G.R. No.
106611 July 21, 1994 On February 20, 1991, the case was submitted for decision based solely on the pleadings and evidence
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX
APPEALS, respondents.
The Solicitor General for petitioner.
Palaez, Adriano & Gregorio for private respondent.
REGALADO, J.:
The judicial proceedings over the present controversy commenced with CTA Case No. 4099, wherein
the Court of Tax Appeals ordered herein petitioner Commissioner of Internal Revenue to grant a refund
to herein private respondent Citytrust Banking Corporation (Citytrust) in the amount of P13,314,506.14,
representing its overpaid income taxes for 1984 and 1985, but denied its claim for the alleged
refundable amount reflected in its 1983 income tax return on the ground of prescription. 1 That
judgment of the tax court was affirmed by respondent Court of Appeals in its judgment in CA-G.R. SP
No. 26839.2 The case was then elevated to us in the present petition for review on certiorari wherein
the latter judgment is impugned and sought to be nullified and/or set aside.
It appears that in a letter dated August 26, 1986, herein private respondent corporation filed a claim
for refund with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing the
alleged aggregate of the excess of its carried-over total quarterly payments over the actual income tax
due, plus carried-over withholding tax payments on government securities and rental income, as
computed in its final income tax return for the calendar year ending December 31, 1985. 3
Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive period,
Citytrust filed a petition with the Court of Tax Appeals, docketed therein as CTA Case No. 4099, claiming
the refund of its income tax overpayments for the years 1983, 1984 and 1985 in the total amount of
P19,971,745.00.4
In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent
commissioner, it was asserted that the mere averment that Citytrust incurred a net loss in 1985 does
not ipso facto merit a refund; that the amounts of P6,611,223.00, P1,959,514.00 and P28,238.00
claimed by Citytrust as 1983 income tax overpayment, taxes withheld on proceeds of government
securities investments, as well as on rental income, respectively, are not properly documented; that
assuming arguendo that petitioner is entitled to refund, the right to claim the same has prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of the
National Internal Revenue Code of 1977, as amended, since the petition was filed only on August 28,
1986.5
submitted by herein private respondent Citytrust. Herein petitioner could not present any evidence by
reason of the repeated failure of the Tax Credit/Refund Division of the BIR to transmit the records of
the case, as well as the investigation report thereon, to the Solicitor General.6
However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and motion
praying for the suspension of the proceedings in the said case on the ground that the claim of Citytrust
for tax refund in the amount of P19,971,745.00 was already being processed by the Tax Credit/Refund
Division of the BIR, and that said bureau was only awaiting the submission by Citytrust of the required
confirmation receipts which would show whether or not the aforestated amount was actually paid and
remitted to the BIR.7
Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals already acquired
jurisdiction over the case, it could no longer be divested of the same; and, further, that the proceedings
therein could not be suspended by the mere fact that the claim for refund was being administratively
processed, especially where the case had already been submitted for decision.
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1, Y-2 and Y-3
adduced in the case, which clearly showed that there was an overpayment of income taxes and for
which a tax credit or refund was due to Citytrust. The Foregoing exhibits are allegedly conclusive proof
of and an admission by herein petitioner that there had been an overpayment of income taxes. 8
The tax court denied the motion to suspend proceedings on the ground that the case had already been
submitted for decision since February 20, 1991.9
Thereafter, said court rendered its decision in the case, the decretal portion of which declares:
WHEREFORE, in view of the foregoing, petitioner is entitled to a refund but only for
the overpaid taxes incurred in 1984 and 1985. The refundable amount as shown in
its 1983 income tax return is hereby denied on the ground of prescription.
Respondent is hereby ordered to grant a refund to petitioner Citytrust Banking
Corp. in the amount of P13,314,506.14 representing the overpaid income taxes for
1984 and 1985, recomputed as follows:
1984 Income tax due P 4,715,533.00
Less: 1984 Quarterly payments P 16,214,599.00*
1984 Tax Credits —
W/T on int. on gov't. sec. 1,921,245.37*
W/T on rental inc. 26,604.30* 18,162,448.67
——————— ———————
Tax Overpayment (13,446,915.67)
Less: FCDU payable 150,252.00
———————
Amount refundable for 1984 P (13,296,663.67)
1985 Income tax due (loss) P — 0 —
Less: W/T on rentals 36,716.47*
———————
 Tax Overpayment (36,716.47)*
Less: FCDU payable 18,874.00
———————
Amount Refundable for 1985 P (17,842.47)
* Note:
These credits are smaller than the claimed amount because
only the above figures are well supported by the various
exhibits presented during the hearing.
No pronouncement as to costs.
SO ORDERED.10
The order for refund was based on the following findings of the Court of Tax Appeals: (1) the fact of
withholding has been established by the statements and certificates of withholding taxes accomplished
by herein private respondent's withholding agents, the authenticity of which were neither disputed nor
controverted by herein petitioner; (2) no evidence was presented which could effectively dispute the
correctness of the income tax return filed by herein respondent corporation and other material facts
stated therein; (3) no deficiency assessment was issued by herein petitioner; and (4) there was an audit
report submitted by the BIR Assessment Branch, recommending the refund of overpaid taxes for the
years concerned (Exhibits Y to Y-3), which enjoys the presumption of regularity in the performance of
official duty.11
A motion for the reconsideration of said decision was initially filed by the Solicitor General on the sole
ground that the statements and certificates of taxes allegedly withheld are not conclusive evidence of
actual payment and remittance of the taxes withheld to the BIR. 12 A supplemental motion for
reconsideration was thereafter filed, wherein it was contended for the first time that herein private
respondent had outstanding unpaid deficiency income taxes. Petitioner alleged that through an inter-
office memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he came to know only
lately that Citytrust had outstanding tax liabilities for 1984 in the amount of P56,588,740.91
representing deficiency income and business taxes covered by Demand/Assessment Notice No. FAS-1-
84-003291-003296.13
Oppositions to both the basic and supplemental motions for reconsideration were filed by private
respondent Citytrust.14 Thereafter, the Court of Tax Appeals issued a resolution denying both motions
for the reason that Section 52 (b) of the Tax Code, as implemented by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must show that the income received was
declared as part of the gross income, and that the fact of withholding was duly established. Moreover,
with regard to the argument raised in the supplemental motion for reconsideration anent the deficiency
tax assessment against herein petitioner, the tax court ruled that since that matter was not raised in
the pleadings, the same cannot be considered, invoking therefor the salutary purpose of the omnibus
motion rule which is to obviate multiplicity of motions and to discourage dilatory pleadings. 15
As indicated at the outset, a petition for review was filed by herein petitioner with respondent Court of
Appeals which in due course promulgated its decision affirming the judgment of the Court of Tax
Appeals. Petitioner eventually elevated the case to this Court, maintaining that said respondent court
erred in affirming the grant of the claim for refund of Citytrust, considering that, firstly, said private
respondent failed to prove and substantiate its claim for such refund; and, secondly, the bureau's
findings of deficiency income and business tax liabilities against private respondent for the year 1984
bars such payment.16
After a careful review of the records, we find that under the peculiar circumstances of this case, the
ends of substantial justice and public interest would be better subserved by the remand of this case to
the Court of Tax Appeals for further proceedings.
It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of Internal
Revenue, was denied its day in court by reason of the mistakes and/or negligence of its officials and
employees. It can readily be gleaned from the records that when it was herein petitioner's turn to
present evidence, several postponements were sought by its counsel, the Solicitor General, due to the
unavailability of the necessary records which were not transmitted by the Refund Audit Division of the
BIR to said counsel, as well as the investigation report made by the Banks/Financing and Insurance
Division of the said bureau/ despite repeated requests. 17 It was under such a predicament and in
deference to the tax court that ultimately, said records being still unavailable, herein petitioner's
counsel was constrained to submit the case for decision on February 20, 1991 without presenting any
evidence.
For that matter, the BIR officials and/or employees concerned also failed to heed the order of the Court
of Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of the Court of Tax
Appeals which provides that the Commissioner of Internal Revenue and the Commissioner of Customs
shall certify and forward to the Court of Tax Appeals, within ten days after filing his answer, all the
records of the case in his possession, with the pages duly numbered, and if the records are in separate
folders, then the folders shall also be numbered.
The aforestated impassé came about due to the fact that, despite the filing of the aforementioned
initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals, the Tax Refund Division of the
BIR still continued to act administratively on the claim for refund previously filed therein, instead of
forwarding the records of the case to the Court of Tax Appeals as ordered. 18
It is a long and firmly settled rule of law that the Government is not bound by the errors committed by
its agents.19 In the performance of its governmental functions, the State cannot be estopped by the
neglect of its agent and officers. Although the Government may generally be estopped through the
affirmative acts of public officers acting within their authority, their neglect or omission of public duties
as exemplified in this case will not and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. 20 It is axiomatic that the
Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the
lifeblood of the nation through which the government agencies continue to operate and with which the
State effects its functions for the welfare of its constituents. 21 The errors of certain administrative
officers should never be allowed to jeopardize the Government's financial position, 22 especially in the
case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to
be prejudiced just because of bureaucratic lethargy.
Further, it is also worth nothing that the Court of Tax Appeals erred in denying petitioner's
supplemental motion for reconsideration alleging bringing to said court's attention the existence of the
deficiency income and business tax assessment against Citytrust. The fact of such deficiency assessment
is intimately related to and inextricably intertwined with the right of respondent bank to claim for a tax
refund for the same year. To award such refund despite the existence of that deficiency assessment is
an absurdity and a polarity in conceptual effects. Herein private respondent cannot be entitled to
refund and at the same time be liable for a tax deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated
therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to
and constitutes a challenge against the truth and accuracy of the facts stated in said return which, by
itself and without unquestionable evidence, cannot be the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law
when the claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any list,
statement, or return, which in the opinion of the Commissioner of Internal Revenue was false or
fraudulent or contained any understatement or undervaluation, no tax collected under such
assessment shall be recovered by any suits unless it is proved that the said list, statement, or return
was not false nor fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines."
The Court cannot end this adjudication without observing that what caused the Government to lose its
case in the tax court may hopefully be ascribed merely to the ennui or ineptitude of officialdom, and
not to syndicated intent or corruption. The evidential cul-de-sac in which the Solicitor General found
himself once again gives substance to the public perception and suspicion that it is another proverbial
tip in the iceberg of venality in a government bureau which is pejoratively rated over the years. What
is so distressing, aside from the financial losses to the Government, is the erosion of trust in a vital
institution wherein the reputations of so many honest and dedicated workers are besmirched by the
acts or omissions of a few. Hence, the liberal view we have here taken pro hac vice, which may give
some degree of assurance that this Court will unhesitatingly react to any bane in the government
service, with a replication of such response being likewise expected by the people from the executive
authorities.
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby SET ASIDE
and the case at bar is REMANDED to the Court of Tax Appeals for further proceedings and appropriate
action, more particularly, the reception of evidence for petitioner and the corresponding disposition of
CTA Case No. 4099 not otherwise inconsistent with our adjudgment herein.
SO ORDERED.
Narvasa, C.J., Padilla, Puno and Mendoza, JJ., concur.

Moreover, to grant the refund without determination of the proper assessment and the tax due would
inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should subsequently
be upheld, the Government will be forced to institute anew a proceeding for the recovery of
erroneously refunded taxes which recourse must be filed within the prescriptive period of ten years
after discovery of the falsity, fraud or omission in the false or fraudulent return involved. 23 This would
necessarily require and entail additional efforts and expenses on the part of the Government, impose
a burden on and a drain of government funds, and impede or delay the collection of much-needed
revenue for governmental operations.

Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically necessary
and legally appropriate that the issue of the deficiency tax assessment against Citytrust be resolved
jointly with its claim for tax refund, to determine once and for all in a single proceeding the true and
correct amount of tax due or refundable.

In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only just and fair that
the taxpayer and the Government alike be given equal opportunities to avail of remedies under the law
to defeat each other's claim and to determine all matters of dispute between them in one single case.
It is important to note that in determining whether or not petitioner is entitled to the refund of the
amount paid, it would necessary to determine how much the Government is entitled to collect as taxes.
This would necessarily include the determination of the correct liability of the taxpayer and, certainly,
a determination of this case would constitute res judicata on both parties as to all the matters subject
thereof or necessarily involved therein.
G.R. No. 141309 June 19, 2007
LIWAYWAY VINZONS-CHATO, petitioner,
vs.
FORTUNE TOBACCO CORPORATION, respondent.
DECISION
YNARES-SANTIAGO, J.:
Petitioner assails the May 7, 1999 Decision 1 of the Court of Appeals in CA-G.R. SP No. 47167, which
affirmed the September 29, 1997 Order 2 of the Regional Trial Court (RTC) of Marikina, Branch 272, in
Civil Case No. 97-341-MK, denying petitioner’s motion to dismiss. The complaint filed by respondent
sought to recover damages for the alleged violation of its constitutional rights arising from petitioner’s
issuance of Revenue Memorandum Circular No. 37-93 (RMC 37-93), which the Court declared invalid
in Commissioner of Internal Revenue v. Court of Appeals.3
Petitioner Liwayway Vinzons-Chato was then the Commissioner of Internal Revenue while respondent
Fortune Tobacco Corporation is an entity engaged in the manufacture of different brands of cigarettes,
among which are "Champion," "Hope," and "More" cigarettes.
On June 10, 1993, the legislature enacted Republic Act No. 7654 (RA 7654), which took effect on July 3,
1993. Prior to its effectivity, cigarette brands ‘Champion," "Hope," and "More" were considered local
brands subjected to an ad valorem tax at the rate of 20-45%. However, on July 1, 1993, or two days
before RA 7654 took effect, petitioner issued RMC 37-93 reclassifying "Champion," "Hope," and "More"
as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax.4 RMC
37-93 in effect subjected "Hope," "More," and "Champion" cigarettes to the provisions of RA 7654,
specifically, to Sec. 142,5 (c)(1) on locally manufactured cigarettes which are currently classified and
taxed at 55%, and which imposes an ad valorem tax of "55% provided that the minimum tax shall not
be less than Five Pesos (P5.00) per pack."6
On July 2, 1993, at about 5:50 p.m., BIR Deputy Commissioner Victor A. Deoferio, Jr. sent via telefax a
copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On July 15, 1993,
Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. On July 20, 1993,
respondent filed a motion for reconsideration requesting the recall of RMC 37-93, but was denied in a
letter dated July 30, 1993.7 The same letter assessed respondent for ad valorem tax deficiency
amounting to P9,598,334.00 (computed on the basis of RMC 37-93) and demanded payment within 10
days from receipt thereof.8 On August 3, 1993, respondent filed a petition for review with the Court of
Tax Appeals (CTA), which on September 30, 1993, issued an injunction enjoining the implementation of
RMC 37-93.9 In its decision dated August 10, 1994, the CTA ruled that RMC 37-93 is defective, invalid,
and unenforceable and further enjoined petitioner from collecting the deficiency tax assessment issued
pursuant to RMC No. 37-93. This ruling was affirmed by the Court of Appeals, and finally by this Court
in Commissioner of Internal Revenue v. Court of Appeals.10 It was held, among others, that RMC 37-93,
has fallen short of the requirements for a valid administrative issuance.
On April 10, 1997, respondent filed before the RTC a complaint11 for damages against petitioner in her
private capacity. Respondent contended that the latter should be held liable for damages under Article
32 of the Civil Code considering that the issuance of RMC 37-93 violated its constitutional right against
deprivation of property without due process of law and the right to equal protection of the laws.
Petitioner filed a motion to dismiss12 contending that: (1) respondent has no cause of action against her
because she issued RMC 37-93 in the performance of her official function and within the scope of her
authority. She claimed that she acted merely as an agent of the Republic and therefore the latter is the
one responsible for her acts; (2) the complaint states no cause of action for lack of allegation of malice
or bad faith; and (3) the certification against forum shopping was signed by respondent’s counsel in
violation of the rule that it is the plaintiff or the principal party who should sign the same.
On September 29, 1997, the RTC denied petitioner’s motion to dismiss holding that to rule on the
allegations of petitioner would be to prematurely decide the merits of the case without allowing the
parties to present evidence. It further held that the defect in the certification against forum shopping
was cured by respondent’s submission of the corporate secretary’s certificate authorizing its counsel to
execute the certification against forum shopping. The dispositive portion thereof, states:
WHEREFORE, foregoing premises considered, the motion to dismiss filed by the defendant Liwayway
Vinzons-Chato and the motion to strike out and expunge from the record the said motion to dismiss
filed by plaintiff Fortune Tobacco Corporation are both denied on the grounds aforecited. The
defendant is ordered to file her answer to the complaint within ten (10) days from receipt of this Order.
SO ORDERED.13
The case was elevated to the Court of Appeals via a petition for certiorari under Rule 65. However, same
was dismissed on the ground that under Article 32 of the Civil Code, liability may arise even if the
defendant did not act with malice or bad faith. The appellate court ratiocinated that Section 38, Book I
of the Administrative Code is the general law on the civil liability of public officers while Article 32 of
the Civil Code is the special law that governs the instant case. Consequently, malice or bad faith need
not be alleged in the complaint for damages. It also sustained the ruling of the RTC that the defect of
the certification against forum shopping was cured by the submission of the corporate secretary’s
certificate giving authority to its counsel to execute the same.
Undaunted, petitioner filed the instant recourse contending that the suit is grounded on her acts done
in the performance of her functions as a public officer, hence, it is Section 38, Book I of the
Administrative Code which should be applied. Under this provision, liability will attach only when there
is a clear showing of bad faith, malice, or gross negligence. She further averred that the Civil Code,
specifically, Article 32 which allows recovery of damages for violation of constitutional rights, is a
general law on the liability of public officers; while Section 38, Book I of the Administrative Code is a
special law on the superior public officers’ liability, such that, if the complaint, as in the instant case,
does not allege bad faith, malice, or gross negligence, the same is dismissible for failure to state a cause
of action. As to the defect of the certification against forum shopping, she urged the Court to strictly
construe the rules and to dismiss the complaint.
Conversely, respondent argued that Section 38 which treats in general the public officers’ "acts" from
which civil liability may arise, is a general law; while Article 32 which deals specifically with the public
officers’ violation of constitutional rights, is a special provision which should determine whether the
complaint states a cause of action or not. Citing the case of Lim v. Ponce de Leon,14 respondent alleged
that under Article 32 of the Civil Code, it is enough that there was a violation of the constitutional rights
of the plaintiff and it is not required that said public officer should have acted with malice or in bad
faith. Hence, it concluded that even granting that the complaint failed to allege bad faith or malice, the
motion to dismiss for failure to state a cause of action should be denied inasmuch as bad faith or malice
are not necessary to hold petitioner liable.
The issues for resolution are as follows:
(1) May a public officer be validly sued in his/her private capacity for acts done in connection with the
discharge of the functions of his/her office?
(2) Which as between Article 32 of the Civil Code and Section 38, Book I of the Administrative Code
should govern in determining whether the instant complaint states a cause of action?
(3) Should the complaint be dismissed for failure to comply with the rule on certification against forum
shopping?
(4) May petitioner be held liable for damages?
On the first issue, the general rule is that a public officer is not liable for damages which a person may
suffer arising from the just performance of his official duties and within the scope of his assigned
tasks.15 An officer who acts within his authority to administer the affairs of the office which he/she
heads is not liable for damages that may have been caused to another, as it would virtually be a charge
against the Republic, which is not amenable to judgment for monetary claims without its
consent.16 However, a public officer is by law not immune from damages in his/her personal capacity
for acts done in bad faith which, being outside the scope of his authority, are no longer protected by
the mantle of immunity for official actions.17
Specifically, under Section 38, Book I of the Administrative Code, civil liability may arise where there is
bad faith, malice, or gross negligence on the part of a superior public officer. And, under Section 39 of
the same Book, civil liability may arise where the subordinate public officer’s act is characterized by
willfulness or negligence. Thus –
Sec. 38. Liability of Superior Officers. – (1) A public officer shall not be civilly liable for acts done in the
performance of his official duties, unless there is a clear showing of bad faith, malice or gross
negligence.
xxxx
Section 39. Liability of Subordinate Officers. – No subordinate officer or employee shall be civilly liable
for acts done by him in good faith in the performance of his duties. However, he shall be liable for willful
or negligent acts done by him which are contrary to law, morals, public policy and good customs even
if he acts under orders or instructions of his superior.
In addition, the Court held in Cojuangco, Jr. v. Court of Appeals,18 that a public officer who directly or
indirectly violates the constitutional rights of another, may be validly sued for damages under Article
32 of the Civil Code even if his acts were not so tainted with malice or bad faith.
Thus, the rule in this jurisdiction is that a public officer may be validly sued in his/her private capacity
for acts done in the course of the performance of the functions of the office, where said public officer:
(1) acted with malice, bad faith, or negligence; or (2) where the public officer violated a constitutional
right of the plaintiff.
Anent the second issue, we hold that the complaint filed by respondent stated a cause of action and
that the decisive provision thereon is Article 32 of the Civil Code.
A general statute is one which embraces a class of subjects or places and does not omit any subject or
place naturally belonging to such class. A special statute, as the term is generally understood, is one
which relates to particular persons or things of a class or to a particular portion or section of the state
only.19
A general law and a special law on the same subject are statutes in pari materia and should, accordingly,
be read together and harmonized, if possible, with a view to giving effect to both. The rule is that where
there are two acts, one of which is special and particular and the other general which, if standing alone,
would include the same matter and thus conflict with the special act, the special law must prevail since
it evinces the legislative intent more clearly than that of a general statute and must not be taken as
intended to affect the more particular and specific provisions of the earlier act, unless it is absolutely
necessary so to construe it in order to give its words any meaning at all.20
The circumstance that the special law is passed before or after the general act does not change the
principle. Where the special law is later, it will be regarded as an exception to, or a qualification of, the
prior general act; and where the general act is later, the special statute will be construed as remaining
an exception to its terms, unless repealed expressly or by necessary implication.21
Thus, in City of Manila v. Teotico,22 the Court held that Article 2189 of the Civil Code which holds
provinces, cities, and municipalities civilly liable for death or injuries by reason of defective conditions
of roads and other public works, is a special provision and should prevail over Section 4 of Republic Act
No. 409, the Charter of Manila, in determining the liability for defective street conditions. Under said
Charter, the city shall not be held for damages or injuries arising from the failure of the local officials to
enforce the provision of the charter, law, or ordinance, or from negligence while enforcing or
attempting to enforce the same. As explained by the Court:
Manila maintains that the former provision should prevail over the latter, because Republic Act 409 is
a special law, intended exclusively for the City of Manila, whereas the Civil Code is a general law,
applicable to the entire Philippines.
The Court of Appeals, however, applied the Civil Code, and, we think, correctly. It is true that, insofar
as its territorial application is concerned, Republic Act No. 409 is a special law and the Civil Code a
general legislation; but, as regards the subject matter of the provisions above quoted, Section 4 of
Republic Act 409 establishes a general rule regulating the liability of the City of Manila for "damages or
injury to persons or property arising from the failure of" city officers "to enforce the provisions of" said
Act "or any other law or ordinance, or from negligence" of the city "Mayor, Municipal Board, or other
officers while enforcing or attempting to enforce said provisions." Upon the other hand, Article 2189 of
the Civil Code constitutes a particular prescription making "provinces, cities and municipalities . . . liable
for damages for the death of, or injury suffered by, any person by reason" — specifically — "of the
defective condition of roads, streets, bridges, public buildings, and other public works under their
control or supervision." In other words, said section 4 refers to liability arising from negligence, in
general, regardless of the object thereof, whereas Article 2189 governs liability due to "defective
streets," in particular. Since the present action is based upon the alleged defective condition of a
road, said Article 2189 is decisive thereon.23
In the case of Bagatsing v. Ramirez,24 the issue was which law should govern the publication of a tax
ordinance, the City Charter of Manila, a special act which treats ordinances in general and which
requires their publication before enactment and after approval, or the Tax Code, a general law, which
deals in particular with "ordinances levying or imposing taxes, fees or other charges," and which
demands publication only after approval. In holding that it is the Tax Code which should prevail, the
Court elucidated that:
There is no question that the Revised Charter of the City of Manila is a special act since it relates only
to the City of Manila, whereas the Local Tax Code is a general law because it applies universally to all
local governments. Blackstone defines general law as a universal rule affecting the entire community
and special law as one relating to particular persons or things of a class. And the rule commonly said is
that a prior special law is not ordinarily repealed by a subsequent general law. The fact that one is
special and the other general creates a presumption that the special is to be considered as remaining
an exception of the general, one as a general law of the land, the other as the law of a particular
case. However, the rule readily yields to a situation where the special statute refers to a subject in
general, which the general statute treats in particular. Th[is] exactly is the circumstance obtaining in
the case at bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in
general, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In regard,
therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless dominant,
but, that dominant force loses its continuity when it approaches the realm of "ordinances levying or
imposing taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as
always, a general provision must give way to a particular provision. Special provision governs.
Let us examine the provisions involved in the case at bar. Article 32 of the Civil Code provides:
ART. 32. Any public officer or employee, or any private individual, who directly or indirectly obstructs,
defeats, violates, or in any manner impedes or impairs any of the following rights and liberties of
another person shall be liable to the latter for damages:
xxxx
(6) The right against deprivation of property without due process of law;
xxxx
(8) The right to the equal protection of the laws;
xxxx
The rationale for its enactment was explained by Dean Bocobo of the Code Commission, as follows:
"DEAN BOCOBO. Article 32, regarding individual rights, Attorney Cirilo Paredes proposes that Article 32
be so amended as to make a public official liable for violation of another person’s constitutional rights
only if the public official acted maliciously or in bad faith. The Code Commission opposes this suggestion
for these reasons:
"The very nature of Article 32 is that the wrong may be civil or criminal. It is not necessary therefore
that there should be malice or bad faith. To make such a requisite would defeat the main purpose of
Article 32 which is the effective protection of individual rights. Public officials in the past have abused
their powers on the pretext of justifiable motives or good faith in the performance of their duties.
Precisely, the object of the Article is to put an end to official abuse by the plea of good faith. In the
United States this remedy is in the nature of a tort.
"Mr. Chairman, this article is firmly one of the fundamental articles introduced in the New Civil Code to
implement democracy. There is no real democracy if a public official is abusing and we made the article
so strong and so comprehensive that it concludes an abuse of individual rights even if done in good
faith, that official is liable. As a matter of fact, we know that there are very few public officials who
openly and definitely abuse the individual rights of the citizens. In most cases, the abuse is justified on
a plea of desire to enforce the law to comply with one’s duty. And so, if we should limit the scope of
this article, that would practically nullify the object of the article. Precisely, the opening object of the
article is to put an end to abuses which are justified by a plea of good faith, which is in most cases the
plea of officials abusing individual rights."25
The Code Commission deemed it necessary to hold not only public officers but also private individuals
civilly liable for violation of the rights enumerated in Article 32 of the Civil Code. It is not necessary that
the defendant under this Article should have acted with malice or bad faith, otherwise, it would defeat
its main purpose, which is the effective protection of individual rights. It suffices that there is a violation
of the constitutional right of the plaintiff.26
Article 32 was patterned after the "tort" in American law. 27 A tort is a wrong, a tortious act which has
been defined as the commission or omission of an act by one, without right, whereby another receives
some injury, directly or indirectly, in person, property, or reputation. 28 There are cases in which it has
been stated that civil liability in tort is determined by the conduct and not by the mental state of the
tortfeasor, and there are circumstances under which the motive of the defendant has been rendered
immaterial. The reason sometimes given for the rule is that otherwise, the mental attitude of the
alleged wrongdoer, and not the act itself, would determine whether the act was wrongful. 29 Presence
of good motive, or rather, the absence of an evil motive, does not render lawful an act which is
otherwise an invasion of another’s legal right; that is, liability in tort is not precluded by the fact that
defendant acted without evil intent.30
The clear intention therefore of the legislature was to create a distinct cause of action in the nature of
tort for violation of constitutional rights, irrespective of the motive or intent of the defendant.31 This is
a fundamental innovation in the Civil Code, and in enacting the Administrative Code pursuant to the
exercise of legislative powers, then President Corazon C. Aquino, could not have intended to obliterate
this constitutional protection on civil liberties.
In Aberca v. Ver,32 it was held that with the enactment of Article 32, the principle of accountability of
public officials under the Constitution acquires added meaning and assumes a larger dimension. No
longer may a superior official relax his vigilance or abdicate his duty to supervise his subordinates, With costs.
secure in the thought that he does not have to answer for the transgressions committed by the latter
against the constitutionally protected rights and liberties of the citizen. Part of the factors that SO ORDERED.
propelled people power in February 1986 was the widely held perception that the government was
callous or indifferent to, if not actually responsible for, the rampant violations of human rights. While
it would certainly be too naive to expect that violators of human rights would easily be deterred by the
prospect of facing damage suits, it should nonetheless be made clear in no uncertain terms that Article
32 of the Civil Code makes the persons who are directly, as well as indirectly, responsible for the
transgression, joint tortfeasors.

On the other hand, Sections 38 and 39, Book I of the Administrative Code, laid down the rule on the
civil liability of superior and subordinate public officers for acts done in the performance of their duties.
For both superior and subordinate public officers, the presence of bad faith, malice, and negligence are
vital elements that will make them liable for damages. Note that while said provisions deal in particular
with the liability of government officials, the subject thereof is general, i.e., "acts" done in the
performance of official duties, without specifying the action or omission that may give rise to a civil suit
against the official concerned.

Contrarily, Article 32 of the Civil Code specifies in clear and unequivocal terms a particular specie of an
"act" that may give rise to an action for damages against a public officer, and that is, a tort for
impairment of rights and liberties. Indeed, Article 32 is the special provision that deals specifically with
violation of constitutional rights by public officers. All other actionable acts of public officers are
governed by Sections 38 and 39 of the Administrative Code. While the Civil Code, specifically, the
Chapter on Human Relations is a general law, Article 32 of the same Chapter is a special and specific
provision that holds a public officer liable for and allows redress from a particular class of wrongful acts
that may be committed by public officers. Compared thus with Section 38 of the Administrative Code,
which broadly deals with civil liability arising from errors in the performance of duties, Article 32 of the
Civil Code is the specific provision which must be applied in the instant case precisely filed to seek
damages for violation of constitutional rights.

The complaint in the instant case was brought under Article 32 of the Civil Code. Considering that bad
faith and malice are not necessary in an action based on Article 32 of the Civil Code, the failure to
specifically allege the same will not amount to failure to state a cause of action. The courts below
therefore correctly denied the motion to dismiss on the ground of failure to state a cause of action,
since it is enough that the complaint avers a violation of a constitutional right of the plaintiff.

Anent the issue on non-compliance with the rule against forum shopping, the subsequent submission
of the secretary’s certificate authorizing the counsel to sign and execute the certification against forum
shopping cured the defect of respondent’s complaint. Besides, the merits of the instant case justify the
liberal application of the rules.33

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the Court of Appeals
dated May 7, 1999 which affirmed the Order of the Regional Trial Court of Marikina, Branch 272,
denying petitioner’s motion to dismiss, is AFFIRMED. The Presiding Judge, Regional Trial Court of
Marikina, Branch 272, is hereby DIRECTED to continue with the proceedings in Civil Case No. 97-341-
MK with dispatch.
G.R. No. 96681 December 2, 1991
HON. ISIDRO CARIÑO, in his capacity as Secretary of the Department of Education, Culture & Sports,
DR. ERLINDA LOLARGA, in her capacity as Superintendent of City Schools of Manila, petitioners,
vs.
THE COMMISSION ON HUMAN RIGHTS, GRACIANO BUDOY, JULIETA BABARAN, ELSA IBABAO, HELEN
LUPO, AMPARO GONZALES, LUZ DEL CASTILLO, ELSA REYES and APOLINARIO ESBER, respondents.
NARVASA, J.:
The issue raised in the special civil action of certiorari and prohibition at bar, instituted by the Solicitor
General, may be formulated as follows: where the relief sought from the Commission on Human Rights
by a party in a case consists of the review and reversal or modification of a decision or order issued by
a court of justice or government agency or official exercising quasi-judicial functions, may the
Commission take cognizance of the case and grant that relief? Stated otherwise, where a particular
subject-matter is placed by law within the jurisdiction of a court or other government agency or official
for purposes of trial and adjudgment, may the Commission on Human Rights take cognizance of the
same subject-matter for the same purposes of hearing and adjudication?
The facts narrated in the petition are not denied by the respondents and are hence taken as
substantially correct for purposes of ruling on the legal questions posed in the present action. These
facts, 1 together with others involved in related cases recently resolved by this Court 2 or otherwise
undisputed on the record, are hereunder set forth.
1. On September 17, 1990, a Monday and a class day, some 800 public school teachers, among
them members of the Manila Public School Teachers Association (MPSTA) and Alliance of Concerned
Teachers (ACT) undertook what they described as "mass concerted actions" to "dramatize and
highlight" their plight resulting from the alleged failure of the public authorities to act upon grievances
that had time and again been brought to the latter's attention. According to them they had decided to
undertake said "mass concerted actions" after the protest rally staged at the DECS premises on
September 14, 1990 without disrupting classes as a last call for the government to negotiate the
granting of demands had elicited no response from the Secretary of Education. The "mass actions"
consisted in staying away from their classes, converging at the Liwasang Bonifacio, gathering in
peaceable assemblies, etc. Through their representatives, the teachers participating in the mass actions
were served with an order of the Secretary of Education to return to work in 24 hours or face dismissal,
and a memorandum directing the DECS officials concerned to initiate dismissal proceedings against
those who did not comply and to hire their replacements. Those directives notwithstanding, the mass
actions continued into the week, with more teachers joining in the days that followed. 3
Among those who took part in the "concerted mass actions" were the eight (8) private respondents
herein, teachers at the Ramon Magsaysay High School, Manila, who had agreed to support the non-
political demands of the MPSTA. 4
2. For failure to heed the return-to-work order, the CHR complainants (private respondents)
were administratively charged on the basis of the principal's report and given five (5) days to answer
the charges. They were also preventively suspended for ninety (90) days "pursuant to Section 41 of P.D.
807" and temporarily replaced (unmarked CHR Exhibits, Annexes F, G, H). An investigation committee
was consequently formed to hear the charges in accordance with P.D. 807. 5
3. In the administrative case docketed as Case No. DECS 90-082 in which CHR complainants
Graciano Budoy, Jr., Julieta Babaran, Luz del Castillo, Apolinario Esber were, among others, named
respondents, 6 the latter filed separate answers, opted for a formal investigation, and also moved "for
suspension of the administrative proceedings pending resolution by . . (the Supreme) Court of their
application for issuance of an injunctive writ/temporary restraining order." But when their motion for
suspension was denied by Order dated November 8, 1990 of the Investigating Committee, which later
also denied their motion for reconsideration orally made at the hearing of November 14, 1990, "the
respondents led by their counsel staged a walkout signifying their intent to boycott the entire
proceedings." 7 The case eventually resulted in a Decision of Secretary Cariño dated December 17,
1990, rendered after evaluation of the evidence as well as the answers, affidavits and documents
submitted by the respondents, decreeing dismissal from the service of Apolinario Esber and the
suspension for nine (9) months of Babaran, Budoy and del Castillo. 8
4. In the meantime, the "MPSTA filed a petition for certiorari before the Regional Trial Court of
Manila against petitioner (Cariño), which was dismissed (unmarked CHR Exhibit, Annex I). Later, the
MPSTA went to the Supreme Court (on certiorari, in an attempt to nullify said dismissal, grounded on
the) alleged violation of the striking teachers" right to due process and peaceable assembly docketed
as G.R. No. 95445, supra. The ACT also filed a similar petition before the Supreme Court . . . docketed
as G.R. No. 95590." 9 Both petitions in this Court were filed in behalf of the teacher associations, a few
named individuals, and "other teacher-members so numerous similarly situated" or "other similarly
situated public school teachers too numerous to be impleaded."
5. In the meantime, too, the respondent teachers submitted sworn statements dated
September 27, 1990 to the Commission on Human Rights to complain that while they were participating
in peaceful mass actions, they suddenly learned of their replacements as teachers, allegedly without
notice and consequently for reasons completely unknown to them. 10
6. Their complaints — and those of other teachers also "ordered suspended by the . . . (DECS),"
all numbering forty-two (42) — were docketed as "Striking Teachers CHR Case No. 90775." In
connection therewith the Commission scheduled a "dialogue" on October 11, 1990, and sent a
subpoena to Secretary Cariño requiring his attendance therein. 11
On the day of the "dialogue," although it said that it was "not certain whether he (Sec. Cariño) received
the subpoena which was served at his office, . . . (the) Commission, with the Chairman presiding, and
Commissioners Hesiquio R. Mallilin and Narciso C. Monteiro, proceeded to hear the case;" it heard the
complainants' counsel (a) explain that his clients had been "denied due process and suspended without
formal notice, and unjustly, since they did not join the mass leave," and (b) expatiate on the grievances
which were "the cause of the mass leave of MPSTA teachers, (and) with which causes they (CHR
complainants) sympathize." 12 The Commission thereafter issued an Order 13 reciting these facts and
making the following disposition:
To be properly apprised of the real facts of the case and be accordingly guided in its investigation and
resolution of the matter, considering that these forty two teachers are now suspended and deprived of
their wages, which they need very badly, Secretary Isidro Cariño, of the Department of Education,
Culture and Sports, Dr. Erlinda Lolarga, school superintendent of Manila and the Principal of Ramon
Magsaysay High School, Manila, are hereby enjoined to appear and enlighten the Commission en banc
on October 19, 1990 at 11:00 A.M. and to bring with them any and all documents relevant to the
allegations aforestated herein to assist the Commission in this matter. Otherwise, the Commission will
resolve the complaint on the basis of complainants' evidence.
xxx xxx xxx
7. Through the Office of the Solicitor General, Secretary Cariño sought and was granted leave to
file a motion to dismiss the case. His motion to dismiss was submitted on November 14, 1990 alleging
as grounds therefor, "that the complaint states no cause of action and that the CHR has no jurisdiction
over the case." 14
8. Pending determination by the Commission of the motion to dismiss, judgments affecting the
"striking teachers" were promulgated in two (2) cases, as aforestated, viz.:
a) The Decision dated December l7, 1990 of Education Secretary Cariño in Case No. DECS 90-
082, decreeing dismissal from the service of Apolinario Esber and the suspension for nine (9) months
of Babaran, Budoy and del Castillo; 15 and
b) The joint Resolution of this Court dated August 6, 1991 in G.R. Nos. 95445 and 95590
dismissing the petitions "without prejudice to any appeals, if still timely, that the individual petitioners
may take to the Civil Service Commission on the matters complained of," 16 and inter alia "ruling that
it was prima facie lawful for petitioner Cariño to issue return-to-work orders, file administrative charges
against recalcitrants, preventively suspend them, and issue decision on those charges." 17
9. In an Order dated December 28, 1990, respondent Commission denied Sec. Cariño's motion
to dismiss and required him and Superintendent Lolarga "to submit their counter-affidavits within ten
(10) days . . . (after which) the Commission shall proceed to hear and resolve the case on the merits
with or without respondents counter affidavit." 18 It held that the "striking teachers" "were denied due
process of law; . . . they should not have been replaced without a chance to reply to the administrative
charges;" there had been a violation of their civil and political rights which the Commission was
empowered to investigate; and while expressing its "utmost respect to the Supreme Court . . . the facts
before . . . (it) are different from those in the case decided by the Supreme Court" (the reference being
unmistakably to this Court's joint Resolution of August 6, 1991 in G.R. Nos. 95445 and 95590, supra).
It is to invalidate and set aside this Order of December 28, 1990 that the Solicitor General, in behalf of
petitioner Cariño, has commenced the present action of certiorari and prohibition.
The Commission on Human Rights has made clear its position that it does not feel bound by this Court's
joint Resolution in G.R. Nos. 95445 and 95590, supra. It has also made plain its intention "to hear and
resolve the case (i.e., Striking Teachers HRC Case No. 90-775) on the merits." It intends, in other words,
to try and decide or hear and determine, i.e., exercise jurisdiction over the following general issues:
1) whether or not the striking teachers were denied due process, and just cause exists for the
imposition of administrative disciplinary sanctions on them by their superiors; and
2) whether or not the grievances which were "the cause of the mass leave of MPSTA teachers,
(and) with which causes they (CHR complainants) sympathize," justify their mass action or strike.
The Commission evidently intends to itself adjudicate, that is to say, determine with character of finality
and definiteness, the same issues which have been passed upon and decided by the Secretary of
Education, Culture & Sports, subject to appeal to the Civil Service Commission, this Court having in fact,
as aforementioned, declared that the teachers affected may take appeals to the Civil Service
Commission on said matters, if still timely.
The threshold question is whether or not the Commission on Human Rights has the power under the
Constitution to do so; whether or not, like a court of justice, 19 or even a quasi-judicial agency, 20 it has
jurisdiction or adjudicatory powers over, or the power to try and decide, or hear and determine, certain
specific type of cases, like alleged human rights violations involving civil or political rights.
The Court declares the Commission on Human Rights to have no such power; and that it was not meant
by the fundamental law to be another court or quasi-judicial agency in this country, or duplicate much
less take over the functions of the latter.
The most that may be conceded to the Commission in the way of adjudicative power is that it may
investigate, i.e., receive evidence and make findings of fact as regards claimed human rights violations
involving civil and political rights. But fact finding is not adjudication, and cannot be likened to the
judicial function of a court of justice, or even a quasi-judicial agency or official. The function of receiving
evidence and ascertaining therefrom the facts of a controversy is not a judicial function, properly
speaking. To be considered such, the faculty of receiving evidence and making factual conclusions in a
controversy must be accompanied by the authority of applying the law to those factual conclusions to
the end that the controversy may be decided or determined authoritatively, finally and definitively,
subject to such appeals or modes of review as may be provided by law. 21 This function, to repeat, the
Commission does not have. 22
The proposition is made clear by the constitutional provisions specifying the powers of the Commission
on Human Rights.
The Commission was created by the 1987 Constitution as an independent office. 23 Upon its
constitution, it succeeded and superseded the Presidential Committee on Human Rights existing at the
time of the effectivity of the Constitution. 24 Its powers and functions are the following 25
(1) Investigate, on its own or on complaint by any party, all forms of human rights violations
involving civil and political rights;
(2) Adopt its operational guidelines and rules of procedure, and cite for contempt for violations
thereof in accordance with the Rules of Court;
(3) Provide appropriate legal measures for the protection of human rights of all persons within
the Philippines, as well as Filipinos residing abroad, and provide for preventive measures and legal aid
services to the underprivileged whose human rights have been violated or need protection;
(4) Exercise visitorial powers over jails, prisons, or detention facilities;
(5) Establish a continuing program of research, education, and information to enhance respect
for the primacy of human rights;
(6) Recommend to the Congress effective measures to promote human rights and to provide for
compensation to victims of violations of human rights, or their families;
(7) Monitor the Philippine Government's compliance with international treaty obligations on
human rights;
(8) Grant immunity from prosecution to any person whose testimony or whose possession of
documents or other evidence is necessary or convenient to determine the truth in any investigation
conducted by it or under its authority;
(9) Request the assistance of any department, bureau, office, or agency in the performance of its
functions;
(10) Appoint its officers and employees in accordance with law; and
(11) Perform such other duties and functions as may be provided by law
As should at once be observed, only the first of the enumerated powers and functions bears any
resemblance to adjudication or adjudgment. The Constitution clearly and categorically grants to the
Commission the power to investigate all forms of human rights violations involving civil and political
rights. It can exercise that power on its own initiative or on complaint of any person. It may exercise
that power pursuant to such rules of procedure as it may adopt and, in cases of violations of said rules,
cite for contempt in accordance with the Rules of Court. In the course of any investigation conducted
by it or under its authority, it may grant immunity from prosecution to any person whose testimony or
whose possession of documents or other evidence is necessary or convenient to determine the truth.
It may also request the assistance of any department, bureau, office, or agency in the performance of
its functions, in the conduct of its investigation or in extending such remedy as may be required by its
findings. 26
But it cannot try and decide cases (or hear and determine causes) as courts of justice, or even quasi-
judicial bodies do. To investigate is not to adjudicate or adjudge. Whether in the popular or the technical
sense, these terms have well understood and quite distinct meanings.
"Investigate," commonly understood, means to examine, explore, inquire or delve or probe into,
research on, study. The dictionary definition of "investigate" is "to observe or study closely: inquire into
systematically. "to search or inquire into: . . . to subject to an official probe . . .: to conduct an official
inquiry." 27 The purpose of investigation, of course, is to discover, to find out, to learn, obtain
information. Nowhere included or intimated is the notion of settling, deciding or resolving a controversy
involved in the facts inquired into by application of the law to the facts established by the inquiry.
The legal meaning of "investigate" is essentially the same: "(t)o follow up step by step by patient inquiry
or observation. To trace or track; to search into; to examine and inquire into with care and accuracy; to
find out by careful inquisition; examination; the taking of evidence; a legal inquiry;" 28 "to inquire; to
make an investigation," "investigation" being in turn describe as "(a)n administrative function, the
exercise of which ordinarily does not require a hearing. 2 Am J2d Adm L Sec. 257; . . . an inquiry, judicial
or otherwise, for the discovery and collection of facts concerning a certain matter or matters." 29
"Adjudicate," commonly or popularly understood, means to adjudge, arbitrate, judge, decide,
determine, resolve, rule on, settle. The dictionary defines the term as "to settle finally (the rights and
duties of the parties to a court case) on the merits of issues raised: . . . to pass judgment on: settle
judicially: . . . act as judge." 30 And "adjudge" means "to decide or rule upon as a judge or with judicial
or quasi-judicial powers: . . . to award or grant judicially in a case of controversy . . . ." 31
In the legal sense, "adjudicate" means: "To settle in the exercise of judicial authority. To determine
finally. Synonymous with adjudge in its strictest sense;" and "adjudge" means: "To pass on judicially, to
decide, settle or decree, or to sentence or condemn. . . . Implies a judicial determination of a fact, and
the entry of a judgment." 32
Hence it is that the Commission on Human Rights, having merely the power "to investigate," cannot
and should not "try and resolve on the merits" (adjudicate) the matters involved in Striking Teachers
HRC Case No. 90-775, as it has announced it means to do; and it cannot do so even if there be a claim
that in the administrative disciplinary proceedings against the teachers in question, initiated and
conducted by the DECS, their human rights, or civil or political rights had been transgressed. More
particularly, the Commission has no power to "resolve on the merits" the question of (a) whether or
not the mass concerted actions engaged in by the teachers constitute and are prohibited or otherwise
restricted by law; (b) whether or not the act of carrying on and taking part in those actions, and the
failure of the teachers to discontinue those actions, and return to their classes despite the order to this
effect by the Secretary of Education, constitute infractions of relevant rules and regulations warranting
administrative disciplinary sanctions, or are justified by the grievances complained of by them; and (c)
what where the particular acts done by each individual teacher and what sanctions, if any, may properly
be imposed for said acts or omissions.
These are matters undoubtedly and clearly within the original jurisdiction of the Secretary of Education,
being within the scope of the disciplinary powers granted to him under the Civil Service Law, and also,
within the appellate jurisdiction of the Civil Service Commission.

Indeed, the Secretary of Education has, as above narrated, already taken cognizance of the issues and
resolved them, 33 and it appears that appeals have been seasonably taken by the aggrieved parties to
the Civil Service Commission; and even this Court itself has had occasion to pass upon said issues. 34

Now, it is quite obvious that whether or not the conclusions reached by the Secretary of Education in
disciplinary cases are correct and are adequately based on substantial evidence; whether or not the
proceedings themselves are void or defective in not having accorded the respondents due process; and
whether or not the Secretary of Education had in truth committed "human rights violations involving
civil and political rights," are matters which may be passed upon and determined through a motion for
reconsideration addressed to the Secretary Education himself, and in the event of an adverse verdict,
may be reviewed by the Civil Service Commission and eventually the Supreme Court.

The Commission on Human Rights simply has no place in this scheme of things. It has no business
intruding into the jurisdiction and functions of the Education Secretary or the Civil Service Commission.
It has no business going over the same ground traversed by the latter and making its own judgment on
the questions involved. This would accord success to what may well have been the complaining
teachers' strategy to abort, frustrate or negate the judgment of the Education Secretary in the
administrative cases against them which they anticipated would be adverse to them.

This cannot be done. It will not be permitted to be done.

In any event, the investigation by the Commission on Human Rights would serve no useful purpose. If
its investigation should result in conclusions contrary to those reached by Secretary Cariño, it would
have no power anyway to reverse the Secretary's conclusions. Reversal thereof can only by done by the
Civil Service Commission and lastly by this Court. The only thing the Commission can do, if it concludes
that Secretary Cariño was in error, is to refer the matter to the appropriate Government agency or
tribunal for assistance; that would be the Civil Service Commission. 35 It cannot arrogate unto itself the
appellate jurisdiction of the Civil Service Commission.

WHEREFORE, the petition is granted; the Order of December 29, 1990 is ANNULLED and SET ASIDE, and
the respondent Commission on Human Rights and the Chairman and Members thereof are prohibited
"to hear and resolve the case (i.e., Striking Teachers HRC Case No. 90-775) on the merits."

SO ORDERED.

