AIDA D. EUGENIO, Petitioner, v. CIVIL SERVICE COMMISSION, DAVIDE, JR.

,
HON. TEOFISTO T. GUINGONA. JR. & HON. SALVADOR ENRIQUEZ,
JR., Respondent.
Mauricio Law Office for Petitioner.
The Solicitor General for Respondents.
SYLLABUS
1. POLITICAL LAW; CIVIL SERVICE COMMISSION(CSC); CAREER EXECUTIVE
SERVICE BOARD (CESB); AN OFFICE CREATED BY LAW AND CAN ONLY BE
ABOLISHED BY LAW. The Career Executive Service Board (CESB) was created
by Presidential Decree (P.D.) No. 1 on September 1, 1994 which adopted the
Integrated Reorganization Plan. As the CESB was created by law, it can only be
abolished by the legislature. This follows an unbroken stream of rulings that the
creation and abolition of public offices is primarily a legislative function. As aptly
summed up in AM JUR 2d on Public Officers and Employees, viz: Except for such
offices as are created by the Constitution, the creation of public offices is primarily a
legislative function. In so far as the legislative power in this respect is not restricted by
constitutional provisions, it is supreme, and the legislature may decide for itself what
offices are suitable, necessary, or convenient. When in the exigencies of government,
it is necessary to create and define duties the legislative department has the discretion
to determine whether additional offices shall be created, or whether these duties shall
be attached to and become ex-officio duties of existing offices. An office created by
the legislature is wholly within the power of that body, and it may prescribe the mode
of filling the office and the powers and duties of the incumbent, and, if it sees fit,
abolish the office." In the petition at bench, the legislature has not enacted any law
authorizing the abolition of the CESB. On the contrary, in all the General Appropriation
Acts from 1975 to 1993, the legislature has set aside funds for the operation of CESB.
2. ID.; ID.; ID.; AUTONOMOUS ENTITY THAT CANNOT BE ABOLISHED BY CSC.
Respondent Commission invokes Section 17, Chapter 3, Subtitle A, Title I, Book V of
the Administrative Code of 1987 as the source of its power to abolish the CESB.
Section 17 must be read together with Section 16 of the said Code which enumerates
the offices under the respondent Commission. As read together, the inescapable
conclusion is that respondent Commissions power to reorganize is limited to offices
under its control as enumerated in Section 16. From its inception, the CESB was
intended to be an autonomous entity albeit administratively attached to respondent
Commission. As conceptualized by the Reorganization Committee "the CESB shall be
autonomous. It is expected to view the problem of building up executive manpower in
the government with a broad and positive outlook." The essential autonomous
character of the CESB is not negated by its attachment to respondent Commission.
By said attachment, CESB was not made to fall within the control of respondent
Commission. Under the Administrative Code of 1987, the purpose of attaching any
functionally inter-related government agency to another is to attain "policy and
program coordination." This is clearly etched out in Section 38(3), Chapter 7, Book IV
of the aforecited Code.

EUGENIO vs. CSC et al Leave a comment

EUGENIO vs. CSC et al
G.R. No. 115863
March 31, 1995
FACTS: . Eugenio is the Deputy Director of the Philippine Nuclear Research Institute.
She applied for a Career Executive Service (CES) Eligibility and a CESO rank,. She
was given a CES eligibility and was recommended to the President for a CESO rank
by the Career Executive Service Board.
Then respondent Civil Service Commission passed a Resolution which abolished the
CESB, relying on the provisions of Section 17, Title I, Subtitle A. Book V of the
Administrative Code of 1987 allegedly conferring on the Commission the power and
authority to effect changes in its organization as the need arises.
Said resolution states:
Pursuant thereto, the Career Executive Service Board, shall now be known as the
Office for Career Executive Service of the Civil Service Commission. Accordingly, the
existing personnel, budget, properties and equipment of the Career Executive Service
Board shall now form part of the Office for Career Executive Service.
Finding herself bereft of further administrative relief as the Career Executive Service
Board which recommended her CESO Rank IV has been abolished, petitioner filed
the petition at bench to annul, among others, said resolution.
ISSUE: WON CSC given the authority to abolish the office of the CESB
HELD: the petition is granted and Resolution of the respondent Commission is hereby
annulled and set aside
NO
1. The controlling fact is that the CESB was created in PD No. 1 on September 1,
1974. It cannot be disputed, therefore, that as the CESB was created by law, it can
only be abolished by the legislature. This follows an unbroken stream of rulings that
the creation and abolition of public offices is primarily a legislative function

In the petition at bench, the legislature has not enacted any law authorizing the
abolition of the CESB. On the contrary, in all the General Appropriations Acts from
1975 to 1993, the legislature has set aside funds for the operation of CESB.
Respondent Commission, however, invokes Section 17, Chapter 3, Subtitle A. Title I,
Book V of the Administrative Code of 1987 as the source of its power to abolish the
CESB.

280 SCRA 713 Law on Public Officers Creation and Abolition of a Public Office is
Essentially Legislative
In 1993, Aida Eugenio passed the Career Executive Service Eligibility (CES). She was

But as well pointed out by petitioner and the Solicitor General, Section 17 must be
read together with Section 16 of the said Code which enumerates the offices under
the respondent Commission.

then recommended to be appointed as a Civil Service Officer Rank IV. But her

As read together, the inescapable conclusion is that respondent Commissions power

to reorganize is limited to offices under its control as enumerated in Section 16..

Commission (CSC) abolished the Career Executive Service Board (CESB). CESB is

2. . From its inception, the CESB was intended to be an autonomous entity, albeit
administratively attached to respondent Commission. As conceptualized by the
Reorganization Committee the CESB shall be autonomous. It is expected to view the
problem of building up executive manpower in the government with a broad and
positive outlook.
The essential autonomous character of the CESB is not negated by its attachment to
respondent Commission. By said attachment, CESB was notmade to fall within the
control of respondent Commission. Under the Administrative Code of 1987, the
purpose of attaching one functionally inter-related government agency to another is to
attain policy and program coordination. This is clearly etched out in Section 38(3),
Chapter 7, Book IV of the aforecited Code, to wit:

appointment to said rank was impeded when in the same year, the Civil Service

the office tasked with promulgating rules, standards, and procedures on the
selection, classification and compensation of the members of the Career Executive
Service.
Eugenio then assailed the resolution which abolished CESB. She averred that the
CSC does not have the power to abolish CESB because the same was created by law
(P.D. 1). CSC on the other hand argued that it has the power to do so pursuant to the
Administrative Code of 1987 which granted the CSC the right to reorganize the CSC.

(3) Attachment. (a) This refers to the lateral relationship between the department or
its equivalent and attached agency or corporation for purposes of policy and program
coordination. The coordination may be accomplished by having the department
represented in the governing board of the attached agency or corporation, either as
chairman or as a member, with or without voting rights, if this is permitted by the
charter; having the attached corporation or agency comply with a system of periodic
reporting which shall reflect the progress of programs and projects; and having the
department or its equivalent provide general policies through its representative in the
board, which shall serve as the framework for the internal policies of the attached
corporation or agency.

ISSUE: Whether or not the Civil Service Commission may validly abolish the
CareerExecutive Service Board.
HELD: No. The CESB is created by law. It can only be abolished by the legislature.
The creation and abolition of public offices is primarily a legislative function, except for
Constitutional offices. The power to restructure granted to the CSC is limited to offices
under it. The law that created the CESB intended said office to be an autonomous
entity although it is administratively attached to the CSC.

ALFREDO L. AZARCON, Petitioner, v. SANDIGANBAYAN, PEOPLE OF THE

PHILIPPINES and JOSE C. BATAUSA, Respondents.
Ongkiko Kalaw Manhit Acorda Panga & Velasco Law Offices.
The Solicitor General for Respondents.
SYLLABUS
1. REMEDIAL LAW; JURISDICTION; CANNOT BE PRESUMED OR IMPLIED. It is
hornbook doctrine that in order (to) ascertain whether a court has jurisdiction or not,
the provisions of the law should be inquired into." Furthermore, "the jurisdiction of the
court must appear clearly from the statute law or it will not be held to exist. It cannot
be presumed or implied. And for this purpose in criminal cases, "the jurisdiction of a
court is determined by the law at the time of commencement of the action."cralaw
virtua1aw library
2. ID.; ID.; SANDIGANBAYAN; SEC. 4, P.D. NO. 1606 SPECIFY THE ONLY
INSTANCES WHEN THE SANDIGANBAYAN WILL HAVE JURISDICTION OVER
PRIVATE INDIVIDUAL. The provisions of Sec. 4 of P.D. No. 1606 unequivocally
specify the only instances when the Sandiganbayan will have jurisdiction over a
private individual, i.e. when the complaint charges the private individual either as a coprincipal, accomplice or accessory of a public officer or employee who has been
charged with a crime within its jurisdiction.
3. CRIMINAL LAW; PUBLIC OFFICER, DEFINED. Article 203 of the Revised Penal
Code determines who are public officers: "Who are public officers. For the purpose
of applying the provisions of this and the preceding titles of the book, any person who,
by direct provision of the law, popular election, or appointment by competent authority,
shall take part in the performance of public functions in the Government of the
Philippine Islands, or shall perform in said Government or in any of its branches public
duties as an employee, agent, or subordinate official, of any rank or classes, shall be
deemed to be a public officer." Thus," (to) be a public officer, one must be (1)
Taking part in the performance of public functions in the government, or Performing in
said Government or any of its branches public duties as an employee, agent, or
subordinate official, of any rank or class; and (2) That his authority to take part in the
performance of public functions or to perform public duties must be a. by direct
provision of the law, or b. by popular election, or c. by appointment by competent
authority."cralaw virtua1aw library
4. CONSTITUTIONAL LAW; DELEGATED POWERS; ADMINISTRATIVE AGENCIES
MAY EXERCISE ONLY THOSE PROVIDED BY ITS ENABLING ACT. It is
axiomatic in our constitutional framework, which mandates a limited government, that
its branches and administrative agencies exercise only that power delegated to them
as "defined either in the Constitution or in legislation or in both." Thus, although the
"appointing power is the exclusive prerogative of the President, . . ." the quantum of

powers possessed by an administrative agency forming part of the executive branch

will still be limited to that "conferred expressly or by necessary or fair implication" in its
enabling act. Hence," (a)n administrative officer, it has been held, has only such
powers as are expressly granted to him and those necessarily implied in the exercise
thereof." Corollarily, implied powers "are those which are necessarily included in, and
are therefore of lesser degree than the power granted. It cannot extend to other
matters not embraced therein, nor are not incidental thereto." For to so extend the
statutory grant of power "would be an encroachment on powers expressly lodged in
Congress by our Constitution."cralaw virtua1aw library
5. ID.; ID.; ID.; NATIONAL INTERNAL REVENUE CODE; DOES NOT STRETCH THE
BIRS POWER AUTHORIZING A PRIVATE INDIVIDUAL TO ACT AS A DEPOSITARY
AS TO INCLUDE THE POWER TO APPOINT HIM AS PUBLIC OFFICER. It is true
that Sec. 206 of the NIRC, as pointed out by the prosecution, authorizes the BIR to
effect a constructive distraint by requiring "any person" to preserve a distrained
property, thus: ". . . The constructive distraint of personal property shall be effected by
requiring the taxpayer or any person having possession or control of such property to
sign a receipt covering the property distrained and obligate himself to preserve the
same intact and unaltered and not to dispose of the same in any manner whatever
without the express authority of the Commissioner. . . However, we find no provision in
the NIRC constituting such person a public officer by reason of such requirement. The
BIRs power authorizing a private individual to act as a DEPOSITARY cannot be
stretched to include the power to appoint him as a public officer.
6. STATUTORY CONSTRUCTION; LEGISLATIVE INTENT; DETERMINED
PRINCIPALLY FROM THE LANGUAGE OF THE STATUTE; APPLICATION IN CASE
AT BAR. Legislative intent is determined principally from the language of a statute.
Where the language of a statute is clear and unambiguous, the law is applied
according to its express terms, and interpretation would be resorted to only where a
literal interpretation would be either impossible or absurd or would lead to an injustice.
This is particularly observed in the interpretation of penal statutes which "must be
construed with such strictness as to carefully safeguard the rights of the
defendant . . ." The language of the foregoing provision is clear. A private individual
who has in his charge any of the public funds or property enumerated therein and
commits any of the acts defined in any of the provisions of Chapter Four, Title Seven
of the RPC, should likewise be penalized with the same penalty meted to erring public
officers. Nowhere in this provision is it expressed or implied that a private individual
falling under said Article 222 is to be deemed a public officer.

Facts: Petitioner Alfredo Azarcon owned and operated an earth-moving business,

hauling dirt and ore. His services were contractedby PICOP. Occasionally, he engaged

the services of sub-contractors like Jaime Ancla whose trucks were left at the formers

Along with his co-accused, Azarcon was charged before the Sandiganbayan with the

premises.

crime of malversation of public funds or property. On March 8, 1994, the

Sandiganbayan rendered a Decision sentencing the accused to suffer the penalty of

On May 25, 1983, a Warrant of Distraint of Personal Property was issued by BIR

imprisonment ranging from 10 yrs and 1 day of prision mayor in its maximum period to

commanding one of its Regional Directors to distraint the goods, chattels or effects

17 yrs, 4 mos and 1 day of reclusion temporal. Petitioner filed a motion for new trial

and other personal property of Jaime Ancla, a sub-contractor of accused Azarcon and

which was subsequently denied by Sandiganbayan. Hence, this petition.

a delinquenttaxpayer. A Warrant of Garnishment was issued to and subsequently

signed by accused Azarcon ordering him to transfer, surrender, transmit and/or remit

Issue: Whether or not Sandiganbayan has jurisdiction over a private individual

to BIR the property in his possession owned byAncla. Azarcon then volunteered

designated by BIR as a custodian of distrained property.

himself to act as custodian of the truck owned by Ancla.

Held: SC held that the Sandiganbayans decision was null and void for lack of
After some time, Azarcon wrote a letter to the Reg. Dir of BIR stating that while he had

jurisdiction.

made representations to retain possession of the property of Ancla, he thereby

relinquishes whatever responsibility he had over the said property since Ancla

Sec. 4 of PD 1606 provides for the jurisdiction of the Sandiganbayan. It was specified

surreptitiously withdrew his equipment from him. In his reply, the BIR Reg. Dir. said

therein that the only instances when the Sandiganbayan will have jurisdiction over a

that Azarcons failure to comply with the provisions of the warrant did not relieve him

private individual is when the complaint charges the private individual either as a co-

from his responsibility.

principal, accomplice or accessory of a public officer or employee who has been

charged with a crime within its jurisdiction.

Rodolfo S.J. De Leon, for Petitioners.

Carlos A. Cadiente for Private Respondents.
The Information does no charge petitioner Azarcon of becoming a co-principal,
SYLLABUS
accomplice or accessory to a public officer committing an offense under the
Sandiganbayans jurisdiction. Thus, unless the petitioner be proven a public officer,
Sandiganbayan will have no jurisdiction over the crime charged.

Art. 203 of the RPC determines who public officers are. Granting that the petitioner, in
signing the receipt for the truck constructively distrained by the BIR, commenced to
take part in an activity constituting public functions, he obviously may not be deemed
authorized by popular election. Neither was he appointed by direct provision of law nor
by competent authority. While BIR had authority to require Azarcon to sign a receipt
for the distrained truck, the National Internal Revenue Code did not grant it power to
appoint Azarcon a public officer. The BIRs power authorizing a private individual to act
as a depositary cannot be stretched to include the power to appoint him as a public
officer. Thus, Azarcon is not a public officer.

LEON MATEO and ANA VILORIA MATEO, Petitioners, v. THE HONORABLE

COURT OF APPEALS; THE HONORABLE JUDGE DAVID MOJICA, Presiding
Judge of Branch XIX, Regional Trial Court of Davao del Sur; THE HONORABLE
JUDGE PEDRO CASIA, Executive Judge of the Regional Trial Court of Davao del
Sur; ATTY. BONIFACIO J. GUYOT, Clerk of Court of Davao del Sur; JULIA
MATEO and FRANCISCO DEL ROSARIO, Respondents.

1. REMEDIAL LAW; CIVIL PROCEDURE; PETITION FOR RELIEF FROM

JUDGMENT; DENIAL OF, AN EXERCISE OF TRIAL COURTS DISCRETION. The
petitioners assail the decision of the respondent appellate court confirming the trial
courts denial of both their Petition for Relief from Judgment and the notice of appeal.
As regards the denial of the Petition for Relief from Judgment, there is no question
that the same involved the exercise of discretion by the trial court and, therefore, the
granting thereof can not be compelled by mandamus.
2. ID.; SPECIAL CIVIL ACTION; MANDAMUS. A petition for mandamus lies "when
any tribunal, corporation, board or person unlawfully neglects the performance of an
act which the law enjoins as a duty resulting from an office, trust, or station, or
unlawfully excludes another from the use and enjoyment of a right or office to which
such other is entitled, and there is no plain and adequate remedy in the ordinary
course of law . . ." As the Court en banc recently held in Cruz v. Major General
Montano, "mandamus is a remedy available only to compel the doing of an act
specifically enjoined by law as a duty. It cannot compel the exercise of discretion one
way or the other." Indeed, mandamus does not lie to compel the performance of a
discretionary duty.
3. ID.; ID.; ID.; DISTINCTIONS BETWEEN MINISTERIAL DUTY AND
DISCRETIONARY DUTY. In Symaco v. Aquino, we had the occasion to clearly
distinguish between a ministerial duty and a discretionary duty. We explained: . . .
Ministerial duty is one which is so clear and specific as to leave no room for the
exercise of discretion in its performance. On the other hand, a discretionary duty is
that which by its nature requires the exercise of judgment. A purely ministerial act or
duty is one in which an officer or tribunal performs in a given state of facts, in a
prescribed manner, in obedience to the mandate of legal authority, without regard to or
the exercise of his own judgment, upon the propriety of the act done. But if the law
imposes a duty upon a public officer and gives him the right to decide how or when the
duty shall be performed, such duty is discretionary and not ministerial. The duty is
ministerial only when the discharge of the same requires neither the exercise of official
discretion nor judgment. . . .
4. ID.; CIVIL PROCEDURE; PETITION FOR RELIEF FROM JUDGMENT; ABSENCE
OF ONE OF TWO PERIODS BARS FILING OF PETITION FOR RELIEF. The
petitioners do not dispute the fact that the Petition for Relief from Judgment was not
filed with the trial court within the reglementary period, i.e., within sixty (60) days from
the time the petitioners learned of the judgment in question and not more than six (6)
months after such judgment was entered. Although the petition was filed within six (6)
months, it was not within sixty (60) days from the time the petitioners learned of the
judgment, but only after 107 days. The absence of one of the two said periods which

are concurring elements precludes the petitioners from availing of the Petition for
Relief from Judgment.
5. ID.; ID.; ID.; REMEDY IN CASE OF DENIAL IS APPEAL. In this instance, the
remedy available to the petitioners is to appeal the denial of their Petition for Relief
from Judgment. As we held in De Jesus v. Domingo, an order denying a petition for
relief, being final, is appealable and may not be corrected through the special civil
action for certiorari and prohibition.
6. ID.; ID.; APPEAL; MINISTERIAL DUTY OF TRIAL COURT TO APPROVE NOTICE
OF APPEAL. We agree with the contention of the petitioners that it was the
ministerial duty of the trial court to approve the notice of appeal. It must be observed
that the petitioners had filed within the prescribed period a notice of appeal on
December 1, 1987 when the petition in question was denied by the trial court in an
order dated November 9, 1987, a copy of which was received by the petitioners on
November 27, 1987. The refusal of the trial court, therefore, to accept the said notice
filed by petitioners in pursuance of their statutory right to appeal is clearly enforceable
by mandamus.
7. ID.; ID.; PETITION FOR RELIEF FROM JUDGMENT; REQUISITES. The
petitioners, to be entitled to a Petition for Relief from Judgment, must not only show
excusable negligence but must likewise assert the facts constituting their good and
substantial cause of action. Still and all, considering the evidence adduced by the
petitioners, we see no reason to depart from the well-grounded conclusion of the
respondent appellate court finding the appeal not meritorious for failure to establish
both foregoing requisites.

Private respondent then filed a Special Civil Action before the Regional Trial Court of

Rizal, Branch 78, challenging his dismissal by petitioners.

Petitioners moved to dismiss the case on two grounds: 1. The court had no jurisdiction

over the case; and 2. Quo warranto was not the proper remedy.

Respondent judge denied the motion to dismiss and the motion for reconsideration as

well.

FACTS: Petitioners, all Board Members of MOWAD, conducted an investigation on

ISSUE: Whether or not the regional trial court has jurisdiction over the special civil
private respondent Edgar Sta. Maria, then General Manager. When placed under
case involving dismissal of an employee of quasi-public corporation.
preventive suspension, Maximo San Diego was designated in his place as acting

General Manager. He was later dismissed from service.

RULING: The Supreme Court held that it has no jurisdiction. MOWAD is a quasi-public

corporation created pursuant to Presidential Decree No. 198, as amended, and as

such its officers and employees are covered by the Civil Service Law. Indeed the

the lowest bidder whose bid as evaluated complies with all the terms and conditions in
the call for bid.
established rule is that the hiring and firing of employees of government-owned and

controlled corporations are governed by the provisions of the Civil Service Laws and

Rules and Regulations. Petition is hereby granted.

REPUBLIC OF THE PHILIPPINES, represented by the AIR TRANSPORTATION

OFFICE and its PRE-QUALIFICATION, BIDDING and AWARD COMMITTEE of the
DEPARTMENT OF TRANSPORTATION AND COMMUNICATION, Petitioners, v.
HONORABLE IGNACIO C. CAPULONG, Presiding Judge, RTC, NCJR, Branch
134, Makati, and INTER TECHNICAL PACIFIC PHIL., INC., Respondents.
Vicente T . Verdadero for Private Respondent.
SYLLABUS
1. PRESIDENTIAL DECREE NO. 1594 (PUBLIC BIDDINGS IN GOVERNMENT
INFRASTRUCTURE CONTRACTS); FORM OF BID; NATURE. The Form of Bid,
as technically used in this case, contains the offer to undertake the works for a
specified sum of money expressed in foreign currency and Philippine peso and, it
stipulates the terms and conditions in the call for bid which the bidder, thru its duly
authorized signing representative, agrees to undertake and abide once the bid is
accepted by the PBAC. Specifically, it is a standard form made available to
prequalified bidders containing the bidders "offer to undertake the work complete in
conformity with the above-mentioned documents" to wit: Conditions of Contract,
Technical Specifications, Bid Schedule and Drawings" for specified sum of money, one
in foreign currency and the other in Philippine pesos.
2. ID.; ID.; ID.; ESSENCE OF A DULY ACCOMPLISHED AND SIGNED FORM OF
BID. In essence, a duly accomplished and signed Form of Bid submitted to the
bidding committee together with the written acceptance by the government agency
constitutes a binding preliminary contract governing the relationship between the
bidder and the government agency concerned during the examination and evaluation
period of the bid proposal until the Notice of Award is given to and the Project Contract
is executed by the winning bidder. If there is no duly accomplished and signed Form of
Bid submitted to the bidding committee, there is nothing to accept on the part of the
government agency.
3. ID.; ID.; BASIS OF AWARD. Under Section 5 of Presidential Decree No. 1594
(June 11, 1978), the law which prescribes the policies, guidelines, rules and
regulations for government infrastructure contracts, the contract may be awarded to

4. ID.; BID BOND; NATURE. The Bid Bond is an indispensable requirement for the
validation of a bid proposal. The bond insures good faith of the bidders and binds
them to enter into a contract with the Government should their proposal be accepted
(see Padilla v. Zaldivar, L-22789, October 30, 1964, 12 SCRA 260).
5. ID.; BASIC RULE IN PUBLIC BIDDING. The basic rule in public bidding is that
bids should be evaluated based on the required documents submitted before and not
after the opening of bids. Otherwise, the foundation of a fair and competitive public
bidding would be defeated. Strict observance of the rules, regulations, and guidelines
of the bidding process is the only safeguard to a fair, honest and competitive public
bidding.
6. ID.; PURPOSE OF PUBLIC BIDDING. In Caltex (Phil.) Inc., Et. Al. v. Delgado
Brothers, Inc., Et Al., (96 Phil. 368, 375), We stressed that public biddings are held for
the protection of the public and the public should be given the best possible
advantages by means of open competition among the bidders.
7. ID.; ID.; SUBSTANTIAL VARIANCE BETWEEN THE CONDITIONS UNDER
WHICH BIDS ARE INVITED AND THE PROPOSAL SUBMITTED NOT ALLOWED.
Authorities should not be permitted to waive any substantial variance between the
conditions under which bids are invited and the proposal submitted. If one bidder is
relieved from conforming to the conditions which impose some duty upon him, or lay
the ground for holding him to a strict performance of his contract that bidder is not
contracting in fair competition with those bidders who propose to be bound by all the
conditions (Case v. Inhabitants of Trenton, 76 N.J.L. 696, 74 A. 672; Lupter Et. Al. v.
Atlantic Country, Et Al., 87 N.J. Eq. 491, 100 A. 927, cited in Cobacha and Lucenario,
Law on Public Bidding and Government Contracts, p. 7).
8. ID.; ID.; ID.; CASE AT BAR. INTER TECHNICALs failure to comply with what is
perceived to be an elementary and customary practice in a public bidding process,
that is, to enclose the Form of Bid in the original and eight separate copies of the
bidding documents submitted to the bidding committee is fatal to its cause. All the four
prequalified bidders which include INTER TECHNICAL were subject to Rule IB 2.1 of
the Implementing Rules and Regulations of P.D. 1594 in the preparation of bids, bid
bonds, and prequalification statement and Rule IB 2.8 which states that the Form of
Bid, among others, shall form part of the contract. INTER TECHNICALs explanation
that its bid form was inadvertently left in the office will not excuse compliance with
such a simple and basic requirement in the public bidding process involving a multimillion project of the Government. There should be strict application of the pertinent
public bidding rules, otherwise the essential requisites of fairness, good faith, and
competitiveness in the public bidding process would be rendered meaningless.
9. REMEDIAL LAW; SPECIAL CIVIL ACTION; MANDAMUS; AS A RULE, LIES ONLY
TO COMPEL THE PERFORMANCE OF MINISTERIAL DUTY. As a rule,
mandamus lies only to compel an officer to perform a ministerial duty and not a
discretionary act. (Meralco Securities Corporation v. Savellano, L-36748, October 23,
1982, 117 SCRA 804, 812) As a general rule, a writ of mandamus will not issue to

control or review the exercise of discretion of a public officer since it is his judgment
that is to be exercised and not that of the court (see Magtibay v. Garcia, G.R. No. L28971, January 28, 1983, 120 SCRA 370). Thus, the courts will not interfere to modify,
control or inquire into the exercise of this discretion unless it be alleged and proven
that there has been an abuse or an excess of authority on the part of the officer
concerned (see Calvo v. de Gutierrez, Et Al., 4 Phil. 2033).
10. ID.; ID.; MINISTERIAL DISTINGUISHED FROM DISCRETIONARY DUTY. We
ruled that" (d)iscretion when applied to public functionaries, means a power or right
conferred upon them by law of acting officially, under certain circumstances,
uncontrolled by the judgment or conscience of others. A purely ministerial act or duty
in contradiction to a discretional act is one which an officer or tribunal performs in a
given state of facts, in a prescribed manner, in obedience to the mandate of a legal
authority, without regard to or the exercise of his own judgment upon the propriety or
impropriety of the act done. If the law imposes a duty upon a public officer and gives
him the right to decide how or when the duty shall be performed, such duty is
discretionary and not ministerial. The duty is ministerial only when the discharge of the
same requires neither the exercise of official discretion or judgment."cralaw virtua1aw
library
11. ID.; ID.; AUTHORITY OF PBAC TO EVALUATE BIDS, AN EXERCISE OF
DISCRETION. Under Rule IB 2.3 of the Rules implementing Presidential Decree
No. 1594, and in the Invitation to Bid, the Government has expressly reserved the
right to reject any or all bids. PBACs authority to evaluate the bids during the opening
and examination thereof clearly indicates its discretion to determine compliance or
non-compliance with the bidding requirements. Consequently, when PBAC made a
preliminary evaluation of the required documents and found INTER TECHNICALs bid
non-complying for lack of a Form of Bid, the former merely exercised its discretion
under the law. In the absence of an allegation and proof that PBAC committed grave
abuse of discretion, the respondent judge committed an error in directing and ordering
ATO and PBAC to do an act which clearly involves the exercise of discretion on their
part.
GUTIERREZ, JR. J., concurring:chanrob1es virtual 1aw library
1. PRESIDENTIAL DECREE No. 1594 (PUBLIC BIDDINGS IN GOVERNMENT
INFRASTRUCTURE CONTRACTS); FORM OF BID; FAILURE TO SUBMIT FORM
OF BID BY MERE INADVERTENCE, FATAL. The respondent contends that every
single one of the commitments embodied in the Form of Bid is found in the other
documents which it submitted. The Form of Bid was filed only a day later thus
indicating that the respondent company had no intent to avoid it and that its omission
was pure inadvertence. The private respondent appears to be a competent firm with
an excellent track record fully capable of undertaking the project. I am not too sure
that the Form of Bid is such an essential document that its absence during the day of
bidding is a kiss of death and its subsequent submission only a day later can no
longer cure the fatal omission. I, however, abide by the more expert opinion of my
peers who seem to be more qualified than myself when it comes to the mechanics of
bidding. With the above reservations, I concur in the results of the Courts decision.

DECISION
MEDIALDEA, J.:
This petition for review on certiorari seeks to reverse the (a) Decision dated April 17,
1990 (pp. 72-76, Rollo) of respondent Judge Ignacio C. Capulong, in Civil Case No.
90-173, directing the Air Transportation Office (ATO) and its Prequalification, Bidding
and Award Committee (PBAC) to immediately convene or reconvene and to read and
consider the Inter Technical Pacific Phil., Inc.s bid to furnish the necessary goods and
services for works under the Nationwide Air Navigation Facilities Modernization
Project Phase II of the Air Transportation Office of the Department of Transportation
and Communications; (b) the Order dated May 22, 1990 (p. 77, Rollo) which denied
petitioners motion for reconsideration of the said decision; and (c) Order dated
February 12, 1990 (pp. 78-80, Rollo) which earlier granted Inter Technical Pacific
Inc.s petition for the issuance of a writ of preliminary injunction.
The facts are as follows:chanrob1es virtual 1aw library
On July 26, 1989, the Air Transportation Office (ATO for short) and its Prequalification,
Bidding and Award Committee (PBAC for short) publicly invited prequalified bidders to
furnish the necessary goods and services for works under the Nationwide Air
Navigation Facilities Modernization Project Phase II, a government infrastructure
project financed from proceeds of a loan (PH-P72) from the Overseas Economic
Cooperation Fund of Japan (pp. 81-88, Rollo). Inter Technical Pacific, Inc. (INTER
TECHNICAL for short), a Filipino contractor, prequalified as a bidder and submitted its
sealed bidding documents contained in a set of one (1) original and eight (8) copies in
bookbound form in six (6) volumes.
The bidding was conducted by the PBAC on November 10, 1989. The PBAC informed
the public that only four (4) prequalified bidders had submitted their bids and then
announced that the approved government agency estimate for the project was Eight
Hundred Fifty Nine Million Four Hundred Seventy Two Thousand Seventy Four Pesos
and Fifty Centavos (P859,472,074.50). After the opening, examination and evaluation
of the bids, the PBAC read the bids of the prequalified bidders (p. 73, Rollo) as
follows:chanrob1es virtual 1aw library
BRITISH IAL P916,731,100.42
ISRAELI KOORTRADE P954,536,621.05
JAPANESE TOYO MENKA P776,915.886.45
When INTER TECHNICALs bidding documents were opened and examined, it was
discovered that the entire set of bidding documents and eight copies thereof did not
contain a Form of Bid (see copy pp. 186-187, Rollo). The PBAC, allegedly upon the
advice of the assisting Japanese consultants in the committee, refused to read INTER
TECHNICALs bid and rejected the same as "non complying."cralaw virtua1aw library

INTER TECHNICAL protested the action of the PBAC, explaining that the Form of Bid
was inadvertently left in the office; that its bid price was clearly spelled out in the
bidding documents; that its bid was accompanied by a bid bond attached to the
documents; that it complied with all the requirements and that the "Form of Bid" was a
mere formality which can be rectified through cursory reading of the bidding
documents it submitted; that it is willing to accomplish right then and there the "Form
of Bid" and fill in the data required without varying the data or figures already declared
in the bidding documents submitted.chanrobles.com.ph : virtual law library
INTER TECHNICALs authorized representative then publicly informed PBAC that its
bid was Six Hundred Seven Million One Hundred Sixty Nine Thousand and Four
Hundred FORTY-FOUR PESOS and FIFTY CENTAVOS (P607,169,444.50).
Despite INTER TECHNICALs plea, the PBAC adjourned the proceedings. INTER
TECHNICAL appealed for reconsideration to the ATO, PBAC and the Secretary of
Transportation and Communications, attaching in its letters of appeal the duly
accomplished "Form of Bid," but all were not acted upon.
ATO, for its part, referred the matter to the Department of Justice which in its Opinion
dated January 10, 1990 (pp. 87-89, Rollo) ruled that INTER TECHNICALs bid was
invalid because the Form of Bid is an essential bidding requirement embodying vital
provisions, namely: 1) an agreement to be bound by his bid; 2) the obligation to
submit a performance guarantee; 3) the amounts of his bid bond, performance bond,
and amount of third party insurance; 4) respective periods of commencement of
works, maintenance and completion; and 5) authority of the person signing. As legal
basis for the ruling, the Secretary of Justice cited paragraph 12.2 of the "Instructions
to Bidders" which states: "Bids not fully complying with all the requirements shall be
disqualified," and Rule IB 2.8 of the Implementing Rules of Presidential Decree No.
1594 which provides that a Bid Form is part of the contract for the project.
On January 22, 1990, INTER TECHNICAL filed a complaint for specific performance
mandatory and prohibitory injunction with prayer for preliminary injunction and
restraining order against ATO and PBAC before the Regional Trial Court, NCJR,
Branch 134, Makati, docketed as Civil Case No. 90-173, seeking the issuance of a writ
of preliminary injunction to enjoin PBAC from awarding the subject contract and
prayed that after trial, judgment be rendered ordering ATO and PBAC to read and
consider the bid of plaintiff and making the injunction, both prohibitory and mandatory,
permanent. Upon filing of the complaint, the court issued a temporary restraining order
prayed for.
In their answer filed on February 13, 1990, ATO and PBAC alleged that the Form of
Bid is an indispensable bid document which is confirmed by the Department of
Justice; that due to the importance of this Form of Bid, the failure to enclose this
document in the set of submitted bidding documents will nullify the bid as noncomplying and it is as if no bid was submitted to be considered or read. By way of
Special and Affirmative Defenses, ATO and PBAC cited Presidential Decree No. 1818
which deprives courts of jurisdiction to issue restraining orders, preliminary prohibitory
and mandatory injunctions in cases or controversies involving infrastructure projects of
the government; that the acceptance or rejection of bids is within the sole discretion of
PBAC and, therefore, may not be enjoined by prohibitory or mandatory injunction, and

finally, that INTER TECHNICALs complaint does not state a cause of

action.chanrobles.com : virtual law library
After hearing INTER TECHNICALs petition for the issuance of a writ of preliminary
injunction on January 29 and February 2, 1990, respondent Judge Capulong issued
an Order dated February 12, 1990 granting the issuance of a writ of preliminary
injunction, thus, enjoining ATO and PBAC from awarding the contract to the "second
lowest bidder or whomsoever" until further orders from the court. Respondent Judge
ruled that INTER TECHNICAL submitted a bid bond and bidders bond which are
indispensable to the validation of a bid proposal; that the bid price was spelled out in
the INTER TECHNICALs Summary of Schedule Proposal; and that the tender of
INTER TECHNICAL was the lowest and appeared to be the most beneficial to the
government; that the government of the Philippines will save P252,302,630.00 with
INTER TECHNICALs supposed bid, and that not to read such bid will work injustice to
INTER TECHNICAL (p. 78, Rollo).
On March 16, 1990, the Republic of the Philippines, represented by the ATO and
PBAC of the Department of Transportation and Communications, filed with the Court
of Appeals a petition for certiorari and prohibition to nullify the Order dated February
12, 1990 issued by respondent judge granting the petition of INTER TECHNICAL for
the issuance of a writ of preliminary injunction. A supplemental petition for injunction
was thereafter filed on April 4, 1990 to enjoin respondent judge from exercising
jurisdiction in Civil Case No. 90-173 as it involves an infrastructure project covered by
P.D. 1818 and that the action in Civil Case No. 90-173 is in fact an action for
mandamus and mandamus does not lie against discretionary acts of petitioner.
While the petition of the Republic was pending before the Court of Appeals,
respondent Judge rendered a decision dated April 17, 1990 in Civil Case No. 90-173
directing ATO and PBAC to immediately convene or reconvene and to read and
consider INTER TECHNICALs bid (p. 72, Rollo).
INTER TECHNICAL, on the other hand, filed a manifestation/motion dated April 26,
1990 informing the Court of Appeals that the Republics petition had become moot and
academic in view of the decision dated April 17, 1990 in Civil Case No. 90-173.
After filing on May 2, 1990 its motion for reconsideration of the decision of April 17,
1990 in Civil Case No. 90-173 before the RTC of Makati, Branch 134, the Republic
filed on May 4, 1990 before the Court of Appeals an urgent motion reiterating its
prayer for the issuance of a restraining order and writ of preliminary prohibitory
injunction as to respondent judge. This was followed on May 18, 1990 by another
urgent motion for issuance of restraining order and writ of preliminary prohibitory
injunction stating therein that respondent judges decision of April 17, 1990 had not yet
become final. Both were not favorably acted upon by the Court of Appeals.
Or May 22, 1990, respondent judge denied the motion for reconsideration filed by the
Republic in Civil Case No. 90-173.cralawnad
The Republic then filed a motion to withdraw petition for certiorari and supplemental
petition with the Court of Appeals pursuant to its commitment in its motion for
extension of time within which to file petition for review on certiorari with this Court.

Such motion was granted by the Court of Appeals on July 29, 1990.
Hence, this petition.
After the required pleadings were filed by the parties, this Court, in the resolution of
October 23, 1990 (p. 257-A, Rollo), gave due course to the petition for review
on certiorari and required the parties to submit their respective memoranda. In
compliance therewith, the Republic filed its memorandum on December 4, 1990, and
INTER TECHNICAL, on January 10, 1991. The case was then submitted for
deliberation. On April 26, 1991, the Solicitor General filed an Urgent Motion for Early
Resolution (p. 381, Iloilo), manifesting that Acting Secretary Pete Nicomedes Prado of
the Department of Transportation and Communications urged him in a letter (p. 384,
Rollo) to seek early resolution of the case because the final disbursement by the
Overseas Economic Cooperation Fund (OECF) of Japan which is financing the
Nationwide Air Navigation Facilities Modernization Project Phase II, subject of this
case, cannot be made later than May 30, 1991, after which no further disbursement
therefrom can be made; that the government is exerting efforts to secure an extension
of the disbursement period for the loan agreement and thus, save the project but that
it foresees a considerable resistance from the lending institution; and that construction
of a new domestic terminal building can not commence unless the Nationwide Air
Navigation Facilities Modernization Project Phase II materializes. Such motion was
noted in the resolution of April 30, 1991.
Considering that We already have deliberated on the petition and have reached a
consensus on its merits favorable to the petitioner as well as have assigned to this
writer the task of making the `opinion of the Court and in order that the project of the
government would not be prejudiced as time is of the essence in this case. We issued
a resolution dated May 30, 1991. In this resolution, We granted the petition, without
prejudice to rendering an extended opinion in due course, and annulled and set aside
the respondent Judges Order dated February 12, 1990, his decision dated April 17,
1990, his Order dated May 22, 1990 in Civil Case No. 90-173 as well as allowed the
petitioner to proceed with the awarding of the contract (p. 387, Rollo).
Indeed, a careful and in-depth study of the records constrains Us to reverse the
judgment and orders of the respondent court.
In this case, a controversy exists whether the failure of INTER TECHNICAL to enclose
in its bidding documents the duly accomplished and signed Form of Bid is, under the
circumstances of the case, a valid ground for the PBAC of ATO to reject its bid to
furnish the necessary goods and services for works under the Nationwide Air
Navigation Facilities Modernization Project Phase II of the Air Transportation Office,
Department of Transportation and Communication. The controversy gave rise to the
next question: may the respondent court step into the controversy by ordering the
award and bidding committee to reconvene and read INTER TECHNICALs bid when
the discretion to determine whether or not a bidder complies with the bidding
requirements lies with the said bidding committee.chanrobles virtual lawlibrary
Petitioner asserts that the Form of Bid is the central unifying document containing the
substantial legal requirements of the bid while the other documents, like the summary
of bid or the bid bond, merely support the Form of Bid; that the Form of Bid is the

document which authenticates and summarizes the amounts on the Summary of

Schedule Proposals; that in view of the absence of a Form of Bid, INTER TECHNICAL
in effect has not submitted a bid, thus since there is no bid, there is no basis for
claiming that INTER TECHNICAL is the lowest bidder.
In support of its contention that the Form of Bid is a principal document, petitioner
cited the stipulations contained therein which the bidder agrees to do and undertake,
thus:chanrob1es virtual 1aw library
1. To undertake the work complete in conformity with the abovementioned documents
(Conditions of Contract, Technical Specifications, Bid Schedule and Drawings) for the
specified sum (in foreign currency and peso);
2. If bid is accepted, to commence the work within 30 days (mobilization period) after
receipt of the Employers Notice to Commence Work and to complete and deliver the
whole of the Works comprised in the contract within 600 calendar days calculated
from the last day of the aforesaid period in which the Works are to be commenced;
3. If bid is accepted, to submit a Performance Guarantee with effectivity period to be
specified in a written advice to be made by ATO and PBAC, or, in the event that this
guarantee is deemed insufficient, sureties acceptable to ATO and PBAC from a bank
to be jointly and severally bound, for the faithful and satisfactory performance of the
contract.
4. To abide by this Bid for a period of 120 calendar days from the date set for the
opening of Bids and it shall remain binding upon the (bidder) and may be accepted at
any time before the expiration of that period;
5. Unless and until a formal Agreement is prepared and executed, this Bid, together
with the (agencys) acceptance thereof, shall constitute a binding contract between
them;
6. The understanding that the agency is not bound to accept the lowest or any Bid the
agency may receive. (see Annex 1, Form of Bid, p. 186, Rollo).
Without a duly accomplished Form of Bid submitted before the opening of bids,
petitioner argues that a prospective bidder will not be bound by the foregoing
stipulations. Consequently, for lack of a Form of Bid, INTER TECHNICAL was not
bound to complete the project for a specific compensation.cralawnad
The arguments set forth by the petitioner are persuasive. The Form of Bid, as
technically used in this case, contains the offer to undertake the works for a specified
sum of money expressed in foreign currency and Philippine peso and, it stipulates the
terms and conditions in the call for bid which the bidder, thru its duly authorized
signing representative, agrees to undertake and abide once the bid is accepted by the
PBAC. Specifically, it is a standard form made available to prequalified bidders
containing the bidders "offer to undertake the work complete in conformity with the
above-mentioned documents" to wit: Conditions of Contract, Technical
Specifications, Bid Schedule and Drawings" for specified sum of money, one in
foreign currency and the other in Philippine pesos. In essence, a duly accomplished

10

and signed Form of Bid submitted to the bidding committee together with the written
acceptance by the government agency constitutes a binding preliminary contract
governing the relationship between the bidder and the government agency concerned
during the examination and evaluation period of the bid proposal until the Notice of
Award is given to and the Project Contract is executed by the winning bidder. If there
is no duly accomplished and signed Form of Bid submitted to the bidding committee,
there is nothing to accept or the part of the government agency.
Under Section 5 of Presidential Decree No. 1594 (June 11, 1978), the law which
prescribes the policies, guidelines, rules and regulations for government infrastructure
contracts, the contract may be awarded to the lowest bidder whose bid as evaluated
complies with all the terms and conditions in the call for bid,
thus:jgc:chanrobles.com.ph
"SEC. 5. Award and Contract. The contract may be awarded to the lowest
prequalified bidder whose bid as evaluated complies with all the terms and conditions
in the call for bid and is the most advantageous to the Government.
To guarantee the faithful performance of the contractor, he shall, prior to the award,
post a performance bond, in an amount to be established in accordance with the rules
and regulations to be promulgated under Section 12 of this Decree.

stipulation no. 4 of the Form of Bid. There is likewise no formal acknowledgment on

the part of INTER TECHNICAL that the PBAC and ATO are not bound to accept the
lowest or any bid they may receive as provided in stipulation no. 6 of the Form of Bid.
Lastly, the Bid Bond does not even state the amount of the bid expressed in foreign
currency and Philippine peso as clearly required in the Form of Bid.
The Irrevocable Domestic Standby Letter of Credit merely states that drafts shall be
drawn under the letter of credit in the event INTER TECHNICAL withdraws its bid
before the expiration of the specified period; or after being awarded the contract,
INTER TECHNICAL refuses or fails to furnish the performance bond within the
required period, thus:jgc:chanrobles.com.ph
"This Credit is available by the Beneficiarys sight drafts ("Drafts") in duplicate drawn
on us without recourse to the drawer. Drawing against this Credit shall be made by the
beneficiary only upon failure of the Accountee to fulfill its obligation under the Bid.
Drafts drawn under this Credit must be accompanied by the following:chanrob1es
virtual 1aw library
1. Original of this Credit.
2. Beneficiarys certificate stating:chanrob1es virtual 1aw library

All awards and contracts duly executed in accordance with the provisions of this
Decree shall be subject to the approval of the Minister of Public Works, Transportation
and Communications, the Minister of Public Highways, or the Minister of Energy, as
the case may be."cralaw virtua1aw library
It is not disputed by petitioner that INTER TECHNICAL submitted a Bid Bond in the
form of an Irrevocable Domestic Standby Letter of Credit No. SFM-L-027-89 in the
amount not exceeding the Philippine peso equivalent of US $800,000.00 issued on
behalf of INTER TECHNICAL by the Philippine National Bank in favor of ATO and
PBAC. However, a careful examination of the records of the case reveals that the filing
of said Bid Bond together with the other bid documents does not constitute substantial
compliance with the stipulations contained in the Form of Bid under Presidential
Decree No. 1594 and its Rules and Regulations and, more particularly, the
Instructions to Bidders made available to prequalified bidders in the instant
case.chanrobles.com : virtual law library
There is no question that the Bid Bond is an indispensable requirement for the
validation of a bid proposal. The bond insures good faith of the bidders and binds
them to enter into a contract with the Government should their proposal be accepted
(see Padilla v. Zaldivar, L-22789, October 30, 1964, 12 SCRA 260). Yet, there is
nothing in the Bid Bond submitted in the instant case which guarantees that INTER
TECHNICAL will commence the work within 30 days (mobilization period) after receipt
of Employers Notice to Commence Work and to complete and deliver the whole of the
work within 600 days as provided in stipulation no. 2 of the Form of Bid. Nowhere in
the Bid Bond does INTER TECHNICAL agree to abide by the bid for a period of 120
calendar days from the date set for the opening of the bid. Besides, the Bid Bond does
not contain any undertaking that it shall remain binding upon INTER TECHNICAL and
may be accepted at any time before the expiration of that period as provided in

a) that the Accountee Inter-Technical Pacific Philippines, Inc. has withdrawn its bid
before the expiration of the specified period; or
b) that after being awarded the contract, refuses or fails to furnish the performance
bond within the required period."cralaw virtua1aw library
In other words, the letter of credit merely guarantees that INTER TECHNICAL will not
withdraw its bid before the expiration of the period specified by ATO and PBAC and
that after being awarded the contract, it will furnish the performance bond within the
period required by ATO and PBAC. Clearly then, the letter of credit standing alone
does not guarantee that INTER TECHNICAL will enter into a contract under the terms
and conditions stipulated in the Form of Bid.
It must be noted that prior to the opening of the bids on November 10, 1989, PBAC
was guided by the existing rules and regulations formulated pursuant to Section 12 of
P.D. 1594. In the evaluation of the bids, PBAC was guided by Rule IB 2.3 of the
Implementing Rules and Regulations of P.D. 1594 which provides,
thus:jgc:chanrobles.com.ph
"IB 2.3 Evaluation of Bids. A bid which does not comply with the conditions or
requirements of the bid documents shall be rejected by the PBAC (or the Bid and
Award Committee as the case may be) giving the reason or reasons for its rejection.
The Government, however, in the evaluation of bids received, reserves the right to
waive the consideration of minor deviations in the bids received which do not affect
the substance and validity of the bids." (84 OG No. 23, p. 3350).
The PBAC was also guided by the following rules, among others, under the Instruction

11

to Bidders, thus:jgc:chanrobles.com.ph
"OPENING AND EXAMINATION OF BID
17.1. At the time, date and place advised in the Invitation to Bid, Bids will be publicly
opened and witnessed for examination and evaluation of the Prequalification, Bidding
and Award Committee (PBAC) created for the purpose. Bidders or their authorized
representatives are instructed to be present during the opening of bids.
17.2. Prior to the opening and reading of the separately sealed Bid Price of the Works,
contents of the Individual Bid shall be examined as to their conformity and agreement
with the Bidding requirements, and Bids not fully complying with all requirements shall
be disqualified. (Emphasis supplied).
17.3 Only Bids considered satisfactory by the Committee will qualify for the opening
and reading of the separately sealed Bid Price for the Works. Percentage deductions,
contingent or otherwise quoted in accordance with the provisions of Clause B.13
hereof, will be publicly announced as component of the Bid." (p. 285, Rollo).
INTER TECHNICAL calls the attention of the Court that the Form of Bid is but a mere
formality which does not affect the substance and validity of its bid. It asserts that it
submitted a duly accomplished and signed Form of Bid the day after the bids were
opened on November 10, 1989 and its intention to comply with its alleged bid is
shown by the filing of the instant case before the RTC; and that the Form of Bid is only
a surplusage which could be dispensed with as long as a bid bond is submitted. To
bolster its argument, INTER TECHNICAL urges Us to consider an Opinion No. 142-A,
Series of 1952 of the Secretary of Justice which stated that the failure of the lowest
bidder to secure a license as a transportation operator at the time of the opening of
the bids does not affect its bid. The Secretary of Justice at that time considered the
following peculiar circumstances of the case: that the bidder then had a pending
application for such license; that while he was not a licensed operator on the date the
bids were opened, his application as a transportation operator was approved before
an award of the contract was made to any of its bidders; that there being no awards
as yet, the bids are still under consideration; and that since he qualified prior to the
date of the awarding of bids, his bid should be considered, otherwise the interests of
the government would be sacrificed for a mere technicality.
We are unconvinced, PBAC was guided by the rules, regulations or guidelines existing
before the bid proposals were opened on November 10, 1989. The basic rule in public
bidding is that bids should be evaluated based on the required documents submitted
before and not after the opening of bids. Otherwise, the foundation of a fair and
competitive public bidding would be defeated. Strict observance of the rules,
regulations, and guidelines of the bidding process is the only safeguard to a fair,
honest and competitive public bidding.
In underscoring the Courts strict application of the pertinent rules, regulations and
guidelines of the public bidding process. We have ruled in C & C Commercial v. Menor
(L-28360, January 27, 1983, 120 SCRA 112), that Nawasa properly rejected a bid of C
& C Commercial to supply asbestos cement pressure which bid did not include a tax
clearance certificate as required by Administrative Order No. 66 dated June 26, 1967.

In Caltex (Phil.) Inc., et. al. v. Delgado Brothers, Inc. et. al., (96 Phil. 368, 375), We
stressed that public biddings are held for the protection of the public and the public
should be given the best possible advantages by means of open competition among
the bidders.chanrobles lawlibrary : rednad
Basically, the purpose of the statute requiring competitive bidding is that each bidder,
actual or possible, shall be put upon the same footing. Therefore, authorities should
not be permitted to waive any substantial variance between the conditions under
which bids are invited and the proposal submitted. If one bidder is relieved from
conforming to the conditions which impose some duty upon him, or lay the ground for
holding him to a strict performance of his contract, that bidder is not contracting in fair
competition with those bidders who propose to be bound by all the conditions (Case v.
Inhabitants of Trenton, 76 N.J.L. 696, 74 A. 672; Lupter et. al. v. Atlantic County, et.,
al., 87 N.J. Eq. 491, 100A. 927, cited in Cobacha and Lucenario, Law on Public
Bidding and Government Contracts, p. 7).
INTER TECHNICALs failure to comply with what is perceived to be an elementary
and customary practice in a public bidding process, that is, to enclose the Form of Bid
in the original and eight separate copies of the bidding documents submitted to the
bidding committee is fatal to its cause. All the four prequalified bidders which include
INTER TECHNICAL were subject to Rule IB 2.1 of the Implementing Rules and
Regulations of P.D. 1594 in the preparation of bids, bid bonds, and prequalification
statement and Rule IB 2.8 which states that the Form of Bid, among others, shall form
part of the contract. INTER TECHNICALs explanation that its bid form was
inadvertently left in the office (p. 6, Memorandum for Private Respondent, p. 355,
Rollo) will not excuse compliance with such a simple and basic requirement in the
public bidding process involving a multi-million project of the Government. There
should be strict application of the pertinent public bidding rules, otherwise the
essential requisites of fairness, good faith, and competitiveness in the public bidding
process would be rendered meaningless.
The 1952 Opinion of the Secretary of Justice is not relevant to this present case. A
meticulous examination of the opinion reveals that the invitation to bid issued by the
Department of Agriculture and Natural Resources contained no requirement that the
bidder must be a duly licensed transportation operator at the time of the opening of
the bids. The invitation to bid expressly provided that a bid not conforming with the
specifications therein contained will not be considered. The circumstances in the case
at bar are exactly the opposite of the situation in the 1952 opinion. In the Instruction to
bidders, notably 17.2 thereof (supra), copies of which were furnished to all the four
prequalified bidders, it was categorically provided that bids not fully qualifying shall be
disqualified. Furthermore, the Implementing Rules and Regulations of P.D. 1594, IB.
2.3, emphasizes that a bid which does not comply with the conditions or requirements
of the bid documents shall be rejected by the PBAC giving the reason or reasons for
its rejection (supra). Such rule cannot be treated lightly in view of PD No. 1594, Sec.
12, which makes the implementing rules and regulations applicable to all contracts for
infrastructure and other construction projects of all government agencies including
government-owned or controlled corporations and other instrumentalities. Given such
clear and manifest intention of the law, INTER TECHNICALs plea cannot be heeded.
As stated earlier, the controversy in the instant case, arose from a complaint instituted

12

by INTER TECHNICAL before the RTC of Makati to compel PBAC to read its bid. On
the face of the allegations in the complaint, it is clear that the complaint is actually one
for mandamus.chanrobles virtual lawlibrary
As a rule, mandamus lies only to compel an officer to perform a ministerial duty and
not a discretionary act. In Meralco Securities Corporation v. Savellano (L-36748,
October 23, 1982, 117 SCRA 804 812), We ruled that" (d)iscretion when applied to
public functionaries, means a power or right conferred upon them by law of acting
officially, under certain circumstances, uncontrolled by the judgment or conscience of
others. A purely ministerial act or duty in contradiction to a discretional act is one
which an officer or tribunal performs in a given state of facts, in a prescribed manner,
in obedience to the mandate of a legal authority, without regard to or the exercise of
his own judgment upon the propriety or impropriety of the act done. If the law imposes
a duty upon a public officer and gives him the right to decide how or when the duty
shall be performed, such duty is discretionary and not ministerial. The duty is
ministerial only when the discharge of the same requires neither the exercise of official
discretion or judgment." As a general rule, a writ of mandamus will not issue to control
or review the exercise of discretion of a public officer since it is his judgment that is to
be exercised and not that of the court (see Magtibay v. Garcia, G.R. No. L-28971,
January 28, 1983, 120 SCRA 370). Thus, the courts will not interfere to modify, control
or inquire into the exercise of this discretion unless it be alleged and proven that there
has been an abuse or an excess of authority on the part of the officer concerned (see
Calvo v. de Gutierrez, Et Al., 4 Phil. 2033).
A perusal of INTER TECHNICALs complaint shows that it is bereft of any allegation
that ATO and PBAC committed grave abuse of discretion in rejecting its bid. It did not
submit proof that ATO and PBAC acted arbitrarily, fraudulently and against the interest
of the public when they rejected its bid. Apparently, INTER TECHNICALs belated
allegation of grave abuse of discretion in their comment on the herein petition for
review on certiorari is a mere afterthought.
Under Rule IB 2.3 of the Rules implementing Presidential Decree No. 1594, and in the
Invitation to Bid (p . 81, Rollo), the Government has expressly reserved the right to
reject any or all bids. PBACs authority to evaluate the bids during the opening and
examination thereof clearly indicates its discretion to determine compliance or noncompliance with the bidding requirements. Consequently, when PBAC made a
preliminary evaluation of the required documents and found INTER TECHNICALs bid
non-complying for lack of a Form of Bid, the former merely exercised its discretion
under the law. In the absence of an allegation and proof that PBAC committed grave
abuse of discretion, the respondent judge committed an error in directing and ordering
ATO and PBAC to do an act which clearly involves the exercise of discretion on their
part.
Finally, INTER TECHNICAL insinuates that the Japanese consultants of the project
made the decision to reject INTER TECHNICALs bidding documents. A careful review
of the records indicates that this insinuation obviously seeks to confuse the issues
submitted to this Court. On the contrary, We find the following unrebutted facts: that
INTER TECHNICAL was given every opportunity before the ATO and PBAC to be
heard and tender its explanation for not enclosing the duly accomplished and signed
Form of Bid; that the other bidders were even present and allowed to speak; that the

PBACs final decision to reject INTER TECHNICALs bidding documents came only
after the issues were extensively discussed not only by the PBAC members but the
other bidders as well; and that the Japanese consultants were merely allowed to give
their opinion on the matter and it was the PBAC which made the final decision. To that
extent therefore, the fairness, good faith, competitiveness, and stability of the public
bidding process were not undermined where, as in the instant case, a decision was
reached after due deliberation in the presence of all parties concerned.
ACCORDINGLY, the petition is GRANTED. Respondent Judges Order dated
February 12, 1990, his decision dated April 17, 1990, as well as his Order dated May
22, 1990 in Civil Case No. 90-173 are hereby ANNULLED and SET ASIDE As a
consequence thereof, petitioner is allowed to proceed with the awarding of the bid
contract.
SO ORDERED.
Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Padilla, Bidin, Sarmiento, GrioAquino, Regalado and Davide, Jr., JJ., concur.
Gancayco, J., is on leave.

CITIZEN J. ANTONIO M. CARPIO, Petitioner, v. THE EXECUTIVE SECRETARY,

THE SECRETARY OF LOCAL GOVERNMENTS, THE SECRETARY OF NATIONAL
DEFENSE, and THE NATIONAL TREASURER,Respondents.
SYLLABUS
1. POLITICAL LAW; STATUTES; REPUBLIC ACT NO. 6975; DATE OF EFFECTIVITY.
With the aforequoted provision in mind, Congress passed Republic Act No. 6975
entitled "AN ACT ESTABLISHING THE PHILIPPINE NATIONAL POLICE UNDER A
REORGANIZED DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT,
AND FOR OTHER PURPOSES" as the consolidated version of House Bill No. 23614
and Senate Bill No. 463. The Act took effect after fifteen days following its publication,
or on January 1, 1991.
2. CONSTITUTIONAL LAW; THE PRESIDENT HAS CONTROL POWERS OVER
THE EXECUTIVE BRANCH OF THE GOVERNMENT; DOCTRINE OF QUALIFIED
POLITICAL AGENCY AS COROLLARY RULE THERETO. It is a fundamentally
accepted principle in Constitutional Law that the President has control of all executive
departments, bureaus, and offices. Equally well accepted, as a corollary rule to the
control powers of the President, is the "Doctrine of Qualified Political Agency." As the
President cannot be expected to exercise his control powers all at the same time and
in person, he will have to delegate some of them to his Cabinet members, who in turn
and by his authority, control the bureaus and other offices under their respective
jurisdictions in the executive department.

13

3. ID.; ID.; THE PRESIDENT, AS COMMANDER-IN-CHIEF, IS NOT A MEMBER OF

THE ARMED FORCES. The President, as Commander-in-Chief, is not a member
of the Armed Forces. He remains a civilian whose duties under the Commander-inChief provision "represent only a part of the organic duties imposed upon him. All his
other functions are clearly civil in nature." His position as a civilian Commander-inChief is consistent with, and a testament to, the constitutional principle that "civilian
authority is, at all times, supreme over the military." (Article II, Section 3, 1987
Constitution.)
4. POLITICAL LAW; PLACEMENT OF NAPOLCOM AND PHILIPPINE NATIONAL
POLICE (PNP) UNDER THE DEPARTMENT OF THE INTERIOR AND LOCAL
GOVERNMENT, MERELY AN ADMINISTRATIVE REALIGNMENT. The
circumstance that the NAPOLCOM and the PNP are placed under the reorganized
Department of the Interior and Local Government is merely an administrative
realignment that would bolster a system of coordination and cooperation among the
citizenry, local executives and the integrated law enforcement agencies and public
safety agencies created under the assailed Act, the funding of the PNP being in large
part subsidized by the national government.
5. ID.; NATIONAL POLICE FORCE; ADMINISTERED AND CONTROLLED BY
NATIONAL POLICE COMMISSION; LOCAL EXECUTIVES ACT ONLY AS
REPRESENTATIVES OF NAPOLCOM. The national police force shall be
administered and controlled by a national police commission as at any rate, and in
fact, the Act in question adequately provides for administration and control at the
commission level. We agree, that "there is no usurpation of the power of control of the
NAPOLCOM under Section 51 because under this very same provision, it is clear that
the local executives are only acting as representatives of the NAPOLCOM. As such
deputies, they are answerable to the NAPOLCOM for their actions in the exercise of
their functions under that section. Thus, unless countermanded by the NAPOLCOM,
their acts are valid and binding as acts of the NAPOLCOM." It is significant to note
that the local officials, as NAPOLCOM representatives, will choose the officers
concerned from a list of eligibles (those who meet the general qualifications for
appointment to the PNP) to be recommended by PNP officials. The same holding is
true with respect to the contention on the operational supervision and control
exercised by the local officials. These officials would simply be acting as
representatives of the Commission.
6. ID.; ID.; INVOLVEMENT OF CIVIL SERVICE COMMISSION UNDERSCORES ITS
CIVILIAN CHARACTER. As regards the assertion involving the Civil Service
Commission, suffice it to say that the questioned provisions, which read: "Sec. 31.
Appointment of PNP Officers and Members. The Appointment of the officers and
members of the PNP shall be effected in the following manner: a.) Police Officer I to
Senior Police Officer IV. Appointed by the PNP regional director for regional personnel
or by the Chief of the PNP for national headquarters personnel and attested by the
Civil Service Commission; b.) Inspector to Superintendent Appointed by the Chief
of the PNP, as recommended by their immediate superiors, and attested by the Civil
Service Commission; c.) Senior Superintendent to Deputy Director-General
Appointed by the President upon recommendation of the Chief of the PNP, with proper
endorsement by the Chairman of the Civil Service Commission . . . . Sec. 32.

