G.R. No.

175356 December 3, 2013

MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZ-SUCAT, INC., Petitioners,

vs.
SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT and THE
SECRETARY OF THE DEPARTMENT OF FINANCE, Respondents.

DECISION

DEL CASTILLO, J.:

When a party challeges the constitutionality of a law, the burden of proof rests upon him.

Before us is a Petition for Prohibition2 under Rule 65 of the Rules of Court filed by petitioners
Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic corporations engaged in
the business of providing funeral and burial services, against public respondents Secretaries of
the Department of Social Welfare and Development (DSWD) and the Department of Finance
(DOF).

Petitioners assail the constitutionality of Section 4 of Republic Act (RA) No. 7432,3 as amended
by RA 9257,4 and the implementing rules and regulations issued by the DSWD and DOF insofar
as these allow business establishments to claim the 20% discount given to senior citizens as a
tax deduction.

Factual Antecedents

On April 23, 1992, RA 7432 was passed into law, granting senior citizens the following privileges:

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the
following:

a) the grant of twenty percent (20%) discount from all establishments relative to utilization
of transportation services, hotels and similar lodging establishment[s], restaurants and
recreation centers and purchase of medicine anywhere in the country: Provided, That
private establishments may claim the cost as tax credit;

b) a minimum of twenty percent (20%) discount on admission fees charged by theaters,

cinema houses and concert halls, circuses, carnivals and other similar places of culture,
leisure, and amusement;

c) exemption from the payment of individual income taxes: Provided, That their annual
taxable income does not exceed the property level as determined by the National
Economic and Development Authority (NEDA) for that year;

d) exemption from training fees for socioeconomic programs undertaken by the OSCA as
part of its work;

e) free medical and dental services in government establishment[s] anywhere in the

country, subject to guidelines to be issued by the Department of Health, the Government
Service Insurance System and the Social Security System;

f) to the extent practicable and feasible, the continuance of the same benefits and
privileges given by the Government Service Insurance System (GSIS), Social Security
System (SSS) and PAG-IBIG, as the case may be, as are enjoyed by those in actual
service.
On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA 7432.
Sections 2(i) and 4 of RR No. 02-94 provide:

Sec. 2. DEFINITIONS. – For purposes of these regulations: i. Tax Credit – refers to the amount
representing the 20% discount granted to a qualified senior citizen by all establishments relative
to their utilization of transportation services, hotels and similar lodging establishments,
restaurants, drugstores, recreation centers, theaters, cinema houses, concert halls, circuses,
carnivals and other similar places of culture, leisure and amusement, which discount shall be
deducted by the said establishments from their gross income for income tax purposes and from
their gross sales for value-added tax or other percentage tax purposes. x x x x Sec. 4.
RECORDING/BOOKKEEPING REQUIREMENTS FOR PRIVATE ESTABLISHMENTS. – Private
establishments, i.e., transport services, hotels and similar lodging establishments, restaurants,
recreation centers, drugstores, theaters, cinema houses, concert halls, circuses, carnivals and
other similar places of culture[,] leisure and amusement, giving 20% discounts to qualified senior
citizens are required to keep separate and accurate record[s] of sales made to senior citizens,
which shall include the name, identification number, gross sales/receipts, discounts, dates of
transactions and invoice number for every transaction. The amount of 20% discount shall be
deducted from the gross income for income tax purposes and from gross sales of the business
enterprise concerned for purposes of the VAT and other percentage taxes.

In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,5 the Court declared
Sections 2(i) and 4 of RR No. 02-94 as erroneous because these contravene RA 7432,6 thus:

RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts
they grant. In turn, the Implementing Rules and Regulations, issued pursuant thereto, provide the
procedures for its availment. To deny such credit, despite the plain mandate of the law and the
regulations carrying out that mandate, is indefensible. First, the definition given by petitioner is
erroneous. It refers to tax credit as the amount representing the 20 percent discount that "shall
be deducted by the said establishments from their gross income for income tax purposes and
from their gross sales for value-added tax or other percentage tax purposes." In ordinary
business language, the tax credit represents the amount of such discount. However, the manner
by which the discount shall be credited against taxes has not been clarified by the revenue
regulations. By ordinary acceptation, a discount is an "abatement or reduction made from the
gross amount or value of anything." To be more precise, it is in business parlance "a deduction
or lowering of an amount of money;" or "a reduction from the full amount or value of something,
especially a price." In business there are many kinds of discount, the most common of which is
that affecting the income statement or financial report upon which the income tax is based.

xxxx

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent
discount deductible from gross income for income tax purposes, or from gross sales for VAT or
other percentage tax purposes. In effect, the tax credit benefit under RA 7432 is related to a
sales discount. This contrived definition is improper, considering that the latter has to be
deducted from gross sales in order to compute the gross income in the income statement and
cannot be deducted again, even for purposes of computing the income tax. When the law says
that the cost of the discount may be claimed as a tax credit, it means that the amount — when
claimed — shall be treated as a reduction from any tax liability, plain and simple. The option to
avail of the tax credit benefit depends upon the existence of a tax liability, but to limit the benefit
to a sales discount — which is not even identical to the discount privilege that is granted by law
— does not define it at all and serves no useful purpose. The definition must, therefore, be
stricken down.

Laws Not Amended by Regulations

Second, the law cannot be amended by a mere regulation. In fact, a regulation that "operates to
create a rule out of harmony with the statute is a mere nullity;" it cannot prevail. It is a cardinal
rule that courts "will and should respect the contemporaneous construction placed upon a statute
by the executive officers whose duty it is to enforce it x x x." In the scheme of judicial tax
administration, the need for certainty and predictability in the implementation of tax laws is
crucial. Our tax authorities fill in the details that "Congress may not have the opportunity or
competence to provide." The regulations these authorities issue are relied upon by taxpayers,
who are certain that these will be followed by the courts. Courts, however, will not uphold these
authorities’ interpretations when clearly absurd, erroneous or improper. In the present case, the
tax authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a meaning utterly
in contrast to what RA 7432 provides. Their interpretation has muddled x x x the intent of
Congress in granting a mere discount privilege, not a sales discount. The administrative agency
issuing these regulations may not enlarge, alter or restrict the provisions of the law it administers;
it cannot engraft additional requirements not contemplated by the legislature.

In case of conflict, the law must prevail. A "regulation adopted pursuant to law is law."
Conversely, a regulation or any portion thereof not adopted pursuant to law is no law and has
neither the force nor the effect of law.7

On February 26, 2004, RA 92578 amended certain provisions of RA 7432, to wit:

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the
following:

(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of
services in hotels and similar lodging establishments, restaurants and recreation centers, and
purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens,
including funeral and burial services for the death of senior citizens;

xxxx

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction
based on the net cost of the goods sold or services rendered: Provided, That the cost of the
discount shall be allowed as deduction from gross income for the same taxable year that the
discount is granted. Provided, further, That the total amount of the claimed tax deduction net of
value added tax if applicable, shall be included in their gross sales receipts for tax purposes and
shall be subject to proper documentation and to the provisions of the National Internal Revenue
Code, as amended.

To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 4-2006, the
pertinent provision of which provides:

SEC. 8. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS DEDUCTION FROM

GROSS INCOME. – Establishments enumerated in subparagraph (6) hereunder granting sales
discounts to senior citizens on the sale of goods and/or services specified thereunder are entitled
to deduct the said discount from gross income subject to the following conditions:

(1) Only that portion of the gross sales EXCLUSIVELY USED, CONSUMED OR
ENJOYED BY THE SENIOR CITIZEN shall be eligible for the deductible sales discount.

(2) The gross selling price and the sales discount MUST BE SEPARATELY INDICATED
IN THE OFFICIAL RECEIPT OR SALES INVOICE issued by the establishment for the
sale of goods or services to the senior citizen.

(3) Only the actual amount of the discount granted or a sales discount not exceeding
20% of the gross selling price can be deducted from the gross income, net of value
 added tax, if applicable, for income tax purposes, and from gross sales or gross receipts
of the business enterprise concerned, for VAT or other percentage tax purposes.

(4) The discount can only be allowed as deduction from gross income for the same
taxable year that the discount is granted.

(5) The business establishment giving sales discounts to qualified senior citizens is
required to keep separate and accurate record[s] of sales, which shall include the name
of the senior citizen, TIN, OSCA ID, gross sales/receipts, sales discount granted, [date]
of [transaction] and invoice number for every sale transaction to senior citizen.

(6) Only the following business establishments which granted sales discount to senior
citizens on their sale of goods and/or services may claim the said discount granted as
deduction from gross income, namely:

xxxx

(i) Funeral parlors and similar establishments – The beneficiary or any person who shall shoulder
the funeral and burial expenses of the deceased senior citizen shall claim the discount, such as
casket, embalmment, cremation cost and other related services for the senior citizen upon
payment and presentation of [his] death certificate.

The DSWD likewise issued its own Rules and Regulations Implementing RA 9257, to wit:

RULE VI DISCOUNTS AS TAX DEDUCTION OF ESTABLISHMENTS

Article 8. Tax Deduction of Establishments. – The establishment may claim the discounts granted
under Rule V, Section 4 – Discounts for Establishments, Section 9, Medical and Dental Services
in Private Facilities and Sections 10 and 11 – Air, Sea and Land Transportation as tax deduction
based on the net cost of the goods sold or services rendered.

Provided, That the cost of the discount shall be allowed as deduction from gross income for the
same taxable year that the discount is granted; Provided, further, That the total amount of the
claimed tax deduction net of value added tax if applicable, shall be included in their gross sales
receipts for tax purposes and shall be subject to proper documentation and to the provisions of
the National Internal Revenue Code, as amended; Provided, finally, that the implementation of
the tax deduction shall be subject to the Revenue Regulations to be issued by the Bureau of
Internal Revenue (BIR) and approved by the Department of Finance (DOF).

Feeling aggrieved by the tax deduction scheme, petitioners filed the present recourse, praying
that Section 4 of RA 7432, as amended by RA 9257, and the implementing rules and regulations
issued by the DSWD and the DOF be declared unconstitutional insofar as these allow business
establishments to claim the 20% discount given to senior citizens as a tax deduction; that the
DSWD and the DOF be prohibited from enforcing the same; and that the tax credit treatment of
the 20% discount under the former Section 4 (a) of RA 7432 be reinstated.

Issues

Petitioners raise the following issues:

A.

WHETHER THE PETITION PRESENTS AN ACTUAL CASE OR CONTROVERSY.

B.
WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND X X X ITS IMPLEMENTING RULES
AND REGULATIONS, INSOFAR AS THEY PROVIDE THAT THE TWENTY PERCENT (20%)
DISCOUNT TO SENIOR CITIZENS MAY BE CLAIMED AS A TAX DEDUCTION BY THE
PRIVATE ESTABLISHMENTS, ARE INVALID AND UNCONSTITUTIONAL.9

Petitioners’ Arguments

Petitioners emphasize that they are not questioning the 20% discount granted to senior citizens
but are only assailing the constitutionality of the tax deduction scheme prescribed under RA 9257
and the implementing rules and regulations issued by the DSWD and the DOF.10

Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the
Constitution, which provides that: "[p]rivate property shall not be taken for public use without just
compensation."11

In support of their position, petitioners cite Central Luzon Drug Corporation,12 where it was ruled
that the 20% discount privilege constitutes taking of private property for public use which requires
the payment of just compensation,13 and Carlos Superdrug Corporation v. Department of Social
Welfare and Development,14 where it was acknowledged that the tax deduction scheme does not
meet the definition of just compensation.15

Petitioners likewise seek a reversal of the ruling in Carlos Superdrug Corporation16 that the tax
deduction scheme adopted by the government is justified by police power.17

They assert that "[a]lthough both police power and the power of eminent domain have the
general welfare for their object, there are still traditional distinctions between the two"18 and that
"eminent domain cannot be made less supreme than police power."19

Petitioners further claim that the legislature, in amending RA 7432, relied on an erroneous
contemporaneous construction that prior payment of taxes is required for tax credit.20

Petitioners also contend that the tax deduction scheme violates Article XV, Section 421 and Article
XIII, Section 1122 of the Constitution because it shifts the State’s constitutional mandate or duty of
improving the welfare of the elderly to the private sector.23

Under the tax deduction scheme, the private sector shoulders 65% of the discount because only
35%24 of it is actually returned by the government.25

Consequently, the implementation of the tax deduction scheme prescribed under Section 4 of RA
9257 affects the businesses of petitioners.26

Thus, there exists an actual case or controversy of transcendental importance which deserves
judicious disposition on the merits by the highest court of the land.27

Respondents’ Arguments

Respondents, on the other hand, question the filing of the instant Petition directly with the
Supreme Court as this disregards the hierarchy of courts.28

They likewise assert that there is no justiciable controversy as petitioners failed to prove that the
tax deduction treatment is not a "fair and full equivalent of the loss sustained" by them.29

As to the constitutionality of RA 9257 and its implementing rules and regulations, respondents
contend that petitioners failed to overturn its presumption of constitutionality.30
More important, respondents maintain that the tax deduction scheme is a legitimate exercise of
the State’s police power.31

Our Ruling

The Petition lacks merit.

There exists an actual case or controversy.

We shall first resolve the procedural issue. When the constitutionality of a law is put in issue,
judicial review may be availed of only if the following requisites concur: "(1) the existence of an
actual and appropriate case; (2) the existence of personal and substantial interest on the part of
the party raising the [question of constitutionality]; (3) recourse to judicial review is made at the
earliest opportunity; and (4) the [question of constitutionality] is the lis mota of the case."32

In this case, petitioners are challenging the constitutionality of the tax deduction scheme provided
in RA 9257 and the implementing rules and regulations issued by the DSWD and the DOF.
Respondents, however, oppose the Petition on the ground that there is no actual case or
controversy. We do not agree with respondents. An actual case or controversy exists when there
is "a conflict of legal rights" or "an assertion of opposite legal claims susceptible of judicial
resolution."33

The Petition must therefore show that "the governmental act being challenged has a direct
adverse effect on the individual challenging it."34

In this case, the tax deduction scheme challenged by petitioners has a direct adverse effect on
them. Thus, it cannot be denied that there exists an actual case or controversy.

The validity of the 20% senior citizen discount and tax deduction scheme under RA 9257,
as an exercise of police power of the State, has already been settled in Carlos Superdrug
Corporation.

Petitioners posit that the resolution of this case lies in the determination of whether the legally
mandated 20% senior citizen discount is an exercise of police power or eminent domain. If it is
police power, no just compensation is warranted. But if it is eminent domain, the tax deduction
scheme is unconstitutional because it is not a peso for peso reimbursement of the 20% discount
given to senior citizens. Thus, it constitutes taking of private property without payment of just
compensation. At the outset, we note that this question has been settled in Carlos Superdrug
Corporation.35

In that case, we ruled:

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to grant the
discount will result in a loss of profit and capital because 1) drugstores impose a mark-up of only
5% to 10% on branded medicines; and 2) the law failed to provide a scheme whereby drugstores
will be justly compensated for the discount. Examining petitioners’ arguments, it is apparent that
what petitioners are ultimately questioning is the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty percent (20%) discount that they extend to senior
citizens. Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully
reimburse petitioners for the discount privilege accorded to senior citizens. This is because the
discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross
income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed by
law to reduce the income prior to the application of the tax rate to compute the amount of tax
which is due. Being a tax deduction, the discount does not reduce taxes owed on a peso for peso
basis but merely offers a fractional reduction in taxes owed. Theoretically, the treatment of the
discount as a deduction reduces the net income of the private establishments concerned. The
discounts given would have entered the coffers and formed part of the gross sales of the private
establishments, were it not for R.A. No. 9257. The permanent reduction in their total revenues is
a forced subsidy corresponding to the taking of private property for public use or benefit. This
constitutes compensable taking for which petitioners would ordinarily become entitled to a just
compensation. Just compensation is defined as the full and fair equivalent of the property taken
from its owner by the expropriator. The measure is not the taker’s gain but the owner’s loss. The
word just is used to intensify the meaning of the word compensation, and to convey the idea that
the equivalent to be rendered for the property to be taken shall be real, substantial, full and
ample. A tax deduction does not offer full reimbursement of the senior citizen discount. As such,
it would not meet the definition of just compensation. Having said that, this raises the question of
whether the State, in promoting the health and welfare of a special group of citizens, can impose
upon private establishments the burden of partly subsidizing a government program. The Court
believes so. The Senior Citizens Act was enacted primarily to maximize the contribution of senior
citizens to nation-building, and to grant benefits and privileges to them for their improvement and
well-being as the State considers them an integral part of our society. The priority given to senior
citizens finds its basis in the Constitution as set forth in the law itself. Thus, the Act provides:
1âwphi1

SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:

SECTION 1. Declaration of Policies and Objectives. — Pursuant to Article XV, Section 4 of the
Constitution, it is the duty of the family to take care of its elderly members while the State may
design programs of social security for them. In addition to this, Section 10 in the Declaration of
Principles and State Policies provides: "The State shall provide social justice in all phases of
national development." Further, Article XIII, Section 11, provides: "The State shall adopt an
integrated and comprehensive approach to health development which shall endeavor to make
essential goods, health and other social services available to all the people at affordable cost.
There shall be priority for the needs of the underprivileged sick, elderly, disabled, women and
children." Consonant with these constitutional principles the following are the declared policies of
this Act:

xxx xxx xxx

(f) To recognize the important role of the private sector in the improvement of the welfare of
senior citizens and to actively seek their partnership.

To implement the above policy, the law grants a twenty percent discount to senior citizens for
medical and dental services, and diagnostic and laboratory fees; admission fees charged by
theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and
amusement; fares for domestic land, air and sea travel; utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers; and purchases of medicines
for the exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law
provides that business establishments extending the twenty percent discount to senior citizens
may claim the discount as a tax deduction. The law is a legitimate exercise of police power
which, similar to the power of eminent domain, has general welfare for its object. Police power is
not capable of an exact definition, but has been purposely veiled in general terms to underscore
its comprehensiveness to meet all exigencies and provide enough room for an efficient and
flexible response to conditions and circumstances, thus assuring the greatest benefits.
Accordingly, it has been described as "the most essential, insistent and the least limitable of
powers, extending as it does to all the great public needs." It is "[t]he power vested in the
legislature by the constitution to make, ordain, and establish all manner of wholesome and
reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the
constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the
subjects of the same." For this reason, when the conditions so demand as determined by the
legislature, property rights must bow to the primacy of police power because property rights,
though sheltered by due process, must yield to general welfare. Police power as an attribute to
promote the common good would be diluted considerably if on the mere plea of petitioners that
they will suffer loss of earnings and capital, the questioned provision is invalidated. Moreover, in
the absence of evidence demonstrating the alleged confiscatory effect of the provision in
question, there is no basis for its nullification in view of the presumption of validity which every
law has in its favor. Given these, it is incorrect for petitioners to insist that the grant of the senior
citizen discount is unduly oppressive to their business, because petitioners have not taken time
to calculate correctly and come up with a financial report, so that they have not been able to
show properly whether or not the tax deduction scheme really works greatly to their
disadvantage. In treating the discount as a tax deduction, petitioners insist that they will incur
losses because, referring to the DOF Opinion, for every ₱1.00 senior citizen discount that
petitioners would give, P0.68 will be shouldered by them as only P0.32 will be refunded by the
government by way of a tax deduction. To illustrate this point, petitioner Carlos Super Drug cited
the anti-hypertensive maintenance drug Norvasc as an example. According to the latter, it
acquires Norvasc from the distributors at ₱37.57 per tablet, and retails it at ₱39.60 (or at a
margin of 5%). If it grants a 20% discount to senior citizens or an amount equivalent to ₱7.92,
then it would have to sell Norvasc at ₱31.68 which translates to a loss from capital of ₱5.89 per
tablet. Even if the government will allow a tax deduction, only ₱2.53 per tablet will be refunded
and not the full amount of the discount which is ₱7.92. In short, only 32% of the 20% discount will
be reimbursed to the drugstores. Petitioners’ computation is flawed. For purposes of
reimbursement, the law states that the cost of the discount shall be deducted from gross income,
the amount of income derived from all sources before deducting allowable expenses, which will
result in net income. Here, petitioners tried to show a loss on a per transaction basis, which
should not be the case. An income statement, showing an accounting of petitioners' sales,
expenses, and net profit (or loss) for a given period could have accurately reflected the effect of
the discount on their income. Absent any financial statement, petitioners cannot substantiate
their claim that they will be operating at a loss should they give the discount. In addition, the
computation was erroneously based on the assumption that their customers consisted wholly of
senior citizens. Lastly, the 32% tax rate is to be imposed on income, not on the amount of the
discount.

Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices of
their medicines given the cutthroat nature of the players in the industry. It is a business decision
on the part of petitioners to peg the mark-up at 5%. Selling the medicines below acquisition cost,
as alleged by petitioners, is merely a result of this decision. Inasmuch as pricing is a property
right, petitioners cannot reproach the law for being oppressive, simply because they cannot
afford to raise their prices for fear of losing their customers to competition. The Court is not
oblivious of the retail side of the pharmaceutical industry and the competitive pricing component
of the business. While the Constitution protects property rights, petitioners must accept the
realities of business and the State, in the exercise of police power, can intervene in the
operations of a business which may result in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the Constitution
provides the precept for the protection of property, various laws and jurisprudence, particularly on
agrarian reform and the regulation of contracts and public utilities, continuously serve as x x x
reminder[s] that the right to property can be relinquished upon the command of the State for the
promotion of public good. Undeniably, the success of the senior citizens program rests largely on
the support imparted by petitioners and the other private establishments concerned. This being
the case, the means employed in invoking the active participation of the private sector, in order to
achieve the purpose or objective of the law, is reasonably and directly related. Without sufficient
proof that Section 4 (a) of R.A. No. 9257 is arbitrary, and that the continued implementation of
the same would be unconscionably detrimental to petitioners, the Court will refrain from quashing
a legislative act.36 (Bold in the original; underline supplied)

We, thus, found that the 20% discount as well as the tax deduction scheme is a valid exercise of
the police power of the State.

No compelling reason has been proffered to overturn, modify or abandon the ruling in
Carlos Superdrug Corporation.
Petitioners argue that we have previously ruled in Central Luzon Drug Corporation37 that the 20%
discount is an exercise of the power of eminent domain, thus, requiring the payment of just
compensation. They urge us to re-examine our ruling in Carlos Superdrug Corporation38 which
allegedly reversed the ruling in Central Luzon Drug Corporation.39

They also point out that Carlos Superdrug Corporation40 recognized that the tax deduction
scheme under the assailed law does not provide for sufficient just compensation. We agree with
petitioners’ observation that there are statements in Central Luzon Drug Corporation41 describing
the 20% discount as an exercise of the power of eminent domain, viz.:

[T]he privilege enjoyed by senior citizens does not come directly from the State, but rather from
the private establishments concerned. Accordingly, the tax credit benefit granted to these
establishments can be deemed as their just compensation for private property taken by the State
for public use. The concept of public use is no longer confined to the traditional notion of use by
the public, but held synonymous with public interest, public benefit, public welfare, and public
convenience. The discount privilege to which our senior citizens are entitled is actually a benefit
enjoyed by the general public to which these citizens belong. The discounts given would have
entered the coffers and formed part of the gross sales of the private establishments concerned,
were it not for RA 7432. The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit. As a result of the 20
percent discount imposed by RA 7432, respondent becomes entitled to a just compensation.
This term refers not only to the issuance of a tax credit certificate indicating the correct amount of
the discounts given, but also to the promptness in its release. Equivalent to the payment of
property taken by the State, such issuance — when not done within a reasonable time from the
grant of the discounts — cannot be considered as just compensation. In effect, respondent is
made to suffer the consequences of being immediately deprived of its revenues while awaiting
actual receipt, through the certificate, of the equivalent amount it needs to cope with the
reduction in its revenues. Besides, the taxation power can also be used as an implement for the
exercise of the power of eminent domain. Tax measures are but "enforced contributions exacted
on pain of penal sanctions" and "clearly imposed for a public purpose." In recent years, the
power to tax has indeed become a most effective tool to realize social justice, public welfare, and
the equitable distribution of wealth. While it is a declared commitment under Section 1 of RA
7432, social justice "cannot be invoked to trample on the rights of property owners who under our
Constitution and laws are also entitled to protection. The social justice consecrated in our
[C]onstitution [is] not intended to take away rights from a person and give them to another who is
not entitled thereto." For this reason, a just compensation for income that is taken away from
respondent becomes necessary. It is in the tax credit that our legislators find support to realize
social justice, and no administrative body can alter that fact. To put it differently, a private
establishment that merely breaks even — without the discounts yet — will surely start to incur
losses because of such discounts. The same effect is expected if its mark-up is less than 20
percent, and if all its sales come from retail purchases by senior citizens. Aside from the
observation we have already raised earlier, it will also be grossly unfair to an establishment if the
discounts will be treated merely as deductions from either its gross income or its gross
sales. Operating at a loss through no fault of its own, it will realize that the tax credit limitation
1âw phi 1

under RR 2-94 is inutile, if not improper. Worse, profit-generating businesses will be put in a
better position if they avail themselves of tax credits denied those that are losing, because no
taxes are due from the latter.42 (Italics in the original; emphasis supplied)

The above was partly incorporated in our ruling in Carlos Superdrug Corporation43 when we
stated preliminarily that—

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to grant the
discount will result in a loss of profit and capital because 1) drugstores impose a mark-up of only
5% to 10% on branded medicines; and 2) the law failed to provide a scheme whereby drugstores
will be justly compensated for the discount. Examining petitioners’ arguments, it is apparent that
what petitioners are ultimately questioning is the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty percent (20%) discount that they extend to senior
citizens. Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully
reimburse petitioners for the discount privilege accorded to senior citizens. This is because the
discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross
income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed by
law to reduce the income prior to the application of the tax rate to compute the amount of tax
which is due. Being a tax deduction, the discount does not reduce taxes owed on a peso for peso
basis but merely offers a fractional reduction in taxes owed. Theoretically, the treatment of the
discount as a deduction reduces the net income of the private establishments concerned. The
discounts given would have entered the coffers and formed part of the gross sales of the private
establishments, were it not for R.A. No. 9257. The permanent reduction in their total revenues is
a forced subsidy corresponding to the taking of private property for public use or benefit. This
constitutes compensable taking for which petitioners would ordinarily become entitled to a just
compensation. Just compensation is defined as the full and fair equivalent of the property taken
from its owner by the expropriator. The measure is not the taker’s gain but the owner’s loss. The
word just is used to intensify the meaning of the word compensation, and to convey the idea that
the equivalent to be rendered for the property to be taken shall be real, substantial, full and
ample. A tax deduction does not offer full reimbursement of the senior citizen discount. As such,
it would not meet the definition of just compensation. Having said that, this raises the question of
whether the State, in promoting the health and welfare of a special group of citizens, can impose
upon private establishments the burden of partly subsidizing a government program. The Court
believes so.44

This, notwithstanding, we went on to rule in Carlos Superdrug Corporation45 that the 20%
discount and tax deduction scheme is a valid exercise of the police power of the State. The
present case, thus, affords an opportunity for us to clarify the above-quoted statements in Central
Luzon Drug Corporation46 and Carlos Superdrug Corporation.47

First, we note that the above-quoted disquisition on eminent domain in Central Luzon Drug
Corporation48 is obiter dicta and, thus, not binding precedent. As stated earlier, in Central Luzon
Drug Corporation,49 we ruled that the BIR acted ultra vires when it effectively treated the 20%
discount as a tax deduction, under Sections 2.i and 4 of RR No. 2-94, despite the clear wording
of the previous law that the same should be treated as a tax credit. We were, therefore, not
confronted in that case with the issue as to whether the 20% discount is an exercise of police
power or eminent domain. Second, although we adverted to Central Luzon Drug Corporation50 in
our ruling in Carlos Superdrug Corporation,51 this referred only to preliminary matters. A fair
reading of Carlos Superdrug Corporation52 would show that we categorically ruled therein that the
20% discount is a valid exercise of police power. Thus, even if the current law, through its tax
deduction scheme (which abandoned the tax credit scheme under the previous law), does not
provide for a peso for peso reimbursement of the 20% discount given by private establishments,
no constitutional infirmity obtains because, being a valid exercise of police power, payment of
just compensation is not warranted. We have carefully reviewed the basis of our ruling in Carlos
Superdrug Corporation53 and we find no cogent reason to overturn, modify or abandon it. We also
note that petitioners’ arguments are a mere reiteration of those raised and resolved in Carlos
Superdrug Corporation.54 Thus, we sustain Carlos Superdrug Corporation.55

Nonetheless, we deem it proper, in what follows, to amplify our explanation in Carlos Superdrug
Corporation56 as to why the 20% discount is a valid exercise of police power and why it may not,
under the specific circumstances of this case, be considered as an exercise of the power of
eminent domain contrary to the obiter in Central Luzon Drug Corporation.57

Police power versus eminent domain.

Police power is the inherent power of the State to regulate or to restrain the use of liberty and
property for public welfare.58
The only limitation is that the restriction imposed should be reasonable, not oppressive.59

In other words, to be a valid exercise of police power, it must have a lawful subject or objective
and a lawful method of accomplishing the goal.60

Under the police power of the State, "property rights of individuals may be subjected to restraints
and burdens in order to fulfill the objectives of the government."61

The State "may interfere with personal liberty, property, lawful businesses and occupations to
promote the general welfare [as long as] the interference [is] reasonable and not arbitrary."62

Eminent domain, on the other hand, is the inherent power of the State to take or appropriate
private property for public use.63

The Constitution, however, requires that private property shall not be taken without due process
of law and the payment of just compensation.64

Traditional distinctions exist between police power and eminent domain. In the exercise of police
power, a property right is impaired by regulation,65 or the use of property is merely prohibited,
regulated or restricted66 to promote public welfare. In such cases, there is no compensable
taking, hence, payment of just compensation is not required. Examples of these regulations are
property condemned for being noxious or intended for noxious purposes (e.g., a building on the
verge of collapse to be demolished for public safety, or obscene materials to be destroyed in the
interest of public morals)67 as well as zoning ordinances prohibiting the use of property for
purposes injurious to the health, morals or safety of the community (e.g., dividing a city’s territory
into residential and industrial areas).68

It has, thus, been observed that, in the exercise of police power (as distinguished from eminent
domain), although the regulation affects the right of ownership, none of the bundle of rights which
constitute ownership is appropriated for use by or for the benefit of the public.69

On the other hand, in the exercise of the power of eminent domain, property interests are
appropriated and applied to some public purpose which necessitates the payment of just
compensation therefor. Normally, the title to and possession of the property are transferred to the
expropriating authority. Examples include the acquisition of lands for the construction of public
highways as well as agricultural lands acquired by the government under the agrarian reform law
for redistribution to qualified farmer beneficiaries. However, it is a settled rule that the acquisition
of title or total destruction of the property is not essential for "taking" under the power of eminent
domain to be present.70

Examples of these include establishment of easements such as where the land owner is
perpetually deprived of his proprietary rights because of the hazards posed by electric
transmission lines constructed above his property71 or the compelled interconnection of the
telephone system between the government and a private company.72

In these cases, although the private property owner is not divested of ownership or possession,
payment of just compensation is warranted because of the burden placed on the property for the
use or benefit of the public.

The 20% senior citizen discount is an exercise of police power.

