letter9 to petitioner regarding the latters unsettled royalty fees covering the period of December 2002 to July 2003. Petitioner responded through a letter10 dated September 8, 2003 reiterating its continuing objection over the assessed royalty fees and requested a refund of the amount paid under protest on November 4, 2002. The letter also asked CDC to revoke the imposition of such royalty fees. The request was denied by CDC in a letter11 dated September 29, 2003. Petitioner elevated its protest before respondent Bases Conversion Development Authority (BCDA) arguing that the royalty fees imposed had no reasonable relation to the probable expenses of regulation and that the imposition on a per unit measurement of fuel sales was for a revenue generating purpose, thus, akin to a "tax". The protest was however denied by BCDA in a letter12 dated March 3, 2004. Petitioner appealed to the Office of the President which dismissed13 the appeal for lack of merit on August 2, 2004 and denied14 petitioners motion for reconsideration thereof on September 30, 2004. Aggrieved, petitioner elevated the case to the CA which likewise dismissed15 the appeal for lack of merit on November 30, 2005 and denied16 the motion for reconsideration on July 26, 2006. The CA held that in imposing the challenged royalty fees, respondent CDC was exercising its right to regulate the flow of fuel into CSEZ, which is bolstered by the fact that it possesses exclusive right to distribute fuel within CSEZ pursuant to its Joint Venture Agreement (JVA)17 with Subic Bay Metropolitan Authority (SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI) dated April 11, 1996. The appellate court also found that royalty fees were assessed on fuel delivered, not on the sale, by petitioner and that the basis of such imposition was petitioners delivery receipts to Nanox Philippines. The fact that revenue is incidentally also obtained does not make the imposition a tax as long as the primary purpose of such imposition is regulation.18 Petitioner filed a motion for reconsideration but the CA denied the same in its Resolution19 dated July 26, 2006. Hence, this petition raising the following grounds: I. THE ISSUE RAISED BEFORE THE COURT A QUO IS A QUESTION OF SUBSTANCE NOT HERETOFORE DETERMINED BY THE HONORABLE SUPREME COURT.

II. THE RULING OF THE COURT OF APPEALS THAT THE CDC HAS THE POWER TO IMPOSE THE QUESTIONED "ROYALTY FEES" IS CONTRARY TO LAW. III. THE COURT OF APPEALS WAS MANIFESTLY MISTAKEN AND COMMITTED GRAVE ABUSE OF DISCRETION AND A CLEAR MISUNDERSTANDING OF FACTS WHEN IT RULED CONTRARY TO THE EVIDENCE THAT: (i) THE QUESTIONED "ROYALTY FEE" IS PRIMARILY FOR REGULATION; AND (ii) ANY REVENUE EARNED THEREFROM IS MERELY INCIDENTAL TO THE PURPOSE OF REGULATION. IV. THE COURT OF APPEALS FAILED TO GIVE DUE WEIGHT AND CONSIDERATION TO THE EVIDENCE PRESENTED BY CPI SUCH AS THE LETTERS COMING FROM RESPONDENT CDC ITSELF PROVING THAT THE QUESTIONED ROYALTY FEES ARE IMPOSED ON THE BASIS OF FUEL SALES (NOT DELIVERY OF FUEL) AND NOT FOR REGULATION BUT PURELY FOR INCOME GENERATION, I.E. AS PRICE OR CONSIDERATION FOR THE RIGHT TO MARKET AND DISTRIBUTE FUEL INSIDE THE CSEZ.20 Petitioner argues that CDC does not have any power to impose royalty fees on sale of fuel inside the CSEZ on the basis of purely income generating functions and its exclusive right to market and distribute goods inside the CSEZ. Such imposition of royalty fees for revenue generating purposes would amount to a tax, which the respondents have no power to impose. Petitioner stresses that the royalty fee imposed by CDC is not regulatory in nature but a revenue generating measure to increase its profits and to further enhance its exclusive right to market and distribute fuel in CSEZ.21 Petitioner would also like this Court to note that the fees imposed, assuming arguendo they are regulatory in nature, are unreasonable and are grossly in excess of regulation costs. It adds that the amount of the fees should be presumed to be unreasonable and that the burden of proving that the fees are not unreasonable lies with the respondents.22 On the part of the respondents, they argue that the purpose of the royalty fees is to regulate the flow of fuel to and from the CSEZ. Such being its main purpose, and revenue (if any) just an incidental product, the imposition cannot be considered a tax. It is their position that the regulation is a valid exercise of police power since it is aimed at promoting the general welfare of the public. They claim that being the administrator of the CSEZ, CDC is responsible for the safe distribution of fuel products inside the CSEZ.23 The petition has no merit. In distinguishing tax and regulation as a form of police power, the determining factor is the purpose of the implemented measure. If the purpose is primarily to raise revenue, then it will be deemed a tax even though the measure results in some form of regulation. On the other hand, if the purpose is primarily to regulate, then it is deemed a regulation and an exercise of the police power of the state, even though incidentally, revenue is generated. Thus, in Gerochi v. Department of Energy,24 the Court stated: The conservative and pivotal distinction between these two (2) powers rests in the purpose for which the charge is made. If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax. In the case at bar, we hold that the subject royalty fee was imposed primarily for regulatory purposes, and not for the generation of income or profits as petitioner claims. The Policy Guidelines on the Movement of Petroleum Fuel to and from the Clark Special Economic Zone25 provides:

DECLARATION OF POLICY It is hereby declared the policy of CDC to develop and maintain the Clark Special Economic Zone (CSEZ) as a highly secured zone free from threats of any kind, which could possibly endanger the lives and properties of locators, would-be investors, visitors, and employees. It is also declared the policy of CDC to operate and manage the CSEZ as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the CSEZ.26 (Emphasis supplied.) From the foregoing, it can be gleaned that the Policy Guidelines was issued, first and foremost, to ensure the safety, security, and good condition of the petroleum fuel industry within the CSEZ. The questioned royalty fees form part of the regulatory framework to ensure "free flow or movement" of petroleum fuel to and from the CSEZ. The fact that respondents have the exclusive right to distribute and market petroleum products within CSEZ pursuant to its JVA with SBMA and CSBTI does not diminish the regulatory purpose of the royalty fee for fuel products supplied by petitioner to its client at the CSEZ. As pointed out by the respondents in their Comment, from the time the JVA took effect up to the time CDC implemented its Policy Guidelines on the Movement of Petroleum Fuel to and from the CSEZ, suppliers/distributors were allowed to bring in petroleum products inside CSEZ without any charge at all. But this arrangement clearly negates CDCs mandate under the JVA as exclusive distributor of CSBTIs fuel products within CSEZ and respondents ownership of the Subic-Clark Pipeline.27 On this score, respondents were justified in charging royalty fees on fuel delivered by outside suppliers. However, it was erroneous for petitioner to argue that such exclusive right of respondent CDC to market and distribute fuel inside CSEZ is the sole basis of the royalty fees imposed under the Policy Guidelines. Being the administrator of CSEZ, the responsibility of ensuring the safe, efficient and orderly distribution of fuel products within the Zone falls on CDC. Addressing specific concerns demanded by the nature of goods or products involved is encompassed in the range of services which respondent CDC is expected to provide under the law, in pursuance of its general power of supervision and control over the movement of all supplies and equipment into the CSEZ. Section 2 of Executive Order No. 8028 provides: SEC. 2. Powers and Functions of the Clark Development Corporation. The BCDA, as the incorporator and holding company of its Clark subsidiary, shall determine the powers and functions of the CDC. Pursuant to Section 15 of RA 7227, the CDC shall have the specific powers of the Export Processing Zone Authority as provided for in Section 4 of Presidential Decree No. 66 (1972) as amended. Among those specific powers granted to CDC under Section 4 of Presidential Decree No. 66 are: (a) To operate, administer and manage the export processing zone established in the Port of Mariveles, Bataan, and such other export processing zones as may be established under this Decree; to construct, acquire, own, lease, operate and maintain infrastructure facilities, factory building, warehouses, dams, reservoir, water distribution, electric light and power system, telecommunications and transportation, or such other facilities and services necessary or useful in the conduct of commerce or in the attainment of the purposes and objectives of this Decree; xxxx

(g) To fix, assess and collect storage charges and fees, including rentals for the lease, use or occupancy of lands, buildings, structure, warehouses, facilities and other properties owned and administered by the Authority; and to fix and collect the fees and charges for the issuance of permits, licenses and the rendering of services not enumerated herein, the provisions of law to the contrary notwithstanding; (h) For the due and effective exercise of the powers conferred by law and to the extend (sic) [extent] requisite therefor, to exercise exclusive jurisdiction and sole police authority over all areas owned or administered by the Authority. For this purpose, the Authority shall have supervision and control over the bringing in or taking out of the Zone, including the movement therein, of all cargoes, wares, articles, machineries, equipment, supplies or merchandise of every type and description; x x x x (Emphasis supplied.) In relation to the regulatory purpose of the imposed fees, this Court in Progressive Development Corporation v. Quezon City,29 stated that "x x x the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well." In the case at bar, there can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare.30 In addition, fuel is a highly combustible product which, if left unchecked, poses a serious threat to life and property. Also, the reasonable relation between the royalty fees imposed on a "per liter" basis and the regulation sought to be attained is that the higher the volume of fuel entering CSEZ, the greater the extent and frequency of supervision and inspection required to ensure safety, security, and order within the Zone. Respondents submit that increased administrative costs were triggered by security risks that have recently emerged, such as terrorist strikes in airlines and military/government facilities. Explaining the regulatory feature of the charges imposed under the Policy Guidelines, then BCDA President Rufo Colayco in his letter dated March 3, 2004 addressed to petitioners Chief Corporate Counsel, stressed: The need for regulation is more evident in the light of the 9/11 tragedy considering that what is being moved from one location to another are highly combustible fuel products that could cause loss of lives and damage to properties, hence, a set of guidelines was promulgated on 28 June 2002. It must be emphasized also that greater security measure must be observed in the CSEZ because of the presence of the airport which is a vital public infrastructure.
1avv phi 1

We are therefore constrained to sustain the imposition of the royalty fees on deliveries of CPIs fuel products to Nanox Philippines.31 As to the issue of reasonableness of the amount of the fees, we hold that no evidence was adduced by the petitioner to show that the fees imposed are unreasonable. Administrative issuances have the force and effect of law.32 They benefit from the same presumption of validity and constitutionality enjoyed by statutes. These two precepts place a heavy burden upon any party assailing governmental regulations.33 Petitioners plain allegations are simply not enough to overcome the presumption of validity and reasonableness of the subject imposition.

WHEREFORE, the petition is DENIED for lack of merit and the Decision of the Court of Appeals dated November 30, 2005 in CA-G.R. SP No. 87117 is hereby AFFIRMED. With costs against the petitioner. SO ORDERED. MARTIN S. VILLARAMA, JR. Associate Justice WE CONCUR: CONCHITA CARPIO MORALES Associate Justice Chairperson DIOSDADO M. PERALTA* Associate Justice LUCAS P. BERSAMIN Associate Justice

MARIA LOURDES P. A. SERENO Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. CONCHITA CARPIO MORALES Associate Justice Chairperson, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
*

Designated additional member per Special Order No. 885 dated September 1, 2010.
1

Rollo, pp. 33-40. Penned by Associate Justice Aurora Santiago-Lagman, with Associate Justices Ruben T. Reyes (now a retired member of this Court) and Rebecca De Guia-Salvador, concurring.

CA rollo, pp. 35-37. Id. at 38-40. Id. at 41-50. Id. at 45-46. Id. at 51. Id. at 52. Id. at 53. Id. at 54. Id. at 55. Id. at 56-57. Id. at 61-62. Id. at 35-37. Id. at 38-40. Rollo, p. 40. Id. at 41. Id. at 154-167. Id. at 39. Id. at 41. Id. at 13-14. Id. at 220-229. Id. at 230-234. Id. at 255-256.

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

G.R. No. 159796, July 17, 2007, 527 SCRA 696, 715, citing Progressive Development Corporation v. Quezon City, G.R. No. 36081, April 24, 1989, 172 SCRA 629, 635.
25

Rollo, pp. 43-51.

26

Id. at 43. Id. at 139-140.

27

28

Authorizing the Establishment of the Clark Development Corporation as the Implementing Arm of the Bases Conversion and Development Authority for the Clark Special Economic Zone, and Directing All Heads of Departments, Bureaus, Offices, Agencies and Instrumentalities of Government to Support the Program.
29

Supra note 24, at 636.

30

Caltex Philippines, Inc. v. Commission on Audit, G.R. No. 92585, May 8, 1992, 208 SCRA 726, 756.
31

CA rollo, p. 61.

32

Mirasol v. Department of Public Works and Highways, G.R. No. 158793, June 8, 2006, 490 SCRA 318, 347, citing Eslao v. Commission on Audit, G.R. No. 108310, September 1, 1994, 236 SCRA 161, 175.
33

Id. at 347-348, citing JMM Promotion and Management, Inc. v. Court of Appeals, G.R. No. 120095, August 5, 1996, 260 SCRA 319.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 174697 July 8, 2010 CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATIONS, INC. (CREBA), Petitioner, vs. ENERGY REGULATORY COMMISSION (ERC) and MANILA ELECTRIC COMPANY (MERALCO), Respondents. DECISION BRION, J.: This is a Petition for Certiorari with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction1 to nullify Section 2.6 of the Distribution Services and Open Access Rules (DSOAR), promulgated by respondent Energy Regulatory Commission (ERC) on January 18, 2006. Petitioner Chamber of Real Estate and Builders Associations, Inc. asserts that Section 2.6 of the DSOAR, which obligates certain customers to advance the amount needed to cover the expenses of extending lines and installing additional facilities, is unconstitutional and contrary to Republic Act No. 9136, otherwise known as "The Electric Power Industry Reform Act of 2001 (EPIRA)." The Background Facts The petitioner is a non-stock, non-profit corporation, organized under the laws of the Republic of the Philippines, with principal office at 3/F CREBA Center, Don Alejandro Roces Avenue cor. South "A" Street, Quezon City. It has almost 4,500 members, comprising of developers, brokers, appraisers, contractors, manufacturers, suppliers, engineers, architects, and other persons or entities engaged in the housing and real estate business.2 The ERC is a quasi-judicial and quasi-legislative regulatory body created under Section 38 of the EPIRA, with office address at the Pacific Center Building, San Miguel Avenue, Ortigas Center, Pasig City. It is an administrative agency vested with broad regulatory and monitoring functions over the Philippine electric industry to ensure its successful restructuring and modernization, while, at the same time, promoting consumer interest.3 Respondent Manila Electric Company (MERALCO) is a corporation organized under the laws of the Republic of the Philippines, with principal office at Lopez Building, Ortigas Avenue, Pasig City. It is engaged primarily in the business of power production, transmission, and distribution. It is the largest distributor of electricity in the Philippines.4 Pursuant to its rule-making powers under the EPIRA, the ERC promulgated the Magna Carta for Residential Electricity Consumers (Magna Carta), which establishes residential consumers rights to have access to electricity and electric service, subject to the requirements set by local government units and distribution utilities (DUs).5 Article 14 of the Magna Carta pertains to the rights of consumers to avail of extension lines or additional facilities. It also distinguishes between consumers

located within 30 meters from existing lines and those who are located beyond 30 meters; the latter have the obligation to advance the costs of the requested lines and facilities, to wit: Article 14. Right to Extension of Lines and Facilities.A consumer located within thirty (30) meters from the distribution utilities existing secondary low voltage lines, has the right to an extension of lines or installation of additional facilities, other than a service drop, at the expense of the utility inasmuch as said assets will eventually form part of the rate base of the private distribution utilities, or will be sourced from the reinvestment funds of the electric cooperatives. However, if a prospective customer is beyond the said distance, or his demand load requires that the utility extend lines and facilities, the customer may initially fund the necessary expenditures. Article 14 of the Magna Carta continues with a provision on how the costs advanced by the residential end-user can be recovered: To recover his aforementioned expenditures, the customer may either demand the issuance of a notes payable from the distribution utility or refund at the rate of twenty-five (25) percent of the gross distribution revenue derived for the calendar year, or, if available, the purchase of preferred shares. Revenue derived from additional customers tapped directly to the poles and facilities so extended shall be considered in determining the revenues derived from the extension of facilities. The same article specifies that if a developer initially pays the cost of the extension lines but passes it to the registered customer, the customer would still be entitled to recover the cost in the manner provided under this article: When a developer initially paid the cost of the extension of lines to provide electric service to a specific property and incorporated these expenses in the cost thereof, and that property was purchased and transferred in the name of the registered customer, the latter shall be entitled to the refund of the cost of the extension of lines, and exercise the options for refund provided in this article. On January 18, 2006, the ERC modified this provision when it issued the DSOAR. Section 2.6.1 reiterates the old rule requiring consumers located beyond 30 meters from existing lines to advance the costs of the requested lines and facilities. Section 2.6.2 likewise provides that the costs advanced by consumers may be refunded at the rate of 25% of the annual gross distribution revenue derived from all customers connected to the line extension. However, Section 2.6.2 amends Article 14 of the Magna Carta by limiting the period for the refund to five years, whether or not the amount advanced by the consumer is fully paid. Section 2.6 of the DSOAR decrees that: 2.6. MODIFICATIONS AND NEW PHYSICAL CONNECTIONS: RESIDENTIAL 2.6.1 RIGHT TO EXTENSION OF LINES AND FACILITIES In accordance with the Magna Carta, a residential End-user located within thirty (30) meters from the distribution utilities existing secondary low voltage lines has the right to an extension of lines or installation of additional facilities, other than a service drop, at the expense of the utility. However, if a prospective customer is beyond the said distance, the customer shall advance the amounts necessary to cover the expenditures on the facilities beyond thirty (30) meters. 2.6.2 REFUNDTo recover the aforementioned advanced payment, the customer may either demand the issuance of a notes payable from the distribution utility or a refund at the rate of twenty-five (25) percent of the gross distribution revenue derived

from all customers connected to the line extension for the calendar year until such amounts are fully refunded or for five (5) years whichever period is shorter, or, if available, the purchase of preferred shares. Revenue derived from additional customers tapped directly to the poles and facilities so extended shall be considered in determining the revenues derived from the extension of facilities. Distribution Connection Assets paid for through advances from residential End-users shall be deemed plant in service in the accounts of the DU. Unpaid advances shall be a reduction to plant in service. If replacement becomes necessary at any time for any Distribution Connection Assets paid for by residential End-users, the DU shall be solely responsible for the cost of such replacement which shall become plant in service in the accounts of the DU, and shall not require another advanced payment from the connected residential End-users unless the replacement is due to Enduser fault. The petitioner alleged that the entities it represented applied for electrical power service, and MERALCO required them to sign pro forma contracts that (1) obligated them to advance the cost of the construction of new lines and other facilities and (2) allowed annual refunds at 25% of the gross distribution revenue derived from the customers electric service, until the amount advanced is fully paid, pursuant to Section 2.6 of the DSOAR.6 The petitioner seeks to nullify Section 2.6 of the DSOAR, on the following grounds: (1) it is unconstitutional since it is oppressive and it violates the due process and equal protection clauses; (2) it contravenes the provisions of the EPIRA; and (3) it violates the principle of unjust enrichment.7 Petitioner claims that Section 2.6 of the DSOAR is unconstitutional as it is oppressive to the affected end-users who must advance the amount for the installation of additional facilities. Burdening residential end-users with the installation costs of additional facilities defeats the objective of the law the electrification of residential areas and contradicts the provisions of the legislative franchise, requiring DUs to be financially capable of providing the distribution service. Moreover, the questioned provision violates the equal protection clause since the difference in treatment between end-users residing within 30 meters of the existing lines and those beyond 30 meters does not rest on substantial distinctions.8 In addition, the petitioner alleges that the assailed provision contravenes Sections 2, 23, 41 and 43 of the EPIRA9 which are geared towards ensuring the affordability of electric power and the protection of consumers.10 Lastly, requiring consumers to provide the huge capital for the installation of the facilities, which will be owned by distribution utilities such as MERALCO, results in unjust enrichment.11 The Respondents Case a. The ERC Position Contradicting the petitioners arguments, the ERC avers that it issued Section 2.6 of the DSOAR as an exercise of police power directed at promoting the general welfare. The rule seeks to address the inequitable situation where the cost of an extension facility benefiting one or a few consumers is equally shared by them.12 The ERC likewise asserts that the equal protection clause is observed since the distinction between end-users residing within 30 meters of the existing lines and those beyond 30 meters is based on real and substantial differences, namely: (1) proximity of end-user service drop to the main distribution lines; (2) manner of checking status service; (3) system loss risk; (4) cost in installing the

facilities; and (5) additional risk posed by the possibility of the customer defaulting in his electric service with the DU.13 The ERC also maintains that Section 2 of the DSOAR is consistent with Sections 2, 23, 41 and 43 of the EPIRA. By not subjecting most consumers to the payment of installation costs benefitting customers located beyond a reasonably-set boundary, the provision in question gives effect to the EPIRA policy to ensure that the prices of electricity remain affordable, transparent, and reasonable to the majority. The policy of accelerating the total electrification of the country is also served when the residents of far-flung areas are given the option to apply for extension lines. This option is subject only to the condition that the cost of the extension of existing lines is advanced by the enduser, who will eventually be reimbursed; without such condition, businesses will be reluctant to provide service connection in remote areas.14 Additionally, the ERC points out that the DSOAR provisions do not result in unjust enrichment since the DUs do not stand to be materially benefited by the customers advances. The DUs have the obligation to reimburse the customers the advances within five years, and whatever advances are unpaid during the five-year period are recorded as reductions in "plant in service."15 Finally, it argues that petitioner lacks the standing to file the present suit since the petitioner is not an end-user who will sustain a direct injury as a result of the issuance and implementation of the DSOAR. The ERC likewise maintains the petition for certiorari must fail since petitioner fails to impute grave abuse of discretion to the ERC.16 b. The MERALCO Position MERALCO reiterates the defenses raised by the ERC. It also contends that the present petition does not involve the ERCs judicial and quasi-judicial functions so that a petition for certiorari is an improper remedy. MERALCO likewise argues that the petition for certiorari, assuming it to be a correct remedy, should be dismissed since the petitioner failed to observe the doctrine of hierarchy of courts by filing an original petition with this Court. On the merits, MERALCO points out that even if Section 2.6 of the DSOAR is struck down, the provision in the Magna Carta, on the same point, would nevertheless require end-users located beyond 30 meters from existing lines to advance the cost. The petitioners members are not also end-users, but subdivision developers, brokers, and various entities who are not affected by the questioned provision; if a developer would apply for electric service, the terms and conditions of the service will not be governed by Section 2.6 of the DSOAR.17 MERALCO also elaborates on why the provision does not result in unjust enrichment and justifies the distinction between end-users within the 30-meter limit and those located outside of this limit. The DSOAR provides that the unpaid amounts that the end-users advanced for the electrical facilities are not included in "plant in service." The total "plant in service" is the basis in fixing the rates collected by the DU from all its customers. By having the end-users, located 30 meters away from existing lines, advance the amount, this amount is no longer included in the rates passed on to regular consumers. The DSOAR further limits the subsidies by regular consumers, by limiting the amount to be recovered to 25% and to five years. Thus, if the costs of the lines are too great and the revenues are too small, it is the end-user who would bear the cost and not the regular customers.18 The Issues The petitioner summarizes the issues as follows:

Procedural Issues: A. Whether petitioner can challenge the constitutionality of a quasi-legislative act (i.e., the Rules) in a petition for certiorari under Rule 65 of the Rules of Court. B. Whether the Honorable Supreme [Court] has original jurisdiction over this case. C. Whether petitioner has legal standing to sue. D. Whether petitioner is authorized to file this suit. Substantive issues: A. Whether Section 2.6 of the Rules violates the due process and equal protection clause of the Constitution. B. Whether Section 2.6 of the Rules violates R.A. No. 9136. C. Whether Section 2.6 of the Rules violates the rule against unjust enrichment. D. Whether Section 2.6 of the Rules is a valid exercise of police power.19 The Courts Ruling We resolve to dismiss the petition for its serious procedural and technical defects. a. The Petitioner Has No Legal Standing We do not see the petitioner as an entity with the required standing to assail the validity of Section 2.6 of the DSOAR. Legal standing or locus standi refers to a partys personal and substantial interest in a case, arising from the direct injury it has sustained or will sustain as a result of the challenged governmental action. Legal standing calls for more than just a generalized grievance. The term "interest" means a material interest, an interest in issue affected by the governmental action, as distinguished from mere interest in the question involved, or a mere incidental interest. Unless a persons constitutional rights are adversely affected by a statute or governmental action, he has no legal standing to challenge the statute or governmental action.20 The petitioner expressly enumerates its members to be the following: developers, brokers, appraisers, contractors, manufacturers, suppliers, engineers, architects, and other persons or entities engaged in the housing and real estate business.21 It does not question the challenged DSOAR provision as a residential end-user and it cannot because the challenged provision only refers to the rights and obligations of DUs and residential end-users; neither the petitioner nor its members are residential end-users. In fact, the DSOAR has separate provisions for the extension of lines or installation of additional facilities for non-residential end-users, under its Section 2.7 entitled "Modifications and New Connections: Non-Residential." Thus, neither the petitioner nor its members can claim any injury, as residential end-users, arising from the challenged Section 2.6 of the DSOAR, nor cite any benefit accruing to them as residential end-users that would result from the invalidation of the assailed provision.