Examinations for Policemen. The Civil Service Commission shall administer the
qualifying entrance examinations for policemen on the basis of the standards set by
the NAPOLCOM." precisely underscore the civilian character of the national police
force, and will undoubtedly professionalize the same.
7. ID.; ID.; DOES NOT FALL UNDER THE COMMANDER-IN-CHIEF POWERS OF
THE PRESIDENT; REASON AND CONSEQUENCE THEREOF. It thus becomes all
too apparent then that the provision herein assailed precisely gives muscle to and
enforces the proposition that the national police force does not fall under the
Commander-in-Chief powers of the President. This is necessarily so since the police
force, not being integrated with the military, is not a part of the Armed Forces of the
Philippines. As a civilian agency of the government, it properly comes within, and is
subject to, the exercise by the President of the power of executive control.
Consequently, Section 12 does not constitute abdication of commander-in-chief
powers. It simply provides for the transition period or process during which the
national police would gradually assume the civilian function of safeguarding the
internal security of the State. Under this instance, the President, to repeat, abdicates
nothing of his war powers.
8. ID.; NATIONAL POLICE COMMISSION (NAPOLCOM); EXERCISES APPELLATE
JURISDICTION THRU REGIONAL APPELLATE BOARDS. Pursuant to the Act, the
Commission exercises appellate jurisdiction, thru the regional appellate boards, over
decisions of both the PLEB and the said mayors. This is so under Section 20(c).
Furthermore, it is the Commission which shall issue the implementing guidelines and
procedures to be adopted by the PLEB for the conduct of its hearings, and it may
assign NAPOLCOM hearing officers to act as legal consultants of the PLEBs (Section
43-d4, d5).
9. ID.; CONSTITUTIONAL CONSTRUCTION; EVERY PRESUMPTION INDULGED IN
FAVOR OF CONSTITUTIONALITY. We find light in the principle of constitutional
construction that every presumption should be indulged in favor of constitutionality
and the court in considering the validity of the statute in question should give it such
reasonable construction as can be reached to bring it within the fundamental
law."cralaw virtua1aw library
10. ID.; PEOPLES LAW ENFORCEMENT BOARDS (PLEB); PURPOSE FOR ITS
CREATION. As a disciplinary board primarily created to hear and decide citizens
complaints against erring officers and members of the PNP, the establishment of
PLEBs in every city and municipality would all the more help professionalize the police
force.
11. ID.; SPECIAL OVERSIGHT COMMITTEE; SOLE FUNCTION THEREOF. The
Special Oversight Committee is simply an ad hoc or transitory body, established and
tasked solely with planning and overseeing the immediate "transfer, merger and/or
absorption" into the Department of the Interior and Local Governments of the "involved
agencies." This it will undertake in accordance with the phases of implementation
already laid down in Section 85 of the Act and once this is carried out, its functions as
well as the committee itself would cease altogether. As an ad hoc body, its creation
and the functions it exercises, decidedly do not constitute an encroachment and in
diminution of the power of control which properly belongs to the President. What is

14

more, no executive department, bureau or office is placed under the control or

authority of the committee.
12. CONSTITUTIONAL LAW; INDEPENDENT CONSTITUTIONAL COMMISSIONS;
NOT UNDER THE CONTROL OF THE CHIEF EXECUTIVE. Under the
Constitution, there are the so-called independent Constitutional Commissions,
namely: The Civil Service Commission, Commission on Audit, and the Commission on
Elections. (Article IX-A, Section 1). As These Commissions perform vital governmental
functions, they have to be protected from external influences and political pressures.
Hence, they were made constitutional bodies, independent of and not under any
department of the government. Certainly, they are not under the control of the
President. The Constitution also created an independent office called the
"Commission on Human Rights." (Article XIII, Section 17[1]). However, this
Commission is not on the same level as the Constitutional Commissions under Article
IX, although it is independent like the latter Commissions. It still had to be constituted
thru Executive Order No. 163 (dated May 5, 1987). In contrast, Article XVI, Section 6
thereof, merely mandates the statutory creation of a national police commission that
will administer and control the national police force to be established thereunder. This
commission is, for obvious reasons, not in the same category as the independent
Constitutional Commissions of Article IX and the other constitutionally created
independent Office, namely, the Commission on Human Rights.

power of administrative control

power of executive control

FACTS:
Petitioner Antonio Carpio as citizen, taxpayer and member of the Philippine Bar, filed
this petition, questioning the constitutionality of RA 6975 with a prayer for TRO.
RA 6875, entitled AN ACT ESTABLISHIGN THE PHILIPPINE NATIONAL POLICE
UNDER A REORGANIZED DEPARTMENT OFTHE INTERIOR AND LOCAL
GOVERNMENT, AND FOR OTHER PURPOSES, allegedly contravened Art. XVI,
sec. 6 of the 1986 Constitution: The State shall establish and maintain one police
force, which shall be national in scope and civilianin character, to be administered and
controlled by a national police commission. The authority of local executives overthe
police units in their jurisdiction shall be provided by law.
ISSUEs:

Whether or not RA 6975 is contrary to the Constitution

Whether or not Sec. 12 RA 6975 constitutes an encroachment upon, interference

with, and an abdication by the President of, executive control and commander-in-chief
powers

HELD:
Power of Administrative Control
NAPOLCOM is under the Office of the President.
SC held that the President has control of all executive departments, bureaus, and
offices. This presidential power of control over the executive branch of government
extends over all executive officers from Cabinet Secretary to the lowliest clerk. In the
landmark case of Mondano vs. Silvosa, the power of control means the power of the
President to alter or modify or nullify or set aside what a subordinate officer had done
in the performance of his duties and to substitute the judgment of the former with that
of the latter. It is said to be at the very heart of the meaning of Chief Executive.
As a corollary rule to the control powers of the President is the Doctrine of Qualified
Political Agency. As the President cannot be expected to exercise his control powers
all at the same time and in person, he will have to delegate some of them to
his Cabinet members.
Under this doctrine, which recognizes the establishment of a single executive,
all executive and administrative organizations are adjuncts of
the Executive Department, the heads of the various executive departments are
assistants and agents of the Chief Executive, and, except in cases where the
Chief Executive is required by the Constitution or law to act in person or the
exigencies of the situation demand that he act personally, the
multifarious executive and administrative functions of the Chief Executive are
performed by and through the executive departments, and the acts of the Secretaries
of such departments, performed and promulgated in the regular course of business,
unless disapproved or reprobated by the Chief Executive, are presumptively the acts
of the Chief Executive.
Thus, the Presidents power of control is directly exercised by him over the members
of the Cabinet who, in turn, and by his authority, control the bureaus and other offices
under their respective jurisdictions in the executive department.
The placing of NAPOLCOM and PNP under the reorganized DILG is merely an
administrative realignment that would bolster a system of coordination and
cooperation among the citizenry, local executives and the integrated law enforcement
agencies and public safety agencies.

15

Power of Executive Control

Sec. 12 does not constitute abdication of commander-in-chief powers. It simply
provides for the transition period or process during which the national police would
gradually assume the civilian function of safeguarding the internal security of the
State. Under this instance, the President, to repeat, abdicates nothing of his war
powers. It would bear to here state, in reiteration of the preponderant view, that the
President, as Commander-in-Chief, is not a member of the Armed Forces. He remains
a civilian whose duties under the Commander-in-Chief provision represent only a part
of the organic duties imposed upon him. All his other functions are clearly civil in
nature. His position as a civilian Commander-in-Chief is consistent with, and a
testament to, the constitutional principle that civilian authority is, at all times, supreme
over the military.

He advances the view that RA 6975 weakened the National Police Commission

(NAPOLCOM) by limiting its power to administrative control over the PNP thus,

control remained with the Department Secretary under whom both the NPC and the

PNP were placed; that the system of letting local executives choose local police heads

also undermine the power of the president.

digest
ISSUE: Whether or not the president abdicated its control power over the PNP and
In 1990, Republic Act No. 6975 entitled AN ACT ESTABLISHING THE PHILIPPINE

NATIONAL

POLICE

UNDER

REORGANIZED

DEPARTMENT

OF THE

INTERIORAND LOCAL GOVERNMENT, AND FOR OTHER PURPOSES was

passed. Antonio Carpio, as a member of the bar and a defender of the Constitution,

assailed the constitutionality of the said law as he averred that it only interferes with

the control power of the president.

NPC by virtue of RA 6975.

HELD: No. The President has control of all executive departments, bureaus, and

offices. This presidential power of control over the executive branch of government

extends over all executive officers from Cabinet Secretary to the lowliest clerk. Equally

well accepted, as a corollary rule to the control powers of the President, is the

Doctrine of Qualified Political Agency. As the President cannot be expected to

16

exercise his control powers all at the same time and in person, he will have to

Thus, and in short, the Presidents power of control is directly exercised by him over

delegate some of them to his Cabinet members.

the members of the Cabinet who, in turn, and by his authority, control the bureaus and

Under this doctrine, which recognizes the establishment of a single executive,

other offices under their respective jurisdictions in the executive department.

allexecutive and

of

Additionally, the circumstance that the NAPOLCOM and the PNP are placed under the

the ExecutiveDepartment, the heads of the various executive departments are

reorganized DILG is merely an administrative realignment that would bolster a system

assistants and agents of the Chief Executive, and, except in cases where the

of coordination and cooperation among the citizenry, local executives and the

Chief Executive is required by the Constitution or law to act in person on the

integrated law enforcement agencies and public safety agencies created under the

exigencies

assailed Act, the funding of the PNP being in large part subsidized by the national

of

administrative

the

situation

multifarious executive and

organizations

demand

administrative

that

functions

are

he

of

act

the

adjuncts

personally,

the

Chief Executive are

government.

performed by and through theexecutive departments, and the acts of the Secretaries
[Adm. Case No. 4634. September 24, 1997.]
of such departments, performed and promulgated in the regular course of business,

JESUS CABARRUS, JR., Complainant, v. JOSE ANTONIO S.

BERNAS, Respondent.
Bernas Law Office for Respondent.

are, unless disapproved or reprobated by the Chief Executive presumptively the acts
SYLLABUS
of the Chief Executive.

1. REMEDIAL LAW; CIVIL PROCEDURE; FORUM SHOPPING; CONSTRUED.

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a

17

party seeks a favorable opinion (other than by appeal or certiorari) in another.

Therefore, a party to a case resorts to forum shopping because "by filing another
petition involving the same essential facts and circumstances, . . ., respondents
approached two different fora in order to increase their chances of obtaining a
favorable decision or action.
2. ID.; ID.; ID.; PURPOSE OF FORUM SHOPPING. It is scarcely necessary to add
that Circular No. 28-91 must be so interpreted and applied as to achieve the purposes
projected by the Supreme Court when it promulgated that Circular. Circular No. 28-91
was designed to serve as an instrument to promote and facilitate the orderly
administration of justice and should not be interpreted with such absolute literalness
as to subvert its own ultimate and legitimate objective or the goal of all rules of
procedure which is to achieve substantial justice as expeditiously as possible.
3. ID.; ID.; ID.; FILING OF A CIVIL CASE INDEPENDENTLY WITH A CRIMINAL
CASE, NOT A VIOLATION OF CIRCULARS ON FORUM SHOPPING; CASE AT
BENCH. After a careful scrutiny of the records, we find the administrative complaint
for transgression of Circular 28-91, Revised Circular 28-91 and Adm. Circular No. 0494 on Forum Shopping, bereft of merit and should be dismissed. In this case, there is
no forum shopping to speak of Atty. Bernas, as counsel of Mr. Pascual, Jr., merely
requested the assistance of the NBI to investigate the alleged fraud and forgery
committed by Mr. Jesus Cabarrus. The filing of a civil case for reconveyance and
damages before the Regional Trial Court of Pasig City does not preclude respondent
to institute a criminal action. The rule allows the filing of a civil case independently with
the criminal case without violating the circulars on forum shopping.

DECISION
TORRES, JR., J.:
On August 30, 1996, Mr. Jesus Cabarrus, Jr. filed an administrative complaint for
disbarment against Atty. Jose Antonio Bernas for alleged violations of Article 172 of
the Revised Penal Code and Code of Professional Responsibility. In his complaintaffidavit 1 dated August 12, 1996, complainant alleged as follows:chanrobles virtual
lawlibrary
"A. That on April 16, 1996, respondent Ramon B. Pascual, Jr., subscribed under oath
before Marie Lourdes T. Sia Bernas, a notary public in Makati City, wife of lawyer Jose
Antonio Bernas, a verification and certification of non-forum shopping which was
appended to a complaint for reconveyance of property and damages, denominated as
Civil Case No. 65646, filed before the Regional Trial Court in National Capital Region,
RTC, which case was raffled to RTC Branch 159 in Pasig City. A photocopy of said
complaint is hereto attached and marked as Annexex (sic) A, A-1, A-3, A-4, A-5 and A6;
B. That as basis for the instant complaint for falsification of public document, I am
hereto quoting verbatim, the test (sic) of Annex A-6, the verification and certification of
non-forum shopping which states:chanrob1es virtual 1aw library
Ramon B. Pascual, Jr., under oath, depose and states:chanrob1es virtual 1aw library

4. ID.; ID.; ID.; NATIONAL BUREAU OF INVESTIGATION. NOT INCLUDED AMONG

THOSE FORUMS CONTEMPLATED UNDER CIRCULAR NO. 28-91, REVISED
CIRCULAR NO. 28-91 AND ADMINISTRATIVE CIRCULAR NO. 04-94 BECAUSE IT
IS NOT PERFORMING JUDICIAL OR QUASI-JUDICIAL FUNCTIONS. The courts,
tribunals and agencies referred to under Circular No. 28-91, Revised Circular No. 2891 and Administrative Circular No. 04-94 are those vested with judicial powers or
quasi-judicial powers and those who not only hear and determine controversies
between adverse parties, but to make binding orders or judgments. As succinctly put it
by R.A. 157, the NBI is not performing judicial or quasi-judicial functions. The NBI
cannot therefore be among those forums contemplated by the Circular that can
entertain an action or proceeding, or even grant any relief, declaratory or otherwise.
5. ADMINISTRATIVE LAW; NATIONAL BUREAU OF INVESTIGATION; FUNCTIONS
THEREOF ARE MERELY INVESTIGATORY AND INFORMATIONAL IN NATURE.
The functions of the National Bureau of Investigation are merely investigatory and
informational in nature. It has no judicial or quasi-judicial powers and is incapable of
granting any relief to a party. It cannot even determine probable cause. It is an
investigative agency whose findings are merely recommendatory. It undertakes
investigation of crimes upon its own initiative and as public welfare may require. It
renders assistance when requested in the investigation or detection of crimes which
precisely what Atty. Bernas sought in order to prosecute those persons responsible for
defrauding his client.

He is the plaintiff in this case, and certify that he cause the preparation of the
foregoing pleading, the content of which are true to his personal knowledge and that
he has not commenced any other action or proceeding involving the same issues in
any court, including the Supreme Court, the Court of Appeals, or any other tribunal or
agency. If he should learn that a similar action of (sic) proceeding has been filed or is
pending before the Supreme Court or any other Tribunal agency, he undertake to
report to (sic) that fact within Five (5) days from notice to this notice (sic) to this
Honorable Court." Emphasis supplied.
C. That the cause of action relied upon by the respondent in Civil Case No. 65646 is
fraud, facilitated by forgery as gleaned from paragraphs 15, 16, and 22;
D. That contrary to the tenor, import and meanoing (sic) of the allegation under 1-B of
the instant complaint, respondent and his counsel Jose Antonio Bernas caused the
preparation and filing of a criminal complaint for falsification of a public document on
April 11, 1996, (three days before the filing of the aforecited Civil Case) at the AOED
of the National Bureau of Investigation if (sic) Taff (sic) Ave., a xerox copy of said
complaint is hereto attached and marked as Annex "B" .
D-1. That as stated in Annex "B", the gravaman of the affidavit complaint of the
respondent is forgery, the same legal issue in Civil Case No. 65646;
D-2. That as early as August 14, 1995, respondent counsel, Jose Antonio Bernas filed

18

a written complaint at the NBI for the same cause of action which was reiterated in
another letter submitting to the NBI standard specimen signatures dated October
1995, copies of said letter complaint are hereto attached and marked as Annexes (sic)
"C" .
E. That respondent Ramon B. Pascual, Jr., on the basis of Annexes A, B, C, D,
inclusive of submarkings knowingly subverted and perverted the truth when he falsify
certified (sic) and verified under oath in the verification and certification of non-forum
shopping, that:jgc:chanrobles.com.ph

Rule 1.01 A lawyer shall not engage in unlawful, dishonest, immoral or decietful
(sic) conduct.
Rule 1.02 A lawyer shall not counsel or abet activities simed (sic) at defiance of the
law or at lessening confidence in the legal system.
CANON 3. A LAWYER IN MAKING KNOWN HIS LEGAL SERVICES SHALL USE
ONLY TRUE, HONEST, FAIR, DIGNIFIED AND OBJECTIVE INFORMATION OF (sic)
STATEMENT OF FACTS.

"He has not commenced any other action or proceeding involving the same issues in
any court, including the Supreme Court, the Court of Appeals, or any other Tribunal or
agency." Where verification-certification was placed under oath and was conveniently
notarized by the wife of the counsel of respondent in both cases at Branch 159 of the
RTC in Pasig and at the NBI, an agency within the ambis (sic) and purview of the
circulus (sic) of the Supreme Court prohibiting forum shopping.

Rule 3.01 A lawyer shall not use or permit the use of any false, fraudulent,
misleading, deceptive, undignified, self-laudatory or unfair statement or claim
regarding his qualified (sic) or legal services.

F. That Jose Antonio Bernas, the counsel on record of the respondents in Civil Case
No. 65646 is the same lawyer who instigated a criminal complaint at the NBI for
forgery and respondents themselves conspired and confabulated with each other in
facilitating and insuring the open, blatant and deliberate violation of Art. 172 of the
Revised Penal Code which states:chanrob1es virtual 1aw library

In his Comment, 2 respondent Jose Antonio Bernas avers that he has not committed
forum shopping because the criminal action is not an action that involves the same
issue as those in a civil action and both suits can exist without constituting forum
shopping so long as the civil aspect has not been prosecuted in the criminal case. He
emphasized that forum shopping only exists when identical reliefs are issued by the
same parties in multiple fora.

Art. 172. Falsification by private individual and use of falsified documents. The
penalty of prision correccional in its medium and maximum periods and a fine of not
more than P5,000 pesos shall be imposed upon:chanrob1es virtual 1aw library
1. Any private individual who shall commit any of the falsifications enumerated in the
next preceding article in any public or official document or letter of exchanged (sic) or
any other kind of commercial document; and
2. Any person who, to the damage of a third party, or with the intent to cause such
damage, shall in any private document commit any of the acts of falsification
enumerated in the next preceding article.
Any person who shall knowingly introduce in evidence in any judicial proceeding or to
the damage of another or who, with the intent to cause such damage, shall use any of
the false documents embraced in the next preceding article, or in any of the foregoing
subdivisions of this article, shall be punished by the penalty next lower in degree.
G. That Atty. Jose Antonio Bernas should be disbarred for having instigated, abetted
and facilitated the perversion and subversion of truth in the said verification and
certification of non-forum shopping. Contrary to Canon 1, Rule 1.01, 1.02, Canon 3,
3.01, Canon 10 of the Code of Professional Responsibility for Lawyers, the pertinent
provisions of which are herein below quoted and a copy of said code is hereto
attached and marked as Annex "E" ;
"CANON 1. A LAWYER SHALL UPHOLD THE CONSTITUTION, OBEY THE LAWS
OF THE LAND AND PROMOTE RESPECT FOR LAW AND LEGAL PROCESSES.

CANON 10. A LAWYER OWES CANDOR, FAIRNESS AND GOOD FAITH TO THE
COURT."cralaw virtua1aw library

In his Supplemental Comment, 3 respondent further contends that neither he or his

client Pascual has commenced any criminal action. Pascual merely requested the NBI
to assist in the investigation or prosecution, and left it to the NBI to determine whether
the filing of an endorsement to the prosecutor, who would determine probable cause,
would be appropriate. It was only upon request of the NBI that he assisted Ramon
Pascual in drafting an affidavit-complaint for falsification of public documents against
complainant. Likewise, respondent by counsel reiterates that the letter transmitted to
the NBI cannot constitute an action or proceeding because the NBIs functions are
merely investigatory and informational in nature. NBI has no prosecutorial functions or
quasi-judicial powers and is incapable of granting relief or remedy. The NBI cannot be
an agency contemplated by the circular.
The core issue to be resolved here is whether respondent Atty. Bernas transgressed
Circular No. 28-91, Revised Circular No. 28-91, and Administrative Circular No. 04-94
on forum shopping.
After a careful scrutiny of the records, we find the administrative complaint bereft of
merit and should be dismissed.
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a
party seeks a favorable opinion (other than by appeal or certiorari) in another.
Therefore, a party to a case resorts to forum shopping because "by filing another
petition involving the same essential facts and circumstances, . . . respondents
approached two different fora in order to increase their chances of obtaining a
favorable decision or action. 4 In this case, there is no forum shopping to speak of.
Atty. Bernas, as counsel of Mr. Pascual, Jr., merely requested the assistance of the

19

NBI to investigate the alleged fraud and forgery committed by Mr. Jesus Cabarrus. 5
The filing of a civil case for reconveyance and damages before the Regional Trial
Court of Pasig City does not preclude respondent to institute a criminal action. The
rule allows the filing of a civil case independently with the criminal case without
violating the circulars on forum shopping. It is scarcely necessary to add that Circular
No. 28-91 must be so interpreted and applied as to achieve the purposes projected by
the Supreme Court when it promulgated that Circular. Circular No. 28-91 was
designed to serve as an instrument to promote and facilitate the orderly administration
of justice and should not be interpreted with such absolute literalness as to subvert its
own ultimate and legitimate objective or the goal of all rules of procedure which is
to achieve substantial justice as expeditiously as possible. 6

defrauding his client.chanrobles lawlibrary : rednad

The courts, tribunals and agencies referred to under Circular No. 28-91, Revised
Circular No. 28-91 and Administrative Circular No. 04-94 are those vested with judicial
powers or quasi-judicial powers and those who not only hear and determine
controversies between adverse parties, but to make binding orders or judgments. As
succinctly put it by R.A. 157, the NBI is not performing judicial or quasi-judicial
functions. The NBI cannot therefore be among those forums contemplated by the
Circular that can entertain an action or proceeding, or even grant any relief,
declaratory or otherwise.
WHEREFORE, premises considered, the instant complaint is hereby DISMISSED.

Adjunct to this, Act No. 157 7 , specifically section 1 hereof provides, viz.:chanrob1es
virtual 1aw library
Section 1. There is hereby created a Bureau of Investigation under the Department of
Justice which shall have the following functions:chanrob1es virtual 1aw library

SO ORDERED.
Regalado and Puno, JJ., concur.
Mendoza., is on leave.

(a) To undertake investigation of crimes and other offenses against the laws of the
Philippines, upon its initiative and as public interest may require;
(b) To render assistance, whenever properly requested in the investigation or
detection of crimes and other offenses;

FIRST LEPANTO CERAMICS, INC., Petitioner, v. THE COURT OF APPEALS and

MARIWASA MANUFACTURING, INC., Respondents.

(c) To act as a national clearing house of criminal and other informations for the
benefit and use of all prosecuting and law-enforcement entities of the Philippines,
identification records of all persons without criminal convictions, records of identifying
marks, characteristics, and ownership or possession of all firearms as well as of test
bullets fired therefrom;

DECISION

(d) To give technical aid to all prosecuting and law-enforcement officers and entities of
the Government as well as the courts that may request its services;

Brought to fore in this petition for certiorari and prohibition with application for
preliminary injunction is the novel question of where and in what manner appeals from
decisions of the Board of Investments (BOI) should be filed. A thorough scrutiny of the
conflicting provisions of Batas Pambansa Bilang 129, otherwise known as the
"Judiciary Reorganization Act of 1980," Executive Order No. 226, also known as the
Omnibus Investments Code of 1987 and Supreme Court Circular No. 1-91 is, thus,
called for.

(e) To extend its services, whenever properly requested in the investigation of cases of
administrative or civil nature in which the Government is interested;
(f) To undertake the instruction and training of representative number of city and
municipal peace officers at the request of their respective superiors along effective
methods of crime investigation and detection in order to insure greater efficiency in the
discharge of their duties;
(g) To establish and maintain an up-to-date scientific crime laboratory and to conduct
researches in furtherance of scientific knowledge in criminal investigation;
(h) To perform such other related functions as the Secretary of Justice may assign
from time to time.
Explicitly, the functions of the National Bureau of Investigations are merely
investigatory and informational in nature. It has no judicial or quasi-judicial powers and
is incapable of granting any relief to a party. It cannot even determine probable cause.
It is an investigative agency whose findings are merely recommendatory. It undertakes

NOCON, J.:

Briefly, this question of law arose when BOI, in its decision dated December 10, 1992
in BOI Case No. 92-005 granted petitioner First Lepanto Ceramics, Inc.s application
to amend its BOI certificate of registration by changing the scope of its registered
product from "glazed floor tiles" to "ceramic tiles." Eventually, oppositor Mariwasa filed
a motion for reconsideration of the said BOI decision while oppositor Fil-Hispano
Ceramics, Inc. did not move to reconsider the same nor appeal therefrom. Soon
rebuffed in its bid for reconsideration, Mariwasa filed a petition for review with
respondent Court of Appeals pursuant to Circular 1-91.chanrobles.com:cralaw:red
Acting on the petition, respondent court required the BOI and petitioner to comment
on Mariwasas petition and to show cause why no injunction should issue. On
February 17, 1993, respondent court temporarily restrained the BOI from

20

implementing its decision. This temporary restraining order lapsed by its own terms on
March 9, 1993, twenty (20) days after its issuance, without respondent court issuing
any preliminary injunction.
On February 24, 1993, petitioner filed a "Motion to Dismiss Petition and to Lift
Restraining Order" on the ground that respondent court has no appellate jurisdiction
over BOI Case No. 92-005, the same being exclusively vested with the Supreme
Court pursuant to Article 82 of the Omnibus Investments Code of 1987.
On May 25, 1993, respondent court denied petitioners motion to dismiss, the
dispositive portion of which reads as follows:jgc:chanrobles.com.ph
"WHEREFORE, private respondents motion to dismiss the petition is hereby DENIED,
for lack of merit.
"Private respondent is hereby given an inextendible period of ten (10) days from
receipt hereof within which to file its comment to the petition." 1
Upon receipt of a copy of the above resolution on June 4, 1993, petitioner decided not
to file any motion for reconsideration as the question involved is essentially legal in
nature and immediately filed a petition forcertiorari and prohibition before this
Court.chanrobles law library : red
Petitioner posits the view that respondent court acted without or in excess of its
jurisdiction in issuing the questioned resolution of May 25, 1993, for the following
reasons:jgc:chanrobles.com.ph
"I. Respondent court has no jurisdiction to entertain Mariwasas appeal from the BOIs
decision in BOI Case No. 92-005, which has become final.
II. The appellate jurisdiction conferred by statute upon this Honorable Court cannot be
amended or superseded by Circular No. 1-91." 2
Petitioner then concludes that:jgc:chanrobles.com.ph
"III. Mariwasa has lost it right to appeal . . . in this case." 3
Petitioner argues that the Judiciary Reorganization Act of 1980 or Batas Pambansa
Bilang 129 and Circular 1-91, "Prescribing the Rules Governing Appeals to the Court
of Appeals from a Final Order or Decision of the Court of Tax Appeals and QuasiJudicial Agencies" cannot be the basis of Mariwasas appeal to respondent court
because the procedure for appeal laid down therein runs contrary to Article 82 of E.O.
226, which provides that appeals from decisions or orders of the BOI shall be filed
directly with this Court, to wit:jgc:chanrobles.com.ph
"Judicial relief. All orders or decisions of the Board (of Investments) in cases
involving the provisions of this Code shall immediately be executory. No appeal from
the order or decision of the Board by the party adversely affected shall stay such an
order or decision; Provided, that all appeals shall be filed directly with the Supreme
Court within thirty (30) days from receipt order or decision."cralaw virtua1aw library

On the other hand, Mariwasa maintains that whatever "obvious inconsistency" or

"irreconcilable repugnancy" there may have been between B.P. 129 and Article 82 of
E.O. 226 on the question of venue for appeal has already been resolved by Circular 191 of the Supreme Court, which was promulgated on February 27, 1991 or four (4)
years after E.O. 226 was enacted.
Sections 1, 2 and 3 of Circular 1-91, is herein quoted below:jgc:chanrobles.com.ph
"1. Scope. These rules shall apply to appeals from final orders or decisions of the
Court of Tax Appeals. They shall also apply to appeals from final orders or decisions of
any quasi-judicial agency from which an appeal is now allowed by statute to the Court
of Appeals or the Supreme Court. Among these agencies are the Securities and
Exchange Commission, Land Registration Authority, Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board, National Telecommunications
Commission, Secretary of Agrarian Reform and Special Agrarian Courts under RA
6657, Government Service Insurance System, Employees Compensation
Commission, Agricultural Inventions Board, Insurance Commission and Philippine
Atomic Energy Commission.chanrobles.com.ph : virtual law library
"2. Cases not covered. These rules shall not apply to decisions and interlocutory
orders of the National Labor Relations Commission or the Secretary of Labor and
Employment under the Labor Code of the Philippines, the Central Board of
Assessment Appeals, and other quasi-judicial agencies from which no appeal to the
courts is prescribed or allowed by statute.
"3. Who may appeal and where to appeal. The appeal of a party affected by a final
order, decision, or judgment of the Court of Tax Appeals or of a quasi-judicial agency
shall be taken to the Court of Appeals within the period and in the manner herein
provided, whether the appeal involves questions of fact or of law or mixed questions of
fact and law. From final judgments or decisions of the Court of Appeals, the aggrieved
party may appeal by certiorari to the Supreme Court as provided in Rule 45 of the
Rules of Court."cralaw virtua1aw library
It may be called that Section 9(3) of B.P. 129 vests appellate jurisdiction over all final
judgments, decisions, resolutions, orders or awards of quasi-judicial agencies on the
Court of Appeals, to wit:jgc:chanrobles.com.ph
"(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions,
orders, awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities,
boards or commissions, except those falling within the appellate jurisdiction of the
Supreme Court in accordance with the Constitution, the provisions of this Act, and of
subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph
of Section 17 of the Judiciary Act of 1948.
The Intermediate Appellate Court shall have the power to try cases and conduct
hearings, receive evidence and perform any and all acts necessary to resolve factual
issues raised in cases falling within its original and appellate jurisdiction, including the
power to grant and conduct new trials or further proceedings.

21

These provisions shall not apply to decisions and interlocutory orders issued under
the Labor Code of the Philippines and by the Central Board of Assessment
Appeals."cralaw virtua1aw library
Clearly evident in the aforequoted provision of B.P. 129 is the laudable objective of
providing a uniform procedure of appeal from decisions of all quasi-judicial agencies
for the benefit of the bench and the bar. Equally laudable is the twin objective of B.P.
129 of unclogging the docket of this Court to enable it to attend to more important
tasks, which in the words of Dean Vicente G. Sinco, as quoted in our decision in
Conde v. Intermediate Appellate Court 4 is "less concerned with the decisions of
cases that begin and end with the transient rights and obligations of particular
individuals but is more intertwined with the direction of national policies, momentous
economic and social problems, the delimitation of governmental authority and its
impact upon fundamental rights." chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
In Development Bank of the Philippines v. Court of Appeals, 5 this Court noted that
B.P. 129 did not deal only with "changes in the rules on procedures" and that not only
was the Court of Appeals reorganized, but its jurisdiction and powers were also
broadened by Section 9 thereof. Explaining the changes, this Court
said:jgc:chanrobles.com.ph
". . . Its original jurisdiction to issue writs of mandamus,
prohibition, certiorari and habeas corpus, which theretofore could be exercised only in
aid of its appellate jurisdiction, was expanded by (1) extending it so as to include the
writ of quo warranto, and also (2) empowering it to issue all said extraordinary writs
whether or not in aid of its appellate jurisdiction. Its appellate jurisdiction was also
extended to cover not only final judgments of Regional Trial Courts, but also all final
judgments, decisions, resolutions, orders or awards of . . . quasi-judicial agencies,
instrumentalities, boards or commissions, except those falling within the appellate
jurisdiction of the Supreme Court in accordance with the Constitution, the provisions of
this Act, and of sub-paragraph (1) of the third paragraph and subparagraph (4) of the
fourth paragraph of Section 17 of the Judiciary Act of 1948, it being noteworthy in this
connection that the text of the law is broad and comprehensive, and the explicitly
stated exceptions have no reference whatever to the Court of Tax Appeals. Indeed,
the intention to expand the original and appellate jurisdiction of the Court of Appeals
over quasi-judicial agencies, instrumentalities, boards or commissions, is further
stressed by the last paragraph of Section 9 which excludes from its provisions, only
the decisions and interlocutory orders issued under the Labor Code of the Philippines
and by the Central Board of Assessment Appeals." 6
However, it cannot be denied that the lawmaking system of the country is far from
perfect. During the transitional period after the country emerged from the Marcos
regime, the lawmaking power was lodged on the Executive Department. The obvious
lack of deliberation in the drafting of our laws could perhaps explain the deviation of
some of our laws from the goal of uniform procedure which B.P. 129 sought to
promote.chanrobles law library
In exempli gratia, Executive Order No. 226 or the Omnibus Investments Code of 1987

provides that all appeals shall be filed directly with the Supreme Court within thirty (30)
days from receipt of the order or decision.
Noteworthy is the fact that presently, the Supreme Court entertains ordinary appeals
only from decisions of the Regional Trial Courts in criminal cases where the penalty
imposed is reclusion perpetua or higher. Judgments of regional trial courts may be
appealed to the Supreme Court only by petition for review oncertiorari within fifteen
(15) days from notice of judgment in accordance with Rule 45 of the Rules of Court in
relation to Section 17 of the Judiciary Act of 1948, as amended, this being the clear
intendment of the provision of the Interim Rules that" (a)ppeals to the Supreme Court
shall be taken by petition for certiorariwhich shall be governed by Rule 45 of the Rules
of Court." Thus, the right of appeal provided in E.O. 226 within thirty (30) days from
receipt of the order or decision is clearly not in consonance with the present procedure
before this Court. Only decisions, orders or rulings of a Constitutional Commission
(Civil Service Commission, Commission on Elections or Commission on Audit), may
be brought to the Supreme Court on original petitions for certiorari under Rule 65 by
the aggrieved party within thirty (30) days form receipt of a copy thereof. 7
Under this contextual backdrop, this Court, pursuant to its Constitutional power under
Section 5(5), Article VIII of the 1987 Constitution to promulgate rules concerning
pleading, practice and procedure in all courts, and by way of implementation of B.P.
129, issued Circular 1-91 prescribing the rules governing appeals to the Court of
Appeals from final orders or decisions of the Court of Tax Appeals and quasi-judicial
agencies to eliminate unnecessary contradictions and confusing rules of
procedure.chanrobles.com:cralaw:red
Contrary to petitioners contention, although a circular is not strictly a statute or law, it
has, however, the force and effect of law according to settled jurisprudence. 8 In
Inciong v. de Guia, 9 a circular of this Court was treated as law. In adopting the
recommendation of the Investigating Judge to impose a sanction on a judge who
violated Circular No. 7 of this Court dated September 23, 1974, as amended by
Circular No. 3 dated April 24, 1975 and Circular No. 20 dated October 4, 1979,
requiring raffling of cases, this Court quoted the ratiocination of the Investigating
Judge, brushing aside the contention of respondent judge that assigning cases
instead of raffling is a common practice and holding that respondent could not go
against the circular of this Court until it is repealed or otherwise modified, as" (L)aws
are repealed only by subsequent ones, and their violation or non-observance shall not
be excused by disuse, or customs or practice to the contrary." 10
The argument that Article 82 of E.O. 226 cannot be validly repealed by Circular 1-91
because the former grants a substantive right which, under the Constitution cannot be
modified, diminished or increased by this Court in the exercise of its rule-making
powers is not entirely defensible as it seems. Respondent correctly argued that Article
82 of E.O. 226 grants the right of appeal from decisions or final orders of the BOI and
in granting such right, it also provided where and in what manner such appeal can be
brought. These latter portions simply deal with procedural aspects which this Court
has the power to regulate by virtue of its constitutional rule-making powers.
The case of Bustos v. Lucero 11 distinguished between rights created by a substantive
law and those arising from procedural law:jgc:chanrobles.com.ph

22

"Substantive law creates substantive rights . . . . Substantive rights is a term which

includes those rights which one enjoys under the legal system prior to the disturbance
of normal relations (60 C.J., 980). Substantive law is that part of the law which
creates, defines and regulates rights, or which regulates rights and duties which give
rise to a cause of action, as opposed to adjective or remedial law, which prescribes
the method of enforcing rights or obtains a redress for their invasion." 12

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

Indeed, the question of where and in what manner appeals from decisions of the BOI
should be brought pertains only to procedure or the method of enforcing the
substantive right to appeal granted by E.O. 226. In other words, the right to appeal
from decisions or final orders of the BOI under E.O. 226 remains and continues to be
respected. Circular 1-91 simply transferred the venue of appeals from decisions of this
agency to respondent Court of Appeals and provided a different period of appeal, i.e.,
fifteen (15) days from notice. It did not make an incursion into the substantive right to
appeal.cralawnad

GR No. 110120

The fact that BOI is not expressly included in the list of quasi-judicial agencies found in
the third sentence of Section 1 of Circular 1-91 does not mean that said circular does
not apply to appeals from final orders or decision of the BOI. The second sentence of
Section 1 thereof expressly states that" (T)hey shall also apply to appeal from final
orders or decisions of any quasi-judicial agency from which an appeal is now allowed
by statute to the Court of Appeals or the Supreme Court." E.O. 266 is one such
statute. Besides, the enumeration is preceded by the words" (A)mong these agencies
are . . .," strongly implying that there are other quasi-judicial agencies which are
covered by the Circular but which have not been expressly listed therein. More
importantly, BOI does not fall within the purview of the exclusions listed in Section 2 of
the circular. Only the following final decisions and interlocutory orders are expressly
excluded from the circular, namely, those of: (1) the National Labor Relations
Commission; (2) the Secretary of Labor and Employment; (3) the Central Board of
Assessment Appeals and (4) other quasi-judicial agencies from which no appeal to the
courts is prescribed or allowed by statute. Since in DBP v. CA 13 we upheld the
appellate jurisdiction of the Court of Appeals over the Court of Tax Appeals despite the
fact that the same is not among the agencies reorganized by B.P. 129, on the ground
that B.P. 129 is broad and comprehensive, there is no reason why BOI should be
excluded from Circular 1-91, which is but implementary of said law.
Clearly, Circular 1-91 effectively repealed or superseded Article 82 of E.O. 226 insofar
as the manner and method of enforcing the right to appeal from decisions of the BOI
are concerned. Appeals from decisions of the BOI, which by statute was previously
allowed to be filed directly with the Supreme Court, should now be brought to the
Court of Appeals.chanrobles virtual lawlibrary
WHEREFORE, in view of the foregoing reasons, the instant petition for certiorari and
prohibition with application for temporary restraining order and preliminary injunction is
hereby DISMISSED for lack of merit. The Temporary Restraining Order issued on July
19, 1993 is hereby LIFTED.

Laguna Lake Development Authority v CA (Environmental Law)

Laguna Lake Development Authority v CA

March 16, 1994

FACTS:

The LLDA Legal and Technical personnel found that the City Government of
Caloocan was maintaining an open dumpsite at the Camarin area without first
securing an Environmental Compliance Certificate (ECC) from the
Environmental Management Bureau (EMB) of the Department of Environment
and Natural Resources, as required under Presidential Decree N o. 1586, and
clearance from LLDA as required under Republic Act N o. 4850 and issued a CEASE
and DESIST ORDER (CDO) for the City Government of Caloocan to stop the use of
the dumpsite.

ISSUES:

1. Does the LLDA and its amendatory laws, have the authority to entertain the
complaint against the dumping of garbage in the open dumpsite in Barangay
Camarin authorized by the City Government of Caloocan?
2. Does the LLDA have the power and authority to issue a "cease and desist" order?

APPLICABLE LAWS:

SO ORDERED.

23

 Executive Order N o. 927 series of 1983 which provides, thus: Sec. 4. Additional
Powers and Functions. The authority shall have the following powers and functions:
(d) Make, alter or modify orders requiring the discontinuance of pollution
specifying the conditions and the time within which such discontinuance must be
accomplished

As a general rule, the adjudication of pollution cases generally pertains to the

Pollution Adjudication Board (PAB), except in cases w here the special law
provides for another forum

RULING:

1. YES, LLDA has authority. It must be recognized in this regard that the LLDA,
as a specialized administrative agency, is specifically mandated under Republic
Act No. 4850 and its amendatory law s to carry out and make effective the
declared national policy of promoting and accelerating the development and
balanced growth of the Laguna Lake area and the surrounding provinces of
Rizal and Laguna and the cities of San Pablo, Manila, Pasay, Quezon and
Caloocan with due regard and adequate provisions for environmental management
and control, preservation of the quality of human life and ecological systems, and
the prevention of undue ecological disturbances, deterioration and pollution. Under
such a broad grant and power and authority, the LLDA, by virtue of its special charter,
obviously has the responsibility to protect the inhabitants of the Laguna Lake region
from the deleterious effects of pollutants emanating from the discharge of
wastes from the surrounding areas.

2. YES, pursuant to EO 927 Section 4. While it is a fundamental rule that an

administrative agency has only such powers as are expressly granted to it by law , it
is likewise a settled rule that an administrative agency has also such powers as are
necessarily implied in the exercise of its ex press powers. In the exercise,
therefore, of its express powers under its charter as a regulatory and quasijudicial body with respect to pollution cases in the Laguna Lake region, the
authority of the LLDA to issue a "cease and desist order" is, perforce, implied.
NOTE: HOWEVER, writs of mandamus and injunction are beyond the power of the
LLDA to issue.

[G.R. No. 124293. September 24, 2003.]

JG SUMMIT HOLDINGS, INC., Petitioner, v. COURT OF APPEALS, COMMITTEE
ON PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST
and PHILYARDS HOLDINGS, INC., Respondents.
RESOLUTION
PUNO, J.:
The core issue posed by the Motions for Reconsideration is whether a shipyard is a
public utility whose capitalization must be sixty percent (60%) owned by Filipinos. Our
resolution of this issue will determine the fate of the shipbuilding and ship repair
industry. It can either spell the industrys demise or breathe new life to the struggling
but potentially healthy partner in the countrys bid for economic growth. It can either kill
an initiative yet in its infancy, or harness creativity in the productive disposition of
government assets.chanrob1es virtua1 1aw 1ibrary
The facts are undisputed and can be summarized briefly as follows:chanrob1es virtual
1aw library
On January 27, 1977, the National Investment and Development Corporation (NIDC),
a government corporation, entered into a Joint Venture Agreement (JVA) with
Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction,
operation and management of the Subic National Shipyard, Inc. (SNS) which
subsequently became the Philippine Shipyard and Engineering Corporation
(PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330 million
for the capitalization of PHILSECO in the proportion of 60%-40% respectively. 1 One
of its salient features is the grant to the parties of the right of first refusal should either
of them decide to sell, assign or transfer its interest in the joint venture,
viz:chanrob1es virtual 1aw library
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS
[PHILSECO] to any third party without giving the other under the same terms the right
of first refusal. This provision shall not apply if the transferee is a corporation owned or
controlled by the GOVERNMENT or by a KAWASAKI affiliate. 2
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO
to the Philippine National Bank (PNB). Such interests were subsequently transferred
to the National Government pursuant to Administrative Order No. 14. On December 8,
1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the
Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title
to, and possession of, conserve, manage and dispose of non-performing assets of the
National Government. Thereafter, on February 27, 1987, a trust agreement was
entered into between the National Government and the APT wherein the latter was
named the trustee of the National Governments share in PHILSECO. In 1989, as a

24

result of a quasi-reorganization of PHILSECO to settle its huge obligations to PNB, the

National Governments shareholdings in PHILSECO increased to 97.41% thereby
reducing KAWASAKIs shareholdings to 2.59%. 3
In the interest of the national economy and the government, the COP and the APT
deemed it best to sell the National Governments share in PHILSECO to private
entities. After a series of negotiations between the APT and KAWASAKI, they agreed
that the latters right of first refusal under the JVA be "exchanged" for the right to top
by five percent (5%) the highest bid for the said shares. They further agreed that
KAWASAKI would be entitled to name a company in which it was a stockholder, which
could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that
Philyards Holdings, Inc. (PHI) would exercise its right to top. 4
At the pre-bidding conference held on September 18, 1993, interested bidders were
given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific
Bidding Rules (ASBR) drafted for the National Governments 87.6% equity share in
PHILSECO. 5 The provisions of the ASBR were explained to the interested bidders
who were notified that the bidding would be held on December 2, 1993. A portion of
the ASBR reads:chanrob1es virtual 1aw library
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is
the National Governments equity in PHILSECO consisting of 896,869,942 shares of
stock (representing 87.67% of PHILSECOs outstanding capital stock), which will be
sold as a whole block in accordance with the rules herein enumerated.

2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative
price set for the National Governments 87.67% equity in PHILSECO is PESOS: ONE
BILLION THREE HUNDRED MILLION (P1,300,000,000.00).

6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise
their "Option to Top the Highest Bid," they shall so notify the APT about such exercise
of their option and deposit with APT the amount equivalent to ten percent (10%) of the
highest bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in
paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc.
and/or Philyards Holdings, Inc. declaring them as the preferred bidder and they shall
have a period of ninety (90) days from the receipt of the APTs notice within which to
pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to
exercise their "Option to Top the Highest Bid" within the thirty (30)-day period, APT will
declare the highest bidder as the winning bidder.

12.0 The bidder shall be solely responsible for examining with appropriate care these
rules, the official bid forms, including any addenda or amendments thereto issued
during the bidding period. The bidder shall likewise be responsible for informing itself
with respect to any and all conditions concerning the PHILSECO Shares which may, in
any manner, affect the bidders proposal. Failure on the part of the bidder to so
examine and inform itself shall be its sole risk and no relief for error or omission will be
given by APT or COP. . . . 6

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both
the APT Board of Trustees and the Committee on Privatization (COP).

bid equivalent to the highest bid plus five (5%) percent thereof.

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its
regular meeting following the bidding, for the purpose of determining whether or not it
should be endorsed by the APT Board of Trustees to the COP, and the latter approves
the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee,
Philyards Holdings, Inc., that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall
then have a period of thirty (30) calendar days from the date of receipt of such advice
from APT within which to exercise their "Option to Top the Highest Bid" by offering a

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted
a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an
acknowledgment of KAWASAKI/Philyards right to top, viz:chanrob1es virtua1 1aw
1ibrary
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30)
days to act on APTs recommendation based on the result of this bidding. Should the
COP approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc.
and/or its nominee, Philyards Holdings, Inc. that the highest bid is acceptable to the
National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc.
shall then have a period of thirty (30) calendar days from the date of receipt of such
advice from APT within which to exercise their "Option to Top the Highest Bid" by
offering a bid equivalent to the highest bid plus five (5%) percent thereof. 7
As petitioner was declared the highest bidder, the COP approved the sale on
December 3, 1993 "subject to the right of Kawasaki Heavy Industries, Inc./Philyards
Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules." 8
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI
to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of
Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the
ASBR because the last four (4) companies were the losing bidders thereby
circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI

25

could exercise the right to top; (c) giving the same option to top to PHI constituted
unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a
public bidding or auction sale; and (e) the JG Summit consortium was not estopped
from questioning the proceedings. 9
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner
that PHI had exercised its option to top the highest bid and that the COP had
approved the same on January 6, 1994. On February 24, 1994, the APT and PHI
executed a Stock Purchase Agreement. 10 Consequently, petitioner filed with this
Court a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition
was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied
the same for lack of merit. It ruled that the petition for mandamus was not the proper
remedy to question the constitutionality or legality of the right of first refusal and the
right to top that was exercised by KAWASAKI/PHI, and that the matter must be
brought "by the proper party in the proper forum at the proper time and threshed out in
a full blown trial." The Court of Appeals further ruled that the right of first refusal and
the right to top are prima facie legal and that the petitioner, "by participating in the
public bidding, with full knowledge of the right to top granted to KAWASAKI/Philyards
is . . . estopped from questioning the validity of the award given to Philyards after the
latter exercised the right to top and had paid in full the purchase price of the subject
shares, pursuant to the ASBR." Petitioner filed a Motion for Reconsideration of said
Decision which was denied on March 15, 1996. Petitioner thus filed a Petition
for Certiorari with this Court alleging grave abuse of discretion on the part of the
appellate court. 11
On November 20, 2000, this Court rendered the now assailed Decision ruling among
others that the Court of Appeals erred when it dismissed the petition on the sole
ground of the impropriety of the special civil action of mandamus because the petition
was also one of certiorari. 12 It further ruled that a shipyard like PHILSECO is a public
utility whose capitalization must be sixty percent (60%) Filipino-owned. 13
Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding
Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in
PHILSECO is illegal not only because it violates the rules on competitive bidding
but more so, because it allows foreign corporations to own more than 40% equity in
the shipyard. 14 It also held that "although the petitioner had the opportunity to
examine the ASBR before it participated in the bidding, it cannot be estopped from
questioning the unconstitutional, illegal and inequitable provisions thereof." 15 Thus,
this Court voided the transfer of the national governments 87.67% share in
PHILSECO to Philyard Holdings, Inc., and upheld the right of JG Summit, as the
highest bidder, to take title to the said shares, viz:chanrob1es virtual 1aw library
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed
Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE.
Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos
(P2,030,000,000.00), less its bid deposit plus interests upon the finality of this
Decision. In turn, APT is ordered to:chanrob1es virtual 1aw library
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from
petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks representing
87.6% of PHILSECOs total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred ThirtyOne Million Five Hundred Thousand Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED. 16
In separate Motions for Reconsideration, 17 respondents submit three basic issues for
our resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977
JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the total
capitalization of PHILSECO; and (3) Whether the right to top granted to KAWASAKI
violates the principles of competitive bidding.chanrob1es virtua1 1aw 1ibrary

I.
Whether PHILSECO is a Public Utility.
After carefully reviewing the applicable laws and jurisprudence, we hold that
PHILSECO is not a public utility for the following reasons:chanrob1es virtual 1aw
library
First. By nature, a shipyard is not a public utility.
A "public utility" is "a business or service engaged in regularly supplying the public
with some commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service." 18 To constitute a public utility, the
facility must be necessary for the maintenance of life and occupation of the residents.
However, the fact that a business offers services or goods that promote public good
and serve the interest of the public does not automatically make it a public utility.
Public use is not synonymous with public interest. As its name indicates, the term
"public utility" implies public use and service to the public. The principal determinative
characteristic of a public utility is that of service to, or readiness to serve, an indefinite
public or portion of the public as such which has a legal right to demand and receive
its services or commodities. Stated otherwise, the owner or person in control of a
public utility must have devoted it to such use that the public generally or that part of
the public which has been served and has accepted the service, has the right to
demand that use or service so long as it is continued, with reasonable efficiency and
under proper charges. 19 Unlike a private enterprise which independently determines
whom it will serve, a "public utility holds out generally and may not refuse legitimate
demand for service." 20 Thus, in Iloilo Ice and Cold Storage Co. v. Public Utility Board,
21 this Court defined "public use," viz:jgc:chanrobles.com.ph

26

"Public use" means the same as "use by the public." The essential feature of the
public use is that it is not confined to privileged individuals, but is open to the indefinite
public. It is this indefinite or unrestricted quality that gives it its public character. In
determining whether a use is public, we must look not only to the character of the
business to be done, but also to the proposed mode of doing it. If the use is merely
optional with the owners, or the public benefit is merely incidental, it is not a public
use, authorizing the exercise of jurisdiction of the public utility commission. There must
be, in general, a right which the law compels the owner to give to the general public. It
is not enough that the general prosperity of the public is promoted. Public use is not
synonymous with public interest. The true criterion by which to judge the character of
the use is whether the public may enjoy it by right or only by permission. 22
(Emphasis supplied)
Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a
shipyard cannot be considered a public utility.
A "shipyard" is "a place or enclosure where ships are built or repaired." 23 Its nature
dictates that it serves but a limited clientele whom it may choose to serve at its
discretion. While it offers its facilities to whoever may wish to avail of its services, a
shipyard is not legally obliged to render its services indiscriminately to the public. It
has no legal obligation to render the services sought by each and every client. The
fact that it publicly offers its services does not give the public a legal right to demand
that such services be rendered.chanrob1es virtua1 1aw 1ibrary
There can be no disagreement that the shipbuilding and ship repair industry is imbued
with public interest as it involves the maintenance of the seaworthiness of vessels
dedicated to the transportation of either persons or goods. Nevertheless, the fact that
a business is affected with public interest does not imply that it is under a duty to serve
the public. While the business may be regulated for public good, the regulation cannot
justify the classification of a purely private enterprise as a public utility. The legislature
cannot, by its mere declaration, make something a public utility which is not in fact
such; and a private business operated under private contracts with selected
customers and not devoted to public use cannot, by legislative fiat or by order of a
public service commission, be declared a public utility, since that would be taking
private property for public use without just compensation, which cannot be done
consistently with the due process clause. 24
It is worthy to note that automobile and aircraft manufacturers, which are of similar
nature to shipyards, are not considered public utilities despite the fact that their
operations greatly impact on land and air transportation. The reason is simple. Unlike
commodities or services traditionally regarded as public utilities such as electricity,
gas, water, transportation, telephone or telegraph service, automobile and aircraft
manufacturing and for that matter ship building and ship repair serve the public
only incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better view of the intent
of any law. The succession of laws affecting the status of shipyards ought not to
obliterate, but rather, give us full picture of the intent of the legislature. The totality of

the circumstances, including the contemporaneous interpretation accorded by the

administrative bodies tasked with the enforcement of the law all lead to a singular
conclusion: that shipyards are not public utilities.
Since the enactment of Act No. 2307 which created the Public Utility Commission
(PUC) until its repeal by Commonwealth Act No. 146, establishing the Public Service
Commission (PSC), a shipyard, by legislative declaration, has been considered a
public utility. 25 A Certificate of Public Convenience (CPC) from the PSC to the effect
that the operation of the said service and the authorization to do business will promote
the public interests in a proper and suitable manner is required before any person or
corporation may operate a shipyard. 26 In addition, such persons or corporations
should abide by the citizenship requirement provided in Article XIII, section 8 of the
1935 Constitution, 27 viz:chanrob1es virtual 1aw library
Sec. 8. No franchise, certificate, or any other form or 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. No franchise or right shall be granted to any individual, firm or corporation,
except under the condition that it shall be subject to amendment, alteration, or repeal
by the National Assembly when the public interest so requires. (Emphasis supplied)
To accelerate the development of shipbuilding and ship repair industry, former
President Ferdinand E. Marcos issued P.D. No. 666 granting the following
incentives:chanrob1es virtual 1aw library
SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime
Industry Authority shall be entitled to the following incentive benefits:chanrob1es
virtual 1aw library
(a) Exemption from import duties and taxes. The importation of machinery,
equipment and materials for shipbuilding, ship repair and/or alteration, including
indirect import, as well as replacement and spare parts for the repair and overhaul of
vessels such as steel plates, electrical machinery and electronic parts, shall be
exempt from the payment of customs duty and compensating tax: Provided, however,
That the Maritime Industry Authority certifies that the item or items imported are not
produced locally in sufficient quantity and acceptable quality at reasonable prices, and
that the importation is directly and actually needed and will be used exclusively for the
construction, repair, alteration, or overhaul of merchant vessels, and other watercrafts;
Provided, further, That if the above machinery, equipment, materials and spare parts
are sold to non-tax exempt persons or entities, the corresponding duties and taxes
shall be paid by the original importer; Provided, finally, That local dealers and/or
agents who sell machinery, equipment, materials and accessories to shipyards for
shipbuilding and ship repair are entitled to tax credits, subject to approval by the total
tariff duties and compensating tax paid for said machinery, equipment, materials and
accessories.
(b) Accelerated depreciation. Industrial plant and equipment may, at the option of
the shipbuilder and ship repairer, be depreciated for any number of years between five

27

years and expected economic life.

(c) Exemption from contractors percentage tax. The gross receipts derived by
shipbuilders and ship repairers from shipbuilding and ship repairing activities shall be
exempt from the Contractors Tax provided in Section 91 of the National Internal
Revenue Code during the first ten years from registration with the Maritime Industry
Authority, provided that such registration is effected not later than the year 1990;
Provided, That any and all amounts which would otherwise have been paid as
contractors tax shall be set aside as a separate fund, to be known as "Shipyard
Development Fund", by the contractor for the purpose of expansion, modernization
and/or improvement of the contractors own shipbuilding or ship repairing facilities;
Provided, That, for this purpose, the contractor shall submit an annual statement of its
receipts to the Maritime Industry Authority; and Provided, further, That any
disbursement from such fund for any of the purposes hereinabove stated shall be
subject to approval by the Maritime Industry Authority.
In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the
list of public utilities, thereby freeing the industry from the 60% citizenship requirement
under the Constitution and from the need to obtain Certificate of Public Convenience
pursuant to section 15 of C.A. No. 146. Section 1 (d) of P.D. 666 reads:chanrob1es
virtual 1aw library

It is the policy of the State to extend to projects which will significantly contribute to the
attainment of these objectives, fiscal incentives without which said projects may not be
established in the locales, number and/or pace required for optimum national
economic development. Fiscal incentive systems shall be devised to compensate for
market imperfections, reward performance of making contributions to economic
development, cost-efficient and be simple to administer.
The fiscal incentives shall be extended to stimulate establishment and assist initial
operations of the enterprise, and shall terminate after a period of not more than 10
years from registration or start-up of operation unless a special period is otherwise
stated.
The foregoing declaration shall apply to all investment incentive schemes and in
particular will supersede article 2 of Presidential Decree No. 1789. (emphases
supplied)chanrob1es virtua1 1aw 1ibrary
With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the
following laws, viz:chanrob1es virtual 1aw library
Sec. 20. The following provisions are hereby repealed:chanrob1es virtual 1aw library
1) Section 53, P.D. 463 (Mineral Resources Development Decree);

(d) Registration required but not as a Public Utility. The business of constructing
and repairing vessels or parts thereof shall not be considered a public utility and no
Certificate of Public Convenience shall be required therefor. However, no shipyard,
graving dock, marine railway or marine repair shop and no person or enterprise shall
engage in construction and/or repair of any vessel, or any phase or part thereof,
without a valid Certificate of Registration and license for this purpose from the
Maritime Industry Authority, except those owned or operated by the Armed Forces of
the Philippines or by foreign governments pursuant to a treaty or agreement.
(Emphasis supplied)
Any law, decree, executive order, or rules and regulations inconsistent with P.D. No.
666 were repealed or modified accordingly. 28 Consequently, sections 13 (b) and 15
of C.A. No. 146 were repealed in so far as the former law included shipyards in the list
of public utilities and required the certificate of public convenience for their operation.
Simply stated, the repeal was due to irreconcilable inconsistency, and by definition,
this kind of repeal falls under the category of an implied repeal. 29
On April 28, 1983, Batas Pambansa Blg. 391, also known as the "Investment Incentive
Policy Act of 1983," was enacted. It laid down the general policy of the government to
encourage private domestic and foreign investments in the various sectors of the
economy, to wit:chanrob1es virtual 1aw library
Sec. 2. Declaration of Investment Policy. It is the policy of the State to encourage
private domestic and foreign investments in industry, agriculture, mining and other
sectors of the economy which shall: provide significant employment opportunities
relative to the amount of the capital being invested; increase productivity of the land,
minerals, forestry, aquatic and other resources of the country, and improve utilization
of the products thereof; improve technical skills of the people employed in the
enterprise; provide a foundation for the future development of the economy;

2) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);
4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d),
62, and 77. Articles 45, 46 and 48 are hereby amended only with respect to domestic
and export producers.
All other laws, decrees, executive orders, administrative orders, rules and regulations
or parts thereof which are inconsistent with the provisions of this Act are hereby
repealed, amended or modified accordingly.
All other incentive systems which are not in any way affected by the provisions of this
Act may be restructured by the President so as to render them cost-efficient and to
make them conform with the other policy guidelines in the declaration of policy
provided in Section 2 of this Act. (Emphasis supplied)
From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1
was expressly and categorically repealed. As a consequence, the provisions of C.A.
No. 146, which were impliedly repealed by P.D. No. 666, section 1 were revived. 30 In
other words, with the enactment of Batas Pambansa Blg. 391, a shipyard reverted
back to its status as a public utility and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of Batas
Pambansa Blg. 391 by Executive Order No. 226 issued by former President Corazon

28

C. Aquino under her emergency powers.

of PHILSECOs total capitalization.

We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not
revive Section 1 of P.D. No. 666. But more importantly, it also put a period to the
existence of sections 13 (b) and 15 of C.A. No. 146. It bears emphasis that sections
13 (b) and 15 of C.A. No. 146, as originally written, owed their continued existence to
Batas Pambansa Blg. 391. Had the latter not repealed P.D. No. 666, the former should
have been modified accordingly and shipyards effectively removed from the list of
public utilities. Ergo, with the express repeal of Batas Pambansa Blg. 391 by E.O. No.
226, the revival of sections 13 (b) and 15 of C.A. No. 146 had no more leg to stand on.
A law that has been expressly repealed ceases to exist and becomes inoperative from
the moment the repealing law becomes effective. 31 Hence, there is simply no basis
in the conclusion that shipyards remain to be a public utility. A repealed statute cannot
be the basis for classifying shipyards as public utilities.

A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing
that prevents KAWASAKI from acquiring more than 40% of PHILSECOs total
capitalization. Section 1 of the 1977 JVA states:chanrob1es virtual 1aw library

In view of the foregoing, there can be no other conclusion than to hold that a shipyard
is not a public utility. A shipyard has been considered a public utility merely by
legislative declaration. Absent this declaration, there is no more reason why it should
continuously be regarded as such. The fact that the legislature did not clearly and
unambiguously express its intention to include shipyards in the list of public utilities
indicates that that it did not intend to do so. Thus, a shipyard reverts back to its status
as non-public utility prior to the enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed upon it by the
Board of Investments (BOI), which was entrusted by the legislature with the
preparation of annual Investment Priorities Plan (IPPs). The BOI has consistently
classified shipyards as part of the manufacturing sector and not of the public utilities
sector. The enactment of Batas Pambansa Blg. 391 did not alter the treatment of the
BOI on shipyards. It has been, as at present, classified as part of the manufacturing
and not of the public utilities sector. 32
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with
the MARINA, 33 none appears to have an existing franchise. If we continue to hold
that a shipyard is a public utility, it is a necessary consequence that all these entities
should have obtained a franchise as was the rule prior to the enactment of P.D. No.
666. But MARINA remains without authority, pursuant to P.D. No. 474 34 to issue
franchises for the operation of shipyards. Surely, the legislature did not intend to
create a vacuum by continuously treating a shipyard as a public utility without giving
MARINA the power to issue a Certificate of Public Convenience (CPC) or a Certificate
of Public Convenience and Necessity (CPCN) as required by section 15 of C.A. No.
146.chanrob1es virtua1 1aw 1ibrary

II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%

1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall
thereafter increase their subscription in Philseco as may be necessary and as called
by the Board of Directors, maintaining a proportion of 60%-40% for NIDC and
KAWASAKI respectively, up to a total subscribed and paid-up capital stock of P312
million.
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS
[renamed PHILSECO] to any third party without giving the other under the same terms
the right of first refusal. This provision shall not apply if the transferee is a corporation
owned and controlled by the GOVERNMENT [of the Philippines] or by a Kawasaki
affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to
unissued shares of SNS [PHILSECO]. 35
Under section 1.3, the parties agreed to the amount of P330 million as the total
capitalization of their joint venture. There was no mention of the amount of their initial
subscription. What is clear is that they are to infuse the needed capital from time to
time until the total subscribed and paid-up capital reaches P312 million. The phrase
"maintaining a proportion of 60%-40%" refers to their respective share of the burden
each time the Board of Directors decides to increase the subscription to reach the
target paid-up capital of P312 million. It does not bind the parties to maintain the
sharing scheme all throughout the existence of their partnership.
The parties likewise agreed to arm themselves with protective mechanisms to
preserve their respective interests in the partnership in the event that (a) one party
decides to sell its shares to third parties; and (b) new Philseco shares are issued.
Anent the first situation, the non-selling party is given the right of first refusal under
section 1.4 to have a preferential right to buy or to refuse the selling partys shares.
The right of first refusal is meant to protect the original or remaining joint venturer(s) or
shareholder(s) from the entry of third persons who are not acceptable to it as coventurer(s) or co-shareholder(s). The joint venture between the Philippine Government
and KAWASAKI is in the nature of a partnership 36 which, unlike an ordinary
corporation, is based on delectus personae. 37 No one can become a member of the
partnership association without the consent of all the other associates. The right of
first refusal thus ensures that the parties are given control over who may become a
new partner in substitution of or in addition to the original partners. Should the selling
partner decide to dispose all its shares, the non-selling partner may acquire all these
shares and terminate the partnership. No person or corporation can be compelled to
remain or to continue the partnership. Of course, this presupposes that there are no
other restrictions in the maximum allowable share that the non-selling partner may
acquire such as the constitutional restriction on foreign ownership in public utility. The
theory that KAWASAKI can acquire, as a maximum, only 40% of PHILSECOs shares
is correct only if a shipyard is a public utility. In such instance, the non-selling partner

29

who is an alien can acquire only a maximum of 40% of the total capitalization of a
public utility despite the grant of first refusal. The partners cannot, by mere agreement,
avoid the constitutional proscription. But as afore-discussed, PHILSECO is not a
public utility and no other restriction is present that would limit the right of KAWASAKI
to purchase the Governments share to 40% of Philsecos total capitalization.
Furthermore, the phrase "under the same terms" in section 1.4 cannot be given an
interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares
only to the extent of its original proportionate contribution of 40% to the total
capitalization of the PHILSECO. Taken together with the whole of section 1.4, the
phrase "under the same terms" means that a partner to the joint venture that decides
to sell its shares to a third party shall make a similar offer to the non-selling partner.
The selling partner cannot make a different or a more onerous offer to the non-selling
partner.
The exercise of first refusal presupposes that the non-selling partner is aware of the
terms of the conditions attendant to the sale for it to have a guided choice. While the
right of first refusal protects the non-selling partner from the entry of third persons, it
cannot also deprive the other partner the right to sell its shares to third persons if,
under the same offer, it does not buy the shares.
Apart from the right of first refusal, the parties also have preemptive rights under
section 1.5 in the unissued shares of Philseco. Unlike the former, this situation does
not contemplate transfer of a partners shares to third parties but the issuance of new
Philseco shares. The grant of preemptive rights preserves the proportionate shares of
the original partners so as not to dilute their respective interests with the issuance of
the new shares. Unlike the right of first refusal, a preemptive right gives a partner a
preferential right over the newly issued shares only to the extent that it retains its
original proportionate share in the joint venture.
The case at bar does not concern the issuance of new shares but the transfer of a
partners share in the joint venture. Verily, the operative protective mechanism is the
right of first refusal which does not impose any limitation in the maximum shares that
the non-selling partner may acquire.