It may not always be easy to determine whether a challenged governmental act is an exercise of
police power or eminent domain. The very nature of police power as elastic and responsive to
various social conditions73 as well as the evolving meaning and scope of public use74 and just
compensation75 in eminent domain evinces that these are not static concepts. Because of the
exigencies of rapidly changing times, Congress may be compelled to adopt or experiment with
different measures to promote the general welfare which may not fall squarely within the
traditionally recognized categories of police power and eminent domain. The judicious approach,
therefore, is to look at the nature and effects of the challenged governmental act and decide, on
the basis thereof, whether the act is the exercise of police power or eminent domain. Thus, we
now look at the nature and effects of the 20% discount to determine if it constitutes an exercise
of police power or eminent domain. The 20% discount is intended to improve the welfare of
senior citizens who, at their age, are less likely to be gainfully employed, more prone to illnesses
and other disabilities, and, thus, in need of subsidy in purchasing basic commodities. It may not
be amiss to mention also that the discount serves to honor senior citizens who presumably spent
the productive years of their lives on contributing to the development and progress of the nation.
This distinct cultural Filipino practice of honoring the elderly is an integral part of this law. As to its
nature and effects, the 20% discount is a regulation affecting the ability of private establishments
to price their products and services relative to a special class of individuals, senior citizens, for
which the Constitution affords preferential concern.76

In turn, this affects the amount of profits or income/gross sales that a private establishment can
derive from senior citizens. In other words, the subject regulation affects the pricing, and, hence,
the profitability of a private establishment. However, it does not purport to appropriate or burden
specific properties, used in the operation or conduct of the business of private establishments, for
the use or benefit of the public, or senior citizens for that matter, but merely regulates the pricing
of goods and services relative to, and the amount of profits or income/gross sales that such
private establishments may derive from, senior citizens. The subject regulation may be said to be
similar to, but with substantial distinctions from, price control or rate of return on investment
control laws which are traditionally regarded as police power measures.77

These laws generally regulate public utilities or industries/enterprises imbued with public interest
in order to protect consumers from exorbitant or unreasonable pricing as well as temper
corporate greed by controlling the rate of return on investment of these corporations considering
that they have a monopoly over the goods or services that they provide to the general public. The
subject regulation differs therefrom in that (1) the discount does not prevent the establishments
from adjusting the level of prices of their goods and services, and (2) the discount does not apply
to all customers of a given establishment but only to the class of senior citizens. Nonetheless, to
the degree material to the resolution of this case, the 20% discount may be properly viewed as
belonging to the category of price regulatory measures which affect the profitability of
establishments subjected thereto. On its face, therefore, the subject regulation is a police power
measure. The obiter in Central Luzon Drug Corporation,78 however, describes the 20% discount
as an exercise of the power of eminent domain and the tax credit, under the previous law,
equivalent to the amount of discount given as the just compensation therefor. The reason is that
(1) the discount would have formed part of the gross sales of the establishment were it not for the
law prescribing the 20% discount, and (2) the permanent reduction in total revenues is a forced
subsidy corresponding to the taking of private property for public use or benefit. The flaw in this
reasoning is in its premise. It presupposes that the subject regulation, which impacts the pricing
and, hence, the profitability of a private establishment, automatically amounts to a deprivation of
property without due process of law. If this were so, then all price and rate of return on
investment control laws would have to be invalidated because they impact, at some level, the
regulated establishment’s profits or income/gross sales, yet there is no provision for payment of
just compensation. It would also mean that overnment cannot set price or rate of return on
investment limits, which reduce the profits or income/gross sales of private establishments, if no
just compensation is paid even if the measure is not confiscatory. The obiter is, thus, at odds with
the settled octrine that the State can employ police power measures to regulate the pricing of
goods and services, and, hence, the profitability of business establishments in order to pursue
legitimate State objectives for the common good, provided that the regulation does not go too far
as to amount to "taking."79

In City of Manila v. Laguio, Jr.,80 we recognized that— x x x a taking also could be found if
government regulation of the use of property went "too far." When regulation reaches a certain
magnitude, in most if not in all cases there must be an exercise of eminent domain and
compensation to support the act. While property may be regulated to a certain extent, if
regulation goes too far it will be recognized as a taking. No formula or rule can be devised to
answer the questions of what is too far and when regulation becomes a taking. In Mahon, Justice
Holmes recognized that it was "a question of degree and therefore cannot be disposed of by
general propositions." On many other occasions as well, the U.S. Supreme Court has said that
the issue of when regulation constitutes a taking is a matter of considering the facts in each case.
The Court asks whether justice and fairness require that the economic loss caused by public
action must be compensated by the government and thus borne by the public as a whole, or
whether the loss should remain concentrated on those few persons subject to the public action.81

The impact or effect of a regulation, such as the one under consideration, must, thus, be
determined on a case-to-case basis. Whether that line between permissible regulation under
police power and "taking" under eminent domain has been crossed must, under the specific
circumstances of this case, be subject to proof and the one assailing the constitutionality of the
regulation carries the heavy burden of proving that the measure is unreasonable, oppressive or
confiscatory. The time-honored rule is that the burden of proving the unconstitutionality of a law
rests upon the one assailing it and "the burden becomes heavier when police power is at issue."82

The 20% senior citizen discount has not been shown to be unreasonable, oppressive or
confiscatory.

In Alalayan v. National Power Corporation,83 petitioners, who were franchise holders of electric
plants, challenged the validity of a law limiting their allowable net profits to no more than 12% per
annum of their investments plus two-month operating expenses. In rejecting their plea, we ruled
that, in an earlier case, it was found that 12% is a reasonable rate of return and that petitioners
failed to prove that the aforesaid rate is confiscatory in view of the presumption of
constitutionality.84

We adopted a similar line of reasoning in Carlos Superdrug Corporation85 when we ruled that
petitioners therein failed to prove that the 20% discount is arbitrary, oppressive or confiscatory.
We noted that no evidence, such as a financial report, to establish the impact of the 20%
discount on the overall profitability of petitioners was presented in order to show that they would
be operating at a loss due to the subject regulation or that the continued implementation of the
law would be unconscionably detrimental to the business operations of petitioners. In the case at
bar, petitioners proceeded with a hypothetical computation of the alleged loss that they will suffer
similar to what the petitioners in Carlos Superdrug Corporation86 did. Petitioners went directly to
this Court without first establishing the factual bases of their claims. Hence, the present recourse
must, likewise, fail. Because all laws enjoy the presumption of constitutionality, courts will uphold
a law’s validity if any set of facts may be conceived to sustain it.87

On its face, we find that there are at least two conceivable bases to sustain the subject
regulation’s validity absent clear and convincing proof that it is unreasonable, oppressive or
confiscatory. Congress may have legitimately concluded that business establishments have the
capacity to absorb a decrease in profits or income/gross sales due to the 20% discount without
substantially affecting the reasonable rate of return on their investments considering (1) not all
customers of a business establishment are senior citizens and (2) the level of its profit margins
on goods and services offered to the general public. Concurrently, Congress may have, likewise,
legitimately concluded that the establishments, which will be required to extend the 20%
discount, have the capacity to revise their pricing strategy so that whatever reduction in profits or
income/gross sales that they may sustain because of sales to senior citizens, can be recouped
through higher mark-ups or from other products not subject of discounts. As a result, the
discounts resulting from sales to senior citizens will not be confiscatory or unduly oppressive. In
sum, we sustain our ruling in Carlos Superdrug Corporation88 that the 20% senior citizen discount
and tax deduction scheme are valid exercises of police power of the State absent a clear
showing that it is arbitrary, oppressive or confiscatory.
 Conclusion

In closing, we note that petitioners hypothesize, consistent with our previous ratiocinations, that
the discount will force establishments to raise their prices in order to compensate for its impact
on overall profits or income/gross sales. The general public, or those not belonging to the senior
citizen class, are, thus, made to effectively shoulder the subsidy for senior citizens. This, in
petitioners’ view, is unfair.

As already mentioned, Congress may be reasonably assumed to have foreseen this eventuality.
But, more importantly, this goes into the wisdom, efficacy and expediency of the subject law
which is not proper for judicial review. In a way, this law pursues its social equity objective in a
non-traditional manner unlike past and existing direct subsidy programs of the government for
the poor and marginalized sectors of our society. Verily, Congress must be given sufficient
leeway in formulating welfare legislations given the enormous challenges that the government
faces relative to, among others, resource adequacy and administrative capability in implementing
social reform measures which aim to protect and uphold the interests of those most vulnerable in
our society. In the process, the individual, who enjoys the rights, benefits and privileges of living
in a democratic polity, must bear his share in supporting measures intended for the common
good. This is only fair. In fine, without the requisite showing of a clear and unequivocal breach of
the Constitution, the validity of the assailed law must be sustained.

Refutation of the Dissent

The main points of Justice Carpio’s Dissent may be summarized as follows: (1) the discussion on
eminent domain in Central Luzon Drug Corporation89 is not obiter dicta ; (2) allowable taking, in
police power, is limited to property that is destroyed or placed outside the commerce of man for
public welfare; (3) the amount of mandatory discount is private property within the ambit of Article
III, Section 990 of the Constitution; and (4) the permanent reduction in a private establishment’s
total revenue, arising from the mandatory discount, is a taking of private property for public use
or benefit, hence, an exercise of the power of eminent domain requiring the payment of just
compensation. I We maintain that the discussion on eminent domain in Central Luzon Drug
Corporation91 is obiter dicta. As previously discussed, in Central Luzon Drug Corporation,92 the
BIR, pursuant to Sections 2.i and 4 of RR No. 2-94, treated the senior citizen discount in the
previous law, RA 7432, as a tax deduction instead of a tax credit despite the clear provision in
that law which stated –

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the
following:

a) The grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishment, restaurants
and recreation centers and purchase of medicines anywhere in the country: Provided,
That private establishments may claim the cost as tax credit; (Emphasis supplied)

Thus, the Court ruled that the subject revenue regulation violated the law, viz:

The 20 percent discount required by the law to be given to senior citizens is a tax credit, not
merely a tax deduction from the gross income or gross sale of the establishment concerned. A
tax credit is used by a private establishment only after the tax has been computed; a tax
deduction, before the tax is computed. RA 7432 unconditionally grants a tax credit to all covered
entities. Thus, the provisions of the revenue regulation that withdraw or modify such grant are
void. Basic is the rule that administrative regulations cannot amend or revoke the law.93

As can be readily seen, the discussion on eminent domain was not necessary in order to arrive
at this conclusion. All that was needed was to point out that the revenue regulation contravened
the law which it sought to implement. And, precisely, this was done in Central Luzon Drug
Corporation94 by comparing the wording of the previous law vis-à-vis the revenue regulation;
employing the rules of statutory construction; and applying the settled principle that a regulation
cannot amend the law it seeks to implement. A close reading of Central Luzon Drug
Corporation95 would show that the Court went on to state that the tax credit "can be deemed" as
just compensation only to explain why the previous law provides for a tax credit instead of a tax
deduction. The Court surmised that the tax credit was a form of just compensation given to the
establishments covered by the 20% discount. However, the reason why the previous law
provided for a tax credit and not a tax deduction was not necessary to resolve the issue as to
whether the revenue regulation contravenes the law. Hence, the discussion on eminent domain
is obiter dicta.

A court, in resolving cases before it, may look into the possible purposes or reasons that impelled
the enactment of a particular statute or legal provision. However, statements made relative
thereto are not always necessary in resolving the actual controversies presented before it. This
was the case in Central Luzon Drug Corporation96 resulting in that unfortunate statement that the
tax credit "can be deemed" as just compensation. This, in turn, led to the erroneous conclusion,
by deductive reasoning, that the 20% discount is an exercise of the power of eminent domain.
The Dissent essentially adopts this theory and reasoning which, as will be shown below, is
contrary to settled principles in police power and eminent domain analysis. II The Dissent
discusses at length the doctrine on "taking" in police power which occurs when private property is
destroyed or placed outside the commerce of man. Indeed, there is a whole class of police power
measures which justify the destruction of private property in order to preserve public health,
morals, safety or welfare. As earlier mentioned, these would include a building on the verge of
collapse or confiscated obscene materials as well as those mentioned by the Dissent with regard
to property used in violating a criminal statute or one which constitutes a nuisance. In such
cases, no compensation is required. However, it is equally true that there is another class of
police power measures which do not involve the destruction of private property but merely
regulate its use. The minimum wage law, zoning ordinances, price control laws, laws regulating
the operation of motels and hotels, laws limiting the working hours to eight, and the like would fall
under this category. The examples cited by the Dissent, likewise, fall under this category: Article
157 of the Labor Code, Sections 19 and 18 of the Social Security Law, and Section 7 of the Pag-
IBIG Fund Law. These laws merely regulate or, to use the term of the Dissent, burden the
conduct of the affairs of business establishments. In such cases, payment of just compensation
is not required because they fall within the sphere of permissible police power measures. The
senior citizen discount law falls under this latter category. III The Dissent proceeds from the
theory that the permanent reduction of profits or income/gross sales, due to the 20% discount, is
a "taking" of private property for public purpose without payment of just compensation. At the
outset, it must be emphasized that petitioners never presented any evidence to establish that
they were forced to suffer enormous losses or operate at a loss due to the effects of the assailed
law. They came directly to this Court and provided a hypothetical computation of the loss they
would allegedly suffer due to the operation of the assailed law. The central premise of the
Dissent’s argument that the 20% discount results in a permanent reduction in profits or
income/gross sales, or forces a business establishment to operate at a loss is, thus, wholly
unsupported by competent evidence. To be sure, the Court can invalidate a law which, on its
face, is arbitrary, oppressive or confiscatory.97

But this is not the case here.

In the case at bar, evidence is indispensable before a determination of a constitutional violation

can be made because of the following reasons. First, the assailed law, by imposing the senior
citizen discount, does not take any of the properties used by a business establishment like, say,
the land on which a manufacturing plant is constructed or the equipment being used to produce
goods or services. Second, rather than taking specific properties of a business establishment,
the senior citizen discount law merely regulates the prices of the goods or services being sold to
senior citizens by mandating a 20% discount. Thus, if a product is sold at ₱10.00 to the general
public, then it shall be sold at ₱8.00 ( i.e., ₱10.00 less 20%) to senior citizens. Note that the law
does not impose at what specific price the product shall be sold, only that a 20% discount shall
be given to senior citizens based on the price set by the business establishment. A business
establishment is, thus, free to adjust the prices of the goods or services it provides to the general
public. Accordingly, it can increase the price of the above product to ₱20.00 but is required to sell
it at ₱16.00 (i.e. , ₱20.00 less 20%) to senior citizens. Third, because the law impacts the prices
of the goods or services of a particular establishment relative to its sales to senior citizens, its
profits or income/gross sales are affected. The extent of the impact would, however, depend on
the profit margin of the business establishment on a particular good or service. If a product costs
₱5.00 to produce and is sold at ₱10.00, then the profit98 is ₱5.0099 or a profit margin100 of 50%.101

Under the assailed law, the aforesaid product would have to be sold at ₱8.00 to senior citizens
yet the business would still earn ₱3.00102 or a 30%103 profit margin. On the other hand, if the
product costs ₱9.00 to produce and is required to be sold at ₱8.00 to senior citizens, then the
business would experience a loss of ₱1.00.104

But note that since not all customers of a business establishment are senior citizens, the
business establishment may continue to earn ₱1.00 from non-senior citizens which, in turn, can
offset any loss arising from sales to senior citizens.

Fourth, when the law imposes the 20% discount in favor of senior citizens, it does not prevent the
business establishment from revising its pricing strategy.

By revising its pricing strategy, a business establishment can recoup any reduction of profits or
income/gross sales which would otherwise arise from the giving of the 20% discount. To
illustrate, suppose A has two customers: X, a senior citizen, and Y, a non-senior citizen. Prior to
the law, A sells his products at ₱10.00 a piece to X and Y resulting in income/gross sales of
₱20.00 (₱10.00 + ₱10.00). With the passage of the law, A must now sell his product to X at
₱8.00 (i.e., ₱10.00 less 20%) so that his income/gross sales would be ₱18.00 (₱8.00 + ₱10.00)
or lower by ₱2.00. To prevent this from happening, A decides to increase the price of his
products to ₱11.11 per piece. Thus, he sells his product to X at ₱8.89 (i.e. , ₱11.11 less 20%)
and to Y at ₱11.11. As a result, his income/gross sales would still be ₱20.00105 (₱8.89 + ₱11.11).
The capacity, then, of business establishments to revise their pricing strategy makes it possible
for them not to suffer any reduction in profits or income/gross sales, or, in the alternative, mitigate
the reduction of their profits or income/gross sales even after the passage of the law. In other
words, business establishments have the capacity to adjust their prices so that they may remain
profitable even under the operation of the assailed law.

The Dissent, however, states that – The explanation by the majority that private establishments
can always increase their prices to recover the mandatory discount will only encourage private
establishments to adjust their prices upwards to the prejudice of customers who do not enjoy the
20% discount. It was likewise suggested that if a company increases its prices, despite the
application of the 20% discount, the establishment becomes more profitable than it was before
the implementation of R.A. 7432. Such an economic justification is self-defeating, for more
consumers will suffer from the price increase than will benefit from the 20% discount. Even then,
such ability to increase prices cannot legally validate a violation of the eminent domain clause.106

But, if it is possible that the business establishment, by adjusting its prices, will suffer no
reduction in its profits or income/gross sales (or suffer some reduction but continue to operate
profitably) despite giving the discount, what would be the basis to strike down the law? If it is
possible that the business establishment, by adjusting its prices, will not be unduly burdened,
how can there be a finding that the assailed law is an unconstitutional exercise of police power or
eminent domain? That there may be a burden placed on business establishments or the
consuming public as a result of the operation of the assailed law is not, by itself, a ground to
declare it unconstitutional for this goes into the wisdom and expediency of the law.

The cost of most, if not all, regulatory measures of the government on business establishments is
ultimately passed on to the consumers but that, by itself, does not justify the wholesale
nullification of these measures. It is a basic postulate of our democratic system of government
that the Constitution is a social contract whereby the people have surrendered their sovereign
powers to the State for the common good.107

All persons may be burdened by regulatory measures intended for the common good or to serve
some important governmental interest, such as protecting or improving the welfare of a special
class of people for which the Constitution affords preferential concern. Indubitably, the one
assailing the law has the heavy burden of proving that the regulation is unreasonable, oppressive
or confiscatory, or has gone "too far" as to amount to a "taking." Yet, here, the Dissent would
have this Court nullify the law without any proof of such nature.

Further, this Court is not the proper forum to debate the economic theories or realities that
impelled Congress to shift from the tax credit to the tax deduction scheme. It is not within our
power or competence to judge which scheme is more or less burdensome to business
establishments or the consuming public and, thereafter, to choose which scheme the State
should use or pursue. The shift from the tax credit to tax deduction scheme is a policy
determination by Congress and the Court will respect it for as long as there is no showing, as
here, that the subject regulation has transgressed constitutional limitations. Unavoidably, the lack
of evidence constrains the Dissent to rely on speculative and hypothetical argumentation when it
states that the 20% discount is a significant amount and not a minimal loss (which erroneously
assumes that the discount automatically results in a loss when it is possible that the profit margin
is greater than 20% and/or the pricing strategy can be revised to prevent or mitigate any
reduction in profits or income/gross sales as illustrated above),108 and not all private
establishments make a 20% profit margin (which conversely implies that there are those who
make more and, thus, would not be greatly affected by this regulation).109

In fine, because of the possible scenarios discussed above, we cannot assume that the 20%
discount results in a permanent reduction in profits or income/gross sales, much less that
business establishments are forced to operate at a loss under the assailed law. And, even if we
gratuitously assume that the 20% discount results in some degree of reduction in profits or
income/gross sales, we cannot assume that such reduction is arbitrary, oppressive or
confiscatory. To repeat, there is no actual proof to back up this claim, and it could be that the loss
suffered by a business establishment was occasioned through its fault or negligence in not
adapting to the effects of the assailed law. The law uniformly applies to all business
establishments covered thereunder. There is, therefore, no unjust discrimination as the aforesaid
business establishments are faced with the same constraints. The necessity of proof is all the
more pertinent in this case because, as similarly observed by Justice Velasco in his Concurring
Opinion, the law has been in operation for over nine years now. However, the grim picture
painted by petitioners on the unconscionable losses to be indiscriminately suffered by business
establishments, which should have led to the closure of numerous business establishments, has
not come to pass. Verily, we cannot invalidate the assailed law based on assumptions and
conjectures. Without adequate proof, the presumption of constitutionality must prevail. IV At this
juncture, we note that the Dissent modified its original arguments by including a new paragraph,
to wit:

Section 9, Article III of the 1987 Constitution speaks of private property without any distinction. It
does not state that there should be profit before the taking of property is subject to just
compensation. The private property referred to for purposes of taking could be inherited,
donated, purchased, mortgaged, or as in this case, part of the gross sales of private
establishments. They are all private property and any taking should be attended by
corresponding payment of just compensation. The 20% discount granted to senior citizens
belong to private establishments, whether these establishments make a profit or suffer a loss. In
fact, the 20% discount applies to non-profit establishments like country, social, or golf clubs
which are open to the public and not only for exclusive membership. The issue of profit or loss to
the establishments is immaterial.110
Two things may be said of this argument. First, it contradicts the rest of the arguments of the
Dissent. After it states that the issue of profit or loss is immaterial, the Dissent proceeds to argue
that the 20% discount is not a minimal loss111 and that the 20% discount forces business
establishments to operate at a loss.112

Even the obiter in Central Luzon Drug Corporation,113 which the Dissent essentially adopts and
relies on, is premised on the permanent reduction of total revenues and the loss that business
establishments will be forced to suffer in arguing that the 20% discount constitutes a "taking"
under the power of eminent domain. Thus, when the Dissent now argues that the issue of profit
or loss is immaterial, it contradicts itself because it later argues, in order to justify that there is a
"taking" under the power of eminent domain in this case, that the 20% discount forces business
establishments to suffer a significant loss or to operate at a loss. Second, this argument suffers
from the same flaw as the Dissent's original arguments. It is an erroneous characterization of the
20% discount. According to the Dissent, the 20% discount is part of the gross sales and, hence,
private property belonging to business establishments. However, as previously discussed, the
20% discount is not private property actually owned and/or used by the business establishment.
It should be distinguished from properties like lands or buildings actually used in the operation of
a business establishment which, if appropriated for public use, would amount to a "taking" under
the power of eminent domain. Instead, the 20% discount is a regulatory measure which impacts
the pricing and, hence, the profitability of business establishments. At the time the discount is
imposed, no particular property of the business establishment can be said to be "taken." That is,
the State does not acquire or take anything from the business establishment in the way that it
takes a piece of private land to build a public road. While the 20% discount may form part of the
potential profits or income/gross sales114 of the business establishment, as similarly characterized
by Justice Bersamin in his Concurring Opinion, potential profits or income/gross sales are not
private property, specifically cash or money, already belonging to the business establishment.
They are a mere expectancy because they are potential fruits of the successful conduct of the
business. Prior to the sale of goods or services, a business establishment may be subject to
State regulations, such as the 20% senior citizen discount, which may impact the level or amount
of profits or income/gross sales that can be generated by such establishment. For this reason,
the validity of the discount is to be determined based on its overall effects on the operations of
the business establishment.

Again, as previously discussed, the 20% discount does not automatically result in a 20%
reduction in profits, or, to align it with the term used by the Dissent, the 20% discount does not
mean that a 20% reduction in gross sales necessarily results. Because (1) the profit margin of a
product is not necessarily less than 20%, (2) not all customers of a business establishment are
senior citizens, and (3) the establishment may revise its pricing strategy, such reduction in profits
or income/gross sales may be prevented or, in the alternative, mitigated so that the business
establishment continues to operate profitably. Thus, even if we gratuitously assume that some
degree of reduction in profits or income/gross sales occurs because of the 20% discount, it does
not follow that the regulation is unreasonable, oppressive or confiscatory because the business
establishment may make the necessary adjustments to continue to operate profitably. No
evidence was presented by petitioners to show otherwise. In fact, no evidence was presented by
petitioners at all. Justice Leonen, in his Concurring and Dissenting Opinion, characterizes
"profits" (or income/gross sales) as an inchoate right. Another way to view it, as stated by Justice
Velasco in his Concurring Opinion, is that the business establishment merely has a right to
profits. The Constitution adverts to it as the right of an enterprise to a reasonable return on
investment.115

Undeniably, this right, like any other right, may be regulated under the police power of the State
to achieve important governmental objectives like protecting the interests and improving the
welfare of senior citizens. It should be noted though that potential profits or income/gross sales
are relevant in police power and eminent domain analyses because they may, in appropriate
cases, serve as an indicia when a regulation has gone "too far" as to amount to a "taking" under
the power of eminent domain. When the deprivation or reduction of profits or income/gross sales
is shown to be unreasonable, oppressive or confiscatory, then the challenged governmental
regulation may be nullified for being a "taking" under the power of eminent domain. In such a
case, it is not profits or income/gross sales which are actually taken and appropriated for public
use. Rather, when the regulation causes an establishment to incur losses in an unreasonable,
oppressive or confiscatory manner, what is actually taken is capital and the right of the business
establishment to a reasonable return on investment. If the business losses are not halted
because of the continued operation of the regulation, this eventually leads to the destruction of
the business and the total loss of the capital invested therein. But, again, petitioners in this case
failed to prove that the subject regulation is unreasonable, oppressive or confiscatory.

V.

The Dissent further argues that we erroneously used price and rate of return on investment
control laws to justify the senior citizen discount law. According to the Dissent, only profits from
industries imbued with public interest may be regulated because this is a condition of their
franchises. Profits of establishments without franchises cannot be regulated permanently
because there is no law regulating their profits. The Dissent concludes that the permanent
reduction of total revenues or gross sales of business establishments without franchises is a
taking of private property under the power of eminent domain. In making this argument, it is
unfortunate that the Dissent quotes only a portion of the ponencia – The subject regulation may
be said to be similar to, but with substantial distinctions from, price control or rate of return on
investment control laws which are traditionally regarded as police power measures. These laws
generally regulate public utilities or industries/enterprises imbued with public interest in order to
protect consumers from exorbitant or unreasonable pricing as well as temper corporate greed by
controlling the rate of return on investment of these corporations considering that they have a
monopoly over the goods or services that they provide to the general public. The subject
regulation differs therefrom in that (1) the discount does not prevent the establishments from
adjusting the level of prices of their goods and services, and (2) the discount does not apply to all
customers of a given establishment but only to the class of senior citizens. x x x116

The above paragraph, in full, states –

The subject regulation may be said to be similar to, but with substantial distinctions from, price
control or rate of return on investment control laws which are traditionally regarded as police
power measures. These laws generally regulate public utilities or industries/enterprises imbued
with public interest in order to protect consumers from exorbitant or unreasonable pricing as well
as temper corporate greed by controlling the rate of return on investment of these corporations
considering that they have a monopoly over the goods or services that they provide to the
general public. The subject regulation differs therefrom in that (1) the discount does not prevent
the establishments from adjusting the level of prices of their goods and services, and (2) the
discount does not apply to all customers of a given establishment but only to the class of senior
citizens.

Nonetheless, to the degree material to the resolution of this case, the 20% discount may be
properly viewed as belonging to the category of price regulatory measures which affects the
profitability of establishments subjected thereto. (Emphasis supplied)

The point of this paragraph is to simply show that the State has, in the past, regulated prices and
profits of business establishments. In other words, this type of regulatory measures is
traditionally recognized as police power measures so that the senior citizen discount may be
considered as a police power measure as well. What is more, the substantial distinctions
between price and rate of return on investment control laws vis-à-vis the senior citizen discount
law provide greater reason to uphold the validity of the senior citizen discount law. As previously
discussed, the ability to adjust prices allows the establishment subject to the senior citizen
discount to prevent or mitigate any reduction of profits or income/gross sales arising from the
giving of the discount. In contrast, establishments subject to price and rate of return on
investment control laws cannot adjust prices accordingly. Certainly, there is no intention to say
that price and rate of return on investment control laws are the justification for the senior citizen
discount law. Not at all. The justification for the senior citizen discount law is the plenary powers
of Congress. The legislative power to regulate business establishments is broad and covers a
wide array of areas and subjects. It is well within Congress’ legislative powers to regulate the
profits or income/gross sales of industries and enterprises, even those without franchises. For
what are franchises but mere legislative enactments? There is nothing in the Constitution that
prohibits Congress from regulating the profits or income/gross sales of industries and enterprises
without franchises. On the contrary, the social justice provisions of the Constitution enjoin the
State to regulate the "acquisition, ownership, use, and disposition" of property and its
increments.117

This may cover the regulation of profits or income/gross sales of all businesses, without
qualification, to attain the objective of diffusing wealth in order to protect and enhance the right of
all the people to human dignity.118

Thus, under the social justice policy of the Constitution, business establishments may be
compelled to contribute to uplifting the plight of vulnerable or marginalized groups in our society
provided that the regulation is not arbitrary, oppressive or confiscatory, or is not in breach of
some specific constitutional limitation. When the Dissent, therefore, states that the "profits of
private establishments which are non-franchisees cannot be regulated permanently, and there is
no such law regulating their profits permanently,"119 it is assuming what it ought to prove. First,
there are laws which, in effect, permanently regulate profits or income/gross sales of
establishments without franchises, and RA 9257 is one such law. And, second, Congress can
regulate such profits or income/gross sales because, as previously noted, there is nothing in the
Constitution to prevent it from doing so. Here, again, it must be emphasized that petitioners failed
to present any proof to show that the effects of the assailed law on their operations has been
unreasonable, oppressive or confiscatory. The permanent regulation of profits or income/gross
sales of business establishments, even those without franchises, is not as uncommon as the
Dissent depicts it to be. For instance, the minimum wage law allows the State to set the minimum
wage of employees in a given region or geographical area. Because of the added labor costs
arising from the minimum wage, a permanent reduction of profits or income/gross sales would
result, assuming that the employer does not increase the prices of his goods or services. To
illustrate, suppose it costs a company ₱5.00 to produce a product and it sells the same at ₱10.00
with a 50% profit margin. Later, the State increases the minimum wage. As a result, the company
incurs greater labor costs so that it now costs ₱7.00 to produce the same product. The profit per
product of the company would be reduced to ₱3.00 with a profit margin of 30%. The net effect
would be the same as in the earlier example of granting a 20% senior citizen discount. As can be
seen, the minimum wage law could, likewise, lead to a permanent reduction of profits. Does this
mean that the minimum wage law should, likewise, be declared unconstitutional on the mere plea
that it results in a permanent reduction of profits? Taking it a step further, suppose the company
decides to increase the price of its product in order to offset the effects of the increase in labor
cost; does this mean that the minimum wage law, following the reasoning of the Dissent, is
unconstitutional because the consuming public is effectively made to subsidize the wage of a
group of laborers, i.e., minimum wage earners? The same reasoning can be adopted relative to
the examples cited by the Dissent which, according to it, are valid police power regulations.
Article 157 of the Labor Code, Sections 19 and 18 of the Social Security Law, and Section 7 of
the Pag-IBIG Fund Law would effectively increase the labor cost of a business
establishment. This would, in turn, be integrated as part of the cost of its goods or services.
1âwphi1

Again, if the establishment does not increase its prices, the net effect would be a permanent
reduction in its profits or income/gross sales. Following the reasoning of the Dissent that "any
form of permanent taking of private property (including profits or income/gross sales)120 is an
exercise of eminent domain that requires the State to pay just compensation,"121 then these
statutory provisions would, likewise, have to be declared unconstitutional. It does not matter that
these benefits are deemed part of the employees’ legislated wages because the net effect is the
same, that is, it leads to higher labor costs and a permanent reduction in the profits or
income/gross sales of the business establishments.122
The point then is this – most, if not all, regulatory measures imposed by the State on business
establishments impact, at some level, the latter’s prices and/or profits or income/gross sales.123

If the Court were to sustain the Dissent’s theory, then a wholesale nullification of such measures
would inevitably result. The police power of the State and the social justice provisions of the
Constitution would, thus, be rendered nugatory. There is nothing sacrosanct about profits or
income/gross sales. This, we made clear in Carlos Superdrug Corporation:124

Police power as an attribute to promote the common good would be diluted considerably if on the
mere plea of petitioners that they will suffer loss of earnings and capital, the questioned provision
is invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory
effect of the provision in question, there is no basis for its nullification in view of the presumption
of validity which every law has in its favor.

xxxx

The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive
pricing component of the business. While the Constitution protects property rights petitioners
must the realities of business and the State, in the exercise of police power, can intervene in the
operations of a business which may result in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the Constitution
provides the percept for the protection of property, various laws and jurisprudence, particularly on
agrarian reform and the regulation of contracts and public utilities, continously serve as a
reminder for the promotion of public good.

Undeniably, the success of the senior citizens program rests largely on the support imparted by
petitioners and the other private establishments concerned. This being the case, the means
employed in invoking the active participation of the private sector, in order to achieve the purpose
or objective of the law, is reasonably and directly related. Without sufficient proof that Section
4(a) of R.A. No. 9257 is arbitrary, and that the continued implementation of the same would be
unconscionably detrimental to petitioners, the Court will refrain form quashing a legislative act.125

In conclusion, we maintain that the correct rule in determining whether the subject regulatory
measure has amounted to a "taking" under the power of eminent domain is the one laid down
in Alalayan v. National Power Corporation126 and followed in Carlos Superdurg
Corporation127 consistent with long standing principles in police power and eminent domain
analysis. Thus, the deprivation or reduction of profits or income. Gross sales must be clearly
shown to be unreasonable, oppressive or confiscatory. Under the specific circumstances of this
case, such determination can only be made upon the presentation of competent proof which
petitioners failed to do. A law, which has been in operation for many years and promotes the
welfare of a group accorded special concern by the Constitution, cannot and should not be
summarily invalidated on a mere allegation that it reduces the profits or income/gross sales of
business establishments.

WHEREFORE, the Petition is hereby DISMISSED for lack of merit.