Melencio-Herrera, Cruz, Feliciano, Bidin, Griño-Aquino, Medialdea, Regalado, Davide, Jr. and Romero,
JJ, concur.
[G.R. No. 157684. April 27, 2005]
DEPARTMENT OF HEALTH, petitioner, vs. PRISCILLA G. CAMPOSANO, ENRIQUE L. PEREZ, and IMELDA
Q. AGUSTIN, respondents.
DECISION
PANGANIBAN, J.:
Administrative due process requires that, prior to imposing disciplinary sanctions, the disciplining
authority must make an independent assessment of the facts and the law. On its face, a decision
imposing administrative sanctions must show the bases for its conclusions. While the investigation of a
case may be delegated to and conducted by another body or group of officials, the disciplining authority
must nevertheless weigh the evidence gathered and indicate the applicable law. In this manner, the
respondents would be informed of the bases for the sanctions and thus be able to prepare their appeal
intelligently. Such procedure is part of the sporting idea of fair play in a democracy.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the March 19, 2003
Decision[2] of the Court of Appeals (CA) in CA-GR SP No. 67720. The challenged Decision disposed as
follows:
WHEREFORE, based on the foregoing, the petition is GRANTED. The assailed Resolutions of the CSC are
hereby SET ASIDE.
The Department of Health is hereby ordered to:
1) Reinstate petitioners without loss of seniority rights but without prejudice to an administrative
investigation that may be undertaken against them by the DOH should the evidence warrant; and
2) Pay petitioners their back salaries from the time their preventive suspension expired. Mandatory
leave credits shall not be charged against their leave credits.[3]
The Facts
The facts are narrated by the CA as follows:
[Respondents] are former employees of the Department of HealthNational Capital Region (hereinafter
DOH-NCR). They held various positions as follows: [Respondent] Priscilla B. Camposano (hereinafter
Camposano) was the Finance and Management Officer II, [Respondent] Imelda Q. Agusin (hereinafter
Agustin) was an Accountant I, and [Respondent] Enrique L. Perez (hereinafter Perez) was the Acting
Supply Officer III.
On May 15, 1996, some concerned [DOH-NCR] employees filed a complaint before the DOH Resident
Ombudsman Rogelio A. Ringpis (hereinafter the Resident Ombudsman) against Dir. IV Rosalinda U.
Majarais, Acting Administrative Officer III Horacio Cabrera, and [respondents], arising out of an alleged
anomalous purchase by DOH-NCR of 1,500 bottles of Ferrous Sulfate 250 mg. with Vitamin B Complex
and Folic Acid capsules worth P330,000.00 from Lumar Pharmaceutical Laboratory on May 13, 1996.
On August 6, 1996, the Resident Ombudsman submitted an investigation report to the Secretary of
Health recommending the filing of a formal administrative charge of Dishonesty and Grave Misconduct
against [respondents] and their co-respondents.
On August 8, 1996, the Secretary of Health filed a formal charge against the [respondents] and their co-
respondents for Grave Misconduct, Dishonesty, and Violation of RA 3019. On October 25, 1996, then
Executive Secretary Ruben D. Torres issued Administrative Order No. 298 (hereafter AO 298) creating
an ad-hoc committee to investigate the administrative case filed against the DOH-NCR employees. The
said AO was indorsed to the Presidential Commission Against Graft and Corruption (hereafter PCAGC)
on October 26, 1996. The same reads:
I have the honor to transmit herewith, for your information and guidance, a certified copy of
Administrative Order No. 298 dated October 25, 1996 entitled CREATING AN AD HOC COMMITTEE TO
INVESTIGATE THE ADMINISTRATIVE CASES FILED AGAINST NCR HEALTH DIRECTOR ROSALINDA U.
MAJARAIS AND OTHER OFFICERS AND EMPLOYEES OF THE DEPARTMENT OF HEALTH, NATIONAL
CAPITAL REGION.
On December 2, 1996, the PCAGC took over the investigation from the DOH. After the investigation, it
issued a resolution on January 23, 1998 disposing [respondents] case as follows:
WHEREFORE, premises considered, this Commission finds Respondents Rosalinda U. Majarais, Priscilla
G. Camposano, Financial Management Chief II, Horacio D. Cabrera, Acting Administrative Officer V,
Imelda Q. Agustin, Accountant I and Enrique L. Perez, Acting Supply Officer III, all of the Department of
Health National Capital Region (DOH-NCR) guilty as charged and so recommends to his Excellency
President Fidel V. Ramos that the penalty of dismissal from the government service be imposed
thereon.
SO ORDERED.
On April 20, 1998, President Ramos issued [Administrative Order No. 390 (hereinafter AO 390)] that
reads:
WHEREFORE, premises considered, respondent Dr. Rosalinda U. Majarais is hereby found guilty as
charged and, as recommended by the Presidential Commission Against Graft and Corruption, is meted
the Penalty of dismissal from the service. The records of the case with respect to the other respondents
are remanded to Secretary Carmencita N. Reodica, Department of Health for appropriate action.
Thereafter, on May 8, 1998, the Secretary of Health issued an Order disposing of the case against
[respondents] and [Horacio Cabrera]. The dispositive portion reads:
WHEREFORE, pursuant to the Resolution rendered by the Presidential Commission Against Graft and
Corruption (PCAGC) dated 23 January 1998 on the above-captioned case, respondents Priscilla G.
Camposano, Financial Management Chief II, Horacio D. Cabrera, Acting Administrative Officer V, Imelda
Q. Agustin, Accountant I and Enrique L. Perez, Acting Supply Officer III, all of the Department of Health
NCR are hereby DISMISSED from the service.
SO ORDERED.
On May 28, 1998 [respondents] filed a motion for reconsideration of the said Order. The Secretary of
Health denied the same on June 5, 1998. Thus, [respondents] filed a Notice of Appeal on June 29, 1998.
On July 17, 1998, [respondents] filed their appeal with the CSC. The appeal was denied by the CSC on
May 21, 1999. Horacio Cabrera filed a separate appeal with the CSC which was denied on August 17,
1999. [Respondents] motion for reconsideration was denied on September 30, 1999. While Cabreras
motion for reconsideration was denied on January 27, 2000. [Respondents], however, received the
resolution denying their motion for reconsideration on November 2001. Thus, Horacio Cabrera was
able to appeal to [the CA] the CSCs resolutions ahead of [respondents]. The petition of Cabrera was
granted [by the CA] in a decision dated October 15, 2001 with a dispositive portion which reads:
WHEREFORE, the instant petition is GRANTED. The Assailed Resolutions of the Civil Service Commission
are hereby SET ASIDE.
Petitioner Horacio D. Cabrera is exonerated of the administrative charges against him. The Civil Service
Commission is hereby ORDERED[:]
(1) To reinstate petitioner immediately, without loss of seniority rights; and
(2) To pay petitioners back salaries from the time his preventive suspension expired. Mandatory leave
credits shall not be charged against his leave credits.
SO ORDERED.[4]
Not satisfied with the denial by the CSC (Civil Service Commission) of their appeal, respondents brought
the matter to the CA.
Ruling of the Court of Appeals
While the herein assailed Decision made no reference to the separate appeal of Horacio Cabrera, the
CA nonetheless used the same legal bases for annulling the CSCs Resolution against respondents. [5]
The appellate court held that the PCAGCs jurisdiction over administrative complaints pertained only to
presidential appointees. Thus, the Commission had no power to investigate the charges against
respondents.[6] Moreover, in simply and completely relying on the PCAGCs findings, the secretary of
health failed to comply with administrative due process.[7]
Hence, this Petition.[8]
The Issues
Petitioner raises the following grounds for our consideration:
I and do such other acts necessary and incidental to the discharge of its function and duty to investigate
The Court of Appeals erred in finding that the Presidential Commission Against Graft and Corruption
(PCAGC) did not have jurisdiction to investigate the anomalous transaction involving respondents.
II
The Court of Appeals erred in concluding that the authority to investigate and decide was relinquished
by the Secretary of Health and that the Secretary of Health merely performed a mechanical act when
she ordered the dismissal of respondents from government service.
III
The Court of Appeals erred in ignoring the fact that an exhaustive investigation was already conducted
by the Presidential Commission Against Graft and Corruption (PCAGC) which resulted in the finding that
the anomalous contract for the purchase of medicines without the required public bidding is patently
illegal.[9]
The second and the third grounds will be discussed together, as they are necessarily intertwined.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Jurisdiction to Investigate
Executive Order (EO) No. 151[10] granted the PCAGC the jurisdiction to investigate administrative
complaints against presidential appointees allegedly involved in graft and corruption. From a cursory
reading of its provisions, it is evident that EO 151 authorizes the PCAGC to investigate charges against
presidential, not non-presidential, appointees. In its Preamble, specifically in its Whereas clauses, the
EO specifically tasked [the PCAGC] to x x x investigate presidential appointees charged with graft and
corruption x x x. More pointedly, Section 3 states that the Commission shall have jurisdiction over all
administrative complaints involving graft and corruption filed in any form or manner against
presidential appointees x x x. We quote the pertinent provisions below:
Section 3. Jurisdiction. The Commission shall have jurisdiction over all administrative complaints
involving graft and corruption filed in any form or manner against presidential appointees, including
those in government-owned or controlled corporations. (emphasis supplied)
Section 4. Powers, Functions and Duties. The Commission shall have the following powers, functions
and duties:
(a) Investigation The Commission shall have the power to investigate administrative complaints
against presidential appointees in the executive department of the government, including those in
government-owned or controlled corporations, charged with graft and corruption. In the exercise
thereof, the Commission is (1) authorized to summon witnesses, administer oaths, or take testimony
or evidence relevant to the investigation by subpoena ad testificandum and subpoena duces tecum,
the said administrative complaints; and (2) empowered to call upon and secure the assistance of any
department, bureau, office, agency, or instrumentality of the government, including government-
owned or controlled corporations.
The Commission shall confine itself to cases of graft and corruption involving one or a combination of
the following criteria:
1. Presidential appointees with the rank equivalent to or higher than an Assistant Regional Director;
2. The amount involved is at least Ten Million Pesos (P10,000,000.00);
3. Those which threaten grievous harm or injury to the national interest; and
4. Those which may be assigned to it by the President.[11]
The Commission may refer to the Office of the Ombudsman, when warranted and necessary, any case
calling for the investigation and/or prosecution of the party or parties concerned for violation of anti-
graft and corruption laws.
Administrative investigation of complaints against presidential appointees currently undertaken by
various presidential committees or government agencies, including government-owned or controlled
corporations shall continue notwithstanding the creation and organization of the Commission. This,
however, shall be without prejudice to the Commission, in its discretion, taking over the investigation
if the matter under investigation is within its jurisdiction.
(b) Coordination The Commission shall coordinate with different government agencies for the purpose
of eradicating opportunities and the climate favorable to the commission of graft and corruption. x x
x.[12] (emphasis supplied)
On the basis of the foregoing verba legis approach, respondents claim that the PCAGC did not have
jurisdiction over them, because they were not presidential appointees.
The Court notes, however, that respondents were not investigated pursuant to EO 151. The
investigation was authorized under Administrative Order No. 298 dated October 25, 1996, which had
created an Ad Hoc Committee to look into the administrative charges filed against Director Rosalinda
U. Majarais, Priscilla G. Camposano, Horacio D. Cabrera, Imelda Q. Agustin and Enrique L. Perez.
The Investigating Committee was composed of all the members of the PCAGC: Chairman Eufemio C.
Domingo, Commissioner Dario C. Rama and Commissioner Jaime L. Guerrero. The Committee was
directed by AO 298 to follow the procedure prescribed under Section 38 to 40 of the Civil Service Law
(PD 807), as amended. It was tasked to forward to the Disciplining Authority the entire records of the
case, together with its findings and recommendations, as well as the draft decision for the approval of
the President.
The Chief Executives power to create the Ad Hoc Investigating Committee cannot be doubted. Having
been constitutionally granted full control of the Executive Department, to which respondents belong,
the President has the obligation to ensure that all executive officials and employees faithfully comply
with the law.[13] With AO 298 as mandate, the legality of the investigation is sustained. Such validity is
not affected by the fact that the investigating team and the PCAGC had the same composition, or that
the former used the offices and facilities of the latter in conducting the inquiry.
Parenthetically, the perceived vacuum in EO 151 with regard to cases involving non-presidential
appointees was rectified in Executive Order No. 12, [14] which created the Presidential Anti-Graft
Commission (PAGC). Non-presidential appointees who may have acted in conspiracy, or who may have
been involved with a presidential appointee, may now be investigated by the PAGC. [15]
Second and Third Issues:
Validity of Health Secretarys Decision
The Administrative Code of 1987 vests department secretaries with the authority to investigate and
decide matters involving disciplinary actions for officers and employees under the formers
jurisdiction.[16] Thus, the health secretary had disciplinary authority over respondents.
Note that being a presidential appointee, Dr. Rosalinda Majarais was under the jurisdiction of the
President, in line with the principle that the power to remove is inherent in the power to
appoint.[17] While the Chief Executive directly dismissed her from the service, he nonetheless
recognized the health secretarys disciplinary authority over respondents when he remanded the
PCAGCs findings against them for the secretarys appropriate action.[18]
As a matter of administrative procedure, a department secretary may utilize other officials to
investigate and report the facts from which a decision may be based. [19] In the present case, the
secretary effectively delegated the power to investigate to the PCAGC.
Neither the PCAGC under EO 151 nor the Ad Hoc Investigating Committee created under AO 298 had
the power to impose any administrative sanctions directly. Their authority was limited to conducting
investigations and preparing their findings and recommendations. The power to impose sanctions
belonged to the disciplining authority, who had to observe due process prior to imposing penalties.
Due process in administrative proceedings requires compliance with the following cardinal principles:
(1) the respondents right to a hearing, which includes the right to present ones case and submit
supporting evidence, must be observed; (2) the tribunal must consider the evidence presented; (3) the
decision must have some basis to support itself; (4) there must be substantial evidence; (5) the decision
must be rendered on the evidence presented at the hearing, or at least contained in the record and
disclosed to the parties affected; (6) in arriving at a decision, the tribunal must have acted on its own
consideration of the law and the facts of the controversy and must not have simply accepted the views
of a subordinate; and (7) the decision must be rendered in such manner that respondents would know
the reasons for it and the various issues involved.[20]
The CA correctly ruled that administrative due process had not been observed in the present factual
milieu. Noncompliance with the sixth requisite is equally evident from the health secretarys Order
dismissing the respondents thus:
ORDER
This refers to the Resolution of the Presidential Commission Against Graft and Corruption (PCAG[C]) on
the above captioned case dated January 23, 1998, the dispositive portion of which reads:
WHEREFORE, premises considered, this Commission finds Respondents Rosalinda U. Majarais, Priscilla
G. Camposano, Financial Management Chief II, [Horacio] D. Cabrera, Acting Supply Officer III, all of the
Department of HealthNational Capital Region (DOH-NCR) guilty as charged and so recommends to his
Excellency President Fidel V. Ramos that the penalty of dismissal from the government be imposed
thereon.
Acting on the aforequoted resolution of the PCAGC[,] His Excellency President Fidel V. Ramos issued
Administrative Order No. 390 dated [A]pril 20, 1998, resolving thus:
WHEREFORE, premises considered, respondent Dr. Rosalinda U. Majarais is hereby found guilty as
charged and, as recommended by the Presidential Commission Against Graft and Corruption, is meted
the penalty of dismissal from the service. The records of the case with respect to the other respondents
are remanded to Secretary Carmencita N. Reodica, Department of Health for appropriate action.
WHEREFORE, pursuant to the Resolution rendered by the Presidential Commission Against Graft and
Corruption (PCAGC) dated January 23, 1998 on the above captioned case, respondents Priscilla G.
Camposano, Financial Management Chief II; Horacio D. Cabrera, Acting Administrative Officer V; Imelda
Q. Agustin, Accountant I; and Enrique G. Perez, Acting Supply Officer III; all of the Department of
HealthNCR, are hereby DISMISSED from the service.[21]
Concededly, the health secretary has the competence and the authority to decide what action should
be taken against officials and employees who have been administratively charged and investigated.
However, the actual exercise of the disciplining authoritys prerogative requires a
prior independent consideration of the law and the facts. Failure to comply with this requirement
results in an invalid decision. The disciplining authority should not merely and solely rely on an
investigators recommendation, but must personally weigh and assess the evidence gathered. There can
be no shortcuts, because at stake are the honor, the reputation, and the livelihood of the person
administratively charged.
In the present case, the health secretarys two-page Order dismissing respondents pales in comparison
with the presidential action with regard to Dr. Majarais. Prior to the issuance of his seven-page decision,
President Fidel V. Ramos conducted a restudy of the doctors case. He even noted a violation that had
not been considered by the PCAGC.[22] On the other hand, Health Secretary Carmencita N. Reodica
simply and blindly relied on the dispositive portion of the Commissions Resolution. She even misquoted
it by inadvertently omitting the recommendation with regard to Respondents Enrique L. Perez and
Imelda Q. Agustin.
The Order of Secretary Reodica denying respondents Motion for Reconsideration also failed to correct
the deficiency in the initial Order.[23] She improperly relied on the Presidents findings in AO 390 which,
however, pertained only to the administrative charge against Dr. Majarais, not against respondents. To
repeat, the Chief Executive recognized that the disciplinary jurisdiction over respondents belonged to
the health secretary,[24] who should have followed the manner in which the President had rendered his
action on the recommendation.
The Presidents endorsement of the records of the case for the appropriate action of the health
secretary[25] did not constitute a directive for the immediate dismissal of respondents. Like that of
President Ramos, the decision of Secretary Reodica should have contained a factual finding and a legal
assessment of the controversy to enable respondents to know the bases for their dismissal and
thereafter prepare their appeal intelligently, if they so desired.
To support its position, petitioner cites American Tobacco Co. v. Director of Patents.[26] However, this
case merely authorized the delegation of the power to investigate, but not the authority to impose
sanctions. Verily, in requiring the disciplining authority to exercise its own judgment and discretion in
deciding a case, American Tobacco supports the present respondents cause. In that case, the petitioners
objected to the appointment of hearing officers and sought the personal hearing of their case by the
disciplining authority.[27] The Court, however, sustained the right to delegate the power to investigate,
as long as the adjudication would be made by the deciding authority.
By the same token, the Constitution[28] grants the Supreme Court disciplinary authority over all lower
court justices and judges, as well as judicial employees and lawyers. While the investigation of
administrative complaints is delegated usually to the Office of the Court Administrator (OCA) or the
Integrated Bar of the Philippines (IBP),[29] the Court nonetheless makes its own judgments of the cases
when sanctions are imposed. It does not merely adopt or solely rely on the recommendations of the
OCA or the IBP.
Inasmuch as the health secretarys twin Orders were patently void for want of due process, the CA did
not err in refusing to discuss the merit of the PCAGCs (or the Ad Hoc Committees) recommendations.
Such a discussion should have been made by the health secretary before it could be passed upon by
the CA.
In representation of petitioner, the Office of the Solicitor General insists that respondents are guilty of
the charges and, like Dr. Majarais, deserve dismissal from the service. Suffice it to stress that the issue
in this case is not the guilt of respondents, but solely due process.
In closing, the Court reiterates the oft-quoted aphorism that the end does not justify the means. Guilt
cannot be pronounced nor penalty imposed, unless due process is first observed. This is the essence of
fairness and the rule of law in a democracy.
WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision of the Court of Appeals
is MODIFIED in the sense that the authority of the Ad Hoc Investigating Committee created under
Administrative Order 298 is SUSTAINED. Being violative of administrative due process, the May 8, 1998
and the June 5, 1998 Orders of the health secretary are ANNULLED and SET ASIDE. Let the records of
this case be REMANDED to the Department of Health, so that proper steps can be taken to correct the
due-process errors pointed out in this Decision.
No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez,
Corona, Carpio-Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, and Garcia, JJ., concur.
[G.R. No. 151908. August 12, 2003]
SMART COMMUNICATIONS, INC. (SMART) and PILIPINO TELEPHONE CORPORATION
(PILTEL), petitioners, vs. NATIONAL TELECOMMUNICATIONS COMMISSION (NTC), respondent.
[G.R. No. 152063. August 12, 2003]
GLOBE TELECOM, INC. (GLOBE) and ISLA COMMUNICATIONS CO., INC. (ISLACOM), petitioners,
vs. COURT OF APPEALS (The Former 6th Division) and the NATIONAL TELECOMMUNICATIONS
COMMISSION, respondents.
DECISION
YNARES-SANTIAGO, J.:
Pursuant to its rule-making and regulatory powers, the National Telecommunications Commission
(NTC) issued on June 16, 2000 Memorandum Circular No. 13-6-2000, promulgating rules and
regulations on the billing of telecommunications services. Among its pertinent provisions are the
following:
(1) The billing statements shall be received by the subscriber of the telephone service not later than 30
days from the end of each billing cycle. In case the statement is received beyond this period, the
subscriber shall have a specified grace period within which to pay the bill and the public
telecommunications entity (PTEs) shall not be allowed to disconnect the service within the grace period.
(2) There shall be no charge for calls that are diverted to a voice mailbox, voice prompt, recorded
message or similar facility excluding the customers own equipment.
(3) PTEs shall verify the identification and address of each purchaser of prepaid SIM cards. Prepaid call
cards and SIM cards shall be valid for at least 2 years from the date of first use. Holders of prepaid SIM
cards shall be given 45 days from the date the prepaid SIM card is fully consumed but not beyond 2
years and 45 days from date of first use to replenish the SIM card, otherwise the SIM card shall be
rendered invalid. The validity of an invalid SIM card, however, shall be installed upon request of the
customer at no additional charge except the presentation of a valid prepaid call card.
(4) Subscribers shall be updated of the remaining value of their cards before the start of every call using
the cards.
(5) The unit of billing for the cellular mobile telephone service whether postpaid or prepaid shall be
reduced from 1 minute per pulse to 6 seconds per pulse. The authorized rates per minute shall thus be
divided by 10.[1]
The Memorandum Circular provided that it shall take effect 15 days after its publication in a newspaper
of general circulation and three certified true copies thereof furnished the UP Law Center. It was
published in the newspaper, The Philippine Star, on June 22, 2000. [2] Meanwhile, the provisions of the
Memorandum Circular pertaining to the sale and use of prepaid cards and the unit of billing for cellular
mobile telephone service took effect 90 days from the effectivity of the Memorandum Circular.
On August 30, 2000, the NTC issued a Memorandum to all cellular mobile telephone service (CMTS)
operators which contained measures to minimize if not totally eliminate the incidence of stealing of
cellular phone units. The Memorandum directed CMTS operators to:
a. strictly comply with Section B(1) of MC 13-6-2000 requiring the presentation and verification of the
identity and addresses of prepaid SIM card customers;
b. require all your respective prepaid SIM cards dealers to comply with Section B(1) of MC 13-6-2000;
c. deny acceptance to your respective networks prepaid and/or postpaid customers using stolen
cellphone units or cellphone units registered to somebody other than the applicant when properly
informed of all information relative to the stolen cellphone units;
d. share all necessary information of stolen cellphone units to all other CMTS operators in order to
prevent the use of stolen cellphone units; and
e. require all your existing prepaid SIM card customers to register and present valid identification
cards.[3]
This was followed by another Memorandum dated October 6, 2000 addressed to all public
telecommunications entities, which reads:
This is to remind you that the validity of all prepaid cards sold on 07 October 2000 and beyond shall be
valid for at least two (2) years from date of first use pursuant to MC 13-6-2000.
In addition, all CMTS operators are reminded that all SIM packs used by subscribers of prepaid cards
sold on 07 October 2000 and beyond shall be valid for at least two (2) years from date of first use. Also,
the billing unit shall be on a six (6) seconds pulse effective 07 October 2000.
For strict compliance.[4]
On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino Telephone Corporation filed
against the National Telecommunications Commission, Commissioner Joseph A. Santiago, Deputy
Commissioner Aurelio M. Umali and Deputy Commissioner Nestor C. Dacanay, an action for declaration
of nullity of NTC Memorandum Circular No. 13-6-2000 (the Billing Circular) and the NTC Memorandum
dated October 6, 2000, with prayer for the issuance of a writ of preliminary injunction and temporary
restraining order. The complaint was docketed as Civil Case No. Q-00-42221 at the Regional Trial Court
of Quezon City, Branch 77.[5]
Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction to regulate the sale of
consumer goods such as the prepaid call cards since such jurisdiction belongs to the Department of
Trade and Industry under the Consumer Act of the Philippines; that the Billing Circular is oppressive,
confiscatory and violative of the constitutional prohibition against deprivation of property without due
process of law; that the Circular will result in the impairment of the viability of the prepaid cellular
service by unduly prolonging the validity and expiration of the prepaid SIM and call cards; and that the
requirements of identification of prepaid card buyers and call balance announcement are
unreasonable. Hence, they prayed that the Billing Circular be declared null and void ab initio.
Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc. filed a joint Motion
for Leave to Intervene and to Admit Complaint-in-Intervention.[6] This was granted by the trial court.
On October 27, 2000, the trial court issued a temporary restraining order enjoining the NTC from
implementing Memorandum Circular No. 13-6-2000 and the Memorandum dated October 6, 2000.[7]
In the meantime, respondent NTC and its co-defendants filed a motion to dismiss the case on the
ground of petitioners failure to exhaust administrative remedies.
Subsequently, after hearing petitioners application for preliminary injunction as well as respondents
motion to dismiss, the trial court issued on November 20, 2000 an Order, the dispositive portion of
which reads:
WHEREFORE, premises considered, the defendants motion to dismiss is hereby denied for lack of
merit. The plaintiffs application for the issuance of a writ of preliminary injunction is hereby
granted. Accordingly, the defendants are hereby enjoined from implementing NTC Memorandum
Circular 13-6-2000 and the NTC Memorandum, dated October 6, 2000, pending the issuance and finality
of the decision in this case. The plaintiffs and intervenors are, however, required to file a bond in the
sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00), Philippine currency.
SO ORDERED.[8]
Defendants filed a motion for reconsideration, which was denied in an Order dated February 1, 2001.[9]
Respondent NTC thus filed a special civil action for certiorari and prohibition with the Court of Appeals,
which was docketed as CA-G.R. SP. No. 64274. On October 9, 2001, a decision was rendered, the
decretal portion of which reads:
WHEREFORE, premises considered, the instant petition for certiorari and prohibition is GRANTED, in
that, the order of the court a quo denying the petitioners motion to dismiss as well as the order of the
court a quo granting the private respondents prayer for a writ of preliminary injunction, and the writ of
preliminary injunction issued thereby, are hereby ANNULLED and SET ASIDE. The private respondents
complaint and complaint-in-intervention below are hereby DISMISSED, without prejudice to the
referral of the private respondents grievances and disputes on the assailed issuances of the NTC with
the said agency.
SO ORDERED.[10]
Petitioners motions for reconsideration were denied in a Resolution dated January 10, 2002 for lack of
merit.[11]
Hence, the instant petition for review filed by Smart and Piltel, which was docketed as G.R. No. 151908,
anchored on the following grounds:
A.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE NATIONAL
TELECOMMUNICATIONS COMMISSION (NTC) AND NOT THE REGULAR COURTS HAS JURISDICTION OVER
THE CASE.
B.
THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN HOLDING THAT THE PRIVATE
RESPONDENTS FAILED TO EXHAUST AN AVAILABLE ADMINISTRATIVE REMEDY.
C.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BILLING CIRCULAR ISSUED BY
THE RESPONDENT NTC IS UNCONSTITUTIONAL AND CONTRARY TO LAW AND PUBLIC POLICY.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE RESPONDENTS FAILED TO
SHOW THEIR CLEAR POSITIVE RIGHT TO WARRANT THE ISSUANCE OF A WRIT OF PRELIMINARY
INJUNCTION.[12]
Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No. 152063, assigning the
following errors:
1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINES OF PRIMARY
JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE REMEDIES DO NOT APPLY SINCE THE INSTANT
CASE IS FOR LEGAL NULLIFICATION (BECAUSE OF LEGAL INFIRMITIES AND VIOLATIONS OF LAW) OF A
PURELY ADMINISTRATIVE REGULATION PROMULGATED BY AN AGENCY IN THE EXERCISE OF ITS RULE
MAKING POWERS AND INVOLVES ONLY QUESTIONS OF LAW.
2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINE ON EXHAUSTION
OF ADMINISTRATIVE REMEDIES DOES NOT APPLY WHEN THE QUESTIONS RAISED ARE PURELY LEGAL
QUESTIONS.
3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINE OF EXHAUSTION
OF ADMINISTRATIVE REMEDIES DOES NOT APPLY WHERE THE ADMINISTRATIVE ACTION IS COMPLETE
AND EFFECTIVE, WHEN THERE IS NO OTHER REMEDY, AND THE PETITIONER STANDS TO SUFFER GRAVE
AND IRREPARABLE INJURY.
4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE PETITIONERS IN FACT
EXHAUSTED ALL ADMINISTRATIVE REMEDIES AVAILABLE TO THEM.
5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN ISSUING ITS QUESTIONED RULINGS IN
THIS CASE BECAUSE GLOBE AND ISLA HAVE A CLEAR RIGHT TO AN INJUNCTION.[13]
The two petitions were consolidated in a Resolution dated February 17, 2003. [14]
On March 24, 2003, the petitions were given due course and the parties were required to submit their
respective memoranda.[15]
We find merit in the petitions.
Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial or
administrative adjudicatory powers. Quasi-legislative or rule-making power is the power to make rules
and regulations which results in delegated legislation that is within the confines of the granting statute
and the doctrine of non-delegability and separability of powers.[16]
The rules and regulations that administrative agencies promulgate, which are the product of a
delegated legislative power to create new and additional legal provisions that have the effect of law,
should be within the scope of the statutory authority granted by the legislature to the administrative
agency. It is required that the regulation be germane to the objects and purposes of the law, and be
not in contradiction to, but in conformity with, the standards prescribed by law. [17] They must conform
to and be consistent with the provisions of the enabling statute in order for such rule or regulation to
be valid. Constitutional and statutory provisions control with respect to what rules and regulations may
be promulgated by an administrative body, as well as with respect to what fields are subject to
regulation by it. It may not make rules and regulations which are inconsistent with the provisions of the
Constitution or a statute, particularly the statute it is administering or which created it, or which are in
derogation of, or defeat, the purpose of a statute. In case of conflict between a statute and an
administrative order, the former must prevail.[18]
Not to be confused with the quasi-legislative or rule-making power of an administrative agency is its
quasi-judicial or administrative adjudicatory power. This is the power to hear and determine questions
of fact to which the legislative policy is to apply and to decide in accordance with the standards laid
down by the law itself in enforcing and administering the same law.The administrative body exercises
its quasi-judicial power when it performs in a judicial manner an act which is essentially of an executive
or administrative nature, where the power to act in such manner is incidental to or reasonably
necessary for the performance of the executive or administrative duty entrusted to it. In carrying out
their quasi-judicial functions, the administrative officers or bodies are required to investigate facts or
ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them as
basis for their official action and exercise of discretion in a judicial nature. [19]
In questioning the validity or constitutionality of a rule or regulation issued by an administrative agency,
a party need not exhaust administrative remedies before going to court. This principle applies only
where the act of the administrative agency concerned was performed pursuant to its quasi-judicial
function, and not when the assailed act pertained to its rule-making or quasi-legislative
power. In Association of Philippine Coconut Dessicators v. Philippine Coconut Authority,[20] it was held:
The rule of requiring exhaustion of administrative remedies before a party may seek judicial review, so
strenuously urged by the Solicitor General on behalf of respondent, has obviously no application
here. The resolution in question was issued by the PCA in the exercise of its rule- making or legislative
power. However, only judicial review of decisions of administrative agencies made in the exercise of
their quasi-judicial function is subject to the exhaustion doctrine.
Even assuming arguendo that the principle of exhaustion of administrative remedies apply in this case,
the records reveal that petitioners sufficiently complied with this requirement.Even during the drafting
and deliberation stages leading to the issuance of Memorandum Circular No. 13-6-2000, petitioners
were able to register their protests to the proposed billing guidelines. They submitted their respective
position papers setting forth their objections and submitting proposed schemes for the billing
circular.[21] After the same was issued, petitioners wrote successive letters dated July 3, 2000 [22] and
July 5, 2000,[23] asking for the suspension and reconsideration of the so-called Billing Circular. These
letters were not acted upon until October 6, 2000, when respondent NTC issued the second assailed
Memorandum implementing certain provisions of the Billing Circular. This was taken by petitioners as
a clear denial of the requests contained in their previous letters, thus prompting them to seek judicial
relief.
In like manner, the doctrine of primary jurisdiction applies only where the administrative agency
exercises its quasi-judicial or adjudicatory function. Thus, in cases involving specialized disputes, the
practice has been to refer the same to an administrative agency of special competence pursuant to the
doctrine of primary jurisdiction. The courts will not determine a controversy involving a question which
is within the jurisdiction of the administrative tribunal prior to the resolution of that question by the
administrative tribunal, where the question demands the exercise of sound administrative discretion
requiring the special knowledge, experience and services of the administrative tribunal to determine
technical and intricate matters of fact, and a uniformity of ruling is essential to comply with the
premises of the regulatory statute administered. The objective of the doctrine of primary jurisdiction is
to guide a court in determining whether it should refrain from exercising its jurisdiction until after an
administrative agency has determined some question or some aspect of some question arising in the
proceeding before the court. It applies where the claim is originally cognizable in the courts and comes
into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory
scheme, has been placed within the special competence of an administrative body; in such case, the
judicial process is suspended pending referral of such issues to the administrative body for its view. [24]
However, where what is assailed is the validity or constitutionality of a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative function, the regular courts have
jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules issued
by an administrative agency contravenes the law or the constitution is within the jurisdiction of the
regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a
law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or
regulation in the courts, including the regional trial courts.[25] This is within the scope of judicial power,
which includes the authority of the courts to determine in an appropriate action the validity of the acts
of the political departments.[26] Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the Government.[27]
In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-2000 and its
Memorandum dated October 6, 2000 was pursuant to its quasi-legislative or rule-making power. As
such, petitioners were justified in invoking the judicial power of the Regional Trial Court to assail the
constitutionality and validity of the said issuances. In Drilon v. Lim,[28] it was held:
We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section
187, this authority being embraced in the general definition of the judicial power to determine what
are the valid and binding laws by the criterion of their conformity to the fundamental law. Specifically,
B.P. 129 vests in the regional trial courts jurisdiction over all civil cases in which the subject of the
litigation is incapable of pecuniary estimation, even as the accused in a criminal action has the right to
question in his defense the constitutionality of a law he is charged with violating and of the proceedings
taken against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2),
of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of
lower courts in all cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in
question.[29]

In their complaint before the Regional Trial Court, petitioners averred that the Circular contravened
Civil Code provisions on sales and violated the constitutional prohibition against the deprivation of
property without due process of law. These are within the competence of the trial judge. Contrary to
the finding of the Court of Appeals, the issues raised in the complaint do not entail highly technical
matters. Rather, what is required of the judge who will resolve this issue is a basic familiarity with the
workings of the cellular telephone service, including prepaid SIM and call cards and this is judicially
known to be within the knowledge of a good percentage of our population and expertise in
fundamental principles of civil law and the Constitution.

Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case No. Q-00-42221. The Court
of Appeals erred in setting aside the orders of the trial court and in dismissing the case.

WHEREFORE, in view of the foregoing, the consolidated petitions are GRANTED. The decision of the
Court of Appeals in CA-G.R. SP No. 64274 dated October 9, 2001 and its Resolution dated January 10,
2002 are REVERSED and SET ASIDE. The Order dated November 20, 2000 of the Regional Trial Court of
Quezon City, Branch 77, in Civil Case No. Q-00-42221 is REINSTATED. This case is REMANDED to the
court a quo for continuation of the proceedings.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, and Carpio, JJ., concur.

Azcuna, J., took no part.

G.R. No. L-32096 October 24, 1970
ROMEO F. EDU, in his capacity as Land Transportation Commissioner, petitioner,
vs.
HON. VICENTE G. ERICTA in his capacity as Judge of the Court of First Instance of Rizal, Br. XVIII,
Quezon City, and TEDDY C. GALO respondents.
Office of the Solicitor General Felix Q. Antonio, Acting Assistant Solicitor General Hector C. Fule and
Solicitor Vicente A. Torres for petitioner.
Teddy C. Galo in his own behalf.
Judge Vicente Ericta in his own behalf.
FERNANDO, J.:.
Petitioner Romeo F. Edu, the Land Transportation Commissioner, would have us rule squarely on the
constitutionality of the Reflector Law1 in this proceeding for certiorari and prohibition against
respondent Judge, the Honorable Vicente G. Ericta of the Court of First Instance of Rizal, Quezon City
Branch, to annul and set aside his order for the issuance of a writ of preliminary injunction directed
against Administrative Order No. 2 of petitioner for the enforcement of the aforesaid statute, in a
pending suit in his court for certiorari and prohibition, filed by the other respondent Teddy C. Galo
assailing; the validity of such enactment as well as such administrative order. Respondent Judge, in his
answer, would join such a plea asking that the constitutional and legal questions raised be decided
"once and for all." Respondent Teddy C. Galo who was quite categorical in his assertion that both the
challenged legislation and the administrative order transgress the constitutional requirements of due
process and non-delegation, is not averse either to such a definitive ruling. Considering the great public
interest involved and the reliance by respondent Galo and the allegation that the repugnancy to the
fundamental law could be discerned on the face of the statute as enacted and the executive order as
promulgated, this Court, sees no obstacle to the determination in this proceeding of the constitutional
questions raised. For reasons to be hereafter stated, we sustain the validity of the Reflector Law and
Administrative Order No. 2 issued in the implementation thereof, the imputation of constitutional
infirmity being at best flimsy and insubstantial.
As noted in the answer of respondent Judge, respondent Galo on his behalf and that of other motorist
filed on May 20, 1970 a suit for certiorari and prohibition with preliminary injunction assailing the
validity of the challenged Act as an invalid exercise of the police power, for being violative of the due
process clause. This he followed on May 28, 1970 with a manifestation wherein he sought as an
alternative remedy that, in the event that respondent Judge would hold said statute constitutional,
Administrative Order No. 2 of the Land Transportation Commissioner, now petitioner, implementing
such legislation be nullified as an undue exercise of legislative power. There was a hearing on the plea
for the issuance of a writ of preliminary injunction held on May 27. 1970 where both parties were duly
represented, but no evidence was presented. The next day, on May 28, 1970, respondent Judge ordered
the issuance of a preliminary injunction directed against the enforcement of such administrative order.
There was the day after, a motion for its reconsideration filed by the Solicitor General representing
petitioner. In the meanwhile, the clerk of court of respondent Judge issued, on June 1, 1970 the writ of
preliminary injunction upon the filing of the required bond. The answer before the lower court was filed
by petitioner Edu on June 4, 1970. Thereafter, on June 9, 1970, respondent Judge denied the motion
for reconsideration of the order of injunction. Hence this petition for certiorari and prohibition filed
with this court on June 18, 1970.
In a resolution of June 22, 1970, this Court required respondents to file an answer to the petition
for certiorari and prohibition. Respondent Judge, the Honorable Vicente G. Ericta, did file his answer on
June 30, 1970 explaining why he restrained the enforcement of Administrative Order No. 2 and, as
noted at the outset, joining the Solicitor General in seeking that the legal questions raised namely the
constitutionality of the Reflector Law and secondly the validity of Administrative Order No. 2 alleged to
be in excess of the authority conferred on petitioner and therefore violative of the principle of non-
delegation of legislative power be definitely decided. It was on until July 6, 1970 that respondent Galo
filed his answer seeking the dismissal of this petition concentrating on what he considered to be the
patent invalidity of Administrative Order No. 2 as it went beyond the authority granted by the Reflector
Law, even assuming that it is constitutional. In the meanwhile, on July 2, 1970, the petition was called
for hearing with Solicitor Vicente Torres appearing for petitioner and respondent Galo for himself. It
was made clear during the course of such argumentation that the matter of the constitutionality of the
Reflector Law was likewise under consideration by this Court. The case is thus ripe for decision.
We repeat that we find for petitioner and sustain the Constitutionality of the Reflector Law as well as
the validity of Administrative Order No. 2.
1. The threshold question is whether on the basis of the petition, the answers, and the oral argument,
it would be proper for this Court to resolve the issue of the constitutionality of the Reflector Law. Our
answer, as indicated, is in the affirmative. It is to be noted that the main thrust of the petition before
us is to demonstrate in a rather convincing fashion that the challenged legislation does not suffer from
the alleged constitutional infirmity imputed to it by the respondent Galo. Since the special civil action
for certiorari and prohibition filed before him before respondent Judge would seek a declaration of
nullity of such enactment by the attribution of the violation the face thereof of the due process
guarantee in the deprivation of property rights, it would follow that there is sufficient basis for us to
determine which view should prevail. Moreover, any further hearing by respondent Judge would
likewise to limited to a discussion of the constitutional issues raised, no allegations of facts having made.
This is one case then where the question of validity is ripe for determination. If we do so, further effort
need not be wasted and time is saved moreover, the officials concerned as well as the public, both
vitally concerned with a final resolution of questions of validity, could know the definitive answer and
could act accordingly. There is a great public interest, as was mentioned, to be served by the final
disposition of such crucial issue, petitioner praying that respondent Galo be declared having no cause
of action with respondent Judge being accordingly directed to dismiss his suit.
There is another reinforcement to this avenue of approach. We have done so before in a suit, Climaco
v. Macadaeg,2 involving the legality of a presidential directive. That was a petition for the review and
reversal of a writ of preliminary injunction issued by the then Judge Macadaeg. We there announced
that we "have decided to pass upon the question of the validity of the presidential directive ourselves,
believing that by doing so we would be putting an end to a dispute, a delay in the disposition of which
has caused considerable damage and injury to the Government and to the tobacco planters
themselves."
There is no principle of constitutional adjudication that bars this Court from similarly passing upon the
question of the validity of a legislative enactment in a proceeding before it to test the propriety of the
issuance of a preliminary injunction. The same felt need for resolving once and for all the vexing
question as to the constitutionality of a challenged enactment and thus serve public interest exists.
What we have done in the case of an order proceeding from one of the coordinate branches, the
executive, we can very well do in the matter before us involving the alleged nullity of a legislative act.
Accordingly, there is nothing to preclude the grant of the writs prayed for, the burden of showing the
constitutionality of the act having proved to be as will now be shown too much for respondent Galo.
2. The Reflector Law reads in full: "(g) Lights and reflector when parked or disabled. — Appropriate
parking lights or flares visible one hundred meters away shall be displayed at a corner of the vehicle
whenever such vehicle is parked on highways or in places that are not well-lighted or is placed in such
manner as to endanger passing traffic. Furthermore, every motor vehicle shall be provided at all times
with built-in reflectors or other similar warning devices either pasted, painted or attached to its front
and back which shall likewise be visible at light at least one hundred meters away. No vehicle not
provided with any of the requirements mentioned in this subsection shall be registered." 3 It is thus
obvious that the challenged statute is a legislation enacted under the police power to promote public
safety.
Justice Laurel, in the first leading decision after the Constitution came to force, Calalang v.
Williams,4 identified police power with state authority to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare. Persons and property could thus
"be subjected to all kinds of restraints and burdens in order to secure the general comfort, health and
prosperity of the state." Shortly after independence in 1948, Primicias v. Fugoso,5 reiterated the
doctrine, such a competence being referred to as "the power to prescribe regulations to promote the
health, morals, peace, education, good order or safety, and general welfare of the people." The concept
was set forth in negative terms by Justice Malcolm in a pre-Commonwealth decision as "that inherent
and plenary power in the State which enables it to prohibit all things hurtful to the comfort, safety and
welfare of society."6In that sense it could be hardly distinguishable as noted by this Court in Morfe v.
Mutuc7with the totality of legislative power.
It is in the above sense the greatest and most powerful attribute of government. It is to quote Justice
Malcolm anew "the most essential, insistent, and at least illimitable of powers," 8 extending as Justice
Holmes aptly pointed out "to all the great public needs." 9 Its scope, ever-expanding to meet the
exigencies of the times, even to anticipate the future where it could be done, provides enough room
for an efficient and flexible response to conditions and circumstances thus assuring the greatest
benefits. In the language of Justice Cardozo: "Needs that were narrow or parochial in the past may be
interwoven in the present with the well-being of the nation. What is critical or urgent changes with the
time." 10 The police power is thus a dynamic agency, suitably vague and far from precisely defined,
rooted in the conception that men in organizing the state and imposing upon its government limitations
to safeguard constitutional rights did not intend thereby to enable an individual citizen or a group of
citizens to obstruct unreasonably the enactment of such salutary measures calculated to insure
communal peace, safety, good order, and welfare.
It would then be to overturn a host of decisions impressive for their number and unanimity were this
Court to sustain respondent Galo. 11 That we are not disposed to do, especially so as the attack on the
challenged statute ostensibly for disregarding the due process safeguard is angularly unpersuasive. It
would be to close one's eyes to the hazards of traffic in the evening to condemn a statute of this
character. Such an attitude betrays lack of concern for public safety. How can it plausibly alleged then
that there was no observance of due process equated as it has always been with that is reasonable?
The statute assailed is not infected with arbitrariness. It is not the product of whim or caprice. It is far
from oppressive. It is a legitimate response to a felt public need. It can stand the test of the most
unsymphatetic appraisal.
Respondent Galo is of a different mind, having been unable to resist the teaching of many American
State Court decisions referred to in the secondary source, American Jurisprudence principally relied
upon by him. He ought to have been cautioned against an indiscriminate acceptance of such doctrines
predicated on what was once a fundamental postulate in American public law, laissez faire.
It is to be admitted that there was a period when such a concept did influence American court decisions
on constitutional law. As was explicitly stated by Justice Cardozo speaking of that era: "Laissez-faire was
not only a counsel of caution which would do well to heed. It was a categorical imperative which
statesmen as well as judges must obey." 12 For a long time legislation tending to reduce economic
inequality foundered on the rock that was the due process clause, enshrining as it did the liberty of
contract, based on such a basic assumption.
The New Deal administration of President Roosevelt more responsive to the social and economic forces
at work changed matters greatly. By 1937, there was a greater receptivity by the American Supreme
Court to an approach not too reverential of property rights. Even earlier, in 1935, Professor Coker of
Yale, speaking as a historian, could already discern a contrary drift. He did note the expending range of
governmental activity in the United States. 13What is undeniable is that by 1943, laissez-faire was no
longer the dominant theory. In the language of Justice Jackson in the leading case of West Virginia State
Board of Education v. Barnette: 14 "We must, transplant these rights to a soil in which the laissez-
faire concept or non-interference has withered at least as to economic affairs, and social advancements
are increasingly sought through closer integration of society and through expanded and strengthened
governmental controls."
While authoritative precedents from the United States federal and state jurisdictions were deferred to
when the Philippines was still under American rule, it cannot be said that the laissez-faire principle was
invariably adhered to by us even then As early as 1919, in the leading case of Rubi v. Provincial Board
of Mindoro, 15 Justice Malcolm already had occasion to affirm: "The doctrines of laissez-faire and of
unrestricted freedom of the individual, as axioms of economic and political theory, are of the past. The
modern period has shown a widespread belief in the amplest possible demonstration of government
activity. The Courts unfortunately have sometimes seemed to trail after the other two branches of the
Government in this progressive march." People v. Pomar, 16 a 1924 decision which held invalid under
the due process clause a provision providing for maternity leave with pay thirty days before and thirty
days after confinement could be cited to show that such a principle did have its day. It is to be
remembered though that our Supreme Court had no other choice as the Philippines was then under
the United States, and only recently the year before, the American Supreme Court in Adkins v. Children's
Hospital, 17 in line with the laissez-faire theory, did hold that a statute providing for minimum wages
was constitutionally infirm.
What is more, to erase any doubts, the Constitutional Convention saw to it that the concept of laissez-
faire was rejected. It entrusted to our government the responsibility of coping with social and economic
problems with the commensurate power of control over economic affairs. Thereby it could live up to
its commitment to promote the general welfare through state action. No constitutional objection to
regulatory measures adversely affecting property rights, especially so when public safety is the aim, is
likely to be heeded, unless of course on the clearest and most satisfactory proof of invasion of rights
guaranteed by the Constitution. On such a showing, there may be a declaration of nullity, but not
because the laissez-faire principle was disregarded but because the due process, equal protection, or
non-impairment guarantees would call for vindication.
To repeat, our Constitution which took effect in 1935 erased whatever doubts there might be on that
score. Its philosophy is a repudiation of laissez-faire. One of the leading members of the Constitutional
Convention, Manuel A. Roxas, later the first President of the Republic, made it clear when he disposed
of the objection of Delegate Jose Reyes of Sorsogon, who noted the "vast extensions in the sphere of
governmental functions" and the "almost unlimited power to interfere in the affairs of industry and
agriculture as well as to compete with existing business" as "reflections of the fascination exerted by
[the then] current tendencies" in other jurisdictions. 18 He spoke thus: "My answer is that this
constitution has definite and well defined philosophy not only political but social and economic. ... If in
this Constitution the gentlemen will find declarations of economic policy they are there because they
are necessary to safeguard the interests and welfare of the Filipino people because we believe that the
days have come when in self-defense, a nation may provide in its constitution those safeguards, the
patrimony, the freedom to grow, the freedom to develop national aspirations and national interests,
not to be hampered by the artificial boundaries which a constitutional provision automatically
imposes. 19
It was not expected then when in a concurring opinion, Justice Laurel, who likewise sat in the
Constitutional Convention and was one of its leading lights, explicitly affirmed in a concurring opinion,
later quoted with approval in the leading case of Antamok Goldfields Mining Co. v. Court of Industrial
Relations, 20 that the Constitution did away with the laissez-faire doctrine. In the course of such
concurring opinion and after noting the changes that have taken place calling for a more affirmative
role by the government and its undeniable power to curtail property rights, he categorically declared
the doctrine in People v. Pomar no longer retains "its virtuality as a living principle." 21
It is in the light of such rejection of the laissez-faire principle that during the Commonwealth era, no
constitutional infirmity was found to have attached to legislation covering such subjects as collective
bargaining, 22 security of tenure, 23 minimum wages, 24 compulsory arbitration, 25 the regulation of
tenancy 26 as well as the issuance of
securities, 27 and control of public services. 28 So it is likewise under the Republic this Court having
given the seal of approval to more favorable tenancy laws, 29 nationalization of the retail
trade, 30 limitation of the hours of labor, 31 imposition of price control, 32 requirement of separation pay
for one month, 33 and social security scheme. 34
Respondent Galo thus could have profited by a little more diligence in the scrutiny of Philippine
decisions rendered with not unexpected regularity, during all the while our Constitution has been in
force attesting to the demise of such a shibboleth as laissez-faire. It was one of those fighting faiths that
time and circumstances had upset, to paraphrase Holmes. Yet respondent Galo would seek to vivify and
resurrect it. That, it would appear, is a vain quest, a futile undertaking. The Reflector Law is thus immune
from the attack so recklessly hurled against it. It can survive, and quite easily too, the constitutional
test.
3. The same lack of success marks the effort of respondent Galo to impugn the validity of Administrative
Order No. 2 issued by petitioner in his official capacity, duly approved by the Secretary of Public Works
and Communications, for being contrary to the principle of non-delegation of legislative power. Such
administrative order, which took effect on April 17, 1970, has a provision on reflectors in effect
reproducing what was set forth in the Act. Thus: "No motor vehicles of whatever style, kind, make, class
or denomination shall be registered if not equipped with reflectors. Such reflectors shall either be
factory built-in-reflector commercial glass reflectors, reflection tape or luminous paint. The luminosity
shall have an intensity to be maintained visible and clean at all times such that if struck by a beam of
light shall be visible 100 meters away at night." 35 Then came a section on dimensions, placement and
color. As to dimensions the following is provided for: "Glass reflectors — Not less than 3 inches in
diameter or not less than 3 inches square; Reflectorized Tape — At least 3 inches wide and 12 inches
long. The painted or taped area may be bigger at the discretion of the vehicle owner." 36 Provision is
then made as to how such reflectors are to be "placed, installed, pasted or painted." 37 There is the
further requirement that in addition to such reflectors there shall be installed, pasted or painted four
reflectors on each side of the motor vehicle parallel to those installed, pasted or painted in front and
those in the rear end of the body thereof. 38 The color required of each reflectors, whether built-in,
commercial glass, reflectorized tape or reflectorized paint placed in the front part of any motor vehicle
shall be amber or yellow and those placed on the sides and in the rear shall all be red. 39
Penalties resulting from a violation thereof could be imposed. Thus: "Non-compliance with the
requirements contained in this Order shall be sufficient cause to refuse registration of the motor vehicle
affected and if already registered, its registration maybe suspended in pursuance of the provisions of
Section 16 of RA 4136; [Provided], However, that in the case of the violation of Section 1(a) and (b) and
paragraph (8) Section 3 hereof, a fine of not less than ten nor more than fifty pesos shall be
imposed. 40 It is not to be lost sight of that under Republic Act No. 4136, of which the Reflector Law is
an amendment, petitioner, as the Land Transportation Commissioner, may, with the approval of the
Secretary of Public Works and Communications, issue rules and regulations for its implementation as
long as they do not conflict with its provisions. 41 It is likewise an express provision of the above statute
that for a violation of any of its provisions or regulations promulgated pursuant thereto a fine of not
less than P10 nor not less than P50 could be imposed. 42
It is a fundamental principle flowing from the doctrine of separation of powers that Congress may not
delegate its legislative power to the two other branches of the government, subject to the exception
that local governments may over local affairs participate in its exercise. What cannot be delegated is
the authority under the Constitution to make laws and to alter and repeal them; the test is the
completeness of the statute in all its term and provisions when it leaves the hands of the legislature. To
determine whether or not there is an undue delegation of legislative power the inquiry must be directed
to the scope and definiteness of the measure enacted. The legislature does not abdicate its functions
when it describes what job must be done, who is to do it, and what is the scope of his authority. For a
complex economy, that may indeed be the only way in which the legislative process can go forward. A
distinction has rightfully been made between delegation of power to make the laws which necessarily
involves a discretion as to what it shall be, which constitutionally may not be done, and delegation of
authority or discretion as to its execution to exercised under and in pursuance of the law, to which no
valid objection call be made. The Constitution is thus not to be regarded as denying the legislature the
necessary resources of flexibility and practicability.
To avoid the taint of unlawful delegation, there must be a standard, which implies at the very least that
the legislature itself determines matters of principle and lay down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines legislative policy, marks
its limits, its maps out its boundaries and specifies the public agency to apply it. It indicates the
circumstances under which the legislative command is to be effected. It is the criterion by which
legislative purpose may be carried out. Thereafter, the executive or administrative office designated
may in pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may be either express or implied. If the former, the non-delegation objection is easily
met. The standard though does not have to be spelled out specifically. It could be implied from the
policy and purpose of the act considered as a whole. In the Reflector Law, clearly the legislative
objective is public safety. That is sought to be attained as in Calalang v. Williams is "safe transit upon
the roads." 43
This is to adhere to the recognition given expression by Justice Laurel in a decision announced not long
after the Constitution came into force and effect that the principle of non-delegation "has been made
to adapt itself the complexities of modern governments, giving rise to the adoption, within certain
limits, of the principle of "subordinate legislation" not only in the United States and England but in
practically all modern governments." 44 He continued: "Accordingly, with the growing complexity of
modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty
of administering the laws, there is a constantly growing tendency toward the delegation of greater
powers by the legislature and toward the approval of the practice by the courts." 45 Consistency with
the conceptual approach requires the reminder that what is delegated is authority non-legislative in
character, the completeness of the statute when it leaves the hands of Congress being assumed.
authorizing the, delegation furnishes a reasonable standard which "sufficiently marks the field within
which the Administrator is to act so that it may be known whether he has kept within it in compliance
with the legislative will." (Yakus vs. United States, 88 L. ed.
848) ... It should be noted, furthermore, that these powers must be construed and exercised in relation
to the objectives of the law creating the Central Bank, which are, among others, "to maintain monetary
stability in the Philippines," and "to promote a rising level of production, employment and real income
in the Philippines." (Section 2, Rep. Act No. 265). These standards are sufficiently concrete and definite
to vest in the delegated authority, the character of administrative details in the enforcement of the law
and to place the grant said authority beyond the category of a delegation of legislative powers ... " 48
It bears repeating that the Reflector Law construed together with the Land Transportation Code.
Republic Act No. 4136, of which it is an amendment, leaves no doubt as to the stress and emphasis on
public safety which is the prime consideration in statutes of this character. There is likewise a
categorical affirmation Of the power of petitioner as Land Transportation Commissioner to promulgate
rules and regulations to give life to and translate into actuality such fundamental purpose. His power is
clear. There has been no abuse. His Administrative Order No. 2 can easily survive the attack, far-from-
formidable, launched against it by respondent Galo.
WHEREFORE, the writs of certiorari and prohibition prayed for are granted, the orders of May 28, 1970
of respondent Judge for the issuance of a writ of preliminary injunction, the writ of preliminary
injunction of June 1, 1970 and his order of June 9, 1970 denying reconsideration are annulled and set
aside. Respondent Judge is likewise directed to dismiss the petition for certiorari and prohibition filed
by respondent Teddy C. Galo, there being no cause of action as the Reflector Law and Administrative
Order No. 2 of petitioner have not been shown to be tainted by invalidity. Without pronouncement as
to costs.
Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Castro, Teehankee, Barredo and Makasiar, JJ.,
concur.
Concepcion, C.J. and Villamor, J., took no part.

Our later decisions speak to the same effect. Thus from, Justice J. B. L. Reyes in People vs. Exconde: 46 "It
is well establish in this jurisdiction that, while the making of laws is a non-delegable activity that
corresponds exclusively to Congress, nevertheless the latter may constitutionally delegate authority to
promulgate rules and regulations to implement a given legislation and effectuate its policies, for the
reason that the legislature often finds it impracticable (if not impossible) to anticipate and proved for
the multifarious and complex situations that may be met in carrying the law in effect. All that is required
is that the regulation should germane to the objects and purposes of the law; that the regulation be
not in contradiction with it; but conform to the standards that the law prescribes ... " 47