III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.
We also hold that the right to top granted to KAWASAKI and exercised by private
respondent did not violate the rules of competitive bidding.chanrob1es virtua1 1aw
1ibrary
The word "bidding" in its comprehensive sense means making an offer or an invitation

to prospective contractors whereby the government manifests its intention to make

proposals for the purpose of supplies, materials and equipment for official business or
public use, or for public works or repair. 38 The three principles of public bidding are:
(1) the offer to the public; (2) an opportunity for competition; and (3) a basis for
comparison of bids. 39 As long as these three principles are complied with, the public
bidding can be considered valid and legal. It is not necessary that the highest bid be
automatically accepted. The bidding rules may specify other conditions or the bidding
process be subjected to certain reservation or qualification such as when the owner
reserves to himself openly at the time of the sale the right to bid upon the property, or
openly announces a price below which the property will not be sold. Hence, where the
seller reserves the right to refuse to accept any bid made, a binding sale is not
consummated between the seller and the bidder until the seller accepts the bid.
Furthermore, where a right is reserved in the seller to reject any and all bids received,
the owner may exercise the right even after the auctioneer has accepted a bid, and
this applies to the auction of public as well as private property. 40 Thus:chanrob1es
virtual 1aw library
It is a settled rule that where the invitation to bid contains a reservation for the
Government to reject any or all bids, the lowest or the highest bidder, as the case may
be, is not entitled to an award as a matter of right for it does not become a ministerial
duty of the Government to make such an award. Thus, it has been held that where the
right to reject is so reserved, the lowest bid or any bid for that matter may be rejected
on a mere technicality, that all bids may be rejected, even if arbitrarily and unwisely, or
under a mistake, and that in the exercise of a sound discretion, the award may be
made to another than the lowest bidder. And so, where the Government as advertiser,
availing itself of that right, makes its choice in rejecting any or all bids, the losing
bidder has no cause to complain nor right to dispute that choice, unless an unfairness
or injustice is shown. Accordingly, he has no ground of action to compel the
Government to award the contract in his favor, nor compel it to accept his bid. 41
In the instant case, the sale of the Government shares in PHILSECO was publicly
known. All interested bidders were welcomed. The basis for comparing the bids were
laid down. All bids were accepted sealed and were opened and read in the presence
of the COAs official representative and before all interested bidders. The only
question that remains is whether or not the existence of KAWASAKIs right to top
destroys the essence of competitive bidding so as to say that the bidders did not have
an opportunity for competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are placed on equal
footing. This means that all qualified bidders have an equal chance of winning the
auction through their bids. In the case at bar, all of the bidders were exposed to the
same risk and were subjected to the same condition, i.e., the existence of
KAWASAKIs right to top. Under the ASBR, the Government expressly reserved the
right to reject any or all bids, and manifested its intention not to accept the highest bid
should KAWASAKI decide to exercise its right to top under the ABSR. This reservation
or qualification was made known to the bidders in a pre-bidding conference held on
September 28, 1993. They all expressly accepted this condition in writing without any
qualification. Furthermore, when the Committee on Privatization notified petitioner of
the approval of the sale of the National Government shares of stock in PHILSECO, it
specifically stated that such approval was subject to the right of KAWASAKI Heavy

30

Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in the

bidding rules. Clearly, the approval of the sale was a conditional one. Since Philyards
eventually exercised its right to top petitioners bid by 5%, the sale was not
consummated. Parenthetically, it cannot be argued that the existence of the right to
top "set for naught the entire public bidding." Had Philyards Holdings, Inc. failed or
refused to exercise its right to top, the sale between the petitioner and the National
Government would have been consummated. In like manner, the existence of the right
to top cannot be likened to a second bidding, which is countenanced, except when
there is failure to bid as when there is only one bidder or none at all. A prohibited
second bidding presupposes that based on the terms and conditions of the sale, there
is already a highest bidder with the right to demand that the seller accept its bid. In the
instant case, the highest bidder was well aware that the acceptance of its bid was
conditioned upon the non-exercise of the right to top.
To be sure, respondents did not circumvent the requirements for bidding by granting
KAWASAKI, a non-bidder, the right to top the highest bidder. The fact that
KAWASAKIs nominee to exercise the right to top has among its stockholders some
losing bidders cannot also be deemed "unfair."cralaw virtua1aw library
It must be emphasized that none of the parties questions the existence of
KAWASAKIs right of first refusal, which is concededly the basis for the grant of the
right to top. Under KAWASAKIs right of first refusal, the National Government is under
the obligation to give preferential right to KAWASAKI in the event it decides to sell its
shares in PHILSECO. It has to offer to KAWASAKI the shares and give it the option to
buy or refuse under the same terms for which it is willing to sell the said shares to third
parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint venture; the
incidents of which are governed by the law on contracts and on partnership.
It is true that properties of the National Government, as a rule, may be sold only after
a public bidding is held. Public bidding is the accepted method in arriving at a fair and
reasonable price and ensures that overpricing, favoritism and other anomalous
practices are eliminated or minimized. 42 But the requirement for public bidding does
not negate the exercise of the right of first refusal. In fact, public bidding is an
essential first step in the exercise of the right of first refusal because it is only after the
public bidding that the terms upon which the Government may be said to be willing to
sell its shares to third parties may be known. It is only after the public bidding that the
Government will have a basis with which to offer KAWASAKI the option to buy or
forego the shares.
Assuming that the parties did not swap KAWASAKIs right of first refusal with the right
to top, KAWASAKI would have been able to buy the National Governments shares in
PHILSECO under the same terms as offered by the highest bidder. Stated otherwise,
by exercising its right of first refusal, KAWASAKI could have bought the shares for
only P2.03 billion and not the higher amount of P2.1315 billion. There is, thus, no
basis in the submission that the right to top unfairly favored KAWASAKI. In fact, with
the right to top, KAWASAKI stands to pay higher than it should had it settled with its
right of first refusal. The obvious beneficiary of the scheme is the National
Government.chanrob1es virtua1 1aw 1ibrary

right to top is that KAWASAKI can name a nominee, which it is a shareholder, to

exercise the right to top. This is a valid contractual stipulation; the right to top is an
assignable right and both parties are aware of the full legal consequences of its
exercise. As aforesaid, all bidders were aware of the existence of the right to top, and
its possible effects on the result of the public bidding was fully disclosed to them. The
petitioner, thus, cannot feign ignorance nor can it be allowed to repudiate its acts and
question the proceedings it had fully adhered to. 43
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group,
Insular Life Assurance, Mitsui and ICTSI), has joined Philyards in the latters effort to
raise P2.131 billion necessary in exercising the right to top is not contrary to law,
public policy or public morals. There is nothing in the ASBR that bars the losing
bidders from joining either the winning bidder (should the right to top is not exercised)
or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase
price. The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent.
Absent any proof of fraud, the formation by Philyards of a consortium is legitimate in a
free enterprise system. The appellate court is thus correct in holding the petitioner
estopped from questioning the validity of the transfer of the National Governments
shares in PHILSECO to Respondent.
Finally, no factual basis exists to support the view that the drafting of the ASBR was
illegal because no prior approval was given by the COA for it, specifically the provision
on the right to top the highest bidder and that the public auction on December 2, 1993
was not witnessed by a COA representative. No evidence was proffered to prove
these allegations and the Court cannot make legal conclusions out of mere
allegations. Regularity in the performance of official duties is presumed 44 and in the
absence of competent evidence to rebut this presumption, this Court is duty bound to
uphold this presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED.
The impugned Decision and Resolution of the Court of Appeals are
AFFIRMED.chanrob1es virtua1 1aw 1ibrary
SO ORDERED.

CIR v Solidbank Corporation (G.R. No. 148191)

Facts:
Solidbank filed its Quarterly Percentage Tax Returns reflecting gross receipts
amounting to P1,474,693.44. It alleged that the total included P350,807,875.15
representing gross receipts from passive income which was already subjected to
20%final withholding tax (FWT).

If at all, the obvious consideration for the exchange of the right of first refusal with the

31

The Court of Tax Appeals (CTA) held in Asian Ban Corp. v Commissioner, that the
20% FWT should not form part of its taxable gross receipts for purposes of computing
the tax.

Solidbank, relying on the strength of this decision, filed with the BIR a letter-request
for the refund or tax credit. It also filed a petition for review with the CTA where the it
ordered the refund.

The Court applied provisions of the Civil Code on actual and constructive possession.
Article 531 of the Civil Code clearly provides that the acquisition of the right of
possession is through the proper acts and legal formalities established. The
withholding process is one such act. There may not be actual receipt of the income
withheld; however, as provided for in Article 532, possession by any person without
any power shall be considered as acquired when ratified by the person in whose
name the act of possession is executed.

The CA ruling, however, stated that the 20% FWT did not form part of the taxable
gross receipts because the FWT was not actually received by the bank but was
directly remitted to the government.

In our withholding tax system, possession is acquired by the payor as the withholding
agent of the government, because the taxpayer ratifies the very act of possession for
the government. There is thus constructive receipt.

The Commissioner claims that although the FWT was not actually received by
Solidbank, the fact that the amount redounded to the banks benefit makes it part of
the taxable gross receipts in computing the Gross Receipts Tax. Solidbank says the
CA ruling is correct.

The processes of bookkeeping and accounting for interest on deposits and yield on
deposit substitutes that are subjected to FWT are tantamount to delivery, receipt or
remittance. Besides, Solidbank admits that its income is subjected to a tax burden
immediately upon receipt, although it claims that it derives no pecuniary benefit or
advantage through the withholding process.

Issue:
Whether or not the FWT forms part of the gross receipts tax.

Held:
Yes. In a withholding tax system, the payee is the taxpayer, the person on whom the
tax is imposed. The payor, a separate entity, acts as no more than an agent of the
government for the collection of tax in order to ensure its payment. This amount that is
used to settle the tax liability is sourced from the proceeds constitutive of the tax base.

There being constructive receipt, part of which is withheld, that income is included as
part of the tax base on which the gross receipts tax is imposed.

[G.R. No. 148191. November 25, 2003.]

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SOLIDBANK
CORPORATION, Respondent.
DECISION
PANGANIBAN, J.:

These proceeds are either actual or constructive. Both parties agree that there is no
actual receipt by the bank. What needs to be determined is if there is constructive
receipt. Since the payee is the real taxpayer, the rule on constructive receipt can be
rationalized.

Under the Tax Code, the earnings of banks from "passive" income are subject to a
twenty percent final withholding tax (20% FWT). This tax is withheld at source and is
thus not actually and physically received by the banks, because it is paid directly to
the government by the entities from which the banks derived the income. Apart from

32

the 20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT)
which is imposed by the Tax Code on their gross receipts, including the "passive"
income.chanrob1es virtua1 1aw 1ibrary

July to September 1994 481,501,838.98 24,075,091.95

October to December 1994 433,869,959.81 21,693,497.98

Since the 20% FWT is constructively received by the banks and forms part of their
gross receipts or earnings, it follows that it is subject to the 5% GRT. After all, the
amount withheld is paid to the government on their behalf, in satisfaction of their
withholding taxes. That they do not actually receive the amount does not alter the fact
that it is remitted for their benefit in satisfaction of their tax obligations.

------------ ----------Total P 1,474,691,693.44 P 73,734,584.60

============= ============

Stated otherwise, the fact is that if there were no withholding tax system in place in
this country, this 20 percent portion of the "passive" income of banks would actually be
paid to the banks and then remitted by them to the government in payment of their
income tax. The institution of the withholding tax system does not alter the fact that the
20 percent portion of their "passive" income constitutes part of their actual earnings,
except that it is paid directly to the government on their behalf in satisfaction of the 20
percent final income tax due on their "passive" incomes.

The Case

" [Respondent] alleges that the total gross receipts in the amount of
P1,474,691,693.44 included the sum of P350,807,875.15 representing gross receipts
from passive income which was already subjected to 20% final withholding
tax.chanrob1es virtua1 1aw 1ibrary
"On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case
No. 4720 entitled Asian Bank Corporation v. Commissioner of Internal Revenue[,]
wherein it was held that the 20% final withholding tax on [a] banks interest income
should not form part of its taxable gross receipts for purposes of computing the gross
receipts tax.

Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to
annul the July 18, 2000 Decision 2 and the May 8, 2001 Resolution 3 of the Court of
Appeals 4 (CA) in CA-GR SP No. 54599. The decretal portion of the assailed Decision
reads as follows:jgc:chanrobles.com.ph

"On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed
with the Bureau of Internal Revenue [BIR] a letter-request for the refund or issuance of
[a] tax credit certificate in the aggregate amount of P3,508,078.75, representing,
allegedly overpaid gross receipts tax for the year 1995, computed as
follows:chanrob1es virtual 1aw library

"WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court
of Tax Appeals." 5

Gross Receipts Subjected to the Final Tax

The challenged Resolution denied petitioners Motion for Reconsideration.

Derived from Passive [Income] P350,807,875.15

Multiply by Final Tax rate 20%

The Facts
Quoting petitioner, the CA 6 summarized the facts of this case as
follows:jgc:chanrobles.com.ph
"For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage
Tax Returns reflecting gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in
the total amount of P1,474,691,693.44 with corresponding gross receipts tax
payments in the sum of P73,734,584.60, broken down as follows:chanrob1es virtual
1aw library
Period Covered Gross Receipts Gross Receipts Tax
January to March 1994 P 188,406,061.95 P 9,420,303.10

---------20% Final Tax Withheld at Source P 70,161,575.03

Multiply by [Gross Receipts Tax] rate 5%
---------Overpaid [Gross Receipts Tax] P 3,508,078.75
============
"Without waiting for an action from the [petitioner], [respondent] on the same day filed
[a] petition for review [with the Court of Tax Appeals] in order to toll the running of the
two-year prescriptive period to judicially claim for the refund of [any] overpaid internal

April to June 1994 370,913,832.70 18,545,691.63

33

revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code, [also National
Internal Revenue Code] . . ..

"After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its
decision ordering . . . petitioner to refund in favor of . . . respondent the reduced
amount of P1,555,749.65 as overpaid [gross receipts tax] for the year 1995. The legal
issue . . . was resolved by the [Court of Tax Appeals], with Hon. Amancio Q. Saga
dissenting, on the strength of its earlier pronouncement in . . . Asian Bank Corporation
v. Commissioner of Internal Revenue . . ., wherein it was held that the 20% [final
withholding tax] on [a] banks interest income should not form part of its taxable gross
receipts for purposes of computing the [gross receipts tax]." 7
Ruling of the CA
The CA held that the 20% FWT on a banks interest income did not form part of the
taxable gross receipts in computing the 5% GRT, because the FWT was not actually
received by the bank but was directly remitted to the government. The appellate court
curtly said that while the Tax Code "does not specifically state any exemption, . . . the
statute must receive a sensible construction such as will give effect to the legislative
intention, and so as to avoid an unjust or absurd conclusion." 8

that the CA correctly ruled otherwise.chanrob1es virtua1 1aw 1ibrary

We agree with petitioner. In fact, the same issue has been raised recently in China
Banking Corporation v. CA, 11 where this Court held that the amount of interest
income withheld in payment of the 20% FWT forms part of gross receipts in computing
for the GRT on banks.
The FWT and the GRT :chanrob1es virtual 1aw library
Two Different Taxes
The 5% GRT is imposed by Section 119 12 of the Tax Code, 13 which
provides:jgc:chanrobles.com.ph
"SEC. 119. Tax on banks and non-bank financial intermediaries. There shall be
collected a tax on gross receipts derived from sources within the Philippines by all
banks and non-bank financial intermediaries in accordance with the following
schedule:jgc:chanrobles.com.ph
"(a) On interest, commissions and discounts from lending activities as well as income
from financial leasing, on the basis of remaining maturities of instruments from which
such receipts are derived.
Short-term maturity not in excess of two (2) years 5%

Hence, this appeal. 9

Medium-term maturity over two (2) years

Issue

but not exceeding four (4) years 3%

Petitioner raises this lone issue for our consideration:jgc:chanrobles.com.ph

Long-term maturity:chanrob1es virtual 1aw library

"Whether or not the 20% final withholding tax on [a] banks interest income forms part
of the taxable gross receipts in computing the 5% gross receipts tax." 10

(i) Over four (4) years but not exceeding

The Courts Ruling

seven (7) years 1%

(ii) Over seven (7) years 0%
"(b) On dividends 0%

The Petition is meritorious.

Sole Issue:chanrob1es virtual 1aw library
Whether the 20% FWT Forms Part
of the Taxable Gross Receipts
Petitioner claims that although the 20% FWT on respondents interest income was not
actually received by respondent because it was remitted directly to the government,
the fact that the amount redounded to the banks benefit makes it part of the taxable
gross receipts in computing the 5% GRT. Respondent, on the other hand, maintains

"(c) On royalties, rentals of property, real or personal, profits from exchange and all
other items treated as gross income under Section 28 14 of this Code 5%
Provided, however, That in case the maturity period referred to in paragraph (a) is
shortened thru pretermination, then the maturity period shall be reckoned to end as of
the date of pretermination for purposes of classifying the transaction as short, medium
or long term and the correct rate of tax shall be applied accordingly.
"Nothing in this Code shall preclude the Commissioner from imposing the same tax
herein provided on persons performing similar banking activities."cralaw virtua1aw
library

34

The 5% GRT 15 is included under "Title V. Other Percentage Taxes" of the Tax Code
and is not subject to withholding. The banks and non-bank financial intermediaries
liable therefor shall, under Section 125(a)(1), 16 file quarterly returns on the amount of
gross receipts and pay the taxes due thereon within twenty (20) 17 days after the end
of each taxable quarter.chanrob1es virtua1 1aw 1ibrary
The 20% FWT, 18 on the other hand, falls under Section 24(e)(1) 19 of "Title II. Tax on
Income." It is a tax on passive income, deducted and withheld at source by the payorcorporation and/or person as withholding agent pursuant to Section 50, 20 and paid in
the same manner and subject to the same conditions as provided for in Section 51.
21
A perusal of these provisions clearly shows that two types of taxes are involved in the
present controversy: (1) the GRT, which is a percentage tax; and (2) the FWT, which is
an income tax. As a bank, petitioner is covered by both taxes.
A percentage tax is a national tax measured by a certain percentage of the gross
selling price or gross value in money of goods sold, bartered or imported; or of the
gross receipts or earnings derived by any person engaged in the sale of services. 22 It
is not subject to withholding.
An income tax, on the other hand, is a national tax imposed on the net or the gross
income realized in a taxable year. 23 It is subject to withholding.
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is
imposed; the payor, a separate entity, acts as no more than an agent of the
government for the collection of the tax in order to ensure its payment. Obviously, this
amount that is used to settle the tax liability is deemed sourced from the proceeds
constitutive of the tax base. 24 These proceeds are either actual or constructive. Both
parties herein agree that there is no actual receipt by the bank of the amount withheld.
What needs to be determined is if there is constructive receipt thereof. Since the
payee not the payor is the real taxpayer, the rule on constructive receipt can be
easily rationalized, if not made clearly manifest.25cralaw:red

substitutes subjected to the withholding taxes in accordance with these regulations

need not be included in the gross income in computing the depositors/investors
income tax liability in accordance with the provision of Section 29(b), 29 (c) 30 and (d)
of the National Internal Revenue Code, as amended.
(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes
declared for purposes of imposing the withholding taxes in accordance with these
regulations shall be allowed as interest expense deductible for purposes of computing
taxable net income of the payor.
(c) If the recipient of the above-mentioned items of income are financial institutions,
the same shall be included as part of the tax base upon which the gross receipt[s] tax
is imposed."
Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed
on the gross receipts of banks, non-bank financial intermediaries; financing
companies, and other non-bank financial intermediaries not performing quasi-banking
activities shall be based on all items of income actually received. This provision
reads:jgc:chanrobles.com.ph
"SEC. 4. . . .
"(e) Gross receipts tax on banks, non-bank financial intermediaries, financing
companies, and other non-bank financial intermediaries not performing quasi-banking
activities. The rates of tax to be imposed on the gross receipts of such financial
institutions shall be based on all items of income actually received. Mere accrual shall
not be considered, but once payment is received on such accrual or in cases of
prepayment, then the amount actually received shall be included in the tax base of
such financial institutions, as provided hereunder . . .."cralaw virtua1aw library

Constructive Receipt

Respondent argues that the above-quoted provision is plain and clear: since there is
no actual receipt, the FWT is not to be included in the tax base for computing the GRT.
There is supposedly no pecuniary benefit or advantage accruing to the bank from the
FWT, because the income is subjected to a tax burden immediately upon receipt
through the withholding process. Moreover, the earlier RR 12-80 covered matters not
falling under the later RR 17-84. 31

Versus Actual Receipt

We are not persuaded.

Applying Section 7 of Revenue Regulations (RR) No. 17-84, 26 petitioner contends

that there is constructive receipt of the interest on deposits and yield on deposit
substitutes. 27 Respondent, however, claims that even if there is, it is Section 4(e) of
RR 12-80 28 that nevertheless governs the situation.

By analogy, we apply to the receipt of income the rules on actual and constructive
possession provided in Articles 531 and 532 of our Civil Code.chanrob1es virtua1 1aw
1ibrary
Under Article 531: 32

Section 7 of RR 17-84 states:jgc:chanrobles.com.ph

"SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit
Substitutes.

"Possession is acquired by the material occupation of a thing or the exercise of a right,

or by the fact that it is subject to the action of our will, or by the proper acts and legal
formalities established for acquiring such right."cralaw virtua1aw library

(a) The interest earned on Philippine Currency bank deposits and yield from deposit

Article 532 states:jgc:chanrobles.com.ph

35

"Possession may be acquired by the same person who is to enjoy it, by his legal
representative, by his agent, or by any person without any power whatever; but in the
last case, the possession shall not be considered as acquired until the person in
whose name the act of possession was executed has ratified the same, without
prejudice to the juridical consequences of negotiorum gestio in a proper case." 33
The last means of acquiring possession under Article 531 refers to juridical acts the
acquisition of possession by sufficient title to which the law gives the force of acts
of possession. 34 Respondent argues that only items of income actually received
should be included in its gross receipts. It claims that since the amount had already
been withheld at source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right
of possession is through the proper acts and legal formalities established therefor. The
withholding process is one such act. There may not be actual receipt of the income
withheld; however, as provided for in Article 532, possession by any person without
any power whatsoever shall be considered as acquired when ratified by the person in
whose name the act of possession is executed.
In our withholding tax system, possession is acquired by the payor as the withholding
agent of the government, because the taxpayer ratifies the very act of possession for
the government. There is thus constructive receipt. The processes of bookkeeping
and accounting for interest on deposits and yield on deposit substitutes that are
subjected to FWT are indeed for legal purposes tantamount to delivery, receipt
or remittance. 35 Besides, respondent itself admits that its income is subjected to a
tax burden immediately upon "receipt," although it claims that it derives no pecuniary
benefit or advantage through the withholding process. There being constructive
receipt of such income part of which is withheld RR 17-84 applies, and that
income is included as part of the tax base upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest income
constructively received.
In general, rules and regulations issued by administrative or executive officers
pursuant to the procedure or authority conferred by law upon the administrative
agency have the force and effect, or partake of the nature, of a statute. 36 The reason
is that statutes express the policies, purposes, objectives, remedies and sanctions
intended by the legislature in general terms. The details and manner of carrying them
out are oftentimes left to the administrative agency entrusted with their enforcement.
In the present case, it is the finance secretary who promulgates the revenue
regulations, upon recommendation of the BIR commissioner. These regulations are
the consequences of a delegated power to issue legal provisions that have the effect
of law. 37
A revenue regulation is binding on the courts as long as the procedure fixed for its
promulgation is followed. Even if the courts may not be in agreement with its stated

policy or innate wisdom, it is nonetheless valid, provided that its scope is within the
statutory authority or standard granted by the legislature. 38 Specifically, the
regulation must (1) be germane to the object and purpose of the law; 39 (2) not
contradict, but conform to, the standards the law prescribes; 40 and (3) be issued for
the sole purpose of carrying into effect the general provisions of our tax laws. 41
In the present case, there is no question about the regularity in the performance of
official duty. What needs to be determined is whether RR 12-80 has been repealed by
RR 17-84.chanrob1es virtua1 1aw 1ibrary
A repeal may be express or implied. It is express when there is a declaration in a
regulation usually in its repealing clause that another regulation, identified by its
number or title, is repealed. All others are implied repeals. 42 An example of the latter
is a general provision that predicates the intended repeal on a substantial conflict
between the existing and the prior regulations. 43
As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof
that are inconsistent with the provisions of the said RR are thereby repealed. This
declaration proceeds on the premise that RR 17-84 clearly reveals such an intention
on the part of the Department of Finance. Otherwise, later RRs are to be construed as
a continuation of, and not a substitute for, earlier RRs; and will continue to speak, so
far as the subject matter is the same, from the time of the first promulgation. 44
There are two well-settled categories of implied repeals: (1) in case the provisions are
in irreconcilable conflict, the later regulation, to the extent of the conflict, constitutes an
implied repeal of an earlier one; and (2) if the later regulation covers the whole subject
of an earlier one and is clearly intended as a substitute, it will similarly operate as a
repeal of the earlier one. 45 There is no implied repeal of an earlier RR by the mere
fact that its subject matter is related to a later RR, which may simply be a cumulation
or continuation of the earlier one. 46
Where a part of an earlier regulation embracing the same subject as a later one may
not be enforced without nullifying the pertinent provision of the latter, the earlier
regulation is deemed impliedly amended or modified to the extent of the repugnancy.
47 The unaffected provisions or portions of the earlier regulation remain in force, while
its omitted portions are deemed repealed. 48 An exception therein that is amended by
its subsequent elimination shall now cease to be so and instead be included within the
scope of the general rule. 49
Section 4(e) of the earlier RR 12-80 provides that only items of income actually
received shall be included in the tax base for computing the GRT, but Section 7(c) of
the later RR 17-84 makes no such distinction and provides that all interests earned
shall be included. The exception having been eliminated, the clear intent is that the
later RR 17-84 includes the exception within the scope of the general rule.
Repeals by implication are not favored and will not be indulged, unless it is manifest
that the administrative agency intended them. As a regulation is presumed to have
been made with deliberation and full knowledge of all existing rules on the subject, it
may reasonably be concluded that its promulgation was not intended to interfere with
or abrogate any earlier rule relating to the same subject, unless it is either repugnant

36

to or fully inclusive of the subject matter of an earlier one, or unless the reason for the
earlier one is "beyond peradventure removed." 50 Every effort must be exerted to
make all regulations stand and a later rule will not operate as a repeal of an earlier
one, if by any reasonable construction, the two can be reconciled. 51
RR 12-80 imposes the GRT only on all items of income actually received, as opposed
to their mere accrual, while RR 17-84 includes all interest income in computing the
GRT. RR 12-80 is superseded by the later rule, because Section 4(e) thereof is not
restated in RR 17-84. Clearly therefore, as petitioner correctly states, this particular
provision was impliedly repealed when the later regulations took effect. 52
Reconciling the Two Regulations
Granting that the two regulations can be reconciled, respondents reliance on Section
4(e) of RR 12-80 is misplaced and deceptive. The "accrual" referred to therein should
not be equated with the determination of the amount to be used as tax base in
computing the GRT. Such accrual merely refers to an accounting method that
recognizes income as earned although not received, and expenses as incurred
although not yet paid.chanrob1es virtua1 1aw 1ibrary
Accrual should not be confused with the concept of constructive possession or receipt
as earlier discussed. Petitioner correctly points out that income that is merely accrued
earned, but not yet received does not form part of the taxable gross receipts;
income that has been received, albeit constructively, does. 53
The word "actually," used confusingly in Section 4(e), will be clearer if removed
entirely. Besides, if actually is that important, accrual should have been eliminated for
being a mere surplusage. The inclusion of accrual stresses the fact that Section 4(e)
does not distinguish between actual and constructive receipt. It merely focuses on the
method of accounting known as the accrual system.
Under this system, income is accrued or earned in the year in which the taxpayers
right thereto becomes fixed and definite, even though it may not be actually received
until a later year; while a deduction for a liability is to be accrued or incurred and taken
when the liability becomes fixed and certain, even though it may not be actually paid
until later. 54
Under any system of accounting, no duty or liability to pay an income tax upon a
transaction arises until the taxable year in which the event constituting the condition
precedent occurs. 55 The liability to pay a tax may thus arise at a certain time and the
tax paid within another given time. 56
In reconciling these two regulations, the earlier one includes in the tax base for GRT
all income, whether actually or constructively received, while the later one includes
specifically interest income. In computing the income tax liability, the only exception
cited in the later regulations is the exclusion from gross income of interest income,
which is already subjected to withholding. This exception, however, refers to a
different tax altogether. To extend mischievously such exception to the GRT will
certainly lead to results not contemplated by the legislators and the administrative
body promulgating the regulations.

Manila Jockey Club

Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey Club, 57 we held that the term
"gross receipts" shall not include money which, although delivered, has been
especially earmarked by law or regulation for some person other than the taxpayer.
58
To begin, we have to nuance the definition of gross receipts 59 to determine what it is
exactly. In this regard, we note that US cases have persuasive effect in our
jurisdiction, because Philippine income tax law is patterned after its US counterpart.
60
"[G]ross receipts with respect to any period means the sum of: (a) The total amount
received or accrued during such period from the sale, exchange, or other disposition
of . . . other property of a kind which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course of its trade or business, and (b)
The gross income, attributable to a trade or business, regularly carried on by the
taxpayer, received or accrued during such period . . .." 61
". . . [B]y gross earnings from operations . . . was intended all operations . . . including
incidental, subordinate, and subsidiary operations, as well as principal operations." 62
"When we speak of the gross earnings of a person or corporation, we mean the
entire earnings or receipts of such person or corporation from the business or
operations to which we refer." 63
From these cases, "gross receipts" 64 refer to the total, as opposed to the net,
income. 65 These are therefore the total receipts before any deduction 66 for the
expenses of management. 67 Websters New International Dictionary, in fact, defines
gross as "whole or entire." chanrob1es virtua1 1aw 1ibrary
Statutes taxing the gross "receipts," "earnings," or "income" of particular corporations
are found in many jurisdictions. 68 Tax thereon is generally held to be within the power
of a state to impose; or constitutional, unless it interferes with interstate commerce or
violates the requirement as to uniformity of taxation. 69
Moreover, we have emphasized that the BIR has consistently ruled that "gross
receipts" does not admit of any deduction. 70 Following the principle of legislative
approval by reenactment, 71 this interpretation has been adopted by the legislature
throughout the various reenactments of then Section 119 of the Tax Code. 72
Given that a tax is imposed upon total receipts and not upon net earnings, 73 shall the
income withheld be included in the tax base upon which such tax is imposed? In other
words, shall interest income constructively received still be included in the tax base for
computing the GRT?

37

We rule in the affirmative.

Manila Jockey Club does not apply to this case. Earmarking is not the same as
withholding. Amounts earmarked do not form part of gross receipts, because, although
delivered or received, these are by law or regulation reserved for some person other
than the taxpayer. On the contrary, amounts withheld form part of gross receipts,
because these are in constructive possession and not subject to any reservation, the
withholding agent being merely a conduit in the collection process.
The Manila Jockey Club had to deliver to the Board on Races, horse owners and
jockeys amounts that never became the property of the race track. 74 Unlike these
amounts, the interest income that had been withheld for the government became
property of the financial institutions upon constructive possession thereof. Possession
was indeed acquired, since it was ratified by the financial institutions in whose name
the act of possession had been executed. The money indeed belonged to the
taxpayers; merely holding it in trust was not enough. 75
The government subsequently becomes the owner of the money when the financial
institutions pay the FWT to extinguish their obligation to the government. As this Court
has held before, this is the consideration for the transfer of ownership of the FWT from
these institutions to the government. 76 It is ownership that determines whether
interest income forms part of taxable gross receipts. 77 Being originally owned by
these financial institutions as part of their interest income, the FWT should form part of
their taxable gross receipts.
Besides, these amounts withheld are in payment of an income tax liability, which is
different from a percentage tax liability. Commissioner of Internal Revenue v. Tours
Specialists, Inc. aptly held thus: 78
". . . [G]ross receipts subject to tax under the Tax Code do not include monies or
receipts entrusted to the taxpayer which do not belong to them and do not redound to
the taxpayers benefit; and it is not necessary that there must be a law or regulation
which would exempt such monies and receipts within the meaning of gross receipts
under the Tax Code." 79
In the construction and interpretation of tax statutes and of statutes in general, the
primary consideration is to ascertain and give effect to the intention of the legislature.
80 We ought to impute to the lawmaking body the intent to obey the constitutional
mandate, as long as its enactments fairly admit of such construction. 81 In fact,." . . no
tax can be levied without express authority of law, but the statutes are to receive a
reasonable construction with a view to carrying out their purpose and intent." 82
Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first
imposes an income tax; the second, a percentage tax. The legislature clearly intended
two different taxes. The FWT is a tax on passive income, while the GRT is on
business. 83 The withholding of one is not equivalent to the payment of the other.
Non-Exemption of FWT from GRT :chanrob1es virtual 1aw library
Neither Unjust nor Absurd

Taxing the people and their property is essential to the very existence of government.
Certainly, one of the highest attributes of sovereignty is the power of taxation, 84
which may legitimately be exercised on the objects to which it is applicable to the
utmost extent as the government may choose. 85 Being an incident of sovereignty,
such power is coextensive with that to which it is an incident. 86 The interest on
deposits and yield on deposit substitutes of financial institutions, on the one hand, and
their business as such, on the other, are the two objects over which the State has
chosen to extend its sovereign power. Those not so chosen are, upon the soundest
principles, exempt from taxation. 87
While courts will not enlarge by construction the governments power of taxation, 88
neither will they place upon tax laws so loose a construction as to permit evasions,
merely on the basis of fanciful and insubstantial distinctions. 89 When the legislature
imposes a tax on income and another on business, the imposition must be respected.
The Tax Code should be so construed, if need be, as to avoid empty declarations or
possibilities of crafty tax evasion schemes. We have consistently ruled
thus:chanrob1es virtua1 1aw 1ibrary
". . . [I]t is upon taxation that the [g]overnment chiefly relies to obtain the means to
carry on its operations, and it is of the utmost importance that the modes adopted to
enforce the collection of the taxes levied should be summary and interfered with as
little as possible. . . .." 90
"Any delay in the proceedings of the officers, upon whom the duty is devolved of
collecting the taxes, may derange the operations of government, and thereby cause
serious detriment to the public." 91
"No government could exist if all litigants were permitted to delay the collection of its
taxes." 92
A taxing act will be construed, and the intent and meaning of the legislature
ascertained, from its language. 93 Its clarity and implied intent must exist to uphold
the taxes as against a taxpayer in whose favor doubts will be resolved. 94 No such
doubts exist with respect to the Tax Code, because the income and percentage taxes
we have cited earlier have been imposed in clear and express language for that
purpose. 95
This Court has steadfastly adhered to the doctrine that its first and fundamental duty is
the application of the law according to its express terms construction and
interpretation being called for only when such literal application is impossible or
inadequate without them. 96 In Quijano v. Development Bank of the Philippines, 97 we
stressed as follows:jgc:chanrobles.com.ph
"No process of interpretation or construction need be resorted to where a provision of
law peremptorily calls for application." 98
A literal application of any part of a statute is to be rejected if it will operate unjustly,
lead to absurd results, or contradict the evident meaning of the statute taken as a
whole. 99 Unlike the CA, we find that the literal application of the aforesaid sections of

38

the Tax Code and its implementing regulations does not operate unjustly or contradict
the evident meaning of the statute taken as a whole. Neither does it lead to absurd
results. Indeed, our courts are not to give words meanings that would lead to absurd
or unreasonable consequences. 100 We have repeatedly held
thus:jgc:chanrobles.com.ph
". . . [S]tatutes should receive a sensible construction, such as will give effect to the
legislative intention and so as to avoid an unjust or an absurd conclusion." 101
"While it is true that the contemporaneous construction placed upon a statute by
executive officers whose duty is to enforce it should be given great weight by the
courts, still if such construction is so erroneous, . . . the same must be declared as null
and void." 102
It does not even matter that the CTA, like in China Banking Corporation, 103 relied
erroneously on Manila Jockey Club. Under our tax system, the CTA acts as a highly
specialized body specifically created for the purpose of reviewing tax cases. 104
Because of its recognized expertise, its findings of fact will ordinarily not be reviewed,
absent any showing of gross error or abuse on its part. 105 Such findings are binding
on the Court and, absent strong reasons for us to delve into facts, only questions of
law are open for determination. 106
Respondent claims that it is entitled to a refund on the basis of excess GRT payments.
We disagree.
Tax refunds are in the nature of tax exemptions. 107 Such exemptions are strictly
construed against the taxpayer, being highly disfavored 108 and almost said "to be
odious to the law." Hence, those who claim to be exempt from the payment of a
particular tax must do so under clear and unmistakable terms found in the statute.
They must be able to point to some positive provision, not merely a vague implication,
109 of the law creating that right. 110
The right of taxation will not be surrendered, except in words too plain to be mistaken.
The reason is that the State cannot strip itself of this highest attribute of sovereignty
its most essential power of taxation by vague or ambiguous language. Since tax
refunds are in the nature of tax exemptions, these are deemed to be "in derogation of
sovereign authority and to be construed strictissimi juris against the person or entity
claiming the exemption." 111

steady source of revenue even during an economic slump. 116

No Double Taxation
We have repeatedly said that the two taxes, subject of this litigation, are different from
each other. The basis of their imposition may be the same, but their natures are
different, thus leading us to a final point. Is there double taxation?chanrob1es virtua1
1aw 1ibrary
The Court finds none.
Double taxation means taxing the same property twice when it should be taxed only
once; that is,." . . taxing the same person twice by the same jurisdiction for the same
thing." 117 It is obnoxious when the taxpayer is taxed twice, when it should be but
once. 118 Otherwise described as "direct duplicate taxation," 119 the two taxes must
be imposed on the same subject matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during the same taxing period; and they must be
of the same kind or character. 120
First, the taxes herein are imposed on two different subject matters. The subject
matter of the FWT is the passive income generated in the form of interest on deposits
and yield on deposit substitutes, while the subject matter of the GRT is the privilege of
engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is
an excise 121 rather than a property tax. 122 It is not an income tax, unlike the FWT.
In fact, we have already held that one can be taxed for engaging in business and
further taxed differently for the income derived therefrom. 123 Akin to our ruling in
Velilla v. Posadas, 124 these two taxes are entirely distinct and are assessed under
different provisions.
Second, although both taxes are national in scope because they are imposed by the
same taxing authority the national government under the Tax Code and operate
within the same Philippine jurisdiction for the same purpose of raising revenues, the
taxing periods they affect are different. The FWT is deducted and withheld as soon as
the income is earned, and is paid after every calendar quarter in which it is earned. On
the other hand, the GRT is neither deducted nor withheld, but is paid only after every
taxable quarter in which it is earned.

No less than our 1987 Constitution provides for the mechanism for granting tax
exemptions. 112 They certainly cannot be granted by implication or mere
administrative regulation. Thus, when an exemption is claimed, it must indubitably be
shown to exist, for every presumption is against it, 113 and a well-founded doubt is
fatal to the claim. 114 In the instant case, respondent has not been able to
satisfactorily show that its FWT on interest income is exempt from the GRT. Like
China Banking Corporation, its argument creates a tax exemption where none exists.
115

Third, these two taxes are of different kinds or characters. The FWT is an income tax
subject to withholding, while the GRT is a percentage tax not subject to withholding.

No exemptions are normally allowed when a GRT is imposed. It is precisely designed

to maintain simplicity in the tax collection effort of the government and to assure its

WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of

the Court of Appeals are hereby REVERSED and SET ASIDE. No costs.

In short, there is no double taxation, because there is no taxing twice, by the same
taxing authority, within the same jurisdiction, for the same purpose, in different taxing
periods, some of the property in the territory. 125 Subjecting interest income to a 20%
FWT and including it in the computation of the 5% GRT is clearly not double
taxation.chanrob1es virtua1 1aw 1ibrary

39

maintenance and operation of facilities for health promotion, prevention, diagnosis,

treatment and care of individuals suffering from illness, disease, injury, disability or
deformity, or in need of obstetrical or other medical and nursing care.5

SO ORDERED.
Davide, Jr., C.J., Ynares-Santiago, Carpio and Azcuna, JJ., concur.

PHILIPPINE HEALTH INSURANCE CORPORATION, Petitioners, v. CHINESE

GENERAL HOSPITAL AND MEDICAL CENTER, Respondents.
DECISION
CORONA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the March 29, 2004 decision1 of the Court of Appeals, the dispositive portion
of which read:
FOR THE FOREGOING DISQUISITIONS, the petition is GRANTED, the Philippine
Health Insurance Corporation2 is hereby ordered to give due course to petitioner's,
Chinese General Hospital and Medical Center, claims for the period from 1989 to
1992, amounting to FOURTEEN MILLION TWO HUNDRED NINETY ONE
THOUSAND FIVE HUNDRED SIXTY EIGHT PESOS and 71/100 PESOS
(P14,291,568.71).3

As such, petitioner6 filed its Medicare claims with the Social Security System (SSS),
which, together with the Government Service Insurance System (GSIS), administered
the Health Insurance Fund of the PMMC. Thus, petitioner filed its claim from 1989 to
1992 with the SSS, amounting to EIGHT MILLION ONE HUNDRED TWO
THOUSAND SEVEN HUNDRED EIGHTY-TWO and 10/100 (P8,102,782.10). Its
application for the payment of its claim with the SSS was overtaken by the passage of
R.A. 7875, which in Section 51 and 52, provides:
SECTION 51. Merger. 'Within sixty (60) days from the promulgation of the
implementing rules and regulations, all functions and assets of the Philippine Medical
Care Commission shall be merged with those of the Corporation (PHILHEALTH)
without need of conveyance, transfer or assignment. The PMCC shall thereafter cease
to exist.
The liabilities of the PMCC shall be treated in accordance with existing laws and
pertinent rules and regulations. xxx
SECTION 52. Transfer of Health Insurance Funds of the SSS and GSIS. 'The Health
Insurance Funds being administered by the SSS and GSIS shall be transferred to the
Corporation within sixty (60) days from the promulgation of the implementing rules and
regulations. The SSS and GSIS shall, however, continue to perform Medicare
functions under contract with the Corporation until such time that such functions are
assumed by the Corporation xxx. crvll

The facts, as culled by the Court of Appeals, follow.

On February 14, 1995, Republic Act No. 7875, otherwise known as "An Act Instituting
a National Health Insurance Program for all Filipinos and Establishing the Philippine
Health Insurance Corporation For the Purpose," was approved and signed into law. As
its guiding principle, it is provided in Section 2 thereof, thus:
"Section 2. Declaration of Principles and Policies. 'Section 11, Article XIII of the
Constitution of the Republic of the Philippines declares that the state shall adopt an
integrated and comprehensive approach to health development which shall endeavor
to make essential goods, health and other social services available to all the people at
affordable cost. Priority for the needs of the underprivileged, sick, elderly, disabled,
women, and children should be recognized. Likewise, it shall be the policy of the State
to provide free medical care to paupers.
Prior to the enactment of R.A. 7875. CGH4 had been an accredited health care
provider under the Philippine Medical Care Commission (PMCC), more popularly
known as Medicare. As defined by R.A. 7875, a health care provider refers to a health
care institution, which is duly licensed and accredited devoted primarily to the

Being the successor of the PMCC, PHILHEALTH, in compliance with the mandate of
R.A. 7875,7 promulgated the rules and regulations implementing said act, Section 52
of which provides:
SECTION 52. Fee for Service Guidelines on Claims Payment. 'xxx b. All claims for
payment of services rendered shall be filed within sixty (60) calendar days from the
date of discharge of the patient. Otherwise, the claim shall be barred from payment
except if the delay in the filing of thee claim is due to natural calamities and other
fortuitous events. If the claim is sent through mail, the date of the mailing as stamped
by the post office of origin shall be considered as the date of the filing.
If the delay in the filing is due to natural calamities or other fortuitous events, the
health care provider shall be accorded an extension period of sixty (60) calendar days.
If the delay in the filing of the claim is caused by the health care provider, and the
Medicare benefits had already been deducted, the claim will not be paid. If the claim is
not yet deducted, it will be paid to the member chargeable to the future claims of the
health care provider.

40

Instead of giving due course to petitioner's claims totaling to EIGHT MILLION ONE
HUNDRED TWO THOUSAND SEVEN HUNDRED EIGHTY-TWO and 10/100
(P8,102,782.10), only ONE MILLION THREE HUNDRED SIXTY-FIVE THOUSAND
FIVE HUNDRED FIFTY-SIX and 32/100 Pesos (1,365,556.32) was paid to petitioner,
representing its claims from 1989 to 1992 (sic).
Petitioner again filed its claims representing services rendered to its patients from
1998 to 1999, amounting to SEVEN MILLION FIVE HUNDRED FIFTY FOUR
THOUSAND THREE HUNDRED FORTY TWO and 93/100 Pesos (P7,554,342.93).
For being allegedly filed beyond the sixty (60) day period allowed by the implementing
rules and regulations, Section 52 thereof, petitioner's claims were denied by the
Claims Review Unit of Philhealth in its letter dated January 14, 200, thus:
"xxx
This pertains to your three hundred seventy three Philhealth medicare claims (373)
which were primarily denied by Claims Processing Department for late filing and for
which you made an appeal to this office. We regret to inform you that after thorough
evaluation of your claims, [your] 361 medicare claims wereDENIED, due to the fact
that the claims were filed 5 to 16 - months after discharge. However, the
remaining medicare claims have been forwarded to Claims Processing Department
(CPD) for payment.
SECTION 52 (B) Rule 52 (B) Rule VIII of the Implementing Rules and Regulations of
7875 provides that all claims for payment of services rendered shall be filed within
sixty (60) days from the day of discharge of the patient. However, Philhealth Circular
No, 31-A, series of 1998, state that all claims pending with Philhealth as of September
15, 1998 and claims with discharge dates from September to December 31, 1998 are
given one hundred twenty (120) days from the date of discharge to file their claim. In
as much as we would like to grant your request for reconsideration, the Corporation
could no longer extend the period of filing xxx. crvll

institutions such as herein petitioner are accredited to provide health care. It is true, as
aptly stated by the OGCC, that petitioner was not required by the government to take
part in its program, it did so voluntarily. But the fact that the government did not "twist"
petitioner's arm, so to speak, to participate does not make petitioner's participation in
the program less commendable, considering that at rate PHILHEALTH is denying
claims of health care givers, it is more risky rather than providential for health care
givers to take part in the government's health program.
It is Our firmly held view that the policy of the state in creating a national health
insurance program would be better served by granting the instant petition. Thus, it is
noteworthy to mention that health care givers are threatening to "boycott"
PHILHEALTH, reasoning that the claims approved by PHILHEALTH are not
commensurate to the services rendered by them to its members. Thus, how can these
accredited health care givers be encouraged to serve an increasing number of
members when they end up on the losing end of this venture. We must admit that the
costs of operating these medical institutions cannot be taken lightly. They must also
earn a modicum amount of profit in order to operate properly.
Again, it is trite to emphasize that essentially, the purpose of the national health
insurance program is to provide members immediate medical care with the least
amount of cash expended. Thus, with PHILHEALTH, members/patients need only to
present their card to prove their membership and the accredited health care giver is
mandated by law to provide the necessary medical assistance, said health care giver
shouldering the PHILHEALTH part of the bill. However, it is the members/patients who
bear the brunt. Thus, they are made to shoulder the PHILHEALTH part of the bill, and
the refund thereof is subject to whether or not the claims of the health care providers
are approved by PHILHEALTH. This is blatantly contrary to the very purpose for which
the National Health Insurance Program was created.8
xxx
We agree.

Petitioner's claim was denied with finality by PHILHEALTH in its assailed decision
dated June 6, 2000.
In a Petition for Review under Rule 43 of the Rules of Court, the Court of Appeals
ordered herein petitioner Philippine Health Insurance Corporation (Philhealth) to pay
the claims in the amount of Fourteen Million Two Hundred Ninety-one Thousand Five
Hundred Sixty-eight Pesos and 71/100 (P14,291,568.71), principally on the ground of
liberal application of the 60-day rule under Section 52 of RA 7875's Implementing
Rules and Regulations. According to the Court of Appeals:
The avowed policy in the creation of a national health program is, as provided in
Section 11, Article XIII of the 1987 Constitution, to adopt an integrated and
comprehensive approach to health development which shall endeavor to make
essential goods, health and other social services available to all people at
affordable cost. To assist the state in pursuing this policy, hospitals and medical

The state policy in creating a national health insurance program is to grant discounted
medical coverage to all citizens, with priority to the needs of the underprivileged, sick,
elderly, disabled, women and children, and free medical care to paupers9 .
The very same policy was adopted in RA 787510 which sought to:
a) provide all citizens of the Philippines with the mechanism to gain financial access to
health services;
b) create the National Health Insurance Program to serve as the means to help the
people pay for the health services;

41

c) prioritize and accelerate the provision of health services to all Filipinos, especially
that segment of the population who cannot afford such services; andcralawlibrary
d) establish the Philippine Health Insurance Corporation that will administer the
program at central and local levels.11
To assist the state in pursuing the aforementioned policy, health institutions were
granted the privilege of applying for accreditation as health care
providers.12 Respondent Chinese General Hospital and Medical Center (CGH) was
one of those which received such accreditation.
Under the rules promulgated by the Philhealth Board pursuant to RA 7875, any claim
for payment of services rendered (to a patient) shall be filed within sixty (60) calendar
days from the date of discharge of the patient. Otherwise, the claim is barred.13
But before a claim is filed with petitioner Philhealth for services already rendered, an
accredited health care provider like respondent CGH is required to:
A. accomplish a Philhealth claim form;
b. accomplish an itemized list of the medicines administered to and medical supplies
used by the patient concerned, indicating therein the quality, unit, price and total price
corresponding thereto;
c. require the patient concerned and his/her employer to accomplish and submit a
Philhealth member/employer certification;
d. in case the patient gave birth, require her to submit a certified true copy of the
child's birth certificate;
e. in case the patient died, require the immediate relatives to submit a certified true
copy of the deceased's death certificate; andcralawlibrary
f. in case a member's dependent is hospitalized for which the member seeks
coverage, require the member to submit proof of relationship to the patient and to
execute an affidavit of support.14
Apart from the foregoing requirements which often necessitate securing documents
from other government offices, and the fact that most patients are unable to
immediately accomplish and submit the required documents, an accredited health
care provider like CGH has to contend with an average of about a thousand members
and/or dependents seeking medical treatment for various illnesses per month.

Under these circumstances, it is unreasonable to expect respondent CGH to comply

100% of the time with the prescribed 60-day rule of Philhealth. Despite the prescribed
standard procedures, respondent has no assurance of the members' prompt
submission of the required documents. This factor is completely beyond its control.
There will always be delay not attributable to respondent.
The unreasonably strict implementation of the 60-day rule, without regard to the
causes of delay beyond respondent's control, will be counter-productive to the longterm effectiveness of the NHIP. Instead of placing a premium on participation in the
Program, Philhealth punishes an accredited health provider like CGH by refusing to
pay its claims for services already rendered. Under these circumstances, no
accredited provider will gamble on honoring claims with delayed supporting papers
no matter how meritorious knowing that reimbursement from Philhealth will not
be forthcoming.
This Court will not hesitate, whenever necessary, to allow a liberal implementation of
the rules and regulations of an administrative agency in cases where their unjustifiably
rigid enforcement will result in a deprivation of legal rights. In this case, respondent
had already rendered the services for which it was filing its claims. Technicalities
should not be allowed to defeat respondent's right to be reimbursed, specially since
petitioner's charter itself guarantees such reimbursement.
A careful reading of RA 7875 shows that the law itself does not provide for any
specific period within which to file claims. We can safely presume therefore that the
period for filing was not per se the principal concern of the legislature. More important
than mere technicalities is the realization of the state policy to provide Philhealth
members with the requisite medical care at the least possible cost. Truly, nothing can
be more disheartening than to see the Act's noble objective frustrated by the overly
stringent application of technical rules.
The fact is that it was not RA 7875 itself but Section 52 of its Implementing Rules and
Regulations which established the 60-day cut-off for the filing of claims.
While it is doctrinal in administrative law that the rules and regulations of
administrative bodies interpreting the law they are entrusted to enforce have the force
of law15, these issuances are by no means iron-clad norms. Administrative bodies
themselves can and have in fact "bent the rules" for reasons of public interest. On
September 15, 1998, for instance, petitioner issued Philhealth Circular No. 31-A: 16
IN ORDER to allow members of the National Health Insurance Program (NHIP)
sufficient time to complete all documents to support their medical care claims,
Philhealth is temporarily suspending the sixty (60)-day reglementary period for filing
claims.
While Section 52 (b), Rule VIII of the Implementing Rules and Regulations of
R.A. 7875 provides that all claims for payment of services shall be filed within 60
calendar days from the day of discharge of a patient, there is a need to extend

42

this period to minimize the incidence of late filing due to members' personal
difficulties and circumstances beyond their control. (emphasis ours)

6) when irreparable damage will be suffered;

7) when there is no other plain, speedy and adequate remedy;

And then again, on April 20, 1999, Philhealth Circular No. 50 was issued:
8) when strong public interest is involved;
TO MINIMIZE the incidence of late filing of claims due to members' personal
difficulties in preparing the needed documents, Philhealth is extending the
period for filing of claims xxx (emphasis ours)
The above circulars indubitably recognized the necessity of extending the 60-day
period because of the difficulties encountered by members in completing the required
documents, often due to circumstances beyond their control. Petitioner appeared to
be well aware of the problems encountered by its members in complying with the 60day rule. Furthermore, implicit in the wording of the circulars was the cognition of the
fact that the fault was not always attributable to the health care providers like CGH but
to the members themselves.
Delay on the part of members is an ordinary occurrence. There is no need to make a
mountain out of a molehill as far as this particular point is concerned. To this day,
members continue to encounter delay in submitting their documents. There was
therefore no compelling reason for the exacting and meticulous enforcement of the
rule when, in at least two instances, petitioner itself implemented it liberally and on the
same ground that it was using against respondent.
Petitioner likewise contends that respondent failed to exhaust administrative remedies
before resorting to judicial intervention. We disagree.
Under the doctrine of exhaustion of administrative remedies, an administrative
decision must first be appealed to the administrative superiors at the highest level
before it may be elevated to a court of justice for review.
This doctrine, however, is a relative one and its flexibility is conditioned on the peculiar
circumstances of a case.17 There are a number of instances when the doctrine has
been held to be inapplicable. Among the established exceptions are:
1) when the question raised is purely legal;
2) when the administrative body is in estoppel;
3) when the act complained of is patently illegal;
4) when there is urgent need for judicial intervention;
5) when the claim involved is small;

9) when the subject of the controversy is private land;

10) in quo warranto proceedings.18
As explained by the appellate court:
It is Our view that the instant case falls as one of the exceptions, concerning as it does
public interest. As mentioned earlier, although they were not made parties to the
instant case, the rights of millions of Filipinos who are members of PHILHEALTH and
who obviously rely on it for their health care, are considered, nonetheless, parties to
the present case. This Court is mandated herein to take conscious and detailed
consideration of the interplay of the interests of the state, the health care giver and the
members. With these in mind, We hold that the greater interest of the greater number
of people, mostly members of PHILHEALTH, is paramount.
Furthermore, when the representatives of herein petitioner met with Dr. Enrique
Zalamea, PHILHEALTH's President and Chief Executive Officer, he informed them
that, in lieu of protest to be filed directly with him, the representatives could make
representations with the Office of the President, which petitioner did to no avail,
considering that the formal protest filed was referred back by the Office of the
President to Dr. Zalamea. Being then the head of PHILHEALTH, and expected to have
an intimate knowledge of the law and the rules creating the National Health Insurance
Program, under which PHILHEALTH was created, he instructed herein petitioner to
pursue a remedy not sanctioned by the rules and not in accord with the rule of
exhaustion of administrative remedies. In so doing, PHILHEALTH is deemed estopped
from assailing the instant petition for failure to exhaust administrative remedies when
PHILHEALTH itself, through its president, does not subscribe to it. 19
There is no need to belabor the fact that the baseless denial of respondent's claims
will be gravely disturbing to the health care industry, specially the providers whose
claims will be unpaid. The unfortunate reality is that there are today some health care
providers who admit numbers for treatment and/or confinement yet require them to
pay the portion which ought to be shouldered by Philhealth. A refund is made only if
their claim is first paid, due to the apprehension of not being reimbursed. Simply
stated, a member cannot avail of his benefits under the NHIP at the time he needs it
most.
We cannot turn a deaf ear to respondent's plea for fairness which essentially demands
that its claims for services already rendered be honored as the National Health
Insurance Program law intended.

43

WHEREFORE, the assailed decision of the Court of Appeals is hereby AFFIRMED.

Petitioner is hereby ordered to pay respondent's claims representing services
rendered to its members from 1989 to 1992.
No costs.

2.

PD 1994 issued a month thereafter reinforced PD 1987 and in effect amended the
National Internal Revenue Code (NIRC). Petitioner contended among others that the
tax provision of the decree is a rider.

SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, and Carpio-Morales, JJ., concur.
ISSUE: Whether or not the PD 1987 is unconstitutional due to the tax provision
Garcia, J., no part.

Tio v Videogram

included

RULING: PD 1987 is constitutional.

G.R. No. L-75697 June 18, 1987

Melencio-Herrera, J.:

1. The title of the decree, which calls for the creation of the VRB is comprehensive enough
to include the purposes expressed in its Preamble and reasonably covered in all its

Facts:

provisions. It is unnecessary to express all those objectives in the title or that the latter
be an index to the body of the decree.

1. Petitioner on his own behalf and purportedly on behalf of other videogram operators
adversely affected assailed the constitutionality of PD 1987 entitled "An Act Creating
the Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry. The Decree promulgated on October 5, 1985, took effect on April
10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.

2. The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of the general object of the decree, which is the regulation of the
video industry through the VRB as expressed in its title. The tax provision is not
inconsistent with nor foreign to the general subject and title. As a tool for regulation it
is simply one of the regulatory and control mechanisms scattered throughout the
decree.

44

3. The express purpose of PD 1987 to include taxation of the video industry in order to

The provision is allied and germane to, and is reasonable necessary for the

regulate and rationalize the heretofore uncontrolled distribution of videos is evident

accomplishment of, the general object of the DECREE, which is the regulation of the

from Preambles 2 and 5. Those preambles explain the motives of the lawmaker in

video industry through the VideogramRegulatory Board as expressed in its title.

presenting the measure.

The Supreme Court thus provided the following standards whether or not a provision
Facts: This petition assails the constitutionality of Presidential Decree No. 1987

is embraced in the title:

entitled An Act Creating the Videogram RegulatoryBoard with broad powers to

regulate and supervise the videogram industry.

(1) Title be comprehensive enough to include the general purpose which a statute
seeks to achieve.

Petitioners attack on the constitutionality of the DECREE rests onthe ground among
others that Section 10 thereof, which imposes a tax of 30% on the gross receipts
payable to the local government is a RIDER and the same is not germane to

(2) If all parts of the statute are related and germane to the subject matter expressed
in the title.

the subject matter thereof.

(3) So long as they are not inconsistent or foreign to the generalsubject to the title.
Issue: Is Sec 10 of PD No 1987 a RIDER?
(4) Regardless of how diverse it is so long as it maybe considered in furtherance of
Held: NO. The requirement that every bill must only have one subject expressed in
the title is satisfied if the title is comprehensive enough to include subjects related to

such

subject

by

providing

for

the

method

and

means

of

carrying

out

the general object.

the general purpose which the statute seeks to achieve. Such is the case here.
Taxation is sufficiently related to the regulation of the video industry.

(5) Should not be construed as to cripple legislative power.

45

1. The Constitutional requirement that every bill shall embrace only one subject which
(6) Given PRACTICAL rather that a technical construction.

shall be expressed in the title thereof is sufficiently complied with if the title be
comprehensive enough to include the general purpose which a statute seeks to

151 SCRA 208 Political Law The Embrace of Only One Subject by a Bill
Delegation of Power Delegation to Administrative Bodies
In 1985, Presidential Dedree No. 1987 entitled An Act Creating the Videogram
Regulatory Board was enacted which gave broad powers to the VRB to regulate and
supervise the videogram industry. The said law sought to minimize the economic
effects of piracy. There was a need to regulate the sale of videograms as it
has adverse effects to the movie industry. The proliferation of videograms has
significantly lessened the revenue being acquired from the movie industry, and that
such loss may be recovered if videograms are to be taxed. Section 10 of the PD
imposes a 30% tax on the gross receipts payable to the LGUs.
In 1986, Valentin Tio assailed the said PD as he averred that it is unconstitutional on
the following grounds:
1. Section 10 thereof, which imposed the 30% tax on gross receipts, is a rider and is
not germane to the subject matter of the law.
2. There is also undue delegation of legislative power to the VRB, an administrative

achieve. In the case at bar, the questioned provision is allied and germane to, and is
reasonably necessary for the accomplishment of, the general object of the PD, which
is the regulation of the video industry through the VRB as expressed in its title. The tax
provision is not inconsistent with, nor foreign to that general subject and title. As a tool
for regulation it is simply one of the regulatory and control mechanisms scattered
throughout the PD.
2. There is no undue delegation of legislative powers to the VRB. VRB is not being
tasked to legislate. What was conferred to the VRB was the authority or discretion to
seek assistance in the execution, enforcement, and implementation of the
law. Besides, in the very language of the decree, the authority of the BOARD to solicit
such assistance is for a fixed and limited period with the deputized agencies
concerned being subject to the direction and control of the [VRB].

ASSOCIATED COMMUNICATIONS & WIRELESS SERVICES UNITED

BROADCASTING NETWORKS,Petitioner, v. NATIONAL TELECOMMUNICATIONS
COMMISSION, Respondent.
DECISION

body, because the law allowed the VRB to deputize, upon its discretion, other
PUNO, J.:
government agencies to assist the VRB in enforcing the said PD.
ISSUE: Whether or not the Valentin Tios arguments are correct.
HELD: No.

For many years now, there has been a "pervading confusion in the state of affairs of
the broadcast industry brought about by conflicting laws, decrees, executive orders
and other pronouncements promulgated during the Martial Law regime." 1 The
question that has taken a long life is whether the operation of a radio or television
station requires a congressional franchise. The Court shall now lay to rest the
issue.chanrob1es virtua1 1aw 1ibrary

46

the decision is received by the party in interest."cralaw virtua1aw library

This is a petition for review on certiorari of the Court of Appeals January 31, 2000
decision and February 21, 2000 resolution affirming the January 13, 1999 decision of
the National Telecommunications Commission (NTC for brevity).
First, the facts.

A few years later or in 1979, E.O. No. 546 4 was issued. It integrated the Board of
Communications and the Telecommunications Control Bureau under the Integrated
Reorganization Plan of 1972 into the NTC. Among the powers vested in the NTC
under Sec. 15 of E.O. No. 546 are the following:jgc:chanrobles.com.ph

On November 11, 1931, Act No. 3846, entitled "An Act Providing for the Regulation of
Radio Stations and Radio Communications in the Philippines and for Other Purposes,"
was enacted. Sec. 1 of the law reads, viz:jgc:chanrobles.com.ph

"a. Issue Certificate of Public Convenience for the operation of communication utilities
and services, radio communications systems, wire or wireless telephone or telegraph
system, radio and television broadcasting system and other similar public utilities;

"Sec. 1. No person, firm, company, association, or corporation shall construct, install,

establish, or operate a radio transmitting station, or a radio receiving station used for
commercial purposes, or a radio broadcasting station, without having first obtained a
franchise therefor from the Congress of the Philippines. . ."cralaw virtua1aw library
Pursuant to the above provision, Congress enacted in 1965 R.A. No. 4551, entitled
"An Act Granting Marcos J. Villaverde, Jr. and Winfred E. Villaverde a Franchise to
Construct, Install, Maintain and Operate Public Radiotelephone and Radiotelegraph
Coastal Stations, and Public Fixed and Public Based and Land Mobile Stations within
the Philippines for the Reception and Transmission of Radiotelephone and
Radiotelegraph for Domestic Communications and Provincial Telephone Systems in
Certain Provinces." It gave the grantees a 50-year franchise. 2 In 1969, the franchise
was transferred to petitioner Associated Communications & Wireless Services
United Broadcasting Network, Inc. (ACWS for brevity) through Congress Concurrent
Resolution No. 58. 3 Petitioner ACWS then engaged in the installation and operation
of several radio stations around the country.
In 1974, P.D. No. 576-A, "Regulating the Ownership and Operation of Radio and
Television Stations and for other Purposes" was issued, with the following pertinent
provisions on franchise of radio and television broadcasting
systems:jgc:chanrobles.com.ph
"Sec. 1. No radio station or television channel may obtain a franchise unless it has
sufficient capital on the basis of equity for its operation for at least one year, including
purchase of equipment.
x

Sec. 6. All franchises, grants, licenses, permits, certificates or other forms of authority
to operate radio or television broadcasting systems shall terminate on December 31,
1981. Thereafter, irrespective of any franchise, grant, license, permit, certificate or
other forms of authority to operate granted by any office, agency or person, no radio or
television station shall be authorized to operate without the authority of the Board of
Communications and the Secretary of Public Works and Communications or their
successors who have the right and authority to assign to qualified parties frequencies,
channels or other means of identifying broadcasting system; Provided, however, that
any conflict over, or disagreement with a decision of the aforementioned authorities
may be appealed finally to the Office of the President within fifteen days from the date

c. Grant permits for the use of radio frequencies for wireless telephone and telegraph
systems and radio communication systems including amateur radio stations and radio
and television broadcasting systems; . . ."cralaw virtua1aw library
Upon termination of petitioners franchise on December 31, 1981 pursuant to P.D. No.
576-A, it continued operating its radio stations under permits granted by the
NTC.chanrob1es virtua1 1aw 1ibrary
As these presidential issuances relating to the radio and television broadcasting
industry brought about confusion as to whether the NTC could issue permits to radio
and television broadcast stations without legislative franchise, the NTC sought the
opinion of the Department of Justice (DOJ) on the matter. On June 20, 1991, the DOJ
rendered Opinion No. 98, Series of 1991, viz:jgc:chanrobles.com.ph
"We believe that under P.D. No. 576-A dated November 11, 1974 and prior to the
issuance of E.O. No. 546 dated July 23, 1979, the NTC, then Board of
Communications, had no authority to issue permits or authorizations to operate radio
and television broadcasting systems without a franchise first being obtained pursuant
to Section 1 of Act No. 3846, as amended. A close reading of the provisions of
Sections 1 and 6 of P.D. No. 576-A, supra, does not reveal any indication of a
legislative intent to do away with the franchising requirement under Section 1 of Act
No. 3846. In fact, a mere reading of Section 1 would readily indicate that a franchise
was necessary for the operation of radio and television broadcasting systems as it
expressly provided that no such franchise may be obtained unless the radio station or
television channel has sufficient capital on the basis of equity for its operation for at
least one year, including purchase of equipment.
It is believed that the termination of all franchises granted for the operation of radio
and television broadcasting systems effective December 31, 1981 and the vesting of
the power to authorize the operation of any radio or television station upon the Board
of Communications and the Secretary of Public Works and Communications and their
successors under Section 6 of P.D. No. 576-A does not necessarily imply the
abrogation of the requirement of obtaining a franchise under Section 1 of Act No.
3846, as amended, in the absence of a clear provision in P.D. No. 576-A providing to
this effect.

47

It should be noted that under Act No. 3846, as amended, a person, firm or entity
desiring to operate a radio broadcasting station must obtain the following: (a) a
franchise from Congress (Sec. 1); (b) a permit to construct or install a station from the
Secretary of Commerce and Industry (Sec. 2); and (c) a license to operate the station
also from the Secretary of Commerce and Industry (id.). The franchise is the privilege
granted by the State through its legislative body and is subject to regulation by the
State itself by virtue of its police power through its administrative agencies (RCPI v.
NTC, 150 SCRA 450). The permit and license are the administrative authorizations
issued by the administrative agency in the exercise of regulation. It is clear that what
was transferred to the Board of Communications and the Secretary of Commerce and
Industry under Section 6 of P.D. No. 576-A was merely the regulatory powers vested
solely in the Secretary of Commerce and Industry under Section 2 of Act No. 3846, as
amended. The franchising authority was retained by the then incumbent President as
repository of legislative power under Martial Law, as is clearly indicated in the first
WHEREAS clause of P.D. No. 576-A to wit:chanrob1es virtual 1aw library
WHEREAS, the President of the Philippines is empowered under the Constitution to
review and approve franchises for public utilities.
Of course, under the Constitution, said power (the power to review and approve
franchises), belongs to the lawmaking body (Sec. 5, Art. XIV, 1973 Constitution; Sec.
11, Art. XII, 1987 Constitution).
The corollary question to be resolved is: Has E.O. No. 546 (which is a law issued
pursuant to P.D. No. 1416, as amended by P.D. No. 1771, granting the then President
continuing authority to reorganize the administrative structure of the national
government) modified the franchising and licensing arrangement for radio and
television broadcasting systems under P.D. No. 576-A?
We believe so.
E.O. No. 546 integrated the Board of Communications and the Telecommunications
Bureau into a single entity known as the NTC (See Sec. 14), and vested the new body
with broad powers, among them, the power to issue Certificates of Public
Convenience for the operation of communications utilities, including radio and
televisions broadcasting systems and the power to grant permits for the use of radio
frequencies (Sec. 14[a] and [c], supra). Additionally, NTC was vested with broad rule
making authority to encourage a larger and more effective use of communications,
radio and television broadcasting facilities, and to maintain effective competition
among private entities in these activities whenever the Commission finds it reasonably
feasible (Sec. 15[f]).
In the recent case of Albano v. Reyes (175 SCRA 264), the Supreme Court held that
franchises issued by Congress are not required before each and every public utility
may operate. Administrative agencies may be empowered by law to grant licenses for
or to authorize the operation of certain public utilities. The Supreme Court stated that
the provision in the Constitution (Art. XII, Sec. 11) that the issuance of a franchise,
certificate or other form of authorization for the operation of a public utility shall be
subject to amendment, alteration or repeal by Congress, does not necessarily imply . .
. that only Congress has the power to grant such authorization. Our statute books are

replete with laws granting specified agencies in the Executive Branch the power to
issue such authorization for certain classes of public utilities.
We believe that E.O. No. 546 is one law which authorizes an administrative agency,
the NTC, to issue authorizations for the operation of radio and television broadcasting
systems without need of a prior franchise issued by Congress.
Based on all the foregoing, we hold the view that NTC is empowered under E.O. No.
546 to issue authorization and permits to operate radio and television broadcasting
system." 5
However, on May 3, 1994, the NTC, the Committee on Legislative Franchises of
Congress, and the Kapisanan ng mga Brodkaster sa Pilipinas of which petitioner is a
member of good standing, entered into a Memorandum of Understanding (MOU) that
requires a congressional franchise to operate radio and television stations. The MOU
states, viz:jgc:chanrobles.com.ph
"WHEREAS, under the provisions of Section 1 of Act No. 3846 (Radio Laws of the
Philippines, as amended), only radio and television broadcast stations with legislative
franchise are authorized to operate.
WHEREAS, Executive Order No. 546, which created the National Telecommunications
Commission (NTC) and abolished the Board of Communications (BOC) and the
Telecommunications Control Bureau (TCB), and integrated the functions and
prerogative of the latter two agencies into the National Telecommunications
Commission (NTC);
WHEREAS, the National Telecommunications Commission (NTC) is authorized to
issue certificate of public convenience for the operation of radio and television
broadcast stations;
WHEREAS, there is a pervading confusion in the state of affairs of the broadcast
industry brought about by conflicting laws, decrees, executive orders and other
pronouncements promulgated during the Martial Law regime, the parties in their
common desire to rationalize the broadcast industry, promote the interest of public
welfare, avoid a vacuum in the delivery of broadcast services, and foremost to better
serve the ends of press freedom, the parties hereto have agreed as
follows:chanrob1es virtual 1aw library
The NTC shall continue to issue and grant permits or authorizations to operate radio
and television broadcast stations within their mandate under Section 15 of Executive
Order No. 546, provided that such temporary permits or authorization to operate shall
be valid for two (2) years within which the permittee shall be required to file an
application for legislative franchise with Congress not later than December 31, 1994;
provided finally, that if the permittee of the temporary permit or authorization to
operate fails to secure the legislative franchise with Congress within this period, the
NTC shall not extend or renew its permit or authorization to operate any further." 6
Prior to the December 31, 1994 deadline set by the MOU, petitioner filed with
Congress an application for a franchise on December 20, 1994. Pending its approval,

48

the NTC issued to petitioner a temporary permit dated July 7, 1995 to operate a
television station via Channel 25 of the UHF Band from June 29, 1995 to June 28,
1997. 7 In 1996, the NTC authorized petitioner to increase the power output of
Channel 25 from 1.0 kilowatt to 25 kilowatts after finding it financially and technically
capable; 8 it also granted petitioner a permit to purchase radio
transmitters/transceivers for use in its television Channel 25 broadcasting. 9 Shortly
before the expiration of its temporary permit, petitioner applied for its renewal on May
14, 1997. 10
On October 28, 1997, the House Committee on Legislative Franchises of Congress
replied to an inquiry of the NTCs Broadcast Division Chief regarding the franchise
application of ACWS filed on December 20, 1994. The Committee certified that
petitioners franchise application was not deliberated on by the 9th Congress because
petitioner failed to submit the required supporting documents. In the next Congress,
petitioner did not re-file its application. 11
The following month or on November 17, 1997, the NTCs Broadcast Service
Department wrote to petitioner ordering it to submit a new congressional franchise for
the operation of its seven radio stations and informing it that pending compliance, its
application for temporary permits to operate these radio stations would be held in
abeyance. 12 Petitioner failed to comply with the franchise requirement; it claims that
it did not receive the November 17, 1997 letter.chanrob1es virtua1 1aw 1ibrary
Despite the absence of a congressional franchise, the NTC notified petitioner on
January 19, 1998 that its May 14, 1997 application for renewal of its temporary permit
to operate television Channel 25 was approved and would be released upon payment
of the prescribed fee of P3,600.00. 13 After paying said amount, 14 however, the NTC
refused to release to petitioner its renewed permit. Instead, the NTC commenced
against petitioner Administrative Case No. 98-009 based on the November 17, 1997
letter. On February 26, 1998, the NTC issued an Order directing petitioner to show
cause why its assigned frequency, television Channel 25, should not be recalled for
lack of the required congressional franchise. Petitioner was also directed to cease and
desist from operating Channel 25 unless subsequently authorized by the NTC. 15

Pilipinas (KBP).
In compliance with the MOU and in order to clear the ambiguity surrounding the
operation of broadcast operators who were not able to have their legislative franchise
approved during the last congress, the following guidelines are hereby
issued:chanrob1es virtual 1aw library
1. Existing broadcast operators who were not able to secure a legislative franchise up
to this date are given up to December 31, 1999 within which to have their application
for a legislative franchise bill approved by Congress. The franchise bill must be filed
immediately but not later than November 30th of this year to give both Houses time to
deliberate upon and recommend approval/disapproval thereof.
2. Broadcast operators affected by this circular must file their respective applications
for renewal/extension of their Temporary Permits in the prescribed form together with
the certification from the Committee on Legislative Franchises, House of
Representatives that a franchise bill has indeed been filed prior to 30 November 1998.
3. In the event the permittee will not be able to have its franchise bill approved within
the prescribed period, the NTC will no longer renew/extend its Temporary Permit and
the Commission shall initiate the recall of its assigned frequency provided that due
process of law is observed.
4. Henceforth, no application/petition for Certificate of Public Convenience (CPC) to
establish, maintain and operate a broadcast station in the broadcast service shall be
accepted for filing without showing that the applicant has an approved Legislative
Franchise.
This Memorandum Circular shall be published in one (1) newspaper of general
circulation in the Philippines and shall take effect thirty (30) days from its publication.
August 17, 1998, Quezon City, Philippines." 18
The Memorandum Circular was published in the Philippine Star on October 15, 1998.

In compliance with the February 26, 1998 Order, petitioner filed its Answer on March
17, 1998. 16 In a hearing on April 22, 1998, petitioner presented evidence and asked
for continuance of the presentation to May 20, 1998. 17 On May 4, 1998, however,
petitioner filed before the Court of Appeals a Petition for Mandamus, Prohibition, and
Damages to compel the NTC to release its temporary permit to operate Channel 25
which was approved in January 1998. The appellate court denied the petition on
September 30, 1998.
Meantime, on August 17, 1998, the NTC issued Memorandum Circular No. 14-10-98
which reads, viz:jgc:chanrobles.com.ph
"SUBJECT: Guidelines in the Renewal/Extension of Temporary Permit of Radio/TV
Broadcast operators who failed to secure a legislative franchise conformably with the
Memorandum of Understanding (MOU) dated May 3, 1994, entered into by and
between the National Telecommunications and the Committee on Legislative
Franchises, House of Representatives, and the Kapisanan ng mga Brodkaster sa

Well within the November 30, 1998 deadline under the Memorandum Circular, House
Bill No. 3216, entitled "An Act Granting the ACWS-United Broadcasting Network, Inc.
a Franchise to Construct, Install, Operate and Maintain Radio and Television
Broadcasting Stations within the Philippines, and for other Purposes," was filed with
the Legislative Calendar Section, Bills and Index Division on September 2, 1998. 19
On January 13, 1999, the NTC rendered a decision on Administrative Case No. 98009 against petitioner, the dispositive portion of which reads:jgc:chanrobles.com.ph
"WHEREFORE, for lack of a legal personality to justify the issuance of any permit or
license to the respondent (ACWS), the respondent not having a valid legislative
franchise, the Commission hereby renders judgment as follows:chanrob1es virtual
1aw library
1) Channel 25 assigned to herein respondent ACWS is hereby RECALLED;

49

V.
2) Respondents application for renewal of its temporary permit to operate Channel 25
is hereby DENIED; and
3) Respondent is hereby ordered to CEASE and DESIST from further operating
Channel 25." 20
Petitioner sought recourse at the Court of Appeals which affirmed the NTC decision.
Hence, this petition for review on certiorari on the following grounds:chanrob1es
virtual 1aw library

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT NTC CASE NO. 98-009
HAD BEEN RENDERED MOOT AND ACADEMIC WITH THE ADOPTION AND
PROMULGATION BY THE NTC OF MEMORANDUM CIRCULAR NO. 14-10-98
DATED AUGUST 17, 1998 AS PETITIONER FILED THE APPLICATION FOR
LEGISLATIVE FRANCHISE PURSUANT THERETO." 21
The petition is devoid of merit.
We shall discuss together the first three assigned errors as they are interrelated.

"I.
THE COURT OF APPEALS ERRED IN UPHOLDING THE RULING OF THE NTC
THAT A CONGRESSIONAL FRANCHISE IS A CONDITION SINE QUA NON IN THE
OPERATION OF A RADIO AND TELEVISION BROADCASTING SYSTEM.
II.
THE COURT OF APPEALS ERRED IN NOT CONSIDERING OPINION 98 SERIES
OF 1991 DATED JUNE 20, 1991 OF THE SECRETARY OF JUSTICE HOLDING
THAT THE NTC MAY ISSUE AUTHORIZATION FOR THE OPERATION OF RADIO
AND TELEVISION BROADCASTING SYSTEMS, WITHOUT THE NEED OF A PRIOR
FRANCHISE ISSUED BY CONGRESS, AS BINDING ON THE NTC WHO
REQUESTED FOR SAID OPINION AND IS NOT MERELY ADVISORY, AS IT IS
PREDICATED ON A DECISION OF THIS HONORABLE COURT.
III.
THE COURT OF APPEALS ERRED IN CONSIDERING ACT NO. 3846 AS
REQUIRING A FRANCHISE FROM CONGRESS FOR THE LAWFUL OPERATION
OF RADIO OR TELEVISION BROADCASTING STATIONS WHEN CLEARLY ITS
PROVISIONS COVER ONLY RADIO BUT IT DOES NOT INCLUDE TELEVISION
STATIONS.
IV.
THE COURT OF APPEALS ERRED IN UPHOLDING THE RECALL OF THE
FREQUENCY CHANNEL 25 PREVIOUSLY ASSIGNED TO THE PETITIONER
AND/OR THE CANCELLATION OF ITS PERMIT TO OPERATE WHICH IS
UNREASONABLE, UNFAIR, OPPRESSIVE, WHIMSICAL AND CONFISCATORY
WHEN IT PREVIOUSLY ISSUED THE SAID PERMIT WITHOUT REQUIRING A
LEGISLATIVE FRANCHISE.

Petitioner stresses that Act No. 3846 covers only the operation of radio and not
television stations as Section 1 of the said law does not mention television stations in
its coverage, viz:jgc:chanrobles.com.ph
"Sec. 1. No person, firm, company, association or corporation shall construct, install,
establish, or operate a radio transmitting station, or a radio receiving station used for
commercial purposes, or a radio broadcasting station, without having first obtained a
franchise therefor from the Congress of the Philippines. . ."cralaw virtua1aw library
Petitioner observes that quite understandably, television stations were not included in
Act No. 3846 because the law was enacted in 1931 when there was yet no television
station in the Philippines. Following the rule in statutory construction that what is not
included in the law is deemed excluded, petitioner avers that television stations are
not covered by Act No. 3846. Petitioner notes that in fact, the NTC previously issued
to it a temporary permit dated July 7, 1995 to operate Channel 25 from June 29, 1995
to June 28, 1997 without requiring a congressional franchise. Likewise, in 1996, the
NTC issued to it a permit to increase its television operating power and to purchase a
radio transmitter/transceiver for use in its television broadcasting, again without
requiring a congressional franchise. Petitioner thus argues that, contrary to the
January 19, 1999 decision of the NTC, its application for renewal of its temporary
permit to operate television Channel 25 does not require a congressional
franchise.chanrob1es virtua1 1aw 1ibrary
In upholding the NTC decision, the Court of Appeals held that a congressional
franchise is required for the operation of radio and television broadcasting stations as
this requirement under Act No. 3846 was not expressly repealed by P.D. No. 576-A
nor E.O. No. 546. Citing Berces, Sr. v. Guingona, 22 it ruled that without an express
repeal, a subsequent law cannot be construed as repealing a prior law unless there is
an irreconcilable inconsistency and repugnancy in the language of the new and old
laws, which petitioner was not able to show. 23
The appellate court correctly ruled that a congressional franchise is necessary for
petitioner to operate television Channel 25. Even assuming that Act No. 3846 applies
only to radio stations and not to television stations as petitioner adamantly insists, the
subsequent P.D. No. 576-A clearly shows in Section 1 that a franchise is required to
operate radio as well as television stations, viz:jgc:chanrobles.com.ph

50

"Sec. 1. No radio station or television channel may obtain a franchise unless it has
sufficient capital on the basis of equity for its operation for at least one year, including
purchase of equipment." (Emphasis supplied)
As pointed out in DOJ Opinion No. 98, there is nothing in P.D. No. 576-A that reveals
any intention to do away with the requirement of a franchise for the operation of radio
and television stations. Section 6 of P.D. No. 576-A merely identifies the regulatory
agencies from whom authorizations, in addition to the required congressional
franchise, must be secured after December 31, 1981, viz:jgc:chanrobles.com.ph
"Sec. 6. All franchises, grants, licenses, permits, certificates or other forms of authority
to operate radio or television broadcasting systems shall terminate on December 31,
1981. Thereafter, irrespective of any franchise, grant, license, permit, certificate or
other forms of authority to operate granted by any office, agency or person, no radio or
television station shall be authorized to operate without the authority of the Board of
Communications and the Secretary of Public Works and Communications or their
successors who have the right and authority to assign to qualified parties frequencies,
channels or other means of identifying broadcasting system . . ." (Emphasis supplied)
To understand why it was necessary to identify these agencies, we turn a heedful eye
on the laws regarding authorizations for the operation of radio and television stations
that preceded P.D. No. 576-A.
Act No. 3846 of 1931 provides, viz:jgc:chanrobles.com.ph
"Sec. 1. No person, firm, company, association, or corporation shall construct, install,
establish, or operate a radio transmitting station, or a radio receiving station used for
commercial purposes, or a radio broadcasting station, without having first obtained a
franchise therefor from the Congress of the Philippines:chanrob1es virtual 1aw library
x

(c) He shall assign call letter and assign frequencies for each station licensed by him
and for each station established by virtue of a franchise granted by the Congress of
the Philippines and specify the stations to which each of such frequencies may be
used; . . ."cralaw virtua1aw library
Shortly after the declaration of Martial Law, then President Marcos issued P.D. No. 1
dated September 24, 1972, through which the Integrated Reorganization Plan for the
executive branch was adopted. Under the Plan, the Public Service Commission was
abolished and its functions transferred to special regulatory boards, among which was
the Board of Communications with the following functions:jgc:chanrobles.com.ph
"5a. Issue Certificates of Public Convenience for the operation of communications
utilities and services, radio communications systems . . ., radio and television
broadcasting systems and other similar public utilities;
x

c. Grant permits for the use of radio frequencies for . . . radio and television
broadcasting systems including amateur radio stations."cralaw virtua1aw library
With the creation of the Board of Communications under the Plan, it was no longer
sufficient to secure authorization from the Secretary of Public Works and
Communications as provided in Act No. 3846. The Boards authorization was also
necessary. Thus, P.D. No. 576-A provides in Section 6 that radio and television station
operators must secure authorization from both the Secretary of Public Works and
Communications and the Board of Communications.

x
Dispensing with the requirement of a congressional franchise is not in line with the
declared purposes of P.D. No. 576-A, viz:jgc:chanrobles.com.ph

Sec. 1-A. No person, firm, company, association or corporation shall possess or own
transmitters or transceivers (combination transmitter-receiver), without registering the
same with the Secretary of Public Works and Communications . . . and no person,
firm, company, association or corporation shall construct or manufacture, or purchase
radio transmitters or transceivers without a permit issued by the Secretary of Public
Works and Communications. . .
x

Sec. 3. The Secretary of Public Works and Communications is hereby empowered to

regulate the construction or manufacture, possession, control, sale and transfer of
radio transmitters or transceivers (combination transmitter-receiver) and the
establishment, use, the operation of all radio stations and of all forms of radio
communications and transmissions within the Philippines. In addition to the above, he
shall have the following specific powers and duties:chanrob1es virtual 1aw library

"WHEREAS, it has been observed that some public utilities, especially radio and
television stations, have a tendency toward monopoly in ownership and operation to
such an extent that a region or section of the country may be covered by any number
of such broadcast stations, all or most of which are owned, operated or managed by
one person or corporation;
x

WHEREAS, on account of the limited number of frequencies available for

broadcasting in the Philippines, it is necessary to regulate the ownership and
operation of radio and television stations and provide measures that would enhance
quality and viability in broadcasting and help serve the public interests; . . ."cralaw
virtua1aw library
A textual interpretation of Section 6 of P.D. No. 576-A yields the same interpretation

51

that after December 31, 1981, a franchise is still necessary to operate radio and
television stations. Were it the intention of the law to do away with the requirement of
a franchise after said date, then the phrase" (t)hereafter, irrespective of any franchise,
grant, license, permit, certificate or other forms of authority to operate granted by any
office, agency or person (Emphasis supplied)" would not have been necessary
because the first sentence of Section 6 already states that" (a)ll franchises, grants,
licenses, permits, certificates or other forms of authority to operate radio or television
broadcasting systems shall terminate on December 31, 1981." It is therefore already
understood that these forms of authority have no more force and effect after
December 31, 1981. If the intention were to do away with the franchise requirement,
Section 6 would have simply laid down after the first sentence the requirements to
operate radio and television stations after December 31, 1981, i.e., "no radio or
television station shall be authorized to operate without the authority of the Board of
Communications and the Secretary of Public Works and Communications." Instead,
however, the phrase "irrespective of any franchise, . . ." was inserted to emphasize
that a franchise or any other form of authorization from any office, agency or person
does not suffice to operate radio and television stations because the authorizations of
both the Board of Communications and the Secretary of Public Works and
Communications are required as well. This interpretation adheres to the rule in
statutory construction that words in a statute should not be construed as surplusage if
a reasonable construction which will give them some force and meaning is possible.
24
Contrary to the opinion of the Secretary of Justice in DOJ Opinion No. 98, Series of
1991, the appellate court was correct in ruling that E.O. No. 546 which came after P.D.
No. 576-A did not dispense with the requirement of a congressional franchise. It
merely abolished the Board of Communications and the Telecommunications Control
Bureau under the Reorganization Plan and transferred their functions to the NTC, 25
including the power to issue Certificates of Public Convenience (CPC) and grant
permits for the use of frequencies, viz:jgc:chanrobles.com.ph

The former covers matters dealing mostly with the technical side of radio or television
broadcasting, while the latter involves the exercise by the legislature of an exclusive
power resulting in a franchise or a grant under authority of government, conferring a
special right to do an act or series of acts of public concern (37 C.J.S., secs. 1, 14, pp.
144, 157).
In fine, there being no clear showing that the laws here involved cannot stand
together, the presumption is against inconsistency or repugnance, hence, against
implied repeal of the earlier law by the later statute (Agujetas v. Court of Appeals, 261
SCRA 17, 1996)." 26
As we held in Radio Communication of the Philippines, Inc. v. National
Telecommunications Commission, 27 a franchise is distinguished from a CPC in that
the former is a grant or privilege from the sovereign power, while the latter is a form of
regulation through the administrative agencies, viz:jgc:chanrobles.com.ph
"A franchise started out as a "royal privilege or (a) branch of the Kings prerogative,
subsisting in the hands of a subject." This definition was given by Finch, adopted by
Blackstone, and accepted by every authority since (State v. Twin Village Water Co., 98
Me 214, 56 A 763 [1903]). Today, a franchise, being merely a privilege emanating from
the sovereign power of the state and owing its existence to a grant, is subject to
regulation by the state itself by virtue of its police power through its administrative
agencies." 28

E.O. No. 546 defines the regulatory and technical aspect of the legal process
preparatory to the full exercise of the privilege to operate radio and television stations,
which is different from the grant of a franchise from Congress,
viz:jgc:chanrobles.com.ph

Even prior to E.O. No. 546, the NTCs precursor, i.e., the Board of Communications,
already had the function of issuing CPC under the Integrated Reorganization Plan.
The CPC was required by the Board at the same time that P.D. No. 576-A required a
franchise to operate radio and television stations. The function of the NTC to issue
CPC under E.O. No. 546 is thus nothing new and exists alongside the requirement of
a congressional franchise under P.D. No. 576-A. There is no conflict between E.O. No.
546 and P.D. No 576-A; Section 15 of the former does not dispense with the franchise
requirement in the latter. We adhere to the cardinal rule in statutory construction that
statutes in pare materia, although in apparent conflict, or containing apparent
inconsistencies, should, as far as reasonably possible, be construed in harmony with
each other, so as to give force and effect to each. 29 The ruling of this Court in
Crusaders Broadcasting System, Inc. v. National Telecommunications Commission, 30
buttresses the interpretation that the requirement of a congressional franchise for the
operation of radio and television stations exists alongside the requirement of a CPC.
In that case, we held that under E.O. No. 546, the regulation of radio communications
is a function assigned to and performed by the NTC and at the same time recognized
the requirement of a congressional franchise for the operation of a radio station under
Act No. 3846. We did not interpret E.O. No. 546 to have repealed the congressional
franchise requirement under Act No. 3846 as these two laws are not inconsistent and
can both be given effect. Likewise, in Radio Communication of the Philippines, Inc. v.
National Telecommunications Commission, 31 we recognized the necessity of both a
congressional franchise under Act No. 3846 and a CPC under E.O. No. 546 to operate
a radio communications system.

"The statutory functions of NTC may then be given effect as Congress prerogative to
grant franchises under Act No. 3846 is upheld for they are distinct forms of authority.

In buttressing its position that a congressional franchise is not required to operate its
television station, petitioner banks on DOJ Opinion No. 98, Series of 1991 which

"Sec. 15. a. Issue Certificate of Public Convenience for the operation of

communication utilities and services, radio communications systems, wire or wireless
telephone or telegraph system, radio and television broadcasting system and other
similar public utilities;
x

c. Grant permits for the use of radio frequencies for wireless telephone and telegraph
systems and radio communication systems including amateur radio stations and radio
and television broadcasting systems; . . ."cralaw virtua1aw library

52

states that under E.O. No. 546, the NTC may issue a permit or authorization for the
operation of radio and television broadcasting systems without a prior franchise issued
by Congress. Petitioner argues that the opinion is binding and conclusive upon the
NTC as the NTC itself requested the advisory from the Secretary of Justice who is the
legal adviser of government. Petitioner claims that it was precisely because of the
above DOJ Opinion No. 98 that the NTC did not previously require a congressional
franchise in all of its applications for permits with the NTC.
Petitioner, however, cannot rely on DOJ Opinion No. 98 as this opinion is merely
persuasive and not necessarily controlling. 32 As shown above, the opinion is
erroneous insofar as it holds that E.O. No. 546 dispenses with the requirement of a
congressional franchise to operate radio and television stations. The case of Albano v.
Reyes 33 cited in the DOJ opinion, which allegedly makes it binding upon the NTC,
does not lend support to petitioners cause. In that case, we held,
viz:jgc:chanrobles.com.ph
"Franchises issued by Congress are not required before each and every public utility
may operate. Thus, the law has granted certain administrative agencies the power to
grant licenses for or to authorize the operation of certain public utilities. (See E.O.
Nos. 172 and 202)
That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise,
certificate or other form of authorization for the operation of a public utility shall be
subject to amendment, alteration or repeal by Congress does not necessarily imply, as
petitioner posits, that only Congress has the power to grant such authorization. Our
statute books are replete with laws granting specified agencies in the Executive
Branch the power to issue such authorization for certain classes of public utilities.
(footnote omitted)" 34
Our ruling in Albano that a congressional franchise is not required before "each and
every public utility may operate" should be viewed in its proper light. Where there is a
law such as P.D. No. 576-A which requires a franchise for the operation of radio and
television stations, that law must be followed until subsequently repealed. As we have
earlier shown, however, there is nothing in the subsequent E.O. No. 546 which
evinces an intent to dispense with the franchise requirement. In contradistinction with
the case at bar, the law applicable in Albano, i.e., E.O. No. 30, did not require a
franchise for the Philippine Ports Authority to take over, manage and operate the
Manila International Port Complex and undertake the providing of cargo handling and
port related services thereat. Similarly, in Philippine Airlines, Inc. v. Civil Aeronautics
Board, Et Al., 35 we ruled that a legislative franchise is not necessary for the operation
of domestic air transport because "there is nothing in the law nor in the Constitution
which indicates that a legislative franchise is an indispensable requirement for an
entity to operate as a domestic air transport operator." 36 Thus, while it is correct to
say that specified agencies in the Executive Branch have the power to issue
authorization for certain classes of public utilities, this does not mean that the
authorization or CPC issued by the NTC dispenses with the requirement of a franchise
as this is clearly required under P.D. No. 576-A.chanrob1es virtua1 1aw 1ibrary
Petitioner contends that the NTC erroneously denied its application for renewal of its
temporary permit to operate Channel 25 and recalled its Channel 25 frequency based

on the May 3, 1994 MOU that requires a congressional franchise for the operation of
television broadcast stations. The MOU is not an act of Congress and thus cannot
amend Act No. 3846 which requires a congressional franchise for the operation of
radio stations alone, and not television stations.
We find no merit in petitioners contention. As we have shown, even assuming that Act
No. 3846 requires only radio stations to secure a congressional franchise for its
operation, P.D. No. 576-A was subsequently issued in 1974, which clearly requires a
franchise for both radio and television stations. Thus, the 1994 MOU did not amend
any law, but merely clarified the existing law that requires a franchise.
That the legislative intent is to continue requiring a franchise for the operation of radio
and television broadcasting stations is clear from the franchises granted by Congress
after the effectivity of E.O. No. 546 in 1979 for the operation of radio and television
stations. Among these are: (1) R.A. No. 9131 dated April 24, 2001, entitled "An Act
Granting the Iddes Broadcast Group, Inc., a Franchise to Construct, Install, Establish,
Operate and Maintain Radio and Television Broadcasting Stations in the Philippines;"
(2) R.A. No. 9148 dated July 31, 2001, entitled "An Act Granting the Hypersonic
Broadcasting Center, Inc., a Franchise to Construct, Install, Establish, Operate and
Maintain Radio Broadcasting Stations in the Philippines;" and (3) R.A. No. 7678 dated
February 17, 1994, entitled "An Act Granting the Digital Telecommunication
Philippines, Incorporated, a Franchise to Install, Operate and Maintain
Telecommunications Systems Throughout the Philippines." All three franchises require
the grantees to secure a CPCN/license/permit to construct and operate their
stations/systems. Likewise, the Tax Reform Act of 1997 provides in Section 119 for tax
on franchise of radio and/or television broadcasting companies,
viz:jgc:chanrobles.com.ph
"Sec. 119. Tax on Franchises. Any provision of general or special law to the
contrary notwithstanding, there shall be levied, assessed and collected in respect to
all franchises on radio and/or television broadcasting companies whose annual gross
receipts of the preceding year does not exceed Ten million pesos (P10,000,000),
subject to Section 236 of this Code, a tax of three percent (3%) and on electric, gas
and water utilities, a tax of two percent (2%) on the gross receipts derived from the
business covered by the law granting the franchise. . ." (Emphasis supplied)
Undeniably, petitioner is aware that a congressional franchise is necessary to operate
its television station Channel 25 as shown by its actuations. Shortly before the
December 31, 1994 deadline set in the MOU, petitioner filed an application for a
franchise with Congress. It was not, however, acted upon in the 9th Congress for
petitioners failure to submit the necessary supporting documents; petitioner failed to
re-file the application in the following Congress. Petitioner also filed an application for
a franchise with Congress on September 2, 1998, before the November 30, 1998
deadline under Memorandum Circular No. 14-10-98. 37
We now come to the fourth assigned error. Petitioner avers that the Court of Appeals
erred in upholding the recall of frequency Channel 25 previously assigned to it and the
cancellation of its permit to operate which was already approved in January 1998. It
claims that these acts of the NTC were unreasonable, unfair, oppressive, whimsical
and confiscatory considering that the NTC previously issued petitioner a temporary

53

permit without requiring a congressional franchise.

On February 26, 1998, the NTC issued a show cause order to petitioner with the
following decretal portion:jgc:chanrobles.com.ph
"IN VIEW THEREOF, respondents are hereby directed to show cause in writing within
ten (10) days from receipt of this order why their assigned frequency, more specifically
Channel 25 in the UHF Band, should not be recalled for lack of the necessary
Congressional Franchise as required by Section 1, Act No. 3846, as amended.
Moreover, respondent is hereby directed to cease and desist from operating DWQHTV, unless subsequently authorized by the Commission." 38
The order was supposedly based on a letter of the NTC dated November 17, 1997
informing petitioner that its application for renewal of temporary permits of its seven
radio stations were being held in abeyance pending submission of its new
congressional franchise. Petitioner was directed to submit the franchise within thirty
days from expiration of its temporary permits to be renewed and informed that its
failure to do so might constitute denial of its application.
Petitioner is correct that the November 17, 1997 letter referred only to its radio
stations and not to its television Channel 25. Thus, it could not serve as basis for the
February 26, 1998 show cause order which referred solely to its television Channel
25. Besides, petitioner claims that it did not receive the letter. Be that as it may, the
NTCs February 26, 1998 order for petitioner to cease and desist from operating
Channel 25 was not unreasonable, unfair, oppressive, whimsical and confiscatory. The
1994 MOU states in unmistakable terms that petitioners temporary permit to operate
Channel 25 would be valid for only two years, i.e., from June 29, 1995 to June 28,
1997. During these two years, petitioner was supposed to have secured a
congressional franchise, otherwise "the NTC shall not extend or renew its permit or
authorization to operate any further." 39 Apparently, petitioner did not submit a
congressional franchise to the NTC in applying for renewal of this temporary permit on
May 14, 1997. The NTCs approval of petitioners application to renew its temporary
permit in January 1998 was thus erroneous because under the 1994 MOU, the NTC
could not renew petitioners temporary permit to operate Channel 25 without a
congressional franchise. In the absence of a renewed temporary permit, the NTC was
correct in ordering petitioner to cease and desist from operating Channel 25,
regardless of whether or not petitioner received the November 17, 1997 letter. The
NTCs erroneous approval of petitioners application in January 1998 did not estop the
NTC from ordering petitioner on February 26, 1998 to cease and desist from operating
Channel 25 for failure to comply with the franchise requirement as estoppel does not
work against the government. 40
Likewise, the NTCs denial of petitioners application for renewal of its temporary
permit to operate Channel 25 and recall of its Channel 25 frequency in its January 13,
1999 decision were not unreasonable, unfair, oppressive, whimsical and confiscatory
so as to offend petitioners right to due process. In Crusaders Broadcasting System,
Inc. v. National Telecommunications Commission, 41 the Court ruled that although a
particular ground for suspending operations of the broadcasting company was not
reflected in the show cause order, the NTC could nevertheless raise said ground if any

basis therefore was gleaned during the administrative proceedings. In the instant
case, the lack of congressional franchise as ground for denial of petitioners
application for renewal of temporary permit and recall of its Channel 25 frequency was
raised not only during the administrative proceedings against it, but was even stated in
the February 26, 1998 show cause order, viz:jgc:chanrobles.com.ph
"IN VIEW THEREOF, respondents are hereby directed to show cause in writing within
ten (10) days from receipt of this order why their assigned frequency, more specifically
Channel 25 in the UHF Band, should not be recalled for lack of the necessary
Congressional Franchise as required by Section 1, Act No. 3846, as amended.
Moreover, respondent is hereby directed to cease and desist from operating DWQHTV, unless subsequently authorized by the Commission." 42 (Emphasis supplied)
In Eastern Broadcasting Corporation v. Dans, Jr., Et Al., 43 we held that the
requirements of due process in administrative proceedings laid down by this Court in
Ang Tibay v. Court of Industrial Relations 44 should be satisfied before a broadcast
station may be closed or its operations curtailed. We enumerated these requirements,
viz:jgc:chanrobles.com.ph
". . . (1) the right to a hearing which includes the right to present ones case and
submit evidence in support thereof; (2) the tribunal must consider the evidence
presented; (3) the decision must have something to support itself; (4) the evidence
must be substantial. Substantial evidence means such reasonable evidence as a
reasonable mind might accept as adequate to support a conclusion; (5) the decision
must be based on the evidence presented at the hearing, or at least contained in the
record and disclosed to the parties affected; (6) the tribunal or body or any of its
judges must act on its own independent consideration of the law and facts of the
controversy and not simply accept the views of a subordinate; (7) the board or body
should, in all controversial questions, render its decisions in such a manner that the
parties to the proceeding can know the various issues involved, and the reasons for
the decision rendered." 45
Petitioner had the opportunity to present its case and submit evidence on why its
assigned frequency Channel 25 should not be recalled and its application for renewal
denied. Petitioner filed its Answer to the show cause order on March 17, 1998. 46 A
hearing was held on April 22, 1998 wherein petitioner presented its evidence in
compliance with the show cause order. Based on the NTCs findings that petitioner
failed to comply with the requirement of a congressional franchise, the NTC denied its
application for renewal of its temporary permit to operate Channel 25 and recalled its
assigned Channel 25 frequency. The requirements of due process in Ang Tibay were
satisfied, thus petitioner cannot say that the NTCs actions were unreasonable, unfair,
oppressive, whimsical and confiscatory.
Finally, petitioner contends that the Court of Appeals erred in not holding that
Administrative Case No. 98-009, the administrative proceeding against it for failure to
secure a congressional franchise to operate its television Channel 25, has been
rendered moot and academic by the adoption and promulgation of NTC Memorandum
Circular No. 14-10-98 dated August 17, 1998 which took effect on November 15,
1998. The Memorandum Circular states, viz:jgc:chanrobles.com.ph

54

"In compliance with the MOU and in order to clear the ambiguity surrounding the
operation of broadcast operators who were not able to have their legislative franchise
approved during the last Congress, the following guidelines are hereby
issued:chanrob1es virtual 1aw library
1. Existing broadcast operators who were not able to secure a legislative franchise up
to this date (August 17, 1998) are given up to December 31, 1999 within which to
have their application for a legislative franchise bill approved by Congress. The
franchise bill must be filed immediately but not later than November 30th of this
year . . ."cralaw virtua1aw library
Petitioner avers that the NTC erroneously held that this Memorandum Circular is not
applicable to it because the words of the circular are clear that it covers "existing
broadcasting operators" including petitioner. In compliance with the Memorandum
Circular, petitioner filed House Bill No. 32 on September 2, 1998, well within the
November 30, 1998 deadline. Thus, petitioner argues that the NTC erred in denying
its application for renewal of permit to operate Channel 25 and recalling its assigned
Channel 25 frequency on January 13, 1999, long before the Memorandum Circulars
December 31, 1999 deadline to secure a congressional franchise. Petitioner posits
that the NTCs premature and arbitrary promulgation of its January 13, 1999 decision
"slammed the door for the petitioner to secure its legislative franchise. The pending
application for legislative franchise of petitioner was effectively struck out by said NTC
decision." 47
Whether or not the benefits of the Memorandum Circular extend to petitioner, the fact
is, as correctly pointed out by the appellate court, petitioner failed to secure a
legislative franchise by December 31, 1999. Consequently, the NTCs recall of
petitioners assigned frequency Channel 25 and denial of its application for renewal of
its permit to operate the said television channel were proper as the Memorandum
Circular provides, viz:jgc:chanrobles.com.ph
"1. Existing broadcast operators who are not able to secure a legislative franchise up
to this date (August 17, 1998) are given up to December 31, 1999 within which to
have their application for a legislative franchise approved by Congress. The franchise
bill must be filed immediately but not later than November 30th of this year . . .
x

3. In the event the permittee will not be able to have its franchise bill approved within
the prescribed period, the NTC will no longer renew/extend its temporary permit and
the Commission shall initiate the recall of its assigned frequency provided that due
process of law is observed.
4. Henceforth, no application/petition for Certificate of Public Convenience (CPC) to
establish, maintain and operate a broadcast station in the broadcast service shall be
accepted for filing without showing that the applicant has an approved legislative
franchise." (Emphasis supplied)

Petitioners argument is flawed when it states that the January 13, 1999 decision of
the NTC "slammed the door" on its application for a congressional franchise as the
process of securing a congressional franchise is separate and distinct from the
process of applying for renewal of a temporary permit with the NTC. The latter is not a
prerequisite to the former. In fact, in the normal course of securing authorizations to
operate a television and radio station, the application for a CPC with the NTC comes
after securing a franchise from Congress. 48 The CPC is not a condition for the grant
of a congressional franchise. 49
The Court is not unmindful that there is a trend towards delegating the legislative
power to authorize the operation of certain public utilities to administrative agencies
and dispensing with the requirement of a congressional franchise as in the Albano
case which involved the provision of cargo handling and port related services at the
Manila International Port Complex and the PAL case involving the operation of
domestic air transport. The rationale for this trend was explained in the PAL case,
viz:jgc:chanrobles.com.ph
". . . With the growing complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the laws, there is
a constantly growing tendency towards the delegation of greater powers by the
legislature, and towards the approval of the practice by the courts. (Pangasinan
Transportation Co., Inc. v. The Public Service Commission, G.R. No. 47065, June 26,
1940, 70 Phil. 221.) It is generally recognized that a franchise may be derived
indirectly from the state through a duly designated agency, and to this extent, the
power to grant franchises has frequently been delegated, even to agencies other than
those of a legislative nature. (Dyer v. Tuskaloosa Bridge Co., 2 Port. 296, 27 Am. D.
655; Christian-Todd Tel. Co. v. Commonwealth, 161 S.W. 543, 156 Ky. 557, 37 C.J.S.
158) In pursuance of this, it has been held that privileges conferred by grant by local
authorities as agents for the state constitute as much a legislative franchise as though
the grant had been made by an act of the Legislature. (Superior Water, Light and
Power Co. v. City of Superior, 181 N.W. 113, 174 Wis. 257, affirmed 183 N.W. 254, 37
C.J.S. 158.)
The trend of modern legislation is to vest the Public Service Commissioner with the
power to regulate and control the operation of public services under reasonable rules
and regulations, and as a general rule, courts will not interfere with the exercise of that
discretion when it is just and reasonable and founded upon a legal right." 50
The criticism against the requirement of a congressional franchise is incisively
expressed by a public utilities lawyer, viz:jgc:chanrobles.com.ph
"As will be noted, a legislative franchise is required to install and operate a radio
station before an applicant can apply for a Certificate of Public Convenience to
operate a radio station based in any part of the country. Under Act No. 3846 of 1929,
Sec. 1, it was provided that no one may install and operate a radio station without
having first obtained a franchise therefore from the Congress of the Philippines. Since
then, this has been strictly followed. And this holds true with respect to application for
electric, telephone and many other telecommunications services. Before, even mere
application for authority to operate an ice plant must have prior congressional
franchise. But this was not strictly followed until ice plant operations were eventually

55

deregulated. Right now, the both houses of the legislature are saddled with House Bill
Nos. etc. for the grant of legislative franchise to operate this and that public utility
services in various places in the Philippines. We hear during sessions in both houses
the time wasted on reports and considerations of these house bills for grant of
franchises. The legislature is empowered and has created respective regulatory
bodies with requisite expertise to handle franchising and regulation of such types of
public utility services, why not just entrust all these functions to them?
What exactly is the reason or rationale for imposing a prior congressional franchise?
There seems to be no valid reason for it except to impose added burden and
expenses on the part of the applicant. The justification appears to be simply because
this was required in the past so it is now. We are reminded of the forceful denunciation
of Justice Holmes of a stubborn adherence to an anachronistic rule of law:chanrob1es
virtual 1aw library
It is revolting to have no better reason for a rule of law that so it was laid down in the
time of Henry IV. It is still more revolting if the grounds upon which it was laid down
have vanished long since, and the rule simply persists from blind imitation of the past.
(The Path of the Law, Collected Legal Papers [1920] 210, 212 quoted from The
Justice Holmes Reader, Julius N. Marke, 1955 ed., p. 278.)" 51
The call to dispense with the requisite legislative franchise must, however, be
addressed to Congress as the lawmaker of the land for the Courts function is to
interpret and not to rewrite the law. As long as the law remains unchanged, the
requirement of a franchise to operate a television station must be upheld.
WHEREFORE, the petition is DENIED and the Court of Appeals January 13, 2000
decision and February 21, 2000 resolution are AFFIRMED. No costs.chanrob1es
virtua1 1aw 1ibrary
SO ORDERED.

rendered the National Industrial Recovery Act, a main component

ofPresident Roosevelt's New Deal, unconstitutional.
Contents
[hide]

1 Background

3 Reaction

4 See also

5 References

6 External links

2 Decision

Background[edit]

The regulations at issue were promulgated under the authority of the National
Industrial Recovery Act(NIRA) of 1933. These included price and wage fixing, as well

Panganiban, Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.

as requirements regarding the sale of whole chickens, including unhealthy ones. The
government claimed the Schechters sold sick poultry, which has led to the case
A.L.A. Schechter Poultry Corp. v. United States,295 U.S. 495 (1935), was a

becoming known as "the sick chicken case". Also encompassed in the decision were

decision by the Supreme Court of the United States that invalidated regulations of

NIRA provisions regarding maximum work hours and a right of unions to organize. The

the poultry industry according to thenondelegation doctrine and as an invalid use of

ruling was one of a series which overturned elements of President Franklin D.

Congress' power under the commerce clause. This was a unanimous decision that

Roosevelt's New Deallegislation between January 1935 and January 1936, until the
Court's intolerance of economic regulations shifted with West Coast Hotel Co. v.

56

Parrish, 300 U.S. 379 (1937). The National Industrial Recovery Act allowed local

that the codes violated the constitutional separation of powers as an impermissible

codes for trade to be written by private trade and industrial groups. The President

delegation of legislative power to the executive branch. The Court also held that the

could choose to give some codes the force of law. The Supreme Court's opposition to

NIRA provisions were in excess ofcongressional power under the Commerce Clause.

an active federal interference in the local economy caused Roosevelt to attempt

to pack the Court with judges that were in favor of the New Deal.

The Court distinguished between direct effects on interstate commerce, which

Congress could lawfully regulate, and indirect, which were purely matters of state law.

There were originally sixty charges against Schechter Poultry, which were reduced to

Though the raising and sale of poultry was an interstate industry, the Court found that

eighteen charges plus charges of conspiracy by the time the case was heard by the U.

the "stream of interstate commerce" had stopped in this caseSchechter's

S. Supreme Court.

slaughterhouses chickens were sold exclusively to intrastate buyers. Any interstate

Among the eighteen charges against Schechter Poultry were "the sale to a butcher of
an unfit chicken" and the sale of two uninspected chickens.

Ten charges were for violating codes requiring "straight killing." Straight killing
prohibited customers from selecting the chickens they wanted; instead a customer
had to place his hand in the coop and select the first chicken that came to hand. There
was laughter during oral arguments when Justice Sutherland asked, "Well suppose
however that all the chickens have gone over to one end of the coop?"[1]
Decision[edit]

effect of Schechter was indirect, and therefore beyond federal reach.

Though many considered the NIRA a "dead statute" at this point in the New Deal
scheme, the Court used its invalidation as an opportunity to affirm constitutional limits
on congressional power, for fear that it could otherwise reach virtually anything that
could be said to "affect" interstate commerce and intrude on many areas of legitimate
state power. The court ruled that the law violated the Tenth Amendment. According to
Supreme Court historian David P. Currie, the court believed that "to permit Congress
to regulate the wages and hours in a tiny slaughterhouse because of remote effects
on interstate commerce would leave nothing for the tenth amendment to reserve."[2]

Chief Justice Hughes wrote for a unanimous Court in invalidating the industrial "codes
of fair competition" which the NIRA enabled the President to issue. The Court held

57

Justice Cardozo's concurring opinion clarified that a spectrum approach to direct and

Glen Asner, a descendent of the Schechters, said that the brothers probably voted for

indirect effects is preferable to a strict dichotomy. Cardozo felt that in this case,

Roosevelt in all four of his presidential campaigns. Their main political concern in the

Schechter was simply too small a player to be relevant to interstate commerce.

1930s was anti-Semitism. The Schechters felt that without the New Deal, America

This traditional reading of the Commerce Clause was later disavowed by the Court,

could have taken the route of Nazi Germany.[6]

which after threats from Roosevelt began to read congressional power more
expansively in this area, in cases such as National Labor Relations Board v. Jones &
Laughlin Steel Corporation (1937). However, more recent cases such as United
States v. Lopez, 514 U.S. 549 (1995) perhaps signal a growing inclination in the Court

UNITED STATES VS ANG TANG HO

43 Phil. 1 Political Law Delegation of Power Administrative Bodies

In July 1919, the Philippine Legislature (during special session) passed and approved

to once again affirm limits on its scope.

Act No. 2868 entitled An Act Penalizing the Monopoly and Hoarding of Rice, Palay

Reaction[edit]

and Corn. The said act, under extraordinary circumstances, authorizes the
Governor General (GG) to issue the necessary Rules and Regulations in regulating

Speaking to aides of Roosevelt, Justice Louis Brandeis remarked that, This is the end

the distribution of such products. Pursuant to this Act, in August 1919, the GG issued

of this business of centralization, and I want you to go back and tell the president that

Executive Order No. 53 which was published on August 20, 1919. The said EO fixed

we're not going to let this government centralize everything."[3]

the price at which rice should be sold. On the other hand, Ang Tang Ho, a rice dealer,
sold a ganta of rice to Pedro Trinidad at the price of eighty centavos. The said amount

In Hyde Park a few days after the decision, Roosevelt denounced the decision as an
antiquated interpretation of the Commerce Clause.[4]

was way higher than that prescribed by the EO. The sale was done on the 6 th of
August 1919. On August 8, 1919, he was charged for violation of the said EO. He was
found guilty as charged and was sentenced to 5 months imprisonment plus a P500.00

After the decision was announced, newspapers reported that 500 cases of NIRA code
violations were going to be dropped.

[5]

fine. He appealed the sentence countering that there is an undue delegation of power
to the Governor General.
ISSUE: Whether or not there is undue delegation to the Governor General.

58

HELD: First of, Ang Tang Hos conviction must be reversed because he committed the
act prior to the publication of the EO. Hence, he cannot be ex post facto charged of
the crime. Further, one cannot be convicted of a violation of a law or of an order
issued pursuant to the law when both the law and the order fail to set up an
ascertainable standard of guilt.
Anent the issue of undue delegation, the said Act wholly fails to provide definitely and
clearly what the standard policy should contain, so that it could be put in use as a
uniform policy required to take the place of all others without the determination of the
insurance commissioner in respect to matters involving the exercise of a legislative
discretion that could not be delegated, and without which the act could not possibly be
put in use. The law must be complete in all its terms and provisions when it leaves the
legislative branch of the government and nothing must be left to the judgment of the
electors or other appointee or delegate of the legislature, so that, in form and
substance, it is a law in all its details in presenti, but which may be left to take
effect in future, if necessary, upon the ascertainment of any prescribed fact or event.

US v. Ang Tang Ho
G.R. No. 17122 February 27, 1922
Johns, J.
SYLLABUS
1. ORGANIC LAW. By the organic law of the Philippine Islands and the Constitution
of the United States, all powers are vested in the Legislature, Executive, and Judiciary.
It is the duty of the Legislature to make the law; of the Executive; and of the Judiciary
to construe the law. The Legislature has no authority to execute or construe the law;
the Executive has no authority to make or construe the law; and the Judiciary has no
power to make or execute the law.

2. POWER. Subject to the Constitution only, the power of each branch is supreme
within its own jurisdiction, and it is for the judiciary only to say when any Act of the
Legislature is or is not constitutional.
3. THE POWER TO DELEGATE. The Legislature cannot delegate legislative power
to enact any law. If Act No. 2868 is a law unto itself and within itself, and it does
nothing more than to authorize the Governor-General to make rules and regulations to
carry it into effect, then the Legislature created the law. There is no delegation of
power and it is valid. One the other hand, if the act within itself does not define a crime
and is not complete, and some legislative act remains to be done to make it law or a
crime, the doing of which is vested in the Governor-General, the is a delegation of
legislative power, is unconstitutional and avoid.
4. No CRIME TO SELL. After the passage of Act No. 2868, and without any rules
and regulations of the Governor-General, a dealer in rice could sell it at any price and
he would not commit a crime. There was no legislative act which made it a crime to
sell rice at any price.
5. CRIME BY PROCLAMATION. When Act No. 2868 is analyzed, it is the violation
of the Proclamation of the Governor-General which constitutes the crime. The alleged
sale was made a crime, if at all, because of the Proclamation by the GovernorGeneral.
6. UNCONSTITUTIONAL. In so far as Act No. 2868 undertakes to authorize the
Governor-General, in his discretion, to issue a proclamation fixing the price and to
make the sale of it in violation of the proclamation a crime, it is unconstitutional and
void.
7. CONSTITUTION. The Constitution is something solid, permanent and
substantial. It stability protects the rights, liberty, and property rights of the rich and the
poor alike, and its construction ought not to change with emergencies or conditions.
8. PRIVATE RIGHTS. In the instant case, the law was not dealing with Government
property. It was dealing with private property and private rights which are sacred under
the Constitution.
9. PRIVATE PROPERTY. In the instant case, the rice was the personal, private
property of the defendant. The Government had not bought it, did not claim to own it,
or have any interest in it at the time the defendant sold it to one of his customers.
10. POWER VESTED IN THE LEGISLATURE. By the organic act and subject only
to constitutional limitations, the power to legislate and enact laws is vested exclusively
in the Legislature, which is elected by a direct vote of the people of the Philippine
Islands.
11. OPINION LIMITED. This opinion is confined to the right of the GovernorGeneral to issue a proclamation fixing the maximum price at which rice should be
sold, and to make it a crime to sell it at a higher price, and to that extent holds that it is

59

an unconstitutional delegation of legislative power. It does not decide or undertake to

construe the constitutionality of any of the remaining portions of Act No. 2868.

promulgate temporary rules and emergency measures for carrying out the purposes
of this Act. It does not specify or define what is a temporary rule or an emergency

Issue:

measure, or how long such temporary rules or emergency measures shall remain in
force and effect, or when they shall take effect. That is to say, the Legislature itself has
whether Act No. 2868 constitutes undue delegation of legislative power

not in any manner specified or defined any basis for the order, but has left it to the
sole judgment and discretion of the Governor-General to say what is or what is not a

Held:

cause, and what is or what is not an extraordinary rise in the price of rice, and as to
what is a temporary rule or an emergency measure for the carrying out the purposes
Yes. This question involves an analysis and construction of Act No. 2868, in

of the Act. Under this state of facts, if the law is valid and the Governor-General issues

so far as it authorizes the Governor-General to fix the price at which rice should be

a proclamation fixing the minimum price at which rice should be sold, any dealer who,

sold. It will be noted that section 1 authorizes the Governor-General, with the consent

with or without notice, sells rice at a higher price, is a criminal. There may not have

of the Council of State, for any cause resulting in an extraordinary rise in the price of

been any cause, and the price may not have been extraordinary, and there may not

palay, rice or corn, to issue and promulgate temporary rules and emergency measures

have been an emergency, but, if the Governor-General found the existence of such

for carrying out the purposes of the Act. By its very terms, the promulgation of

facts and issued a proclamation, and rice is sold at any higher price, the seller

temporary rules and emergency measures is left to the discretion of the Governor-

commits a crime.

General. The Legislature does not undertake to specify or define under what
conditions or for what reasons the Governor-General shall issue the proclamation, but

A law must be complete, in all its terms and provisions, when it leaves the

says that it may be issued for any cause, and leaves the question as to what is any

legislative branch of the government, and nothing must be left to the judgment of the

cause to the discretion of the Governor-General. The Act also says: For any cause,

electors or other appointee or delegate of the legislature, so that, in form and

conditions arise resulting in an extraordinary rise in the price of palay, rice or corn.

substance, it is a law in all its details in presenti, but which may be left to take effect in

The Legislature does not specify or define what is an extraordinary rise. That is also

futuro, if necessary, upon the ascertainment of any prescribed fact or event.

left to the discretion of the Governor-General. The Act also says that the GovernorGeneral, with the consent of the Council of State, is authorized to issue and

60

The law says that the Governor-General may fix the maximum sale price

proclamation should be issued, if so, when, and whether or not the law should be

that the industrial or merchant may demand. The law is a general law and not a local

enforced, how long it should be enforced, and when the law should be suspended.

or special law.

The Legislature did not specify or define what was any cause, or what was an
extraordinary rise in the price of rice, palay or corn, Neither did it specify or define the

The proclamation undertakes to fix one price for rice in Manila and other

conditions upon which the proclamation should be issued. In the absence of the

and different prices in other and different provinces in the Philippine Islands, and

proclamation no crime was committed. The alleged sale was made a crime, if at all,

delegates the power to determine the other and different prices to provincial treasurers

because the Governor-General issued the proclamation. The act or proclamation does

and their deputies. Here, then, you would have a delegation of legislative power to the

not say anything about the different grades or qualities of rice, and the defendant is

Governor-General, and a delegation by him of that power to provincial treasurers and

charged with the sale of one ganta of rice at the price of eighty centavos (P0.80)

their deputies, who are hereby directed to communicate with, and execute all

which is a price greater than that fixed by Executive order No. 53.

instructions emanating from the Director of Commerce and Industry, for the most
effective and proper enforcement of the above regulations in their respective

Act No. 2868, in so far as it undertakes to authorized the Governor-General

localities. The issuance of the proclamation by the Governor-General was the

in his discretion to issue a proclamation, fixing the price of rice, and to make the sale

exercise of the delegation of a delegated power, and was even a sub delegation of

of rice in violation of the price of rice, and to make the sale of rice in violation of the

that power.

proclamation a crime, is unconstitutional and void.

When Act No. 2868 is analyzed, it is the violation of the proclamation of the
Governor-General which constitutes the crime. Without that proclamation, it was no
crime to sell rice at any price. In other words, the Legislature left it to the sole

Ynot v IAC (1987) 148 SCRA 659

J. Cruz

discretion of the Governor-General to say what was and what was not any cause for
enforcing the act, and what was and what was not an extraordinary rise in the price of
palay, rice or corn, and under certain undefined conditions to fix the price at which

Facts:

rice should be sold, without regard to grade or quality, also to say whether a

61

Petitioner transported 6 caracbaos from Masbate to Iloilo in 1984 and these wer
confiscated by the station commander in Barotac, Iloilo for violating E.O. 626 A which
Holding: The EO is unconstitutional. Petition granted.
prohibits transportation of a carabao or carabeef from one province to another.
Confiscation will be a result of this.

The petitioner sued for recovery, and the Regional Trial Court of Iloilo City issued a

Ratio:

writ of replevin upon his filing of a supersedeas bond of P12,000.00. After considering
The lower courts are not prevented from examining the constitutionality of a law.
the merits of the case, the court sustained the confiscation of the carabaos and, since
they could no longer be produced, ordered the confiscation of the bond. The court also
declined to rule on the constitutionality of the executive order, as raise by the
petitioner, for lack of authority and also for its presumed validity.

The same result was decided in the trial court.

Constitutional grant to the supreme court to review.

Justice Laurel's said, courts should not follow the path of least resistance by simply
presuming the constitutionality of a law when it is questioned. On the contrary, they
should probe the issue more deeply, to relieve the abscess, and so heal the wound or
excise the affliction.

In the Supreme Court, he then petitioned against the constitutionality of the E.O. due
to the outright confiscation without giving the owner the right to heard before an

The challenged measure is denominated an executive order but it is really presidential

impartial court as guaranteed by due process. He also challenged the improper

decree, promulgating a new rule instead of merely implementing an existing law due

exercise of legislative power by the former president under Amendment 6 of the 1973

to the grant of legislative authority over the president under Amendment number 6.

constitution wherein Marcos was given emergency powers to issue letters

of instruction that had the force of law.

Provisions of the constitution should be cast in precise language to avoid controvery.

In the due process clause, however, the wording was ambiguous so it would remain
resilient. This was due to the avoidance of an iron rule laying down a stiff command
for all circumstances. There was flexibility to allow it to adapt to every situation with

Issue: Is the E.O. constitutional?

varying degrees at protection for the changing conditions.

62

Courts have also refrained to adopt a standard definition for due processlest they be

The challenged measure was an invalid exercise of police power because the method

confined to its interpretation like a straitjacket.

toconfiscate carabos was oppressive.

There must be requirements of notice and hearing as a safeguard against

Due process was violated because the owener was denied the right to be heard or his

arbitrariness.

defense and punished immediately.

There are exceptions such as conclusive presumption which bars omission of contrary

This was a clear encroachment on judicial functions and against the separataion of

evidence as long as such presumption is based on human experience or rational

powers.

connection between facts proved and fact presumed. An examples is a passport of a

person with a criminal offensecancelled without hearing.

The policeman wasnt liable for damages since the law during that time was valid.

The protection of the general welfare is the particular function of police power which

QuickGuide: Petitioner assails constitutionality of E.O. No. 626-A prohibiting the interprovincial movement of

both restrains and is restrained by dure process. This power was invoked in 626-A, in

carabaos and the slaughtering of carabaos. E.O. No. 626-A was held unconstitutional for violating the due

addition to 626 which prohibits slaughter of carabos with an exception.

process clause.
While 626-A has the same lawful subjectas the original executive order, it cant be said
that it complies with the existence of a lawful method. The transport prohibition and

Facts:

the purpose sought has a gap.

- 13Jan1984: Petitioner Restituto Ynot had transmitted 6 carabaos in a pump boat from Masbate to Iloilo
Summary action may be taken in valid admin proceedings as procedural due

when they were confiscated by the police station commander of Barotac for violating Executive Order No.

process is not juridical only due to the urgency needed to correct it.
626-A
There was no reason why the offense in the E.O. would not have been proved in a
- Executive Order No. 626-A prohibits the interprovincial movement of carabaos and the slaughtering of
court of justice with the accused acquired the rights in the constitution.
carabaos. Carabao/carabeef transported in violation of E.O. 626-A shall be subject to confiscation and

63

forfeiture by the govt, to be distributed to charitable institutions as Chairman of National Meat Inspection may

Ruling:

see fit (carabeef) and to deserving farmers as the Director of Animal Industry may see fit (carabao). This

- EO 626-A is declared unconstitutional. CA decision reversed. Supersedeas bond cancelled and the

amended E.O. 626; the latter prohibiting only the slaughter of carabaos of age.

amount thereof is ordered restored to petitioner.

- Petitioner sued for recovery; RTC issued writ of replevin after petitioner filed supersedeas bong of
Ratio:
P12,000.00
On the power of courts to decide on constitutional matters
- Trial Court (TC): confiscation of carabaossustained; ordered confiscation of the bond; declined to rule on
- Resolution of such cases may be made in the first instance by lower courts subject to review of the
the constitutionality of the E.O. for lack of authority and its presumed validity
Supreme Court.
- Petitioner appealed the decision to the Intermediate Appellate Court (IAC); IAC upheld the TC.
..while lower courts should observe a becoming modesty in examining constitutional questions, they are
Petitioners arguments:
nonetheless not prevented from resolving the same whenever warranted, subject only to the review of the
1. E.O. is unconstitutional. It authorizes outright confiscation of carabao or carabeef being transported across
highest tribunal.
provincial boundaries.
- Sec. 5[2(a)] Art VIII, 1987 Constitution.
2. Penalty is invalid. It is imposed without according the owner a right to be heard before a competent and
impartial court as guaranteed by due process.
3. Improper exercise of legislative power by the former President.

On the presumption of constitutionality

- Not by any means conclusive and in fact may be rebutted

Issue/s:
- WON EO 626-A is constitutional.

64

On due process

small farmers who rely on them for energy needs.

- Provisions of the charter are to be cats in precise and unmistakable language to avoid controversies that

- Failed to comply with #2; there is no reasonable connection between conservation of carabaos (not having

might arise on their correct interpretation.

them slaughtered) and the means: non-transportation of carabaos.

- Clause was kept intentionally vague so it would remain also conveniently resilient; flexibility
- MINIMUM REQUIREMENTS: a) notice and b) hearing intended as safeguard against official
arbitrariness.

MAXIMO CALALANG, Petitioner, v. A. D. WILLIAMS, ET AL., Respondents.

Maximo Calalang in his own behalf.
Solicitor General Ozaeta and Assistant Solicitor General Amparo for
respondents Williams, Fragante and Bayan

On the power used by President Marcos in promulgating EO 626-A

City Fiscal Mabanag for the other respondents.

SYLLABUS

- The challenged measure is denominated as an EO but it is actually a PD issued by Pres. Marcos not for the
purpose of taking care that the laws were faithfully executed but in the exercise of his legislative authority
under Amendment No. 6.
- But it was not shown that there is sufficient exigencies to exercise the extraordinary power

Police power as used by the government to justify E.O. 626-A

- Test: 1. Compelling state interest 2. Lawful method (as used in the case, but this is the same with the fit
between means and objective test)
- 1 = present conditions demand that the carabaos and the buffaloes be conserved for the benefit of the

1. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF COMMONWEALTH ACT No.

648; DELEGATION OF LEGISLATIVE POWER; AUTHORITY OF DIRECTOR OF
PUBLIC WORKS AND SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS
TO PROMULGATE RULES AND REGULATIONS. The provisions of section 1 of
Commonwealth Act No. 648 do not confer legislative power upon the Director of Public
Works and the Secretary of Public Works and Communications. The authority therein
conferred upon them and under which they promulgated the rules and regulations now
complained of is not to determine what public policy demands but merely to carry out
the legislative policy laid down by the National Assembly in said Act, to wit, "to
promote safe transit upon, and avoid obstructions on, roads and streets designated as
national roads by acts of the National Assembly or by executive orders of the
President of the Philippines" and to close them temporarily to any or all classes of
traffic "whenever the condition of the road or the traffic thereon makes such action
necessary or advisable in the public convenience and interest." The delegated power,
if at all, therefore, is not the determination of what the law shall be, but merely the
ascertainment of the facts and circumstances upon which the application of said law is
to be predicated. To promulgate rules and regulations on the use of national roads and
to determine when and how long a national road should be closed to traffic, in view of
the condition of the road or the traffic thereon and the requirements of public
convenience and interest, is an administrative function which cannot be directly
discharged by the National Assembly. It must depend on the discretion of some other
government official to whom is confided the duty of determining whether the proper
occasion exists for executing the law. But it cannot be said that the exercise of such
discretion is the making of the law.

65

2. ID.; ID.; POLICE POWER; PERSONAL LIBERTY; GOVERNMENTAL AUTHORITY.

Commonwealth Act No. 548 was passed by the National Assembly in the exercise
of the paramount police power of the state. Said Act, by virtue of which the rules and
regulations complained of were promulgated, aims to promote safe transit upon and
avoid obstructions on national roads, in the interest and convenience of the public. In
enacting said law, therefore, the National Assembly was prompted by considerations
of public convenience and welfare. It was inspired by a desire to relieve congestion of
traffic, which is, to say the least, a menace to public safety. Public welfare, then, lies at
the bottom of the enactment of said law, and the state in order to promote the general
welfare may interfere with personal liberty, with property, and with business and
occupations. Persons and property may be subjected to all kinds of restraints and
burdens, in order to secure the general comfort, health, and prosperity of the state
(U.S. v. Gomer Jesus, 31 Phil., 218). To this fundamental aim of our Government the
rights of the individual are subordinated. Liberty is a blessing without which life is a
misery, but liberty should not be made to prevail over authority because then society
will fall into anarchy. Neither should authority be made to prevail over liberty because
then the individual will fall into slavery. The citizen should achieve the required
balance of liberty and authority in his mind through education and, personal discipline,
so that there may be established the resultant equilibrium, which means peace and
order and happiness for all. The moment greater authority is conferred upon the
government, logically so much is withdrawn from the residuum of liberty which resides
in the people. The paradox lies in the fact that the apparent curtailment of liberty is
precisely the very means of insuring its preservation.
3. ID.; ID.; SOCIAL JUSTICE. Social justice is "neither communism, nor despotism,
nor atomism, nor anarchy," but the humanization of laws and the equalization of social
and economic forces by the State so that justice in its rational and objectively secular
conception may at least be approximated. Social justice means the promotion of the
welfare of all the people, the adoption by the Government of measures calculated to
insure economic stability of all the competent elements of society, through the
maintenance of a proper economic and social equilibrium in the interrelations of the
members of the community, constitutionally, through the adoption of measures legally
justifiable, or extra-constitutionally, through the exercise of powers underlying the
existence of all governments on the time-honored principle of salus populi est
suprema lex. Social justice, therefore, must be founded on the recognition of the
necessity of interdependence among divers and diverse units of a society and of the
protection that should be equally and evenly extended to all groups as a combined
force in our social and economic life, consistent with the fundamental and paramount
objective of the state of promoting the health, comfort, and quiet of all persons, and of
bringing about "the greatest good to the greatest number."

The National Traffic Commission, in its resolution of July 17, 1940, resolved to
recommend to the Director of the Public Works and to the Secretary of Public Works
and Communications that animal-drawn vehicles be prohibited from passing along the
following for a period of one year from the date of the opening of the Colgante Bridge
to traffic:

1) Rosario Street extending from Plaza Calderon de la Barca to Dasmarias

Street from 7:30Am to 12:30 pm and from 1:30 pm to 530 pm; and

2) along Rizal Avenue extending from the railroad crossing at Antipolo Street to

Echague Street from 7 am to 11pm

The Chairman of the National Traffic Commission on July 18, 1940 recommended to
the Director of Public Works with the approval of the Secretary of Public Works the
adoption of

Facts:

thethemeasure proposed in the resolution aforementioned in pursuance of the provisio

ns of theCommonwealth Act No. 548 which authorizes said Director with the approval

66

from the

2) Whether the rules and regulations complained of infringe upon the constitutional

Secretary of the Public Works and Communication to promulgate rules and regulation

precept regarding the promotion of social justice to insure the well-being and

s to regulate and control the use of and traffic on national roads.

economic security of all the people?

On August 2, 1940, the Director recommended to the Secretary the approval of the

Held:

recommendations made by the Chairman of the National Traffic Commission with

1) No. The promulgation of the Act aims to promote safe transit upon and avoid

modifications. The Secretary of Public Works approved the recommendations on

obstructions on national roads in the interest and convenience of the public. In

August 10,1940. The Mayor of Manila and the Acting Chief of Police of Manila have

enacting said law, the National Assembly was prompted by considerations of public

enforced and caused to be enforced the rules and regulation. As a consequence, all

convenience and welfare. It was inspired by the desire to relieve congestion of traffic,

animal-drawn vehicles are not allowed to pass and pick up passengers in the places

which is a menace to the public safety. Public welfare lies at the bottom of the

above mentioned to the detriment not only of their owners but of the riding public as

promulgation of the said law and the state in order to promote the general welfare may

well.

interfere with personal liberty, with property, and with business and occupations.
Persons and property may be subject to all kinds of restraints and burdens in order to

Issues:
1) Whether the rules and regulations promulgated by the respondents pursuant to the
provisions of Commonwealth Act NO. 548 constitute an unlawful inference with
legitimate business or trade and abridged the right to personal liberty and freedom of

secure the general comfort, health, and prosperity of the State. To this fundamental
aims of the government, the rights of the individual are subordinated. Liberty is a
blessing which should not be made to prevail over authority because society will fall
into anarchy. Neither should authority be made to prevail over liberty because then the

locomotion?

67

individual will fall into slavery. The paradox lies in the fact that the apparent curtailment

promoting health, comfort and quiet of all persons, and of bringing about the greatest

of liberty is precisely the very means of insuring its preserving.

good to the greatest number.

2) No. Social justice is neither communism, nor despotism, nor atomism, nor
FACTS:
anarchy, but the humanization of laws and the equalization of social and economic
forces by the State so that justice in its rational and objectively secular conception
may at least be approximated. Social justice means the promotion of the welfare of all
the people, the adoption by the Government of measures calculated to insure
economic stability of all the competent elements of society, through the maintenance
of a proper economic and social equilibrium in the interrelations of the members of the
community, constitutionally, through the adoption of measures legally justifiable, or
extra-constitutionally, through the exercise of powers underlying the existence of all
governments on the time-honored principles of salus populi estsuprema lex.

Social justice must be founded on the recognition of the necessity of interdependence

among divers and diverse units of a society and of the protection that should be
equally and evenly extended to all groups as a combined force in our social and
economic life, consistent with the fundamental and paramount objective of the state of

In pursuance of Commonwealth Act 548 which mandates the Director of Public

Works, with the approval of the Secretary of Public Works and Communications,
shall promulgate the necessary rules and regulations to regulate and control the
use of and traffic on such roads and streets to promote safe transit upon, and
avoid obstructions on, roads and streets designated as national roads, the
Director of Public Works adopted the resolution of the National Traffic
Commission, prohibiting the passing of animal drawn vehicles in certain streets
in Manila.
The National Traffic Commission, in its resolution of 17 July 1940, resolved to
recommend to the Director of Public Works and to the Secretary of Public
Works and Communications that animal-drawn vehicles be prohibited from
passing along Rosario Street extending from Plaza Calderon de la Barca to
Dasmarias Street, from 7:30 a.m. to 12:30 p.m. and from 1:30 p.m. to 5:30 p.m.;
and along Rizal Avenue extending from the railroad crossing at Antipolo Street
to Echague Street, from 7 a.m. to 11 p.m., from a period of one year from the
date of the opening of the Colgante Bridge to traffic.
The Chairman of the National Traffic Commission recommended to the Director
of Public Works the adoption of the measure proposed in the resolution, in
pursuance of the provisions of Commonwealth Act 548, which authorizes said
Director of Public Works, with the approval of the Secretary of Public Works and
Communications, to promulgate rules and regulations to regulate and control
the use of and traffic on national roads.
The Director of Public Works, in his first endorsement to the Secretary of Public
Works and Communications, recommended to the latter the approval of the
recommendation made by the Chairman of the National Traffic Commission,
with the modification.
The Secretary of Public Works and Communications approved the
recommendation that Rosario Street and Rizal Avenue be closed to traffic of
animal-drawn vehicles, between the points and during the hours as indicated,
for a period of 1 year from the date of the opening of the Colgante Bridge to

68

traffic.
The Mayor of Manila and the Acting Chief of Police of Manila have enforced and
caused to be enforced the rules and regulations thus adopted.

ABAKADA GURO PARTY LIST VS EXECUTIVE SECRETARY OF ERMITA

Maximo Calalang, in his capacity as a private citizen and as a taxpayer of

Manila, brought before the Supreme court the petition for a writ of prohibition
against A. D. Williams, as Chairman of the National Traffic Commission; Vicente
Fragante, as Director of Public Works; Sergio Bayan, as Acting Secretary of
Public Works and Communications; Eulogio Rodriguez, as Mayor of the City of
Manila; and Juan Dominguez, as Acting Chief of Police of Manila.

Facts: On May 24, 2005, the President signed into law Republic Act 9337 or the VAT

ISSUE:Was the regulation valid?

enjoining government fromimplementing the law in response to a slew of petitions for

HELD:Yes. The Supreme Court upheld the regulation as a valid exercise of

police power in the interest of public welfare.

certiorari and prohibition questioning the constitutionality of the new law.

This case is known primarily for the words of Justice Jose P. Laurel in defining

The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and

social justice:Social justice is neither communism, nor despotism, nor

6: That the President, upon the recommendation of the Secretary of Finance, shall,

atomism, nor anarchy, but the humanization of laws and the equalization of

effective January 1, 2006, raise the rate of value-added tax to 12%, after any of the

social and economic forces by the State so that justice in its rational and

Reform Act. Before the law took effect on July 1, 2005, the Court issued a TRO

following conditions has been satisfied:

objectively secular conception may at least be approximated. Social justice

means the promotion of the welfare of all the people, the adoption by the
Government of measures calculated to ensure economic stability of all the

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

the previous year exceeds two and four-fifth percent (2 4/5%);

component elements of society, through the maintenance of a proper economic

and social equilibrium in the interrelations of the members of the community,
or (ii) National government deficit as a percentage of GDP of the previous year
constitutionally, through the adoption of measures legally justifiable, or extraexceeds one and one-half percent (1%)
constitutionally, through the exercise of powers underlying the existence of all
governments on the time-honored principle of salus populi est supremo lex.
Petitioners allege that the grant of stand-by authority to the President to increase the
VAT rate is an abdication by Congress of its exclusive power to tax because such

69

delegation is not covered by Section 28 (2), Article VI Consti. They argue that VAT is a

The exceptions are:

tax levied on the sale or exchange of goods and services which cant be included
within the purview of tariffs under the exemption delegation since this refers to

(a) delegation of tariff powers to President under Constitution

customs duties, tolls or tribute payable upon merchandise to the government and
usually imposed on imported/exported goods. They also said that the President has

(b) delegation of emergency powers to President under Constitution

powers to cause, influence or create the conditions provided by law to bring about the
conditions precedent. Moreover, they allege that no guiding standards are made by

(c) delegation to the people at large

law as to how the Secretary of Finance will make the recommendation.

(d) delegation to local governments
Issue: Whether or not the RA 9337's stand-by authority to the Executive to increase
the VAT rate, especially on account of the recommendatory power granted to the

(e) delegation to administrative bodies

Secretary of Finance, constitutes undue delegation of legislative power? NO

For the delegation to be valid, it must be complete and it must fix a standard. A
Held: The powers which Congress is prohibited from delegating are those which are

sufficient standard is one which defines legislative policy, marks its limits, maps out its

strictly, or inherently and exclusively, legislative. Purely legislative power which can

boundaries and specifies the public agency to apply it.

never be delegated is the authority to make a complete law- complete as to the time
when it shall take effect and as to whom it shall be applicable, and to determine the

In this case, it is not a delegation of legislative power BUT a delegation of

expediency of its enactment. It is the nature of the power and not the liability of its use

ascertainment of facts upon which enforcement and administration of the increased

or the manner of its exercise which determines the validity of its delegation.

rate under the law is contingent. The legislature has made the operation of the 12%
rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves

70

the entire operation or non-operation of the 12% rate upon factual matters outside of

In making his recommendation to the President on the existence of either of the two

the control of the executive. No discretion would be exercised by the President.

conditions, the Secretary of Finance is not acting as the alter ego of the President or

Highlighting the absence of discretion is the fact that the word SHALL is used in the

even her subordinate. He is acting as the agent of the legislative department, to

common proviso. The use of the word SHALL connotes a mandatory order. Its use in

determine and declare the event upon which its expressed will is to take effect. The

a statute denotes an imperative obligation and is inconsistent with the idea of

Secretary of Finance becomes the means or tool by which legislative policy is

discretion.

determined and implemented, considering that he possesses all the facilities to gather
data and information and has a much broader perspective to properly evaluate them.

Thus, it is the ministerial duty of the President to immediately impose the 12% rate

His function is to gather and collate statistical data and other pertinent information and

upon the existence of any of the conditions specified by Congress. This is a duty,

verify if any of the two conditions laid out by Congress is present.

which cannot be evaded by the President. It is a clear directive to impose the 12%
VAT rate when the specified conditions are present.

Congress does not abdicate its functions or unduly delegate power when it describes
what job must be done, who must do it, and what is the scope of his authority; in our

Congress just granted the Secretary of Finance the authority to ascertain the

complex economy that is frequently the only way in which the legislative process can

existence of a fact--- whether by December 31, 2005, the VAT collection as

go forward.

a percentage of GDP of the previous year exceeds 2 4/5 % or the national

government deficit as a percentage of GDP of the previous year exceeds one and 1

There is no undue delegation of legislative power but only of the discretion as to the

%. If either of these two instances has occurred, the Secretary of Finance, by

execution of a law. This is constitutionally permissible. Congress did not delegate the

legislative mandate, must submit such information to the President.

power to tax but the mere implementation of the law.

Facts: Mounting budget deficit, revenue generation, inadequate fiscal allocation for
education, increased emoluments for health workers, and wider coverage for full

71

value-added tax benefits these are the reasons why Republic Act No. 9337 (R.A.

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

No. 9337) was enacted.

the previous year exceeds two and four-fifth percent (2 4/5%); or

R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555

(ii) National government deficit as a percentage of GDP of the previous year exceeds

and 3705, and Senate Bill No. 1950.

one and one-half percent (1 %)

Because of the conflicting provisions of the proposed bills the Senate agreed to the

In every case of permissible delegation, there must be a showing that the delegation

request of the House of Representatives for a committee conference. The Conference

itself is valid. It is valid only if the law (a) is complete in itself, setting forth therein the

Committee on the Disagreeing Provisions of House Bill recommended the approval of

policy to be executed, carried out, or implemented by the delegate;41 and (b) fixes a

its report, which the Senate and the House of the Representatives did.

standard the limits of which are sufficiently determinate and determinable to

The President signed into law the consolidated House and Senate versions as

which the delegate must conform in the performance of his functions. A sufficient

Republic Act 9337. Before the law was to take effect on July 1, 2005, the Court issued

standard is one which defines legislative policy, marks its limits, maps out its

a temporary restraining order enjoining government from implementing the law in

boundaries and specifies the public agency to apply it. It indicates the circumstances

response to a slew of petitions for certiorari and prohibition questioning the

under which the legislative command is to be effected. Both tests are intended to

constitutionality of the new law.

prevent a total transference of legislative authority to the delegate, who is not allowed

Among others, Petitioners contend that Sections 4, 5, and 6 of R.A. No. 9337

to step into the shoes of the legislature and exercise a power essentially legislative.

constitute an undue delegation of legislative power, in violation of Article VI, Section

28(2) of the Constitution;

A distinction has rightfully been made between delegation of power to make the laws
which necessarily involves a discretion as to what it shall be, which constitutionally

Issue: W/N there is an undue delegation of legislative power

may not be done, and delegation of authority or discretion as to its execution to be

exercised under and in pursuance of the law, to which no valid objection can be made.

Held: In the present case, the challenged section of R.A. No. 9337 is the common
proviso in Sections 4, 5 and 6 which reads as follows: That the President, upon the

The case before the Court is not a delegation of legislative power. It is simply a

recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise

delegation of ascertainment of facts upon which enforcement and administration of the

the rate of value-added tax to twelve percent (12%), after any of the following

increase rate under the law is contingent. The legislature has made the operation of

conditions has been satisfied:

the 12% rate effective January 1, 2006, contingent upon a specified fact or condition.

72

Telecommunications Commission (Sec. 19(d), Executive Order No. 546).

It leaves the entire operation or non-operation of the 12% rate upon factual matters
outside of the control of the executive. No discretion would be exercised by the
President. Highlighting the absence of discretion is the fact that the word shall is used
in the common proviso. The use of the word shall connote a mandatory order. Its use
in a statute denotes an imperative obligation and is inconsistent with the idea of
discretion. Where the law is clear and unambiguous, it must be taken to mean exactly
what it says, and courts have no choice but to see to it that the mandate is obeyed.

There is no undue delegation of legislative power but only of the discretion as to the
execution of a law. This is constitutionally permissible. Congress does not abdicate its
functions or unduly delegate power when it describes what job must be done, who
must do it, and what is the scope of his authority; in our complex economy that is
frequently the only way in which the legislative process can go forward.

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., Petitioner, v. NATIONAL

TELECOMMUNICATIONS COMMISSION and KAYUMANGGI RADIO NETWORK
INCORPORATED,Respondents.
SYLLABUS
1. ADMINISTRATIVE LAW; PUBLIC SERVICE COMMISSION; FUNCTIONS
THEREOF TRANSFERRED TO THE NATIONAL TELECOMMUNICATIONS.
Pursuant to Presidential Decree No. 1 dated September 23, 1972, reorganizing the
executive branch of the National Government, the Public Service Commission was
abolished and its functions were transferred to three specialized regulatory boards, as
follows: the Board of Transportation, the Board of Communications and the Board of
Power and Waterworks. The functions so transferred were still subject to the
limitations provided in sections 14 and 15 of the Public Service Law, as amended.
With the enactment of Executive Order No. 546 on July 23, 1979 implementing P.D.
No. 1, the Board of Communications and the Telecommunications Control Bureau
were abolished and their functions were transferred to the National

2. ID.; ID.; ID.; EXEMPTIONS ENJOYED BY RADIO COMPANIES NO LONGER

EXISTS. It is clear from the provision that the exemption enjoyed by radio
companies from the jurisdiction of the Public Service Commission and the Board of
Communications no longer exists because of the changes effected by the
Reorganization Law and implementing executive orders. The petitioners claim that its
franchise cannot be affected by Executive Order No. 546 on the ground that it has
long been in operation since 1957 cannot be sustained.
3. ID.; FRANCHISE; SUBJECT TO REGULATION BY THE STATE THROUGH ITS
ADMINISTRATIVE AGENCIES. A franchise, being merely a privilege emanating
from the sovereign power of the state and owing its existence to a grant, is subject to
regulation by the state itself by virtue of its police power through its administrative
agencies. We ruled in Pangasinan Transportation Co., Inc. v. Public Service
Commission (70 Phil. 221) that: ". . . statutes enacted for the regulation of public
utilities, being a proper exercise by the State of its police power, are applicable not
only to those public utilities coming into existence after its passage, but likewise to
those already established and in operation . . ."cralaw virtua1aw library
4. ID.; APPROVAL OF SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS;
A PRECONDITION BEFORE RADIO STATIONS CAN BE PUT UP. In the words of
R.A. No. 2036 itself, approval of the then Secretary of Public Works and
Communications was a precondition before the petitioner could put up radio stations
in areas where it desires to operate. It has been repeated time and again that where
the statutory norm speaks unequivocally, there is nothing for the courts to do except to
apply it. The law, leaving no doubt as to the scope of its operation, must be obeyed.
(Gonzaga v. Court of Appeals, 51 SCRA 381).
5. ID.; NATIONAL TELECOMMUNICATIONS COMMISSION; FINDINGS OF FACTS
THEREOF, CONCLUSIVE UPON THE COURT. We find no reason to disturb the
public respondents findings of fact, and conclusions of law insofar as the private
respondent was authorized to operate in Catarman, Samar and San Jose, Mindoro.
As a rule, the Commissions findings of fact, if supported by substantial evidence, are
conclusive upon this Court. We may modify or ignore them only when it clearly
appears that there is no evidence to support reasonably such a conclusion. (Halili v.
Daplas, 14 SCRA 14).

Facts:
RCPI operated a radio communications system since 1957 under legislative franchise
granted by Republic Act No. 2036 (1957). The petitioner established a radio telegraph
service in Sorsogon, Sorsogon (1968). in San Jose, Mindoro (1971), and Catarman,
Samar (1983).

73

Kayumanggi Radio, on the other hand, was given the rights by the NTC to operate

Held: Yes. Petition dismissed.

radio networks in the same areas.

RCPI filed a complaint in the NTC and sought to prohibit Kayumanggi Radio to

Ratio:

operate in the same areas. The NTC ruled against the RTCs favor and commanded

Presidential Decree No. 1- the Public Service Commission was abolished and its

RCPI to desist in the operation of radio telegraphs in the three areas.

functions were transferred to three specialized regulatory boards, as follows: the

RTC filed a MFR in 1984. This was denied.

Board of Transportation, the Board of Communications and the Board of Power and

In the SC, Petitioner alleged that the Public Service Law had sections that was still in

Waterworks. The functions so transferred were still subject to the limitations provided

effect even if the Public Service Commission was abolished and the NTC was

in sections 14 and 15 of the Public Service Law, as amended.

established.

The succeeding Executive Order No. 546- the Board of Communications and the

These were S13- the Commission shall have jurisdiction, supervision, and control over

Telecommunications Control Bureau were abolished and their functions were

all public services and their franchises

transferred to theNational Telecommunications Commission

S 14- Radio companies are exempt from the commissions authority except with

Section 15- b. Establish, prescribe and regulate areas of operation of particular

respect to the fixing of rates

operators of public service communications; and determine and prescribe charges or

And S 15-no public service shall operate in the Philippines without possessing a valid

rates pertinent to the operation of such public utility facilities and services except in

and subsisting certificate from the Public Service Commission, known as "certificate of

cases where charges or rates are established by international bodies

public convenience,"

or associations of which the Philippines is a participating member or by bodies

recognized by the Philippine Government as the proper arbiter of such charges or

Issue: Whether or not petitioner RCPI, a grantee of a legislative franchise to operate a

rates;

radio company, is required to secure a certificate of public convenience and necessity

c. Grant permits for the use of radio frequencies for wireless telephone and telegraph

before it can validly operate its radio stations including radio telephone services in the

systems and radio communication systems including amateur radio stations and radio

aforementioned areas

and television broadcasting systems;

74

The exemption enjoyed by radio companies from the jurisdiction of the Public Service

Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of Public

Commissionand the Board of Communications no longer exists because of the

Works andCommunications was a precondition before the petitioner could put up radio

changes effected by the Reorganization Law and implementing executive orders.

stations in areas where it desires to operate.

The petitioner's claim that its franchise cannot be affected by Executive Order No. 546

The records of the case do not show any grant of authority from the then Secretary of

on the ground that it has long been in operation since 1957 cannot be sustained.

Public Works and Communications before the petitioner installed the questioned radio

Today, a franchise, being merely a privilege emanating from the sovereign power of

telephone services in San Jose, Mindoro in 1971. The same is true as regards the

the state and owing its existence to a grant, is subject to regulation by the state itself

radio telephone services opened in Sorsogon, Sorsogon and Catarman, Samar in

by virtue of its police power through its administrative agencies. Pangasinan

1983. No certificate of public convenience and necessity appears to have been

transportation Co.- statutes enacted for the regulation of public utilities, being a proper

secured by the petitioner from the public respondent when such certificate,was

exercise by the State of its police power, are applicable not only to those public utilities

required by the applicable public utility regulations.

coming into existence after its passage, but likewise to those already established and

The Constitution mandates that a franchise cannot be exclusive in nature nor can a

in operation .

franchise be granted except that it must be subject to amendment, alteration, or even

Executive Order No. 546, being an implementing measure of P.D. No. I insofar as it

repeal by the legislature when the common good so requires.

amends the Public Service Law (CA No. 146, as amended) is applicable to the
petitioner who must be bound by its provisions.

BPI LEASING CORPORATION, Petitioner, v. THE HONORABLE COURT OF

APPEALS, COURT OF TAX APPEAL AND COMMISSIONER OF INTERNAL
REVENUE, Respondents.

The position of the petitioner that by the mere grant of its franchise under RA No. 2036

DECISION

it can operate a radio communications system anywhere within the Philippines is

AZCUNA, J.:
erroneous.
Sec. 4(a). This franchise shall not take effect nor shall any powers thereunder be
exercised by the grantee until the Secretary of Public works
and Communications shall have allotted to the grantee the frequencies and wave

The present petition for review on certiorari assails the decision 1 of the Court of
Appeals in CA-G.R. SP No. 38223 and its subsequent resolution 2 denying the motion
for reconsideration. The assailed decision and resolution affirmed the decision of the
Court of Tax Appeals (CTA) which denied petitioner BPI Leasing Corporations (BLC)
claim for tax refund in CTA Case No. 4252.chanrob1es virtua1 1aw 1ibrary
The facts are not disputed.

lengths to be used, and issued to the grantee a license for such case.

75

BLC is a corporation engaged in the business of leasing properties. 3 For the calendar
year 1986, BLC paid the Commissioner of Internal Revenue (CIR) a total of
P1,139,041.49 representing 4% "contractors percentage tax" then imposed by
Section 205 of the National Internal Revenue Code (NIRC), based on its gross rentals
from equipment leasing for the said year amounting to P27,783,725.42. 4
On November 10, 1986, the CIR issued Revenue Regulation 19-86. Section 6.2
thereof provided that finance and leasing companies registered under Republic Act
5980 shall be subject to gross receipt tax of 5%-3%-1% on actual income earned. This
means that companies registered under Republic Act 5980, such as BLC, are not
liable for "contractors percentage tax" under Section 205 but are, instead, subject to
"gross receipts tax" under Section 260 (now Section 122) of the NIRC. Since BLC had
earlier paid the aforementioned "contractors percentage tax," it re-computed its tax
liabilities under the "gross receipts tax" and arrived at the amount of P361,924.44.
On April 11, 1988, BLC filed a claim for a refund with the CIR for the amount of
P777,117.05, representing the difference between the P1,139,041.49 it had paid as
"contractors percentage tax" and P361,924.44 it should have paid for "gross receipts
tax." 5 Four days later, to stop the running of the prescriptive period for refunds,
petitioner filed a petition for review with the CTA. 6
In a decision dated May 13, 1994, 7 the CTA dismissed the petition and denied BLCs
claim of refund. The CTA held that Revenue Regulation 19-86, as amended, may only
be applied prospectively such that it only covers all leases written on or after January
1, 1987, as stated under Section 7 of said revenue regulation:chanrob1es virtual 1aw
library
Section 7. Effectivity These regulations shall take effect on January 1, 1987 and
shall be applicable to all leases written on or after the said date.
The CTA ruled that, since BLCs rental income was all received prior to 1986, it follows
that this was derived from lease transactions prior to January 1, 1987, and hence, not
covered by the revenue regulation.
A motion for reconsideration of the CTAs decision was filed, but was denied in a
resolution dated July 26, 1995. 8 BLC then appealed the case to the Court of Appeals,
which issued the aforementioned assailed decision and resolution. 9 Hence, the
present petition.chanrob1es virtua1 1aw 1ibrary
In seeking to reverse the denial of its claim for tax refund, BLC submits that the Court
of Appeals and the CTA erred in not ruling that Revenue Regulation 19-86 may be
applied retroactively so as to allow BLCs claim for a refund of P777,117.05.
Respondents, on the other hand, maintain that the provision on the date of effectivity
of Revenue Regulation 19-86 is clear and unequivocal, leaving no room for
interpretation on its prospective application. In addition, respondents argue that the
petition should be dismissed on the ground that the Verification/Certification of NonForum Shopping was signed by the counsel of record and not by BLC, through a duly
authorized representative, in violation of Supreme Court Circular 28-91.

In a resolution dated March 29, 2000, 10 the petition was given due course and the
Court required the parties to file their respective Memoranda. Upon submission of the
Memoranda, the issues in this case were delineated, as follows: 11
WHETHER THE INSTANT PETITION FOR REVIEW ON CERTIORARI
SUBSTANTIALLY COMPLIES WITH SUPREME COURT CIRCULAR 28-91.
WHETHER REVENUE REGULATION 19-86, AS AMENDED, IS LEGISLATIVE OR
INTERPRETATIVE IN NATURE.
WHETHER REVENUE REGULATION 19-86, AS AMENDED, IS PROSPECTIVE OR
RETROACTIVE IN ITS APPLICATION.
WHETHER PETITIONER, AS FOUND BY THE COURT OF APPEALS, FAILED TO
MEET THE QUANTUM OF EVIDENCE REQUIRED IN REFUND CASES.
WHETHER PETITIONER, AS FOUND BY THE COURT OF APPEALS, IS
ESTOPPED FROM CLAIMING ITS PRESENT REFUND.chanrob1es virtua1 1aw
library
As to the first issue, the Court agrees with respondents contention that the petition
should be dismissed outright for failure to comply with Supreme Court Circular 28-91,
now incorporated as Section 2 of Rule 42 of the Rules of Court. The records plainly
show, and this has not been denied by BLC, that the certification was executed by
counsel who has not been shown to have specific authority to sign the same for BLC.
In BA Savings Bank v. Sia, 12 it was held that the certificate of non-forum shopping
may be signed, for and on behalf of a corporation, by a specifically authorized lawyer
who has personal knowledge of the facts required to be disclosed in such document.
This ruling, however, does not mean that any lawyer, acting on behalf of the
corporation he is representing, may routinely sign a certification of non-forum
shopping. The Court emphasizes that the lawyer must be "specifically authorized" in
order validly to sign the certification.
Corporations have no powers except those expressly conferred upon them by the
Corporation Code and those that are implied by or are incidental to its existence.
These powers are exercised through their board of directors and/or duly authorized
officers and agents. Hence, physical acts, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose by corporate
bylaws or by specific act of the board of directors. 13
The records are bereft of the authority of BLCs counsel to institute the present petition
and to sign the certification of non-forum shopping. While said counsel may be the
counsel of record for BLC, the representation does not vest upon him the authority to
execute the certification on behalf of his client. There must be a resolution issued by
the board of directors that specifically authorizes him to institute the petition and
execute the certification, for it is only then that his actions can be legally binding upon
BLC.
BLC however insists that there was substantial compliance with SC Circular No. 28-91

76

because the verification/certification was issued by a counsel who had full personal
knowledge that no other petition or action has been filed or is pending before any
other tribunal. According to BLC, said counsels law firm has handled this case from
the very beginning and could very well attest and/or certify to the absence of an
instituted or pending case involving the same or similar issues.

invalid for want of due process as no prior notice, publication and public hearing
attended the issuance thereof. To support its view, BLC cited CIR v. Fortune Tobacco,
Et Al., 17 wherein the Court nullified a revenue memorandum circular which
reclassified certain cigarettes and subjected them to a higher tax rate, holding it invalid
for lack of notice, publication and public hearing.

The argument of substantial compliance deserves no merit, given the Courts ruling in
Mendigorin v. Cabantog: 14

The doctrine enunciated in Fortune Tobacco, and reiterated in CIR v. Michel J. Lhuillier
Pawnshop, Inc., 18 is that when an administrative rule goes beyond merely providing
for the means that can facilitate or render less cumbersome the implementation of the
law and substantially increases the burden of those governed, it behooves the agency
to accord at least to those directly affected a chance to be heard and, thereafter, to be
duly informed, before the issuance is given the force and effect of law. In Lhuillier and
Fortune Tobacco, the Court invalidated the revenue memoranda concerned because
the same increased the tax liabilities of the affected taxpayers without affording them
due process. In this case, Revenue Regulation 19-86 would be beneficial to the
taxpayers as they are subjected to lesser taxes. Petitioner, in fact, is invoking
Revenue Regulation 19-86 as the very basis of its claim for refund. If it were invalid,
then petitioner all the more has no right to a refund.chanrob1es virtua1 1aw 1ibrary

. . . The CA held that there was substantial compliance with the Rules of Court, citing
Dimagiba v. Montalvo, Jr. [ 202 S CRA 641 ] to the effect that a lawyer who assumes
responsibility for a clients cause has the duty to know the entire history of the case,
especially if any litigation is commenced. This view, however, no longer holds
authoritative value in the light of Digital Microwave Corporation v. CA [328 SCRA 286],
where it was held that the reason the certification against forum shopping is required
to be accomplished by petitioner himself is that only the petitioner himself has actual
knowledge of whether or not he has initiated similar actions or proceedings in other
courts or tribunals. Even counsel of record may be unaware of such fact. To our mind,
this view is more in accord with the intent and purpose of Revised Circular No. 2891.chanrob1es virtua1 1aw 1ibrary
Clearly, therefore, the present petition lacks the proper certification as strictly required
by jurisprudence and the Rules of Court.
Even if the Court were to ignore the aforesaid procedural infirmity, a perusal of the
arguments raised in the petition, indicates that a resolution on the merits would
nevertheless yield the same outcome.
BLC attempts to convince the Court that Revenue Regulation 19-86 is legislative
rather than interpretative in character and hence, should retroact to the date of
effectivity of the law it seeks to interpret.
Administrative issuances may be distinguished according to their nature and
substance: legislative and interpretative. A legislative rule is in the matter of
subordinate legislation, designed to implement a primary legislation by providing the
details thereof. An interpretative rule, on the other hand, is designed to provide
guidelines to the law which the administrative agency is in charge of enforcing. 15
The Court finds the questioned revenue regulation to be legislative in nature. Section
1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to
Section 277 of the NIRC. Section 277 (now Section 244) is an express grant of
authority to the Secretary of Finance to promulgate all needful rules and regulations
for the effective enforcement of the provisions of the NIRC. In Paper Industries
Corporation of the Philippines v. Court of Appeals, 16 the Court recognized that the
application of Section 277 calls for none other than the exercise of quasi-legislative or
rule-making authority. Verily, it cannot be disputed that Revenue Regulation 19-86 was
issued pursuant to the rule-making power of the Secretary of Finance, thus making it
legislative, and not interpretative as alleged by BLC.

After upholding the validity of Revenue Regulation 19-86, the Court now resolves
whether its application should be prospective or retroactive.
The principle is well entrenched that statutes, including administrative rules and
regulations, operate prospectively only, unless the legislative intent to the contrary is
manifest by express terms or by necessary implication. 19 In the present case, there
is no indication that the revenue regulation may operate retroactively. Furthermore,
there is an express provision stating that it "shall take effect on January 1, 1987," and
that it "shall be applicable to all leases written on or after the said date." Being clear on
its prospective application, it must be given its literal meaning and applied without
further interpretation. 20 Thus, BLC is not in a position to invoke the provisions of
Revenue Regulation 19-86 for lease rentals it received prior to January 1, 1987.
It is also apt to add that tax refunds are in the nature of tax exemptions. As such,
these are regarded as in derogation of sovereign authority and are to be strictly
construed against the person or entity claiming the exemption. The burden of proof is
upon him who claims the exemption and he must be able to justify his claim by the
clearest grant under Constitutional or statutory law, and he cannot be permitted to rely
upon vague implications. 21 Nothing that BLC has raised justifies a tax refund.
It is not necessary to rule on the remaining issues,
WHEREFORE, the petition for review is hereby DENIED, and the assailed decision
and resolution of the Court of Appeals are AFFIRMED. No pronouncement as to
costs.chanrob1es virtua1 1aw 1ibrary
SO ORDERED.
Davide, Jr., C.J., Panganiban, Ynares-Santiago and Carpio, JJ., concur.

BLC further posits that, assuming the revenue regulation is legislative in nature, it is

77

amnesty on unpaid income taxes, later amended to include estate and donors taxes
and taxes on business, for the taxable years 1981 to 1985.chanroblesvirtuallawlibrary
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. THE HON. COURT OF
APPEALS, R.O.H. AUTO PRODUCTS PHILIPPINES, INC. and THE HON. COURT
OF TAX APPEALS, Respondents.
SYLLABUS
1. ADMINISTRATIVE LAW; ADMINISTRATIVE OPINIONS AND RULINGS
CONSISTENT AND IN HARMONY WITH THE LAW THEY SEEK TO APPLY AND
IMPLEMENT, DESERVE WEIGHT AND RESPECT BY THE COURTS. The
authority of the Minister of Finance (now the Secretary of Finance), in conjunction with
the Commissioner of Internal Revenue, to promulgate all needful rules and regulations
for the effective enforcement of internal revenue laws cannot be controverted. Neither
can it be disputed that such rules and regulations, as well as administrative opinions
and rulings, ordinarily should deserve weight and respect by the courts. Much more
fundamental than either of the above, however, is that all such issuances must not
override, but must remain consistent and in harmony with, the law they seek to apply
and implement. Administrative rules and regulations are intended to carry out, neither
to supplant nor to modify, the law.
2. STATUTORY CONSTRUCTION; THERE IS NO NEED OF INTERPRETATION NOT
WHERE NECESSARY LAW IS CLEAR AND EXPLICIT; SCOPE OF EXECUTIVE
ORDER NO. 41, EXPLICIT AND REQUIRES NOTHING BEYOND ITS SIMPLE
APPLICATIONS; CASE AT BAR. We agree with both the court of Appeals and
Court of Tax Appeals that Executive Order No. 41 is quite explicit and requires hardly
anything beyond a simple application of its provisions. It reads: "SEC. 1. Scope of
Amnesty. A one-time tax amnesty covering unpaid income taxes for the years 1981
to 1985 is hereby declared. The period of the amnesty was later extended to 05
December 1986 from 31 October 1986 by Executive Order No. 54, dated 04
November 1986, and, its coverage expanded, under Executive Order No. 64, dated 17
November 1986, to include estate and honors taxes and taxes on business. If, as the
Commissioner argues, Executive Order No. 41 had not been intended to include
1981-1985 tax liabilities already assessed (administratively) prior to 22 August 1986,
the law could have simply so provided in its exclusionary clauses. It did not. The
conclusion is unavoidable, and it is that the executive order has been designed to be
in the nature of a general grant of tax amnesty subject only to the cases specifically
excepted by it.
DECISION
VITUG, J.:
On 22 August 1986, during the period when the President of the Republic still wielded
legislative powers, Executive Order No. 41 was promulgated declaring a one-time tax

Availing itself of the amnesty, respondent R.O.H. Auto Products Philippines, Inc., filed,
in October 1986 and November 1986, its Tax Amnesty Return No. 34-F-00146-41 and
Supplemental Tax Amnesty Return No. 34-F-00146-64-B, respectively, and paid the
corresponding amnesty taxes due.
Prior to this availment, petitioner Commissioner of Internal Revenue, in a
communication received by private respondent on 13 August 1986, assessed the
latter deficiency income and business taxes for its fiscal years ended 30 September
1981 and 30 September 1982 in an aggregate amount of P1,410,157.71. The
taxpayer wrote back to state that since it had been able to avail itself of the tax
amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn. The
request was denied by the Commissioner, in his letter of 22 November 1988, on the
ground that Revenue Memorandum Order No. 4-87, dated 09 February 1987,
implementing Executive Order No. 41, had construed the amnesty coverage to include
only assessments issued by the Bureau of Internal Revenue after the promulgation of
the executive order on 22 August 1986 and not to assessments theretofore made. The
invoked provisions of the memorandum order read:jgc:chanrobles.com.ph
"TO: All Internal Revenue Officers and Others Concerned:jgc:chanrobles.com.ph
"1.0. To give effect and substance to the immunity provisions of the tax amnesty under
Executive Order No. 41, as expanded by Executive Order No. 64, the following
instructions are hereby issued:jgc:chanrobles.com.ph
"x

"1.02. A certification by the Tax Amnesty Implementation Officer of the fact of

availment of the said tax amnesty shall be a sufficient basis for:jgc:chanrobles.com.ph
"x

"1.02.3. In appropriate cases, the cancellation/withdrawal of assessment notices and

letters of demand issued after August 21, 1986 for the collection of income, business,
estate or donors taxes due during the same taxable years. 1 (Emphasis supplied)
Private respondent appealed the Commissioners denial to the Court of Tax Appeals.
Ruling for the taxpayer, the tax court said:jgc:chanrobles.com.ph
"Respondent (herein petitioner Commissioner) failed to present any case or law which
proves that an assessment can withstand or negate the force and effects of a tax
amnesty. This burden of proof on the petitioner (herein respondent taxpayer) was
created by the clear and express terms of the executive orders intention qualified
availers of the amnesty may pay an amnesty tax in lieu of said unpaid taxes which are
forgiven (Section 2, Section 5, Executive Order No. 41, as amended). More
specifically, the plain provisions in the statute granting tax amnesty for unpaid taxes
for the period January 1, 1981 to December 31, 1985 shifted the burden of proof on
respondent to show how the issuance of an assessment before the date of the

78

promulgation of the executive order could have a reasonable relation with the
objective periods of the amnesty, so as to make petitioner still answerable for a tax
liability which, through the statute, should have been erased with the proper availment
of the amnesty.
"Additionally, the exceptions enumerated in Section 4 of Executive Order No. 41, as
amended, do not indicate any reference to an assessment or pending investigation
aside from one arising from information furnished by an informer. . . . Thus, we deem
that the rule in Revenue Memorandum Order No. 4-87 promulgating that only
assessments issued after August 21, 1986 shall be abated by the amnesty is beyond
the contemplation of Executive Order No. 41, as amended." 2
On appeal by the Commissioner to the Court of Appeals, the decision of the tax court
was affirmed. The appellate court further observed:chanroblesvirtuallawlibrary
"In the instant case, examining carefully the words used in Executive Order No. 41, as
amended, we find nothing which justifies petitioner Commissioners ground for
denying respondent taxpayers claim to the benefits of the amnesty law. Section 4 of
the subject law enumerates, in no uncertain terms, taxpayers who may not avail of the
amnesty granted,. . . .
"Admittedly, respondent taxpayer does not fall under any of the . . . exceptions. The
added exception urged by petitioner Commissioner based on Revenue Memorandum
Order No. 4-87, further restricting the scope of the amnesty clearly amounts to an act
of administrative legislation quite contrary to the mandate of the law which the
regulation ought to implement.
"x

EXTINGUISHED BY REASON OR PRIVATE RESPONDENTS AVAILMENT OF

EXECUTIVE ORDER NO. 41 AS AMENDED BY EXECUTIVE ORDER NO. 64;
"3. WHETHER OR NOT PRIVATE RESPONDENT HAS OVERCOME THE
PRESUMPTION OF VALIDITY OF ASSESSMENTS." 4
The authority of the Minister of Finance (now the Secretary of Finance), in conjunction
with the Commissioner of Internal Revenue, to promulgate all needful rules and
regulations for the effective enforcement of internal revenue laws cannot be
controverted. Neither can it be disputed that such rules and regulations, as well as
administrative opinions and rulings, ordinarily should deserve weight and respect by
the courts. Much more fundamental than either of the above, however, is that all such
issuances must not override, but must remain consistent and in harmony with, the law
they seek to apply and implement. Administrative rules and regulations are intended to
carry out, neither to supplant nor to modify, the law.
The real and only issue is whether or not the position taken by the Commissioner
coincides with the meaning and intent of executive Order No. 41.
We agree with both the court of Appeals and Court of Tax Appeals that Executive
Order No. 41 is quite explicit and requires hardly anything beyond a simple application
of its provisions. It reads:chanroblesvirtuallawlibrary
"SEC. 1. Scope of Amnesty. A one-time tax amnesty covering unpaid income taxes
for the years 1981 to 1985 is hereby declared.
"SEC. 2. Conditions of the Amnesty. A taxpayer who wishes to avail himself of the
tax amnesty shall, on or before October 31, 1986;

"Lastly, by its very nature, a tax amnesty, being a general pardon or intentional
overlooking by the State of its authority to impose penalties on persons otherwise
guilty of evasion or violation of a revenue or tax law, partakes of an absolute
forgiveness or waiver by the Government of its right to collect what otherwise would
be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who
wish to relent and are willing to reform a chance to do so and thereby become a part
of the new society with a clean slate. (Republic v. Intermediate Appellate Court. 196
SCRA 335, 340 [1991] citing Commissioner of Internal Revenue v. Botelho Shipping
Corp., 20 SCRA 487) To follow [the restrictive application of Revenue Memorandum
Order No. 4-87 pressed by petitioner Commissioner would be to work against the
raison detre of E.O. 41, as amended, i.e., to raise government revenues by
encouraging taxpayers to declare their untaxed income and pay the tax due thereon.
(E.O. 41, first paragraph)] 3

"a) file a sworn statement declaring his net worth as of December 31, 1985;

In this petition for review, the Commissioner raises these related

issues:jgc:chanrobles.com.ph

"a) Non-cash assets shall be valued at acquisition cost.

"1. WHETHER OR NOT REVENUE MEMORANDUM ORDER NO. 4-87,

PROMULGATED TO IMPLEMENT E.O. NO. 41, IS VALID;
"2. WHETHER OR NOT SAID DEFICIENCY ASSESSMENTS IN QUESTION WERE

"b) file a certified true copy of his statement declaring his net worth as of December
31, 1980 on record with the Bureau of Internal Revenue, or if no such record exists,
file a statement of said net worth therewith, subject to verification by the Bureau of
Internal Revenue;
"c) file a return and pay a tax equivalent to ten per cent (10%) of the increase in net
worth from December 31, 1980 to December 31, 1985: Provided, That in no case shall
the tax be less than P5,000.00 for individuals and P10,000.00 for judicial persons.
"Sec. 3. Computation of Net Worth. In computing the net worths referred to in
Section 2 hereof, the following rules shall govern:jgc:chanrobles.com.ph

"b) Foreign currencies shall be valued at the rates of exchange prevailing as of the
date of the net worth statement.
"Sec. 4. Exceptions. The following taxpayers may not avail themselves of the
amnesty herein granted:jgc:chanrobles.com.ph

79

"b) Those with income tax cases already filed in Court as of the effectivity hereof;

particularly in the payment of taxes, to the martial law regime. it should be

understandable then that those who ultimately took over the reigns of government
following the successful revolution would promptly provide for abroad, and not a
confined, tax amnesty.chanroblesvirtuallawlibrary

"c) Those with criminal cases involving violations of the income tax already filed in
court as of the effectivity filed in court as of the effectivity hereof;

Relative to the two other issued raised by the Commissioner, we need only quote from
Executive Order No. 41 itself; thus:jgc:chanrobles.com.ph

"d) Those that have withholding tax liabilities under the National Internal Revenue
Code, as amended, insofar as the said liabilities are concerned;

"SEC. 6. Immunities and Privileges. Upon full compliance with the conditions of the
tax amnesty and the rules and regulations issued pursuant to this Executive order, the
taxpayer shall enjoy the following immunities and privileges:jgc:chanrobles.com.ph

"a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14;

"e) Those with tax cases pending investigation by the Bureau of Internal Revenue as
of the effectivity hereof as a result of information furnished under Section 316 of the
National Internal Revenue Code, as amended;
"f) Those with pending cases involving unexplained or unlawfully acquired wealth
before the Sandiganbayan;
"g) Those liable under Title Seven, Chapter Three (Frauds, Illegal Exactions and
Transactions) and Chapter Four (Malversation of Public Funds and Property) of the
Revised Penal Code, as amended.
"x

"SEC. 9. The Minister of finance, upon the recommendation of the Commissioner of

Internal Revenue, shall promulgate the necessary rules and regulations to implement
this Executive Order.chanroblesvirtuallawlibrary
"x

"SEC. 11. This Executive Order shall take effect immediately.

"DONE in the City of Manila, this 22nd day of August in the year of Our Lord, nineteen
hundred and eighty-six."cralaw virtua1aw library
The period of the amnesty was later extended to 05 December 1986 from 31 October
1986 by Executive Order No. 54, dated 04 November 1986, and, its coverage
expanded, under Executive Order No. 64, dated 17 November 1986, to include estate
and honors taxes and taxes on business.

"a) The taxpayer shall be relieved of any income tax liability on any untaxed income
from January 1, 1981 to December 31, 1985, including increments thereto and
penalties on account of the non-payment of the said tax. Civil, criminal or
administrative liability arising from the non-payment of the said tax, which are
actionable under the National Internal Revenue Code, as amended, are likewise
deemed extinguished.
"b) The taxpayers tax amnesty declaration shall not be admissible in evidence in all
proceedings before judicial, quasi-judicial or administrative bodies, in which he is a
defendant or respondent, and the same shall not be examined, inquired or looked into
by any person, government official, bureau or office.chanroblesvirtuallawlibrary
"c) The books of account and other records of the taxpayer for the period from
January 1, 1981 to December 31, 1985 shall not be examined for income tax
purposes: Provided, That the Commissioner of Internal Revenue may authorize in
writing the examination of the said books of accounts and other records to verify the
validity or correctness of a claim for grant of any tax refund, tax credit (other than
refund on credit of withheld taxes on wages), tax incentives, and/or exemptions under
existing laws."cralaw virtua1aw library
There is no pretension that the tax amnesty returns and due payments made by the
taxpayer did not conform with the conditions expressed in the amnesty
order.cralawnad
WHEREFORE, the decision of the court of Appeals, sustaining that of the court of Tax
Appeals, is hereby AFFIRMED in toto. No costs.
Feliciano, Bidin, Romero and Melo, JJ., concur.

If, as the Commissioner argues, Executive Order No. 41 had not been intended to
include 1981-1985 tax liabilities already assessed (administratively) prior to 22 August
1986, the law could have simply so provided in its exclusionary clauses. It did not. The
conclusion is unavoidable, and it is that the executive order has been designed to be
in the nature of a general grant of tax amnesty subject only to the cases specifically
excepted by it.

LA BUGAL BLAAN TRIBAL ASSOCIATION INC., et. al. v. VICTOR O. RAMOS,

Secretary Department of Environment and Natural Resources; HORACIO

It might not be amiss to recall that the taxable periods covered by the amnesty include
the years immediately preceding the 1986 revolution during which time there had
been persistent calls, all too vivid to be easily forgotten, for civil disobedience, most

80

RAMOS, Director, Mines and Geosciences Bureau (MGB-DENR); RUBEN

TORRES, Executive Secretary; and WMC (PHILIPPINES) INC.

In January 2001, WMC - a publicly listed Australian mining and exploration company -

G.R. No. 127882, 27 January 2004, En Banc (Carpio-Morales, J.)

sold its whole stake in WMCP to Sagittarius Mines, 60% of which is owned by Filipinos
while 40% of which is owned by Indophil Resources, an Australian company. DENR

The constitutional provision allowing the President to enter into FTAA is a

approved the transfer and registration of the FTAA in Sagittarius name but Lepanto

exception to the rule that participation in the nations natural resources is

Consolidated assailed the same. The latter case is still pending before the Court of

reserved exclusively to Filipinos. Provision must be construed strictly against

Appeals.

their enjoyment by non-Filipinos.

EO 279, issued by former President Aquino on July 25, 1987, authorizes the DENR to
FACTS: RA 7942 (The Philippine Mining Act) took effect on April 9, 1995. Before the

accept, consider and evaluate proposals from foreign owned corporations or foreign

effectivity of RA 7942, or on March 30, 1995, the President signed a Financial and

investors for contracts or agreements involving wither technical or financial assistance

Technical Assistance Agreement (FTAA) with WMCP, a corporation organized under

for large scale exploration, development and utilization of minerals which upon

Philippine laws, covering close to 100,000 hectares of land in South Cotabato, Sultan

appropriate recommendation of the (DENR) Secretary, the President may execute

Kudarat, Davao del Sur and North Cotabato. On August 15, 1995, the Environment

with the foreign proponent. WMCP likewise contended that the annulment of the FTAA

Secretary Victor Ramos issued DENR Administrative Order 95-23, which was later

would violate a treaty between the Philippines and Australia which provides for the

repealed by DENR Administrative Order 96-40, adopted on December 20, 1996.

protection of Australian investments.

Petitioners prayed that RA 7942, its implementing rules, and the FTAA between the

ISSUES:

government and WMCP be declared unconstitutional on ground that they allow fully

1.

Whether or not the Philippine Mining Act is unconstitutional for

foreign owned corporations like WMCP to exploit, explore and develop Philippine

allowing fully foreign-owned corporations to exploit the Philippine mineral

mineral resources in contravention of Article XII Section 2 paragraphs 2 and 4 of the

resources.

Charter.

81

2.

Whether or not the FTAA between the government and WMCP is

a service contract that permits fully foreign owned companies to exploit

utilization of inalienable lands of the public domain through license, concession or

lease is no longer allowed under the 1987 Constitution.

the Philippine mineral resources.

HELD:

Under the concession system, the concessionaire makes a direct equity investment
for the purpose of exploiting a particular natural resource within a given area. The

First Issue: RA 7942 is Unconstitutional

concession amounts to complete control by the concessionaire over the countrys

natural resource, for it is given exclusive and plenary rights to exploit a particular

RA 7942 or the Philippine Mining Act of 1995 is unconstitutional for permitting fully

resource at the point of extraction.

foreign owned corporations to exploit the Philippine natural resources.

The 1987 Constitution, moreover, has deleted the phrase management or other
Article XII Section 2 of the 1987 Constitution retained the Regalian Doctrine which

forms of assistance in the 1973 Charter. The present Constitution now allows only

states that All lands of the public domain, waters, minerals, coal, petroleum, and

technical and financial assistance. The management and the operation of the

other minerals, coal, petroleum, and other mineral oils, all forces of potential energy,

mining activities by foreign contractors, the primary feature of the service contracts

fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are

was precisely the evil the drafters of the 1987 Constitution sought to avoid.

owned by the State. The same section also states that, the exploration and
development and utilization of natural resources shall be under the full control and

The constitutional provision allowing the President to enter into FTAAs is an exception

supervision of the State.

to the rule that participation in the nations natural resources is reserved exclusively to
Filipinos. Accordingly, such provision must be construed strictly against their

Conspicuously absent in Section 2 is the provision in the 1935 and 1973 Constitution

enjoyment by non-Filipinos. Therefore, RA 7942 is invalid insofar as the said act

authorizing the State to grant licenses, concessions, or leases for the exploration,

authorizes service contracts. Although the statute employs the phrase financial and

exploitation, development, or utilization of natural resources. By such omission, the

technical agreements in accordance with the 1987 Constitution, its pertinent

82

provisions actually treat these agreements as service contracts that grant beneficial

Under Article XII Section 2 of the 1987 Charter, foreign owned corporations are limited

ownership to foreign contractors contrary to the fundamental law.

only to merely technical or financial assistance to the State for large scale exploration,
development and utilization of minerals, petroleum and other mineral oils.

The underlying assumption in the provisions of the law is that the foreign contractor
manages the mineral resources just like the foreign contractor in a service contract.

Second Issue: RP Government-WMCP FTAA is a Service Contract

By allowing foreign contractors to manage or operate all the aspects of the mining
operation, RA 7942 has, in effect, conveyed beneficial ownership over the nations

The FTAA between he WMCP and the Philippine government is likewise

mineral resources to these contractors, leaving the State with nothing but bare title

unconstitutional since the agreement itself is a service contract.

thereto.
Section 1.3 of the FTAA grants WMCP a fully foreign owned corporation, the exclusive
The same provisions, whether by design or inadvertence, permit a circumvention of

right to explore, exploit, utilize and dispose of all minerals and by-products that may be

the constitutionally ordained 60-40% capitalization requirement for corporations or

produced from the contract area. Section 1.2 of the same agreement provides that

associations engaged in the exploitation, development and utilization of Philippine

EMCP shall provide all financing, technology, management, and personnel necessary

natural resources.

for the Mining Operations.

When parts of a statute are so mutually dependent and connected as conditions,

These contractual stipulations and related provisions in the FTAA taken together, grant

considerations, inducements or compensations for each other as to warrant a belief

WMCP beneficial ownership over natural resources that properly belong to the State

that the legislature intended them as a whole, then if some parts are unconstitutional,

and are intended for the benefit of its citizens. These stipulations are abhorrent to the

all provisions that are thus dependent, conditional or connected, must fail with them.

1987 Constitution. They are precisely the vices that the fundamental law seeks to
avoid, the evils that it aims to suppress. Consequently, the contract from which they
spring must be struck down.

83

Facts :
Issue :
On July 25, 1987, then President Corazon C. Aquino issued Executive Order (E.O.)
No. 2796 authorizing the DENR Secretary to accept, consider and evaluate proposals
from foreign-owned corporations or foreign investors for contracts or agreements
involving either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, which, upon appropriate recommendation of
the Secretary, the President may execute with the foreign proponent.
On March 3, 1995, then President Fidel V. Ramos approved R.A. No. 7942 to "govern
the exploration, development, utilization and processing of all mineral resources." R.A.
No. 7942 defines the modes of mineral agreements for mining operations, outlines the
procedure for their filing and approval, assignment/transfer and withdrawal, and fixes
their terms. Similar provisions govern financial or technical assistance agreements.
On April 9, 1995, 30 days following its publication on March 10, 1995 in Malaya and
Manila Times, two newspapers of general circulation, R.A. No. 7942 took effect.
Shortly before the effectivity of R.A. No. 7942, however, or on March 30, 1995, the
President entered into an FTAA with WMCP covering 99,387 hectares of land in South
Cotabato, Sultan Kudarat, Davao del Sur and North Cotabato.
On August 15, 1995, then DENR Secretary Victor O. Ramos issued DENR
Administrative Order (DAO) No. 95-23, s. 1995, otherwise known as the Implementing
Rules and Regulations of R.A. No. 7942. This was later repealed by DAO No. 96-40,
s. 1996 which was adopted on December 20, 1996.

Whether or not Republic Act No. 7942 is unconstitutional.

Ruling :
The Court finds the following provisions of R.A. No. 7942 to be violative of Section 2,
Article XII of the Constitution and hereby declares unconstitutional and void:
(1) The proviso in Section 3 (aq), which defines "qualified person," to wit:
Provided, That a legally organized foreign-owned corporation shall be deemed a
qualified person for purposes of granting an exploration permit, financial or technical
assistance agreement or mineral processing permit.
(2) Section 23, which specifies the rights and obligations of an exploration permittee,
insofar as said section applies to a financial or technical assistance agreement,
(3) Section 33, which prescribes the eligibility of a contractor in a financial or technical
assistance agreement;
(4) Section 35, which enumerates the terms and conditions for every financial or
technical assistance agreement;
(5) Section 39, which allows the contractor in a financial and technical assistance
agreement to convert the same into a mineral production-sharing agreement;

On January 10, 1997, counsels for petitioners sent a letter to the DENR Secretary
demanding that the DENR stop the implementation of R.A. No. 7942 and DAO No. 9640, giving the DENR fifteen days from receipt to act thereon. The DENR, however, has
yet to respond or act on petitioners' letter.

(6) Section 56, which authorizes the issuance of a mineral processing permit to a
contractor in a financial and technical assistance agreement;
The following provisions of the same Act are likewise void as they are dependent on
the foregoing provisions and cannot stand on their own:

Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction.

(1) Section 3 (g), which defines the term "contractor," insofar as it applies to a financial
or technical assistance agreement.

They pray that the Court issue an order:

(a) Permanently enjoining respondents from acting on any application for Financial or
Technical Assistance Agreements;
(b) Declaring the Philippine Mining Act of 1995 or Republic Act No. 7942 as
unconstitutional and null and void;
(c) Declaring the Implementing Rules and Regulations of the Philippine Mining Act
contained in DENR Administrative Order No. 96-40 and all other similar administrative
issuances as unconstitutional and null and void; and
(d) Cancelling the Financial and Technical Assistance Agreement issued to Western
Mining Philippines, Inc. as unconstitutional, illegal and null and void.

Section 34, which prescribes the maximum contract area in a financial or technical
assistance agreements;
Section 36, which allows negotiations for financial or technical assistance agreements;
Section 37, which prescribes the procedure for filing and evaluation of financial or
technical assistance agreement proposals;
Section 38, which limits the term of financial or technical assistance agreements;

84

Section 40, which allows the assignment or transfer of financial or technical assistance
agreements;
Section 41, which allows the withdrawal of the contractor in an FTAA;
The second and third paragraphs of Section 81, which provide for the Government's
share in a financial and technical assistance agreement; and
Section 90, which provides for incentives to contractors in FTAAs insofar as it applies
to said contractors;
When the parts of the statute are so mutually dependent and connected as conditions,
considerations, inducements, or compensations for each other, as to warrant a belief
that the legislature intended them as a whole, and that if all could not be carried into
effect, the legislature would not pass the residue independently, then, if some parts
are unconstitutional, all the provisions which are thus dependent, conditional, or
connected, must fall with them.
WHEREFORE, the petition is GRANTED.

MAURICIO CRUZ, Petitioner-Appellant, v. STANTON YOUNGBERG, Director of

the Bureau of Animal Industry, Respondent-Appellee.
Jose Yulo, for Appellant.
Solicitor-General Reyes, for Appellee.
SYLLABUS
1. STATUTES; CONSTITUTIONALITY OF. Act No. 3155 is entirely valid. The
Legislature passed this Act to protect the cattle industry of the country and to prevent
the introduction of cattle diseases through the importation of foreign cattle. It is now
generally recognized that the promotion of industries affecting the public welfare and
the development of the resources of the country are objects within the scope of the
police power (12 C. J., 927; 6 R. C. L., 203-206, and decision cited therein; Reid v.
Colorado, 187 U.S., 137, 147, 152; Yeazel v. Alexander, 58 Ill., 254.) It has been
shown that at the time Act No. 3155 was promulgated there was reasonable necessity
therefor and it cannot be said that the Legislature exceeded its power in passing the
Act. That being so, it is not for this court to avoid or vacate the Act upon constitutional
grounds nor will it assume to determine whether the measures are wise or the best
that might have been adopted. (6 R. C. L., 243 and decisions cited therein.)
2. ID.; DELEGATION OF POWER. The power given by Act No. 3155 to the
Governor-General to suspend or not, at his discretion, the prohibition provided in the
Act does not constitute an unlawful delegation of the legislative powers, but confers an
authority or discretion as to its execution, to be exercised under and in pursuance of

the law. The first cannot be done; to the latter no valid objection can be made.
3. ID.; TARIFF LAW, ACT NO. 3155 AMENDMENT OF. Act No. 3155 is not an
absolute prohibition of the importation of cattle and it does not add any provision to
section 3 of the Tariff Law. It is not an amendment of the Tariff Law.

his is a petition brought originally before the Court of First Instance of Manila for the
issuance of a writ of mandatory injunction against the respondent, Stanton Youngberg,
as Director of the Bureau of Animal Industry, requiring him to issue a permit for the
landing of ten large cattle imported by the petitioner and for the slaughter thereof. The
petitioner attacked the constitutionality of Act No. 3155, which at present prohibits the
importation of cattle from foreign countries into the Philippine Islands.
Among other things in the allegation of the petition, it is asserted that "Act No. 3155 of
the Philippine Legislature was enacted for the sole purpose of preventing the
introduction of cattle diseases into the Philippine Islands from foreign countries, as
shown by an explanatory note and text of Senate Bill No. 328 as introduced in the
Philippine Legislature, ... ." The Act in question reads as follows:
SECTION 1. After March thirty-first, nineteen hundred and twenty-five
existing contracts for the importation of cattle into this country to the
contrary notwithstanding, it shall be strictly prohibited to import, bring or
introduce into the Philippine Islands any cattle from foreign
countries: Provided, however, That at any time after said date, the
Governor-General, with the concurrence of the presiding officers of both
Houses, may raise such prohibition entirely or in part if the conditions of the
country make this advisable or if decease among foreign cattle has ceased
to be a menace to the agriculture and live stock of the lands.
SEC. 2. All acts or parts of acts inconsistent with this Act are hereby
repealed.
SEC. 3. This Act shall take effect on its approval.
Approved, March 8, 1924.
The respondent demurred to the petition on the ground that it did not state facts
sufficient to constitute a cause of action. The demurrer was based on two reasons,
namely, (1) that if Act No. 3155 were declared unconstitutional and void, the petitioner
would not be entitled to the relief demanded because Act No. 3052 would
automatically become effective and would prohibit the respondent from giving the
permit prayed for; and (2) that Act No. 3155 was constitutional and, therefore, valid.

85

The court sustained the demurrer and the complaint was dismissed by reason of the
failure of the petitioner to file another complaint. From that order of dismissal, the
petitioner appealed to this court.
The appellee contends that even if Act No. 3155 be declared unconstitutional by the
fact alleged by the petitioner in his complaint, still the petitioner can not be allowed to
import cattle from Australia for the reason that, while Act No. 3155 were declared
unconstitutional, Act No. 3052 would automatically become effective. Act No. 3052
reads as follows:
SECTION 1. Section seventeen hundred and sixty-two of Act Numbered
Twenty-seven hundred and eleven, known as the Administrative Code, is
hereby amended to read as follows:
"SEC. 1762. Bringing of animals imported from foreign countries
into the Philippine Islands. It shall be unlawful for any person or
corporation to import, bring or introduce live cattle into the
Philippine Islands from any foreign country. The Director of
Agriculture may, with the approval of the head of the department
first had, authorize the importation, bringing or introduction of
various classes of thoroughbred cattle from foreign countries for
breeding the same to the native cattle of these Islands, and such
as may be necessary for the improvement of the breed, not to
exceed five hundred head per annum: Provided, however, That
the Director of Agriculture shall in all cases permit the importation,
bringing or introduction of draft cattle and bovine cattle for the
manufacture of serum:Provided, further, That all live cattle from
foreign countries the importation, bringing or introduction of which
into the Islands is authorized by this Act, shall be submitted to
regulations issued by the Director of Agriculture, with the approval
of the head of the department, prior to authorizing its transfer to
other provinces.
"At the time of the approval of this Act, the Governor-General
shall issue regulations and others to provide against a raising of
the price of both fresh and refrigerated meat. The GovernorGeneral also may, by executive order, suspend, this prohibition for
a fixed period in case local conditions require it."
SEC. 2. This Act shall take effect six months after approval.

Industry to grant the petitioner a permit for the importation of the cattle without the
approval of the head of the corresponding department.
An unconstitutional statute can have no effect to repeal former laws or parts
of laws by implication, since, being void, it is not inconsistent with such
former laws. (I Lewis Sutherland, Statutory Construction 2nd ed., p. 458,
citing McAllister vs. Hamlin, 83 Cal., 361; 23 Pac., 357; Orange Country vs.
Harris, 97 Cal., 600; 32 Pac., 594; Carr vs. State, 127 Ind., 204; 11 L.R.A.,
370, etc.)
This court has several times declared that it will not pass upon the constitutionality of
statutes unless it is necessary to do so (McGirr vs. Hamilton and Abreu, 30 Phil., 563,
568; Walter E. Olsen & Co. vs. Aldanese and Trinidad, 43 Phil., 259) but in this case it
is not necessary to pass upon the validity of the statute attacked by the petitioner
because even if it were declared unconstitutional, the petitioner would not be entitled
to relief inasmuch as Act No. 3052 is not in issue.
But aside from the provisions of Act No. 3052, we are of the opinion that Act No. 3155
is entirely valid. As shown in paragraph 8 of the amended petition, the Legislature
passed Act No. 3155 to protect the cattle industry of the country and to prevent the
introduction of cattle diseases through importation of foreign cattle. It is now generally
recognized that the promotion of industries affecting the public welfare and the
development of the resources of the country are objects within the scope of the police
power (12 C.J., 927; 6 R.C.L., 203-206 and decisions cited therein; Reid vs. Colorado,
187 U.S., 137, 147, 152; Yeazel vs. Alexander, 58 Ill., 254). In this connection it is said
in the case of Punzalan vs. Ferriols and Provincial Board of Batangas (19 Phil., 214),
that the provisions of the Act of Congress of July 1, 1902, did not have the effect of
denying to the Government of the Philippine Islands the right to the exercise of the
sovereign police power in the promotion of the general welfare and the public interest.
The facts recited in paragraph 8 of the amended petition shows that at the time the Act
No. 3155 was promulgated there was reasonable necessity therefor and it cannot be
said that the Legislature exceeded its power in passing the Act. That being so, it is not
for this court to avoid or vacate the Act upon constitutional grounds nor will it assume
to determine whether the measures are wise or the best that might have been
adopted. (6 R.C.L., 243 and decisions cited therein.)1awphil.net
In his third assignment of error the petitioner claims that "The lower court erred in not
holding that the power given by Act No. 3155 to the Governor-General to suspend or
not, at his discretion, the prohibition provided in the act constitutes an unlawful
delegation of the legislative powers." We do not think that such is the case; as Judge
Ranney of the Ohio Supreme Court in Cincinnati, Wilmington and Zanesville Railroad
Co. vs. Commissioners of Clinton County (1 Ohio St., 77, 88) said in such case:

Approved, March 14, 1922.

The petitioner does not present any allegations in regard to Act No. 3052 to show its
nullity or unconstitutionality though it appears clearly that in the absence of Act No.
3155 the former act would make it impossible for the Director of the Bureau of Animal

The true distinction, therefore, is between the delegation of power to make

the law, which necessarily involves a discretion as to what it shall be, and
conferring an authority or discretion as to its execution, to be exercised
under and in pursuance of the law. The first cannot be done; to the latter no
valid objection can be made.

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Under his fourth assignment of error the appellant argues that Act No. 3155 amends
section 3 of the Tariff Law, but it will be noted that Act No. 3155 is not an absolute
prohibition of the importation of cattle and it does not add any provision to section 3 of
the Tariff Law. As stated in the brief of the Attorney-General: "It is a complete statute in
itself. It does not make any reference to the Tariff Law. It does not permit the
importation of articles, whose importation is prohibited by the Tariff Law. It is not a tariff
measure but a quarantine measure, a statute adopted under the police power of the
Philippine Government. It is at most a `supplement' or an `addition' to the Tariff Law.
(See MacLeary vs. Babcock, 82 N.E., 453, 455; 169 Ind., 228 for distinction between
`supplemental' and `amendatory' and O'Pry vs. U.S., 249 U.S., 323; 63 Law. ed., 626,
for distinction between `addition' and `amendment.')"
The decision appealed from is affirmed with the costs against the appellant. So
ordered.
Avancea, C.J., Johnson, Street, Malcolm, Villamor, Romualdez, Villa-Real, and
Imperial, JJ., concur.

TAYUG RURAL BANK, Plaintiff-Appellee, v. CENTRAL BANK OF THE

PHILIPPINES, Defendant-Appellant.
Bengzon, Bengzon, Villaroman & De Vera Law Office for Plaintiff-Appellee.
Evangelista, Bautista & Valdehuesa Law Office, for Defendant-Appellant.
DECISION
PARAS, J.:
Submitted on May 20, 1977 for decision by this Court is this appeal from the decision
dated January 6, 1971 rendered by the Court of First Instance of Manila, Branch III in
Civil Case No. 76920, the decretal portion of which states as
follows:jgc:chanrobles.com.ph
"WHEREFORE, judgment is rendered for the plaintiff on the complaint and the
defendant is ordered to further credit the plaintiff the amounts collected as 10%
penalty in the sum of P19,335.88 or up to July 15, 1969 and to refrain from collecting
the said 10% penalty on the remaining past due loans of plaintiff with the defendant.
With respect to defendants counterclaim, judgment is hereby rendered against the
plaintiff and the defendant is ordered to pay the Central Bark of the Philippines the
outstanding balance of its past overdue accounts in the sum of P444,809.45 plus
accrued interest at the rate of 1/2 of 1% per annum with respect to the promissory

notes (Annexes 1 to 1-E of defendants Answer) and 2-1/2% per annum with respect
to the promissory notes (Annexes 1-f to 1-i of the Answer). From this amount shall be
deducted the sum of P19,335.88 collected as 10% penalty."cralaw virtua1aw library
The facts of the case based on the parties stipulation of facts (Record on Appeal, p.
67), are as follows:chanrob1es virtual 1aw library
Plaintiff-Appellee, Tayug Rural Bank, Inc., is a banking corporation in Tayug,
Pangasinan. During the period from December 28, 1962 to July 30, 1963, it obtained
thirteen (13) loans from Defendant-Appellant, Central Bank of the Philippines, by way
of rediscounting, at the rate of 1/2 of 1% per annum from 1962 to March 28, 1963 and
thereafter at the rate of 2-1/2% per annum. The loans, amounting to P813,000.00 as
of July 30, 1963, were all covered by corresponding promissory notes prescribing the
terms and conditions of the aforesaid loans (Record on Appeal, pp. 15-53). As of July
15, 1969, the outstanding balance was P444,809.45 (Record on Appeal, p. 56).
On December 23, 1964, Appellant, thru the Director of the Department of loans and
Credit, issued Memorandum Circular No. DLC-8, informing all rural banks that an
additional penalty interest rate of ten per cent (10%) per annum would be assessed on
all past due loans beginning January 4, 1965. Said Memorandum Circular was
actually enforced on all rural banks effective July 4, 1965.
On June 27, 1969, Appellee Rural Bank sued Appellant in the Court of First Instance
of Manila, Branch III, to recover the 10% penalty imposed by Appellant amounting to
P16,874.97, as of September 27, 1968 and to restrain Appellant from continuing the
imposition of the penalty. Appellant filed a counterclaim for the outstanding balance
and overdue accounts of Appellee in the total amount of P444,809.45 plus accrued
interest and penalty at 10% per annum on the outstanding balance until full payment.
(Record on Appeal, p. 13). Appellant justified the imposition of the penalty by way of
affirmative and special defenses, stating that it was legally imposed under the
provisions of Section 147 and 148 of the Rules and Regulations Governing Rural
Banks promulgated by the Monetary Board on September 5, 1958, under authority of
Section 3 of Republic Act No. 720, as amended (Record on Appeal, p. 8, Affirmative
and Special Defenses Nos. 2 and 3).
In its answer to the counterclaim, Appellee prayed for the dismissal of the
counterclaim, denying Appellants allegations, stating that if Appellee has any unpaid
obligations with Appellant, it was due to the latters fault on account of its flexible and
double standard policy in the granting of rediscounting privileges to Appellee and its
subsequent arbitrary and illegal imposition of the 10% penalty (Record on Appeal, p.
57). In its Memorandum filed on November 11, 1970, Appellee also asserts that
Appellant had no basis to impose the penalty interest inasmuch as the promissory
notes covering the loans executed by Appellee in favor of Appellants do not provide for
penalty interest rate of 10% per annum on just due loans beginning January 4, 1965
(Record on Appeal, p. 96).
The lower court, in its Order dated March 3, 1970, stated that "only a legal question
has been raised in the pleadings" and upholding the stand of plaintiff Rural Bank,
decided the case in its favor. (Rollo, p. 34).

87

Appellant appealed the decision of the trial court to the Court of Appeals, for
determination of questions of facts and of law. However, in its decision promulgated
April 13, 1977, the Court of Appeals, finding no controverted facts and taking note of
the statement of the lower court in its pre-trial Order dated March 3, 1970 that only a
legal question has been raised in the pleadings, (Record on Appeal, p. 61), ruled that
the resolution of the appeal will solely depend on the legal issue of whether or not the
Monetary Board had authority to authorize Appellant Central Bank to impose a penalty
rate of 10% per annum on past due loans of rural banks which had failed to pay their
accounts on time and ordered the certification of this case to this Court for proper
determination (Rollo, pp. 34-35).
On April 20, 1977, the entire record of the case was forwarded to this Court (Rollo, p.
36). In the resolution of May 20, 1977, the First Division of this Court, ordered the
case docketed and as already stated declared the same submitted for decision (Rollo,
p. 38).
In its Brief, Appellant assigns the following errors:chanrob1es virtual 1aw library
I. THE LOWER COURT ERRED IN HOLDING THAT IT IS BEYOND THE REACH OF
THE MONETARY BOARD TO METE OUT PENALTIES ON PAST DUE LOANS OF
RURAL BANKS ESPECIALLY SINCE NO PENAL CLAUSE HAS BEEN INCLUDED IN
THE PROMISSORY NOTES.
II. THE LOWER COURT ERRED IN HOLDING THAT THE IMPOSITION OF THE
PENALTY IS AN IMPAIRMENT OF THE OBLIGATION OF CONTRACT WITHOUT
DUE PROCESS.
III. THE LOWER COURT ERRED IN NOT FINDING JUDGMENT AGAINST
PLAINTIFF FOR 10% COST OF COLLECTION OF THE PROMISSORY NOTE AS
PROVIDED THEREIN.
It is undisputed that no penal clause has been included in the promissory notes. For
this reason, the trial court is of the view that Memorandum Circular DLC-8 issued on
December 23, 1964 prescribing retroactive effect on all past due loans, impairs the
obligation of contract and deprives the plaintiff of its property without due process of
law. (Record on Appeal, p. 40).
On the other hand appellant without opposing appellees right against impairment of
contracts, contends that when the promissory notes were signed by appellee, it was
chargeable with knowledge of Sections 147 and 148 of the rules and regulations
authorizing the Central Bank to impose additional reasonable penalties, which
became part of the agreement. (ibid).
Accordingly, the issue is reduced to the sole question as to whether or not the Central
Bank can validly impose the 10% penalty on Appellees past overdue loans beginning
July 4, 1965, by virtue of Memorandum Circular No. DLC-8 dated December 23, 1964.
The answer is in the negative.
Memorandum Circular No. DLC-8 issued by the Director of Appellants Department of

Loans and Credit on December 23, 1964, reads as follows:jgc:chanrobles.com.ph

"Pursuant to Monetary Board Resolution No. 1813 dated December 18, 1964, and in
consonance with Section 147 and 148 of the Rules and Regulations Governing Rural
Banks concerning the responsibility of a rural bank to remit immediately to the Central
Bank payments received on papers rediscounted with the latter including the loan
value of rediscounted papers as they mature, and to liquidate fully its maturing loan
obligations with the Central Bank, personal checks, for purposes of repayment, shall
be considered only after such personal checks shall have been honored at clearing.
In addition, rural banks which shall default in their loan obligations, thus incurring past
due accounts with the Central Bank, shall be assessed an additional penalty interest
rate of ten per cent (10%) per annum on such past due accounts with the Central
Bank over and above the customary interest rate(s) at which such loans were
originally secured from the Central Bank." (Record on Appeal, p. 135).
The above-quoted Memorandum Circular was issued on the basis of Sections 147
and 148 of the Rules and Regulations Governing Rural Banks of the Philippines
approved on September 5, 1958, which provide:jgc:chanrobles.com.ph
"Section 147. Duty of Rural Bank to turn over payment received for papers discounted
or used for collateral. A Rural Bank receiving any payment on account of papers
discounted or used for collateral must turn the same over to the creditor bank before
the close of the banking day next following the receipt of payment, as long as the
aggregate discounting on loan amount is not fully paid, unless the Rural Bank
substitutes the same with another eligible paper with at least the same or earlier
maturity and the same or greater value.
A Rural Bank failing to comply with the provisions of the preceding paragraph shall
ipso facto lose its right to the rediscounting or loan period, without prejudice to the
Central Bank imposing additional reasonable penalties, including curtailment or
withdrawal of financial assistance.
"Sec. 148. Default and other violations of obligation by Rural Bank, effect. A Rural
Bank becomes in default upon the expiration of the maturity period of its note, or that
of the papers discounted or used as collateral, without the necessity of demand.
A Rural Bank incurring default, or in any other manner, violating any of the stipulations
in its note, shall suffer the consequences provided in the second paragraph of the
preceding section." (Record on Appeal, p. 136.)
The "Rules and Regulations Governing Rural Banks" was published in the Official
Gazette, 55 O.G., on June 13, 1959, pp. 5186-5289. It is by virtue of these same
Rules that Rural Banks rediscount their loan papers with the Central Bank at 2-1/2%
interest per annum and in turn lend the money to the public at 12% interest per annum
(Defendants Reply to Plaintiffs Memorandum, Record on Appeal, p. 130).
Appellant maintains that it is pursuant to Section 3 of R.A. No. 720, as amended, that
the Monetary Board has adopted the set of Rules and Regulations Governing Rural
Banks. It reads:jgc:chanrobles.com.ph

88

"SEC. 3. In furtherance of this policy, the Monetary Board of the Central Bank of the
Philippines shall formulate the necessary rules and regulations governing the
establishment and operatives of Rural Banks for the purpose of providing adequate
credit facilities to small farmers and merchants, or to cooperatives of such farmers or
merchants and to supervise the operation of such banks."cralaw virtua1aw library
The specific provision under the law claimed as basis for Sections 147 and 148 of the
Rules and Regulations Governing Rural Banks, that is, on Appellants authority to
extend loans to Rural Banks by way of rediscounting is Section 13 of R.A. 720, as
amended, which provides:jgc:chanrobles.com.ph
"SEC. 13. In an emergency or when a financial crisis is imminent, the Central Bank
may give a loan to any Rural Bank against assets of the Rural Bank which may be
considered acceptable by a concurrent vote of at least five members of the Monetary
Board.
In normal times, the Central Bank may rediscount against papers evidencing a loan
granted by a Rural Bank to any of its customers which can be liquified within a period
of two hundred and seventy days: PROVIDED, HOWEVER, That for the purpose of
implementing a nationwide program of agricultural and industrial development, Rural
Banks are hereby authorized under such terms and conditions as the Central Bank
shall prescribe to borrow on a medium or long term basis, funds that the Central Bank
or any other government financing institutions shall borrow from the International Bank
for Reconstruction and Development or other international or foreign lending
institutions for the specific purpose of financing the above stated agricultural and
industrial program. Repayment of loans obtained by the Central Bank of the
Philippines or any other government financing institution from said foreign lending
institutions under this section shall be guaranteed by the Republic of the
Philippines."cralaw virtua1aw library
As to the supervising authority of the Monetary Board of the Central Bank over Rural
Banks, the same is spelled-out under Section 10 of R.A. 720, as
follows:jgc:chanrobles.com.ph
"SEC. 10. The power to supervise the operation of any Rural Bank by the Monetary
Board of the Central Bank as herein indicated, shall consist in placing limits to the
maximum credit allowed any individual borrower; in prescribing the interest rate; in
determining the loan period and loan procedure; in indicating the manner in which
technical assistance shall be extended to Rural Banks; in imposing a uniform
accounting system and manner of keeping the accounts and records of the Rural
Banks; in undertaking regular credit examination of the Rural Banks; in instituting
periodic surveys of loan and lending procedures, audits, test check of cash and other
transactions of the Rural Banks; in conducting training courses for personnel of Rural
Banks; and, in general, in supervising the business operation of the Rural
Banks."cralaw virtua1aw library
Nowhere in any of the above quoted pertinent provisions of R.A. 720 nor in any other
provision of R.A. 720 for that matter, is the monetary Board authorized to mete out on
rural banks an additional penalty rate on their past due accounts with Appellant. As

correctly stated by the trial court, while the Monetary Board possesses broad
supervisory powers, nonetheless, the retroactive imposition of administrative penalties
cannot be taken as a measure supervisory in character. (Record on Appeal, p. 141).
Administrative rules and regulations have the force and effect of law (Valerio v. Hon.
Secretary of Agriculture and Natural Resources, 7 SCRA 719; Commissioner of Civil
Service v. Cruz, 15 SCRA 638; R.B. Industrial Development Company, Ltd. v. Enage,
24 SCRA 365; Director of Forestry v. Muoz, 23 SCRA 1183; Gonzalo Sy v. Central
Bank of the Philippines, 70 SCRA 570).
There are, however, limitations to the rule-making power of administrative agencies. A
rule shaped out by jurisprudence is that when Congress authorizes promulgation of
administrative rules and regulations to implement given legislation, all that is required
is that the regulation be not in contradiction with it, but conform to the standards that
the law prescribes (Director of Forestry v. Muoz, 23 SCRA 1183). The rule delineating
the extent of the binding force to be given to administrative rules and regulations was
explained by the Court in Teoxon v. Member of the Board of Administrators (33 SCRA
588), thus: "The recognition of the power of administrative officials to promulgate rules
in the implementation of the statute, as necessarily limited to what is provided for in
the legislative enactment, may be found as early as 1908 in the case of United States
v. Barrias (11 Phil. 327) in 1914 U.S. v. Tupasi Molina (29 Phil. 119), in 1936 People v.
Santos (63 Phil. 300), in 1951 Chinese Flour Importers Ass. v. Price Stabilization
Board (89 Phil. 439), and in 1962 Victorias Milling Co., Inc. v. Social Security
Commission (4 SCRA 627). The Court held in the same case that "A rule is binding on
the courts so long as the procedure fixed for its promulgation is followed and its scope
is within the statute granted by the legislature, even if the courts are not in agreement
with the policy stated therein or its innate wisdom . . ." On the other hand,
"administrative interpretation of the law is at best merely advisory, for it is the courts
that finally determine what the law means." Indeed, it cannot be otherwise as the
Constitution limits the authority of the President, in whom all executive power resides,
to take care that the laws be faithfully executed. No lesser administrative, executive
office, or agency then can, contrary to the express language of the Constitution, assert
for itself a more extensive prerogative. Necessarily, it is bound to observe the
constitutional mandate. There must be strict compliance with the legislative
enactment. The rule has prevailed over the years, the latest restatement of which was
made by the Court in the case of Bautista v. Junio (L-50908, January 31, 1984, 127
SCRA 342).
In case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails because said rule or regulation cannot go
beyond the terms and provisions of the basic law (People v. Lim, 108 Phil. 1091).
Rules that subvert the statute cannot be sanctioned (University of St. Tomas v. Board
of Tax Appeals, 93 Phil. 376; Del Mar v. Phil. Veterans Administration, 51 SCRA 340).
Except for constitutional officials who can trace their competence to act to the
fundamental law itself, a public official must locate in the statute relied upon a grant of
power before he can exercise it. Department zeal may not be permitted to outrun the
authority conferred by statute (Radio Communications of the Philippines, Inc. v.
Santiago, L-29236, August 21, 1974, 58 SCRA 493).
When promulgated in pursuance of the procedure or authority conferred upon the

89

administrative agency by law, the rules and regulations partake of the nature of a
statute, and compliance therewith may be enforced by a penal sanction provided in
the law (Victorias Milling Co., Inc. v. Social Security Commission, 114 Phil. 555;
People v. Maceren, L-32166, October 18, 1977, 79 SCRA 462; Daza v. Republic, L43276, September 28, 1984, 132 SCRA 267). Conversely, the rule is likewise clear.
Hence an administrative agency cannot impose a penalty not so provided in the law
authorizing the promulgation of the rules and regulations, much less one that is
applied retroactively.
The records show that DLC Form No. 11 (Folder of Exhibits, p. 16) was revised
December 23, 1964 to include the penal clause, as follows:jgc:chanrobles.com.ph
"In the event that this note becomes past due, the undersigned shall pay a penalty at
the rate of ____ per cent () per annum on such past due account over and above the
interest rate at which such loan was originally secured from the Central Bank."cralaw
virtua1aw library
Such clause was not a part of the promissory notes executed by Appellee to secure its
loans. Appellant inserted the clause in the revised DLC Form No. 11 to make it a part
of the contractual obligation of rural banks securing loans from the Central Bank, after
December 23, 1964. Thus, while there is now a basis for the imposition of the 10%
penalty rate on overdue accounts of rural banks, there was none during the period
that Appellee contracted its loans from Appellant, the last of which loan was on July
30, 1963. Surely, the rule cannot be given retroactive effect.
Finally, on March 31, 1970, the Monetary Board in its Resolution No. 475 effective
April 1, 1970, revoked its Resolution No. 1813, dated December 18, 1964 imposing
the questioned 10% per annum penalty rate on past due loans of rural banks and
amended sub-paragraph (a), Section 10 of the existing guidelines governing rural
banks applications for a loan or rediscount, dated May 7, 1969 (Folder of Exhibits, p.
19). As stated by the trial court, this move on the part of the Monetary Board clearly
shows an admission that it has no power to impose the 10% penalty interest through
its rules and regulations but only through the terms and conditions of the promissory
notes executed by the borrowing rural banks. Appellant evidently hoped that the
defect could be adequately accomplished by the revision of DLC Form No. 11.
The contention that Appellant is entitled to the 10% cost of collection in case of suit
and should therefore, have been awarded the same by the court below, is well taken.
It is provided in all the promissory notes signed by Appellee that in case of suit for the
collection of the amount of the note or any unpaid balance thereof, the Appellee Rural
Bank shall pay the Central Bank of the Philippines a sum equivalent to ten (10%) per
cent of the amount unpaid not in any case less than five hundred (P500.00) pesos as
attorneys fees and costs of suit and collection. Thus, Appellee cannot be allowed to
come to Court seeking redress for an alleged wrong done against it and then be
allowed to renege on its corresponding obligations.
PREMISES CONSIDERED, the decision of the trial court is hereby AFFIRMED with
modification that Appellee Rural Bank is ordered to pay a sum equivalent to 10% of
the outstanding balance of its past overdue accounts, but not in any case less than
P500.00 as attorneys fees and costs of suit and collection.

SO ORDERED.
Feria, Fernan, Alampay and Gutierrez, Jr., JJ., concur.

SALVADOR ARANETA, ETC., ET AL., Petitioners, v. THE HON. MAGNO S.

GATMAITAN, ETC., ET AL.,Respondents. EXEQUIEL SORIANO, ET
AL., Petitioners-Appellees, v. SALVADOR ARANETA, ETC., ET
AL., Respondents-Appellants.
Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista
and Solicitor Troadio T. Quiazon, for Petitioners.
San Juan, Africa & Benedicto for Respondents.
SYLLABUS
1. PLEADING AND PRACTICE; ACTIONS; DECLARATORY RELIEF;
CONSTITUTIONALITY OF EXECUTIVE ORDER PROPER SUBJECT OF ACTION.
The constitutionality of an executive order can be ventilated in a declaratory relief
proceeding. (Hilado v. De la Costa, 83 Phil., 471).
2. ID.; APPEALS; EFFECT ON EXECUTION OF JUDGMENT; EXCEPTION. It is
an elementary rule of procedure that an appeal stays the execution of a judgment.
However in injunction, receivership and patent accounting cases, a judgment shall not
be stayed after its rendition and before an appeal is taken or during the pendency of
an appeal unless otherwise ordered by the court. (Sec. 4, Rule 39, Rules of Court).
3. ID.; ID.; ID.; INJUNCTION; ISSUANCE RESTS IN SOUND DISCRETION OF
COURT; CASE AT BAR. The States counsel contends that while judgment could
be stayed in injunction, receivership and patent accounting cases, the present
complaint, although styled "Injunction and/or Declaratory Relief with Preliminary
Injunction," is one for declaratory relief, there being no allegation sufficient to convince
the Court that the plaintiffs intended it to be one for injunction. But aside from the title
of the complaint, plaintiffs pray for the declaration of the nullity of Executive Orders
Nos. 22, 66 and 80; the issuance of a writ of preliminary injunction, and for such other
relief as may be deemed just and equitable. This Court has already held that there are
only two requisites to be satisfied if an injunction is to issue, namely, the existence of
the right sought to be protected, and that the acts against which the injunction is to be
directed are violative of said right (North Negros Sugar Co., Inc. v. Serafin Hidalgo, 63
Phil., 664). There is no question that in the case at bar, at least 11 of the complaining
trawl operators were duly licensed to operate in any of the national waters of the
Philippines, and it is undeniable that the executive enactments sought to be annulled
are detrimental to their interests. And considering further that the granting or refusal of
an injunction, whether temporary or permanent, rests in the sound discretion of the
Court, taking into account the circumstances and the facts of the particular case
(Rodulfa v. Alfonso, 42 Off. Gaz., 2439), the trial Court committed no abuse of

90

discretion when it treated the complaint as one for injunction and declaratory relief and
executed the judgment pursuant to the provisions of section 4 of Rule 39 of the Rules
of Court.
4. ID.; ID.; ACTION AGAINST GOVERNMENT OFFICIALS IS ONE AGAINST
GOVERNMENT; BOND REQUIREMENT. An Action against Government officials
sued in their official capacity, is essentially one against the Government, and to
require these officials to file a bond would be indirectly a requirement against the
Government, for as regards bonds or damages that may be proved, if any, the real
party in interest would be the Republic of the Philippines (L. S. Moom and Co. v.
Harrison, 43 Phil., 39; Salgado v. Ramos, 64 Phil., 724-727, and others). The reason
for this pronouncement is understandable; the State undoubtedly is always solvent
(Tolentino v. Carlos, 66 Phil., 140; Government of the P. I. v. Judge of First Instance of
Iloilo, 34 Phil., 157, cited in Joaquin Gutierrez Et. Al. v. Camus Et. Al., 96 Phil., 114).
5. FISHERIES LAW; TRAWL FISHING; WHO MAY BAN OR RESTRICT TRAWL
FISHING; POWER OF PRESIDENT THROUGH EXECUTIVE ORDERS, TO BAN
TRAWL FISHING. Under sections 75 and 83 of the Fisheries Law, the restriction
and banning of trawl fishing from all Philippine waters come within the powers of the
Secretary of Agriculture and Natural Resources, who, in compliance with his duties
may even cause the criminal prosecution of those who in violation of his instructions,
regulations or orders are caught fishing with trawls in Philippine waters. However, as
the Secretary of Agriculture and Natural Resources exercises its functions subject to
the general supervision and control of the President of the Philippines (Section 75,
Revised Administrative Code), the President can exercise the same power and
authority through executive orders, regulations, decrees and proclamations upon
recommendation of the Secretary concerned (Section 79-A, Revised Administrative
Code). Hence, Executive Orders Nos. 22, 66 and 80, series of 1954, restricting and
banning of trawl fishing from San Miguel Bay (Camarines) are valid and issued by
authority of law.
6. ID.; ID.; ID.; ID.; EXERCISE OF AUTHORITY BY THE PRESIDENT DOES NOT
CONSTITUTE UNDUE DELEGATION OF LEGISLATIVE POWERS. For the
protection of fry or fish eggs and small and immature fishes, Congress intended with
the promulgation of Act No. 4003, to prohibit the use of any fish net or fishing device
like trawl nets that could endanger and deplete the supply of sea food, and to that end
authorized the Secretary of Agriculture and Natural Resources to provide by
regulations such restrictions as he deemed necessary in order to preserve the aquatic
resources of the land. In so far as the protection of fish fry or fish eggs is concerned
the Fisheries Act is complete in itself leaving only to the Secretary of Agriculture &
Natural Resources the promulgation of rules and regulations to carry into effect the
legislative intent. Consequently, when the President, in response to the clamor of the
people and authorities of Camarines Sur issued Executive Order No. 80 absolutely
prohibiting fishing by means of trawls in all waters comprised within the San Miguel
Bay, he did nothing but show an anxious regard for the welfare of the inhabitants of
said coastal province and dispose of issues of general concern (Section 63, Revised
Administrative Code) which were in consonance and strict conformity with the law. The
exercise of such authority did not, therefore, constitute an undue delegation of the
powers of Congress.

Facts:
The President issued E.O 22 - prohibiting the use of trawls in San Miguel Bay, and the
E.O 66 and 80 as amendments to EO 22, as a response for the general clamor
among the majority of people living in the coastal towns of San Miguel Bay that the
said resources of the area are in danger of major depletion because of the effects of
trawl fishing. A group of Otter trawl operators filed a complaint for injunction to restrain
the Secretary of Agriculture and Natural Resources from enforcing the said E.O. and
to declare E.O 22 as null and void.

Issue:
W/N E.O 22, 60 and 80 were valid, for the issuance thereof was not in the exercise of
legislative powers unduly delegated to the Pres.

Held:
VALID! Congress provided under the Fisheries Act that a.) it is unlawful to take or
catch fry or fish eggs in the waters of the Phil and b.) it authorizes Sec. of Agriculture
and Nat. Resources to provide regulations/ restrictions as may be deemed necessary.
The Act was complete in itself and leaves it to the Sec. to carry into effect its
legislative intent. The Pres. did nothing but show an anxious regard for the welfare of
the inhabitants and dispose of issues of gen. concern w/c were in consonance and
strict conformity with law.

Distinction bet:
Delegation of Power to Legislate - involves discretion of what law shall be
Execution of Law authority or discretion as to its execution has to be exercised
under and in pursuance of law.
San Miguel Bay, located between the provinces of Camarines Norte and Camarines
Sur, a part of the National waters of the Philippines with an extension of about 250
square miles and an average depth of approximately 6 fathoms (Otter trawl
explorations in Philippine waters p. 21, Exh. B), is considered as the most important
fishing area in the Pacific side of the Bicol region. Sometime in 1950, trawl 1 operators
from Malabon, Navotas and other places migrated to this region most of them settling

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at Sabang, Calabanga, Camarines Sur, for the purpose of using this particular method
of fishing in said bay. On account of the belief of sustenance fishermen that the
operation of this kind of gear caused the depletion of the marine resources of that
area, there arose a general clamor among the majority of the inhabitants of coastal
towns to prohibit the operation of trawls in San Miguel Bay. This move was manifested
in the resolution of December 18, 1953 (Exh. F), passed by the Municipal Mayors
League condemning the operation of trawls as the cause of the wanton destruction of
the shrimp specie and resolving to petition the President of the Philippines to regulate
fishing in San Miguel Bay by declaring it closed for trawl fishing at a certain period of
the year. In another resolution dated March 27, 1954, the same League of Municipal
Mayors prayed the President to protect them and the fish resources of San Miguel
Bay by banning the operation of trawls therein (Exh. 4). The Provincial Governor also
made proper representations to this effect and petitions in behalf of the non-trawl
fishermen were likewise presented to the President by social and civic organizations
as the NAMFREL (National Movement for Free Elections) and the COMPADRE
(Committee for Philippine Action in Development, Reconstruction and Education),
recommending the cancellation of the licenses of trawl operators after investigation, if
such inquiry would substantiate the charges that the operation of said fishing method
was detrimental to the welfare of the majority of the inhabitants (Exh. 2).
In response to these pleas, the President issued on April 5, 1954, Executive Order No.
22 (50 Off. Gaz., 1421) prohibiting the use of trawls in San Miguel Bay, but said
executive order was amended by Executive Order No. 66, issued on September 23,
1954 (50 Off. Gaz., 4037), apparently in answer to a resolution of the Provincial Board
of Camarines Sur recommending the allowance of trawl fishing during the typhoon
season only. On November 2, 1954, however, Executive Order No. 80 (50 Off. Gaz.,
5198) was issued reviving Executive Order No. 22, to take effect after December 31,
1954.
A group of Otter trawl operators took the matter to the court by filing a complaint for
injunction and/or declaratory relief with preliminary injunction with the Court of First
Instance of Manila, docketed as Civil Case No. 24867, praying that a writ of
preliminary injunction be issued to restrain the Secretary of Agriculture and Natural
Resources and the Director of Fisheries from enforcing said executive order; to
declare the same null and void, and for such other relief as may be just and equitable
in the premises.
The Secretary of Agriculture and Natural Resources and the Director of Fisheries,
represented by the Legal Adviser of said Department and a Special Attorney of the
Office of the Solicitor General, answered the complaint alleging, among other things,
that of the 18 plaintiffs (Exequiel Soriano, Teodora Donato, Felipe Concepcion,
Venancio Correa, Santo Gaviana, Alfredo General, Constancio Gutierrez, Arsenio de
Guzman, Pedro Lazaro, Porfirio Lazaro, Deljie de Leon, Jose Nepomuceno, Bayani
Pingol, Claudio Salgado, Porfirio San Juan, Luis Sioco, Casimiro Villar and Enrique
Voluntad), only 11 were issued licenses to operate fishing boats for the year 1954
(Annex B, petition L-8895); that the executive orders in question were issued in
accordance with law; that the encouragement by the Bureau of Fisheries of the use of
Otter trawls should not be construed to mean that the general welfare of the public
could be disregarded, and set up the affirmative defenses that since plaintiffs question
the validity of the executive orders issued by the President, then the Secretary of

Agriculture and Natural Resources and the Director of Fisheries were not the real
parties in interest; that said executive orders do not constitute a deprivation of
property without due process of law, and therefore prayed that the complaint be
dismissed (Exh. B, petition, L-8895).
During the trial of the case, the Governor of Camarines Sur appearing for the
municipalities of Siruma, Tinambac, Calabanga, Cabusao and Sipocot, in said
province, called the attention of the Court that the Solicitor General had not been
notified of the proceeding. To this manifestation, the Court ruled that in view of the
circumstances of the case, and as the Solicitor General would only be interested in
maintaining the legality of the executive orders sought to be impugned, Section 4 of
Rule 66 could be interpreted to mean that the trial could go on and the Solicitor
General could be notified before judgment is entered.
After the evidence for both parties was submitted and the Solicitor General was
allowed to file his memorandum, the Court rendered decision on February 2, 1955, the
last part of which reads as follows:jgc:chanrobles.com.ph
"The power to close any definite area of the Philippine waters, from the fact that
Congress has seen fit to define under what conditions it may be done by the
enactment of the sections cited, in the mind of Congress must be of transcendental
significance. It is primarily within the fields of legislation not of execution; for it goes far
and says who can and who can not fish in definite territorial waters. The court can not
accept that Congress had intended to abdicate its inherent right to legislate on this
matter of national importance. To accept respondents view would be to sanction the
exercise of legislative power by executive decrees. If it is San Miguel Bay now, it may
be Davao Gulf tomorrow, and so on. That may be done only by Congress. This being
the conclusion, there is hardly need to go any further. Until the trawler is outlawed by
legislative enactment, it cannot be banned from San Miguel Bay by executive
proclamation. The remedy for respondents and population of the coastal towns of
Camarines Sur is to go to the Legislature. The result will be to issue the writ prayed
for, even though this be to strike at public clamor and to annul the orders of the
President issued in response therefor. This is a task unwelcome and unpleasant;
unfortunately, courts of justice use only one measure for both the rich and poor, and
are not bound by the more popular cause when they give judgments.
"IN VIEW WHEREOF, granted; Executive Order Nos. 22, 66 and 80 are declared
invalid; the injunction prayed for is ordered to issue; no pronouncement as to costs."
Petitioners immediately filed an ex-parte motion for the issuance of a writ of injunction
which was opposed by the Solicitor General and after the parties had filed their
respective memoranda, the Court issued an order dated February 19, 1955, denying
respondents motion to set aside judgment and ordering them to file a bond in the sum
of P30,000 on or before March 1, 1955, as a condition for the non- issuance of the
injunction prayed for by petitioners pending appeal. The Solicitor General filed a
motion for reconsideration which was denied for lack of merit, and the Court, acting
upon the motion for new trial filed by respondents, issued another order on March 3,
1955, denying said motion and granting the injunction prayed for by petitioners upon
the latters filing a bond for P30,000 unless respondents could secure a writ of
preliminary injunction from the Supreme Court on or before March 15, 1955.

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Respondents, therefore, brought the matter to this Court in a petition for prohibition
and certiorari with preliminary injunction, docketed as G. R. No. L-8895, and on the
same day filed a notice to appeal from the order of the lower court dated February 2,
1955, which appeal was docketed in this Court as G. R. No. L-9191.
In the petition for prohibition and certiorari, petitioners (respondents therein)
contended among other things, that the order of the respondent Judge requiring
petitioners Secretary of Agriculture and Natural Resources and the Director of
Fisheries to post a bond in the sum of P30,000 on or before March 1, 1955, had been
issued without jurisdiction or in excess thereof, or at the very least with grave abuse of
discretion, because by requiring the bond, the Republic of the Philippines was in effect
made a party defendant and therefore transformed the suit into one against the
Government which is beyond the jurisdiction of the respondent Judge to entertain; that
the failure to give the Solicitor General the opportunity to defend the validity of the
challenged executive orders resulted in the receipt of objectionable matters at the
hearing; that Rule 66 of the Rules of Court does not empower a court of law to pass
upon the validity of an executive order in a declaratory relief proceeding; that the
respondent Judge did not have the power to grant the injunction as Section 4 of Rule
39 does not apply to declaratory relief proceedings but only to injunction, receivership
and patent accounting proceedings; and prayed that a writ of preliminary injunction be
issued to enjoin the respondent Judge from enforcing its order of March 3, 1955, and
for such other relief as may be deem just and equitable in the premises. This petition
was given due course and the hearing on the merits was set by this Court for April 12,
1955, but no writ of preliminary injunction was issued.

R. No. L-9191, We shall first proceed to dispose of the latter case.

It is indisputable that the President issued Executive Orders Nos. 22, 66 and 80 in
response to the clamor of the inhabitants of the municipalities along the coastline of
San Miguel Bay. They read as follows:chanrob1es virtual 1aw library
EXECUTIVE ORDER NO. 22
"PROHIBITING THE USE OF TRAWLS IN
SAN MIGUEL BAY"
"In order to effectively protect the municipal fisheries of San Miguel Bay, Camarines
Norte and Camarines Sur, and to conserve fish and other aquatic resources of the
area, I, RAMON MAGSAYSAY, President of the Philippines, by virtue of the powers
vested in me by law, do hereby order that:jgc:chanrobles.com.ph
"1. Fishing by means of trawls (utase, otter and/or perenzella) of any kind, in the
waters comprised within San Miguel Bay, is hereby prohibited.
"2. Trawl shall mean, for the purpose of this Order, a fishing net made in the form of a
bag with the mouth kept open by a device, the whole affair being towed, dragged,
trailed or trawled on the bottom of the sea to capture demersal, ground or bottom
species.

Meanwhile, the appeal (G. R. No. L-9191) was heard on October 3, 1956, wherein
respondents-appellants ascribed to the lower court the commission of the following
errors:chanrob1es virtual 1aw library

"3. Violation of the provisions of this Order shall subject the offender to the penalty
provided under Section 83 of Act 4993, or a fine of not more than two hundred pesos,
or imprisonment for not more than six months, or both, in the discretion of the Court.

1. In ruling that the President has no authority to issue Executive Orders Nos. 22, 66
and 80 banning the operation of trawls in San Miguel Bay;

"Done in the City of Manila, this 5th day of April, nineteen hundred and fifty-four and of
the Independence of the Philippines, the eighth." (50 Off. Gaz. 1421).

2. In holding that the power to declare a closed area for fishing purposes has not been
delegated to the President of the Philippines under the Fisheries Act;

"EXECUTIVE ORDER NO. 66

3. In not considering Executive Orders Nos. 22, 66 and 80 as declaring a closed

season pursuant to Section 7, Act 4003, as amended, otherwise known as the
Fisheries Act;
4. In holding that to uphold the validity of Executive Orders Nos. 22 and 80 would be
to sanction the exercise of legislative power by executive decrees;
5. In its suggestion that the only remedy for respondents and the people of the coastal
towns of Camarines Sur and Camarines Norte is to go to the Legislature; and
6. In declaring Executive Orders Nos. 22, 66 and 80 invalid and in ordering the
injunction prayed for to issue.
As Our decision in the prohibition and certiorari case (G. R. No. L-8895) would
depend, in the last analysis, on Our ruling in the appeal of the respondents in case G.

"AMENDING EXECUTIVE ORDER NO. 22, DATED APRIL 5, 1954, ENTITLED

PROHIBITING THE USE OF TRAWLS IN SAN MIGUEL BAY
"By virtue of the powers vested in me by law, I, RAMON MAGSAYSAY, President of
the Philippines, do hereby amend Executive Order No. 22, dated April 5, 1954, so as
to allow fishing by means of trawls, as defined in said Executive Order, within that
portion of San Miguel Bay north of a straight line drawn from Tacubtacuban Hill in the
Municipality of Tinambac, Province of Camarines Sur. Fishing by means of trawls
south of said line shall still be absolutely prohibited.
"Done in the City of Manila, this 23rd day of September, in the year of our Lord,
nineteen hundred and fifty-four, and of the Independence of the Philippines, the ninth."
(50 Off. Gaz. 4037).
"EXECUTIVE ORDER NO. 80

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"FURTHER AMENDING EXECUTIVE ORDER NO. 22, DATED APRIL 5, 1954, AS

AMENDED BY EXECUTIVE ORDER NO. 66, DATED SEPTEMBER 23, 1954
"By virtue of the powers vested in me by law, I, RAMON MAGSAYSAY, President of
the Philippines, do hereby amend Executive Order No. 66, dated September 23, 1954,
so as to allow fishing by means of trawls, as defined in Executive Order No. 22, dated
April 5, 1954, within that portion of San Miguel Bay north of a straight line drawn from
Tacubtacuban Hill in the Municipality of Mercedes, Province of Camarines Norte to
Balocbaloc Point in the Municipality of Tinambac, Province of Camarines Sur, until
December 31, 1954, only.
Thereafter, the provisions of said Executive Order No. 22 absolutely prohibiting fishing
by means of trawls in all the waters comprised within the San Miguel Bay shall be
revived and given full force and effect as originally provided therein.
"Done in the City of Manila, this 2nd day of November, in the year of Our Lord,
nineteen hundred and fifty-four and of the Independence of the Philippines, the ninth."
(50 Off. Gaz. 5198)
It is likewise admitted that petitioners assailed the validity of said executive orders in
their petition for a writ of injunction and/or declaratory relief filed with the Court of First
Instance of Manila, and that the lower court, upon declaring Executive Orders Nos. 22,
66 and 80 invalid, issued an order requiring the Secretary of Agriculture and Natural
Resources and the Director of Fisheries to post a bond for P30,000 if the writ of
injunction restraining them from enforcing the executive orders in question must be
stayed.
The Solicitor General avers that the constitutionality of an executive order cannot be
ventilated in a declaratory relief proceeding. We find this untenable, for this Court
taking cognizance of an appeal from the decision of the lower court in the case of
Hilado v. De la Costa Et. Al., 83 Phil., 471, which involves the constitutionality of
another executive order presented in an action for declaratory relief, in effect accepted
the propriety of such action.
This question being eliminated, the main issues left for Our determination with respect
to defendants appeal (G. R. No. L-9191), are:chanrob1es virtual 1aw library
(1) Whether the Secretary of an Executive Department and the Director of a Bureau,
acting in their capacities as such Government officials, could lawfully be required to
post a bond in an action against them;
(2) Whether the President of the Philippines has authority to issue Executive Orders
Nos. 22, 66 and 80, banning the operation of trawls in San Miguel Bay, or, said in
other words, whether said Executive Orders Nos. 22, 66 and 80 were issued in
accordance with law; and
(3) Whether Executive Orders Nos. 22, 66 and 80 were valid, for the issuance thereof
was not in the exercise of legislative powers unduly delegated to the President.
Counsel for both parties presented commendable exhaustive defenses in support of

their respective stands. Certainly, these cases deserve such efforts, not only because
the constitutionality of an act of a coordinate branch in our tripartite system of
Government is in issue, but also because of the number of inhabitants, admittedly
classified as "subsistence fishermen", that may be affected by any ruling that We may
promulgate herein.
I. As to the first proposition, it is an elementary rule of procedure that an appeal stays
the execution of a judgment. An exception is offered by section 4 of Rule 39 of the
Rules of Court, which provides that:jgc:chanrobles.com.ph
"SEC. 4. INJUNCTION, RECEIVERSHIP AND PATENT ACCOUNTING, NOT
STAYED. Unless otherwise ordered by the court, a judgment in an action for
injunction or in a receivership action, or a judgment or order directing an accounting in
an action for infringement of letter patent, shall not be stayed after its rendition and
before an appeal is taken or during the pendency of an appeal. The trial court,
however, in its discretion, when an appeal is taken from a judgment granting,
dissolving or denying an injunction, may make an order suspending, modifying,
restoring, or granting such injunction during the pendency of an appeal, upon such
terms as to bond or otherwise as it may consider proper for the security of the rights of
the adverse party."cralaw virtua1aw library
This provision was the basis of the order of the lower court dated February 19, 1955,
requiring the filing by the respondents of a bond for P30,000 as a condition for the
non-issuance of the injunction prayed for by plaintiffs therein, and which the Solicitor
General charged to have been issued in excess of jurisdiction. The States counsel,
however, alleges that while judgment could be stayed in injunction, receivership and
patent accounting cases and although the complaint was styled "Injunction and/or
Declaratory Relief with Preliminary Injunction", the case is necessarily one for
declaratory relief, there being no allegation sufficient to convince the Court that the
plaintiffs intended it to be one for injunction. But aside from the title of the complaint,
We find that plaintiffs pray for the declaration of the nullity of Executive Order Nos. 22,
66 and 80; the issuance of a writ of preliminary injunction, and for such other relief as
may be deemed just and equitable. This Court has already held that there are only two
requisites to be satisfied if an injunction is to issue, namely, the existence of the right
sought to be protected, and that the acts against which the injunction is to be directed
are violative of said right (North Negros Sugar Co., Inc. v. Serafin Hidalgo, 63 Phil.,
664). There is no question that at least 11 of the complaining trawl operators were duly
licensed to operate in any of the national waters of the Philippines, and it is
undeniable that the executive enactments sought to be annulled are detrimental to
their interests. And considering further that the granting or refusal of an injunction,
whether temporary or permanent, rests in the sound discretion of the Court, taking into
account the circumstances and the facts of the particular case (Rodulfa v. Alfonso, 76
Phil., 225, 42 Off. Gaz., 2439), We find no abuse of discretion when the trial Court
treated the complaint as one for injunction and declaratory relief and executed the
judgment pursuant to the provisions of section 4 of Rule 39 of the Rules of Court.
On the other hand, it shall be remembered that the party defendants in Civil Case No.
24867 of the Court of First Instance of Manila are Salvador Araneta, as Secretary of
Agriculture and Natural Resources, and Deogracias Villadolid, as Director of Fisheries,
and were sued in such capacities because they were the officers charged with duty of

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carrying out the statutes, orders and regulations on fishing and fisheries. In its order of
February 19, 1955, the trial court denied defendants motion to set aside judgment and
they were required to file a bond for P30,000 to answer for damages that plaintiffs
were allegedly suffering at the time, as otherwise the injunction prayed for by the latter
would be issued.
Because of these facts, We agree with the Solicitor General when he says that the
action, being one against herein petitioners as such Government officials, is
essentially one against the Government, and to require these officials to file a bond
would be indirectly a requirement against the Government, for as regards bonds or
damages that may be proved, if any, the real party in interest would be the Republic of
the Philippines (L. S. Moon and Co. v. Harrison, 43 Phil., 39; Salgado v. Ramos, 64
Phil., 724-727, and others). The reason for this pronouncement is understandable; the
State undoubtedly is always solvent (Tolentino v. Carlos, 66 Phil., 140; Government of
the P. I. v. Judge of the Court of First Instance of Iloilo, 34 Phil., 157, cited in Joaquin
Gutierrez Et. Al. v. Camus Et. Al. * G. R. No. L-6725, promulgated October 30, 1954).
However, as the records show that herein petitioners failed to put up the bond
required by the lower court, allegedly due to difficulties encountered with the Auditor
Generals Office (giving the impression that they were willing to put up said bond but
failed to do so for reasons beyond their control), and that the orders subjects of the
prohibition and certiorari proceedings in G. R. No. L-8895, were enforced, if at all, 1 in
accordance with section 4 of Rule 39, which We hold to be applicable to the case at
bar, the issue as to the regularity or adequacy of requiring herein petitioners to post a
bond, becomes moot and academic.
II. Passing upon the question involved in the second proposition, the trial judge
extending the controversy to the determination of which between the Legislative and
Executive Departments of the Government had "the power to close any definite area
of the Philippine waters" instead of limiting the same to the real issue raised by the
enactment of Executive Orders Nos. 22, 66 and 80, specially the first and the last
"absolutely prohibiting fishing by means of trawls in all the waters comprised within the
San Miguel Bay", ruled in favor of Congress, and as the closing of any definite area of
the Philippine waters is, according to His Honor, primarily within the fields of legislation
and Congress had not intended to abdicate its power to legislate on the matter, he
maintained, as stated before, that "until the trawler is outlawed by legislative
enactment, it cannot be banned from San Miguel Bay by executive proclamation", and
that "the remedy for respondents and population of the coastal towns of Camarines
Sur is to go to the Legislature," and thus declared said Executive Orders Nos. 22, 66
and 80 invalid."
The Solicitor General, on the contrary, asserts that the President is empowered by law
to issue the executive enactments in question.
Sections 6, 13 and 75 of Act No. 4003, known as the Fisheries Law, the latter two
sections as amended by section 1 of Commonwealth Act No. 471, read as
follows:jgc:chanrobles.com.ph
"SEC. 6. WORDS AND PHRASES DEFINED. Words and terms used in this Act
shall be construed as follows:chanrob1es virtual 1aw library

TAKE or TAKING, includes pursuing, shooting, killing, capturing, trapping, snaring, and
netting fish and other aquatic animals, and all lesser acts, such as disturbing,
wounding, stupefying, or placing, setting, drawing, or using any net or other device
commonly used to take or collect fish and other aquatic animals, whether they result in
taking or not, and includes every attempt to take and every act of assistance to every
other person in taking or attempting to take or collect fish and other aquatic animals:
PROVIDED, That whenever taking is allowed by law, reference is had to taking by
lawful means and in lawful manner.
x

"SEC. 13. PROTECTION OF FRY OR FISH EGGS. Except for scientific or

educational purpose or for propagation, it shall be unlawful to take or catch fry or fish
eggs and the small fish, not more than three (3) centimeters long, known as siliniasi,
in the territorial waters of the Philippines. Towards this end, the Secretary of
Agriculture and Commerce shall be authorized to provide by regulations such
restrictions as may be deemed necessary to be imposed on THE USE OF ANY
FISHING NET OR FISHING DEVICE FOR THE PROTECTION OF FRY OR FISH
EGGS; Provided, however, That the Secretary of Agriculture and Commerce shall
permit the taking of young of certain species of fish known as hipon under such
restrictions as may be deemed necessary.
"SEC. 75. FISH REFUGES AND SANCTUARIES. Upon the recommendation of the
officer or chief of the bureau, office or service concerned, the Secretary of Agriculture
and Commerce may set aside and establish fishery reservation or fish refuges and
sanctuaries to be administered in the manner to be prescribed by him. All streams,
ponds, and waters within the game refuge, birds sanctuaries, national parks, botanical
gardens, communal forests and communal pastures are hereby declared fishing
refuges and sanctuaries. It shall be unlawful for any person, to take, destroy or kill in
any of the places aforementioned, or in any manner disturb or drive away or take
therefrom, any fish fry or fish eggs."cralaw virtua1aw library
Act No. 4003 further provides as follows:jgc:chanrobles.com.ph
"SEC. 83. OTHER VIOLATIONS. Any other violation of the provisions of this Act or
any rules and regulations promulgated thereunder shall subject the offender to a fine
of not more than two hundred pesos, or imprisonment for not more than six months, or
both, in the discretion of the Court."cralaw virtua1aw library
As may be seen from the just quoted provisions, the law declares unlawful and fixes
the penalty for the taking (except for scientific or educational purposes or for
propagation), destroying or killing of any fish fry or fish eggs, and the Secretary of
Agriculture and Commerce (now the Secretary of Agriculture and Natural Resources)
is authorized to promulgate regulations restricting the use of any fish net or fishing
device (which includes the net used by trawl fishermen) for the protection of fry or fish
eggs, as well as to set aside and establish fishery reservations or fish refuges and

95

sanctuaries to be administered in the manner prescribed by him, from which no

person could lawfully take, destroy or kill in any of the places aforementioned, or in
any manner disturb or drive away or take therefrom any small or immature fish, fry or
fish eggs. It is true that said section 75 mentions certain streams, ponds and waters
within the game refuges, . . . communal forests, etc., which the law itself declares fish
refuges and sanctuaries, but this enumeration of places does not curtail the general
and unlimited power of the Secretary of Agriculture and Natural Resources in the first
part of section 75, to set aside and establish fishery reservations or fish refuges and
sanctuaries, which naturally include seas or bays, like the San Miguel Bay in
Camarines.
From the resolution passed at the Conference of Municipal Mayors held at Tinambac,
Camarines Sur, on December 18, 1953 (Exh. F), the following manifestation is
made:jgc:chanrobles.com.ph
"WHEREAS, the continuous operation of said trawls even during the close season as
specified in said Executive Order No. 20 caused the wanton destruction of the mother
shrimps laying their eggs and the millions of eggs laid and the inevitable extermination
of the shrimps specie; in order to save the shrimps specie from eventual extermination
and in order to conserve the shrimps specie for posterity;"
In the brief submitted by the NAMFREL and addressed to the President of the
Philippines (Exh. 2), in support of the petition of San Miguel Bay fishermen (allegedly
6,175 in number), praying that trawlers be banned from operating in San Miguel Bay, it
is also stated that:jgc:chanrobles.com.ph
"The trawls ram and destroy the fish corrals. The heavy trawl nets dig deep into the
ocean bed. They destroy the fish food which lies below the ocean floor. Their daytime
catches net millions of shrimps scooped up from the mud. In their nets they bring up
the life of the sea: algea, shell fish and star fish . . .
"The absence of some species or the apparent decline in the catch of some fishermen
operating in the bay may be due to several factors, namely: the indiscriminate
catching of fry and immature sizes of fishes, the wide spread use of explosives inside
as well as at the mouth and approaches of the bay, and the extensive operation of the
trawls." (p. 9, Report of Santos B. Rasalan, Exh. A).
Extensive Operation of Trawls: The strenuous effect of the operations of the 17
TRAWLS of the demersal fisheries of San Miguel Bay is better appreciated when we
consider the fact that out of its about 850 square kilometers area, only about 350
square kilometers of 5 fathoms up could be trawled. With their continuous operation,
coupled with those of the numerous fishing methods, the fisheries is greatly strained.
This is shown by the fact that in view of the non- observance of the close season from
May to October, each year, majority of their catch are immature. If their operation
would continue unrestricted, the supply would be greatly depleted." (p. 11, Report of
Santos B. Rasalan, Exh. A).
San Miguel Bay can sustain 3 to 4 small trawlers (Otter Trawl Explorations in
Philippine Waters, Research Report 25 of the Fish and Wildlife Service, United States
Department of the Interior, p. 9, Exhibit B).

According to Annex A of the complaint filed in the lower court in Civil Case No. 24867
G. R. No. L 9191 (Exh. D, p. 53 of the folder of Exhibits), the 18 plaintiffsappellees operate 29 trawling boats, and their operation must be in a big scale
considering the investments plaintiffs have made therefor, amounting to P387,000
(Record on Appeal, p. 16-17).
In virtue of the aforementioned provisions of law and the manifestations just copied,
We are of the opinion that with or without said Executive Orders, the restriction and
banning of trawl fishing from all Philippine waters come, under the law, within the
powers of the Secretary of Agriculture and Natural Resources, who in compliance with
his duties may even cause the criminal prosecution of those who in violation of his
instructions, regulations or orders are caught fishing with trawls in Philippine waters.
Now, if under the law the Secretary of Agriculture and Natural Resources has authority
to regulate or ban the fishing by trawl which, it is claimed, is obnoxious for it carries
away fish eggs and frys which should be preserved, can the President of the
Philippines exercise that same power and authority? Section 10(1), Article VII of the
Constitution of the Philippines prescribes:jgc:chanrobles.com.ph
"SEC. 10(1). The President shall have control of all the executive departments,
bureaus or offices, exercises general supervision over all local governments as may
be provided by law, and take care that the laws be faithfully executed."cralaw
virtua1aw library
Section 63 of the Revised Administrative Code reads as
follows:jgc:chanrobles.com.ph
"SEC. 63. EXECUTIVE ORDERS AND EXECUTIVE PROCLAMATION.
Administrative acts and commands of the President of the Philippines touching the
organization or mode of operation of the Government or rearranging or readjusting
any of the districts, divisions, parts or ports of the Philippines, and all acts and
commands governing the general performance of duties by public employees or
disposing of issues of general concern shall be made in executive orders."cralaw
virtua1aw library
x

Regarding department organization Section 74 of the Revised Administrative Code

also provides that:jgc:chanrobles.com.ph
"All executive functions of the Government of the Republic of the Philippines shall be
directly under the Executive Department subject to the supervision and control of the
President of the Philippines in matters of general policy. The Departments are
established for the proper distribution of the work of the Executive, for the
performance of the functions expressly assigned to them by law, and in order that
each branch of the administration may have a chief responsible for its direction and

96

policy. Each Department Secretary shall assume the burden of, and responsibility for,
all activities of the Government under his control and supervision.
For administrative purposes the President of the Philippines shall be considered the
Department Head of the Executive Office.." . . .
One of the executive departments is that of Agriculture and Natural Resources which
by law is placed under the direction and control of the Secretary, who exercises its
functions subject to the general supervision and control of the President of the
Philippines (Sec. 75, R. A. C.) . Moreover, "executive orders, regulations, decrees and
proclamations relative to matters under the supervision or jurisdiction of a Department,
the promulgation whereof is expressly assigned by law to the President of the
Philippines, shall as a general rule, be issued upon proposition and recommendation
of the respective Department" (Sec. 79-A, R.A.C.) , and there can be no doubt that the
promulgation of the questioned Executive Orders was upon the proposition and
recommendation of the Secretary of Agriculture and Natural Resources and that is
why said Secretary, who was and is called upon to enforce said executive Orders, was
made a party defendant in one of the cases at bar (G. R. No. L-9191).
For the foregoing reasons We do not hesitate to declare that Executive Orders Nos.
22, 66 and 80, series of 1954, of the President, are valid and issued by authority of
law.
III. But does the exercise of such authority by the President constitute an undue
delegation of the powers of Congress?
As already held by this Court, the true distinction between delegation of the power to
legislate and the conferring of authority or discretion as to the execution of the law
consists in that the former necessarily involves a discretion as to what the law shall
be, while in the latter the authority or discretion as to its execution has to be exercised
under and in pursuance of the law. The first cannot be done; to the latter no valid
objection can be made (Cruz v. Youngberg, 56 Phil., 234, 239. See also Rubi, Et. Al. v.
The Provincial Board of Mindoro, 39 Phil., 660).
In the case of U. S. v. Ang Tang Ho., 43 Phil. 1, We also held:jgc:chanrobles.com.ph
"THE POWER TO DELEGATE. The Legislature cannot delegate legislative power
to enact any law. If Act No. 2868 is a law unto itself, and within itself, and it does
nothing more than to authorize the Governor-General to make rules and regulations to
carry it into effect, then the Legislature created the law. There is no delegation of
power and it is valid. On the other hand, if the act within itself does not define a crime
and is not complete, and some legislative act remains to be done to make it a law or a
crime, the doing of which is vested in the Governor-General, the act is a delegation of
legislative power, is unconstitutional and void."cralaw virtua1aw library

From the provisions of Act No. 4003 of the Legislature, as amended by

Commonwealth Act No. 471, which have been aforequoted, We find that Congress (a)
declared it unlawful "to take or catch fry or fish eggs in the territorial waters of the
Philippines; (b) towards this end, it authorized the Secretary of Agriculture and Natural
Resources to provide by the regulations such restrictions as may be deemed
necessary to be imposed on the use of any fishing net or fishing device for the
protection of fish fry or fish eggs (Sec. 13); (c) it authorized the Secretary of,
Agriculture and Natural Resources to set aside and establish fishery reservations or
fish refuges and sanctuaries to be administered in the manner to be prescribed by him
and declared it unlawful for any person to take, destroy or kill in any of said places, or
in any manner disturb or drive away or take therefrom, any fish fry or fish eggs (Sec.
75); and (d) it penalizes the execution of such acts declared unlawful and in violation
of this Act (No. 4003) or of any rules and regulations promulgated thereunder, making
the offender subject to a fine of not more than P200, or imprisonment for not more
than 6 months, or both, in the discretion of the court (Sec. 83).
From the foregoing it may be seen that in so far as the protection of fish fry or fish egg
is concerned, the Fisheries Act is complete in itself, leaving to the Secretary of
Agriculture and Natural Resources the promulgation of rules and regulations to carry
into effect the legislative intent. It also appears from the exhibits on record in these
cases that fishing with trawls causes "a wanton destruction of the mother shrimps
laying their eggs and the millions of eggs laid and the inevitable extermination of the
shrimps specie" (Exh. F), and that "the trawls ram and destroy the fish corrals. The
heavy trawl nets dig deep into the ocean bed. They destroy the fish food which lies
below the ocean floor. Their daytime catches net millions of shrimps scooped up from
the mud. In their nets they bring up the life of the sea" (Exh. 2).
In the light of these facts it is clear to Our mind that for the protection of fry or fish
eggs and small and immature fishes, Congress intended with the promulgation of Act
No. 4003, to prohibit the use of any fish net or fishing device like trawl nets that could
endanger and deplete our supply of sea food, and to that end authorized the
Secretary of Agriculture and Natural Resources to provide by regulations such
restrictions as he deemed necessary in order to preserve the aquatic resources of the
land. Consequently, when the President, in response to the clamor of the people and
authorities of Camarines Sur issued Executive Order No. 80 absolutely prohibiting
fishing by means of trawls in all waters comprised within the San Miguel Bay, he did
nothing but show an anxious regard for the welfare of the inhabitants of said coastal
province and dispose of issues of general concern (Sec. 63, R.A.C.) which were in
consonance and strict conformity with the law.
Wherefore, and on the strength of the foregoing considerations We render judgment,
as follows:chanrob1es virtual 1aw library

97

(a) Declaring that the issues involved in case G. R. No. L-8895 have become moot, as
no writ of preliminary injunction has been issued by this Court enjoining the
respondent Judge of the Court of First Instance of Manila, Branch XIV, from enforcing
his order of March 3, 1955; and
(b) Reversing the decision appealed from in case G. R. No. L- 9191; dissolving the
writ of injunction prayed for in the lower court by plaintiffs, if any has been actually
issued by the court a quo; and declaring Executive Orders Nos. 22, 66 and 80, series
of 1954, valid for having been issued by authority of the Constitution, the Revised
Administrative Code and the Fisheries Act.
Without pronouncement as to costs. It is so ordered.
Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.
and Endencia, JJ., concur.

BOIE-TAKEDA CHEMICALS, INC., Petitioner, v. HON. DIONISIO C. DE LA SERNA,

Acting Secretary of the Department of Labor and Employment, Respondent.
[G.R. No. 102552. December 10, 1993.]
PHILIPPINE FUJI XEROX CORP., Petitioner, v. CRESENCIANO B. TRAJANO,
Undersecretary of the Department of Labor and Employment, and PHILIPPINE
FUJI XEROX EMPLOYEES UNION,Respondents.
Herrera, Laurel, De los Reyes, Roxas & Teehankee for Boie-Takeda Chemicals,
Inc. and Phil. Fuji Xerox Corp.
The Solicitor General for public respondents.
SYLLABUS
1. LABOR LAW AND OTHER SOCIAL LEGISLATIONS; WAGES; BASIC SALARY,
CONSTRUED; CASE AT BAR. Contrary to respondents contention, Memorandum
Order No. 28 did not repeal, supersede or abrogate P.D. 851. As may be gleaned from
the language of Memorandum Order No. 28, it merely "modified" Section 1 of the
decree by removing the P1,000.00 salary ceiling. The concept of 13th Month Pay as
envisioned, defined and implemented under P.D. 851 remained unaltered, and while
entitlement to said benefit was no longer limited to employees receiving a monthly
basic salary of not more than P1,000.00, said benefit was, and still is, to be computed
on the basic salary of the employee-recipient as provided under P.D. 851. Thus, the
interpretation given to the term "basic salary" as defined in P.D. 851 applies equally to
"basic salary" under Memorandum Order No. 28. The term "basic salary" is to be
understood in its common, generally-accepted meaning, i.e., as a rate of pay for a

standard work period exclusive of such additional payments as bonuses and overtime.
This is how the term was also understood in the case of Pless v. Franks, 308 S.W. 2d.
402, 403, 202 Tenn. 630, which held that in statutes providing that pension should not
be less than 50 percent of "basic salary" at the time of retirement, the quoted words
meant the salary than an employee (e.g., a policeman) was receiving at the time he
retired without taking into consideration any extra compensation to which he might be
entitled for extra work. In remunerative schemes consisting of a fixed or guaranteed
wage plus commission, the fixed or guaranteed wage is patently the "basic salary" for
this is what the employee receives for a standard work period. Commissions are given
for extra efforts exerted in consummating sales or other related transactions. They
are, as such, additional pay, which this Court has made clear do not form part of the
"basic salary." In including commissions in the computation of the 13th month pay, the
second paragraph of Section 5 (a) of the Revised Guidelines on the Implementation of
the 13th Month Pay Law unduly expanded the concept of "basic salary" as defined in
P.D. 851. It is a fundamental rule that implementing rules cannot add to or detract from
the provisions of the law it is designed to implement. Administrative regulations
adopted under legislative authority by a particular department must be in harmony
with the provisions of the law they are intended to carry into effect. They cannot widen
its scope. An administrative agency cannot amend an act of Congress. (Cebu Oxygen
& Acetylene Co., Inc. v. Drilon, 176 SCRA 24, citing Manuel v. General Auditing Office,
42 SCRA 660.)

Delegation of Legislative Power

Doctrine of Subordinate Legislation; Limitations
rule-making power
cannot contravene a statute or the Constitution
rules are not laws but have the force and effect of laws - partakes of the nature of
statute
enjoy presumption of legality - therefore courts should respect and apply them
UNLESS declared invalid; all other agencies should likewise respect them

Q: Distinguish between Legislative and Quasi-Legislative power.

A: Legislative power is vested in the Legislature while quasi-legislative power is in the
nature of subordinate legislationor the rule-making power delegated to administrative
bodies. Legislative power is plenary while quasi-legislative is not plenary and therefore
subject to limitations e.g. Constitution, statute, and administrative law limitations
such as the tests for valid delegation. Legislative power includes the power to
determine what the law is and how it shall be applied. Quasi-legislative power only
includes the power to determine how the law is to be applied but not what the law is;
administrative bodies cannot determine the legality or illegality of an act, NOT

98

UNLESS they are duly authorized by Congress.

Q: Distinguish between Judicial and Quasi-Judicial power.
A: Judicial power is original, vested in the judiciary. Quasi-judicial power is derivative,
a product of valid delegation of power to administrative bodies. Judicial power includes
the determination of rights and obligations conclusively while quasi-judicial power is
temporary in nature as courts have the final say. Judicial power is a primary power
exercised by the judiciary while quasi-judicial power is incidental to the primary
function of administrative bodies of implementing and enforcing laws. (NOTA BENE: It
is called quasi-judicial because it is a power that belongs to the judiciary but is
exercised by a non-judicial body. In addition, it is only incidental to the primary function
of implementation and enforcement of laws.)
Q: Why is it important to distinguish between quasi-legislative and quasi-judicial
power?
A: It is important to distinguish between these two powers of administrative bodies
because there are certain rules and principles in administrative law, which apply to
one but not to the other. Thus, the requirements of due process (notice & hearing)
apply when the administrative body is exercising quasi-judicial functions because such
power includes the determination of rights and obligations. On the other hand, there is
generally no need of prior notice & hearing in the exercise of quasi-legislative power.
Likewise the prior exhaustion of remedies and the doctrine of primary jurisdiction do
not apply in quasi-legislative processes, and only in the exercise of quasi-judicial
functions. And finally, a body exercising quasi-judicial functions is considered
equivalent to a regional trial court. Hence, one can seek relief from its judgment by
appealing to the Court of Appeals or the Supreme Court, depending on the mode of
appeal. A body exercising quasi-legislative functions is not considered equivalent to a
court. Hence, one can resort to the regional trial court to obtain relief.
Q: How are administrative rules interpreted?
A: It is a settled principle of law that in determining whether a board or commission
has a certain power, the authority given should be liberally construed in the light of the
purposes for which it was created, and that which is incidentally necessary to a full
implementation of the legislative intent should be upheld as being germane to the law.
Necessarily, too, where the end is required, the appropriate means are deemed given.
(Matienzo v. Abellera, G.R. No. L-45839, June 1, 1988)

promulgated by then Secretary of Labor and Employment, Hon. Franklin Drilon, and
overruling petitioners contention that said provision constituted a usurpation of
legislative power because not justified by or within the authority of the law sought to
be implemented besides violative of the equal protection of the law clause of the
Constitution.
Resolution of the issue entails, first, a review of the pertinent provisions of the laws
and implementing regulations.chanrobles virtual lawlibrary
Sections 1 and 2 of Presidential Decree No. 851, the Thirteenth Month Pay Law, read
as follows:chanrob1es virtual 1aw library
SEC. 1. All employers are hereby required to pay all their employees receiving basic
salary of not more than P1,000.00 a month, regardless of the nature of the
employment, a 13th month pay not later than December 24 of every year.
Sec. 2. Employers already paying their employees a 13th month pay or its equivalent
are not covered by this Decree.
The Rules and Regulations Implementing P.D. 851 promulgated by then Labor
Minister Blas Ople on December 22, 1975 contained the following relevant provisions
relative to the concept of "thirteenth month pay" and the employers exempted from
giving it, to wit:.
SEC. 2. Definition of certain terms. . . .
a) "Thirteenth month pay" shall mean one twelfth (1/12) of the basic salary of an
employee within a calendar year;
b) "Basic Salary" shall include all remunerations or earnings paid by an employer to an
employee for services rendered but may not include cost-of-living allowances granted
pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174, profitsharing payments, and all allowances and monetary benefits which are not considered
or integrated as part of the regular or basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.chanrobles virtual lawlibrary
SEC. 3. Employers covered. . . . (The law applies) to all employers except
to:chanrob1es virtual 1aw library
x

c) Employers already paying their employees a 13-month pay or more in a calendar

year or its equivalent at the time of this issuance;
What item or items of employee remuneration should go into the computation of
thirteenth month pay is the basic issue presented in these consolidated petitions.
Otherwise stated, the question is whether or not the respondent labor officials in
computing said benefit, committed "grave abuse of discretion amounting to lack of
jurisdiction," by giving effect to Section 5 of the Revised Guidelines on the
Implementation of the Thirteenth Month Pay (Presidential Decree No. 851)

e) Employers of those who are paid on purely commission, boundary, or task basis,

99

and those who are paid a fixed amount for performing a specific work, irrespective of
the time consumed in the performance thereof, except where the workers are paid on
piece-rate basis in which case the employer shall be covered by this issuance insofar
as such workers are concerned.
x

The term "its equivalent" as used in paragraph (c) shall include Christmas bonus, midyear bonus, profit-sharing payments and other cash bonuses amounting to not less
than 1/12th of the basic salary but shall not include cash and stock dividends, cost of
living allowances and all other allowances regularly enjoyed by the employee, as well
as non-monetary benefits. Where an employer pays less than 1/12th of the
employees basic salary, the employer shall pay the difference.
Supplementary Rules and Regulations Implementing P.D. 851 were subsequently
issued by Minister Ople which inter alia set out items of compensation not included in
the computation of the 13th month pay, viz.:chanrob1es virtual 1aw library
SEC. 4. Overtime pay, earnings and other remunerations which are not part of the
basic salary shall not be included in the computation of the 13th month
pay.chanrobles.com:cralaw:red
On August 13, 1986, President Corazon C. Aquino promulgated Memorandum Order
No. 28, which contained a single provision modifying Presidential Decree No. 851 by
removing the salary ceiling of P1,000.00 a month set by the latter, as
follows:chanrob1es virtual 1aw library
Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all
employers are hereby required to pay all their rank-and-file employees a 13th month
pay not later than December 24, of every year.
Slightly more than a year later, on November 16, 1987, Revised Guidelines on the
Implementation of the 13th Month Pay Law were promulgated by then Labor
Secretary Franklin Drilon which, among other things, defined with particularity what
remunerative items were and were not embraced in the concept of 13th month pay,
and specifically dealt with employees who are paid a fixed or guaranteed wage plus
commission. The relevant provisions read:chanrob1es virtual 1aw library
4. Amount and payment of 13th Month Pay.
x

The basic salary of an employee for the purpose of computing the 13th month pay
shall include all remunerations or earnings paid by his employer for services rendered
but does not include allowances and monetary benefits which are not considered or
integrated as part of the regular or basic salary, such as the cash equivalent of unused
vacation and sick leave credits, overtime, premium, night differential and holiday pay,

and cost-of-living allowances. However, these salary-related benefits should be

included as part of the basic salary in the computation of the 13th month pay if by
individual or collective agreement, company practice or policy, the same are treated as
part of the basic salary of the employees.chanrobles lawlibrary : rednad
x

5. 13th Month Pay for Certain Types of Employees.

(a) Employees Paid by Results. Employees who are paid on piece work basis are
by law entitled to the 13th month pay.
Employees who are paid a fixed or guaranteed wage plus commission are also
entitled to the mandated 13th month pay based on their total earnings during the
calendar year, i.e., on both their fixed or guaranteed wage and commission.
This was the state of the law when the controversies at bar arose out of the following
antecedents:chanrob1es virtual 1aw library
(RE G.R. No. 92174) A routine inspection was conducted on May 2, 1989 in the
premises of petitioner Boie-Takeda Chemicals, Inc. by Labor and Development Officer
Reynaldo B. Ramos under Inspection Authority No. 4-209-89. Finding that BoieTakeda had not been including the commissions earned by its medical representatives
in the computation of their 13th month pay, Ramos served a Notice of Inspection
Results 1 on Boie-Takeda through its president, Mr. Benito Araneta, requiring BoieTakeda within ten (10) calendar days from notice to effect restitution or correction of
"the underpayment of 13th month pay for the year(s) 1986, 1987 and 1988 of Med
Rep (Revised Guidelines on the Implementation of 13th month pay # 5) in the total
amount of P558,810.89."cralaw virtua1aw library
Boie-Takeda wrote the Labor Department contesting the Notice of Inspection Results,
and expressing the view "that the commission paid to our medical representatives are
not to be included in the computation of the 13th month pay . . . (since the) law and its
implementing rules speak of REGULAR or BASIC salary and therefore exclude all
other remunerations which are not part of the REGULAR salary." It pointed out that, "If
no sales is (sic) made under the effort of a particular representative, there is no
commission during the period when no sale was transacted, so that commissions are
not and cannot be legally defined as regular in nature." 2chanrobles.com:cralaw:red
Regional Director Luna C. Piezas directed Boie-Takeda to appear before his Office on
June 9 and 16, 1989. On the appointed dates, however, and despite due notice, no
one appeared for Boie-Takeda, and the matter had perforce to be resolved on the
basis of the evidence at hand. On July 24, 1989, Director Piezas issued an Order 3

100

directing Boie-Takeda:jgc:chanrobles.com.ph
". . . to pay . . . (its) medical representatives and its managers the total amount of FIVE
HUNDRED SIXTY FIVE THOUSAND SEVEN HUNDRED FORTY SIX AND FORTY
SEVEN CENTAVOS (P565,746.47) representing underpayment of thirteenth (13th)
month pay for the years 1986, 1987, 1988, inclusive, pursuant to the . . . revised
guidelines within ten (10) days from receipt of this Order."cralaw virtua1aw library
A motion for reconsideration 4 was seasonably filed by Boie-Takeda under date of
August 3, 1989. Treated as an appeal, it was resolved on January 17, 1990 by then
Acting Labor Secretary Dionisio de la Serna, who affirmed the July 24, 1989 Order
with modification that the sales commissions earned by Boie-Takedas medical
representatives before August 13, 1989, the effectivity date of Memorandum Order
No. 28 and its Implementing Guidelines, shall be excluded in the computation of their
13th month pay. 5
Hence the petition docketed as G.R. No. 92174.
[RE G.R. No. 102552) A similar Routine Inspection was conducted in the premises of
Philippine Fuji Xerox Corp. on September 7, 1989 pursuant to Routine Inspection
Authority No. NCR-LSED-RI-494-89. In his Notice of Inspection Results, 6 addressed
to the Manager, Mr. Nicolas O. Katigbak, Senior Labor and Employment Officer
Nicanor M. Torres noted the following violation committed by Philippine Fuji Xerox
Corp., to wit:chanrobles virtual lawlibrary
"Underpayment of 13th month pay of 62 employees, more or less pursuant to
Revised Guidelines on the Implementation of the 13th month pay law for the period
covering 1986, 1987 and 1988."cralaw virtua1aw library
Philippine Fuji Xerox was requested to effect rectification and/or restitution of the
noted violation within five (5) working days from notice.
No action having been taken thereon by Philippine Fuji Xerox, Mr. Eduardo G.
Gonzales, President of Philxerox Employees Union, wrote then Labor Secretary
Franklin Drilon requesting a follow-up of the inspection findings. Messrs. Nicolas and
Gonzales were summoned to appear before Labor Employment and Development
Officer Mario F. Santos, NCR Office, Department of Labor for a conciliation
conference. When no amicable settlement was reached, the parties were required to
file their position papers.
Subsequently, Regional Director Luna C. Piezas issued an Order dated August 23,
1990, 7 disposing as follows:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, Respondent PHILIPPINE FUJI XEROX is

hereby ordered to restitute to its salesmen the portion of the 13th month pay which
arose out of the non-implementation of the said revised guidelines, ten (10) days from
receipt hereof, otherwise, Mr. NICANOR TORRES, the SR. LABOR EMPLOYMENT
OFFICER is hereby Ordered to proceed to the premises of the Respondent for the
purpose of computing the said deficiency (sic) should respondent fail to heed this
Order."cralaw virtua1aw library
Philippine Fuji Xerox appealed the aforequoted Order to the Office of Secretary of
Labor. In an Order dated October 10, 1991, Undersecretary Cresenciano B. Trajano
denied the appeal for lack of merit. Hence, the petition in G.R. No. 102552, which was
ordered consolidated with G.R. No. 92174 as involving the same
issue.chanroblesvirtualawlibrary
In their almost identically-worded petitions, Petitioners, through common counsel,
attribute grave abuse of discretion to respondent labor officials Hon. Dionisio dela
Serna and Undersecretary Cresenciano B. Trajano in issuing the questioned Orders of
January 17, 1990 and October 10, 1991, respectively. They maintain that under P. D.
851, the 13th month pay is based solely on basic salary. As defined by the law itself
and clarified by the Implementing and Supplementary Rules as well as by the
Supreme Court in a long line of decisions, remunerations which do not form part of the
basic or regular salary of an employee, such as commissions, should not be
considered in the computation of the 13th month pay. This being the case, the
Revised Guidelines on the Implementation of the 13th Month Pay Law issued by then
Secretary Drilon providing for the inclusion of commissions in the 13th month pay,
were issued in excess of the statutory authority conferred by P.D. 851. According to
petitioners, this conclusion becomes even more evident when considered in light of
the opinion rendered by Labor Secretary Drilon himself in "In Re: Labor Dispute at the
Philippine Long Distance Telephone Company" which affirmed the contemporaneous
interpretation by then Secretary Ople that commissions are excluded from basic
salary. Petitioners further contend that assuming that Secretary Drilon did not exceed
the statutory authority conferred by P.D. 851, still the Revised Guidelines are null and
void as they violate the equal protection of the law clause.chanrobles law library : red
Respondents through the Office of the Solicitor General question the propriety of
petitioners attack on the constitutionality of the Revised Guidelines in a petition
for certiorari, which, they contend, should be confined purely to the correction of errors
and/or defects of jurisdiction, including matters of grave abuse of discretion amounting
to lack or excess of jurisdiction and not extend to a collateral attack on the validity
and/or constitutionality of a law or statute. They aver that the petitions do not advance
any cogent reason or state any valid ground to sustain the allegation of grave abuse
of discretion, and that at any rate, P.D. No. 851, otherwise known as the 13th Month
Pay Law has already been amended by Memorandum Order No. 28 issued by
President Corazon C. Aquino on August 13, 1986 so that commissions are now
imputed into the computation of the 13th Month Pay. They add that the Revised

101

Guidelines issued by then Labor Secretary Drilon merely clarified a gray area
occasioned by the silence of the law as to the nature of commissions; and worked no
violation of the equal protection clause of the Constitution, said Guidelines being
based on reasonable classification. Respondents point to the case of Songco v.
National Labor Relations Commission, 183 SCRA 610, wherein this Court declared
that Article 97(f) of the Labor Code is explicit that commission is included in the
definition of the term "wage" .
We rule for the petitioners.
Contrary to respondents contention, Memorandum Order No. 28 did not repeal,
supersede or abrogate P.D. 851. As may be gleaned from the language of
Memorandum Order No. 28, it merely "modified" Section 1 of the decree by removing
the P1,000.00 salary ceiling. The concept of 13th Month Pay as envisioned, defined
and implemented under P.D. 851 remained unaltered, and while entitlement to said
benefit was no longer limited to employees receiving a monthly basic salary of not
more than P1,000.00, said benefit was, and still is, to be computed on the basic salary
of the employee-recipient as provided under P.D. 851. Thus, the interpretation given to
the term "basic salary" as defined in P.D. 851 applies equally to "basic salary" under
Memorandum Order No. 28.
In the case of San Miguel Corp. v. Inciong, 103 SCRA 139, this Court delineated the
coverage of the term "basic salary" as used in P.D. 851. We said at some
length:chanrobles lawlibrary : rednad
"Under Presidential Decree 851 and its implementing rules, the basic salary of an
employee is used as the basis in the determination of his 13th month pay. Any
compensations or remunerations which are deemed not part of the basic pay is
excluded as basis in the computation of the mandatory bonus.
"Under the Rules and Regulations Implementing Presidential Decree 851, the
following compensations are deemed not part of the basic salary:chanrob1es virtual
1aw library
a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of
Instructions No. 174;
b) Profit-sharing payments;
c) All allowances and monetary benefits which are not considered or integrated as part
of the regular basic salary of the employee at the time of the promulgation of the
Decree on December 16, 1975.

Decree 851 issued by then Labor Secretary Blas Ople, overtime pay, earnings and
other remunerations are excluded as part of the basic salary and in the computation of
the 13th month pay.
"The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter
of Instructions No. 174, and profit-sharing payments indicate the intention to strip
basic salary of other payments which are properly considered as fringe benefits.
Likewise, the catch-all exclusionary phrase all allowances and monetary benefits
which are not considered or integrated as part of the basic salary shows also the
intention to strip basic salary of any and additions which may be in the form of
allowances or fringe benefits.
"Moreover, the Supplementary Rules and Regulations Implementing Presidential
Decree 851 is even more emphatic in declaring that earnings and other remunerations
which are not part of the basic salary shall not be included in the computation of the
13th-month pay.chanrobles virtual lawlibrary
"While doubt may have been created by the prior Rules and Regulations
Implementing Presidential Decree 851 which defines basic salary to include all
remunerations or earnings paid by an employer to an employee, this cloud is
dissipated in the later and more controlling Supplementary Rules and Regulations
which categorically exclude from the definitions of basic salary earnings and other
remunerations paid by employer to an employee. A cursory perusal of the two sets of
Rules indicates that what has hitherto been the subject of a broad inclusion is now a
subject of broad exclusion. The Supplementary Rules and Regulations cure the
seeming tendency of the former rules to include all remunerations and earnings within
the definition of basic salary.
"The all embracing phrase earnings and other remunerations which are deemed not
part of the basic salary includes within its meaning payments for sick, vacation, or
maternity leaves, premium for works performed on rest days and special holidays,
pays for regular holidays and night differentials. As such they are deemed not part of
the basic salary and shall not be considered in the computation of the 13th-month pay.
If they were not excluded, it is hard to find any earnings and other remunerations
expressly excluded in the computation of the 13th-month pay. Then the exclusionary
provision would prove to be idle and with no purpose.
"This conclusion finds strong support under the Labor Code of the Philippines. To cite
a few provisions:chanrobles virtual lawlibrary
Art. 87. Overtime work. Work may be performed beyond eight (8) hours a day
provided that the employee is paid for the overtime work, additional compensation
equivalent to his regular wage plus at least twenty-five (25%) percent thereof.

"Under a later set of Supplementary Rules and Regulations Implementing Presidential

102

It is clear that overtime pay is an additional compensation other than and added to the
regular wage or basic salary, for reason of which such is categorically excluded from
the definition of basic salary under the Supplementary Rules and Regulations
Implementing Presidential Decree 851.
In Article 93 of the same Code, paragraph.
c) work performed on any special holiday shall be paid an additional compensation of
at least thirty percent (30%) of the regular wage of the employee..
"It is likewise clear that premiums for special holiday which is at least 30% of the
regular wage is an additional pay other than and added to the regular wage or basic
salary. For similar reason, it shall not be considered in the computation of the 13thmonth pay.
Quite obvious from the foregoing is that the term "basic salary" is to be understood in
its common, generally-accepted meaning, i.e., as a rate of pay for a standard work
period exclusive of such additional payments as bonuses and overtime. 8 This is how
the term was also understood in the case of Pless v. Franks, 308 S.W. 2d. 402, 403,
202 Tenn. 630, which held that in statutes providing that pension should not be less
than 50 percent of "basic salary" at the time of retirement, the quoted words meant the
salary than an employee (e.g., a policeman) was receiving at the time he retired
without taking into consideration any extra compensation to which he might be entitled
for extra work. 9chanrobles.com:cralaw:red
In remunerative schemes consisting of a fixed or guaranteed wage plus commission,
the fixed or guaranteed wage is patently the "basic salary" for this is what the
employee receives for a standard work period. Commissions are given for extra efforts
exerted in consummating sales or other related transactions. They are, as such,
additional pay, which this Court has made clear do not form part of the "basic
salary."cralaw virtua1aw library
Respondents would do well to distinguish this case from Songco v. National Labor
Relations Commission, supra, upon which they rely so heavily. What was involved
therein was the term "salary" without the restrictive adjective "basic." Thus, in said
case, we construed the term in its generic sense to refer to all types of "direct
remunerations for services rendered," including commissions. In the same case, we
also took judicial notice of the fact "that some salesmen do not receive any basic
salary but depend on commissions and allowances or commissions alone, although
an employer-employee relationship exists," which statement is quite significant in that
it speaks of a "basic salary" apart and distinct from "commissions" and "allowances."
Instead of supporting respondents stand, it would appear that Songco itself
recognizes that commissions are not part of "basic salary."cralaw virtua1aw library

In including commissions in the computation of the 13th month pay, the second
paragraph of Section 5 (a) of the Revised Guidelines on the Implementation of the
13th Month Pay Law unduly expanded the concept of "basic salary" as defined in P.D.
851. It is a fundamental rule that implementing rules cannot add to or detract from the
provisions of the law it is designed to implement. Administrative regulations adopted
under legislative authority by a particular department must be in harmony with the
provisions of the law they are intended to carry into effect. They cannot widen its
scope. An administrative agency cannot amend an act of Congress. 10chanrobles law
library : red
Having reached this conclusion, we deem it unnecessary to discuss the other issues
raised in these petitions.
WHEREFORE, the consolidated petitions are hereby GRANTED. The second
paragraph of Section 5 (a) of the Revised Guidelines on the Implementation of the
13th Month Pay Law issued on November 16, 1987 by then Labor Secretary Franklin
M. Drilon is declared null and void as being violative of the law said Guidelines were
issued to implement, hence issued with grave abuse of discretion correctible by the
writ of prohibition and certiorari. The assailed Orders of January 17, 1990 and October
10, 1991 based thereon are SET ASIDE.
SO ORDERED.
Padilla, Regalado, Nocon and Puno, JJ., concur.

AVELINA B. CONTE and LETICIA BOISER-PALMA, Petitioners, v. COMMISSION

ON AUDIT (COA),Respondent.
DECISION
PANGANIBAN, J.:
Are the benefits provided for under Social Security System Resolution No. 56 to be
considered simply as "financial assistance" for retiring employees, or does such
scheme constitute a supplementary retirement plan proscribed by Republic Act No.
4968?
The foregoing question is addressed by this Court in resolving the instant petition
for certiorari which seeks to reverse and set aside Decision No. 94-126 1 dated March
15, 1994 of respondent Commission on Audit, which denied petitioners request for

103

reconsideration of its adverse ruling disapproving claims for financial assistance under
SSS Resolution No. 56.

WHEREAS, it is the right of every SSS employee to choose freely and voluntarily the
benefit he is entitled to solely for his own benefit and for the benefit of his family;

The Facts

NOW, THEREFORE, BE IT RESOLVED, That all the SSS employees who are
simultaneously qualified for compulsory retirement at age 65 or for optional retirement
at a lower age be encouraged to avail for themselves the life annuity under R.A. 660,
as amended;

Petitioners Avelina B. Conte and Leticia Boiser-Palma were former employees of the
Social Security System (SSS) who retired from government service on May 9, 1990
and September 13, 1992, respectively. They availed of compulsory retirement benefits
under Republic Act No. 660. 2
In addition to retirement benefits provided under R.A. 660, petitioners also claimed
SSS "financial assistance" benefits granted under SSS Resolution No. 56, series of
1971.
A brief historical backgrounder is in order. SSS Resolution No. 56, 3 approved on
January 21, 1971, provides financial incentive and inducement to SSS employees
qualified to retire to avail of retirement benefits under RA 660 as amended, rather than
the retirement benefits under RA 1616 as amended, by giving them "financial
assistance" equivalent in amount to the difference between what a retiree would have
received under RA 1616, less what he was entitled to under RA 660. The said SSS
Resolution No. 56 states:jgc:chanrobles.com.ph
"RESOLUTION NO. 56
WHEREAS, the retirement benefits of SSS employees are provided for under
Republic Acts 660 and 1616 as amended;
WHEREAS, SSS employees who are qualified for compulsory retirement at age 65 or
for optional retirement at a lower age are entitled to either the life annuity under R.A.
660, as amended, or the gratuity under R.A. 1616, as amended;
WHEREAS, a retirement benefit to be effective must be a periodic income as close as
possible to the monthly income that would have been due to the retiree during the
remaining years of his life were he still employed;
WHEREAS, the life annuity under R.A. 660, as amended, being closer to the monthly
income that was lost on account of old age than the gratuity under R.A. 1616, as
amended, would best serve the interest of the retiree;
WHEREAS, it is the policy of the Social Security Commission to promote and to
protect the interest of all SSS employees, with a view to providing for their well-being
during both their working and retirement years;
WHEREAS, the availment of life annuities built up by premiums paid on behalf of SSS
employees during their working years would mean more savings to the SSS;
WHEREAS, it is a duty of the Social Security Commission to effect savings in every
possible way for economical and efficient operations;

RESOLVED, FURTHER, That SSS employees who availed themselves of the said life
annuity, in appreciation and recognition of their long and faithful service, be granted
financial assistance equivalent to the gratuity plus return of contributions under R.A.
1616, as amended, less the five year guaranteed annuity under R.A. 660, as
amended;
RESOLVED, FINALLY, That the Administrator be authorized to act on all applications
for retirement submitted by SSS employees and subject to availability of funds, pay
the corresponding benefits in addition to the money value of all accumulated leaves."
(Emphasis supplied)
Long after the promulgation of SSS Resolution No. 56, respondent Commission on
Audit (COA) issued a ruling, captioned as "3rd Indorsement" dated July 10, 1989, 4
disallowing in audit "all such claims for financial assistance under SSS Resolution No.
56", for the reason that:
". . . the scheme of financial assistance authorized by the SSS is similar to those
separate retirement plan or incentive/separation pay plans adopted by other
government corporate agencies which results in the increase of benefits beyond what
is allowed under existing retirement laws. In this regard, attention . . . is invited to the
view expressed by the Secretary of Budget and Management dated February 17,
1988 to the COA General Counsel against the proliferation of retirement plans which,
in COA Decision No. 591 dated August 31, 1988, was concurred in by this
Commission. . . .
Accordingly, all such claims for financial assistance under SSS Resolution No. 56
dated January 21, 1971 should be disallowed in audit." (Emphasis supplied)
Despite the aforequoted ruling of respondent COA, then SSS Administrator Jose L.
Cuisia, Jr. nevertheless wrote 5 on February 12, 1990 then Executive Secretary
Catalino Macaraig, Jr., seeking "presidential authority for SSS to continue
implementing its Resolution No. 56 dated January 21, 1971 granting financial
assistance to its qualified retiring employees" .
However, in a letter-reply dated May 28, 1990, 6 then Executive Secretary Macaraig
advised Administrator Cuisia that the Office of the President "is not inclined to
favorably act on the herein request, let alone over-rule the disallowance by COA" of
such claims, because, aside from the fact that decisions, order or actions of the COA
in the exercise of its audit functions are appealable to the Supreme Court 7 pursuant
to Sec. 50 of PD 1445, the benefits under said Res. 56, though referred to as financial
assistance, constituted additional retirement benefits, and the scheme partook of the
nature of a supplementary pension/retirement plan proscribed by law.

104

private sector or in foreign countries . . .

The law referred to above is RA 4968 (The Teves Retirement Law), which took effect
June 17, 1967 and amended CA 186 (otherwise known as the Government Service
Insurance Act, or the GSIS Charter), making Sec. 28 (b) of the latter act read as
follows:jgc:chanrobles.com.ph
"(b) Hereafter, no insurance or retirement plan for officers or employees shall be
created by employer. All supplementary retirement or pension plans heretofore in
force in any government office, agency or instrumentality or corporation owned or
controlled by the government, are hereby declared inoperative or abolished; Provided,
That the rights of those who are already eligible to retire thereunder shall not be
affected." (Emphasis supplied)
On January 12, 1993, herein petitioners filed with respondent COA their "letterappeal/protest" 8 seeking reconsideration of COAs ruling of July 10, 1989 disallowing
claims for financial assistance under Res. 56.
On November 15, 1993, petitioner Conte sought payment from SSS of the benefits
under Res. 56. On December 9, 1993, SSS Administrator Renato C. Valencia denied
9 the request in consonance with the previous disallowance by respondent COA, but
assured petitioner that should the COA change its position, the SSS will resume the
grant of benefits under said Res. 56.
On March 15, 1994, respondent COA rendered its COA Decision No. 94-126 denying
petitioners request for reconsideration.
Thus this petition for certiorari under Rule 65 of the Rules of Court.
The Issues
The issues 10 submitted by petitioners may be simplified and re- stated thus: Did
public respondent abuse its discretion when it disallowed in audit petitioners claims
for benefits under SSS Res. 56?
Petitioners argue that the financial assistance under Res. 56 is not a retirement plan
prohibited by RA 4968, and that Res. 56 provides benefits different from and "aside
from" what a retiring SSS employee would be entitled to under RA 660. Petitioners
contend that it "is a social amelioration and economic upliftment measure undertaken
not only for the benefit of the SSS but more so for the welfare of its qualified retiring
employees." As such, it "should be interpreted in a manner that would give the . . .
most advantage to the recipient the retiring employees whose dedicated, loyal,
lengthy and faithful service to the agency of government is recognized and amply
rewarded the rationale for the financial assistance plan." Petitioners reiterate the
argument in their letter dated January 12, 1993 to COA that:jgc:chanrobles.com.ph
"Motivation can be in the form of financial assistance, during their stay in the service
or upon retirement, as in the SSS Financial Assistance Plan. This is so, because
Government has to have some attractive remuneration programs to encourage wellqualified personnel to pursue a career in the government service, rather than in the

A more developmental view of the financial institutions grant of certain forms of

financial assistance to its personnel, we believe, would enable government
administrators to see these financial forms of remuneration as contributory to the
national developmental efforts for effective and efficient administration of the
personnel programs in different institutions." 11
The Courts Ruling
Petitioners contentions are not supported by law. We hold that Res. 56 constitutes a
supplementary retirement plan.
A cursory examination of the preambular clauses and provisions of Res. 56 provides a
number of clear indications that its financial assistance plan constitutes a
supplemental retirement/pension benefits plan. In particular, the fifth preambular
clause which provides that "it is the policy of the Social Security Commission to
promote and to protect the interest of all SSS employees, with a view to providing for
their well-being during both their working and retirement years", and the wording of the
resolution itself which states "Resolved, further, that SSS employees who availed
themselves of the said life annuity (under RA 660), in appreciation and recognition of
their long and faithful service, be granted financial assistance . . ." can only be
interpreted to mean that the benefit being granted is none other than a kind of
amelioration to enable the retiring employee to enjoy (or survive) his retirement years
and a reward for his loyalty and service. Moreover, it is plain to see that the grant of
said financial assistance is inextricably linked with and inseparable from the
application for and approval of retirement benefits under RA 660, i.e., that availment of
said financial assistance under Res. 56 may not be done independently of but only in
conjunction with the availment of retirement benefits under RA 660, and that the
former is in augmentation or supplementation of the latter benefits.
Likewise, then SSS Administrator Cuisias historical overview of the origins and
purpose of Res. 56 is very instructive and sheds much light on the controversy: 12
"Resolution No. 56, . . ., applies where a retiring SSS employee is qualified to claim
under either RA 660 (pension benefit, that is, 5 year lump sum pension and after 5
years, life time pension), or RA 1616 (gratuity benefit plus return of contribution), at his
option. The benefits under RA 660 are entirely payable by GSIS while those under RA
1616 are entirely shouldered by SSS except the return of contribution by GSIS.
Resolution No. 56 came about upon observation that qualified SSS employees have
invariably opted to retire under RA 1616 instead of RA 660 because the total benefit
under the former is much greater than the 5-year lump sum under the latter. As a
consequence, the SSS usually ended up virtually paying the entire retirement benefit,
instead of GSIS which is the main insurance carrier for government employees.
Hence, the situation has become so expensive for SSS that a study of the problem
became inevitable.
As a result of the study and upon the recommendation of its Actuary, the SSS

105

Management recommended to the Social Security Commission that retiring

employees who are qualified to claim under either RA 660 or 1616 should be
encouraged to avail for themselves the life annuity under RA 660, as amended, with
the SSS providing a financial assistance equivalent to the difference between the
benefit under RA 1616 (gratuity plus return of contribution) and the 5-year lump sum
pension under RA 660.
The Social Security Commission, as the policy-making body of the SSS approved the
recommendation in line with its mandate to insure the efficient, honest and
economical administration of the provisions and purposes of this Act. (Section 3 (c) of
the Social Security Law).
Necessarily, the situation was reversed with qualified SSS employees opting to retire
under RA No. 660 or RA 1146 instead of RA 1616, resulting in substantial savings for
the SSS despite its having to pay financial assistance.
Until Resolution No. 56 was questioned by COA." (emphasis part of original text;
italics ours)
Although such financial assistance package may have been instituted for noble,
altruistic purposes as well as from self-interest and a desire to cut costs on the part of
the SSS, nevertheless, it is beyond any dispute that such package effectively
constitutes a supplementary retirement plan. The fact that it was designed to equalize
the benefits receivable from RA 1616 with those payable under RA 660 and make the
latter program more attractive, merely confirms the foregoing finding.
That the Res. 56 package is labelled "financial assistance" does not change its
essential nature. Retirement benefits are, after all, a form of reward for an employees
loyalty and service to the employer, and are intended to help the employee enjoy the
remaining years of his life, lessening the burden of worrying about his financial
support or upkeep. 13 On the other hand, a pension partakes of the nature of
"retained wages" of the retiree for a dual purpose: to entice competent people to enter
the government service, and to permit them to retire from the service with relative
security, not only for those who have retained their vigor, but more so for those who
have been incapacitated by illness or accident. 14
Is SSS Resolution No. 56 then within the ambit of and thus proscribed by Sec. 28 (b)
of CA 186 as amended by RA 4968?
We answer in the affirmative. Said Sec. 28 (b) as amended by RA 4968 in no
uncertain terms bars the creation of any insurance or retirement plan other than the
GSIS for government officers and employees, in order to prevent the undue and
inequitous proliferation of such plans. It is beyond cavil that Res. 56 contravenes the
said provision of law and is therefore invalid, void and of no effect. To ignore this and
rule otherwise would be tantamount to permitting every other government office or
agency to put up its own supplementary retirement benefit plan under the guise of
such "financial assistance" .
We are not unmindful of the laudable purposes for promulgating Res. 56, and the
positive results it must have had, not only in reducing costs and expenses on the part

of the SSS in connection with the pay-out of retirement benefits and gratuities, but
also in improving the quality of life for scores of retirees. But it is simply beyond
dispute that the SSS had no authority to maintain and implement such retirement plan,
particularly in the face of the statutory prohibition. The SSS cannot, in the guise of
rule-making, legislate or amend laws or worse, render them nugatory.
It is doctrinal that in case of conflict between a statute and an administrative order, the
former must prevail. 15 A rule or regulation must conform to and be consistent with the
provisions of the enabling statute in order for such rule or regulation to be valid. 16
The rule-making power of a public administrative body is a delegated legislative
power, which it may not use either to abridge the authority given it by the Congress or
the Constitution or to enlarge its power beyond the scope intended. Constitutional and
statutory provisions control with respect to what rules and regulations may be
promulgated by such a body, as well as with respect to what fields are subject to
regulation by it. It may not make rules and regulations which are inconsistent with the
provisions of the Constitution or a statute, particularly the statute it is administering or
which created it, or which are in derogation of, or defeat, the purpose of a statute. 17
Though well-settled is the rule that retirement laws are liberally interpreted in favor of
the retiree, 18 nevertheless, there is really nothing to interpret in either RA 4968 or
Res. 56, and correspondingly, the absence of any doubt as to the ultra-vires nature
and illegality of the disputed resolution constrains us to rule against petitioners.
As a necessary consequence of the invalidity of Res. 56, we can hardly impute abuse
of discretion of any sort to respondent Commission for denying petitioners request for
reconsideration of the 3rd Indorsement of July 10, 1989. On the contrary, we hold that
public respondent in its assailed Decision acted with circumspection in denying
petitioners claim. It reasoned thus:jgc:chanrobles.com.ph
"After a careful evaluation of the facts herein obtaining, this Commission finds the
instant request to be devoid of merit. It bears stress that the financial assistance
contemplated under SSS Resolution No. 56 is granted to SSS employees who opt to
retire under R.A. No. 660. In fact, by the aggrieved parties own admission (page 2 of
the request for reconsideration dated January 12, 1993), it is a financial assistance
granted by the SSS management to its employees, in addition to the retirement
benefits under Republic Act. No. 660." (underscoring supplied for emphasis) There is
therefore no question, that the said financial assistance partakes of the nature of a
retirement benefit that has the effect of modifying existing retirement laws particularly
R.A. No. 660.
Petitioners also asseverate that the scheme of financial assistance under Res. 56 may
be likened to the monetary benefits of government officials and employees who are
paid, over and above their salaries and allowances as provided by statute, an
additional honorarium in varying amounts. We find this comparison baseless and
misplaced. As clarified by the Solicitor General: 19
"Petitioners comparison of SSS Resolution No. 56 with the honoraria given to
government officials and employees of the National Prosecution Service of the
Department of Justice, Office of the Government Corporate Counsel and even in the
Office of the Solicitor General is devoid of any basis. The monetary benefits or
honoraria given to these officials or employees are categorized as travelling and/or

106

representation expenses which are incurred by them in the course of handling cases,
attending court/administrative hearings, or performing other field work. These
monetary benefits are given upon rendition of service while the financial benefits
under SSS Resolution No. 56 are given upon retirement from service."cralaw
virtua1aw library
In a last-ditch attempt to convince this Court that their position is tenable, petitioners
invoke equity. They "believe that they are deserving of justice and equity in their quest
for financial assistance under SSS Resolution No. 56, not so much because the SSS
is one of the very few stable agencies of government where no doubt this recognition
and reputation is earned . . . but more so due to the miserable scale of compensation
granted to employees in various agencies to include those obtaining in the SSS." 20
We must admit we sympathize with petitioners in their financial predicament as a
result of their misplaced decision to avail of retirement benefits under RA 660, with the
false expectation that "financial assistance" under the disputed Res. 56 will also
materialize. Nevertheless, this Court has always held that equity, which has been aptly
described as "justice outside legality," is applied only in the absence of, and never
against, statutory law or judicial rules of procedure. 21 In this case, equity cannot be
applied to give validity and effect to Res. 56, which directly contravenes the clear
mandate of the provisions of RA 4968.
Likewise, we cannot but be aware that the clear imbalance between the benefits
available under RA 660 and those under RA 1616 has created an unfair situation for it
has shifted the burden of paying such benefits from the GSIS (the main insurance
carrier of government employees) to the SSS. Without the corrective effects of Res.
56, all retiring SSS employees without exception will be impelled to avail of benefits
under RA 1616. The cumulative effect of such availments on the financial standing
and stability of the SSS is better left to actuarians. But the solution or remedy for such
situation can be provided only by Congress. Judicial hands cannot, on the pretext of
showing concern for the welfare of government employees, bestow equity contrary to
the clear provisions of law.
Nevertheless, insofar as herein petitioners are concerned, this Court cannot just sit
back and watch as these two erstwhile government employees, who after spending
the best parts of their lives in public service have retired hoping to enjoy their
remaining years, face a financially dismal if not distressed future, deprived of what
should have been due them by way of additional retirement benefits, on account of a
bureaucratic boo-boo improvidently hatched by their higher-ups. It is clear to our mind
that petitioners applied for benefits under RA 660 only because of the incentives
offered by Res. 56, and that absent such incentives, they would have without fail
availed of RA 1616 instead. We likewise have no doubt that petitioners are simply
innocent bystanders in this whole bureaucratic rule-making/financial scheme-making
drama, and that therefore, to the extent possible, petitioners ought not be penalized or
made to suffer as a result of the subsequently determined invalidity of Res. 56, the
promulgation and implementation of which they had nothing to do with.
And here is where "equity" may properly be invoked: since "SSS employees who are
qualified for compulsory retirement at age 65 or for optional retirement at a lower age
are entitled to either the life annuity under R.A. 660, as amended, or the gratuity under

R.A. 1616, as amended", 22 it appears that petitioners, being qualified to avail of

benefits under RA 660, may also readily qualify under RA 1616. It would therefore not
be misplaced to enjoin the SSS to render all possible assistance to petitioners for the
prompt processing and approval of their applications under RA 1616, and in the
meantime, unless barred by existing regulations, to advance to petitioners the
difference between the amounts due under RA 1616, and the amounts they already
obtained, if any, under RA 660.
WHEREFORE, the petition is hereby DISMISSED for lack of merit, there having been
no grave abuse of discretion on the part of respondent Commission. The assailed
Decision of public respondent is AFFIRMED, and SSS Resolution No. 56 is hereby
declared ILLEGAL, VOID AND OF NO EFFECT . The SSS is hereby urged to assist
petitioners and facilitate their applications under RA 1616, and to advance to them,
unless barred by existing regulations, the corresponding amounts representing the
difference between the two benefits programs. No costs.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug,
Kapunan, Mendoza, Francisco, Hermosisima, Jr. and Torres, Jr., JJ., concur.

THE PEOPLE OF THE PHILIPPINES, Plaintiff-Appellant, v. HON. MAXIMO A.

MACEREN, CFI, Sta. Cruz, Laguna, JOSE BUENAVENTURA, GODOFREDO
REYES, BENJAMIN REYES, NAZARIO AQUINO and CARLITO DEL
ROSARIO, Accused-appellees.

thus, in People vs. Maceren, the rule was held invalid for the reason that it made
punishable an act which the law did not specify as punishable even as the rule
conformed to the legislative policy of protecting marine life. This case is peculiar as it
involved an administrative issuance which contained a penal provision. As a rule, laws
with penal provisions are strictly construed for they subject a person to punishment
and sanctions. Anent the rule that administrative issuances should be construed
liberally, issuances with penal provisions can be said to be an exception by their very
nature. Moreover, while it is true that administrative issuances enjoy the presumption
of legality and accorded great respect, it is likewise true the courts may declare them
invalid based on grounds such as grave abuse of discretion, lack of jurisdiction, error
of law, abuse of power, and clear conflict between the statute and the issuance.
This is a case involving the validity of a 1967 regulation, penalizing electro fishing in
fresh water fisheries, promulgated by the Secretary of Agriculture and Natural
Resources and the Commissioner of Fisheries under the old Fisheries Law and the

107

law creating the Fisheries Commission.chanroblesvirtual|awlibrary

PHILIPPINES.

On March 7, 1969 Jose Buenaventura, Godofredo Reyes, Benjamin Reyes, Nazario

Aquino and Carlito del Rosario were charged by a Constabulary investigator in the
municipal court of Sta. Cruz, Laguna with having violated Fisheries Administrative
Order No. 84-1.

"Pursuant to Section 4 of Act No. 4003, as amended, and Section 4(h) of R.A. No.
3512, the following rules and regulations regarding the prohibition of electro fishing in
all waters of the Philippines are hereby promulgated for the information and guidance
of all concerned.

It was alleged in the complaint that the five accused in the morning of March 1, 1969
resorted to electro fishing in the waters of Barrio San Pablo Norte, Sta. Cruz by "using
their own motor banca, equipped with motor; with a generator colored green with
attached dynamo colored gray or somewhat white; and electrocuting device locally
known as senso with a somewhat webbed copper wire on the tip or other end of a
bamboo pole with electric wire attachment which was attached to the dynamo direct
and with the use of these devices or equipments catches fish thru electric current,
which destroy any aquatic animals within its currect reach, to the detriment and
prejudice of the populace" (Criminal Case No. 5429).

"SECTION 1. Definition. Words and terms used in this Order shall be construed as
follows:jgc:chanrobles.com.ph

Upon motion of the accused, the municipal court quashed the complaint. The
prosecution appealed. The Court of First Instance of Laguna affirmed the order of
dismissal (Civil Case No. SC-36). The case is now before this Court on appeal by the
prosecution under Republic Act No. 5440.
The lower court held that electro fishing cannot be penalized because electric current
is not an obnoxious or poisonous substance as contemplated in section 11 of the
Fisheries Law and that it is not a substance at all but a form of energy conducted or
transmitted by substances. The lower court further held that, since the law does not
clearly prohibit electro fishing, the executive and judicial departments cannot consider
it unlawful.
As legal background, it should be stated that section 11 of the Fisheries Law prohibits
"the use of any obnoxious or poisonous substance" in fishing.
Section 76 of the same law punishes any person who uses an obnoxious or
poisonous substance in fishing with a fine of not less than five hundred pesos nor
more than five thousand, and by imprisonment for not less than six months nor more
than five years.
It is noteworthy that the Fisheries Law does not expressly punish "electro fishing."
Notwithstanding the silence of the law, the Secretary of Agriculture and Natural
Resources, upon the recommendation of the Commissioner of Fisheries, promulgated
Fisheries Administrative Order No. 84 (62 O.G. 1224), prohibiting electro fishing in all
Philippine waters. The order is quoted below:jgc:chanrobles.com.ph
"SUBJECT. PROHIBITING ELECTRO FISHING IN ALL WATERS OF THE

"(a) Philippine waters or territorial waters of the Philippines includes all waters of the
Philippine Archipelago, as defined in the treaties between the United States and
Spain, dated respectively the tenth of December, eighteen hundred ninety eight and
the seventh of November, nineteen hundred. For the purpose of this order, rivers,
lakes and other bodies of fresh waters are included.
"(b) Electro fishing. Electro Fishing is the catching of fish with the use of electric
current. The equipment used are of many electrical devices which may be battery or
generator-operated and from any available source of electric current.
"(c) Persons includes firm, corporation, association, agent or employee.
"(d) Fish includes other aquatic products.
"SEC. 2. Prohibition. It shall be unlawful for any person to engage in electro fishing
or to catch fish by the use of electric current in any portion of the Philippine waters
except for research, educational and scientific purposes which must be covered by a
permit issued by the Secretary of Agriculture and Natural Resources which shall be
carried at all times.
"SEC. 3. Penalty. Any violation of the provisions of this Administrative Order shall
subject the offender to a fine of not exceeding five hundred pesos (P500.00) or
imprisonment of not exceeding six (6) months or both at the discretion of the Court.
"SEC. 4. Repealing Provisions. All administrative orders or parts thereof
inconsistent with the provisions of this Administrative Order are hereby revoked.
"SEC. 5. Effectivity. This Administrative Order shall take effect sixty (60) days after
its publication in the Official Gazette."cralaw virtua1aw library
On June 28, 1967 the Secretary of Agriculture and Natural Resources, upon the
recommendation of the Fisheries Commission, issued Fisheries Administrative Order
No. 84-1, amending section 2 of Administrative Order No. 84, by restricting the ban
against electro fishing to fresh water fisheries (63 O.G. 9963).

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Thus, the phrase "in any portion of the Philippine waters", found in Section 2, was
changed by the amendatory order to read as follows: "in fresh water fisheries in the
Philippines, such as rivers, lakes, swamps, dams, irrigation canals and other bodies of
fresh water."cralaw virtua1aw library
The Court of First Instance and the prosecution (p. 11 of brief) assumed that electro
fishing is punishable under Section 83 of the Fisheries Law (not under Section 76
thereof), which provides that any other violation of that law "or of any rules and
regulations promulgated thereunder shall subject the offender to a fine of not more
than two hundred pesos (P200), or imprisonment for not more than six months, or
both, in the discretion of the court."cralaw virtua1aw library
That assumption is incorrect because Section 3 of the aforequoted Administrative
Order No. 84 imposes a fine of not exceeding P500 on a person engaged in electro
fishing, which amount exceeds the maximum fine of P200 fixed in Section 83. It
seems that the Department Secretary and the Commissioner of Fisheries prescribed
their own penalty for electro fishing, which penalty is less than the severe penalty
imposed in Section 76 and which is not identical to the light penalty imposed in
Section 83.
Had Administrative Order No. 84 adopted the lighter penalty prescribed in Section 83,
then the crime of electro fishing would be within the exclusive original jurisdiction of
the inferior court (Sec. 44[f], Judiciary Law; People v. Ragasi, L-28663, September 22,
1976, 73 SCRA 23).
We have discussed this preliminary point, not raised in the briefs, because it is
obvious that the crime of electro fishing, which is punishable with a fine up to P500,
falls within the concurrent original jurisdiction of the inferior courts and the Court of
First Instance (People v. Nazareno, L-40037, April 30, 1976, 70 SCRA 531 and the
cases cited therein).
And since the instant case was filed in the municipal court of Sta. Cruz, Laguna, a
provincial capital, the order of dismissal rendered by that municipal court was directly
appealable to the Court, not to the Court of First Instance of Laguna (Sec. 45 and last
par. of Section 87 of the Judiciary Law; Esperat v. Avila, L-25992, June 30, 1967, 20
SCRA 596).
It results that the Court of First Instance of Laguna had no appellate jurisdiction over
the case. Its order affirming the municipal courts order of dismissal is void for lack of
jurisdiction. This appeal shall be treated as a direct appeal from the municipal court to
this Court. (See People v. Del Rosario, 97 Phil. 67).
In this appeal, the prosecution argues that Administrative Orders Nos. 84 and 84-1

were not issued under section 11 of the Fisheries Law which, as indicated above,
punishes fishing by means of an obnoxious or poisonous substance. This contention
is not well-taken because, as already stated, the penal provision of Administrative
Order No. 84 implies that electro fishing is penalized as a form of fishing by means of
an obnoxious or poisonous substance under section 11.
The prosecution cites as the legal sanctions for the prohibition against electro fishing
in fresh water fisheries (1) the rule-making power of the Department Secretary under
section 4 of the Fisheries Law; (2) the function of the Commissioner of Fisheries to
enforce the provisions of the Fisheries Law and the regulations promulgated
thereunder and to execute the rules and regulations consistent with the purpose for
the creation of the Fisheries Commission and for the development of fisheries (Sec.
4[c] and [h], Republic Act No. 3512; (3) the declared national policy to encourage,
promote and conserve our fishing resources (Sec. 1, Republic Act No. 3512), and (4)
section 83 of the Fisheries Law which provides that "any other violation of" the
Fisheries Law or of any rules and regulations promulgated thereunder "shall subject
the offender to a fine of not more than two hundred pesos, or imprisonment for not
more than six months, or both, in the discretion of the court."cralaw virtua1aw library
As already pointed out above, the prosecutions reference to section 83 is out of place
because the penalty for electro fishing under Administrative Order No. 84 is not the
same as the penalty fixed in Section 83.chanroblesvirtuallawlibrary
We are of the opinion that the Secretary of Agriculture and Natural Resources and the
Commissioner of Fisheries exceeded their authority in issuing Fisheries Administrative
Orders Nos. 84 and 84-1 and that those orders are not warranted under the Fisheries
Commission, Republic Act No. 3512.
The reason is that the Fisheries Law does not expressly prohibit electro fishing. As
electro fishing is not banned under that law, the Secretary of Agriculture and Natural
Resources and the Commissioner of Fisheries are powerless to penalize it. In other
words, Administrative Orders Nos. 84 and 84-1, in penalizing electro fishing, are
devoid of any legal basis.
Had the lawmaking body intended to punish electro fishing, a penal provision to that
effect could have been easily embodied in the old Fisheries Law.
That law punishes (1) the use of obnoxious or poisonous substance, or explosive in
fishing; (2) unlawful fishing in deepsea fisheries; (3) unlawful taking of marine
mollusca, (4) illegal taking of sponges; (5) failure of licensed fishermen to report the
kind and quantity of fish caught, and (6) other violations.
Nowhere in that law is electro fishing specifically punished. Administrative Order No.
84, in punishing electro fishing, does not contemplate that such an offense falls within

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the category of "other violations" because, as already shown, the penalty for electro
fishing is the penalty next lower to the penalty for fishing with the use of obnoxious or
poisonous substances, fixed in Section 76, and is not the same as the penalty for
"other violations" of the law and regulations fixed in Section 83 of the Fisheries Law.

now found in section 3(d) of the decree. Note further that the decree penalizes electro
fishing by "imprisonment from two (2) to four (4) years", a punishment which is more
severe than the penalty of a fine of not exceeding P500 or imprisonment of not more
than six months or both fixed in section 3 of Fisheries Administrative Order No. 84.

The lawmaking body cannot delegate to an executive official the power to declare
what acts should constitute a criminal offense. It can authorize the issuance of
regulations and the imposition of the penalty provided for in the law itself. (People v.
Exconde, 101 Phil. 1125, citing 11 Am. Jur. 965 on p. 1132).

An examination of the rule-making power of executive officials and administrative

agencies and, in particular, of the Secretary of Agriculture and Natural Resources
(now Secretary of Natural Resources) under the Fisheries Law sustains the view that
he exceeded his authority in penalizing electro fishing by means of an administrative
order.

Originally, Administrative Order No. 84 punished electro fishing in all waters. Later, the
ban against electro fishing was confined to fresh water fisheries. The amendment
created the impression that electro fishing is not condemnable per se. It could be
tolerated in marine waters. That circumstances strengthens the view that the old law
does not eschew all forms of electro fishing.
However, at present, there is no more doubt that electro fishing is punishable under
the Fisheries Law and that it cannot be penalized merely by executive regulation
because Presidential Decree No. 704, which is a revision and consolidation of all laws
and decrees affecting fishing and fisheries and which was promulgated on May 16,
1975 (71 O.G. 4269), expressly punishes electro fishing in fresh water and salt water
areas.

Administrative agencies are clothed with rule-making powers because the lawmaking
body finds it impracticable, if not impossible, to anticipate and provide for the
multifarious and complex situations that may be encountered in enforcing the law. All
that is required is that the regulation should be germane to the objects and purposes
of the law and that it should conform to the standards that the law prescribes (People
v. Exconde, 101 Phil. 1125; Director of Forestry v. Muoz, L-24796, June 28, 1968, 23
SCRA 1183, 1198; Geukeko v. Araneta, 102 Phil. 706, 712).
The lawmaking body cannot possibly provide for all the details in the enforcement of a
particular statute (U.S. v. Tupasi Molina, 29 Phil. 119, 125, citing U.S. v. Grimaud, 220
U.S. 506; Interprovincial Autobus Co., Inc. v. Coll. of Internal Revenue, 98 Phil. 290,
295-6).

That decree provides:jgc:chanrobles.com.ph

"SEC. 33. Illegal fishing, dealing in illegally caught fish or fishery/aquatic products.
It shall be unlawful for any person to catch, take or gather or cause to be caught,
taken or gathered fish or fishery/aquatic products in Philippine waters with the use of
explosives, obnoxious or poisonous substance, or by the use of electricity as defined
in paragraphs (1), (m) and (d), respectively, of Section 3 hereof: . . ."cralaw virtua1aw
library
The decree repealed Act No. 4003, as amended, Republic Acts Nos. 428, 3048, 3512
and 3586, Presidential Decrees Nos. 43, 534 and 553, and all Decrees, Acts,
Executive Orders, rules and regulations or parts thereof inconsistent with it (Sec. 49,
P. D. No. 704).
The inclusion in that decree of provisions defining and penalizing electro fishing is a
clear recognition of the deficiency or silence on that point of the old Fisheries Law. It is
an admission that a mere executive regulation is not legally adequate to penalize
electro fishing.
Note that the definition of electro fishing, which is found in section 1(c) of Fisheries
Administrative Order No. 84 and which is not provided for in the old Fisheries Law, is

The grant of the rule-making power to administrative agencies is a relaxation of the

principle of separation of powers and is an exception to the nondelegation of
legislative powers. Administrative regulations or "subordinate legislation" calculated to
promote the public interest are necessary because of "the growing complexity of
modern life, the multiplication of the subjects of governmental regulations, and the
increased difficulty of administering the law" (Calalang v. Williams, 70 Phil. 726;
People v. Rosenthal and Osmea, 68 Phil. 328).
Administrative regulations adopted under legislative authority by a particular
department must be in harmony with the provisions of the law, and should be for the
sole purpose of carrying into effect its general provisions. By such regulations, of
course, the law itself cannot be extended. (U.S. v. Tupasi Molina, supra). An
administrative agency cannot amend an act of Congress (Santos v. Estenzo, 109 Phil.
419, 422; Teoxon v. Members of the Board of Administrators, L-25619, June 30, 1970,
33 SCRA 585; Manuel v. General Auditing Office, L-28952, December 29, 1971, 42
SCRA 660; Deluao v. Casteel, L-21906, August 29, 1969, 29 SCRA 350).
The rule-making power must be confined to details for regulating the mode or
proceeding to carry into effect the law as it has been enacted. The power cannot be
extended to amending or expanding the statutory requirements or to embrace matters

110

not covered by the statute. Rules that subvert the statute cannot be sanctioned.
(University of Santo Tomas v. Board of Tax Appeals, 93 Phil. 376, 382, citing 12 C.J.
845-46. As to invalid regulations, see Collector of Internal Revenue v. Villaflor, 69 Phil.
319; Wise & Co. v. Meer, 78 Phil. 655, 676; Del Mar v. Phil. Veterans Administration,
L-27299, June 27, 1973, 51 SCRA 340, 349).
There is no question that the Secretary of Agriculture and Natural Resources has rulemaking powers. Section 4 of the Fisheries Law provides that the Secretary "shall from
time to time issue instructions, orders, and regulations consistent" with that law, "as
may be necessary and proper to carry into effect the provisions thereof. That power is
now vested in the Secretary of Natural Resources by section 7 of the Revised
Fisheries Law, Presidential Decree No. 704.
Section 4(h) of Republic Act No. 3512 empower the Commissioner of Fisheries "to
prepare and execute upon the approval of the Secretary of Agriculture and Natural
Resources, forms, instructions, rules and regulations consistent with the purpose" of
that enactment "and for the development of fisheries."cralaw virtua1aw library
Section 79(B) of the Revised Administrative Code provides that "the Department Head
shall have the power to promulgate, whenever he may see fit do so, all rules,
regulations, orders, circulars, memorandums, and other instructions, not contrary to
law, necessary to regulate the proper working and harmonious and efficient
administration of each and all of the offices and dependencies of his Department, and
for the strict enforcement and proper execution of the laws relative to matters under
the jurisdiction of said Department; but none of said rules or orders shall prescribe
penalties for the violation thereof, except as expressly authorized by law."cralaw
virtua1aw library
Administrative regulations issued by a Department Head in conformity with law have
the force of law (Valerio v. Secretary of Agriculture and Natural Resources, 117 Phil.
729, 733; Antique Sawmills, Inc. v. Zayco, L-20051, May 30, 1966, 17 SCRA 316). As
he exercises the rule-making power by delegation of the lawmaking body, it is a
requisite that he should not transcend the bounds demarcated by the statute for the
exercise of that power; otherwise, he would be improperly exercising legislative power
in his own right and not as a surrogate of the lawmaking body.
Article 7 of the Civil Code embodies the basic principle that "administrative or
executive acts, orders and regulations shall be valid only when they are not contrary to
the laws or the Constitution."cralaw virtua1aw library
As noted by Justice Fernando, "except for constitutional officials who can trace their
competence to act to the fundamental law itself, a public official must locate in the
statute relied upon a grant of power before he can exercise it." "Department zeal may
not be permitted to outrun the authority conferred by statute." (Radio Communications

of the Philippines, Inc. v. Santiago, L-29236, August 21, 1974, 58 SCRA 493, 496-8).
"Rules and regulations when promulgated in pursuance of the procedure or authority
conferred upon the administrative agency by law, partake of the nature of a statute,
and compliance therewith may be enforced by a penal sanction provided in the law.
This is so because statutes are usually couched in general terms, after expressing the
policy, purposes, objectives, remedies and sanctions intended by the legislature. The
details and the manner of carrying out the law are oftentimes left to the administrative
agency entrusted with its enforcement. In this sense, it has been said that rules and
regulations are the product of a delegated power to create new or additional legal
provisions that have the effect of law." The rule or regulation should be within the
scope of the statutory authority granted by the legislature to the administrative agency.
(Davis, Administrative Law, p. 194, 197, cited in Victorias Milling Co., Inc. v. Social
Security Commission, 114 Phil. 555, 558).
In case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails because said rule or regulation cannot go
beyond the terms and provisions of the basic law (People v. Lim, 108 Phil. 1091).
This Court in its decision in the Lim case, supra, promulgated on July 26, 1960, called
the attention of technical men in the executive departments, who draft rules and
regulations, to the importance and necessity of closely following the legal provisions
which they intend to implement so as to avoid any possible misunderstanding or
confusion.
The rule is that the violation of a regulation prescribed by an executive officer of the
government in conformity with and based upon a statute authorizing such regulation
constitutes an offense and renders the offender liable to punishment in accordance
with the provisions of the law (U.S. v. Tupasi Molina, 29 Phil. 119, 124).
In other words, a violation or infringement of a rule or regulation validly issued can
constitute a crime punishable as provided in the authorizing statute and by virtue of
the latter (People v. Exconde, 101 Phil. 1125, 1132).
It has been held that "to declare what shall constitute a crime and how it shall be
punished is a power vested exclusively in the legislature, and it may not be delegated
to any other body or agency" (1 Am. Jur. 2nd, sec. 127, p. 938; Texas Co. v.
Montgomery, 73 F. Supp. 527).
In the instant case the regulation penalizing electro fishing is not strictly in accordance
with the Fisheries Law, under which the regulation was issued, because the law itself
does not expressly punish electro fishing.
The instant case is similar to People v. Santos, 63 Phil. 300. The Santos case involves

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Section 28 of Fish and Game Administrative Order No. 2 issued by the Secretary of
Agriculture and Natural Resources pursuant to the aforementioned Section 4 of the
Fisheries Law.
Section 28 contains the proviso that a fishing boat not licensed under the Fisheries
Law and under the said administrative order may fish within three kilometers of the
shoreline of islands and reservations over which jurisdiction is exercised by naval and
military reservations authorities of the United States only upon receiving written
permission therefor, which permission may be granted by the Secretary upon
recommendation of the military or naval authorities concerned. A violation of the
proviso may be proceeded against under Section 45 of the Federal Penal Code.
Augusto A. Santos was prosecuted under that provision in the Court of First Instance
of Cavite for having caused his two fishing boats to fish, loiter and anchor without
permission from the Secretary within three kilometers from the shoreline of Corrigidor
Island.
This Court held that the Fisheries Law does not prohibit boats not subject to license
from fishing within three kilometers of the shoreline of islands and reservations over
which jurisdiction is exercised by naval and military authorities of the United States,
without permission from the Secretary of Agriculture and Natural Resources upon
recommendation of the military and naval authorities concerned.
As the said law does not penalize the act mentioned in section 28 of the administrative
order, the promulgation of that provision by the Secretary "is equivalent to legislating
on the matter, a power which has not been and cannot be delegated to him, it being
expressly reserved" to the lawmaking body. "Such an act constitutes not only an
excess of the regulatory power conferred upon the Secretary but also an exercise of a
legislative power which he does not have, and therefore" the said provision "is null and
void and without effect." Hence, the charge against Santos was dismissed.

In a prosecution for a violation of an administrative order, it must clearly appear that

the order is one which falls within the scope of the authority conferred upon the
administrative body, and the order will be scrutinized with special care. (State v. Miles,
supra).
The Miles case involved a statute which authorized the State Game Commission "to
adopt, promulgate, amend and/or repeal, and enforce reasonable rules and
regulations governing and/or prohibiting the taking of the various classes of
game."cralaw virtua1aw library
Under that statute, the Game Commission promulgated a rule that "it shall be unlawful
to offer, pay or receive any reward, prize or compensation for the hunting, pursuing,
taking, killing or displaying of any game animal, game bird or game fish or any part
thereof."cralaw virtua1aw library
Beryl S. Miles, the owner of a sporting goods store, regularly offered a ten-dollar cash
prize to the person displaying the largest deer in his store during the open season for
hunting such game animals. For that act, he was charged with a violation of the rule
promulgated by the State Game Commission.
It was held that there was no statute penalizing the display of game. What the statute
penalized was the taking of game. If the lawmaking body desired to prohibit the
display of game, it could have readily said so. It was not lawful for the administrative
board to extend or modify the statute. Hence, the indictment against Miles was
quashed. The Miles case is similar to this case.
WHEREFORE, the lower courts decision of June 9, 1970 is set aside for lack of
appellate jurisdiction and the order of dismissal rendered by the municipal court of
Sta. Cruz, Laguna in Criminal Case No. 5429 is affirmed. Costs de oficio.

A penal statute is strictly construed. While an administrative agency has the right to
make rules and regulations to carry into effect a law already enacted, that power
should not be confused with the power to enact a criminal statute. An administrative
agency can have only the administrative or policing powers expressly or by necessary
implication conferred upon it. (Glustrom v. State, 206 Ga. 734, 58 SE 2d 534; See 2
Am. Jr. 2nd 129-130).

PHILIPPINE ASSOCIATION OF SERVICE EXPORTERS, INC., Petitioner, v. HON.

RUBEN D. TORRES, as Secretary of the Department of Labor & Employment,
and JOSE N. SARMIENTO, as Administrator of the PHILIPPINE OVERSEAS
EMPLOYMENT ADMINISTRATION, Respondents.

Where the legislature has delegated to executive or administrative officers and boards
authority to promulgate rules to carry out an express legislative purpose, the rules of
administrative officers and boards, which have the effect of extending, or which
conflict with the authority-granting statute, do not represent a valid exercise of the
rule-making power but constitute an attempt by an administrative body to legislate
(State v. Miles, 5 Wash. 2nd 322; 105 Pac. 2nd 51).

SYLLABUS

De Guzman, Meneses & Associates for Petitioner.

1. ADMINISTRATIVE LAW; ADMINISTRATIVE BODIES; VESTURE OF QUASI

LEGISLATIVE AND QUASI JUDICIAL POWERS. The vesture of quasi-legislative
and quasi-judicial powers in administrative bodies is not unconstitutional,
unreasonable and oppressive. It has been necessitated by "the growing complexity of

112

the modern society" (Solid Homes, Inc. v. Payawal, 177 SCRA 72, 79). More and
more administrative bodies are necessary to help in the regulation of societys ramified
activities. "Specialized in the particular field assigned to them, they can deal with the
problems thereof with more expertise and dispatch than can be expected from the
legislature or the courts of justice."cralaw virtua1aw library
2. LABOR LAW; OVERSEAS EMPLOYMENT; DOLE AND POEA CIRCULARS;
POWER TO RESTRICT AND REGULATE INVOLVES A GRANT OF POLICE
POWER. It is noteworthy that the assailed circulars do not prohibit the petitioner
from engaging in the recruitment and deployment of Filipino landbased workers for
overseas employment. A careful reading of the challenged administrative issuances
discloses that the same fall within the "administrative and policing powers expressly or
by necessary implication conferred" upon the respondents (People v. Maceren, 79
SCRA 450). The power to "restrict and regulate conferred by Article 36 of the Labor
Code involves a grant of police power (City of Naga v. Court of Appeals, 24 SCRA
898). To "restrict" means "to confine, limit or stop" and whereas the power to
"regulate" means "the power to protect, foster, promote, preserve, and control with
due regard for the interests, first and foremost, of the public, then of the utility and of
its patrons" (Philippine Communications Satellite Corporation v. Alcuaz, 180 SCRA
218).
3. ID.; ID.; ID.; INVALID FOR LACK OF PROPER PUBLICATION AND FILING IN THE
OFFICE OF NATIONAL ADMINISTRATIVE REGISTER. Nevertheless, the DOLE
and POEA circulars are legally invalid, defective and unenforceable for lack of proper
publication and filing in the Office of the National Administrative Register as required in
Article 2 of the Civil Code, Article 5 of the Labor Code and Sections 3(1) and 4,
Chapter 2, Book VII of the Administrative Code of 1987.

On June 1, 1991, as a result of published stories regarding the abuses suffered by

Filipino housemaids employed in Hong Kong, DOLE Secretary Ruben D. Torres
issued Department Order No. 16, Series of 1991, temporarily suspending the
recruitment by private employment agencies of "Filipino domestic helpers going to
Hong Kong" (p. 30, Rollo). The DOLE itself, through the POEA took over the business
of deploying such Hong Kong-bound workers.
"In view of the need to establish mechanisms that will enhance the protection for
Filipino domestic helpers going to Hong Kong, the recruitment of the same by private
employment agencies is hereby temporarily suspended effective 1 July 1991. As such,
the DOLE through the facilities of the Philippine Overseas Employment Administration
shall take over the processing and deployment of household workers bound for Hong
Kong, subject to guidelines to be issued for said purpose.
"In support of this policy, all DOLE Regional Directors and the Bureau of Local
Employments regional offices are likewise directed to coordinate with the POEA in
maintaining a manpower pool of prospective domestic helpers to Hong Kong on a
regional basis.
"For compliance." (Emphasis ours; p. 30, Rollo.)
Pursuant to the above DOLE circular, the POEA issued Memorandum Circular No. 30,
Series of 1991, dated July 10, 1991, providing GUIDELINES on the Government
processing and deployment of Filipino domestic helpers to Hong Kong and the
accreditation of Hong Kong recruitment agencies intending to hire Filipino domestic
helpers.
"Subject: Guidelines on the Temporary Government Processing and Deployment of
Domestic Helpers to Hong Kong.

DECISION
GRIO-AQUINO, J.:
This petition for prohibition with temporary restraining order was filed by the Philippine
Association of Service Exporters (PASEI, for short), to prohibit and enjoin the
Secretary of the Department of Labor and Employment (DOLE) and the Administrator
of the Philippine Overseas Employment Administration (or POEA) from enforcing and
implementing DOLE Department Order No. 16, Series of 1991 and POEA
Memorandum Circular Nos. 30 and 37, Series of 1991, temporarily suspending the
recruitment by private employment agencies of Filipino domestic helpers for Hong
Kong and vesting in the DOLE, through the facilities of the POEA, the task of
processing and deploying such workers.
PASEI is the largest national organization of private employment and recruitment
agencies duly licensed and authorized by the POEA, to engage in the business of
obtaining overseas employment for Filipino landbased workers, including domestic
helpers.chanrobles law library

"Pursuant to Department Order No. 16, series of 1991 and in order to operationalize
the temporary government processing and deployment of domestic helpers (DHs) to
Hong Kong resulting from the temporary suspension of recruitment by private
employment agencies for said skill and host market, the following guidelines and
mechanisms shall govern the implementation of said policy:jgc:chanrobles.com.ph
"I. Creation of a Joint POEA-OWWA Household Workers Placement Unit (HWPU).
"An ad hoc, one stop Household Workers Placement Unit [or HWPU] under the
supervision of the POEA shall take charge of the various operations involved in the
Hong Kong-DH industry segment:jgc:chanrobles.com.ph
"The HWPU shall have the following functions in coordination with appropriate units
and other entities concerned:jgc:chanrobles.com.ph
"1. Negotiations with and Accreditation of Hong Kong Recruitment Agencies
"2. Manpower Pooling
"3. Worker Training and Briefing

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"4. Processing and Deployment

"5. Welfare Programs.
"II. Documentary Requirements and Other Conditions for Accreditation of Hong Kong
Recruitment Agencies or Principals.cralawnad
"Recruitment agencies in Hong Kong intending to hire Filipino DHs for their employers
may negotiate with the HWPU in Manila directly or through the Philippine Labor
Attaches Office in Hong Kong.
"x

"X. Interim Arrangement

"All contracts stamped in Hong Kong as of June 30 shall continue to be processed by
POEA until 31 July 1991 under the name of the Philippine agencies concerned.
Thereafter, all contracts shall be processed with the HWPU.
"Recruitment agencies in Hong Kong shall submit to the Philippine Consulate General
in Hong Kong a list of their accepted applicants in their pool within the last week of
July. The last day of acceptance shall be July 31 which shall then be the basis of
HWPU in accepting contracts for processing. After the exhaustion of their respective
pools the only source of applicants will be the POEA manpower pool.
"For strict compliance of all concerned." (pp. 31-35, Rollo.)
On August 1, 1991, the POEA Administrator also issued Memorandum Circular No.
37, Series of 1991, on the processing of employment contracts of domestic workers
for Hong Kong.
"TO: All Philippine and Hong Kong Agencies engaged in the recruitment of Domestic
helpers for Hong Kong.
"Further to Memorandum Circular No. 30, series of 1991 pertaining to the government
processing and deployment of domestic helpers (DHs) to Hong Kong, processing of
employment contracts which have been attested by the Hong Kong Commissioner of
Labor up to 30 June 1991 shall be processed by the POEA Employment Contracts
Processing Branch up to 15 August 1991 only.
"Effective 16 August 1991, all Hong Kong recruitment agent/s hiring DHs from the
Philippines shall recruit under the new scheme which requires prior accreditation with
the POEA.
"Recruitment agencies in Hong Kong may apply for accreditation at the Office of the
Labor Attache, Philippine Consulate General where a POEA team is posted until 31
August 1991. Thereafter, those who failed to have themselves accredited in Hong
Kong may proceed to the POEA-OWWA Household Workers Placement Unit in Manila
for accreditation before their recruitment and processing of DHs shall be allowed.

"Recruitment agencies in Hong Kong who have some accepted applicants in their pool
after the cut-off period shall submit this list of workers upon accreditation. Only those
DHs in said list will be allowed processing outside of the HWPU manpower pool.
"For strict compliance of all concerned." (Emphasis supplied, p. 36, Rollo.)
On September 2, 1991, the petitioner, PASEI, filed this petition for prohibition to annul
the aforementioned DOLE and POEA circulars and to prohibit their implementation for
the following reasons:chanrob1es virtual 1aw library
1. that the respondents acted with grave abuse of discretion and/or in excess of their
rule-making authority in issuing said circulars;
2. that the assailed DOLE and POEA circulars are contrary to the Constitution, are
unreasonable, unfair and oppressive; and
3. that the requirements of publication and filing with the Office of the National
Administrative Register were not complied with.
There is no merit in the first and second grounds of the petition.
Article 36 of the Labor Code grants the Labor Secretary the power to restrict and
regulate recruitment and placement activities.chanrobles law library : red
"Art. 36. Regulatory Power. The Secretary of Labor shall have the power to restrict
and regulate the recruitment and placement activities of all agencies within the
coverage of this title [Regulation of Recruitment and Placement Activities] and is
hereby authorized to issue orders and promulgate rules and regulations to carry out
the objectives and implement the provisions of this title." (Italics ours.)
On the other hand, the scope of the regulatory authority of the POEA, which was
created by Executive Order No. 797 on May 1, 1982 to take over the functions of the
Overseas Employment Development Board, the National Seamen Board, and the
overseas employment functions of the Bureau of Employment Services, is broad and
far-ranging for:chanrob1es virtual 1aw library
1. Among the functions inherited by the POEA from the defunct Bureau of
Employment Services was the power and duty:jgc:chanrobles.com.ph
"2. To establish and maintain a registration and/or licensing system to private sector
participation in the recruitment and placement of workers, locally and overseas, . . . .
(Art. 15, Labor Code, Italics supplied)." (p. 13, Rollo.)
2. It assumed from the defunct Overseas Employment Development Board the power
and duty:jgc:chanrobles.com.ph
"3. To recruit and place workers for overseas employment of Filipino contract workers,
on a government to government arrangement and in such other sectors as policy may
dictate . . . . (Art. 17, Labor Code.)" (p. 13, Rollo.)

114

3. From the National Seamen Board, the POEA took over:jgc:chanrobles.com.ph

"2. To regulate and supervise the activities of agents or representatives of shipping
companies in the hiring of seamen for overseas employment; and secure the best
possible terms of employment for contract seamen workers and secure compliance
therewith." (Art. 20, Labor Code.)

helpers in Hongkong] is merely a remedial measure, and expires after its purpose
shall have been attained. This is evident from the tenor of Administrative Order No. 16
that recruitment of Filipino domestic helpers going to Hongkong by private
employment agencies are hereby temporarily suspended effective July 1. 1991.
"The alleged takeover is limited in scope, being confined to recruitment of domestic
helpers going to Hongkong only.

The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is

not unconstitutional, unreasonable and oppressive. It has been necessitated by "the
growing complexity of the modern society" (Solid Homes, Inc. v. Payawal, 177 SCRA
72, 79). More and more administrative bodies are necessary to help in the regulation
of societys ramified activities. "Specialized in the particular field assigned to them,
they can deal with the problems thereof with more expertise and dispatch than can be
expected from the legislature or the courts of justice" (Ibid.).

"x

It is noteworthy that the assailed circulars do not prohibit the petitioner from engaging
in the recruitment and deployment of Filipino landbased workers for overseas
employment. A careful reading of the challenged administrative issuances discloses
that the same fall within the "administrative and policing powers expressly or by
necessary implication conferred" upon the respondents (People v. Maceren, 79 SCRA
450). The power to "restrict and regulate conferred by Article 36 of the Labor Code
involves a grant of police power (City of Naga v. Court of Appeals, 24 SCRA 898). To
"restrict" means "to confine, limit or stop" (p. 62, Rollo) and whereas the power to
"regulate" means "the power to protect, foster, promote, preserve, and control with
due regard for the interests, first and foremost, of the public, then of the utility and of
its patrons" (Philippine Communications Satellite Corporation v. Alcuaz, 180 SCRA
218).

The questioned circulars are therefore a valid exercise of the police power as
delegated to the executive branch of Government.

The Solicitor General, in his Comment, aptly observed:jgc:chanrobles.com.ph

". . . Said Administrative Order [i.e., DOLE Administrative Order No. 16] merely
restricted the scope or area of petitioners business operations by excluding therefrom
recruitment and deployment of domestic helpers for Hong Kong till after the
establishment of the `mechanisms that will enhance the protection of Filipino
domestic helpers going to Hong Kong. In fine, other than the recruitment and
deployment of Filipino domestic helpers for Hongkong, petitioner may still deploy other
class of Filipino workers either for Hongkong and other countries and all other classes
of Filipino workers for other countries.chanrobles virtual lawlibrary
"Said administrative issuances, intended to curtail, if not to end, rampant violations of
the rule against excessive collections of placement and documentation fees, travel
fees and other charges committed by private employment agencies recruiting and
deploying domestic helpers to Hongkong. [They are] reasonable, valid and justified
under the general welfare clause of the Constitution, since the recruitment and
deployment business, as it is conducted today, is affected with public interest.
"x

". . . the justification for the takeover of the processing and deploying of domestic
helpers for Hongkong resulting from the restriction of the scope of petitioners
business is confined solely to the unscrupulous practice of private employment
agencies victimizing applicants for employment as domestic helpers for Hongkong
and not the whole recruitment business in the Philippines." (pp. 62-65. Rollo.)

Nevertheless, they are legally invalid, defective and unenforceable for lack of proper
publication and filing in the Office of the National Administrative Register as required in
Article 2 of the Civil Code, Article 5 of the Labor Code and Sections 3(1) and 4,
Chapter 2, Book VII of the Administrative Code of 1987 which
provide:jgc:chanrobles.com.ph
"Art. 2. Laws shall take effect after fifteen (15) days following the completion of their
publication in the Official Gazette, unless it is otherwise provided. . . . ." (Civil Code.)
"Art. 5. Rules and Regulations. The Department of Labor and other government
agencies charged with the administration and enforcement of this Code or any of its
parts shall promulgate the necessary implementing rules and regulations. Such rules
and regulations shall become effective fifteen (15) days after announcement of their
adoption in newspapers of general circulation." (Emphasis supplied, Labor Code, as
amended.)
Section 3. Filing. (1) Every agency shall file with the University of the Philippines
Law Center, three (3) certified copies of every rule adopted by it. Rules in force on the
date of effectivity of this Code which are not filed within three (3) months shall not
thereafter be the basis of any sanction against any party or persons." (Underscoring
supplied, Chapter 2, Book VII of the Administrative Code of 1987.)
"Section 4. Effectivity. In addition to other rule-making requirements provided by law
not inconsistent with this Book, each rule shall become effective fifteen (15) days from
the date of filing as above provided unless a different date is fixed by law, or specified
in the rule in cases of imminent danger to public health, safety and welfare, the
existence of which must be expressed in a statement accompanying the rule. The
agency shall take appropriate measures to make emergency rules known to persons
who may be affected by them." (Emphasis supplied, Chapter 2, Book VII of the
Administrative Code of 1987.)

"The alleged takeover [of the business of recruiting and placing Filipino domestic

115

Once more, we advert to our ruling in Taada v. Tuvera, 146 SCRA 446
that:jgc:chanrobles.com.ph
". . . Administrative rules and regulations must also be published if their purpose is to
enforce or implement existing law pursuant also to a valid delegation," (p.
447.).chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
"Interpretative regulations and those merely internal in nature, that is, regulating only
the personnel of the administrative agency and not the public, need not be published.
Neither is publication required of the so-called letters of instructions issued by
administrative superiors concerning the rules or guidelines to be followed by their
subordinates in the performance of their duties." (p. 448.)
"We agree that publication must be in full or it is no publication at all since its purpose
is to inform the public of the content of the laws." (p. 448.)
For lack of proper publication, the administrative circulars in question may not be
enforced and implemented.
WHEREFORE, the writ of prohibition is GRANTED. The implementation of DOLE
Department Order No. 16, Series of 1991, and POEA Memorandum Circular Nos. 30
and 37, Series of 1991, by the public respondents is hereby SUSPENDED pending
compliance with the statutory requirements of publication and filing under the
aforementioned laws of the land.chanroblesvirtualawlibrary

JOEL BITO-ONON, Petitioner, v. HON. JUDGE NELIA YAP FERNANDEZ, R.T.C.

Br. 50 Puerto Princesa City and Palawan, and ELEGIO QUEJANO,
JR., Respondents.
DECISION
GONZAGA-REYES, J.:
This Petition for Certiorari and Prohibition with prayer for the issuance of a temporary
restraining order and writ of injunction seeks the reversal of the Order of the Regional
Trial Court of Palawan and Puerto Princesa City, 1 Branch 50 in SPL. PROC. NO.
1056 entitled "Elegio F. Quejano, Jr., petitioner v. Joel Bito-Onon, et. al., respondents"
which denied herein petitioners motion to dismiss the Petition for Review of the
Resolution of the Board of Election Supervisors dated August 25, 1997 in case
number L-10-97 filed by herein private respondent with said court.cralaw : red
It appears from the records that the petitioner, Joel Bito-Onon is the duly elected
Barangay Chairman of Barangay Tacras, Narra, Palawan and is the Municipal Liga
Chapter President for the Municipality of Narra, Palawan. The private respondent,
Elegio Quejano, Jr. on the other hand, is the duly elected Barangay Chairman of
Barangay Rizal, Magsaysay, Palawan and is the Municipal Liga Chapter President for
the Municipality of Magsaysay, Palawan.; Both Onon and Quejano were candidates

for the position of Executive Vice-President in the August 23, 1997 election for the
Liga ng Barangay Provincial Chapter of the province of Palawan. Onon was
proclaimed the winning candidate in the said election prompting Quejano to file a post
proclamation protest with the Board of Election Supervisors (BES), which was decided
against him on August 25, 1997.
Not satisfied with the decision of the BES, Quejano filed a Petition for Review of the
decision of the BES with the Regional Trial Court of Palawan and Puerto Princesa City
(RTC). On April 26, 1999, Onon filed a motion to dismiss the Petition for Review
raising the issue of jurisdiction. Onon claimed that the RTC had no jurisdiction to
review the decisions rendered by the BES in any post proclamation electoral protest in
connection with the 1997 Liga ng mga Barangay election of officers and directors. In
his motion to dismiss, Onon claimed that the Supplemental Guidelines for the 1997
Liga ng mga Barangay election issued by the DILG on August 11, 1997 in its
Memorandum Circular No. 97-193, providing for review of decisions or resolutions of
the BES by the regular courts of law is an ultra vires act and is void for being issued
without or in excess of jurisdiction, as its issuance is not a mere act of supervision but
rather an exercise of control over the Ligas internal organization.
On June 22, 1999, the RTC denied Onons motion to dismiss. In its order, the RTC
ratiocinated that the Secretary of the Department of Interior and Local Government 2
is vested with the power "to establish and prescribe rules, regulations and other
issuances and implementing laws on the general supervision of local government
units and the promotion of local autonomy and monitor compliance thereof by said
units." 3 The RTC added that DILG Circular No. 97-193 was issued by the DILG
Secretary pursuant to his rule-making power as provided for under Section 7, Chapter
II, Book IV of the Administrative Code. 4 Consequently, the RTC ruled that it had
jurisdiction over the petition for review filed by Quejada. 5
Motion for reconsideration of the aforesaid Order was denied 6 prompting the
petitioner to file the present petition wherein the following issues are
raised:chanrob1es virtual 1aw library
A. WHETHER OR NOT THE QUESTIONED PROVISION IN MEMORANDUM
CIRCULAR 97-193 WAS ISSUED BY THE DILG SECRETARY IN EXCESS OF HIS
AUTHORITY.
B. WHETHER OR NOT THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE
OF DISCRETION IN ISSUING THE QUESTIONED ORDERS. 7
In support of his petition, Onon argues that the "Supplemental Guidelines for the 1997
Synchronized Election of the Provincial and Metropolitan Chapters and for the Election
of the National Chapter of the Liga ng mga Barangay" contradicts the "Implementing
Rules and Guidelines for the 1997 General Elections of the Liga ng mga Barangay
Officers and Directors" and is therefore invalid. Onon alleges that the Liga ng mga
Barangay (LIGA) is not a local government unit considering that a local government
unit must have its own source of income, a certain number of population, and a
specific land area in order to exist or be created as such. Consequently, the DILG only
has a limited supervisory authority over the LIGA. Moreover, Onon argues that even if
the DILG has supervisory authority over the LIGA, the act of the DILG in issuing

116

Memorandum Circular No. 97-193 or the supplemental rules and guidelines for the
conduct of the 1997 LIGA elections had the effect of modifying, altering and nullifying
the rules prescribed by the National Liga Board. Onon posits that the issuance of said
guidelines allowing an appeal of the decision of the BES to the regular courts rather
than to the National Liga Board is no longer an exercise of supervision but an exercise
of control. 8
In his comment to the petition, private respondent Quejano argues that the Secretary
of the DILG has competent authority to issue rules and regulations like Memorandum
Circular No. 97-893. The Secretary of DILGs rule-making power is conferred by the
Administrative Code. Considering that the Memorandum Circular was issued pursuant
to his rule making power, Quejano insists that the lower court did not commit any
reversible error when it denied Onons motion to dismiss. 9
On the other hand, the public respondent represented herein by the Solicitor General,
filed a separate Manifestation and Motion in Lieu of Comment agreeing with the
position of petitioner Onon. The Solicitor General affirms Onons claim that in issuing
the questioned Memorandum Circular, the Secretary of the DILG effectively amended
the rules and guidelines promulgated by National Liga Board. This act was no longer a
mere act of supervision but one of control. The Solicitor General submits that the RTC
committed grave abuse of discretion in not dismissing the petition for review of the
BES decision filed before it for failure of the petitioner to exhaust the rightful remedy
which was to appeal to the National Liga Board. 10
On October 27, 1999, this Court denied petitioner Onons motion for the issuance of
restraining order for lack of merit.
After a careful review of the case, we sustain the position of the petitioner.
The resolution of the present controversy requires an examination of the questioned
provision of Memorandum Circular No. 97-193 and the Implementing Rules and
Guidelines for the 1997 General Elections of the Liga ng mga Barangay Officers and
Directors (GUIDELINES). The memorandum circular reads, insofar as pertinent, as
follows:chanrob1es virtua1 1aw 1ibrary
"Any post-proclamation protest must be filed with the BES within twenty-four (24)
hours from the closing of the election. The BES shall decide the same within fortyeight (48) hours from receipt thereof. The decision of the BES shall be final and
immediately executory without prejudice to the filing of a Petition for Review with the
regular courts of law." 11 (Emphasis supplied)
On the other hand, the GUIDELINES provides that the BES shall have the following
among its duties:jgc:chanrobles.com.ph
"To resolve any post-proclamation electoral protest which must be submitted in writing
to this Board within twenty-four (24) hours from the close of election; provided said
Board shall render its decision within forty-eight (48) hours from receipt hereof; and
provided further that the decision must be submitted to the National Liga
Headquarters within twenty-four (24) hours from the said decision. The decision of the
Board of Election Supervisors in this respect shall be subject to review by the National

Liga Board the decision of which shall be final and executory." 12 (Emphasis supplied)
Memorandum Circular No. 97-193 was issued by the DILG Secretary pursuant to the
power of general supervision of the President over all local government units which
was delegated to the DILG Secretary by virtue of Administrative Order No. 267 dated
February 18, 1992. 13 The Presidents power of general supervision over local
government units is conferred upon him by the Constitution. 14 The power of
supervision is defined as "the power of a superior officer to see to it that lower officers
perform their functions in accordance with law." 15 This is distinguished from the
power of control or "the power of an officer to alter or modify or set aside what a
subordinate officer had done in the performance of his duties and to substitute the
judgment of the former for the latter." 16
On many occasions in the past, this court has had the opportunity to distinguish the
power of supervision from the power of control. In Taule v. Santos, 17 we held that the
Chief Executive wielded no more authority than that of checking whether a local
government or the officers thereof perform their duties as provided by statutory
enactments. He cannot interfere with local governments provided that the same or its
officers act within the scope of their authority. Supervisory power, when contrasted
with control, is the power of mere oversight over an inferior body; it does not include
any restraining authority over such body. 18 Officers in control lay down the rules in
the doing of an act. If they are not followed, it is discretionary on his part to order the
act undone or re-done by his subordinate or he may even decide to do it himself.
Supervision does not cover such authority. Supervising officers merely sees to it that
the rules are followed, but he himself does not lay down such rules, nor does he have
the discretion to modify or replace them. If the rules are not observed, he may order
the work done or re-done to conform to the prescribed rules. He cannot prescribe his
own manner for the doing of the act. 19
Does the Presidents power of general supervision extend to the liga ng mga
barangay, which-is not a local government unit? 20
We rule in the affirmative. In Opinion No. 41, Series of 1995, the Department of
Justice ruled that the liga ng mga barangay is a government organization, being an
association, federation, league or union created by law or by authority of law, whose
members are either appointed or elected government officials. The Local Government
Code 21 defines the liga ng mga barangay as an organization of all barangays for the
primary purpose of determining the representation of the liga in the sanggunians, and
for ventilating, articulating and crystallizing issues affecting barangay government
administration and securing, through proper and legal means, solutions thereto. 22
The liga shall have chapters at the municipal, city, provincial and metropolitan political
subdivision levels. The municipal and city chapters of the liga shall be composed of
the barangay representatives of the municipal and city barangays respectively. The
duly elected presidents of the component municipal and city chapters shall constitute
the provincial chapter or the metropolitan political subdivision chapter. The duly
elected presidents of highly urbanized cities, provincial chapters, the Metropolitan
Manila chapter and metropolitan political subdivision chapters shall constitute the
National Liga ng mga Barangay. 23
The liga at the municipal, city, provincial, metropolitan political subdivision, and

117

national levels directly elect a president, a vice-president and five (5) members of the
board of directors. The board shall appoint its secretary and treasurer and create such
other positions as it may deem necessary for the management of the chapter. 24
The ligas are primarily governed by the provisions of the Local Government Code. 25
However, their respective constitution and by-laws shall govern all other matters
affecting the internal organization of the liga not otherwise provided for in the Local
Government Code provided that the constitution and by-laws shall be suppletory to
the provisions of Book III, Title VI of the Local Government Code and shall always
conform to the provisions of the Constitution and existing laws. 26
Having in mind the foregoing principles, we rule that Memorandum Circular No. 97193 of the DILG insofar as it authorizes the filing a Petition for Review of the decision
of the BES with the regular courts in a post proclamation electoral protest is of
doubtful constitutionality. We agree with both the petitioner and the Solicitor General
that in authorizing the filing of the petition for review of the decision of the BES with
the regular courts, the DILG Secretary in effect amended and modified the
GUIDELINES promulgated by the National Liga Board and adopted by the LIGA which
provides that the decision of the BES shall be subject to review by the National Liga
Board. The amendment of the GUIDELINES is more than an exercise of the power of
supervision but is an exercise of the power of control, which the President does not
have over the LIGA. Although the DILG is given the power to prescribe rules,
regulations and other issuances, the Administrative Code limits its authority to merely
"monitoring compliance" by local government units of such issuances. 27 To monitor
means "to watch, observe or check" and is compatible with the power of supervision of
the DILG Secretary over local governments, which is limited to checking whether the
local government unit concerned or the officers thereof perform their duties as per
statutory enactments. 28 Besides, any doubt as to the power of the DILG Secretary to
interfere with local affairs should be resolved in favor of the greater autonomy of the
local government. 29
The public respondent judge therefore committed grave abuse of discretion amounting
to lack or excess of jurisdiction in not dismissing the respondents Petition for Review
for failure to exhaust all administrative remedies and for lack of jurisdiction.chanrob1es
virtua1 1aw 1ibrary
WHEREFORE, the instant petition is hereby GRANTED. The Order of the Regional
Trial Court dated June 22, 1999 is REVERSED and SET ASIDE. The Petition for
Review filed by the private respondent docketed as SPL. PROC. NO. 1056 is
DISMISSED.

(Admin Law, DILG-Liga ng mga Barangay, quasi-legislative power)

Facts: DILG, appointed as interim caretaker to administer and manage the affairs of
the Liga ng mga Barangay in giving remedy to alleged violations made by the
incumbent officer of the Liga in the conduct of their elections, issued 2 memorandum
circulars which alter, modify, nullify or set aside the actions of the Liga.
Petitioner contends that DILGs appointment constitutes undue interference in the
internal affairs of the Liga, since the latter is not subject to DILG control and
supervision. Respondent judge contends that DILG exercises general supervisory
jurisdiction over LGUs including the different leagues based on sec. 1 of Admin. Order
No. 267 providing for a broad premise of the supervisory power of the DILG.

Issue: WON DILG Secretary as alter-ego of the President has power of control over
the Liga ng mga Barangay.
Held: No. Sec. 4, Art. X of the Constitution provides that the President of the
Philippines shall exercise general supervision over local government, which exclude
the power of control. As the entity exercising supervision over the Liga, the DILGs
authority is limited to seeing to it that the rules are followed, but it cannot lay down
such rules itself nor does it have the discretion to modify or replace the same.

SO ORDERED.
Melo, Vitug, Panganiban and Sandoval-Gutierrez, JJ., concur.
National Liga ng mga Barangay vs. Paredes, 439 SCRA 130

De Jesus vs. Civil Service Commission, 471 SCRA 624

Posted by Pius Morados on November 13, 2011

Posted by Pius Morados on November 13, 2011

(Admin Law, quasi-judicial power)

118

Facts: Sec. 13 of the Local Water Utilities Administration (LWUA) Charter (PD 198, as

Held: No. For the Court to sustain them would be to allow the board of an admin

amended) expressly allowed the director of water districts to be granted per diems,

agency, by merely issuing a resolution, to derogate the broad and extensive powers

and shall receive no other compensation for services to the district.

granted by the Constitution to the CSC.

CSC issued Resolution No. 95-4073 ruling that it is illegal for any LWUA officer or

LWUA has quasi-judicial power only as regards rates or charges fixed by water

employee who sits as a member of the board of directors of a water disctrict to receive

districts, which it may review to establish compliance with the provisions of PD 198.

and collect any additional, double or indirect compensation from said water disctricts
except per diems pursuant to Sec. 13 of PD 198 as amended.

CSC based its ruling on Sec.8, Art IX (B) of the 1987 Constitution which is deemed
included the power to promulgate and enforce policies on personnel actions.

ERNESTO M. MACEDA, Petitioner, v. ENERGY REGULATORY BOARD, CALTEX

(Philippines), INC., PILIPINAS SHELL PETROLEUM CORPORATION AND
PETRON CORPORATION, Respondents.
[G.R. No. 96349. July 18, 1991.]

198 on matters pertaining to compensation and other benefits of water district

EUGENIO O. ORIGINAL, IRENEO N. AARON, JR., REINE LEDESMA, ROLANDO

VALLE, ORLANDO MONTANO, STEVE ABITANG, NERI JINON, WILFREDO
DELEONIO, RENATO BORRO, RODRIGO DE VERA, ALVIN BAYUANG, JESUS
MELENDEZ, NUMERIANO CAJILIG, JR., RUFINO DE LA CRUZ AND JOVELINO
G. TIPON, Petitioners, v. ENERGY REGULATORY BOARD, CALTEX (Philippines),
INC., PILIPINAS SHELL PETROLEUM CORPORATION AND PETRON
CORPORATION, Respondents.

directors based on Sec.8 of the decree authorizing LWUA to appoint any of its

[G.R. No. 96284. July 18, 1991.]

Petitioners argue that CSC had no plenary jurisdiction to construe any provision of PD

personnel to sit on the board of director of a water district that has availed financial
assistance from LWUA and any such personnel so appointed is entitled to enjoy the
rights and privileges pertaining to a regional director.

The present controversy originated from an administrative case filed with the SCS for
violations of RA 6713.

Issue: WON CSC has plenary jurisdiction to motu proprio construe PD 198 as
amended.

CEFERINO S. PAREDES, JR., Petitioner, v. ENERGY REGULATORY BOARD,

CALTEX (Philippines), INC., PILIPINAS SHELL, INC. AND PETROPHIL
CORPORATION, Respondents.
SYLLABUS
1. ADMINISTRATIVE LAW; OFFICE OF THE PRESIDENT; ENERGY REGULATORY
BOARD; TECHNICAL RULES OF PROCEDURE IN ADMINISTRATIVE BODIES,
RELAXED. Petitioner Maceda maintains that this order of proof deprived him of his
right to finish his cross-examination of Petrons witnesses and denied him his right to
cross-examine each of the witnesses of Caltex and Shell. He points out that this
relaxed procedure resulted in the denial of due process. We disagree. The Solicitor
General has pointed out: ". . . The order of testimony both with respect to the
examination of the particular witness and to the general course of the trial is within the
discretion of the court and the exercise of this discretion in permitting to be introduced
out of the order prescribed by the rules is not improper (88 C.J.S. 206-207). "Such a
relaxed procedure is especially true in administrative bodies, such as the ERB, which

119

in matters of rate or price fixing, is considered as exercising a quasi-legislative, not

quasi-judicial, function. As such administrative agency, it is not bound by the strict or
technical rules of evidence governing court proceedings (Sec. 29, Public Service Act;
Dickenson v. United States, 346, U.S. 389, 98 L. ed. 132, 74 S. St. 152).
2. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACTS OF ADMINIS-TRATIVE
BODIES GENERALLY UPHELD ON APPEALS. Petitioner Maceda also claims that
there is no substantial evidence on record to support the provisional relief. We have, in
G.R. Nos. 95203-05, previously taken judicial notice of matters and events related to
the oil industry, as follows: ". . .(1) as of June 30, 1990, the OPSF has incurred a
deficit of P6.1 Billion; (2) the exchange rate has fallen to P28.00 to $1.00; (3) the
countrys balance of payments is expected to reach $1 Billion; (4) our trade deficit is at
$2.855 Billion as of the first nine months of the year." The Solicitor General likewise
commented: "Among the pieces of evidence considered by ERB in the grant of the
contested provisional relief were: (1) certified copies of bills of lading issued by crude
oil suppliers to the private respondents; (2) reports of the Bankers Association of the
Philippines of the peso-dollar exchange rate at the BAP oil pit; and (3) OPSF status
reports of the Office of Energy Affairs. The ERB was likewise guided in the
determination of international crude oil prices by traditional authoritative sources of
information on crude oil and petroleum products, such as Platts Oilgram and
Petroleum Intelligence Weekly." Thus, We concede ERBs authority to grant the
provisional increase in oil price.
3. ID; ACTIONS; OIL COMPANIES ARE ENTITLED TO MUCH RELIEF AS THE FACT
ALLEGED CONSTITUTING THE COURSE OF ACTION MAY WARRANT. We shall
thus respect the ERBs Order of December 5, 1990 granting a provisional price
increase on petroleum products premised on the oil companies OPSF claims, crude
cost peso differentials, forex risk for a subsidy on sale to NPC (p. 167, Rollo), since
the oil companies are "entitled to as much relief as the fact alleged constituting the
course of action may warrant. (Javellana v. D.O. Plaza Enterprises, Inc., G.R. No. L28297, March 30, 1970, 32 SCRA 261 citing Rosales v. Reyes, 25 Phil. 495; Aguilar v.
Rubiato, 40 Phil. 470)
4. ADMINISTRATIVE LAW; OFFICE OF THE PRESIDENT; ENERGY REGULATORY
BOARD; INCREASE IN OIL PRICES DOES NOT CONSTITUTE ILLEGAL TAXATION.
In G.R. No. 96349, petitioner Original additionally claims that if the price increase
will be used to augment the OPSF this will constitute illegal taxation. In the Maceda
case, (G.R. Nos. 95203-05, supra.) this Court has already ruled that "the Board Order
authorizing the proceeds generated by the increase to be deposited to the OPSF is
not an act of taxation but is authorized by Presidential Decree No. 1956, as amended
by Executive Order No. 137.
5. POLITICAL LAW; ISSUE ON INCREASE OF OIL PRICES, A POLITICAL
QUESTION. We lament Our helplessness over this second provisional increase in
oil price. We have stated that this "is a question best judged by the political
leadership" (G.R. NOS. 95203-05, G.R. Nos. 95119-21, supra.)
6. ADMINISTRATIVE LAW; OFFICE OF THE PRESIDENT; ENERGY REGULATORY
BOARD; PRONOUNCEMENT JUSTIFYING INCREASE IN OIL PRICES, NOT FINAL.
While the government is able to justify a provisional increase, these findings "are

not final, and it is up to petitioners to demonstrate that the present economic picture
does not warrant a permanent increase. In this regard, We also note the Solicitor
Generals comments that "the ERB is not averse to the idea of a presidential review of
its decision," except that there is no law at present authorizing the same. Perhaps, as
pointed out by Justice Padilla, our lawmakers may see the wisdom of allowing
presidential review of the decisions of the ERB, since, despite its being a quasi-judicial
body, it is still "an administrative body under the Office of the President whose
decisions should be appealed to the President under the established principle of
exhaustion of administrative remedies," especially on a matter as transcendental as oil
price increases which affect the lives of almost all Filipinos.
PARAS, J., dissenting:chanrob1es virtual 1aw library
ADMINISTRATIVE LAW; OFFICE OF THE PRESIDENT; ENERGY REGULATORY
BOARD HAS ABSOLUTELY NO POWER TO TAX. The ERB has absolutely no
power to tax which is solely the prerogative of Congress. This is what the ERB is
precisely doing by getting money from the people to ultimately subsidize the ravenous
oil companies.
1. CONSTITUTIONAL LAW; DUE PROCESS, THE PEOPLE, THROUGH THEIR
REPRESENTATIVES, DESERVE TO BE GIVEN FULL OPPORTUNITY TO BE
HEARD IN THEIR OPPOSITION TO ANY INCREASE IN THE PRICES OF FUEL.
In the matter of price increases of oil products, which vitally affects the people
especially those in the middle and low income groups, any increase, provisional or
otherwise, should be allowed only after the Energy Regulatory Board (ERB) shall have
fully determined, through bona fide and full-dress hearings, that it is absolutely
necessary and by how much it shall be effected. The people, represented by reputable
oppositors, deserve to be given full opportunity to be heard in their opposition to any
increase in the prices of fuel. The right to be heard includes not only the right to
present ones case and submit evidence in support thereof, but also the right to
confront and cross-examine the witnesses of the adverse parties.
2. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF ADMINIS-TRATIVE
BODIES GENERALLY UPHELD ON APPEAL; CASE AT BAR, AN EXCEPTION.
ERBs claim that the second provisional increase was duly supported by evidence, is
belied by its own act of modifying said order (of provisional increase) not only once but
twice, upon the "request" of the President. First, the ERB rolled back the prices of fuel
just a day after it issued the questioned order, altering the allocation of the increase.
Second, on 10 December 1990, the ERB further modified the price of petroleum
products resulting in reduction of the weighted average provisional increase from
P2.82 to P2.05 per liter, but only after the President had announced that she would
meet with the leaders of both Houses of Congress, to discuss the creation of a special
fund to be raised from additional taxes, to subsidize the prices of petroleum products.
These acts of the ERB, ostensibly sparked by "presidential requests" clearly
demonstrate that the evidence did not, in the first place, justify the price increases it
had ordered on 5 or 6 December 1990. Furthermore, the ERB never came out with a
categorical and official declaration of how much was the so-called deficit of the Oil
Price Stabilization Fund (OPSF) and how much of the oil price increases was intended
to cover such deficit.

120

SARMIENTO, J., separate opinion:chanrob1es virtual 1aw library

1. POLITICAL LAW; ISSUE ON INCREASE IN PRICES OF OIL, POLITICAL
QUESTION. As the Court held in the first Maceda v. Energy Regulatory Board, oil
pricing "is a question best judged by the political leadership" and oil prices are (and
have been apparently), political, rather than economic decisions.
2. ADMINISTRATIVE LAW; OFFICE OF THE PRESIDENT; ENERGY REGULATORY
BOARD; PROVISIONAL PRICE INCREASE; CAUSE OF GRANT. The first Maceda
case sustained the grant of provisional price increases ex parte not only because
Section 8 of Executive Order No. 172 authorized the grant of provisional relief without
a hearing but because fluctuations in the foreign exchange rates, for instance, were,
and are, a matter of judicial notice, and a hearing thereafter was necessary only to
see whether or not the ERB determined the rates correctly.
3. CONSTITUTIONAL LAW; DUE PROCESS; GRANT OF PROVISIONAL INCREASE
IN FUEL OIL BY THE ENERGY REGULATORY BOARD, A DENIAL THEREOF. I
agree with Justice Padilla insofar as he refers to the "present scheme of allowing
provisional price increase" as a "scheme [to defraud] the people." I would like to go
further. As I indicated, the ERB does no more than to punch calculators for the
Government-which decides oil price increases. The comedy of December, 1990, when
the Board adjusted prices in a matter of days, is a confirmation of this point. As Justice
Padilla noted, the readjustment of December 10, 1990 was in fact prompted by
"presidential requests" which does not speak well of the Boards independence and
which in fact bares the truth as to who really makes the decision. (The readjustment,
consisting in the reduction in diesel fuel and a corresponding increase in gasoline,
sought to mollify the indignation of the public) I agree with Justice Padilla that it
amounts to fraud on the people to make them believe that the ERB can give them a
fair hearing, indeed, if it can do anything at all.

(E. Maceda v. ERB, Et Al., G.R. No. 95203), seeking to nullify the provisional increase.
We dismissed the petition on December 18, 1990, reaffirming ERBs authority to grant
provisional increase even without prior hearing, pursuant to Sec. 8 of E.O. No. 172,
clarifying as follows:jgc:chanrobles.com.ph
"What must be stressed is that while under Executive Order No. 172, a hearing is
indispensable, it does not preclude the Board from ordering, ex-parte, a provisional
increase, as it did here, subject to its final disposition of whether or not: (1) to make it
permanent; (2) to reduce or increase it further; or (3) to deny the application. Section
3, paragraph (e) is akin to a temporary restraining order or a writ of preliminary
attachment issued by the courts, which are given ex-parte and which are subject to
the resolution of the main case.
"Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise,
operate exclusively of the other, in that the Board may resort to one but not to both at
the same time. Section 3(e) outlines the jurisdiction of the Board and the grounds for
which it may decree a price adjustment, subject to the requirements of notice and
hearing. Pending that, however, it may order, under Section 8, an authority to increase
provisionally, without need of a hearing, subject to the final outcome of the proceeding.
The Board, of course, is not prevented from conducting a hearing on the grant of
provisional authority which is of course, the better procedure however, it cannot
be stigmatized later if it failed to conduct one. (pp. 129-130, Rollo) (Emphasis ours).
In the same order of September 21, 1990, authorizing provisional increase, the ERB
set the applications for hearing with due notice to all interested parties on October 16,
1990. Petitioner Maceda failed to appear at said hearing as well as on the second
hearing on October 17, 1990.
To afford registered oppositors the opportunity to cross-examine the witnesses, the
ERB set the continuation of the hearing to October 24, 1990. This was postponed to
November 5, 1990, on written notice of petitioner Maceda.

RESOLUTION
MEDIALDEA, J.:
In G.R. No. 96266, petitioner Maceda seeks nullification of the Energy Regulatory
Board (ERB) Orders dated December 5 and 6, 1990 on the ground that the hearings
conducted on the second provisional increase in oil prices did not allow him
substantial cross-examination, in effect, allegedly, a denial of due process.
The facts of the case are as follows:chanrob1es virtual 1aw library
Upon the outbreak of the Persian Gulf conflict on August 2, 1990, private respondents
oil companies filed with the ERB their respective applications on oil price increases
(docketed as ERB Case Nos. 90-106, 90-382 and 90-384, respectively).
On September 21, 1990, the ERB issued an order granting a provisional increase of
P1.42 per liter. Petitioner Maceda filed a petition for Prohibition on September 26,1990

On November 5, 1990, the three oil companies filed their respective motions for leave
to file or admit amended/supplemental applications to further increase the prices of
petroleum products.
The ERB admitted the respective supplemental/amended petitions on November 6,
1990 at the same time requiring applicants to publish the corresponding Notices of
Public Hearing in two newspapers of general circulation (p. 4, Rollo and Annexes "F"
and "G," pp. 60 and 62, Rollo).
Hearing for the presentation of the evidence-in-chief commenced on November 21,
1990 with ERB ruling that testimonies of witnesses were to be in the form of Affidavits
(p. 6, Rollo). ERB subsequently outlined the procedure to be observed in the reception
of evidence, as follows:jgc:chanrobles.com.ph
"CHAIRMAN FERNANDO:jgc:chanrobles.com.ph
"Well, at the last hearing, applicant Caltex presented its evidence-in-chief and there is
an understanding or it is the Boards wish that for purposes of good order in the

121

presentation of the evidence considering that these are being heard together, we will
defer the cross-examination of applicant Caltexs witness and ask the other applicants
to present their evidence-in-chief so that the oppositors will have a better idea of what
all of these will lead to because as I mentioned earlier, it has been traditional and it is
the intention of the Board to act on these applications on an industry wide basis,
whether to accept, reject, modify or whatever, the Board will do it on an industry wide
basis, so, the best way to have (sic) the oppositors and the Board a clear picture of
what the applicants are asking for is to have all the evidence-in-chief to be placed on
record first and then the examination will come later, the cross-examination will come
later . . . (pp. 5-6, tsn., November 23, 1990, ERB Cases Nos. 90-106, 90-382 and 90334)." (p. 162, Rollo).
Petitioner Maceda maintains that this order of proof deprived him of his right to finish
his cross-examination of Petrons witnesses and denied him his right to cross-examine
each of the witnesses of Caltex and Shell. He points out that this relaxed procedure
resulted in the denial of due process.
We disagree. The Solicitor General has pointed out:jgc:chanrobles.com.ph
". . . The order of testimony both with respect to the examination of the particular
witness and to the general course of the trial is within the discretion of the court and
the exercise of this discretion in permitting to be introduced out of the order prescribed
by the rules is not improper (88 C.J.S. 206-207).
"Such a relaxed procedure is especially true in administrative bodies, such as the
ERB, which in matters of rate or price fixing, is considered as exercising a quasilegislative, not quasi-judicial, function. As such administrative agency, it is not bound
by the strict or technical rules of evidence governing court proceedings (Sec. 29,
Public Service Act; Dickenson v. United States, 346, U.S. 389, 98 L. ed. 132, 74 S. St.
152). (Emphasis ours).
"In fact, Section 2, Rule I of the Rules of Practice and Procedure Governing Hearings
Before the ERB provides that
"These Rules shall govern pleadings, practice and procedure before the Energy
Regulatory Board in all matters of inquiry, study, hearing, investigation and/or any
other proceedings within the jurisdiction of the Board. However, in the broader interest
of justice, the Board may, in any particular matter, except itself from these rules and
apply such suitable procedure as shall promote the objectives of the Order."cralaw
virtua1aw library
(pp. 163-164, Rollo).

exchange rate has fallen to P28.00 to $1.00; (3) the countrys balance of payments is
expected to reach $1 Billion; (4) our trade deficit is at P2 .855 Billion as of the first nine
months of the year.
"x

x" (p. 150, Rollo).

The Solicitor General likewise commented:jgc:chanrobles.com.ph

"Among the pieces of evidence considered by ERB in the grant of the contested
provisional relief were: (1) certified copies of bills of lading issued by crude oil
suppliers to the private respondents; (2) reports of the Bankers Association of the
Philippines on the peso-dollar exchange rate at the BAP oil pit; and (3) OPSF status
reports of the Office of Energy Affairs. The ERB was likewise guided in the
determination of international crude oil prices by traditional authoritative sources of
information on crude oil and petroleum products, such as Platts Oilgram and
Petroleum Intelligence Weekly." (p. 158, Rollo).
Thus, We concede ERBs authority to grant the provisional increase in oil price, as We
note that the Order of December 5, 1990 explicitly stated:jgc:chanrobles.com.ph
"in the light, therefore, of the rise in crude oil importation costs, which as earlier
mentioned, reached am average of $30.3318 per barrel at $25.551/US $ in
September-October 1990; the huge OPSF deficit which, as reported by the Office of
Energy Affairs, has amounted to P5.7 Billion based on filed claims only and net of the
P5 Billion OPSF) as of September 30, 1990, and is estimated to further increase to
over P10 Billion by end-December 1990; the decision of the government to
discontinue subsidizing oil prices in view of inflationary pressures; the apparent
inadequacy of the proposed additional P5.1 Billion government appropriation for the
OPSF; and the sharp drop in the value of the peso in relation to the US dollar to
P28/US $, this Board is left with no other recourse but to grant applicants oil
companies further relief by increasing the prices of petroleum products sold by them."
(p. 161, Rollo)
Petitioner Maceda together with petitioner Original (G.R. No. 96349) also claim that
the provisional increase involved amounts over and above that sought by the
petitioning oil companies.
The Solicitor General has pointed out that aside from the increase in crude oil prices,
all the applications of the respondent oil companies filed with the ERB, covered claims
from the OPSF .

We have, in G.R. Nos. 95203-05, previously taken judicial notice of matters and
events related to the oil industry, as follows:jgc:chanrobles.com.ph

We shall thus respect the ERBs Order of December 5, 1990 granting a provisional
price increase on petroleum products premised on the oil companies OPSF claims,
crude cost peso differentials, forex risk for a subsidy on sale to NPC (p. 167, Rollo),
since the oil companies are "entitled to as much relief as the fact alleged constituting
the course of action may warrant," (Javellana v. D.O. Plaza Enterprises, Inc., G.R. No.
L28297, March 30,1970, 32 SCRA 261 citing Rosales v. Reyes, 25 Phil. 495; Aguilar v.
Rubiato, 40 Phil. 470) as follows:chanrob1es virtual 1aw library

". . .(1) as of June 30, 1990, the OPSF has incurred a deficit of P6.1 Billion; (2) the

Per Liter

Petitioner Maceda also claims that there is no substantial evidence on record to

support the provisional relief.

122

Weighted

=====

Petron Shell Caltex Average

Nonetheless, it is relevant to point out that on December 10, 1990, the ERB, in
response to the Presidents appeal, brought back the increases in Premium and
Regular gasoline to the levels mandated by the December 5, 1990 Order (P6.9600
and P6.3900, respectively), as follows:jgc:chanrobles.com.ph

Crude Cost P 3.11 P3.6047 P2.9248 P3.1523

Peso Cost

"Product In Pesos Per Liter OPSF

Diffnl 2.1747 1.5203 1.5669 1.8123
Premium Gasoline 6.9600
Forex Risk
Regular Gasoline 6.3900
Fee -0.1089 -0.0719 -0.0790 -0.0896
Avturbo 4.9950
Subsidy on
Kerosene 1.4100
Sales to NPC 0.1955 0.0685 0.0590 0.1203
Diesel Oil 1.4100
Total Price
Fuel Oil/Feedstock 0.2405
Increase
LPG 1.2200
Applied for P5.3713 P5.1216 P4.4717 P4.9954
Asphalt 2.5000

Thinner 2.5000
Less: September 21 Price
Relief
Actual Price Increase P1.42
Actual Tax Reduction:chanrob1es virtual 1aw library
Ad Valorem Tax
(per Sept. 1, 1990
price build-up) P1.3333
Specific Tax
(per Oct. 5, 1990
price build-up) .6264 .7069 2.1269

Net Price Increase Applied for 2.8685

In G.R. No. 96349, petitioner Original additionally claims that if the price increase will
be used to augment the OPSF this will constitute illegal taxation. In the Maceda case,
(G.R. Nos. 95203-05, supra) this Court has already ruled that "the Board Order
authorizing the proceeds generated by the increase to be deposited to the OPSF is
not an act of taxation but is authorized by Presidential Decree No. 1956, as amended
by Executive Order No. 137.
The petitions of E.O. Original Et. Al. (G.R. No. 96349) and C.S. Povedas, Jr. (G.R. No.
96284), insofar as they question the ERBs authority under Sec. 8 of E.O. 172, have
become moot and academic.
We lament Our helplessness over this second provisional increase in oil price. We
have stated that this "is a question best judged by the political leadership" (G.R. Nos.
95203-05, G.R. Nos. 95119-21, supra). We wish to reiterate Our previous
pronouncements therein that while the government is able to justify a provisional
increase, these findings "are not final, and it is up to petitioners to demonstrate that
the present economic picture does not warrant a permanent increase."cralaw
virtua1aw library
In this regard, We also note the Solicitor Generals comments that "the ERB is not
averse to the idea of a presidential review of its decision," except that there is no law
at present authorizing the same. Perhaps, as pointed out by Justice Padilla, our

123

lawmakers may see the wisdom of allowing presidential review of the decisions of the
ERB, since, despite its being a quasi-judicial body, it is still "an administrative body
under the Office of the President whose decisions should be appealed to the
President under the established principle of exhaustion of administrative remedies,"
especially on a matter as transcendental as oil price increases which affect the lives of
almost all Filipinos.chanroblesvirtualawlibrary

clause, which is the uniform operation by legal means so that all persons under
identical or similar circumstances would be accorded the same treatment both in
privilege conferred and the liabilities imposed.
SYLLABUS

ACCORDINGLY, the petitions are hereby DISMISSED.

SO ORDERED.
Narvasa, Melencio-Herrera, Feliciano, Gancayco, Bidin, Grio-Aquino and
Regalado, JJ., concur.
TAXICAB OPERATORS OF METRO MANILA, INC., FELICISIMO CABIGAO and
ACE TRANSPORTATION CORPORATION, Petitioners, v. THE BOARD OF
TRANSPORTATION and THE DIRECTOR OF THE BUREAU OF LAND
TRANSPORTATION, Respondents.
Mariano P. Brion, Jr., for Petitioners.
The Solicitor General for Respondents.
SYNOPSIS
Petitioners who are taxicab operators assail the constitutionality of Memorandum
Circular No. 77-42 issued by the Board of Transportation (BOT) providing for the
phasing out and replacement of old and dilapidated taxicabs; as well as Implementing
Circular No. 52 issued pursuant thereto by the Bureau of Land Transportation (BLT)
instructing personnel of the BLT within the National Capital Region to implement the
said BOT Circular, and formulating a schedule of phase-out of vehicles to be allowed
and accepted for registration as public conveyances. Petitioners allege that the
questioned Circulars did not afford them procedural and substantive due process,
equal protection of the law, and protection against arbitrary and unreasonable
classification and standard. Among others, they question the issuance of the Circulars
without first calling them to a conference or requiring them to submit position papers
or other documents enforceability thereof only in Metro Manila; and their being
applicable only to taxicabs and not to other transportation services.
The Supreme Court held that there was no denial of due process since calling the
taxicab operators or persons who may be affected by the questioned Circulars to a
conference or requiring them to submit position papers or other documents is only one
of the options open to the BOT which is given wide discretionary authority under P.D.
No. 101; and fixing a six- year ceiling for a car to be operated as taxicab is a
reasonable standard adopted to apply to all vehicles affected uniformly, fairly, and
justly. The Court also ruled that neither has the equal protection clause been violated
by initially enforcing the Circulars only in Metro Manila since it is of common
knowledge that taxicabs in this city, compared to those of other places, are subjected
to heavier traffic pressure and more constant use, thus making for a substantial
distinction; nor by non-application of the Circulars to other transportation services
because the said Circulars satisfy the criteria required under the equal protection

1. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF LAWS; MEMORANDUM

CIRCULAR PROVIDING FOR PHASING-OUT AND REPLACEMENT OF OLD AND
DILAPIDATED TAXICABS; ISSUANCE NOT VIOLATIVE OF DUE PROCESS;
CALLING TAXICAB OPERATORS TO CONFERENCE OR REQUIRING
SUBMISSION OF POSITION PAPERS OR DOCUMENTS, ONLY ONE OF OPTIONS
GIVEN TO BOARD OF TRANSPORTATION IN FORMULATING POLICIES. It is
clear from the provision of Section 2 of P.D. 101 aforequoted, that the leeway
accorded the Board gives it a wide range of choice in gathering necessary information
or data in the formulation of any policy, plan or program. It is not mandatory that it
should first call a conference or require the submission of position papers or other
documents from operators or persons who maybe affected, this being only one of the
options open to the Board, which is given wide discretionary authority. Petitioners
cannot justifiably claim, therefore, that they were deprived of procedural due process.
Neither can they state with certainty that public respondents had not availed of other
sources of inquiry prior to issuing the challenged Circulars. Operators of public
conveyances are not the only primary sources of the data and information that may be
desired by the BOT.
2. ID.; ID.; ID.; ID.; PUBLIC HEARING, NOT A DUE PROCESS REQUIREMENT.
Dispensing with a public hearing prior to the issuance of the Circulars is neither
violative of procedural due process. As held in Central Bank v. Hon. Cloribel and
Banco Filipino, 44 SCRA 307(1972); "Previous notice and hearing as elements of due
process, are constitutionally required for the protection of life or vested property rights,
as well as of liberty, when its limitations or loss takes place in consequence of a
judicial or quasi-judicial proceedings, generally dependent upon a past act or even
which has to be established or ascertained. It is nor essential to the validity of general
rules or regulations promulgated to govern future conduct of a class or persons or
enterprises, unless the law provides otherwise.
3. ID.; ID.; ID.; ID.; SIX-YEAR CEILING FOR CARS TO OPERATE AS TAXICAB,
MEETS DUE PROCESS REQUIREMENT FOR SUPPLYING REASONABLE
STANDARD. Petitioners farther take the position that fixing the ceiling at six (6)
years is arbitrary and oppressive because of roadworthiness of taxicabs depends
upon their kind of maintenance and the use to which they are subjected, and,
therefore, their actual physical condition should be taken into consideration at the time
of registration. As public respondents contend, however, it is impractical to subject
every taxicab to constant and recurring evaluation, not to speak of the fact that it can
open the door to the adoption of multiple standards, possible collusion, and evens
graft and corruption. A reasonable standard must be adopted to apply to all vehicles
affected uniformly, fairly , and justly, The span of six years supplies that reasonable
standard. The product of experience shows that by that time taxis have fully
depreciated, their cost recovered, and a fair return on investment obtained.

124

4. ID.; ID.; ID.; ISSUANCE NOT VIOLATIVE Of EQUAL PROTECTION CLAUSE;

ENFORCING ClRCULLAR INITIALLY IN METRO MANILA ONLY. At the outset it
should be pointed out that implementation outside Metro Manila is also envisioned in
Memorandum Circular No. 77-42. The Boards reason for enforcing the Circular
initially in Metro Manila is that taxicabs in this city, compared to those of other places,
are subjected to heavier traffic pressure and more constant use. This is of common
knowledge. Considering that traffic conditions are not the same in every city, a
substantial distinction exist so that infringement of the equal protection clause can
hardly be successfully claimed.
5. ID.; ID.; ID.; ID.; ID.; A VALID EXERCISE OF POLICE POWER. As enunciated in
the preambular clauses of the challenged BOT Circular, the overriding consideration is
the safety and comfort of the riding public from the dangers posed by old and
dilapidated taxis. The State, in the exercise of its police power, can prescribe
regulations to promote the health, morals, peace, good order, safety and general
welfare of the people. It can prohibit all things hurtful to comfort, safety and welfare of
society. (Edu v. Ericta, 35 SCRA 48 [1970]. It may also regulate property rights.
(Samson v. Mayor of Bacolod City, 60 SCRA 267 [1974]. In the language of Chief
Justice Enrique M. Fernando "the necessities imposed by public welfare may justify
the exercise of governmental authority to regulate even if thereby certain groups may
plausibly assert that their interests are disregarded." (The Constitution of the
Philippines, Second Edition, p. 548.)
6. ID.; ID.; ID.; ID.; NONE APPLICATION TO OTHER TRANSPORTATION
SERVICES. In so far as the non-application of the assailed Circulars to other
transportation services is concerned, it need only be recalled that the equal protection
clause does not imply that the same treatment be accorded all and sundry. It applies
to things or persons identically or similarly situated. It permits of classification of the
object or subject of the law provided classification is reasonable or based on
substantial distinction, which make for real differences, and that it must apply equally
to each member of the class. (People v. Vera, 65 Phil. 56; People v. Cayat, 68 Phil.
12; Central Bank v. Cloribel, 44 SCRA 307 [1972]; Anucension v. National Labor
Union, 80 SCRA 350 [1977] citing Victoriano v. Elizalde Rope Workers Union, 59
SCRA 54 [1974] & Basa v. Federacion Obrera de la Industria Tabaquera y Otros
Trabajadores de Filipinas, 61 SCRA 93 [1974]). What is required under the equal
protection clause is the uniform operation by legal means so that all persons under
identical or similar circumstance would be accorded the same treatment both in
privilege conferred and the liabilities imposed. (Gumabon v. Director of Prisons, 37
SCRA 420 [1971]). The challenged Circulars satisfy the foregoing criteria.
7. ID., ID., DECLARATION OF UNCONSTITUTIONALITY REQUIRES CLEAR AND
CATEGORICAL INFRINGEMENT OF RIGHT. Evident then is the conclusion that
the questioned Circulars do not suffer from any constitutional infirmity. To declare a
law unconstitutional, the infringement of constitutional right must be clear, categorical
and undeniable.

Facts: Board of Transportation issued Memorandum Circular No. 77-42 providing for
the phasing out and replacement of old and dilapidated taxis beyond 6 years old.
Pursuant to the BOT circular, the Bureau of Land Transportation issued Implementing
Circular No. 52 instructing the implementation of said circular and formulating a
schedule of phase-out of vehicles to be allowed and accepted for registration as public
conveyances.
Petitioners seek to declare the nullity of the circulars on the ground that fixing the
ceiling at 6 years is arbitrarily and oppressive because the road worthiness of taxicabs
depends upon their kind of maintenance and the use to which they are subjected and
therefore their actual physical condition should be taken into consideration at the time
of the registration.
Issue: WON a circular phasing out taxicabs more than 6 years old is unreasonable
and arbitrary.
Held: No. A reasonable standard must be adopted to apply to all vehicles uniformly,
fairly and justly. The span of 6 yearsw supplies that reaonable standard. By the time
taxis have fully depreciated, theircost recovered, and a fair return on investment
obtained. Thyey are also generally dilapidated and no longer fit for safe and
comfortable service to the public.
Taxicabs in Manila, compared to those in other places are subject to heavier traffic
pressure and constant use.
Facts Petitioner Taxicab Operators of Metro Manila, Inc. (TOMMI) is a domestic
corporation composed of taxicab operators, who are grantees of Certificates of Public
Convenience to operate taxicabs within the City of Manila and to any other place in
Luzon accessible to vehicular traffic.

On October 10, 1977, respondent Board

of Transportation (BOT) issued

Memorandum Circular No. 77-42 which reads:

SUBJECT: Phasing out and Replacement of Old and Dilapidated Taxis
On January 27, 1981, petitioners filed a Petition with the BOT, docketed as Case No.
80-7553, seeking to nullify MC No. 77-42 or to stop its implementation; to allow the
registration and operation in 1981 and subsequent years of taxicabs of model 1974,

(Administrative Law, reasonableness, quasi-judicial power)

125

as well as those of earlier models which were phased-out, provided that, at the time of
registration, they are roadworthy and fit for operation.
ISSUES:
A. Did BOT and BLT promulgate the questioned memorandum circulars in accord
with the manner required by Presidential Decree No. 101, thereby safeguarding the
petitioners constitutional right to procedural due process?
B. Granting arguendo, that respondents did comply with the procedural requirements
imposed by Presidential Decree No. 101, would the implementation and enforcement
of the assailed memorandum circulars violate the petitionersconstitutional rights to.
(1) Equal protection of the law;
(2) Substantive due process; and
(3) Protection against arbitrary and unreasonable classification and standard?
HELD
As enunciated in the preambular clauses of the challenged BOT Circular, the
overriding consideration is the safety and comfort of the riding public from the dangers
posed by old and dilapidated taxis. The State, in the exercise of its police power, can
prescribe regulations to promote the health, morals, peace, good order, safety
and general welfare of the people. It can prohibit all things hurtful to comfort, safety
and welfare of society. It may also regulate property rights. In the language of Chief
Justice Enrique M. Fernando the necessities imposed by public welfare may justify
the exercise of governmental authority to regulate even if thereby certain groups may
plausibly assert that their interests are disregarded.

126