The petitioner meets the objection to its capacity to bring suit through the claim that subdivision developers are directly affected by the assailed provision because MERALCO has asked them to advance the cost of installing additional lines and facilities, in accordance with Section 2.6 of the DSOAR.22 This claim is specious. Section 1, Rule I of the Revised Rules and Regulations Implementing the Subdivision and Condominium Buyers Protective Decree (PD 957) and Other Related Laws provides the minimum design standards for subdivisions. These minimum standards include an electrical power supply, described under subsection C(7) thus: 7. Electrical Power Supply System Mandatory individual household connection to primary and/or alternate sources of power. xxxx Provision of street lighting per pole is mandatory at 50-meter distance and every other pole if distance is less than 50 meters. Thus, subdivision developers are obligated under these rules to include in their design an electrical power supply system that would link individual households within their subdivision to primary and/or alternate sources of power. This requirement is intended to protect the rights of prospective subdivision homeowners,23 and exists regardless of the validity of Section 2.6 of the DSOAR. In other words, the invalidation of Section 2.6 of the DSOAR would not permit subdivision developers to renege from their duty to ensure power supply and to pass the costs of installing a proper electrical power supply system to MERALCO. In this light, it is immaterial that MERALCO did require certain developers to sign the Agreement for Extension of Lines And/Or Additional Facilities24 as this was required under the provisions of the Magna Carta, not under the assailed DSOAR provision that, in the first place, does not govern the relationship of subdivision developers (who are not residential end-users) and MERALCO. a. 1. No Transcendental Issue Involved The petitioner cites instances when the Court, in the exercise of its discretion, waived the procedural rule on standing in cases that raised issues of transcendental importance. We do not, however, view the present case as one involving a matter of transcendental importance so that a waiver of the locus standi rule should be recognized. The Court, through Associate Justice Florentino P. Feliciano (now retired), provided the following instructive guides as determinants in determining whether a matter is of transcendental importance: (1) the character of the funds or other assets involved in the case; (2) the presence of a clear case of disregard of a constitutional or statutory prohibition by the public respondent agency or instrumentality of the government; and (3) the lack of any other party with a more direct and specific interest in the questions being raised.25 In this case, the three determinants are glaringly absent. Public funds are not involved. The allegations of constitutional and statutory violations of the public respondent agency are unsubstantiated by facts and are mere challenges on the wisdom of the rules, a matter that will be further discussed in this Decision. In addition, parties with a more direct and specific interest in the questions being raised the residential end-users undoubtedly exist and are not included as

parties to the petition. As the Court did in Anak Mindanao Party-List Group v. Executive Secretary,26 we cannot waive the rule on standing where the three determinants were not established. b. Rule 65 is both a Wrong and Misapplied Remedy The petitioners choice of remedy a petition for certiorari under Rule 65 of the Rules of Court is an incorrect remedy. Rule 65, Section 1 of the Rules of Court mandates that the remedy of certiorari is directed against a tribunal, board, or officer exercising judicial or quasi-judicial functions: Section 1. Petition for certiorari.When any tribunal, board or officer exercising judicial or quasijudicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and justice may require. Judicial functions are exercised by a body or officer clothed with authority to determine what the law is and what the legal rights of the parties are with respect to the matter in controversy.27 Quasijudicial function is a term that applies to the action or discretion of public administrative officers or bodies given the authority to investigate facts or ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for their official action using discretion of a judicial nature.28 Thus, in Philnabank Employees Association v. Estanislao, we did not grant a petition for certiorari against the Department Secretary who did not act in any judicial or quasi-judicial capacity but merely promulgated the questioned implementing rules under the mandate of Republic Act No. 6971, the applicable law in this cited case.29 Contrary to Section 2, Rule III of the Rules of Court, the petitioner and its members are not even parties who are aggrieved by the assailed DSOAR provision, as already discussed above. Even if they had been properly aggrieved parties, the petition must still be dismissed for violation of yet another basic principle applicable to Rule 65. This rule requires, for a petition for certiorari to be an appropriate remedy, that there be no appeal or plain, speedy, and adequate remedy in the ordinary course of law.30 Since the petitioner assails the validity of a rule or statute and seeks our declaration that the rule is unconstitutional, a petition for declaratory relief under Section 1, Rule 63 of the Rules of Court31 provides a remedy more appropriate than certiorari.
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Furthermore, the Court of Appeals and the Supreme Court have original concurrent jurisdiction over petitions for certiorari; the rule on hierarchy of courts determines the venue of recourses to these courts. In original petitions for certiorari, the Supreme Court will not directly entertain this special civil action as in the present case unless the redress desired cannot be obtained elsewhere based on exceptional and compelling circumstances justifying immediate resort to this Court.32 In the present case, the petitioner alleges that the constitutionality and legality of the assailed provision are of "immense importance to the public"33 and are a "recipe for financial ruin of the affected parties."34 Moreover, it maintains that its petition raises transcendental and weighty issues that would merit the Honorable Courts exercise of original jurisdiction.35 To support its position, it cites the cases of the Senate of the Philippines v. Ermita36 and Ople v. Torres.37

Senate of the Philippines v. Ermita38 was a case for certiorari and prohibition, while our Decision in Ople v. Torres39 did not clearly state whether the case was filed as a petition for certiorari. But granting that both cases were filed as petitions for certiorari, they prompted the Court to suspend its rules of procedure as they involved clear violations of the Constitution which urgently needed to be addressed. Moreover, they were unquestionably filed by the proper parties. The petitioners in the Ermita case included the Philippine Senate, which assailed Executive Order No. 464 for infringing on their prerogatives as legislators, to conduct inquiries in aid of legislation.40 We had to immediately resolve this case since the implementation of the challenged order had already resulted in the absence of officials invited to Senate hearings. In the Ople case, Senator Blas F. Ople sought to invalidate Administrative Order No. 308, which "establishes a system of identification that is all-encompassing in its scope, [and that] affects the life and liberty of every Filipino citizen and foreign resident."41 The petition was based on two important constitutional grounds: (1) usurpation of the power of Congress to legislate and (2) impermissible intrusion into the citizenrys protected zone of privacy. In the present case, the petitioner cannot come before this Court using an incorrect remedy and claim that it was oppressed, or that its rights to due process and equal protection have been violated by an administrative issuance that does not even affect its rights and obligations. The writ of certiorari is an extraordinary remedy that the Court issues only under closely defined grounds and procedures that litigants and their lawyers must scrupulously observe. They cannot seek refuge under the umbrella of this remedy on the basis of an undemonstrated claim that they raise issues of transcendental importance, while at the same time flouting the basic ground rules for the remedys grant.42 These conclusions render any further discussion of the improperly raised substantive issues unnecessary. WHEREFORE, premises considered, we hereby DISMISS the petition for its serious procedural and technical defects. Costs against the petitioner. SO ORDERED. ARTURO D. BRION Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice (on leave) CONCHITA CARPIO MORALES* Associate Justice (on leave) ANTONIO EDUARDO B. NACHURA* Associate Justice

ANTONIO T. CARPIO Associate Justice (on official travel) PRESBITERO J. VELASCO, JR.** Associate Justice

(on official travel) TERESITA J. LEONARDO-DE CASTRO** Associate Justice (on official travel) LUCAS P. BERSAMIN** Associate Justice ROBERTO A. ABAD Associate Justice JOSE PORTUGAL PEREZ Associate Justice

(on official travel) DIOSDADO M. PERALTA** Associate Justice MARIANO C. DEL CASTILLO Associate Justice MARTIN S. VILLARAMA, JR. Associate Justice JOSE CATRAL MENDOZA Associate Justice

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court. RENATO C. CORONA Chief Justice

Footnotes
*

On leave. On official travel abroad. Rollo, pp. 3-22. Id. at 4. Id. at 153. Id. at 5.

**

Under Section 4(q) of the EPIRA, a distribution utility refers to any electric cooperative, private corporation, government-owned utility, or existing local government unit which has an exclusive franchise to operate a distribution system in accordance with this Act.
6

Rollo, pp. 7-9. Id. at 7.

Id. at 11-15. Section 2. Declaration of Policy. - It is hereby declared the policy of the State: xxxx b) To ensure the quality, reliability, security and affordability of the supply of electric power; c) To ensure transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability to achieve greater operational and economic efficiency and enhance the competitiveness of Philippine products in the global market; xxxx f) To protect the public interest as it is affected by the rates and services of electric utilities and other providers of electric power[.] Section 23. Functions of Distribution Utilities. - A distribution utility shall have the obligation to provide distribution services and connections to its system for any end-user within its franchise area consistent with the distribution code. Any entity engaged therein shall provide open and non-discriminatory access to its distribution system to all users. xxxx Section 41. x x x The ERC shall handle consumer complaints and ensure the adequate promotion of consumer interests. xxxx Section 43. Functions of the ERC. The ERC shall promote competition, encourage market development, ensure customer choice and penalize abuse of market power in the restructured electricity industry.

10

Rollo, pp. 15-17. Id. at 17-19. Id. at 288-289. Id. at 294. Id. at 297. Id. at 298-300. Id. at 300-304.

11

12

13

14

15

16

17

Id. at 315, 318. Id. at 323-324. Id. at 236.

18

19

20

Abaya v. Ebdane, G.R. No. 167919, February 14, 2007, 515 SCRA 720, 756-757; Olama v. Philippine National Bank, G.R. No. 169213, June 22, 2006, 492 SCRA 343, 353; and Jumamil v. Caf, G.R. No. 144570, September 21, 2005, 470 SCRA 475, 487.
21

Rollo, p. 4. Id. at 249. The "WHEREAS" clauses of Presidential Decree No. 957 state that: WHEREAS, it is the policy of the State to afford its inhabitants the requirements of decent human settlement and to provide them with ample opportunities for improving their quality of life; WHEREAS, numerous reports reveal that many real estate subdivision owners, developers, operators, and/or sellers have reneged on their representations and obligations to provide and maintain properly subdivision roads drainage, sewerage, water systems, lighting systems, and other similar basic requirements, thus endangering the health and safety of home and lot buyers[.]

22

23

24

Rollo, pp. 208-222; Annexes "A" to "E" of the Reply to Respondents Comments.

25

Senate of the Philippines v. Ermita, G.R. No. 169777, April 20, 2006, 488 SCRA 1, 39-40; and Francisco v. Nagmamalasakit na mga Manggagawang Pilipino, Inc., G.R. No. 160261, November 10, 2003, 415 SCRA 44, 139, citing Kilosbayan v. Guingona, G.R. No. 113375, May 5, 1994, 232 SCRA 110, 155-157.
26

G.R. No. 166052, August 29, 2007, 531 SCRA 583, 592.

27

Angara v. Fedman Development Corporation, G.R. No. 156822, October 18, 2004, 440 SCRA 467, 477; and Toyota Motors Philippines Corporation Workers Association v. Court of Appeals, 458 Phil. 661, 681 (2003).
28

Metropolitan Bank and Trust Company, Inc. v. National Wages and Productivity Commission, G.R. No. 144322, February 6, 2007, 514 SCRA 346, 357; and Villarosa v. Commission on Elections, 377 Phil. 497, 506 (1999).
29

G.R. No. 104209, November 16, 1993, 227 SCRA 804, 810-811.

30

Esguera v. Gonzales-Asdala, G.R. No. 168906, December 4, 2008, 573 SCRA 50, 64-65; Franco-Cruz v. Court of Appeals, G.R. No. 172238, September 17, 2008, 565 SCRA 531, 538; and Mallari v. Banco Filipino Savings and Mortgage Bank, G.R. No. 157660, August 29, 2008, 563 SCRA 664, 668.

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.
31 32

Audi AG v. Mejia, G.R. No. 167533, July 27, 2007, 528 SCRA 378, 384-385; De los Reyes v. People, G.R. No. 138297, January 27, 2006, 480 SCRA 294, 297; and Santos v. Cruz, G.R. Nos. 170096 and 170097, March 3, 2006, 484 SCRA 66, 75.
33

Rollo, p. 238. Id. at 239. Ibid. G.R. No. 169777, April 20, 2006, 488 SCRA 1. 354 Phil. 948 (1998). Supra note 36. Supra note 37.

34

35

36

37

38

39

40

Supra note 36. The challenged order, Executive Order No. 464, required all heads of departments of the Executive Branch of the government to secure the consent of the President prior to appearing before either House of Congress. In its petition, the Senate considered this as a flagrant violation of their prerogatives under Article VI, Section 21 of the Constitution, among other provisions.
41

Supra note 37, at 966.

42

Athena Computers, Inc. v. Reyes, G.R. No. 156905, September 5, 2007, 532 SCRA 343, 348.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 183409 June 18, 2010 CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC. (CREBA), petitioner, vs. THE SECRETARY OF AGRARIAN REFORM, Respondent. DECISION PEREZ, J.: This case is a Petition for Certiorari and Prohibition (with application for temporary restraining order and/or writ of preliminary injunction) under Rule 65 of the 1997 Revised Rules of Civil Procedure, filed by herein petitioner Chamber of Real Estate and Builders Associations, Inc. (CREBA) seeking to nullify and prohibit the enforcement of Department of Agrarian Reform (DAR) Administrative Order (AO) No. 01-02, as amended by DAR AO No. 05-07,1 and DAR Memorandum No. 88,2 for having been issued by the Secretary of Agrarian Reform with grave abuse of discretion amounting to lack or excess of jurisdiction as some provisions of the aforesaid administrative issuances are illegal and unconstitutional. Petitioner CREBA, a private non-stock, non-profit corporation duly organized and existing under the laws of the Republic of the Philippines, is the umbrella organization of some 3,500 private corporations, partnerships, single proprietorships and individuals directly or indirectly involved in land and housing development, building and infrastructure construction, materials production and supply, and services in the various related fields of engineering, architecture, community planning and development financing. The Secretary of Agrarian Reform is named respondent as he is the duly appointive head of the DAR whose administrative issuances are the subject of this petition. The Antecedent Facts The Secretary of Agrarian Reform issued, on 29 October 1997, DAR AO No. 07-97,3 entitled "Omnibus Rules and Procedures Governing Conversion of Agricultural Lands to Non-Agricultural Uses," which consolidated all existing implementing guidelines related to land use conversion. The aforesaid rules embraced all private agricultural lands regardless of tenurial arrangement and commodity produced, and all untitled agricultural lands and agricultural lands reclassified by Local Government Units (LGUs) into non-agricultural uses after 15 June 1988. Subsequently, on 30 March 1999, the Secretary of Agrarian Reform issued DAR AO No. 01-99,4 entitled "Revised Rules and Regulations on the Conversion of Agricultural Lands to Non-agricultural Uses," amending and updating the previous rules on land use conversion. Its coverage includes the following agricultural lands, to wit: (1) those to be converted to residential, commercial, industrial, institutional and other non-agricultural purposes; (2) those to be devoted to another type of agricultural activity such as livestock, poultry, and fishpond the effect of which is to exempt the land from the Comprehensive Agrarian Reform Program (CARP) coverage; (3) those to be converted to non-agricultural use other than that previously authorized; and (4) those reclassified to residential, commercial, industrial, or other non-agricultural uses on or after the effectivity of

Republic Act No. 66575 on 15 June 1988 pursuant to Section 206 of Republic Act No. 71607 and other pertinent laws and regulations, and are to be converted to such uses. On 28 February 2002, the Secretary of Agrarian Reform issued another Administrative Order, i.e., DAR AO No. 01-02, entitled "2002 Comprehensive Rules on Land Use Conversion," which further amended DAR AO No. 07-97 and DAR AO No. 01-99, and repealed all issuances inconsistent therewith. The aforesaid DAR AO No. 01-02 covers all applications for conversion from agricultural to non-agricultural uses or to another agricultural use. Thereafter, on 2 August 2007, the Secretary of Agrarian Reform amended certain provisions8 of DAR AO No. 01-02 by formulating DAR AO No. 05-07, particularly addressing land conversion in time of exigencies and calamities. To address the unabated conversion of prime agricultural lands for real estate development, the Secretary of Agrarian Reform further issued Memorandum No. 88 on 15 April 2008, which temporarily suspended the processing and approval of all land use conversion applications. By reason thereof, petitioner claims that there is an actual slow down of housing projects, which, in turn, aggravated the housing shortage, unemployment and illegal squatting problems to the substantial prejudice not only of the petitioner and its members but more so of the whole nation. Hence, this petition. The Issues In its Memorandum, petitioner posits the following issues: I. WHETHER THE DAR SECRETARY HAS JURISDICTION OVER LANDS THAT HAVE BEEN RECLASSIFIED AS RESIDENTIAL, COMMERCIAL, INDUSTRIAL, OR FOR OTHER NONAGRICULTURAL USES. II. WHETHER THE DAR SECRETARY ACTED IN EXCESS OF HIS JURISDICTION AND GRAVELY ABUSED HIS DISCRETION BY ISSUING AND ENFORCING [DAR AO NO. 01-02, AS AMENDED] WHICH SEEK TO REGULATE RECLASSIFIED LANDS. III. WHETHER [DAR AO NO. 01-02, AS AMENDED] VIOLATE[S] THE LOCAL AUTONOMY OF LOCAL GOVERNMENT UNITS. IV. WHETHER [DAR AO NO. 01-02, AS AMENDED] VIOLATE[S] THE DUE PROCESS AND EQUAL PROTECTION CLAUSE[S] OF THE CONSTITUTION. V.

WHETHER MEMORANDUM NO. 88 IS A VALID EXERCISE OF POLICE POWER.9 The subject of the submission that the DAR Secretary gravely abused his discretion is AO No. 0102, as amended, which states: Section 3. Applicability of Rules. These guidelines shall apply to all applications for conversion, from agricultural to non-agricultural uses or to another agricultural use, such as: xxxx 3.4 Conversion of agricultural lands or areas that have been reclassified by the LGU or by way of a Presidential Proclamation, to residential, commercial, industrial, or other non-agricultural uses on or after the effectivity of RA 6657 on 15 June 1988, x x x. [Emphasis supplied]. Petitioner holds that under Republic Act No. 6657 and Republic Act No. 8435,10 the term agricultural lands refers to "lands devoted to or suitable for the cultivation of the soil, planting of crops, growing of fruit trees, raising of livestock, poultry or fish, including the harvesting of such farm products, and other farm activities and practices performed by a farmer in conjunction with such farming operations done by a person whether natural or juridical, and not classified by the law as mineral, forest, residential, commercial or industrial land." When the Secretary of Agrarian Reform, however, issued DAR AO No. 01-02, as amended, he included in the definition of agricultural lands "lands not reclassified as residential, commercial, industrial or other non-agricultural uses before 15 June 1988." In effect, lands reclassified from agricultural to residential, commercial, industrial, or other non-agricultural uses after 15 June 1988 are considered to be agricultural lands for purposes of conversion, redistribution, or otherwise. In so doing, petitioner avows that the Secretary of Agrarian Reform acted without jurisdiction as he has no authority to expand or enlarge the legal signification of the term agricultural lands through DAR AO No. 01-02. Being a mere administrative issuance, it must conform to the statute it seeks to implement, i.e., Republic Act No. 6657, or to the Constitution, otherwise, its validity or constitutionality may be questioned. In the same breath, petitioner contends that DAR AO No. 01-02, as amended, was made in violation of Section 6511 of Republic Act No. 6657 because it covers all applications for conversion from agricultural to non-agricultural uses or to other agricultural uses, such as the conversion of agricultural lands or areas that have been reclassified by the LGUs or by way of Presidential Proclamations, to residential, commercial, industrial or other non-agricultural uses on or after 15 June 1988. According to petitioner, there is nothing in Section 65 of Republic Act No. 6657 or in any other provision of law that confers to the DAR the jurisdiction or authority to require that nonawarded lands or reclassified lands be submitted to its conversion authority. Thus, in issuing and enforcing DAR AO No. 01-02, as amended, the Secretary of Agrarian Reform acted with grave abuse of discretion amounting to lack or excess of jurisdiction. Petitioner further asseverates that Section 2.19,12 Article I of DAR AO No. 01-02, as amended, making reclassification of agricultural lands subject to the requirements and procedure for land use conversion, violates Section 20 of Republic Act No. 7160, because it was not provided therein that reclassification by LGUs shall be subject to conversion procedures or requirements, or that the DARs approval or clearance must be secured to effect reclassification. The said Section 2.19 of DAR AO No. 01-02, as amended, also contravenes the constitutional mandate on local autonomy under Section 25,13 Article II and Section 2,14 Article X of the 1987 Philippine Constitution. Petitioner similarly avers that the promulgation and enforcement of DAR AO No. 01-02, as amended, constitute deprivation of liberty and property without due process of law. There is deprivation of liberty and property without due process of law because under DAR AO No. 01-02, as amended,

lands that are not within DARs jurisdiction are unjustly, arbitrarily and oppressively prohibited or restricted from legitimate use on pain of administrative and criminal penalties. More so, there is discrimination and violation of the equal protection clause of the Constitution because the aforesaid administrative order is patently biased in favor of the peasantry at the expense of all other sectors of society. As its final argument, petitioner avows that DAR Memorandum No. 88 is not a valid exercise of police power for it is the prerogative of the legislature and that it is unconstitutional because it suspended the land use conversion without any basis. The Courts Ruling This petition must be dismissed. Primarily, although this Court, the Court of Appeals and the Regional Trial Courts have concurrent jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence does not give the petitioner unrestricted freedom of choice of court forum.15 In Heirs of Bertuldo Hinog v. Melicor,16 citing People v. Cuaresma,17 this Court made the following pronouncements: This Court's original jurisdiction to issue writs of certiorari is not exclusive. It is shared by this Court with Regional Trial Courts and with the Court of Appeals. This concurrence of jurisdiction is not, however, to be taken as according to parties seeking any of the writs an absolute, unrestrained freedom of choice of the court to which application therefor will be directed. There is after all a hierarchy of courts. That hierarchy is determinative of the venue of appeals, and also serves as a general determinant of the appropriate forum for petitions for the extraordinary writs. A becoming regard for that judicial hierarchy most certainly indicates that petitions for the issuance of extraordinary writs against first level ("inferior") courts should be filed with the Regional Trial Court, and those against the latter, with the Court of Appeals. A direct invocation of the Supreme Courts original jurisdiction to issue these writs should be allowed only when there are special and important reasons therefor, clearly and specifically set out in the petition. This is [an] established policy. It is a policy necessary to prevent inordinate demands upon the Courts time and attention which are better devoted to those matters within its exclusive jurisdiction, and to prevent further over-crowding of the Courts docket.18 (Emphasis supplied.) The rationale for this rule is two-fold: (a) it would be an imposition upon the precious time of this Court; and (b) it would cause an inevitable and resultant delay, intended or otherwise, in the adjudication of cases, which in some instances had to be remanded or referred to the lower court as the proper forum under the rules of procedure, or as better equipped to resolve the issues because this Court is not a trier of facts.19 This Court thus reaffirms the judicial policy that it will not entertain direct resort to it unless the redress desired cannot be obtained in the appropriate courts, and exceptional and compelling circumstances, such as cases of national interest and of serious implications, justify the availment of the extraordinary remedy of writ of certiorari, calling for the exercise of its primary jurisdiction.20 Exceptional and compelling circumstances were held present in the following cases: (a) Chavez v. Romulo,21 on citizens right to bear arms; (b) Government of [the] United States of America v. Hon. Purganan,22 on bail in extradition proceedings; (c) Commission on Elections v. Judge QuijanoPadilla,23 on government contract involving modernization and computerization of voters registration list; (d) Buklod ng Kawaning EIIB v. Hon. Sec. Zamora,24 on status and existence of a public office;

and (e) Hon. Fortich v. Hon. Corona,25 on the so-called "Win-Win Resolution" of the Office of the President which modified the approval of the conversion to agro-industrial area.26 In the case at bench, petitioner failed to specifically and sufficiently set forth special and important reasons to justify direct recourse to this Court and why this Court should give due course to this petition in the first instance, hereby failing to fulfill the conditions set forth in Heirs of Bertuldo Hinog v. Melicor.27 The present petition should have been initially filed in the Court of Appeals in strict observance of the doctrine on the hierarchy of courts. Failure to do so is sufficient cause for the dismissal of this petition. Moreover, although the instant petition is styled as a Petition for Certiorari, in essence, it seeks the declaration by this Court of the unconstitutionality or illegality of the questioned DAR AO No. 01-02, as amended, and Memorandum No. 88. It, thus, partakes of the nature of a Petition for Declaratory Relief over which this Court has only appellate, not original, jurisdiction.28 Section 5, Article VIII of the 1987 Philippine Constitution provides: Sec. 5. The Supreme Court shall have the following powers: (1) Exercise original jurisdiction over cases affecting ambassadors, other public ministers and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus. (2) Review, revise, reverse, modify, or affirm on appeal or certiorari as the law or the Rules of Court may provide, final judgments and orders of lower courts in: (a) All cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. (Emphasis supplied.) With that, this Petition must necessarily fail because this Court does not have original jurisdiction over a Petition for Declaratory Relief even if only questions of law are involved. Even if the petitioner has properly observed the doctrine of judicial hierarchy, this Petition is still dismissible. The special civil action for certiorari is intended for the correction of errors of jurisdiction only or grave abuse of discretion amounting to lack or excess of jurisdiction. Its principal office is only to keep the inferior court within the parameters of its jurisdiction or to prevent it from committing such a grave abuse of discretion amounting to lack or excess of jurisdiction.29 The essential requisites for a Petition for Certiorari under Rule 65 are: (1) the writ is directed against a tribunal, a board, or an officer exercising judicial or quasi-judicial functions; (2) such tribunal, board, or officer has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law.30 Excess of jurisdiction as distinguished from absence of jurisdiction means that an act, though within the general power of a tribunal, board or officer, is not authorized and invalid with respect to the particular proceeding, because the conditions which alone authorize the exercise of the general power in respect of it are wanting.31 Without jurisdiction means lack or want of legal power, right or

authority to hear and determine a cause or causes, considered either in general or with reference to a particular matter. It means lack of power to exercise authority.32 Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction or, in other words, where the power is exercised in an arbitrary manner by reason of passion, prejudice, or personal hostility, and it must be so patent or gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.33 In the case before this Court, the petitioner fails to meet the above-mentioned requisites for the proper invocation of a Petition for Certiorari under Rule 65. The Secretary of Agrarian Reform in issuing the assailed DAR AO No. 01-02, as amended, as well as Memorandum No. 88 did so in accordance with his mandate to implement the land use conversion provisions of Republic Act No. 6657. In the process, he neither acted in any judicial or quasi-judicial capacity nor assumed unto himself any performance of judicial or quasi-judicial prerogative. A Petition for Certiorari is a special civil action that may be invoked only against a tribunal, board, or officer exercising judicial functions. Section 1, Rule 65 of the 1997 Revised Rules of Civil Procedure is explicit on this matter, viz.: SECTION 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasijudicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment must be rendered annulling or modifying the proceedings of such tribunal, board or officer.
1avvphi1

A tribunal, board, or officer is said to be exercising judicial function where it has the power to determine what the law is and what the legal rights of the parties are, and then undertakes to determine these questions and adjudicate upon the rights of the parties. Quasi-judicial function, on the other hand, 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."34 Before a tribunal, board, or officer may exercise judicial or quasi-judicial acts, it is necessary that there be a law that gives rise to some specific rights of persons or property under which adverse claims to such rights are made, and the controversy ensuing therefrom is brought before a tribunal, board, or officer clothed with power and authority to determine the law and adjudicate the respective rights of the contending parties.35 The Secretary of Agrarian Reform does not fall within the ambit of a tribunal, board, or officer exercising judicial or quasi-judicial functions. The issuance and enforcement by the Secretary of Agrarian Reform of the questioned DAR AO No. 01-02, as amended, and Memorandum No. 88 were done in the exercise of his quasi-legislative and administrative functions and not of judicial or quasijudicial functions. In issuing the aforesaid administrative issuances, the Secretary of Agrarian Reform never made any adjudication of rights of the parties. As such, it can never be said that the Secretary of Agrarian Reform had acted with grave abuse of discretion amounting to lack or excess of jurisdiction in issuing and enforcing DAR AO No. 01-02, as amended, and Memorandum No. 88 for he never exercised any judicial or quasi-judicial functions but merely his quasi-legislative and administrative functions. Furthermore, as this Court has previously discussed, the instant petition in essence seeks the declaration by this Court of the unconstitutionality or illegality of the questioned DAR AO No. 01-02, as amended, and Memorandum No. 88. Thus, the adequate and proper remedy for the petitioner therefor is to file a Petition for Declaratory Relief, which this Court has only appellate and not original

jurisdiction. It is beyond the province of certiorari to declare the aforesaid administrative issuances unconstitutional and illegal because certiorari is confined only to the determination of the existence of grave abuse of discretion amounting to lack or excess of jurisdiction. Petitioner cannot simply allege grave abuse of discretion amounting to lack or excess of jurisdiction and then invoke certiorari to declare the aforesaid administrative issuances unconstitutional and illegal. Emphasis must be given to the fact that the writ of certiorari dealt with in Rule 65 of the 1997 Revised Rules of Civil Procedure is a prerogative writ, never demandable as a matter of right, "never issued except in the exercise of judicial discretion."36 At any rate, even if the Court will set aside procedural infirmities, the instant petition should still be dismissed. Executive Order No. 129-A37 vested upon the DAR the responsibility of implementing the CARP. Pursuant to the said mandate and to ensure the successful implementation of the CARP, Section 5(c) of the said executive order authorized the DAR to establish and promulgate operational policies, rules and regulations and priorities for agrarian reform implementation. Section 4(k) thereof authorized the DAR to approve or disapprove the conversion, restructuring or readjustment of agricultural lands into non-agricultural uses. Similarly, Section 5(l) of the same executive order has given the DAR the exclusive authority to approve or disapprove conversion of agricultural lands for residential, commercial, industrial, and other land uses as may be provided for by law. Section 7 of the aforesaid executive order clearly provides that "the authority and responsibility for the exercise of the mandate of the [DAR] and the discharge of its powers and functions shall be vested in the Secretary of Agrarian Reform x x x." Under DAR AO No. 01-02, as amended, "lands not reclassified as residential, commercial, industrial or other non-agricultural uses before 15 June 1988" have been included in the definition of agricultural lands. In so doing, the Secretary of Agrarian Reform merely acted within the scope of his authority stated in the aforesaid sections of Executive Order No. 129-A, which is to promulgate rules and regulations for agrarian reform implementation and that includes the authority to define agricultural lands for purposes of land use conversion. Further, the definition of agricultural lands under DAR AO No. 01-02, as amended, merely refers to the category of agricultural lands that may be the subject for conversion to non-agricultural uses and is not in any way confined to agricultural lands in the context of land redistribution as provided for under Republic Act No. 6657. More so, Department of Justice Opinion No. 44, Series of 1990, which Opinion has been recognized in many cases decided by this Court, clarified that after the effectivity of Republic Act No. 6657 on 15 June 1988 the DAR has been given the authority to approve land conversion.38 Concomitant to such authority, therefore, is the authority to include in the definition of agricultural lands "lands not reclassified as residential, commercial, industrial or other non-agricultural uses before 15 June 1988" for purposes of land use conversion. In the same vein, the authority of the Secretary of Agrarian Reform to include "lands not reclassified as residential, commercial, industrial or other non-agricultural uses before 15 June 1988" in the definition of agricultural lands finds basis in jurisprudence. In Ros v. Department of Agrarian Reform,39 this Court has enunciated that after the passage of Republic Act No. 6657, agricultural lands, though reclassified, have to go through the process of conversion, jurisdiction over which is vested in the DAR. However, agricultural lands, which are already reclassified before the effectivity of Republic Act No. 6657 which is 15 June 1988, are exempted from conversion.40 It bears stressing that the said date of effectivity of Republic Act No. 6657 served as the cut-off period for automatic reclassifications or rezoning of agricultural lands that no longer require any DAR conversion clearance or authority.41 It necessarily follows that any reclassification made thereafter can be the subject of DARs conversion authority. Having recognized the DARs conversion authority over lands

reclassified after 15 June 1988, it can no longer be argued that the Secretary of Agrarian Reform was wrongfully given the authority and power to include "lands not reclassified as residential, commercial, industrial or other non-agricultural uses before 15 June 1988" in the definition of agricultural lands. Such inclusion does not unduly expand or enlarge the definition of agricultural lands; instead, it made clear what are the lands that can be the subject of DARs conversion authority, thus, serving the very purpose of the land use conversion provisions of Republic Act No. 6657. The argument of the petitioner that DAR AO No. 01-02, as amended, was made in violation of Section 65 of Republic Act No. 6657, as it covers even those non-awarded lands and reclassified lands by the LGUs or by way of Presidential Proclamations on or after 15 June 1988 is specious. As explained in Department of Justice Opinion No. 44, series of 1990, it is true that the DARs express power over land use conversion provided for under Section 65 of Republic Act No. 6657 is limited to cases in which agricultural lands already awarded have, after five years, ceased to be economically feasible and sound for agricultural purposes, or the locality has become urbanized and the land will have a greater economic value for residential, commercial or industrial purposes. To suggest, however, that these are the only instances that the DAR can require conversion clearances would open a loophole in Republic Act No. 6657 which every landowner may use to evade compliance with the agrarian reform program. It should logically follow, therefore, from the said departments express duty and function to execute and enforce the said statute that any reclassification of a private land as a residential, commercial or industrial property, on or after the effectivity of Republic Act No. 6657 on 15 June 1988 should first be cleared by the DAR.42 This Court held in Alarcon v. Court of Appeals43 that reclassification of lands does not suffice. Conversion and reclassification differ from each other. Conversion is the act of changing the current use of a piece of agricultural land into some other use as approved by the DAR while reclassification is the act of specifying how agricultural lands shall be utilized for non-agricultural uses such as residential, industrial, and commercial, as embodied in the land use plan, subject to the requirements and procedures for land use conversion. In view thereof, a mere reclassification of an agricultural land does not automatically allow a landowner to change its use. He has to undergo the process of conversion before he is permitted to use the agricultural land for other purposes.44 It is clear from the aforesaid distinction between reclassification and conversion that agricultural lands though reclassified to residential, commercial, industrial or other non-agricultural uses must still undergo the process of conversion before they can be used for the purpose to which they are intended. Nevertheless, emphasis must be given to the fact that DARs conversion authority can only be exercised after the effectivity of Republic Act No. 6657 on 15 June 1988.45 The said date served as the cut-off period for automatic reclassification or rezoning of agricultural lands that no longer require any DAR conversion clearance or authority.46 Thereafter, reclassification of agricultural lands is already subject to DARs conversion authority. Reclassification alone will not suffice to use the agricultural lands for other purposes. Conversion is needed to change the current use of reclassified agricultural lands. It is of no moment whether the reclassification of agricultural lands to residential, commercial, industrial or other non-agricultural uses was done by the LGUs or by way of Presidential Proclamations because either way they must still undergo conversion process. It bears stressing that the act of reclassifying agricultural lands to non-agricultural uses simply specifies how agricultural lands shall be utilized for non-agricultural uses and does not automatically convert agricultural lands to non-agricultural uses or for other purposes. As explained in DAR Memorandum Circular No. 7, Series of 1994, cited in the 2009 case of Roxas & Company, Inc. v. DAMBA-NFSW and the