SO ORDERED.
 April 25, 2017

G.R. No. 199669

SOUTHERN LUZON DRUG CORPORATION, Petitioner,

vs.
THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT, THE NATIONAL
COUNCIL FOR THE WELFARE OF DISABLED PERSONS, THE DEPARTMENT OF
FINANCE, and THE BUREAU OF INTERNAL REVENUE, Respondents

DECISION

REYES, J.:

Before the Court is a Petition for Review on Certiorari1under Rule 45 of the Rules of Court,
assailing the Decision2 dated June 17, 2011, and Resolution3 dated November 25, 2011 of the
Court of Appeals (CA) in CA-G.R. SP No. 102486, which dismissed the petition for prohibition
filed by Southern Luzon Drug Corporation (petitioner) against the Department of1 Social Welfare
and Development (DSWD), the National Council for the Welfare of Disabled Persons (NCWDP)
(now National Council on Disability Affairs or NCDA), the Department of Finance (DOF) and the
Bureau of: Internal Revenue (collectively, the respondents), which sought to prohibit the
implementation of Section 4(a) of Republic Act (R.A.) No. 9257, otherwise known as
the "Expanded Senior Citizens Act of 2003" and Section 32 of R.A. No. 9442, which amends
the "Magna Carta for Disabled Persons," particularly the granting of 20% discount on the
purchase of medicines by senior citizens and persons with disability (PWD),: respectively, and
treating them as tax deduction.

The petitioner is a domestic corporation engaged in the business of: drugstore operation in the
Philippines while the respondents are government' agencies, office and bureau tasked to monitor
compliance with R.A. Nos. 9257 and 9442, promulgate implementing rules and regulations for
their effective implementation, as well as prosecute and revoke licenses of erring1
establishments.

Factual Antecedents

On April 23, 1992, R.A. No. 7432, entitled "An Act to Maximize the Contribution of Senior
Citizens to Nation-Building, Grant Benefits and Special Privileges and For Other Purposes," was
enacted. Under the said law, a senior citizen, who must be at least 60 years old and has an
annual income of not more than P60,000.00,4 may avail of the privileges provided in Section 4
thereof, one of which is 20% discount on the purchase of medicines. The said provision states:

Sec. 4. Privileges for the Senior Citizen. - x x x:

a) the grant of twenty percent (20%) discount from all establishments relative to utilization of
transportation services, hotels and similar lodging establishment, restaurants and recreation
centers and purchase of medicine anywhere in the country: Provided, That private
establishments may claim the cost as tax credit[.]

x x x x (Emphasis ours)

To recoup the amount given as discount to qualified senior citizens, covered establishments can
claim an equal amount as tax credit which can be applied against the income tax due from them.

On February 26, 2004, then President Gloria Macapagal-Arroyo signed R.A. No. 9257, amending
some provisions of R.A. No. 7432. The new law retained the 20% discount on the purchase of
medicines but removed the annual income ceiling thereby qualifying all senior citizens to the
privileges under the law. Further, R.A. No. 9257 modified the tax treatment of the discount
granted to senior citizens, from tax credit to tax deduction from gross income, computed based
on the net cost of goods sold or services rendered. The pertinent provision, as amended by R.A.
No. 9257, reads as follows:

SEC. 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following:

(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of
services in hotels and similar lodging establishments, restaurants and recreation centers, and
purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens,
including funeral and burial services for the death of senior citizens;

xxxx

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That
the cost of the discount shall be allowed as deduction from gross income for the same
taxable year that the discount is granted. Provided, further, That the total amount of the claimed
tax deduction net of value-added tax if applicable, shall be included in their gross sales receipts
for tax purposes and shall be subject to proper documentation and to the provisions of the
National Internal Revenue Code, as amended. (Emphasis ours)

On May 28, 2004, the DSWD issued the Implementing Rules and Regulations (IRR) of R.A. No.
9257. Article 8 of Rule VI of the said IRR provides:

Article 8. Tax Deduction of Establishments. - The establishment may claim the discounts granted
under Rule V, Section 4 - Discounts for Establishments; Section 9, Medical and Dental Services
in Private Facilities and Sections 10 and 11 -Air, Sea and Land Transportation as tax deduction
based on the net cost of the goods sold or services rendered. Provided, That the cost of the
discount shall be allowed as deduction from gross income for the same taxable year that
the discount is granted; Provided, further, That the total amount of the claimed tax deduction
net of value-added tax if applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the provisions of the National
Internal Revenue Code, as amended; Provided, finally, that the implementation of the tax
deduction shall be subject to the Revenue Regulations to be issued by the Bureau of Internal
Revenue (BIR) and approved by the Department of Finance (DOF). (Emphasis ours)

The change in the tax treatment of the discount given to senior citizens did not sit well with some
drug store owners and corporations, claiming it affected the profitability of their business. Thus,
on January 13, 2005, I Carlos Superdrug Corporation (Carlos Superdrug), together with other.
corporation and proprietors operating drugstores in the Philippines, filed a Petition for Prohibition
with Prayer for Temporary Restraining Order (TRO) I and/or Preliminary Injunction before this
Court, entitled Carlos Superdrug I Corporation v. DSWD,5docketed as G.R. No. 166494, assailing
the constitutionality of Section 4(a) of R.A. No. 9257 primarily on the ground that it amounts to
taking of private property without payment of just compensation. In a Decision dated June 29,
2007, the Court upheld the constitutionality of the assailed provision, holding that the same is a
legitimate exercise of police power. The relevant portions of the decision read, thus:

The law is a legitimate exercise of police power which, similar to the power of eminent domain,
has general welfare for its object. Police power is not capable of an exact definition, but has been
purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies
and provide enough room for an efficient and flexible response to conditions and circumstances,
thus assuring the greatest benefits. Accordingly, it has been described as "the most essential,
insistent and the least limitable of powers, extending as it does to all the great public needs." It is
"[t]he power vested in the legislature by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or
without, not repugnant to the constitution, as they shall judge to be for the good and welfare of
the commonwealth, and of the subjects of the same."

For this reason, when the conditions so demand as determined by the legislature, property rights
must bow to the primacy of police power because property rights, though sheltered by due
process, must yield to general welfare.

xxxx

Moreover, the right to property has a social dimension. While Article XIII of the Constitution
provides the precept for the protection of property, various laws and jurisprudence, particularly on
agrarian reform and the regulation of contracts and public utilities, continuously serve as a
reminder that the right to property can be relinquished upon the command of the State for the
promotion of public good. Undeniably, the success of the senior citizens program rests largely on
the support imparted by petitioners and the other private establishments concerned. This being
the case, the means employed in invoking the active participation of the private sector, in order to
achieve the purpose or objective of the law, is reasonably and directly related. Without sufficient
proof that Section 4(a) of RA. No. 9257 is arbitrary, and that the continued implementation of the
same would be unconscionably detrimental to petitioners, the Court will refrain from quashing a
legislative act.

WHEREFORE, the petition is DISMISSED for lack of merit.6 (Citations omitted)

On August 1, 2007, Carlos Superdrug filed a motion for reconsideration of the foregoing decision.
Subsequently, the Court issued Resolution dated August 21, 2007, denying the said motion with
finality. 7

Meanwhile, on March 24, 1992, R.A. No. 7277 pertaining to the "Magna Carta for Disabled
Persons" was enacted, codifying the rights and privileges of PWDs. Thereafter, on April 30,
2007, R.A. No. 9442 was enacted, amending R.A. No. 7277. One of the salient amendments in
the law is the insertion of Chapter 8 in Title 2 thereof, which enumerates the other privileges and
incentives of PWDs, including the grant of 20% discount on the purchase of medicines. Similar to
R.A. No. 9257, covered establishments shall claim the discounts given to PWDs as tax
deductions from the gross income, based on the net cost of goods sold or services rendered.
Section 32 ofR.A. No. 9442 reads:

CHAPTER 8. Other Privileges and Incentives

SEC. 32. Persons with disability shall be entitled to the following:

xxxx

(c) At least twenty percent (20%) discount for the purchase of medicines in all drugstores for the
exclusive use or enjoyment of persons with disability;

xxxx

The establishments may claim the discounts granted in subsections (a), (b), (c), (e), (t) and
(g) as taxdeductions based on the net cost of the goods sold or services
rendered: Provided, however, That the cost of the discount shall be allowed as deduction from
gross income for the same taxable year that the discount is granted: Provided, further, That the
total amount of the claimed tax deduction net of value-added tax if applicable, shall be included
in their gross sales receipts for tax purposes and shall be subject to proper documentation and to
the provisions of the National Internal Revenue Code (NIRC), as amended. (Emphasis ours)
Pursuant to the foregoing, the IRR of R.A. No. 9442 was promulgated by the DSWD, Department
of Education, DOF, Department of Tourism and the Department of Transportation and
Communications.8Sections 5 .1 and 6.1.d thereof provide:

Sec. 5. Definition of Terms. For purposes of these Rules and Regulations, these terms are
defined as follows:

5.1. Persons with Disability are those individuals defined under Section 4 of RA
7277, "An Act Providing for the Rehabilitation, Self-Development and Self-
Reliance of Persons with Disability as amended and their integration into the
Mainstream of Society and for Other Purposes." This is defined as a person
suffering from restriction or different abilities, as a result of a mental, physical or
sensory impairment, to perform an activity in a manner or within the range
considered normal for human being. Disability shall mean: (1) a physical or
mental impairment that substantially limits one or more psychological,
physiological or anatomical function of an individual or activities of such
individual; (2) a record of such an impairment; or (3) being regarded as having
such an impairment.

xxxx

6.1.d Purchase of Medicine - At least twenty percent (20%) discount on the

purchase of medicine for the exclusive use and enjoyment of persons with
disability. All drug stores, hospital, pharmacies, clinics and other similar
establishments selling medicines are required to provide at least twenty percent
(20%) discount subject to the guidelines issued by DOH and PHILHEALTH.

On February 26, 2008, the petitioner filed a Petition for Prohibition with Application for TRO
and/or Writ of Preliminary Injunction9 with the CA, seeking to declare as unconstitutional (a)
Section 4(a) of R.A. No. 9257, and (b) Section 32 of R.A. No. 9442 and Section 5.1 of its IRR,
insofar as these provisions only allow tax deduction on the gross income based on the net cost of
goods sold or services rendered as compensation to private establishments for the 20% discount
that they are required to grant to senior citizens and PWDs. Further, the petitioner prayed that
the respondents be permanently enjoined from implementing the assailed provisions.

Ruling of the CA

On June 17, 2011, the CA dismissed the petition, reiterating the ruling of the Court in Carlos
Superdrug10particularly that Section 4(a) of R.A. No. 9257 was a valid exercise of police power.
Moreover, the CA held that considering that the same question had been raised by parties
similarly situated and was resolved in Carlos Superdrug, the rule of stare decisis stood as a
hindrance to any further attempt to relitigate the same issue. It further noted that jurisdictional
considerations also compel the dismissal of the action. It particularly emphasized that it has no
original or appellate jurisdiction to pass upon the constitutionality of the assailed laws, 11 the same
pertaining to the Regional Trial Court (RTC). Even assuming that it had concurrent jurisdiction
with the RTC, the principle of hierarchy of courts mandates that the case be commenced and
heard by the lower court. 12 The CA further ruled that the petitioner resorted to the wrong remedy
as a petition for prohibition will not lie to restrain the actions of the respondents for the simple
reason that they do not exercise judicial, quasi-judicial or ministerial duties relative to the
issuance or implementation of the questioned provisions. Also, the petition was wanting of the
allegations of the specific acts committed by the respondents that demonstrate the exercise of
these powers which may be properly challenged in a petition for prohibition.13

The petitioner filed its Motion for Reconsideration 14 of the Decision dated June 17, 2011 of the
CA, but the same was denied in a Resolution 15 dated November 25, 2011.
Unyielding, the petitioner filed the instant petition, raising the following assignment of errors, to
wit:

THE CA SERIOUSLY ERRED WHEN IT RULED THAT A PETITION FOR PROHIBITION

FILED WITH THE CA IS AN IMPROPER REMEDY TO ASSAIL THE CONSTITUTIONALITY
OF THE 20%, SALES DISCOUNT FOR SENIOR CITIZENS AND PWDs;

II

THE CA SERIOUSLY ERRED WHEN IT HELD THAT THE SUPREME COURT'S RULING
IN CARLOS SUPERDRUG CONSTITUTES STARE DECISIS;

III

THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN IT RULED THAT

THE 20%, SALES DISCOUNT FOR SENIOR CITIZENS AND PWDs IS A VALID EXERCISE
OF POLICE POWER. ON THE CONTRARY, IT IS AN INVALID EXERCISE OF THE POWER
OF EMINENT DOMAIN BECAUSE IT FAILS TO PROVIDE JUST COMPENSATION TO THE
PETITIONER AND OTHER SIMILARLY SITUATED DRUGSTORES;

IV

THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN IT RULED THAT

THE 20°/o SALES DISCOUNT FOR SENIOR CITIZENS AND PWDs DOES NOT VIOLATE
THE PETITIONER'S RIGHT TO EQUAL PROTECTION OF THE LAW; and

THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN IT RULED THAT

THE DEFINITIONS OF DISABILITIES AND PWDs ARE NOT VAGUE AND DO NOT VIOLATE
THE PETITIONER'S RIGHT TO DUE PROCESS OF LAW.16

Ruling of the Court

Prohibition may be filed to question

the constitutionality of a law

In the assailed decision, the CA noted that the action, although denominated as one for
prohibition, seeks the declaration of the unconstitutionality of Section 4(a) of R.A. No. 9257 and
Section 32 of R.A. No.9442. It held that in such a case, the proper remedy is not a special civil 1
action but a petition for declaratory relief, which falls under the exclusive original jurisdiction of
the RTC, in the first instance, and of the Supreme Court, on appeal. 17

The Court clarifies.

Generally, the office of prohibition is to prevent the unlawful and oppressive exercise of authority
and is directed against proceedings that are done without or in excess of jurisdiction, or with
grave abuse of discretion, there being no appeal or other plain, speedy, and adequate remedy in
the ordinary course of law. It is the remedy to prevent inferior courts, corporations, boards, or
persons from usurping or exercising a jurisdiction or power with which they have not been vested
by law. 18 This is, however, not the lone office of an action for prohibition. In Diaz, et al. v. The
Secretary of Finance, et al., 19 prohibition was also recognized as a proper remedy to prohibit or
nullify acts of executive officials that amount to usurpation of legislative authority. 20 And, in a
number of jurisprudence, prohibition was allowed as a proper action to assail the constitutionality
of a law or prohibit its implementation.

In Social Weather Stations, Inc. v. Commission on Elections,21therein petitioner filed a petition for
prohibition to assail the constitutionality of Section 5.4 of R.A. No. 9006, or the "Fair Elections
Act," which prohibited the publication of surveys within 15 days before an election for national
candidates, and seven days for local candidates. Included in the petition is a prayer to prohibit
the Commission on Elections from enforcing the said provision. The Court granted the Petition
and struck down the assailed provision for being unconstitutional. 22

In Social Justice Society (SJS) v. Dangerous Drugs Board, et al.,23 therein petitioner assailed the
constitutionality of paragraphs (c ), (d), (f) and (g) of Section 36 of R.A. No. 9165, otherwise
known as the "Comprehensive Dangerous Drugs Act of 2002," on the ground that they constitute
undue delegation of legislative power for granting unbridled discretion to schools and private
employers in determining the manner of drug 'testing of their employees, and that the law
constitutes a violation of the right against unreasonable searches and seizures. It also sought to
enjoin the Dangerous Drugs Board and the Philippine Drug Enforcement Agency from enforcing
the challenged provision.24 The Court partially granted the petition by declaring Section 36(f) and
(g) of R.A. No. 9165 unconstitutional, and permanently enjoined the concerned agencies from
implementing them. 25

In another instance, consolidated petitions for prohibitions26 questioning the constitutionality of the
Priority Development Assistance Fund were deliberated upon by this Court which ultimately
granted the same.

Clearly, prohibition has been found an appropriate remedy to challenge the constitutionality of
various laws, rules, and regulations.

There is also no question regarding the jurisdiction of the CA to hear and decide a petition for
prohibition. By express provision of the law, particularly Section 9(1) of Batas Pambansa Bilang
129,27 the CA was granted "original jurisdiction to issue writs of mandamus, prohibition, certiorari,
habeas corpus, and quo warranto, and auxiliary writs or I processes, whether or not in aid of its
appellate jurisdiction." This authority· the CA enjoys concurrently with RTCs and this Court.

In the same manner, the supposed violation of the principle of the ·. hierarchy of courts does not
pose any hindrance to the full deliberation of the issues at hand. It is well to remember that "the
judicial hierarchy of courts is not an iron-clad rule. It generally applies to cases involving warring
factual allegations. For this reason, litigants are required to [refer] to the trial courts at the first
instance to determine the truth or falsity of these contending allegations on the basis of the
evidence of the parties. Cases which depend on disputed facts for decision cannot be brought
immediately before appellate courts as they are not triers of facts. Therefore, a strict application
of the rule of hierarchy of courts is not necessary when the cases brought before the appellate
courts do not involve factual but legal questions."28

Moreover, the principle of hierarchy of courts may be set aside for special and important reasons,
such as when dictated by public welfare and ' the advancement of public policy, or demanded by
the broader interest of justice.29 Thus, when based on the good judgment of the court, the
urgency and significance of the issues presented calls for its intervention, it should not hesitate to
exercise its duty to resolve.

The instant petition presents an exception to the principle as it basically raises a legal question
on the constitutionality of the mandatory discount and the breadth of its rightful beneficiaries.
More importantly, the resolution of the issues will redound to the benefit of the public as it will put
to rest the questions on the propriety of the granting of discounts to senior citizens and PWDs
amid the fervent insistence of affected establishments that the measure transgresses their
property rights. The Court, therefore, finds it to the best interest of justice that the instant petition
be resolved.

The instant case is not barred by

stare decisis

The petitioner contends that the CA erred in holding that the ruling in Carlos
Superdrug constitutes as stare decisis or law of the case which bars the relitigation of the issues
that had been resolved therein and had been raised anew in the instant petition. It argues that
there are substantial differences between Carlos Superdrug and the circumstances in the instant
case which take it out from the operation of the doctrine of stare decisis. It cites that in Carlos
Superdrug, the Court denied the petition because the petitioner therein failed to prove the
confiscatory effect of the tax deduction scheme as no proof of actual loss was submitted. It
believes that its submission of financial statements for the years 2006 and 2007 to prove the
confiscatory effect of the law is a material fact that distinguishes the instant case from that
of Carlos Superdrug. 30

The Court agrees that the ruling in Carlos Superdrug does not constitute stare decisis to the
instant case, not because of the petitioner's submission of financial statements which were
wanting in the first case, but because it had the good sense of including questions that had not
been raised or deliberated in the former case of Carlos Superdrug, i.e., validity of the 20%
discount granted to PWDs, the supposed vagueness of the provisions of R.A. No. 9442 and
violation of the equal protection clause.

Nonetheless, the Court finds nothing in the instant case that merits a reversal of the earlier ruling
of the Court in Carlos Superdrug. Contrary to the petitioner's claim, there is a very slim difference
between the issues in Carlos Superdrug and the instant case with respect to the nature of the
senior citizen discount. A perfunctory reading of the circumstances of the two cases easily
discloses marked similarities in the issues and the arguments raised by the petitioners in both
cases that semantics nor careful play of words can hardly obscure.

In both cases, it is apparent that what the petitioners are ultimately questioning is not the grant of
the senior citizen discount per se, but the manner by which they were allowed to recoup the said
discount. In particular, they are protesting the change in the tax treatment of the senior citizen
discount from tax credit to being merely a deduction from gross income which they claimed to
have significantly reduced their profits.

This question had been settled in Carlos Superdrug, where the Court ruled that the change in the
tax treatment of the discount was a valid exercise of police power, thus:

Theoretically, the treatment of the discount as a deduction reduces the net income of the private
establishments concerned. The discounts given would have entered the coffers and formed part
of the gross sales of the private establishments, were it not for R.A. No. 9257.

xxxx

A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would
not meet the definition of just compensation.

Having said that, this raises the question of whether the State, in promoting the health and
welfare of a special group of citizens, can impose upon private establishments the burden of
partly subsidizing a government program.

The Court believes so.

The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to
nation-building, and to grant benefits and privileges to them for their improvement and well-being
as the State considers them an integral part of our society.

The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself.
Thus, the Act provides:

SEC. 2. [R.A.] No. 7432 is hereby amended to read as follows:

SEC. 1. Declaration of Policies and Objectives.- Pursuant to Article XV, Section 4 of the
Constitution, it is the duty of the family to take care of its elderly members while the State may
design programs of social security for them. In addition to this, Section 10 in the Declaration of
Principles and State Policies provides: "The State shall provide social justice in all phases of
national development." Further, Article XIII, Section 11, provides: "The State shall adopt an
integrated and comprehensive approach to health development which shall endeavor to make
essential goods, health and other social services available to all the people at affordable cost.
There shall be priority for the needs of the underprivileged sick, elderly, disabled, women and
children." Consonant with these constitutional principles the following are the declared policies of
this Act:

xxxx

(f) To recognize the important role of the private sector in the improvement of the welfare
of senior citizens and to actively seek their partnership.

To implement the above policy, the law grants a twenty percent discount to senior citizens for
medical and dental services, and diagnostic and laboratory fees; admission fees charged by
theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and
amusement; fares for domestic land, air and sea travel; utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers; and purchases of medicines
for the exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law
provides that business establishments extending the twenty percent discount to senior citizens
may claim the discount as a tax deduction.

The law is a legitimate exercise of police power which, similar to the power of eminent domain,
has general welfare for its object. Police power is not capable of an exact definition, but has been
purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies
and provide enough room for an efficient and flexible response to conditions and circumstances,
thus assuring the greatest benefits. Accordingly, it has been described as "the most essential,
insistent and the least limitable of powers, extending as it does to all the great public needs." It is
"[t]he power vested in the legislature by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or
without, not repugnant to the constitution, as they shall judge to be for the good and welfare of
the commonwealth, and of the subjects of the same."

For this reason, when the conditions so demand as determined by the legislature, property rights
must bow to the primacy of police power because proper rights, though sheltered by due
process, must yield to general welfare. 31 (Citations omitted and emphasis in the original)

Verily, it is the bounden duty of the State to care for the elderly as they reach the point in their
lives when the vigor of their youth has diminished and resources have become scarce. Not much
because of choice, they become needing of support from the society for whom they presumably
spent their productive days and for whose betterment they' exhausted their energy, know-how
and experience to make our days better to live.
In the same way, providing aid for the disabled persons is an equally important State
responsibility. Thus, the State is obliged to give full support to the improvement of the total well-
being of disabled persons and their integration into the mainstream of society. 32This entails the
creation of opportunities for them and according them privileges if only to balance the playing
field which had been unduly tilted against them because of their limitations.

The duty to care for the elderly and the disabled lies not only upon the State, but also on the
community and even private entities. As to the State, the duty emanates from its role as parens
patriae which holds it under obligation to provide protection and look after the welfare of its
people especially those who cannot tend to themselves. Parens patriae means parent of his or
her country, and refers to the State in its role as "sovereign", or the State in its capacity as a
provider of protection to those unable to care for themselves. 33 In fulfilling this duty, the State
may resort to the exercise of its inherent powers: police power, eminent domain and power of
taxation.

In Gerochi v. Department of Energy,34the Court passed upon one of the inherent powers of the
state, the police power, where it emphasized, thus:

[P]olice power is the power of the state to promote public welfare by restraining and regulating
the use of liberty and property. It is the most pervasive, the least limitable, and the most
demanding of the three fundamental powers of the State. The justification is found in the Latin
maxim salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere
tuo ut alienum non laedas (so use your property as not to injure the property of others). As an
inherent attribute of sovereignty which virtually extends to all public needs, police power grants a
wide panoply of instruments through which the State, as parens patriae, gives effect to a host of
its regulatory powers. We have held that the power to "regulate" means the power to protect,
foster, promote, preserve, and control, with due regard for the interests, first and foremost, of the
public, then of the utility and of its patrons. 35 (Citations omitted)

It is in the exercise of its police power that the Congress enacted R.A. Nos. 9257 and 9442, the
laws mandating a 20% discount on purchases of medicines made by senior citizens and PWDs.
It is also in further exercise of this power that the legislature opted that the said discount be
claimed as tax deduction, rather than tax credit, by covered establishments.

The petitioner, however, claims that the change in the tax treatment of the discount is illegal as it
constitutes taking without just compensation. It even submitted financial statements for the years
2006 and 2007 to support its claim of declining profits when the change in the policy was
implemented.

The Court is not swayed.

To begin with, the issue of just compensation finds no relevance in the instant case as it had
already been made clear in Carlos Superdrug that the power being exercised by the State in the
imposition of senior citizen discount was its police power. Unlike in the exercise of the power of
eminent domain, just compensation is not required in wielding police power. This is precisely
because there is no taking involved, but only an imposition of burden.

In Manila Memorial Park, Inc., et al. v. Secretary of the DSWD, et al., 36 the Court ruled that by
examining the nature and the effects of R.A. No. 9257, it becomes apparent that the challenged
governmental act was an exercise of police power. It was held, thus:

[W]e now look at the nature and effects of the 20% discount to determine if it constitutes an
exercise of police power or eminent domain.

The 20% discount is intended to improve the welfare of senior citizens who, at their age, are less
likely to be gainfully employed, more prone to illnesses and other disabilities, and, thus, in need
of subsidy in purchasing basic commodities. It may not be amiss to mention also that the
discount serves to honor senior citizens who presumably spent the productive years of their lives
on contributing to the development and progress of the nation. This distinct cultural Filipino
practice of honoring the elderly is an integral part of this law.

As to its nature and effects, the 20% discount is a regulation affecting the ability of private
establishments to price their products and services relative to a special class of individuals,
senior citizens, for which the Constitution affords preferential concern. In turn, this affects the
amount of profits or income/gross sales that a private establishment can derive from senior
citizens. In other words, the subject regulation affects the pricing, and, hence, the profitability of a
private establishment. However, it does not purport to appropriate or burden specific properties,
used in the operation or conduct of the business of private establishments, for the use or benefit
of the public, or senior citizens for that matter, but merely regulates the pricing of goods and
services relative to, and the amount of profits or income/gross sales that such private
establishments may derive from, senior citizens.

The subject regulation may be said to be similar to, but with substantial distinctions from, price
control or rate of 'return on investment control laws which are traditionally regarded as police
power measures. x x x.37 (Citations omitted)

In the exercise of police power, "property rights of private individuals are subjected to restraints
and burdens in order to secure the general comfort, health, and prosperity of the State."38 Even
then, the State's claim of police power cannot be arbitrary or unreasonable. After all, the
overriding purpose of the exercise of the power is to promote general welfare, public health and
safety, among others. It is a measure, which by sheer necessity, the State exercises, even to the
point of interfering with personal liberties or property rights in order to advance common good. To
warrant such interference, two requisites must concur: (a) the interests of the public generally, as
distinguished from those of a particular class, require the interference of the! State; and (b) the
means employed are reasonably necessary to the: attainment of the object sought to be
accomplished and not unduly oppressive upon individuals. In other words, the proper exercise of
the police power requires the concurrence of a lawful subject and a lawful method.39

The subjects of R.A. Nos. 9257 and 9442, i.e., senior citizens and PWDs, are individuals whose
well-being is a recognized public duty. As a public duty, the responsibility for their care devolves
upon the concerted efforts of the State, the family and the community. In Article XIII, Section 1 of
the Constitution, the State is mandated to give highest priority to the enactment of measures that
protect and enhance the right of all the people to human dignity, reduce social, economic, and
political inequalities, and remove cultural inequities by equitably diffusing wealth and political
power1 for the common good. The more apparent manifestation of these social inequities is the
unequal distribution or access to healthcare services. To: abet in alleviating this concern, the
State is committed to adopt an integrated! and comprehensive approach to health development
which shall endeavor to make essential goods, health and other social services available to all
the people at affordable cost, with priority for the needs of the underprivileged sick, elderly,
disabled, women, and children.40

In the same manner, the family and the community have equally significant duties to perform in
reducing social inequality. The family as the basic social institution has the foremost duty to care
for its elderly members.41 On the other hand, the community, which include the private sector, is
recognized as an active partner of the State in pursuing greater causes. The private sector, being
recipients of the privilege to engage business in our land, utilize our goods as well as the
services of our people for proprietary purposes, it is only fitting to expect their support in
measures that contribute to common good. Moreover, their right to own, establish and operate
economic enterprises is always subject to the duty of the State to promote distributive justice and
to intervene when the common good so demands.42
The Court also entertains no doubt on the legality of the method taken by the legislature to
implement the declared policies of the subject laws, that is, to impose discounts on the medical
services and purchases of senior citizens and PWDs and to treat the said discounts as tax
deduction rather than tax credit. The measure is fair and reasonable and no credible proof was
presented to prove the claim that it was confiscatory. To be considered confiscatory, there must
be taking of property without just compensation.

Illuminating on this point is the discussion of the Court on the concept of taking in City of Manila
v. Hon. Laguio, Jr.,43 viz.:

There are two different types of taking that can be identified. A "possessory" taking occurs when
the government confiscates or physically occupies property. A "regulatory" taking occurs when
the government's regulation leaves no reasonable economically viable use of the property.

xxxx

No formula or rule can be devised to answer the questions of what is too far and when regulation
becomes a taking. In Mahon, Justice Holmes recognized that it was "a question of degree and
therefore cannot be disposed of by general propositions." On many other occasions as well, the
U.S. Supreme Court has said that the issue of when regulation constitutes a taking is a matter of
considering the facts in each case. x x x.

What is crucial in judicial consideration of regulatory takings is that government regulation is a

taking if it leaves no reasonable economically viable use of property in a manner that interferes
with reasonable expectations for use. A regulation that permanently denies all economically
beneficial or productive use of land is, from the owner's point of view, equivalent to a "taking"
unless principles of nuisance or property law that existed when the owner acquired the land
make the use prohibitable. When the owner of real property has been called upon to sacrifice all
economically beneficial uses in the name of the common good, that is, to leave his property
economically idle, he has suffered a taking.

xxxx

A restriction on use of property may also constitute a "taking" if not reasonably necessary to the
effectuation of a substantial public purpose or if it has an unduly harsh impact on the distinct
investment-backed expectations of the owner.44 (Citations omitted)

The petitioner herein attempts to prove its claim that the pertinent provisions of R.A. Nos. 9257
and 9442 amount to taking by presenting financial statements purportedly showing financial
losses incurred by them due to the adoption of the tax deduction scheme.

For the petitioner's clarification, the presentation of the financial statement is not of compelling
significance in justifying its claim for just compensation. What is imperative is for it to establish
that there was taking in the constitutional sense or that, in the imposition of the mandatory
discount, the power exercised by the state was eminent domain.

According to Republic of the Philippines v. Vda. de Castellvi,45five circumstances must be present

in order to qualify "taking" as an exercise of eminent domain. First, the expropriator must enter a
private property. Second, the entrance into private property must be for more than a momentary
period. Third, the entry into the property should be under warrant or color of legal
authority. Fourth, the property must be devoted to a public use or otherwise informally
appropriated or injuriously affected. Fifth, the utilization of the property for public use must be in
such a way as to oust the owner and deprive him of all beneficial enjoyment of the property. 46

The first requirement speaks of entry into a private property which clearly does not obtain in this
case. There is no private property that is; invaded or appropriated by the State. As it is, the
petitioner precipitately deemed future profits as private property and then proceeded to argue
that the State took it away without full compensation. This seemed preposterous considering that
the subject of what the petitioner supposed as taking was not even earned profits but merely an
expectation of profits, which may not even occur. For obvious reasons, there cannot be taking of
a contingency or of a mere possibility because it lacks physical existence that is necessary
before there could be any taking. Further, it is impossible to quantify the compensation for the
loss of supposed profits before it is earned.

The supposed taking also lacked the characteristics of permanence 47 and consistency. The 1âwphi1

presence of these characteristics is significant because they can establish that the effect of the
questioned provisions is the same on all establishments and those losses are indeed its
unavoidable consequence. But apparently these indications are wanting in this case. The reason
is that the impact on the establishments varies depending on their response to the changes
brought about by the subject provisions. To be clear, establishments, are not prevented from
adjusting their prices to accommodate the effects of the granting of the discount and retain their
profitability while being fully compliant to the laws. It follows that losses are not inevitable
because establishments are free to take business measures to accommodate the contingency.
Lacking in permanence and consistency, there can be no taking in the constitutional sense.
There cannot be taking in one establishment and none in another, such that the former can claim
compensation but the other may not. Simply told, there is no taking to justify compensation; there
is only poor business decision to blame.

There is also no ousting of the owner or deprivation of ownership. Establishments are neither
divested of ownership of any of their properties nor is anything forcibly taken from them. They
remain the owner of their goods and their profit or loss still depends on the performance of their
sales.

Apart from the foregoing, covered establishments are also provided with a mechanism to recoup
the amount of discounts they grant the senior citizens and PWDs. It is provided in Section 4(a) of
R.A. No. 9257 and Section 32 of R.A. No. 9442 that establishments may claim the discounts as
"tax deduction based on the net cost of the goods sold or services rendered." Basically, whatever
amount was given as discount, covered establishments may claim an equal amount as an
expense or tax deduction. The trouble is that the petitioner, in protesting the change in the tax
treatment of the discounts, apparently seeks tax incentive and not merely a return of the amount
given as discounts. It premised its interpretation of financial losses in terms of the effect of the
change in the tax treatment of the discount on its tax liability; hence, the claim that the measure
was confiscatory. However, as mentioned earlier in the discussion, loss of profits is not the
inevitable result of the change in tax treatment of the discounts; it is more appropriately a
consequence of poor business decision.

It bears emphasizing that the law does not place a cap on the amount of mark up that covered
establishments may impose on their items. This rests on the discretion of the establishment
which, of course, is expected to put in the price of the overhead costs, expectation of profits and
other considerations into the selling price of an item. In a simple illustration, here is Drug A, with
acquisition cost of ₱8.00, and selling price of ₱10.00. Then comes a law that imposes 20% on
senior citizens and PWDs, which affected Establishments 1, 2 and 3. Let us suppose that the
approximate number of patrons who purchases Drug A is 100, half of which are senior citizens
and PWDs. Before the passage of the law, all of the establishments are earning the same
amount from profit from the sale of Drug A, viz.:

Before the passage of the law:

Drug A
Acquisition cost ₱8.00
Selling price ₱10.00
 Number of patrons 100
Sales:
100 x ₱10.00 = ₱1,000.00
Profit: ₱200

After the passage of the law, the three establishments reacted differently. Establishment 1 was
passive and maintained the price of Drug A at ₱8.00 which understandably resulted in diminution
of profits.

Establishment 1

Drug A
Acquisition cost ₱8.00
Selling price ;₱10.00
Number of patrons 100
Senior Citizens/PWD 50
Sales
100 x ₱10.00 = ₱1,000.00
Deduction: ₱100.00
Profit: ₱100.00

On the other hand, Establishment 2, mindful that the new law will affect the profitability of the
business, made a calculated decision by increasing the mark up of Drug A to ₱3.20, instead of
only ₱2.00. This brought a positive result to the earnings of the company.

Establishment 2

Drug A
Acquisition cost ;₱8.00
Selling price ₱11.20
Number of patron 100
Senior Citizens/PWDs 50
Sales
100 x ₱10.00 = ₱1,000.00
Deduction: ₱112.00
Profit: ₱208.00

For its part, Establishment 3 raised the mark up on Drug A to only ₱3.00 just to even out the
effect of the law. This measure left a negligible effect on its profit, but Establishment 3 took it as a
social duty: to share in the cause being promoted by the government while still maintaining
profitability.

Establishment 3

Drug A
Acquisition cost ₱8.00
Selling price ₱11.20
 Number of patrons 100
Senior Citizens/PWD 50
Sales
100 x ₱10.00 = ₱1,000.00
Deduction: ₱110.00
Profit: ₱190.00

The foregoing demonstrates that it is not the law per se which occasioned the losses in the
covered establishments but bad business I judgment. One of the main considerations in making
business decisions is the law because its effect is widespread and inevitable. Literally, anything
can be a subject of legislation. It is therefore incumbent upon business managers to cover this
contingency and consider it in making business strategies. As shown in the illustration, the better
responses were exemplified by Establishments 2 and 3 which promptly put in the additional costs
brought about by the law into the price of Drug A. In doing so, they were able to maintain the
profitability of the business, even earning some more, while at the same time being fully
compliant with the law. This is not to mention that the illustration is even too simplistic and not'
the most ideal since it dealt only with a single drug being purchased by both regular patrons and
senior citizens and PWDs. It did not consider the accumulated profits from the other medical and
non-medical products being sold by the establishments which are expected to further curb the
effect of the granting of the discounts in the business.

It is therefore unthinkable how the petitioner could have suffered losses due to the mandated
discounts in R.A. Nos. 9257 and 9442, when a fractional increase in the prices of items could
bring the business standing at a balance even with the introduction of the subject laws. A level
adjustment in the pricing of items is a reasonable business measure to take in order to adapt to
the contingency. This could even make establishments earn more, as shown in the illustration,
since every fractional increase in the price of covered items translates to a wider cushion to taper
off the effect of the granting of discounts and ultimately results to additional profits gained from
the purchases of the same items by regular patrons who are not entitled to the discount. Clearly,
the effect of the subject laws in the financial standing of covered companies depends largely on
how they respond and forge a balance between profitability and their sense of social
responsibility. The adaptation is entirely up to them and they are not powerless to make
adjustments to accommodate the subject legislations.

Still, the petitioner argues that the law is confiscatory in the sense that the State takes away a
portion of its supposed profits which could have gone into its coffers and utilizes it for public
purpose. The petitioner claims that the action of the State amounts to taking for which it should
be compensated.

To reiterate, the subject provisions only affect the petitioner's right to profit, and not earned
profits. Unfortunately for the petitioner, the right to profit is not a vested right or an entitlement
that has accrued on the person or entity such that its invasion or deprivation warrants
compensation. Vested rights are "fixed, unalterable, or irrevocable."48 More extensively, they are
depicted as follows:

Rights which have so completely and definitely accrued to or settled in a person that they are
not subject to be defeated or cancelled by the act of any other private person, and which it is
right and equitable that the government should recognize and protect, as being lawful in
themselves, and settled according to the then current rules of law, and of which the individual
could not be deprived arbitrarily without injustice, or of which he could not justly be deprived
otherwise than by the established methods of procedure and for the public welfare. x x x A right
is not 'vested' unless it is more than a mere expectation based on the anticipated continuance of
present laws; it must be an established interest in property, not open to doubt. x x x To be vested
in its accurate legal sense, a right must be complete and consummated, and one of which the
person to whom it belongs cannot be divested without his consent.x x x.49 (Emphasis ours)
Right to profits does not give the petitioner the cause of action to ask for just compensation, it
being only an inchoate right or one that has not fully developed50 and therefore cannot be claimed
as one's own. An inchoate right is a mere expectation, which may or may not come into
existence. It is contingent as it only comes "into existence on an event or condition which may
not happen or be performed until some other event may prevent their vesting."51 Certainly, the
petitioner cannot claim confiscation or taking of something that has yet to exist. It cannot claim
deprivation of profit before the consummation of a sale and the purchase by a senior citizen or
PWD.

Right to profit is not an accrued right; it is not fixed, absolute nor indefeasible. It does not come
into being until the occurrence or realization of a condition precedent. It is a mere "contingency
that might never eventuate into a right. It stands for a mere possibility of profit but nothing might
ever be payable under it."52

The inchoate nature of the right to profit precludes the possibility of compensation because it
lacks the quality or characteristic which is necessary before any act of taking or expropriation can
be effected. Moreover, there is no yardstick fitting to quantify a contingency or to determine
compensation for a mere possibility. Certainly, "taking" presupposes the existence of a subject
that has a quantifiable or determinable value, characteristics which a mere contingency does not
possess.

Anent the question regarding the shift from tax credit to tax deduction, suffice it is to say that it is
within the province of Congress to do so in the exercise of its legislative power. It has the
authority to choose the subject of legislation, outline the effective measures to achieve its
declared policies and even impose penalties in case of non-compliance. It has the sole discretion
to decide which policies to pursue and devise means to achieve them, and courts often do not
interfere in this exercise for as long as it does not transcend constitutional limitations. "In
performing this duty, the legislature has no guide but its judgment and discretion and the wisdom
of experience."53 In Carter v. Carter Coal Co.,54legislative discretion has been described as
follows:

Legislative congressional discretion begins with the choice of means, and ends with the
adoption of methods and details to carry the delegated powers into effect. x x x [W]hile the
powers are rigidly limited to the enumerations of the Constitution, the means which may be
employed to carry the powers into effect are not restricted, save that they must be appropriate,
plainly adapted to the end, and not prohibited by, but consistent with, the letter and spirit of the
Constitution. x x x. 55 (Emphasis ours)

Corollary, whether to treat the discount as a tax deduction or tax credit is a matter addressed to
the wisdom of the legislature. After all, it is within its prerogative to enact laws which it deems
sufficient to address a specific public concern. And, in the process of legislation, a bill goes
through rigorous tests of validity, necessity and sufficiency in both houses of Congress before
enrolment. It undergoes close scrutiny of the members of Congress and necessarily had to
surpass the arguments hurled against its passage. Thus, the presumption of validity that goes
with every law as a form of deference to the process it had gone through and also to the
legislature's exercise of discretion. Thus, in lchong, etc., et al. v. Hernandez) etc., and
Sarmiento,56the Court emphasized, thus:

It must not be overlooked, in the first place, that the legislature, which is the constitutional
repository of police power and exercises the prerogative of determining the policy of the State, is
by force of circumstances primarily the judge of necessity, adequacy or reasonableness and
wisdom, of any law promulgated in the exercise of the police power, or of the measures
adopted to implement the public policy or to achieve public interest.x x x.57 (Emphasis ours)

The legislature may also grant rights and impose additional burdens: It may also regulate
industries, in the exercise of police power, for the protection of the public. R.A. Nos. 9257 and
9442 are akin to regulatory laws, the issuance of which is within the ambit of police power. The
minimum wage law, zoning ordinances, price control laws, laws regulating the operation of
motels and hotels, laws limiting the working hours to eight, and the like fall under this category. 58

Indeed, regulatory laws are within the category of police power measures from which affected
persons or entities cannot claim exclusion or compensation. For instance, private establishments
cannot protest that the imposition of the minimum wage is confiscatory since it eats up a
considerable chunk of its profits or that the mandated remuneration is not commensurate for the
work done. The compulsory nature of the provision for minimum wages underlies the effort of the
State; as R.A. No. 672759 expresses it, to promote productivity-improvement and gain-sharing
measures to ensure a decent standard of living for the workers and their families; to guarantee
the rights of labor to its just share in the fruits of production; to enhance employment generation
in the countryside through industry dispersal; and to allow business and industry reasonable
returns on investment, expansion and growth, and as the Constitution expresses it, to affirm
labor as a primary social economic force. 60

Similarly, the imposition of price control on staple goods in R.A. No. 758161 is likewise a valid
exercise of police power and affected establishments cannot argue that the law was depriving
them of supposed gains. The law seeks to ensure the availability of basic necessities and prime
commodities at reasonable prices at all times without denying legitimate business a fair return on
investment. It likewise aims to provide effective and sufficient protection to consumers against
hoarding, profiteering and cartels with respect to the supply, distribution, marketing and pricing of
said goods, especially during periods of calamity, emergency, widespread illegal price
manipulation and other similar situations.62

More relevantly, in Manila Memorial Park, Inc.,63it was ruled that it is within the bounds of the
police power of the state to impose burden on private entities, even if it may affect their profits,
such as in the imposition of price control measures. There is no compensable taking but only a
recognition of the fact that they are subject to the regulation of the State and that all personal or
private interests must bow down to the more paramount interest of the State.

This notwithstanding, the regulatory power of the State does not authorize the destruction of the
business. While a business may be regulated, such regulation must be within the bounds of
reason, i.e., the regulatory ordinance must be reasonable, and its provision cannot be oppressive
amounting to an arbitrary interference with the business or calling subject of regulation. A lawful
business or calling may not, under the guise of regulation, be unreasonably interfered with even
by the exercise of police power. 64 After all, regulation only signifies control or restraint, it does not
mean suppression or absolute prohibition. Thus, in Philippine Communications Satellite
Corporation v. Alcuaz, 65 the Court emphasized:

The power to regulate is not the power to destroy useful and harmless enterprises, but is the
power to protect, foster, promote, preserve, and control with due regard for the interest, first and
foremost, of the public, then of the utility and of its patrons. Any regulation, therefore, which
operates as an effective confiscation of private property or constitutes an arbitrary or
unreasonable infringement of property rights is void, because it is repugnant to the constitutional
guaranties of due process and equal protection of the laws. 66 (Citation omitted)

Here, the petitioner failed to show that R.A. Nos. 9257 and 9442, under the guise of regulation,
allow undue interference in an otherwise legitimate business. On the contrary, it was shown that
1avv phi1

the questioned laws do not meddle in the business or take anything from it but only regulate its
realization of profits.

The subject laws do not violate the

equal protection clause
The petitioner argues that R.A. Nos. 9257 and 9442 are violative of the equal protection clause in
that it failed to distinguish between those who have the capacity to pay and those who do not, in
granting the 20% discount. R.A. No. 9257, in particular, removed the income qualification in R.A.
No. 7432 of'₱60,000.00 per annum before a senior citizen may be entitled to the 20o/o discount.

The contention lacks merit.

The petitioner's argument is dismissive of the reasonable qualification on which the subject laws
were based. In City of Manila v. Hon. Laguio, Jr., 67 the Court emphasized:

Equal protection requires that all persons or things similarly situated should be treated alike, both
as to rights conferred and responsibilities imposed. Similar subjects, in other words, should not
be treated differently, so as to give undue favor to some and unjustly discriminate against others.
The guarantee means that no person or class of persons shall be denied the same protection of
laws which is enjoyed by other persons or other classes in like circumstances.68 (Citations
omitted)

"The equal protection clause is not infringed by legislation which applies only to those persons
falling within a specified class. If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently from another."69 For a
classification to be valid, (1) it must be based upon substantial distinctions, (2) it must be
germane to the purposes of the law, (3) it must not be limited to existing conditions only, and (4)
it must apply equally to all members of the same class. 70

To recognize all senior citizens as a group, without distinction as to income, is a valid

classification. The Constitution itself considered the elderly as a class of their own and deemed it
a priority to address their needs. When the Constitution declared its intention to prioritize the
predicament of the underprivileged sick, elderly, disabled, women, and children,71 it did not make
any reservation as to income, race, religion or any other personal circumstances. It was a blanket
privilege afforded the group of citizens in the enumeration in view of the vulnerability of their
class.

R.A. No. 9257 is an implementation of the avowed policy of the Constitution to enact measures
that protect and enhance the right of all the people to human dignity, reduce social, economic,
and political inequalities. 72 Specifically, it caters to the welfare of all senior citizens. The
classification is based on age and therefore qualifies all who have attained the age of 60. Senior
citizens are a class of their own, who are in need and should be entitled to government support,
and the fact that they may still be earning for their own sustenance should not disqualify them
from the privilege.

It is well to consider that our senior citizens have already reached the age when work
opportunities have dwindled concurrently as their physical health. They are no longer expected
1âwphi 1

to work, but there are still those who continue to work and contribute what they can to the
country. Thus, to single them out and take them out of the privileges of the law for continuing to
strive and earn income to fend for themselves is inimical to a welfare state that the Constitution
envisions. It is tantamount to penalizing them for their persistence. It is commending indolence
rather than rewarding diligence. It encourages them to become wards of the State rather than
productive partners.

Our senior citizens were the laborers, professionals and overseas contract workers of the past.
While some may be well to do or may have the capacity to support their sustenance, the
discretion to avail of the privileges of the law is up to them. But to instantly tag them. as
undeserving of the privilege would be the height of ingratitude; it is an outright discrimination.

The same ratiocination may be said of the recognition of PWDs as a class in R.A. No. 9442 and
in granting them discounts. It needs no further explanation that PWDs have special needs
1âwphi1
which, for most,' last their entire lifetime. They constitute a class of their own, equally deserving
of government support as our elderlies. While some of them maybe willing to work and earn
income for themselves, their disability deters them from living their full potential. Thus, the need
for assistance from the government to augment the reduced income or productivity brought about
by their physical or intellectual limitations.

There is also no question that the grant of mandatory discount is germane to the purpose of R.A.
Nos. 9257 and 9442, that is, to adopt an integrated and comprehensive approach to health
development and make essential goods and other social services available to all the people at
affordable cost, with special priority given to the elderlies and the disabled, among others. The
privileges granted by the laws ease their concerns and allow them to live more comfortably.

The subject laws also address a continuing concern of the government for the welfare of the
senior citizens and PWDs. It is not some random predicament but an actual, continuing and
pressing concern that requires preferential attention. Also, the laws apply to all senior citizens
and PWDs, respectively, without further distinction or reservation. Without a doubt, all the
elements for a valid classification were met.

The definitions of "disabilities" and

"PWDs" are clear and unequivocal

Undeterred, the petitioner claims that R.A. No. 9442 is ambiguous particularly in defining the
terms "disability" and "PWDs," such that it lack comprehensible standards that men of common
intelligence must guess at its meaning. It likewise bewails the futility of the given safeguards to
prevent abuse since government officials who are neither experts nor practitioners of medicine
are given the authority to issue identification cards that authorizes the granting of the privileges
under the law.

The Court disagrees.

Section 4(a) of R.A. No. 7277, the precursor of R.A. No. 94421 defines "disabled persons" as
follows:

(a) Disabled persons are those suffering from restriction or different abilities, as a result of a
mental, physical or sensory impairment, to perform an activity in the manner or within the range
considered normal for a human being[.]

On the other hand, the term "PWDs" is defined in Section 5.1 of the IRR of R.A. No. 9442 as
follows:

5.1. PersonswithDisability are those individuals defined under Section 4 of [R.A. No.] 7277 [or]
An Act Providing for the Rehabilitation, Self-Development and Self-Reliance of Persons with
Disability as amended and their integration into the Mainstream of Society and for Other
Purposes. This is defined as a person suffering from restriction or different abilities, as a result of
a mental, physical or sensory impairment, to perform an activity in a manner or within the range
considered normal for human being. Disability shall mean (1) a physical 1or mental impairment
that substantially limits one or more psychological, physiological or anatomical function of an
individual or activities of such individual; (2) a record of such an impairment; or (3) being
regarded as having such an impairment.

The foregoing definitions have a striking conformity with the definition of "PWDs" in Article 1 of
the United Nations Convention on the Rights of Persons with Disabilities which reads:

Persons with disabilities include those who have long-term physical, mental, intellectual or
sensory impairments which in interaction with various barriers may hinder their full and effective
participation in society on an equal basis with others. (Emphasis and italics ours)
The seemingly broad definition of the terms was not without good reasons. It recognizes that
"disability is an evolving concept"73 and appreciates the "diversity of PWDs."74 The terms were
given comprehensive definitions so as to accommodate the various forms of disabilities, and not
confine it to a particular case as this would effectively exclude other forms of physical, intellectual
or psychological impairments.

Moreover, in Estrada v. Sandiganbayan, 75 it was declared, thus:

A statute is not rendered uncertain and void merely because general terms are used therein, or
because of the employment of terms without defining them; much less do we have to define
every word we use. Besides, there is no positive constitutional or statutory command requiring
the legislature to define each and every word in an enactment. Congress is not restricted in the
form of expression of its will, and its inability to so define the words employed in a statute will not
necessarily result in the vagueness or ambiguity of the law so long as the legislative will is clear,
or at least, can be gathered from the whole act x x x.76 (Citation omitted)

At any rate, the Court gathers no ambiguity in the provisions of R.A. No. 9442. As regards the
petitioner's claim that the law lacked reasonable standards in determining the persons entitled to
the discount, Section 32 thereof is on point as it identifies who may avail of the privilege and the
manner of its availment. It states:

Sec. 32. x x x

The abovementioned privileges are available only to persons with disability who are Filipino
citizens upon submission of any of the following as proof of his/her entitlement thereto:

(I) An identification card issued by the city or municipal mayor or the barangay
captain of the place where the persons with disability resides;

(II) The passport of the persons with disability concerned; or

(III) Transportation discount fare Identification Card (ID) issued by the National
Council for the Welfare of Disabled Persons (NCWDP).

It is, however, the petitioner's contention that the foregoing authorizes government officials who
had no medical background to exercise discretion in issuing identification cards to those claiming
to be PWDs. It argues that the provision lends to the indiscriminate availment of the privileges
even by those who are not qualified.

The petitioner's apprehension demonstrates a superficial understanding of the law and its
implementing rules. To be clear, the issuance of identification cards to PWDs does not depend
on the authority of the city or municipal mayor, the DSWD or officials of the NCDA (formerly
NCWDP). It is well to remember that what entitles a person to the privileges of the law is
his disability, the fact of which he must prove to qualify. Thus, in NCDA Administrative Order
(A.O.) No. 001, series of 2008, 77 it is required that the person claiming disability must submit the
following requirements before he shall be issued a PWD Identification Card:

1. Two "1 x l" recent ID pictures with the names, and signatures or thumb marks at the back of
the picture.

2. One (1) Valid ID

3. Document to confirm the medical or disability condition 78

To confirm his disability, the person must obtain a medical certificate or assessment, as the case
maybe, issued by a licensed private or government physician, licensed teacher or head of a
business establishment attesting to his impairment. The issuing entity depends on whether the
disability is apparent or non-apparent. NCDAA.O. No. 001 further provides:79

DISABILITY DOCUMENT ISSUING ENTITY

Apparent Medical Licensed Private or
Disability Certificate Government
Physician
School Licensed Teacher
Assessment duly
signed by the School
Principal
Certificate of  Head of the
Disability Business

Establishment

 Head of Non-
Government
Organization

Non- Medical Licensed Private or

Apparent Certificate Government
Disability Physician

To provide further safeguard, the Department of Health issued A.O. No. 2009-0011, providing
guidelines for the availment of the 20% discount on the purchase of medicines by PWDs. In
making a purchase, the individual must present the documents enumerated in Section VI(4)(b ),
to wit:

i. PWD identification card x x x

ii. Doctor's prescription stating the name of the PWD, age, sex, address, date, generic
name of the medicine, dosage form, dosage strength, quantity, signature over printed
name of physician, physician's address, contact number of physician or dentist,
professional license number, professional tax receipt number and narcotic license
number, if applicable. To safeguard the health of PWDs and to prevent abuse of [R.A.
No.] 9257, a doctor's prescription is required in the purchase of over-the-counter
medicines. x x x.

iii. Purchase booklet issued by the local social/health office to PWDs for free containing
the following basic information:

a) PWD ID number

b) Booklet control number

c) Name of PWD

d) Sex
 e) Address

f) Date of Birth

g) Picture

h) Signature of PWD

i) Information of medicine purchased:

i.1 Name of medicine

i.2 Quantity

i.3 Attending Physician

i.4 License Number

i.5 Servicing drug store name

i.6 Name of dispensing pharmacist

j) Authorization letter of the PWD x x x in case the medicine is bought by

the representative or caregiver of the PWD.

The PWD identification card also has a validity period of only three years which facilitate in the
monitoring of those who may need continued support and who have been relieved of their
disability, and therefore may be taken out of the coverage of the law.

At any rate, the law has penal provisions which give concerned establishments the option to file a
case against those abusing the privilege Section 46(b) of R.A. No. 9442 provides that "[a]ny
person who abuses the privileges granted herein shall be punished with imprisonment of not less
than six months or a fine of not less than Five Thousand pesos (₱5,000.00), but not more than
Fifty Thousand pesos (₱50,000.00), or both, at the discretion of the court." Thus, concerned
establishments, together with the proper government agencies, must actively participate in
monitoring compliance with the law so that only the intended beneficiaries of the law can avail of
the privileges.

Indubitably, the law is clear and unequivocal, and the petitioner claim of vagueness to cast
uncertainty in the validity of the law does not stand.

WHEREFORE, in view of the foregoing disquisition, Section 4(a) of Republic Act No. 9257 and
Section 32 of Republic Act No. 9442 are hereby declared CONSTITUTIONAL.

<<page>>

SO ORDERED.
G.R. No. 197676 February 4, 2014

REMMAN ENTERPRISES, INC. and CHAMBER OF REAL ESTATE AND

BUILDERS'ASSOCIATION, Petitioners,
vs.
PROFESSIONAL REGULATORY BOARD OF REAL ESTATE SERVICE and PROFESSIONAL
REGULATION COMMISSION, Respondents.

DECISION

VILLARAMA, JR., J.:

Assailed in this petition for review under Rule 45 is the Decision1 dated July 12, 2011 of the
Regional Trial Court (RTC) of Manila, Branch 42 denying the petition to declare as
unconstitutional Sections 28(a), 29 and 32 of Republic Act (R.A.) No. 9646.

R.A. No. 9646, otherwise known as the "Real Estate Service Act of the Philippines" was signed
into law on June 29, 2009 by President Gloria Macapagal-Arroyo. It aims to professionalize the
real estate service sector under a regulatory scheme of licensing, registration and supervision of
real estate service practitioners (real estate brokers, appraisers, assessors, consultants and
salespersons) in the country. Prior to its enactment, real estate service practitioners were under
the supervision of the Department of Trade and Industry (DTI) through the Bureau of Trade
Regulation and Consumer Protection (BTRCP), in the exercise of its consumer regulation
functions. Such authority is now transferred to the Professional Regulation Commission (PRC)
through the Professional Regulatory Board of Real Estate Service (PRBRES) created under the
new law.

The implementing rules and regulations (IRR) of R.A. No. 9646 were promulgated on July 21,
2010 by the PRC and PRBRES under Resolution No. 02, Series of 2010.

On December 7, 2010, herein petitioners Remman Enterprises, Inc. (REI) and the Chamber of
Real Estate and Builders’ Association (CREBA) instituted Civil Case No. 10-124776 in the
Regional Trial Court of Manila, Branch 42. Petitioners sought to declare as void and
unconstitutional the following provisions of R.A. No. 9646:

SEC. 28. Exemptions from the Acts Constituting the Practice of Real Estate Service. – The
provisions of this Act and its rules and regulations shall not apply to the following:

(a) Any person, natural or juridical, who shall directly perform by himself/herself the acts
mentioned in Section 3 hereof with reference to his/her or its own property, except real estate
developers;

xxxx

SEC. 29. Prohibition Against the Unauthorized Practice of Real Estate Service. – No person shall
practice or offer to practice real estate service in the Philippines or offer himself/herself as real
estate service practitioner, or use the title, word, letter, figure or any sign tending to convey the
impression that one is a real estate service practitioner, or advertise or indicate in any manner
whatsoever that one is qualified to practice the profession, or be appointed as real property
appraiser or assessor in any national government entity or local government unit, unless he/she
has satisfactorily passed the licensure examination given by the Board, except as otherwise
provided in this Act, a holder of a valid certificate of registration, and professional identification
card or a valid special/temporary permit duly issued to him/her by the Board and the
Commission, and in the case of real estate brokers and private appraisers, they have paid the
required bond as hereto provided.
 xxxx

SEC. 32. Corporate Practice of the Real Estate Service. – (a) No partnership or corporation shall
engage in the business of real estate service unless it is duly registered with the Securities and
Exchange Commission (SEC), and the persons authorized to act for the partnership or
corporation are all duly registered and licensed real estate brokers, appraisers or consultants, as
the case may be. The partnership or corporation shall regularly submit a list of its real estate
service practitioners to the Commission and to the SEC as part of its annual reportorial
requirements. There shall at least be one (1) licensed real estate broker for every twenty (20)
accredited salespersons.

(b) Divisions or departments of partnerships and corporations engaged in marketing or selling

any real estate development project in the regular course of business must be headed by full-
time registered and licensed real estate brokers.

(c) Branch offices of real estate brokers, appraisers or consultants must be manned by a duly
licensed real estate broker, appraiser or consultant as the case may be.

In case of resignation or termination from employment of a real estate service practitioner, the
same shall be reported by the employer to the Board within a period not to exceed fifteen (15)
days from the date of effectivity of the resignation or termination.

Subject to the provisions of the Labor Code, a corporation or partnership may hire the services of
registered and licensed real estate brokers, appraisers or consultants on commission basis to
perform real estate services and the latter shall be deemed independent contractors and not
employees of such corporations. (Emphasis and underscoring supplied.)

According to petitioners, the new law is constitutionally infirm because (1) it violates Article VI,
Section 26 (1) of the 1987 Philippine Constitution which mandates that "[e]very bill passed by
Congress shall embrace only one subject which shall be expressed in the title thereof"; (2) it is in
direct conflict with Executive Order (E.O.) No. 648 which transferred the exclusive jurisdiction of
the National Housing Authority (NHA) to regulate the real estate trade and business to the
Human Settlements Commission, now the Housing and Land Use Regulatory Board (HLURB),
which authority includes the issuance of license to sell of subdivision owners and developers
pursuant to Presidential Decree (P.D.) No. 957; (3) it violates the due process clause as it
impinges on the real estate developers’ most basic ownership rights, the right to use and dispose
property, which is enshrined in Article 428 of the Civil Code; and (4) Section 28(a) of R.A. No.
9646 violates the equal protection clause as no substantial distinctions exist between real estate
developers and the exempted group mentioned since both are property owners dealing with their
own property.

Additionally, petitioners contended that the lofty goal of nurturing and developing a "corps of
technically competent, reasonable and respected professional real estate service practitioners" is
not served by curtailing the right of real estate developers to conduct their business of selling
properties. On the contrary, these restrictions would have disastrous effects on the real estate
industry as the additional cost of commissions would affect the pricing and affordability of real
estate packages. When that happens, petitioners claimed that the millions of jobs and billions in
revenues that the real estate industry generates for the government will be a thing of the past.

After a summary hearing, the trial court denied the prayer for issuance of a writ of preliminary
injunction.

On July 12, 2011, the trial court rendered its Decision2 denying the petition. The trial court held
that the assailed provisions are relevant to the title of the law as they are intended to regulate the
practice of real estate service in the country by ensuring that those who engage in it shall either
be a licensed real estate broker, or under the latter’s supervision. It likewise found no real discord
between E.O. No. 648 and R.A. No. 9646 as the latter does not render nugatory the license to
sell granted by the HLURB to real estate developers, which license would still subsist. The only
difference is that by virtue of the new law, real estate developers will now be compelled to hire
the services of one licensed real estate broker for every twenty salespersons to guide and
supervise the coterie of salespersons under the employ of the real estate developers.

On the issue of due process, the trial court said that the questioned provisions do not preclude
property owners from using, enjoying, or disposing of their own property because they can still
develop and sell their properties except that they have to secure the services of a licensed real
estate broker who shall oversee the actions of the unlicensed real estate practitioners under their
employ. Since the subject provisions merely prescribe the requirements for the regulation of the
practice of real estate services, these are consistent with a valid exercise of the State’s police
power. The trial court further ruled that Section 28(a) does not violate the equal protection clause
because the exemption of real estate developers was anchored on reasonable classification
aimed at protecting the buying public from the rampant misrepresentations often committed by
unlicensed real estate practitioners, and to prevent unscrupulous and unethical real estate
practices from flourishing considering the large number of consumers in the regular course of
business compared to isolated sale transactions made by private individuals selling their own
property.

Hence, this appeal on the following questions of law:

1. Whether there is a justiciable controversy for this Honorable Court to adjudicate;

2. Whether [R.A. No. 9646] is unconstitutional for violating the "one title-one subject" rule
under Article VI, Section 26 (1) of the Philippine Constitution;

3. Whether [R.A. No. 9646] is in conflict with PD 957, as amended by EO 648, with
respect to the exclusive jurisdiction of the HLURB to regulate real estate developers;

4. Whether Sections 28(a), 29, and 32 of [R.A. No. 9646], insofar as they affect the rights
of real estate developers, are unconstitutional for violating substantive due process; and

5. Whether Section 28(a), which treats real estate developers differently from other
natural or juridical persons who directly perform acts of real estate service with reference
to their own property, is unconstitutional for violating the equal protection clause.3

The Court’s Ruling

The petition has no merit.

Justiciable Controversy

The Constitution4 requires as a condition precedent for the exercise of judicial power the
existence of an actual controversy between litigants. An actual case or controversy involves a
conflict of legal rights, an assertion of opposite legal claims susceptible to judicial resolution.5 The
controversy must be justiciable – definite and concrete – touching on the legal relations of parties
having adverse legal interests, which may be resolved by a court of law through the application
of a law.6 In other words, the pleadings must show an active antagonistic assertion of a legal
right, on the one hand, and a denial thereof on the other; that is, it must concern a real and not a
merely theoretical question or issue. There ought to be an actual and substantial controversy
admitting of specific relief through a decree conclusive in nature, as distinguished from an
opinion advising what the law would be upon a hypothetical state of facts.7 An actual case is ripe
for adjudication when the act being challenged has a direct adverse effect on the individual
challenging it.8
There is no question here that petitioners who are real estate developers are entities directly
affected by the prohibition on performing acts constituting practice of real estate service without
first complying with the registration and licensing requirements for brokers and agents under R.A.
No. 9646. The possibility of criminal sanctions for disobeying the mandate of the new law is
likewise real. Asserting that the prohibition violates their rights as property owners to dispose of
their properties, petitioners challenged on constitutional grounds the implementation of R.A. No.
9646 which the respondents defended as a valid legislation pursuant to the State’s police power.
The Court thus finds a justiciable controversy that calls for immediate resolution.

No Violation of One-Title One-Subject Rule

Section 26(1), Article VI of the Constitution states:

SEC. 26 (1). Every bill passed by the Congress shall embrace only one subject which shall be
expressed in the title thereof.

In Fariñas v. The Executive Secretary,9 the Court explained the provision as follows:

The proscription is aimed against the evils of the so-called omnibus bills and log-rolling
legislation as well as surreptitious and/or unconsidered encroaches. The provision merely calls
for all parts of an act relating to its subject finding expression in its title.

To determine whether there has been compliance with the constitutional requirement that the
subject of an act shall be expressed in its title, the Court laid down the rule that –

Constitutional provisions relating to the subject matter and titles of statutes should not be so
narrowly construed as to cripple or impede the power of legislation. The requirement that the
subject of an act shall be expressed in its title should receive a reasonable and not a technical
construction. It is sufficient if the title be comprehensive enough reasonably to include the
general object which a statute seeks to effect, without expressing each and every end and
means necessary or convenient for the accomplishing of that object. Mere details need not be
set forth. The title need not be an abstract or index of the Act.10 (Emphasis supplied.)

The Court has previously ruled that the one-subject requirement under the Constitution is
satisfied if all the parts of the statute are related, and are germane to the subject matter
expressed in the title, or as long as they are not inconsistent with or foreign to the general subject
and title.11 An act 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 object.12

It is also well-settled that the "one title-one subject" rule does not require the Congress to employ
in the title of the enactment language of such precision as to mirror, fully index or catalogue all
the contents and the minute details therein. The rule is sufficiently complied with if the title is
comprehensive enough as to include the general object which the statute seeks to
effect.13 Indeed, this Court has invariably adopted a liberal rather than technical construction of
the rule "so as not to cripple or impede legislation."14

R.A. No. 9646 is entitled "An Act Regulating the Practice of Real Estate Service in the
Philippines, Creating for the Purpose a Professional Regulatory Board of Real Estate Service,
Appropriating Funds Therefor and For Other Purposes." Aside from provisions establishing a
regulatory system for the professionalization of the real estate service sector, the new law
extended its coverage to real estate developers with respect to their own properties. Henceforth,
real estate developers are prohibited from performing acts or transactions constituting real estate
service practice without first complying with registration and licensing requirements for their
business, brokers or agents, appraisers, consultants and salespersons.
Petitioners point out that since partnerships or corporations engaged in marketing or selling any
real estate development project in the regular course of business are now required to be headed
by full-time, registered and licensed real estate brokers, this requirement constitutes limitations
on the property rights and business prerogatives of real estate developers which are not all
reflected in the title of R.A. No. 9646. Neither are real estate developers, who are already
regulated under a different law, P.D. No. 957, included in the definition of real estate service
practitioners.

We hold that R.A. No. 9646 does not violate the one-title, one-subject rule.

The primary objective of R.A. No. 9646 is expressed as follows:

SEC. 2. Declaration of Policy. – The State recognizes the vital role of real estate service
practitioners in the social, political, economic development and progress of the country by
promoting the real estate market, stimulating economic activity and enhancing government
income from real property-based transactions. Hence, it shall develop and nurture through proper
and effective regulation and supervision a corps of technically competent, responsible and
respected professional real estate service practitioners whose standards of practice and service
shall be globally competitive and will promote the growth of the real estate industry.

We find that the inclusion of real estate developers is germane to the law’s primary goal of
developing "a corps of technically competent, responsible and respected professional real estate
service practitioners whose standards of practice and service shall be globally competitive and
will promote the growth of the real estate industry." Since the marketing aspect of real estate
development projects entails the performance of those acts and transactions defined as real
estate service practices under Section 3(g) of R.A. No. 9646, it is logically covered by the
regulatory scheme to professionalize the entire real estate service sector.

No Conflict Between R.A. No. 9646

and P.D. No. 957, as amended by E.O. No. 648

Petitioners argue that the assailed provisions still cannot be sustained because they conflict with
P.D. No. 957 which decreed that the NHA shall have "exclusive jurisdiction to regulate the real
estate trade and business." Such jurisdiction includes the authority to issue a license to sell to
real estate developers and to register real estate dealers, brokers or salesmen upon their
fulfillment of certain requirements under the law. By imposing limitations on real estate
developers’ property rights, petitioners contend that R.A. No. 9646 undermines the licenses to
sell issued by the NHA (now the HLURB) to real estate developers allowing them to sell
subdivision lots or condominium units directly to the public. Because the HLURB has been
divested of its exclusive jurisdiction over real estate developers, the result is an implied repeal of
P.D. No. 957 as amended by E.O. No. 648, which is not favored in law.

It is a well-settled rule of statutory construction that repeals by implication are not favored. In
order to effect a repeal by implication, the later statute must be so irreconcilably inconsistent and
repugnant with the existing law that they cannot be made to reconcile and stand together. The
clearest case possible must be made before the inference of implied repeal may be drawn, for
inconsistency is never presumed. There must be a showing of repugnance clear and convincing
in character. The language used in the later statute must be such as to render it irreconcilable
with what had been formerly enacted. An inconsistency that falls short of that standard does not
suffice.15 Moreover, the failure to add a specific repealing clause indicates that the intent was not
to repeal any existing law, unless an irreconcilable inconsistency and repugnancy exist in the
terms of the new and old laws.16

There is nothing in R.A. No. 9646 that repeals any provision of P.D. No. 957, as amended by
E.O. No. 648. P.D. No. 957, otherwise known as "The Subdivision and Condominium Buyers’
Protective Decree,"17 vested the NHA with exclusive jurisdiction to regulate the real estate trade
and business in accordance with its provisions. It empowered the NHA to register, approve and
monitor real estate development projects and issue licenses to sell to real estate owners and
developers. It further granted the NHA the authority to register and issue/revoke licenses of
brokers, dealers and salesmen engaged in the selling of subdivision lots and condominium units.

E.O. No. 648, issued on February 7, 1981, reorganized the Human Settlements Regulatory
Commission (HSRC) and transferred the regulatory functions of the NHA under P.D. 957 to the
HSRC. Among these regulatory functions were the (1) regulation of the real estate trade and
business; (2) registration of subdivision lots and condominium projects; (3) issuance of license to
sell subdivision lots and condominium units in the registered units; (4) approval of performance
bond and the suspension of license to sell; (5) registration of dealers, brokers and salesman
engaged in the business of selling subdivision lots or condominium units; and (6) revocation of
registration of dealers, brokers and salesmen.18

E.O. No. 90, issued on December 17, 1986, renamed the HSRC as the Housing and Land Use
Regulatory Board (HLURB) and was designated as the regulatory body for housing and land
development under the Housing and Urban Development Coordinating Council (HUDCC). To
date, HLURB continues to carry out its mandate to register real estate brokers and salesmen
dealing in condominium, memorial parks and subdivision projects pursuant to Section 11 of P.D.
No. 957, which reads:

SECTION 11. Registration of Dealers, Brokers and Salesmen. – No real estate dealer, broker or
salesman shall engage in the business of selling subdivision lots or condominium units unless he
has registered himself with the Authority in accordance with the provisions of this section.

If the Authority shall find that the applicant is of good repute and has complied with the applicable
rules of the Authority, including the payment of the prescribed fee, he shall register such
applicant as a dealer, broker or salesman upon filing a bond, or other security in lieu thereof, in
such sum as may be fixed by the Authority conditioned upon his faithful compliance with the
provisions of this Decree: Provided, that the registration of a salesman shall cease upon the
termination of his employment with a dealer or broker.

Every registration under this section shall expire on the thirty-first day of December of each year.
Renewal of registration for the succeeding year shall be granted upon written application
therefore made not less than thirty nor more than sixty days before the first day of the ensuing
year and upon payment of the prescribed fee, without the necessity of filing further statements or
information, unless specifically required by the Authority. All applications filed beyond said period
shall be treated as original applications.

The names and addresses of all persons registered as dealers, brokers, or salesmen shall be
recorded in a Register of Brokers, Dealers and Salesmen kept in the Authority which shall be
open to public inspection.

On the other hand, Section 29 of R.A. No. 9646 requires as a condition precedent for all persons
who will engage in acts constituting real estate service, including advertising in any manner one’s
qualifications as a real estate service practitioner, compliance with licensure examination and
other registration requirements including the filing of a bond for real estate brokers and private
appraisers. While Section 11 of P.D. No. 957 imposes registration requirements for dealers,
brokers and salespersons engaged in the selling of subdivision lots and condominium units,
Section 29 of R.A. No. 9646 regulates all real estate service practitioners whether private or
government. While P.D. No. 957 seeks to supervise brokers and dealers who are engaged in the
sale of subdivision lots and condominium units, R.A. No. 9646 aims to regulate the real estate
service sector in general by professionalizing their ranks and raising the level of ethical standards
for licensed real estate professionals.
There is no conflict of jurisdiction because the HLURB supervises only those real estate service
practitioners engaged in the sale of subdivision lots and condominium projects, specifically for
violations of the provisions of P.D. No. 957, and not the entire real estate service sector which is
now under the regulatory powers of the PRBRES. HLURB’s supervision of brokers and dealers
to effectively implement the provisions of P.D. No. 957 does not foreclose regulation of the real
estate service as a profession. Real estate developers already regulated by the HLURB are now
further required to comply with the professional licensure requirements under R.A. No. 9646, as
provided in Sections 28, 29 and 32. Plainly, there is no inconsistency or contradiction in the
assailed provisions of R.A. No. 9646 and P.D. No. 957, as amended.

The rule is that every statute must be interpreted and brought into accord with other laws in a
way that will form a uniform system of jurisprudence. The legislature is presumed to have known
existing laws on the subject and not to have enacted conflicting laws.19 Congress, therefore,
could not be presumed to have intended Sections 28, 29 and 32 of R.A. No. 9646 to run counter
to P.D. No. 957.

No Violation of Due Process

Petitioners contend that the assailed provisions of R.A. No. 9646 are unduly oppressive and
infringe the constitutional rule against deprivation of property without due process of law. They
stress that real estate developers are now burdened by law to employ licensed real estate
brokers to sell, market and dispose of their properties. Despite having invested a lot of money,
time and resources in their projects, petitioners aver that real estate developers will still have less
control in managing their business and will be burdened with additional expenses.

The contention has no basis. There is no deprivation of property as no restriction on their use
and enjoyment of property is caused by the implementation of R.A. No. 9646. If petitioners as
property owners feel burdened by the new requirement of engaging the services of only licensed
real estate professionals in the sale and marketing of their properties, such is an unavoidable
consequence of a reasonable regulatory measure.

Indeed, no right is absolute, and the proper regulation of a profession, calling, business or trade
has always been upheld as a legitimate subject of a valid exercise of the police power of the
State particularly when their conduct affects the execution of legitimate governmental functions,
the preservation of the State, public health and welfare and public morals.20 In any case, where
the liberty curtailed affects at most the rights of property, the permissible scope of regulatory
measures is certainly much wider. To pretend that licensing or accreditation requirements violate
the due process clause is to ignore the settled practice, under the mantle of police power, of
regulating entry to the practice of various trades or professions.21

Here, the legislature recognized the importance of professionalizing the ranks of real estate
practitioners by increasing their competence and raising ethical standards as real property
transactions are "susceptible to manipulation and corruption, especially if they are in the hands of
unqualified persons working under an ineffective regulatory system." The new regulatory regime
aimed to fully tap the vast potential of the real estate sector for greater contribution to our gross
domestic income, and real estate practitioners "serve a vital role in spearheading the continuous
flow of capital, in boosting investor confidence, and in promoting overall national progress."22

We thus find R.A. No. 9646 a valid exercise of the State’s police power. As we said in another
case challenging the constitutionality of a law granting discounts to senior citizens:

The law is a legitimate exercise of police power which, similar to the power of eminent domain,
has general welfare for its object. Police power is not capable of an exact definition, but has been
purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies
and provide enough room for an efficient and flexible response to conditions and circumstances,
thus assuring the greatest benefits. Accordingly, it has been described as "the most essential,
insistent and the least limitable of powers, extending as it does to all the great public needs." It is
"[t]he power vested in the legislature by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or
without, not repugnant to the constitution, as they shall judge to be for the good and welfare of
the commonwealth, and of the subjects of the same."

For this reason, when the conditions so demand as determined by the legislature, property rights
must bow to the primacy of police power because property rights, though sheltered by due
process, must yield to general welfare.

Police power as an attribute to promote the common good would be diluted considerably if on the
mere plea of petitioners that they will suffer loss of earnings and capital, the questioned provision
is invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory
effect of the provision in question, there is no basis for its nullification in view of the presumption
of validity which every law has in its favor.23 (Emphasis supplied.)

No Violation of Equal Protection Clause

Section 28 of R.A. No. 9646 exempts from its coverage natural and juridical persons dealing with
their own property, and other persons such as receivers, trustees or assignees in insolvency or
bankruptcy proceedings. However, real estate developers are specifically mentioned as an
exception from those enumerated therein. Petitioners argue that this provision violates the equal
protection clause because it unjustifiably treats real estate developers differently from those
exempted persons who also own properties and desire to sell them. They insist that no
substantial distinctions exist between ordinary property owners and real estate developers as the
latter, in fact, are more capable of entering into real estate transactions and do not need the
services of licensed real estate brokers. They assail the RTC decision in citing the reported
1âwphi1

fraudulent practices as basis for the exclusion of real estate developers from the exempted group
of persons under Section 28(a).

We sustain the trial court’s ruling that R.A. No. 9646 does not violate the equal protection clause.

In Ichong v. Hernandez,24 the concept of equal protection was explained as follows:

The equal protection of the law clause is against undue favor and individual or class privilege, as
well as hostile discrimination or the oppression of inequality. It is not intended to prohibit
legislation, which is limited either in the object to which it is directed or by territory within which it
is to operate. It does not demand absolute equality among residents; it merely requires that all
persons shall be treated alike, under like circumstances and conditions both as to privileges
conferred and liabilities enforced. The equal protection clause is not infringed by legislation which
applies only to those persons falling within such class, and reasonable grounds exists for making
a distinction between those who fall within such class and those who do not. (2 Cooley,
Constitutional Limitations, 824-825).25

Although the equal protection clause of the Constitution does not forbid classification, it is
imperative that the classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular legislation.26 If classification is germane to the
purpose of the law, concerns all members of the class, and applies equally to present and future
conditions, the classification does not violate the equal protection guarantee.27

R.A. No. 9646 was intended to provide institutionalized government support for the development
of "a corps of highly respected, technically competent, and disciplined real estate service
practitioners, knowledgeable of internationally accepted standards and practice of the
profession."28 Real estate developers at present constitute a sector that hires or employs the
largest number of brokers, salespersons, appraisers and consultants due to the sheer number of
products (lots, houses and condominium units) they advertise and sell nationwide. As early as in
the ‘70s, there has been a proliferation of errant developers, operators or sellers who have
reneged on their representation and obligations to comply with government regulations such as
the provision and maintenance of subdivision roads, drainage, sewerage, water system and
other basic requirements. To protect the interest of home and lot buyers from fraudulent acts and
manipulations perpetrated by these unscrupulous subdivision and condominium sellers and
operators, P.D. No. 957 was issued to strictly regulate housing and real estate development
projects. Hence, in approving R.A. No. 9646, the legislature rightfully recognized the necessity of
imposing the new licensure requirements to all real estate service practitioners, including and
more importantly, those real estate service practitioners working for real estate developers.
Unlike individuals or entities having isolated transactions over their own property, real estate
developers sell lots, houses and condominium units in the ordinary course of business, a
business which is highly regulated by the State to ensure the health and safety of home and lot
buyers.

The foregoing shows that substantial distinctions do exist between ordinary property owners
exempted under Section 28(a) and real estate developers like petitioners, and the classification
enshrined in R.A. No. 9646 is reasonable and relevant to its legitimate purpose. The Court thus
rules that R.A. No. 9646 is valid and constitutional.

Since every law is presumed valid, the presumption of constitutionality can be overcome only by
the clearest showing that there was indeed an infraction of the Constitution, and only when such
a conclusion is reached by the required majority may the Court pronounce, in the discharge of
the duty it cannot escape, that the challenged act must be struck down.29

Indeed, "all presumptions are indulged in favor of constitutionality; one who attacks a statute,
alleging unconstitutionality must prove its invalidity beyond a reasonable doubt; that a law may
work hardship does not render it unconstitutional; that if any reasonable basis may be conceived
which supports the statute, it will be upheld, and the challenger must negate all possible bases;
that the courts are not concerned with the wisdom, justice, policy, or expediency of a statute; and
that a liberal interpretation of the constitution in favor of the constitutionality of legislation should
be adopted."30

WHEREFORE, the petition is DENIED. The Decision dated July 12, 2011 of the Regional Trial
Court of Manila, Branch 42 in Civil Case No. 10-124776 is hereby AFFIRMED and UPHELD.

No pronouncement as to costs.

SO ORDERED.
 G.R. No. 167290, November 26, 2014

HERMANO OIL MANUFACTURING & SUGAR CORPORATION, Petitioner, v. TOLL REGULATORY

BOARD, ENGR. JAIME S. DUMLAO, JR., PHILIPPINE NATIONAL CONSTRUCTION CORPORATION
(PNCC) AND DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS (DPWH), Respondents.

DECISION

BERSAMIN, J.:

The issue to be determined concerns the demand of the petitioner to have access to the North Luzon
Expressway (NLEX) by way of an easement of right of way. The demand was rebuffed by the
respondents, and upheld by both the trial and appellate courts.

The Case

On appeal by review on certiorari is the decision promulgated on October 27, 2004,1 whereby the Court
of Appeals (CA) affirmed the dismissal of the petitioner’s complaint for specific performance by the
Regional Trial Court (RTC) in Malolos, Bulacan, Branch 7, through the order issued on March 6, 2002.2

Antecedents

The petitioner owned a parcel of land located at the right side of the Sta. Rita Exit of the NLEX situated
at Barangay Sta. Rita, Guiguinto, Bulacan and covered by Transfer Certificate of Title (TCT) No. T-
134222 in its name issued by the Registry of Deeds of Bulacan.3 The parcel of land was bounded by an
access fence along the NLEX. In its letter dated September 7, 2001,4 the petitioner requested that
respondent Toll Regulatory Board (TRB) grant an easement of right of way, contending that it had been
totally deprived of the enjoyment and possession of its property by the access fence that had barred its
entry into and exit from the NLEX. On September 26, 2001, however, the TRB denied the petitioner’s
request, explaining thusly: c hanro blesvi rt u allawlib rary

It is with regret that we cannot favorably consider your client’s request at this point in time. Said
request is inconsistent with the provision of Section 7.0 of Republic Act No. 2000, also known as the
Limited Access Highway Act. Moreover, allowing easement of right-of-way may have
detrimental/adverse effect on the scheduled rehabilitation and improvement of the North Luzon
Expressway Interchanges, as well as on the operational problems, i.e. traffic conflicts that may arise, if
approved.5
Thereafter, the petitioner sued the TRB and Engr. Jaime S. Dumlao, the TRB’s Executive Director, in the
RTC,6 demanding specific performance, the grant of the easement of right of way and damages (Civil
Case No. 37-M-2002). The petitioner amended its complaint to implead the Philippine National
Construction Corporation (PNCC) and the Department of Public Works and Highways (DPWH) as
indispensable parties.7

The petitioner alleged in its amended complaint that the access fence had totally deprived it of the use
and enjoyment of its property by preventing ingress and egress to its property; that the only access
leading to its property was the road network situated in front of its property; that it was thereby
deprived of its property without due process of law and just compensation; and that it was also denied
equal protection of the law because adjacent property owners had been given ingress and egress access
to their properties. It prayed that the RTC: chanrob lesvi rtual lawlib rary

1. Immediately issue a writ of preliminary injunction/temporary restraining order enjoining the

defendants, its agents and/or representatives from depriving plaintiff to ingress and egress of its
property;

2. After due hearing: chanrob lesvi rtua llawli bra ry

a) Render the foregoing writ of preliminary injunction perpetual;

b) Granting plaintiff a right of way;

c) Declare the condemnation of plaintiff’s property as null and void. Alternatively, plaintiff prays that
defendants be ordered to pay plaintiff a just and fair compensation of the latter’s property in the amount
of not less than Four Thousand Pesos (Ps. 4,000.00) per square meter;

d) To pay plaintiff the amount of THREE HUNDRED THOUSAND PESOS (Ps. 300,000.00) and Ps.
5,000.00 per court appearance by way of Attorney’s fees;

e) To pay plaintiff Moral and Exemplary Damages in the amount of Ps. 200,000.00; and
f) To pay plaintiff the costs of suit.
Plaintiff further prays for such other reliefs and remedies as may be deemed just and equitable under
the premises.8
Appearing for the TRB, the Office of the Solicitor General (OSG) filed a Motion to Dismiss with Opposition
to the Application for the Issuance of Temporary Restraining Order and/or Writ of Preliminary
Injunction based on the following grounds:9
I.

THE HONORABLE COURT HAS NO JURISDICTION OVER THE CASE

II.

THE PETITION STATES NO CAUSE OF ACTION CONSIDERING THAT:

A. PLAINTIFF IS NOT THE REAL PARTY IN INTEREST

B. EASEMENT WILL NOT LIE BECAUSE THE LIMITED ACCESS TO THE NORTH LUZON
EXPRESSWAY IS ALLOWED UNDER REPUBLIC ACT 2000

C. THE STATE CANNOT BE SUED WITHOUT ITS CONSENT

III.

THE REQUISITES FOR THE ISSUANCE OF TEMPORARY RESTRAINING ORDER AND/OR WRIT OF
INJUNCTION ARE NOT PRESENT

IV.

THE COMPLAINT HAS NO LEGAL BASIS, THE PROPER REMEDY AVAILABLE IN THIS CASE IS NOT
COMPLAINT BUT A PETITION FOR CERTIORARI UNDER RULE 65 OF THE RULES OF COURT.
In its order dated March 6, 2002,10 the RTC granted the motion to dismiss, observing as follows: chan roble svirtuallaw lib rary

The present action against the defendants Toll Regulatory Board and its Executive Director, Engr. Jaime
S. Dumlao, Jr., could be considered as a suit against the state without its consent as among the reliefs
prayed for in the complaint is to require the said defendants to pay, jointly and severally, a just and
reasonable compensation of the plaintiff’s property which, if awarded in the judgment against said
defendants, would ultimately involve an appropriation by the state of the amount needed to pay the
compensation and damages so awarded. Moreover, as pointed out by the defendants-movants,
defendant Jaime S. Dumlao, Jr. is sued in his official capacity so that the instant complaint against him
is tantamount to a claim against the state which cannot be sued without its consent.

This principle applies with equal force as regards new defendant Department of Public Works and
Highways (DPWH).

Defendant Philippine National Construction Corporation (PNCC), on the other hand, was impleaded as
additional defendant being the entity that operates the North Luzon Expressway and was primarily
responsible in depriving the plaintiff of the use and enjoyment of its property by reason of the
construction of the access or right of way fence that prevents ingress to and egress from the subject
property, considering further that the other defendants had refused to grant plaintiff’s request for an
easement of right of way.

The main objective and prayer of the plaintiff is for this court to issue a writ of injunction that will
restrain the defendants from depriving it of ingress and egress to its property in question or to grant to
it a right of way to its property.

Suffice it to say that the main relief sought by the plaintiff is beyond the jurisdiction of this court to
grant as provided for under Presidential Decree No. 1818 and Republic Act No. 8975 which essentially
prohibit the courts from issuing temporary restraining orders and/or writs of injunction against
government infrastructure projects, and which expressly declares any such TRO or writ of injunction void
under Section 3 of R.A. No. 8975.

In view of all the foregoing, the motion to dismiss is hereby GRANTED.

WHEREFORE, the instant complaint is hereby DISMISSED.

SO ORDERED.11
The petitioner sought reconsideration, but the RTC denied its motion on July 25, 2002.12

The petitioner appealed.13

Judgment of the CA

On October 27, 2004, the CA promulgated its assailed judgment, affirming the RTC’s dismissal of the
complaint, to wit:chan roblesv irt uallawl ibra ry

The law is clear. Plaintiff-appellant does not deny that the NLEX is a limited access facility. Neither did it
put forward any reason why it should not be covered by the said law. Plaintiff-appellant, therefore,
cannot expect any court to issue a decision in its favor in violation of an existing law. The Court further
notes that plaintiff-appellant skirted this issue in its pleadings perhaps because it recognizes the fact
that its prayers in the complaint before the trial court is in violation of the said law.

Moreover, as pointed out by defendants-appellees (Rollo, p. 19 and 127-128), when plaintiff-appellant

acquired the property on December 14, 1999 (See: Records, p. 33), the NLEX was already in existence
and as a matter of fact Entry No. 189568 in the title indicated that a portion of the property was already
sold to the Republic of the Philippines (See: Dorsal portion, Records, p. 33). It is basic that a person
cannot demand an easement of right of way if the isolation of the property was due to owner’s own act
(Art. 649, NCC; Villanueva v Velasco, 346 SCRA 99 [2000]). In the present case, when the plaintiff-
appellant bought the property in 1999, the NLEX was already in existence and so was the access fence.
In short, its predecessors-in-interest allowed the property to be isolated. Plaintiff-appellant is now bound
by the acts of its predecessors-in-interest.

Moreover, as admitted by plaintiff-appellant in its amended complaint, there is a road network in front of
the property which serves as its access (Records, p. 28). It is settled that to be able to demand a
compulsory right of way, the dominant estate must not have adequate access to a public highway
(Villanueva v Velasco, supra). Plaintiff-appellant did not complaint about the adequacy of the existing
road works.

Also, as pointed out by defendants-appellees, the action below was one for specific performance which is
proper only in case of contractual breach. In the present case, plaintiff-appellant cannot claim that
defendants-appellees committed a breach of contract because there is precisely no contract between
them.

As to the matter of non-suability, the Court notes that while defendant-appellee PNCC is a government
owned and controlled corporation, the other defendants-appellees are either agencies of the State
(DPWH and TRB) or an employee of a government agency. Plaintiff-appellant argued that the principle of
non-suability of the state does not apply when the government acted in a non-governmental capacity.
The Court, however, notes that plaintiff-appellant merely cites cases to this effect but did not put
forward any argument why the maintenance of NLEX should be considered as a non-governmental
function. It cannot be denied that the maintenance of the highways is part of the necessary functions of
the government of maintaining public infrastructures.

Coming now to PNCC although it is not strictly a government agency, its function is a necessary incident
to a government function and, hence, it should likewise enjoy immunity from suit (See: Union Insurance
Society of Canton, Ltd. v Republic of the Philippines, 46 SCRA 120 [1972]).

As to the assertion that no expropriation proceeding was taken against the subject property, the Court
agrees with the PNCC that these arguments were not raised in the Court below and, hence, is no longer
proper at this stage. Moreover, the Court notes that the proper party to complain against the alleged
lack of proper expropriation proceeding is the previous owner, when portion of the property was sold to
the Republic of the Philippines in 1979.

WHEREFORE, the appealed Order dated March 6, 2002 of the Regional Trial Court of Malolos, Bulacan,
Branch 7, in Civil Case No. 37-M-2002 is hereby AFFIRMED.

SO ORDERED.14
Issues

The present appeal is anchored on the following grounds, namely: chanrob lesvi rtua llawlib ra ry

FIRST
THE DECISION OF THE COURT OF APPEALS IS REPUGNANT TO THE DUE PROCESS AND EQUAL
PROTECTION CLAUSE ENSHRINED IN OUR CONSTITUTION AND PREVAILING JURISPRUDENCE.

SECOND

THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION IN DECLARING THAT ENTRY NO.
189568 IN THE TITLE OF HEREIN PETITIONER WAS ALREADY IN EXISTENCE WHICH SHOWED THAT
EVEN BEFORE THE ACQUISITION OF THE PROPERTY IN 1999, THE NLEX WAS ALREADY IN EXISTENCE
AND SO WAS THE ACCESS FENCE. THUS, ITS PREDECESSORS-IN-INTEREST ALLOWED THE PROPERTY
TO BE ISOLATED.

THIRD

THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT RESPONDENT PNCC, ALTHOUGH NOT
STRICTLY A GOVERNMENT AGENCY, SHOULD LIKEWISE ENJOY IMMUNITY FROM SUIT.15
The foregoing grounds boil down to the issue of whether Civil Case No. 37-M-2002 was properly
dismissed.

Ruling

We concur with both lower courts.

In our view, the TRB, Dumlao and the DPWH correctly invoked the doctrine of sovereign immunity in
their favor. The TRB and the DPWH performed purely or essentially government or public functions. As
such, they were invested with the inherent power of sovereignty. Being unincorporated agencies or
entities of the National Government, they could not be sued as such. On his part, Dumlao was acting as
the agent of the TRB in respect of the matter concerned.

In Air Transportation Office v. Ramos,16 we expounded on the doctrine of sovereign immunity in the
following manner: cha nrob lesvi rtua llawli bra ry

An unincorporated government agency without any separate juridical personality of its own enjoys
immunity from suit because it is invested with an inherent power of sovereignty. Accordingly, a claim for
damages against the agency cannot prosper; otherwise, the doctrine of sovereign immunity is violated.
However, the need to distinguish between an unincorporated government agency performing
governmental function and one performing proprietary functions has arisen. The immunity has been
upheld in favor of the former because its function is governmental or incidental to such function; it has
not been upheld in favor of the latter whose function was not in pursuit of a necessary function of
government but was essentially a business.
Nonetheless, the petitioner properly argued that the PNCC, being a private business entity, was not
immune from suit. The PNCC was incorporated in 1966 under its original name of Construction
Development Corporation of the Philippines (CDCP) for a term of fifty years pursuant to the Corporation
Code.17 In 1983, the CDCP changed its corporate name to the PNCC to reflect the extent of the
Government’s equity investment in the company, a situation that came about after the government
financial institutions converted their loans into equity following the CDCP’s inability to pay the
loans.18 Hence, the Government owned 90.3% of the equity of the PNCC, and only 9.70% of the PNCC’s
voting equity remained under private ownership.19 Although the majority or controlling shares of the
PNCC belonged to the Government, the PNCC was essentially a private corporation due to its having
been created in accordance with the Corporation Code, the general corporation statute.20 More
specifically, the PNCC was an acquired asset corporation under Administrative Order No. 59, and was
subject to the regulation and jurisdiction of the Securities and Exchange Commission.21 Consequently,
the doctrine of sovereign immunity had no application to the PNCC.

The foregoing conclusion as to the PNCC notwithstanding, the Court affirms the dismissal of the
complaint due to lack of jurisdiction and due to lack of cause of action.

It appears that the petitioner’s complaint principally sought to restrain the respondents from
implementing an access fence on its property, and to direct them to grant it a right of way to the NLEX.
Clearly, the reliefs being sought by the petitioner were beyond the jurisdiction of the RTC because no
court except the Supreme Court could issue an injunction against an infrastructure project of the
Government. This is because Presidential Decree No. 1818, issued on January 16, 1981, prohibited
judges from issuing restraining orders against government infrastructure projects, stating in its sole
provision: “No court in the Philippines shall have jurisdiction to issue any restraining order, preliminary
injunction or preliminary order, preliminary mandatory injunction in any case, dispute or controversy
involving an infrastructure project.” Presidential Decree No. 1818 was amended by Republic Act No.
8975,22 approved on November 7, 2000, whose pertinent parts provide: cha nrob lesvi rtua llawlib ra ry
Section 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions and
Preliminary Mandatory Injunctions.- No court, except the Supreme Court, shall issue any temporary
restraining order, preliminary injunction or preliminary mandatory injunction against the government, or
any of its subdivisions, officials or any person or entity, whether public or private, acting under the
government's direction, to restrain, prohibit or compel the following acts:

(a) Acquisition, clearance and development of the right-of-way and/or site or location of any national
government project;

(b) Bidding or awarding of contract/project of the national government as defined under Section 2
hereof;

(c) Commencement, prosecution, execution, implementation, operation of any such contract or project;

(d) Termination or rescission of any such contract/project; and

(e) The undertaking or authorization of any other lawful activity necessary for such contract/project.

This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including
but not limited to cases filed by bidders or those claiming to have rights through such bidders involving
such contract/project. This prohibition shall not apply when the matter is of extreme urgency involving a
constitutional issue, such that unless a temporary restraining order is issued, grave injustice and
irreparable injury will arise. The applicant shall file a bond, in an amount to be fixed by the court, which
bond shall accrue in favor of the government if the court should finally decide that the applicant was not
entitled to the relief sought.

If after due hearing the court finds that the award of the contract is null and void, the court may, if
appropriate under the circumstances, award the contract to the qualified and winning bidder or order a
rebidding of the same, without prejudice to any liability that the guilty party may incur under existing
laws.

Section 4. Nullity of Writs and Orders.- Any temporary restraining order, preliminary injunction or
preliminary mandatory injunction issued in violation of Section 3 hereof is void and of no force and
effect.

Section 5. Designation of Regional Trial Courts.- The Supreme Court may designate regional trial courts
to act as commissioners with the sole function of receiving facts of the case involving acquisition,
clearance and development of right-of-way for government infrastructure projects. The designated
regional trial court shall within thirty (30) days from the date of receipt of the referral, forward its
findings of facts to the Supreme Court for appropriate action. x x x
As to what was embraced by the term infrastructure project as used in Presidential Decree No. 1818, the
Court has ruled in Francisco, Jr. v. UEM-MARA Philippines Corporation:23
PD 1818 proscribes the issuance of a writ of preliminary injunction in any case involving an
infrastructure project of the government. The aim of the prohibition, as expressed in its second whereas
clause, is to prevent delay in the implementation or execution of government infrastructure projects
(particularly through the use of provisional remedies) to the detriment of the greater good since it
disrupts the pursuit of essential government projects and frustrates the economic development effort of
the nation.

Petitioner argues that the collection of toll fees is not an infrastructure project of the government. He
cites the definition of “infrastructure projects” we used in Republic v. Silerio:
cha nro blesvi rtua llawli bra ry

The term “infrastructure projects” means “construction, improvement and rehabilitation of roads, and
bridges, railways, airports, seaports, communication facilities, irrigation, flood control and drainage,
water supply and sewage systems, shore protection, power facilities, national buildings, school buildings,
hospital buildings, and other related construction projects that form part of the government capital
investment.”

xxxx
The definition of infrastructure projects specifically includes the improvement and
rehabilitation of roads and not just its construction. Accordingly, even if the Coastal Road was
merely upgraded and not constructed from scratch, it is still covered by the definition. Moreover, PD
1818 itself states that any person, entity or governmental official cannot be prohibited from
continuing the execution or implementation of such project or pursuing any lawful activity
necessary for such execution or implementation. Undeniably, the collection of toll fees is part of
the execution or implementation of the MCTEP as agreed upon in the TOA. The TOA is valid since it has
not been nullified. Thus it is a legitimate source of rights and obligations. It has the force and effect of
law between the contracting parties and is entitled to recognition by this Court. The MCTEP is an
infrastructure project of the government forming part of the government capital investment considering
that under the TOA, the government owns the expressways comprising the project. (Emphasis supplied.)
There can be no question that the respondents’ maintenance of safety measures, including the
establishment of the access fence along the NLEX, was a component of the continuous improvement and
development of the NLEX. Consequently, the lower courts could not validly restrain the implementation
of the access fence by granting the petitioner its right of way without exceeding its jurisdiction.

Nor did the establishment of the access fence violate the petitioner’s constitutional and legal rights.

It is relevant to mention that the access fence was put up pursuant to Republic Act No. 2000 (Limited
Access Highway Act), the enforcement of which was under the authority of the DOTC. Clarifying the
DOTC’s jurisdiction under this law in Mirasol v. Department of Public Works and Highways,24 the Court
has said–
RA 2000, otherwise known as the Limited Access Highway Act, was approved on 22 June 1957. Section
4 of RA 2000 provides that “[t]he Department of Public Works and Communications is authorized to do
so design any limited access facility and to so regulate, restrict, or prohibit access as to best serve the
traffic for which such facility is intended.” The RTC construed this authorization to regulate, restrict, or
prohibit access to limited access facilities to apply to the Department of Public Works and Highways
(DPWH).

The RTC’s ruling is based on a wrong premise. The RTC assumed that the DPWH derived its authority
from its predecessor, the Department of Public Works and Communications, which is expressly
authorized to regulate, restrict, or prohibit access to limited access facilities under Section 4 of RA 2000.
However, such assumption fails to consider the evolution of the Department of Public Works and
Communications.

xxxx

Upon the ratification of the 1987 Constitution in February 1987, the former Ministry of Public Works and
Highways became the Department of Public Works and Highways (DPWH) and the former Ministry of
Transportation and Communications became the Department of Transportation and Communications
(DOTC).

DPWH issued DO 74 and DO 215 declaring certain expressways as limited access facilities on 5 April
1993 and 25 June 1998, respectively. Later, the TRB, under the DPWH, issued the Revised Rules and
Regulations on Limited Access Facilities. However, on 23 July 1979, long before these department orders
and regulations were issued, the Ministry of Public Works, Transportation and Communications was
divided into two agencies – the Ministry of Public Works and the Ministry of Transportation and
Communications – by virtue of EO 546. The question is, which of these two agencies is now authorized
to regulate, restrict, or prohibit access to limited access facilities?

Under Section 1 of EO 546, the Ministry of Public Works (now DPWH) assumed the public
works functions of the Ministry of Public Works, Transportation and Communications. On the
other hand, among the functions of the Ministry of Transportation and Communications (now
Department of Transportation and Communications [DOTC]) were to (1) formulate and
recommend national policies and guidelines for the preparation and implementation of an
integrated and comprehensive transportation and communications systems at the national,
regional, and local levels; and (2) regulate, whenever necessary, activities relative to
transportation and communications and prescribe and collect fees in the exercise of such
power. Clearly, under EO 546, it is the DOTC, not the DPWH, which has authority to regulate,
restrict, or prohibit access to limited access facilities.

Even under Executive Order No. 125 (EO 125) and Executive Order No. 125-A (EO 125-A),
which further reorganized the DOTC, the authority to administer and enforce all laws, rules
and regulations relative to transportation is clearly with the DOTC.

Thus, DO 74 and DO 215 are void because the DPWH has no authority to declare certain
expressways as limited access facilities. Under the law, it is the DOTC which is authorized to
administer and enforce all laws, rules and regulations in the field of transportation and to
regulate related activities. (Emphasis supplied.)
Moreover, the putting up of the access fence on the petitioner’s property was in the valid exercise of
police power, assailable only upon proof that such putting up unduly violated constitutional limitations
like due process and equal protection of the law.25 In Mirasol v. Department of Public Works and
Highways, the Court has further noted that: chanroble svirtual lawlib rary
A toll way is not an ordinary road. As a facility designed to promote the fastest access to certain
destinations, its use, operation, and maintenance require close regulation. Public interest and safety
require the imposition of certain restrictions on toll ways that do not apply to ordinary roads. As a
special kind of road, it is but reasonable that not all forms of transport could use it.26
Clearly, therefore, the access fence was a reasonable restriction on the petitioner’s property given the
location thereof at the right side of Sta. Rita Exit of the NLEX. Although some adjacent properties were
accorded unrestricted access to the expressway, there was a valid and reasonable classification for doing
so because their owners provided ancillary services to motorists using the NLEX, like gasoline service
stations and food stores.27 A classification based on practical convenience and common knowledge is not
unconstitutional simply because it may lack purely theoretical or scientific uniformity.28

Lastly, the limited access imposed on the petitioner’s property did not partake of a compensable taking
due to the exercise of the power of eminent domain. There is no question that the property was not
taken and devoted for public use. Instead, the property was subjected to a certain restraint, i.e. the
access fence, in order to secure the general safety and welfare of the motorists using the NLEX. There
being a clear and valid exercise of police power, the petitioner was certainly not entitled to any just
compensation.29

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision
promulgated on October 27, 2004; and ORDERS the petitioner to pay the costs of suit.

SO ORDERED.
 G.R. No. 207132, December 06, 2016

ASSOCIATION OF MEDICAL CLINICS FOR OVERSEAS WORKERS, INC., (AMCOW),

REPRESENTED HEREIN BY ITS PRESIDENT, DR. ROLANDO VILLOTE, Petitioner, v. GCC
APPROVED MEDICAL CENTERS ASSOCIATION, INC. AND CHRISTIAN CANGCO, Respondents.

G.R. No. 207205

HON. ENRIQUE T. ONA, IN HIS CAPACITY AS SECRETARY OF THE DEPARTMENT OF

HEALTH, Petitioner, v. GCC APPROVED MEDICAL CENTERS ASSOCIATION, INC. AND CHRISTIAN
E. CANGCO, Respondents.

DECISION

BRION, J.:

In these consolidated petitions for review on certiorari1 filed under Rule 45 of the Rules of Court, by
the Association of Medical Clinics for Overseas Workers, Inc. (AMCOW) in GR No. 207132, and by
Secretary Enrique T. Ona (Secretary Ona) of the Department of Health (DOH) in GR No. 207205, we
resolve the challenge to the August 10, 2012 decision2 and the April 12, 2013 order3 of the Regional
Trial Court (RTC) of Pasay City, Branch 108, in Sp. Civil Action No. R-PSY-10-04391-CV.4

The August 10, 2012 decision and April 12, 2013 order declared null and void ab initio the August 23,
2010 and November 2, 2010 orders issued by the DOH directing respondent GCC Approved Medical
Centers Association, Inc. (GAMCA) to cease and desist from implementing the referral decking system
(these orders shall be alternately referred to as DOH CDO letters).

I. The Antecedents

On March 8, 2001, the DOH issued Administrative Order No. 5, Series of 20015(AO 5-
01) which directed the decking or equal distribution of migrant workers among the several
clinics who are members of GAMCA.

AO 5-01 was issued to comply with the Gulf Cooperative Countries (GCC) States' requirement that only
GCC-accredited medical clinics/hospitals' examination results will be honored by the GCC States'
respective embassies. It required an OFW applicant to first go to a GAMCA Center which, in turn, will
refer the applicant to a GAMCA clinic or hospital.

Subsequently, the DOH issued AO No. 106, Series of 20026holding in abeyance the
implementation of the referral decking system. The DOH reiterated its directive suspending
the referral decking system in AO No. 159, Series of 2004.7

In 2004, the DOH issued AO No. 167, Series of 20048repealing AO 5-01, reasoning that the referral
decking system did not guarantee the migrant workers' right to safe and quality health service. AO 167-
04 pertinently reads:
WHEREAS, after a meticulous and deliberate study, examination, and consultation about the GAMCA
referral decking system, the DOH believes that its mandate is to protect and promote the health of the
Filipino people by ensuring the rights to safe and quality health service and reliable medical examination
results through the stricter regulation of medical clinics and other health facilities, which the referral
decking system neither assures nor guarantees.

NOW, THEREFORE, for and in consideration of the foregoing, the DOH hereby withdraws, repeals and/or
revokes Administrative Order No. 5, series of 2001, concerning the referral decking system. Hence, all
other administrative issuances, bureau circulars and memoranda related to A.O. No. 5, series of 2001,
are hereby withdrawn, repealed and/revoked accordingly.
In Department Memorandum No. 2008-0210,9 dated September 26, 2008, then DOH Secretary
Francisco T. Duque III expressed his concern about the continued implementation of the referral decking
system despite the DOH's prior suspension directives. The DOH directed the "OFW clinics, duly
accredited/licensed by the DOH and/or by the Philippine Health Insurance Corporation (PHILHEALTH)
belonging to and identified with GAMCA x x x to forthwith stop, terminate, withdraw or otherwise
end the x x x 'referral decking system.'"10

GAMCA questioned the DOH's Memorandum No. 2008-0210 before the Office of the President (OP). In a
decision11 dated January 14, 2010, the OP nullified Memorandum No. 2008-0210.
On March 8, 2010, Republic Act (RA) No. 1002212lapsed into law without the President's
signature. Section 16 of RA No. 10022 amended Section 23 of RA No. 8042, adding two new paragraphs
- paragraphs (c) and (d). The pertinent portions of the amendatory provisions read:
Section 16. Under Section 23 of Republic Act No. 8042, as amended, add new paragraphs (c) and (d)
with their corresponding subparagraphs to read as follows:

(c) Department of Health. - The Department of Health (DOH) shall regulate the activities and
operations of all clinics which conduct medical, physical, optical, dental, psychological and
other similar examinations, hereinafter referred to as health examinations, on Filipino
migrant workers as requirement for their overseas employment. Pursuant to this, the DOH shall
ensure that:

(c.1) The fees for the health examinations are regulated, regularly monitored and duly published to
ensure that the said fees are reasonable and not exorbitant;

(c.2) The Filipino migrant worker shall only be required to undergo health examinations when there is
reasonable certainty that he or she will be hired and deployed to the jobsite and only those health
examinations which are absolutely necessary for the type of job applied for or those specifically required
by the foreign employer shall be conducted;

(c.3) No group or groups of medical clinics shall have a monopoly of exclusively conducting
health examinations on migrant workers for certain receiving countries;

(c.4) Every Filipino migrant worker shall have the freedom to choose any of the DOH-
accredited or DOH-operated clinics that will conduct his/her health examinations and that his or her
rights as a patient are respected. The decking practice, which requires an overseas Filipino
worker to go first to an office for registration and then farmed out to a medical clinic located
elsewhere, shall not be allowed;

(c.5) Within a period of three (3) years from the effectivity of this Act, all DOH regional and/or provincial
hospitals shall establish and operate clinics that can serve the health examination requirements of
Filipino migrant workers to provide them easy access to such clinics all over the country and lessen their
transportation and lodging expenses; and

(c.6) All DOH-accredited medical clinics, including the DOH operated clinics, conducting health
examinations for Filipino migrant workers shall observe the same standard operating procedures and
shall comply with internationally accepted standards in their operations to conform with the
requirements of receiving countries or of foreign employers/principals.

Any Foreign employer who does not honor the results of valid health examinations conducted by a DOH-
accredited or DOH-operated clinic shall be temporarily disqualified from participating in the overseas
employment program, pursuant to POEA rules and regulations.

In case an overseas Filipino worker is found to be not medically fit upon his/her immediate arrival in the
country of destination, the medical clinic that conducted the health examinations of such overseas
Filipino worker shall pay for his or her repatriation back to the Philippines and the cost of deployment of
such worker.

Any government official or employee who violates any provision of this subsection shall be removed or
dismissed from service with disqualification to hold any appointive public office for five (5) years. Such
penalty is without prejudice to any other liability which he or she may have incurred under existing laws,
rules or regulations. [emphases and underscoring supplied]
On August 13, 2010, the Implementing Rules and Regulations13 (IRR) of RA No. 8042, as amended
by RA No. 10022, took effect.

Pursuant to Section 16 of RA No. 10022, the DOH, through its August 23, 2010 letter-
order,14 directed GAMCA to cease and desist from implementing the referral decking system and
to wrap up their operations within three (3) days from receipt thereof. GAMCA received its copy of the
August 23, 2010 letter-order on August 25, 2010.

On August 26, 2010, GAMCA filed with the RTC of Pasig City a petition for certiorari and prohibition with
prayer for a writ of preliminary injunction and/or temporary restraining order (GAMCA's petition).15 It
assailed: (1) the DOH's August 23, 2010 letter-order on the ground of grave abuse of discretion; and
(2) paragraphs c.3 and c.4, Section 16 of RA No. 10022, as well as Section 1 (c) and (d), Rule XI of the
IRR, as unconstitutional.

Meanwhile, the DOH reiterated - through its November 2, 2010 order - its directive that GAMCA cease
and desist from implementing the referral decking system.16

On November 23, 2010, AMCOW filed an urgent motion for leave to intervene and to file an opposition-
in-intervention, attaching its opposition-in-intervention to its motion.17 In the hearing conducted the
following day, November 24, 2010, the RTC granted AMCOW's intervention; DOH and GAMCA did not
oppose AMCOW's motion.18 AMCOW subsequently paid the docket fees and submitted its
memorandum.19

In an order20 dated August 1, 2011, the RTC issued a writ of preliminary injunction21 directing the DOH
to cease and desist from implementing its August 23, 2010 and November 2, 2010 orders. The RTC
likewise issued an order denying the motion for inhibition/disqualification filed by AMCOW.

On August 18, 2011, the DOH sought reconsideration of the RTC's August 1, 2011 order.

The assailed RTC rulings

In its August 10, 2012 decision,22 the RTC granted GAMCA's certiorari petition and declared null and
void ab initio the DOH CDO letters. It also issued a writ of prohibition directing "the DOH Secretary and
all persons acting on his behalf to cease and desist from implementing the assailed Orders against the
[GAMCA]."

The RTC upheld the constitutionality of Section 16 of RA No. 10022, amending Section 23 of RA
No. 8042, but ruled that Section 16 of RA No. 10022 does not apply to GAMCA.

The RTC reasoned out that the prohibition against the referral decking system under Section 16 of RA
No. 10022 must be interpreted as applying only to clinics that conduct health examination on migrant
workers bound for countries that do not require the referral decking system for the issuance of visas to
job applicants.

It noted that the referral decking system is part of the application procedure in obtaining visas to enter
the GCC States, a procedure made in the exercise of the sovereign power of the GCC States to protect
their nationals from health hazards, and of their diplomatic power to regulate and screen entrants to
their territories. Under the principle of sovereign equality and independence of States, the Philippines
cannot interfere with this system and, in fact, must respect the visa-granting procedures of foreign
states in the same way that they respect our immigration procedures.

Moreover, to restrain GAMCA which is a mere adjunct of HMC, the agent of GCC States, is to restrain the
GCC States themselves. To the RTC, the Congress was aware of this limitation, pursuant to the generally
accepted principles of international law under Article II, Section 2 of the 1987 Constitution, when it
enacted Section 16 of RA No. 10022.

The DOH and AMCOW separately sought reconsideration of the RTC's August 10, 2012 decision, which
motions the RTC denied.23 The DOH and AMCOW separately filed the present Rule 45 petitions.

On August 24, 2013, AMCOW filed a motion for consolidation24 of the two petitions; the Court granted
this motion and ordered the consolidation of the two petitions in a resolution dated September 17,
2013.25cralaw red

In the resolution26 of April 14, 2015, the Court denied: (1) GAMCA's most urgent motion for issuance of
temporary restraining order/writ of preliminary injunction/status quo ante order (with request for
immediate inclusion in the Honorable Court's agenda of March 3, 2015, its motion dated March 2,
2015);27 and (2) the most urgent reiterating motion for issuance of temporary restraining order/writ of
preliminary injunction/status quo ante order dated March 11, 2015.28

The Court also suspended the implementation of the permanent injunction issued by the RTC of Pasay
City, Branch 108 in its August 10, 2012 decision.

II. The Issues

The consolidated cases before us present the following issues:

First, whether the Regional Trial Court legally erred in giving due course to the petition for certiorari and
prohibition against the DOH CDO letters;

Second, whether the DOH CDO letters prohibiting GAMCA from implementing the referral decking
system embodied under Section 16 of Republic Act No. 10022 violates Section 3, Article II of the 1987
Constitution for being an undue taking of property;
Third, whether the application of Section 16 of Republic Act No.10022 to the GAMCA violates the
international customary principles of sovereign independence and equality.

III. Our Ruling

A. The RTC legally erred when it gave due course to GAMCA's petition for certiorari and
prohibition.

The present case reached us through an appeal by certiorari (pursuant to Rule 45) of an RTC ruling,
assailing the decision based solely on questions of law. The RTC decision, on the other hand, involves
the grant of the petitions for certiorari and prohibition (pursuant to Rule 65) assailing the DOH CDO
letters for grave abuse of discretion.

The question before us asks whether the RTC made a reversible error of law when it issued
writs of certiorari and prohibition against the DOH CDO letters.

AMCOW questions the means by which GAMCA raised the issue of the legality of RA No. 10022 before
the RTC. AMCOW posits that GAMCA availed of an improper remedy, as certiorari and prohibition lie only
against quasi-judicial acts, and quasi-judicial and ministerial acts, respectively. Since the disputed cease
and desist order is neither, the RTC should have dismissed the petition outright for being an improper
remedy.

We agree with the petitioners' assertion that the RTC erred when it gave due course to GAMCA's
petition for certiorari and prohibition, but we do so for different reasons.

1. Certiorari under Rules of Court and under the courts' expanded jurisdiction under Art VIII,
Section 1 of the Constitution, as recognized by jurisprudence.

A.1.a. The Current Certiorari Situation

The use of petitions for certiorari and prohibition under Rule 65 is a remedy that judiciaries have used
long before our Rules of Court existed.29 As footnoted below, these writs - now recognized and regulated
as remedies under Rule 65 of our Rules of Court - have been characterized a "supervisory writs" used by
superior courts to keep lower courts within the confines of their granted jurisdictions, thereby ensuring
orderliness in lower courts' rulings.

We confirmed this characterization in Madrigal Transport v. Lapanday Holdings Corporation,30 when we

held that a writ is founded on the supervisory jurisdiction of appellate courts over inferior courts, and is
issued to keep the latter within the bounds of their jurisdiction. Thus, the writ corrects only errors of
jurisdiction of judicial and quasi-judicial bodies, and cannot be used to correct errors of law or fact. For
these mistakes of judgment, the appropriate remedy is an appeal.31

This situation changed after 1987 when the new Constitution "expanded" the scope of judicial power by
providing that -
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. (italics supplied)32
In Francisco v. The House of Representatives,33 we recognized that this expanded jurisdiction was meant
"to ensure the potency of the power of judicial review to curb grave abuse of discretion by 'any branch
or instrumentalities of government.'" Thus, the second paragraph of Article VIII, Section 1 engraves, for
the first time in its history, into black letter law the "expanded certiorari jurisdiction" of this Court,
whose nature and purpose had been provided in the sponsorship speech of its proponent, former Chief
Justice Constitutional Commissioner Roberto Concepcion:
xxxx

The first section starts with a sentence copied from former

Constitutions. It says:

The judicial power shall be vested in one Supreme Court and in such lower courts as may be established
by law.

I suppose nobody can question it.

The next provision is new in our constitutional law. I will read it first and explain.

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.

Fellow Members of this Commission, this is actually a product of our experience during martial law. As a
matter of fact, it has some antecedents in the past, but the role of the judiciary during the deposed
regime was marred considerably by the circumstance that in a number of cases against the government,
which then had no legal defense at all, the solicitor general set up the defense of political question and
got away with it. As a consequence, certain principles concerning particularly the writ of habeas corpus,
that is, the authority of courts to order the release of political detainees, and other matters related to
the operation and effect of martial law failed because the government set up the defense of political
question. And the Supreme Court said: "Well, since it is political, we have no authority to pass upon it."
The Committee on the Judiciary feels that this was not a proper solution of the questions involved. It did
not merely request an encroachment upon the rights of the people, but it, in effect, encouraged further
violations thereof during the martial law regime. x x x

xxxx

Briefly stated, courts of justice determine the limits of power of the agencies and offices of the
government as well as those of its officers. In other words, the judiciary is the final arbiter on the
question whether or not a branch of government or any of its officials has acted without jurisdiction or in
excess of jurisdiction, or so capriciously as to constitute an abuse of discretion amounting to excess of
jurisdiction or lack of jurisdiction. This is not only a judicial power but a duty to pass judgment on
matters of this nature.

This is the background of paragraph 2 of Section 1, which means that the courts cannot hereafter evade
the duty to settle matters of this nature, by claiming that such matters constitute a political
question.34 (italics in the original; emphasis and underscoring supplied)
Meanwhile that no specific procedural rule has been promulgated to enforce this "expanded"
constitutional definition of judicial power and because of the commonality of "grave abuse of discretion"
as a ground for review under Rule 65 and the courts expanded jurisdiction, the Supreme Court based on
its power to relax its rules35 allowed Rule 65 to be used as the medium for petitions invoking the courts'
expanded jurisdiction based on its power to relax its Rules.36 This is however an ad hoc approach that
does not fully consider the accompanying implications, among them, that Rule 65 is an essentially
distinct remedy that cannot simply be bodily lifted for application under the judicial power's expanded
mode. The terms of Rule 65, too, are not fully aligned with what the Court's expanded jurisdiction
signifies and requires.37

On the basis of almost thirty years' experience with the courts' expanded jurisdiction, the Court should
now fully recognize the attendant distinctions and should be aware that the continued use of Rule 65 on
an ad hoc basis as the operational remedy in implementing its expanded jurisdiction may, in the longer
term, result in problems of uneven, misguided, or even incorrect application of the courts' expanded
mandate.

The present case is a prime example of the misguided reading that may take place in constitutional
litigation: the procedural issues raised apparently spring from the lack of proper understanding of what a
petition for certiorari assails under the traditional and expanded modes, and the impact of these
distinctions in complying with the procedural requirements for a valid petition.

2. The Basic Distinctions

A.2.a. Actual Case or Controversy

Basic in the exercise of judicial power whether under the traditional or in the expanded setting - is the
presence of an actual case or controversy. For a dispute to be justiciable, a legally demandable and
enforceable right must exist as basis, and must be shown to have been violated.38

Whether a case actually exists depends on the pleaded allegations, as affected by the elements
of standing (translated in civil actions as the status of being a "real-party-in-interest," in
criminal actions as "offended party" and in special proceedings as "interested
party"),39ripeness,40prematurity, and the moot and academic principle that likewise interact with
one another. These elements and their interactions are discussed m greater detail below.

The Court's expanded jurisdiction - itself an exercise of judicial power - does not do away with the
actual case or controversy requirement in presenting a constitutional issue, but effectively simplifies this
requirement by merely requiring a prima facie showing of grave abuse of discretion in the assailed
governmental act.

A.2.b. Actions Correctable by Certiorari

A basic feature of the expanded jurisdiction under the constitutional definition of judicial power, is the
authority and command for the courts to act on petitions involving the commission by any branch or
instrumentality of government of grave abuse of discretion amounting to lack or excess of jurisdiction.

This command distinctly contrasts with the terms of Rule 65 which confines court certiorari action solely
to the review of judicial and quasi-judicial acts.41 These differing features create very basic distinctions
that must necessarily result in differences in the application of remedies.

While actions by lower courts do not pose a significant problem because they are necessarily acting
judicially when they adjudicate, a critical question comes up for the court acting on certiorari petitions
when governmental agencies are involved - under what capacity does the agency act?

This is a critical question as the circumstances of the present case show. When the government entity
acts quasi-judicially, the petition for certiorari challenging the action falls under Rule 65; in other
instances, the petition must be filed based on the courts' expanded jurisdiction.

A.2.c. Grave Abuse of Discretion

Another distinction, a seeming one as explained below, relates to the cited ground of a certiorari petition
under Rule 65 which speaks of lack or excess of jurisdiction or grave abuse of discretion amounting to
lack or excess of jurisdiction, as against the remedy under the courts' expanded jurisdiction which
expressly only mentions grave abuse of discretion amounting to lack or excess of jurisdiction.

This distinction is apparently not legally significant when it is considered that action outside of or in
excess of the granted authority necessarily involves action with grave abuse of discretion: no discretion
is allowed in areas outside of an agency's granted authority so that any such action would be a gravely
abusive exercise of power. The constitutional grant of power, too, pointedly addresses grave abuse of
discretion when it amounts to lack or excess of jurisdiction,42 thus establishing that the presence of
jurisdiction is the critical element; failure to comply with this requirement necessarily leads to
the certiorari petition's immediate dismissal.43

As an added observation on a point that our jurisprudence has not fully explored, the result of the action
by a governmental entity (e.g., a law or an executive order) can be distinguished from the perspective
of its legality as tested against the terms of the Constitution or of another law (where subordinate action
like an executive order is involved), vis-a-vis the legality of the resulting action where grave abuse of
discretion attended the governmental action or the exercise of the governmental function.

In the former, the conclusion may be plain illegality or legal error that characterized the law or exec
order (as tested, for example, under the established rules of interpretation); no consideration is made of
how the governmental entity exercised its function. In the latter case, on the other hand, it is the
governmental entity's exercise of its function that is examined and adjudged independently of the result,
with impact on the legality of the result of the gravely abusive action.

Where the dispute in a case relates to plain legal error, ordinary court action and traditional mode are
called for and this must be filed in the lower courts based on rules of jurisdiction while observing the
hierarchy of courts.

Where grave abuse of discretion is alleged to be involved, the expanded jurisdiction is brought into play
based on the express wording of the Constitution and constitutional implications may be involved (such
as grave abuse of discretion because of plain oppression or discrimination), but this must likewise be
filed with the lowest court of concurrent jurisdiction, unless the court highest in the hierarchy grants
exemption. Note that in the absence of express rules, it is only the highest court, the Supreme Court,
that can only grant exemptions.

From these perspectives, the use of grave abuse of discretion can spell the difference in deciding
whether a case filed directly with the Supreme Court has been properly filed.

A.2.d. Exhaustion of Available Remedies

A basic requirement under Rule 65 is that there be "no other plain, speedy and adequate remedy found
in law,"44 which requirement the expanded jurisdiction provision does not expressly carry. Nevertheless,
this requirement is not a significant distinction in using the remedy of certiorari under the traditional and
the expanded modes. The doctrine of exhaustion of administrative remedies applies to a petition
for certiorari, regardless of the act of the administrative agency concerned, i.e., whether the act
concerns a quasi-judicial, or quasi-legislative function, or is purely regulatory.45

Consider in this regard that once an administrative agency has been empowered by Congress to
undertake a sovereign function, the agency should be allowed to perform its function to the full extent
that the law grants. This full extent covers the authority of superior officers in the administrative
agencies to correct the actions of subordinates, or for collegial bodies to reconsider their own decisions
on a motion for reconsideration. Premature judicial intervention would interfere with this administrative
mandate, leaving administrative action incomplete; if allowed, such premature judicial action through a
writ of certiorari, would be a usurpation that violates the separation of powers principle that underlies
our Constitution.46

In every case, remedies within the agency's administrative process must be exhausted before external
remedies can be applied. Thus, even if a governmental entity may have committed a grave abuse of
discretion, litigants should, as a rule, first ask reconsideration from the body itself, or a review thereof
before the agency concerned. This step ensures that by the time the grave abuse of discretion issue
reaches the court, the administrative agency concerned would have fully exercised its jurisdiction and
the court can focus its attention on the questions of law presented before it.

Additionally, the failure to exhaust administrative remedies affects the ripeness to adjudicate
the constitutionality of a governmental act, which in turn affects the existence of the need for
an actual case or controversy for the courts to exercise their power of judicial review.47 The
need for ripeness - an aspect of the timing of a case or controversy does not change regardless of
whether the issue of constitutionality reaches the Court through the traditional means, or through the
Court's expanded jurisdiction. In fact, separately from ripeness, one other concept pertaining to judicial
review is intrinsically connected to it; the concept of a case being moot and academic.48

Both these concepts relate to the timing of the presentation of a controversy before the Court ripeness
relates to its prematurity, while mootness relates to a belated or unnecessary judgment on the issues.
The Court cannot preempt the actions of the parties, and neither should it (as a rule) render judgment
after the issue has already been resolved by or through external developments.

The importance of timing in the exercise of judicial review highlights and reinforces the need for an
actual case or controversy an act that may violate a party's right. Without any completed action or a
concrete threat of injury to the petitioning party, the act is not yet ripe for adjudication. It is merely a
hypothetical problem. The challenged act must have been accomplished or performed by either branch
or instrumentality of government before a court may come into the picture, and the petitioner must
allege the existence of an immediate or threatened injury to itself as a result of the challenged action.

In these lights, a constitutional challenge, whether presented through the traditional route or through
the Court's expanded jurisdiction, requires compliance with the ripeness requirement. In the case of
administrative acts, ripeness manifests itself through compliance with the doctrine of exhaustion of
administrative remedies.

In like manner, an issue that was once ripe for resolution but whose resolution, since then, has been
rendered unnecessary, needs no resolution from the Court, as it presents no actual case or controversy
and likewise merely presents a hypothetical problem. In simpler terms, a case is moot and academic
when an event supervenes to render a judgment over the issues unnecessary and superfluous.

Without the element of ripeness or a showing that the presented issue is moot and academic, petitions
challenging the constitutionality of a law or governmental act are vulnerable to dismissal.

Not to be forgotten is that jurisprudence also prohibits litigants from immediately seeking judicial relief
without first exhausting the available administrative remedies for practical reasons.49

From the perspective of practicality, immediate resort to the courts on issues that are within the
competence of administrative agencies to resolve, would unnecessarily clog the courts' dockets. These
issues, too, usually involve technical considerations that are within the agency's specific competence and
which, for the courts, would require additional time and resources to study and consider.50 Of course,
the Supreme Court cannot really avoid the issues that a petition for certiorari, filed with the lower courts
may present; the case may be bound ultimately to reach the Court, albeit as an appeal from the rulings
of the lower courts.

3. Situations Where a Petition for Certiorari May Be Used

There are two distinct situations where a writ of certiorari or prohibition may be sought. Each situation
carries requirements, peculiar to the nature of each situation, that lead to distinctions that should be
recognized in the use of certiorari under Rule 65 and under the courts' expanded jurisdiction.

The two situations differ in the type of questions raised. The first is the constitutional situation where
the constitutionality of acts are questioned. The second is the non-constitutional situation where acts
amounting to grave abuse of discretion are challenged without raising constitutional questions or
violations.

The process of questioning the constitutionality of a governmental action provides a notable area of
comparison between the use of certiorari in the traditional and the expanded modes.

Under the traditional mode, plaintiffs question the constitutionality of a governmental action through
the cases they file before the lower courts; the defendants may likewise do so when they interpose the
defense of unconstitutionality of the law under which they are being sued. A petition for declaratory
relief may also be used to question the constitutionality or application of a legislative (or quasi-
legislative) act before the court.51

For quasi-judicial actions, on the other hand, certiorari is an available remedy, as acts or exercise of
functions that violate the Constitution are necessarily committed with grave abuse of discretion for being
acts undertaken outside the contemplation of the Constitution. Under both remedies, the petitioners
should comply with the traditional requirements of judicial review, discussed below.52 In both cases, the
decisions of these courts reach the Court through an appeal by certiorari under Rule 45.

In contrast, existing Court rulings in the exercise of its expanded jurisdiction have allowed the direct
filing of petitions for certiorari and prohibition with the Court to question, for grave abuse of discretion,
actions or the exercise of a function that violate the Constitution.53 The governmental action may be
questioned regardless of whether it is quasi-judicial, quasi-legislative, or administrative in nature. The
Court's expanded jurisdiction does not do away with the actual case or controversy requirement for
presenting a constitutional issue, but effectively simplifies this requirement by merely requiring a prima
facie showing of grave abuse of discretion in the exercise of the governmental act.54

To return to judicial review heretofore mentioned, in constitutional cases where the question of
constitutionality of a governmental action is raised, the judicial power the courts exercise is likewise
identified as the power of judicial review - the power to review the constitutionality of the actions of
other branches of government.55 As a rule, as required by the hierarchy of courts principle, these
cases are filed with the lowest court with jurisdiction over the matter. The judicial review that the courts
undertake requires:
1) there be an actual case or controversy calling for the exercise of
judicial power;

(2) the person challenging the act must have "Standing" to challenge; he
must have a personal and substantial interest in the case such that
he has sustained, or will sustain, direct injury as a result of its
enforcement;

(3) the question of constitutionality must be raised at the earliest

possible opportunity; and

(4) the issue of constitutionality must be the very lis mota of the case.56
The lower court's decision under the constitutional situation reaches the Supreme Court through the
appeal process, interestingly, through a petition for review on certiorari under Rule 45 of the Rules of
Court.

In the non-constitutional situation, the same requirements essentially apply, less the requirements
specific to the constitutional issues. In particular, there must be an actual case or controversy and the
compliance with requirements of standing, as affected by the hierarchy of courts, exhaustion of
remedies, ripeness, prematurity, and the moot and academic principles.
A.3.a. The "Standing" Requirement

Under both situations, the party bringing suit must have the necessary "standing." This means that this
party has, in its favor, the demandable and enforceable right or interest giving rise to a justiciable
controversy after the right is violated by the offending party.

The necessity of a person's standing to sue derives from the very definition of judicial power. Judicial
power includes the duty of the courts to settle actual controversies involving rights which are legally
demandable and enforceable. Necessarily, the person availing of a judicial remedy must show that he
possesses a legal interest or right to it, otherwise, the issue presented would be purely hypothetical and
academic. This concept has been translated into the requirement to have "standing" in judicial
review,57 or to be considered as a "real-party-in-interest" in civil actions,58 as the "offended party" in
criminal actions59 and the "interested party" in special proceedings.60

While the Court follows these terms closely in both non-constitutional cases and constitutional cases
under the traditional mode, it has relaxed the rule in constitutional cases harrdled under the expanded
jurisdiction mode. in the latter case, a prima facie showing that the questioned governmental act
violated the Constitution, effectively disputably shows an injury to the sovereign Filipino nation who
approved the Constitution and endowed it with authority, such that the challenged act may be
questioned by any Philippine citizen before the Supreme Court.61 In this manner, the "standing"
requirement is relaxed compared with the standard of personal stake or injury that the traditional
petition requires.

The relaxation of the standing requirement has likewise been achieved through the application of the
"transcendental importance doctrine" under the traditional mode for constitutional cases.62 (Under the
traditional mode, "transcendental importance" not only relaxes the standing requirement, but also allows
immediate access to this Court, thus exempting the petitioner from complying with the hierarchy of
courts requirement.)63

More importantly perhaps, the prima facie showing of grave abuse of discretion in constitutional cases
also implies that the injury alleged is actual or imminent, and not merely hypothetical.

Through this approach, the Court's attention is directed towards the existence of an actual case or
controversy - that is, whether the government indeed violated the Constitution to the detriment of the
Filipino people without the distractions of determining the existence of transcendental importance
indicators unrelated to the dispute and which do not at all determine whether the Court properly
exercises its power of judicial review.

Parenthetically, in the traditional mode, the determination of the transcendental importance of the issue
presented,64 aside from simply relaxing the standing requirement, may result in the dilution of the actual
case or controversy element because of the inextricable link between standing and the existence of an
actual case or controversy.

Consider, in this regard, that an actual case or controversy that calls for the exercise of judicial power
necessarily requires that the party presenting it possesses the standing to mount a challenge to a
governmental act. A case or controversy exists when there is an actual dispute between parties over
their legal rights, which remains in conflict at the time the dispute is presented before the
court.65 Standing, on the other hand, involves a personal and substantial interest in the case because
the petitioner has sustained, or will sustain, direct injury as a result of the violation of its right.66

With the element of "standing" (or the petitioner's personal or substantial stake or interest in the case)
relaxed, the practical effect is to dilute the need to show that an immediate actual dispute over legal
rights did indeed take place and is now the subject of the action before the court.67

In both the traditional and the expanded modes, this relaxation carries a ripple effect under established
jurisprudential rulings,68 affecting not only the actual case or controversy requirement, but compliance
with the doctrine of hierarchy of courts, discussed in greater detail below.

A.3.b. The Hierarchy of Courts Principle

Another requirement that a certiorari petition carries, springs from the principle of "hierarchy of courts"
which recognizes the various levels of courts in the country as they are established under the
Constitution and by law, their ranking and effect of their rulings in relation with one another, and how
these different levels of court interact with one another.69 Since courts are established and given their
defined jurisdictions by law, the hierarchy of the different levels of courts should leave very little opening
for flexibility (and potential legal questions), but for the fact that the law creates courts at different and
defined levels but with concurrent jurisdictions.
The Constitution itself has partially determined the judicial hierarchy in the Philippine legal system by
designating the Supreme Court as the highest court with irreducible powers; its rulings serve as
precedents that other courts must follow70 because they form part of the law of the land.71 As a rule, the
Supreme Court is not a trial court and rules only on questions of law, in contrast with the Court of
Appeals and other intermediate courts72 which rule on both questions of law and of fact. At the lowest
level of courts are the municipal and the regional trial courts which handle questions of fact and law at
the first instance according to the jurisdiction granted to them by law.

Petitions for certiorari and prohibition fall under the concurrent jurisdiction of the regional trial courts
and the higher courts, all the way up to the Supreme Court. As a general rule, under the hierarchy of
courts principle, the petition must be brought to the lowest court with jurisdiction;73 the petition brought
to the higher courts may be dismissed based on the hierarchy principle. Cases, of course, may ultimately
reach the Supreme Court through the medium of an appeal.

The recognition of exceptions to the general rule is provided by the Supreme Court through
jurisprudence, i.e., through the cases that recognized the propriety of filing cases directly with the
Supreme Court. This is possible as the Supreme Court has the authority to relax the application of its
own rules.74

As observed above, this relaxation waters down other principles affecting the remedy of certiorari. While
the relaxation may result in greater and closer supervision by the Court over the lower courts and quasi-
judicial bodies under Rule 65, the effect may not always be salutary in the long term when it is
considered that this may affect the constitutional standards for the exercise of judicial power,
particularly the existence of an actual case or controversy.

The "transcendental importance" standard, in particular, is vague, open-ended and value-laden, and
should be limited in its use to exemptions from the application of the hierarchy of courts principle. It
should not carry any ripple effect on the constitutional requirement for the presence of an actual case or
controversy.

4. The petition for certiorari and prohibition against the DOH Letter was filed before the
wrong court.

In the present case, the act alleged to be unconstitutional refers to the cease and desist order that the
DOH issued against GAMCA's referral decking system. Its constitutionality was questioned through a
petition for certiorari and prohibition before the RTC. The case reached this Court through a Rule 45
appeal by certiorari under the traditional route.

In using a petition for certiorari and prohibition to assail the DOHCDO letters, GAMCA committed
several procedural lapses that rendered its petition readily dismissible by the RTC. Not only did the
petitioner present a premature challenge against an administrative act; it also committed the
grave jurisdictional error of filing the petition before the wrong court.

A.4.a. The DOH CDO letters were issued in the exercise of the DOH's quasi-judicial functions,
and could be assailed through Rule 65 on certiorari and prohibition.

A cease and desist order is quasi-judicial in nature, as it applies a legislative policy to an individual or
group within the coverage of the law containing the policy.

The Court, in Municipal Council of Lemery, Batangas v. Provincial Board of Batangas,75 recognized the
difficulty of d fining the precise demarcation line between what are judicial and what are administrative
or ministerial functions, as the exercise of judicial functions may involve the performance of legislative
or administrative duties, and the performance of administrative or ministerial duties may, to some
extent, involve the exercise of functions judicial in character. Thus, the Court held that the nature of
the act to be performed, rather than of the office, board, or body which performs it, should
determine whether or not an action is in the discharge of a judicial or a quasi-judicial function.76

Generally, the exercise of judicial functions involves the determination of what the law is, and what the
legal rights of parties are under this law with respect to a matter in controversy. Whenever an officer is
clothed with this authority and undertakes to determine those questions, he acts judicially.77

In the administrative realm, a government officer or body exercises a quasi-judicial function when it
hears and determines questions of fact to which the legislative policy is to apply, and decide, based on
the law's standards, matters relating to the enforcement and administration of the law.78

The DOH CDO letter directed GAMCA to cease and desist from engaging in the referral decking system
practice within three days from receipt of the letter. By issuing this CDO letter implementing Section 16
of RA No. 10022, the DOH (1) made the finding of fact that GAMCA implements the referral decking
system, and (2) applied Section 16 of RA No. 10022, to conclude that GAMCA's practice is prohibited by
law and should be stopped.

From this perspective, the DOH acted in a quasi-judicial capacity: its CDO letter determined a question
of fact, and applied the legislative policy prohibiting the referral decking system practice.

Notably, cease and desist orders have been described and treated as quasi-judicial acts in past cases,
and had even been described as similar to the remedy of injunction granted by the courts.79

A.4.b. The petitions for certiorari and prohibition against the DOH CDO letters fall within the
jurisdiction of the Court of Appeals.

Since the CDO Letter was a quasi-judicial act, the manner by which GAMCA assailed it before the courts
of law had been erroneous; the RTC should not have entertained GAMCA's petition.

First, acts or omissions by quasi-judicial agencies, regardless of whether the remedy involves a Rule 43
appeal or a Rule 65 petition for certiorari, is cognizable by the Court of Appeals. In particular, Section 4,
Rule 65 of the Rules of Court provides:
Section 4. When and where petition filed. The petition shall be filed not later than sixty (60) days from
notice of the judgment, order or resolution. In case a motion for reconsideration or new trial is timely
filed, whether such motion is required or not, the sixty (60) day period shall be counted from notice of
the denial of said motion.

The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions of a lower court
or of a corporation, board, officer or person, in the Regional Trial Court exercising jurisdiction over the
territorial area as defined by the Supreme Court. It may also be filed in the Court of Appeals whether or
not the same is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its appellate
jurisdiction. If it involves the acts or omissions of a quasi-judicial agency, unless otherwise
provided by law or these Rules, the petition shall be filed in and cognizable only by the Court
of Appeals. (emphasis, italics, and underscoring supplied)
Since the DOH is part of the Executive Department and has acted in its quasi-judicial capacity, the
petition challenging its CDO letter should have been filed before the Court of Appeals. The RTC thus did
not have jurisdiction over the subject matter of the petitions and erred in giving due course to the
petition for certiorari and prohibition against the DOH CDO letters. In procedural terms, petitions
for certiorari and prohibition against a government agency are remedies avaiJable to assail its quasi-
judicial acts, and should thus have been filed before the CA.

The provision in Section 4, Rule 65 requiring that certiorari petitions challenging quasi-judicial acts to be
filed with the CA is in full accord with Section 9 of Batas Pambansa Blg. 12980 on the same point. Section
9 provides:
Section 9. Jurisdiction.- The Court of Appeals shall exercise:

1. Original jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas corpus, and quo
warranto, and auxiliary writs or processes, whether or not in aid of its appellate jurisdiction;

xxxx

3. Exclusive appellate jurisdiction over all final judgments, resolutions, orders or awards of
Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commission,
including the Securities and Exchange Commission, the Social Security Commission, the Employees
Compensation Commission and the Civil Service Commission, except those falling within the appellate
jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines
under Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of
the third paragraph and subparagraph 4 of the fourth paragraph of Section 17 of the Judiciary Act of
1948.

xxxx

(emphases, italics, and underscoring supplied)

Thus, by law and by Supreme Court Rules, the CA is the court with the exclusive original jurisdiction to
entertain petitions for certiorari and prohibition against quasi-judicial agencies. In short, GAMCA filed its
remedy with the wrong court.

A.4.c The petitions for certiorari and prohibition against the DOH CDO letters were premature
challenges - they failed to comply with the requirement that there be "no other plain, speedy
and adequate remedy" and with the doctrine of exhaustion of administrative remedies.

Second, the Regional Trial Court of Pasay City unduly disregarded the requirements that there be "no
other plain, speedy and adequate remedy at law" and the doctrine of exhaustion of administrative
remedies, when it gave due course to the certiorari and prohibition petition against the DOH's CDO.

Under Chapter 8, Book IV of Executive Order (EO) No. 292,81 series of 1987, the DOH Secretary "shall
have supervision and control over the bureaus, offices, and agencies under him"82 and "shall have
authority over and responsibility for x x x operation" of the Department.

Section 1, Chapter 1, Title I, Book III of EO No. 292 in relation with Article VII, Sections 1 and 17 of the
Constitution,83 on the other hand, provides that the "President shall have control of all the executive
departments, bureaus, and offices."

These provisions both signify that remedies internal to the Executive Branch exist before resorting to
judicial remedies: GAMCA could ask the DOH Secretary to reconsider or clarify its letter-order, after
which it could appeal, should the ruling be unfavorable, to the Office of the President.

Significantly, this was what GAMCA did in the past when the DOH issued Memorandum Order No. 2008-
0210 that prohibited the referral decking system. GAMCA then asked for the DOH Secretary's
reconsideration, and subsequently appealed the DOH's unfavorable decision with the Office of the
President. The OP then reversed Memorandum Order No. 2008-0210 and allowed the referral decking
system to continue.

That GAMCA had earlier taken this course indicates that it was not unaware of the administrative
remedies available to it; it simply opted to disregard the doctrine of exhaustion of administrative
remedies and the requirement that there be no other plain, speedy, and adequate remedy in law when it
immediately filed its petition for certiorari with the RTC.

This blatant disregard of the Rule 65 requirements clearly places GAMCA's petition outside the
exceptions that we recognized in the past in relaxing strict compliance with the exhaustion of
administrative remedies requirement.

Jurisprudence84 shows that this Court never hesitated in the past in relaxing the application of the rules
of procedure to accommodate exceptional circumstances when their strict application would result in
injustice. These instances, founded as they are on equitable considerations, do not include the undue
disreiard of administrative remedies, particularly when they are readily available.85

A.4.d. The petitions for certiorari and prohibition against the DOH CDO letters should have
been dismissed outright, as Rule 65 Petitions for Certiorari and Prohibition are extraordinary
remedies given due course only upon compliance with the formal and substantive
requirements.

Note, at this point, that Rule 65 petitions for certiorari and prohibition are discretionary writs, and that
the handling court possesses the authority to dismiss them outright for failure to comply with the form
and substance requirements. Section 6, Rule 65 of the Rules of Court in this regard provides:
Section 6. Order to comment. - If the petition is sufficient in form and substance to justify suclr
process, the court shall issue an order requiring the respondent or respondents to comment on the
petition within ten (10) days from receipt of a copy thereof. Such order shall be served on the
respondents in such manner as the court may direct together with a copy of the petition and any
annexes thereto. (emphasis, italics, and underscoring supplied)
Thus, even before requiring the DOH to comment, the RTC could have assessed the petition
for certiorari and prohibition for its compliance with the Rule 65 requirements. At that point, the petition
for certiorari and prohibition should have been dismissed outright, for failing to comply with Section 1
and Section 4 of Rule 65. When the court instead took cognizance of the petition, it acted on a matter
outside its jurisdiction.

Consequently, the RTC's resulting judgment is void and carries no legal effect. The decision exempting
GAMCA from the application of the referral decking system should equally have no legal effect.

Noncompliance with the Section 1, Rule 65 requirement that there be no other plain, speedy, and
adequate remedy in law, on the other hand, is more than just a pro-forma requirement in the present
case. Since the petitions for certiorari and prohibition challenge a governmental act - i.e. action under
the DOH CDO letters, as well as the validity of the instruments under which these letters were issued -
compliance with Section 1, Rule 65 and the doctrine of exhaustion of administrative remedies that
judicial review requires is also mandatory. To recall a previous discussion, the exhaustion of
administrative remedies is also an aspect of ripeness in deciding a constitutional issue.

Thus, GAMCA's disregard of the Rules of Court not only renders the petition dismissible for failure to first
exhaust administrative remedies; the constitutional issues GAMCA posed before the RTC were not also
ripe for adjudication.

5. The Regional Trial Court erred in finding grave abuse of discretion on the part of the DOH's
issuance of the DOH CDO letters.

On the merits, we find that the RTC of Pasay reversibly erred in law when it held that the DOH acted
with grave abuse of discretion m prohibiting GAMCA from implementing the referral decking system.

In exempting GAMCA from the referral decking system that RA No. 10022 prohibits, the RTC of Pasay
City noted that the regulation per se was not unconstitutional, but its application to GAMCA would
violate the principle of sovereign equality and independence.

While we agree with the RTC's ultimate conclusion upholding the constitutionality of the prohibition
against the referral decking system under RA No. 10022, our agreement proceeds from another reason;
we disagree that the prohibition does not apply to GAMCA and with the consequent ruling nullifying the
DOH's CDO Letter.

A.5.a. The prohibition against the referral decking system under Section 16, RA No. 10022, is
a valid exercise of police power.

In its comment, GAMCA asserts that implementing the prohibition against the referral decking system
would amount to an undue taking of property that violates Article II, Section 2 of the 1987 Constitution.

It submits that the Securities and Exchange Commission had in fact approved its Articles of
Incorporation and Bylaws that embody the referral decking system; thus, the DOH cannot validly
prohibit the implementation of this system.

GAMCA further claims that its members made substantial investments to upgrade their facilities and
equipment. From this perspective, the August 23, 2010 order constitutes taking of property without due
process of law as its implementation would deprive GAMCA members of their property.

AMCOW responded to these claims with the argument that the DOH CDO letters implementing RA No.
10022 are consistent with the State's exercise of the police power to prescribe regulations to promote
the health, safety, and general welfare of the people. Public interest justifies the State's interference in
health matters, since the welfare of migrant workers is a legitimate public concern. The DOH thus
merely performed its duty of upholding the migrant workers' freedom to consult their chosen clinics for
the conduct of health examinations.

We agree with AMCOW.

The State's police power86 is vast and plenary87 and the operation of a business,88 especially one that is
imbued with public interest (such as healthcare services),89 falls within the scope of governmental
exercise of police power through regulation.

As defined, police power includes (1) the imposition of restraint on liberty or property, (2) in order to
foster the common good.90 The exercise of police power involves the "state authority to enact legislation
that may interfere with personal liberty or property in order to promote the general welfare."91

By its very nature, the exercise of the State's police power limits individual rights and liberties, and
subjects them to the "far more overriding demands and requirements of the greater number."92 Though
vast and plenary, this State power also carries limitations, specifically, it may not be exercised arbitrarily
or unreasonably. Otherwise, it defeats the purpose for which it is exercised, that is, the advancement of
the public good.93

To be considered reasonable, the government's exercise of police power must satisfy the "valid object
and valid means" method of analysis: first, the interest of the public generally, as distinguished from
those of a particular class, requires interference; and second, the means employed are reasonably
necessary to attain the objective sought and not unduly oppressive upon individuals.94

These two elements of reasonableness are undeniably present in Section 16 of RA No. 10022. The
prohibition against the referral decking system is consistent with the State's exercise of the police power
to prescribe regulations to promote the health, safety, and general welfare of the people. Public interest
demands State interference on health matters, since the welfare of migrant workers is a legitimate
public concern.

We note that RA No. 10022 expressly reflects the declared State policies to "uphold the dignity of its
citizens whether in the country or overseas, in general, and Filipino migrant workers," and to "afford full
protection to labor, local and overseas, organized and unorganized, and promote full employment and
equality of employment opportunities for all. Towards this end, the State shall provide adequate and
timely social, economic and legal services to Filipino migrant workers." The prohibition against the
referral decking system in Section 16 of RA No. 10022 is an expression and implementation of these
state policies.

The guarantee under Section 16 for OFWs to be given the option to choose a quality healthcare service
provider as expressed in Section 16 (c)95 of RA No. 10022 is guaranteed by the prohibition against the
decking practice and against monopoly practices in OFW health examinations.96

Section 16 likewise requires employers to accept health examinations from any DOH-accredited health
facility; a refusal could lead to their temporary disqualification under pertinent rules to be formulated by
the Philippine Overseas Employment Authority (POEA).97

These rules are part of the larger legal framework to ensure the Overseas Filipino Workers' (OFW)
access to quality healthcare services, and to curb existing practices that limit their choices to specific
clinics and facilities.

Separately from the Section 16 prohibition against the referral decking system, RA No. 10022 also
prohibits and penalizes the imposition of a compulsory exclusive arrangement requiring OFWs to
undergo health examinations only from specifically designated medical clinics, institutions, entities or
persons. Section 5, in relation to Section 6 of RA No. 10022, penalizes compulsory, exclusive
arrangements98 by imprisonment and fine and by the automatic revocation of the participating medical
clinic's license.

The DOH's role under this framework is to regulate the activities and operations of all clinics conducting
health examinations on Filipino migrant workers as a requirement for their overseas employment. The
DOH is tasked to ensure that:
(c.3) No group or groups of medical clinics shall have a monopoly of exclusively conducting health
examinations on migrant workers for certain receiving countries;

(c.4) Every Filipino migrant worker shall have the freedom to choose any of the DOH-accredited or DOH-
operated clinics that will conduct his/her health examinations and that his or her rights as a patient are
respected. The decking practice, which requires an overseas Filipino worker to go first to an office for
registration and then farmed out to a medical clinic located elsewhere, shall not be allowed;99
While Section 16 of RA No. 10022 does not specifically define the consequences of violating the
prohibition against the referral decking system, Republic Act No. 4226 (Hospital Licensure Act), which
governs the licensure and regulation of hospitals and health facilities, authorizes the DOH to suspend,
revoke, or refuse to renew the license of hospitals and clinics violating the law.100

These consequences cannot but apply to the violation of the prohibition against the referral decking
system under RA No. 10022. If, under the law, the DOH can suspend, revoke, or refuse to renew the
license of these hospitals upon the finding that they violated any provision of law (whether those found
in RA No. 4226 or in RA No. 10022), it follows- as a necessarily included lesser power - that the DOH
can likewise order these clinics and their association to cease and desist from practices that the law
deems to be undesirable.

A.5.b. The DOH did not gravely abuse its discretion in issuing the assailed DOH CDO letters.

As discussed above, the letter-order implementing the prohibition against the referral decking system is
quasi-judicial in nature. This characteristic requires that procedural due process be observed - that is,
that the clinics concerned be given the opportunity to be heard before the standard found in the law can
be applied to them.

Thus, prior to the issuance of the disputed CDO letter, the DOH should have given GAMCA the
opportunity to be heard on whether the prohibition applies to it. Lest this opportunity to be heard be
misunderstood, this DOH obligation raises an issue different from the question of whether Congress can,
under the exercise of police power, prohibit the referral decking system; this latter issue lies outside the
scope of the DOH to pass upon. The required hearing before the DOH relates solely to whether it
properly implemented, based on the given standards under the law, the prohibition that Congress
decreed under RA No. 10022.

Under normal circumstances, the issuance of a CDO without a prior hearing would violate GAMCA's
procedural due process rights, and would amount to more than a legal error, i.e., an error equivalent to
action without jurisdiction. Rendering a decision quasi-judicial in nature without providing the
opportunity to be heard amounts to a grave abuse of discretion that divests a quasi-judicial agency of its
jurisdiction.

Factual circumstances unique to the present case, however, lead us to conclude that while it was an
error of law for the DOH to issue a CDO without complying with the requirements of procedural due
process, its action did not amount to a grave abuse of discretion.

Grave abuse of discretion amounts to more than an error of law; it refers to an act that is so capricious,
arbitrary, and whimsical that it amounts to a clear evasion of a positive duty or a virtual refusal to
perform a duty enjoined by law, as where the power is exercised in an arbitrary and despotic manner
because of passion or hostility.101

Prior to the issuance of its CDO Letter, the DOH had more than sufficient basis to determine that GAMCA
practices the prohibited referral decking system under RA No. 10022. Notably, the DOH had earlier
allowed and recognized the referral decking system that GAMCA practiced through AO 5-01. This
recognition was made with GAMCA's practice in mind. The subsequent administrative orders and
department memorandum suspending and terminating the referral decking system, respectively, all
pertain to the practice that the DOH had authorized under AO 5-01. Even the subject matter of these
issuances do not just pertain to any other referral decking system, but to the "GAMCA referral decking
system."

GAMCA likewise had more than several opportunities to contest the suspension and eventual revocation
of the referral decking system initially pe1mitted under AO 5-01. Its appeal even reached the Office of
the President, which overturned the DOH Memorandum Order terminating the referral decking system.

That the referral decking system had been subsequently prohibited by law shows the intent of Congress
to prevent and prohibit the practice that GAMCA initiated and which the President had allowed. The
President's duty under our political system is to implement the law; hence, when Congress subsequently
prohibited the practice that GAMCA initiated, the Executive - including the President -has no choice but
to implement it.

Based on these circumstances, while the DOH erred when it issued its CDO letters without first giving
GAMCA the opportunity to prove whether the practice conducted by GAMCA is the same practice
prohibited under RA No. 10022, the DOH conclusion to so act, in our view, did not constitute grave
abuse of discretion that would have divested it of jurisdiction.

We note that the DOH had sufficient basis when it determined that the referral decking system
prohibited under RA No. 10022 was the same decking system practiced by GAMCA. To reiterate, the
referral decking system was not something new; it was an old system that GAMCA practiced and was
known to all in its scope and operating details. That GAMCA had previously questioned the DOH
prohibition and had been given ample opportunity to be heard when it filed an appeal before the OP,
negate the conclusion that GAMCA had been aggrieved by precipitate and unfair DOH action.

To be sure, these factual circumstances do not make the CDO letter compliant with procedural due
process. They mitigate, however, the error committed and render it less than the capricious, arbitrary,
and patent refusal to comply with a positive legal duty that characterizes an act committed with grave
abuse of discretion.

The Court furthermore, in several instances,102 has recognized that an administrative agency may issue
an ex parte cease and desist order, where vital public interests outweigh the need for procedural due
process." In these instances, the Court noted that the affected establishment may contest the ex
parte order, upon which the administrative agency concerned must conduct a hearing and allow the
establishment to be heard. While jurisprudence has so far used the "vital public interests" standard to
pollution cases, it had not been a grave abuse of discretion on the part of the DOH to consider that
GAMCA's referral decking practice falls within this category. The DOH has long made the factual finding
that the referral decking system hinders our Filipino seafarers' access to quality and affordable
healthcare in its A.O. No. 106, series of 2002.

These circumstances further mitigate whatever legal error the DOH has committed and render the
conclusion that grave abuse of discretion had taken place misplaced.

Since the writs of certiorari and prohibition do not issue against legal errors, but to acts of grave abuse
of discretion, the RTC erred in issuing these writs against the DOH CDO letters.

6. The prohibition against the referral decking system against GAMCA does not violate the
principle of sovereign equality and independence.

The RTC based its decision to grant the writs of certiorari and prohibition against the DOH letter-order
on the principle of sovereign equality and independence; applying the referral decking system
prohibition against GAMCA violates this principle.

The RTC reasoned out that the prohibition against the referral decking system under Section 16 of RA
No. 10022 must be interpreted to apply only to clinics conducting health examinations on migrant
workers bound for countries that do not require the referral decking system for the issuance of visas to
job applicants.

The RTC observed, too, that the refer al decking system is part of the application procedure in obtaining
visas to enter the GCC States, a procedure made in the exercise of the sovereign power of the GCC
States to protect their nationals from health hazards, and of their diplomatic power to regulate and
screen entrants to their territories.

It also reasoned out that under the principle of sovereign equality and independence of States, the
Philippines cannot interfere with this system and in fact must respect the visa-granting procedures of
foreign states in the same way that they respect our immigration procedures. Moreover, to restrain
GAMCA which is a mere adjunct of HMC (an agent of GCC States) is to restrain the GCC States
themselves.

AMCOW contests the RTC's conclusion, arguing that the principles of sovereign equality and
independence of States do not apply to the present case. According to AMCOW, the subject matter of
this case pertains to a domestic concern as the law and the regulations that GAMCA assails relate to the
operation of medical clinics in the Philippines.

It points out that the Philippines gave GAMCA and its members the privilege of conducting their
businesses domestically; hence, their operations are governed by Philippine laws, specifically by RA No.
10022 which serves as one of the limitations on the privilege granted to them. GAMCA's right to engage
in business should yield to the State's exercise of police power. In legal contemplation, therefore, the
DOH CDO letters did not prejudice GAMCA's right to engage in business; nor did they hamper the
GAMCA members' business operations.

AMCOW further insists that the August 23, 2010 and November 2, 2010 orders are consistent with the
State's exercise of the police power to prescribe regulations to promote the health, safety, and general
welfare of the people. Public interest demands State interference on health matters, since the welfare of
migrant workers is a legitimate public concern. The DOH thus merely performed its duty of upholding
the migrant workers' freedom to choose any of its accredited or operated clinics that will conduct health
examinations.

The DOH, for its part, adds that the implementation of RA No. 10022 cannot be defeated by agreements
entered into by GAMCA with the GCC States. The GCC States, the DOH points out, are not empowered
to determine the Philippines' courses of action with respect to the operation, within Philippine territory,
of medical clinics; the conduct of health examinations; and the freedom of choice of Filipino migrant
workers.

GAMCA responds to these arguments by asserting that the referral decking system is a part of the
application procedure for obtaining visas to enter the GCC States. Hence, it is an exercise of the
sovereign power of the GCC States to protect their nationals from health hazards, and their diplomatic
power to regulate and screen entrants to their territories. To restrain an agent of the GCC States under
the control and acting in accordance with the direction of these GCC States, restrains the GCC States.

GAMCA also points out that the OFWs would suffer grave and irreparable damage and injury if the DOH
CDO letters would be implemented as the GCC States would not issue working visas without the GAMCA
seal attesting that the OFWs had been medically examined by GAMCA member clinics.

After considering all these arguments, we find that the RTC's decision misapplied the principle of
sovereign independence and equality to the present case. While the principles of sovereign
independence and equality have been recognized in Philippine jurisprudence, our recogmtmn of this
principle does not extend to the exemption of States and their affiliates from compliance with Philippine
regulatory laws.

A.6. The principle of sovereign equality and independence of states does not exempt
GAMCAfrom the referral decking system prohibition under RA No. 10022.

In Republic of Indonesia v. Vinzon,103 we recognized the principle of sovereign independence and

equality as part of the law of the land. We used this principle to justify the recognition of the principle of
sovereign immunity which exempts the State - both our Government and foreign governments - from
suit. We held:
International law is founded largely upon the principles of reciprocity, comity, independence, and
equality of States which were adopted as part of the law of our land under Article II, Section 2 of the
1987 Constitution. The rule that a State may not be sued without its consent is a necessary
consequence of the principles of independence and equality of States. As enunciated in Sanders v.
Veridiano II, the practical justification for the doctrine of sovereign immunity is that there can be no
legal right against the authority that makes the law on which the right depends. In the case of foreign
States, the rule is derived from the principle of the sovereign equality of States, as expressed in the
maxim par in parem non habet imperium. All states are sovereign equals and cannot assert jurisdiction
over one another. A contrary attitude would "unduly vex the peace of nations."
Our recognition of sovereign immunity, however, has never been unqualified. While we recognized the
principles of independence and equality of States to justify a State's sovereign immunity from suit, we
also restricted state immunity to acts jus imperii, or public acts. We said that once a State enters into
commercial transactions (jus gestionis), then it descends to the level of a private individual, and is thus
not immune from the resulting liability and consequences of its actions.104

By this recognition, we acknowledge that a foreign government acting in its jus imperii function cannot
be held liable in a Philippine court. Philippine courts, as part of the Philippine government, cannot and
should not take jurisdiction over cases involving the public acts of a foreign government. Taking
jurisdiction would amount to authority over a foreign government, and would thus violate the principle of
sovereign independence and equality.105

This recognition is altogether different from exempting governments whose agents are in the Philippines
from complying with our domestic laws.106 We have yet to declare in a case that the principle of
sovereign independence and equality exempts agents of foreign governments from compliance with the
application of Philippine domestic law.

In the present case, GAMCA has not adduced any evidence in the court below, nor has it presented any
argument before us showing that the principle of sovereign equality and independence has developed
into an international custom shielding state agents from compliance with another state's domestic laws.
Under this situation, the Court is in no position to determine whether the practice that GAMCA alleges
has indeed crystallized into an international custom.

GAMCA has never proven in this case, too, that the GCC has extended its sovereign immunity to
GAMCA. Sovereign immunity belongs to the State, and it must first be extended to its agents before the
latter may be considered to possess sovereign immunity.

Significantly, the Court has even adopted a restrictive approach in recognizing state immunity, by
distinguishing between a State's jus imperii and jus gestionis. It is only when a State acts in its jus
imperii function that we recognize state immunity.107

We point out furthermore that the prohibition against the referral decking system applies to hospitals
and clinics, as well as to OFW employers, and does not seek to interfere with the GCC's visa requirement
processes. RA 10022 prohibits hospitals and clinics in the Philippines from practicing the referral decking
system, and employers from requiring OFWs to procure their medical examinations from hospitals and
clinics practicing the referral decking system.

The regulation applies to Philippine hospitals and clinics, as well as to employers of OFWs. It does not
apply to the GCCs and their visa processes. That the regulation could affect the OFWs' compliance with
the visa requirements imposed by GCCs does not place it outside the regulatory powers of the Philippine
government.

In the same manner, GCC states continue to possess the prerogative to apply their visa requirements to
any foreign national, including our OFWs, who seeks to enter their territory; they may refuse to grant
them entry for failure to comply with the referral decking system, or they may adjust to the prohibition
against the referral decking system that we have imposed. These prerogatives lie with the GCC member-
states and do not affect at all the legality of the prohibition against the referral decking system.

Lastly, the effect of the prohibition against the referral decking system is beyond the authority of this
Court to consider. The wisdom of this prohibition has been decided by Congress, through the enactment
of RA No. 10022. Our role in this case is merely to determine whether our government has the authority
to enact the law's prohibition against the referral decking system, and whether this prohibition is being
implemented legally. Beyond these lies the realm of policy that, under our Constitution's separation of
powers, this Court cannot cross.
WHEREFORE, in the light of these considerations, we hereby GRANT the petitions. Accordingly,
we REVERSE and SET ASIDE the orders dated August 10, 2012 and April 12, 2013 of the Regional Trial
Court of Pasay City, Branch 108, in Sp. Civil Action No. R-PSY-10-04391-CV.

Costs against respondent GAMCA.

SO ORDERED.
 June 7, 2017

G.R. No. 195003

CITY OF BATANGAS, represented by Hon. Severina Vilma Abaya, 1 in her capacity as City
Mayor of Batangas, Petitioner
vs.
PHILIPPINE SHELL PETROLEUM CORPORATION and SHELL PHILIPPINES
EXPLORATION B.V., Respondents

DECISION

CAGUIOA, J.:

The policy of ensuring the autonomy of local governments was not intended to create
an imperium in imperio and install intra-sovereign political subdivisions independent of the
sovereign state.2 As agents of the state, local governments should· bear in mind that the police
power devolved to them by law must be, at all times, exercised in a manner consistent with the
will of their principal.

The Case

This is a petition for review on certiorari3 (Petition) filed under Rule 45 of the Rules of Court
against the Decision4 dated May 25, 2010 (Assailed Decision) and Resolution5 dated December
30, 2010 (Assailed Resolution) in CA-G.R. CV No. 90373 rendered by the Tenth Division of the
Court of Appeals (CA). The Assailed Decision and Resolution stem from an appeal from the
Decision6 dated June 29, 2007 rendered by the Regional Trial Court of Batangas City (RTC),
Branch 84 in SP. Civil Case Nos. 7924-7925, declaring as invalid Ordinance No. 3, series of
2001,7 (Assailed Ordinance), enacted by the Sangguniang Panlungsod (Sangguniang
Panlungsod) of the City of Batangas (Batangas City).8

The Facts

Batangas City is a local government unit created by virtue of its charter, Republic Act No. 5495
(RA 5495). Under RA 5495, Batangas City constitutes a political body corporate, and is endowed
with powers which pertain to a municipal corporation.9 The Sangguniang Panlungsod is the
legislative body of Batangas City.

Philippine Shell Petroleum Corporation (PSPC) is a duly organized Philippine corporation

engaged in the business of manufacturing, refining and distribution of petroleum
products. 10 PSPC owns and operates a refinery situated in Tabangao, Batangas City (Tabangao
Refinery). 11

Shell Philippines Exploration, B.V. (SPEX) is a foreign corporation licensed to do business in the
Philippines. 12 In furtherance of the mandate of Presidential Decree No. 87 (PD 87) to promote
the discovery and production of indigenous petroleum, the Department of Energy (DOE)
executed Service Contract No. 38 (SC 38) with SPEX under which SPEX was tasked to explore
and develop possible petroleum sources in North Western Palawan. 13 SPEX's exploration led to
the discovery of an abundant source of natural gas in the Malampaya field off the shores of
Palawan, which thereafter gave rise to the Malampaya Project. The Malampaya Project required
the construction of a 504-kilometer offshore pipeline for the transport of natural gas from
Malampaya field to Batangas, for treatment in PSPC's Tabangao Refinery. 14

On May 28, 2001, the Sangguniang Panlungsod enacted the Assailed Ordinance which requires
heavy industries operating along the portions of Batangas Bay within the territorial jurisdiction of
Batangas City to construct desalination plants to facilitate the use of seawater as coolant for their
industrial facilities. 15 The pertinent portions of the Assailed Ordinance state:

SECTION 3. - MANDATORY REQUIREMENT FOR THE APPROVAL OF HEAVY INDUSTRIES

ALONG THE BATANGAS CITY PORTION OF BATANGAS BAY AND OTHER AREAS. - In
addition to the requirements provided by laws and ordinances, the City Government shall not
grant permit or clearance or its approval for any project or program involving the construction or
establishment of heavy industries along the Batangas City portion of the Batangas Bay and other
areas delineated as Heavy Industrial Zone without the required DESALINATION PLANT for use
of sea water instead of underground fresh water for cooling system and industrial purposes.

SECTION 4. - GRACE PERIOD PROVIDED FOR HEAVY INDUSTRIES. - All heavy industries
already established or approved by the City Government prior to the enactment of this
Ordinance, including those to be established, are granted a period of five (5) years, counted from
the date of approval of this Ordinance, to install [a] desalination plant.

SECTION 5. - AUTHORITY TO GRANT EXEMPTION FROM THE CONSTRUCTION OF

DESALINATION PLANT. - The City Mayor with the concurrence of the Sangguniang Panlungsod
may grant exemption for a given period to an industry from installation or construction of
DESALINATION PLANT on the basis of the following conditions:

5.1. The exemption will not adversely affect the environment, public health, public safety and the
welfare of the people, more particularly, the local aquifers, as shown by a comprehensive ground
water assessment or comprehensive hydrological study conducted by the industry and presented
by the industry applying for exemption.

5.2. The industry or proposed project will support economic-based activities and provide
livelihood, employment, vital community services and facilities while at the same time posing no
adverse effect on the community.

5.3. A public hearing is conducted.

5.4. Such other reasonable conditions which the City Mayor may require with the concurrence of
the Sangguniang Panlungsod.

x x xx

SECTION 7. PENAL CLAUSE. -Any person who shall authorize the start of the construction,
development or operation of any project considered as heavy industry without the approval of the
government authorities herein mentioned shall suffer an imprisonment of not less than six (6)
months nor more than one (1) year and a fine of ₱5,000.00.

If the violator is a juridical person or association, the penalty shall be imposed upon the owner,
President, project manager and/or persons directly in charge of the construction, development
and operation of the project.

SECTION 8. POWER OF THE CITY MAYOR TO ISSUE A CEASE AND DESIST ORDER. - The
City Mayor, upon knowledge of the violation of this ordinance shall issue a cease and desist
order for the stoppage of the construction, development or operation of the project or industry
and shall exercise all powers necessary to give effect to the said order.

SECTION 9. ADMINISTRATIVE FINE. - An administrative fine/penalty of ₱5,000.00 per day of

violation of this ordinance shall be imposed upon the owner, President, project manager, and/or
persons directly in charge of the construction, development and operation of the project or
industry. 16
The Assailed Ordinance was approved by the city mayor on June 7, 2001.

Heavy industries subject of the Assailed Ordinance had until May 28, 2006 to comply with its
provisions. 17 Among the facilities affected by the Assailed Ordinance is PSPC's Tabangao
Refinery.

Proceedings before the RTC

On May 23, 2006, PSPC filed against Batangas City and the Sangguniang Panlungsod a Petition
for Declaration of Nullity (PSPC Petition) before the RTC praying that the Assailed Ordinance be
declared null and void. The PSPC Petition was raffled to Branch 84, and docketed as SP Civil
Case No. 7924.18 Thereafter, SPEX filed a petition-in-intervention (Intervention) praying for the
same relief. 19

JG Summit Petrochemical Corporation (JG Summit) and First Gas Power Corporation (First Gas)
filed similar petitions docketed as SP Civil Case Nos. 7925 (JG Summit Petition) and 7926 (First
Gas Petition), respectively.20 These petitions were likewise raffled to Branch 84, and consolidated
with the PSPC Petition for joint trial.21

For its part, PSPC averred that the Assailed Ordinance constitutes an invalid exercise of police
power as it failed to meet the substantive requirements for validity.22 Particularly, PSPC argued
that the Assailed Ordinance contravenes the Water Code of the Philippines (Water Code), and
encroaches upon the power of the National Water Resources Board (NWRB) to regulate and
control the Philippines' water resources. 23 In addition, Batangas City and the Sangguniang
Panlungsod failed to sufficiently show the factual or technical basis for its enactment. 24 In this
connection, PSPC

alleged that the Assailed Ordinance unduly singles out heavy industries, and holds them solely
accountable for the loss of water and destruction of aquifers without basis, resulting in the
deprivation of their property rights without due process of law.25

On the procedural aspect, PSPC contended that the Assailed Ordinance was not posted or
published in a newspaper of general circulation in the province, nor were public hearings or
consultations involving concerned parties conducted thereon.26 Further, there are no records
showing that the Assailed Ordinance, as approved by the Sangguniang Panlungsod, was
forwarded to the Sangguniang Panlalawigan of the Province of Batangas after it was approved
by the city mayor, as required by Section 56 of the Local Government Code (LGC).27

SPEX essentially adopted the allegations of PSPC and prayed for the same relief, asserting that
it possesses material and direct interest in the subject matter of the PSPC Petition.28

In response, Batangas City and the Sangguniang Panlungsod maintained that they have the
power to enact the Assailed Ordinance pursuant to the general welfare clause under the
LGC.29 According to them, the rationale of the Assailed Ordinance is to stop PSPC and other
industries similarly situated from relying "too much" on ground water as coolants for their
machineries, and alternatively promote the use of seawater for such purpose, considering that
fresh ground water is a "perishable commodity."30 Further, Batangas City and the Sangguniang
Panlungsod countered that the "regulation or prohibition" on the use of ground water is merely
incidental to the main purpose of the Assailed Ordinance, which is to compel heavy industries
such as PSPC to construct desalination plants. Hence, provisions having regulatory and
prohibitive effect may be taken out of the Assailed Ordinance without entirely impairing its
validity.31

Further, Batangas City and the Sangguniang Panlungsod took exception to PSPC's allegations
and asserted that the Assailed Ordinance had been published in Dyaryo Veritas, a newspaper of
general circulation in the area. Moreover, Batangas City and the Sangguniang
Panlungsod claimed that a joint public hearing on the Assailed Ordinance had in fact been
conducted by the Sangguniang Panlungsod and Sangguniang Panlalawigan, where PSPC was
duly represented. 32 In addition, Batangas City and the Sangguniang Panlungsod argued that the
requirement of referral of ordinances to the Sangguniang Panlalawigan applies only to tax and
other revenue measures. 33

Finally, Batangas City and the Sangguniang Panlungsod averred that since PSPC and SPEX,
along with other concerned heavy industries, essentially question the former' s authority to
regulate and prohibit the use of fresh ground water, they should have first referred their
grievances to NWRB by filing a complaint for adjudication on the threatened revocation of their
existing water permits. 34

On June 21, 2007, the RTC resolved the First Gas Petition by issuing a Decision declaring the
Assailed Ordinance null and void. 35

Subsequently, on June 29, 2007 the RTC rendered a Decision,36 this time resolving the PSPC
and JG Summit petitions. The dispositive portion of said Decision reads:

It is evident that from foregoing factual milieu and parameters, the questioned ordinance is
INVALID, as it is hereby declared INVALID, in its entirety for want of necessity and for not
conducting prior public hearing, and for violating the due process clause of the Constitution with
respect to its (sic) Sec. 8, City Ordinance No. 3, [s]. 2001. No pronouncement as to costs.

SO ORDERED.37

The RTC gave credence to the testimony of PSPC's witness Engineer Joeffrey Caranto
(Engineer Caranto) who conducted a hydrogeology study on the Tabangao-Malitam watershed
from which PSPC sources fresh ground water.38 The RTC summarized the findings of said study
in this wise:

1. A water balance x x x calculation of the Tabangao-Malitam groundwater system shows that

the natural recharge (replenishment) rate far exceeds the current demand for water in the area.
Hence, there is no threat of depletion of the groundwater resource[s] in the Tabangao-Malitam
[w]atershed that purportedly may result from PSPC's deep well pumping.

2. Water levels in the PSPC wells have not lowered significantly over the last three (3) decades,
indicating that there is no substantial diminution of the supply of groundwater.

3. Among the four PSPC wells, only one [1] well shows very slightly elevated levels of chloride at
300 milligrams per liter which however is very low compared to seawater (which measures
20,000 milligrams of chloride per liter). The chloride levels in the other nearby PSPC wells are all
within drinking water standards and have not increased in the last four (4) decades of usage.
This indicates that salt water intrusion is not occurring in the PSPC wells.39 (Emphasis supplied)

The RTC also noted that the Sangguniang Panlungsod failed to consult the NWRB before
enacting the Assailed Ordinance, thereby encroaching upon its authority.40

Anent Section 8, the RTC concluded that the power granted to the city mayor to cause the
issuance of cease and desist orders against the use of ground water without prior notice and
hearing constitutes a violation of the due process clause.41

Proceedings before the CA

Batangas City and the Sangguniang Panlungsod filed separate notices of appeal from the
decisions resolving the PSPC, JG Summit and First Gas petitions.42
The appeals against JG Summit and First Gas were raffled to the Fourth Division (CA Fourth
Division) and were docketed as CA-G.R. CV Nos. 90324 (JG Summit Appeal) and 90365 (First
Gas Appeal), respectively. Meanwhile, the appeal filed against PSPC and SPEX was raffled to
the Tenth Division (CA Tenth Division), and docketed as CA-G.R. CV No. 90373 (PSPC Appeal).

In the PSPC Appeal, Batangas City and the Sangguniang Panlungsod, as appellants, averred
that the R TC failed to consider the testimonies of barangay captains Joel Caaway and Calixto
Villena of Barangays Tabangao Aplaya and Pinamucan, respectively, who testified that some
wells in their areas had dried up, while others had begun to produce salt water.43 These
testimonies, according to Batangas City and the Sangguniang Panlungsod, serve as sufficient
factual bases for the enactment of the Assailed Ordinance, as "there could be no higher degree
of evidence than the actual experience of the inhabitants in the area."44

On May 28, 2009, the CA Fourth Division issued a Joint Decision45 resolving the JG Summit and
First Gas appeals. The Joint Decision affirmed the RTC's decisions in SP Civil Case Nos. 7924-
7925 (involving JG Summit and PSPC) and 7926 (involving First Gas).46

On October 15, 2009, the CA Tenth Division directed Batangas City and the Sangguniang
Panlungsod on one hand, and PSPC and SPEX on the other, to file their respective memoranda
on the filing of separate appeals, and the implications of the Joint Decision of the CA Fourth
Division on the resolution of the PSPC Appeal.47

In their Joint Memorandum, 48 PSPC and SPEX averred that the Joint Decision in the JG Summit
and First Gas appeals bars a contrary decision in the PSPC Appeal, pursuant to the principle of
judicial stability.49 PSPC and SPEX further contended that the filing of multiple appeals involving
the same issues and parties was tantamount to forum shopping. 50

In their defense, Batangas City and the Sangguniang Panlungsod claimed that the filing of
separate appeals was made necessary by the fact that the separate decisions of the RTC in SP
Civil Case Nos. 7924-7925 and 7926 were issued more than fifteen (15) days apart.51

On the basis of the submissions of the parties, the CA Tenth Division issued the Assailed
Decision dismissing the appeal filed against PSPC and SPEX for lack of merit. The relevant
portions of the Assailed Decision read:

City Ordinance No. 3, S.2001 contravenes Presidential Decree No. 1067, better known as "The
Water Code of the Philippines" as it is an encroachment into the authority of the [NWRB]. The
use of water resources is under the regulatory power of the national government. This is explicit
from the provisions of the Water Code which states that -

"The utilization, explo[i]tation, development, conservation and protection of water resources shall
be subject to the control and regulation of the government through the [NWRB]".

Although respondents-appellants insist that the city ordinance is not an absolute prohibition but
merely a regulation on the use of fresh groundwater for cooling systems and industrial purposes
the argument cannot justify the attempt to usurp the NWRB' s power to regulate and control
water resources. Moreover, not only does the city ordinance prohibit or regulate the use of fresh
groundwater in disregard of previously granted water permits from the NWRB but also directs the
installation of desalination plants for purposes of utilizing sea water, without the requisite water
permit from the NWRB.

x x x The police power of the Sangguniang Panglungsod is subordinate to the constitutional

limitations that its exercise must be reasonable and for the public good. Without the concurrence
of these two requisites, the ordinance will not muster the test of a valid police measure and
should be struck down. The trial court aptly examined the city ordinance against the requirement
of reasonable necessity and correctly concluded that the subject ordinance failed to prove that it
was reasonably necessary to prohibit heavy industries from using ground water and requiring
them instead to construct desalination plants. There must be a reasonable relation between the
purposes of the police measure and the means employed for its accomplishment. Arbitrary
invasion of personal rights and those pertaining to private property will not be allowed even under
the guise of protecting public interest. It has not been sufficiently demonstrated that there exists
no other means less intrusive of private rights that would equally be effective for the
accomplishment of the same purpose.

With the foregoing premises considered, there is no more necessity to address the other errors
raised in the instant appeal.

WHEREFORE, the appeal is DISMISSED. The Decision dated 29 June 2007 rendered by the
Regional Trial Court of Batangas City, Branch 84, in SP Civil Case No. 7924, declaring invalid
City Ordinance No. 3, S.2001 is hereby AFFIRMED.

SO ORDERED. 52 (Emphasis supplied)

Batangas City and the Sangguniang Panlungsod filed a Motion for Reconsideration53 (MR) dated
June 21, 2010, which the CA Tenth Division subsequently denied through the Assailed
Resolution. The CA Tenth Division found that the MR merely reiterated the arguments relied
upon in the appeal, which were already passed upon in the Assailed Decision. 54

Batangas City and the Sangguniang Panlungsod received a copy of the Assailed Resolution on
January 13, 2011.

On January 25, 2011, Batangas City filed the present Petition. 55 Notably, the Petition does not
name the Sangguniang Panlungsod as party,56 and only the signature of then city mayor
Severina Vilma Abaya appears on the Verification and Certification of Non-Forum Shopping
attached thereto.57

PSPC and SPEX filed a Motion for Additional Time58 dated April 1, 2011, praying for a period of
ten (10) days therefrom to file their comment.

Thereafter, PSPC and SPEX filed a Second Motion for Additional Time59 dated April 11, 2011,
praying for an additional period of seven (7) days to file said comment. Finally, PSPC and SPEX
filed their Joint Comment on and/or Opposition to the Petition for Review on Certiorarz- 60 (Joint
Comment/Opposition) dated April 25, 2011 on even date.

Batangas City failed to timely file its reply to the Joint Comment/Opposition, prompting them to
file a Manifestation and Motion for Extension of Time to File a Reply (Manifestation and Motion)
dated December 12, 2011.61 The Manifestation and Motion prayed that it be granted twenty (20)
days therefrom to file its reply.62 Accordingly, Batangas City filed its Reply dated December 21,
2011 on even date. 63

The Issue

The sole issue for this Court's determination is whether the CA erred in affirming the RTC
Decision which declared the Assailed Ordinance invalid.

The Court's Ruling

Batangas City contends that it has the legal authority to enact ordinances in the exercise of its
police power for the purpose of promoting the general welfare of its inhabitants. 64 Thus, it asserts
that it has the power to regulate PSPC's and SPEX's right to use ground water, as continued use
would be injurious to public interest. 65
Further, Batangas City insists that there is factual basis to justify the enactment of the Assailed
Ordinance. 66 As testified to by barangay captains Joel Caaway and Calixto Villena, a gradual
change in the quality and quantity of ground water had taken place due to the increase in the
number of industrial plants along Batangas Bay.67 According to Batangas City, these testimonies
should be given more weight, since they are based on "actual facts and experience."68

These assertions lack merit.

The amendment of the Petition should be allowed in the interest of justice.

At the outset, the Court notes that Batangas City erroneously referred to the 'Joint Decision
issued by the CA Fourth Division in the JG Summit and First Gas appeals as the subject of this
Petition, instead of the Decision issued by the CA Tenth Division resolving the PSPC Appeal.
Batangas City sought to correct this error in its Reply, thus:

1. After diligent and careful review [of] the Petition for Review submitted by the undersigned, it
was found out that there was an error which was inadvertently committed in the first paragraph of
the fifth (5th) page of the Petition;

2. The first paragraph on page 5 of the Petition for Review on Certiorari x x x;

xxxx

Should be amended to appear as:

"On June 13, 2007, herein Petitioner City Government of Batangas received the decision of the
Regional Trial Court (RTC), Branch 84 of Batangas City ruling in favor of Respondents, [PSPC]
and Intervenor [SPEX] x x x. Petitioner filed its Notice of Appeal x x x on 26 July 2007. The case
was elevated to the Court of Appeals and the Tenth Division rendered the 25 May 2010 favoring
[PSPC] and SPEx x x x. The City Government of Batangas filed a Motion for Reconsideration x x
x. The motion was denied by the Tenth Division of the Court of Appeals in its resolution dated 30
December 2010 x x x. Hence, now this Petition."69 (Emphasis omitted)

Considering the nature of the issues involved in the present Petition, and the lack of any
evidence showing that Batangas City's error resulted from anything more than inadvertence, the
Court resolves to permit the amendment of the Petition in the interest of substantial justice.

The Assailed Ordinance is void for being ultra vires, for being contrary to existing law, and for
lack of evidence showing the existence of factual basis for its enactment.

The requisites for a valid ordinance are well established. Time and again, the Court has ruled
that in order for an ordinance to be valid, it must not only be within the corporate powers of the
concerned LGU to enact, but must also be passed in accordance with the procedure prescribed
by law. Moreover, substantively, the ordinance (i) must not contravene the Constitution or any
statute; (ii) must not be unfair or oppressive; (iii) must not be partial or discriminatory; (iv) must
not prohibit, but may regulate trade; (v) must be general and consistent with public policy; and
(vi) must not be unreasonable.70

Batangas City claims that the enactment of the Assailed Ordinance constitutes a valid exercise of
its police power. This claim is erroneous.

Police power is the power to prescribe regulations to promote the health, morals, peace,
education, good order, safety, and general welfare of the people.71 As an inherent attribute of
sovereignty, police power primarily rests with the State. In furtherance of the State's policy to
foster genuine and meaningful local autonomy, the national legislature delegated the exercise of
police power to local government units (LGUs) as agents of the State.72 Such delegation can be
found in Section 1673 of the LGC, which embodies the general welfare clause. 74

Since LGUs exercise delegated police power as agents of the State, it is incumbent upon them to
act in conformity to the will of their principal, the State.75 Necessarily, therefore, ordinances
enacted pursuant to the general welfare clause may not subvert the State's will by contradicting
national statutes. Thus, in Batangas CATV, Inc. v. Court of Appeals, 76 the Court struck down an
ordinance enacted by Batangas City which granted the Sangguniang Panlungsod the power to
fix subscriber rates charged by CATV providers operating within the former's territory, as this
directly violated a general law which grants such power exclusively to the National
Telecommunications Commission. In so ruling, the Court stressed that municipalities are
precluded from regulating conduct already covered by a statute involving the same subject
matter, hence:

In De la Cruz vs. Paraz, we laid the general rule "that ordinances passed by virtue of the implied
power found in the general welfare clause must be reasonable, consonant with the general
powers and purposes of the corporation, and not inconsistent with the laws or policy of the
State."

xxxx

In this regard, it is appropriate to stress that where the state legislature has made provision for
the regulation of conduct, it has manifested its intention that the subject matter shall be fully
covered by the statute, and that a municipality, under its general powers, cannot regulate the
same conduct. In Keller vs. State, it was held that: "Where there is no express power in the
1avvphi1

charter of a municipality authorizing it to adopt ordinances regulating certain matters which are
specifically covered by a general statute, a municipal ordinance, insofar as it attempts to regulate
the subject which is completely covered by a general statute of the legislature, may be rendered
invalid. x x x Where the subject is of statewide concern, and the legislature has appropriated the
field and declared the rule, its declaration is binding throughout the State." A reason advanced
for this view is that such ordinances are in excess of the powers granted to the municipal
corporation.

Since E.O. No. 205, a general law, mandates that the regulation of CATV operations shall be
exercised by the NTC, an LGU cannot enact an ordinance or approve a resolution in violation of
the said law.

It is a fundamental principle that municipal ordinances are inferior in status and subordinate to
the laws of the state. An ordinance in conflict with a state law of general character and statewide
application is universally held to be invalid. The principle is frequently expressed in the
declaration that municipal authorities, under a general grant of power, cannot adopt ordinances
which infringe the spirit of a state law or repugnant to the general policy of the state. In every
power to pass ordinances given to a municipality, there is an implied restriction that the
ordinances shall be consistent with the general law.x x x77 (Emphasis and underscoring supplied)

In this Petition, the Court is called upon to determine whether the control and regulation of the
use of water may be made subject of a city ordinance under the regime of the Water Code - a
national statute governing the same subject matter.

The Water Code governs the ownership, appropriation, utilization, exploitation, development,
conservation and protection of water resources. 78 Under Article 3 thereof, water resources are
placed under the control and regulation of the government through the National Water Resources
Council, now the NWRB. 79 In turn, the privilege to appropriate and use water is one which is
exclusively granted and regulated by the State through water permits issued by the
NWRB.80 Once granted, these water permits continue to be valid save only for reasons spelled
out under the Water Code itself.81
Conversely, the power to modify, suspend, cancel or revoke water permits already issued also
rests with NWRB.82

On the other hand, the avowed purpose of the Assailed Ordinance, as stated in its whereas
clauses, is the protection of local aquifers for the benefit of the inhabitants of Batangas
City.83 Accordingly, the Assailed Ordinance mandates all heavy industries operating along
Batangas Bay to use seawater in the operation of their respective facilities, and install
desalination plants for this purpose. Failure to comply with this mandatory requirement would
have the effect of precluding continuous operation, and exposing noncompliant parties to penal
and administrative sanctions. 84

There is no doubt, therefore, that the Assailed Ordinance effectively contravenes the provisions
of the Water Code as it arrogates unto Batangas City the power to control and regulate the use
of ground water which, by virtue of the provisions of the Water Code, pertains solely to the
NWRB. By enacting the Assailed Ordinance, Batangas City acted in excess of the powers
granted to it as an LGU, rendering the Assailed Ordinance ultra vzres.

Being ultra vires, the Assailed Ordinance, in its entirety, is null and void. Thus, it becomes
unnecessary to still determine if it complies with the other substantive requirements for a valid
ordinance - i.e., that the ordinance is fair and reasonable.

In any case, it bears emphasizing that the measure of the substantive validity of an ordinance is
the underlying factual basis for which it was enacted. Hence, without factual basis, an ordinance
will necessarily fail the substantive test for validity.

Batangas City's failure to prove the existence of factual basis to justify the enactment of the
Assailed Ordinance had already been passed upon by the lower courts. The Court quotes, with
1âw phi 1

approval, the Joint Decision of the CA Fourth Division:

To prohibit an act or to compel something to be done, there must be a shown reason for the
same. The purpose must also be cogent to the means adopted by the law to attain it. In this
case, as seen in the "whereas clause," the purpose of the ordinance is to protect the
environment and prevent ecological imbalance, especially the drying up of the aquifers of
Batangas City. In effect, the drying up of aquifers is being blamed on the establishments and
industries such as petitioners-appellees here. It would have been acceptable had there been a
specific study or findings that the local government conducted (sic) and not just its reliance on
the complaints of some constituents who merely made its conclusion that the drying up of wells
or its salination was due to the "heavy industries"' use of groundwater.

In addition, if appellants were convinced that those industries adversely affect the environment
and specifically the water resource in Batangas City, there would be no exemptions, as provided
in Section 5 of the Ordinance, as it would negate the purpose of the Jaw.

It thus becomes apparent that the ordinance was come up with in an arbitrary manner, if not
based purely on emotive or flawed premises. There was no scientific standard or any acceptable
standard at all that the ordinance was based on. x x x85

While the Joint Decision resolves the JG Summit and First Gas appeals, these cases, pertain to
the same appeal filed by Batangas City and the Sangguniang Panlungsod from the Decision of
the RTC nullifying the Assailed Ordinance. As aptly put by the CA in the present case:

The factual antecedents and legal issues in the present CA-G.R. CV No. 90373 are identical to
those of CA-G.R. CV Nos. 90324 and 90365. The assignment of errors in the present appeal are
but a restatement of the errors raised in the two consolidated appeals cases, which errors have
already been exhaustively passed upon by the Court's Fourth Division in its Joint Decision dated
May 28, 2009, weighing pieces of evidence that are now the very same pieces of evidence
presented for consideration in this appeal. x x x86 (Emphasis supplied)

This Court, not being a trier of facts, accords the highest degree of respect to the findings of fact
of the trial court, especially where, as here, they have been affirmed by the CA; accordingly,
these findings will not be disturbed. To be sure, such findings are binding and conclusive upon
this Court, 87 and it is not the Court's function in a petition for review on certiorari to examine,
evaluate or weigh anew the probative value of the evidence presented before the trial
court. 88 While there are recognized exceptions to this rule, the Court finds that none is present in
this case.

Consequently, since it has been established that Batangas City did not have factual basis to
justify the purpose of the Assailed Ordinance, Batangas City cannot invoke the presumption of
validity. As held in Ermita-Ma/ate Hotel and Motel Operators Association, Inc. v. City Mayor of
Manila, 89 which Batangas City itself cites in its Petition, the presumption of validity ascribed to
an ordinance prevails only in the absence of some factual foundation of record sufficient
to overthrow the assailed issuance.90 In this case, the presumption of validity ascribed to the
Assailed Ordinance had been overturned by documentary and testimonial evidence showing that
no substantial diminution in the supply of ground water in the TabangaoMalitam watershed had
occurred in the last three (3) decades, and that no threat of depletion of ground water resources
in said watershed existed.91

Final Note

While the Assailed Ordinance has been struck down as invalid, the pronouncements hereunder
should not be misconstrued by heavy industries to be carte blanche to abuse their respective
water rights at the expense of the health and safety of the inhabitants of Batangas City, the
environment within which these inhabitants live, and the resources upon which these inhabitants
rely. The Court recognizes fresh ground water as an invaluable natural resource, and deems it
necessary to emphasize that Batangas City is not precluded from exercising its right to protect its
inhabitants from injurious effects which may result from the misuse of natural water resources
within its territorial jurisdiction, should these effects later arise, provided that such exercise is
done within the framework of applicable national law, particularly, the Water Code.

WHEREFORE, premises considered, the petition for review on certiorari is DENIED. The
Decision dated May 25, 2010 and Resolution dated December 30, 2010 of the Court of Appeals
in CA-G.R. CV No. 90373 are AFFIRMED.

SO ORDERED.