An even more explicit formulation of the controlling principle comes from the pen of the then Justice,
now Chief Justice, Concepcion: "Lastly, the legality of Circular No. 21 is assailed upon the ground that
the grant of authority to issue the same constitutes an undue delegation of legislative power. It is true
that, under our system of government, said power may not be delegated except to local governments.
However, one thing is to delegate the power to determine what the law shall be, and another thing to
delegate the authority to fix the details in the execution of enforcement of a policy set out in the law
itself. Briefly stated, the rule is that the delegated powers fall under the second category, if the law
G.R. No. L-32166 October 18, 1977
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,
vs.
HON. MAXIMO A. MACEREN CFI, Sta. Cruz, Laguna, JOSE BUENAVENTURA, GODOFREDO REYES,
BENJAMIN REYES, NAZARIO AQUINO and CARLO DEL ROSARIO, accused-appellees.
Office of the Solicitor General for appellant.
Rustics F. de los Reyes, Jr. for appellees.
AQUINO, J.:têñ.£îhqwâ£
This is a case involving the validity of a 1967 regulation, penalizing electro fishing in fresh water
fisheries, promulgated by the Secretary of Agriculture and Natural Resources and the Commissioner of
Fisheries under the old Fisheries Law and the law creating the Fisheries Commission.
On March 7, 1969 Jose Buenaventura, Godofredo Reyes, Benjamin Reyes, Nazario Aquino and Carlito
del Rosario were charged by a Constabulary investigator in the municipal court of Sta. Cruz, Laguna with
having violated Fisheries Administrative Order No. 84-1.
It was alleged in the complaint that the five accused in the morning of March 1, 1969 resorted to electro
fishing in the waters of Barrio San Pablo Norte, Sta. Cruz by "using their own motor banca, equipped
with motor; with a generator colored green with attached dynamo colored gray or somewhat white;
and electrocuting device locally known as sensored with a somewhat webbed copper wire on the tip or
other end of a bamboo pole with electric wire attachment which was attached to the dynamo direct
and with the use of these devices or equipments catches fish thru electric current, which destroy any
aquatic animals within its cuffed reach, to the detriment and prejudice of the populace" (Criminal Case
No. 5429).
Upon motion of the accused, the municipal court quashed the complaint. The prosecution appealed.
The Court of First Instance of Laguna affirmed the order of dismissal (Civil Case No. SC-36). The case is
now before this Court on appeal by the prosecution under Republic Act No. 5440.
The lower court held that electro fishing cannot be penalize because electric current is not an obnoxious
or poisonous substance as contemplated in section I I of the Fisheries Law and that it is not a substance
at all but a form of energy conducted or transmitted by substances. The lower court further held that,
since the law does not clearly prohibit electro fishing, the executive and judicial departments cannot
consider it unlawful.
As legal background, it should be stated that section 11 of the Fisheries Law prohibits "the use of any
obnoxious or poisonous substance" in fishing.
Section 76 of the same law punishes any person who uses an obnoxious or poisonous substance in
fishing with a fine of not more than five hundred pesos nor more than five thousand, and by
imprisonment for not less than six months nor more than five years.
It is noteworthy that the Fisheries Law does not expressly punish .electro fishing." Notwithstanding the
silence of the law, the Secretary of Agriculture and Natural Resources, upon the recommendation of
the Commissioner of Fisheries, promulgated Fisheries Administrative Order No. 84 (62 O.G. 1224),
prohibiting electro fishing in all Philippine waters. The order is quoted below: ñé+.£ªwph!1
SUBJECT: PROHIBITING ELECTRO FISHING IN ALL WATERS ñé+.£ªwph!1
OF THE PHILIPPINES.
Pursuant to Section 4 of Act No. 4003, as amended, and Section 4 of R.A. No. 3512, the following rules
and regulations regarding the prohibition of electro fishing in all waters of the Philippines are
promulgated for the information and guidance of all concerned.ñé+.£ªwph!1
SECTION 1. — Definition. — Words and terms used in this Order 11 construed as follows:
(a) Philippine waters or territorial waters of the Philippines' includes all waters of the Philippine
Archipelago, as defined in the t between the United States and Spain, dated respectively the tenth of
December, eighteen hundred ninety eight and the seventh of November, nineteen hundred. For the
purpose of this order, rivers, lakes and other bodies of fresh waters are included.
(b) Electro Fishing. — Electro fishing is the catching of fish with the use of electric current. The
equipment used are of many electrical devices which may be battery or generator-operated and from
and available source of electric current.
(c) 'Persons' includes firm, corporation, association, agent or employee.
(d) 'Fish' includes other aquatic products.
SEC. 2. — Prohibition. — It shall be unlawful for any person to engage in electro fishing or to catch fish
by the use of electric current in any portion of the Philippine waters except for research, educational
and scientific purposes which must be covered by a permit issued by the Secretary of Agriculture and
Natural Resources which shall be carried at all times.
SEC. 3. — Penalty. — Any violation of the provisions of this Administrative Order shall subject the
offender to a fine of not exceeding five hundred pesos (P500.00) or imprisonment of not extending six
(6) months or both at the discretion of the Court.
SEC. 4. — Repealing Provisions. — All administrative orders or parts thereof inconsistent with the
provisions of this Administrative Order are hereby revoked.
SEC. 5. — Effectivity. — This Administrative Order shall take effect six (60) days after its publication in
the Office Gazette.
On June 28, 1967 the Secretary of Agriculture and Natural Resources, upon the recommendation of the
Fisheries Commission, issued Fisheries Administrative Order No. 84-1, amending section 2 of
Administrative Order No. 84, by restricting the ban against electro fishing to fresh water fisheries (63
O.G. 9963).
Thus, the phrase "in any portion of the Philippine waters" found in section 2, was changed by the
amendatory order to read as follows: "in fresh water fisheries in the Philippines, such as rivers, lakes,
swamps, dams, irrigation canals and other bodies of fresh water."
The Court of First Instance and the prosecution (p. 11 of brief) assumed that electro fishing is punishable
under section 83 of the Fisheries Law (not under section 76 thereof), which provides that any other
violation of that law "or of any rules and regulations promulgated thereunder shall subject the offender
to a fine of not more than two hundred pesos (P200), or in t for not more than six months, or both, in
the discretion of the court."
That assumption is incorrect because 3 of the aforequoted Administrative Order No. 84 imposes a fm
of not exceeding P500 on a person engaged in electro fishing, which amount the 83. It seems that the
Department of Fisheries prescribed their own penalty for swift fishing which penalty is less than the
severe penalty imposed in section 76 and which is not Identified to the at penalty imposed in section
83.
Had Administrative Order No. 84 adopted the fighter penalty prescribed in on 83, then the crime of
electro fishing would be within the exclusive original jurisdiction of the inferior court (Sec. 44 [f],
Judiciary Law; People vs. Ragasi, L-28663, September 22,
We have discussed this pre point, not raised in the briefs, because it is obvious that the crime of electro
fishing which is punishable with a sum up to P500, falls within the concurrent original jurisdiction of the
inferior courts and the Court of First instance (People vs. Nazareno, L-40037, April 30, 1976, 70 SCRA
531 and the cases cited therein).
And since the instant case was filed in the municipal court of Sta. Cruz, Laguna, a provincial capital, the
order of d rendered by that municipal court was directly appealable to the Court, not to the Court of
First Instance of Laguna (Sec. 45 and last par. of section 87 of the Judiciary Law; Esperat vs. Avila, L-
25992, June 30, 1967, 20 SCRA 596).
It results that the Court of First Instance of Laguna had no appellate jurisdiction over the case. Its order
affirming the municipal court's order of dismissal is void for lack of motion. This appeal shall be treated
as a direct appeal from the municipal court to this Court. (See People vs. Del Rosario, 97 Phil. 67).
In this appeal, the prosecution argues that Administrative Orders Nos. 84 and 84-1 were not issued
under section 11 of the Fisheries Law which, as indicated above, punishes fishing by means of an
obnoxious or poisonous substance. This contention is not well-taken because, as already stated, the
Penal provision of Administrative Order No. 84 implies that electro fishing is penalized as a form of
fishing by means of an obnoxious or poisonous substance under section 11.
The prosecution cites as the legal sanctions for the prohibition against electro fishing in fresh water
fisheries (1) the rule-making power of the Department Secretary under section 4 of the Fisheries Law;
(2) the function of the Commissioner of Fisheries to enforce the provisions of the Fisheries Law and the
regulations Promulgated thereunder and to execute the rules and regulations consistent with the
purpose for the creation of the Fisheries Commission and for the development of fisheries (Sec. 4[c]
and [h] Republic Act No. 3512; (3) the declared national policy to encourage, Promote and conserve our
fishing resources (Sec. 1, Republic Act No. 3512), and (4) section 83 of the Fisheries Law which provides
that "any other violation of" the Fisheries Law or of any rules and regulations promulgated thereunder
"shall subject the offender to a fine of not more than two hundred pesos, or imprisonment for not more
than six months, or both, in the discretion of the court."
As already pointed out above, the prosecution's reference to section 83 is out of place because the
penalty for electro fishing under Administrative order No. 84 is not the same as the penalty fixed in
section 83.
We are of the opinion that the Secretary of Agriculture and Natural Resources and the Commissioner
of Fisheries exceeded their authority in issuing Fisheries Administrative Orders Nos. 84 and 84-1 and
that those orders are not warranted under the Fisheries Commission, Republic Act No. 3512.
The reason is that the Fisheries Law does not expressly prohibit electro fishing. As electro fishing is not
banned under that law, the Secretary of Agriculture and Natural Resources and the Commissioner of
Fisheries are powerless to penalize it. In other words, Administrative Orders Nos. 84 and 84-1, in
penalizing electro fishing, are devoid of any legal basis.
Had the lawmaking body intended to punish electro fishing, a penal provision to that effect could have
been easily embodied in the old Fisheries Law.
That law punishes (1) the use of obnoxious or poisonous substance, or explosive in fishing; (2) unlawful
fishing in deepsea fisheries; (3) unlawful taking of marine molusca, (4) illegal taking of sponges; (5)
failure of licensed fishermen to report the kind and quantity of fish caught, and (6) other violations.
Nowhere in that law is electro fishing specifically punished. Administrative Order No. 84, in punishing
electro fishing, does not contemplate that such an offense fails within the category of "other violations"
because, as already shown, the penalty for electro fishing is the penalty next lower to the penalty for
fishing with the use of obnoxious or poisonous substances, fixed in section 76, and is not the same as
the penalty for "other violations" of the law and regulations fixed in section 83 of the Fisheries Law.
The lawmaking body cannot delegate to an executive official the power to declare what acts should
constitute an offense. It can authorize the issuance of regulations and the imposition of the penalty
provided for in the law itself. (People vs. Exconde 101 Phil. 11 25, citing 11 Am. Jur. 965 on p. 11 32).
Originally, Administrative Order No. 84 punished electro fishing in all waters. Later, the ban against
electro fishing was confined to fresh water fisheries. The amendment created the impression that
electro fishing is not condemnable per se. It could be tolerated in marine waters. That circumstances
strengthens the view that the old law does not eschew all forms of electro fishing.
However, at present, there is no more doubt that electro fishing is punishable under the Fisheries Law
and that it cannot be penalized merely by executive revolution because Presidential Decree No. 704,
which is a revision and consolidation of all laws and decrees affecting fishing and fisheries and which
was promulgated on May 16, 1975 (71 O.G. 4269), expressly punishes electro fishing in fresh water and
salt water areas.
That decree provides: ñé+.£ªwph!1
SEC. 33. — Illegal fishing, dealing in illegally caught fish or fishery/aquatic products. — It shall he
unlawful for any person to catch, take or gather or cause to be caught, taken or gathered fish or
fishery/aquatic products in Philippine waters with the use of explosives, obnoxious or poisonous
substance, or by the use of electricity as defined in paragraphs (1), (m) and (d), respectively, of Section
3 hereof: ...
The decree Act No. 4003, as amended, Republic Acts Nos. 428, 3048, 3512 and 3586, Presidential
Decrees Nos. 43, 534 and 553, and all , Acts, Executive Orders, rules and regulations or parts thereof
inconsistent with it (Sec. 49, P. D. No. 704).
The inclusion in that decree of provisions defining and penalizing electro fishing is a clear recognition
of the deficiency or silence on that point of the old Fisheries Law. It is an admission that a mere
executive regulation is not legally adequate to penalize electro fishing.
Note that the definition of electro fishing, which is found in section 1 (c) of Fisheries Administrative
Order No. 84 and which is not provided for the old Fisheries Law, is now found in section 3(d) of the
decree. Note further that the decree penalty electro fishing by "imprisonment from two (2) to four (4)
years", a punishment which is more severe than the penalty of a time of not excluding P500 or
imprisonment of not more than six months or both fixed in section 3 of Fisheries Administrative Order
No. 84.
An examination of the rule-making power of executive officials and administrative agencies and, in
particular, of the Secretary of Agriculture and Natural Resources (now Secretary of Natural Resources)
under the Fisheries Law sustains the view that he ex his authority in penalizing electro fishing by means
of an administrative order.
Administrative agent are clothed with rule-making powers because the lawmaking body finds it
impracticable, if not impossible, to anticipate and provide for the multifarious and complex situations
that may be encountered in enforcing the law. All that is required is that the regulation should be
germane to the defects and purposes of the law and that it should conform to the standards that the
law prescribes (People vs. Exconde 101 Phil. 1125; Director of Forestry vs. Muñ;oz, L-24796, June 28,
1968, 23 SCRA 1183, 1198; Geukeko vs. Araneta, 102 Phil. 706, 712).
The lawmaking body cannot possibly provide for all the details in the enforcement of a particular statute
(U.S. vs. Tupasi Molina, 29 Phil. 119, 125, citing U.S. vs. Grimaud 220 U.S. 506; Interprovincial Autobus
Co., Inc. vs. Coll. of Internal Revenue, 98 Phil. 290, 295-6).
The grant of the rule-making power to administrative agencies is a relaxation of the principle of
separation of powers and is an exception to the nondeleption of legislative, powers. Administrative
regulations or "subordinate legislation calculated to promote the public interest are necessary because
of "the growing complexity of modem life, the multiplication of the subjects of governmental
regulations, and the increased difficulty of administering the law" Calalang vs. Williams, 70 Phil. 726;
People vs. Rosenthal and Osmeñ;a, 68 Phil. 328).
Administrative regulations adopted under legislative authority by a particular department must be in
harmony with the provisions of the law, and should be for the sole purpose of carrying into effect its
general provisions. By such regulations, of course, the law itself cannot be extended. (U.S. vs. Tupasi
Molina, supra). An administrative agency cannot amend an act of Congress (Santos vs. Estenzo, 109
Phil. 419, 422; Teoxon vs. Members of the d of Administrators, L-25619, June 30, 1970, 33 SCRA 585;
Manuel vs. General Auditing Office, L-28952, December 29, 1971, 42 SCRA 660; Deluao vs. Casteel, L-
21906, August 29, 1969, 29 SCRA 350).
The rule-making power must be confined to details for regulating the mode or proceeding to carry into
effect the law as it his been enacted. The power cannot be extended to amending or expanding the
statutory requirements or to embrace matters not covered by the statute. Rules that subvert the
statute cannot be sanctioned. (University of Santo Tomas vs. Board of Tax A 93 Phil. 376, 382, citing 12
C.J. 845-46. As to invalid regulations, see of Internal Revenue vs. Villaflor 69 Phil. 319, Wise & Co. vs.
Meer, 78 Phil. 655, 676; Del March vs. Phil. Veterans Administrative, L-27299, June 27, 1973, 51 SCRA
340, 349).
There is no question that the Secretary of Agriculture and Natural Resources has rule-making powers.
Section 4 of the Fisheries law provides that the Secretary "shall from time to time issue instructions,
orders, and regulations consistent" with that law, "as may be and proper to carry into effect the
provisions thereof." That power is now vested in the Secretary of Natural Resources by on 7 of the
Revised Fisheries law, Presidential December No. 704.
Section 4(h) of Republic Act No. 3512 empower the Co of Fisheries "to prepare and execute upon the
approval of the Secretary of Agriculture and Natural Resources, forms instructions, rules and
regulations consistent with the purpose" of that enactment "and for the development of fisheries."
Section 79(B) of the Revised Administrative Code provides that "the Department Head shall have the
power to promulgate, whenever he may see fit do so, all rules, regulates, orders, memorandums, and
other instructions, not contrary to law, to regulate the proper working and harmonious and efficient
administration of each and all of the offices and dependencies of his Department, and for the strict
enforcement and proper execution of the laws relative to matters under the jurisdiction of said
Department; but none of said rules or orders shall prescribe penalties for the violation thereof, except
as expressly authorized by law."
Administrative regulations issued by a Department Head in conformity with law have the force of law
(Valerie vs. Secretary of culture and Natural Resources, 117 Phil. 729, 733; Antique Sawmills, Inc. vs.
Zayco, L- 20051, May 30, 1966, 17 SCRA 316). As he exercises the rule-making power by delegation of
the lawmaking body, it is a requisite that he should not transcend the bound demarcated by the statute
for the exercise of that power; otherwise, he would be improperly exercising legislative power in his
own right and not as a surrogate of the lawmaking body.
Article 7 of the Civil Code embodies the basic principle that administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to the laws or the Constitution."
As noted by Justice Fernando, "except for constitutional officials who can trace their competence to act
to the fundamental law itself, a public office must be in the statute relied upon a grant of power before
he can exercise it." "department zeal may not be permitted to outrun the authority conferred by
statute." (Radio Communications of the Philippines, Inc. vs. Santiago, L-29236, August 21, 1974, 58 SCRA
493, 496-8).
"Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon
the administrative agency by law, partake of the nature of a statute, and compliance therewith may be
enforced by a penal sanction provided in the law. This is so because statutes are usually couched in
general terms, after expressing the policy, purposes, objectives, remedies and sanctions intended by
the legislature. The details and the manner of carrying out the law are oftentimes left to the
administrative agency entrusted with its enforcement. In this sense, it has been said that rules and
regulations are the product of a delegated power to create new or additional legal provisions that have
the effect of law." The rule or regulation should be within the scope of the statutory authority granted
by the legislature to the administrative agency. (Davis, Administrative Law, p. 194, 197, cited in Victories
Milling Co., Inc. vs. Social Security Commission, 114 Phil. 555, 558).
In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the
basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the
basic law (People vs. Lim, 108 Phil. 1091).
This Court in its decision in the Lim case, supra, promulgated on July 26, 1960, called the attention of
technical men in the executive departments, who draft rules and regulations, to the importance and
necessity of closely following the legal provisions which they intend to implement so as to avoid any
possible misunderstanding or confusion.
The rule is that the violation of a regulation prescribed by an executive officer of the government in
conformity with and based upon a statute authorizing such regulation constitutes an offense and
renders the offender liable to punishment in accordance with the provisions of the law (U.S. vs. Tupasi
Molina, 29 Phil. 119, 124).
In other words, a violation or infringement of a rule or regulation validly issued can constitute a crime
punishable as provided in the authorizing statute and by virtue of the latter (People vs. Exconde 101
Phil. 1125, 1132).
It has been held that "to declare what shall constitute a crime and how it shall be punished is a power
vested exclusively in the legislature, and it may not be delegated to any other body or agency" (1 Am.
Jur. 2nd, sec. 127, p. 938; Texas Co. vs. Montgomery, 73 F. Supp. 527).
In the instant case the regulation penalizing electro fishing is not strictly in accordance with the Fisheries
Law, under which the regulation was issued, because the law itself does not expressly punish electro
fishing.
The instant case is similar to People vs. Santos, 63 Phil. 300. The Santos case involves section 28 of Fish
and Game Administrative Order No. 2 issued by the Secretary of Agriculture and Natural Resources
pursuant to the aforementioned section 4 of the Fisheries Law.
Section 28 contains the proviso that a fishing boat not licensed under the Fisheries Law and under the
said administrative order may fish within three kilometers of the shoreline of islands and reservations
over which jurisdiction is exercised by naval and military reservations authorities of the United States
only upon receiving written permission therefor, which permission may be granted by the Secretary
upon recommendation of the military or naval authorities concerned. A violation of the proviso may be
proceeded against under section 45 of the Federal Penal Code.
Augusto A. Santos was prosecuted under that provision in the Court of First Instance of Cavite for having
caused his two fishing boats to fish, loiter and anchor without permission from the Secretary within
three kilometers from the shoreline of Corrigidor Island.
This Court held that the Fisheries Law does not prohibit boats not subject to license from fishing within
three kilometers of the shoreline of islands and reservations over which jurisdiction is exercised by naval
and military authorities of the United States, without permission from the Secretary of Agriculture and
Natural Resources upon recommendation of the military and naval authorities concerned.
As the said law does not penalize the act mentioned in section 28 of the administrative order, the
promulgation of that provision by the Secretary "is equivalent to legislating on the matter, a power
which has not been and cannot be delegated to him, it being expressly reserved" to the lawmaking
body. "Such an act constitutes not only an excess of the regulatory power conferred upon the Secretary
but also an exercise of a legislative power which he does not have, and therefore" the said provision "is
null and void and without effect". Hence, the charge against Santos was dismiss.
A penal statute is strictly construed. While an administrative agency has the right to make ranks and
regulations to carry into effect a law already enacted, that power should not be confused with the
power to enact a criminal statute. An administrative agency can have only the administrative or policing
powers expressly or by necessary implication conferred upon it. (Glustrom vs. State, 206 Ga. 734, 58
Second 2d 534; See 2 Am. Jr. 2nd 129-130).
Where the legislature has delegated to executive or administrative officers and boards authority to
promulgate rules to carry out an express legislative purpose, the rules of administrative officers and
boards, which have the effect of extending, or which conflict with the authority granting statute, do not
represent a valid precise of the rule-making power but constitute an attempt by an administrative body
to legislate (State vs. Miles, Wash. 2nd 322, 105 Pac. 2nd 51).
In a prosecution for a violation of an administrative order, it must clearly appear that the order is one
which falls within the scope of the authority conferred upon the administrative body, and the order will
be scrutinized with special care. (State vs. Miles supra).
The Miles case involved a statute which authorized the State Game Commission "to adopt, promulgate,
amend and/or repeal, and enforce reasonable rules and regulations governing and/or prohibiting
the taking of the various classes of game.
Under that statute, the Game Commission promulgated a rule that "it shall be unlawful to offer, pay or
receive any reward, prize or compensation for the hunting, pursuing, taking, killing or displaying of any
game animal, game bird or game fish or any part thereof."
Beryl S. Miles, the owner of a sporting goods store, regularly offered a ten-down cash prize to the
person displaying the largest deer in his store during the open for hunting such game animals. For that
act, he was charged with a violation of the rule Promulgated by the State Game Commission.
It was held that there was no statute penalizing the display of game. What the statute penalized was
the taking of game. If the lawmaking body desired to prohibit the display of game, it could have readily
said so. It was not lawful for the administrative board to extend or modify the statute. Hence, the
indictment against Miles was quashed. The Miles case is similar to this case.
WHEREFORE, the lower court's decision of June 9, 1970 is set aside for lack of appellate jurisdiction and
the order of dismissal rendered by the municipal court of Sta. Cruz, Laguna in Criminal Case No. 5429 is
affirmed. Costs de oficio.
SO ORDERED.
G.R. No. 190837 March 5, 2014
REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF FOOD AND DRUGS (now FOOD AND
DRUG ADMINISTRATION), Petitioner,
vs.
DRUGMAKER'S LABORATORIES, INC. and TERRAMEDIC, INC., Respondents.
DECISION
PERLAS-BERNABE, J.:
This is a direct recourse to the Court from the Regional Trial Court of Muntinlupa City, Branch 256 (RTC),
through a petition for review on certiorari,1 raising a pure question of law. In particular, petitioner
Republic of the Philippines, represented by the Bureau.of Food and Drugs (BFAD), now Food and Drug
Administration (FDA), assails the Order 2dated December 18, 2009 of the RTC in Civil Case No. 08-124
which: (a) declared BF AD Circular Nos. 1 and 8, series of 1997 (Circular Nos. 1 and 8, s. 1997) null and
void; (b) ordered the issuance of writs of permanent injunction and prohibition against the FDA in
implementing the aforesaid circulars; and ( c) directed the FDA to issue Certificates of Product
Registration (CPR) in favor of respondents Drugmaker's Laboratories, Inc. and Terrarriedic, Inc.
(respondents).
The Facts
The FDA3 was created pursuant to Republic Act No. (RA) 3720,4 otherwise known as the "Food, Drug,
and Cosmetic Act," primarily in order "to establish safety or efficacy standards and quality measures for
foods, drugs and devices, and cosmetic product[s]." 5 On March 15, 1989, the Department of Health
(DOH), thru then-Secretary Alfredo R.A. Bengzon, issued Administrative Order No. (AO) 67, s. 1989,
entitled "Revised Rules and Regulations on Registration of Pharmaceutical Products." Among others, it
required drug manufacturers to register certain drug and medicine products with the FDA before they
may release the same to the market for sale. In this relation, a satisfactory
bioavailability6/bioequivalence7 (BA/BE) test is needed for a manufacturer to secure a CPR for these
products. However, the implementation of the BA/BE testing requirement was put on hold because
there was no local facility capable of conducting the same. The issuance of Circular No. 1, s.
19978 resumed the FDA’s implementation of the BA/BE testing requirement with the establishment of
BA/BE testing facilities in the country. Thereafter, the FDA issued Circular No. 8, s. 1997 9 which provided
additional implementation details concerning the BA/BE testing requirement on drug products. 10
Respondents manufacture and trade a "multisource pharmaceutical product" 11 with the generic name
of rifampicin12– branded as "Refam 200mg/5mL Suspension" (Refam) – for the treatment of adults and
children suffering from pulmonary and extra-pulmonary tuberculosis.13 On November 15, 1996,
respondents applied for and were issued a CPR for such drug, valid for five (5) years, or until November
15, 2001.14 At the time of the CPR’s issuance, Refam did not undergo BA/BE testing since there was still
no facility capable of conducting BA/BE testing. Sometime in 2001, respondents applied for and were
granted numerous yearly renewals of their CPR for Refam, which lasted until November 15, 2006, albeit
with the condition that they submit satisfactory BA/BE test results for said drug.15
Accordingly, respondents engaged the services of the University of the Philippines’ (Manila)
Department of Pharmacology and Toxicology, College of Medicine to conduct BA/BE testing on Refam,
the results of which were submitted to the FDA.16 In turn, the FDA sent a letter dated July 31, 2006 to
respondents, stating that Refam is "not bioequivalent with the reference drug." 17 This notwithstanding,
the FDA still revalidated respondents’ CPR for Refam two (2) more times, effective until November 15,
2008, the second of which came with a warning that no more further revalidations shall be granted
until respondents submit satisfactory BA/BE test results for Refam.18
Instead of submitting satisfactory BA/BE test results for Refam, respondents filed a petition for
prohibition and annulment of Circular Nos. 1 and 8, s. 1997 before the RTC, alleging that it is the DOH,
and not the FDA, which was granted the authority to issue and implement rules concerning RA 3720.
As such, the issuance of the aforesaid circulars and the manner of their promulgation contravened the
law and the Constitution.19 They further averred that that the non-renewal of the CPR due to failure to
submit satisfactory BA/BE test results would not only affect Refam, but their other products as well.20
During the pendency of the case, RA 9711,21 otherwise known as the "Food and Drug Administration
[FDA] Act of 2009," was enacted into law.
The RTC Ruling
In an Order22 dated December 18, 2009, the RTC ruled in favor of respondents, and thereby declared
Circular Nos. 1 and 8, s. 1997 null and void, ordered the issuance of writs of permanent injunction and
prohibition against the FDA in implementing the aforesaid circulars, and directed the FDA to issue CPRs
in favor of respondents’ products.
The RTC held that there is nothing in RA 3720 which granted either the FDA the authority to issue and
implement the subject circulars, or the Secretary of Health the authority to delegate his powers to the
FDA. For these reasons, it concluded that the issuance of Circular Nos. 1 and 8, s.
1997 constituted an illegal exercise of legislative and administrative powers and, hence, must be struck
down.23
Accordingly, the RTC issued a Writ of Permanent Injunction 24 dated January 19, 2010, enjoining the FDA
and all persons acting for and under it from enforcing Circular Nos. 1 and 8, s. 1997 and directing them
to approve the renewal and revalidation of respondents’ products without submitting satisfactory
BA/BE test results.
Aggrieved, the FDA sought direct recourse to the Court through the instant petition with an urgent
prayer for the immediate issuance of a temporary restraining order and/or a writ of preliminary
injunction against the implementation of the RTC’s Order dated December 18, 2009 and Writ of
Permanent Injunction dated January 19, 2010.25 The Court granted FDA’s application and issued a
Temporary Restraining Order26 dated February 24, 2010, effective immediately and continuing until
further orders.
The Issue Before the Court
The primordial issue in this case is whether or not the FDA may validly issue and implement Circular
Nos. 1 and 8, s. 1997. In resolving this issue, there is a need to determine whether or not the aforesaid
circulars partake of administrative rules and regulations and, as such, must comply with the
requirements of the law for its issuance.
The FDA contends that it has the authority to issue Circular Nos. 1 and 8, s. 1997 as it is the agency
mandated by law to administer and enforce laws, including rules and regulations issued by the DOH,
that pertain to the registration of pharmaceutical products.27
For their part, respondents maintain that under RA 3720, the power to make rules to implement the
law is lodged with the Secretary of Health, not with the FDA.28 They also argue that the assailed circulars
are void for lack of prior hearing, consultation, and publication. 29
The Court’s Ruling
The petition is meritorious.
Administrative agencies may exercise quasi-legislative or rule-making powers only if there exists a law
which delegates these powers to them. Accordingly, the rules so promulgated must be within the
confines of the granting statute and must involve no discretion as to what the law shall be, but merely
the authority to fix the details in the execution or enforcement of the policy set out in the law itself, so
as to conform with the doctrine of separation of powers and, as an adjunct, the doctrine of non-
delegability of legislative power. 30
An administrative regulation may be classified as a legislative rule, an interpretative rule, or a
contingent rule. Legislative rules are in the nature of subordinate legislation and designed to implement
a primary legislation by providing the details thereof. 31 They usually implement existing law, imposing
general, extra-statutory obligations pursuant to authority properly delegated by Congress 32 and effect
a change in existing law or policy which affects individual rights and obligations. 33 Meanwhile,
interpretative rules are intended to interpret, clarify or explain existing statutory regulations under
which the administrative body operates. Their purpose or objective is merely to construe the statute
being administered and purport to do no more than interpret the statute. Simply, they try to say what
the statute means and refer to no single person or party in particular but concern all those belonging
to the same class which may be covered by the said rules.34 Finally, contingent rules are those issued
by an administrative authority based on the existence of certain facts or things upon which the
enforcement of the law depends.35
In general, an administrative regulation needs to comply with the requirements laid down by Executive
Order No. 292, s. 1987, otherwise known as the "Administrative Code of 1987," on prior notice, hearing,
and publication in order to be valid and binding, except when the same is merely an interpretative rule.
This is because "[w]hen an administrative rule is merely interpretative in nature, its applicability needs
nothing further than its bare issuance, for it gives no real consequence more than what the law itself
has already prescribed. When, on the other hand, the administrative rule goes beyond merely providing
for the means that can facilitate or render least cumbersome the implementation of the law but
substantially increases the burden of those governed, it behooves the agency to accord at least to those
directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is
given the force and effect of law."36
In the case at bar, it is undisputed that RA 3720, as amended by Executive Order No. 175, s.
198737 prohibits, inter alia, the manufacture and sale of pharmaceutical products without obtaining the
proper CPR from the FDA.38 In this regard, the FDA has been deputized by the same law to accept
applications for registration of pharmaceuticals and, after due course, grant or reject such
applications.39 To this end, the said law expressly authorized the Secretary of Health, upon the
recommendation of the FDA Director, to issue rules and regulations that pertain to the registration of
pharmaceutical products.40
In accordance with his rule-making power under RA 3720, the Secretary of Health issued AO 67, s. 1989
in order to provide a comprehensive set of guidelines covering the registration of pharmaceutical
products. AO 67, s. 1989, required, among others, that certain pharmaceutical products undergo BA/BE
testing prior to the issuance of CPR, contrary to respondents’ assertion that it was Circular Nos. 1 and
8, s. 1997 that required such tests.41
Despite the fact that the BA/BE testing requirement was already in place as early as the date of
effectivity of AO 67, s. 1989, its implementation was indefinitely shelved due to lack of facilities capable
of conducting the same. It was only sometime in 1997 when technological advances in the country
paved the way for the establishment of BA/BE testing facilities, thus allowing the rule’s enforcement.
Owing to these developments, the FDA (then, the BFAD) issued Circular No. 1, s. 1997, the full text of
which reads:
In Annex 1 of A.O. 67 s. 1989 which is entitled Requirement for Registration provides that
"Bioavailability/Bioequivalence study for certain drugs as determined by BFAD" is required for [(i)] Tried
and Tested Drug, (ii) Established Drug, and (iii) Pharmaceutical Innovation of Tried and Tested or
Established Drug.
Drugs requiring strict precaution in prescribing and dispensing contained in the List-B (Prime) were the
drugs identified by BFAD in the process of registration that will be required
"Bioavailability/Bioequivalence" studies. However, due to the supervening factor that there had yet
been no bioavailability testing unit in the country when the A.O. 67 s. 1989 became effective, the
Bureau did not strictly enforce the said requirement.
The supervening factor no longer exist [sic] as of date. As a matter of fact, one of the registered products
tested by the Bioavailability Testing Unit at the University of Sto. Tomas under the NDP Cooperation
Project of the Philippines and Australia failed to meet the standard of bioavailability. This finding brings
forth the fact that there may be registered products which do not or may no longer meet bioavailability
standard.
Wherefore, all drugs manufacturers, traders, distributor-importers of products contained or identified
in the list b’ (prime) provided for by BFAD, a copy of which is made part of this circular, are advised that
all pending initial and renewal registration of the products aforementioned, as well as all applications
for initial and renewal registration of the same, shall henceforth be required to submit bioavailability
test with satisfactory results on the products sought to be registered or renewed conducted by any
bioavailability testing units here or abroad, duly recognized by the BFAD under the Dept. of
Health.1âwphi1 (Emphases and underscoring supplied)
The FDA then issued Circular No. 8, s. 1997 to supplement Circular No. 1, s. 1997 in that it reiterates the
importance of the BA/BE testing requirement originally provided for by AO 67, s. 1989.1âwphi1
A careful scrutiny of the foregoing issuances would reveal that AO 67, s. 1989 is actually the rule that
originally introduced the BA/BE testing requirement as a component of applications for the issuance of
CPRs covering certain pharmaceutical products. As such, it is considered an administrative regulation –
a legislative rule to be exact – issued by the Secretary of Health in consonance with the express
authority granted to him by RA 3720 to implement the statutory mandate that all drugs and devices
should first be registered with the FDA prior to their manufacture and sale. Considering that neither
party contested the validity of its issuance, the Court deems that AO 67, s. 1989 complied with the
requirements of prior hearing, notice, and publication pursuant to the presumption of regularity
accorded to the government in the exercise of its official duties.42

On the other hand, Circular Nos. 1 and 8, s. 1997 cannot be considered as administrative regulations
because they do not: (a) implement a primary legislation by providing the details thereof; (b) interpret,
clarify, or explain existing statutory regulations under which the FDA operates; and/or (c) ascertain the
existence of certain facts or things upon which the enforcement of RA 3720 depends. In fact, the only
purpose of these circulars is for the FDA to administer and supervise the implementation of the
provisions of AO 67, s. 1989, including those covering the BA/BE testing requirement, consistent with
and pursuant to RA 3720.43 Therefore, the FDA has sufficient authority to issue the said circulars and
since they would not affect the substantive rights of the parties that they seek to govern – as they are
not, strictly speaking, administrative regulations in the first place – no prior hearing, consultation, and
publication are needed for their validity.

In sum, the Court holds that Circular Nos. 1 and 8, s. 1997 are valid issuances and binding to all
concerned parties, including the respondents in this case.

As a final note, while the proliferation of generic drugs and medicines is indeed a welcome development
as it effectively ensures access to affordable quality drugs and medicines for all through their lower
prices, the State, through the FDA, which is the government instrumentality tasked on this matter, must
nevertheless be vigilant in ensuring that the generic drugs and medicines released to the market are
safe and effective for use.

WHEREFORE, the petition is GRANTED. The Order dated December 18, 2009 and the Writ of Permanent
Injunction dated January 19, 2010 of the Regional Trial Court of Muntinlupa City, Branch 256 in Civil
Case No. 08-124 are hereby SET ASIDE. BFAD Circular Nos. 1 and 8, series of 1997 are declared VALID.
Accordingly, the Court's Temporary Restraining Order dated February 24, 2010 is hereby made
PERMANENT.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice
G.R. No. 192117 September 18, 2012 xxxx

ASSOCIATION OF SOUTHERN TAGALOG ELECTRIC COOPERATIVES, INC. (ASTEC), BATANGAS I (b) For rural electric cooperatives:
ELECTRIC COOPERATIVE, INC. (BATELEC I), QUEZON I ELECTRIC COOPERATIVE, INC. (QUEZELCO I), and
QUEZON II ELECTRIC COOPERATIVE, INC. (QUEZELCO II), Petitioners, (i) Twenty-two percent (22%) at the end of the first year following the effectivity of this Act;
vs. (ii) Twenty percent (20%) at the end of the second year following the effectivity of this Act;
ENERGY REGULATORY COMMISSION, Respondent.
(iii) Eighteen percent (18%) at the end of the third year following the effectivity of this Act;
x-----------------------x
(iv) Sixteen percent (16%) at the end of the fourth year following the effectivity of this Act; and
G.R. No. 192118
(v) Fourteen percent (14%) at the end of the fifth year following the effectivity of this Act.
CENTRAL LUZON ELECTRIC COOPERATIVES ASSOCIATION, INC. (CLEA) and PAMPANGA RURAL
ELECTRIC SERVICE COOPERATIVE, INC. (PRESCO), Petitioners, Provided, That the ERB is hereby authorized to determine at the end of the fifth year following the
vs. effectivity of this Act, and as often as is necessary, taking into account the viability of rural electric
ENERGY REGULATORY COMMISSION, Respondent. cooperatives and the interest of the consumers, whether the caps herein or theretofore established
shall be reduced further which shall, in no case, be lower than nine percent (9%) and accordingly fix the
DECISION date of the effectivity of the new caps.
CARPIO, J.: xxxx
The Case The Implementing Rules and Regulations (IRR) of R.A. No. 7832 required every rural electric cooperative
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court. The petition assails the to file with the Energy Regulatory Board (ERB), on or before 30 September 1995, an application for
23 December 2008 Decision2 and 26 April 2010 Resolution3 of the Court of Appeals in the consolidated approval of an amended PPA Clause incorporating the cap on the recoverable rate of system loss to be
cases, including CA-G.R. SP Nos. 99249 and 99253.4 The Court of Appeals affirmed the Orders of the included in its schedule of rates.8Section 5, Rule IX of the IRR of R.A. No. 7832 provided for the following
Energy Regulatory Commission (ERC) directing various rural electric cooperatives to refund their over- guiding formula for the amended PPA Clause:
recoveries arising from the implementation of the Purchased Power Adjustment (PPA) Clause under Section 5. Automatic Cost Adjustment Formula. –
Republic Act (R.A.) No. 7832 or the Anti-Electricity and Electric Transmission Lines/Materials Pilferage
Act of 1994. xxxx

The Facts The automatic cost adjustment of every electric cooperative shall be guided by the following formula:

Petitioners Batangas I Electric Cooperative, Inc. (BATELEC I), Quezon I Electric Cooperative, Inc. Purchased Power Adjustment Clause
(QUEZELCO I), Quezon II Electric Cooperative, Inc. (QUEZELCO II) and Pampanga Rural Electric Service
Cooperative, Inc. (PRESCO) are rural electric cooperatives established under Presidential Decree (P.D.) A
No. 269 or the National Electrification Administration Decree. 5 BATELEC I, QUEZELCO I and QUEZELCO
II are members of the Association of Southern Tagalog Electric Cooperatives, Inc. (ASTEC). PRESCO is a (PPA) = -E
member of the Central Luzon Electric Cooperatives Association, Inc. (CLECA). Petitioners are engaged
B-(C + D)
in the distribution of electricity "on a non-profit basis for the mutual benefit of its members and
patrons."6 Where:
On 8 December 1994, R.A. No. 7832 was enacted. The law imposed a cap on the recoverable rate of A= Cost of electricity purchased and generated for the previous month
system loss7that may be charged by rural electric cooperatives to their consumers. Section 10 of R.A.
No. 7832 provides: B= Total Kwh purchased and generated for the previous month

Section 10. Rationalization of System Losses by Phasing out Pilferage Losses as Component Thereof. – C = The actual system loss but not to exceed the maximum recoverable rate of system loss in Kwh
There is hereby established a cap on the recoverable rate of system losses as follows: plus actual company use in Kwhrs but not to exceed 1% of total Kwhrs purchased and generated
D= Kwh consumed by subsidized consumers
E= Applicable base cost of power equal to the amount incorporated into their basic rate per Kwh
In compliance with the IRR of R.A. No. 7832, various associations of rural electric cooperatives
throughout the Philippines filed on behalf of their members applications for approval of amended PPA
Clauses. On 8 February 1996, ASTEC filed on behalf of its members (including BATELEC I, QUEZELCO I
and QUEZELCO II) a verified petition for the approval of the amended PPA Clause. The verified petition
of ASTEC was docketed as ERB Case No. 96-35.9 On 9 February 1996, CLECA also filed on behalf of its
members (including PRESCO) a verified petition for the approval of the amended PPA Clause. The
verified petition of CLECA was docketed as ERB Case No. 96-37.10
The ERB issued Orders on 19 February 1997 11 and 25 April 199712 provisionally authorizing the
petitioners and the other rural electric cooperatives to use and implement the following PPA formula,
subject to review, verification and confirmation by the ERB:
A As a result, ERB Case No. 96-35 involving ASTEC and its members (including BATELEC I, QUEZELCO I and
(PPA) = -E
B-(C + CI + D)
Where:
A = Cost of Electricity purchased and generated for the previous month less amount recovered from
pilferages, if any
B= Total Kwh purchased and generated for the previous month
C= Actual system loss but not to exceed themaximum recoverable rate of system loss in Kwh
C1 = Actual company use in Kwhrs but not to exceed 1% of total Kwhrs purchased and generated
D= Kwh consumed by subsidized consumers
E= Applicable base cost of power equal to the amount incorporated into their basic rate per Kwh
The ERB further directed petitioners to submit relevant documents regarding the monthly
implementation of the PPA formula for review, verification and confirmation. The Orders dated 19
February 1997 and 25 April 1997 commonly provide:
Accordingly, all electric cooperatives are hereby directed to submit to the Board within ten (10) days
from notice hereof their monthly implementation of the PPA formula from the February, 1996 to
January, 1997 for the Board’s review, verification and confirmation. The submission should include the
following documents:
1. PPA computation following the formula provided above
2. Monthly NPC bill or such other power bill purchased or generated not yet forwarded to ERB from
January 1995 onward
3. Monthly Financial and Statistical Report (MFSRs) not yet forwarded to ERB from January 1995 onward
4. Sample bills for the month subject to confirmation for different types of customers.
Thereafter, (from February 1997 and onward) all electric cooperatives are hereby directed to submit
on or before the 20th day of the current month, their implementation of the PPA formula of the
previous month for the same purposes as indicated above.13
On 8 June 2001, R.A. No. 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA) was enacted.
Section 38 of the EPIRA abolished the ERB, and created the Energy Regulatory Commission (ERC). The
ERC is an independent and quasi-judicial regulatory body mandated to "promote competition,
encourage market development, ensure customer choice and penalize abuse of market power in the
restructured electricity industry."14 The powers and functions of the ERB not inconsistent with the
provisions of the EPIRA were transferred to the ERC, together with the applicable funds and
appropriations, records, equipment, property and personnel of the ERB. 15
QUEZELCO II) was renamed and renumbered as ERC Case No. 2001-338.16 ERB Case No. 96-37 involving
CLECA and its members (including PRESCO) was also renamed and renumbered as ERC Case No. 2001-
340.17The records further show that these two cases were consolidated, together with the other cases
previously consolidated with then ERB Case No. 96-35.18
Subsequently, the ERC issued an Order dated 17 June 2003. The ERC noted therein "that the PPA
formula which was approved by the ERB was silent on whether the calculation of the cost of electricity
purchased and generated in the formula should be ‘gross’ or ‘net’ of discounts." 19 The cost of electricity
is computed at "gross" if the discounts extended by the power supplier to the rural electric cooperative
are not passed on to end-users, while the cost of electricity is computed at "net" if the discounts are
passed on to end-users.20 The ERC ruled:
To attain uniformity in the implementation of the PPA formulae, the Commission has resolved that:
1. In the confirmation of past PPAs, the power cost shall still be based on "gross"; and
2. In the confirmation of future PPAs, the power cost shall be based on "net".
Relative thereto, petitioners are directed to implement their respective PPA using the power cost based
on net at the next billing cycle upon receipt of this Order until such time that their respective rates have
already been unbundled.
Petitioners are hereby directed to submit to the Commission on or before the 20th day of the following
month, their implementation of the PPA formula for review, verification and confirmation by the
Commission.21
On 29 March 2004, the ERC issued an Order in the consolidated cases resolving the motions for
reconsideration filed by several rural electric cooperatives. In the said Order, the ERC explained the
general framework of the new PPA confirmation scheme to be adopted by the regulatory body. The
ERC stated:
Majority of the issues raised in the motions for reconsideration can be properly addressed by the new
PPA confirmation scheme to be adopted by this Commission. Under this scheme, the electric
cooperatives shall be allowed to collect/refund the true cost of power due them vis-a-vis the amount
already collected from their end-users. In turn, the end-users shall only be charged the true cost of
power consumed.
The Commission recognizes that the electric cooperatives implemented their PPA in the manner by
which majority of them were implementing the same. Thus, they had no alternative but to adopt the
most recent available data for the respective billing months which were based on estimates due to time
lag differences. Under the new scheme, the actual data for the billing month shall be adopted as they
are available at the time the verification is undertaken.
In this regard, all the other issues raised by the electric cooperatives shall be properly addressed in the
confirmation of their respective PPAs.22
Several rural electric cooperatives subsequently filed motions for clarification and/or reconsideration
with respect to the ERC’s process of computation and confirmation of the PPA. The rural electric
cooperatives advanced the following allegations:
1. They are non-profit organizations and their rate components do not include any possible extra
revenue except the discounts; and
2. They are burdened with expenses in their continuing expansion programs of rural electrification to
the remotest barangays and sitios of their respective franchise areas and could not give any benefit or
incentive to their employees.23
On 14 January 2005, the ERC issued an Order addressing the motions for clarification and/or
reconsideration filed by the rural electric cooperatives. In the said Order, the ERC expounded on the
general framework of the new PPA confirmation scheme. The ERC stated that "the new PPA scheme
creates a venue where both the electric cooperatives can recover and the end-users can be charged
the true cost of power." 24 The ERC stressed that "the purchased power cost is a pass through cost to
customers and as such, the same should be revenue neutral." 25 In other words, rural electric
cooperatives should only recover from their members and patrons the actual cost of power purchased
from power suppliers.26
In the same Order, the ERC clarified certain aspects of the new PPA confirmation scheme. With respect
to the data to be utilized in the confirmation of the PPA, the ERC stated:
All electric cooperatives were directed to implement the PPA in the manner the then Energy Regulatory
Board (ERB) had prescribed. In calculating their respective PPAs, the electric cooperatives had no
alternative but to adopt the most available data for the respective billing months, i.e. the previous
month, due to time lag differences. Under the new PPA confirmation scheme, the actual data for the
billing month shall be adopted primarily because they reflect the true cost of power, they are available
at the time the confirmation is undertaken and they have already been charged to the end-users. Thus,
the new PPA scheme creates a venue where both the electric cooperatives can recover and the end-
users can be charged the true cost of power. There will also be proper matching of revenue and cost. 27
As regards the cap on the recoverable rate of system loss, the ERC explained:
The caps on the recoverable system loss provided in R.A. 7832 were established to encourage
distribution utilities to operate efficiently. Since the PPA is merely a cost recovery mechanism, the
electric cooperatives are not supposed to earn revenue nor suffer losses therefrom. To allow them to
adopt the caps even in cases where the system losses are actually lower would be contrary to the
underlying principle of a recovery mechanism.28
Finally, with respect to the Prompt Payment Discount (PPD) extended by power suppliers to rural
electric cooperatives, the ERC reiterated that rural electric cooperatives should only recover the actual
costs of purchased power.29 Thus, any discounts extended to rural electric cooperatives must
necessarily be extended to end-users by charging only the "net" cost of purchased power.
In light of the foregoing clarifications, the ERC outlined the following directives in the said Order:
A. The computation and confirmation of the PPA prior to the Commission’s Order dated June 17, 2003
shall be based on the approved PPA formula;
B. The computation and confirmation of the PPA after the Commission’s Order dated June 17, 2003
shall be based on the power cost "net" of discount; and
C. If the approved PPA formula is silent on the terms of discount, the computation and confirmation of
the PPA shall be based on the power cost at "gross", subject to the submission of proofs that said
discounts are being extended to the end-users.30
Subsequently, the ERC issued the following Orders:
1. 22 March 2006 Order in ERC Case No. 2001-338 regarding the monthly PPA implementation of
BATELEC I;
2. 16 February 2007 Order in ERC Case No. 2001-338 regarding the monthly PPA implementation of
QUEZELCO I;
3. 7 December 2005 Order in ERC Case No. 2001-338 regarding the monthly PPA implementation of
QUEZELCO II; and
4. 27 March 2006 Order in ERC Case No. 2001-340 regarding the monthly PPA implementation of
PRESCO.
In the said Orders, the ERC clarified its policy on the PPA confirmation scheme previously adopted in its
Order dated 14 January 2005. For the distribution utilities to recover only the actual costs of purchased
power, the ERC stated the following principles governing the treatment of the PPD granted by power
suppliers to distribution utilities including rural electric cooperatives:
I. The over-or-under recovery will be determined by comparing the Allowable Power Cost with the
Distribution Utility’s Actual Revenue (AR) billed to end-users.
II. Calculation of the Allowable Power Cost as prescribed in the PPA Formula:
a. For a Distribution Utility which PPA formula explicitly provides the manner by which discounts availed
from the power supplier/s shall be treated, the allowable power cost will be computed based on the
specific provision of the formula, which may either be at "net" or "gross"; and
b. For a Distribution Utility which PPA formula is silent in terms of discounts, the allowable power cost
will be computed at "net" of discounts availed from the power supplier/s, if there is any.
III. Calculation of the Distribution Utility’s Actual Revenues/Actual Amount Billed to End-users.
a. On Actual PPA Computed at Net of Discounts Availed from Power Supplier/s:
a.1. If a Distribution Utility bills at net of discounts availed from the power supplier/s (i.e. Gross power
cost minus discounts from power supplier/s) and the Distribution Utility is not extending discounts to
end-users, the actual revenue should be equal to the allowable power cost; and
a.2. If a Distribution Utility bills at net of discounts availed from the power supplier/s (i.e. Gross power
cost minus discounts from power supplier/s) and the Distribution Utility is extending discounts to end-
users, the discount extended to end-users will be added back to actual revenue.
b. On Actual PPA Computed at Gross
b.1. If a Distribution Utility bills at gross (i.e. Gross power cost not reduced by discounts from power
supplier/s) and the Distribution Utility is extending discounts to end-users, the actual revenue will be
calculated as: Gross Power Revenue less Discounts extended to end-users. The result will then be
compared to the allowable power cost; and
b.2. If a Distribution Utility bills at gross (i.e. Gross power cost not reduced by discounts from power
supplier/s) and the distribution utility is not extending discounts to end-users, the actual revenue will
be taken as is which shall be compared to the allowable power cost.
IV. In calculating the Distribution Utility’s actual revenues, in no case shall the amount of discounts
extended to end-users be higher than the discounts availed by the Distribution Utility from its power
supplier/s.31
The ERC then directed petitioners to refund their respective over-recoveries to end-users arising from
the implementation of the PPA Clause under R.A. No. 7832 and its IRR, as follows:
1. 22 March 2006 Order32
In the Order dated 22 March 2006, the ERC evaluated the monthly PPA implementation of BATELEC I
covering the period from February 1996 to September 2004. The verification and confirmation of the
PPA implementation was based on the monthly implementation reports, documents and information
submitted by BATELEC I in compliance with the Order dated 19 February 1997 issued by the ERB. The
ERC determined that there were over-recoveries amounting to Fifty Nine Million Twenty One Thousand
Nine Hundred Five Pesos (₱ 59,021,905.00) equivalent to P0.0532/kWh. The ERC outlined the following
bases for the over-recoveries:
1. For the period August 1998 to May 1999, NPC made an erroneous reading on BATELEC I’s meter
which resulted to the application of PPA charges at higher sales volume vis-a-vis those utilized in the
PPA computation. The system loss adopted in the PPA formula was the running average of the
preceding twelve (12) months, which is the period when the erroneous meter reading had not yet
occurred. As a result, the PPA formula’s denominator which represents the sales volume was lower
than the actual sales for the period when the PPA was implemented and the impact of the different "E"
(basic charge power cost component) on the said period resulted to a net over-recovery of Ph₱
38,317,933.00;
2. For the period July 2003 to August 2004, BATELEC I erroneously added back the Power Act Reduction
amounting to Ph₱ 20,565,981.00 to its total power cost; and
3. The new grossed-up factor mechanism adopted by the Commission which provided a true-up
mechanism that allows the distribution utilities to recover the actual cost of purchased power.33
The ERC confirmed the PPA of BATELEC I covering the period from February 1996 to September 2004,
and directed BATELEC I "to refund the amount of P0.0532/kWh starting on the next billing cycle from
receipt of this Order until such time that the full amount shall have been refunded." 34
2. 16 February 2007 Order35
In the Order dated 16 February 2007, the ERC evaluated the monthlyPPA implementation of QUEZELCO
I for the period from January 1999 to April 2004. QUEZELCO I previously submitted its monthly
implementation reports, documents and information for review, verification and confirmation pursuant
to the Order dated 19 February 1997 issued by the ERB. The ERC determined that there were over-
recoveries amounting to Twenty Million Twenty Seven Thousand Five Hundred Fifty Two Pesos (₱
20,027,552.00) equivalent to P0.0486/kWh. The ERC outlined the following bases for the over-
recoveries:
1. For the period July 2003 to April 2004, QUEZELCO I’s power cost was not reduced by the PPD availed
from its suppliers resulting to an over-recovery of Ph₱ 8,457,824.00;
2. QUEZELCO I failed to comply with the Implementing Rules and Regulations (IRR) of Republic Act No.
7832 x x x which provides that the pilferage recoveries should be deducted from the total purchased
power cost used in the PPA computation. Thus, QUEZELCO I’s actual PPA should have been reduced by
the pilferage recoveries amounting to Ph₱ 580,855.00;
3. QUEZELCO I failed to reflect the power cost adjustments on its PPA as a result of the billing
adjustments of NPC under the Credit Memo for the month of June 2003 amounting to Ph₱
4,210,855.00;
4. QUEZELCO I’s power supply agreement with Camarines Norte Electric Cooperative, Inc. (CANORECO)
was not approved by the Commission. Thus, the Commission pegged CANORECO’s power cost at NPC’s
total average rate which resulted to an over-recovery of Ph₱ 849,324.00;
5. In computing its PPA, QUEZELCO I included the subsidized consumptions of 2,051,753 kWh which
resulted to an over-recovery of Ph₱ 1,611,036.00;
6. The new grossed-up factor mechanism adopted by the Commission which provides a true-up
mechanism to allow the DUs to recover the actual costs of purchased power. 36
The PPA of QUEZELCO I for the period of January 1999 to April 2004 was confirmed by the ERC. In light
of the over-recovery, QUEZELCO I was directed "to refund the amount of P0.0486/kWh starting the
next billing cycle from receipt of this Order until such time that the full amount shall have been
refunded."37
3. 7 December 2005 Order38
In the Order dated 7 December 2005, the ERC reviewed and verified the monthly PPA implementation
of QUEZELCO II covering the period from January 2000 to November 2003, based on the monthly
implementation reports, documents and information submitted by the rural electric cooperative. The
ERC established that there were over-recoveries amounting to Five Million Two Hundred Forty Eight
Thousand Two Hundred Eighty Two Pesos (₱ 5,248,282.00) equivalent to P0.1000/kWh.
The bases of the over-recoveries are as follows:
1. QUEZELCO II treated the penalty on excess/below contracted demand in April 2000 as a discount;
2. For the period May 2000 to November 2000, QUEZELCO II overstated its power cost due to accounts
payable for fuel oil consumption from November 1999 to June 2000;
3. The new grossed-up factor scheme adopted by the Commission which provided a different result vis-
a-vis the originally approved formula; and
4. The Purchased Power Cost was reduced by the Prompt Payment Discount availed from the power
suppliers.39
The ERC confirmed the PPA of QUEZELCO II for the period of January 2000 to November 2003, and
directed QUEZELCO II "to refund the amount of P0.1000/kWh starting on the next billing cycle from
receipt of this Order until such time that the full amount shall have been refunded."40
4. 27 March 2006 Order41
In the Order dated 27 March 2006, the ERC evaluated the monthly PPA implementation of PRESCO
covering the period of February 1996 to June 2004. PRESCO previously submitted its monthly PPA
implementation reports, documents and information for review, verification and confirmation pursuant
to the Order dated 25 April 1997 issued by the ERB. The ERC determined that there were over-
recoveries amounting to Eighteen Million Four Hundred Thirty Eight Thousand Nine Hundred Six Pesos
(₱ 18,438,906.00) equivalent to P0.1851/kWh. The over-recoveries were based on the following:
1. In its PPA computation, PRESCO excluded its subsidized consumers in the components of the kWh
sales despite that these consumers where being charged with PPA;
2. Since PRESCO sources its power from the National Power Corporation (NPC) and Angeles Power
Incorporated (API), the Commission used PRESCO’s actual power cost from API for the years 1998, 1999
(except August), 2000, 2001 and 2002 (January to April only) being lower than NPC’s rate. However, for
the years 2002 (May to December), 2003 and 2004, the Commission applied NPC’s rate being lower
than API. x x x x
3. For the period February 1996 to April 1999, PRESCO utilized the 1.4 multiplier scheme which is
roughly equivalent to 29% system loss which resulted to an over-recovery of Ph₱ 5,701,173.00; and
4. The Commission computed PRESCO’s allowable power cost at "net" of the Power Factor Discount
(PFD) and Prompt Payment Discount (PPD) availed from NPC at Ph₱ 2,185,812.00. PRESCO did not
extend the discounts to the end users. Thus, the Commission considered PRESCO’s actual revenue. 42
The ERC confirmed the PPA of PRESCO for the period of February 1996 to June 2004, and directed
PRESCO "to refund the amount of P0.1851/kWh starting the next billing cycle from receipt of this Order
until such time that the full amount shall have been refunded." 43
Petitioners thereafter filed their respective motions for reconsideration of the foregoing Orders. On 9
May 2007, the ERC issued Orders denying the motions for reconsideration filed by the petitioners.44
On 28 June 2007, BATELEC I, QUEZELCO I and QUEZELCO II filed with the Court of Appeals a Petition for
Review under Rule 43 of the Rules of Court, assailing the 22 March 2006 Order, 16 February 2007 Order
and 7 December 2005 Order of the ERC directing the rural electric cooperatives to refund their
respective over-recoveries. The petition also assailed the 9 May 2007 Orders of the ERC denying the
motions for reconsideration of BATELEC I, QUEZELCO I and QUEZELCO II. The case was docketed as CA-
G.R. SP No. 99249. On the same date, PRESCO also filed with the Court of Appeals a Petition for Review
under Rule 43 of the Rules of Court, assailing the 27 March 2006 Order of the ERC directing the rural
electric cooperative to refund its over-recoveries. The petition likewise assailed the 9 May 2007 Order
of the ERC denying the motion for reconsideration of PRESCO. The case was docketed as CA-G.R. SP No.
99253. The Court of Appeals subsequently consolidated these cases with the petitions filed by other
rural electric cooperatives and their associations in relation to the refund of their respective over-
recoveries. The consolidated cases include CA-G.R. SP Nos. 99249, 99250,45 99251,46 99252,4799253,
99267,48 99269,49 99270,50 99271,51 99272,52 99273,53 99323,54 99462,55 99782,56 100671,57 and
100822.58
The rural electric cooperatives similarly raised the following issues in the consolidated cases:
1. Whether the system loss caps prescribed under Section 10 of R.A. 7832 are arbitrary and violative of
the non-impairment clause, therefore, invalid and unconstitutional;
2. Whether the system loss caps should still be imposed even after the effectivity of R.A. 9136;
3. Whether the ERC may validly issue rules and regulations for the implementation of the provisions of
R.A. No. 7832 by way of Orders or Decisions with retroactive effect;
4. Whether petitioners were denied due process of law by the non-disclosure and non-issuance of
guidelines or rules in the implementation of the alleged "Gross Up Factor Mechanism" in the
"confirmation process";
5. Whether the ERC observed the proper issuance of orders and resolutions;
6. Whether the denial of petitioners’ motions for reconsideration of the assailed Orders with only one
Commissioner affixing his signature thereto is valid;
7. Whether the ERC has legal and factual bases to charge petitioners with over-recoveries and to order
the refund thereof for having (1) implemented an "E" that is different from that imposed in the ERB
formula and (2) used the multiplier scheme originally approved by the NEA;
8. Whether the prompt payment discount and other discounts extended to petitioners by their power
supplier, the NPC, may validly be refunded to the consumers;
9. Whether the alleged over-recoveries were arrived at without giving petitioners the opportunity to
be heard.59
The Ruling of the Court of Appeals
In its 23 December 2008 Decision, the Court of Appeals denied the petitions for review of the rural
electric cooperatives, and affirmed the Orders of the ERC directing the various rural electric
cooperatives to refund their respective over-recoveries. At the outset, the Court of Appeals stated that
"to the extent that the administrative agency has not been arbitrary or capricious in the exercise of its
power, the time-honored principle is that courts should not interfere."60
With respect to the constitutionality of Section 10 of R.A. No. 7832, the Court of Appeals ruled that the
challenge amounts to a collateral attack that is prohibited by public policy. 61
With regard to the imposition of the system loss caps after the effectivity of the EPIRA, the Court of
Appeals recognized the amendment to Section 10 of R.A. No. 7832. Section 43 (f) of the EPIRA provides
that "the cap on the recoverable rate of system losses prescribed in Section 10 of Republic Act No. 7832,
is hereby amended and shall be replaced by caps which shall be determined by the ERC based on load
density, sales mix, cost of service, delivery voltage and other technical considerations it may
promulgate." The Court of Appeals, however, stated:
While the EPIRA had already specifically amended the system loss caps mandated under Section 10 of
R.A. No. 7832, respondent ERC still had to go through the tedious process of determining the technical
considerations in order to come up with the rate-setting methodology that shall promote the efficiency
of distribution utilities as envisioned by the law. Before they could be replaced, however, the caps used
in the ERB formula remain, as asserted by the OSG. For this reason, petitioners cannot insist that the
reinforcement of said system loss caps be discontinued after the passage of the EPIRA on June 8, 2001.
In fact, as already stated, it was only in October, 2004 that respondent ERC was able to promulgate the
AGRA or the Automatic Adjustment of Generation Rates and System Loss Rates by Distribution Utilities,
which could effectively replace the PPA. Thus, for the periods covered by the ERC confirmation
(February 1996 to September 2004), respondent ERC did not abuse its discretion in using the system
loss caps in the ERB formula.62
The Court of Appeals likewise rejected the contention of petitioners that the ERC issued rules and
regulations for the implementation of the provisions of R.A. No. 7832 by way of orders or decisions with
retroactive effect. According to the Court of Appeals, the confirmation process of the ERC encompassed
PPA implementation periods after the effectivity of R.A. No. 7832, particularly from February 1996 to
September 2004.63 Thus, the Court of Appeals concluded that there was no retroactive application of
the law.
The Court of Appeals further rejected the claim of denial of due process. The Court of Appeals ruled:
Petitioners likewise failed to show to Our satisfaction that the guidelines contained in the assailed
Orders of respondent ERC went beyond merely providing for the means that can facilitate or render
less cumbersome the implementation of the law. Interpretative rules give no real consequence more
than what the law itself has already prescribed, and are designed merely to provide guidelines to the
law which the administrative agency is in charge of enforcing.64
As regards the validity of the denial of petitioners’ motions for reconsideration, the Court of Appeals
noted that the Orders specifically indicated that the signature of the Commissioner was "FOR AND BY
AUTHORITY OF THE COMMISSION."65 The Court of Appeals stated that the ERC examined the motions
for reconsideration as a collegial body.66 It further emphasized that the interests of substantial justice
prevail over the strict application of technical rules.67
The Court of Appeals further ruled that the ERC had legal and factual bases in charging petitioners with
over-recoveries. The Court of Appeals stated:
Prior to the enactment of R.A. No. 7832, petitioners used the Multiplier Scheme implemented by the
NEA [National Electrification Administration] to recover incremental costs in the power purchased from
NPC – the sole agency authorized to generate electric power before the enactment of the EPIRA – and
consequent system losses that are not included in their respective approved basic rates. With the use
of multipliers ranging from 1.2 to 1.4, depending on their actual system losses, petitioners were allowed
to automatically adjust their rates when cost of power purchased from NPC changes, thus:
1.2 Multiplier – For ECs with system loss of 15% and below;
1.3 Multiplier – For ECs with system loss ranging from 16% to 22%; and
1.4 Multiplier – For ECs with system loss ranging from 23% and above.
The NEA likewise approved the inclusion in the basic rates of a separate item for Loss Levy Charge for
those electric cooperatives (ECs) whose loan covenants with financial institutions such as the Asian
Development Bank (ADB) limit their recoverable system loss to 15%.
Thus, petitioners charged their consumers "System Loss Levy" for system losses in excess of 15%.
Petitioners admitted having continued to use the pricing mechanisms authorized by the NEA even after
the passage of R.A. No. 7832, which repealed the same. Needless to say, the use of said mechanisms
allowed the recovery of system losses beyond the caps set by the said law. Petitioners cannot,
therefore, successfully argue that respondent ERC had no basis in charging them of over-recoveries as
a result of their failure to comply with the law.68
With respect to the PPD and other discounts extended by power suppliers, the Court of Appeals
emphasized that rural electric cooperatives may only recover the actual cost of purchased power. The
Court of Appeals stated:
No error can likewise be attributed to respondent ERC in directing the implementation of the respective
PPA of the petitioners using the power cost net of discounts. As held in the case of National Power
Corporation vs. Philippine Electric Plant Owners Associaton (PEPOA), Inc., discounts are not amounts
paid or charged for the sale of electricity, but are reductions in rates. Moreover, We emphasized here
that rate fixing calls for a technical examination and specialized review of specific details which the
courts are ill-equipped to enter, hence, such matters are primarily entrusted to the administrative or
regulating authority. Towards this end, the administrative agency, respondent ERC in this case,
possesses the power to issue rules and regulations to implement the statute which it is tasked to
enforce, and whatever is incidentally necessary to a full implementation of the legislative intent should
be upheld as germane to the law. Respondent ERC is mandated to prescribe a rate-setting methodology
"in the public interest" and "to promote efficiency", hence its goal of fixing purchased power at actual
cost should be upheld.69
The Court of Appeals further rejected the claim that petitioners were deprived of the opportunity to be
heard. The Court of Appeals gave credence to the assertion of the Office of the Solicitor General that
"petitioners were allowed to justify their PPA charges through the documents that they were required
to file; that the technical staff of the ERC conducted exit conferences with petitioners’ representatives
to discuss preliminary figures and they were authorized to go over the working papers to check out
inaccuracies; and that petitioners were allowed to file their respective motions for reconsideration after
the issuance of the PPA confirmation Orders."70
The rural electric cooperatives thereafter filed their respective motions for reconsideration of the 23
December 2008 Decision of the Court of Appeals. In its 26 April 2010 Resolution, the Court of Appeals
denied the motions for reconsideration. The Court of Appeals observed that the issues raised in the
motions for reconsideration were "mere reiterations" of the issues addressed in the 23 December 2008
Decision.71 The Court of Appeals further stated:
Nonetheless, We find that the following disquisition of the Office of the Solicitor General amply
supports the affirmance of the assailed Decision, thus:
"12. Notably, respondent did not impose rules to set new rates, rather, it merely confirmed whether
petitioners have faithfully complied with the requirements of recoveries under the provisionally
approved PPA formula. There is therefore nothing new or novel about the confirmation policies of
respondent as to give any occasion to retroactivity.
13. Equally significant, it should be underscored that from the beginning, petitioners’ authority to
recover their losses based on the PPA formula were PROVISIONAL, that is, the authority granted to
petitioners for recoveries and the mode of its implementation is subject to further reconfirmation by
respondent ERC. The erstwhile ERB earlier allowed electric cooperatives to implement their PPA based
on the PPA formula that the ERB provisionally approved. As spelled out in the Order of approval,
however, such authorization was provisional and temporary, that is, it is subject to regulation and post
hoc review, verification and confirmation by the ERB.
xxx
14. By its very nature, the PPA confirmation process is a post hoc review of charges already
implemented. It is therefore crystal clear from the approval of the application of the PPA that such
authorization was conditioned on subsequent review by the regulating body. Thus, the Order did not
only approve the implementation of the PPA but also (a) directed the electric cooperatives ‘to submit
their monthly implementation of the PPA formula for the board’s review, verification and confirmation;’
and (b) directed the Commission on Audit to cause an audit of all the accounts and other records of all
the electric cooperatives to aid the Board in the determination of rates.
15. That the electric cooperatives were allowed to implement their PPA after the provisional approval
of the PPA formula did not divest the regulator of the power to determine the reasonableness of the
said charges or the electric cooperatives’ entitlement thereto. Such power necessarily includes the
power to adopt such policies as would assist the regulator in its determination of the ‘reasonableness’
of such PPA charges implemented by electric cooperatives. The implementation was provisionally
approved and subject to the changes that the regulator can make, in the exercise of its rate-setting
authority and subject to the ‘reasonableness’ standard under the law x x x."
Suffice to state that with regard to rate-determination, the government is not hidebound to apply any
particular method or formula. What is a just and reasonable rate cannot be fixed by any immutable
method or formula. In other words, no public utility has the vested right to any particular method of
valuation. The administrative agency is not duty bound to apply any one particular formula or method
simply because the same method has been previously used and applied.
The issues on the alleged retroactive application and denial of due process had been adequately
addressed in the Decision dated December 23, 2008. We reiterate that the periods covered by the ERC
confirmation subject of the petitions, spanning from February 1996 to September 2004, fell after the
effectivity of R.A. No. 7832, the constitutionality of which petitioners continue, albeit erroneously, to
assail in the instant motions. With respect to the alleged lack of trial-type hearing, it is settled that the
essence of due process in administrative proceedings is merely the opportunity to explain one’s side or
to seek reconsideration of the action or ruling complained of. Where an opportunity to be heard is
accorded, as in this case, there is no denial of due process. Neither was there a need for the assailed
Orders of the ERC to be published as petitioners so adamantly insist. As pointed out by the OSG, said
Orders did not create a new obligation, impose a new duty, or attach a new disability on the electric
cooperatives. They merely clarified the policy guidelines adopted in the implementation of the PPA. As
We have said, interpretative rules give no real consequence more than what the law itself has already
prescribed.72
Hence, this instant petition filed by BATELEC I, QUEZELCO I, QUEZELCO II and PRESCO.
The Issues
Petitioners raise the following issues:
1. Whether the policy guidelines issued by the ERC on the treatment of discounts extended by power
suppliers are ineffective and invalid for lack of publication, non-submission to the University of the
Philippines (U.P.) Law Center, and their retroactive application; and
2. Whether the grossed-up factor mechanism implemented by the ERC in the computation of the over-
recoveries is ineffective and invalid for lack of publication, non-submission to the U.P. Law Center, and
its retroactive application.
The Ruling of the Court
The petition is partly meritorious.
I.
Petitioners assail the validity of the 22 March 2006 Order,73 16 February 2007 Order,74 7 December 2005
Order,75and 27 March 2006 Order76 of the ERC directing the refund of over-recoveries for having been
issued pursuant to ineffective and invalid policy guidelines. Petitioners assert that the policy guidelines
on the treatment of discounts extended by power suppliers are ineffective and invalid for lack of
publication, non-submission to the U.P. Law Center, and their retroactive application.
Publication is a basic postulate of procedural due process. The purpose of publication is to duly inform
the public of the contents of the laws which govern them and regulate their activities.77 Article 2 of the
Civil Code, as amended by Section 1 of Executive Order No. 200, states that "laws shall take effect after
fifteen days following the completion of their publication either in the Official Gazette or in a newspaper
of general circulation in the Philippines, unless it is otherwise provided." Section 18, Chapter 5, Book I
of Executive Order No. 292 or the Administrative Code of 1987 similarly provides that "[l]aws shall take
effect after fifteen (15) days following the completion of their publication in the Official Gazette or in a
newspaper of general circulation, unless it is otherwise provided."
Procedural due process demands that administrative rules and regulations be published in order to be
effective.78 In Tañada v. Tuvera, this Court articulated the fundamental requirement of publication,
thus:
We hold therefore that all statutes, including those of local application and private laws, shall be
published as a condition for their effectivity, which shall begin fifteen days after publication unless a
different effectivity date is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders promulgated by the President in the
exercise of legislative powers whenever the same are validly delegated by the legislature or, at present,
directly conferred by the Constitution. Administrative rules and regulations must also be published if
their purpose is to enforce or implement existing law pursuant also to a valid delegation. 79 (Boldfacing
supplied)
There are, however, several exceptions to the requirement of publication. First, an interpretative
regulation does not require publication in order to be effective. 80 The applicability of an interpretative
regulation "needs nothing further than its bare issuance for it gives no real consequence more than
what the law itself has already prescribed."81 It "adds nothing to the law" and "does not affect the
substantial rights of any person."82 Second, a regulation that is merely internal in nature does not
require publication for its effectivity.83 It seeks to regulate only the personnel of the administrative
agency and not the general public.84 Third, a letter of instruction issued by an administrative agency
concerning rules or guidelines to be followed by subordinates in the performance of their duties does
not require publication in order to be effective.85
The policy guidelines of the ERC on the treatment of discounts extended by power suppliers are
interpretative regulations. The policy guidelines merely interpret R.A. No. 7832 and its IRR, particularly
on the computation of the cost of purchased power. The policy guidelines did not modify, amend or
supplant the IRR.
The policy guidelines were first enunciated by the ERC in its 17 June 2003 Order. In the said Order, the
ERC explained that the cost of electricity purchased and generated is computed at "gross" if the
discounts extended by the power supplier are not passed on to end-users, while the cost of electricity
is computed at "net" if the discounts are passed on to end-users.86
The ERC subsequently issued its 14 January 2005 Order. It emphasized therein that rural electric
cooperatives should only recover the actual costs of purchased power. 87 Any discounts extended to
rural electric cooperatives must therefore be extended to end-users by charging only the "net" cost of
purchased power. The ERC issued the following directives in the said Order:
A. The computation and confirmation of the PPA prior to the Commission’s Order dated June 17, 2003
shall be based on the approved PPA formula;
B. The computation and confirmation of the PPA after the Commission’s Order dated June 17, 2003
shall be based on the power cost "net" of discount; and
C. If the approved PPA formula is silent on the terms of discount, the computation and confirmation of
the PPA shall be based on the power cost at "gross", subject to the submission of proofs that said
discounts are being extended to the end-users.88
The ERC thereafter clarified its policy guidelines in the 22 March 2006 Order, 16 February 2007 Order,
7 December 2005 Order and 27 March 2006 Order. The ERC outlined the following principles governing
the treatment of the PPD extended by power suppliers to distribution utilities including rural electric
cooperatives:
I. The over-or-under recovery will be determined by comparing the Allowable Power Cost with the
Distribution Utility’s Actual Revenue (AR) billed to end-users.
II. Calculation of the Allowable Power Cost as prescribed in the PPA Formula:
a. For a Distribution Utility which PPA formula explicitly provides the manner by which discounts availed
from the power supplier/s shall be treated, the allowable power cost will be computed based on the
specific provision of the formula, which may either be at "net" or "gross"; and
b. For a Distribution Utility which PPA formula is silent in terms of discounts, the allowable power cost
will be computed at "net" of discounts availed from the power supplier/s, if there is any.
III. Calculation of the Distribution Utility’s Actual Revenues/Actual Amount Billed to End-users.
a. On Actual PPA Computed at Net of Discounts Availed from Power Supplier/s:
a.1. If a Distribution Utility bills at net of discounts availed from the power supplier/s (i.e. Gross power
cost minus discounts from power supplier/s) and the distribution utility is not extending discounts to
end-users, the actual revenue should be equal to the allowable power cost; and
a.2. If a Distribution Utility bills at net of discounts availed from the power supplier/s (i.e. Gross power
cost minus discounts from power supplier/s) and the distribution utility is extending discounts to end-
users, the discount extended to end-users will be added back to actual revenue.
b. On Actual PPA Computed at Gross
b.1. If a Distribution Utility bills at gross (i.e. Gross power cost not reduced by discounts from power
supplier/s) and the distribution utility is extending discounts to end-users, the actual revenue will be
calculated as: Gross Power Revenue less Discounts extended to end-users. The result will then be
compared to the allowable power cost; and
b.2. If a Distribution Utility bills at gross (i.e. Gross power cost not reduced by discounts from power
supplier/s) and the distribution utility is not extending discounts to end-users, the actual revenue will
be taken as is which shall be compared to the allowable power cost.
IV. In calculating the Distribution Utility’s actual revenues, in no case shall the amount of discounts
extended to end-users be higher than the discounts availed by the Distribution Utility from its power
supplier/s.89
The above-stated policy guidelines of the ERC on the treatment of discounts merely interpret the cost
of purchased power as a component of the PPA formula provided in Section 5, Rule IX of the IRR of R.A.
No. 7832. The cost of purchased power is denominated as the variable "A" in the numerator of the PPA
formula, particularly:
Section 5. Automatic Cost Adjustment Formula. –
xxxx
The automatic cost adjustment of every electric cooperative shall be guided by the following formula:
Purchased Power Adjustment Clause
A
(PPA) = -E
B-(C + D)
Where:
A= Cost of electricity purchased and generated for the previous month
B= Total Kwh purchased and generated for the previous month
C = The actual system loss but not to exceed the maximum recoverable rate of system loss in Kwh
plus actual company use in Kwhrs but not to exceed 1% of total Kwhrs purchased and generated
D= Kwh consumed by subsidized consumers
E = Applicable base cost of power equal to the amount incorporated into their basic rate per Kwh
(Boldfacing supplied)
The cost of purchased power expressed as the variable "A" in the numerator of the PPA formula is plain
and unambiguous. Webster’s Third New International Dictionary defines the term "cost" as "an item of
outlay incurred in the operation of a business enterprise (as for the purchase of raw materials, labor,
services, supplies) including the depreciation and amortization of capital assets." 90 Black’s Law
Dictionary defines the term "cost" as "the amount paid or charged for something; price or
expenditure."91 When the policy guidelines of the ERC directed the exclusion of discounts extended by
power suppliers in the computation of the cost of purchased power, the guidelines merely affirmed the
plain and unambiguous meaning of "cost" in Section 5, Rule IX of the IRR of R.A. No. 7832. "Cost" is an
item of outlay, and must therefore exclude discounts since these are "not amounts paid or charged for
the sale of electricity, but are reductions in rates."92
Furthermore, the policy guidelines of the ERC uphold and preserve the nature of the PPA formula. The
nature of the PPA formula precludes an interpretation that includes discounts in the computation of
the cost of purchased power. The PPA formula is an adjustment mechanism the purpose of which is
purely for the recovery of cost. In National Association of Electricity Consumers for Reforms
(NASECORE) v. Energy Regulatory Commission,93 this Court noted the explanation of the ERC on the
nature and purpose of an adjustment mechanism:
It is clear from the foregoing that "escalator" or "tracker" or any other similar automatic adjustment
clauses are merely cost recovery or cost "flow-through" mechanisms; that what they purport to cover
are operating costs only which are very volatile and unstable in nature and over which the utility has
no control; and that the use of the said clauses is deemed necessary to enable the utility to make the
consequent adjustments on the billings to its customers so that ultimately its rate of return would not
be quickly eroded by the escalations in said costs of operation. The total of all rate adjustments should
not operate to increase overall rate of return for a particular utility company above the basic rates
approved in the last previous rate case (Re Adjustment Clause in Telephone Rate Schedules, 3 PUR 4th
298, N.J. Bd. of Pub. Util.Comm’rs., 1973. Affirmed 66 N.J. 476, 33 A.2d 4, 8 PUR 4th 36, N.J.,1975). 94
Rural electric cooperatives cannot therefore incorporate in the PPA formula costs that they did not
incur. Consumers must not shoulder the gross cost of purchased power; otherwise, rural electric
cooperatives will unjustly profit from discounts extended to them by power suppliers. In the
Consolidated Comment of the ERC, the Solicitor General correctly pointed out:
34.4. Second, the ERC’s PPA confirmation policies were in consonance with the rule that electric
cooperatives may only recover costs to the extent of the amount they actually incurred in the purchase
of electricity. The PPA remained to be the difference between the electric cooperative’s actual
allowable power costs as translated to PhP/kWh and the electric cooperative’s approved Basic Rate.
This was also how the Cost Adjustment Formula was defined in the IRR of R.A. No. 7832.
34.5. Contrary to petitioners’ assertions, therefore, the policy did not deviate from the ERB’s
provisionally-approved PPA formula but merely implemented the policy set out in R.A. No. 7832, that
is, it is strictly for the purpose of cost recovery only. Obviously, if the PPA is computed without factoring
the discounts given by power suppliers to electric cooperatives, electric cooperatives will impermissibly
retain or even earn from the implementation of the PPA.95
Thus, the policy guidelines of the ERC on the treatment of discounts extended by power suppliers "give
no real consequence more than what the law itself has already prescribed." 96 Publication is not
necessary for the effectivity of the policy guidelines.
As interpretative regulations, the policy guidelines of the ERC on the treatment of discounts extended
by power suppliers are also not required to be filed with the U.P. Law Center in order to be effective.
Section 4, Chapter 2, Book VII of the Administrative Code of 1987 requires every rule adopted by an
agency to be filed with the U.P. Law Center to be effective. However, in Board of Trustees of the
Government Service Insurance System v. Velasco,97 this Court pronounced that "not all rules and
regulations adopted by every government agency are to be filed with the UP Law
Center."98 Interpretative regulations and those merely internal in nature are not required to be filed
with the U.P. Law Center.99 Paragraph 9 (a) of the Guidelines for Receiving and Publication of Rules and
Regulations Filed with the U.P. Law Center100 states:
9. Rules and Regulations which need not be filed with the U.P. Law Center, shall, among others, include
but not be limited to, the following:
a. Those which are interpretative regulations and those merely internal in nature, that is, regulating
only the personnel of the Administrative agency and not the public.
Petitioners further assert that the policy guidelines are invalid for having been applied retroactively.
According to petitioners, the ERC applied the policy guidelines to periods of PPA implementation prior
to the issuance of its 14 January 2005 Order. 101 In Republic v. Sandiganbayan,102 this Court recognized
the basic rule "that no statute, decree, ordinance, rule or regulation (or even policy) shall be given
retrospective effect unless explicitly stated so." 103 A law is retrospective if it "takes away or impairs
vested rights acquired under existing laws, or creates a new obligation and imposes a new duty, or
attaches a new disability, in respect of transactions or consideration already past." 104
The policy guidelines of the ERC on the treatment of discounts extended by power suppliers are not
retrospective. The policy guidelines did not take away or impair any vested rights of the rural electric
cooperatives. The usage and implementation of the PPA formula were provisionally approved by the
ERB in its Orders dated 19 February 1997105and 25 April 1997.106 The said Orders specifically stated that
the provisional approval of the PPA formula was subject to review, verification and confirmation by the
ERB. Thus, the rural electric cooperatives did not acquire any vested rights in the usage and
implementation of the provisionally approved PPA formula.
was not disclosed to the rural electric cooperatives prior to the review, verification and confirmation of
the PPA.107 The 22 March 2006 Order and 16 February 2007 Order merely stated that one of the bases
of the over-recoveries was "the new grossed-up factor mechanism adopted by the Commission which
provided a true-up mechanism that allows the distribution utilities to recover the actual cost of
purchased power."108 The 7 December 2005 Order similarly stated that one of the bases of the over-
recoveries was "the new grossed-up factor scheme adopted by the Commission which provided a
different result vis-a-vis the originally approved formula."109 The ERC did not explain or disclose in the
said Orders any details regarding the grossed-up factor mechanism.
Based on the records, the first instance wherein the ERC disclosed the details of the grossed-up factor
mechanism was in its comments filed with the Court of Appeals in CA-G.R. SP Nos. 99249 and 99253 on
1 August 2008 and 9 October 2007, respectively.110 The ERC reiterated the details of the grossed-up
factor mechanism in its Consolidated Comment filed with this Court on 28 February 2011. 111 The ERC
illustrated the application of the grossed-up factor mechanism in the following manner:
Given:
Kwh Purchased – 100,000 Kwh
Cost of Purchased Power – Ph₱ 300,000.00
Kwh Sales – 89,000 Kwh
Coop Use – 1,000 Kwh
System Loss – 10% or 10,000 Kwh
Kwh Sales + Coop Use
Gross-Up Factor =