Department of Agrarian Reform,47 reclassification of lands denotes their allocation into some specific use and providing for the manner of their utilization and disposition or the act of specifying how agricultural lands shall be utilized for non-agricultural uses such as residential, industrial, or commercial, as embodied in the land use plan. For reclassified agricultural lands, therefore, to be used for the purpose to which they are intended there is still a need to change the current use thereof through the process of conversion. The authority to do so is vested in the DAR, which is mandated to preserve and maintain agricultural lands with increased productivity. Thus, notwithstanding the reclassification of agricultural lands to non-agricultural uses, they must still undergo conversion before they can be used for other purposes. Even reclassification of agricultural lands by way of Presidential Proclamations to non-agricultural uses, such as school sites, needs conversion clearance from the DAR. We reiterate that reclassification is different from conversion. Reclassification alone will not suffice and does not automatically allow the landowner to change its use. It must still undergo conversion process before the landowner can use such agricultural lands for such purpose.48 Reclassification of agricultural lands is one thing, conversion is another. Agricultural lands that are reclassified to non-agricultural uses do not ipso facto allow the landowner thereof to use the same for such purpose. Stated differently, despite having reclassified into school sites, the landowner of such reclassified agricultural lands must apply for conversion before the DAR in order to use the same for the said purpose. Any reclassification, therefore, of agricultural lands to residential, commercial, industrial or other nonagricultural uses either by the LGUs or by way of Presidential Proclamations enacted on or after 15 June 1988 must undergo the process of conversion, despite having undergone reclassification, before agricultural lands may be used for other purposes. It is different, however, when through Presidential Proclamations public agricultural lands have been reserved in whole or in part for public use or purpose, i.e., public school, etc., because in such a case, conversion is no longer necessary. As held in Republic v. Estonilo,49 only a positive act of the President is needed to segregate or reserve a piece of land of the public domain for a public purpose. As such, reservation of public agricultural lands for public use or purpose in effect converted the same to such use without undergoing any conversion process and that they must be actually, directly and exclusively used for such public purpose for which they have been reserved, otherwise, they will be segregated from the reservations and transferred to the DAR for distribution to qualified beneficiaries under the CARP.50 More so, public agricultural lands already reserved for public use or purpose no longer form part of the alienable and disposable lands of the public domain suitable for agriculture.51 Hence, they are outside the coverage of the CARP and it logically follows that they are also beyond the conversion authority of the DAR. Clearly from the foregoing, the Secretary of Agrarian Reform did not act without jurisdiction or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction in (1) including lands not reclassified as residential, commercial, industrial or other non-agricultural uses before 15 June 1988 in the definition of agricultural lands under DAR AO No. 01-02, as amended, and; (2) issuing and enforcing DAR AO No. 01-02, as amended, subjecting to DARs jurisdiction for conversion lands which had already been reclassified as residential, commercial, industrial or for other non-agricultural uses on or after 15 June 1988. Similarly, DAR AO No. 01-02, as amended, providing that the reclassification of agricultural lands by LGUs shall be subject to the requirements of land use conversion procedure or that DARs approval or clearance must be secured to effect reclassification, did not violate the autonomy of the LGUs. Section 20 of Republic Act No. 7160 states that:

SECTION 20. Reclassification of Lands. (a) A city or municipality may, through an ordinance passed by the sanggunian after conducting public hearings for the purpose, authorize the reclassification of agricultural lands and provide for the manner of their utilization or disposition in the following cases: (1) when the land ceases to be economically feasible and sound for agricultural purposes as determined by the Department of Agriculture or (2) where the land shall have substantially greater economic value for residential, commercial, or industrial purposes, as determined by the sanggunian concerned: Provided, That such reclassification shall be limited to the following percentage of the total agricultural land area at the time of the passage of the ordinance: xxxx (3) For fourth to sixth class municipalities, five percent (5%): Provided, further, That agricultural lands distributed to agrarian reform beneficiaries pursuant to Republic Act Numbered Sixty-six hundred fifty-seven (R.A. No. 6657), otherwise known as "The Comprehensive Agrarian Reform Law," shall not be affected by the said reclassification and the conversion of such lands into other purposes shall be governed by Section 65 of said Act. xxxx (e) Nothing in this Section shall be construed as repealing, amending, or modifying in any manner the provisions of R.A. No. 6657. The aforequoted provisions of law show that the power of the LGUs to reclassify agricultural lands is not absolute. The authority of the DAR to approve conversion of agricultural lands covered by Republic Act No. 6657 to non-agricultural uses has been validly recognized by said Section 20 of Republic Act No. 7160 by explicitly providing therein that, "nothing in this section shall be construed as repealing or modifying in any manner the provisions of Republic Act No. 6657." DAR AO No. 01-02, as amended, does not also violate the due process clause, as well as the equal protection clause of the Constitution. In providing administrative and criminal penalties in the said administrative order, the Secretary of Agrarian Reform simply implements the provisions of Sections 73 and 74 of Republic Act No. 6657, thus: Sec. 73. Prohibited Acts and Omissions. The following are prohibited: xxxx (c) The conversion by any landowner of his agricultural land into any non-agricultural use with intent to avoid the application of this Act to his landholdings and to disposes his tenant farmers of the land tilled by them; xxxx (f) The sale, transfer or conveyance by a beneficiary of the right to use or any other usufructuary right over the land he acquired by virtue of being a beneficiary, in order to circumvent the provisions of this Act. xxxx Sec. 74. Penalties. Any person who knowingly or willfully violates the provisions of this Act shall be punished by imprisonment of not less than one (1) month to not more than three (3) years or a fine

of not less than one thousand pesos (P1,000.00) and not more than fifteen thousand pesos (P15,000.00), or both, at the discretion of the court. If the offender is a corporation or association, the officer responsible therefor shall be criminally liable. And Section 11 of Republic Act No. 8435, which specifically provides: Sec. 11. Penalty for Agricultural Inactivity and Premature Conversion. x x x. Any person found guilty of premature or illegal conversion shall be penalized with imprisonment of two (2) to six (6) years, or a fine equivalent to one hundred percent (100%) of the government's investment cost, or both, at the discretion of the court, and an accessory penalty of forfeiture of the land and any improvement thereon. In addition, the DAR may impose the following penalties, after determining, in an administrative proceedings, that violation of this law has been committed: a. Consolation or withdrawal of the authorization for land use conversion; and b. Blacklisting, or automatic disapproval of pending and subsequent conversion applications that they may file with the DAR. Contrary to petitioners assertions, the administrative and criminal penalties provided for under DAR AO No. 01-02, as amended, are imposed upon the illegal or premature conversion of lands within DARs jurisdiction, i.e., "lands not reclassified as residential, commercial, industrial or for other nonagricultural uses before 15 June 1998." The petitioners argument that DAR Memorandum No. 88 is unconstitutional, as it suspends the land use conversion without any basis, stands on hollow ground. It bears emphasis that said Memorandum No. 88 was issued upon the instruction of the President in order to address the unabated conversion of prime agricultural lands for real estate development because of the worsening rice shortage in the country at that time. Such measure was made in order to ensure that there are enough agricultural lands in which rice cultivation and production may be carried into. The issuance of said Memorandum No. 88 was made pursuant to the general welfare of the public, thus, it cannot be argued that it was made without any basis. WHEREFORE, premises considered, the instant Petition for Certiorari is DISMISSED. Costs against petitioner. SO ORDERED. JOSE PORTUGAL PEREZ Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice Chairperson

PRESBITERO J. VELASCO, JR. Associate Justice

TERESITA LEONARDO-DE CASTRO Associate Justice

MARIANO C. DEL CASTILLO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I hereby certify that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
1

Rollo, pp. 182-183. Id. at 185. Id. at 42-59. Id. at 77-110. Otherwise known as "The Comprehensive Agrarian Reform Law of 1988."

SECTION 20. Reclassification of Lands. (a) A city or municipality may, through an ordinance passed by the sanggunian after conducting public hearings for the purpose, authorize the reclassification of agricultural lands and provide for the manner of their utilization or disposition in the following cases: (1) when the land ceases to be economically feasible and sound for agricultural purposes as determined by the Department of Agriculture or (2) where the land shall have substantially greater economic value for residential, commercial, or industrial purposes, as determined by the sanggunian concerned: Provided, That such reclassification shall be limited to the following percentage of the total agricultural land area at the time of the passage of the ordinance:
6

(1) For highly urbanized and independent component cities, fifteen percent (15%); (2) For component cities and first to third class municipalities, ten percent (10%); and (3) For fourth to sixth class municipalities, five percent (5%): Provided, further, That agricultural lands distributed to agrarian reform beneficiaries pursuant to Republic Act Numbered Sixty-six hundred fifty-seven (R.A. No. 6657), otherwise known as "The

Comprehensive Agrarian Reform Law," shall not be affected by the said reclassification and the conversion of such lands into other purposes shall be governed by Section 65 of said Act. (b) The President may, when public interest so requires and upon recommendation of the National Economic and Development Authority, authorize a city or municipality to reclassify lands in excess of the limits set in the next preceding paragraph. (c) The local government units shall, in conformity with existing laws, continue to prepare their respective comprehensive land use plans enacted through zoning ordinances which shall be the primary and dominant bases for the future use of land resources: Provided, That the requirements for food production, human settlements, and industrial expansion shall be taken into consideration in the preparation of such plans. (d) Where approval by a national agency is required for reclassification, such approval shall not be unreasonably withheld. Failure to act on a proper and complete application for reclassification within three (3) months from receipt of the same shall be deemed as approval thereof. (e) Nothing in this Section shall be construed as repealing, amending, or modifying in any manner the provisions of R.A. No. 6657.
7

Otherwise known as "The Local Government Code of 1991." Particularly Sections 3.1 and 6.2 of DAR AO No. 01-02. Rollo, p. 272. Otherwise known as "The Agriculture and Fisheries Modernization Act of 1997."

10

SEC. 65. Conversion of Lands. After the lapse of five (5) years from its award, when the land ceases to be economically feasible and sound for agricultural purposes, or the locality has become urbanized and the land will have a greater economic value for residential, commercial or industrial purposes, the DAR, upon application of the beneficiary or the landowner, with due notice to the affected parties, and subject to existing laws, may authorize the reclassification or conversion of the land and its disposition: Provided, That the beneficiary shall have fully paid his obligation.
11 12

Section 2.19. Reclassification of Agricultural Lands refers to the act of specifying how agricultural lands shall be utilized for non-agricultural uses such as, residential, industrial, commercial, as embodied in the land use plan, subject to the requirements and procedure for land use conversion, undertaken by a Local Government Unit (LGU) in accordance with Section 20 of RA 7160 and Joint Housing and Land Use Regulatory Board (HLURB), DAR, DA, and Department of Interior and Local Government (DILG) MC-54-1995. It also includes the reversion of non-agricultural lands to agricultural use.
13

Section 25. The State shall ensure the autonomy of local governments.

14

Section 2. The territorial and political subdivisions shall enjoy local autonomy.

15

Heirs of Bertuldo Hinog v. Melicor, G.R. No. 140954, 12 April 2005, 455 SCRA 460, 470.
16

Id. 254 Phil. 418 (1989). Heirs of Bertuldo Hinog v. Melicor, supra note 15 at 471.

17

18

19

Liga ng mga Barangay National v. City Mayor of Manila, 465 Phil. 529, 543 (2004); Santiago v. Vasquez, G.R. Nos. 99289-90, 27 January 1993, 217 SCRA 633, 652.
20

Tano v. Hon. Gov. Socrates, 343 Phil. 670, 700 (1997). G.R. No. 157036, 9 June 2004, 431 SCRA 534. 438 Phil. 417 (2002). 438 Phil. 72 (2002). 413 Phil. 281 (2001). 352 Phil. 461 (1998). Heirs of Bertuldo Hinog v. Melicor, supra note 15. Id.

21

22

23

24

25

26

27

28

Philnabank Employees Association v. Estanislao, G.R. No. 104209, 16 November 1993, 227 SCRA 804, 811.
29

People v. Court of Appeals, 468 Phil. 1, 10 (2004). Rivera v. Hon. Espiritu, 425 Phil. 169, 179-180 (2002). Land Bank of the Philippines v. Court of Appeals, 456 Phil. 755, 785 (2003). Id. Id. at 786. Ligan ng mga Barangay National v. City Mayor of Manila, supra note 19 at 541. Id. Mayor Balindong v. Vice Gov. Dacalos, 484 Phil. 574, 579 (2004).

30

31

32

33

34

35

36

37

Otherwise known as "The Reorganization Act of the Department of Agrarian Reform," which was approved on 26 July 1987.
38

In the said Opinion, the Secretary of Justice declared, viz: Based on the foregoing premises, we reiterate the view that with respect to conversions of agricultural lands covered by Republic Act No. 6657 to non-agricultural uses, the authority of DAR to approve such conversions may be exercised from the date of the laws effectivity on 15 June 1988. This conclusion is based on a liberal interpretation of Republic Act No. 6657 in the light of DARs mandate and the extensive coverage of the agrarian reform program.
39

G.R. No. 132477, 31 August 2005, 468 SCRA 471. Junio v. Garilao, G.R. No. 147146, 29 July 2005, 465 SCRA 173, 182-183.

40

41

Heirs of Francisco R. Tantoco, Sr. v. Court of Appeals, G.R. No. 149621, 5 May 2006, 489 SCRA 590, 606-607.
42

Ros v. Department of Agrarian Reform, supra note 39 at 483. 453 Phil. 373, 382-383 (2003). Id. Junio v. Garilao, G.R. No. 147146, 29 July 2005, 465 SCRA 173, 181-182. Heirs of Francisco R. Tantoco, Sr. v. Court of Appeals, supra note 41.

43

44

45

46

47

G.R. Nos. 149548, 167505, 167540, 167543, 167845, 169163 and 179650, 4 December 2009.
48

Roxas & Company, Inc. v. DAMBA-NFSW and the Department of Agrarian Reform, id.
49

G.R. No. 157306, 25 November 2005, 476 SCRA 265, 274. Section 1.A of Executive Order No. 506 dated 18 February 1992.

50

51

Department of Agrarian Reform v. Department of Education, Culture and Sports, 469 Phil. 1083, 1092-1093 (2004) citing Central Mindanao University v. Department of Agrarian Reform Adjudication Board, G.R. No. 100091, 22 October 1992, 215 SCRA 86, 99.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 143855 September 21, 2010 REPRESENTATIVES GERARDO S. ESPINA, ORLANDO FUA, JR., PROSPERO AMATONG, ROBERT ACE S. BARBERS, RAUL M. GONZALES, PROSPERO PICHAY, JUAN MIGUEL ZUBIRI and FRANKLIN BAUTISTA, Petitioners, vs. HON. RONALDO ZAMORA, JR. (Executive Secretary), HON. MAR ROXAS (Secretary of Trade and Industry), HON. FELIPE MEDALLA (Secretary of National Economic and Development Authority), GOV. RAFAEL BUENAVENTURA (Bangko Sentral ng Pilipinas) and HON. LILIA BAUTISTA (Chairman, Securities and Exchange Commission), Respondents. DECISION ABAD, J.: This case calls upon the Court to exercise its power of judicial review and determine the constitutionality of the Retail Trade Liberalization Act of 2000, which has been assailed as in breach of the constitutional mandate for the development of a self-reliant and independent national economy effectively controlled by Filipinos. The Facts and the Case On March 7, 2000 President Joseph E. Estrada signed into law Republic Act (R.A.) 8762, also known as the Retail Trade Liberalization Act of 2000. It expressly repealed R.A. 1180, which absolutely prohibited foreign nationals from engaging in the retail trade business. R.A. 8762 now allows them to do so under four categories: Category A Less than US$2,500,000.00 US$2,500,000.00 up but less than US$7,500,000.00 Exclusively for Filipino citizens and corporations wholly owned by Filipino citizens. For the first two years of R.A. 8762s effectivity, foreign ownership is allowed up to 60%. After the two-year period, 100% foreign equity shall be allowed. May be wholly owned by foreigners. Foreign investments for establishing a store in Categories B and C shall not be less than the equivalent in Philippine Pesos of US$830,000.00. May be wholly owned by foreigners.

Category B

Category C

US$7,500,000.00 or more

Category D

US$250,000.00 per store of foreign enterprises specializing in high-end or luxury products

R.A. 8762 also allows natural-born Filipino citizens, who had lost their citizenship and now reside in the Philippines, to engage in the retail trade business with the same rights as Filipino citizens. On October 11, 2000 petitioners ***Magtanggol T. Gunigundo I, Michael T. Defensor, Gerardo S. Espina, Benjamin S. Lim, Orlando Fua, Jr., Prospero Amatong, Sergio Apostol, Robert Ace S. Barbers, Enrique Garcia, Jr., Raul M. Gonzales, Jaime Jacob, Apolinario Lozada, Jr., Leonardo Montemayor, Ma. Elena Palma-Gil, Prospero Pichay, Juan Miguel Zubiri and Franklin Bautista, all members of the House of Representatives, filed the present petition, assailing the constitutionality of R.A. 8762 on the following grounds: First, the law runs afoul of Sections 9, 19, and 20 of Article II of the Constitution which enjoins the State to place the national economy under the control of Filipinos to achieve equal distribution of opportunities, promote industrialization and full employment, and protect Filipino enterprise against unfair competition and trade policies. Second, the implementation of R.A. 8762 would lead to alien control of the retail trade, which taken together with alien dominance of other areas of business, would result in the loss of effective Filipino control of the economy. Third, foreign retailers like Walmart and K-Mart would crush Filipino retailers and sari-sari store vendors, destroy self-employment, and bring about more unemployment. Fourth, the World Bank-International Monetary Fund had improperly imposed the passage of R.A. 8762 on the government as a condition for the release of certain loans. Fifth, there is a clear and present danger that the law would promote monopolies or combinations in restraint of trade. Respondents Executive Secretary Ronaldo Zamora, Jr., Trade and Industry Secretary Mar Roxas, National Economic and Development Authority (NEDA) Secretary Felipe Medalla, Bangko Sentral ng Pilipinas Gov. Rafael Buenaventura, and Securities and Exchange Commission Chairman Lilia Bautista countered that: First, petitioners have no legal standing to file the petition. They cannot invoke the fact that they are taxpayers since R.A. 8762 does not involve the disbursement of public funds. Nor can they invoke the fact that they are members of Congress since they made no claim that the law infringes on their right as legislators. Second, the petition does not involve any justiciable controversy. Petitioners of course claim that, as members of Congress, they represent the small retail vendors in their respective districts but the petition does not allege that the subject law violates the rights of those vendors. Third, petitioners have failed to overcome the presumption of constitutionality of R.A. 8762. Indeed, they could not specify how the new law violates the constitutional provisions they cite. Sections 9, 19, and 20 of Article II of the Constitution are not self-executing provisions that are judicially demandable.

Fourth, the Constitution mandates the regulation but not the prohibition of foreign investments. It directs Congress to reserve to Filipino citizens certain areas of investments upon the recommendation of the NEDA and when the national interest so dictates. But the Constitution leaves to the discretion of the Congress whether or not to make such reservation. It does not prohibit Congress from enacting laws allowing the entry of foreigners into certain industries not reserved by the Constitution to Filipino citizens. The Issues Presented Simplified, the case presents two issues: 1. Whether or not petitioner lawmakers have the legal standing to challenge the constitutionality of R.A. 8762; and 2. Whether or not R.A. 8762 is unconstitutional. The Courts Ruling One. The long settled rule is that he who challenges the validity of a law must have a standing to do so.1 Legal standing or locus standi refers to the right of a party to come to a court of justice and make such a challenge. More particularly, standing refers to his personal and substantial interest in that he has suffered or will suffer direct injury as a result of the passage of that law.2 To put it another way, he must show that he 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 law he complains of.3 Here, there is no clear showing that the implementation of the Retail Trade Liberalization Act prejudices petitioners or inflicts damages on them, either as taxpayers4 or as legislators.5 Still the Court will resolve the question they raise since the rule on standing can be relaxed for nontraditional plaintiffs like ordinary citizens, taxpayers, and legislators when as in this case the public interest so requires or the matter is of transcendental importance, of overarching significance to society, or of paramount public interest.6 Two. Petitioners mainly argue that R.A. 8762 violates the mandate of the 1987 Constitution for the State to develop a self-reliant and independent national economy effectively controlled by Filipinos. They invoke the provisions of the Declaration of Principles and State Policies under Article II of the 1987 Constitution, which read as follows: Section 9. The State shall promote a just and dynamic social order that will ensure the prosperity and independence of the nation and free the people from poverty through policies that provide adequate social services, promote full employment, a rising standard of living, and an improved quality of life for all. xxxx Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos. Section 20. The State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments.

Petitioners also invoke the provisions of the National Economy and Patrimony under Article XII of the 1987 Constitution, which reads: Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos. In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos. The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its national goals and priorities. xxxx Section 12. The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive. Section 13. The State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity. But, as the Court explained in Taada v. Angara,7 the provisions of Article II of the 1987 Constitution, the declarations of principles and state policies, are not self-executing. Legislative failure to pursue such policies cannot give rise to a cause of action in the courts. The Court further explained in Taada that Article XII of the 1987 Constitution lays down the ideals of economic nationalism: (1) by expressing preference in favor of qualified Filipinos in the grant of rights, privileges and concessions covering the national economy and patrimony and in the use of Filipino labor, domestic materials and locally-produced goods; (2) by mandating the State to adopt measures that help make them competitive; and (3) by requiring the State to develop a self-reliant and independent national economy effectively controlled by Filipinos.8
ten.lihpw al

In other words, while Section 19, Article II of the 1987 Constitution requires the development of a self-reliant and independent national economy effectively controlled by Filipino entrepreneurs, it does not impose a policy of Filipino monopoly of the economic environment. The objective is simply to prohibit foreign powers or interests from maneuvering our economic policies and ensure that Filipinos are given preference in all areas of development. Indeed, the 1987 Constitution takes into account the realities of the outside world as it requires the pursuit of a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity; and speaks of industries which are competitive in both domestic and foreign markets as well as of the protection of Filipino enterprises against unfair foreign competition and trade practices. Thus, while the Constitution mandates a bias in favor of Filipino goods, services, labor and enterprises, it also recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair.9 In other words, the 1987 Constitution does not rule out the entry of foreign investments, goods, and services. While it does not encourage their unlimited entry into the country, it does not prohibit them

either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair.10 The key, as in all economies in the world, is to strike a balance between protecting local businesses and allowing the entry of foreign investments and services.
1avv phi 1

More importantly, Section 10, Article XII of the 1987 Constitution gives Congress the discretion to reserve to Filipinos certain areas of investments upon the recommendation of the NEDA and when the national interest requires. Thus, Congress can determine what policy to pass and when to pass it depending on the economic exigencies. It can enact laws allowing the entry of foreigners into certain industries not reserved by the Constitution to Filipino citizens. In this case, Congress has decided to open certain areas of the retail trade business to foreign investments instead of reserving them exclusively to Filipino citizens. The NEDA has not opposed such policy. The control and regulation of trade in the interest of the public welfare is of course an exercise of the police power of the State. A persons right to property, whether he is a Filipino citizen or foreign national, cannot be taken from him without due process of law. In 1954, Congress enacted the Retail Trade Nationalization Act or R.A. 1180 that restricts the retail business to Filipino citizens. In denying the petition assailing the validity of such Act for violation of the foreigners right to substantive due process of law, the Supreme Court held that the law constituted a valid exercise of police power.11 The State had an interest in preventing alien control of the retail trade and R.A. 1180 was reasonably related to that purpose. That law is not arbitrary. Here, to the extent that R.A. 8762, the Retail Trade Liberalization Act, lessens the restraint on the foreigners right to property or to engage in an ordinarily lawful business, it cannot be said that the law amounts to a denial of the Filipinos right to property and to due process of law. Filipinos continue to have the right to engage in the kinds of retail business to which the law in question has permitted the entry of foreign investors. Certainly, it is not within the province of the Court to inquire into the wisdom of R.A. 8762 save when it blatantly violates the Constitution. But as the Court has said, there is no showing that the law has contravened any constitutional mandate. The Court is not convinced that the implementation of R.A. 8762 would eventually lead to alien control of the retail trade business. Petitioners have not mustered any concrete and strong argument to support its thesis. The law itself has provided strict safeguards on foreign participation in that business. Thus First, aliens can only engage in retail trade business subject to the categories above-enumerated; Second, only nationals from, or juridical entities formed or incorporated in countries which allow the entry of Filipino retailers shall be allowed to engage in retail trade business; and Third, qualified foreign retailers shall not be allowed to engage in certain retailing activities outside their accredited stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-todoor selling, restaurants and sari-sari stores and such other similar retailing activities. In sum, petitioners have not shown how the retail trade liberalization has prejudiced and can prejudice the local small and medium enterprises since its implementation about a decade ago. WHEREFORE, the Court DISMISSES the petition for lack of merit. No costs. SO ORDERED. ROBERTO A. ABAD Associate Justice WE CONCUR:

RENATO C. CORONA Chief Justice ANTONIO T. CARPIO Associate Justice (On Official Leave) PRESBITERO J. VELASCO, JR.* Associate Justice (On Official Leave) TERESITA J. LEONARDO-DE CASTRO* Associate Justice DIOSDADO M. PERALTA Associate Justice MARIANO C. DEL CASTILLO Associate Justice JOSE PORTUGAL PEREZ Associate Justice CONCHITA CARPIO MORALES Associate Justice (On Official Leave) ANTONIO EDUARDO B. NACHURA* Associate Justice (On Official Leave) ARTURO D. BRION* Associate Justice LUCAS P. BERSAMIN Associate Justice MARTIN S. VILLARAMA, JR. Associate Justice (On Official Leave) JOSE CATRAL MENDOZA* Associate Justice

(On Leave) MARIA LOURDES P. A. SERENO** Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court. RENATO C. CORONA Chief Justice

Footnotes
*

On official leave. On leave.

**

***

Ordered dropped as petitioners per Supreme Court En Banc Resolution dated August 2, 2005. Rollo, p. 170.

Jumamil v. Cafe, G.R. No. 144570, September 21, 2005, 470 SCRA 475, 486-487. Abaya v. Ebdane, Jr., G.R. No. 167919, February 14, 2007, 515 SCRA 720, 756.

BAYAN (Bagong Alyansang Makabayan) v. Executive Secretary Zamora, 396 Phil. 623, 646-647 (2000).
4

Public Interest Center, Inc. v. Roxas, G.R. No. 125509, January 31, 2007, 513 SCRA 457, 470.
5

Province of North Cotabato v. Government of the Republic of the Philippines Peace Panel on Ancestral Domain (GRP), G.R. Nos. 183591, 183752, 183893, 183951 & 183962, October 14, 2008, 568 SCRA 402, 457; Bagatsing v. Committee on Privatization, PN[O]C, 316 Phil. 404, 419 (1995).
6

Automotive Industry Workers Alliance (AIWA) v. Hon. Romulo, 489 Phil. 710, 719 (2005).
7

338 Phil. 546, 580-581 (1997). Id. at 584. Id. at 584-585. Id. at 585. Ichong v. Hernandez, 101 Phil. 1155, 1191 (1957).

10

11

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 177807 October 11, 2011 EMILIO GANCAYCO, Petitioner, vs. CITY GOVERNMENT OF QUEZON CITY AND METRO MANILA DEVELOPMENT AUTHORITY, Respondents. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 177933 METRO MANILA DEVELOPMENT AUTHORITY, Petitioner, vs. JUSTICE EMILIO A. GANCAYCO (Retired), Respondent, DECISION SERENO, J.: Before us are consolidated Petitions for Review under Rule 45 of the Rules of Court assailing the Decision1 promulgated on 18 July 2006 and the Resolution2 dated 10 May 2007 of the Court of Appeals in CA-G.R. SP No. 84648. The Facts In the early 1950s, retired Justice Emilio A. Gancayco bought a parcel of land located at 746 Epifanio delos Santos Avenue (EDSA),3 Quezon City with an area of 375 square meters and covered by Transfer Certificate of Title (TCT) No. RT114558. On 27 March 1956, the Quezon City Council issued Ordinance No. 2904, entitled "An Ordinance Requiring the Construction of Arcades, for Commercial Buildings to be Constructed in Zones Designated as Business Zones in the Zoning Plan of Quezon City, and Providing Penalties in Violation Thereof."4 An arcade is defined as any portion of a building above the first floor projecting over the sidewalk beyond the first storey wall used as protection for pedestrians against rain or sun.5 Ordinance No. 2904 required the relevant property owner to construct an arcade with a width of 4.50 meters and height of 5.00 meters along EDSA, from the north side of Santolan Road to one lot after Liberty Avenue, and from one lot before Central Boulevard to the Botocan transmission line. At the outset, it bears emphasis that at the time Ordinance No. 2904 was passed by the city council, there was yet no building code passed by the national legislature. Thus, the regulation of the construction of buildings was left to the discretion of local government units. Under this particular ordinance, the city council required that the arcade is to be created by constructing the wall of the

ground floor facing the sidewalk a few meters away from the property line. Thus, the building owner is not allowed to construct his wall up to the edge of the property line, thereby creating a space or shelter under the first floor. In effect, property owners relinquish the use of the space for use as an arcade for pedestrians, instead of using it for their own purposes. The ordinance was amended several times. On 8 August 1960, properties located at the Quezon City-San Juan boundary were exempted by Ordinance No. 60-4477 from the construction of arcades. This ordinance was further amended by Ordinance No. 60-4513, extending the exemption to commercial buildings from Balete Street to Seattle Street. Ordinance No. 6603 dated 1 March 1966 meanwhile reduced the width of the arcades to three meters for buildings along V. Luna Road, Central District, Quezon City. The ordinance covered the property of Justice Gancayco. Subsequently, sometime in 1965, Justice Gancayco sought the exemption of a two-storey building being constructed on his property from the application of Ordinance No. 2904 that he be exempted from constructing an arcade on his property. On 2 February 1966, the City Council acted favorably on Justice Gancaycos request and issued Resolution No. 7161, S-66, "subject to the condition that upon notice by the City Engineer, the owner shall, within reasonable time, demolish the enclosure of said arcade at his own expense when public interest so demands."6 Decades after, in March 2003, the Metropolitan Manila Development Authority (MMDA) conducted operations to clear obstructions along the sidewalk of EDSA in Quezon City pursuant to Metro Manila Councils (MMC) Resolution No. 02-28, Series of 2002.7 The resolution authorized the MMDA and local government units to "clear the sidewalks, streets, avenues, alleys, bridges, parks and other public places in Metro Manila of all illegal structures and obstructions."8 On 28 April 2003, the MMDA sent a notice of demolition to Justice Gancayco alleging that a portion of his building violated the National Building Code of the Philippines (Building Code)9 in relation to Ordinance No. 2904. The MMDA gave Justice Gancayco fifteen (15) days to clear the portion of the building that was supposed to be an arcade along EDSA.10 Justice Gancayco did not comply with the notice. Soon after the lapse of the fifteen (15) days, the MMDA proceeded to demolish the party wall, or what was referred to as the "wing walls," of the ground floor structure. The records of the present case are not entirely clear on the extent of the demolition; nevertheless, the fact of demolition was not disputed. At the time of the demolition, the affected portion of the building was being used as a restaurant. On 29 May 2003, Justice Gancayco filed a Petition11 with prayer for a temporary restraining order and/or writ of preliminary injunction before the Regional Trial Court (RTC) of Quezon City, docketed as Civil Case No. Q03-49693, seeking to prohibit the MMDA and the City Government of Quezon City from demolishing his property. In his Petition,12 he alleged that the ordinance authorized the taking of private property without due process of law and just compensation, because the construction of an arcade will require 67.5 square meters from the 375 square meter property. In addition, he claimed that the ordinance was selective and discriminatory in its scope and application when it allowed the owners of the buildings located in the Quezon City-San Juan boundary to Cubao Rotonda, and Balete to Seattle Streets to construct arcades at their option. He thus sought the declaration of nullity of Ordinance No. 2904 and the payment of damages. Alternately, he prayed for the payment of just compensation should the court hold the ordinance valid.

The City Government of Quezon City claimed that the ordinance was a valid exercise of police power, regulating the use of property in a business zone. In addition, it pointed out that Justice Gancayco was already barred by estoppel, laches and prescription. Similarly, the MMDA alleged that Justice Gancayco could not seek the nullification of an ordinance that he had already violated, and that the ordinance enjoyed the presumption of constitutionality. It further stated that the questioned property was a public nuisance impeding the safe passage of pedestrians. Finally, the MMDA claimed that it was merely implementing the legal easement established by Ordinance No. 2904.13 The RTC rendered its Decision on 30 September 2003 in favor of Justice Gancayco.14 It held that the questioned ordinance was unconstitutional, ruling that it allowed the taking of private property for public use without just compensation. The RTC said that because 67.5 square meters out of Justice Gancaycos 375 square meters of property were being taken without compensation for the publics benefit, the ordinance was confiscatory and oppressive. It likewise held that the ordinance violated owners right to equal protection of laws. The dispositive portion thus states: WHEREFORE, the petition is hereby granted and the Court hereby declares Quezon City Ordinance No. 2094,15 Series of 1956 to be unconstitutional, invalid and void ab initio. The respondents are hereby permanently enjoined from enforcing and implementing the said ordinance, and the respondent MMDA is hereby directed to immediately restore the portion of the party wall or wing wall of the building of the petitioner it destroyed to its original condition. IT IS SO ORDERED. The MMDA thereafter appealed from the Decision of the trial court. On 18 July 2006, the Court of Appeals (CA) partly granted the appeal.16 The CA upheld the validity of Ordinance No. 2904 and lifted the injunction against the enforcement and implementation of the ordinance. In so doing, it held that the ordinance was a valid exercise of the right of the local government unit to promote the general welfare of its constituents pursuant to its police powers. The CA also ruled that the ordinance established a valid classification of property owners with regard to the construction of arcades in their respective properties depending on the location. The CA further stated that there was no taking of private property, since the owner still enjoyed the beneficial ownership of the property, to wit: Even with the requirement of the construction of arcaded sidewalks within his commercial lot, appellee still retains the beneficial ownership of the said property. Thus, there is no "taking" for public use which must be subject to just compensation. While the arcaded sidewalks contribute to the public good, for providing safety and comfort to passersby, the ultimate benefit from the same still redounds to appellee, his commercial establishment being at the forefront of a busy thoroughfare like EDSA. The arcaded sidewalks, by their nature, assure clients of the commercial establishments thereat some kind of protection from accidents and other hazards. Without doubt, this sense of protection can be a boon to the business activity therein engaged. 17 Nevertheless, the CA held that the MMDA went beyond its powers when it demolished the subject property. It further found that Resolution No. 02-28 only refers to sidewalks, streets, avenues, alleys, bridges, parks and other public places in Metro Manila, thus excluding Justice Gancaycos private property. Lastly, the CA stated that the MMDA is not clothed with the authority to declare, prevent or abate nuisances. Thus, the dispositive portion stated: WHEREFORE, the appeals are PARTLY GRANTED. The Decision dated September 30, 2003 of the Regional Trial Court, Branch 224, Quezon City, is MODIFIED, as follows:

1) The validity and constitutionality of Ordinance No. 2094,18 Series of 1956, issued by the City Council of Quezon City, is UPHELD; and 2) The injunction against the enforcement and implementation of the said Ordinance is LIFTED. SO ORDERED. This ruling prompted the MMDA and Justice Gancayco to file their respective Motions for Partial Reconsideration.19 On 10 May 2007, the CA denied the motions stating that the parties did not present new issues nor offer grounds that would merit the reconsideration of the Court.20 Dissatisfied with the ruling of the CA, Justice Gancayco and the MMDA filed their respective Petitions for Review before this Court. The issues raised by the parties are summarized as follows: I. WHETHER OR NOT JUSTICE GANCAYCO WAS ESTOPPED FROM ASSAILING THE VALIDITY OF ORDINANCE NO. 2904. II. WHETHER OR NOT ORDINANCE NO. 2904 IS CONSTITUTIONAL. III. WHETHER OR NOT THE WING WALL OF JUSTICE GANCAYCOS BUILDING IS A PUBLIC NUISANCE. IV. WHETHER OR NOT THE MMDA LEGALLY DEMOLISHED THE PROPERTY OF JUSTICE GANCAYCO. The Courts Ruling Estoppel The MMDA and the City Government of Quezon City both claim that Justice Gancayco was estopped from challenging the ordinance, because, in 1965, he asked for an exemption from the application of the ordinance. According to them, Justice Gancayco thereby recognized the power of the city government to regulate the construction of buildings. To recall, Justice Gancayco questioned the constitutionality of the ordinance on two grounds: (1) whether the ordinance "takes" private property without due process of law and just compensation; and (2) whether the ordinance violates the equal protection of rights because it allowed exemptions from its application. On the first ground, we find that Justice Gancayco may still question the constitutionality of the ordinance to determine whether or not the ordinance constitutes a "taking" of private property without due process of law and just compensation. It was only in 2003 when he was allegedly deprived of his property when the MMDA demolished a portion of the building. Because he was granted an exemption in 1966, there was no "taking" yet to speak of. Moreover, in Acebedo Optical Company, Inc. v. Court of Appeals,21 we held:

It is therefore decisively clear that estoppel cannot apply in this case. The fact that petitioner acquiesced in the special conditions imposed by the City Mayor in subject business permit does not preclude it from challenging the said imposition, which is ultra vires or beyond the ambit of authority of respondent City Mayor. Ultra vires acts or acts which are clearly beyond the scope of one's authority are null and void and cannot be given any effect. The doctrine of estoppel cannot operate to give effect to an act which is otherwise null and void or ultra vires. (Emphasis supplied.) Recently, in British American Tobacco v. Camacho,22 we likewise held: We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with all issuances of the BIR, which at that time it considered as valid, petitioner did not commit any false misrepresentation or misleading act. Indeed, petitioner cannot be faulted for initially undertaking to comply with, and subjecting itself to the operation of Section 145(C), and only later on filing the subject case praying for the declaration of its unconstitutionality when the circumstances change and the law results in what it perceives to be unlawful discrimination. The mere fact that a law has been relied upon in the past and all that time has not been attacked as unconstitutional is not a ground for considering petitioner estopped from assailing its validity. For courts will pass upon a constitutional question only when presented before it in bona fide cases for determination, and the fact that the question has not been raised before is not a valid reason for refusing to allow it to be raised later. (Emphasis supplied.) Anent the second ground, we find that Justice Gancayco may not question the ordinance on the ground of equal protection when he also benefited from the exemption. It bears emphasis that Justice Gancayco himself requested for an exemption from the application of the ordinance in 1965 and was eventually granted one. Moreover, he was still enjoying the exemption at the time of the demolition as there was yet no valid notice from the city engineer. Thus, while the ordinance may be attacked with regard to its different treatment of properties that appears to be similarly situated, Justice Gancayco is not the proper person to do so. Zoning and the regulation of the construction of buildings are valid exercises of police power . In MMDA v. Bel-Air Village Association,23 we discussed the nature of police powers exercised by local government units, to wit: Police power is an inherent attribute of sovereignty. It has been defined as the power vested by the Constitution in the legislature to make, ordain, and establish all manner of wholesome and reasonable laws, statutes and ordinances, either with penalties or without, not repugnant to the Constitution, as they shall judge to be for the good and welfare of the commonwealth, and for the subjects of the same. The power is plenary and its scope is vast and pervasive, reaching and justifying measures for public health, public safety, public morals, and the general welfare. It bears stressing that police power is lodged primarily in the National Legislature. It cannot be exercised by any group or body of individuals not possessing legislative power. The National Legislature, however, may delegate this power to the President and administrative boards as well as the lawmaking bodies of municipal corporations or local government units. Once delegated, the agents can exercise only such legislative powers as are conferred on them by the national lawmaking body.

To resolve the issue on the constitutionality of the ordinance, we must first determine whether there was a valid delegation of police power. Then we can determine whether the City Government of Quezon City acted within the limits of the delegation. It is clear that Congress expressly granted the city government, through the city council, police power by virtue of Section 12(oo) of Republic Act No. 537, or the Revised Charter of Quezon City,24 which states: To make such further ordinances and regulations not repugnant to law as may be necessary to carry into effect and discharge the powers and duties conferred by this Act and such as it shall deem necessary and proper to provide for the health and safety, promote the prosperity, improve the morals, peace, good order, comfort, and convenience of the city and the inhabitants thereof, and for the protection of property therein; and enforce obedience thereto with such lawful fines or penalties as the City Council may prescribe under the provisions of subsection (jj) of this section. Specifically, on the powers of the city government to regulate the construction of buildings, the Charter also expressly provided that the city government had the power to regulate the kinds of buildings and structures that may be erected within fire limits and the manner of constructing and repairing them.25 With regard meanwhile to the power of the local government units to issue zoning ordinances, we apply Social Justice Society v. Atienza.26 In that case, the Sangguniang Panlungsod of Manila City enacted an ordinance on 28 November 2001 reclassifying certain areas of the city from industrial to commercial. As a result of the zoning ordinance, the oil terminals located in those areas were no longer allowed. Though the oil companies contended that they stood to lose billions of pesos, this Court upheld the power of the city government to pass the assailed ordinance, stating: In the exercise of police power, property rights of individuals may be subjected to restraints and burdens in order to fulfil 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. However, the interference must be reasonable and not arbitrary. And to forestall arbitrariness, the methods or means used to protect public health, morals, safety or welfare must have a reasonable relation to the end in view. The means adopted by the Sanggunian was the enactment of a zoning ordinance which reclassified the area where the depot is situated from industrial to commercial. A zoning ordinance is defined as a local city or municipal legislation which logically arranges, prescribes, defines and apportions a given political subdivision into specific land uses as present and future projection of needs. As a result of the zoning, the continued operation of the businesses of the oil companies in their present location will no longer be permitted. The power to establish zones for industrial, commercial and residential uses is derived from the police power itself and is exercised for the protection and benefit of the residents of a locality. Consequently, the enactment of Ordinance No. 8027 is within the power of the Sangguniang Panlungsod of the City of Manila and any resulting burden on those affected cannot be said to be unjust... (Emphasis supplied) In Carlos Superdrug v. Department of Social Welfare and Development,27 we also held: For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy of police power because property rights, though sheltered by due process, must yield to general welfare.

Police power as an attribute to promote the common good would be diluted considerably if on the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned provision is invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory effect of the provision in question, there is no basis for its nullification in view of the presumption of validity which every law has in its favor. (Emphasis supplied.) In the case at bar, it is clear that the primary objectives of the city council of Quezon City when it issued the questioned ordinance ordering the construction of arcades were the health and safety of the city and its inhabitants; the promotion of their prosperity; and the improvement of their morals, peace, good order, comfort, and the convenience. These arcades provide safe and convenient passage along the sidewalk for commuters and pedestrians, not just the residents of Quezon City. More especially so because the contested portion of the building is located on a busy segment of the city, in a business zone along EDSA. Corollarily, the policy of the Building Code,28 which was passed after the Quezon City Ordinance, supports the purpose for the enactment of Ordinance No. 2904. The Building Code states: Section 102. Declaration of Policy. It is hereby declared to be the policy of the State to safeguard life, health, property, and public welfare, consistent with the principles of sound environmental management and control; and to this end, make it the purpose of this Code to provide for all buildings and structures, a framework of minimum standards and requirements to regulate and control their location, site, design quality of materials, construction, occupancy, and maintenance. Section 1004 likewise requires the construction of arcades whenever existing or zoning ordinances require it. Apparently, the law allows the local government units to determine whether arcades are necessary within their respective jurisdictions. Justice Gancayco argues that there is a three-meter sidewalk in front of his property line, and the arcade should be constructed above that sidewalk rather than within his property line. We do not need to address this argument inasmuch as it raises the issue of the wisdom of the city ordinance, a matter we will not and need not delve into. To reiterate, at the time that the ordinance was passed, there was no national building code enforced to guide the city council; thus, there was no law of national application that prohibited the city council from regulating the construction of buildings, arcades and sidewalks in their jurisdiction. The "wing walls" of the building are not nuisances per se. The MMDA claims that the portion of the building in question is a nuisance per se. We disagree. The fact that in 1966 the City Council gave Justice Gancayco an exemption from constructing an arcade is an indication that the wing walls of the building are not nuisances per se. The wing walls do not per se immediately and adversely affect the safety of persons and property. The fact that an ordinance may declare a structure illegal does not necessarily make that structure 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. A nuisance may be per se or per accidens. A nuisance per se is that which affects the immediate safety of persons and property and may summarily be abated under the undefined law of necessity.29 Clearly, when Justice Gancayco was given a permit to construct the building, the city council or the city engineer did not consider the building, or its demolished portion, to be a threat to the safety of persons and property. This fact alone should have warned the MMDA against summarily demolishing the structure. Neither does the MMDA have the power to declare a thing a nuisance. Only courts of law have the power to determine whether a thing is a nuisance. In AC Enterprises v. Frabelle Properties Corp.,30 we held: 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.) MMDA illegally demolished the property of Justice Gancayco. MMDA alleges that by virtue of MMDA Resolution No. 02-28, Series of 2002, it is empowered to demolish Justice Gancaycos property. It insists that the Metro Manila Council authorized the MMDA and the local government units to clear the sidewalks, streets, avenues, alleys, bridges, parks and other public places in Metro Manila of all illegal structures and obstructions. It further alleges that it demolished the property pursuant to the Building Code in relation to Ordinance No. 2904 as amended. However, the Building Code clearly provides the process by which a building may be demolished. The authority to order the demolition of any structure lies with the Building Official. The pertinent provisions of the Building Code provide: SECTION 205. Building Officials. Except as otherwise provided herein, the Building Official shall be responsible for carrying out the provisions of this Code in the field as well as the enforcement of orders and decisions made pursuant thereto. Due to the exigencies of the service, the Secretary may designate incumbent Public Works District Engineers, City Engineers and Municipal Engineers act as Building Officials in their respective areas of jurisdiction. The designation made by the Secretary under this Section shall continue until regular positions of Building Official are provided or unless sooner terminated for causes provided by law or decree.

xxx xxx xxx SECTION 207. Duties of a Building Official. In his respective territorial jurisdiction, the Building Official shall be primarily responsible for the enforcement of the provisions of this Code as well as of the implementing rules and regulations issued therefor. He is the official charged with the duties of issuing building permits. In the performance of his duties, a Building Official may enter any building or its premises at all reasonable times to inspect and determine compliance with the requirements of this Code, and the terms and conditions provided for in the building permit as issued. When any building work is found to be contrary to the provisions of this Code, the Building Official may order the work stopped and prescribe the terms and/or conditions when the work will be allowed to resume. Likewise, the Building Official is authorized to order the discontinuance of the occupancy or use of any building or structure or portion thereof found to be occupied or used contrary to the provisions of this Code. xxx xxx xxx SECTION 215. Abatement of Dangerous Buildings. When any building or structure is found or declared to be dangerous or ruinous, the Building Official shall order its repair, vacation or demolition depending upon the degree of danger to life, health, or safety. This is without prejudice to further action that may be taken under the provisions of Articles 482 and 694 to 707 of the Civil Code of the Philippines. (Emphasis supplied.) MMDA v. Trackworks Rail Transit Advertising, Vending and Promotions, Inc.31 is applicable to the case at bar. In that case, MMDA, invoking its charter and the Building Code, summarily dismantled the advertising media installed on the Metro Rail Transit (MRT) 3. This Court held: It is futile for MMDA to simply invoke its legal mandate to justify the dismantling of Trackworks' billboards, signages and other advertising media. MMDA simply had no power on its own to dismantle, remove, or destroy the billboards, signages and other advertising media installed on the MRT3 structure by Trackworks. In Metropolitan Manila Development Authority v. Bel-Air Village Association, Inc., Metropolitan Manila Development Authority v. Viron Transportation Co., Inc., and Metropolitan Manila Development Authority v. Garin, the Court had the occasion to rule that MMDA's powers were limited to the formulation, coordination, regulation, implementation, preparation, management, monitoring, setting of policies, installing a system, and administration. Nothing in Republic Act No. 7924 granted MMDA police power, let alone legislative power. Clarifying the real nature of MMDA, the Court held: ...The MMDA is, as termed in the charter itself, a "development authority". It is an agency created for the purpose of laying down policies and coordinating with the various national government agencies, people's organizations, non-governmental organizations and the private sector for the efficient and expeditious delivery of basic services in the vast metropolitan area. All its functions are administrative in nature and these are actually summed up in the charter itself, viz:

Sec.2. Creation of the Metropolitan Manila Development Authority.- xxx.

The MMDA shall perform planning, monitoring and coordinative functions, and in the process exercise regulatory and supervisory authority over the delivery of metro-wide services within Metro Manila, without diminution of the autonomy of local government units concerning purely local matters. The Court also agrees with the CA's ruling that MMDA Regulation No. 96-009 and MMC Memorandum Circular No. 88-09 did not apply to Trackworks' billboards, signages and other advertising media. The prohibition against posting, installation and display of billboards, signages and other advertising media applied only to public areas, but MRT3, being private property pursuant to the BLT agreement between the Government and MRTC, was not one of the areas as to which the prohibition applied. Moreover, MMC Memorandum Circular No. 88-09 did not apply to Trackworks' billboards, signages and other advertising media in MRT3, because it did not specifically cover MRT3, and because it was issued a year prior to the construction of MRT3 on the center island of EDSA. Clearly, MMC Memorandum Circular No. 88-09 could not have included MRT3 in its prohibition. MMDA's insistence that it was only implementing Presidential Decree No. 1096 (Building Code) and its implementing rules and regulations is not persuasive. The power to enforce the provisions of the Building Code was lodged in the Department of Public Works and Highways (DPWH), not in MMDA, considering the law's following provision, thus: Sec. 201. Responsibility for Administration and Enforcement. The administration and enforcement of the provisions of this Code including the imposition of penalties for administrative violations thereof is hereby vested in the Secretary of Public Works, Transportation and Communications, hereinafter referred to as the "Secretary." There is also no evidence showing that MMDA had been delegated by DPWH to implement the Building Code. (Emphasis supplied.) Additionally, the penalty prescribed by Ordinance No. 2904 itself does not include the demolition of illegally constructed buildings in case of violations. Instead, it merely prescribes a punishment of "a fine of not more than two hundred pesos (P200.00) or by imprisonment of not more than thirty (30) days, or by both such fine and imprisonment at the discretion of the Court, Provided, that if the violation is committed by a corporation, partnership, or any juridical entity, the Manager, managing partner, or any person charged with the management thereof shall be held responsible therefor." The ordinance itself also clearly states that it is the regular courts that will determine whether there was a violation of the ordinance. As pointed out in Trackworks, the MMDA does not have the power to enact ordinances. Thus, it cannot supplement the provisions of Quezon City Ordinance No. 2904 merely through its Resolution No. 02-28. Lastly, the MMDA claims that the City Government of Quezon City may be considered to have approved the demolition of the structure, simply because then Quezon City Mayor Feliciano R. Belmonte signed MMDA Resolution No. 02-28. In effect, the city government delegated these powers to the MMDA. The powers referred to are those that include the power to declare, prevent and abate a nuisance32 and to further impose the penalty of removal or demolition of the building or structure by the owner or by the city at the expense of the owner.33 MMDAs argument does not hold water. There was no valid delegation of powers to the MMDA. Contrary to the claim of the MMDA, the City Government of Quezon City washed its hands off the acts of the former. In its Answer,34 the city government stated that "the demolition was undertaken by

the MMDA only, without the participation and/or consent of Quezon City." Therefore, the MMDA acted on its own and should be held solely liable for the destruction of the portion of Justice Gancaycos building. WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA-G.R. SP No. 84648 is AFFIRMED. SO ORDERED. MARIA LOURDES P. A. SERENO Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice ANTONIO T. CARPIO Associate Justice TERESITA J. LEONARDO-DE CASTRO Associate Justice DIOSDADO M. PERALTA Associate Justice MARIANO C. DEL CASTILLO Associate Justice MARTIN S. VILLARAMA, JR. Associate Justice No Part JOSE C. MENDOZA** Associate Justice PRESBITERO J. VELASCO, JR. Associate Justice ARTURO D. BRION Associate Justice (On official leave) LUCAS P. BERSAMIN* Associate Justice ROBERTO A. ABAD Associate Justice (On official leave) JOSE PORTUGAL PEREZ* Associate Justice BIENVENIDO L. REYES Associate Justice

ESTELA M. PERLAS-BERNABE Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

RENATO C. CORONA Chief Justice

Footnotes
*

On official leave. On sick leave.

**

Penned by Associate Justice Magdangal M. de Leon, with Associate Justices Godardo A. Jacinto and Juan Q. Enriquez, Jr., concurring, rollo (G.R. No. 177807), pp. 58-79.
2

Penned by Associate Justice Magdangal M. de Leon, with Associate Justices Bienvenido L. Reyes and Juan Q. Enriquez, Jr., concurring, id. at 81-83.
3

Formerly 808 Highway 54. Rollo (G.R. No. 177933), pp. 29-31. Definitions, "Annex A," National Building Code, Presidential Decree No. 1096. Rollo (G.R. No. 177933), p. 32. Id. at 7. Id. at 33-37. Presidential Decree No. 1096. Rollo (G.R. No. 177933), p. 38. Id. at 39-55. Id. at 149-165. Id. at 166-173. Id. at 77-85. Note that the questioned ordinance is Ordinance No. 2904. Rollo (G.R. No. 177933), pp. 86-107. Id. at 99. Note that the questioned ordinance is Ordinance No. 2904.

10

11

12

13

14

15

16

17

18

19

Id. at 108-116. Rollo (G.R. No. 177807), pp. 81-83. 385 Phil. 956, 978. G.R. No. 163583, 20 August 2008, 562 SCRA 511, 537. 385 Phil. 586, 601-602. Enacted on 16 June 1950. Sec. 12 (j). G.R. No. 156502, 13 February 2008, 545 SCRA 92, 139-140. G.R. No. 166494, 29 June 2007, 526 SCRA 130, 144. Presidential Decree No. 1096.

20

21

22

23

24

25

26

27

28

29

Telmo v. Bustamante, G.R. No. 182567, 13 July 2009, 592 SCRA 552 citing Tayaban v. People, G.R. No. 150194, 6 March 2007, 517 SCRA 488, 507.
30

G.R. No. 166744, 2 November 2006, 506 SCRA 625, 660-661. G.R. No. 179554, 16 December 2009, 608 SCRA 325, 332-334. Sec. 12(w). Sec. 12(jj). Rollo (G.R. No. 177933) pp. 249-270.

31

32

33

34

Republic of the Philippines SUPREME COURT Baguio City SECOND DIVISION G.R. No. 170351 March 30, 2011 LEYTE GEOTHERMAL POWER PROGRESSIVE EMPLOYEES UNION - ALU - TUCP, Petitioner, vs. PHILIPPINE NATIONAL OIL COMPANY - ENERGY DEVELOPMENT CORPORATION, Respondent. DECISION NACHURA, J.: Under review is the Decision1 dated June 30, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 65760,
which dismissed the petition for certiorari filed by petitioner Leyte Geothermal Power Progressive Employees Union ALUTUCP (petitioner Union) to annul and set aside the decision2 dated December 10, 1999 of the National Labor Relations Commission (NLRC) in NLRC Certified Case No. V-02-99.

The facts, fairly summarized by the CA, follow. [Respondent Philippine National Oil Corporation]-Energy Development Corporation [PNOC-EDC] is a government-owned and controlled corporation engaged in exploration, development, utilization, generation and distribution of energy resources like geothermal energy. Petitioner is a legitimate labor organization, duly registered with the Department of Labor and Employment (DOLE) Regional Office No. VIII, Tacloban City. Among [respondents] geothermal projects is the Leyte Geothermal Power Project located at the Greater Tongonan Geothermal Reservation in Leyte. The said Project is composed of the Tongonan 1 Geothermal Project (T1GP) and the Leyte Geothermal Production Field Project (LGPF) which provide the power and electricity needed not only in the provinces and cities of Central and Eastern Visayas (Region VII and VIII), but also in the island of Luzon as well. Thus, the [respondent] hired and employed hundreds of employees on a contractual basis, whereby, their employment was only good up to the completion or termination of the project and would automatically expire upon the completion of such project. Majority of the employees hired by [respondent] in its Leyte Geothermal Power Projects had become members of petitioner. In view of that circumstance, the petitioner demands from the [respondent] for recognition of it as the collective bargaining agent of said employees and for a CBA negotiation with it. However, the [respondent] did not heed such demands of the petitioner. Sometime in 1998 when the project was about to be completed, the [respondent] proceeded to serve Notices of Termination of Employment upon the employees who are members of the petitioner. On December 28, 1998, the petitioner filed a Notice of Strike with DOLE against the [respondent] on the ground of purported commission by the latter of unfair labor practice for "refusal to bargain collectively, union busting and mass termination." On the same day, the petitioner declared a strike and staged such strike.

To avert any work stoppage, then Secretary of Labor Bienvenido E. Laguesma intervened and issued the Order, dated January 4, 1999, certifying the labor dispute to the NLRC for compulsory arbitration. Accordingly, all the striking workers were directed to return to work within twelve (12) hours from receipt of the Order and for the [respondent] to accept them back under the same terms and conditions of employment prior to the strike. Further, the parties were directed to cease and desist from committing any act that would exacerbate the situation. However, despite earnest efforts on the part of the Secretary of Labor and Employment to settle the dispute amicably, the petitioner remained adamant and unreasonable in its position, causing the failure of the negotiation towards a peaceful compromise. In effect, the petitioner did not abide by [the] assumption order issued by the Secretary of Labor. Consequently, on January 15, 1999, the [respondent] filed a Complaint for Strike Illegality, Declaration of Loss of Employment and Damages at the NLRC-RAB VIII in Tacloban City and at the same time, filed a Petition for Cancellation of Petitioners Certificate of Registration with DOLE, Regional Office No. VIII. The two cases were later on consolidated pursuant to the New NLRC Rules of Procedure. The consolidated case was docketed as NLRC Certified Case No. V-02-99 (NCMBRAB VIII-NS-12-0190-98; RAB Case No. VIII-1-0019-99). The said certified case was indorsed to the NLRC 4th Division in Cebu City on June 21, 1999 for the proper disposition thereof.3 In due course, the NLRC 4th Division rendered a decision in favor of respondent, to wit: WHEREFORE, based on the foregoing premises, judgment is hereby rendered as follows: 1. Declaring the officers and members of [petitioner] Union as project employees; 2. Declaring the termination of their employment by reason of the completion of the project, or a phase or portion thereof, to which they were assigned, as valid and legal; 3. Declaring the strike staged and conducted by [petitioner] Union through its officers and members on December 28, 1998 to January 6, 1999 as illegal for failure to comply with the mandatory requirements of the law on strike[;] 4. Declaring all the officers and members of the board of [petitioner] Union who instigated and spearheaded the illegal strike to have lost their employment[;] 5. Dismissing the claim of [petitioner] Union against PNOC-EDC for unfair labor practice for lack of merit[;] 6. Dismissing both parties claims against each other for violation of the Assumption Order dated January 4, 1999 for lack of factual basis[;] 7. Dismissing all other claims for lack of merit.4 Petitioner Union filed a motion for reconsideration of the NLRC decision, which was subsequently denied. Posthaste, petitioner Union filed a petition for certiorari before the CA, alleging grave abuse of discretion in the decision of the NLRC. As previously adverted to, the CA dismissed the petition for certiorari, thus:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us DISMISSING the Petition. The assailed Decision dated December 10, 1999 of the NLRC 4th Division in NLRC Certified Case No. V-02-99 (NCMB-RAB VIII-NS-12-0190-98; RAB Case No. VIII-1-0019-99) and its Order dated March 30, 2001 are hereby AFFIRMED. Costs against the Petitioner.5 Hence, this appeal by certiorari filed by petitioner Union, positing the following questions of law: 1. MAY THE HONORABLE COURT OF APPEALS SUSTAIN THE "PROJECT CONTRACTS" THAT ARE DESIGNED TO DENY AND DEPRIVE THE EMPLOYEES THEIR RIGHT TO SECURITY OF TENURE BY MAKING IT APPEAR THAT THEY ARE MERE PROJECT EMPLOYEES? 2. WHEN THERE ARE NO INTERVALS IN THE EMPLOYEES CONTRACT, SUCH THAT THE SO CALLED UNDERTAKING WAS CONTINUOUS, ARE THE EMPLOYEES PROPERLY TREATED AS PROJECT EMPLOYEES? 3. MAY THE HONORABLE COURT OF APPEALS IGNORE THE FIRMS OWN ESTIMATE OF JOB COMPLETION, PROVING THAT THERE IS STILL 56.25% CIVIL/STRUCTURAL WORK TO BE ACCOMPLISHED, AND RULE THAT THE EMPLOYEES WERE DISMISSED FOR COMPLETION [OF] THE "PROJECT?" 4. MAY A FIRM HIDE UNDER THE SPURIOUS CLOAK OF "PROJECT COMPLETION" TO DISMISS EN MASSE THE EMPLOYEES WHO HAVE ORGANIZED AMONG THEMSELVES A LEGITIMATE LABOR ORGANIZATION TO PROTECT THEIR RIGHTS? 5. WHEN THERE IS NO STOPPAGE OF WORK, MAY A PROTEST ACTIVITY BE CONSIDERED AS A STRIKE CONTRARY TO ITS CONCEPTUAL DEFINITION UNDER ARTICLE 212 (O) OF THE LABOR CODE OF THE PHILIPPINES? 6. WHEN THE DISMISSAL IS AIMED AT RIDDING THE COMPANY OF MEMBERS OF THE UNION, IS THIS UNION BUSTING?6 Stripped of rhetoric, the issues for our resolution are: 1. Whether the officers and members of petitioner Union are project employees of respondent; and 2. Whether the officers and members of petitioner Union engaged in an illegal strike. On the first issue, petitioner Union contends that its officers and members performed activities that were usually necessary and desirable to respondents usual business. In fact, petitioner Union reiterates that its officers and members were assigned to the Construction Department of respondent as carpenters and masons, and to other jobs pursuant to civil works, which are usually necessary and desirable to the department. Petitioner Union likewise points out that there was no interval in the employment contract of its officers and members, who were all employees of respondent, which lack of interval, for petitioner Union, "manifests that the undertaking is usually necessary and desirable to the usual trade or business of the employer." We cannot subscribe to the view taken by petitioner Union.

The distinction between a regular and a project employment is provided in Article 280, paragraph 1, of the Labor Code: ART. 280. Regular and Casual Employment. The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee or where the work or service to be performed is seasonal in nature and the employment is for the duration of the season. An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That, any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such actually exists.7 The foregoing contemplates four (4) kinds of employees: (a) regular employees or those who have been "engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer"; (b) project employees or those "whose employment has been fixed for a specific project or undertaking[,] the completion or termination of which has been determined at the time of the engagement of the employee"; (c) seasonal employees or those who work or perform services which are seasonal in nature, and the employment is for the duration of the season;8 and (d) casual employees or those who are not regular, project, or seasonal employees. Jurisprudence has added a fifth kind a fixed-term employee.9 Article 280 of the Labor Code, as worded, establishes that the nature of the employment is determined by law, regardless of any contract expressing otherwise. The supremacy of the law over the nomenclature of the contract and the stipulations contained therein is to bring to life the policy enshrined in the Constitution to "afford full protection to labor."10 Thus, labor contracts are placed on a higher plane than ordinary contracts; these are imbued with public interest and therefore subject to the police power of the State.11 However, notwithstanding the foregoing iterations, project employment contracts which fix the employment for a specific project or undertaking remain valid under the law: x x x By entering into such a contract, an employee is deemed to understand that his employment is coterminous with the project. He may not expect to be employed continuously beyond the completion of the project. It is of judicial notice that project employees engaged for manual services or those for special skills like those of carpenters or masons, are, as a rule, unschooled. However, this fact alone is not a valid reason for bestowing special treatment on them or for invalidating a contract of employment. Project employment contracts are not lopsided agreements in favor of only one party thereto. The employers interest is equally important as that of the employee[s] for theirs is the interest that propels economic activity. While it may be true that it is the employer who drafts project employment contracts with its business interest as overriding consideration, such contracts do not, of necessity, prejudice the employee. Neither is the employee left helpless by a prejudicial employment contract. After all, under the law, the interest of the worker is paramount.12 In the case at bar, the records reveal that the officers and the members of petitioner Union signed employment contracts indicating the specific project or phase of work for which they were hired, with a fixed period of employment. The NLRC correctly disposed of this issue:

A deeper examination also shows that [the individual members of petitioner Union] indeed signed and accepted the [employment contracts] freely and voluntarily. No evidence was presented by [petitioner] Union to prove improper pressure or undue influence when they entered, perfected and consummated [the employment] contracts. In fact, it was clearly established in the course of the trial of this case, as explained by no less than the President of [petitioner] Union, that the contracts of employment were read, comprehended, and voluntarily accepted by them. x x x. xxxx As clearly shown by [petitioner] Unions own admission, both parties had executed the contracts freely and voluntarily without force, duress or acts tending to vitiate the worker[s] consent. Thus, we see no reason not to honor and give effect to the terms and conditions stipulated therein. x x x.13 Thus, we are hard pressed to find cause to disturb the findings of the NLRC which are supported by substantial evidence. It is well-settled in jurisprudence that factual findings of administrative or quasi-judicial bodies, which are deemed to have acquired expertise in matters within their respective jurisdictions, are generally accorded not only respect but even finality, and bind the Court when supported by substantial evidence.14 Rule 133, Section 5 defines substantial evidence as "that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion." Consistent therewith is the doctrine that this Court is not a trier of facts, and this is strictly adhered to in labor cases.15 We may take cognizance of and resolve factual issues, only when the findings of fact and conclusions of law of the Labor Arbiter or the NLRC are inconsistent with those of the CA.16 In the case at bar, both the NLRC and the CA were one in the conclusion that the officers and the members of petitioner Union were project employees. Nonetheless, petitioner Union insists that they were regular employees since they performed work which was usually necessary or desirable to the usual business or trade of the Construction Department of respondent. The landmark case of ALU-TUCP v. NLRC17 instructs on the two (2) categories of project employees: It is evidently important to become clear about the meaning and scope of the term "project" in the present context. The "project" for the carrying out of which "project employees" are hired would ordinarily have some relationship to the usual business of the employer. Exceptionally, the "project" undertaking might not have an ordinary or normal relationship to the usual business of the employer. In this latter case, the determination of the scope and parameters of the "project" becomes fairly easy. x x x. From the viewpoint, however, of the legal characterization problem here presented to the Court, there should be no difficulty in designating the employees who are retained or hired for the purpose of undertaking fish culture or the production of vegetables as "project employees," as distinguished from ordinary or "regular employees," so long as the duration and scope of the project were determined or specified at the time of engagement of the "project employees." For, as is evident from the provisions of Article 280 of the Labor Code, quoted earlier, the principal test for determining whether particular employees are properly characterized as "project employees" as distinguished from "regular employees," is whether or not the "project employees" were assigned to carry out a "specific project or undertaking," the duration (and scope) of which were specified at the time the employees were engaged for that project. In the realm of business and industry, we note that "project" could refer to one or the other of at least two (2) distinguishable types of activities. Firstly, a project could refer to a particular job or

undertaking that is within the regular or usual business of the employer company, but which is distinct and separate, and identifiable as such, from the other undertakings of the company. Such job or undertaking begins and ends at determined or determinable times. The typical example of this first type of project is a particular construction job or project of a construction company. A construction company ordinarily carries out two or more [distinct] identifiable construction projects: e.g., a twenty-five-storey hotel in Makati; a residential condominium building in Baguio City; and a domestic air terminal in Iloilo City. Employees who are hired for the carrying out of one of these separate projects, the scope and duration of which has been determined and made known to the employees at the time of employment, are properly treated as "project employees," and their services may be lawfully terminated at completion of the project. The term "project" could also refer to, secondly, a particular job or undertaking that is not within the regular business of the corporation. Such a job or undertaking must also be identifiably separate and distinct from the ordinary or regular business operations of the employer. The job or undertaking also begins and ends at determined or determinable times.18 Plainly, the litmus test to determine whether an individual is a project employee lies in setting a fixed period of employment involving a specific undertaking which completion or termination has been determined at the time of the particular employees engagement. In this case, as previously adverted to, the officers and the members of petitioner Union were specifically hired as project employees for respondents Leyte Geothermal Power Project located at the Greater Tongonan Geothermal Reservation in Leyte. Consequently, upon the completion of the project or substantial phase thereof, the officers and the members of petitioner Union could be validly terminated. Petitioner Union is adamant, however, that the lack of interval in the employment contracts of its officer and members negates the latters status as mere project employees. For petitioner Union, the lack of interval further drives home its point that its officers and members are regular employees who performed work which was usually necessary or desirable to the usual business or trade of respondent. We are not persuaded. Petitioner Unions members employment for more than a year does equate to their regular employment with respondent. In this regard, Mercado, Sr. v. NLRC19 illuminates: The first paragraph [of Article 280 of the Labor Code] answers the question of who are regular employees. It states that, regardless of any written or oral agreement to the contrary, an employee is deemed regular where he is engaged in necessary or desirable activities in the usual business or trade of the employer, except for project employees. A project employee has been defined to be one whose employment has been fixed for a specific project or undertaking, the completion or termination of which has been determined at the time of the engagement of the employee, or where the work or service to be performed is seasonal in nature and the employment is for the duration of the season, as in the present case. The second paragraph of Art. 280 demarcates as "casual" employees, all other employees who do not fall under the definition of the preceding paragraph. The proviso, in said second paragraph, deems as regular employees those "casual" employees who have rendered at least one year of service regardless of the fact that such service may be continuous or broken.

Petitioners, in effect, contend that the proviso in the second paragraph of Art. 280 is applicable to their case and that the Labor Arbiter should have considered them regular by virtue of said proviso. The contention is without merit. The general rule is that the office of a proviso is to qualify or modify only the phrase immediately preceding it or restrain or limit the generality of the clause that it immediately follows. Thus, it has been held that a proviso is to be construed with reference to the immediately preceding part of the provision to which it is attached, and not to the statute itself or to other sections thereof. The only exception to this rule is where the clear legislative intent is to restrain or qualify not only the phrase immediately preceding it (the proviso) but also earlier provisions of the statute or even the statute itself as a whole. Policy Instruction No. 12 of the Department of Labor and Employment discloses that the concept of regular and casual employees was designed to put an end to casual employment in regular jobs, which has been abused by many employers to prevent so called casuals from enjoying the benefits of regular employees or to prevent casuals from joining unions. The same instructions show that the proviso in the second paragraph of Art. 280 was not designed to stifle small-scale businesses nor to oppress agricultural land owners to further the interests of laborers, whether agricultural or industrial. What it seeks to eliminate are abuses of employers against their employees and not, as petitioners would have us believe, to prevent small-scale businesses from engaging in legitimate methods to realize profit. Hence, the proviso is applicable only to the employees who are deemed "casuals" but not to the "project" employees nor the regular employees treated in paragraph one of Art. 280. Clearly, therefore, petitioners being project employees, or, to use the correct term, seasonal employees, their employment legally ends upon completion of the project or the [end of the] season. The termination of their employment cannot and should not constitute an illegal dismissal. Considering our holding that the officers and the members of petitioner Union were project employees, its claim of union busting is likewise dismissed. On the second issue, petitioner Union contends that there was no stoppage of work; hence, they did not strike. Euphemistically, petitioner Union avers that it "only engaged in picketing,"20 and maintains that "without any work stoppage, [its officers and members] only engaged in xxx protest activity." We are not convinced. Petitioner Union splits hairs. To begin with, quite evident from the records is the undisputed fact that petitioner Union filed a Notice of Strike on December 28, 1998 with the Department of Labor and Employment, grounded on respondents purported unfair labor practices, i.e., "refusal to bargain collectively, union busting and mass termination." On even date, petitioner Union declared and staged a strike. Second, then Secretary of Labor, Bienvenido E. Laguesma, intervened and issued a Return-to-Work Order21 dated January 4, 1999, certifying the labor dispute to the NLRC for compulsory arbitration. The Order narrates the facts leading to the labor dispute, to wit: On 28 December 1998, [petitioner Union] filed a Notice of Strike against [respondent] citing unfair labor practices, specifically: refusal to bargain collectively, union busting and mass termination as the grounds [therefor]. On the same day, [petitioner] Union went on strike and took control over [respondents] facilities of its Leyte Geothermal Project.

Attempts by the National Conciliation and Mediation Board RBVIII to forge a mutually acceptable solution proved futile. In the meantime, the strike continues with no settlement in sight placing in jeopardy the supply of much needed power supply in the Luzon and Visayas grids. xxxx The on-going strike threatens the availability of continuous electricity to these areas which is critical to day-to-day life, industry, commerce and trade. Without doubt, [respondents] operations [are] indispensable to the national interest and falls (sic) within the purview of Article 263 (g) of the Labor Code, as amended, which warrants (sic) the intervention of this Office. Third, petitioner Union itself, in its pleadings, used the word "strike." Ultimately, petitioner Unions asseverations are belied by the factual findings of the NLRC, as affirmed by the CA: The failure to comply with the mandatory requisites for the conduct of strike is both admitted and clearly shown on record. Hence, it is undisputed that no strike vote was conducted; likewise, the cooling-off period was not observed and that the 7-day strike ban after the submission of the strike vote was not complied with since there was no strike vote taken. xxxx The factual issue of whether a notice of strike was timely filed by [petitioner] Union was resolved by the evidence on record. The evidence revealed that [petitioner] Union struck even before it could file the required notice of strike. Once again, this relied on [petitioner] Unions proof. [Petitioner] Union[s] witness said: Atty. Sinsuat : You stated that you struck on 28 December 1998 is that correct? Witness : Early in the morning of December 1998. xxxx Atty. Sinsuat : And you went there to conduct the strike did you not? Witness : Our plan then was to strike at noon of December 28 and the strikers will be positioned at their respective areas.22 Article 263 of the Labor Code enumerates the requisites for holding a strike: Art. 263. Strikes, picketing, and lockouts. (a) x x x. x x x x. (c) In cases of bargaining deadlocks, the duly certified or recognized bargaining agent may file a notice of strike or the employer may file a notice of lockout with the Department at least 30 days before the intended date thereof. In cases of unfair labor

practice, the period of notice shall be 15 days and in the absence of a duly certified bargaining agent, the notice of strike may be filed by any legitimate labor organization in behalf of its members. However, in case of dismissal from employment of union officers duly elected in accordance with the union constitution and by-laws, which may constitute union busting, where the existence of the union is threatened, the 15-day cooling-off period shall not apply and the union may take action immediately. (d) The notice must be in accordance with such implementing rules and regulations as the Department of Labor and Employment may promulgate. (e) During the cooling-off period, it shall be the duty of the Department to exert all efforts at mediation and conciliation to effect a voluntary settlement. Should the dispute remain unsettled until the lapse of the requisite number of days from the mandatory filing of the notice, the labor union may strike or the employer may declare a lockout. (f) A decision to declare a strike must be approved by a majority of the total union membership in the bargaining unit concerned, obtained by secret ballot in meetings or referenda called for that purpose. A decision to declare a lockout must be approved by a majority of the board of directors of the corporation or association or of the partners in a partnership, obtained by secret ballot in a meeting called for that purpose. The decision shall be valid for the duration of the dispute based on substantially the same grounds considered when the strike or lockout vote was taken. The Department may, at its own initiative or upon the request of any affected party, supervise the conduct of the secret balloting. In every case, the union or the employer shall furnish the Department the results of the voting at least seven days before the intended strike or lockout, subject to the cooling-off period herein provided. In fine, petitioner Unions bare contention that it did not hold a strike cannot trump the factual findings of the NLRC that petitioner Union indeed struck against respondent. In fact, and more importantly, petitioner Union failed to comply with the requirements set by law prior to holding a strike.
1avv phi 1

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 65760 is AFFIRMED. Costs against petitioner Union. SO ORDERED. ANTONIO EDUARDO B. NACHURA Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice Chairperson DIOSDADO M. PERALTA Associate Justice ROBERTO A. ABAD Associate Justice

JOSE CATRAL MENDOZA Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
1

Penned by Associate Justice Isaias P. Dicdican, with Associate Justices Sesinando E. Villon and Enrico A. Lanzanas, concurring; rollo, pp. 37-47.
2

Penned by Commissioner Amorito V. Caete with Presiding Commissioner Irenea E. Ceniza and Commissioner Bernabe S. Batuhan, concurring; id. at 105-124.
3

Supra, note 1, at 38-40. Supra note 2, at 123-124. Supra, note 1, at 46. Petition of Petitioner; rollo, pp. 25-26. Emphasis supplied. See Phil. Tobacco Flue-Curing & Redrying Corp. v. NLRC, 360 Phil. 218 (1998).

Asia World Recruitment Inc. v. NLRC, 371 Phil. 745, 755-756 (1999); Palomares v. NLRC, (5TH Division), G.R. No. 120064, August 15, 1997, 277 SCRA 439, 447-449; Brent School, Inc. v. Zamora, 260 Phil. 747, 758-762 (1990).
10

Article XIII, Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work and a living wage. They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law. The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace. The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments, and to expansion and growth.
11

See Articles 1700 and 1702 of the Civil Code; Villa v. NLRC, 348 Phil. 116, 140141 (1998).
12

Villa v. NLRC, supra, at 141. Supra note 2, at 110. G & M (Phils.), Inc. v. Cruz, 496 Phil. 119, 123-124 (2005).

13

14

15

PCL Shipping Philippines, Inc. v. NLRC, G.R. No. 153031, December 14, 2006, 511 SCRA 44, 54.
16

Id. G.R. No. 109902, August 2, 1994, 234 SCRA 678, 684-686. Emphasis supplied. G.R No. 79869, September 5, 1991, 201 SCRA 332, 341-343. Petitioners Memorandum, rollo, p. 398. Id. at 194-195. Id. at 115-116.

17

18

19

20

21

22

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 171231 February 17, 2010 PNCC SKYWAY TRAFFIC MANAGEMENT AND SECURITY DIVISION WORKERS ORGANIZATION (PSTMSDWO), represented by its President, RENE SORIANO, Petitioner, vs. PNCC SKYWAY CORPORATION, Respondent. DECISION PERALTA, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision1 and the Resolution2 of the Court of Appeals (CA) in CA-G.R. SP. No. 87069, which annulled and set aside the Decision and Order of the Voluntary Arbitrator dated July 12, 2004 and August 11, 2004, respectively. The factual antecedents are as follows: Petitioner PNCC Skyway Corporation Traffic Management and Security Division Workers' Organization (PSTMSDWO) is a labor union duly registered with the Department of Labor and Employment (DOLE). Respondent PNCC Skyway Corporation is a corporation duly organized and operating under and by virtue of the laws of the Philippines. On November 15, 2002, petitioner and respondent entered into a Collective Bargaining Agreement (CBA) incorporating the terms and conditions of their agreement which included vacation leave and expenses for security license provisions. The pertinent provisions of the CBA relative to vacation leave and sick leave are as follows: ARTICLE VIII VACATION LEAVE AND SICK LEAVE Section 1. Vacation Leave. [a] Regular Employees covered by the bargaining unit who have completed at least one [1] year of continuous service shall be entitled to vacation leave with pay depending on the length of service as follows: 1-9 years of service - 15 working days 10-15 years of service - 16 working days 16-20 years of service - 17 working days

21-25 years of service - 18 working days 26 and above years of service - 19 working days. [b] The company shall schedule the vacation leave of employees during the year taking into consideration the request of preference of the employees.(emphasis supplied) [c] Any unused vacation leave shall be converted to cash and shall be paid to the employees on the first week of December each year." ARTICLE XXI Section 6. Security License All covered employees must possess a valid License [Security Guard License] issued by the Chief, Philippine National Police or his duly authorized representative, to perform his duties as security guard. All expenses of security guard in securing/renewing their licenses shall be for their personal account. Guards, securing/renewing their license must apply for a leave of absence and/or a change of schedule. Any guard who fails to renew his security guard license should be placed on forced leave until such time that he can present a renewed security license. In a Memorandum dated December 29, 2003,3 respondent's Head of the Traffic Management and Security Department (TMSD) published the scheduled vacation leave of its TMSD personnel for the year 2004. Thereafter, the Head of the TMSD issued a Memorandum4 dated January 9, 2004 to all TMSD personnel. In the said memorandum, it was provided that: SCHEDULED VACATION LEAVE WITH PAY. The 17 days (15 days SVL plus 2-day-off) scheduled vacation leave (SVL) with pay for the year 2004 had been published for everyone to take a vacation with pay which will be our opportunity to enjoy quality time with our families and perform our other activities requiring our personal attention and supervision. Swapping of SVL schedule is allowed on a one-on-one basis by submitting a written request at least 30 days before the actual schedule of SVL duly signed by the concerned parties. However, the undersigned may consider the re-scheduling of the SVL upon the written request of concerned TMSD personnel at least 30 days before the scheduled SVL. Re-scheduling will be evaluated taking into consideration the TMSDs operational requirement. Petitioner objected to the implementation of the said memorandum. It insisted that the individual members of the union have the right to schedule their vacation leave. It opined that the unilateral scheduling of the employees' vacation leave was done to avoid the monetization of their vacation leave in December 2004. This was allegedly apparent in the memorandum issued by the Head HRD,5 addressed to all department heads, which provides: FOR : All Dept. Heads FROM : Head, HRD SUBJECT : Leave Balances as of January 01, 2004 DATE : January 9, 2004

We are furnishing all the departments the leave balances of their respective staff as of January 01, 2004, so as to have them monitor and program the schedule of such leave. Please consider the leave credit they earned each month [1-2-0], one day and two hours in anticipation of the later schedule. As we are targeting the zero conversion comes December 2004, it is suggested that the leave balances as of to date be given preferential scheduling. x x x. Petitioner also demanded that the expenses for the required in-service training of its member security guards, as a requirement for the renewal of their license, be shouldered by the respondent. However, the respondent did not accede to petitioner's demands and stood firm on its decision to schedule all the vacation leave of petitioner's members. Due to the disagreement between the parties, petitioner elevated the matter to the DOLE-NCMB for preventive mediation. For failure to settle the issue amicably, the parties agreed to submit the issue before the voluntary arbitrator. The voluntary arbitrator issued a Decision dated July 12, 2004, the dispositive portion of which reads: WHEREFORE, premises all considered, declaring that: a) The scheduling of all vacation leaves under Article VIII, Section 6, thereof, shall be under the discretion of the union members entitled thereto, and the management to convert them into cash all the leaves which the management compelled them to use. b) To pay the expenses for the in-service-training of the company security guards, as a requirement for renewal of licenses, shall not be their personal account but that of the company. All other claims are dismissed for lack of merit. SO ORDERED.6 Respondent filed a motion for reconsideration, which the voluntary arbitrator denied in the Order7 dated August 11, 2004. Aggrieved, on October 22, 2004, respondent filed a Petition for Certiorari with Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction with the CA, and the CA rendered a Decision dated October 4, 2005,8 annulling and setting aside the decision and order of the voluntary arbitrator. The CA ruled that since the provisions of the CBA were clear, the voluntary arbitrator has no authority to interpret the same beyond what was expressly written. Petitioner filed a motion for reconsideration, which the CA denied through a Resolution dated January 23, 2006.9 Hence, the instant petition assigning the following errors: I WITH ALL DUE RESPECT, THE HONORABLE PUBLIC RESPONDENT COURT OF APPEALS [THIRTEENTH DIVISION] ERRED IN HOLDING THAT:

A) THE MANAGEMENT HAS THE SOLE DISCRETION TO SCHEDULE THE VACATION LEAVE OF HEREIN PETITIONER. B) THE MANAGEMENT IS NOT LIABLE FOR THE IN-SERVICE-TRAINING OF THE SECURITY GUARDS. II THE HONORABLE PUBLIC RESPONDENT ERRED IN OVERSEEING THE CONVERSION ASPECT OF THE UNUSED LEAVE. Before considering the merits of the petition, We shall first address the objection based on technicality raised by respondent. Respondent alleged that the petition was fatally defective due to the lack of authority of its union president, Rene Soriano, to sign the certification and verification against forum shopping on petitioner's behalf. It alleged that the authority of Rene Soriano to represent the union was only conferred on June 30, 2006 by virtue of a board resolution,10 while the Petition for Review had long been filed on February 27, 2006. Thus, Rene Soriano did not possess the required authority at the time the petition was filed on February 27, 2006. The petitioner countered that the Board Resolution11 dated June 30, 2006 merely reiterated the authority given to the union president to represent the union, which was conferred as early as October 2005. The resolution provides in part that: WHEREAS, in a meeting duly called for October 2005, the Union decided to file a Motion for Reconsideration and if the said motion be denied, to file a petition before the Supreme Court. (Emphasis supplied) Thus, the union president, representing the union, was clothed with authority to file the petition on February 27, 2006. The purpose of requiring verification is to secure an assurance that the allegations in the petition have been made in good faith; or are true and correct, not merely speculative. This requirement is simply a condition affecting the form of pleadings, and non-compliance therewith does not necessarily render it fatally defective. Truly, verification is only a formal, not a jurisdictional, requirement. With respect to the certification of non-forum shopping, it has been held that the certification requirement is rooted in the principle that a party-litigant shall not be allowed to pursue simultaneous remedies in different fora, as this practice is detrimental to an orderly judicial procedure. However, this Court has relaxed, under justifiable circumstances, the rule requiring the submission of such certification considering that, although it is obligatory, it is not jurisdictional. Not being jurisdictional, it can be relaxed under the rule of substantial compliance.12 In Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue,13 We said that: In a slew of cases, however, we have recognized the authority of some corporate officers to sign the verification and certification against forum shopping. In Mactan-Cebu International Airport Authority v. CA, we recognized the authority of a general manager or acting general manager to sign the verification and certificate against forum shopping; in Pfizer v. Galan, we upheld the validity of a

verification signed by an "employment specialist" who had not even presented any proof of her authority to represent the company; in Novelty Philippines, Inc., v. CA, we ruled that a personnel officer who signed the petition but did not attach the authority from the company is authorized to sign the verification and non-forum shopping certificate; and in Lepanto Consolidated Mining Company v. WMC Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and President of the Company can sign the verification and certificate against non-forum shopping even without the submission of the boards authorization. In sum, we have held that the following officials or employees of the company can sign the verification and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case. While the above cases do not provide a complete listing of authorized signatories to the verification and certification required by the rules, the determination of the sufficiency of the authority was done on a case to case basis. The rationale applied in the foregoing cases is to justify the authority of corporate officers or representatives of the corporation to sign the verification or certificate against forum shopping, being "in a position to verify the truthfulness and correctness of the allegations in the petition." In the case at bar, We rule that Rene Soriano has sufficient authority to sign the verification and certification against forum shopping for the following reasons: First, the resolution dated June 30, 2006 was merely a reiteration of the authority given to the Union President to file a case before this Court assailing the CBA violations committed by the management, which was previously conferred during a meeting held on October 5, 2005. Thus, it can be inferred that even prior to the filing of the petition before Us on February 27, 2006, the president of the union was duly authorized to represent the union and to file a case on its behalf. Second, being the president of the union, Rene Soriano is in a position to verify the truthfulness and correctness of the allegations in the petition. Third, assuming that Mr. Soriano has no authority to file the petition on February 27, 2006, the passing on June 30, 2006 of a Board Resolution authorizing him to represent the union is deemed a ratification of his prior execution, on February 27, 2006, of the verification and certificate of non-forum shopping, thus curing any defects thereof. Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority.14 We now go to the merits of the case. Petitioner insisted that their union members have the preference in scheduling their vacation leave. On the other hand, respondent argued that Article VIII, Section 1 (b) gives the management the final say regarding the vacation leave schedule of its employees. Respondent may take into consideration the employees' preferred schedule, but the same is not controlling. Petitioner also requested the respondent to provide and/or shoulder the expenses for the in-service training of their members as a requirement for the renewal of the security guards' license. Respondent did not accede to the union's request invoking the CBA provision which states that all expenses of security guards in securing /renewing their license shall be for their personal account. The petitioner further argued that any doubts or ambiguity in the interpretation of the CBA should be resolved in favor of the laborer. As to the issue on vacation leaves, the same has no merit. The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The intention of the parties must be gathered

from that language, and from that language alone. Stated differently, where the language of a written contract is clear and unambiguous, the contract must be taken to mean that which, on its face, it purports to mean, unless some good reason can be assigned to show that the words used should be understood in a different sense.15 In the case at bar, the contested provision of the CBA is clear and unequivocal. Article VIII, Section 1 (b) of the CBA categorically provides that the scheduling of vacation leave shall be under the option of the employer. The preference requested by the employees is not controlling because respondent retains its power and prerogative to consider or to ignore said request. Thus, if the terms of a CBA are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall prevail.16 In fine, the CBA must be strictly adhered to and respected if its ends have to be achieved, being the law between the parties. In Faculty Association of Mapua Institute of Technology (FAMIT) v. Court of Appeals,17 this Court held that the CBA during its lifetime binds all the parties. The provisions of the CBA must be respected since its terms and conditions constitute the law between the parties. The parties cannot be allowed to change the terms they agreed upon on the ground that the same are not favorable to them. As correctly found by the CA: The words of the CBA were unequivocal when it provided that "The company shall schedule the vacation leave of employees during the year taking into consideration the request of preference of the employees." The word shall in this instance connotes an imperative command, there being nothing to show a different intention. The only concession given under the subject clause was that the company should take into consideration the preferences of the employees in scheduling the vacations; but certainly, the concession never diminished the positive right of management to schedule the vacation leaves in accordance with what had been agreed and stipulated upon in the CBA. There is, thus, no basis for the Voluntary Arbitrator to interpret the subject provision relating to the schedule of vacation leaves as being subject to the discretion of the union members. There is simply nothing in the CBA which grants the union members this right. It must be noted the grant to management of the right to schedule vacation leaves is not without good reason. Indeed, if union members were given the unilateral discretion to schedule their vacation leaves, the same may result in significantly crippling the number of key employees of the petitioner manning the toll ways on holidays and other peak seasons, where union members may wittingly or unwittingly choose to have a vacation. Put another way, the grant to management of the right to schedule vacation leaves ensures that there would always be enough people manning and servicing the toll ways, which in turn assures the public plying the same orderly and efficient toll way service. Indeed, the multitude or scarcity of personnel manning the tollways should not rest upon the option of the employees, as the public using the skyway system should be assured of its safety, security and convenience. Although the preferred vacation leave schedule of petitioner's members should be given priority, they cannot demand, as a matter of right, that their request be automatically granted by the respondent. If the petitioners were given the exclusive right to schedule their vacation leave then said right should have been incorporated in the CBA. In the absence of such right and in view of the mandatory provision in the CBA giving respondent the right to schedule the vacation leave of its employees, compliance therewith is mandated by law.

In the grant of vacation leave privileges to an employee, the employer is given the leeway to impose conditions on the entitlement to and commutation of the same, as the grant of vacation leave is not a standard of law, but a prerogative of management.18 It is a mere concession or act of grace of the employer and not a matter of right on the part of the employee.19 Thus, it is well within the power and authority of an employer to impose certain conditions, as it deems fit, on the grant of vacation leaves, such as having the option to schedule the same. Along that line, since the grant of vacation leave is a prerogative of the employer, the latter can compel its employees to exhaust all their vacation leave credits. Of course, any vacation leave credits left unscheduled by the employer, or any scheduled vacation leave that was not enjoyed by the employee upon the employer's directive, due to exigencies of the service, must be converted to cash, as provided in the CBA. However, it is incorrect to award payment of the cash equivalent of vacation leaves that were already used and enjoyed by the employees. By directing the conversion to cash of all utilized and paid vacation leaves, the voluntary arbitrator has licensed unjust enrichment in favor of the petitioner and caused undue financial burden on the respondent. Evidently, the Court cannot tolerate this. It would seem that petitioner's goal in relentlessly arguing that its members preferred vacation leave schedule should be given preference is not allowed to them to avail themselves of their respective vacation leave credits at all but, instead, to convert these into cash. In Cuajo v. Chua Lo Tan,20 We said that the purpose of a vacation leave is to afford a laborer a chance to get a much-needed rest to replenish his worn-out energy and acquire a new vitality to enable him to efficiently perform his duties, and not merely to give him additional salary and bounty. This purpose is manifest in the Memorandum dated January 9, 200421 addressed to all TMSD Personnel which provides that: SCHEDULED VACATION LEAVE WITH PAY The 17 days (15 days SVL plus 2-Day-Off) scheduled vacation leave (SVL) with pay for the year 2004 had been published for everyone to take a vacation with pay which will be our opportunity to enjoy quality time with our families and perform our other activities requiring our personal attention and supervision.(Emphasis ours.) Accordingly, the vacation leave privilege was not intended to serve as additional salary, but as a non-monetary benefit. To give the employees the option not to consume it with the aim of converting it to cash at the end of the year would defeat the very purpose of vacation leave. Petitioner's contention that labor contracts should be construed in favor of the laborer is without basis and, therefore, inapplicable to the present case. This rule of construction does not benefit petitioners because, as stated, there is here no room for interpretation. Since the CBA is clear and unambiguous, its terms should be implemented as they are written. This brings Us to the issue of who is accountable for the in-service training of the security guards. On this point, We find the petition meritorious. Although it is a rule that a contract freely entered into between the parties should be respected, since a contract is the law between the parties, there are, however, certain exceptions to the rule, specifically Article 1306 of the Civil Code, which provides:

The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Moreover, the relations between capital and labor are not merely contractual. "They are so impressed with public interest that labor contracts must yield to the common good x x x."22 The supremacy of the law over contracts is explained by the fact that labor contracts are not ordinary contracts; they are imbued with public interest and therefore are subject to the police power of the state.23 However, it should not be taken to mean that provisions agreed upon in the CBA are absolutely beyond the ambit of judicial review and nullification. If the provisions in the CBA run contrary to law, public morals, or public policy, such provisions may very well be voided. In the present case, Article XXI, Section 6 of the CBA provides that "All expenses of security guards in securing /renewing their licenses shall be for their personal account." A reading of the provision would reveal that it encompasses all possible expenses a security guard would pay or incur in order to secure or renew his license. In-service training is a requirement for the renewal of a security guards license.24 Hence, following the aforementioned CBA provision, the expenses for the same must be on the personal account of the employee. However, the 1994 Revised Rules and Regulations Implementing Republic Act No. 5487 provides the following: Section 17. Responsibility for Training and Progressive Development. It is the primary responsibility of all operators private security agency and company security forces to maintain and upgrade the standards of efficiency, discipline, performance and competence of their personnel. To attain this end, each duly licensed private security agency and company security force shall establish a staff position for training and appoint a training officer whose primary functions are to determine the training needs of the agency/guards in relation to the needs of the client/ market/ industry, and to supervise and conduct appropriate training requirements. All private security personnel shall be retrained at least once very two years.
1avv phi1

Section 12. In service training. - a. To maintain and/or upgrade the standard of efficiency, discipline and competence of security guards and detectives, company security force and private security agencies upon prior authority shall conduct-in-service training at least two (2) weeks duration for their organic members by increments of at least two percent (2%) of their total strength. Where the quality of training is better served by centralization, the CSFD Directors may activate a training staff from local talents to assist. The cost of training shall be pro-rated among the participating agencies/private companies. All security officer must undergo in-service training at least once every two (2) years preferably two months before his or her birth month. Since it is the primary responsibility of operators of company security forces to maintain and upgrade the standards of efficiency, discipline, performance and competence of their personnel, it follows that the expenses to be incurred therein shall be for the personal account of the company. Further, the intent of the law to impose upon the employer the obligation to pay for the cost of its employees training is manifested in the aforementioned laws provision that Where the quality of training is better served by centralization, the CFSD Directors may activate a training staff from local talents to assist. The cost of training shall be pro-rated among the participating agencies/private companies. It can be gleaned from the said provision that cost of training shall be pro-rated among participating agencies and companies if the training is best served by centralization. The law mandates pro-rating of expenses because it would be impracticable and unfair to impose the burden of expenses suffered by all participants on only one participating agency or company. Thus, it follows that if there is no centralization, there can be no pro-rating, and the company that has its own security forces shall shoulder the entire cost for such training. If the intent of the law were to impose upon individual

employees the cost of training, the provision on the pro-rating of expenses would not have found print in the law. Further, petitioner alleged that prior to the inking of the CBA, it was the respondent company providing for the in-service training of the guards.25 Respondent never controverted the said allegation and is thus deemed to have admitted the same.26 Implicit from respondent's actuations was its acknowledgment of its legally mandated responsibility to shoulder the expenses for inservice training. WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and Resolution of the Court of Appeals, dated October 4, 2005 and January 23, 2006, respectively, in CA-G.R. SP. No. 87069 is MODIFIED. The cost of in-service training of the respondent company's security guards shall be at the expense of the respondent company. This case is remanded to the voluntary arbitrator for the computation of the expenses incurred by the security guards for their in-service training, and respondent company is directed to reimburse its security guards for the expenses incurred. SO ORDERED. DIOSDADO M. PERALTA Associate Justice WE CONCUR: RENATO C. CORONA Associate Justice Chairperson PRESBITERO J. VELASCO, JR. Associate Justice ANTONIO EDUARDO B. NACHURA Associate Justice

JOSE CATRAL MENDOZA Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Associate Justice Third Division, Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
1

Penned by Associate Justice Andres B. Reyes, Jr., with Associate Justices Rosmari D. Carandang and Monina Arevalo-Zenarosa, concurring; rollo, pp. 32-43.
2

Id. at 45. Records, pp.4-9. Supra note 1, at 76-77. Supra note 3, at 3. Supra note 1, at 113-118. Supra note 1, 120-124. Id. 32-43. Id. 45. Supra note 1, at 154-155. Id. at 172-173.

10

11

12

People of the Philippines v. Joven de Grano, Armando de Grano, Domingo Landicho and Estanislao Lacaba, G.R. No. 167710, June 5, 2009.
13

G.R. No. 151413, February 13, 2008, 545 SCRA 10, 17-19.

14

Filipinas Life Assurance Company v. Pedroso, G.R. No. 159489, February 4, 2008, 543 SCRA 542, 547.
15

Bautista v. Court of Appeals, 379 Phil. 386, 399 (2000), citing 17A Am. Jur. 2D 348-349.
16

RFM Corporation-Flour Division and SFI Feeds Division v. Kasapian ng Manggagawang Pinagkaisa-RFM (KAMPI-NAFLU-KMU) and Sandigan at Ugnayan ng Manggagawang Pinagkaisa-SFI (SUMAPI-NAFLU-KMU) G.R. No. 162324, February 4, 2009, 578 SCRA 37.
17

G.R. No. 164060, June 15, 2007, 524 SCRA 709, 716. Sobrepea, Jr. v. Court of Appeals, 345 Phil. 714, 728 (1997).

18

19

Virginia A. Sugue and the Heirs of Renato S. Valderrama v. Triumph International (Phils.), Inc., G.R. No. 164804, January 30, 2009; Triumph International (Phils.), Inc.,

v. Virginia A. Sugue and the Heirs of Renato S. Valderrama, G.R. No. 164784, January 30, 2009, 577 SCRA 339.
20

No. L-16298, September 29, 1962, 6 SCRA 136, 138. Supra note 1, at 76-77. Article 1700, New Civil Code.

21

22

23

Villa v. National Labor Relations Commission, G.R. No. 117043, January 14, 1998, 284 SCRA 105, 127,128.
24

Revised Rules and Regulations Implementing Republic Act No. 5487, Rule X, Section 12(b). The certificate of in-service training issued by company security force/private security agency shall be a pre-requisite for the renewal of license to exercise profession.
25

Petition for Review, supra note 1, at 21; Petitioner's Memorandum, id. at 220; Petitioner's Motion for Reconsideration with the CA, CA records, pp. 181.
26

Sec. 32, Rule 130 of the Rules of Court - Admission by silence. - An act or declaration made in the presence and within the hearing or observation of a party who does or says nothing when the act or declaration is such as naturally to call for action or comment if not true, and when proper and possible for him to do so, may be given in evidence against him.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 183626 October 4, 2010 SURIGAO DEL NORTE ELECTRIC COOPERATIVE, INC. (SURNECO), Petitioner, vs. ENERGY REGULATORY COMMISSION, Respondent. DECISION NACHURA, J.: Assailed in this petition for review on certiorari1 under Rule 45 of the Rules of Court are the Decision dated April 17, 20082 and the Resolution dated June 25, 20083 of the Court of Appeals (CA) in CAG.R. SP No. 99781. The antecedent facts and proceedings follow Petitioner Surigao Del Norte Electric Cooperative, Inc. (SURNECO) is a rural electric cooperative organized and existing by virtue of Presidential Decree No. 269. On February 8, 1996, the Association of Mindanao Rural Electric Cooperatives, as representative of SURNECO and of the other 33 rural electric cooperatives in Mindanao, filed a petition before the then Energy Regulatory Board (ERB) for the approval of the formula for automatic cost adjustment and adoption of the National Power Corporation (NPC) restructured rate adjustment to comply with Republic Act (R.A.) No. 7832.4 The case was docketed as ERB Case No. 96-49, and later consolidated with identical petitions of other associations of electric cooperatives in the Philippines. The relevant provisions of R.A. No. 7832 for compliance are Sections 10 and 14, which provide Sec. 10. Rationalization of System Losses by Phasing Out Pilferage Losses as a Component Thereof. There is hereby established a cap on the recoverable rate of system losses as follows: xxxx (b) For rural electric cooperatives: (i) Twenty-two percent (22%) at the end of the first year following the effectivity of this Act; (ii) Twenty percent (20%) at the end of the second year following the effectivity of this Act; (iii) Eighteen percent (18%) at the end of the third year following the effectivity of this Act;

(iv) Sixteen percent (16%) at the end of the fourth year following the effectivity of this Act; and (v) Fourteen percent (14%) at the end of the fifth year following the effectivity of this Act. Provided, that the ERB is hereby authorized to determine at the end of the fifth year following the effectivity of this Act, and as often as is necessary, taking into account the viability of rural electric cooperatives and the interest of consumers, whether the caps herein or theretofore established shall be reduced further which shall, in no case, be lower than nine percent (9%) and accordingly fix the date of the effectivity of the new caps. xxxx Sec. 14. Rules and Regulations. The ERB shall, within thirty (30) working days after the conduct of hearings which must commence within thirty (30) working days upon the effectivity of this Act, issue the rules and regulation as may be necessary to ensure the efficient and effective implementation of the provisions of this Act, to include but not limited to, the development of methodologies for computing the amount of electricity illegally used and the amount of payment or deposit contemplated in Section 7 hereof as a result of the presence of the prima facie evidence discovered. Corollary thereto, Sections 4 and 5 of Rule IX of the Implementing Rules and Regulations (IRR) of R.A. No. 7832 provide Section 4. Caps on System Loss allowed to Rural Electric Cooperatives. The maximum rate of system loss that the cooperative can pass on to its customers shall be as follows: a. Twenty-two percent (22%) effective on February 1996 billing. b. Twenty percent (20%) effective on February 1997 billing. c. Eighteen percent (18%) effective on February 1998 billing. d. Sixteen percent (16%) effective on February 1999 billing. e. Fourteen percent (14%) effective on February 2000 billing. Section 5. Automatic Cost Adjustment Formula. Each and every cooperative shall file with the ERB, on or before September 30, 1995, an application for approval of an amended Purchased Power Adjustment Clause that would reflect the new system loss cap to be included in its schedule of rates. The automatic cost adjustment of every electric cooperative shall be guided by the following formula: Purchased Power Adjustment Clause A (PPA) = B (C + D)

Where: A = Cost of electricity purchased and generated for the previous month B = Total Kwh purchased and generated for the previous month C = The actual system loss but not to exceed the maximum recoverable rate of system loss in Kwh plus actual company use in kwhrs but not to exceed 1% of total kwhrs purchased and generated D = kwh consumed by subsidized consumers E = Applicable base cost of power equal to the amount incorporated into their basic rate per kwh. In an Order5 dated February 19, 1997, the ERB granted SURNECO and other rural electric cooperatives provisional authority to use and implement the Purchased Power Adjustment (PPA) formula pursuant to the mandatory provisions of R.A. No. 7832 and its IRR, with a directive to submit relevant and pertinent documents for the Boards review, verification, and confirmation. In the meantime, the passage of R.A. No. 91366 led to the creation of the Energy Regulatory Commission (ERC), replacing and succeeding the ERB. All pending cases before the ERB were transferred to the ERC. ERB Case No. 96-49 was re-docketed as ERC Case No. 2001-343. In the Order dated June 17, 2003, the ERC clarified ERBs earlier policy regarding the PPA formula to be used by the electric cooperatives, viz. After a careful evaluation of the records, the Commission noted that the PPA formula which was approved by the ERB was silent on whether the calculation of the cost of electricity purchased and generated in the formula should be "gross" or "net" of the discounts. Let it be noted that the power cost is said to be at "gross" if the discounts are not passed-on to the end-users whereas it is said to be at "net" if the said discounts are passed-on to the end-users. To attain uniformity in the implementation of the PPA formula, the Commission has resolved that: 1. In the confirmation of past PPAs, the power cost shall still be based on "gross," and 2. In the confirmation of future PPAs, the power cost shall be based on "net." The electric cooperatives filed their respective motions for clarification and/or reconsideration. Hence, the ERC issued an Order7 dated January 14, 2005, stating that the PPA was a cost-recovery mechanism, not a revenue-generating scheme, so that the distribution utilities or the electric cooperatives must recover from their customers only the actual cost of purchased power. The ERC thus adopted a new PPA policy, to wit A. The computation and confirmation of the PPA prior to the Commissions Order dated June 17, 2003 shall be based on the approved PPA Formula;

B. The computation and confirmation of the PPA after the Commissions Order dated June 17, 2003 shall be based on the power cost "net" of discount; and C. If the approved PPA Formula is silent on the terms of discount, the computation and confirmation of the PPA shall be based on the power cost at "gross," subject to the submission of proofs that said discounts are being extended to the end-users.8 Thereafter, the ERC continued its review, verification, and confirmation of the electric cooperatives implementation of the PPA formula based on the available data and information submitted by the latter. On March 19, 2007, the ERC issued its assailed Order,9 mandating that the discounts earned by SURNECO from its power supplier should be deducted from the computation of the power cost, disposing in this wise WHEREFORE, the foregoing premises considered, the Commission hereby confirms the Purchased Power Adjustment (PPA) of Surigao del Norte Electric Cooperative, Inc. (SURNECO) for the period February 1996 to July 2004 which resulted to an over-recovery amounting to EIGHTEEN MILLION ONE HUNDRED EIGHTY EIGHT THOUSAND SEVEN HUNDRED NINETY FOUR PESOS (PhP18,188,794.00) equivalent to PhP0.0500/kwh. In this connection, SURNECO is hereby directed to refund the amount of PhP0.0500/kwh to its Main Island consumers starting the next billing cycle from receipt of this Order until such time that the full amount shall have been refunded. The Commission likewise confirms the PPA of SURNECO for its Hikdop Island consumers for the period February 1996 to July 2004 which resulted to an under-recovery amounting to TWO MILLION FOUR HUNDRED SEVENTY EIGHT THOUSAND FORTY FIVE PESOS (PhP2,478,045.00). SURNECO is hereby authorized to collect from its Hikdop Island consumers the amount of PhP0.0100/kwh starting the next billing cycle from receipt of this Order until such time that the full amount shall have been collected. Accordingly, SURNECO is directed to: a) Reflect the PPA refund/collection as a separate item in the bill using the phrase "Previous Years Adjustment on Power Cost"; b) Submit, within ten (10) days from its initial implementation of the refund/collection, a sworn statement indicating its compliance with the aforecited directive; and c) Accomplish and submit a report in accordance with the attached prescribed format, on or before the 30th day of January of the succeeding year and every year thereafter until the amount shall have been fully refunded/collected. SO ORDERED.10 SURNECO filed a motion for reconsideration, but it was denied by the ERC in its Order11 dated May 29, 2007 on the ground that the motion did not raise any new matter which was not already passed upon by the ERC. Aggrieved, SURNECO went to the CA via a petition for review,12 with prayer for the issuance of a temporary restraining order and preliminary injunction, seeking the annulment of the ERC Orders dated March 19, 2007 and May 29, 2007.

In its Decision dated April 17, 2008, the CA denied SURNECOs petition and affirmed the assailed Orders of the ERC. On June 25, 2008, upon motion for reconsideration13 of SURNECO, the CA issued its Resolution denying the same. Hence, this petition, with SURNECO ascribing error to the CA and the ERC in: (1) disallowing its use of the multiplier scheme to compute its systems loss; (2) ordering it to deduct from the power cost or refund to its consumers the discounts extended to it by its power supplier, NPC; and (3) ordering it to refund alleged over-recoveries arrived at by the ERC without giving SURNECO the opportunity to be heard. The petition should be denied. First. SURNECO points out that the National Electrification Administration (NEA), which used to be the government authority charged by law with the power to fix rates of rural electric cooperatives, entered into a loan agreement with the Asian Development Bank (ADB). The proceeds of the loan were intended for use by qualified rural electric cooperatives, SURNECO included, in their rehabilitation and expansion projects. The loan agreement imposed a 15% system loss cap, but provided a Power Cost Adjustment Clause authorizing cooperatives to charge and show "system losses in excess of 15%" as a separate item in their consumers bill. Thus, the cooperatives charged their consumer-members "System Loss Levy" for system losses in excess of the 15% cap. SURNECO states that, in January 1984, it was authorized by the NEA that all increases in the NPC power cost (in case of NPC-connected cooperatives) shall be uniformly passed on to the memberconsumers using the 1.4 multiplier, which is divided into 1.3 as allowance for 23% system loss and 0.1 as provision for the corresponding increase in operating expenses to partly offset the effects of inflation.14 Subsequently, the NEA, through NEA Memorandum No. 1-A dated March 30, 1992, revised the aforesaid issuance as follows Pursuant to NEA Board Resolution No. 98, Series of 1991, x x x, the revised cooperatives multiplier will be as follows: 1.2 Rural Electric Cooperatives (RECs) with system loss of 15% and below; 1.3 RECs with system loss ranging from 16% to 22%; 1.4 RECs with system loss of 23% and above. SURNECO posits that, per NEA Memorandum No. 1-A, the NEA had authorized it to adopt a multiplier scheme as the method to recover system loss. It claims that this cannot be abrogated, revoked, or superseded by any order, resolution, or issuance by the ERC prescribing a certain formula to implement the caps of recoverable rate of system loss under R.A. No. 7832 without violating the non-impairment clause15 of the Constitution. We disagree. SURNECO cannot insist on using the multiplier scheme even after the imposition of the system loss caps under Section 10 of R.A. No. 7832. The law took effect on January 17, 1995. Perusing Section 10, and also Section 11,16 providing for the application of the caps as of the date of the effectivity of R.A. No. 7832, readily shows that the imposition of the caps was self-executory and did not require the issuance of any enabling set of rules or any action by the then ERB, now ERC. Thus, the caps should have been applied as of January 17, 1995 when R.A. No. 7832 took effect.

Indeed, under NEA Memorandum No. 1-A, the use of the multiplier scheme allows the recovery of system losses even beyond the caps mandated in R.A. No. 7832, which is intended to gradually phase out pilferage losses as a component of the recoverable system losses by the distributing utilities such as SURNECO. However, it is totally repugnant to and incompatible with the system loss caps established in R.A. No. 7832, and is repealed by Section 1617 of the law. As between NEA Memorandum No. 1-A, a mere administrative issuance, and R.A. No. 7832, a legislative enactment, the latter must prevail.18 Second. The ERC was merely implementing the system loss caps in R.A. No. 7832 when it reviewed and confirmed SURNECOS PPA charges, and ordered the refund of the amount collected in excess of the allowable system loss caps through its continued use of the multiplier scheme. As the ERC held in its March 19, 2007 Order On January 14, 2005, the Commission issued an Order adopting a new PPA policy as follows: (a) the computation and confirmation of the PPA prior to the Commissions Order dated June 17, 2003 shall be based on the approved PPA Formula; (b) the computation and confirmation of the PPA after the Commissions Order dated June 17, 2003 shall be based on the power cost "net" of discount; and (c) if the approved PPA Formula is silent in terms of discount, the computation and confirmation of the PPA shall be based on the power cost at "gross" reduced by the amount of discounts extended to customers, subject to the submission of proofs that said discounts are indeed being extended to customers. However, the Commission deemed it appropriate to clarify its PPA confirmation process particularly on the treatment of the Prompt Payment Discount (PPD) granted to distribution utilities (DUs) by their power suppliers, to wit: I. The over-or-under recovery will be determined by comparing the allowable power cost with the actual revenue billed to end-users. II. Calculation of the DUs allowable power cost as prescribed in the PPA formula: a. If the PPA formula explicitly provides the manner by which discounts availed from the power supplier/s shall be treated, the allowable power cost will be computed based on the specific provision of the formula, which may either be at "net" or "gross"; and b. If the PPA formula is silent in terms of discounts, the allowable power cost will be computed at "net" of discounts availed from the power supplier/s, if there be any. III. Calculation of DUs actual revenues/actual amount billed to end-users. a. On actual PPA computed at net of discounts availed from power supplier/s: a.1. If a DU bills at net of discounts availed from the power supplier/s (i.e., gross power cost minus discounts from power supplier/s) and the DU is not extending discounts to end-users, the actual revenue should be equal to the allowable power cost; and

a.2. If a DU bills at net of discounts availed from the power supplier/s (i.e., gross power cost minus discounts from power supplier/s) and the DU is extending discounts to end-users, the discount extended to end-users shall be added back to the actual revenue. b. On actual PPA computed at gross: b.1. If a DU bills at gross (i.e., gross power cost not reduced by discounts from power supplier/s) and the DU is extending discounts to end-users, the actual revenue shall be calculated as: gross power revenue less discounts extended to end-users. The result shall then be compared to the allowable power cost; and b.2. If a DU bills at gross (i.e., gross power cost not reduced by discounts from power supplier/s) and the DU is not extending discounts to end-users, the actual revenue shall be taken as is which shall be compared to the allowable power cost. IV. In the calculation of the DUs actual revenues, the amount of discounts extended to end-users shall, in no case, be higher than the discounts availed by the DU from its power supplier/s. The foregoing clarification was intended to ensure that only the actual costs of purchased power are recovered by the DUs. In the meantime, SURNECO submitted reports on its monthly implementation of the PPA covering the period January 1998 to July 2004 and attended the conferences conducted by the Commission on December 11, 2003 and May 4, 2005 relative thereto. The Commission evaluated SURNECOs monthly PPA implementation covering the period February 1996 to July 2004, which disclosed the following: Schedule 1, Main Island Period Covered Over (Under) Recoveries (In PhP) 20,737,074 (2,548,280) 18,188,794 Over (Under) Recoveries (In kWh) 0.2077 (0.0097) 0.0500

February 1996 to December 1998 January 1999 to July 2004 TOTAL Schedule 2, Municipality of Hikdop February 1996 to

70,235

0.3190

December 1998 PPA Plus Basic Cha[r]ge January 1999 to July 2004 TOTAL (2,548,280) (2,478,045) (0.0097) (0.0100)

The over-recoveries were due to the following: 1. For the period February 1996 to December 1998, SURNECOs PPA computation included the power cost and the corresponding kWh purchased from Hikdop endusers. The Commission excluded those months which SURNECO did not impose variable charges to Hikdop end-user which resulted to a total net over-recovery of PhP21,245,034.00; and 2. SURNECOs basic charge for Hikdop end-users were beyond the approved basic charge for the period February 1996 to September 1998 resulting to a net overrecovery of PhP128,489.00. SURNECOs under recoveries for the period January 1999 to June 2004 were due to the following: 1. For the period August 2001 to June 2004, SURNECO erroneously deducted the Power Act Reduction Adjustments (PARA) in the total purchased power cost of its PPA computation resulting to an under-recovery of PhP1,377,763.00; 2. SURNECOs power cost and kWh computation includes Dummy Load resulting to an under recovery amounting to PhP226,196.00; and 3. The new grossed-up factor scheme adopted by the Commission which provided a true-up mechanism to allow the DUs to recover the actual costs of purchased power.19 In directing SURNECO to refund its over-recoveries based on PPA policies, which only ensured that the PPA mechanism remains a purely cost-recovery mechanism and not a revenue-generating scheme for the electric cooperatives, the ERC merely exercised its authority to regulate and approve the rates imposed by the electric cooperatives on their consumers. The ERC simply performed its mandate to protect the public interest imbued in those rates. It is beyond cavil that the State, in the exercise of police power, can regulate the rates imposed by a public utility such as SURNECO. As we held in Republic of the Philippines v. Manila Electric Company20 The regulation of rates to be charged by public utilities is founded upon the police powers of the State and statutes prescribing rules for the control and regulation of public utilities are a valid exercise thereof. When private property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and becomes subject to regulation. The regulation is to promote the common good. Submission to regulation may be withdrawn by the owner by discontinuing use; but as long as use of the property is continued, the same is subject to public regulation.

Likewise, SURNECO cannot validly assert that the caps set by R.A. No. 7832 are arbitrary, or that they violate the non-impairment clause of the Constitution for allegedly traversing the loan agreement between NEA and ADB. Striking down a legislative enactment, or any of its provisions, can be done only by way of a direct action, not through a collateral attack, and more so, not for the first time on appeal in order to avoid compliance. The challenge to the laws constitutionality should also be raised at the earliest opportunity.21 Even assuming, merely for arguments sake, that the ERC issuances violated the NEA and ADB covenant, the contract had to yield to the greater authority of the States exercise of police power. It has long been settled that police power legislation, adopted by the State to promote the health, morals, peace, education, good order, safety, and general welfare of the people prevail not only over future contracts but even over those already in existence, for all private contracts must yield to the superior and legitimate measures taken by the State to promote public welfare.22 SURNECO also avers that the Electric Power Industry Reform Act of 2001 (EPIRA) removed the alleged arbitrary caps in R.A. No. 7832. We differ. The EPIRA allows the caps to remain until replaced by the caps to be determined by the ERC, pursuant to its delegated authority under Section 4323 of R.A. No. 9136 to prescribe new system loss caps, based on technical parameters such as load density, sales mix, cost of service, delivery voltage, and other technical considerations it may promulgate. Third. We also disagree with SURNECO in its insistence that the PPA confirmation policies constituted an amendment to the IRR of R.A. No. 7832 and must, therefore, comply with the publication requirement for the effectivity of administrative issuances. The PPA formula provided in the IRR of R.A. No. 7832 was only a model to be used as a guide by the electric cooperatives in proposing their own PPA formula for approval by the then ERB. Sections 4 and 5, Rule IX of the IRR directed the electric cooperatives to apply for approval of such formula with the ERB so that the system loss caps under the law would be incorporated in their computation of power cost adjustments. The IRR did not provide for a specific formula; therefore, there was nothing in the IRR that was amended or could have been amended relative to the PPA formula. The IRR left to the ERB, now the ERC, the authority to approve and oversee the implementation of the electric cooperatives PPA formula in the exercise of its rate-making power over them.
1avvphi1

We likewise differ from SURNECOs stance that it was denied due process when the ERC issued its questioned Orders. Administrative due process simply requires an opportunity to explain ones side or to seek reconsideration of the action or ruling complained of.24 It means being given the opportunity to be heard before judgment, and for this purpose, a formal trial-type hearing is not even essential. It is enough that the parties are given a fair and reasonable chance to demonstrate their respective positions and to present evidence in support thereof.25 Verily, the PPA confirmation necessitated a review of the electric cooperatives monthly documentary submissions to substantiate their PPA charges. The cooperatives were duly informed of the need for other required supporting documents and were allowed to submit them accordingly. In fact, hearings were conducted. Moreover, the ERC conducted exit conferences with the electric cooperatives representatives, SURNECO included, to discuss preliminary figures and to doublecheck these figures for inaccuracies, if there were any. In addition, after the issuance of the ERC Orders, the electric cooperatives were allowed to file their respective motions for reconsideration. It cannot be gainsaid, therefore, that SURNECO was not denied due process. Finally, the core of the issues raised is factual in character. It needs only to be reiterated that factual findings of administrative bodies on technical matters within their area of expertise should be

accorded not only respect but even finality if they are supported by substantial evidence even if not overwhelming or preponderant,26 more so if affirmed by the CA. Absent any grave abuse of discretion on the part of ERC, we must sustain its findings. Hence, its assailed Orders, following the rule of non-interference on matters addressed to the sound discretion of government agencies entrusted with the regulation of activities coming their special technical knowledge and training, must be upheld.27 WHEREFORE, the petition is DENIED. The Decision dated April 17, 2008 and the Resolution dated June 25, 2008 of the Court of Appeals in CA-G.R. SP No. 99781 are AFFIRMED. Costs against petitioner. SO ORDERED. ANTONIO EDUARDO B. NACHURA** Associate Justice Acting Chairperson WE CONCUR: PRESBITERO J. VELASCO, JR.* Associate Justice MARIA LOURDES P.A. SERENO*** Associate Justice DIOSDADO M. PERALTA Associate Justice

JOSE CATRAL MENDOZA Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO EDUARDO B. NACHURA Associate Justice Acting Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes

Additional member in lieu of Associate Justice Antonio T. Carpio per Special Order No. 897 dated September 28, 2010.
**

In lieu of Associate Justice Antonio T. Carpio per Special Order No. 898 dated September 28, 2010.
***

Additional member in lieu of Associate Justice Roberto A. Abad per Special Order No. 903 dated September 28, 2010.
1

Rollo, pp. 30-61.

Penned by Associate Justice Mariano C. del Castillo (now a member of this Court), with Associate Justices Arcangelita Romilla-Lontok and Ricardo R. Rosario, concurring; id. at 10-22.
3

Id. at 24-27.

Otherwise referred to as the "Anti-Electricity and Electric Transmission Lines/Materials Pilferage Act of 1994," which took effect on January 17, 1995.
5

Rollo, pp. 111-128. Also known as the Electric Power Industry Reforms Act of 2001 (EPIRA). Rollo, pp. 196-212. Id. at 204. Id. at 134-140. Id. at 139-140. Id. at 156-158. Id. at 159-195. Id. at 76-105. NEA Memo No. 1.

10

11

12

13

14

15

CONSTITUTION, Article III, Section 10. "No law impairing the obligation of contracts shall be passed." Sec. 11. Area of Coverage. The caps provided in Section 10 of this Act shall apply only to the area of coverage of private electric utilities and rural electric cooperatives as of the date of the effectivity of this Act.
16

Sec. 16. Repealing Clauses. x x x. All other laws, ordinances, rules, regulations, and other issuances or parts thereof, which are inconsistent with this Act, are hereby repealed or modified accordingly.
17

18

Commissioner of Internal Revenue v. Fortune Tobacco Corporation, G.R. Nos. 167274-75, July 21, 2008, 559 SCRA 160, 178.
19

Rollo, pp.135-139.

20

440 Phil. 389, 397, citing Munn v. People of the State of Illinois, 94 U.S.113, 126 (1877).
21

Philippine National Bank v. Palma, 503 Phil. 917, 932 (2005).

22

Serrano v. Gallant Maritime Services, Inc., G.R. No. 167614, March 24, 2009, 582 SCRA 254, 276, citing Ortigas & Co., Ltd. v. Court of Appeals, 400 Phil. 615, 623 (2000).
23

Sec. 43. Functions of the ERC. x x x. f. x x x. To achieve this objective and to ensure the complete removal of cross subsidies, the cap on the recoverable rate of system losses prescribed in Section 10 of Republic Act No. 7832, is hereby amended and shall be replaced by caps which shall be determined by the ERC based on load density, sales mix, cost of service, delivery voltage and other technical considerations it may promulgate. x x x.

24

Rene Ventenilla Puse v. Ligaya delos Santos-Puse, G.R. No. 183678, March 5, 2010, citing Alcala v. Villar, 461 Phil. 617, 626 (2003).
25

Perez v. Philippine Telegraph and Telephone Company, G.R. No. 152048, April 7, 2009, 584 SCRA 110, 124, citing Autobus Workers Union v. NLRC, 353 Phil. 419, 430 (1998).
26

Republic of the Philippines v. Manila Electric Company, supra note 20, at 399.

27

Philippine National Construction Corporation v. Court of Appeals, G.R. No. 159417, January 25, 2007, 512 SCRA 684, 698, citing First Lepanto Ceramics, Inc. v. Court of Appeals, 323 Phil. 657, 664 (1996).

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 166471 March 22, 2011 TAWANG MULTI-PURPOSE COOPERATIVE Petitioner, vs. LA TRINIDAD WATER DISTRICT, Respondent. DECISION CARPIO, J.: The Case This is a petition for review on certiorari under Rule 45 of the Rules of Court. The petition1 challenges the 1 October 2004 Judgment2 and 6 November 2004 Order3 of the Regional Trial Court (RTC), Judicial Region 1, Branch 62, La Trinidad, Benguet, in Civil Case No. 03-CV-1878. The Facts Tawang Multi-Purpose Cooperative (TMPC) is a cooperative, registered with the Cooperative Development Authority, and organized to provide domestic water services in Barangay Tawang, La Trinidad, Benguet. La Trinidad Water District (LTWD) is a local water utility created under Presidential Decree (PD) No. 198, as amended. It is authorized to supply water for domestic, industrial and commercial purposes within the municipality of La Trinidad, Benguet. On 9 October 2000, TMPC filed with the National Water Resources Board (NWRB) an application for a certificate of public convenience (CPC) to operate and maintain a waterworks system in Barangay Tawang. LTWD opposed TMPCs application. LTWD claimed that, under Section 47 of PD No. 198, as amended, its franchise is exclusive. Section 47 states that: Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency for domestic, industrial or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration. In its Resolution No. 04-0702 dated 23 July 2002, the NWRB approved TMPCs application for a CPC. In its 15 August 2002 Decision,4 the NWRB held that LTWDs franchise cannot be exclusive since exclusive franchises are unconstitutional and found that TMPC is legally and financially qualified to operate and maintain a waterworks system. NWRB stated that: With respect to LTWDs opposition, this Board observes that: 1. It is a substantial reproduction of its opposition to the application for water permits previously filed by this same CPC applicant, under WUC No. 98-17 and 98-62 which was decided upon by this

Board on April 27, 2000. The issues being raised by Oppositor had been already resolved when this Board said in pertinent portions of its decision: "The authority granted to LTWD by virtue of P.D. 198 is not Exclusive. While Barangay Tawang is within their territorial jurisdiction, this does not mean that all others are excluded in engaging in such service, especially, if the district is not capable of supplying water within the area. This Board has time and again ruled that the "Exclusive Franchise" provision under P.D. 198 has misled most water districts to believe that it likewise extends to be [sic] the waters within their territorial boundaries. Such ideological adherence collides head on with the constitutional provision that "ALL WATERS AND NATURAL RESOURCES BELONG TO THE STATE". (Sec. 2, Art. XII) and that "No franchise, certificate or authorization for the operation of public [sic] shall be exclusive in character". xxxx All the foregoing premises all considered, and finding that Applicant is legally and financially qualified to operate and maintain a waterworks system; that the said operation shall redound to the benefit of the homeowners/residents of the subdivision, thereby, promoting public service in a proper and suitable manner, the instant application for a Certificate of Public Convenience is, hereby, GRANTED.5 LTWD filed a motion for reconsideration. In its 18 November 2002 Resolution,6 the NWRB denied the motion. LTWD appealed to the RTC. The RTCs Ruling In its 1 October 2004 Judgment, the RTC set aside the NWRBs 23 July 2002 Resolution and 15 August 2002 Decision and cancelled TMPCs CPC. The RTC held that Section 47 is valid. The RTC stated that: The Constitution uses the term "exclusive in character". To give effect to this provision, a reasonable, practical and logical interpretation should be adopted without disregard to the ultimate purpose of the Constitution. What is this ultimate purpose? It is for the state, through its authorized agencies or instrumentalities, to be able to keep and maintain ultimate control and supervision over the operation of public utilities. Essential part of this control and supervision is the authority to grant a franchise for the operation of a public utility to any person or entity, and to amend or repeal an existing franchise to serve the requirements of public interest. Thus, what is repugnant to the Constitution is a grant of franchise "exclusive in character" so as to preclude the State itself from granting a franchise to any other person or entity than the present grantee when public interest so requires. In other words, no franchise of whatever nature can preclude the State, through its duly authorized agencies or instrumentalities, from granting franchise to any person or entity, or to repeal or amend a franchise already granted. Consequently, the Constitution does not necessarily prohibit a franchise that is exclusive on its face, meaning, that the grantee shall be allowed to exercise this present right or privilege to the exclusion of all others. Nonetheless, the grantee cannot set up its exclusive franchise against the ultimate authority of the State.7 TMPC filed a motion for reconsideration. In its 6 November 2004 Order, the RTC denied the motion. Hence, the present petition. Issue

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

When the law is clear, there is nothing for the courts to do but to apply it. The duty of the Court is to apply the law the way it is worded. In Security Bank and Trust Company v. Regional Trial Court of Makati, Branch 61,15 the Court held that: Basic is the rule of statutory construction that when the law is clear and unambiguous, the court is left with no alternative but to apply the same according to its clear language. As we have held in the case of Quijano v. Development Bank of the Philippines: "x x x We cannot see any room for interpretation or construction in the clear and unambiguous language of the above-quoted provision of law. This Court had steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law according to its express terms, interpretation being called for only when such literal application is impossible. No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for application. Where a requirement or condition is made in explicit and unambiguous terms, no discretion is left to the judiciary. It must see to it that its mandate is obeyed."16 (Emphasis supplied) In Republic of the Philippines v. Express Telecommunications Co., Inc.,17 the Court held that, "The Constitution is quite emphatic that the operation of a public utility shall not be exclusive."18 In Pilipino Telephone Corporation v. National Telecommunications Commission,19 the Court held that, "Neither Congress nor the NTC can grant an exclusive franchise, certificate, or any other form of authorization to operate a public utility."20 In National Power Corp. v. Court of Appeals,21 the Court held that, "Exclusivity of any public franchise has not been favored by this Court such that in most, if not all, grants by the government to private corporations, the interpretation of rights, privileges or franchises is taken against the grantee."22 In Radio Communications of the Philippines, Inc. v. National Telecommunications Commission,23 the Court held that, "The Constitution mandates that a franchise cannot be exclusive in nature."24 Indeed, the President, Congress and the Court cannot create directly franchises that are exclusive in character. What the President, Congress and the Court cannot legally do directly they cannot do indirectly. Thus, the President, Congress and the Court cannot create indirectly franchises that are exclusive in character by allowing the Board of Directors (BOD) of a water district and the Local Water Utilities Administration (LWUA) to create franchises that are exclusive in character. In PD No. 198, as amended, former President Ferdinand E. Marcos (President Marcos) created indirectly franchises that are exclusive in character by allowing the BOD of LTWD and the LWUA to create directly franchises that are exclusive in character. Section 47 of PD No. 198, as amended, allows the BOD and the LWUA to create directly franchises that are exclusive in character. Section 47 states: Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency for domestic, industrial or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration. (Emphasis supplied) In case of conflict between the Constitution and a statute, the Constitution always prevails because the Constitution is the basic law to which all other laws must conform to. The duty of the Court is to uphold the Constitution and to declare void all laws that do not conform to it. In Social Justice Society v. Dangerous Drugs Board,25 the Court held that, "It is basic that if a law or an administrative rule violates any norm of the Constitution, that issuance is null and void and has no

effect. The Constitution is the basic law to which all laws must conform; no act shall be valid if it conflicts with the Constitution."26 In Sabio v. Gordon,27 the Court held that, "the Constitution is the highest law of the land. It is the basic and paramount law to which all other laws must conform."28 In Atty. Macalintal v. Commission on Elections,29 the Court held that, "The Constitution is the fundamental and paramount law of the nation to which all other laws must conform and in accordance with which all private rights must be determined and all public authority administered. Laws that do not conform to the Constitution shall be stricken down for being unconstitutional."30 In Manila Prince Hotel v. Government Service Insurance System,31 the Court held that: Under the doctrine of constitutional supremacy, if a law or contract violates any norm of the constitution that law or contract whether promulgated by the legislative or by the executive branch or entered into by private persons for private purposes is null and void and without any force and effect. Thus, since the Constitution is the fundamental, paramount and supreme law of the nation, it is deemed written in every statute and contract."32 (Emphasis supplied) To reiterate, the 1935, 1973 and 1987 Constitutions expressly prohibit the creation of franchises that are exclusive in character. They uniformly command that "nor shall such franchise x x x be exclusive in character." This constitutional prohibition is absolute and accepts no exception. On the other hand, PD No. 198, as amended, allows the BOD of LTWD and LWUA to create franchises that are exclusive in character. Section 47 states that, "No franchise shall be granted to any other person or agency x x x unless and except to the extent that the board of directors consents thereto x x x subject to review by the Administration." Section 47 creates a glaring exception to the absolute prohibition in the Constitution. Clearly, it is patently unconstitutional. Section 47 gives the BOD and the LWUA the authority to make an exception to the absolute prohibition in the Constitution. In short, the BOD and the LWUA are given the discretion to create franchises that are exclusive in character. The BOD and the LWUA are not even legislative bodies. The BOD is not a regulatory body but simply a management board of a water district. Indeed, neither the BOD nor the LWUA can be granted the power to create any exception to the absolute prohibition in the Constitution, a power that Congress itself cannot exercise. In Metropolitan Cebu Water District v. Adala,33 the Court categorically declared Section 47 void. The Court held that: Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to the issuance of CPCs for the reasons discussed above, the same provision must be deemed void ab initio for being irreconcilable with Article XIV, Section 5 of the 1973 Constitution which was ratified on January 17, 1973 the constitution in force when P.D. 198 was issued on May 25, 1973. Thus, Section 5 of Art. XIV of the 1973 Constitution reads: "SECTION 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Batasang Pambansa when the public interest so requires. The State shall encourage equity participation in public utiltities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof." This provision has been substantially reproduced in Article XII Section 11 of the 1987 Constitution, including the prohibition against exclusive franchises.

xxxx Since Section 47 of P.D. 198, which vests an "exclusive franchise" upon public utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution, it is unconstitutional and may not, therefore, be relied upon by petitioner in support of its opposition against respondents application for CPC and the subsequent grant thereof by the NWRB. WHEREFORE, Section 47 of P.D. 198 is unconstitutional.34 (Emphasis supplied) The dissenting opinion declares Section 47 valid and constitutional. In effect, the dissenting opinion holds that (1) President Marcos can create indirectly franchises that are exclusive in character; (2) the BOD can create directly franchises that are exclusive in character; (3) the LWUA can create directly franchises that are exclusive in character; and (4) the Court should allow the creation of franchises that are exclusive in character. Stated differently, the dissenting opinion holds that (1) President Marcos can violate indirectly the Constitution; (2) the BOD can violate directly the Constitution; (3) the LWUA can violate directly the Constitution; and (4) the Court should allow the violation of the Constitution. The dissenting opinion states that the BOD and the LWUA can create franchises that are exclusive in character "based on reasonable and legitimate grounds," and such creation "should not be construed as a violation of the constitutional mandate on the non-exclusivity of a franchise" because it "merely refers to regulation" which is part of "the governments inherent right to exercise police power in regulating public utilities" and that their violation of the Constitution "would carry with it the legal presumption that public officers regularly perform their official functions." The dissenting opinion states that: To begin with, a government agencys refusal to grant a franchise to another entity, based on reasonable and legitimate grounds, should not be construed as a violation of the constitutional mandate on the non-exclusivity of a franchise; this merely refers to regulation, which the Constitution does not prohibit. To say that a legal provision is unconstitutional simply because it enables a government instrumentality to determine the propriety of granting a franchise is contrary to the governments inherent right to exercise police power in regulating public utilities for the protection of the public and the utilities themselves. The refusal of the local water district or the LWUA to consent to the grant of other franchises would carry with it the legal presumption that public officers regularly perform their official functions. The dissenting opinion states two "reasonable and legitimate grounds" for the creation of exclusive franchise: (1) protection of "the governments investment,"35 and (2) avoidance of "a situation where ruinous competition could compromise the supply of public utilities in poor and remote areas."36 There is no "reasonable and legitimate" ground to violate the Constitution. The Constitution should never be violated by anyone. Right or wrong, the President, Congress, the Court, the BOD and the LWUA have no choice but to follow the Constitution. Any act, however noble its intentions, is void if it violates the Constitution. This rule is basic. In Social Justice Society,37 the Court held that, "In the discharge of their defined functions, the three departments of government have no choice but to yield obedience to the commands of the Constitution. Whatever limits it imposes must be observed."38 In Sabio,39 the Court held that, "the Constitution is the highest law of the land. It is the basic and paramount law to which x x x all persons, including the highest officials of the land, must defer. No act shall be valid, however noble its intentions, if it conflicts with the Constitution."40 In Bengzon v. Drilon,41 the

Court held that, "the three branches of government must discharge their respective functions within the limits of authority conferred by the Constitution."42 In Mutuc v. Commission on Elections,43 the Court held that, "The three departments of government in the discharge of the functions with which it is [sic] entrusted have no choice but to yield obedience to [the Constitutions] commands. Whatever limits it imposes must be observed."44 Police power does not include the power to violate the Constitution. Police power is the plenary power vested in Congress to make laws not repugnant to the Constitution. This rule is basic. In Metropolitan Manila Development Authority v. Viron Transportation Co., Inc.,45 the Court held that, "Police power is the plenary power vested in the legislature to make, ordain, and establish wholesome and reasonable laws, statutes and ordinances, not repugnant to the Constitution."46 In Carlos Superdrug Corp. v. Department of Social Welfare and Development,47 the Court held that, police power "is the power vested in the legislature by the constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and ordinances x x x not repugnant to the constitution."48 In Metropolitan Manila Development Authority v. Garin,49 the Court held that, "police power, as an inherent attribute of sovereignty, is the power vested by the Constitution in the legislature to make, ordain, and establish all manner of wholesome and reasonable laws, statutes and ordinances x x x not repugnant to the Constitution."50 There is no question that the effect of Section 47 is the creation of franchises that are exclusive in character. Section 47 expressly allows the BOD and the LWUA to create franchises that are exclusive in character. The dissenting opinion explains why the BOD and the LWUA should be allowed to create franchises that are exclusive in character to protect "the governments investment" and to avoid "a situation where ruinous competition could compromise the supply of public utilities in poor and remote areas." The dissenting opinion declares that these are "reasonable and legitimate grounds." The dissenting opinion also states that, "The refusal of the local water district or the LWUA to consent to the grant of other franchises would carry with it the legal presumption that public officers regularly perform their official functions." When the effect of a law is unconstitutional, it is void. In Sabio,51 the Court held that, "A statute may be declared unconstitutional because it is not within the legislative power to enact; or it creates or establishes methods or forms that infringe constitutional principles; or its purpose or effect violates the Constitution or its basic principles."52 The effect of Section 47 violates the Constitution, thus, it is void. In Strategic Alliance Development Corporation v. Radstock Securities Limited,53 the Court held that, "This Court must perform its duty to defend and uphold the Constitution."54 In Bengzon,55 the Court held that, "The Constitution expressly confers on the judiciary the power to maintain inviolate what it decrees."56 In Mutuc,57 the Court held that: The concept of the Constitution as the fundamental law, setting forth the criterion for the validity of any public act whether proceeding from the highest official or the lowest functionary, is a postulate of our system of government. That is to manifest fealty to the rule of law, with priority accorded to that which occupies the topmost rung in the legal hierarchy. The three departments of government in the discharge of the functions with which it is [sic] entrusted have no choice but to yield obedience to its commands. Whatever limits it imposes must be observed. Congress in the enactment of statutes must ever be on guard lest the restrictions on its authority, whether substantive or formal, be transcended. The Presidency in the execution of the laws cannot ignore or disregard what it ordains. In its task of applying the law to the facts as found in deciding cases, the judiciary is called upon to

maintain inviolate what is decreed by the fundamental law. Even its power of judicial review to pass upon the validity of the acts of the coordinate branches in the course of adjudication is a logical corollary of this basic principle that the Constitution is paramount. It overrides any governmental measure that fails to live up to its mandates. Thereby there is a recognition of its being the supreme law.58 Sustaining the RTCs ruling would make a dangerous precedent. It will allow Congress to do indirectly what it cannot do directly. In order to circumvent the constitutional prohibition on franchises that are exclusive in character, all Congress has to do is to create a law allowing the BOD and the LWUA to create franchises that are exclusive in character, as in the present case. WHEREFORE, we GRANT the petition. We DECLARE Section 47 of Presidential Decree No. 198 UNCONSTITUTIONAL. We SET ASIDE the 1 October 2004 Judgment and 6 November 2004 Order of the Regional Trial Court, Judicial Region 1, Branch 62, La Trinidad, Benguet, in Civil Case No. 03CV-1878 and REINSTATE the 23 July 2002 Resolution and 15 August 2002 Decision of the National Water Resources Board. SO ORDERED. ANTONIO T. CARPIO Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice CONCHITA CARPIO MORALES Associate Justice ANTONIO EDUARDO B. NACHURA Associate Justice ARTURO D. BRION Associate Justice LUCAS P. BERSAMIN Associate Justice ROBERTO A. ABAD Associate Justice JOSE PORTUGAL PEREZ Associate Justice PRESBITERO J. VELASCO, JR. Associate Justice TERESITA J. LEONARDO-DE CASTRO Associate Justice DIOSDADO M. PERALTA Associate Justice MARIANO C. DEL CASTILLO Associate Justice MARTIN S. VILLARAMA, JR. Associate Justice JOSE C. MENDOZA Associate Justice

MARIA LOURDES P. A. SERENO Associate Justice

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court. RENATO C. CORONA Chief Justice

Footnotes
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Rollo, pp. 9-19. Id. at 22-40. Penned by Judge Fernando P. Cabato. Id. at 41-44. Id. at 45-49. Id. at 47-49. Id. at 50-52. Id. at 35. G.R. Nos. 162243, 164516 and 171875, 3 December 2009, 606 SCRA 444. Id. at 485. G.R. No. 170516, 16 July 2008, 558 SCRA 468. 450 Phil. 744 (2003). Supra note 10 at 540. 487 Phil. 531 (2004). Id. at 579. G.R. No. 113926, 23 October 1996, 263 SCRA 483. Id. at 488. 424 Phil. 372 (2002). Id. at 400. 457 Phil. 101 (2003).

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Id. at 117. 345 Phil. 9 (1997). Id. at 34. 234 Phil. 443 (1987). Id. at 451. G.R. Nos. 157870, 158633 and 161658, 3 November 2008, 570 SCRA 410. Id. at 422-423. G.R. No. 174340, 17 October 2006, 504 SCRA 704. Id. at 731. 453 Phil. 586 (2003). Id. at 631. 335 Phil. 82 (1997). Id. at 101. G.R. No. 168914, 4 July 2007, 526 SCRA 465. Id. at 479-482. Id. at 13. Id. Supra note 25. Id. at 423. Supra note 27. Id. at 731. G.R. No. 103524, 15 April 1992, 208 SCRA 133. Id. at 142. 146 Phil. 798 (1970). Id. at 806.

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G.R. Nos. 170656 and 170657, 15 August 2007, 530 SCRA 341. Id. at 362. G.R. No. 166494, 29 June 2007, 526 SCRA 130. Id. at 144. 496 Phil. 83 (2005) Id. at 91-92. Supra note 27. Id. at 730. G.R. Nos. 178158 and 180428, 4 December 2009, 607 SCRA 413. Id. at 528. Supra note 41. Id. at 142. Supra note 43. Id. at 806-807.

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The Lawphil Project - Arellano Law Foundation

DISSENTING OPINION BRION, J.: I dissent. Lest this Dissent be misunderstood, I shall clarify at the outset that I do not dispute the majority position that an exclusive franchise is forbidden by the Constitution. The prohibition is in an express words of the Constitution and cannot be disputed. My misgiving arises from the majoritys failure to properly resolve the issue of whether or not Section 47 of P.D. No. 198 embodies a prohibited exclusive franchise. I believe that the Court must carefully examine and analyze the application of the constitutional command to Section 47 and explain the exact legal basis for its conclusion. We must determine what an exclusive franchise really means to avoid overextending the prohibition to unintended areas. In the process, we must determine whether government instead of the grant of an exclusive franchise can regulate the grant of subsequent

franchises. In the present case, I take the view that the law can so allow in order to efficiently and effectively provide its citizens with the most basic utility. Respondent La Trinidad Water District (LTWD) is a local water utility created under Presidential Decree (P.D.) No. 198.1 It is a government-owned and controlled corporation2 authorized by law to supply water for domestic, industrial, and commercial purposes within the Municipality of La Trinidad. On the other hand, the petitioner Tawang Multi-Purpose Cooperative (TMPC) is an applicant for a certificate of public convenience (CPC) to operate and maintain a waterworks system in Barangay Tawang in the Municipality of La Trinidad. The RTC ruled that a CPC in favor of TMPC cannot be issued without the latter having applied for the consent of the local water district in accordance with Section 47 of P.D. No. 198. In effect, the RTC ruled that Section 47 does not involve the grant of an exclusive franchise. Thus, the TMPC filed the present petition for review on certiorari under Rule 45 of the Rules of Court, questioning the validity of Section 47 of P.D. No. 198, which provides: Sec. 47. Exclusive Franchise No franchise shall be granted to any other person or agency for domestic, industrial, or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration.3 [Emphasis supplied] The invalidity of exclusive franchises is not in dispute I reiterate that, contrary to the majoritys statements, I do not dispute that both the 1973 and the 1987 Constitutions clearly mandate that no franchise certificate, or any other form of authorization, for the operation of a public utility shall be exclusive in character. I fully support the position that the legislative entity that enacted Section 47 of P.D. 198 (in this case, former President Ferdinand E. Marcos in the exercise of his martial law legislative powers) must comply with Article XIV, Section 5 of the 1973 Constitution4 (the Constitution in force when P.D. No. 198 was enacted). This constitutional provision has been carried over to the 1987 Constitution as Article XII, Section 11 and states: No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. For the majority to characterize the Dissent as an argument for the grant of exclusive franchises by former President Marcos, by the water districts board of directors, by the LWUA, and by this Court would be to misread the Dissent and blur the issues that it raises.5 Section 47 of P.D. 198 does not violate Section 5, Article XIV of the 1973 Constitution The majority insists that Section 47 of P.D. 198 indirectly grants an exclusive franchise in favor of local water districts. In their reading, the law "allows the board of directors of a water district and the

Local Water Utilities Administrator (LWUA) to create franchises that are exclusive in character."6 I disagree, as the majority opinion does not at all specify and is unclear on how any franchise can be indirectly exclusive. What the law allows is merely the regulation of the grant of subsequent franchises so that the government through government-owned and controlled corporations can protect itself and the general public it serves in the operation of public utilities. An exclusive franchise, in its plainest meaning, signifies that no other entity, apart from the grantee, could be given a franchise. Section 47 of P.D. No. 198, by its clear terms, does not provide for an exclusive franchise in stating that: Sec. 47. Exclusive Franchise No franchise shall be granted to any other person or agency for domestic, industrial, or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration.7 Despite its title, the assailed provision does not absolutely prohibit other franchises for water service from being granted to other persons or agencies. It merely requires the consent of the local water districts Board of Directors before another franchise within the district is granted. Thus, it is a regulation on the grant of any subsequent franchise where the local water district, as original grantee, may grant or refuse its consent. If it consents, the non-exclusive nature of its franchise becomes only too clear. Should it refuse, its action does not remain unchecked as the franchise applicant may ask the LWUA to review the local water districts refusal. It is thus the LWUA (on the Office of the President in case of further appeal) that grants a subsequent franchise if one will be allowed. Under this arrangement, I submit that the prerogative of the local water districts board of directors or the LWUA to give or refuse its consent to the application for a CPC cannot be considered as a constitutional infringement. A government agencys refusal to consent to the grant of a franchise to another entity, based on reasonable and legitimate grounds, should not be construed as a violation of the constitutional mandate on the non-exclusivity of a franchise where the standards for the grant or refusal are clearly spelled out in the law. Effectively, what the law and the State (acting through its own agency or a government-owned or controlled corporation) thereby undertake is merely an act of regulation that the Constitution does not prohibit. To say that a legal provision is unconstitutional simply because it enables a grantee, a government instrumentality, to determine the soundness of granting a subsequent franchise in its area is contrary to the governments inherent right to exercise police power in regulating public utilities for the protection of the public and the utilities themselves.8 It should also be noted that even after the Marcos regime, constitutional experts have taken the view that the government can and should take a strong active part in ensuring public access to basic utilities. The deliberations of the Constitutional Commission for the 1987 Constitution (which contains the same provision found in the 1973 Constitution on the non-exclusivity of public utility franchises) regarding monopolies regulated by the state may guide, though not necessarily bind, us: MR. DAVIDE: If the idea is really to promote the private sector, may we not provide here that the government can, in no case, practice monopoly except in certain areas? MR. VILLEGAS. No, because in the economic field, there are definitely areas where the State can intervene and can actually get involved in monopolies for the public good. MR. DAVIDE. Yes, we have provisions here allowing such a monopoly in times of national emergency.

MR. VILLEGAS. Not even in emergency; for the continuing welfare of consumers. MR. MONSOD. May we just make a distinction? As we know, there are natural monopolies or what we call "structural monopolies." Structural monopolies are monopolies not by the nature of their activities, like electric power, for example, but by the nature of the market. There may be instances when the market has not developed to such extent that it will only allow, say, one steel company. Structural monopoly is not by the nature of the business itself. It is possible under these circumstances that the State may be the appropriate vehicle for such a monopoly.9 If, indeed, the Constitutional Commission in discussing the non-exclusivity clause had accepted the merits of government monopolies, should this Court consider unconstitutional a provision that allows a lesser degree of regulationi.e., a government agency giving its consent to the application of a CPC with the protection of the viability of the government agency and public good as the standards of its action? Safeguards against abuse of authority by the water districts board of directors and the LWUA The refusal of the local water district or the LWUA to consent to other franchises would carry with it the legal presumption that public officers regularly perform their official functions.10 If, on the other hand, the officers, directors or trustees of the local water districts and the LWUA act arbitrarily and unjustifiably refuse their consent to an applicant of a franchise, they may be held liable for their actions. The local water districts11 and the LWUA12 are government-owned and controlled corporations (GOCCs). The directors of the local water districts and the trustees of the LWUA are government employees subject to civil service laws and anti-graft laws.13 Moreover, the LWUA is attached to the Office of the President14 which has the authority to review its acts. Should these acts in the Executive Department constitute grave abuse of discretion, the Courts may strike them down under its broad powers of review.15 Any abuse of authority that the local water districts may be feared to commit is balanced by the control that the government exerts in their creation and operations. The government creates and organizes local water districts in accordance with a specific law, P.D. No. 198.16 There is no private party involved as a co-owner in the creation of local water districts. Prior to the local water districts creation, the national or local government directly owns and controls all their assets. The governments control over them is further asserted through their board of directors, who are appointed by the municipal or city mayor or by the provincial governor. The directors are not coowners of the local water district but, like other water district personnel, are government employees subject to civil service laws and anti-graft laws.17 Under this set-up, the control that exists over the grant of franchises, which originally belongs to the State, simply remained and is maintained with the State acting through the local government units and the government-owned and controlled corporations under them. Because of the governments extensive financial support to these entities, it is part of the laws policy to scrutinize their expenditures and outlays. Section 20 of P.D. No. 198 states that the local water districts are subject to annual audits performed by independent auditors and conducted by the LWUA.18 Section 41 of P.D. No. 198 even limits the authority of the board of directors of local water districts in the manner in which it can dispose of their income: (1) as payment for obligations and essential current operating expenses; (2) as a reserve for debt service, and for operations and maintenance to be used during periods of calamities, force majeure or unforeseen events; and (3) as a reserve exclusively for the expansion and improvement of their facilities. In this manner, the law ensures that their officers or directors do not profit from local water districts and that the operations thereof would be focused on improving public service. The possibility that the officers would refuse their consent to another franchise applicant for reasons of personal gain is, thus, eliminated.

Public policy behind Section 47 of P.D. No. 198 Without a clear showing that the Constitution was violated by the enactment of Section 47 of P.D. 198, the Court cannot invalidate it without infringing on government policy, especially when Congress had not seen fit to repeal the law and when the law appears to be based on sound public policy. P.D. No. 198 requires an applicant to first obtain the consent of the local water district and the LWUA for important reasons. First, it aims to protect the governments investment. Second, it avoids a situation where ruinous competition could compromise the supply of public utilities in poor and remote areas. A first reason the government seeks to prioritize local water districts is the protection of its investments - it pours its scarce financial resources into these water districts. The law primarily establishes the LWUA as a specialized lending institution for the promotion, development and financing of water utilities.19 Section 73 of P.D. No. 198 also authorizes the LWUA to contract loans and credits, and incur indebtedness with foreign governments or international financial institutions for the accomplishment of its objectives. Moreover, the President of the Philippines is empowered not only to negotiate or contract with foreign governments or international financial institutions on behalf of the LWUA; he or she may also absolutely and unconditionally guarantee, in the name of the Republic of the Philippines, the payment of the loans. In addition, the law provides that the General Appropriations Act shall include an outlay to meet the financial requirements of non-viable local water districts or the special projects of local water districts.20 The law also adopts a policy to keep the operations of local water districts economically secure and viable. The "whereas" clauses of the law explain the need to establish local water districts: the lack of water utilities in provincial areas and the poor quality of the water found in some areas. The law sought to solve these problems by encouraging the creation of local water districts that the national government would support through technical advisory services and financing.21 These local water districts are heavily regulated and depend on government support for their subsistence. If a private entity provides stiff competition against a local water district, causes it to close down and, thereafter, chooses to discontinue its business, the problem of finding a replacement water supplier for a poor, remote area will recur. Not only does the re-organization of a local water district drain limited public funds; the residents of these far-flung areas would have to endure the absence of water supply during the considerable time it would take to find an alternative water supply. Thus, as a matter of foresight, Section 47 of P.D. No. 198 and other provisions within the law aim to avert the negative effects of competition on the financial stability of local water districts. These sections work hand in hand with Section 47 of P.D. No. 198. Section 31 of P.D. No. 198, which is very similar to Section 47 of P.D. No. 198, directly prohibits persons from selling or disposing water for public purposes within the service area of the local water district: Section 31. Protection of Waters and Facilities of District. A district shall have the right to: xxxx (c) Prohibit any person, firm or corporation from vending selling, or otherwise disposing of water for public purposes within the service area of the district where district facilities are available to provide such service, or fix terms and conditions by permit for such sale or disposition of water. Thus, Section 47 of P.D. No. 198 provides that before a person or entity is allowed to provide water services where the local water districts facilities are already available, one must ask for the consent of the board of directors of the local water district, whose action on the matter may be reviewed by the LWUA.

Even after a CPC is granted and the entity becomes qualified to provide water services, Section 39 of P.D. No. 198 still allows a local water district to charge other entities producing water for commercial or industrial uses with a production assessment, to compensate for financial reverses brought about by the operations of the water provider; failure to pay this assessment results in liability for damages and/or the issuance of an order of injunction. Section 39. Production Assessment.In the event the board of a district finds, after notice and hearing, that production of ground water by other entities within the district for commercial or industrial uses i[s] injuring or reducing the districts financial condition, the board may adopt and levy a ground water production assessment to compensate for such loss. In connection therewith, the district may require necessary reports by the operator of any commercial or industrial well. Failure to pay said assessment shall constitute an invasion of the waters of the district and shall entitle this district to an injunction and damages pursuant to Section [31] of this Title. From these, it can be seen that Article XIV, Section 5 of the 1973 Constitution and P.D. No. 198 share the same purpose of seeking to ensure regular water supply to the whole country, particularly to the remote areas. By requiring a prospective franchise applicant to obtain the consent of the local water district or the LWUA, the law does not thereby grant it an exclusive franchise; it simply gives the water district the opportunity to have a say on the entry of a competitor whose operations can adversely affect its viability and the service it gives to consumers. This is far from an exclusive franchise that allows no other entity, apart from the only grantee, to have a franchise. Section 47 of P.D. No. 198 does not bar other franchise applicants; it merely regulates the grant of subsequent franchises to ensure that the market is not too saturated to the point of adversely affecting existing government water suppliers, all with the end of ensuring the public the water supply it needs. Revisiting Metropolitan Cebu Water District (MCWD) v. Margarita A. Adala Based on the foregoing discussion, I submit that there exists ample justification to reverse our ruling in Metropolitan Cebu Water District (MCWD) v. Margarita A. Adala.22 As in the present ponencia, there was no discussion in Metro Cebu Water District of what constitutes a grant of an exclusive franchise as opposed to a valid regulation of franchises by the government or how the questioned provision violated the constitutional mandate against exclusive franchises. It was simply presumed that there was a violation. It is worth noting that the Court disposed of the issue in just one paragraph that stated: Since Section 47 of P.D. 198, which vests an "exclusive franchise" upon public utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution, it is unconstitutional and may not, therefore, be relied upon by [MCWD] in support of its opposition against [Adalas] application for CPC and the subsequent grant thereof by the NWRB.23 In a legal system that rests heavily on precedents, this manner of reasoning would not only be unfair to the parties; it would also confuse and bewilder the legal community and the general public regarding the interpretation of an important constitutional provision. This kind of approach should always be subject to our continuing review and examination. In reversing a previous ruling issued by the Court, we are not unmindful of the legal maxim stare decisis et non quieta movere (literally, to stand by the decision and disturb not what is settled). This maxim is a very convenient practice that the conclusion reached in one case can be applied to subsequent cases where the facts are substantially the same, even though the parties are different. However, the doctrine is not set in stone; the Court may wisely set it aside upon a showing that circumstances attendant in a particular case override the benefits brought about by stare decisis.24

In our Resolution in de Castro v. Judicial and Bar Council,25 we explained why stare decisis is not considered inflexible with respect to this Court: The Court, as the highest court of the land, may be guided but is not controlled by precedent. Thus, the Court, especially with a new membership, is not obliged to follow blindly a particular decision that it determines, after re-examination, to call for a rectification. The adherence to precedents is strict and rigid in a common-law setting like the United Kingdom, where judges make law as binding as an Act of Parliament. But ours is not a common law system; hence judicial precedents are not always strictly and rigidly followed. A judicial pronouncement in an earlier decision may be followed as a precedent in subsequent case only when its reasoning and justification are relevant, and the Court in the latter case accepts such reasoning and justification to be applicable in the case. The application of the precedent is for the sake of convenience and stability. For the intervenors to insist that Valenzuela ought not to be disobeyed, or abandoned, or reversed, and that its wisdom should guide, if not control, the Court in this case is, therefore, devoid of rationality and foundation. They seem to conveniently forget that the Constitution itself recognizes the innate authority of the Court en banc to modify or reverse a doctrine or principle of law laid down in any decision rendered en banc or in division. Thus, this Court had seen it fit to overturn or abandon the rulings set in its previous decisions. In Philippine Guardians Brotherhood, Inc. v. Commission on Elections,26 we reversed our earlier ruling in Philippine Mines Safety Environment Association v. Commission on Elections.27 And in De Castro,28 we re-examined our decision in In re appointments of Hon. Valenzuela and Hon. Vallarta29 although the re-examination failed for lack of the necessary supporting votes. During the deliberations of the present case, a respected colleague hesitated at the idea of overturning a former ruling that has declared a law unconstitutional on the ground that this Court, once it declares a law null, cannot breathe life into its already dead provisions. It raises fears that the people and the other branches of government will not treat the Courts declarations of nullity of laws seriously.30 We cannot hold that the Court is empowered to reverse its established doctrines but is powerless to review laws that have been declared void; no justification simply exists for such distinctions. In reversing its decisions, this Courts primary consideration is to arrive at a just and judicious ruling and avoiding the ill effects of a previous ruling. It is by pursuing such objectives that this Court earns the respect of the people and the other branches of government. Precisely, this Court has taken a contrary view in Kilosbayan, Inc. v. Morato,31 when it noted that the US Supreme Court declared the Legal Tender Acts void in Hepburn v. Griswold,32 but subsequently declared these statutes as valid in Knox v. Lee.33 We lauded the American jurists who voted for the validity of the Legal Tender Acts, which had been formerly declared void, and noted that a change of composition in the Court could prove the means of undoing an erroneous decision.34 In all, Section 47 of P.D. No. 198 does not violate the constitutional proscription against exclusive franchises as other persons and entities may still obtain franchises for water utilities within the district upon the consent of the local water district or upon a favorable finding by the LWUA, which, in turn, is accountable to the Office of the President. By granting this privilege to local water districts, the law does not seek to favor private interests as these districts are GOCCs whose profits are exclusively for public use and whose expenditures the law subjects to the strictest scrutiny. The restrictions applied to other private persons or entities are intended to protect the governments considerable investment in local water districts and to promote its policy of prioritizing local water districts as a means of providing water utilities throughout the country. The protectionist approach that the law has taken towards local water districts is not per se illegal as the Constitution does not

promote a total deregulation in the operation of public utilities and is a proper exercise by the government of its police power. Thus, the TMPC should have first sought the consent of LTWDs Board of Directors, as directed under Section 47 of P.D. No. 198. Had the Board of Directors refused to give its consent, this action may still be reviewed by the LWUA, the entity most able to determine the financial and technical capacity of LTWD in order to decide whether another water service provider is needed in the municipality. Accordingly, it is my view that TMPCs CPC is invalid as it was issued without notice to the LTWDs Board of Directors. ARTURO D. BRION Associate Justice

Footnotes
1

Entitled "Declaring a National Policy Favoring Local Operation and Control of Water Systems; Authorizing the Formation of Local Water Districts and Providing for the Government and Administration of such Districts; Chartering a National Administration to Facilitate Improvement of Local Water Utilities; Granting said Administration such Powers as are Necessary to Optimize Public Service from Water Utility Operations, and for other Purposes," promulgated May 25, 1973, as amended by P.D. No. 1479.
2

Baguio Water District v. Trajano, GRN L-65428, February 20, 1984, 127 SCRA 730. Supra note 1, at 28. Sec. 5, Art. XIV of the 1973 Constitution provides: No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration or repeal in by the Batasang Pambansa when the public interest so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof.

Ponencia, p. 11. Ponencia, p. 8. Supra note 1.

Kilusang Mayo Uno Labor Center v. Garcia, Jr., G.R. No. 115381, December 23, 1994, 239 SCRA 386, 412.
9

Record of the Constitutional Commission, volume 3, 262-263,

10

First United Constructors Corporation v. Poro Point Management Corporation (PPMC), G.R. No. 178799, January 19, 2009, 576 SCRA 311, 321; Gatmaitan v. Gonzales, G.R. No. 149226, June 26, 2006, 492 SCRA 591, 604; and PAMECA Wood Treatment Plant, Inc. v. Court of Appeals, 369 Phil. 544, 555 (1999).
11

Davao City Water District v. Civil Service Commission, G.R. Nos. 95237-38, September 13, 1991, 201 SCRA 593, 602; see also Feliciano v. Commission on Audit, 464 Phil. 439, 453-464 (2004).
12

Section 49 of P.D. No. 198. Engr. Feliciano v. Commission on Audit, supra note 10, at 462-463. Section 49 of P.D. No. 198. CONSTITUTION, Article VII, Section 1.

13

14

15

16

Francisco, Pepito, "Provincial Water Utilities Act of 1973, as amended," 2008 ed., pp. 25-26, citing the LWUA-Water District Primer. The steps to be undertaken for the creation of a duly-organized water districts are as follows: (1) LWUA conducts preliminary talks and consultation with interested local government entities. (2) The local government conducts public hearings to arrive at a consensus on whether to form a water district or not. (3) The local legislative body (the Sangguniang Bayan/Lungsod or Sangguniang Panlalawigan, as the case may be) secures nominations for candidates for the water district board of directors from business, civic, professional, education and women sectors of the community concerned. (4) The Sanggunian secretary collates all nominations and forwards the same to the appointing authority. (5) The Mayor or Governor appoints the directors. (6) The local legislative body deliberates and enacts a resolution to form a water district stating therein the names and terms of office of the duly appointed board of directors. (7) Mayor or Governor approves the resolution, submits the same to LWUA. (8) LWUA reviews the resolution to determine compliance with Presidential Decree No. 198, as amended (Provincial Water Utilities Act of 1973) and LWUA requirements.

17

Engr. Feliciano v. Commission on Audit, supra note 10, at 462-463. Ibid. Section 50 of P.D. 198. Sections 76 and 77 of P.D. No. 198.

18

19

20

21

WHEREAS, domestic water systems and sanitary sewers are two of the most basic and essential elements of local utility system, which, with a few exceptions, do not exist in provincial areas in the Philippines; WHEREAS, existing domestic water utilities are not meeting the needs of the communities they serve; water quality is unsatisfactory; pressure is inadequate; and reliability of service is poor; in fact, many persons receive no piped water service whatsoever; xxxx WHEREAS, local water utilities should be locally-controlled and managed, as well as have support on the national level in the area of technical advisory services and financing[.]
22

G.R. No. 168914, July 4, 2007, 526 SCRA 465. Ibid.

23

24

Philippine Guardians Brotherhood, Inc. v. Commission on Elections, G.R. No. 190529, April 29, 2010.
25

G.R. Nos. 191002, 191032, 191057, 191149, 191342 and 191420, and A.M. No. 10-2-5-SC, April 20, 2010, citing Limketkai Sons Milling, Inc. v. Court of Appeals, G.R. No. 118509, September 5, 1996, 261 SCRA 464, 467.
26

Supra note 23. G.R. No. 177548, Resolution dated May 10, 2007. Supra note 24. 358 Phil. 896 (1998). Justice Abads Dissenting Opinion, p. 2. 320 Phil. 171, 181-182 (1995). 8 Wall. 603 (1869). 12 Wall. 457 (1871).

27

28

29

30

31

32

33

34

Supra note 30. The Court declared that: History has vindicated the overruling of the Hepburn case by the new majority. The Legal Tender Cases proved to be the Courts means of salvation from what Chief Justice Hughes later described as one of the Courts "self-inflicted wounds."

The Lawphil Project - Arellano Law Foundation

CONCURRING OPINION ABAD, J.: On October 9, 2000 petitioner Tawang Multi-Purpose Cooperative (TMPC), a registered cooperative established by Barangay Tawang, La Trinidad residents for the purpose of operating a domestic drinking water service, applied with the National Water Resources Board (the Board) for a Certificate of Public Convenience (CPC) to maintain and operate a waterworks system within its barangay. But respondent La Trinidad Water District (LTWD), a government-owned corporation1 that supplied water within La Trinidad for domestic, industrial, and commercial purposes, opposed the application. LTWD claimed that its franchise was exclusive in that its charter provides that no separate franchise can be granted within its area of operation without its prior written consent. Still, the Board granted TMPCs application on July 23, 2002, resulting in the issuance of a five-year CPC in its favor. LTWD contested the grant before the Regional Trial Court (RTC) of La Trinidad which, after hearing, rendered judgment setting aside the Boards decision and canceling the CPC it issued to TMPC. The RTC denied TMPCs motion for reconsideration, prompting the latter to come to this Court on petition for review. The Court has previously held in Metropolitan Cebu Water District v. Adala2 that Section 473 of P.D. 198,4 is unconstitutional for being contrary to Article XIV, Section 5 of the 1973 Constitution and Article XII, Section 11 of the 1987 Constitution. Some in the Court would, however, have its above ruling reexamined based on the view that Section 47 does not actually provide for an exclusive franchise which would violate the Constitution. The Courts conclusion and ruling in the Adala case read: Since Section 47 of P.D. 198, which vests an "exclusive franchise" upon public utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution, it is unconstitutional and may not, therefore, be relied upon by petitioner in support of its opposition against respondents application for CPC and the subsequent grant thereof by the NWRB. WHEREFORE, Section 47 of P.D. 198 is unconstitutional. Paragraph 2, Article 7 of the New Civil Code provides that "when the courts declared a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern."

Since the Court, exercising its Constitutional power of judicial review, has declared Section 47 of P.D. 198 void and unconstitutional, such section ceased to become law from the beginning. The Supreme Courts power of review does not permit it to rewrite P.D. 198 in a subsequent case and breathe life to its dead provisions. Only Congress can. Besides, such course of action is unwise. The Court will be establishing a doctrine whereby people and the other branches of government will not need to treat the Courts declaration of nullity of law too seriously. They can claim an excuse for continuing to enforce such law since even the Court concedes that it can in another case change its mind regarding its nullity. I fully subscribe to the majority opinion, penned by Justice Antonio T. Carpio that there exists no justification for abandoning the Courts previous ruling on the matter. I vote to GRANT TMPCs petition for review and SET ASIDE the decision of the trial court. ROBERTO A. ABAD Associate Justice

Footnotes
1

Created pursuant to Presidential Decree (P.D.) 198, also known as the Provincial Water Utilities Act of 1973.
2

G.R. No. 168914, July 4, 2007, 526 SCRA 465.

Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency for domestic, industrial or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration.
4

"Declaring a National Policy Favoring Local Operation and Control of Water Systems; Authorizing the Formation of Local Water Districts and Providing for the Government and Administration of such Districts; Chartering a National Administration to Facilitate Improvement of Local Water Utilities; Granting said Administration such Powers as Are Necessary to Optimize Public Service from Water Utility Operations, and for Other Purposes." This took effect upon its issuance by then President Marcos on May 25, 1973.