Furthermore, the policy guidelines of the ERC did not create a new obligation and impose a new duty, Kwh Purchased (1-% System Loss)
nor did it attach a new disability. As previously discussed, the policy guidelines merely interpret R.A.
No. 7832 and its IRR, particularly on the computation of the cost of purchased power.The policy 89,000+1,000
guidelines did not modify, amend or supplant the IRR.
Gross-up Factor =
II.
100,000 (1-10%)
Petitioners further assail the validity of the 22 March 2006 Order, 16 February 2007 Order, 7 December
2005 Order and 27 March 2006 Order of the ERC directing the refund of over-recoveries for having been 90,000
issued pursuant to an ineffective and invalid grossed-up factor mechanism. Petitioners claim that the
grossed-up factor mechanism implemented by the Gross-up Factor = =1

ERC in the review, verification and confirmation of the PPA is ineffective and invalid for lack of
publication, non-submission to the U.P. Law Center, and its retroactive application.
It does not appear from the records that the grossed-up factor mechanism was published or submitted
to the U.P. Law Center. The ERC did not dispute the claim of petitioners that the grossed-up factor
mechanism was not published, nor did the ERC dispute the claim that the grossed-up factor mechanism
90,000
The Gross-up Factor, which in this illustration is equivalent to 1, will be used in determining the
recoverable power cost of an electric cooperative, such that:
Recoverable Cost = Gross-Up Factor x Cost of Purchased Power
Recoverable Cost = 1 x Ph₱ 300,000.00 = Ph₱ 300,000.00 112 Kwh Sales + Coop Use
(Boldfacing supplied)
Gross-Up Factor =
In its Consolidated Comment, the ERC stated that the PPA "captures the incremental cost in purchased
and generated electricity plus recoverable system loss in excess of what had already been included as Kwh Purchased (1-% System Loss)
power cost component in the electric cooperative’s basic rates." 113 On the other hand, the grossed-up
factor mechanism is a "mathematical calculation that ensures that the electric cooperatives are able to Recoverable Cost = Gross-Up Factor x Cost of Purchased Power
recover costs incurred from electricity purchased and generated plus system loss components within
allowable limits." 114 The ERC proceeded to explain the relationship between the PPA and the grossed- Integrating the above-stated formulas will result in the following formula:
up factor mechanism thus:
Kwh Sales + Coop Use
20.2 This gross-up factor mechanism did not modify the PPA formula or state how the PPA is to be x Cost of Purchased
computed. The recoverable amount derived from applying the gross-up factor is still the maximum Recoverable Cost =
Power
allowable cost to be recovered from the electric cooperative’s customers for a given month. If the PPA
Kwh Purchased (1-% System Loss)
collected exceeded the recoverable cost, the difference should be refunded back to the consumers. 115

This Court agrees with the ERC that the grossed-up factor mechanism "did not modify the PPA formula On the other hand, the PPA formula provided in the IRR of R.A. No. 7832 does not account for the
or state how the PPA is to be computed."116 However, the grossed-up factor mechanism amends the amount of power sold. It accounts for the amount of power purchased and generated, expressed as the
IRR of R.A. No. 7832 as it serves as an additional numerical standard that must be observed and applied variable "B" in the following PPA formula:
by rural electric cooperatives in the implementation of the PPA. While the IRR explains, and stipulates, Purchased Power Adjustment Clause
the PPA formula, the IRR neither explains nor stipulates the grossed-up factor mechanism. The reason
is that the grossed-up factor mechanism is admittedly "new" and provides a "different result," having A
been formulated only after the issuance of the IRR.
(PPA) = -E
The grossed-up factor mechanism is not the same as the PPA formula provided in the IRR of R.A. No.
7832. Neither is the grossed-up factor mechanism subsumed in any of the five variables of the PPA B-(C + D)
formula. Although both the grossed-up factor mechanism and the PPA formula account for system loss
and use of electricity by cooperatives, they serve different quantitative purposes. Where:

The grossed-up factor mechanism serves as a threshold amount to which the PPA formula is to be
compared. According to the ERC, any amount collected under the PPA that exceeds the Recoverable
Cost computed under the grossed-up factor mechanism shall be refunded to the consumers. 117 The
Recoverable Cost computed under the grossed-up factor mechanism is "the maximum allowable cost
to be recovered from the electric cooperative’s customers for a given month." 118 In effect, the PPA alone
does not serve as the variable rate to be collected from the consumers. The PPA formula and the
grossed-up factor mechanism will both have to be observed and applied in the implementation of the
PPA.
Furthermore, the grossed-up factor mechanism accounts for a variable that is not included in the five
variables of the PPA formula. In particular, the grossed-up factor mechanism accounts for the amount
of power sold in proportion to the amount of power purchased by a rural electric cooperative,
expressed as the Gross-Up Factor. It appears that the Gross-Up Factor limits the Recoverable Cost by
allowing recovery of the Cost of Purchased Power only in proportion to the amount of power sold. This
is shown by integrating the formula of the Gross-Up Factor with the formula of the Recoverable Cost,
thus:
A= Cost of electricity purchased and generated for the previous month
B= Total Kwh purchased and generated for the previous month
C = The actual system loss but not to exceed the maximum recoverable rate of system loss in Kwh
plus actual company use in Kwhrs but not to exceed 1% of total Kwhrs purchased and generated
D= Kwh consumed by subsidized consumers
E= Applicable base cost of power equal to the amount incorporated into their basic rate per
Kwh119 (Boldfacing supplied)
In light of these, the grossed-up factor mechanism does not merely interpret R.A. No. 7832 or its
IRR.1âwphi1 It is also not merely internal in nature. The grossed-up factor mechanism amends the IRR
by providing an additional numerical standard that must be observed and applied in the
implementation of the PPA. The grossed-up factor mechanism is therefore an administrative rule that
should be published and submitted to the U.P. Law Center in order to be effective.

The grossed-up factor mechanism consists of the following formulas: As previously stated, it does not appear from the records that the grossed-up factor mechanism was
published and submitted to the U.P. Law Center. Thus, it is ineffective and may not serve as a basis for
the computation of over-recoveries. The portions of the over-recoveries arising from the application of
the mechanism are therefore invalid.

Furthermore, the application of the grossed-up factor mechanism to periods of PPA implementation
prior to its publication and disclosure renders the said mechanism invalid for having been applied
retroactively. The grossed-up factor mechanism imposes an additional numerical standard that clearly
"creates a new obligation and imposes a new duty x x x in respect of transactions or consideration
already past."120

Rural electric cooperatives cannot be reasonably expected to comply with and observe the grossed-up
factor mechanism without its publication. This Court recognizes that the mechanism aims to reflect the
actual cost of purchased power for the benefit of consumers. However, this objective must at all times
be balanced with the viability of rural electric cooperatives. The ERB itself made the following
observation regarding the operational and economic condition of rural electric cooperatives in its Order
dated 19 February 1997:

Electric cooperatives are created under Presidential Decree No. 269 in the nature of non-profit
organizations. Thus, they do not have the funds they can dispose of to meet their future emergency
obligations and operational needs. They are not entitled return on their investment as their rates are
based on cash flow methodology. Hence, if the appropriate rate level x x x to keep them going or viable,
shall not be provided, the finances and operations of the said cooperatives will be jeopardized which
ultimately will result in inefficient electric service to their respective customers or worse shut down
when they fail to pay the sources of their electricity like (National Power Corporation) and their loans
to the NEA.121

Administrative compliance with due process requirements cultivates a regulatory environment

characterized by predictability and stability. These characteristics ensure that rural electric cooperatives
are given the opportunity to achieve efficiency, and that ultimately, consumers have access to reliable
services and affordable electric rates.

WHEREFORE, we PARTY GRANT the petition and rule that the grossed-up factor mechanism
is INEFFECTIVEand INVALID. We further rule that the portions of the over-recoveries that may have
arisen from the application of the grossed-up factor mechanism in the 22 March 2006 Order, 16
February 2007 Order, 7 December 2005 Order and 27 March 2006 Order of the Energy Regulatory
Commission are INVALID. Respondent Energy Regulatory Commission is DIRECTED to compute the
portions of the over-recoveries arising from the application of the grossed-up factor mechanism and to
implement the collection of any amount previously refunded by petitioner to their respective
consumers on the basis of the grossed-up factor mechanism. The 23 December 2008 Decision and 26
April 2010 Resolution of the Court of Appeals are hereby MODIFIED accordingly.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice
[G.R. No. 103533. December 15, 1998]
MANILA JOCKEY CLUB, INC. AND PHILIPPINE RACING CLUB , INC., petitioners, vs. THE COURT OF
APPEALS AND PHILIPPINE RACING COMMISSION, respondents.
DECISION
QUISUMBING, J.:
This is a Petition for Review on Certiorari seeking the reversal of the decision[1] of the Court of Appeals
in CA-G.R. SP No. 25251 dated September 17, 1991 and the resolution [2] dated January 8, 1992, which
denied the motion for reconsideration. At issue here is the control and disposition of breakages [3] in
connection with the conduct of horse-racing.
The pertinent facts on record are as follows:
On June 18, 1948, Congress approved Republic Act No. 309, entitled An Act to Regulate Horse-Racing
in the Philippines. This Act consolidated all existing laws and amended inconsistent provisions relative
to horse racing. It provided for the distribution of gross receipts from the sale of betting tickets, but is
silent on the allocation of so-called breakages. Thus the practice, according to the petitioners, was to
use the breakages for the anti-bookies drive and other sales promotions activities of the horse racing
clubs.
On October 23, 1992, petitioners, Manila Jockey Club, Inc. (MJCI) and Philippine Racing Club, Inc. (PRCI),
were granted franchises to operate and maintain race tracks for horse racing in the City of Manila and
the Province of Rizal by virtue of Republic Act Nos. 6631 and 6632, respectively, and allowed to hold
horse races, with bets, on the following dates:
x x x Saturdays, Sundays and official holidays of the year, excluding Thursdays and Fridays of the Holy
Week, June twelfth, commonly known as Independence Day, Election Day and December thirtieth,
commonly known as Rizal Day.
(Sec. 5 of R.A. 6631)
x x x Saturdays, Sundays, and official holidays of the year, except on those official holidays where the
law expressly provides that no horse races are to be held. The grantee may also conduct races on the
eve of any public holiday to start not earlier than five-thirty (5:30) oclock in the afternoon but not to
exceed five days a year.
(Sec. 7 of R.A. 6632)
Said laws carried provisions on the allocation of breakages to beneficiaries as follows:
Franchise Laws
R. A. 6631[4] R. A. 6632[5]
(for MJCI) (for PRCI)
Provincial or city hospitals 25%
Rehabilitation of drug addicts 25% 50%
For the benefit of Philippine
Amateur Athletes Federation 50% 25%
Charitable institutions 25%
On March 20, 1974, Presidential Decree No. 420 was issued creating the Philippine Racing Commission
(PHILRACOM), giving it exclusive jurisdiction and control over every aspect of the conduct of horse
racing, including the framing and scheduling of races. [6] By virtue of this power, the PHILRACOM
authorized the holding of races on Wednesdays starting on December 22, 1976. [7]
In connection with the new schedule of races, petitioners made a joint query regarding the ownership
of breakages accumulated during Wednesday races. In response to the query, PHILRACOM rendered its
opinion in a letter dated September 20, 1978. It declared that the breakages belonged to the racing
clubs concerned, to wit:
We find no further need to dissect the provisions of P.D. 420 to come to a legal conclusion. As can be
clearly seen from the foregoing discussion and based on the established precedents, there can be no
doubt that the breakage of Wednesday races shall belong to the racing club concerned. [8]
Consequently, the petitioners allocated the proceeds of breakages for their own business purpose.
Thereafter, PHILRACOM authorized the holding of races on Thursdays from November 15, 1984 to
December 31, 1984, and on Tuesdays since January 15, 1985 up to the present. These mid-week races
are in addition to those days specifically mentioned in R.A. 6631 and R.A. 6632. Likewise, petitioners
allocated the breakages from these races for their own uses.
On December 16, 1986 President Corazon Aquino amended certain provisions Sec. 4 of R.A. 6631 and
Sec. 6 of R.A. 6632 through Executive Orders No. 88 and 89. Under these Executive Orders, breakages
were allocated to beneficiaries, as follows:
Franchise Laws
E. O. 89[9] E.O. 88[10]
(for MJCI) (for PRCI)
Provincial or city hospitals 25%
Rehabilitation of drug addicts 25% 50%
For the benefit of Philippine
Racing Commission 50% 25%
Charitable institutions 25%
On April 23, 1987, PHILRACOM itself addressed a query to the Office of the President asking which
agency is entitled to dispose of the proceeds of the breakages derived from the Tuesday and
Wednesday races.
In a letter dated May 21, 1987, the Office of the President, through then Deputy Executive Secretary
Catalino Macaraig, Jr., replied that the disposition of the breakages rightfully belongs to PHILRACOM,
not only those derived from the Saturday, Sunday and holiday races, but also from the Tuesday and
Wednesday races in accordance with the distribution scheme prescribed in said Executive Orders. [11]
Controversy arose when herein respondent PHILRACOM, sent a series of demand letters to petitioners
MJCI and PRCI, requesting its share in the breakages of mid-week-races and proof of remittances to
other legal beneficiaries as provided under the franchise laws. On June 8, 1987, PHILRACOM sent a
letter of demand to petitioners MJCI and PRCI asking them to remit PHILRACOMs share in the breakages
derived from the Tuesday, Wednesday and Thursday races in this wise:
xxxxxxxxx
Pursuant to Board Resolution dated December 21, 1986, and Executive Order Nos. 88 and 89 series of
1986, and the authority given by the Office of the President dated May 21, 1987, please remit to the
Commission the following:
1) PHILRACOMs share in the breakages derived from Wednesday racing for the period starting
December 22, 1976 up to the December 31, 1986.
2) PHILRACOMs share in the breakages derived from Thursday racing for the period starting November
15, 1984 up to December 31, 1984; and
3) PHILRACOMS share in the breakages derived from Tuesday racing for the period starting January 15,
1985 up to December, 1986.
4) Kindly furnish the Commission with the breakdown of all breakages derived from Tuesdays,
Thursdays and Wednesdays racing that you have remitted to the legal beneficiaries.[12]
On June 16, 1987, petitioners MJCI and PRCI sought reconsideration [13] of the May 21, 1987 opinion of
then Deputy Executive Secretary Macaraig, but the same was denied by the Office of the President in
its letter dated April 11, 1988.[14]
On April 25, 1988, PHILRACOM wrote another letter [15] to the petitioners MJCI and RCI seeking the
remittance of its share in the breakages. Again, on June 13, 1990, PHILRACOM reiterated its previous
demand embodied in its letter of April 25, 1988.[16]
Petitioners ignored said demand. Instead, they filed a Petition for Declaratory Relief before the Regional
Trial Court, Branch 150 of Makati, on the ground that there is a conflict between the previous opinion
of PHILRACOM dated September 20, 1978 and the present position of PHILRACOM, as declared and
affirmed by the Office of the President in its letters dated May 21, 1987 and April 11, 1988.Petitioners
averred that there was an actual controversy between the parties, which should be resolved.
On March 11, 1991, the trial court rendered judgment, disposing as follows:
WHEREFORE, and in view of all the foregoing considerations, the Court hereby declares and decides as
follows:
a) Executive Orders Nos. 88 and 89 do not and cannot cover the disposition and allocation of mid-week
races, particularly those authorized to be held during Tuesdays, Wednesdays and those which are not
authorized under Republic Acts 6631 and 6632; and
b) The ownership by the Manila Jockey Club, Inc. and the Philippine Racing Club, Inc. of the breakages
they derive from mid-week races shall not be disturbed, with the reminder that the breakages should
be strictly and wholly utilized for the purpose for which ownership thereof has been vested upon said
racing entities.
SO ORDERED.[17]
Dissatisfied, respondent PHILRACOM filed a Petition for Certiorari with prayer for the issuance of a writ
of preliminary injunction before this Court, raising the lone question of whether or not E. O. Nos. 88
and 89 cover breakages derived from the mid-week races. However, we referred the case to the Court
of Appeals, which eventually reversed the decision of the trial court, and ruled as follows:
xxxxxxxxx
The decision on the part of PHILRACOM to authorize additional racing days had the effect of widening
the scope of Section 5 of RA 6631 and Section 7 of RA 6632. Consequently, private respondents derive
their privilege to hold races on the designated days not only from their franchise acts but also from the
order issued by the PHILRACOM. No provision of law became inconsistent with the passage of the Order
granting additional racing days. Neither was there a special provision set to govern those mid-week
races. The reason is simple. There was no need for any new provisions because there are enough
general provisions to cover them. The provisions on the disposition and allocation of breakages being
general in character apply to breakages derived on any racing day.[18]
xxxxxxxxx
WHEREFORE, based on the foregoing analysis and interpretation of the laws in question, the judgment
of the trial court is hereby SET ASIDE. Decision is hereby rendered:
1. declaring Section 4 of RA 6631 as amended by E.O. 89 and Section 6 of RA 6632 as amended by E.O.
88 to cover the disposition and allocation of breakages derived on all races conducted by private
respondents on any racing day, whether as provided for under Section 4 of RA 6631 or Section 6 of RA
6632 or as ordered by PHILRACOM in the exercise of its powers under P.D. 420;
2. ordering private respondents to remit to PHILRACOM its share under E.O. 88 and E.O. 89 derived
from races held on Tuesdays, Wednesdays, Thursdays as authorized by PHILRACOM.
SO ORDERED.[19]
Petitioners filed a motion for reconsideration, but it was denied for lack of merit, with respondent Court
of Appeals further declaring that:
xxxxxxxxx
In so far as the prospective application of Executive Orders Nos. 88 and 89 is concerned, We have no
disagreement with the respondents. Since PHILRACOM became the beneficiary of the breakages only
upon effectivity of Executive Order Nos. 88 and 89, it is therefore entitled to such breakages from
December 16, 1986 when said Executive Orders were issued. However, we do not concede that
respondents are entitled to breakages prior to December 16, 1986 because it is clear that the applicable
laws from 1976 to December 16, 1986 were R.A. 6631 and R.A. 6632, which specifically apportion the
breakages to specified beneficiaries among which was the PAAF, a government agency. Since
respondents admit that PHILRACOM (Petitioner) was merely placed in lieu of PAAF as
beneficiary/recipient of breakages, then whatever breakages was due to PAAF as one of the
beneficiaries under R.A. Nos. 6631 and 6632 accrued to or should belong to PHILRACOM as successor
to the defunct PAAF.
Finding the Motion for Reconsideration without merit, and for reasons indicated, the Motion is denied.
SO ORDERED.[20]
Consequent to the aforequoted adverse decision, petitioners MJCI and PRCI filed this petition for review
under Rule 45.
The main issue brought by the parties for the Courts resolution is: Who are the rightful beneficiaries of
the breakages derived from mid-week races? This issue also carries an ancillary question: assuming
PHILRACOM is entitled to the mid-week breakages under the law, should the petitioners remit the
money from the time the mid-week races started, or only upon the promulgation of E.O. Nos. 88 and
89?
Petitioners assert that franchise laws should be construed to apply the distribution scheme specifically
and exclusively to the racing days enumerated in Sec. 5 of R.A. 6631, and Sec. 7 of R.A. 6632. They claim
that disposition of breakages under these laws should be limited to races conducted on all Saturdays,
Sundays, and official holidays of the year, except, on those official holidays where the law expressly
provides that no horse races are to be held, hence, there is no doubt that the breakages of Wednesday
races shall belong to the racing clubs concerned.[21] They even advance the view that where a statute
by its terms is expressly limited to certain matters, it may not by interpretation or construction be
extended to other matters.[22]
However, respondent PHILRACOM contends that R.A. Nos. 6631 and 6632 are laws intended primarily
to grant petitioners their respective franchises to construct, operate, and maintain a race track for horse
racing.[23] When PHILRACOM added mid-week races, the franchises given to the petitioners remained
the same. Logically, what applies to races authorized under Republic Act Nos. 6631 and 6632 should
also apply to races additionally authorized by PHILRACOM, namely mid-week races, because these are
general provisions which apply general rules and procedures governing the operation of the
races. Consequently, if the authorized racing days are extended, these races must therefore be
governed by the same rules and provisions generally provided therein.
We find petitioners position on the main issue lacking in merit and far from persuasive.
Franchise laws are privileges[24] conferred by the government on corporations to do that which does
not belong to the citizens of the country generally by common right. [25] As a rule, a franchise springs
from contracts between the sovereign power and the private corporation for purposes of individual
advantage as well as public benefit.[26] Thus, a franchise partakes of a double nature and character.[27] In
so far as it affects or concerns the public, it is public juris and subject to governmental control.[28] The
legislature may prescribe the conditions and terms upon which it may be held, and the duty of grantee
to the public exercising it.[29]
As grantees of a franchise, petitioners derive their existence from the same. Petitioners operations are
governed by all existing rules relative to horse racing provided they are not inconsistent with each other
and could be reasonably harmonized. Therefore, the applicable laws are R.A. 309, as amended, R.A.
6631 and 6632, as amended by E.O. 88 and 89, P.D. 420 and the orders issued by PHILRACOM.
Consequently, every statute should be construed in such a way that will harmonize it with existing
laws. This principle is expressed in the legal maxim interpretare et concordare leges legibus est optimus
interpretandi, that is, to interpret and to do it in such a way as to harmonize laws with laws is the best
method of interpretation.[30]
A reasonable reading of the horse racing laws favors the determination that the entities enumerated in
the distribution scheme provided under R.A. Nos. 6631 and 6632, as amended by Executive Orders 88
and 89, are the rightful beneficiaries of breakages from mid-week races. Petitioners should therefore
remit the proceeds of breakages to those benefactors designated by the aforesaid laws.
The holding of horse races on Wednesdays is in addition to the existing schedule of races authorized by
law. Since this new schedule became part of R.A. 6631 and 6632 the set of procedures in the franchise
laws applicable to the conduct of horse racing business must likewise be applicable to Wednesday or
other mid-week races. A fortiori, the granting of the mid-week races does not require another legislative
act to reiterate the manner of allocating the proceeds of betting tickets. Neither does the allocation of
breakages under the same provision need to be isolated to construe another distribution scheme.No
law can be viewed in a condition of isolation or as the beginning of a new legal system. [31] A
supplemental law becomes an addition to the existing statutes, or a section thereof; and its effect is
not to change in any way the provisions of the latter but merely to extend the operation thereof, or
give additional power to enforce its provisions, as the case may be. In enacting a particular statute,
legislators are presumed to have full knowledge and to have taken full cognizance of the existing laws
on the same subject or those relating thereto.
Proceeding to the subsidiary issue, the period for the remittance of breakages to the beneficiaries
should have commenced from the time PHILRACOM authorized the holding of mid-week races because
R.A. Nos. 6631 and 6632 were already in effect then. The petitioners contend that they cannot be held
retroactively liable to respondent PHILRACOM for breakages prior to the effectivity of E.O. Nos. 88 and
89. They assert that the real intent behind E.O. Nos. 88 and 89 was to favor the respondent PHILRACOM
anew with the benefits which formerly had accrued in favor of Philippine Amateur Athletic Federation
(PAAF). They opine that since laws operate prospectively unless the legislator intends to give them
retroactive effect, the accrual of these breakages should start on December 16, 1986, the date of
effectivity of E.O. Nos. 88 and 89.[32] Now, even if one of the benefactors of breakages, the PAAF, as
provided by R.A. 6631 and 6632 had ceased operation, it is still not proper for the petitioners to
presume that they were entitled to PAAFs share. When the petitioners mistakenly appropriated the
breakages for themselves, they became the implied trustees for those legally entitled to the
proceeds. This is in consonance with Article 1456 of the Civil Code, which provides that:
Art. 1456If property is acquired through mistake or fraud, the person obtaining it is, by force of law, regulate and even prohibit through the exercise of the police power. Thus, a gambling franchise is
considered a trustee of an implied trust for the benefit of the person from whom the property comes. always subject to the exercise of police power for the public welfare. [37]

The petitioners should have properly set aside the amount for the defunct PAAF, until an alternative That is why we need to stress anew that a statute which authorizes a gambling activity or business
beneficiary was designated, which as subsequently provided for by Executive Order Nos. 88 and 89, is should be strictly construed, and every reasonable doubt be resolved so as to limit rather than expand
PHILRACOM: the powers and rights claimed by franchise holders under its authority. [38]

xxxxxxxxx WHEREFORE, there being no reversible error, the appealed decision and the resolution of the
respondent Court of Appeals in CA-G.R. SP No. 25251, are hereby AFFIRMED, and the instant petition
Secs. 2 - All the cash balances and accumulated amounts corresponding to the share of the Philippine is hereby DENIED for lack of merit.
Amateur Athletic Federation/Ministry of Youth and Sports Development, pursuant to Section 6 of
Republic Act No. 6632, not remitted by the Philippine Racing Club, Inc./Manila Jockey Club Inc., are Costs against petitioners.
hereby transferred to the Philippine Racing Commission to be constituted into a TRUST FUND to be
used exclusively for the payment of additional prizes for races sponsored by the Commission and for SO ORDERED.
necessary capital outlays and other expenses relative to horse-breeding activities of the National Stud Davide, Jr., C.J. (Chairman), Melo, Vitug, and Panganiban JJ., concur.
Farm. x x x x x x [E.O. No. 88]

xxxxxxxxx

Sec. 2. Any provision of law to the contrary notwithstanding, all cash balances and accumulated
amounts corresponding to the share of the Philippine Amateur Athletic Federation/Ministry of Youth
and Sports Development, pursuant to Republic Act No. 6631, not remitted by the Manila Jockey Club,
Inc., are hereby constituted into a TRUST FUND to be used exclusively for the payment of additional
prizes for races sponsored by the Philippine Racing Commission and for the necessary capital outlays
and other expenses relative to horse-breeding activities of the National Stud Farm. x x x x x x. [E.O. No.
89]

While herein petitioners might have relied on a prior opinion issued by an administrative body, the well-
entrenched principle is that the State could not be estopped by a mistake committed by its officials or
agents.[33] Well-settled also is the rule that the erroneous application of the law by public officers does
not prevent a subsequent correct application of the law.[34] Although there was an initial interpretation
of the law by PHILRACOM, a court of law could not be precluded from setting that interpretation aside
if later on it is shown to be inappropriate.

Moreover, the detrimental consequences of depriving the city hospitals and other institutions of the
funds needed for rehabilitation of drug dependents and other patients are all too obvious. It goes
without saying that the allocation of breakages in favor of said institutions is a policy decision in
pursuance of social development goals worthy of judicial approbation.

Nor could we be oblivious to the reality that horse racing although authorized by law is still a form of
gambling. Gambling is essentially antagonistic to the aims of enhancing national productivity and self-
reliance.[35] For this reason, legislative franchises impose limitations on horse racing and
betting. Petitioners contention that a gambling franchise is a public contract protected by the
Constitutional provision on non-impairment of contract could not be left unqualified. For as well said
in Lim vs. Pacquing:[36]

x x x it should be remembered that a franchise is not in the strict sense a simple contract but rather it
is, more importantly, a mere privilege specially in matters which are within the governments power to
G.R. No. 203655 August 13, 2014
SM LAND, INC., Petitioner,
vs.
BASES CONVERSION AND DEVELOPMENT AUTHORITY and ARNEL PACIANO D. CASANOVA, ESQ., in
his official capacity as President and CEO of BCDA, Respondents.
DECISION
VELASCO, JR., J.:
The Case
Before Us is a Petition for Certiorari, Prohibition and Mandamus under Rule 65 of the Rules of Court,
with prayer for injunctive relief, seeking to nullify and set aside the Bases Conversion and Development
Authority (BCDA) Supplemental Notice No. 5 as well as all other acts 1 pursued in furtherance thereof,
and to order respondents to immelliately conduct and complete the Competitive Selection Process on
petitioner's duly accepted unsolicited proposal.
The Facts
As culled from the records, the facts are simple and undisputed.
Pursuant to Republic Act No. (RA) 7227 or the "Bases Conversion and Development Act of 1992," the
BCDA opened for disposition and development its Bonifacio South Property, a 33.1-hectare expanse
located at Taguig City that was once used as the command center for the country's military forces.
Jumping on the opportunity, petitioner SM Land, Inc. (SMLI), on December 14, 2009, submitted to the
BCDA an unsolicited proposal for the development of the lot through a public-private joint venture
agreement. The proposal guaranteed the BCDA secured payments amounting to PhP 15,985/sqm or a
total of PhP 8.1 billion.
Barely three months later, the initial proposal was followed by a second one with guaranteed secured
payments of PhP 31,139/sqm, totaling PhP 20 billion. On May 4, 2010, however, SMLI submitted its
third unsolicited proposal with guaranteed secured payments amounting to PhP 32,501/sqm for a total
of PhP 22.6 billion.
Thereafter, the BCDA created a Joint Venture Selection Committee (JV-SC) following the procedures
prescribed under Annex "C" of the Detailed Guidelines for Competitive Challenge Procedure for
PublicPrivate Joint Ventures (NEDA JV Guidelines) promulgated by the National Economic Development
Authority(NEDA). The said committee recommended the acceptance of the unsolicited proposal, which
recommendation was favorablyacted upon by the BCDA. Through a letter dated May 12, 2010, the
BCDA communicated to petitioner its acceptance of the unsolicited proposal. Despite its acceptance,
however, the BCDA clarified that its act should not be construed to bind the agency to enter into a joint
venture agreement with the petitioner but only constitutes an authorization granted to the JV-SC to
conduct detailed negotiations with petitioner SMLI and iron out the terms and conditions of the
agreement.
Pursuant to this authorization, the JV-SC and SMLI embarked on a series of detailed negotiations, and
on July 23, 2010, SMLI submitted its final revised proposal with guaranteed secured payments
amounting to a total of PhP 25.9 billion. Afterwards, upon arriving at mutually acceptable terms and
conditions, a Certification of Successful Negotiations (Certification) was issued by the BCDA and signed
by both parties on August 6, 2010. Through the said Certification, the BCDA undertook to "subject
SMLI’s Original Proposal to Competitive Challenge pursuant to Annex C" and committed itself to
"commence the activities for the solicitation for comparative proposals." 1
In an attempt to comply with its obligations, the BCDA prepared for the conduct of a Competitive
Challenge to determine whether or not there are other Private Sector Entities (PSEs)that can match the
proposal of SMLI, and concurrently ensure that the joint venture contract will be awarded to the party
that can offer the most advantageous terms in favor of the government. In furtherance thereof, the
agency issued Terms of Reference (TOR),2 which mapped out the procedure to be followed in
connection with the Competitive Challenge. Consequently, SMLI was required, as it did, to post a
proposalsecurity in the amount of PhP 187 million, following the prescribed procedure outlined in the
TOR and the NEDA JV Guidelines.
Afterwards, the BCDA set the Pre-eligibility Conference on September 3, 2010. Invitations to apply for
eligibility and to submit comparative proposals were then duly published on August 12, 16 and 20, 2010.
Hence, the pre-eligibility conference was conducted as scheduled. The companies that participated in
the conference included SMLI, as the Original Proponent, and three (3) PSEs, namely Ayala Land, Inc.,
Rockwell Land Corp., and Filinvest Land, Inc.
On Ayala Land, Inc.’s request, the deadline for submission of Eligibility Documents was scheduled on
October 20, 2010 through Supplemental Notice No. 1. However, the deadline was again moved to
November 19, 2010 to allow the BCDA, in conjunction with other national agencies, to resolve issues
concerning the relocation and replication of facilities located in the subject property.For this purpose,
the BCDA issued Supplemental Notice No. 2.
Following a conference, the BCDA, on November 18, 2010, issued Supplemental Notice No. 3, again
rescheduling the submission deadline this time to an unspecified future date "pending final results of
the policy review by the Office of the President on the lease versus joint venture/sale mode and other
issues."3 Henceforth, the BCDA repeatedly postponed the deadline of eligibility requirements untiltwo
(2) years have already elapsed from the signing of the Certification without the Competitive Challenge
being completed.
Then, instead of proceeding withthe Competitive Challenge, the BCDA addressed a letter 4 to Jose T.
Gabionza, Vice President of SMLI, stating that it will welcome any "voluntary and unconditional
proposal" to improve the original offer, with the assurance that the BCDA will nonetheless respect any
right which may have accrued in favor of SMLI. SMLI, through a letter dated December 22, 2011, replied
by increasing the total secured payments to PhP 22.436 billion in over fifteen (15) years with an upfront
payment of PhP 3 billion. SMLI likewise proposed to increase the net present value of the property to
PhP 38,500.00/sqm. With this accelerated terms of payment, the total inflow to be received by the
BCDA from the project after five (5) years would amount to PhP 9.289 billion. In the same letter, SMLI
clarified that itsimproved offer is tendered on reliance of the BCDA’s previous commitment torespect
SMLI’s status as the Original Proponent.
Without responding to SMLI’s new proposal, the BCDA sent a memorandum to the Office of the
President (OP) dated February 13, 2012, categorically recommending the termination of the
Competitive Challenge. The memorandum, in part, reads:
In view of the foregoing, may we respectfully recommend the President’s approval for BCDA to
terminate the proceedings for the privatization and development of the BNS/PMC/ASCOM/SSU
Properties in Bonifacio South through Competitive Challenge and proceed with the bidding of the
property.5
Alarmed by this development, SMLI, in a letter dated August 10, 2012, urged the BCDA to proceed with
the Competitive Challenge as agreed upon. However, the BCDA, via the assailed Supplemental Notice
No. 5, terminated the Competitive Challenge altogether. Said Supplemental Notice pertinently reads:
This Supplemental Notice No. 05 is issued to inform the [PSEs] that the Competitive Challenge for the
Selection of BCDA’s Private Sector Partner for the Privatization and Development of the approximately
33.1-hectare BNS/PMC/ASCOM/SSU Properties in Bonifacio South is hereby terminated. BCDA shall not
dispose the property through Competitive Challenge.6
To support its position, the BCDA invoked Article VIII of the TOR on the subject "Qualifications and
Waivers," to wit:
The BCDA reserves the right to call off [the] disposition prior to acceptance of the proposal(s) and call
for a new disposition process under amended rules and without any liability whatsoever to any or all
the PSEs, except the obligation to return the Proposal Security.
Thereafter, the BCDA informed SMLI of the OP’s decision to subject the development of the subject
propertyto public bidding. When asked by SMLI, the JV-SC manifested its conformity with the actions
thus taken by the BCDA and OP.
The JV-SC’s declaration proved to be the last straw that fractured SMLI’s patience as it lost no time in
interposing the instant recourse.
In the meantime, the BCDA issuedin favor of SMLI Philippine National Bank Check No. 11-634-610001-
0 in the amount of PhP 188,508,466.67 dated September 28, 2012. The check was sent through
registered mail with no explanation whatsoever accompanying the same, although the BCDA admitted
that its value corresponds to the proposal security posted by SMLI, plus interest in an unspecified rate.
SMLI attempted to return the check but to no avail.
The BCDA likewise caused the publication of an "Invitation to Bid" for the development of the subject
property in the December 21, 2012 issue of the Philippine Star. 7 This impelled SMLI to file an Urgent
Manifestation with Reiterative Motion to Resolve SMLI’s Application for Temporary Restraining Order
(TRO) and Preliminary Injunctionon the same day. By Resolution 8 of January 9, 2013, the Court issued
the TRO prayed for by petitioner and enjoined respondent BCDA from proceeding with the new
selection process for the development of the property.
The Issue
Without a doubt, the issue in this case boils down to whether or not the BCDA gravely abused its
discretion in issuing Supplemental Notice No. 5, in unilaterally aborting the Competitive Challenge, and
in subjecting the development of the project to public bidding.
For its part, SMLI alleged in its petition that the Certification issued by the BCDA and signed by the
parties constituted a contract and that under the said contract, BCDA cannot renege on its obligation
to conduct and complete the Competitive Challenge. The BCDA, on the other hand, relies chiefly on the
reservation clause in the TOR, which allegedly authorized the agency to unilaterally cancel the
Competitive Challenge. Respondents add that the terms and conditions agreedupon are
disadvantageous to the government, and that it cannot legally be barred by estoppel in correcting a
mistake committed by its agents.
The Court’s Ruling
The petition is impressed with merit. SMLI has the right to a completed competitive challenge pursuant
to the NEDA JV Guidelines and the Certification issued by the BCDA. The reservation clause adverted to
by the respondent cannot, in any way, prejudice said right.
The Procurement Process under the NEDA JV Guidelines
In resolving the case, discussing the procedure outlined under the NEDA JV Guidelines and a brief
backgrounder thereof is apropos.
To streamline the procurement process and expedite the acquisition of goods and services, Executive
Order No. (EO) 423 was issued on April 30, 2005, which prescribed the rules and procedures on the
review and approval of government contracts. The EO, in part, provides: Section 8. Joint Venture
Agreements. The NEDA, in consultation with the GPPB, shall issue guidelines regarding joint venture
agreements with private entities with the objective of promoting transparency, competitiveness, and
accountability in government transactions, and, where applicable, complying with the requirements of
an open and competitive public bidding.
Taking its cue from the above-quoted provision, the NEDA promulgated the NEDA JV Guidelines, which
detailed two (2) modes of selecting a private sector JV partner: by competitive selectionor through
negotiated agreements.
Competitive selection involves a selection process based on transparent criteria, which should not
constrain or limit competition, and is open to participation byany interested and qualified private
entity.9 Selection by negotiated agreements10 or negotiated projects,11 on the other hand, comes about
as an end result of an unsolicited proposal12from a private sector proponent, or if the government has
failed to identify an eligible private sector partner for a desired activity after subjecting the same to a
competitive selection.
Relevant to the case at bar is the selection modality by negotiated agreement arising from the
submission and acceptance of an unsolicited proposal, known as the Swiss Challenge method, 13 in essea
hybrid mechanism between the direct negotiation approach and the competitive bidding route. 14 With
the availability of the Swiss Challenge method for utilization by those in the private sector, PSEs have
studied, formulated, and submitted numerous suo motoor unsolicited proposals with the ultimate goal
of assisting the public sector in elevating the country’s place in the global economy, as in the case
herein.
The development and adoption by several countries of the Swiss Challenge scheme 15 is attributed to
the recognition that the private sector can be an important source of technical and managerial
expertise, as well as financing, as evidenced by private companies’ practice of directly approaching
governments with new and innovative project ideas through unsolicited proposals.16 Some states,
however, frown on the practice since transparency is allegedly compromised when the government
directly negotiates with a proponent. In this method, the Original Proponent, who first submitted and
secured acceptance ofthe unsolicited proposal, is given the right to match the successful bid received
in the competitive bid process for the said project.17
Item III, Annex "C" of the NEDA JV Guidelines, where the Swiss Challenge format is tucked in, maps out
a three-stage framework, to which Negotiated JV Agreements are to be mandatorily subjected, as
summarized below:
Stage One
Submission and the Acceptance
or Rejection of the Unsolicited Proposal
Stage One18 of the process involves the submission, evaluation, and the acceptance of unsolicited
proposals from private entities. The steps involved are:
1. A PSE submits an unsolicited proposalto the government entity (GE) or the GE seeks out a JV partner
after a failed competition (open bidding) for a JV activity or project.
2. The GE, through its JV-SC, undertakes the initial evaluation of the proposal.
3. The head of the GE shall then either issue an acceptance or nonacceptance notice of the proposal.
a. An acceptance shall not bind the GE to enter into the JV activity, but shall mean that authorization is
given to proceed with detailed negotiations on the terms and conditions of the JV activity.
b. In case of non-acceptance, the private sector entity shall be informed of the reasons/grounds for
such action.
Stage Two
Detailed Negotiations
Stage Two19 entails negotiation on the terms and conditions of the JV activity. Below is a summary of
the parameters adhered to in detailed negotiations, and the preparation of the proposal documents in
case of successful negotiations:
1. The parties shall negotiate on, among other things, the scope as well as all legal, technical, and
financial aspects of the JV activity.
2. The JV-SC shall determine the eligibility of the PSE to enter into the JV activity in accordance with
pre-set rules.
3. Negotiations shall comply with the process, requirements and conditions as stipulated under Sections
6 (General Guidelines) and 7 (Process for Entering into JV Agreements) of the JV Guidelines.
a. If successful, the GE head and the representative of the PSE shall issue a signed certification of
successful negotiation to the effect that:
a) an agreement has been reached;
b) the PSE is eligible to enter into the proposed JV activity; and
c) the GE shall commence the activities for the solicitation for comparative proposals.
b. If an acceptable agreement isnot reached, the GE may:
a) reject the proposal and thereafter accept a new one from private sector participants; or
b) pursue the proposed activity through alternative routes other than a joint venture.
4. After an agreement is reached, the contract documents, including the selection documents for the
competitive challenge, are prepared.
Stage Three
Competitive Challenge
In Stage Three,20 upon the successful completion of the detailed negotiation phase, the JV activity shall
be subjected to a competitive challenge, 21 which includes the observance of the following procedure:
1. Preparation and approval of all tender documents including the draft contract before the invitation
for comparative proposals is published.
2. Publication of the invitation for comparative proposals followed by the posting by the PSE of the
proposal security.
3. Determination of the eligibility of comparative proponents/PSEs, issuance of supplemental
competitive selection bulletins and pre-selection conferences, submission, opening and evaluation of
comparative proposals.
4. In the evaluation of the comparative proposals as a prelude to determine the best offer, the original
proposal of the original proponent shall be considered.
a. If the GE determines that an offer made by a comparative private sector participant is more
advantageous to the government than the original proposal, the original proponent shall be given the
right to match such superior or more advantageous offer.
b. Should no matching offer be received, the JV activity shall be awarded to the comparative private
sector participant submitting the most advantageous proposal.
c. If a matching offer is received, or if there is no comparative proposal, the JV activity shall be awarded
to the original proponent.
5. After the completion of the competitive challenge, the JV-SC shall submit the recommendation of
award to the head of the GE.22
6. Embarking on activities leading to the execution of the Final Agreement. 23
Deviation from the procedure outlined cannot be countenanced. Wellestablished is the rule that
administrative issuances––such as the NEDA JV Guidelines, duly promulgated pursuant to the rule-
making power granted by statute––have the force and effect of law.24 Being an issuance in compliance
with an executive edict, the NEDA JV Guidelines, therefore, has the same binding effect as if it were
issued by the President himself.25 As such, no agency or instrumentality covered by the JV
Guidelines26 can validly stray from the mandatory procedures set forth therein, even if the other party
acquiesced therewith27 or not.
SMLI’s rights as an Original Proponent and BCDA’s correlative duty under the NEDA JV Guidelinesand
the parties’ agreement
It is well to point out that after BCDA accepted the unsolicited proposal of SMLI and after both parties
herein successfully concluded the detailed negotiations on the terms and conditions of the project,
SMLI acquired the status of an Original Proponent. An Original Proponent, per the TOR, pertains to the
party whose unsolicited proposal for the development and privatization of the subject property though
JV with BCDA has been accepted by the latter, subject to certain conditions, and is now being subjected
to a competitive challenge.28
In this regard, SMLI insists that asan Original Proponent, it obtained the right to a completed
competitive challenge. On the other hand, the BCDA argues that it can, at any time, withdraw from the
disposition process as it is not bound to enter into the proposed JV activity with SMLI. Petitioner’s
argument holds water.
A scrutiny of the NEDA JV Guidelinesreveals that certain rights are conferred to an Original Proponent.
Ascorrectly pointed out by SMLI, these rights include:
1. The right to the conduct and completion of a competitive challenge;
2. The right to match the superior or more advantageous offer, if any;
3. The right to be awarded the JV activity in the event that a matching offer is submitted within the
prescribed period; and
4. The right to be immediately awarded the JV activity should there be no comparative
proposals.29 (emphasis added)
Material to the present case is the right to the conduct and completion of a Competitive Challenge.
Based onthe NEDA JV Guidelines, it is necessary that Stages One and Two of the Swiss Challenge shall
have been fruitful for this right to arise.
To recall, Stages One and Two ofthe framework deal with the submission and evaluation of the
unsolicited proposal and the conduct of the detailed negotiations. Should the parties productively
conclude the in-depth negotiations, the guidelines require the preparation of the contract and selection
documents for the competitive challenge. 30 Following this, Stage Three of the same rules provides that
the GE shall subject the terms agreed upon to a Competitive Challenge. Thus:
Stage Three – Once the negotiations have been successfully completed, the JV activity shallbe subjected
to a competitive challenge, as follows:
1. The [GE] shallprepare the tender documents pursuant to Section II (Selection/Tender Documents) of
Annex A hereof. The eligibility criteria used in determining the eligibility of the [PSE] shall be the same
as those stated in the tender documents. x x x The Head of the [GE] shall approve all tender documents
including the draft contract before the publication of the invitation for comparative proposals.
2. Within seven (7) calendar days from the issuance of the Certification of a successful negotiation
referred toin Stage Two above, the JV-SC shall publish the invitation for comparative proposals in
accordance with Section III.2. (Publication of Invitation to Apply for Eligibility and to Submit Proposal)
under Annex A hereof.
3. The [PSE] shallpost the proposal security at the date of the first day of the publication of the invitation
for comparative proposals in the amount and form stated in the tender documents.
4. The procedure for the determination of eligibility of comparative proponents/private sector
participants, issuance of supplemental competitive selection bulletins and pre-selection conferences,
submission and receipt of proposals, opening and evaluation of proposals shall follow the procedure
stipulated under Annex A hereof. In the evaluation of proposals, the best offer shall be determined to
include the original proposal of the [PSE]. If the [GE] determines that an offer made by a comparative
private sector participant other than the original proponent is superior or more advantageous to the
government than the original proposal, the [PSE] who submitted the original proposal shall be given
the right to match such superior or more advantageous offerx x x. Should no matching offer be received
within the stated period, the JV activity shallbe awarded to the comparative private sector participant
submitting the most advantageous proposal. If a matching offer is received within the prescribed
period, the JV activity shallbe awarded to the original proponent. If no comparative proposal isreceived
by the [GE], the JV activity shallbe immediately awarded to the original private sector proponent.
5. Within seven (7) calendar days from the date of completion of the Competitive Challenge, the JV-SC
shallsubmit the recommendation of award to the Head of the [GE]. Succeeding activities shall be in
accordance with Sections VIII. (Awardand Approval of Contract) and X (Final Approval) of Annex A
hereof.31(emphasis added)
Anent the above-quoted directives, emphasis must be given to the repeated use of the word "shall." It
is elementary that the word "shall" underscores the mandatory character of the rule. Itis a word of
command, one which always has or must be given a compulsory meaning, and is generally imperative
or mandatory.32 Considering the compulsory tenor of the order, the rule could not be any clearer––that
once the negotiations at Stage Two shall have been successfully completed, it becomes mandatory for
the GE to subject theJV activity to a competitive challenge. By the Guidelines’ explicit order, proceeding
to Stage Three of the process is compulsory, conditioned only on the successful conclusion of Stage
Two. The GE is not given any discretion to decide whether it will proceed with the competitive challenge
or not. Furthermore, there is no question in the case at hand that the unsolicited proposal for the
development of the subject property passed through scrutiny under the first two stages, resulting inthe
issuance and signing of the Certification. As a matter of fact, this is clearly evinced in the whereas
clauses of the Certification, to wit:
WHEREAS, on 04 May 2010, BCDA received from [SMLI] an unsolicited proposalfor the development of
[the subject property]. x x x
WHEREAS, after evaluation of the unsolicited proposalsubmitted by SMLI in accordance with the
provisions of Annex "C" of the JV Guidelines, the [JV-SC] created byBCDA x x x recommended to the
BCDA Board, and the BCDA Board approved, per Board Resolution No. 2010-05-100, the acceptance
ofthe unsolicited proposal, subject to the condition that such acceptance shall not bind BCDA to enter
into a JV activity, but shall mean that authorization is given to proceed with detailed negotiationson the
terms and conditions of the JV activity;
WHEREAS, pursuant to the authorization granted by the Board and issued pursuant to Annex "C", Part
III, Stage One of the JV Guidelines, BCDA went into detailed negotiations with SMLI. The JV-SC
simultaneously ascertained the eligibility of SMLI inaccordance with Annex "C", Part III, Stage 2 (2) of
the JV Guidelines;
WHEREAS, this Certificationisissuedpursuant to Annex "C" Part III, Stage 2 (2) of the JV Guidelines;
NOW, THEREFORE, for and in consideration of the foregoing, BCDA and SMLI, after successful
negotiationspursuant to Stage II of Annex C x x x reached an agreement on the purpose, terms and
conditions of the JV development of the subjectproperty, which shall become the terms for the
Competitive Challenge pursuant to Annex C of the JV Guidelinesx x x. 33 (emphasis added)
Moreover, the Certification further discloses that the BCDA has the obligation to subject SMLI’s
unsolicited proposal to a Competitive Challenge, to which SMLI assented. As provided:
BCDA and SMLI have agreed to subject SMLI’s Original Proposal to Competitive Challenge pursuant to
Annex C – Detailed Guidelines for Competitive Challenge Procedure for Public-Private Joint Ventures of
the NEDA JV Guidelines, which competitive challenge process shall be immediately implemented
following the Terms of Reference (TOR) Volumes 1 and 2. BCDA shall, thus, commence the activities for
the solicitation for comparative proposals with the publication of the Invitation to Apply for Eligibility
and to Submit Comparative Proposals (IAESCP) thrice for two (2) consecutive weeks in three (3) major
newspapers starting on 10 August 2010, on which date SMLI shall post the required Proposal Security
as statedabove. Pursuant to Annex C of the NEDA JV Guidelines, if, after solicitation of comparative
proposals, BCDA determines that an offer by a comparative PSE is found to be superior to SMLI’s
Original Proposal,SMLI shall be given the right to match such superior offer within the period prescribed
in the attached TOR Volumes 1 and 2. If SMLI is ableto match such superior offer, SMLI shall be issued
the Notice of Award, subject to Item No. 19 above. In the event, however, that SMLI is unable to match
the superior offer, the comparative PSE which submitted such superior offer shall be awarded the
contract, subject to Item No. 19 above.34(emphasis added)
By their mutual consent and in signing the Certification, both parties, in effect, entered into a binding
agreement to subject the unsolicited proposal to the Competitive Challenge. Evidently, the certification
partakes of a contractwherein BCDA committed itself to proceed with the Third Stage of the process
and simultaneously grants SMLI the right to expect that the BCDA will fulfill its obligations under the
same. The preconditions to the conduct of the Competitive Challenge having been met, what is left,
therefore, is tosubject the terms agreed upon to a Competitive Challenge pursuant to Stage Three,
Annex "C" of the NEDA JV Guidelines.
The Reservation Clause only covers the Third Stage and cannot prejudice SMLI’s rights stemming from
the first two stages
In an attempt to advance its claim, BCDA invokes the reservation clause in Article VIII of the TOR on
"Qualifications and Waivers." To reiterate, said provision reads:
3. BCDA further reserves the right to call off this disposition prior to acceptance of the proposal(s) and
call for a new disposition process under amended rules, and without any liability whatsoever to any or
all of the PSEs, except the obligation to return the Proposal Security.35 (emphasis ours)
The BCDA insists that the "disposition process" to which the reservation clause refers is the entire Swiss
Challenge, and not merely Stage Three thereof regarding the Competitive Challenge. This interpretation
does not come as a surprise considering the term’s technical meaning, that is, alienation of
property;36 the transfer of the property and possession of lands, tenements, or other things from one
person to another; or the voluntary resignation of title to real estate by one person to another and
accepted by the latter, in the forms prescribed by law. 37 On the basis of said definition, indeed, the
reservation clause seemingly refers to the Swiss Challenge itself since in the case at bar, it is the Swiss
Challenge, not the competitive challenge, that is the avenue for the disposition.
To anchor the real import of the clause on the basis only of a single word may, however, result in a
deviation from its true meaning by rendering all the other terms unnecessaryor insignificant. Suchan
interpretation would run afoul Article 1373 of the Civil Code, which states that "[i]f some stipulation of
any contract should admit of several meanings, it shall be understood as bearing that import which is
most adequate to render it effectual." It is a cardinal rule in statutory construction that no word, clause,
sentence, provision or part of a statute shall be considered surplusage or superfluous, meaningless,
void and insignificant.38 For this purpose, an interpretation which renders every word operative is
preferred over that which makes some words idle and nugatory.
We find that the reservation clausecannot justify the cancellation of the entire procurement process.
Respondent cannot merely harp on the lone provision adverted to without first explaining the context
surrounding the reservation clause. The said provision cannot be interpreted in a vacuum and should
instead be read in congruence with the other provisions in the TOR for Us to fully appreciate its import.
At this juncture, it is worthy to point out that the TOR containing the reservation clause details the
requirements for eligibility to qualify as a PSE that may submit its proposal for the JV, 39 as well as the
procedure to be followed in the assessment of the eligibility requirements submitted and in the conduct
of the Competitive Challenge. It basically governs only part and parcel of Stage Three of the Swiss
Challenge Process, that is, the requirements for and the determination of an interested PSE’s eligibility
to participate inthe Competitive Challenge. This conclusion is deduced from the very provisions of the
TOR, viz:
These [TOR] describe the procedures that shall be followed in connection with the disposition of the
approximately Three Hundred Thirty-one Thousand Three Hundred Twenty-seven square meters
(331,327 sq.m.) or 33.1-hectare Bonifacio Naval Station (BNS)/Philippine Marine Corps (PMC)/Army
Support Command (ASCOM)/Service Support Unit (SSU) Properties in Bonifacio South (the "Property"),
located along Lawton Avenue, Fort Bonifacio, Taguig City, Metro Manila, Philippines.
These TOR are issued in two (2) volumes: Volume 1 – Eligibility Documents; and Volume 2 – Tender
Documents. This first volume details the requirements for eligibility to qualify as a Private Sector Entity
(PSE) that may submit Technical and Financial Proposals for the Joint Venture (JV) Privatization and
Development of [the] subject Property, and the procedures involved in the entire Competitive
Challenge procedure. [PSEs] which shall be declared eligible shall be issued the second volume of the
TOR which details the requirements and procedures for the submission of Technical and Financial
Proposals, with the end-view of determining a Winning PSE for subject JV development.
xxxx
xxxx
V. APPLICATION FOR ELIGIBILITY
1. Eligibility Requirements. Only eligible PSEs shall be allowed to submit comparative Technical and
Financial Proposals, or collectively, the Tender Documents x x x. Hence, interested PSEs are invited to
apply for eligibility and to participate in the Competitive Challenge procedure. Aside from being
required to purchase the [TOR] – Volume1, for a non-refundable fee x x x, a PSE shall be considered
eligible if it satisfies all of the following requirements:
1.1. Legal Requirements. The PSE must be a duly registered and existing corporation authorized by
Philippine Laws to own, hold or develop lands in the Philippines. x x

I. GENERAL INFORMATION x

xxxx 1.2. Technical Requirements.

2. Publication of Invitation for Comparative Proposals. BCDA shall publish x x x the "Invitation to Apply 1.2.1. Firm Experience. The PSEx x x shall have completed within a period of ten (10) years from the
for Eligibility and to Submit a Comparative Proposal" (IAESCP). This shall serve to inform and to invite date of submission and receipt of Proposals, a similar or related development project x x x.
the prospective PSEs to the Competitive Challenge procedure at hand. x x x 1.2.2. Key Personnel. x x x
3. Joint Venture Agreement.x x x the ultimate objective of BCDA in qualifying prospective PSEsto be 1.3. Financial Capability. The PSEx x x must have adequate capability to sustain the financing
eligible to submit Technical and Financial Proposals is to select a partner in the requirements for the proposed development ofthe Property. This shall be measured in terms of:
unincorporated/contractual [JV]for the privatization and development of the subject Property. x x x
1.3.1. Net Worth. x x x
xxxx
1.3.2. Good financial standing. x x x
4. Amendment of these TOR. x x x Should any of the information and/or procedurescontained in these
TOR be amended or replaced, the JV-SC shall inform and send Supplemental Notices to all PSEs. To 1.3.3. No Arrears. x x x
ensure all PSEs are informed of any amendments, all PSEs are requested to inform BCDA of their contact
[details].In addition, receipt of all Supplemental Notices shall beduly acknowledged by each PSEprior to 1.3.4. Timely and complete Payment of Taxes. x x x
the submission of eligibility documents and/or proposals and shall be soindicated therein.
1.3.5. Financial Capacity to Undertake the
5. Pre-Eligibility Conference. Interested parties are invited to attend a Pre-Eligibility Conference for Project.
prospective PSEs x x x.
xxxx
6. One-on-One Meetings. Prospective PSEs may request for one-on-one meetings with the JV-SC or its
duly authorized representatives. x x x 2. Required Eligibility Documents. The PSEs x x x that wish to be considered for eligibility are required
to submit x x x the following documents:
xxxx
xxxx
9. Due Diligence. x x x
VI. EVALUATION OF ELIGIBILITY
The PSE shall investigate x x x [and] carefully examine [the] conditions of and at the Property and its
surrounding vicinities affecting the actual execution and such other information as to allow the PSE to 1. Opening of Eligibility Documents. x x x
make a competitive estimate. The PSE, by the act of submitting its proposal, acknowledges that it has
inspected the Property and accepted all the terms and conditions for this competitive challenge as set 2. Evaluation Process. Eligibility Documents submitted by the PSEshall be evaluated on a pass or fail
in TOR Volumes 1 and 2. basis to determine if the PSEx x x complies with or satisfies all of the requirements specified in Article
V hereof. x x x
3. Motion for Reconsideration/Appeal on Eligibility. A prospective PSE determined as "Ineligible" has
seven (7) calendar days upon written notice within which to file a motion for reconsideration tothe JV-
SC. x x x
4. No Eligible [PSEs]. In the event that no PSE be found eligible or no PSE submitted itself to eligibility
check for the Competitive Challenge procedure, BCDA shall proceed to the issuance of Notice of Award
to SMLI, as the original proponent for the subject JV project.
xxxx
VII. CHANGE IN MEMBERSHIP OF AN ELIGIBLE PSE.
xxxx
VIII. QUALIFICATIONS AND WAIVERS
1. BCDA reserves the right to reject any or all Eligibility Documents, to waive any defect or informality
thereon or minor deviations, which do notaffect the substance and validity of the proposal.
2. BCDA reserves the right to review other relevant information affecting the PSE or its Eligibility
Documents before its declaration as eligible to participate further in the selection process, and be
allowed to submit a Final Proposal. Should such review uncover any misrepresentations made in the
eligibility documents, or any change in the situation of the PSE, which affects its eligibility, BCDA may
disqualify the PSE from obtaining any award/contract.
3. BCDA further reserves the right tocall of this disposition prior to acceptance of the proposal(s) and
call for a new disposition process under amended rules,and without any liability whatsoever to any or
all the PSEs, except the obligation to return the Proposal Security x x x. 40 (emphasis ours; citation
omitted)
A cursory reading of the TOR, ascouched, readily shows that it focuses only on the eligibility
requirements for PSEs who wish to challenge SMLI’s proposal as well as the procedure to be followed
by the BCDA JVSC in the evaluation of the PSEs’ submittals. We thus find merit in SMLI’s thrust that
since the TOR governs the eligibility requirements for PSE’s, the "disposition process" referred to inthe
reservation clause could only refer to the eligibility process in Stage Three of the Swiss Challenge and
not the entire Swiss Challenge process itself. We are convinced that the said provision does not
authorize BCDA to abort the entire procurement process and cannot impair any of SMLI’s statutorily
and contractuallyconferred rights stemming from the first two stages’ conclusion. To rule otherwise
would grant the GE unbridled authority to thrust aside the agreement between the parties after
successful detailed negotiations. It would disregard the fact that through the said covenant,the GE
bound itself to conduct and complete the Competitive Challenge pertaining to SMLI’s proposal.
Provisions of the TOR cannot prevail over the NEDA JV Guidelines
In the same vein, We cannot also agree with respondents’ contention that the term "disposition" in the
assailed reservation clause refers to the entire Swiss Challenge itself and authorizes the BCDA to
abandon the negotiations even at Stage Three of the process for this would result in an interpretation
that is antagonisticwith the NEDA JV Guidelines.
A review of the outlined three-stage framework reveals that there are only two occasions where pre-
termination of the Swiss Challenge process is allowed: at Stage One, prior to acceptance of the
unsolicited proposal; and at Stage Two, should the detailed negotiationsprove unsuccessful. In the Third
Stage, the BCDA can no longer withdraw with impunity from conducting the Competitive Challenge as
it became ministerial for the agency to commence and complete the same. Thus, acceding to the
interpretation of the TOR offered byBCDA will, in effect, result not only in the alteration of the
agreement between the parties but also of the NEDA JV Guidelines itself, both of which has the force
and effect of law.
The interpretation offered by BCDA is, therefore, unacceptable. Between procedural guidelines
promulgated by an agency pursuant to its rule-making power and a condition unilaterally designed and
imposed for the implementation of the same, the former must prevail. BCDA does not wield any rule-
making power such that it can validly alter or abandon a clear and definite provision in the NEDA JV
Guidelines under the guise of a condition under the TOR. AsWe have time and again harped, the ones
dutybound to ensure observance with laws and rules should not be the ones to depart therefrom. 41 A
contrary rule would open the floodgates to abuses and anomalies more detrimental to public
interest.42 For how can others be expected to respect the rule of law if the very persons or entities
tasked to administer laws and their implementing rules and regulations are the first to violate them,
blatantly or surreptitiously?
BCDA gravely abused its discretion when it issued Supplemental
Notice No. 5 in breach of its contractual obligation to SMLI
"Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent
tolack of jurisdiction. It must be so patent and gross as to amount to an evasion of positive duty or to a
virtual refusal to perform the duty enjoined or to act at all in contemplation of law. 43 While it is the
general policy of the Court to sustain the decisions of administrative authorities, not only on the basis
of the doctrine of separation of powers but also for their presumed expertise in the laws they are
entrusted to enforce, when said decisions and orders are tainted with unfairness or arbitrariness that
would amount to grave abuse of discretion, the Courts are duty-bound to entertain petitions
questioning the former’s rulings or actions.44
In the present case, the Court finds that BCDA gravely abused its discretion for having acted arbitrarily
and contrary to its contractual commitment to SMLI, to the damage and prejudice of the latter. It
veritably desecrated the rules the Government itself set in the award of public contracts.
To review, We have demonstratedthat the BCDA is duty-bound to proceed with and complete the
competitive challenge if the detailed negotiations proved successful. Afterwards, it becomes
mandatory for the competitive challenge to proceed. Whatever rights and obligations that may have
accrued to the parties by that time can no longer be altered by a new disposition process. At most, the
reservation clause in the TOR can only serve to alter the rules of the eligibility process under the
Competitive Challenge.
In the case at bar, however, BCDA, in its mistaken reliance on the reservation clause, aborted not just
the eligibility process of the Competitive Challenge but the entire Swiss Challenge. Even though the
language of Supplemental Notice No. 5 at first blush appears to limit its application to the Third Stage
of the framework, BCDA’s actuations say otherwise. Worthy of reiteration at this point is the fact that
after BCDA issued the assailed notice, the agency also returned through registeredmail the security
posted by SMLI. Coupled with the factthat BCDA subjected the property instead to straight bidding, it
becomes obvious that BCDA no longer intends to comply with its obligations to SMLI and that it
abandoned the Swiss Challenge process altogether, in contravention of its statutory and contractual
obligations.
Moreover, the asseveration of the BCDA in its last ditch effort to salvage its position––that the
withdrawal is justified since it allegedly found that the revised SMLI proposal shall not yield the best
value for the government45 ––deserves scant consideration. On the contrary, the BCDA’s statements
have been inconsistentwhen it comes to identifying the procurement process that would best serve the
interest of the state.
Noticeably, in its November 8, 2010 Memorandum, the BCDA posited that competitive challenge is
more advantageous to the government than straight bidding, to wit:
The price of the Bonifacio South properties has already been set by the winning price in the bidding for
the joint venture development of the JUSMAG property (₱31,111/sq.m.). Thus, BCDA has established
the benchmark for the price of the remaining Bonifacio South properties, of which the JUSMAG
property is the most prime. Logically the minimum bid price under straight bidding for the
BNS/PMC/ASCOM/SSU property, which is a far less inferior property, would be ₱31,111/sq.m.
However, with SM’s submission of a revised unsolicited proposal at ₱31,732/sq.m. and later further
revised to ₱32,500/sq.m., BCDA saw the opportunity to negotiate for better terms and eventually
arrived at a higher price of ₱36,900/sq.m. In this case, BCDA deemed that going into Competitive
Challenge was more advantageous to the government than Competitive Selection (straight bidding)
because of the opportunity to increase the price.
Furthermore, subjecting the price tosubsequent price challenge will possibly drive up the price even
higher than ₱38,900/sq.m. These opportunities cannot be taken advantage of under a straight bidding
where failure of bidding would likely ensue if in case BCDA immediately sets the price of the property
too high. The competition in the real estate industry and as experienced by BCDA issuch that the other
developers will usually challenge the original proposal to "up the ante" as they cannot allow the original
proponent to get the property easily.46
Despite this testament, the BCDA, over a year later, made a complete turnaround stating that straight
bidding will be best for the Government.47 As can be gleaned from the BCDA’s Memorandum to the
Presidentdated February 13, 2012, respondents themselves recommended to the President that the
selection proceedings be terminated. To reiterate:
In view of the foregoing, may we respectfully recommend the President’s approval for BCDA to
terminate the proceedings for the privatization and development of the BNS/PMC/ASCOM/SSU
Properties in Bonifacio South through Competitive Challenge and proceed with the bidding of the
property.48
The BCDA offered no explanation to reconcile its opposing positions. It also neglected to inform SMLI
of the provisions in its proposal that it deemed disadvantageous to the government. The sweeping
statement of the BCDA that the terms are disadvantageous cannot be accepted at face value, bearing
in mind that a fruitful in-depthnegotiation necessarily implies that BCDA found the terms offered by
SMLI acceptable. Consider also that should the Competitive Challenge prove to be unsuccessful, it has
no other recourse but to award the project toSMLI, the Original Proponent. This caveat forces BCDA to
ensure that the terms agreed upon during the detailed negotiations are advantageousto it, lest it run
the risk of being bound to a project that is not beneficial to the government in the first place.
Overall, the foregoing goes to showthat the BCDA failed to establish a justifiable reason for its refusal
to proceed with the Competitive Challenge and for canceling the entire Swiss Challenge. Because of
BCDA’s mistaken reliance on the TOR provision, and by changing its stand on the conduct of the
Competitive Challenge without pointing out with specificity the socalled unfavorable terms, Weare left
to believe that the cancellation of the Swiss Challenge was only due to BCDA’s whims and caprices.
Acceptance of Unsolicited Proposal vis-à-vis Estoppel
Lastly, respondents argue that the government cannot be estopped by the mistakes or errors of its
agents, implying that when it issued the Certification, it committed a lapse of judgment as it later
discovered that the terms of the proposal allegedly turnedout to be disadvantageous to the
Government. Thus, according to them, it cannot be compelled to proceed with the Competitive
Challenge.
We are very much aware of the time-honored rule that "the government cannot be estopped by the
mistakes or errors of its agents."49 Suffice it to state, however, that this precept is not absolute. As
jurisprudence teaches, this rule on estoppel cannot be used to perpetrate an injustice.50
In the case at bar, it is evident that to allow BCDA to renege on its statutory and contractual
obligationswould cause grave prejudice to petitioner, who already invested time, effort, and resources
in the study and formulation of the proposal, in the adjustment thereof, as well as in the negotiations.
To permit BCDA to suddenly cancel the procurement process and strip SMLI of its earlier-enumerated
rights as an Original Proponent at this point––after the former has already benefited from SMLI’s
proposal through the acquisition of information and ideas for the development of the subject property–
–would unjustly enrich the agency through the efforts of petitioner. What is worse, to do so would be
contrary to BCDA’s representations and assurances that it will respect SMLI’s earlier acquired rights,
which statements SMLI reasonably and innocently believed.
All told, the BCDA’s acceptance ofthe unsolicited proposal and the successful in-depth negotiation
cannot be written off as mere mistake or error that respondents claim to be reversible and not
susceptible to the legal bar of estoppel. The subsequent cancellation of the Competitive Challenge on
grounds that infringe the contractual rights of SMLI and violate the NEDA JV Guidelines cannot be
shrouded with legitimacy by invoking the above-cited rule.
Conclusion
To increase government prospects, participation in joint ventures has been incentivized by granting
rightsand advantages to the Original Proponent in the Competitive Challenge phase of a Swiss
Challenge. Faithful observance of these provisions oflaw that grant the aforesaid rights, may it be
sourced from a bilateral contract or executive edict, aids in improving government reliability. This, in
turn, heavily correlates with greater availability of options when entering into future joint venture
agreements with private sector entities via public-private enterprises as it will attract investors to
contribute in formulating a roadmap towards a nationwide infrastructure development.
Needless to say, allowing government agencies to retract their commitments to the project proponents
will essentially render inutile the incentives offered to and have accrued in favor of the private sector
entity. Without securing these rights, the business community will be wary when it comes to forging
contracts with the government. Simply put, the failure of the government to abide by the rules ititself
set would have detrimental effects on the private sector’s confidence that the government will comply
with its statutory and contractual obligations to the letter.
In the case at bench, considering the undisputed facts presented before Us, We cannot sustain the
BCDA’s arguments that its withdrawal from the negotiations is permissible and was not done with grave
abuse of discretion. Being an instrumentality of the government, it is incumbent upon the BCDA to
abide by the laws, rules and regulations, and perform its obligations with utmost good faith. It cannot,
under the guise of protecting the public interest, disregard the clear mandate of the NEDA JV Guidelines
and unceremoniously disregard the very commitments it made to the prejudice of the SMLI that
innocently relied on such promises.51 It is in instances such as this––where an agency, instrumentality
or officer of the government evades the performance of a positive duty enjoined by law52 ––wherein
the exercise of judicial power is warranted. Consistent with Our solemn obligation to afford protection
by ensuring that grave abuses of discretion on the part of a branch or instrumentality of the government
do not go unchecked, the Petition for Certiorari must be granted and the corresponding injunctive relief
be made permanent.
As a final note, it is worth mentioning that the foreseeable repercussion of a contrary
ponenciaencompasses the reduction of the number of interested private sector entities that would
bewilling to submit suo motoproposals and invest in government projects. After all, what would be the
point of developing ideas and allocating resources in the formulation of PPP projects when one’s rights
asan Original Proponent, under the NEDA JV Guidelines and the agreement between the parties, can
easily be wiped out should the agency decide tolevel the playing field and conduct straight bidding
instead? Evidently, this would not attract but would, in contrast, repel investors from tendering offers.
In addition, even if potential investors do submit unsolicited or comparative proposals, the terms
therein might be driven to become less competitive due to the adjustment in the balance of risks and
returns on investment. Taking into account the increased possibility of the development project not
pushing through, investors might not be too keen in guaranteeing a high amount of secured payments
for the same.1âwphi1 These considerations further validate the need to secure the private sector’s
trust and confidence in the government.
1. Publish, within seven (7) calendar days from finality of this Decision, the "Invitation to Apply for
Eligibility and to Submit a Comparative Proposal" (IAESCP) in three (3) newspapers of general
nationwide circulation for two (2) consecutive weeks, and in the BCDA website (www.bcda.gov.ph), in
accordance with Section III.2. (Publication of Invitation to Apply for Eligibility and to Submit Proposal),
Section III (Project Rationale), Item 5 of the TOR, and Section III (General Information), Item 2
(Publication of Invitation for Comparative Proposals) of the TOR;
2. Immediately make the necessary adjustments to the timetable of activities set forth in Supplemental
Notice No. 1, considering that the periods specified therein have already lapsed, without awaiting the
lapse of the period for publication;
3. Strictly adhere to the TOR, Supplemental Notice No. 1, as adjusted, the Certification of Successful
Negotiations, and the NEDA JV Guidelines, in the conduct and completion of the Swiss Challenge
procedure on SM Land Inc.’s unsolicited proposal accepted by the BCDA; and
4. Perform any and all acts necessary to carry out and complete Stage Three of the Swiss Challenge
pursuant to the provisions of the TOR and NEDA JV Guidelines, including, but not limited to, subjecting
petitioner's unsolicited proposal to a competitive challenge.
In the event that SM Land, Inc. already obtained from BCDA the amount representing its Proposal
Security, SM Land, Inc. is hereby DIRECTED to re-post the Proposal Security, in the same amount as the
previous one, on the first day of the publication of the invitation for comparative proposals, per the
NEDA JV Guidelines.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Supplemental Notice
No. 5 dated August 6, 2012 issued by the BCDA is hereby ANULLED and SET ASIDE. The Temporary
Restraining Order issued bythis Court on January 9, 2013 is hereby madePERMANENT.

Respondent Bases Conversion and Development Authority and Arnel Paciano D. Casanova, or whoever
assumes the position of president of BCDA, are hereby ORDEREDto conduct and complete the
Competitive Challenge pursuant to the Certification, TOR, and NEDA JV Guidelines.

Specifically, the BCDA and/or the JV-SC are DIRECTEDto carry out the following:
G.R. No. 76633 October 18, 1988
EASTERN SHIPPING LINES, INC., petitioner,
vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA), MINISTER OF LABOR AND
EMPLOYMENT, HEARING OFFICER ABDUL BASAR and KATHLEEN D. SACO, respondents.
Jimenea, Dala & Zaragoza Law Office for petitioner.
The Solicitor General for public respondent.
Dizon Law Office for respondent Kathleen D. Saco.
CRUZ, J.:
The private respondent in this case was awarded the sum of P192,000.00 by the Philippine Overseas
Employment Administration (POEA) for the death of her husband. The decision is challenged by the
petitioner on the principal ground that the POEA had no jurisdiction over the case as the husband was
not an overseas worker.
Vitaliano Saco was Chief Officer of the M/V Eastern Polaris when he was killed in an accident in Tokyo,
Japan, March 15, 1985. His widow sued for damages under Executive Order No. 797 and Memorandum
Circular No. 2 of the POEA. The petitioner, as owner of the vessel, argued that the complaint was
cognizable not by the POEA but by the Social Security System and should have been filed against the
State Insurance Fund. The POEA nevertheless assumed jurisdiction and after considering the position
papers of the parties ruled in favor of the complainant. The award consisted of P180,000.00 as death
benefits and P12,000.00 for burial expenses.
The petitioner immediately came to this Court, prompting the Solicitor General to move for dismissal
on the ground of non-exhaustion of administrative remedies.
Ordinarily, the decisions of the POEA should first be appealed to the National Labor Relations
Commission, on the theory inter alia that the agency should be given an opportunity to correct the
errors, if any, of its subordinates. This case comes under one of the exceptions, however, as the
questions the petitioner is raising are essentially questions of law. 1 Moreover, the private respondent
himself has not objected to the petitioner's direct resort to this Court, observing that the usual
procedure would delay the disposition of the case to her prejudice.
The Philippine Overseas Employment Administration was created under Executive Order No. 797,
promulgated on May 1, 1982, to promote and monitor the overseas employment of Filipinos and to
protect their rights. It replaced the National Seamen Board created earlier under Article 20 of the Labor
Code in 1974. Under Section 4(a) of the said executive order, the POEA is vested with "original and
exclusive jurisdiction over all cases, including money claims, involving employee-employer relations
arising out of or by virtue of any law or contract involving Filipino contract workers, including seamen."
These cases, according to the 1985 Rules and Regulations on Overseas Employment issued by the POEA,
include "claims for death, disability and other benefits" arising out of such employment. 2
The petitioner does not contend that Saco was not its employee or that the claim of his widow is not
compensable. What it does urge is that he was not an overseas worker but a 'domestic employee and
consequently his widow's claim should have been filed with Social Security System, subject to appeal
to the Employees Compensation Commission.
We see no reason to disturb the factual finding of the POEA that Vitaliano Saco was an overseas
employee of the petitioner at the time he met with the fatal accident in Japan in 1985.
Under the 1985 Rules and Regulations on Overseas Employment, overseas employment is defined as
"employment of a worker outside the Philippines, including employment on board vessels plying
international waters, covered by a valid contract. 3 A contract worker is described as "any person
working or who has worked overseas under a valid employment contract and shall include seamen" 4 or
"any person working overseas or who has been employed by another which may be a local employer,
foreign employer, principal or partner under a valid employment contract and shall include
seamen." 5 These definitions clearly apply to Vitaliano Saco for it is not disputed that he died while
under a contract of employment with the petitioner and alongside the petitioner's vessel, the M/V
Eastern Polaris, while berthed in a foreign country. 6
It is worth observing that the petitioner performed at least two acts which constitute implied or tacit
recognition of the nature of Saco's employment at the time of his death in 1985. The first is its
submission of its shipping articles to the POEA for processing, formalization and approval in the exercise
of its regulatory power over overseas employment under Executive Order NO. 797. 7 The second is its
payment 8 of the contributions mandated by law and regulations to the Welfare Fund for Overseas
Workers, which was created by P.D. No. 1694 "for the purpose of providing social and welfare services
to Filipino overseas workers."
Significantly, the office administering this fund, in the receipt it prepared for the private respondent's
signature, described the subject of the burial benefits as "overseas contract worker Vitaliano
Saco." 9 While this receipt is certainly not controlling, it does indicate, in the light of the petitioner's
own previous acts, that the petitioner and the Fund to which it had made contributions considered Saco
to be an overseas employee.
The petitioner argues that the deceased employee should be likened to the employees of the Philippine
Air Lines who, although working abroad in its international flights, are not considered overseas workers.
If this be so, the petitioner should not have found it necessary to submit its shipping articles to the POEA
for processing, formalization and approval or to contribute to the Welfare Fund which is available only
to overseas workers. Moreover, the analogy is hardly appropriate as the employees of the PAL cannot
under the definitions given be considered seamen nor are their appointments coursed through the
POEA.
The award of P180,000.00 for death benefits and P12,000.00 for burial expenses was made by the POEA
pursuant to its Memorandum Circular No. 2, which became effective on February 1, 1984. This circular
prescribed a standard contract to be adopted by both foreign and domestic shipping companies in the
hiring of Filipino seamen for overseas employment. A similar contract had earlier been required by the
National Seamen Board and had been sustained in a number of cases by this Court. 10 The petitioner
claims that it had never entered into such a contract with the deceased Saco, but that is hardly a serious
argument. In the first place, it should have done so as required by the circular, which specifically
declared that "all parties to the employment of any Filipino seamen on board any ocean-going vessel
are advised to adopt and use this employment contract effective 01 February 1984 and to desist from
using any other format of employment contract effective that date." In the second place, even if it had
not done so, the provisions of the said circular are nevertheless deemed written into the contract with
Saco as a postulate of the police power of the State. 11
But the petitioner questions the validity of Memorandum Circular No. 2 itself as violative of the principle
of non-delegation of legislative power. It contends that no authority had been given the POEA to
promulgate the said regulation; and even with such authorization, the regulation represents an exercise
of legislative discretion which, under the principle, is not subject to delegation.
The authority to issue the said regulation is clearly provided in Section 4(a) of Executive Order No. 797,
reading as follows:
... The governing Board of the Administration (POEA), as hereunder provided shall promulgate the
necessary rules and regulations to govern the exercise of the adjudicatory functions of the
Administration (POEA).
Similar authorization had been granted the National Seamen Board, which, as earlier observed, had
itself prescribed a standard shipping contract substantially the same as the format adopted by the
POEA.
The second challenge is more serious as it is true that legislative discretion as to the substantive
contents of the law cannot be delegated. What can be delegated is the discretion to determine how the
law may be enforced, not whatthe law shall be. The ascertainment of the latter subject is a prerogative
of the legislature. This prerogative cannot be abdicated or surrendered by the legislature to the
delegate. Thus, in Ynot v. Intermediate Apellate Court 12 which annulled Executive Order No. 626, this
Court held:
We also mark, on top of all this, the questionable manner of the disposition of the confiscated property
as prescribed in the questioned executive order. It is there authorized that the seized property shall be
distributed to charitable institutions and other similar institutions as the Chairman of the National Meat
Inspection Commission may see fit, in the case of carabaos.' (Italics supplied.) The phrase "may see fit"
is an extremely generous and dangerous condition, if condition it is. It is laden with perilous
opportunities for partiality and abuse, and even corruption. One searches in vain for the usual standard
and the reasonable guidelines, or better still, the limitations that the officers must observe when they
make their distribution. There is none. Their options are apparently boundless. Who shall be the
fortunate beneficiaries of their generosity and by what criteria shall they be chosen? Only the officers
named can supply the answer, they and they alone may choose the grantee as they see fit, and in their
own exclusive discretion. Definitely, there is here a 'roving commission a wide and sweeping authority
that is not canalized within banks that keep it from overflowing,' in short a clearly profligate and
therefore invalid delegation of legislative powers.
There are two accepted tests to determine whether or not there is a valid delegation of legislative
power, viz, the completeness test and the sufficient standard test. Under the first test, the law must be
complete in all its terms and conditions when it leaves the legislature such that when it reaches the
delegate the only thing he will have to do is enforce it. 13 Under the sufficient standard test, there must
be adequate guidelines or stations in the law to map out the boundaries of the delegate's authority and
prevent the delegation from running riot. 14
Both tests are intended to prevent a total transference of legislative authority to the delegate, who is
not allowed to step into the shoes of the legislature and exercise a power essentially legislative.
The principle of non-delegation of powers is applicable to all the three major powers of the Government
but is especially important in the case of the legislative power because of the many instances when its
delegation is permitted. The occasions are rare when executive or judicial powers have to be delegated
by the authorities to which they legally certain. In the case of the legislative power, however, such
occasions have become more and more frequent, if not necessary. This had led to the observation that
the delegation of legislative power has become the rule and its non-delegation the exception.
The reason is the increasing complexity of the task of government and the growing inability of the
legislature to cope directly with the myriad problems demanding its attention. The growth of society
has ramified its activities and created peculiar and sophisticated problems that the legislature cannot
be expected reasonably to comprehend. Specialization even in legislation has become necessary. To
many of the problems attendant upon present-day undertakings, the legislature may not have the
competence to provide the required direct and efficacious, not to say, specific solutions. These
solutions may, however, be expected from its delegates, who are supposed to be experts in the
particular fields assigned to them.
The reasons given above for the delegation of legislative powers in general are particularly applicable
to administrative bodies. With the proliferation of specialized activities and their attendant peculiar
problems, the national legislature has found it more and more necessary to entrust to administrative
agencies the authority to issue rules to carry out the general provisions of the statute. This is called the
"power of subordinate legislation."
With this power, administrative bodies may implement the broad policies laid down in a statute by
"filling in' the details which the Congress may not have the opportunity or competence to provide. This
is effected by their promulgation of what are known as supplementary regulations, such as the
implementing rules issued by the Department of Labor on the new Labor Code. These regulations have
the force and effect of law.
Memorandum Circular No. 2 is one such administrative regulation. The model contract prescribed
thereby has been applied in a significant number of the cases without challenge by the employer. The
power of the POEA (and before it the National Seamen Board) in requiring the model contract is not
unlimited as there is a sufficient standard guiding the delegate in the exercise of the said authority. That
standard is discoverable in the executive order itself which, in creating the Philippine Overseas
Employment Administration, mandated it to protect the rights of overseas Filipino workers to "fair and
equitable employment practices."
Parenthetically, it is recalled that this Court has accepted as sufficient standards "Public interest"
in People v. Rosenthal 15 "justice and equity" in Antamok Gold Fields v. CIR 16 "public convenience and
welfare" in Calalang v. Williams 17 and "simplicity, economy and efficiency" in Cervantes v. Auditor
General, 18 to mention only a few cases. In the United States, the "sense and experience of men" was
accepted in Mutual Film Corp. v. Industrial Commission, 19 and "national security" in Hirabayashi v.
United States. 20
It is not denied that the private respondent has been receiving a monthly death benefit pension of
P514.42 since March 1985 and that she was also paid a P1,000.00 funeral benefit by the Social Security
System. In addition, as already observed, she also received a P5,000.00 burial gratuity from the Welfare
Fund for Overseas Workers. These payments will not preclude allowance of the private respondent's
claim against the petitioner because it is specifically reserved in the standard contract of employment
for Filipino seamen under Memorandum Circular No. 2, Series of 1984, that—
Section C. Compensation and Benefits.—
1. In case of death of the seamen during the term of his Contract, the employer shall pay his
beneficiaries the amount of:
a. P220,000.00 for master and chief engineers
b. P180,000.00 for other officers, including radio operators and master electrician
c. P 130,000.00 for ratings.
2. It is understood and agreed that the benefits mentioned above shall be separate and distinct from,
and will be in addition to whatever benefits which the seaman is entitled to under Philippine laws. ...
3. ...
regulations. Examples abound: the Bureau of Internal Revenue adjudicates on its own revenue
regulations, the Central Bank on its own circulars, the Securities and Exchange Commission on its own
rules, as so too do the Philippine Patent Office and the Videogram Regulatory Board and the Civil
Aeronautics Administration and the Department of Natural Resources and so on ad infinitum on their
respective administrative regulations. Such an arrangement has been accepted as a fact of life of
modern governments and cannot be considered violative of due process as long as the cardinal rights
laid down by Justice Laurel in the landmark case of Ang Tibay v. Court of Industrial Relations 21 are
observed.
Whatever doubts may still remain regarding the rights of the parties in this case are resolved in favor
of the private respondent, in line with the express mandate of the Labor Code and the principle that
those with less in life should have more in law.
When the conflicting interests of labor and capital are weighed on the scales of social justice, the
heavier influence of the latter must be counter-balanced by the sympathy and compassion the law must
accord the underprivileged worker. This is only fair if he is to be given the opportunity and the right to
assert and defend his cause not as a subordinate but as a peer of management, with which he can
negotiate on even plane. Labor is not a mere employee of capital but its active and equal partner.
WHEREFORE, the petition is DISMISSED, with costs against the petitioner. The temporary restraining
order dated December 10, 1986 is hereby LIFTED. It is so ordered.
Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

c. If the remains of the seaman is buried in the Philippines, the owners shall pay the beneficiaries of the
seaman an amount not exceeding P18,000.00 for burial expenses.

The underscored portion is merely a reiteration of Memorandum Circular No. 22, issued by the National
Seamen Board on July 12,1976, providing an follows:

Income Benefits under this Rule Shall be Considered Additional Benefits.—

All compensation benefits under Title II, Book Four of the Labor Code of the Philippines (Employees
Compensation and State Insurance Fund) shall be granted, in addition to whatever benefits, gratuities
or allowances that the seaman or his beneficiaries may be entitled to under the employment contract
approved by the NSB. If applicable, all benefits under the Social Security Law and the Philippine
Medicare Law shall be enjoyed by the seaman or his beneficiaries in accordance with such laws.

The above provisions are manifestations of the concern of the State for the working class, consistently
with the social justice policy and the specific provisions in the Constitution for the protection of the
working class and the promotion of its interest.

One last challenge of the petitioner must be dealt with to close t case. Its argument that it has been
denied due process because the same POEA that issued Memorandum Circular No. 2 has also sustained
and applied it is an uninformed criticism of administrative law itself. Administrative agencies are vested
with two basic powers, the quasi-legislative and the quasi-judicial. The first enables them to promulgate
implementing rules and regulations, and the second enables them to interpret and apply such
G.R. No. L-4043 May 26, 1952
CENON S. CERVANTES, petitioner,
vs.
THE AUDITOR GENERAL, respondent.
Cenon Cervantes in his own behalf.
Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar for respondent.
REYES, J.:
This is a petition to review a decision of the Auditor General denying petitioner's claim for quarters
allowance as manager of the National Abaca and Other Fibers Corporation, otherwise known as the
NAFCO.
It appears that petitioner was in 1949 the manager of the NAFCO with a salary of P15,000 a year. By a
resolution of the Board of Directors of this corporation approved on January 19 of that year, he was
granted quarters allowance of not exceeding P400 a month effective the first of that month. Submitted
the Control Committee of the Government Enterprises Council for approval, the said resolution was on
August 3, 1949, disapproved by the said Committee on strenght of the recommendation of the NAFCO
auditor, concurred in by the Auditor General, (1) that quarters allowance constituted additional
compensation prohibited by the charter of the NAFCO, which fixes the salary of the general manager
thereof at the sum not to exceed P15,000 a year, and (2) that the precarious financial condition of the
corporation did not warrant the granting of such allowance.
On March 16, 1949, the petitioner asked the Control Committee to reconsider its action and approve
his claim for allowance for January to June 15, 1949, amounting to P1,650. The claim was again referred
by the Control Committee to the auditor General for comment. The latter, in turn referred it to the
NAFCO auditor, who reaffirmed his previous recommendation and emphasized that the fact that the
corporation's finances had not improved. In view of this, the auditor General also reiterated his previous
opinion against the granting of the petitioner's claim and so informed both the Control Committee and
the petitioner. But as the petitioner insisted on his claim the Auditor General Informed him on June 19,
1950, of his refusal to modify his decision. Hence this petition for review.
The NAFCO was created by the Commonwealth Act No. 332, approved on June 18, 1939, with a capital
stock of P20,000,000, 51 per cent of which was to be able to be subscribed by the National Government
and the remainder to be offered to provincial, municipal, and the city governments and to the general
public. The management the corporation was vested in a board of directors of not more than 5
members appointed by the president of the Philippines with the consent of the Commission on
Appointments. But the corporation was made subject to the provisions of the corporation law in so far
as they were compatible with the provisions of its charter and the purposes of which it was created and
was to enjoy the general powers mentioned in the corporation law in addition to those granted in its
charter. The members of the board were to receive each a per diem of not to exceed P30 for each day
of meeting actually attended, except the chairman of the board, who was to be at the same time the
general manager of the corporation and to receive a salary not to exceed P15,000 per annum.
On October 4, 1946, Republic Act No. 51 was approved authorizing the President of the Philippines,
among other things, to effect such reforms and changes in government owned and controlled
corporations for the purpose of promoting simplicity, economy and efficiency in their operation
Pursuant to this authority, the President on October 4, 1947, promulgated Executive Order No. 93
creating the Government Enterprises Council to be composed of the President of the Philippines as
chairman, the Secretary of Commerce and Industry as vice-chairman, the chairman of the board of
directors and managing heads of all such corporations as ex-officio members, and such additional
members as the President might appoint from time to time with the consent of the Commission on
Appointments. The council was to advise the President in the excercise of his power of supervision and
control over these corporations and to formulate and adopt such policy and measures as might be
necessary to coordinate their functions and activities. The Executive Order also provided that the
council was to have a Control Committee composed of the Secretary of Commerce and Industry as
chairman, a member to be designated by the President from among the members of the council as vice-
chairman and the secretary as ex-officio member, and with the power, among others —
(1) To supervise, for and under the direction of the President, all the corporations owned or controlled
by the Government for the purpose of insuring efficiency and economy in their operations;
(2) To pass upon the program of activities and the yearly budget of expenditures approved by the
respective Boards of Directors of the said corporations; and
(3) To carry out the policies and measures formulated by the Government Enterprises Council with the
approval of the President. (Sec. 3, Executive Order No. 93.)
With its controlling stock owned by the Government and the power of appointing its directors vested
in the President of the Philippines, there can be no question that the NAFCO is Government controlled
corporation subject to the provisions of Republic Act No. 51 and the executive order (No. 93)
promulgated in accordance therewith. Consequently, it was also subject to the powers of the Control
Committee created in said executive order, among which is the power of supervision for the purpose
of insuring efficiency and economy in the operations of the corporation and also the power to pass
upon the program of activities and the yearly budget of expenditures approved by the board of
directors. It can hardly be questioned that under these powers the Control Committee had the right to
pass upon, and consequently to approve or disapprove, the resolution of the NAFCO board of directors
granting quarters allowance to the petitioners as such allowance necessarily constitute an item of
expenditure in the corporation's budget. That the Control Committee had good grounds for
disapproving the resolution is also clear, for, as pointed out by the Auditor General and the NAFCO
auditor, the granting of the allowance amounted to an illegal increase of petitioner's salary beyond the
limit fixed in the corporate charter and was furthermore not justified by the precarious financial
condition of the corporation.
It is argued, however, that Executive Order No. 93 is null and void, not only because it is based on a law
that is unconstitutional as an illegal delegation of legislature power to executive, but also because it
was promulgated beyond the period of one year limited in said law.
The second ground ignores the rule that in the computation of the time for doing an act, the first day is
excluded and the last day included (Section 13 Rev. Ad. Code.) As the act was approved on October 4,
1946, and the President was given a period of one year within which to promulgate his executive order
and that the order was in fact promulgated on October 4, 1947, it is obvious that under the above rule
the said executive order was promulgated within the period given.
As to the first ground, the rule is that so long as the Legislature "lays down a policy and a standard is
established by the statute" there is no undue delegation. (11 Am. Jur. 957). Republic Act No. 51 in
authorizing the President of the Philippines, among others, to make reforms and changes in
government-controlled corporations, lays down a standard and policy that the purpose shall be to meet
the exigencies attendant upon the establishment of the free and independent government of the
Philippines and to promote simplicity, economy and efficiency in their operations. The standard was set
and the policy fixed. The President had to carry the mandate. This he did by promulgating the executive
order in question which, tested by the rule above cited, does not constitute an undue delegation of
legislative power.

It is also contended that the quarters allowance is not compensation and so the granting of it to the
petitioner by the NAFCO board of directors does not contravene the provisions of the NAFCO charter
that the salary of the chairman of said board who is also to be general manager shall not exceed P15,000
per anum. But regardless of whether quarters allowance should be considered as compensation or not,
the resolution of the board of the directors authorizing payment thereof to the petitioner cannot be
given effect since it was disapproved by the Control Committee in the exercise of powers granted to it
by Executive Order No. 93. And in any event, petitioner's contention that quarters allowance is not
compensation, a proposition on which American authorities appear divided, cannot be insisted on
behalf of officers and employees working for the Government of the Philippines and its
Instrumentalities, including, naturally, government-controlled corporations. This is so because
Executive Order No. 332 of 1941, which prohibits the payment of additional compensation to those
working for the Government and its Instrumentalities, including government-controlled corporations,
was in 1945 amended by Executive Order No. 77 by expressly exempting from the prohibition the
payment of quarters allowance "in favor of local government officials and employees entitled to this
under existing law." The amendment is a clear indication that quarters allowance was meant to be
included in the term "additional compensation", for otherwise the amendment would not have
expressly excepted it from the prohibition. This being so, we hold that, for the purpose of the executive
order just mentioned, quarters allowance is considered additional compensation and, therefore,
prohibited.

In view of the foregoing, the petition for review is dismissed, with costs.

Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor and Bautista Angelo, JJ., concur.
G.R. No. L-23825 December 24, 1965
EMMANUEL PELAEZ, petitioner,
vs.
THE AUDITOR GENERAL, respondent.
Zulueta, Gonzales, Paculdo and Associates for petitioner.
Office of the Solicitor General for respondent.
CONCEPCION, J.:
During the period from September 4 to October 29, 1964 the President of the Philippines, purporting
to act pursuant to Section 68 of the Revised Administrative Code, issued Executive Orders Nos. 93 to
121, 124 and 126 to 129; creating thirty-three (33) municipalities enumerated in the margin.1 Soon after
the date last mentioned, or on November 10, 1964 petitioner Emmanuel Pelaez, as Vice President of
the Philippines and as taxpayer, instituted the present special civil action, for a writ of prohibition with
preliminary injunction, against the Auditor General, to restrain him, as well as his representatives and
agents, from passing in audit any expenditure of public funds in implementation of said executive orders
and/or any disbursement by said municipalities.
Petitioner alleges that said executive orders are null and void, upon the ground that said Section 68 has
been impliedly repealed by Republic Act No. 2370 and constitutes an undue delegation of legislative
power. Respondent maintains the contrary view and avers that the present action is premature and
that not all proper parties — referring to the officials of the new political subdivisions in question —
have been impleaded. Subsequently, the mayors of several municipalities adversely affected by the
aforementioned executive orders — because the latter have taken away from the former the barrios
composing the new political subdivisions — intervened in the case. Moreover, Attorneys Enrique M.
Fernando and Emma Quisumbing-Fernando were allowed to and did appear as amici curiae.
The third paragraph of Section 3 of Republic Act No. 2370, reads:
Barrios shall not be created or their boundaries altered nor their names changed except under the
provisions of this Act or by Act of Congress.
Pursuant to the first two (2) paragraphs of the same Section 3:
All barrios existing at the time of the passage of this Act shall come under the provisions hereof.
Upon petition of a majority of the voters in the areas affected, a new barrio may be created or the name
of an existing one may be changed by the provincial board of the province, upon recommendation of
the council of the municipality or municipalities in which the proposed barrio is stipulated. The
recommendation of the municipal council shall be embodied in a resolution approved by at least two-
thirds of the entire membership of the said council: Provided, however, That no new barrio may be
created if its population is less than five hundred persons.
Hence, since January 1, 1960, when Republic Act No. 2370 became effective, barrios may "not be
created or their boundaries altered nor their names changed" except by Act of Congress or of the
corresponding provincial board "upon petition of a majority of the voters in the areas affected" and the
"recommendation of the council of the municipality or municipalities in which the proposed barrio is
situated." Petitioner argues, accordingly: "If the President, under this new law, cannot even create a
barrio, can he create a municipality which is composed of several barrios, since barrios are units of
municipalities?"
Respondent answers in the affirmative, upon the theory that a new municipality can be created without
creating new barrios, such as, by placing old barrios under the jurisdiction of the new municipality. This
theory overlooks, however, the main import of the petitioner's argument, which is that the statutory
denial of the presidential authority to create a new barrio implies a negation of the bigger power to
create municipalities, each of which consists of several barrios. The cogency and force of this argument
is too obvious to be denied or even questioned. Founded upon logic and experience, it cannot be offset
except by a clear manifestation of the intent of Congress to the contrary, and no such manifestation,
subsequent to the passage of Republic Act No. 2379, has been brought to our attention.
Moreover, section 68 of the Revised Administrative Code, upon which the disputed executive orders
are based, provides:
The (Governor-General) President of the Philippines may by executive order define the boundary, or
boundaries, of any province, subprovince, municipality, [township] municipal district, or other political
subdivision, and increase or diminish the territory comprised therein, may divide any province into one
or more subprovinces, separate any political division other than a province, into such portions as may
be required, merge any of such subdivisions or portions with another, name any new subdivision so
created, and may change the seat of government within any subdivision to such place therein as the
public welfare may require: Provided, That the authorization of the (Philippine Legislature) Congress of
the Philippines shall first be obtained whenever the boundary of any province or subprovince is to be
defined or any province is to be divided into one or more subprovinces. When action by the (Governor-
General) President of the Philippines in accordance herewith makes necessary a change of the territory
under the jurisdiction of any administrative officer or any judicial officer, the (Governor-General)
President of the Philippines, with the recommendation and advice of the head of the Department
having executive control of such officer, shall redistrict the territory of the several officers affected and
assign such officers to the new districts so formed.
Upon the changing of the limits of political divisions in pursuance of the foregoing authority, an
equitable distribution of the funds and obligations of the divisions thereby affected shall be made in
such manner as may be recommended by the (Insular Auditor) Auditor General and approved by the
(Governor-General) President of the Philippines.
Respondent alleges that the power of the President to create municipalities under this section does not
amount to an undue delegation of legislative power, relying upon Municipality of Cardona vs.
Municipality of Binañgonan (36 Phil. 547), which, he claims, has settled it. Such claim is untenable, for
said case involved, not the creation of a new municipality, but a mere transfer of territory — from
an already existing municipality (Cardona) to another municipality (Binañgonan), likewise, existing at
the time of and prior to said transfer (See Gov't of the P.I. ex rel. Municipality of Cardona vs.
Municipality, of Binañgonan [34 Phil. 518, 519-5201) — in consequence of the fixing and definition,
pursuant to Act No. 1748, of the common boundaries of two municipalities.
It is obvious, however, that, whereas the power to fix such common boundary, in order to avoid or
settle conflicts of jurisdiction between adjoining municipalities, may partake of an administrative nature
— involving, as it does, the adoption of means and ways to carry into effect the law creating said
municipalities — the authority to create municipal corporations is essentially legislative in nature. In
the language of other courts, it is "strictly a legislative function" (State ex rel. Higgins vs. Aicklen, 119 S.
425, January 2, 1959) or "solely and exclusively the exercise of legislative power" (Udall vs. Severn, May
29, 1938, 79 P. 2d 347-349). As the Supreme Court of Washington has put it (Territory ex rel. Kelly vs.
Stewart, February 13, 1890, 23 Pac. 405, 409), "municipal corporations are purely the creatures of
statutes."
Although1a Congress may delegate to another branch of the Government the power to fill in the details
in the execution, enforcement or administration of a law, it is essential, to forestall a violation of the
principle of separation of powers, that said law: (a) be complete in itself — it must set forth therein the
policy to be executed, carried out or implemented by the delegate2 — and (b) fix a standard — the
limits of which are sufficiently determinate or determinable — to which the delegate must conform in
the performance of his functions.2a Indeed, without a statutory declaration of policy, the delegate
would in effect, make or formulate such policy, which is the essence of every law; and, without the
aforementioned standard, there would be no means to determine, with reasonable certainty, whether
the delegate has acted within or beyond the scope of his authority.2b Hence, he could thereby arrogate
upon himself the power, not only to make the law, but, also — and this is worse — to unmake it, by
adopting measures inconsistent with the end sought to be attained by the Act of Congress, thus
nullifying the principle of separation of powers and the system of checks and balances, and,
consequently, undermining the very foundation of our Republican system.
Section 68 of the Revised Administrative Code does not meet these well settled requirements for a valid
delegation of the power to fix the details in the enforcement of a law. It does not enunciate any policy
to be carried out or implemented by the President. Neither does it give a standard sufficiently precise
to avoid the evil effects above referred to. In this connection, we do not overlook the fact that, under
the last clause of the first sentence of Section 68, the President:
... may change the seat of the government within any subdivision to such place therein as the public
welfare may require.
It is apparent, however, from the language of this clause, that the phrase "as the public welfare may
require" qualified, not the clauses preceding the one just quoted, but only the place to which the seat
of the government may be transferred. This fact becomes more apparent when we consider that said
Section 68 was originally Section 1 of Act No. 1748, 3 which provided that, "whenever in the judgment
of the Governor-General the public welfare requires, he may, by executive order," effect the changes
enumerated therein (as in said section 68), including the change of the seat of the government "to
such place ... as the public interest requires." The opening statement of said Section 1 of Act No. 1748
— which was not included in Section 68 of the Revised Administrative Code — governed the time at
which, or the conditions under which, the powers therein conferred could be exercised; whereas the
last part of the first sentence of said section referred exclusively to the place to which the seat of the
government was to be transferred.
At any rate, the conclusion would be the same, insofar as the case at bar is concerned, even if we
assumed that the phrase "as the public welfare may require," in said Section 68, qualifies all other
clauses thereof. It is true that in Calalang vs. Williams (70 Phil. 726) and People vs. Rosenthal (68 Phil.
328), this Court had upheld "public welfare" and "public interest," respectively, as sufficient standards
for a valid delegation of the authority to execute the law. But, the doctrine laid down in these cases —
as all judicial pronouncements — must be construed in relation to the specific facts and issues involved
therein, outside of which they do not constitute precedents and have no binding effect. 4 The law
construed in the Calalang case conferred upon the Director of Public Works, with the approval of the
Secretary of Public Works and Communications, the power to issue rules and regulations to promote
safe transitupon national roads and streets. Upon the other hand, the Rosenthal case referred to the
authority of the Insular Treasurer, under Act No. 2581, to issue and cancel certificates or permits for the
sale of speculative securities. Both cases involved grants to administrative officers of powers related to
the exercise of their administrative functions, calling for the determination of questions of fact.
Such is not the nature of the powers dealt with in section 68. As above indicated, the creation of
municipalities, is not an administrative function, but one which is essentially and eminently legislative in
character. The question of whether or not "public interest" demands the exercise of such power
is not one of fact. it is "purely a legislativequestion "(Carolina-Virginia Coastal Highway vs. Coastal
Turnpike Authority, 74 S.E. 2d. 310-313, 315-318), or a political question (Udall vs. Severn, 79 P. 2d.
347-349). As the Supreme Court of Wisconsin has aptly characterized it, "the question as to whether
incorporation is for the best interest of the community in any case is emphatically a question of public
policy and statecraft" (In re Village of North Milwaukee, 67 N.W. 1033, 1035-1037).
For this reason, courts of justice have annulled, as constituting undue delegation of legislative powers,
state laws granting the judicial department, the power to determine whether certain territories should
be annexed to a particular municipality (Udall vs. Severn, supra, 258-359); or vesting in a Commission
the right to determine the plan and frame of government of proposed villages and what functions shall
be exercised by the same, although the powers and functions of the village are specifically limited by
statute (In re Municipal Charters, 86 Atl. 307-308); or conferring upon courts the authority to declare a
given town or village incorporated, and designate its metes and bounds, upon petition of a majority of
the taxable inhabitants thereof, setting forth the area desired to be included in such village (Territory
ex rel Kelly vs. Stewart, 23 Pac. 405-409); or authorizing the territory of a town, containing a given area
and population, to be incorporated as a town, on certain steps being taken by the inhabitants thereof
and on certain determination by a court and subsequent vote of the inhabitants in favor thereof, insofar
as the court is allowed to determine whether the lands embraced in the petition "ought justly" to be
included in the village, and whether the interest of the inhabitants will be promoted by such
incorporation, and to enlarge and diminish the boundaries of the proposed village "as justice may
require" (In re Villages of North Milwaukee, 67 N.W. 1035-1037); or creating a Municipal Board of
Control which shall determine whether or not the laying out, construction or operation of a toll road is
in the "public interest" and whether the requirements of the law had been complied with, in which case
the board shall enter an order creating a municipal corporation and fixing the name of the same
(Carolina-Virginia Coastal Highway vs. Coastal Turnpike Authority, 74 S.E. 2d. 310).
Insofar as the validity of a delegation of power by Congress to the President is concerned, the case
of Schechter Poultry Corporation vs. U.S. (79 L. Ed. 1570) is quite relevant to the one at bar. The
Schechter case involved the constitutionality of Section 3 of the National Industrial Recovery Act
authorizing the President of the United States to approve "codes of fair competition" submitted to him
by one or more trade or industrial associations or corporations which "impose no inequitable
restrictions on admission to membership therein and are truly representative," provided that such
codes are not designed "to promote monopolies or to eliminate or oppress small enterprises and will
not operate to discriminate against them, and will tend to effectuate the policy" of said Act. The Federal
Supreme Court held:
To summarize and conclude upon this point: Sec. 3 of the Recovery Act is without precedent. It supplies
no standards for any trade, industry or activity. It does not undertake to prescribe rules of conduct to
be applied to particular states of fact determined by appropriate administrative procedure. Instead of
prescribing rules of conduct, it authorizes the making of codes to prescribe them. For that legislative
undertaking, Sec. 3 sets up no standards, aside from the statement of the general aims of rehabilitation,
correction and expansion described in Sec. 1. In view of the scope of that broad declaration, and of the
nature of the few restrictions that are imposed, the discretion of the President in approving or
prescribing codes, and thus enacting laws for the government of trade and industry throughout the
country, is virtually unfettered. We think that the code making authority thus conferred is an
unconstitutional delegation of legislative power.
If the term "unfair competition" is so broad as to vest in the President a discretion that is "virtually
unfettered." and, consequently, tantamount to a delegation of legislative power, it is obvious that
"public welfare," which has even a broader connotation, leads to the same result. In fact, if the validity
of the delegation of powers made in Section 68 were upheld, there would no longer be any legal
impediment to a statutory grant of authority to the President to do anything which, in his opinion, may
be required by public welfare or public interest. Such grant of authority would be a virtual abdication
of the powers of Congress in favor of the Executive, and would bring about a total collapse of the
democratic system established by our Constitution, which it is the special duty and privilege of this
Court to uphold.
It may not be amiss to note that the executive orders in question were issued after the legislative bills
for the creation of the municipalities involved in this case had failed to pass Congress. A better proof of
the fact that the issuance of said executive orders entails the exercise of purely legislative functions can
hardly be given.
Again, Section 10 (1) of Article VII of our fundamental law ordains:
The President shall have control of all the executive departments, bureaus, or offices, exercise general
supervision over all local governments as may be provided by law, and take care that the laws be
faithfully executed.
The power of control under this provision implies the right of the President to interfere in the exercise
of such discretion as may be vested by law in the officers of the executive departments, bureaus, or
offices of the national government, as well as to act in lieu of such officers. This power is denied by the
Constitution to the Executive, insofar as local governments are concerned. With respect to the latter,
the fundamental law permits him to wield no more authority than that of checking whether said local
governments or the officers thereof perform their duties as provided by statutory enactments. Hence,
the President cannot interfere with local governments, so long as the same or its officers act Within the
scope of their authority. He may not enact an ordinance which the municipal council has failed or
refused to pass, even if it had thereby violated a duty imposed thereto by law, although he may see to
it that the corresponding provincial officials take appropriate disciplinary action therefor. Neither may
he vote, set aside or annul an ordinance passed by said council within the scope of its jurisdiction, no
matter how patently unwise it may be. He may not even suspend an elective official of a regular
municipality or take any disciplinary action against him, except on appeal from a decision of the
corresponding provincial board.5
Upon the other hand if the President could create a municipality, he could, in effect, remove any of its
officials, by creating a new municipality and including therein the barrio in which the official concerned
resides, for his office would thereby become vacant.6 Thus, by merely brandishing the power to create
a new municipality (if he had it), without actually creating it, he could compel local officials to submit
to his dictation, thereby, in effect, exercising over them the power of control denied to him by the
Constitution.
Then, also, the power of control of the President over executive departments, bureaus or offices
implies no more than the authority to assume directly the functions thereof or to interfere in the
exercise of discretion by its officials. Manifestly, such control does not include the authority either to
abolish an executive department or bureau, or to create a new one. As a consequence, the alleged
power of the President to create municipal corporations would necessarily connote the exercise by him
of an authority even greater than that of control which he has over the executive departments, bureaus
or offices. In other words, Section 68 of the Revised Administrative Code does not merely fail to comply
with the constitutional mandate above quoted. Instead of giving the President less power over local
governments than that vested in him over the executive departments, bureaus or offices, it reverses
the process and does the exact opposite, by conferring upon him more power over municipal
corporations than that which he has over said executive departments, bureaus or offices.
In short, even if it did entail an undue delegation of legislative powers, as it certainly does, said Section
68, as part of the Revised Administrative Code, approved on March 10, 1917, must be deemed repealed
by the subsequent adoption of the Constitution, in 1935, which is utterly incompatible and inconsistent
with said statutory enactment.7
There are only two (2) other points left for consideration, namely, respondent's claim (a) that "not all
the proper parties" — referring to the officers of the newly created municipalities — "have been
impleaded in this case," and (b) that "the present petition is premature."
As regards the first point, suffice it to say that the records do not show, and the parties do not claim,
that the officers of any of said municipalities have been appointed or elected and assumed office. At
any rate, the Solicitor General, who has appeared on behalf of respondent Auditor General, is the officer
authorized by law "to act and represent the Government of the Philippines, its offices and agents, in
any official investigation, proceeding or matter requiring the services of a lawyer" (Section 1661,
Revised Administrative Code), and, in connection with the creation of the aforementioned
municipalities, which involves a political, not proprietary, function, said local officials, if any, are mere
agents or representatives of the national government. Their interest in the case at bar has, accordingly,
been, in effect, duly represented.8
With respect to the second point, respondent alleges that he has not as yet acted on any of the
executive order & in question and has not intimated how he would act in connection therewith. It is,
however, a matter of common, public knowledge, subject to judicial cognizance, that the President has,
for many years, issued executive orders creating municipal corporations and that the same have been
organized and in actual operation, thus indicating, without peradventure of doubt, that the
expenditures incidental thereto have been sanctioned, approved or passed in audit by the General
Auditing Office and its officials. There is no reason to believe, therefore, that respondent would adopt
a different policy as regards the new municipalities involved in this case, in the absence of an allegation
to such effect, and none has been made by him.

WHEREFORE, the Executive Orders in question are hereby declared null and void ab initio and the
respondent permanently restrained from passing in audit any expenditure of public funds in
implementation of said Executive Orders or any disbursement by the municipalities above referred to.
It is so ordered.

Bengzon, C.J., Bautista Angelo, Reyes, J.B.L., Barrera and Dizon, JJ., concur.

Zaldivar, J., took no part.

G.R. No. L-14283 November 29, 1960
GIL BALBUNA, ET AL., petitioners-appellants,
vs.
THE HON. SECRETARY OF EDUCATION, ET AL., respondents-appellees.
K. V. Faylona and Juan B. Soliven for appellants.
Office of the Solicitor General Edilberto Barot and Solicitor Ceferino Padua for appellees.
REYES, J.B.L., J.:
Appeal by members of the "Jehovah's Witnesses" from a decision of the Court of First Instance of Capiz,
dated June 23, 1958, dismissing their petition for prohibition and mandamus against the Secretary of
Education and the other respondents.
The action was brought to enjoin the enforcement of Department Order No. 8, s. 1955, issued by the
Secretary of Education, promulgating rules and regulations for the conduct of the compulsory flag
ceremony in all schools, as provided in Republic Act No. 1265. Petitioners appellants assail the validity
of the above Department Order, for it allegedly denies them freedom of worship and of speech
guaranteed by the Bill of Rights; that it denies them due process of law and the equal protection of the
laws; and that it unduly restricts their rights in the upbringing of their children. Since the brief for the
petitioners-appellants assails Republic Act No. 1265 only as construed and applied, the issue ultimately
boils down the validity of Department Order No. 8, s. 1955, which promulgated the rules and
regulations for the implementation of the law.
This case, therefore, is on all fours with Gerona, et al., vs. Secretary of Education, et al., 106 Phil., 2; 57
Off. Gaz., (5) 820, also involving Jehovah's Witnesses, and assailing, on practically identical grounds, the
validity of the same Department Order above-mentioned. This Court discerns no reasons for changing
its stand therein, where we said:
In conclusion, we find and hold that the Filipino flag is not an image that requires religious veneration;
rather, it is a symbol of the Republic of the Philippines, of sovereignty, an emblem of freedom, liberty
and national unity; that the flag salute is not a religious ceremony but an act and profession of love and
allegiance and pledge of loyalty to the fatherland which the flag stands for; that by the authority of the
Legislature of the Secretary of Education was duly authorized to promulgate Department Order No. 8,
series of 1955; that the requirement of observance of the flag ceremony, or salute provided for in said
Department Order No. 8 does not violate the Constitutional provisions about freedom of religion and
exercise of religion; that compliance with the non-discriminatory and reasonable rules and regulations
and school discipline, including observance of the flag ceremony, is a prerequisite to attendance in
public schools; and that for failure and refusal to participate in the flag ceremony, petitioners were
properly excluded and dismissed from the public school they were attending.
However, in their memorandum, petitioners-appellants raise the new issue that that Department Order
No. 8 has no binding force and effect, not having been published in the Official Gazette as allegedly
required by Commonwealth Act 638, Article 2 of the New Civil Code, and Section 11 of the Revised
Administrative Code. We see no merit in this contention. The assailed Department Order, being
addressed only to the Directors of Public and Private Schools, and educational institutions under their
supervision, can not be said to be of general application. Moreover, as observed in People vs. QuePo
Lay, 94 Phil., 640; 50 Off. Gaz., (10) 4850 (affirmed in Lim Hoa Ting vs. Central Bank, 104 Phil., 573; 55
Off. Gaz., [6] 1006), —
the laws in question (Commonwealth Act 638 and Act 2930) do not require the publication of the
circulars, regulations or notices therein mentioned in order to become binding and effective. All that
said two laws provide is that laws, regulations, decisions of the Supreme Court and Court of Appeals,
notices and documents required by law to be published shall be published in the Official Gazette but
said two laws do not say that unless so published they will be of no force and effect. In other words,
said two acts merely enumerate and make a list of what should be published in the Official Gazette,
presumably, for the guidance of the different branches of the government issuing the same, and of the
Bureau of Printing.
It is true, as held in the above cases, that pursuant to Article 2 of the New Civil Code and Section 11 of
the Revised Administrative Code, statutes or laws shall take effect fifteen days following the completion
of their publication in the Official Gazette, unless otherwise provided. It is likewise true that
administrative rules and regulations, issued to implement a law, have the force of law. Nevertheless,
the cases cited above involved circulars of the Central Bank which provided for penalties for violations
thereof and that was the primary factor that influenced the rationale of those decisions. In the case at
bar, Department Order No. 8 does not provide any penalty against those pupils or students refusing to
participate in the flag ceremony or otherwise violating the provisions of said order. Their expulsion was
merely the consequence of their failure to observe school discipline which the school authorities are
bound to maintain. As observed in Gerona vs. Secretary of Education, supra,
... for their failure or refusal to obey school regulations about the flag salute, they were not being
prosecuted. Neither were they being criminally prosecuted under threat of penal sanction. If they
choose not to obey the flag salute regulation, they merely lost the benefits of public education being
maintained at the expense of their fellow citizens, nothing more. Having elected not to comply with the
regulations about the flag salute, they forfeited their right to attend public schools.
Finally, appellants contend that Republic Act No. 1265 is unconstitutional and void for being an undue
delegations of legislative power, "for its failure to lay down any specific and definite standard by which
the Secretary of Education may be guided in the preparation of those rules and regulations which he
has been authorized to promulgate." With this view we again disagree. Sections 1 and 2 of the Act read
as follows:
Section 1. All educational institutions shall henceforth, observed daily flag ceremony, which shall be
simple and dignified and shall include the playing or singing of the Philippine National Anthem.
Section 2. The Secretary of Education is hereby authorized and directed to issue or cause to be issued
rules and regulations for the proper conduct of the flag ceremony herein provide.
In our opinion, the requirements above-quoted constitute an adequate standard, to wit, simplicity and
dignity of the flag ceremony and the singing of the National Anthem — specially when contrasted with
other standards heretofore upheld by the Courts: "public interest"(People vs. Rosenthal, 68 Phil. 328);
"public welfare" (Municipality of Cardona vs. Binangonan, 36 Phil. 547); Interest of law and
order"(Rubi vs. Provincial Board, 39 Phil., 669; justice and equity and the substantial merits of the case"
(Int. Hardwood vs. Pañgil Federation of Labor, 70 Phil. 602); or "adequate and efficient instruction"
(P.A.C.U. vs. Secretary of Education, 97 Phil., 806; 51 Off. Gaz., 6230). That the Legislature did not specify
the details of the flag ceremony is no objection to the validity of the statute, for all that is required of it
is the laying down of standards and policy that will limit the discretion of the regulatory agency. To
require the statute to establish in detail the manner of exercise of the delegated power would be to
destroy the administrative flexibility that the delegation is intended to achieve.

Wherefore, the decision appealed from is affirmed. Costs against petitioner-appellants.

Paras, C.J., Padilla, Bautista Angelo, Labrador, Barrera, Gutierrez David, Paredes, and Dizon, JJ., concur.
G.R. No. 181704 December 6, 2011
BUREAU OF CUSTOMS EMPLOYEES ASSOCIATION (BOCEA), represented by its National President
(BOCEA National Executive Council) Mr. Romulo A. Pagulayan, Petitioner,
vs.
HON. MARGARITO B. TEVES, in his capacity as Secretary of the Department of Finance, HON.
NAPOLEON L. MORALES, in his capacity as Commissioner of the Bureau of Customs, HON. LILIAN B.
HEFTI, in her capacity as Commissioner of the Bureau of Internal Revenue, Respondents.
DECISION
VILLARAMA, JR., J.:
Before this Court is a petition1 for certiorari and prohibition with prayer for injunctive relief/s under
Rule 65 of the 1997 Rules of Civil Procedure, as amended, to declare Republic Act (R.A.) No.
9335,2 otherwise known as the Attrition Act of 2005, and its Implementing Rules and Regulations 3 (IRR)
unconstitutional, and the implementation thereof be enjoined permanently.
The Facts
On January 25, 2005, former President Gloria Macapagal-Arroyo signed into law R.A. No. 9335 which
took effect on February 11, 2005.
In Abakada Guro Party List v. Purisima 4 (Abakada), we said of R.A. No. 9335:
RA [No.] 9335 was enacted to optimize the revenue-generation capability and collection of the Bureau
of Internal Revenue (BIR) and the Bureau of Customs (BOC). The law intends to encourage BIR and BOC
officials and employees to exceed their revenue targets by providing a system of rewards and sanctions
through the creation of a Rewards and Incentives Fund (Fund) and a Revenue Performance Evaluation
Board (Board). It covers all officials and employees of the BIR and the BOC with at least six months of
service, regardless of employment status.
The Fund is sourced from the collection of the BIR and the BOC in excess of their revenue targets for
the year, as determined by the Development Budget and Coordinating Committee (DBCC). Any
incentive or reward is taken from the fund and allocated to the BIR and the BOC in proportion to their
contribution in the excess collection of the targeted amount of tax revenue.
The Boards in the BIR and the BOC are composed of the Secretary of the Department of Finance (DOF)
or his/her Undersecretary, the Secretary of the Department of Budget and Management (DBM) or
his/her Undersecretary, the Director General of the National Economic Development Authority (NEDA)
or his/her Deputy Director General, the Commissioners of the BIR and the BOC or their Deputy
Commissioners, two representatives from the rank-and-file employees and a representative from the
officials nominated by their recognized organization.
Each Board has the duty to (1) prescribe the rules and guidelines for the allocation, distribution and
release of the Fund; (2) set criteria and procedures for removing from the service officials and
employees whose revenue collection falls short of the target; (3) terminate personnel in accordance
with the criteria adopted by the Board; (4) prescribe a system for performance evaluation; (5) perform
other functions, including the issuance of rules and regulations and (6) submit an annual report to
Congress.
The DOF, DBM, NEDA, BIR, BOC and the Civil Service Commission (CSC) were tasked to promulgate and
issue the implementing rules and regulations of RA [No.] 9335, to be approved by a Joint Congressional
Oversight Committee created for such purpose.5
The Joint Congressional Oversight Committee approved the assailed IRR on May 22, 2006.
Subsequently, the IRR was published on May 30, 2006 in two newspapers of general circulation, the
Philippine Star and the Manila Standard, and became effective fifteen (15) days later. 6
Contending that the enactment and implementation of R.A. No. 9335 are tainted with constitutional
infirmities in violation of the fundamental rights of its members, petitioner Bureau of Customs
Employees Association (BOCEA), an association of rank-and-file employees of the Bureau of Customs
(BOC), duly registered with the Department of Labor and Employment (DOLE) and the Civil Service
Commission (CSC), and represented by its National President, Mr. Romulo A. Pagulayan (Pagulayan),
directly filed the present petition before this Court against respondents Margarito B. Teves, in his
capacity as Secretary of the Department of Finance (DOF), Commissioner Napoleon L. Morales
(Commissioner Morales), in his capacity as BOC Commissioner, and Lilian B. Hefti, in her capacity as
Commissioner of the Bureau of Internal Revenue (BIR). In its petition, BOCEA made the following
averments:
Sometime in 2008, high-ranking officials of the BOC pursuant to the mandate of R.A. No. 9335 and its
IRR, and in order to comply with the stringent deadlines thereof, started to disseminate Collection
District Performance Contracts7 (Performance Contracts) for the lower ranking officials and rank-and-
file employees to sign. The Performance Contract pertinently provided:
xxxx
WHEREAS, pursuant to the provisions of Sec. 25 (b) of the Implementing Rules and Regulations (IRR) of
the Attrition Act of 2005, that provides for the setting of criteria and procedures for removing from the
service Officials and Employees whose revenue collection fall short of the target in accordance with
Section 7 of Republic Act 9335.
xxxx
NOW, THEREFORE, for and in consideration of the foregoing premises, parties unto this Agreement
hereby agree and so agreed to perform the following:
xxxx
2. The "Section 2, PA/PE" hereby accepts the allocated Revenue Collection Target and further
accepts/commits to meet the said target under the following conditions:
a.) That he/she will meet the allocated Revenue Collection Target and thereby undertakes and binds
himself/herself that in the event the revenue collection falls short of the target with due consideration
of all relevant factors affecting the level of collection as provided in the rules and regulations
promulgated under the Act and its IRR, he/she will voluntarily submit to the provisions of Sec. 25 (b) of
the IRR and Sec. 7 of the Act; and
b.) That he/she will cascade and/or allocate to respective Appraisers/Examiners or Employees under
his/her section the said Revenue Collection Target and require them to execute a Performance
Contract, and direct them to accept their individual target. The Performance Contract executed by the
respective Examiners/Appraisers/Employees shall be submitted to the Office of the Commissioner
through the LAIC on or before March 31, 2008.
x x x x8
BOCEA opined that the revenue target was impossible to meet due to the Government’s own policies
on reduced tariff rates and tax breaks to big businesses, the occurrence of natural calamities and
because of other economic factors. BOCEA claimed that some BOC employees were coerced and forced
to sign the Performance Contract. The majority of them, however, did not sign. In particular, officers of
BOCEA were summoned and required to sign the Performance Contracts but they also refused. To ease
the brewing tension, BOCEA claimed that its officers sent letters, and sought several dialogues with BOC
officials but the latter refused to heed them.
In addition, BOCEA alleged that Commissioner Morales exerted heavy pressure on the District
Collectors, Chiefs of Formal Entry Divisions, Principal Customs Appraisers and Principal Customs
Examiners of the BOC during command conferences to make them sign their Performance Contracts.
Likewise, BOC Deputy Commissioner Reynaldo Umali (Deputy Commissioner Umali) individually spoke
to said personnel to convince them to sign said contracts. Said personnel were threatened that if they
do not sign their respective Performance Contracts, they would face possible reassignment, reshuffling,
or worse, be placed on floating status. Thus, all the District Collectors, except a certain Atty. Carlos So
of the Collection District III of the Ninoy Aquino International Airport (NAIA), signed the Performance
Contracts.
BOCEA further claimed that Pagulayan was constantly harassed and threatened with lawsuits.
Pagulayan approached Deputy Commissioner Umali to ask the BOC officials to stop all forms of
harassment, but the latter merely said that he would look into the matter. On February 5, 2008, BOCEA
through counsel wrote the Revenue Performance Evaluation Board (Board) to desist from
implementing R.A. No. 9335 and its IRR and from requiring rank-and-file employees of the BOC and BIR
to sign Performance Contracts.9 In his letter-reply10 dated February 12, 2008, Deputy Commissioner
Umali denied having coerced any BOC employee to sign a Performance Contract. He also defended the
BOC, invoking its mandate of merely implementing the law. Finally, Pagulayan and BOCEA’s counsel, on
separate occasions, requested for a certified true copy of the Performance Contract from Deputy
Commissioner Umali but the latter failed to furnish them a copy.11
This petition was filed directly with this Court on March 3, 2008. BOCEA asserted that in view of the
unconstitutionality of R.A. No. 9335 and its IRR, and their adverse effects on the constitutional rights of
BOC officials and employees, direct resort to this Court is justified. BOCEA argued, among others, that
its members and other BOC employees are in great danger of losing their jobs should they fail to meet
the required quota provided under the law, in clear violation of their constitutional right to security of
tenure, and at their and their respective families’ prejudice.
In their Comment,12 respondents, through the Office of the Solicitor General (OSG), countered that R.A.
No. 9335 and its IRR do not violate the right to due process and right to security of tenure of BIR and
BOC employees. The OSG stressed that the guarantee of security of tenure under the 1987
Constitution is not a guarantee of perpetual employment. R.A. No. 9335 and its IRR provided a
reasonable and valid ground for the dismissal of an employee which is germane to the purpose of the
law. Likewise, R.A. No. 9335 and its IRR provided that an employee may only be separated from the
service upon compliance with substantive and procedural due process. The OSG added that R.A. No.
9335 and its IRR must enjoy the presumption of constitutionality.
In its Reply,13 BOCEA claimed that R.A. No. 9335 employs means that are unreasonable to achieve its
stated objectives; that the law is unduly oppressive of BIR and BOC employees as it shifts the extreme
burden upon their shoulders when the Government itself has adopted measures that make collection
difficult such as reduced tariff rates to almost zero percent and tax exemption of big businesses; and
that the law is discriminatory of BIR and BOC employees. BOCEA manifested that only the high-ranking
officials of the BOC benefited largely from the reward system under R.A. No. 9335 despite the fact that
they were not the ones directly toiling to collect revenue. Moreover, despite the BOCEA’s numerous
requests,14 BOC continually refused to provide BOCEA the Expenditure Plan on how such reward was
distributed.
Since BOCEA was seeking similar reliefs as that of the petitioners in Abakada Guro Party List v. Purisima,
BOCEA filed a Motion to Consolidate15 the present case with Abakada on April 16, 2008. However,
pending action on said motion, the Court rendered its decision in Abakada on August 14, 2008. Thus,
the consolidation of this case with Abakada was rendered no longer possible. 16
In Abakada, this Court, through then Associate Justice, now Chief Justice Renato C. Corona, declared
Section 1217of R.A. No. 9335 creating a Joint Congressional Oversight Committee to approve the IRR as
unconstitutional and violative of the principle of separation of powers. However, the constitutionality
of the remaining provisions of R.A. No. 9335 was upheld pursuant to Section 13 18 of R.A. No. 9335. The
Court also held that until the contrary is shown, the IRR of R.A. No. 9335 is presumed valid and effective
even without the approval of the Joint Congressional Oversight Committee.19
Notwithstanding our ruling in Abakada, both parties complied with our Resolution 20 dated February 10,
2009, requiring them to submit their respective Memoranda.
The Issues
BOCEA raises the following issues:
I.
WHETHER OR NOT THE ATTRITION LAW, REPUBLIC ACT [NO.] 9335, AND ITS IMPLEMENTING RULES
AND REGULATIONS ARE UNCONSTITUTIONAL AS THESE VIOLATE THE RIGHT TO DUE PROCESS OF THE
COVERED BIR AND BOC OFFICIALS AND EMPLOYEES[;]
II.
WHETHER OR NOT THE ATTRITION LAW, REPUBLIC ACT [NO.] 9335, AND ITS IMPLEMENTING RULES
AND REGULATIONS ARE UNCONSTITUTIONAL AS THESE VIOLATE THE RIGHT OF BIR AND BOC OFFICIALS
AND EMPLOYEES TO THE EQUAL PROTECTION OF THE LAWS[;]
III.
WHETHER OR NOT REPUBLIC ACT [NO.] 9335 AND ITS IMPLEMENTING RULES AND REGULATIONS
VIOLATE THE RIGHT TO SECURITY OF TENURE OF BIR AND BOC OFFICIALS AND EMPLOYEES AS
ENSHRINED UNDER SECTION 2 (3), ARTICLE IX (B) OF THE CONSTITUTION[;]
IV.
WHETHER OR NOT REPUBLIC ACT [NO.] 9335 AND ITS IMPLEMENTING RULES AND REGULATIONS ARE
UNCONSTITUTIONAL AS THEY CONSTITUTE UNDUE DELEGATION OF LEGISLATIVE POWERS TO THE
REVENUE PERFORMANCE EVALUATION BOARD IN VIOLATION OF THE PRINCIPLE OF SEPARATION OF
POWERS ENSHRINED IN THE CONSTITUTION[; AND]
V.
WHETHER OR NOT REPUBLIC ACT [NO.] 9335 IS A BILL OF ATTAINDER AND HENCE[,]
UNCONSTITUTIONAL BECAUSE IT INFLICTS PUNISHMENT THROUGH LEGISLATIVE FIAT UPON A
PARTICULAR GROUP OR CLASS OF OFFICIALS AND EMPLOYEES WITHOUT TRIAL.21
BOCEA manifested that while waiting for the Court to give due course to its petition, events unfolded
showing the patent unconstitutionality of R.A. No. 9335. It narrated that during the first year of the
implementation of R.A. No. 9335, BOC employees exerted commendable efforts to attain their revenue
target of ₱196 billion which they surpassed by as much as ₱2 billion for that year alone. However, this
was attained only because oil companies made advance tax payments to BOC. Moreover, BOC
employees were given their "reward" for surpassing said target only in 2008, the distribution of which
they described as unjust, unfair, dubious and fraudulent because only top officials of BOC got the huge
sum of reward while the employees, who did the hard task of collecting, received a mere pittance of
around ₱8,500.00. In the same manner, the Bonds Division of BOC-NAIA collected 400+% of its
designated target but the higher management gave out to the employees a measly sum of ₱8,500.00
while the top level officials partook of millions of the excess collections. BOCEA relies on a piece of
information revealed by a newspaper showing the list of BOC officials who apparently earned huge
amounts of money by way of reward.22 It claims that the recipients thereof included lawyers, support
personnel and other employees, including a dentist, who performed no collection functions at all. These
alleged anomalous selection, distribution and allocation of rewards was due to the failure of R.A. No.
9335 to set out clear guidelines.23
In addition, BOCEA avers that the Board initiated the first few cases of attrition for the Fiscal Year 2007
by subjecting five BOC officials from the Port of Manila to attrition despite the fact that the Port of
Manila substantially complied with the provisions of R.A. No. 9335. It is thus submitted that the
selection of these officials for attrition without proper investigation was nothing less than arbitrary.
Further, the legislative and executive departments’ promulgation of issuances and the Government’s
accession to regional trade agreements have caused a significant diminution of the tariff rates, thus,
decreasing over-all collection. These unrealistic settings of revenue targets seriously affect BIR and BOC
employees tasked with the burden of collection, and worse, subjected them to attrition. 24
BOCEA assails the constitutionality of R.A. No. 9335 and its IRR on the following grounds:
1. R.A. No. 9335 and its IRR violate the BIR and BOC employees’ right to due process because the
termination of employees who had not attained their revenue targets for the year is peremptory and
done without any form of hearing to allow said employees to ventilate their side. Moreover, R.A. No.
9335 and its IRR do not comply with the requirements under CSC rules and regulations as the dismissal
in this case is immediately executory. Such immediately executory nature of the Board’s decision
negates the remedies available to an employee as provided under the CSC rules.
2. R.A. No. 9335 and its IRR violate the BIR and BOC employees’ right to equal protection of the law
because R.A. No. 9335 and its IRR unduly discriminates against BIR and BOC employees as compared to
employees of other revenue generating government agencies like the Philippine Amusement and
Gaming Corporation, Department of Transportation and Communication, the Air Transportation Office,
the Land Transportation Office, and the Philippine Charity Sweepstakes Office, among others, which
are not subject to attrition.
3. R.A. No. 9335 and its IRR violate the BIR and BOC employees’ right to security of tenure because R.A.
No. 9335 and its IRR effectively removed remedies provided in the ordinary course of administrative
procedure afforded to government employees. The law likewise created another ground for dismissal,
i.e., non-attainment of revenue collection target, which is not provided under CSC rules and which is,
by its nature, unpredictable and therefore arbitrary and unreasonable.
4. R.A. No. 9335 and its IRR violate the 1987 Constitution because Congress granted to the Revenue
Performance Evaluation Board (Board) the unbridled discretion of formulating the criteria for
termination, the manner of allocating targets, the distribution of rewards and the determination of
relevant factors affecting the targets of collection, which is tantamount to undue delegation of
legislative power.
5. R.A. No. 9335 is a bill of attainder because it inflicts punishment upon a particular group or class of
officials and employees without trial. This is evident from the fact that the law confers upon the Board
the power to impose the penalty of removal upon employees who do not meet their revenue targets;
that the same is without the benefit of hearing; and that the removal from service is immediately
executory. Lastly, it disregards the presumption of regularity in the performance of the official functions
of a public officer.25
On the other hand, respondents through the OSG stress that except for Section 12 of R.A. No. 9335,
R.A. No. 9335 and its IRR are constitutional, as per our ruling in Abakada. Nevertheless, the OSG argues
that the classification of BIR and BOC employees as public officers under R.A. No. 9335 is based on a
valid and substantial distinction since the revenue generated by the BIR and BOC is essentially in the
form of taxes, which is the lifeblood of the State, while the revenue produced by other agencies is
merely incidental or secondary to their governmental functions; that in view of their mandate, and for
purposes of tax collection, the BIR and BOC are sui generis; that R.A. No. 9335 complies with the
"completeness" and "sufficient standard" tests for the permissive delegation of legislative power to the
Board; that the Board exercises its delegated power consistent with the policy laid down in the law,
that is, to optimize the revenue generation capability and collection of the BIR and the BOC; that
parameters were set in order that the Board may identify the officials and employees subject to
attrition, and the proper procedure for their removal in case they fail to meet the targets set in the
Performance Contract were provided; and that the rights of BIR and BOC employees to due process of
law and security of tenure are duly accorded by R.A. No. 9335. The OSG likewise maintains that there
was no encroachment of judicial power in the enactment of R.A. No. 9335 amounting to a bill of
attainder since R.A. No. 9335 and its IRR merely defined the offense and provided for the penalty that
may be imposed. Finally, the OSG reiterates that the separation from the service of any BIR or BOC
employee under R.A. No. 9335 and its IRR shall be done only upon due consideration of all relevant
factors affecting the level of collection, subject to Civil Service laws, rules and regulations, and in
compliance with substantive and procedural due process. The OSG opines that the Performance
Contract, far from violating the BIR and BOC employees’ right to due process, actually serves as a notice
of the revenue target they have to meet and the possible consequences of failing to meet the same.
More, there is nothing in the law which prevents the aggrieved party from appealing the unfavorable
decision of dismissal.26
In essence, the issues for our resolution are:
1. Whether there is undue delegation of legislative power to the Board;
2. Whether R.A. No. 9335 and its IRR violate the rights of BOCEA’s members to: (a) equal protection of
laws, (b) security of tenure and (c) due process; and
3. Whether R.A. No. 9335 is a bill of attainder.
Our Ruling
Prefatorily, we note that it is clear, and in fact uncontroverted, that BOCEA has locus standi. BOCEA
impugns the constitutionality of R.A. No. 9335 and its IRR because its members, who are rank-and-file
employees of the BOC, are actually covered by the law and its IRR. BOCEA’s members have a personal
and substantial interest in the case, such that they have sustained or will sustain, direct injury as a result
of the enforcement of R.A. No. 9335 and its IRR.27
However, we find no merit in the petition and perforce dismiss the same.
It must be noted that this is not the first time the constitutionality of R.A. No. 9335 and its IRR are being
challenged. The Court already settled the majority of the same issues raised by BOCEA in our decision
in Abakada, which attained finality on September 17, 2008. As such, our ruling therein is worthy of
reiteration in this case.
We resolve the first issue in the negative.
The principle of separation of powers ordains that each of the three great branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated
sphere.28 Necessarily imbedded in this doctrine is the principle of non-delegation of powers, as
expressed in the Latin maxim potestas delegata non delegari potest, which means "what has been
delegated, cannot be delegated." This doctrine is based on the ethical principle that such delegated
power constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another. 29However, this
principle of non-delegation of powers admits of numerous exceptions,30 one of which is the delegation
of legislative power to various specialized administrative agencies like the Board in this case.
The rationale for the aforementioned exception was clearly explained in our ruling in Gerochi v.
Department of Energy,31 to wit:
In the face of the increasing complexity of modern life, delegation of legislative power to various
specialized administrative agencies is allowed as an exception to this principle. Given the volume and
variety of interactions in today’s society, it is doubtful if the legislature can promulgate laws that will
deal adequately with and respond promptly to the minutiae of everyday life. Hence, the need to
delegate to administrative bodies — the principal agencies tasked to execute laws in their specialized
fields — the authority to promulgate rules and regulations to implement a given statute and effectuate
its policies. All that is required for the valid exercise of this power of subordinate legislation is that the
regulation be germane to the objects and purposes of the law and that the regulation be not in
contradiction to, but in conformity with, the standards prescribed by the law. These requirements are
denominated as the completeness test and the sufficient standard test.32
Thus, in Abakada, we held,
Two tests determine the validity of delegation of legislative power: (1) the completeness test and (2)
the sufficient standard test. A law is complete when it sets forth therein the policy to be executed,
carried out or implemented by the delegate. It lays down a sufficient standard when it provides
adequate guidelines or limitations in the law to map out the boundaries of the delegate’s authority and
prevent the delegation from running riot. To be sufficient, the standard must specify the limits of the
delegate’s authority, announce the legislative policy and identify the conditions under which it is to be
implemented.
RA [No.] 9335 adequately states the policy and standards to guide the President in fixing revenue
targets and the implementing agencies in carrying out the provisions of the law. Section 2 spells out the
policy of the law:
"SEC. 2. Declaration of Policy. — It is the policy of the State to optimize the revenue-generation
capability and collection of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) by
providing for a system of rewards and sanctions through the creation of a Rewards and Incentives Fund
and a Revenue Performance Evaluation Board in the above agencies for the purpose of encouraging
their officials and employees to exceed their revenue targets."
Section 4 "canalized within banks that keep it from overflowing" the delegated power to the President
to fix revenue targets:
"SEC. 4. Rewards and Incentives Fund. — A Rewards and Incentives Fund, hereinafter referred to as the
Fund, is hereby created, to be sourced from the collection of the BIR and the BOC in excess of their
respective revenue targets of the year, as determined by the Development Budget and Coordinating
Committee (DBCC), in the following percentages:
Excess of Collection [Over] the Revenue Percent (%) of the Excess Collection to
Targets Accrue to the Fund
30% or below — 15%
More than 30% — 15% of the first 30% plus 20% of the
remaining excess
The Fund shall be deemed automatically appropriated the year immediately following the year when
the revenue collection target was exceeded and shall be released on the same fiscal year.
Revenue targets shall refer to the original estimated revenue collection expected of the BIR and the
BOC for a given fiscal year as stated in the Budget of Expenditures and Sources of Financing (BESF)
submitted by the President to Congress. The BIR and the BOC shall submit to the DBCC the distribution
of the agencies’ revenue targets as allocated among its revenue districts in the case of the BIR, and the
collection districts in the case of the BOC.
xxx xxx x x x"
Revenue targets are based on the original estimated revenue collection expected respectively of the
BIR and the BOC for a given fiscal year as approved by the DBCC and stated in the BESF submitted by
the President to Congress. Thus, the determination of revenue targets does not rest solely on the
President as it also undergoes the scrutiny of the DBCC.
On the other hand, Section 7 specifies the limits of the Board’s authority and identifies the conditions
under which officials and employees whose revenue collection falls short of the target by at least 7.5%
may be removed from the service:
"SEC. 7. Powers and Functions of the Board. — The Board in the agency shall have the following powers
and functions:
xxx xxx xxx
(b) To set the criteria and procedures for removing from service officials and employees whose revenue
collection falls short of the target by at least seven and a half percent (7.5%), with due consideration of
all relevant factors affecting the level of collection as provided in the rules and regulations promulgated
under this Act, subject to civil service laws, rules and regulations and compliance with substantive and
procedural due process: Provided, That the following exemptions shall apply:
1. Where the district or area of responsibility is newly-created, not exceeding two years in operation,
and has no historical record of collection performance that can be used as basis for evaluation; and
2. Where the revenue or customs official or employee is a recent transferee in the middle of the period
under consideration unless the transfer was due to nonperformance of revenue targets or potential
nonperformance of revenue targets: Provided, however, That when the district or area of responsibility
covered by revenue or customs officials or employees has suffered from economic difficulties brought
about by natural calamities or force majeure or economic causes as may be determined by the Board,
termination shall be considered only after careful and proper review by the Board.
(c) To terminate personnel in accordance with the criteria adopted in the preceding paragraph:
Provided, That such decision shall be immediately executory: Provided, further, That the application of
the criteria for the separation of an official or employee from service under this Act shall be without
prejudice to the application of other relevant laws on accountability of public officers and employees,
such as the Code of Conduct and Ethical Standards of Public Officers and Employees and the Anti-Graft
and Corrupt Practices Act;
xxx xxx x x x"
At any rate, this Court has recognized the following as sufficient standards: "public interest", "justice
and equity", "public convenience and welfare" and "simplicity, economy and welfare". In this case, the
declared policy of optimization of the revenue-generation capability and collection of the BIR and the
BOC is infused with public interest.33
We could not but deduce that the completeness test and the sufficient standard test were fully satisfied
by R.A. No. 9335, as evident from the aforementioned Sections 2, 4 and 7 thereof. Moreover, Section
534 of R.A. No. 9335 also provides for the incentives due to District Collection Offices. While it is
apparent that the last paragraph of Section 5 provides that "[t]he allocation, distribution and release of
the district reward shall likewise be prescribed by the rules and regulations of the Revenue Performance
and Evaluation Board," Section 7 (a)35 of R.A. No. 9335 clearly mandates and sets the parameters for
the Board by providing that such rules and guidelines for the allocation, distribution and release of the
fund shall be in accordance with Sections 4 and 5 of R.A. No. 9335. In sum, the Court finds that R.A. No.
9335, read and appreciated in its entirety, is complete in all its essential terms and conditions, and that
it contains sufficient standards as to negate BOCEA’s supposition of undue delegation of legislative
power to the Board.
Similarly, we resolve the second issue in the negative.
Equal protection simply provides that all persons or things similarly situated should be treated in a
similar manner, both as to rights conferred and responsibilities imposed. The purpose of the equal
protection clause is to secure every person within a state’s jurisdiction against intentional and arbitrary
discrimination, whether occasioned by the express terms of a statute or by its improper execution
through the state’s duly constituted authorities. In other words, the concept of equal justice under the
law requires the state to govern impartially, and it may not draw distinctions between individuals solely
on differences that are irrelevant to a legitimate governmental objective.361awphil
Thus, on the issue on equal protection of the laws, we held in Abakada:
The equal protection clause recognizes a valid classification, that is, a classification that has a reasonable
foundation or rational basis and not arbitrary. With respect to RA [No.] 9335, its expressed public policy
is the optimization of the revenue-generation capability and collection of the BIR and the BOC. Since
the subject of the law is the revenue-generation capability and collection of the BIR and the BOC, the
incentives and/or sanctions provided in the law should logically pertain to the said agencies. Moreover,
the law concerns only the BIR and the BOC because they have the common distinct primary function of
generating revenues for the national government through the collection of taxes, customs duties, fees
and charges.
The BIR performs the following functions:
"Sec. 18. The Bureau of Internal Revenue. — The Bureau of Internal Revenue, which shall be headed by
and subject to the supervision and control of the Commissioner of Internal Revenue, who shall be
appointed by the President upon the recommendation of the Secretary [of the DOF], shall have the
following functions:
(1) Assess and collect all taxes, fees and charges and account for all revenues collected;
(2) Exercise duly delegated police powers for the proper performance of its functions and duties;
(3) Prevent and prosecute tax evasions and all other illegal economic activities;
(4) Exercise supervision and control over its constituent and subordinate units; and
(5) Perform such other functions as may be provided by law.
xxx xxx x x x"
On the other hand, the BOC has the following functions:
"Sec. 23. The Bureau of Customs. — The Bureau of Customs which shall be headed and subject to the
management and control of the Commissioner of Customs, who shall be appointed by the President
upon the recommendation of the Secretary [of the DOF] and hereinafter referred to as Commissioner,
shall have the following functions:
(1) Collect custom duties, taxes and the corresponding fees, charges and penalties;
(2) Account for all customs revenues collected;
(3) Exercise police authority for the enforcement of tariff and customs laws;
(4) Prevent and suppress smuggling, pilferage and all other economic frauds within all ports of entry;
(5) Supervise and control exports, imports, foreign mails and the clearance of vessels and aircrafts in all
ports of entry;
(6) Administer all legal requirements that are appropriate;
(7) Prevent and prosecute smuggling and other illegal activities in all ports under its jurisdiction;
(8) Exercise supervision and control over its constituent units;
(9) Perform such other functions as may be provided by law.
xxx xxx x x x"
Both the BIR and the BOC are bureaus under the DOF. They principally perform the special function of
being the instrumentalities through which the State exercises one of its great inherent functions —
taxation. Indubitably, such substantial distinction is germane and intimately related to the purpose of
the law. Hence, the classification and treatment accorded to the BIR and the BOC under RA [No.] 9335
fully satisfy the demands of equal protection.37
As it was imperatively correlated to the issue on equal protection, the issues on the security of tenure
of affected BIR and BOC officials and employees and their entitlement to due process were also settled
in Abakada:
Clearly, RA [No.] 9335 in no way violates the security of tenure of officials and employees of the BIR and
the BOC. The guarantee of security of tenure only means that an employee cannot be dismissed from
the service for causes other than those provided by law and only after due process is accorded the
employee. In the case of RA [No.] 9335, it lays down a reasonable yardstick for removal (when the
revenue collection falls short of the target by at least 7.5%) with due consideration of all relevant factors
affecting the level of collection. This standard is analogous to inefficiency and incompetence in the
performance of official duties, a ground for disciplinary action under civil service laws. The action for
removal is also subject to civil service laws, rules and regulations and compliance with substantive and
procedural due process.38
In addition, the essence of due process is simply an opportunity to be heard, or as applied to
administrative proceedings, a fair and reasonable opportunity to explain one’s side.39 BOCEA’s
apprehension of deprivation of due process finds its answer in Section 7 (b) and (c) of R.A. No.
9335.40 The concerned BIR or BOC official or employee is not simply given a target revenue collection
and capriciously left without any quarter. R.A. No. 9335 and its IRR clearly give due consideration to all
relevant factors41 that may affect the level of collection. In the same manner, exemptions 42 were set,
contravening BOCEA’s claim that its members may be removed for unattained target collection even
due to causes which are beyond their control. Moreover, an employee’s right to be heard is not at all
prevented and his right to appeal is not deprived of him. 43 In fine, a BIR or BOC official or employee in
this case cannot be arbitrarily removed from the service without according him his constitutional right
to due process. No less than R.A. No. 9335 in accordance with the 1987 Constitution guarantees this.
We have spoken, and these issues were finally laid to rest. Now, the Court proceeds to resolve the last,
but new issue raised by BOCEA, that is, whether R.A. No. 9335 is a bill of attainder proscribed under
Section 22,44 Article III of the 1987 Constitution.
On this score, we hold that R.A. No. 9335 is not a bill of attainder. A bill of attainder is a legislative act
which inflicts punishment on individuals or members of a particular group without a judicial trial.
Essential to a bill of attainder are a specification of certain individuals or a group of individuals, the
imposition of a punishment, penal or otherwise, and the lack of judicial trial. 451avvphi1
In his Concurring Opinion in Tuason v. Register of Deeds, Caloocan City,46 Justice Florentino P. Feliciano
traces the roots of a Bill of Attainder, to wit:
Bills of attainder are an ancient instrument of tyranny. In England a few centuries back, Parliament
would at times enact bills or statutes which declared certain persons attainted and their blood
corrupted so that it lost all heritable quality (Ex Parte Garland, 4 Wall. 333, 18 L.Ed. 366 [1867]). In more
modern terms, a bill of attainder is essentially a usurpation of judicial power by a legislative body. It
envisages and effects the imposition of a penalty — the deprivation of life or liberty or property — not
by the ordinary processes of judicial trial, but by legislative fiat. While cast in the form of special
legislation, a bill of attainder (or bill of pains and penalties, if it prescribed a penalty other than death)
is in intent and effect a penal judgment visited upon an identified person or group of persons (and not
upon the general community) without a prior charge or demand, without notice and hearing, without
an opportunity to defend, without any of the civilized forms and safeguards of the judicial process as
we know it (People v. Ferrer, 48 SCRA 382 [1972]; Cummings and Missouri, 4 Wall. 277, 18 L. Ed. 356
[1867]; U.S. v. Lovett, 328, U.S. 303, 90 L.Ed. 1252 [1945]; U.S. v. Brown, 381 U.S. 437, 14 L.Ed. 2d. 484
[1965]. Such is the archetypal bill of attainder wielded as a means of legislative oppression. x x x47
R.A. No. 9335 does not possess the elements of a bill of attainder. It does not seek to inflict punishment
without a judicial trial. R.A. No. 9335 merely lays down the grounds for the termination of a BIR or BOC
official or employee and provides for the consequences thereof. The democratic processes are still
followed and the constitutional rights of the concerned employee are amply protected.
A final note.

We find that BOCEA’s petition is replete with allegations of defects and anomalies in allocation,
distribution and receipt of rewards. While BOCEA intimates that it intends to curb graft and corruption
in the BOC in particular and in the government in general which is nothing but noble, these intentions
do not actually pertain to the constitutionality of R.A. No. 9335 and its IRR, but rather in the faithful
implementation thereof. R.A. No. 9335 itself does not tolerate these pernicious acts of graft and
corruption.48 As the Court is not a trier of facts, the investigation on the veracity of, and the proper
action on these anomalies are in the hands of the Executive branch. Correlatively, the wisdom for the
enactment of this law remains within the domain of the Legislative branch. We merely interpret the
law as it is. The Court has no discretion to give statutes a meaning detached from the manifest
intendment and language thereof.49 Just like any other law, R.A. No. 9335 has in its favor the
presumption of constitutionality, and to justify its nullification, there must be a clear and unequivocal
breach of the Constitution and not one that is doubtful, speculative, or argumentative. 50 We have so
declared in Abakada, and we now reiterate that R.A. No. 9335 and its IRR are constitutional.

WHEREFORE, the present petition for certiorari and prohibition with prayer for injunctive relief/s is
DISMISSED.

No costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice
G.R. No. 17122 February 27, 1922
THE UNITED STATES, plaintiff-appellee,
vs.
ANG TANG HO, defendant-appellant.
Williams & Ferrier for appellant.
Acting Attorney-General Tuason for appellee.
JOHNS, J.:
At its special session of 1919, the Philippine Legislature passed Act No. 2868, entitled "An Act penalizing
the monopoly and holding of, and speculation in, palay, rice, and corn under extraordinary
circumstances, regulating the distribution and sale thereof, and authorizing the Governor-General, with
the consent of the Council of State, to issue the necessary rules and regulations therefor, and making
an appropriation for this purpose," the material provisions of which are as follows:
Section 1. The Governor-General is hereby authorized, whenever, for any cause, conditions arise
resulting in an extraordinary rise in the price of palay, rice or corn, to issue and promulgate, with the
consent of the Council of State, temporary rules and emergency measures for carrying out the purpose
of this Act, to wit:
(a) To prevent the monopoly and hoarding of, and speculation in, palay, rice or corn.
(b) To establish and maintain a government control of the distribution or sale of the commodities
referred to or have such distribution or sale made by the Government itself.
(c) To fix, from time to time the quantities of palay rice, or corn that a company or individual may
acquire, and the maximum sale price that the industrial or merchant may demand.
(d) . . .
SEC. 2. It shall be unlawful to destroy, limit, prevent or in any other manner obstruct the production or
milling of palay, rice or corn for the purpose of raising the prices thereof; to corner or hoard said
products as defined in section three of this Act; . . .
Section 3 defines what shall constitute a monopoly or hoarding of palay, rice or corn within the meaning
of this Act, but does not specify the price of rice or define any basic for fixing the price.
SEC. 4. The violations of any of the provisions of this Act or of the regulations, orders and decrees
promulgated in accordance therewith shall be punished by a fine of not more than five thousands
pesos, or by imprisonment for not more than two years, or both, in the discretion of the court: Provided,
That in the case of companies or corporations the manager or administrator shall be criminally liable.
SEC. 7. At any time that the Governor-General, with the consent of the Council of State, shall consider
that the public interest requires the application of the provisions of this Act, he shall so declare by
proclamation, and any provisions of other laws inconsistent herewith shall from then on be temporarily
suspended.
Upon the cessation of the reasons for which such proclamation was issued, the Governor-General, with
the consent of the Council of State, shall declare the application of this Act to have likewise terminated,
and all laws temporarily suspended by virtue of the same shall again take effect, but such termination
shall not prevent the prosecution of any proceedings or cause begun prior to such termination, nor the
filing of any proceedings for an offense committed during the period covered by the Governor-General's
proclamation.
August 1, 1919, the Governor-General issued a proclamation fixing the price at which rice should be
sold.
August 8, 1919, a complaint was filed against the defendant, Ang Tang Ho, charging him with the sale
of rice at an excessive price as follows:
The undersigned accuses Ang Tang Ho of a violation of Executive Order No. 53 of the Governor-General
of the Philippines, dated the 1st of August, 1919, in relation with the provisions of sections 1, 2 and 4
of Act No. 2868, committed as follows:
That on or about the 6th day of August, 1919, in the city of Manila, Philippine Islands, the said Ang Tang
Ho, voluntarily, illegally and criminally sold to Pedro Trinidad, one ganta of rice at the price of eighty
centavos (P.80), which is a price greater than that fixed by Executive Order No. 53 of the Governor-
General of the Philippines, dated the 1st of August, 1919, under the authority of section 1 of Act No.
2868. Contrary to law.
Upon this charge, he was tried, found guilty and sentenced to five months' imprisonment and to pay a
fine of P500, from which he appealed to this court, claiming that the lower court erred in finding
Executive Order No. 53 of 1919, to be of any force and effect, in finding the accused guilty of the offense
charged, and in imposing the sentence.
The official records show that the Act was to take effect on its approval; that it was approved July 30,
1919; that the Governor-General issued his proclamation on the 1st of August, 1919; and that the law
was first published on the 13th of August, 1919; and that the proclamation itself was first published on
the 20th of August, 1919.
The question here involves an analysis and construction of Act No. 2868, in so far as it authorizes the
Governor-General to fix the price at which rice should be sold. It will be noted that section 1 authorizes
the Governor-General, with the consent of the Council of State, for any cause resulting in an
extraordinary rise in the price of palay, rice or corn, to issue and promulgate temporary rules and
emergency measures for carrying out the purposes of the Act. By its very terms, the promulgation of
temporary rules and emergency measures is left to the discretion of the Governor-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 says that it may be issued "for any cause," and
leaves the question as to what is "any cause" to the discretion of the Governor-General. The Act also
says: "For any cause, conditions arise resulting in an extraordinary rise in the price of palay, rice or
corn." The Legislature does not specify or define what is "an extraordinary rise." That is also left to the
discretion of the Governor-General. The Act also says that the Governor-General, "with the consent of
the Council of State," is authorized to issue and 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 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 not in any manner
specified or defined any basis for the order, but has left it to the sole judgement and discretion of the
Governor-General to say what is or what is not "a 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 of the Act. Under this state of facts, if the law is valid and the Governor-General issues
a proclamation fixing the minimum price at which rice should be sold, any dealer who, with or without
notice, sells rice at a higher price, is a criminal. There may not have been any cause, and the price may
not have been extraordinary, and there may not have been an emergency, but, if the Governor-General
found the existence of such facts and issued a proclamation, and rice is sold at any higher price, the
seller commits a crime.
By the organic law of the Philippine Islands and the Constitution of the United States all powers are
vested in the Legislative, Executive and Judiciary. It is the duty of the Legislature to make the law; of
the Executive to execute the law; 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. 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. Assuming, without deciding, that the Legislature itself
has the power to fix the price at which rice is to be sold, can it delegate that power to another, and, if
so, was that power legally delegated by Act No. 2868? In other words, does the Act delegate legislative
power to the Governor-General? By the Organic Law, all Legislative power is vested in the Legislature,
and the power conferred upon the Legislature to make laws cannot be delegated to the Governor-
General, or any one else. The Legislature cannot delegate the 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 the law into effect, then the Legislature itself 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 crime, and is not a law, 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, then the Act is a delegation of legislative
power, is unconstitutional and void.
The Supreme Court of the United States in what is known as the Granger Cases (94 U.S., 183-187; 24 L.
ed., 94), first laid down the rule:
Railroad companies are engaged in a public employment affecting the public interest and, under the
decision in Munn vs. Ill., ante, 77, are subject to legislative control as to their rates of fare and freight
unless protected by their charters.
The Illinois statute of Mar. 23, 1874, to establish reasonable maximum rates of charges for the
transportation of freights and passengers on the different railroads of the State is not void as being
repugnant to the Constitution of the United States or to that of the State.
It was there for the first time held in substance that a railroad was a public utility, and that, being a
public utility, the State had power to establish reasonable maximum freight and passenger rates. This
was followed by the State of Minnesota in enacting a similar law, providing for, and empowering, a
railroad commission to hear and determine what was a just and reasonable rate. The constitutionality
of this law was attacked and upheld by the Supreme Court of Minnesota in a learned and exhaustive
opinion by Justice Mitchell, in the case of State vs. Chicago, Milwaukee & St. Paul ry. Co. (38 Minn.,
281), in which the court held:
Regulations of railway tariffs — Conclusiveness of commission's tariffs. — Under Laws 1887, c. 10, sec.
8, the determination of the railroad and warehouse commission as to what are equal and reasonable
fares and rates for the transportation of persons and property by a railway company is conclusive, and,
in proceedings by mandamus to compel compliance with the tariff of rates recommended and
published by them, no issue can be raised or inquiry had on that question.
Same — constitution — Delegation of power to commission. — The authority thus given to the
commission to determine, in the exercise of their discretion and judgement, what are equal and
reasonable rates, is not a delegation of legislative power.
It will be noted that the law creating the railroad commission expressly provides —
That all charges by any common carrier for the transportation of passengers and property shall be equal
and reasonable.
With that as a basis for the law, power is then given to the railroad commission to investigate all the
facts, to hear and determine what is a just and reasonable rate. Even then that law does not make the
violation of the order of the commission a crime. The only remedy is a civil proceeding. It was there
held —
That the legislative itself has the power to regulate railroad charges is now too well settled to require
either argument or citation of authority.
The difference between the power to say what the law shall be, and the power to adopt rules and
regulations, or to investigate and determine the facts, in order to carry into effect a law already passed,
is apparent. The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and the conferring an authority or discretion to be exercised
under and in pursuance of the law.
The legislature enacts that all freights rates and passenger fares should be just and reasonable. It had
the undoubted power to fix these rates at whatever it deemed equal and reasonable.
They have not delegated to the commission any authority or discretion as to what the law shall be, —
which would not be allowable, — but have merely conferred upon it an authority and discretion, to be
exercised in the execution of the law, and under and in pursuance of it, which is entirely permissible.
The legislature itself has passed upon the expediency of the law, and what is shall be. The commission
is intrusted with no authority or discretion upon these questions. It can neither make nor unmake a
single provision of law. It is merely charged with the administration of the law, and with no other power.
The delegation of legislative power was before the Supreme Court of Wisconsin in
Dowling vs. Lancoshire Ins. Co. (92 Wis., 63). The opinion says:
"The true distinction is between the delegation of power to make the law, which necessarily involves a
discretion as to what it shall be, and conferring 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."
The act, in our judgment, 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 maters involving the exercise of a
legislative discretion that could not be delegated, and without which the act could not possibly be put
in use as an act in confirmity to which all fire insurance policies were required to be issued.
The result of all the cases on this subject is that a 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 judgement 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 futuro, if necessary, upon the
ascertainment of any prescribed fact or event.
The delegation of legislative power was before the Supreme Court in United States vs. Grimaud (220
U.S., 506; 55 L. ed., 563), where it was held that the rules and regulations of the Secretary of Agriculture
as to a trespass on government land in a forest reserve were valid constitutional. The Act there provided
that the Secretary of Agriculture ". . . may make such rules and regulations and establish such service
as will insure the object of such reservations; namely, to regulate their occupancy and use, and to
preserve the forests thereon from destruction; and any violation of the provisions of this act or such
rules and regulations shall be punished, . . ."
The brief of the United States Solicitor-General says:
In refusing permits to use a forest reservation for stock grazing, except upon stated terms or in stated
ways, the Secretary of Agriculture merely assert and enforces the proprietary right of the United States
over land which it owns. The regulation of the Secretary, therefore, is not an exercise of legislative, or
even of administrative, power; but is an ordinary and legitimate refusal of the landowner's authorized
agent to allow person having no right in the land to use it as they will. The right of proprietary control
is altogether different from governmental authority.
The opinion says:
From the beginning of the government, various acts have been passed conferring upon executive
officers power to make rules and regulations, — not for the government of their departments, but for
administering the laws which did govern. None of these statutes could confer legislative power. But
when Congress had legislated power. But when Congress had legislated and indicated its will, it could
give to those who were to act under such general provisions "power to fill up the details" by the
establishment of administrative rules and regulations, the violation of which could be punished by fine
or imprisonment fixed by Congress, or by penalties fixed by Congress, or measured by the injury done.
That "Congress cannot delegate legislative power is a principle universally recognized as vital to the
integrity and maintenance of the system of government ordained by the Constitution."
If, after the passage of the act and the promulgation of the rule, the defendants drove and grazed their
sheep upon the reserve, in violation of the regulations, they were making an unlawful use of the
government's property. In doing so they thereby made themselves liable to the penalty imposed by
Congress.
The subjects as to which the Secretary can regulate are defined. The lands are set apart as a forest
reserve. He is required to make provisions to protect them from depredations and from harmful uses.
He is authorized 'to regulate the occupancy and use and to preserve the forests from destruction.' A
violation of reasonable rules regulating the use and occupancy of the property is made a crime, not by
the Secretary, but by Congress."
The above are leading cases in the United States on the question of delegating legislative power. It will
be noted that in the "Granger Cases," it was held that a railroad company was a public corporation, and
that a railroad was a public utility, and that, for such reasons, the legislature had the power to fix and
determine just and reasonable rates for freight and passengers.
The Minnesota case held that, so long as the rates were just and reasonable, the legislature could
delegate the power to ascertain the facts and determine from the facts what were just and reasonable
rates,. and that in vesting the commission with such power was not a delegation of legislative power.
The Wisconsin case was a civil action founded upon a "Wisconsin standard policy of fire insurance," and
the court held that "the 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."
The case of the United States Supreme Court, supra dealt with rules and regulations which were
promulgated by the Secretary of Agriculture for Government land in the forest reserve.
These decisions hold that the legislative only can enact a law, and that it cannot delegate it legislative
authority.
The line of cleavage between what is and what is not a delegation of legislative power is pointed out
and clearly defined. As the Supreme Court of Wisconsin says:
That no part of the legislative power can be delegated by the legislature to any other department of
the government, executive or judicial, is a fundamental principle in constitutional law, essential to the
integrity and maintenance of the system of government established by the constitution.
Where an act is clothed with all the forms of law, and is complete in and of itself, it may be provided
that it shall become operative only upon some certain act or event, or, in like manner, that its operation
shall be suspended.
The legislature cannot delegate its power to make a law, but it can make a law to delegate a power to
determine some fact or state of things upon which the law makes, or intends to make, its own action
to depend.
The Village of Little Chute enacted an ordinance which provides:
All saloons in said village shall be closed at 11 o'clock P.M. each day and remain closed until 5 o'clock
on the following morning, unless by special permission of the president.
Construing it in 136 Wis., 526; 128 A. S. R., 1100,1 the Supreme Court of that State says:
We regard the ordinance as void for two reasons; First, because it attempts to confer arbitrary power
upon an executive officer, and allows him, in executing the ordinance, to make unjust and groundless
discriminations among persons similarly situated; second, because the power to regulate saloons is a
law-making power vested in the village board, which cannot be delegated. A legislative body cannot
delegate to a mere administrative officer power to make a law, but it can make a law with provisions
that it shall go into effect or be suspended in its operations upon the ascertainment of a fact or state of
facts by an administrative officer or board. In the present case the ordinance by its terms gives power
to the president to decide arbitrary, and in the exercise of his own discretion, when a saloon shall close.
This is an attempt to vest legislative discretion in him, and cannot be sustained.
The legal principle involved there is squarely in point here.
It must be conceded that, after the passage of act No. 2868, and before any rules and regulations were
promulgated by the Governor-General, a dealer in rice could sell it at any price, even at a peso per
"ganta," and that he would not commit a crime, because there would be no law fixing the price of rice,
and the sale of it at any price would not be a crime. That is to say, in the absence of a proclamation, it
was not a crime to sell rice at any price. Hence, it must follow that, if the defendant committed a crime,
it was because the Governor-General issued the proclamation. There was no act of the Legislature
making it a crime to sell rice at any price, and without the proclamation, the sale of it at any price was
to a crime.
The Executive order2 provides:
(5) The maximum selling price of palay, rice or corn is hereby fixed, for the time being as follows:
In Manila —
Palay at P6.75 per sack of 57½ kilos, or 29 centavos per ganta.
Rice at P15 per sack of 57½ kilos, or 63 centavos per ganta.
Corn at P8 per sack of 57½ kilos, or 34 centavos per ganta.
In the provinces producing palay, rice and corn, the maximum price shall be the Manila price less the
cost of transportation from the source of supply and necessary handling expenses to the place of sale,
to be determined by the provincial treasurers or their deputies.
In provinces, obtaining their supplies from Manila or other producing provinces, the maximum price
shall be the authorized price at the place of supply or the Manila price as the case may be, plus the
transportation cost, from the place of supply and the necessary handling expenses, to the place of sale,
to be determined by the provincial treasurers or their deputies.
(6) Provincial treasurers and their deputies are hereby directed to communicate with, and execute all
instructions emanating from the Director of Commerce and Industry, for the most effective and proper
enforcement of the above regulations in their respective localities.
The law says that the Governor-General may fix "the maximum sale price that the industrial or merchant
may demand." The law is a general law and not a local or special law.
The proclamation undertakes to fix one price for rice in Manila and other and different prices in other
and different provinces in the Philippine Islands, and delegates the power to determine the other and
different prices to provincial treasurers and their deputies. Here, then, you would have a delegation of
legislative power to the Governor-General, and a delegation by him of that power to provincial
treasurers and their deputies, who "are hereby directed to communicate with, and execute all
instructions emanating from the Director of Commerce and Industry, for the most effective and proper
enforcement of the above regulations in their respective localities." The issuance of the proclamation
by the Governor-General was the exercise of the delegation of a delegated power, and was even a sub
delegation of that power.
Assuming that it is valid, Act No. 2868 is a general law and does not authorize the Governor-General to
fix one price of rice in Manila and another price in Iloilo. It only purports to authorize him to fix the price
of rice in the Philippine Islands under a law, which is General and uniform, and not local or special.
Under the terms of the law, the price of rice fixed in the proclamation must be the same all over the
Islands. There cannot be one price at Manila and another at Iloilo. Again, it is a mater of common
knowledge, and of which this court will take judicial notice, that there are many kinds of rice with
different and corresponding market values, and that there is a wide range in the price, which varies
with the grade and quality. Act No. 2868 makes no distinction in price for the grade or quality of the
rice, and the proclamation, upon which the defendant was tried and convicted, fixes the selling price of
rice in Manila "at P15 per sack of 57½ kilos, or 63 centavos per ganta," and is uniform as to all grades
of rice, and says nothing about grade or quality. Again, it will be noted that the law is confined to palay,
rice and corn. They are products of the Philippine Islands. Hemp, tobacco, coconut, chickens, eggs, and
many other things are also products. Any law which single out palay, rice or corn from the numerous
other products of the Islands is not general or uniform, but is a local or special law. If such a law is valid,
then by the same principle, the Governor-General could be authorized by proclamation to fix the price
of meat, eggs, chickens, coconut, hemp, and tobacco, or any other product of the Islands. In the very
nature of things, all of that class of laws should be general and uniform. Otherwise, there would be an
unjust discrimination of property rights, which, under the law, must be equal and inform. Act No. 2868
is nothing more than a floating law, which, in the discretion and by a proclamation of the Governor-
General, makes it a floating crime to sell rice at a price in excess of the proclamation, without regard to
grade or quality.
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 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 rice should
be sold, without regard to grade or quality, also to say whether a proclamation should be issued, if so,
when, and whether or not the law should be enforced, how long it should be enforced, and when the
law should be suspended. 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 conditions
upon which the proclamation should be issued. In the absence of the proclamation no crime was
committed. The alleged sale was made a crime, if at all, because the Governor-General issued the
proclamation. The act or proclamation does not say anything about the different grades or qualities of
rice, and the defendant is charged with the sale "of one ganta of rice at the price of eighty centavos
(P0.80) which is a price greater than that fixed by Executive order No. 53."
We are clearly of the opinion and hold that Act No. 2868, in so far as it undertakes to authorized the vested exclusively in the Legislative, which is elected by a direct vote of the people of the Philippine
Governor-General in his discretion to issue a proclamation, fixing the price of rice, and to make the sale Islands. As to the question here involved, the authority of the Governor-General to fix the maximum
of rice in violation of the price of rice, and to make the sale of rice in violation of the proclamation a price at which palay, rice and corn may be sold in the manner power in violation of the organic law.
crime, is unconstitutional and void.
This opinion is confined to the particular question here involved, which is the right of the Governor-
It may be urged that there was an extraordinary rise in the price of rice and profiteering, which worked General, upon the terms and conditions stated in the Act, to fix the price of rice and make it a crime to
a severe hardship on the poorer classes, and that an emergency existed, but the question here sell it at a higher price, and which holds that portions of the Act unconstitutional. It does not decide or
presented is the constitutionality of a particular portion of a statute, and none of such matters is an undertake to construe the constitutionality of any of the remaining portions of the Act.
argument for, or against, its constitutionality.
The judgment of the lower court is reversed, and the defendant discharged. So ordered.
The Constitution is something solid, permanent an substantial. Its stability protects the life, liberty and
property rights of the rich and the poor alike, and that protection ought not to change with the wind or Araullo, C.J., Johnson, Street and Ostrand, JJ., concur.
any emergency condition. The fundamental question involved in this case is the right of the people of Romualdez, J., concurs in the result.
the Philippine Islands to be and live under a republican form of government. We make the broad
statement that no state or nation, living under republican form of government, under the terms and
conditions specified in Act No. 2868, has ever enacted a law delegating the power to any one, to fix the
price at which rice should be sold. That power can never be delegated under a republican form of
government.

In the fixing of the price at which the defendant should sell his rice, the law was not dealing with
government property. It was dealing with private property and private rights, which are sacred under
the Constitution. If this law should be sustained, upon the same principle and for the same reason, the
Legislature could authorize the Governor-General to fix the price of every product or commodity in the
Philippine Islands, and empower him to make it a crime to sell any product at any other or different
price.

It may be said that this was a war measure, and that for such reason the provision of the Constitution
should be suspended. But the Stubborn fact remains that at all times the judicial power was in full force
and effect, and that while that power was in force and effect, such a provision of the Constitution could
not be, and was not, suspended even in times of war. It may be claimed that during the war, the United
States Government undertook to, and did, fix the price at which wheat and flour should be bought and
sold, and that is true. There, the United States had declared war, and at the time was at war with other
nations, and it was a war measure, but it is also true that in doing so, and as a part of the same act, the
United States commandeered all the wheat and flour, and took possession of it, either actual or
constructive, and the government itself became the owner of the wheat and flour, and fixed the price
to be paid for it. That is not this case. Here the rice sold was the personal and private property of the
defendant, who sold it to one of his customers. The government had not bought and did not claim to
own the rice, or have any interest in it, and at the time of the alleged sale, it was the personal, private
property of the defendant. It may be that the law was passed in the interest of the public, but the
members of this court have taken on solemn oath to uphold and defend the Constitution, and it ought
not to be construed to meet the changing winds or emergency conditions. Again, we say that no state
or nation under a republican form of government ever enacted a law authorizing any executive, under
the conditions states, to fix the price at which a price person would sell his own rice, and make the
broad statement that no decision of any court, on principle or by analogy, will ever be found which
sustains the constitutionality of the particular portion of Act No. 2868 here in question. By the terms of
the Organic Act, subject only to constitutional limitations, the power to legislate and enact laws is
G.R. No. 124360 November 5, 1997
FRANCISCO S. TATAD, petitioner,
vs.
THE SECRETARY OF THE DEPARTMENT OF ENERGY AND THE SECRETARY OF THE DEPARTMENT OF
FINANCE, respondents.
G.R. No. 127867 November 5, 1997
EDCEL C. LAGMAN, JOKER P. ARROYO, ENRIQUE GARCIA, WIGBERTO TANADA, FLAG HUMAN
RIGHTS FOUNDATION, INC., FREEDOM FROM DEBT COALITION (FDC), SANLAKAS, petitioners,
vs.
HON. RUBEN TORRES in his capacity as the Executive Secretary, HON. FRANCISCO VIRAY, in his
capacity as the Secretary of Energy, CALTEX Philippines, Inc., PETRON Corporation and PILIPINAS
SHELL Corporation, respondents.
PUNO, J.:
The petitions at bar challenge the constitutionality of Republic Act No. 8180 entitled "An Act
Deregulating the Downstream Oil Industry and For Other Purposes".1 R.A. No. 8180 ends twenty six (26)
years of government regulation of the downstream oil industry. Few cases carry a surpassing
importance on the life of every Filipino as these petitions for the upswing and downswing of our
economy materially depend on the oscillation of oil.
First, the facts without the fat. Prior to 1971, there was no government agency regulating the oil
industry other than those dealing with ordinary commodities. Oil companies were free to enter and exit
the market without any government interference. There were four (4) refining companies (Shell, Caltex,
Bataan Refining Company and Filoil Refining) and six (6) petroleum marketing companies (Esso, Filoil,
Caltex, Getty, Mobil and Shell), then operating in the country. 2
In 1971, the country was driven to its knees by a crippling oil crisis. The government, realizing that
petroleum and its products are vital to national security and that their continued supply at reasonable
prices is essential to the general welfare, enacted the Oil Industry Commission Act. 3 It created the Oil
Industry Commission (OIC) to regulate the business of importing, exporting, re-exporting, shipping,
transporting, processing, refining, storing, distributing, marketing and selling crude oil, gasoline,
kerosene, gas and other refined petroleum products. The OIC was vested with the power to fix the
market prices of petroleum products, to regulate the capacities of refineries, to license new refineries
and to regulate the operations and trade practices of the industry. 4
In addition to the creation of the OIC, the government saw the imperious need for a more active role
of Filipinos in the oil industry. Until the early seventies, the downstream oil industry was controlled by
multinational companies. All the oil refineries and marketing companies were owned
by foreigners whose economic interests did not always coincide with the interest of the Filipino. Crude
oil was transported to the country by foreign-controlled tankers. Crude processing was done locally by
foreign-owned refineries and petroleum products were marketed through foreign-owned retail outlets.
On November 9, 1973, President Ferdinand E. Marcos boldly created the Philippine National Oil
Corporation (PNOC) to break the control by foreigners of our oil industry.5 PNOC engaged in the
business of refining, marketing, shipping, transporting, and storing petroleum. It acquired ownership of
ESSO Philippines and Filoil to serve as its marketing arm. It bought the controlling shares of Bataan
Refining Corporation, the largest refinery in the country. 6 PNOC later put up its own marketing
subsidiary — Petrophil. PNOC operated under the business name PETRON Corporation. For the first
time, there was a Filipino presence in the Philippine oil market.
In 1984, President Marcos through Section 8 of Presidential Decree No. 1956, created the Oil Price
Stabilization Fund (OPSF) to cushion the effects of frequent changes in the price of oil caused by
exchange rate adjustments or increase in the world market prices of crude oil and imported petroleum
products. The fund is used (1) to reimburse the oil companies for cost increases in crude oil and
imported petroleum products resulting from exchange rate adjustment and/or increase in world
market prices of crude oil, and (2) to reimburse oil companies for cost underrecovery incurred as a
result of the reduction of domestic prices of petroleum products. Under the law, the OPSF may be
sourced from:
1. any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum
products subject to tax under P.D. No. 1956 arising from exchange rate adjustment,
2. any increase in the tax collection as a result of the lifting of tax exemptions of government
corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy,
3. any additional amount to be imposed on petroleum products to augment the resources of the fund
through an appropriate order that may be issued by the Board of Energy requiring payment of persons
or companies engaged in the business of importing, manufacturing and/or marketing petroleum
products, or
4. any resulting peso costs differentials in case the actual peso costs paid by oil companies in the
importation of crude oil and petroleum products is less than the peso costs computed using the
reference foreign exchange rate as fixed by the Board of Energy.7
By 1985, only three (3) oil companies were operating in the country — Caltex, Shell and the
government-owned PNOC.
In May, 1987, President Corazon C. Aquino signed Executive Order No. 172 creating the Energy
Regulatory Boardto regulate the business of importing, exporting, re-exporting, shipping, transporting,
processing, refining, marketing and distributing energy resources "when warranted and only when
public necessity requires." The Board had the following powers and functions:
1. Fix and regulate the prices of petroleum products;
2. Fix and regulate the rate schedule or prices of piped gas to be charged by duly franchised gas
companies which distribute gas by means of underground pipe system;
3. Fix and regulate the rates of pipeline concessionaries under the provisions of R.A. No. 387, as
amended . . . ;
4. Regulate the capacities of new refineries or additional capacities of existing refineries and license
refineries that may be organized after the issuance of (E.O. No. 172) under such terms and conditions
as are consistent with the national interest; and
5. Whenever the Board has determined that there is a shortage of any petroleum product, or when
public interest so requires, it may take such steps as it may consider necessary, including the temporary
adjustment of the levels of prices of petroleum products and the payment to the Oil Price Stabilization
Fund . . . by persons or entities engaged in the petroleum industry of such amounts as may be
determined by the Board, which may enable the importer to recover its cost of importation. 8
On December 9, 1992, Congress enacted R.A. No. 7638 which created the Department of Energy to
prepare, integrate, coordinate, supervise and control all plans, programs, projects, and activities of the
government in relation to energy exploration, development, utilization, distribution and
conservation.9 The thrust of the Philippine energy program under the law was toward privatization of
government agencies related to energy, deregulation of the power and energy industry and reduction
of dependency on oil-fired plants.10 The law also aimed to encourage free and active participation and
investment by the private sector in all energy activities. Section 5(e) of the law states that "at the end
of four (4) years from the effectivity of this Act, the Department shall, upon approval of the President,
institute the programs and timetable of deregulation of appropriate energy projects and activities of
the energy industry."
Pursuant to the policies enunciated in R.A. No. 7638, the government approved the privatization of
Petron Corporation in 1993. On December 16, 1993, PNOC sold 40% of its equity in Petron Corporation
to the Aramco Overseas Company.
In March 1996, Congress took the audacious step of deregulating the downstream oil industry. It
enacted R.A. No.8180, entitled the "Downstream Oil Industry Deregulation Act of 1996." Under the
deregulated environment, "any person or entity may import or purchase any quantity of crude oil and
petroleum products from a foreign or domestic source, lease or own and operate refineries and other
downstream oil facilities and market such crude oil or use the same for his own requirement," subject
only to monitoring by the Department of
Energy.11
The deregulation process has two phases: the transition phase and the full deregulation phase. During
the transition phase, controls of the non-pricing aspects of the oil industry were to be lifted. The
following were to be accomplished: (1) liberalization of oil importation, exportation, manufacturing,
marketing and distribution, (2) implementation of an automatic pricing mechanism, (3) implementation
of an automatic formula to set margins of dealers and rates of haulers, water transport operators and
pipeline concessionaires, and (4) restructuring of oil taxes. Upon full deregulation, controls on the price
of oil and the foreign exchange cover were to be lifted and the OPSF was to be abolished.
The first phase of deregulation commenced on August 12, 1996.
On February 8, 1997, the President implemented the full deregulation of the Downstream Oil Industry
through E.O.No. 372.
The petitions at bar assail the constitutionality of various provisions of R.A No. 8180 and E.O. No. 372.
In G.R. No. 124360, petitioner Francisco S. Tatad seeks the annulment of section 5(b) of R.A. No. 8180.
Section 5(b) provides:
b) Any law to the contrary notwithstanding and starting with the effectivity of this Act, tariff duty shall
be imposed and collected on imported crude oil at the rate of three percent (3%) and imported refined
petroleum products at the rate of seven percent (7%), except fuel oil and LPG, the rate for which shall
be the same as that for imported crude oil: Provided, That beginning on January 1, 2004 the tariff rate
on imported crude oil and refined petroleum products shall be the same: Provided, further, That this
provision may be amended only by an Act of Congress.
The petition is anchored on three arguments:
First, that the imposition of different tariff rates on imported crude oil and imported refined petroleum
products violates the equal protection clause. Petitioner contends that the 3%-7% tariff differential
unduly favors the three existing oil refineries and discriminates against prospective investors in the
downstream oil industry who do not have their own refineries and will have to source refined
petroleum products from abroad.
Second, that the imposition of different tariff rates does not deregulate the downstream oil industry
but instead controls the oil industry, contrary to the avowed policy of the law. Petitioner avers that the
tariff differential between imported crude oil and imported refined petroleum products bars the entry
of other players in the oil industry because it effectively protects the interest of oil companies with
existing refineries. Thus, it runs counter to the objective of the law "to foster a truly competitive
market."
Third, that the inclusion of the tariff provision in section 5(b) of R.A. No. 8180 violates Section 26(1)
Article VI of the Constitution requiring every law to have only one subject which shall be expressed in
its title. Petitioner contends that the imposition of tariff rates in section 5(b) of R.A. No. 8180 is foreign
to the subject of the law which is the deregulation of the downstream oil industry.
In G.R. No. 127867, petitioners Edcel C. Lagman, Joker P. Arroyo, Enrique Garcia, Wigberto Tanada, Flag
Human Rights Foundation, Inc., Freedom from Debt Coalition (FDC) and Sanlakas contest the
constitutionality of section 15 of R.A. No. 8180 and E.O. No. 392. Section 15 provides:
Sec. 15. Implementation of Full Deregulation. — Pursuant to Section 5(e) of Republic Act No. 7638, the
DOE shall, upon approval of the President, implement the full deregulation of the downstream oil
industry not later than March 1997. As far as practicable, the DOE shall time the full deregulation when
the prices of crude oil and petroleum products in the world market are declining and when the exchange
rate of the peso in relation to the US dollar is stable. Upon the implementation of the full deregulation
as provided herein, the transition phase is deemed terminated and the following laws are deemed
repealed:
xxx xxx xxx
E.O. No. 372 states in full, viz.:
WHEREAS, Republic Act No. 7638, otherwise known as the "Department of Energy Act of 1992,"
provides that, at the end of four years from its effectivity last December 1992, "the Department (of
Energy) shall, upon approval of the President, institute the programs and time table of deregulation of
appropriate energy projects and activities of the energy sector;"
WHEREAS, Section 15 of Republic Act No. 8180, otherwise known as the "Downstream Oil Industry
Deregulation Act of 1996," provides that "the DOE shall, upon approval of the President, implement full
deregulation of the downstream oil industry not later than March, 1997. As far as practicable, the DOE
shall time the full deregulation when the prices of crude oil and petroleum products in the world market
are declining and when the exchange rate of the peso in relation to the US dollar is stable;"
WHEREAS, pursuant to the recommendation of the Department of Energy, there is an imperative need
to implement the full deregulation of the downstream oil industry because of the following recent
developments: (i) depletion of the buffer fund on or about 7 February 1997 pursuant to the Energy
Regulatory Board's Order dated 16 January 1997; (ii) the prices of crude oil had been stable at $21-$23
per barrel since October 1996 while prices of petroleum products in the world market had been stable
since mid-December of last year. Moreover, crude oil prices are beginning to soften for the last few
days while prices of some petroleum products had already declined; and (iii) the exchange rate of the
peso in relation to the US dollar has been stable for the past twelve (12) months, averaging at around
P26.20 to one US dollar;
WHEREAS, Executive Order No. 377 dated 31 October 1996 provides for an institutional framework for
the administration of the deregulated industry by defining the functions and responsibilities of various
government agencies;
WHEREAS, pursuant to Republic Act No. 8180, the deregulation of the industry will foster a truly
competitive market which can better achieve the social policy objectives of fair prices and adequate,
continuous supply of environmentally-clean and high quality petroleum products;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by the powers vested
in me by law, do hereby declare the full deregulation of the downstream oil industry.
In assailing section 15 of R.A. No. 8180 and E.O. No. 392, petitioners offer the following submissions:
First, section 15 of R.A. No. 8180 constitutes an undue delegation of legislative power to the President
and the Secretary of Energy because it does not provide a determinate or determinable standard to
guide the Executive Branch in determining when to implement the full deregulation of the downstream
oil industry. Petitioners contend that the law does not define when it is practicable for the Secretary of
Energy to recommend to the President the full deregulation of the downstream oil industry or when
the President may consider it practicable to declare full deregulation. Also, the law does not provide
any specific standard to determine when the prices of crude oil in the world market are considered to
be declining nor when the exchange rate of the peso to the US dollar is considered stable.
Second, petitioners aver that E.O. No. 392 implementing the full deregulation of the downstream oil
industry is arbitrary and unreasonable because it was enacted due to the alleged depletion of the OPSF
fund — a condition not found in R.A. No. 8180.
Third, section 15 of R.A. No. 8180 and E.O. No. 392 allow the formation of a de facto cartel among the
three existing oil companies — Petron, Caltex and Shell — in violation of the constitutional prohibition
against monopolies, combinations in restraint of trade and unfair competition.
Respondents, on the other hand, fervently defend the constitutionality of R.A. No. 8180 and E.O. No.
392. In addition, respondents contend that the issues raised by the petitions are not justiciable as they
pertain to the wisdom of the law. Respondents further aver that petitioners have no locus standi as
they did not sustain nor will they sustain direct injury as a result of the implementation of R.A. No. 8180.
The petitions were heard by the Court on September 30, 1997. On October 7, 1997, the Court ordered
the private respondents oil companies "to maintain the status quo and to cease and desist from
increasing the prices of gasoline and other petroleum fuel products for a period of thirty (30) days . . .
subject to further orders as conditions may warrant."
We shall now resolve the petitions on the merit. The petitions raise procedural and substantive issues
bearing on the constitutionality of R.A. No. 8180 and E.O. No. 392. The procedural issues are: (1)
whether or not the petitions raise a justiciable controversy, and (2) whether or not the petitioners have
the standing to assail the validity of the subject law and executive order. The substantive issues are: (1)
whether or not section 5 (b) violates the one title — one subject requirement of the Constitution; (2)
whether or not the same section violates the equal protection clause of the Constitution; (3) whether
or not section 15 violates the constitutional prohibition on undue delegation of power; (4) whether or
not E.O. No. 392 is arbitrary and unreasonable; and (5) whether or not R.A. No. 8180 violates the
constitutional prohibition against monopolies, combinations in restraint of trade and unfair
competition.
We shall first tackle the procedural issues. Respondents claim that the avalanche of arguments of the
petitioners assail the wisdom of R.A. No. 8180. They aver that deregulation of the downstream oil
industry is a policy decision made by Congress and it cannot be reviewed, much less be reversed by this
Court. In constitutional parlance, respondents contend that the petitions failed to raise a justiciable
controversy.
Respondents' joint stance is unnoteworthy. Judicial power includes not only the duty of the courts to
settle actual controversies involving rights which are legally demandable and enforceable, but also the
duty to determine whether or not there has been grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or instrumentality of the government.12 The courts, as
guardians of the Constitution, have the inherent authority to determine whether a statute enacted by
the legislature transcends the limit imposed by the fundamental law. Where a statute violates the
Constitution, it is not only the right but the duty of the judiciary to declare such act as unconstitutional
and void.13 We held in the recent case of Tanada v. Angara:14
xxx xxx xxx
In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution,
the petition no doubt raises a justiciable controversy. Where an action of the legislative branch is
seriously alleged to have infringed the Constitution, it becomes not only the right but in fact the duty
of the judiciary to settle the dispute. The question thus posed is judicial rather than political. The duty
to adjudicate remains to assure that the supremacy of the Constitution is upheld. Once a controversy
as to the application or interpretation of a constitutional provision is raised before this Court, it
becomes a legal issue which the Court is bound by constitutional mandate to decide.
Even a sideglance at the petitions will reveal that petitioners have raised constitutional issues which
deserve the resolution of this Court in view of their seriousness and their value as precedents. Our
statement of facts and definition of issues clearly show that petitioners are assailing R.A. No. 8180
because its provisions infringe the Constitution and not because the law lacks wisdom. The principle of
separation of power mandates that challenges on the constitutionality of a law should be resolved in
our courts of justice while doubts on the wisdom of a law should be debated in the halls of Congress.
Every now and then, a law may be denounced in court both as bereft of wisdom and constitutionally
infirmed. Such denunciation will not deny this Court of its jurisdiction to resolve the constitutionality of
the said law while prudentially refusing to pass on its wisdom.
The effort of respondents to question the locus standi of petitioners must also fall on barren ground. In
language too lucid to be misunderstood, this Court has brightlined its liberal stance on a
petitioner's locus standi where the petitioner is able to craft an issue of transcendental significance to
the people.15 In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan,16 we stressed:
xxx xxx xxx
Objections to taxpayers' suit for lack of sufficient personality, standing or interest are, however, in the
main procedural matters. Considering the importance to the public of the cases at bar, and in keeping
with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of
government have kept themselves within the limits of the Constitution and the laws and that they have
not abused the discretion given to them, the Court has brushed aside technicalities of procedure and
has taken cognizance of these petitions.
There is not a dot of disagreement between the petitioners and the respondents on the far reaching
importance of the validity of RA No. 8180 deregulating our downstream oil industry. Thus, there is no
good sense in being hypertechnical on the standing of petitioners for they pose issues which are
significant to our people and which deserve our forthright resolution.
We shall now track down the substantive issues. In G.R. No. 124360 where petitioner is Senator Tatad,
it is contended that section 5(b) of R.A. No. 8180 on tariff differential violates the provision 17 of the
Constitution requiring every law to have only one subject which should be expressed in its title. We do
not concur with this contention. As a policy, this Court has adopted a liberal construction of the one
title — one subject rule. We have consistently ruled 18 that the title need not mirror, fully index or
catalogue all contents and minute details of a law. A law having a single general subject indicated in the
title may contain any number of provisions, no matter how diverse they may be, so long as they are not
inconsistent with or foreign to the general subject, and may be considered in furtherance of such
subject by providing for the method and means of carrying out the general subject. 19 We hold that
section 5(b) providing for tariff differential is germane to the subject of R.A. No. 8180 which is the
deregulation of the downstream oil industry. The section is supposed to sway prospective investors to
put up refineries in our country and make them rely less on imported petroleum. 20 We shall, however,
return to the validity of this provision when we examine its blocking effect on new entrants to the oil
market.
We shall now slide to the substantive issues in G.R. No. 127867. Petitioners assail section 15 of R.A. No.
8180 which fixes the time frame for the full deregulation of the downstream oil industry. We restate its
pertinent portion for emphasis, viz.:
Sec. 15. Implementation of Full Deregulation — Pursuant to section 5(e) of Republic Act No. 7638, the
DOE shall, upon approval of the President, implement the full deregulation of the downstream oil
industry not later than March 1997. As far as practicable, the DOE shall time the full deregulation when
the prices of crude oil and petroleum products in the world market are declining and when the exchange
rate of the peso in relation to the US dollar is stable . . .
Petitioners urge that the phrases "as far as practicable," "decline of crude oil prices in the world market"
and "stability of the peso exchange rate to the US dollar" are ambivalent, unclear and inconcrete in
meaning. They submit that they do not provide the "determinate or determinable standards" which
can guide the President in his decision to fully deregulate the downstream oil industry. In addition, they
contend that E.O. No. 392 which advanced the date of full deregulation is void for it illegally considered
the depletion of the OPSF fund as a factor.
The power of Congress to delegate the execution of laws has long been settled by this Court. As early
as 1916 in Compania General de Tabacos de Filipinas vs. The Board of Public Utility Commissioners,21 this
Court thru, Mr. Justice Moreland, held that "the true distinction is between the delegation of power to
make the law, which necessarily involves a discretion as to what it shall be, and conferring 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." Over the years, as the legal engineering of men's
relationship became more difficult, Congress has to rely more on the practice of delegating the
execution of laws to the executive and other administrative agencies. Two tests have been developed
to determine whether the delegation of the power to execute laws does not involve the abdication of
the power to make law itself. We delineated the metes and bounds of these tests in Eastern Shipping
Lines, Inc. VS. POEA,22 thus:
There are two accepted tests to determine whether or not there is a valid delegation of legislative
power, viz: the completeness test and the sufficient standard test. Under the first test, the law must be
complete in all its terms and conditions when it leaves the legislative such that when it reaches the
delegate the only thing he will have to do is to enforce it. Under the sufficient standard test, there must
be adequate guidelines or limitations in the law to map out the boundaries of the delegate's authority
and prevent the delegation from running riot. Both tests are intended to prevent a total transference
of legislative authority to the delegate, who is not allowed to step into the shoes of the legislature and
exercise a power essentially legislative.
The validity of delegating legislative power is now a quiet area in our constitutional landscape. As sagely
observed, delegation of legislative power has become an inevitability in light of the increasing
complexity of the task of government. Thus, courts bend as far back as possible to sustain the
constitutionality of laws which are assailed as unduly delegating legislative powers. Citing Hirabayashi
v. United States23 as authority, Mr. Justice Isagani A. Cruz states "that even if the law does not expressly
pinpoint the standard, the courts will bend over backward to locate the same elsewhere in order to
spare the statute, if it can, from constitutional infirmity."24
Given the groove of the Court's rulings, the attempt of petitioners to strike down section 15 on the
ground of undue delegation of legislative power cannot prosper. Section 15 can hurdle both the
completeness test and the sufficient standard test. It will be noted that Congress expressly provided in
R.A. No. 8180 that full deregulation will start at the end of March 1997, regardless of the occurrence of
any event. Full deregulation at the end of March 1997 is mandatory and the Executive has no discretion
to postpone it for any purported reason. Thus, the law is complete on the question of the final date of
full deregulation. The discretion given to the President is to advance the date of full deregulation before
the end of March 1997. Section 15 lays down the standard to guide the judgment of the President —
he is to time it as far as practicable when the prices of crude oil and petroleum products in the world
market are declining and when the exchange rate of the peso in relation to the US dollar is stable.
Petitioners contend that the words "as far as practicable," "declining" and "stable" should have been
defined in R.A. No. 8180 as they do not set determinate or determinable standards. The stubborn
submission deserves scant consideration. The dictionary meanings of these words are well settled and
cannot confuse men of reasonable intelligence. Webster defines "practicable" as meaning possible to
practice or perform, "decline" as meaning to take a downward direction, and "stable" as meaning firmly
established.25 The fear of petitioners that these words will result in the exercise of executive discretion
that will run riot is thus groundless. To be sure, the Court has sustained the validity of similar, if not
more general standards in other cases.26
It ought to follow that the argument that E.O. No. 392 is null and void as it was based on indeterminate
standards set by R.A. 8180 must likewise fail. If that were all to the attack against the validity of E.O.
No. 392, the issue need not further detain our discourse. But petitioners further posit the thesis that
the Executive misapplied R.A. No. 8180 when it considered the depletion of the OPSF fund as a factor
in fully deregulating the downstream oil industry in February 1997. A perusal of section 15 of R.A. No.
8180 will readily reveal that it only enumerated two factors to be considered by the Department of
Energy and the Office of the President, viz.: (1) the time when the prices of crude oil and petroleum
products in the world market are declining, and (2) the time when the exchange rate of the peso in
relation to the US dollar is stable. Section 15 did not mention the depletion of the OPSF fund as a factor
to be given weight by the Executive before ordering full deregulation. On the contrary, the debates in
Congress will show that some of our legislators wanted to impose as a pre-condition to deregulation a
showing that the OPSF fund must not be in deficit.27 We therefore hold that the Executive department
failed to follow faithfully the standards set by R.A. No. 8180 when it considered the extraneous factor
of depletion of the OPSF fund. The misappreciation of this extra factor cannot be justified on the ground
that the Executive department considered anyway the stability of the prices of crude oil in the world
market and the stability of the exchange rate of the peso to the dollar. By considering another factor to
hasten full deregulation, the Executive department rewrote the standards set forth in R.A. 8180. The
Executive is bereft of any right to alter either by subtraction or addition the standards set in R.A. No.
8180 for it has no power to make laws. To cede to the Executive the power to make law is to invite
tyranny, indeed, to transgress the principle of separation of powers. The exercise of delegated power
is given a strict scrutiny by courts for the delegate is a mere agent whose action cannot infringe the
terms of agency. In the cases at bar, the Executive co-mingled the factor of depletion of the OPSF fund
with the factors of decline of the price of crude oil in the world market and the stability of the peso to
the US dollar. On the basis of the text of E.O. No. 392, it is impossible to determine the weight given by
the Executive department to the depletion of the OPSF fund. It could well be the principal consideration
for the early deregulation. It could have been accorded an equal significance. Or its importance could
be nil. In light of this uncertainty, we rule that the early deregulation under E.O. No. 392 constitutes a
misapplication of R.A. No. 8180.
We now come to grips with the contention that some provisions of R.A. No. 8180 violate section 19 of
Article XII of the 1987 Constitution. These provisions are:
(1) Section 5 (b) which states — "Any law to the contrary notwithstanding and starting with the
effectivity of this Act, tariff duty shall be imposed and collected on imported crude oil at the rate of
three percent (3%) and imported refined petroleum products at the rate of seven percent (7%) except
fuel oil and LPG, the rate for which shall be the same as that for imported crude oil. Provided, that
beginning on January 1, 2004 the tariff rate on imported crude oil and refined petroleum products shall
be the same. Provided, further, that this provision may be amended only by an Act of Congress."
(2) Section 6 which states — "To ensure the security and continuity of petroleum crude and products
supply, the DOE shall require the refiners and importers to maintain a minimum inventory equivalent
to ten percent (10%) of their respective annual sales volume or forty (40) days of supply, whichever is
lower," and
(3) Section 9 (b) which states — "To ensure fair competition and prevent cartels and monopolies in the
downstream oil industry, the following acts shall be prohibited:
xxx xxx xxx
(b) Predatory pricing which means selling or offering to sell any product at a price unreasonably below
the industry average cost so as to attract customers to the detriment of competitors.
On the other hand, section 19 of Article XII of the Constitution allegedly violated by the aforestated
provisions of R.A. No. 8180 mandates: "The State shall regulate or prohibit monopolies when the public
interest so requires. No combinations in restraint of trade or unfair competition shall be allowed."
A monopoly is a privilege or peculiar advantage vested in one or more persons or companies, consisting
in the exclusive right or power to carry on a particular business or trade, manufacture a particular
article, or control the sale or the whole supply of a particular commodity. It is a form of market structure
in which one or only a few firms dominate the total sales of a product or service. 28 On the other hand,
a combination in restraint of trade is an agreement or understanding between two or more persons, in
the form of a contract, trust, pool, holding company, or other form of association, for the purpose of
unduly restricting competition, monopolizing trade and commerce in a certain commodity, controlling
its, production, distribution and price, or otherwise interfering with freedom of trade without statutory
authority.29 Combination in restraint of trade refers to the means while monopoly refers to the end. 30
Article 186 of the Revised Penal Code and Article 28 of the New Civil Code breathe life to this
constitutional policy. Article 186 of the Revised Penal Code penalizes monopolization and creation of
combinations in restraint of
trade, 31 while Article 28 of the New Civil Code makes any person who shall engage in unfair competition
liable for damages.32
Respondents aver that sections 5(b), 6 and 9(b) implement the policies and objectives of R.A. No. 8180.
They explain that the 4% tariff differential is designed to encourage new entrants to invest in refineries.
They stress that the inventory requirement is meant to guaranty continuous domestic supply of
petroleum and to discourage fly-by-night operators. They also submit that the prohibition against
predatory pricing is intended to protect prospective entrants. Respondents manifested to the Court
that new players have entered the Philippines after deregulation and have now captured 3% — 5% of
the oil market.
The validity of the assailed provisions of R.A. No. 8180 has to be decided in light of the letter and spirit
of our Constitution, especially section 19, Article XII. Beyond doubt, the Constitution committed us to
the free enterprise system but it is a system impressed with its own distinctness. Thus, while the
Constitution embraced free enterprise as an economic creed, it did not prohibit per se the operation of
monopolies which can, however, be regulated in the public interest. 33 Thus too, our free enterprise
system is not based on a market of pure and unadulterated competition where the State pursues a
strict hands-off policy and follows the let-the-devil devour the hindmost rule. Combinations in restraint
of trade and unfair competitions are absolutely proscribed and the proscription is directed both against
the State as well as the private sector.34 This distinct free enterprise system is dictated by the need to
achieve the goals of our national economy as defined by section 1, Article XII of the Constitution which
are: more equitable distribution of opportunities, income and wealth; a sustained increase in the
amount of goods and services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the underprivileged. It also calls for
the State to protect Filipino enterprises against unfair competition and trade practices.
Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses competition.
The desirability of competition is the reason for the prohibition against restraint of trade, the reason
for the interdiction of unfair competition, and the reason for regulation of unmitigated monopolies.
Competition is thus the underlying principle of section 19, Article XII of our Constitution which cannot
be violated by R.A. No. 8180. We subscribe to the observation of Prof. Gellhorn that the objective of
anti-trust law is "to assure a competitive economy, based upon the belief that through competition
producers will strive to satisfy consumer wants at the lowest price with the sacrifice of the fewest
resources. Competition among producers allows consumers to bid for goods and services, and thus
matches their desires with society's opportunity costs."35 He adds with appropriateness that there is a
reliance upon "the operation of the 'market' system (free enterprise) to decide what shall be produced,
how resources shall be allocated in the production process, and to whom the various products will be
distributed. The market system relies on the consumer to decide what and how much shall be
produced, and on competition, among producers to determine who will manufacture it."
Again, we underline in scarlet that the fundamental principle espoused by section 19, Article XII of the
Constitution is competition for it alone can release the creative forces of the market. But the
competition that can unleash these creative forces is competition that is fighting yet is fair. Ideally, this
kind of competition requires the presence of not one, not just a few but several players. A market
controlled by one player (monopoly) or dominated by a handful of players (oligopoly) is hardly the
market where honest-to-goodness competition will prevail. Monopolistic or oligopolistic markets
deserve our careful scrutiny and laws which barricade the entry points of new players in the market
should be viewed with suspicion.
Prescinding from these baseline propositions, we shall proceed to examine whether the provisions of
R.A. No. 8180 on tariff differential, inventory reserves, and predatory prices imposed substantial
barriers to the entry and exit of new players in our downstream oil industry. If they do, they have to be
struck down for they will necessarily inhibit the formation of a truly competitive market. Contrariwise,
if they are insignificant impediments, they need not be stricken down.
In the cases at bar, it cannot be denied that our downstream oil industry is operated and controlled by
an oligopoly, a foreign oligopoly at that. Petron, Shell and Caltex stand as the only major league players
in the oil market. All other players belong to the lilliputian league. As the dominant players, Petron,
Shell and Caltex boast of existing refineries of various capacities. The tariff differential of 4% therefore
works to their immense benefit. Yet, this is only one edge of the tariff differential. The other edge cuts
and cuts deep in the heart of their competitors. It erects a high barrier to the entry of new players. New
players that intend to equalize the market power of Petron, Shell and Caltex by building refineries of
their own will have to spend billions of pesos. Those who will not build refineries but compete with
them will suffer the huge disadvantage of increasing their product cost by 4%. They will be competing
on an uneven field. The argument that the 4% tariff differential is desirable because it will induce
prospective players to invest in refineries puts the cart before the horse. The first need is to attract new
players and they cannot be attracted by burdening them with heavy disincentives. Without new players
belonging to the league of Petron, Shell and Caltex, competition in our downstream oil industry is an
idle dream.
The provision on inventory widens the balance of advantage of Petron, Shell and Caltex against
prospective new players. Petron, Shell and Caltex can easily comply with the inventory requirement of
R.A. No. 8180 in view of their existing storage facilities. Prospective competitors again will find
compliance with this requirement difficult as it will entail a prohibitive cost. The construction cost of
storage facilities and the cost of inventory can thus scare prospective players. Their net effect is to
further occlude the entry points of new players, dampen competition and enhance the control of the
market by the three (3) existing oil companies.
Finally, we come to the provision on predatory pricing which is defined as ". . . selling or offering to sell
any product at a price unreasonably below the industry average cost so as to attract customers to the
detriment of competitors." Respondents contend that this provision works against Petron, Shell and
Caltex and protects new entrants. The ban on predatory pricing cannot be analyzed in isolation. Its
validity is interlocked with the barriers imposed by R.A. No. 8180 on the entry of new players. The
inquiry should be to determine whether predatory pricing on the part of the dominant oil companies is
encouraged by the provisions in the law blocking the entry of new players. Text-writer
Hovenkamp,36 gives the authoritative answer and we quote:
xxx xxx xxx
The rationale for predatory pricing is the sustaining of losses today that will give a firm monopoly profits
in the future. The monopoly profits will never materialize, however, if the market is flooded with new
entrants as soon as the successful predator attempts to raise its price. Predatory pricing will be
profitable only if the market contains significant barriers to new entry.
As aforediscsussed, the 4% tariff differential and the inventory requirement are significant barriers
which discourage new players to enter the market. Considering these significant barriers established by
R.A. No. 8180 and the lack of players with the comparable clout of PETRON, SHELL and CALTEX, the
temptation for a dominant player to engage in predatory pricing and succeed is a chilling reality.
Petitioners' charge that this provision on predatory pricing is anti-competitive is not without reason.
Respondents belittle these barriers with the allegation that new players have entered the market since
deregulation. A scrutiny of the list of the alleged new players will, however, reveal that not one belongs
to the class and category of PETRON, SHELL and CALTEX. Indeed, there is no showing that any of these
new players intends to install any refinery and effectively compete with these dominant oil companies.
In any event, it cannot be gainsaid that the new players could have been more in number and more
impressive in might if the illegal entry barriers in R.A. No. 8180 were not erected.
We come to the final point. We now resolve the total effect of the untimely deregulation, the imposition
of 4% tariff differential on imported crude oil and refined petroleum products, the requirement of
inventory and the prohibition on predatory pricing on the constitutionality of R.A. No. 8180. The
question is whether these offending provisions can be individually struck down without invalidating the
entire R.A. No. 8180. The ruling case law is well stated by author Agpalo,37 viz.:
xxx xxx xxx
The general rule is that where part of a statute is void as repugnant to the Constitution, while another
part is valid, the valid portion, if separable from the invalid, may stand and be enforced. The presence
of a separability clause in a statute creates the presumption that the legislature intended separability,
rather than complete nullity of the statute. To justify this result, the valid portion must be so far
independent of the invalid portion that it is fair to presume that the legislature would have enacted it
by itself if it had supposed that it could not constitutionally enact the other. Enough must remain to
make a complete, intelligible and valid statute, which carries out the legislative intent. . . .
The exception to the general rule is that when the parts of a statute are so mutually dependent and
connected, as conditions, considerations, inducements, or compensations for each other, as to warrant
a belief that the legislature intended them as a whole, the nullity of one part will vitiate the rest. In
making the parts of the statute dependent, conditional, or connected with one another, the legislature
intended the statute to be carried out as a whole and would not have enacted it if one part is void, in
which case if some parts are unconstitutional, all the other provisions thus dependent, conditional, or
connected must fall with them.
R.A. No. 8180 contains a separability clause. Section 23 provides that "if for any reason, any section or
provision of this Act is declared unconstitutional or invalid, such parts not affected thereby shall remain
in full force and effect." This separability clause notwithstanding, we hold that the offending provisions
of R.A. No. 8180 so permeate its essence that the entire law has to be struck down. The provisions on
tariff differential, inventory and predatory pricing are among the principal props of R.A. No. 8180.
Congress could not have deregulated the downstream oil industry without these provisions.
Unfortunately, contrary to their intent, these provisions on tariff differential, inventory and predatory
pricing inhibit fair competition, encourage monopolistic power and interfere with the free interaction
of market forces. R.A. No. 8180 needs provisions to vouchsafe free and fair competition. The need for
these vouchsafing provisions cannot be overstated. Before deregulation, PETRON, SHELL and CALTEX
had no real competitors but did not have a free run of the market because government controls both
the pricing and non-pricing aspects of the oil industry. After deregulation, PETRON, SHELL and CALTEX
remain unthreatened by real competition yet are no longer subject to control by government with
respect to their pricing and non-pricing decisions. The aftermath of R.A. No. 8180 is a deregulated
market where competition can be corrupted and where market forces can be manipulated by
oligopolies.
The fall out effects of the defects of R.A. No. 8180 on our people have not escaped Congress. A lot of
our leading legislators have come out openly with bills seeking the repeal of these odious and offensive
provisions in R.A. No. 8180. In the Senate, Senator Freddie Webb has filed S.B. No. 2133 which is the
result of the hearings conducted by the Senate Committee on Energy. The hearings revealed that
(1) there was a need to level the playing field for the new entrants in the downstream oil industry, and
(2) there was no law punishing a person for selling petroleum products at unreasonable prices. Senator
Alberto G. Romulo also filed S.B. No. 2209 abolishing the tariff differential beginning January 1, 1998.
He declared that the amendment ". . . would mean that instead of just three (3) big oil companies there
will be other major oil companies to provide more competitive prices for the market and the consuming
public." Senator Heherson T . Alvarez, one of the principal proponents of R.A. No. 8180, also filed S.B.
No. 2290 increasing the penalty for violation of its section 9. It is his opinion as expressed in the
explanatory note of the bill that the present oil companies are engaged in cartelization despite
R.A. No. 8180, viz,:
xxx xxx xxx
Since the downstream oil industry was fully deregulated in February 1997, there have been eight (8)
fuel price adjustments made by the three oil majors, namely: Caltex Philippines, Inc.; Petron
Corporation; and Pilipinas Shell Petroleum Corporation. Very noticeable in the price adjustments made,
however, is the uniformity in the pump prices of practically all petroleum products of the three oil
companies. This, despite the fact, that their selling rates should be determined by a combination of any
of the following factors: the prevailing peso-dollar exchange rate at the time payment is made for crude
purchases, sources of crude, and inventory levels of both crude and refined petroleum products. The
abovestated factors should have resulted in different, rather than identical prices.
The fact that the three (3) oil companies' petroleum products are uniformly priced suggests collusion,
amounting to cartelization, among Caltex Philippines, Inc., Petron Corporation and Pilipinas Shell
Petroleum Corporation to fix the prices of petroleum products in violation of paragraph (a), Section 9
of R.A. No. 8180.
To deter this pernicious practice and to assure that present and prospective players in the downstream
oil industry conduct their business with conscience and propriety, cartel-like activities ought to be
severely penalized.
Senator Francisco S. Tatad also filed S.B. No. 2307 providing for a uniform tariff rate on imported crude
oil and refined petroleum products. In the explanatory note of the bill, he declared in no uncertain
terms that ". . . the present set-up has raised serious public concern over the way the three oil
companies have uniformly adjusted the prices of oil in the country, an indication of a possible existence
of a cartel or a cartel-like situation within the downstream oil industry. This situation is mostly attributed
to the foregoing provision on tariff differential, which has effectively discouraged the entry of new
players in the downstream oil industry."
In the House of Representatives, the moves to rehabilitate R.A. No. 8180 are equally
feverish. Representative Leopoldo E. San Buenaventura has filed H.B. No. 9826 removing the tariff
differential for imported crude oil and imported refined petroleum products. In the explanatory note
of the bill, Rep. Buenaventura explained:
xxx xxx xxx
As we now experience, this difference in tariff rates between imported crude oil and imported refined
petroleum products, unwittingly provided a built-in-advantage for the three existing oil refineries in the
country and eliminating competition which is a must in a free enterprise economy. Moreover, it created
a disincentive for other players to engage even initially in the importation and distribution of refined
petroleum products and ultimately in the putting up of refineries. This tariff differential virtually created
a monopoly of the downstream oil industry by the existing three oil companies as shown by their uniform
and capricious pricing of their products since this law took effect, to the great disadvantage of the
consuming public.
Thus, instead of achieving the desired effects of deregulation, that of free enterprise and a level playing
field in the downstream oil industry, R.A. 8180 has created an environment conducive to cartelization,
unfavorable, increased, unrealistic prices of petroleum products in the country by the three existing
refineries.
Representative Marcial C. Punzalan, Jr., filed H.B. No. 9981 to prevent collusion among the present oil
companies by strengthening the oversight function of the government, particularly its ability to subject
to a review any adjustment in the prices of gasoline and other petroleum products. In the explanatory
note of the bill, Rep. Punzalan, Jr., said:
xxx xxx xxx
To avoid this, the proposed bill seeks to strengthen the oversight function of government, particularly
its ability to review the prices set for gasoline and other petroleum products. It grants the Energy
Regulatory Board (ERB) the authority to review prices of oil and other petroleum products, as may be
petitioned by a person, group or any entity, and to subsequently compel any entity in the industry to
submit any and all documents relevant to the imposition of new prices. In cases where the Board
determines that there exist collusion, economic conspiracy, unfair trade practice, profiteering and/or
overpricing, it may take any step necessary to protect the public, including the readjustment of the
prices of petroleum products. Further, the Board may also impose the fine and penalty of
imprisonment, as prescribed in Section 9 of R.A. 8180, on any person or entity from the oil industry who
is found guilty of such prohibited acts.
By doing all of the above, the measure will effectively provide Filipino consumers with a venue where
their grievances can be heard and immediately acted upon by government.
Thus, this bill stands to benefit the Filipino consumer by making the price-setting process more
transparent and making it easier to prosecute those who perpetrate such prohibited acts as collusion,
overpricing, economic conspiracy and unfair trade.
Representative Sergio A.F . Apostol filed H.B. No. 10039 to remedy an omission in R.A. No. 8180 where
there is no agency in government that determines what is "reasonable" increase in the prices of oil
products. Representative Dente O. Tinga, one of the principal sponsors of R.A. No. 8180, filed H.B. No.
10057 to strengthen its anti-trust provisions. He elucidated in its explanatory note:
xxx xxx xxx
The definition of predatory pricing, however, needs to be tightened up particularly with respect to the
definitive benchmark price and the specific anti-competitive intent. The definition in the bill at hand
which was taken from the Areeda-Turner test in the United States on predatory pricing resolves the
questions. The definition reads, "Predatory pricing means selling or offering to sell any oil product at a
price below the average variable cost for the purpose of destroying competition, eliminating a
competitor or discouraging a competitor from entering the market."
The appropriate actions which may be resorted to under the Rules of Court in conjunction with the oil
deregulation law are adequate. But to stress their availability and dynamism, it is a good move to
incorporate all the remedies in the law itself. Thus, the present bill formalizes the concept of
government intervention and private suits to address the problem of antitrust violations. Specifically,
the government may file an action to prevent or restrain any act of cartelization or predatory pricing,
and if it has suffered any loss or damage by reason of the antitrust violation it may recover damages.
Likewise, a private person or entity may sue to prevent or restrain any such violation which will result
in damage to his business or property, and if he has already suffered damage he shall recover treble
damages. A class suit may also be allowed.
To make the DOE Secretary more effective in the enforcement of the law, he shall be given additional
powers to gather information and to require reports.
Representative Erasmo B. Damasing filed H.B. No. 7885 and has a more unforgiving view of R.A. No.
8180. He wants it completely repealed. He explained:
xxx xxx xxx
Contrary to the projections at the time the bill on the Downstream Oil Industry Deregulation was
discussed and debated upon in the plenary session prior to its approval into law, there aren't any new
players or investors in the oil industry. Thus, resulting in practically a cartel or monopoly in the oil
industry by the three (3) big oil companies, Caltex, Shell and Petron. So much so, that with the
deregulation now being partially implemented, the said oil companies have succeeded in increasing the
prices of most of their petroleum products with little or no interference at all from the government. In
the month of August, there was an increase of Fifty centavos (50¢) per liter by subsidizing the same
with the OPSF, this is only temporary as in March 1997, or a few months from now, there will be full
deregulation (Phase II) whereby the increase in the prices of petroleum products will be fully absorbed
by the consumers since OPSF will already be abolished by then. Certainly, this would make the lives of
our people, especially the unemployed ones, doubly difficult and unbearable.
The much ballyhooed coming in of new players in the oil industry is quite remote considering that these
prospective investors cannot fight the existing and well established oil companies in the country today,
namely, Caltex, Shell and Petron. Even if these new players will come in, they will still have no chance
to compete with the said three (3) existing big oil companies considering that there is an imposition of
oil tariff differential of 4% between importation of crude oil by the said oil refineries paying only 3%
tariff rate for the said importation and 7% tariff rate to be paid by businessmen who have no oil
refineries in the Philippines but will import finished petroleum/oil products which is being taxed with
7% tariff rates.
So, if only to help the many who are poor from further suffering as a result of unmitigated increase in
oil products due to deregulation, it is a must that the Downstream Oil Industry Deregulation Act of 1996,
or R.A.8180 be repealed completely.
Various resolutions have also been filed in the Senate calling for an immediate and comprehensive
review of R.A. No. 8180 to prevent the downpour of its ill effects on the people. Thus, S. Res. No. 574
was filed by Senator Gloria M. Macapagal entitled Resolution "Directing the Committee on Energy to
Inquire Into The Proper Implementation of the Deregulation of the Downstream Oil Industry and Oil
Tax Restructuring As Mandated Under R.A. Nos. 8180 and 8184, In Order to Make The Necessary
Corrections In the Apparent Misinterpretation Of The Intent And Provision Of The Laws And Curb The
Rising Tide Of Disenchantment Among The Filipino Consumers And Bring About The Real Intentions And
Benefits Of The Said Law." Senator Blas P. Ople filed S. Res. No. 664 entitled resolution "Directing the
Committee on Energy To Conduct An Inquiry In Aid Of Legislation To Review The Government's Oil
Deregulation Policy In Light Of The Successive Increases In Transportation, Electricity And Power Rates,
As well As Of Food And Other Prime Commodities And Recommend Appropriate Amendments To
Protect The Consuming Public." Senator Ople observed:
xxx xxx xxx
WHEREAS, since the passage of R.A. No. 8180, the Energy Regulatory Board (ERB) has imposed
successive increases in oil prices which has triggered increases in electricity and power rates,
transportation fares, as well as in prices of food and other prime commodities to the detriment of our
people, particularly the poor;
WHEREAS, the new players that were expected to compete with the oil cartel-Shell, Caltex and Petron-
have not come in;
WHEREAS, it is imperative that a review of the oil deregulation policy be made to consider appropriate
amendments to the existing law such as an extension of the transition phase before full deregulation
in order to give the competitive market enough time to develop;
WHEREAS, the review can include the advisability of providing some incentives in order to attract the
entry of new oil companies to effect a dynamic competitive market;
WHEREAS, it may also be necessary to defer the setting up of the institutional framework for full
deregulation of the oil industry as mandated under Executive Order No. 377 issued by President Ramos
last October 31, 1996 . . .
Senator Alberto G. Romulo filed S. Res. No. 769 entitled resolution "Directing the Committees on Energy
and Public Services In Aid Of Legislation To Assess The Immediate Medium And Long Term Impact of Oil
Deregulation On Oil Prices And The Economy." Among the reasons for the resolution is the finding that
"the requirement of a 40-day stock inventory effectively limits the entry of other oil firms in the market
with the consequence that instead of going down oil prices will rise."
Parallel resolutions have been filed in the House of Representatives. Representative Dante O. Tinga filed
H. Res. No. 1311 "Directing The Committee on Energy To Conduct An Inquiry, In Aid of Legislation, Into
The Pricing Policies And Decisions Of The Oil Companies Since The Implementation of Full Deregulation
Under the Oil Deregulation Act (R.A. No. 8180) For the Purpose of Determining In the Context Of The
Oversight Functions Of Congress Whether The Conduct Of The Oil Companies, Whether Singly Or
Collectively, Constitutes Cartelization Which Is A Prohibited Act Under R.A. No. 8180, And What
Measures Should Be Taken To Help Ensure The Successful Implementation Of The Law In Accordance
With Its Letter And Spirit, Including Recommending Criminal Prosecution Of the Officers Concerned Of
the Oil Companies If Warranted By The Evidence, And For Other Purposes." Representatives Marcial
C. Punzalan, Jr. Dante O. Tinga and Antonio E. Bengzon III filed H.R. No. 894 directing the House
Committee on Energy to inquire into the proper implementation of the deregulation of the downstream
oil industry. House Resolution No. 1013 was also filed by Representatives Edcel C. Lagman, Enrique
T . Garcia, Jr. and Joker P.Arroyo urging the President to immediately suspend the implementation of
E.O. No. 392.
In recent memory there is no law enacted by the legislature afflicted with so much constitutional
deformities as R.A. No. 8180. Yet, R.A. No. 8180 deals with oil, a commodity whose supply and price
affect the ebb and flow of the lifeblood of the nation. Its shortage of supply or a slight, upward spiral in
its price shakes our economic foundation. Studies show that the areas most impacted by the movement
of oil are food manufacture, land transport, trade, electricity and water. 38 At a time when our economy
is in a dangerous downspin, the perpetuation of R.A. No. 8180 threatens to multiply the number of our
people with bent backs and begging bowls. R.A. No. 8180 with its anti-competition provisions cannot be
allowed by this Court to stand even while Congress is working to remedy its defects.
The Court, however, takes note of the plea of PETRON, SHELL and CALTEX to lift our restraining order
to enable them to adjust upward the price of petroleum and petroleum products in view of the
plummeting value of the peso. Their plea, however, will now have to be addressed to the Energy
Regulatory Board as the effect of the declaration of unconstitutionality of R.A. No. 8180 is to revive the
former laws it repealed.39 The length of our return to the regime of regulation depends on Congress
which can fasttrack the writing of a new law on oil deregulation in accord with the Constitution.
With this Decision, some circles will chide the Court for interfering with an economic decision of
Congress. Such criticism is charmless for the Court is annulling R.A. No. 8180 not because it disagrees
with deregulation as an economic policy but because as cobbled by Congress in its present form, the
law violates the Constitution. The right call therefor should be for Congress to write a new oil
deregulation law that conforms with the Constitution and not for this Court to shirk its duty of striking
down a law that offends the Constitution. Striking down R.A. No. 8180 may cost losses in quantifiable
terms to the oil oligopolists. But the loss in tolerating the tampering of our Constitution is not
quantifiable in pesos and centavos. More worthy of protection than the supra-normal profits of private
corporations is the sanctity of the fundamental principles of the Constitution. Indeed when confronted
by a law violating the Constitution, the Court has no option but to strike it down dead. Lest it is missed,
the Constitution is a covenant that grants and guarantees both the political and economic rights of the
people. The Constitution mandates this Court to be the guardian not only of the people's political rights
but their economic rights as well. The protection of the economic rights of the poor and the powerless
is of greater importance to them for they are concerned more with the exoterics of living and less with
the esoterics of liberty. Hence, for as long as the Constitution reigns supreme so long will this Court be
vigilant in upholding the economic rights of our people especially from the onslaught of the powerful.
Our defense of the people's economic rights may appear heartless because it cannot be half-hearted.
IN VIEW WHEREOF, the petitions are granted. R.A. No. 8180 is declared unconstitutional and E.O. No.
372 void.
SO ORDERED. Regalado, Davide, Jr., Romero, Bellosillo and Vitug, JJ., concur.
Mendoza, J., concurs in the result.
Narvasa, C.J., is on leave.
G.R. No. 202943
THE DEPARTMENT OF HEALTH, represented by SECRETARY ENRIQUE T. ONA, and THE FOOD AND
DRUG ADMINISTRATION (Formerly the Bureau of Food and Drugs), represented by ASSISTANT
SECRETARY OF HEALTH NICOLAS B. LUTERO III, Officer-in-Charge, Petitioners,
vs.
PHILIP MORRIS PHILIPPINES MANUFACTURING, INC, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated August 26, 2011 and the
Resolution3 dated August 3, 2012 rendered by the Court of Appeals (CA) in CA-G.R. SP No. 109493,
finding grave abuse of discretion on the part of petitioners the Department of Health (DOH) and the
Food and Drug Administration (FDA), then known as the Bureau of Food and Drugs (BFAD), for denying
respondent Philip Morris Philippines Manufacturing, Inc.'s (PMPMI) permit applications for its tobacco
sales promotions.
The Facts
On November 19, 2008, PMPMI, through the advertising agency PCN Promopro, Inc. (PCN), by virtue of
Article 1164 of Republic Act No. (RA) 73945 or the "Consumer Act of the Philippines," applied for a sales
promotion permit before the BFAD, now the FDA, for its Gear Up Promotional Activity (Gear Up
Promo).6 The application included the mechanics for the promotional activity, as well as relevant
materials and fees.7
With more than fifteen (15) days lapsing without the BFAD formally acting upon the application, PMPMI
then inquired about its status. However, PMPMI was only verbally informed of the existence of a
Memorandum issued by the DOH purportedly prohibiting tobacco companies from conducting any
tobacco promotional activities in the country. On January 8, 2009, PCN requested 8 the BFAD to formally
place on record the lack of any formal action on its Gear Up Promo application.9
Meanwhile, on November 28, 2008, PMPMI, through another advertising agency, Arc Worldwide
Philippines Co. (AWPC), filed another application for a sales promotional permit, this time for its Golden
Stick Promotional Activity (Golden Stick Promo) which the BFAD, however, refused outright, pursuant
to a directive of the BFAD Director that all permit applications for promotional activities of tobacco
companies will no longer be accepted. Despite inquiries, the BFAD merely advised AWPC to await the
formal written notice regarding its application.10
Eventually, in a letter11 dated January 5, 2009, the BFAD, through Director IV Leticia Barbara B.
Gutierrez, M.S. (Dir. Gutierrez), denied PMPMI’s Gear Up Promo application in accordance with the
instructions of the Undersecretary of Health for Standards and Regulations, directing that as of July 1,
2008, "all promotions, advertisements and/or sponsorships of tobacco products are already
prohibited," based on the provisions of RA 9211 12 or the "Tobacco Regulation Act of 2003."13
On January 19, 2009, PMPMI filed an administrative appeal 14 before the DOH Secretary, assailing the
BFAD’s denial of its Gear Up Promo application, as well as its refusal to accept the Golden Stick
Promo application. In its appeal, PMPMI maintained that under RA 9211, promotion is not prohibited
but merely restricted, and that while there are specific provisions therein totally banning
tobacco advertising and sponsorships, no similar provision could be found banning promotion.15 It
likewise averred that it had acquired a vested right over the granting of its sales promotional permit
applications, considering that the BFAD has been granting such applications prior to January 5, 2009.
Finally, it insisted that the denial of its promotional permit applications was tantamount to a violation
of its right to due process as well as their right to property.16
The DOH Ruling
In a Consolidated Decision17 dated April 30, 2009, then DOH Secretary Francisco T. Duque III (Sec.
Duque) denied PMPMI’s appeal, as well as all other similar actions filed by other tobacco companies
and thereby affirmed the action of the BFAD denying their sales promotional permit applications,
pursuant to the provisions of RA 9211.18
In denying PMPMI’s and other tobacco companies’ promotional applications, the DOH ruled that the
issuance of permits for sales promotional activities was never a ministerial duty of the BFAD; rather, it
was a discretionary power to be exercised within the confines of the law. Moreover, previous approvals
of sales promotional permit applications made by the BFAD did not create a vested right on the part of
the tobacco companies to have all applications approved.19
The DOH likewise ruled that the intent and purpose of RA 9211 was to completely ban tobacco
advertisements, promotions, and sponsorships, as promotion is inherent in both advertising and
sponsorship. As such, if RA 9211 completely prohibited advertisements and sponsorships, then it is clear
that promotion, which is necessarily included in both activities, is likewise prohibited, explaining further
that the provisions of RA 9211 should not be interpreted in a way as would render them ridiculous or
meaningless.20
Lastly, the DOH cited the Philippines’ obligation to observe the provisions of the Framework Convention
on Tobacco Control (FCTC), an international treaty, which has been duly ratified and adopted by the
country on June 6, 2005.21
Aggrieved, PMPMI elevated the matter to the CA via petition for certiorari and mandamus,22 docketed
as CA G.R. SP No. 109493, ascribing grave abuse of discretion upon the DOH in refusing to grant its sales
promotional permit applications, maintaining, inter alia, that RA 9211 still allows promotion activities
notwithstanding the phase-out of advertising and sponsorship activities after July 1, 2008.
The CA Ruling
In a Decision23 dated August 26, 2011, the CA granted the petition and nullified the Consolidated
Decision of the DOH upon a finding that the provisions of RA 9211 were clear when it
distinguished promotion from advertising and sponsorship, so much so that while the latter two (2)
activities were completely banned as of July 1, 2008, the same does not hold true with regard to
promotion, which was only restricted. The CA held that the DOH cannot exercise carte blanche authority
to deny PMPMI’s promotional permit applications, adding that "[w]hen the law is clear and free from
any doubt or ambiguity, there is no room for construction or interpretation, only for application." 24
Furthermore, it ruled that the DOH is bereft of any authority to enforce the provisions of RA 9211, in
view of the creation of the Inter- Agency Committee–Tobacco (IAC-Tobacco) under Section 29 of the
said law, which shall have the "exclusive power and function to administer and implement the
provisions of [RA 9211] x x x." 25 Thus, even though PMPMI originally applied for sales promotional
permits under Article 116 in relation to Article 109 of RA 7394, from which the DOH derives its authority
to regulate tobacco sales promotions, the said provision has already been repealed by Section 39 of RA
9211,26 which states:
Section 39. Repealing Clause. – DOH Administrative Orders No. 10[,] s. 1993 and No. 24[,] s. 2003 are
hereby repealed. Article 94 of Republic Act No. 7394, as amended, otherwise known as the Consumer
Act of the Philippines, is hereby amended.
All other laws, decrees, ordinances, administrative orders, rules and regulations, or any part thereof,
which are inconsistent with this Act are likewise repealed or amended accordingly.
Hence, the CA ruled that the DOH wrongfully arrogated unto itself the authority given to the IAC-
Tobacco to administer and implement the provisions of RA 9211, which includes regulation of tobacco
promotions.27
Dissatisfied, the DOH, through the Office of the Solicitor General (OSG), moved for the
reconsideration28 of the said Decision, which the CA denied in a Resolution 29 dated August 3, 2012,
hence, this petition.
The Issues Before the Court
The essential issues to be resolved are: (a) whether or not the CA erred in finding that the authority of
the DOH, through the BFAD, to regulate tobacco sales promotions under Article 116 in relation to Article
109 of RA 7394 had already been impliedly repealed by RA 9211, which created the IAC-Tobacco and
granted upon it the exclusive authority to administer and implement the provisions thereof; and (b)
whether or not the CA erred in ascribing grave abuse of discretion upon the DOH when the latter held
that RA 9211 has also completely prohibited tobacco promotions as of July 1, 2008.
The Court’s Ruling
The petition is bereft of merit.
At the core of the present controversy are the pertinent provisions of RA 7394, i.e., Article 116 in
relation to Article 109, to wit:
Article 116. Permit to Conduct Promotion. – No person shall conduct any sales campaigns, including
beauty contest, national in character, sponsored and promoted by manufacturing enterprises without
first securing a permit from the concerned department at least thirty (30) calendar days prior to the
commencement thereof. Unless an objection or denial is received within fifteen (15) days from filing of
the application, the same shall be deemed approved and the promotion campaign or activity may be
conducted: Provided, That any sales promotion campaign using medical prescriptions or any part
thereof or attachment thereto for raffles or a promise of reward shall not be allowed, nor a permit be
issued therefor. (Emphasis supplied)1âwphi1
Article 109. Implementing Agency. – The Department of Trade and Industry shall enforce the provisions
of this Chapter and its implementing rules and regulations: Provided, That with respect to food, drugs,
cosmetics, devices, and hazardous substances, it shall be enforced by the Department of
Health. (Emphasis and underscoring supplied)
The DOH derives its authority to rule upon applications for sales promotion permits from the above-
cited provisions. On the other hand, Section 29 of RA 9211 creating the IAC-Tobacco provides:
Section 29. Implementing Agency. – An Inter-Agency Committee- Tobacco (IAC-Tobacco), which shall
have the exclusive power and function to administer and implement the provisions of this Act, is
hereby created. The IAC-Tobacco shall be chaired by the Secretary of the Department of Trade and
Industry (DTI) with the Secretary of the Department of Health (DOH) as Vice Chairperson. The IAC-
Tobacco shall have the following as members:
a. Secretary of the Department of Agriculture (DA);
b. Secretary of the Department of Justice (DOJ);
c. Secretary of the Department of Finance (DOF);
d. Secretary of the Department of Environment and Natural Resources (DENR);
e. Secretary of the Department of Science and Technology (DOST);
f. Secretary of the Department of Education (DepEd);
g. Administrator of the National Tobacco Administration (NTA);
h. A representative from the Tobacco Industry to be nominated by the legitimate and recognized
associations of the industry; and
i. A representative from a nongovernment organization (NGO) involved in public health promotion
nominated by DOH in consultation with the concerned NGOs[.]
The Department Secretaries may designate their Undersecretaries as their authorized representative
to the IAC. (Emphasis and underscoring supplied)
It is the CA’s pronouncement that the creation of the IAC-Tobacco effectively and impliedly
repealed30 the above-quoted provisions of RA 7394, thereby removing the authority of the DOH to rule
upon applications for sales promotional permits filed by tobacco companies such as those filed by
PMPMI subject of this case.
On the other hand, while the DOH and the BFAD concede that the creation of the IAC-Tobacco expressly
grants upon the IAC-Tobacco the exclusive power and function to administer and implement its
provisions, they nevertheless maintain that RA 9211 did not remove their authority under RA 7394 to
regulate tobacco sales promotions.31 They point out that this much can be deduced from the lack of
provisions in RA 9211 and its implementing rules laying down the procedure for the processing of
applications for tobacco sales promotions permit.32 As such, the DOH, through the BFAD, retains the
authority to rule on PMPMI’s promotional permit applications.
The Court agrees with the CA.
After a meticulous examination of the above-quoted pertinent provisions of RA 7394 and RA 9211, the
Court finds that the latter law impliedly repealed the relevant provisions of the former with respect to
the authority of the DOH to regulate tobacco sales promotions.
At this point, the Court notes that both laws separately treat "promotion" as one of the activities related
to tobacco: RA 7394 defines "sales promotion" under Article 4 (bm), while RA 9211 speaks
of "promotion" or "tobacco promotion" under Section 4 (l).
"Sales promotion" is defined in Article 4 (bm) of RA 7394, to wit:
Article 4. Definition of Terms. – For purposes of this Act, the term:
xxxx
bm) "Sales Promotion" means techniques intended for broad consumer participation which contain
promises of gain such as prizes, in cash or in kind, as reward for the purchase of a product, security,
service or winning in contest, game, tournament and other similar competitions which involve
determination of winner/s and which utilize mass media or other widespread media of information. It
also means techniques purely intended to increase the sales, patronage and/or goodwill of a
product. (Emphases and underscoring supplied)
Identifying its Gear Up Promo and Golden Stick Promo to be activities that fall under sales promotion as
contemplated in the said provision, PMPMI filed its permit applications under Article 116 of RA 7394
before the BFAD.
Meanwhile, Section 4 (l) of RA 9211 defines "promotion" as follows:
Section 4. Definition of Terms. – As used in this Act:
xxxx
l. "Promotion" – refers to an event or activity organized by or on behalf of a tobacco manufacturer,
distributor or retailer with the aim of promoting a brand of tobacco product, which event or activity
would not occur but for the support given to it by or on behalf of the tobacco manufacturer, distributor
or retailer. It may also refer to the display of a tobacco product or manufacturer’s name, trademark,
logo, etc. on non-tobacco products. This includes the paid use of tobacco products bearing the brand
names, trademarks, logos, etc. in movies, television and other forms of entertainment. For the purpose
of this Act, promotion shall be understood as tobacco promotion[.](Emphases and underscoring
supplied)
As adverted to elsewhere, the IAC-Tobacco shall have the exclusive power and function to administer
and implement the provisions of RA 9211, which includes the conduct of regulating promotion.
The Court has judiciously scrutinized the above definitions and finds that there is no substantial
difference between the activities that would fall under the purview of "sales promotion" in RA 7394, as
well as those under "promotion" in RA 9211, as would warrant a delineation in the authority to regulate
its conduct. In fact, the techniques, activities, and methods mentioned in the definition of "sales
promotion" can be subsumed under the more comprehensive and broad scope of "promotion."
In order to fully understand the depth and scope of these marketing activities, the Court finds it
necessary to go beyond the ambit of the definitions provided in our laws.
Outside RA 7394, "sales promotion" refers to activities which make use of "media and non-media
marketing communication for a pre- determined, limited time to increase consumer demand, stimulate
market demand or improve product availability,"33 "to provide added value or incentives to consumers,
wholesalers, retailers, or other organizational customers to stimulate immediate sales" and "product
interest, trial, or purchase."34 Examples of devices used in "sales promotion" are contests, coupons,
freebies, point-of-purchase displays, premiums, raffle prizes, product samples, sweepstakes, and
rebates.35
On the other hand, "promotion" is a term frequently used in marketing which pertains to "raising
customer awareness of a product or brand, generating sales, and creating brand loyalty" 36 which utilize
the following subcategories: personal selling, advertising, sales promotion, direct marketing, and
publicity.37 The three basic objectives of promotion are: (1) to present information to consumers as well
as others; (2) to increase demand; and (3) to differentiate a product.38 "Promotion" can be done
through various methods, e.g., internet advertisements, special events, endorsements, incentives in
the purchase of a product like discounts (i.e., coupons), free items, or contests.39
Consequently, if "sales promotion" is considered as one of the subcategories of "promotion," it is clear,
therefore, that "promotion" necessarily incorporates the activities that fall under "sales promotion."
Considering that the common and fundamental purpose of these marketing strategies is to raise
customer awareness in order to increase consumer demand or sales, drawing a demarcation line
between "promotion" and "sales promotion" as two distinct and separate activities would be
unnecessarily stretching their meanings and, accordingly, sow more confusion. Moreover, the
techniques, methods, and devices through which "sales promotion" are usually accomplished can
likewise be considered as activities relating to "promotion," like raffle contests, which necessarily
require prizes and drawing of winners, discounts, and freebies.
Concomitantly, while the Court acknowledges the attempt of the Department of Justice (DOJ), through
its DOJ Opinion No. 29, series of 2004,40 (DOJ Opinion) to reconcile and harmonize the apparently
conflicting provisions of RA 7394 and RA 9211 in this respect, to the Court’s mind, it is more logical to
conclude that "sales promotion" and "promotion" are actually one and the same. The DOJ, in fact,
referred41 to "product promotion" in RA 9211 as "promotion per se" which, therefore, can be taken to
mean an all-encompassing activity or marketing strategy which may reasonably and logically include
"sales promotion." Besides, the DOJ Opinion is merely persuasive and not necessarily controlling. 42
Furthermore, the declared policy of RA 9211 where "promotion" is defined includes the institution of
"a balanced policy whereby the use, sale and advertisements of tobacco products shall be regulated in
order to promote a healthful environment and protect the citizens from the hazards of tobacco smoke
x x x."43 Hence, if the IAC-Tobacco was created and expressly given the exclusive authority to implement
the provisions of RA 9211 in accordance with the foregoing State policy, it signifies that it shall also take
charge of the regulation of the use, sale, distribution, and advertisements of tobacco products, as well
as all forms of "promotion" which essentially includes "sales promotion." Therefore, with this regulatory
power conferred upon the IAC-Tobacco by RA 9211, the DOH and the BFAD have been effectively and
impliedly divested of any authority to act upon applications for tobacco sales promotional permit,
including PMPMI’s.

Finally, it must be stressed that RA 9211 is a special legislation which exclusively deals with the subject
of tobacco products and related activities. On the other hand, RA 7394 is broader and more general in
scope, and treats of the general welfare and interests of consumers vis-à-vis proper conduct for
business and industry. As such, lex specialis derogat generali. General legislation must give way to
special legislation on the same subject, and generally is so interpreted as to embrace only cases in which
the special provisions are not applicable. In other words, where two statutes are of equal theoretical
application to a particular case, the one specially designed therefore should prevail. 44

In fine, the Court agrees with the CA that it is the IAC-Tobacco and not the DOH which has the primary
jurisdiction to regulate sales promotion activities as explained in the foregoing discussion. As such, the
DOH’s ruling, including its construction of RA 9211 (i.e., that it completely banned tobacco
advertisements, promotions, and sponsorships, as promotion is inherent in both advertising and
sponsorship), are declared null and void, which, as a necessary consequence, precludes the Court from
further delving on the same. As it stands, the present applications filed by PMPMI are thus remanded
to the IAC-Tobacco for its appropriate action. Notably, in the proper exercise of its rule-making
authority, nothing precludes the IAC- Tobacco from designating any of its pilot agencies (which, for
instance, may even be the DOH45 ) to perform its multifarious functions under RA 9211.

WHEREFORE, the petition is DENIED. The Decision dated August 26, 2011 and the Resolution dated
August 3, 2012 of the Court of Appeals in CA-G.R. SP No. 109493 are hereby AFFIRMED with
the MODIFICATION in that the present permit applications filed by respondent Philip Morris Philippines
Manufacturing, Inc. for its tobacco sales promotions are hereby REMANDED to the Inter-Agency
Committee- Tobacco for appropriate action.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice
G.R. No. 115381 December 23, 1994
KILUSANG MAYO UNO LABOR CENTER, petitioner,
vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD,
and the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents.
Potenciano A. Flores for petitioner.
Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent.
Jose F. Miravite for movants.
KAPUNAN, J.:
Public utilities are privately owned and operated businesses whose service are essential to the general
public. They are enterprises which specially cater to the needs of the public and conduce to their
comfort and convenience. As such, public utility services are impressed with public interest and
concern. The same is true with respect to the business of common carrier which holds such a peculiar
relation to the public interest that there is superinduced upon it the right of public regulation when
private properties are affected with public interest, hence, they cease to be juris privati only. When,
therefore, one devotes his property to a use in which the public has an interest, he, in effect grants to
the public an interest in that use, and must submit to the control by the public for the common good,
to the extent of the interest he has thus created.1
An abdication of the licensing and regulatory government agencies of their functions as the instant
petition seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is
inimical to public trust and public interest as well.
The instant petition for certiorari assails the constitutionality and validity of certain memoranda,
circulars and/or orders of the Department of Transportation and Communications (DOTC) and the Land
Transportation Franchising and Regulatory Board LTFRB) 2 which, among others, (a) authorize provincial
bus and jeepney operators to increase or decrease the prescribed transportation fares without
application therefor with the LTFRB and without hearing and approval thereof by said agency in
violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known as the Public
Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by
delegating that function to bus operators, and (b) establish a presumption of public need in favor of
applicants for certificates of public convenience (CPC) and place on the oppositor the burden of proving
that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as
amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and reasonable."
It is, likewise, violative of the Rules of Court which places upon each party the burden to prove his own
affirmative allegations.3 The offending provisions contained in the questioned issuances pointed out by
petitioner, have resulted in the introduction into our highways and thoroughfares thousands of old and
smoke-belching buses, many of which are right-hand driven, and have exposed our consumers to the
burden of spiraling costs of public transportation without hearing and due process.
The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz:
(a) DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the implementation of a fare
range scheme for provincial bus services in the country; (b) DOTC Department Order No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services;
(c) DOTC Memorandum dated October 8, 1992, laying down rules and procedures to implement
Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing implementing
guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in
Case No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395
to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge
passengers rates within a range of 15% above and 15% below the LTFRB official rate for a period of one
(1) year. The text of the memorandum order reads in full:
One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the
Medium-Term Philippine Development Plan (MTPDP) 1987 — 1992) is the liberalization of regulations
in the transport sector. Along this line, the Government intends to move away gradually from regulatory
policies and make progress towards greater reliance on free market forces.
Based on several surveys and observations, bus companies are already charging passenger rates above
and below the official fare declared by LTFRB on many provincial routes. It is in this context that some
form of liberalization on public transport fares is to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all
provincial bus routes in country (except those operating within Metro Manila). Transport Operators
shall be allowed to charge passengers within a range of fifteen percent (15%) above and fifteen percent
(15%) below the LTFRB official rate for a period of one year.
Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the
DOTC Planning Service.
The implementation of the said fare range scheme shall start on 6 August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando
submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received
on 19 July 1990, directing the Board "to immediately publicize a fare range scheme for all provincial bus
routes in the country (except those operating within Metro Manila)" that will allow operators "to charge
passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB
official rate for a period of one year" the undersigned is respectfully adverting the Secretary's attention
to the following for his consideration:
1. Section 16(c) of the Public Service Act prescribes the following for the fixing and determination of
rates — (a) the rates to be approved should be proposed by public service operators; (b) there should
be a publication and notice to concerned or affected parties in the territory affected; (c) a public hearing REGULAR P1.50 P0.37
should be held for the fixing of the rates; hence, implementation of the proposed fare range scheme STUDENT P1.15 P0.28
on August 6 without complying with the requirements of the Public Service Act may not be legally
feasible. VISAYAS/MINDANAO

2. To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares in REGULAR P1.60 P0.375
the wake of the devastation, death and suffering caused by the July 16 earthquake will not be socially STUDENT P1.20 P0.285
warranted and will be politically unsound; most likely public criticism against the DOTC and the LTFRB FIRST CLASS (PER KM.)
will be triggered by the untimely motu propioimplementation of the proposal by the mere expedient of LUZON P0.385
publicizing the fare range scheme without calling a public hearing, which scheme many as early as VISAYAS/
during the Secretary's predecessor know through newspaper reports and columnists' comments to be MINDANAO P0.395
Asian Development Bank and World Bank inspired. PREMIERE CLASS (PER KM.)
LUZON P0.395
3. More than inducing a reduction in bus fares by fifteen percent (15%) the implementation of the VISAYAS/
proposal will instead trigger an upward adjustment in bus fares by fifteen percent (15%) at a time when MINDANAO P0.405
hundreds of thousands of people in Central and Northern Luzon, particularly in Central Pangasinan, La
Union, Baguio City, Nueva Ecija, and the Cagayan Valley are suffering from the devastation and havoc AIRCON (PER KM.) P0.415.4
caused by the recent earthquake. On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete
4. In lieu of the said proposal, the DOTC with its agencies involved in public transportation can consider Nicomedes Prado issued Department Order No.
measures and reforms in the industry that will be socially uplifting, especially for the people in the areas 92-587 defining the policy framework on the regulation of transport services. The full text of the said
devastated by the recent earthquake. order is reproduced below in view of the importance of the provisions contained therein:

In view of the foregoing considerations, the undersigned respectfully suggests that the implementation
of the proposed fare range scheme this year be further studied and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc.
(PBOAP) filed an application for fare rate increase. An across-the-board increase of eight and a half
centavos (P0.085) per kilometer for all types of provincial buses with a minimum-maximum fare range
of fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the said
minimum-maximum fare range applying only to ordinary, first class and premium class buses and a fifty-
centavo (P0.50) minimum per kilometer fare for aircon buses, was sought.
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-
board increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was
due to the drop in the expected price of diesel.
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista
alleging that the proposed rates were exorbitant and unreasonable and that the application contained
no allegation on the rate of return of the proposed increase in rates.
On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in
accordance with the following schedule of fares on a straight computation method, viz:
AUTHORIZED FARES
LUZON
MIN. OF 5 KMS. SUCCEEDING KM.
WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation and
Communications (DOTC) as the primary policy, planning, regulating and implementing agency on
transportation;
WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the
transportation regulatory agencies under or attached to the DOTC have to harmonize their decisions
and adopt a common philosophy and direction;
WHEREAS, the government proposes to build on the successful liberalization measures pursued over
the last five years and bring the transport sector nearer to a balanced longer term regulatory
framework;
NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and
principles in the economic regulation of land, air, and water transportation services are hereby
adopted:
1. Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no
franchise holder shall be permitted to maintain a monopoly on any route. A minimum of two franchise
holders shall be permitted to operate on any route.
The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof
of Filipino citizenship, financial capability, public need, and sufficient insurance cover to protect the
riding public.
In determining public need, the presumption of need for a service shall be deemed in favor of the
applicant. The burden of proving that there is no need for a proposed service shall be with the
oppositor(s).
In the interest of providing efficient public transport services, the use of the "prior operator" and the
"priority of filing" rules shall be discontinued. The route measured capacity test or other similar tests of
demand for vehicle/vessel fleet on any route shall be used only as a guide in weighing the merits of
each franchise application and not as a limit to the services offered.
Where there are limitations in facilities, such as congested road space in urban areas, or at airports and
ports, the use of demand management measures in conformity with market principles may be
considered.
The right of an operator to leave the industry is recognized as a business decision, subject only to the
filing of appropriate notice and following a phase-out period, to inform the public and to minimize
disruption of services.
2. Rate and Fare Setting. Freight rates shall be freed gradually from government controls. Passenger
fares shall also be deregulated, except for the lowest class of passenger service (normally third class
passenger transport) for which the government will fix indicative or reference fares. Operators of
particular services may fix their own fares within a range 15% above and below the indicative or
reference rate.
Where there is lack of effective competition for services, or on specific routes, or for the transport of
particular commodities, maximum mandatory freight rates or passenger fares shall be set temporarily
by the government pending actions to increase the level of competition.
For unserved or single operator routes, the government shall contract such services in the most
advantageous terms to the public and the government, following public bids for the services. The
advisability of bidding out the services or using other kinds of incentives on such routes shall be studied
by the government.
3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall not
engage in special financing and incentive programs, including direct subsidies for fleet acquisition and
expansion. Only when the market situation warrants government intervention shall programs of this
type be considered. Existing programs shall be phased out gradually.
The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime
Industry Authority are hereby directed to submit to the Office of the Secretary, within forty-five (45)
days of this Order, the detailed rules and procedures for the Implementation of the policies herein set
forth. In the formulation of such rules, the concerned agencies shall be guided by the most recent
studies on the subjects, such as the Provincial Road Passenger Transport Study, the Civil Aviation Master
Plan, the Presidential Task Force on the Inter-island Shipping Industry, and the Inter-island Liner
Shipping Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the Department of Transportation and
Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB
suggesting swift action on the adoption of rules and procedures to implement above-quoted
Department Order No. 92-587 that laid down deregulation and other liberalization policies for the
transport sector. Attached to the said memorandum was a revised draft of the required rules and
procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with
comments and suggestions from the World Bank incorporated therein. Likewise, resplendent from the
said memorandum is the statement of the DOTC Secretary that the adoption of the rules and
procedures is a pre-requisite to the approval of the Economic Integration Loan from the World Bank. 5
On February 17, 1993, the LTFRB issued Memorandum Circular
No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-
587. The Circular provides, among others, the following challenged portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.
The issuance of a Certificate of Public Convenience is determined by public need. The presumption of
public need for a service shall be deemed in favor of the applicant, while burden of proving that there is
no need for the proposed service shall be the oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price competition complementary with the quality
of service, subject to prior notice and public hearing. Fares shall not be provisionally authorized without
public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses and
jeepneys shall be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an
indicative or reference rate as the basis for the expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first class and premier services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the
DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare
without first having filed a petition for the purpose and without the benefit of a public hearing,
announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were to
be made effective on March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment
of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit.
The dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES
FOR LACK OF MERIT the petition filed in the above-entitled case. This petition in this case was resolved
with dispatch at the request of petitioner to enable it to immediately avail of the legal remedies or
options it is entitled under existing laws.
SO ORDERED.6
Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining
order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing
respondents from implementing the bus fare rate increase as well as the questioned orders and
memorandum circulars. This meant that provincial bus fares were rolled back to the levels duly
authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced on the issuance
of franchises for the operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to
provincial bus operators to set a fare range of plus or minus fifteen (15%) percent, later increased to
plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized fare
without having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second, the
establishment of a presumption of public need in favor of an applicant for a proposed transport service
without having to prove public necessity, is illegal for being violative of the Public Service Act and the
Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the
petitioner, questions the wisdom and the manner by which the instant petition was filed. It asserts that
the petitioner has no legal standing to sue or has no real interest in the case at bench and in obtaining
the reliefs prayed for.
In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus
B. Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the standing to maintain the
instant suit. They further claim that it is within DOTC and LTFRB's authority to set a fare range scheme
and establish a presumption of public need in applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to
sue.
The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of
the Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.
In Lamb v. Phipps,7 we ruled that judicial power is the power to hear and decide causes pending
between parties who have the right to sue in the courts of law and equity. Corollary to this provision is
the principle of locus standi of a party litigant. One who is directly affected by and whose interest is
immediate and substantial in the controversy has the standing to sue. The rule therefore requires that
a party must show a personal stake in the outcome of the case or an injury to himself that can be
redressed by a favorable decision so as to warrant an invocation of the court's jurisdiction and to justify
the exercise of the court's remedial powers in his behalf.8
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and
irreparable injury and damage from the implementation of the questioned memoranda, circulars
and/or orders, has shown that it has a clear legal right that was violated and continues to be violated
with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who avail
of the use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost of
arbitrary increase in passenger fares. They are part of the millions of commuters who comprise the
riding public. Certainly, their rights must be protected, not neglected nor ignored.
Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush
aside this barren procedural infirmity and recognize the legal standing of the petitioner in view of the
transcendental importance of the issues raised. And this act of liberality is not without judicial
precedent. As early as the Emergency Powers Cases, this Court had exercised its discretion and waived
the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr.,
et al.,9 we ruled in the same lines and enumerated some of the cases where the same policy was
adopted, viz:
. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its
discretion, set aside in view of the importance of the issues raised. In the landmark Emergency Powers
Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v.
Commissioner of Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368
(1949)], this Court brushed aside this technicality because "the transcendental importance to the public
of these cases demands that they be settled promptly and definitely, brushing aside, if we must,
technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits are
concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should be
entertained," (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion to
entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress,
and even association of planters, and
non-profit civic organizations were allowed to initiate and prosecute actions before this court to
question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various
government agencies or instrumentalities. Among such cases were those assailing the constitutionality
of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick leave
to Senators and Representatives and to elective officials of both Houses of Congress (Philippine
Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by
President Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet, their
undersecretaries, and assistant secretaries to hold other government offices or positions (Civil Liberties
Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in
the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the
holding of desynchronized elections (Osmeña v. Commission on Elections, 199 SCRA 750 [1991]); (e)
P.D. No. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on the ground that
it is contrary to morals, public policy, and order (Basco v. Philippine Amusement and Gaming Corp., 197
SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police. (Carpio v. Executive
Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy regarding locus standi include those attacking the
validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed
by R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b)
P.D. Nos. 991 and 1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031
insofar as it directed the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite
on 16 October 1976 (Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the
3,179 square meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797
[1990]); (d) the approval without hearing by the Board of Investments of the amended application of
the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to Batangas and the
validity of such transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied
petroleum gas (Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments,
191 SCRA 288 [1990]); (e) the decisions, orders, rulings, and resolutions of the Executive Secretary,
Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal
Incentives Review Board exempting the National Power Corporation from indirect tax and duties
(Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6
December 1990 on the ground that the hearings conducted on the second provisional increase in oil
prices did not allow the petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board,
199 SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of P0.95 per liter of
imported oil products (Garcia v. Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of the
Commission on Elections concerning the apportionment, by district, of the number of elective members
of Sanggunians (De Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum
orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and Conscience Union,
Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite its
unequivocal ruling that the petitioners therein had no personality to file the petition, resolved
nevertheless to pass upon the issues raised because of the far-reaching implications of the petition. We
did no less in De Guia v. COMELEC (Supra) where, although we declared that De Guia "does not appear
to have locus standi, a standing in law, a personal or substantial interest," we brushed aside the
procedural infirmity "considering the importance of the issue involved, concerning as it does the
political exercise of qualified voters affected by the apportionment, and petitioner alleging abuse of
discretion and violation of the Constitution by respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and hearing. — The Commission shall have
power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject
to the limitations and exceptions mentioned and saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as
well as commutation, mileage kilometrage, and other special rates which shall be imposed, observed,
and followed thereafter by any public service: Provided, That the Commission may, in its discretion,
approve rates proposed by public services provisionally and without necessity of any hearing; but it
shall call a hearing thereon within thirty days thereafter, upon publication and notice to the concerns
operating in the territory affected: Provided, further, That in case the public service equipment of an
operator is used principally or secondarily for the promotion of a private business, the net profits of
said private business shall be considered in relation with the public service of such operator for the
purpose of fixing the rates. (Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the
power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is
likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section 5(c) of the
said executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and
adjust, reasonable fares, rates and other related charges, relative to the operation of public land
transportation services provided by motorized vehicles."
Such delegation of legislative power to an administrative agency is permitted in order to adapt to the
increasing complexity of modern life. As subjects for governmental regulation multiply, so does the
difficulty of administering the laws. Hence, specialization even in legislation has become necessary.
Given the task of determining sensitive and delicate matters as
route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with
the power of subordinate legislation. With this authority, an administrative body and in this case, the
LTFRB, may implement broad policies laid down in a statute by "filling in" the details which the
Legislature may neither have time or competence to provide. However, nowhere under the aforesaid
provisions of law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that power
to a common carrier, a transport operator, or other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range
over and above the authorized existing fare, is illegal and invalid as it is tantamount to an undue
delegation of legislative authority. Potestas delegata non delegari potest. What has been delegated
cannot be delegated. This doctrine is based on the ethical principle that such a delegated power
constitutes not only a right but a duty to be performed by the delegate through the instrumentality of
his own judgment and not through the intervening mind of another. 10 A further delegation of such
power would indeed constitute a negation of the duty in violation of the trust reposed in the delegate
mandated to discharge it directly.11 The policy of allowing the provincial bus operators to change and
increase their fares at will would result not only to a chaotic situation but to an anarchic state of affairs.
This would leave the riding public at the mercy of transport operators who may increase fares every
hour, every day, every month or every year, whenever it pleases them or whenever they deem it
"necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co.,12 where respondent Philippine
Railway Co. was granted by the Public Service Commission the authority to change its freight rates at
will, this Court categorically declared that:
centavo increase per kilometer in 1994, then, the base or reference for computation would have to be
P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose
an additional 20% over and above the authorized fare, then the fare to be collected shall amount to
P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will
be continuously subjected, not only to a double fare adjustment but to a compounding fare as well. On
their part, transport operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied
for, they can still collect an additional amount by virtue of the authorized fare range. Mathematically,
the situation translates into the following:

In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine Year** LTFRB authorized Fare Range Fare to be
Railway Co. the power of altering its freight rates whenever it should find it necessary to do so in order rate*** collected per
to meet the competition of road trucks and autobuses, or to change its freight rates at will, or to regard kilometer
its present rates as maximum rates, and to fix lower rates whenever in the opinion of the Philippine
Railway Co. it would be to its advantage to do so. 1990 P0.37 15% (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
The mere recital of the language of the application of the Philippine Railway Co. is enough to show that 1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
it is untenable. The Legislature has delegated to the Public Service Commission the power of fixing the 2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
rates of public services, but it has not authorized the Public Service Commission to delegate that power
to a common carrier or other public service. The rates of public services like the Philippine Railway Co. Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government
have been approved or fixed by the Public Service Commission, and any change in such rates must be function that requires dexterity of judgment and sound discretion with the settled goal of arriving at a
authorized or approved by the Public Service Commission after they have been shown to be just and just and reasonable rate acceptable to both the public utility and the public. Several factors, in fact,
reasonable. The public service may, of course, propose new rates, as the Philippine Railway Co. did in have to be taken into consideration before a balance could be achieved. A rate should not be
case No. 31827, but it cannot lawfully make said new rates effective without the approval of the Public confiscatory as would place an operator in a situation where he will continue to operate at a loss. Hence,
Service Commission, and the Public Service Commission itself cannot authorize a public service to the rate should enable public utilities to generate revenues sufficient to cover operational costs and
enforce new rates without the prior approval of said rates by the commission. The commission must provide reasonable return on the investments. On the other hand, a rate which is too high becomes
approve new rates when they are submitted to it, if the evidence shows them to be just and reasonable, discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and fair and must
otherwise it must disapprove them. Clearly, the commission cannot determine in advance whether or be affordable to the end user who will utilize the services.
not the new rates of the Philippine Railway Co. will be just and reasonable, because it does not know Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions
what those rates will be. of commuters, government must not relinquish this important function in favor of those who would
In the present case the Philippine Railway Co. in effect asked for permission to change its freight rates benefit and profit from the industry. Neither should the requisite notice and hearing be done away
at will. It may change them every day or every hour, whenever it deems it necessary to do so in order with. The people, represented by reputable oppositors, deserve to be given full opportunity to be heard
to meet competition or whenever in its opinion it would be to its advantage. Such a procedure would in their opposition to any fare increase.
create a most unsatisfactory state of affairs and largely defeat the purposes of the public service The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory
law.13(Emphasis ours). arrangement for all parties involved. To do away with such a procedure and allow just one party, an
One veritable consequence of the deregulation of transport fares is a compounded fare. If transport interested party at that, to determine what the rate should be, will undermine the right of the other
operators will be authorized to impose and collect an additional amount equivalent to 20% over and parties to due process. The purpose of a hearing is precisely to determine what a just and reasonable
above the authorized fare over a period of time, this will unduly prejudice a commuter who will be rate is.15 Discarding such procedural and constitutional right is certainly inimical to our fundamental
made to pay a fare that has been computed in a manner similar to those of compounded bank interest law and to public interest.
rates. On the presumption of public need.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of
a thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were land transportation services for public use as required by law. Pursuant to Section 16(a) of the Public
allowed to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 Service Act, as amended, the following requirements must be met before a CPC may be granted, to wit:
centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is (i) the applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or
equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05)
joint-stock company constituted and organized under the laws of the Philippines, at least 60 per
centum of its stock or paid-up capital must belong entirely to citizens of the Philippines; (ii) the applicant
must be financially capable of undertaking the proposed service and meeting the responsibilities
incident to its operation; and (iii) the applicant must prove that the operation of the public service
proposed and the authorization to do business will promote the public interest in a proper and suitable
manner. It is understood that there must be proper notice and hearing before the PSC can exercise its
power to issue a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular
No. 92-009, Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of
a CPC. The guidelines states:
The issuance of a Certificate of Public Convenience is determined by public need. The presumption of
public need for a service shall be deemed in favor of the applicant, while the burden of proving that
there is no need for the proposed service shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public
Service Act which requires that before a CPC will be issued, the applicant must prove by proper notice
and hearing that the operation of the public service proposed will promote public interest in a proper
and suitable manner. On the contrary, the policy guideline states that the presumption of public need
for a public service shall be deemed in favor of the applicant. In case of conflict between a statute and
an administrative order, the former must prevail.
By its terms, public convenience or necessity generally means something fitting or suited to the public
need.16 As one of the basic requirements for the grant of a CPC, public convenience and necessity exists
when the proposed facility or service meets a reasonable want of the public and supply a need which
the existing facilities do not adequately supply. The existence or
non-existence of public convenience and necessity is therefore a question of fact that must be
established by evidence, real and/or testimonial; empirical data; statistics and such other means
necessary, in a public hearing conducted for that purpose. The object and purpose of such procedure,
among other things, is to look out for, and protect, the interests of both the public and the existing
transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress
hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience of
the public.17 Basic convenience is the primary consideration for which a CPC is issued, and that fact
alone must be consistently borne in mind. Also, existing operators in subject routes must be given an
opportunity to offer proof and oppose the application. Therefore, an applicant must, at all times, be
required to prove his capacity and capability to furnish the service which he has undertaken to
render. 18 And all this will be possible only if a public hearing were conducted for that purpose.
Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and
institutionalized judicial, quasi-judicial and administrative procedures. It allows the party who initiates
the proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending
provisions of the LTFRB memorandum circular in question would in effect amend the Rules of Court by
adding another disputable presumption in the enumeration of 37 presumptions under Rule 131, Section
5 of the Rules of Court. Such usurpation of this Court's authority cannot be countenanced as only this
Court is mandated by law to promulgate rules concerning pleading, practice and procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the
present circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an
abdication by the government of its inherent right to exercise police power, that is, the right of
government to regulate public utilities for protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate
the transport sector, we find that they committed grave abuse of discretion in issuing DOTC Department
Order
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB
Memorandum Circular No. 92-009 promulgating the implementing guidelines on DOTC Department
Order No. 92-587, the said administrative issuances being amendatory and violative of the Public
Service Act and the Rules of Court. Consequently, we rule that the twenty (20%) per centum fare
increase imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition and a
public hearing is null and void and of no force and effect. No grave abuse of discretion however was
committed in the issuance of DOTC Memorandum Order No. 90-395 and DOTC Memorandum dated
October 8, 1992, the same being merely internal communications between administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged
administrative issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB
Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED
contrary to law and invalid insofar as they affect provisions therein (a) delegating to provincial bus and
jeepney operators the authority to increase or decrease the duly prescribed transportation fares; and
(b) creating a presumption of public need for a service in favor of the applicant for a certificate of public
convenience and placing the burden of proving that there is no need for the proposed service to the
oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it
enjoined the bus fare rate increase granted under the provisions of the aforementioned administrative
circulars, memoranda and/or orders declared invalid.
No pronouncement as to costs.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur.