G.R. No.

115381 December 23, 1994

KILUSANG MAYO UNO LABOR CENTER, petitioner,
vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUS
OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents.
Potenciano A. Flores for petitioner.
Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent.
Jose F. Miravite for movants.

KAPUNAN, J.:
Public utilities are privately owned and operated businesses whose service are essential to the general public. They are enterprises which specially
cater to the needs of the public and conduce to their comfort and convenience. As such, public utility services are impressed with public interest and
concern. The same is true with respect to the business of common carrier which holds such a peculiar relation to the public interest that there is
superinduced upon it the right of public regulation when private properties are affected with public interest, hence, they cease to be  juris privati  only.
When, therefore, one devotes his property to a use in which the public has an interest, he, in effect grants to the public an interest in that use, and
must submit to the control by the public for the common good, to the extent of the interest he has thus created. 1
An abdication of the licensing and regulatory government agencies of their functions as the instant petition seeks to show, is indeed lamentable. Not
only is it an unsound administrative policy but it is inimical to public trust and public interest as well.
The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars and/or orders of the Department of
Transportation and Communications (DOTC) and the Land Transportation Franchising and Regulatory Board LTFRB) 2 which, among others, (a)
authorize provincial bus and jeepney operators to increase or decrease the prescribed transportation fares without application therefor with the
LTFRB and without hearing and approval thereof by said agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise
known as the Public Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by delegating that function to bus
operators, and (b) establish a presumption of public need in favor of applicants for certificates of public convenience (CPC) and place on the
oppositor the burden of proving that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as amended, but
also of Sec. 20(a) of the same Act mandating that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court which places
upon each party the burden to prove his own affirmative allegations. 3 The offending provisions contained in the questioned issuances pointed out by
petitioner, have resulted in the introduction into our highways and thoroughfares thousands of old and smoke-belching buses, many of which are
right-hand driven, and have exposed our consumers to the burden of spiraling costs of public transportation without hearing and due process.
The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz: (a) DOTC Memorandum Order 90-395, dated
June 26, 1990 relative to the implementation of a fare range scheme for provincial bus services in the country; (b) DOTC Department Order No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC Memorandum dated October 8, 1992,
laying down rules and procedures to implement Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing
implementing guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then LTFRB Chairman, Remedios A.S.
Fernando allowing provincial bus operators to charge passengers rates within a range of 15% above and 15% below the LTFRB official rate for a
period of one (1) year. The text of the memorandum order reads in full:
One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the Medium-Term Philippine
Development Plan (MTPDP) 1987 — 1992) is the liberalization of regulations in the transport sector. Along this line, the
Government intends to move away gradually from regulatory policies and make progress towards greater reliance on free market
forces.
Based on several surveys and observations, bus companies are already charging passenger rates above and below the official
fare declared by LTFRB on many provincial routes. It is in this context that some form of liberalization on public transport fares is
to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all provincial bus routes in
country (except those operating within Metro Manila). Transport Operators shall be allowed to charge passengers within a range
of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year .
Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the DOTC Planning Service.
The implementation of the said fare range scheme shall start on 6 August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted the following memorandum to Oscar
M. Orbos on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received on 19 July 1990,
directing the Board "to immediately publicize a fare range scheme for all provincial bus routes in the country (except those
operating within Metro Manila)" that will allow operators "to charge passengers within a range of fifteen percent (15%) above and
fifteen percent (15%) below the LTFRB official rate for a period of one year" the undersigned is respectfully adverting the
Secretary's attention to the following for his consideration:
1. Section 16(c) of the Public Service Act prescribes the following for the fixing and determination of rates —
(a) the rates to be approved should be proposed by public service operators; (b) there should be a
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 publication and notice to concerned or affected parties in the territory affected; (c) a public hearing should be
held for the fixing of the rates; hence, implementation of the proposed fare range scheme on August 6
without complying with the requirements of the Public Service Act may not be legally feasible.
2. To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares in the
wake of the devastation, death and suffering caused by the July 16 earthquake will not be socially warranted
and will be politically unsound; most likely public criticism against the DOTC and the LTFRB will be triggered
by the untimely motu propio implementation of the proposal by the mere expedient of publicizing the fare
range scheme without calling a public hearing, which scheme many as early as during the Secretary's
predecessor know through newspaper reports and columnists' comments to be Asian Development Bank
and World Bank inspired.
3. More than inducing a reduction in bus fares by fifteen percent (15%) the implementation of the proposal
will instead trigger an upward adjustment in bus fares by fifteen percent (15%) at a time when hundreds of
thousands of people in Central and Northern Luzon, particularly in Central Pangasinan, La Union, Baguio
City, Nueva Ecija, and the Cagayan Valley are suffering from the devastation and havoc caused by the
recent earthquake.
4. In lieu of the said proposal, the DOTC with its agencies involved in public transportation can consider
measures and reforms in the industry that will be socially uplifting, especially for the people in the areas
devastated by the recent earthquake.
In view of the foregoing considerations, the undersigned respectfully suggests that the implementation of the proposed fare
range scheme this year be further studied and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. (PBOAP) filed an application for fare rate
increase. An across-the-board increase of eight and a half centavos (P0.085) per kilometer for all types of provincial buses with a minimum-
maximum fare range of fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the said minimum-maximum fare range
applying only to ordinary, first class and premium class buses and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was sought.
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board increase of six and a half (P0.065)
centavos per kilometer for ordinary buses. The decrease was due to the drop in the expected price of diesel.
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that the proposed rates were exorbitant
and unreasonable and that the application contained no allegation on the rate of return of the proposed increase in rates.
On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in accordance with the following schedule of
fares on a straight computation method, viz:
AUTHORIZED FARES
LUZON
MIN. OF 5 KMS. SUCCEEDING KM.
REGULAR P1.50 P0.37
STUDENT P1.15 P0.28
VISAYAS/MINDANAO
REGULAR P1.60 P0.375
STUDENT P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/
MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/
MINDANAO P0.405
AIRCON (PER KM.) P0.415.4
On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes Prado issued Department Order No.
92-587 defining the policy framework on the regulation of transport services. The full text of the said order is reproduced below in view of the
importance of the provisions contained therein:
WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation and Communications (DOTC)
as the primary policy, planning, regulating and implementing agency on transportation;
WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the transportation regulatory
agencies under or attached to the DOTC have to harmonize their decisions and adopt a common philosophy and direction;
WHEREAS, the government proposes to build on the successful liberalization measures pursued over the last five years and
bring the transport sector nearer to a balanced longer term regulatory framework;
NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and principles in the economic
regulation of land, air, and water transportation services are hereby adopted:
1. Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no franchise holder shall be
permitted to maintain a monopoly on any route. A minimum of two franchise holders shall be permitted to operate on any route.
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 The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof of Filipino citizenship,
financial capability, public need, and sufficient insurance cover to protect the riding public.
In determining public need, the presumption of need for a service shall be deemed in favor of the applicant. The burden of
proving that there is no need for a proposed service shall be with the oppositor(s) .
In the interest of providing efficient public transport services, the use of the "prior operator" and the "priority of filing" rules shall
be discontinued. The route measured capacity test or other similar tests of demand for vehicle/vessel fleet on any route shall be
used only as a guide in weighing the merits of each franchise application and not as a limit to the services offered.
Where there are limitations in facilities, such as congested road space in urban areas, or at airports and ports, the use of
demand management measures in conformity with market principles may be considered.
The right of an operator to leave the industry is recognized as a business decision, subject only to the filing of appropriate notice
and following a phase-out period, to inform the public and to minimize disruption of services.
2. Rate and Fare Setting. Freight rates shall be freed gradually from government controls.  Passenger fares shall also be
deregulated, except for the lowest class of passenger service (normally third class passenger transport) for which the
government will fix indicative or reference fares. Operators of particular services may fix their own fares within a range 15%
above and below the indicative or reference rate.
Where there is lack of effective competition for services, or on specific routes, or for the transport of particular commodities,
maximum mandatory freight rates or passenger fares shall be set temporarily by the government pending actions to increase the
level of competition.
For unserved or single operator routes, the government shall contract such services in the most advantageous terms to the
public and the government, following public bids for the services. The advisability of bidding out the services or using other kinds
of incentives on such routes shall be studied by the government.
3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall not engage in special
financing and incentive programs, including direct subsidies for fleet acquisition and expansion. Only when the market situation
warrants government intervention shall programs of this type be considered. Existing programs shall be phased out gradually.
The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime Industry Authority are
hereby directed to submit to the Office of the Secretary, within forty-five (45) days of this Order, the detailed rules and
procedures for the Implementation of the policies herein set forth. In the formulation of such rules, the concerned agencies shall
be guided by the most recent studies on the subjects, such as the Provincial Road Passenger Transport Study, the Civil Aviation
Master Plan, the Presidential Task Force on the Inter-island Shipping Industry, and the Inter-island Liner Shipping Rate
Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications Jesus B. Garcia, Jr. issued a
memorandum to the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules and procedures to implement above-quoted
Department Order No. 92-587 that laid down deregulation and other liberalization policies for the transport sector. Attached to the said memorandum
was a revised draft of the required rules and procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with
comments and suggestions from the World Bank incorporated therein. Likewise, resplendent from the said memorandum is the statement of the
DOTC Secretary that the adoption of the rules and procedures is a pre-requisite to the approval of the Economic Integration Loan from the World
Bank.5
On February 17, 1993, the LTFRB issued Memorandum Circular
No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-587. The Circular provides, among others, the
following challenged portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.
The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service
shall be deemed in favor of the applicant, while burden of proving that there is no need for the proposed service shall be the
oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price competition complementary with the quality of service, subject to prior
notice and public hearing. Fares shall not be provisionally authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses and jeepneys shall be widened to
20% and -25% limit in 1994 with the authorized fare to be replaced by an indicative or reference rate as the basis for the
expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first class and premier services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing provincial bus operators to
collect plus 20% and minus 25% of the prescribed fare without first having filed a petition for the purpose and without the benefit of a public hearing,
announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were to be made effective on March 16, 1994.
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On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES FOR LACK OF
MERIT the petition filed in the above-entitled case. This petition in this case was resolved with dispatch at the request of
petitioner to enable it to immediately avail of the legal remedies or options it is entitled under existing laws.
SO ORDERED.6
Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing respondents from implementing the bus fare
rate increase as well as the questioned orders and memorandum circulars. This meant that provincial bus fares were rolled back to the levels duly
authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced on the issuance of franchises for the operation of buses,
jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to provincial bus operators to set a fare range
of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing
authorized fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second, the establishment of a presumption of
public need in favor of an applicant for a proposed transport service without having to prove public necessity, is illegal for being violative of the Public
Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the petitioner, questions the wisdom and the
manner by which the instant petition was filed. It asserts that the petitioner has no legal standing to sue or has no real interest in the case at bench
and in obtaining the reliefs prayed for.
In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate
that the petitioner does not have the standing to maintain the instant suit. They further claim that it is within DOTC and LTFRB's authority to set a
fare range scheme and establish a presumption of public need in applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi  must be struck. Petitioner KMU has the standing to sue.
The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government.
In Lamb v. Phipps,7 we ruled that judicial power is the power to hear and decide causes pending between parties who have the right to sue in the
courts of law and equity. Corollary to this provision is the principle of locus standi of a party litigant. One who is directly affected by and whose
interest is immediate and substantial in the controversy has the standing to sue. The rule therefore requires that a party must show a personal stake
in the outcome of the case or an injury to himself that can be redressed by a favorable decision so as to warrant an invocation of the court's
jurisdiction and to justify the exercise of the court's remedial powers in his behalf. 8
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury and damage from the
implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear legal right that was violated and continues to be
violated with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who avail of the use of buses, trains and
jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger fares. They are part of the millions of commuters
who comprise the riding public. Certainly, their rights must be protected, not neglected nor ignored.
Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this barren procedural infirmity and
recognize the legal standing of the petitioner in view of the transcendental importance of the issues raised. And this act of liberality is not without
judicial precedent. As early as the  Emergency Powers Cases, this Court had exercised its discretion and waived the requirement of proper party. In
the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et a l.,9 we ruled in the same lines and enumerated some of the cases where the
same policy was adopted, viz:
. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view
of the importance of the issues raised. In the landmark  Emergency Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan);
G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of Customs);
and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this technicality
because "the transcendental importance to the public of these cases demands that they be settled promptly and definitely,
brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits are
concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should be entertained," (Tan v.
Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or not." [Sanidad v. COMELEC,
73 SCRA 333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on  locus standi, ordinary taxpayers, members of Congress, and even association of
planters, and
non-profit civic organizations were allowed to initiate and prosecute actions before this court to question the constitutionality or
validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities. Among such cases were
those assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation and
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 sick leave to Senators and Representatives and to elective officials of both Houses of Congress (Philippine Constitution
Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25
July 1987, which allowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other government
offices or positions (Civil Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt
service in the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the holding of
desynchronized elections (Osmeña v. Commission on Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the
Philippine Amusement and Gaming Corporation) on the ground that it is contrary to morals, public policy, and order (Basco v.
Philippine Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National
Police. (Carpio v. Executive Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy regarding  locus standi  include those attacking the validity or legality of (a)
an order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn Planters
Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed amendments to the
Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise, control, hold, and conduct the referendum-
plebiscite on 16 October 1976 (Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179 square
meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval without hearing
by the Board of Investments of the amended application of the Bataan Petrochemical Corporation to transfer the site of its plant
from Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied
petroleum gas (Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]);
(e) the decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of Finance, Commissioner of Internal
Revenue, Commissioner of Customs, and the Fiscal Incentives Review Board exempting the National Power Corporation from
indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6
December 1990 on the ground that the hearings conducted on the second provisional increase in oil prices did not allow the
petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g) Executive Order No.
478 which levied a special duty of P0.95 per liter of imported oil products (Garcia v. Executive Secretary, 211 SCRA 219 [1992]);
(h) resolutions of the Commission on Elections concerning the apportionment, by district, of the number of elective members of
Sanggunians (De Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum orders issued by a Mayor
affecting the Chief of Police of Pasay City (Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections  (62 SCRA 275 [1975]), this Court, despite its unequivocal ruling that the
petitioners therein had no personality to file the petition, resolved nevertheless to pass upon the issues raised because of the far-
reaching implications of the petition. We did no less in De Guia v. COMELEC (Supra) where, although we declared that De Guia
"does not appear to have locus standi, a standing in law, a personal or substantial interest," we brushed aside the procedural
infirmity "considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected
by the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and hearing . — The Commission shall have power, upon proper notice
and hearing  in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and
saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as well as commutation,
mileage kilometrage, and other special rates which shall be imposed, observed, and followed thereafter by any public
service: Provided, That the Commission may, in its discretion, approve rates proposed by public services provisionally and
without necessity of any hearing; but it shall call a hearing thereon within thirty days thereafter, upon publication and notice to the
concerns operating in the territory affected:  Provided, further, That in case the public service equipment of an operator is used
principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in
relation with the public service of such operator for the purpose of fixing the rates. (Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the power of fixing the rates of public
services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order No. 202 dated
June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and
adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services provided by
motorized vehicles."
Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing complexity of modern life. As
subjects for governmental regulation multiply, so does the difficulty of administering the laws. Hence, specialization even in legislation has become
necessary. Given the task of determining sensitive and delicate matters as
route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the power of subordinate legislation. With this
authority, an administrative body and in this case, the LTFRB, may implement broad policies laid down in a statute by "filling in" the details which the
Legislature may neither have time or competence to provide. However, nowhere under the aforesaid provisions of law are the regulatory bodies, the
PSC and LTFRB alike, authorized to delegate that power to a common carrier, a transport operator, or other public service.
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In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and above the authorized existing
fare, is illegal and invalid as it is tantamount to an undue delegation of legislative authority.  Potestas delegata non delegari potest . What has been
delegated cannot be delegated. This doctrine is based on the ethical principle that such a delegated power constitutes not only a right but a duty to
be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another. 10 A further delegation
of such power would indeed constitute a negation of the duty in violation of the trust reposed in the delegate mandated to discharge it directly. 11 The
policy of allowing the provincial bus operators to change and increase their fares at will would result not only to a chaotic situation but to an anarchic
state of affairs. This would leave the riding public at the mercy of transport operators who may increase fares every hour, every day, every month or
every year, whenever it pleases them or whenever they deem it "necessary" to do so. In  Panay Autobus Co. v. Philippine Railway Co .,12 where
respondent Philippine Railway Co. was granted by the Public Service Commission the authority to change its freight rates at will, this Court
categorically declared that:
In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine Railway Co. the power of
altering its freight rates whenever it should find it necessary to do so in order to meet the competition of road trucks and
autobuses, or to change its freight rates at will, or to regard its present rates as maximum rates, and to fix lower rates whenever
in the opinion of the Philippine Railway Co. it would be to its advantage to do so.
The mere recital of the language of the application of the Philippine Railway Co. is enough to show that it is untenable. The
Legislature has delegated to the Public Service Commission the power of fixing the rates of public services, but it has not
authorized the Public Service Commission to delegate that power to a common carrier or other public service . The rates of public
services like the Philippine Railway Co. have been approved or fixed by the Public Service Commission, and any change in such
rates must be authorized or approved by the Public Service Commission after they have been shown to be just and reasonable.
The public service may, of course, propose new rates, as the Philippine Railway Co. did in case No. 31827, but it cannot lawfully
make said new rates effective without the approval of the Public Service Commission, and the Public Service Commission itself
cannot authorize a public service to enforce new rates without the prior approval of said rates by the commission. The
commission must approve new rates when they are submitted to it, if the evidence shows them to be just and reasonable,
otherwise it must disapprove them. Clearly, the commission cannot determine in advance whether or not the new rates of the
Philippine Railway Co. will be just and reasonable, because it does not know what those rates will be.
In the present case the Philippine Railway Co. in effect asked for permission to change its freight rates at will. It may change
them every day or every hour, whenever it deems it necessary to do so in order to meet competition or whenever in its opinion it
would be to its advantage. Such a procedure would create a most unsatisfactory state of affairs and largely defeat the purposes
of the public service law.13 (Emphasis ours).
One veritable consequence of the deregulation of transport fares is a compounded fare. If transport operators will be authorized to impose and
collect an additional amount equivalent to 20% over and above the authorized fare over a period of time, this will unduly prejudice a commuter who
will be made to pay a fare that has been computed in a manner similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a thirty-seven (P0.37) centavo per kilometer
fare for ordinary buses. At the same time, they were allowed to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus
P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate
in 1990. Supposing the LTFRB grants another five (P0.05) centavo increase per kilometer in 1994, then, the base or reference for computation
would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an additional 20% over
and above the authorized fare, then the fare to be collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is
P0.29). In effect, commuters will be continuously subjected, not only to a double fare adjustment but to a compounding fare as well. On their part,
transport operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied for, they can still collect an additional amount by virtue of
the authorized fare range. Mathematically, the situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be
rate*** collected per
kilometer
1990 P0.37 15% (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that requires dexterity of judgment and
sound discretion with the settled goal of arriving at a just and reasonable rate acceptable to both the public utility and the public. Several factors, in
fact, have to be taken into consideration before a balance could be achieved. A rate should not be confiscatory as would place an operator in a
situation where he will continue to operate at a loss. Hence, the rate should enable public utilities to generate revenues sufficient to cover operational
costs and provide reasonable return on the investments. On the other hand, a rate which is too high becomes discriminatory. It is contrary to public
interest. A rate, therefore, must be reasonable and fair and must be affordable to the end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of commuters, government must not relinquish
this important function in favor of those who would benefit and profit from the industry. Neither should the requisite notice and hearing be done away
with. The people, represented by reputable oppositors, deserve to be given full opportunity to be heard in their opposition to any fare increase.
The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory arrangement for all parties involved. To do away
with such a procedure and allow just one party, an interested party at that, to determine what the rate should be, will undermine the right of the other

Page 6 of 134
parties to due process. The purpose of a hearing is precisely to determine what a just and reasonable rate is. 15 Discarding such procedural and
constitutional right is certainly inimical to our fundamental law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land transportation services for public use as
required by law. Pursuant to Section 16(a) of the Public Service Act, as amended, the following requirements must be met before a CPC may be
granted, to wit: (i) the applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or joint-stock company constituted
and organized under the laws of the Philippines, at least 60  per centum  of its stock or paid-up capital must belong entirely to citizens of the
Philippines; (ii) the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its
operation; and (iii) the applicant must prove that the operation of the public service proposed and the authorization to do business will promote the
public interest in a proper and suitable manner . It is understood that there must be proper notice and hearing before the PSC can exercise its power
to issue a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-009, Part IV, provides for yet
incongruous and contradictory policy guideline on the issuance of a CPC. The guidelines states:
The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service
shall be deemed in favor of the applicant, while the burden of proving that there is no need for the proposed service shall be the
oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public Service Act which requires that before a
CPC will be issued, the applicant must prove by proper notice and hearing that the operation of the public service proposed will promote public
interest in a proper and suitable manner. On the contrary, the policy guideline states that the presumption of public need for a public service shall be
deemed in favor of the applicant. In case of conflict between a statute and an administrative order, the former must prevail.
By its terms, public convenience or necessity generally means something fitting or suited to the public need. 16 As one of the basic requirements for
the grant of a CPC, public convenience and necessity exists when the proposed facility or service meets a reasonable want of the public and supply
a need which the existing facilities do not adequately supply. The existence or
non-existence of public convenience and necessity is therefore a question of fact that must be established by evidence, real and/or testimonial;
empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose. The object and purpose of such
procedure, among other things, is to look out for, and protect, the interests of both the public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and investigation, it shall find, as a fact,
that the proposed operation is for the convenience of the public. 17 Basic convenience is the primary consideration for which a CPC is issued, and that
fact alone must be consistently borne in mind. Also, existing operators in subject routes must be given an opportunity to offer proof and oppose the
application. Therefore, an applicant must, at all times, be required to prove his capacity and capability to furnish the service which he has undertaken
to
render. 18 And all this will be possible only if a public hearing were conducted for that purpose.
Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and institutionalized judicial, quasi-judicial and
administrative procedures. It allows the party who initiates the proceedings to prove, by mere application, his affirmative allegations. Moreover, the
offending provisions of the LTFRB memorandum circular in question would in effect amend the Rules of Court by adding another disputable
presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's authority cannot
be countenanced as only this Court is mandated by law to promulgate rules concerning pleading, practice and procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the present circumstances. Advocacy of
liberalized franchising and regulatory process is tantamount to an abdication by the government of its inherent right to exercise police power, that is,
the right of government to regulate public utilities for protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the transport sector, we find that they
committed grave abuse of discretion in issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum Circular No. 92-009 promulgating the
implementing guidelines on DOTC Department Order No. 92-587, the said administrative issuances being amendatory and violative of the Public
Service Act and the Rules of Court. Consequently, we rule that the twenty (20%)  per centum fare increase imposed by respondent PBOAP on March
16, 1994 without the benefit of a petition and a public hearing is null and void and of no force and effect. No grave abuse of discretion however was
committed in the issuance of DOTC Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the same being merely
internal communications between administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged administrative issuances and orders, namely:
DOTC Department Order No. 92-587, LTFRB Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED contrary to law and invalid insofar as they
affect provisions therein (a) delegating to provincial bus and jeepney operators the authority to increase or decrease the duly prescribed
transportation fares; and (b) creating a presumption of public need for a service in favor of the applicant for a certificate of public convenience and
placing the burden of proving that there is no need for the proposed service to the oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it enjoined the bus fare rate increase granted
under the provisions of the aforementioned administrative circulars, memoranda and/or orders declared invalid.
No pronouncement as to costs.
SO ORDERED.

Page 7 of 134
G.R. No. L-46158 November 28, 1986
TAYUG RURAL BANK, plaintiff-appellee,
vs.
CENTRAL BANK OF THE PHILIPPINES, defendant-appellant.
Bengzon, Bengzon, Villaroman & De Vera Law Office for plaintiff-appellee.
Evangelista, Bautista & Valdehuesa Law Office for defendant-appellant.

PARAS, J.:p
Submitted on May 20, 1977 for decision by this Court is this appeal from the decision dated January 6, 1971 rendered by the Court of First Instance
of Manila, Branch III in Civil Case No. 76920, the decretal portion of which states as follows:
WHEREFORE, judgment is rendered for the plaintiff on the complaint and the defendant is ordered to further credit the plaintiff
the amounts collected as 10% penalty in the sum of P19,335.88 or up to July 15, 1969 and to refrain from collecting the said
10% penalty on the remaining past due loans of plaintiff with the defendant.
With respect to defendant's counterclaim, judgment is hereby rendered against the plaintiff and the defendant is ordered to pay
the Central Bank of the Philippines the outstanding balance of its past overdue accounts in the sum of P444,809,45 plus accrued
interest at the rate of 1/2 of 1 % per annum with respect to the promissory notes (Annexes 1 to 1-E of defendant's Answer) and
2-1/2% per annum with respect to the promissory notes (Annexes 1-f to 1-i of the Answer). From this amount shall be deducted
the sum of P19,335.88 collected as 10% penalty.
The facts of the case based on the parties' stipulation of facts (Record on Appeal p. 67), are as follows:
Plaintiff-Appellee, Tayug Rural Bank, Inc., is a banking corporation in Tayug, Pangasinan. During the period from December 28, 1962 to July 30,
1963, it obtained thirteen (13) loans from Defendant-Appellant, Central Bank of the Philippines, by way of rediscounting, at the rate of 1/2 of 1% per
annum from 1962 to March 28, 1963 and thereafter at the rate of 2-1/2% per anum. The loans, amounting to P813,000.00 as of July 30, 1963, were
all covered by corresponding promissory notes prescribing the terms and conditions of the aforesaid loans (Record on Appea, pp. 15-53). As of July
15, 1969, the outstanding balance was P 444,809.45 (Record on Appeal, p. 56).
On December 23, 1964, Appellant, thru the Director of the Department of Loans and Credit, issued Memorandum Circular No. DLC-8, informing all
rural banks that an additional penalty interest rate of ten per cent (10%) per annum would be assessed on all past due loans beginning January 4,
1965. Said Memorandum Circular was actually enforced on all rural banks effective July 4, 1965.
On June 27, 1969, Appellee Rural Bank sued Appellant in the Court of First Instance of Manila, Branch III, to recover the 10% penalty imposed by
Appellant amounting to P16,874.97, as of September 27, 1968 and to restrain Appellant from continuing the imposition of the penalty. Appellant filed
a counterclaim for the outstanding balance and overdue accounts of Appellee in the total amount of P444,809.45 plus accrued interest and penalty
at 10% per annum on the outstanding balance until full payment. (Record on Appeal, p. 13). Appellant justified the imposition of the penalty by way
of affirmative and special defenses, stating that it was legally imposed under the provisions of Section 147 and 148 of the Rules and Regulations
Governing Rural Banks promulgated by the Monetary Board on September 5, 1958, under authority of Section 3 of Republic Act No. 720, as
amended (Record on Appeal, p. 8, Affirmative and Special Defenses Nos. 2 and 3).
In its answer to the counterclaim, Appellee prayed for the dismissal of the counterclaim, denying Appellant's allegations stating that if Appellee has
any unpaid obligations with Appellant, it was due to the latter's fault on account of its flexible and double standard policy in the granting of
rediscounting privileges to Appellee and its subsequent arbitrary and illegal imposition of the 10% penalty (Record on Appeal, p. 57). In its
Memorandum filed on November 11, 1970, Appellee also asserts that Appellant had no basis to impose the penalty interest inasmuch as the
promissory notes covering the loans executed by Appellee in favor of Appellants do not provide for penalty interest rate of 10% per annum on just
due loans beginning January 4, 1965 (Record on Appeal p. 96).
The lower court, in its Order dated March 3, 1970, stated that "only a legal question has been raised in the pleadings" and upholding the stand of
plaintiff Rural Bank, decided the case in its favor. (Rollo, p. 34).
Appellant appealed the decision of the trial court to the Court of Appeals, for determination of questions of facts and of law. However, in its decision
promulgated April 13, 1977, the Court of Appeals, finding no controverted facts and taking note of the statement of the lower court in its pre-trial
Order dated March 3, 1970 that only a legal question has been raised in the pleadings, (Record on Appeal, p. 61), ruled that the resolution of the
appeal will solely depend on the legal issue of whether or not the Monetary Board had authority to authorize Appellant Central Bank to impose a
penalty rate of 10% per annum on past due loans of rural banks which had failed to pay their accounts on time and ordered the certification of this
case to this Court for proper determination (Rollo, pp. 34-35).
On April 20, 1977, the entire record of the case was forwarded to this Court (Rollo, p. 36). In the resolution of May 20, 1977, the First Division of this
Court, ordered the case docketed and as already stated declared the same submitted for decision (Rollo, p. 38).
In its Brief, Appellant assigns the following errors:
I. THE LOWER COURT ERRED IN HOLDING THAT IT IS BEYOND THE REACH OF THE MONETARY
BOARD TO METE OUT PENALTIES ON PAST DUE LOANS OF RURAL BANKS ESPECIALLY SINCE NO
PENAL CLAUSE HAS BEEN INCLUDED IN THE PROMISSORY NOTES.
Page 8 of 134
 II. THE LOWER COURT ERRED IN HOLDING THAT THE IMPOSITION OF THE PENALTY IS AN
IMPAIRMENT OF THE OBLIGATION OF CONTRACT WITHOUT DUE PROCESS.
III. THE LOWER COURT ERRED IN NOT FINDING JUDGMENT AGAINST PLAINTIFF FOR 10% COST OF
COLLECTION OF THE PROMISSORY NOTE AS PROVIDED THEREIN.
It is undisputed that no penal clause has been included in the promissory notes. For this reason, the trial court is of the view that Memorandum
Circular DLC-8 issued on December 23, 1964 prescribing retroactive effect on all past due loans, impairs the obligation of contract and deprives the
plaintiff of its property without due process of law. (Record on Appel, p. 40).
On the other hand appellant without opposing appellee's right against impairment of contracts, contends that when the promissory notes were signed
by appellee, it was chargeable with knowledge of Sections 147 and 148 of the rules and regulations authorizing the Central Bank to impose
additional reasonable penalties, which became part of the agreement. ( ibid).
Accordingly, the issue is reduced to the sole question as to whether or not the Central Bank can validly impose the 10% penalty on Appellee's past
overdue loans beginning July 4, 1965, by virtue of Memorandum Circular No. DLC-8 dated December 23, 1964.
The answer is in the negative.
Memorandum Circular No. DLC-8 issued by the Director of Appellant's Department of Loans and Credit on December 23, 1964, reads as follows:
Pursuant to Monetary Board Resolution No. 1813 dated December 18, 1964, and in consonance with Section 147 and 148 of the
Rules and Regulations Governing Rural Banks concerning the responsibility of a rural bank to remit immediately to the Central
Bank payments received on papers rediscounted with the latter including the loan value of rediscounted papers as they mature,
and to liquidate fully its maturing loan obligations with the Central Bank, personal checks, for purposes of repayment, shall
considered only after such personal checks shall have been honored at clearing.
In addition, rural banks which shall default in their loan obligations, thus incurring past due accounts with the Central Bank, shall
be assessed an additional penalty interest rate of ten per cent (10%) per annum on such past due accounts with the Central
Bank over and above the customary interest rate(s) at which such loans were originally secured from the Central Bank. (Record
on Appeal, p. 135).
The above-quoted Memorandum Circular was issued on the basis of Sections 147 and 148 of the Rules and Regulations Governing Rural Banks of
the Philippines approved on September 5, 1958, which provide:
Section 147. Duty of Rural Bank to turn over payment received for papers discounted or used for collateral.  — A Rural Bank
receiving any payment on account of papers discounted or used for collateral must turn the same over to the creditor bank
before the close of the banking day next following the receipt of payment, as long as the aggregate discounting on loan amount
is not fully paid, unless the Rural Bank substitutes the same with another eligible paper with at least the same or earlier maturity
and the same or greater value.
A Rural Bank failing to comply with the provisions of the preceding paragraph shall ipso facto lose its right to the rediscounting or
loan period, without prejudice to the Central Bank imposing additional reasonable penalties, including curtailment or withdrawal
of financial assistance.
Sec. 148. Default and other violations of obligation by Rural Bank, effect.  — A Rural Bank becomes in default upon the
expiration of the maturity period of its note, or that of the papers discounted or used as collateral, without the necessity of
demand.
A Rural Bank incurring default, or in any other manner, violating any of the stipulations in its note, shall suffer the consequences
provided in the second paragraph of the preceding section. (Record on Appeal, p. 136.)
The "Rules and Regulations Governing Rural Banks" was published in the Official Gazette, 55 O.G., on June 13, 1959, pp. 5186-5289. It is by virtue
of these same Rules that Rural Banks re-discount their loan papers with the Central Bank at 2-1/2% interest per annum and in turn lend the money
to the public at 12% interest per annum (Defendant's Reply to Plaintiff's Memorandum, Record on Appeal, p. 130).
Appellant maintains that it is pursuant to Section 3 of R.A. No. 720, as amended, that the Monetary Board has adopted the set of Rules and
Regulations Governing Rural Banks. It reads:
SEC. 3. In furtherance of this policy, the Monetary Board of the Central Bank of the Philippines shall formulate the necessary
rules and regulations governing the establishment and operatives of Rural Banks for the purpose of providing adequate credit
facilities to small farmers and merchants, or to cooperatives of such farmers or merchants and to supervise the operation of such
banks.
The specific provision under the law claimed as basis for Sections 147 and 148 of the Rules and Regulations Governing Rural Banks, that is, on
Appellant's authority to extend loans to Rural Banks by way of rediscounting is Section 13 of R.A. 720, as amended, which provides:
SEC. 13. In an emergency or when a financial crisis is imminent the Central Bank may give a loan to any Rural Bank against
assets of the Rural Bank which may be considered acceptable by a concurrent vote of at least, five members of the Monetary
Board.
In normal times, the Central Bank may re-discount against papers evidencing a loan granted by a Rural Bank to any of its
customers which can be liquefied within a period of two hundred and seventy days: PROVIDED, HOWEVER, That for the
purpose of implementing a nationwide program of agricultural and industrial development, Rural Banks are hereby authorized
under such terms and conditions as the Central Bank shall prescribe to borrow on a medium or long term basis, funds that the
Central Bank or any other government financing institutions shall borrow from the International Bank for Reconstruction and
Development or other international or foreign lending institutions for the specific purpose of financing the above stated
agricultural and industrial program. Repayment of loans obtained by the Central Bank of the Philippines or any other government

Page 9 of 134
 financing institution from said foreign lending institutions under this section shall be guaranteed by the Republic of the
Philippines.
As to the supervising authority of the Monetary Board of the Central Bank over Rural Banks, the same is spelled-out under Section 10 of R.A. 720,
as follows:
SEC. 10. The power to supervise the operation of any Rural Bank by the Monetary Board of the Central Bank as herein
indicated, shall consist in placing limits to the maximum credit allowed any individual borrower; in prescribing the interest rate; in
determining the loan period and loan procedure; in indicating the manner in which technical assistance shall be extended to
Rural Banks; in imposing a uniform accounting system and manner of keeping the accounts and records of the Rural Banks; in
undertaking regular credit examination of the Rural Banks: in instituting periodic surveys of loan and lending procedures, audits,
test check of cash and other transactions of the Rural Banks; in conducting training courses for personnel of Rural Banks; and, in
general in supervising the business operation of the Rural Banks.
Nowhere in any of the above-quoted pertinent provisions of R.A. 720 nor in any other provision of R.A. 720 for that matter, is the monetary Board
authorized to mete out on rural banks an additional penalty rate on their past due accounts with Appellant. As correctly stated by the trial court, while
the Monetary Board possesses broad supervisory powers, nonetheless, the retroactive imposition of administrative penalties cannot be taken as a
measure supervisory in character. (Record on Appeal, p. 141).
Administrative rules and regulations have the force and effect of law (Valerio v. Hon. Secretary of Agriculture and Natural Resources, 7 SCRA 719;
Commissioner of Civil Service v. Cruz, 15 SCRA 638; R.B. Industrial Development Company, Ltd. v. Enage, 24 SCRA 365; Director of Forestry v.
Munoz, 23 SCRA 1183; Gonzalo Sy v. Central Bank of the Philippines, 70 SCRA 570).
There are, however, limitations to the rule-making power of administrative agencies. A rule shaped out by jurisprudence is that when Congress
authorizes promulgation of administrative rules and regulations to implement given legislation, all that is required is that the regulation be not in
contradiction with it, but conform to the standards that the law prescribes (Director of Forestry v. Munoz, 23 SCRA 1183). The rule delineating the
extent of the binding force to be given to administrative rules and regulations was explained by the Court in Teoxon v. Member of the Board of
Administrators (33 SCRA 588), thus: "The recognition of the power of administrative officials to promulgate rules in the implementation of the statute,
as necessarily limited to what is provided for in the legislative enactment, may be found as early as 1908 in the case of  United States v. Barrias (11
Phil. 327) in 1914 U.S. v. Tupasi Molina  (29 Phil. 119), in 1936 People v. Santos (63 Phil. 300), in 1951 Chinese Flour Importers Ass. v.
Price Stabilization Board (89 Phil. 439), and in 1962 Victorias Milling Co., Inc. v. Social Security Commission  (4 SCRA 627). The Court held in the
same case that "A rule is binding on the courts so long as the procedure fixed for its promulgation is followed and its scope is within the statute
granted by the legislature, even if the courts are not in agreement with the policy stated therein or its innate wisdom ...." On the other hand,
"administrative interpretation of the law is at best merely advisory, for it is the courts that finally determine what the law means." Indeed, it cannot be
otherwise as the Constitution limits the authority of the President, in whom all executive power resides, to take care that the laws be faithfully
executed. No lesser administrative, executive office, or agency then can, contrary to the express language of the Constitution, assert for itself a more
extensive prerogative. Necessarily, it is bound to observe the constitutional mandate. There must be strict compliance with the legislative enactment.
The rule has prevailed over the years, the latest restatement of which was made by the Court in the case of Bautista v. Junio (L-50908, January 31,
1984, 127 SCRA 342).
In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said rule or
regulation cannot go beyond the terms and provisions of the basic law (People v. Lim, 108 Phil. 1091). Rules that subvert the statute cannot be
sanctioned (University of St. Tomas v. Board of Tax Appeals, 93 Phil. 376; Del Mar v. Phil. Veterans Administration, 51 SCRA 340). Except for
constitutional officials who can trace their competence to act to the fundamental law itself, a public official must locate in the statute relied upon a
grant of power before he can exercise it. Department zeal may not be permitted to outrun the authority conferred by statute (Radio Communications
of the Philippines, Inc. v. Santiago, L-29236, August 21, 1974, 58 SCRA 493).
When promulgated in pursuance of the procedure or authority conferred upon the administrative agency by law, the rules and regulations partake of
the nature of a statute, and compliance therewith may be enforced by a penal sanction provided in the law (Victorias Milling Co., Inc. v. Social
Security Commission, 114 Phil. 555; People v. Maceren, L-32166, October 18, 1977, 79 SCRA 462; Daza v. Republic, L-43276, September 28,
1984, 132 SCRA 267). Conversely, the rule is likewise clear. Hence an administrative agency cannot impose a penalty not so provided in the law
authorizing the promulgation of the rules and regulations, much less one that is applied retroactively.
The records show that DLC Form No. 11 (Folder of Exhibits, p. 16) was revised December 23, 1964 to include the penal clause, as follows:
In the event that this note becomes past due, the undersigned shall pay a penalty at the rate of _____ per cent ( ) per annum on
such past due account over and above the interest rate at which such loan was originally secured from the Central Bank.
Such clause was not a part of the promissory notes executed by Appellee to secure its loans. Appellant inserted the clause in the revised DLC Form
No. 11 to make it a part of the contractual obligation of rural banks securing loans from the Central Bank, after December 23, 1964. Thus, while there
is now a basis for the imposition of the 10% penalty rate on overdue accounts of rural banks, there was none during the period that Appellee
contracted its loans from Appellant, the last of which loan was on July 30, 1963. Surely, the rule cannot be given retroactive effect.
Finally, on March 31, 1970, the Monetary Board in its Resolution No. 475 effective April 1, 1970, revoked its Resolution No. 1813, dated December
18, 1964 imposing the questioned 10% per annum penalty rate on past due loans of rural banks and amended sub-paragraph (a), Section 10 of the
existing guidelines governing rural banks' applications for a loan or rediscount, dated May 7, 1969 (Folder of Exhibits, p. 19). As stated by the trial
court, this move on the part of the Monetary Board clearly shows an admission that it has no power to impose the 10% penalty interest through its
rules and regulations but only through the terms and conditions of the promissory notes executed by the borrowing rural banks. Appellant evidently
hoped that the defect could be adequately accomplished by the revision of DLC Form No. 11.
The contention that Appellant is entitled to the 10% cost of collection in case of suit and should therefore, have been awarded the same by the court
below, is well taken. It is provided in all the promissory notes signed by Appellee that in case of suit for the collection of the amount of the note or any
Page 10 of 134
unpaid balance thereof, the Appellee Rural Bank shall pay the Central Bank of the Philippines a sum equivalent to ten (10%) per cent of the amount
unpaid not in any case less than five hundred (P500.00) pesos as attorney's fees and costs of suit and collection. Thus, Appellee cannot be allowed
to come to Court seeking redress for an wrong done against it and then be allowed to renege on its corresponding obligations.
PREMISES CONSIDERED, the decision of the trial court is hereby AFFIRMED with modification that Appellee Rural Bank is ordered to pay a sum
equivalent to 10% of the outstanding balance of its past overdue accounts, but not in any case less than P500.00 as attorney's fees and costs of suit
and collection.
SO ORDERED.

[G.R. No. L-50908. January 31, 1984.]

MARY CONCEPCION BAUTISTA and ENRIQUE D. BAUTISTA, Petitioners, v. ALFREDO L. JUINIO, ROMEO F. EDU and FIDEL V.
RAMOS, Respondents.

Mary Concepcion Bautista for and in his own behalf.

The Solicitor General for Respondents.

DECISION

FERNANDO, J.:

The validity of an energy conservation measure, Letter of Instruction No. 869, issued on May 31, 1979 — the response to the protracted oil crisis that
dates back to 1974 — is put in issue in this prohibition proceeding filed by petitioners, spouses Mary Concepcion Bautista and Enrique D. Bautista,
for being allegedly violative of the due process and equal protection guarantees 1 of the Constitution. The use of private motor vehicles with H and
EH plates on week-ends and holidays was banned from" [12:00] a.m. Saturday morning to 5:00 a.m. Monday morning, or 1:00 a.m. of the holiday to
5:00 a.m. of the day after the holiday." 2 Motor vehicles of the following classifications are exempted: (a) S (Service); (b) T (Truck); (c) DPL
(Diplomatic); (d) CC (Consular Corps); (e) TC (Tourist Cars)." 3 Pursuant thereto, respondent Alfredo L. Juinio, then Minister of Public Works,
Transportation and Communications and respondent Romeo P. Edu, then Commissioner of Land Transportation Commission issued on June 11,
1979, Memorandum Circular No. 39, which imposed "the penalties of fine, confiscation of vehicle and cancellation of registration on owners of the
above-specified vehicles" found violating such Letter of Instruction. 4 It was then alleged by petitioners that "while the purpose for the issuance of the
LOI 869 is laudable, to wit, energy conservation, the provision banning the use of H and EH [vehicles] is unfair, discriminatory, [amounting to an]
arbitrary classification" and thus in contravention of the equal protection clause. 5 Moreover, for them, such Letter of Instruction is a denial of due
process, more specifically, "of their right to use and enjoy their private property and of their freedom to travel and hold family gatherings, reunions
and outings on week-ends and holidays," inviting attention to the fact that others not included in the ban enjoying "unrestricted freedom." 6 It would
follow, so they contend that Memorandum Circular No. 39 imposing penalties of fine, confiscation of the vehicle and cancellation of license is
likewise unconstitutional, for being violative of the doctrine of "undue delegation of legislative power." 7 It is to be noted that such Memorandum
Circular does not impose the penalty of confiscation but merely that of impounding, fine, and for the third offense that of cancellation of certificate of
registration and for the rest of the year or for ninety days whichever is longer.chanrobles.com : virtual law library

This Court gave due course to the petition requiring respondent to answer. There was admission of the facts as substantially alleged except, as
previously noted, that the ban starts at 12:00 a.m. rather than 1:00 a.m. of a Saturday or of a holiday and as to the mention of a Willy’s Kaiser jeep
being registered in the name of a certain Teresita Urbina, about which respondents had no knowledge. There was a denial of the allegations that the
classification of vehicles into heavy (H) and extra heavy (EH) on the other hand and light and bantam on the other hand was violative of equal
protection and the regulation as to the use of the former cars on the dates specified a transgression of due process. The answer likewise denied that
there was an undue delegation of legislative power, reference being made to the Land Transportation and Traffic Code. 8 There was also a
procedural objection raised, namely, that what is sought amounts at most to an advisory opinion rather than an adjudication of a case or
controversy.chanrobles law library : red

Petitioners filed a motion to be allowed to reply to the answer. It was granted. The reply, considering its exhaustive character serving as its
memorandum, stressed anew what it emphasized as the arbitrary, unreasonable, and oppressive aspects of the challenged Letter of Instruction and
Memorandum Circular No. 39. It disputed what it characterized as an "erroneous and arbitrary presumption that heavy car owners unnecessarily use
and therefore waste gasoline whenever they drive their cars on week-ends and holidays;" 9 it stigmatized the ban as defeating its "avowed purpose
in the case of the affluent who own not only heavy limousines but also many small cars [as] they may be compelled to use at least two small cars;"
10 referred to the high cost of taxis or other public transports for those "not able to afford expensive small cars [possibly] only one heavy and
possible old model;" 11 cited the case of "many eight cylinder vehicles which because of their weight have been registered as light but in fact
consume more or as much gasoline as the banned vehicles." 12 Their conclusion is that "the ban imposed, in result and effect is class legislation."
13

The parties were required to submit memoranda. Respondents did so but not petitioners. They relied on their reply to the answer — as noted, a
rather comprehensive pleading. For reasons to be set forth, this Court holds that the petition cannot prosper.
Page 11 of 134
1. First as to the procedural objection. In the memorandum for respondents, one of the issues raised was whether "the power of judicial review may
be invoked considering the inadequacy of the record and the highly abstract and academic questions raised by the petitioners." 14 It is inaccurate to
say that the record is inadequate. It does not admit of doubt that the ban applies to petitioners who are "the registered owners of an eight cylinder
1969 Buick, and the vendees of a six cylinder Willy’s kaiser jeep, which are both classified as heavy or H." 15 To that extent, therefore, the
enforcement of the assailed Letter of Instruction will amount to a deprivation of what otherwise would be a valid exercise of a property right. Thus
they fall squarely within "the unchallenged rule" as to who may raise a constitutional question, namely, to quote the language of Justice Laurel in the
leading case of People v. Vera, 16 "that the person who impugns the validity of a statute must have a personal and substantial interest in the case
such that he has sustained, or will sustain, direct injury as a result of its enforcement." 17 Moreover, that rule has been considerably relaxed. 18 The
question then is neither abstract nor academic as contended by respondents.

2. There is, however, this formidable obstacle that confronts petitioners. What they seek is for this Court to hold that a Letter of Instruction, a
regulatory measure precisely enacted to cope with the serious and grave problem of energy conservation, is void on its face. Such a task is rendered
unusually difficult by what has been referred to by Justice Laurel in the leading case of Angara v. Electoral Commission 19 as the "presumption of
constitutionality" and by the same jurist in the case of People v. Vera 20 in slightly different words "a presumption that such an act falls within
constitutional limitations." There is need then for a factual foundation of invalidity. In the language of Ermita-Malate Hotel & Motel Operations
Association, Inc. v. City Mayor or Manila: "It admits of no doubt therefore that there being a presumption of validity, the necessity for evidence to
rebut it is unavoidable, unless the statute or ordinance is void on its face, which is not the case here. The principle has been nowhere better
expressed than in the leading case of O’Gorman & Young v. Hartford Fire Insurance Co., where the American Supreme Court through Justice
Brande is tersely and succinctly summed up the matter thus: ‘The statute here questioned deals with a subject clearly within the scope of the police
power. We are asked to declare it void on the ground that the specific method of regulation prescribed is unreasonable and hence deprives the
plaintiff of due process of law. As underlying questions of fact may condition the constitutionality of legislation of this character, the presumption of
constitutionality must prevail in the absence of some factual foundation of record for overthrowing the statute.’" 21

3. It is true, of course, that there may be instances where a police power measure may, because of its arbitrary, oppressive or unjust character, be
held offensive to the due process clause and, therefore, may, when challenged in an appropriate legal proceeding, be declared void on its face. This
is not one of them. A recital of the whereas clauses of the Letter of Instruction makes it clear. Thus:" [Whereas], developments in the international
petroleum supply situation continue to follow a trend of limited production and spiralling prices thereby precluding the possibility of immediate relief in
supplies within the foreseeable future; [Whereas], the uncertainty of fuel supply availability underscores a compelling need for the adoption of
positive measures designed to insure the viability of the country’s economy and sustain its developmental growth; [Whereas], to cushion the effect of
increasing oil prices and avoid fuel supply disruptions, it is imperative to adopt a program directed towards the judicious use of our energy resources
complemented with intensified conservation efforts and efficient utilization thereof; . . .." 22 What is undeniable is that the action taken is an
appropriate response to a problem that presses urgently for solution. It may not be the only alternative, but its reasonableness is immediately
apparent. Thus, to repeat, substantive due process, which is the epitome of reasonableness and fair play, is not ignored, much less infringed.

4. In the interplay between such a fundamental right and police power, especially so where the assailed governmental action deals with the use of
one’s property, the latter is accorded much leeway. That is settled law. What is more, it is good law. Due process, therefore, cannot be validly
invoked. As stressed in the cited Ermita-Malate Hotel decision: "To hold otherwise would be to unduly restrict and narrow the scope of police power
which has been properly characterized as the most essential, insistent and the least limitable of powers, extending as it does ‘to all the great public
needs.’ It would be, to paraphrase another leading decision, to destroy the very purpose of the state if it could be deprived or allowed itself to be
deprived of its competence to promote public health, public morals, public safety and the general welfare. Negatively put, police power is ‘that
inherent and plenary power in the State which enables it to prohibit all that is hurtful to the comfort, safety, and welfare of society.’" 23

5. The due process question having been disposed of, there is still the objection based on the equal protection clause to be considered. A
governmental act may not be offensive to the due process clause, but may run counter to such a guarantee. Such is the case when there is no
rational basis for the classification followed. That is the point raised by petitioners. For them, there is no rational justification for the ban being
imposed on vehicles classified as heavy (H) and extra-heavy (EH), for precisely those owned by them fall within such category. Tested by the
applicable standard that must be satisfied to avoid the charge of a denial of equal protection, the objection of petitioners is shown to be lacking in
merit. Such a classification on its face cannot be characterized as an affront to reason. A legal norm, according to J.M. Tuason & Co., Inc. v. Land
Tenure Administration, 24 "whether embodied in a rule, principle, or standard, constitutes a defense against anarchy at one extreme and tyranny at
the other. Thereby, people living together in a community with its myriad and complex problems can minimize the friction and reduce the conflicts, to
assure, at the very least, a peaceful ordering of existence. The ideal situation is for the law’s benefits to be available to all, that none be placed
outside the sphere of its coverage. Only thus could chance and favor be excluded and the affairs of men governed by that serene and impartial
uniformity, which is of the very essence of the idea of law. The actual, given things as they are and likely to continue to be, cannot approximate the
ideal. Nor is the law susceptible to the reproach that it does not take into account the realities of the situation. . . . To assure that the general welfare
be promoted, which is the end of law, a regulatory measure may cut into the rights to liberty and property. Those adversely affected may under such
circumstances invoke the equal protection clause only if they can show that the governmental act assailed, far from being inspired by the attainment
of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the
laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the
conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For
Page 12 of 134
the principle is that equal protection and security shall be given to every person under circumstances, which if not identical are analogous. If law be
looked upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in
the group equally binding on the rest."25cralaw:red

6. Nor does it militate against the validity of the Letter of Instruction just because the ban imposed does not go as far as it could have and therefore
could be less efficacious in character. That was the solution which, for the President expressing a power validly lodged in him, recommended itself.
There was a situation that called for a corrective measure. He decided that what was issued by him would do just that or, at the very least, help in
easing the situation. That it did not cover other matters which could very well have been regulated does not call for a declaration of nullity. The
President, to paraphrase Lutz v. Araneta, 26 "is not required by the Constitution to adhere to the policy of all or none." 27 It is quite obvious then that
no equal protection question arises.

7. It may not be amiss to refer to a 1981 American Supreme Court decision, Minnesota v. Clover Leaf Creamery Company. 28 Respondent along
with several other business corporations adversely affected involved in the manufacture and utilization of plastic milk containers filed suit in a
Minnesota district court seeking to enjoin enforcement of a Minnesota statute banning the retail sale of milk in plastic nonreturnable, nonrefillable
containers, but permitting such sale in other nonreturnable, nonrefillable containers, such as paperboard, milk cartons. After conducting extensive
evidentiary hearings, the Minnesota court enjoined enforcement of the statute, finding that it violated among others the equal protection clause of the
Fourteenth Amendment to the Federal Constitution. The Minnesota Supreme Court affirmed. On  certiorari, the United States Supreme Court
reversed, with only Justice Stevens dissenting. The opinion by Justice Brennan noted that "proponents of the legislation argued that it would promote
resource conservation, ease solid waste disposal problems, and conserve energy." 29 That sufficed for the Court to conclude "that the ban on plastic
nonreturnable milk containers bears a rational relation to the State’s objectives, and must be sustained under the Equal Protection Clause." 30 It
does show that notwithstanding the "new equal protection approach" with its emphasis on "suspect classification" and "fundamental rights and
interests standard," a concept so ably expounded by professor Gunther, the "rational relation test" 31 still retains its validity. Not that there could be
any objection to the classification here followed as being in any way susceptible to such a pejorative expression as "suspect" or that the assailed
Letter of Instruction does not qualify under "the fundamental rights and interests" standard.chanrobles.com : virtual law library

8. There was set forth in the petition what were referred to as "other reasonable measures which the authorities concerned with energy conservation
can take immediately, which are in fact acceptable and obviously called for and should have been done long ago, to wit: 1. require and establish taxi
stands equipped with efficient telephone and communication systems; 2. strict implementation and observance of cargo truck hours on main arteries;
3. strict observance of traffic rules; 4. effective solution of traffic problems and decongestion of traffic through rerouting and quick repair of roads and
efficient operation of double decker buses; 5. rationing of gasoline to avoid panic buying and give the private car owner the option and responsibility
of deciding on the use of his allocation; 6. allow neon and electrically devised advertising signs only from five o’clock p.m. to nine o’clock p.m.; 7.
prohibit immediately the importation of heavy and luxury cars and seriously re-examine the car manufacturing program." 32 Admittedly, such
measures are conducive to energy conservation. The question before us however is limited to whether or not Letter of Instruction 869 as
implemented by Memorandum Circular No. 39 is violative of certain constitutional rights. It goes no further than that. The determination of the mode
and manner through which the objective of minimizing the consumption of oil products may be attained is left to the discretion of the political
branches. 33 Absent therefore the alleged infringement of constitutional rights, more precisely the due process and equal protection guarantees, this
Court cannot adjudge Letter of Instruction No. 869 as tainted by unconstitutionality.chanrobles virtual lawlibrary

9. It was likewise contended that Memorandum Circular No. 39, issued by the then respondent Minister of Public Works, Transportation and
Communications, and then respondent Land Transportation Commissioner, imposing the penalties "of fine, confiscation of vehicle and cancellation
of license is likewise unconstitutional," petitioners invoking the principle of non-delegation of legislative power. 34 To that extent that a Letter of
Instruction may be viewed as an exercise of the decree-making power of the President, then such an argument is futile. If, however, viewed as a
compliance with the duty to take care that the laws be faithfully executed, as a consequence of which subordinate executive officials may in turn
issue implementing rules and regulations, then the objection would properly be considered as an ultra vires allegation. There is this relevant excerpt
from Teoxon v. Member of the Board of Administrators: 35 "1. The recognition of the power of administrative officials to promulgate rules in the
implementation of the statute, necessarily limited to what is provided for in the legislative enactment, may be found in the early case of United States
v. Barrias decided in 1908. Then came, in a 1914 decision, United States v. Tupasi Molina, a delineation of the scope of such competence. Thus: ‘Of
course the regulations adopted under legislative authority by a particular department must be in harmony with the provisions of the law, and for the
sole purpose of carrying into effect its general provisions. By such regulations, of course, the law itself can not be extended. So long, however, as
the regulations relate solely to carrying into effect the provisions of the law, they are valid.’ In 1936, in People v. Santos, this Court expressed its
disapproval of an administrative order that would amount to an excess of the regulatory power vested in an administrative official. We reaffirmed
such a doctrine in a 1951 decision, where we again made clear that where an administrative order betrays inconsistency or repugnancy to the
provisions of the Act, ‘the mandate of the Act must prevail and must be followed.’ Justice Barrera, speaking for the Court in Victorias Milling
Company, Inc. v. Social Security Commission, citing Parker as well as Davis did tersely sum up the matter thus: ‘A rule is binding on the courts so
long as the procedure fixed for its promulgation is followed and its scope is within the statutory granted by the legislature, even if the courts are not in
agreement with the policy stated therein or its innate wisdom . . .. On the other hand, administrative interpretation of the law is at best merely
advisory, for it is the courts that finally determine what the law means.’ It cannot be otherwise as the Constitution limits the authority of the President,
in whom all executive power resides, to take care that the laws be faithfully executed. No lesser administrative executive office or agency then can,
contrary to the express language of the Constitution, assert for itself a more extensive prerogative." 36 It was alleged in the Answer of Solicitor
General Estelito P. Mendoza that Letter of Instruction 869 and Memorandum Circular No. 39 were adopted pursuant to the Land Transportation and
Page 13 of 134
Traffic Code. 37 It contains a specific provision as to penalties. 38 Thus: "For violation of any provisions of this Act or regulations promulgated
pursuant hereto, not hereinbefore specifically punished, a fine of not less than ten nor more than fifty pesos shall be imposed." 39 Memorandum
Circular No. 39 cannot be held to be ultra vires as long as the fine imposed is not less than ten nor more than fifty pesos. As to suspension of
registration, 40 the Code, insofar as applicable, provides: "Whenever it shall appear from the records of the Commission that during any twelve-
month period more than three warnings for violations of this Act have been given to the owner of a motor vehicle, or that the said owner has been
convicted by a competent court more than once for violation of such laws, the Commissioner may, in his discretion, suspend the certificate of
registration for a period not exceeding ninety days and, thereupon, shall require the immediate surrender of the number plates . . .." 41 It follows that
while the imposition of a fine or the suspension of registration under the conditions therein set forth is valid under the Land Transportation and Traffic
Code, the impounding of a vehicle finds no statutory justification. To apply that portion of Memorandum Circular No. 39 would be ultra vires. It must
likewise be made clear that a penalty even if warranted can only be imposed in accordance with the procedure required by law. 42

WHEREFORE, the petition is dismissed.

G.R. No. L-59234 September 30, 1982

TAXICAB OPERATORS OF METRO MANILA, INC., FELICISIMO CABIGAO and ACE TRANSPORTATION CORPORATION, petitioners,
vs.
THE BOARD OF TRANSPORTATION and THE DIRECTOR OF THE BUREAU OF LAND TRANSPORTATION, respondents.

MELENCIO-HERRERA, J.:
This Petition for "Certiorari, Prohibition and mandamus with Preliminary Injunction and Temporary Restraining Order" filed by the Taxicab Operators
of Metro Manila, Inc., Felicisimo Cabigao and Ace Transportation, seeks to declare the nullity of Memorandum Circular No. 77-42, dated October 10,
1977, of the Board of Transportation, and Memorandum Circular No. 52, dated August 15, 1980, of the Bureau of Land Transportation.
Petitioner Taxicab Operators of Metro Manila, Inc. (TOMMI) is a domestic corporation composed of taxicab operators, who are grantees of
Certificates of Public Convenience to operate taxicabs within the City of Manila and to any other place in Luzon accessible to vehicular traffic.
Petitioners Ace Transportation Corporation and Felicisimo Cabigao are two of the members of TOMMI, each being an operator and grantee of such
certificate of public convenience.
On October 10, 1977, respondent Board of Transportation (BOT) issued Memorandum Circular No. 77-42 which reads:
SUBJECT: Phasing out and Replacement of
Old and Dilapidated Taxis
WHEREAS, it is the policy of the government to insure that only safe and comfortable units are used as public conveyances;
WHEREAS, the riding public, particularly in Metro-Manila, has, time and again, complained against, and condemned, the
continued operation of old and dilapidated taxis;
WHEREAS, in order that the commuting public may be assured of comfort, convenience, and safety, a program of phasing out of
old and dilapidated taxis should be adopted;
WHEREAS, after studies and inquiries made by the Board of Transportation, the latter believes that in six years of operation, a
taxi operator has not only covered the cost of his taxis, but has made reasonable profit for his investments;
NOW, THEREFORE, pursuant to this policy, the Board hereby declares that no car beyond six years shall be operated as taxi,
and in implementation of the same hereby promulgates the following rules and regulations:
1. As of December 31, 1977, all taxis of Model 1971 and earlier are ordered withdrawn from public service and thereafter may no
longer be registered and operated as taxis. In the registration of cards for 1978, only taxis of Model 1972 and later shall be
accepted for registration and allowed for operation;
2. As of December 31, 1978, all taxis of Model 1972 are ordered withdrawn from public service and thereafter may no longer be
registered and operated as taxis. In the registration of cars for 1979, only taxis of Model 1973 and later shall be accepted for
registration and allowed for operation; and every year thereafter, there shall be a six-year lifetime of taxi, to wit:
1980 — Model 1974
1981 — Model 1975, etc.
All taxis of earlier models than those provided above are hereby ordered withdrawn from public service as of the last day of
registration of each particular year and their respective plates shall be surrendered directly to the Board of Transportation for
subsequent turnover to the Land Transportation Commission.
For an orderly implementation of this Memorandum Circular, the rules herein shall immediately be effective in Metro-Manila. Its
implementation outside Metro- Manila shall be carried out only after the project has been implemented in Metro-Manila and only
after the date has been determined by the Board. 1
Pursuant to the above BOT circular, respondent Director of the Bureau of Land Transportation (BLT) issued Implementing Circular No. 52, dated
August 15, 1980, instructing the Regional Director, the MV Registrars and other personnel of BLT, all within the National Capitol Region, to
implement said Circular, and formulating a schedule of phase-out of vehicles to be allowed and accepted for registration as public conveyances. To
quote said Circular:
Pursuant to BOT Memo-Circular No. 77-42, taxi units with year models over six (6) years old are now banned from operating as
public utilities in Metro Manila. As such the units involved should be considered as automatically dropped as public utilities and,
therefore, do not require any further dropping order from the BOT.

Page 14 of 134
 Henceforth, taxi units within the National Capitol Region having year models over 6 years old shall be refused registration. The
following schedule of phase-out is herewith prescribed for the guidance of all concerned:

Year Model Automatic

Phase-Out Year

  1980

1974 1981

1975 1982

1976 1983

1977  

etc. etc.

Strict compliance here is desired. 2

In accordance therewith, cabs of model 1971 were phase-out in registration year 1978; those of model 1972, in 1979; those of model 1973, in 1980;
and those of model 1974, in 1981.
On January 27, 1981, petitioners filed a Petition with the BOT, docketed as Case No. 80-7553, seeking to nullify MC No. 77-42 or to stop its
implementation; to allow the registration and operation in 1981 and subsequent years of taxicabs of model 1974, as well as those of earlier models
which were phased-out, provided that, at the time of registration, they are roadworthy and fit for operation.
On February 16, 1981, petitioners filed before the BOT a "Manifestation and Urgent Motion", praying for an early hearing of their petition. The case
was heard on February 20, 1981. Petitioners presented testimonial and documentary evidence, offered the same, and manifested that they would
submit additional documentary proofs. Said proofs were submitted on March 27, 1981 attached to petitioners' pleading entitled, "Manifestation,
Presentation of Additional Evidence and Submission of the Case for Resolution." 3
On November 28, 1981, petitioners filed before the same Board a "Manifestation and Urgent Motion to Resolve or Decide Main Petition" praying that
the case be resolved or decided not later than December 10, 1981 to enable them, in case of denial, to avail of whatever remedy they may have
under the law for the protection of their interests before their 1975 model cabs are phased-out on January 1, 1982.
Petitioners, through its President, allegedly made personal follow-ups of the case, but was later informed that the records of the case could not be
located.
On December 29, 1981, the present Petition was instituted wherein the following queries were posed for consideration by this Court:
A. Did BOT and BLT promulgate the questioned memorandum circulars in accord with the manner required by Presidential
Decree No. 101, thereby safeguarding the petitioners' constitutional right to procedural due process?
B. Granting, arguendo, that respondents did comply with the procedural requirements imposed by Presidential Decree No. 101,
would the implementation and enforcement of the assailed memorandum circulars violate the petitioners' constitutional rights to.
(1) Equal protection of the law;
(2) Substantive due process; and
(3) Protection against arbitrary and unreasonable classification and standard?
On Procedural and Substantive Due Process:
Presidential Decree No. 101 grants to the Board of Transportation the power
4. To fix just and reasonable standards, classification, regulations, practices, measurements, or service to be furnished, imposed,
observed, and followed by operators of public utility motor vehicles.
Section 2 of said Decree provides procedural guidelines for said agency to follow in the exercise of its powers:
Sec. 2. Exercise of powers. — In the exercise of the powers granted in the preceding section, the Board shag proceed promptly
along the method of legislative inquiry.
Apart from its own investigation and studies, the Board, in its discretion, may require the cooperation and assistance of the
Bureau of Transportation, the Philippine Constabulary, particularly the Highway Patrol Group, the support agencies within the
Department of Public Works, Transportation and Communications, or any other government office or agency that may be able to
furnish useful information or data in the formulation of the Board of any policy, plan or program in the implementation of this
Decree.
The Board may also can conferences, require the submission of position papers or other documents, information, or data by
operators or other persons that may be affected by the implementation of this Decree, or employ any other suitable means of
inquiry.
In support of their submission that they were denied procedural due process, petitioners contend that they were not caged upon to submit their
position papers, nor were they ever summoned to attend any conference prior to the issuance of the questioned BOT Circular.

Page 15 of 134
It is clear from the provision aforequoted, however, that the leeway accorded the Board gives it a wide range of choice in gathering necessary
information or data in the formulation of any policy, plan or program. It is not mandatory that it should first call a conference or require the submission
of position papers or other documents from operators or persons who may be affected, this being only one of the options open to the Board, which is
given wide discretionary authority. Petitioners cannot justifiably claim, therefore, that they were deprived of procedural due process. Neither can they
state with certainty that public respondents had not availed of other sources of inquiry prior to issuing the challenged Circulars. operators of public
conveyances are not the only primary sources of the data and information that may be desired by the BOT.
Dispensing with a public hearing prior to the issuance of the Circulars is neither violative of procedural due process. As held in Central Bank vs. Hon.
Cloribel and Banco Filipino, 44 SCRA 307 (1972):
Pevious notice and hearing as elements of due process, are constitutionally required for the protection of life or vested property
rights, as well as of liberty, when its limitation or loss takes place in consequence of a judicial or quasi-judicial proceeding,
generally dependent upon a past act or event which has to be established or ascertained. It is not essential to the validity of
general rules or regulations promulgated to govern future conduct of a class or persons or enterprises, unless the law provides
otherwise. (Emphasis supplied)
Petitioners further take the position that fixing the ceiling at six (6) years is arbitrary and oppressive because the roadworthiness of taxicabs depends
upon their kind of maintenance and the use to which they are subjected, and, therefore, their actual physical condition should be taken into
consideration at the time of registration. As public contend, however, it is impractical to subject every taxicab to constant and recurring evaluation,
not to speak of the fact that it can open the door to the adoption of multiple standards, possible collusion, and even graft and corruption. A
reasonable standard must be adopted to apply to an vehicles affected uniformly, fairly, and justly. The span of six years supplies that reasonable
standard. The product of experience shows that by that time taxis have fully depreciated, their cost recovered, and a fair return on investment
obtained. They are also generally dilapidated and no longer fit for safe and comfortable service to the public specially considering that they are in
continuous operation practically 24 hours everyday in three shifts of eight hours per shift. With that standard of reasonableness and absence of
arbitrariness, the requirement of due process has been met.
On Equal Protection of the Law:
Petitioners alleged that the Circular in question violates their right to equal protection of the law because the same is being enforced in Metro Manila
only and is directed solely towards the taxi industry. At the outset it should be pointed out that implementation outside Metro Manila is also
envisioned in Memorandum Circular No. 77-42. To repeat the pertinent portion:
For an orderly implementation of this Memorandum Circular, the rules herein shall immediately be effective in Metro Manila. Its
implementation outside Metro Manila shall be carried out only after the project has been implemented in Metro Manila and only
after the date has been determined by the Board. 4
In fact, it is the understanding of the Court that implementation of the Circulars in Cebu City is already being effected, with the BOT in the process of
conducting studies regarding the operation of taxicabs in other cities.
The Board's reason for enforcing the Circular initially in Metro Manila is that taxicabs in this city, compared to those of other places, are subjected to
heavier traffic pressure and more constant use. This is of common knowledge. Considering that traffic conditions are not the same in every city, a
substantial distinction exists so that infringement of the equal protection clause can hardly be successfully claimed.
As enunciated in the preambular clauses of the challenged BOT Circular, the overriding consideration is the safety and comfort of the riding public
from the dangers posed by old and dilapidated taxis. The State, in the exercise, of its police power, can prescribe regulations to promote the health,
morals, peace, good order, safety and general welfare of the people. It can prohibit all things hurtful to comfort, safety and welfare of society.  5 It may
also regulate property rights. 6 In the language of Chief Justice Enrique M. Fernando "the necessities imposed by public welfare may justify the
exercise of governmental authority to regulate even if thereby certain groups may plausibly assert that their interests are disregarded". 7
In so far as the non-application of the assailed Circulars to other transportation services is concerned, it need only be recalled that the equal
protection clause does not imply that the same treatment be accorded all and sundry. It applies to things or persons Identically or similarly situated. It
permits of classification of the object or subject of the law provided classification is reasonable or based on substantial distinction, which make for
real differences, and that it must apply equally to each member of the class. 8 What is required under the equal protection clause is the uniform
operation by legal means so that all persons under Identical or similar circumstance would be accorded the same treatment both in privilege
conferred and the liabilities imposed. 9 The challenged Circulars satisfy the foregoing criteria.
Evident then is the conclusion that the questioned Circulars do not suffer from any constitutional infirmity. To declare a law unconstitutional, the
infringement of constitutional right must be clear, categorical and undeniable. 10
WHEREFORE, the Writs prayed for are denied and this Petition is hereby dismissed. No costs.
SO ORDERED.

[G.R. NO. 130230 : April 15, 2005]

METROPOLITAN MANILA DEVELOPMENT AUTHORITY, Petitioner, v. DANTE O. GARIN, Respondent.
DECISION
CHICO-NAZARIO, J.:
At issue in this case is the validity of Section 5(f) of Republic Act No. 7924 creating the Metropolitan Manila Development Authority (MMDA), which
authorizes it to confiscate and suspend or revoke driver's licenses in the enforcement of traffic laws and regulations.
The issue arose from an incident involving the respondent Dante O. Garin, a lawyer, who was issued a traffic violation receipt (TVR) and his driver's
license confiscated for parking illegally along Gandara Street, Binondo, Manila, on 05 August 1995.   The following statements were printed on the
TVR:

Page 16 of 134
You are hereby directed to report to the MMDA Traffic Operations Center Port Area Manila after 48 hours from date of apprehension for
disposition/appropriate action thereon.   Criminal case shall be filed for failure to redeem license after 30 days.
Valid as temporary DRIVER'S license for seven days from date of apprehension. 1
Shortly before the expiration of the TVR's validity, the respondent addressed a letter 2 to then MMDA Chairman Prospero Oreta requesting the return
of his driver's license, and expressing his preference for his case to be filed in court.
Receiving no immediate reply, Garin filed the original complaint 3 with application for preliminary injunction in Branch 260 of the Regional Trial Court
(RTC) of Parañaque, on 12 September 1995, contending that, in the absence of any implementing rules and regulations, Sec. 5(f) of Rep. Act No.
7924 grants the MMDA unbridled discretion to deprive erring motorists of their licenses, pre-empting a judicial determination of the validity of the
deprivation, thereby violating the due process clause of the Constitution.   The respondent further contended that the provision violates the
constitutional prohibition against undue delegation of legislative authority, allowing as it does the MMDA to fix and impose unspecified - and therefore
unlimited - fines and other penalties on erring motorists.
In support of his application for a writ of preliminary injunction, Garin alleged that he suffered and continues to suffer great and irreparable damage
because of the deprivation of his license and that, absent any implementing rules from the Metro Manila Council, the TVR and the confiscation of his
license have no legal basis.
For its part, the MMDA, represented by the Office of the Solicitor General, pointed out that the powers granted to it by Sec. 5(f) of Rep. Act No. 7924
are limited to the fixing, collection and imposition of fines and penalties for traffic violations, which powers are legislative and executive in nature; the
judiciary retains the right to determine the validity of the penalty imposed.   It further argued that the doctrine of separation of powers does not
preclude "admixture" of the three powers of government in administrative agencies. 4
The MMDA also refuted Garin's allegation that the Metro Manila Council, the governing board and policy making body of the petitioner, has as yet to
formulate the implementing rules for Sec. 5(f) of Rep. Act No. 7924 and directed the court's attention to MMDA Memorandum Circular No. TT-95-001
dated 15 April 1995.   Respondent Garin, however, questioned the validity of MMDA Memorandum Circular No. TT-95-001, as he claims that it was
passed by the Metro Manila Council in the absence of a quorum.
Judge Helen Bautista-Ricafort issued a temporary restraining order on 26 September 1995, extending the validity of the TVR as a temporary driver's
license for twenty more days.   A preliminary mandatory injunction was granted on 23 October 1995, and the MMDA was directed to return the
respondent's driver's license.
On 14 August 1997, the trial court rendered the assailed decision 5 in favor of the herein respondent and held that:
A.         There was indeed no quorum in that First Regular Meeting of the MMDA Council held on March 23, 1995, hence MMDA Memorandum
Circular No. TT-95-001, authorizing confiscation of driver's licenses upon issuance of a TVR, is void ab initio.
b.         The summary confiscation of a driver's license without first giving the driver an opportunity to be heard; depriving him of a property right
(driver's license) without DUE PROCESS; not filling ( sic) in Court the complaint of supposed traffic infraction, cannot be justified by any legislation
(and is) hence unconstitutional.
WHEREFORE, the temporary writ of preliminary injunction is hereby made permanent; th(e) MMDA is directed to return to plaintiff his driver's
license; th(e) MMDA is likewise ordered to desist from confiscating driver's license without first giving the driver the opportunity to be heard in an
appropriate proceeding.
In filing this petition,6 the MMDA reiterates and reinforces its argument in the court below and contends that a license to operate a motor vehicle is
neither a contract nor a property right, but is a privilege subject to reasonable regulation under the police power in the interest of the public safety
and welfare.   The petitioner further argues that revocation or suspension of this privilege does not constitute a taking without due process as long as
the licensee is given the right to appeal the revocation.
To buttress its argument that a licensee may indeed appeal the taking and the judiciary retains the power to determine the validity of the confiscation,
suspension or revocation of the license, the petitioner points out that under the terms of the confiscation, the licensee has three options:
1.   To voluntarily pay the imposable fine,
2.   To protest the apprehension by filing a protest with the MMDA Adjudication Committee, or
3.   To request the referral of the TVR to the Public Prosecutor's Office.
The MMDA likewise argues that Memorandum Circular No. TT-95-001 was validly passed in the presence of a quorum, and that the lower court's
finding that it had not was based on a "misapprehension of facts," which the petitioner would have us review.   Moreover, it asserts that though the
circular is the basis for the issuance of TVRs, the basis for the summary confiscation of licenses is Sec. 5(f) of Rep. Act No. 7924 itself, and that
such power is self-executory and does not require the issuance of any implementing regulation or circular.
Meanwhile, on 12 August 2004, the MMDA, through its Chairman Bayani Fernando, implemented Memorandum Circular No. 04, Series of 2004,
outlining the procedures for the use of the Metropolitan Traffic Ticket (MTT) scheme.   Under the circular, erring motorists are issued an MTT, which
can be paid at any Metrobank branch.   Traffic enforcers may no longer confiscate drivers' licenses as a matter of course in cases of traffic violations.
All motorists with unredeemed TVRs were given seven days from the date of implementation of the new system to pay their fines and redeem their
license or vehicle plates.7
It would seem, therefore, that insofar as the absence of a prima facie case to enjoin the petitioner from confiscating drivers' licenses is concerned,
recent events have overtaken the Court's need to decide this case, which has been rendered moot and academic by the implementation of
Memorandum Circular No. 04, Series of 2004.
The petitioner, however, is not precluded from re-implementing Memorandum Circular No. TT-95-001, or any other scheme, for that matter, that
would entail confiscating drivers' licenses.   For the proper implementation, therefore, of the petitioner's future programs, this Court deems it
appropriate to make the following observations:
Page 17 of 134
1.           A license to operate a motor vehicle is a privilege that the state may withhold in the exercise of its police power.
The petitioner correctly points out that a license to operate a motor vehicle is not a property right, but a privilege granted by the state, which may be
suspended or revoked by the state in the exercise of its police power, in the interest of the public safety and welfare, subject to the procedural due
process requirements.   This is consistent with our rulings in Pedro v. Provincial Board of Rizal 8 on the license to operate a cockpit, Tan v. Director of
Forestry9 and Oposa v. Factoran10 on timber licensing agreements, and Surigao Electric Co., Inc. v. Municipality of Surigao 11 on a legislative
franchise to operate an electric plant.
Petitioner cites a long list of American cases to prove this point, such as State ex. Rel. Sullivan,12 which states in part that, "the legislative power to
regulate travel over the highways and thoroughfares of the state for the general welfare is extensive.   It may be exercised in any reasonable manner
to conserve the safety of travelers and pedestrians.   Since motor vehicles are instruments of potential danger, their registration and the licensing of
their operators have been required almost from their first appearance.   The right to operate them in public places is not a natural and unrestrained
right, but a privilege subject to reasonable regulation, under the police power, in the interest of the public safety and welfare. The power to license
imports further power to withhold or to revoke such license upon noncompliance with prescribed conditions."
Likewise, the petitioner quotes the Pennsylvania Supreme Court in Commonwealth v. Funk,13 to the effect that: "Automobiles are vehicles of great
speed and power.   The use of them constitutes an element of danger to persons and property upon the highways.   Carefully operated, an
automobile is still a dangerous instrumentality, but, when operated by careless or incompetent persons, it becomes an engine of destruction.   The
Legislature, in the exercise of the police power of the commonwealth, not only may, but must, prescribe how and by whom motor vehicles shall be
operated on the highways.   One of the primary purposes of a system of general regulation of the subject matter, as here by the Vehicle Code, is to
insure the competency of the operator of motor vehicles.   Such a general law is manifestly directed to the promotion of public safety and is well
within the police power."
The common thread running through the cited cases is that it is the legislature, in the exercise of police power, which has the power and
responsibility to regulate how and by whom motor vehicles may be operated on the state highways.
2.                 The MMDA is not vested with police power.
In Metro Manila Development Authority v. Bel-Air Village Association, Inc.,14 we categorically stated that Rep. Act No. 7924 does not grant the
MMDA with police power, let alone legislative power, and that all its functions are administrative in nature.
The said case also involved the herein petitioner MMDA which claimed that it had the authority to open a subdivision street owned by the Bel-Air
Village Association, Inc. to public traffic because it is an agent of the state endowed with police power in the delivery of basic services in Metro
Manila.   From this premise, the MMDA argued that there was no need for the City of Makati to enact an ordinance opening Neptune Street to the
public.
Tracing the legislative history of Rep. Act No. 7924 creating the MMDA, we concluded that the MMDA is not a local government unit or a public
corporation endowed with legislative power, and, unlike its predecessor, the Metro Manila Commission, it has no power to enact ordinances for the
welfare of the community.   Thus, in the absence of an ordinance from the City of Makati, its own order to open the street was invalid.
We restate here the doctrine in the said decision as it applies to the case at bar: police power, as an inherent attribute of sovereignty, is the power
vested by the Constitution in the legislature to make, ordain, and establish all manner of wholesome and reasonable laws, statutes and ordinances,
either with penalties or without, not repugnant to the Constitution, as they shall judge to be for the good and welfare of the commonwealth, and for
the subjects of the same.
Having been lodged primarily in the National Legislature, it cannot be exercised by any group or body of individuals not possessing legislative power.
The National Legislature, however, may delegate this power to the president and administrative boards as well as the lawmaking bodies of municipal
corporations or local government units (LGUs). Once delegated, the agents can exercise only such legislative powers as are conferred on them by
the national lawmaking body.
Our Congress delegated police power to the LGUs in the Local Government Code of 1991. 15 A local government is a "political subdivision of a nation
or state which is constituted by law and has substantial control of local affairs." 16 Local government units are the provinces, cities, municipalities
and barangays, which exercise police power through their respective legislative bodies.
Metropolitan or Metro Manila is a body composed of several local government units.   With the passage of Rep. Act No. 7924 in 1995, Metropolitan
Manila was declared as a "special development and administrative region" and the administration of "metro-wide" basic services affecting the region
placed under "a development authority" referred to as the MMDA.   Thus:
. . . [T]he powers of the MMDA are limited to the following acts: formulation, coordination, regulation, implementation, preparation, management,
monitoring, setting of policies, installation of a system and administration. There is no syllable in R. A. No. 7924 that grants the MMDA police power,
let alone legislative power. Even the Metro Manila Council has not been delegated any legislative power. Unlike the legislative bodies of the local
government units, there is no provision in R. A. No. 7924 that empowers the MMDA or its Council to "enact ordinances, approve resolutions and
appropriate funds for the general welfare" of the inhabitants of Metro Manila. The MMDA is, as termed in the charter itself, a "development
authority." It is an agency created for the purpose of laying down policies and coordinating with the various national government agencies, people's
organizations, non-governmental organizations and the private sector for the efficient and expeditious delivery of basic services in the vast
metropolitan area.   All its functions are administrative in nature and these are actually summed up in the charter itself, viz:
"Sec. 2. Creation of the Metropolitan Manila Development Authority. - - -x x x.
The MMDA shall perform planning, monitoring and coordinative functions, and in the process exercise regulatory and supervisory authority over the
delivery of metro-wide services within Metro Manila, without diminution of the autonomy of the local government units concerning purely local
matters."
Page 18 of 134
Clearly, the MMDA is not a political unit of government.   The power delegated to the MMDA is that given to the Metro Manila Council to promulgate
administrative rules and regulations in the implementation of the MMDA's functions.   There is no grant of authority to enact ordinances and
regulations for the general welfare of the inhabitants of the metropolis .17 (footnotes omitted, emphasis supplied)
Therefore, insofar as Sec. 5(f) of Rep. Act No. 7924 is understood by the lower court and by the petitioner to grant the MMDA the  power to
confiscate and suspend or revoke drivers' licenses without need of any other legislative enactment , such is an unauthorized exercise of police
power.
3.           Sec. 5(f) grants the MMDA with the duty to enforce existing traffic rules and regulations.
Section 5 of Rep. Act No. 7924 enumerates the "Functions and Powers of the Metro Manila Development Authority." The contested clause in Sec.
5(f) states that the petitioner shall "install and administer a single ticketing system, fix, impose and collect fines and penalties for all kinds of
violations of traffic rules and regulations, whether moving or nonmoving in nature, and confiscate and suspend or revoke drivers' licenses  in the
enforcement of such traffic laws and regulations , the provisions of Rep. Act No. 4136 18 and P.D. No. 160519 to the contrary notwithstanding," and that
"(f)or this purpose, the Authority shall enforce all traffic laws and regulations in Metro Manila, through its traffic operation center, and may deputize
members of the PNP, traffic enforcers of local government units, duly licensed security guards, or members of non-governmental organizations to
whom may be delegated certain authority, subject to such conditions and requirements as the Authority may impose."
Thus, where there is a traffic law or regulation validly enacted by the legislature or those agencies to whom legislative powers have been delegated
(the City of Manila in this case), the petitioner is not precluded - and in fact is duty-bound - to confiscate and suspend or revoke drivers' licenses in
the exercise of its mandate of transport and traffic management, as well as the administration and implementation of all traffic enforcement
operations, traffic engineering services and traffic education programs. 20
This is consistent with our ruling in Bel-Air that the MMDA is a development authority created for the purpose of laying down policies and
coordinating with the various national government agencies, people's organizations, non-governmental organizations and the private sector, which
may enforce, but not enact, ordinances.
This is also consistent with the fundamental rule of statutory construction that a statute is to be read in a manner that would breathe life into it, rather
than defeat it,21 and is supported by the criteria in cases of this nature that all reasonable doubts should be resolved in favor of the constitutionality of
a statute.22
A last word.   The MMDA was intended to coordinate services with metro-wide impact that transcend local political boundaries or would entail huge
expenditures if provided by the individual LGUs, especially with regard to transport and traffic management, 23 and we are aware of the valiant efforts
of the petitioner to untangle the increasingly traffic-snarled roads of Metro Manila.   But these laudable intentions are limited by the MMDA's enabling
law, which we can but interpret, and petitioner must be reminded that its efforts in this respect must be authorized by a valid law, or ordinance, or
regulation arising from a legitimate source.
WHEREFORE, the petition is dismissed.
SO ORDERED.

G.R. No. 166715             August 14, 2008

ABAKADA GURO PARTY LIST (formerly AASJS) 1 OFFICERS/MEMBERS SAMSON S. ALCANTARA, ED VINCENT S. ALBANO, ROMEO R.
ROBISO, RENE B. GOROSPE and EDWIN R. SANDOVAL, petitioners,
vs.
HON. CESAR V. PURISIMA, in his capacity as Secretary of Finance, HON. GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the
Bureau of Internal Revenue, and HON. ALBERTO D. LINA, in his Capacity as Commissioner of Bureau of Customs, respondents.
DECISION
CORONA, J.:
This petition for prohibition1 seeks to prevent respondents from implementing and enforcing Republic Act (RA) 9335 2 (Attrition Act of 2005).
RA 9335 was enacted to optimize the revenue-generation capability and collection of the Bureau of Internal Revenue (BIR) and the Bureau of
Customs (BOC). The law intends to encourage BIR and BOC officials and employees to exceed their revenue targets by providing a system of
rewards and sanctions through the creation of a Rewards and Incentives Fund (Fund) and a Revenue Performance Evaluation Board (Board). 3 It
covers all officials and employees of the BIR and the BOC with at least six months of service, regardless of employment status. 4
The Fund is sourced from the collection of the BIR and the BOC in excess of their revenue targets for the year, as determined by the Development
Budget and Coordinating Committee (DBCC). Any incentive or reward is taken from the fund and allocated to the BIR and the BOC in proportion to
their contribution in the excess collection of the targeted amount of tax revenue. 5
The Boards in the BIR and the BOC are composed of the Secretary of the Department of Finance (DOF) or his/her Undersecretary, the Secretary of
the Department of Budget and Management (DBM) or his/her Undersecretary, the Director General of the National Economic Development Authority
(NEDA) or his/her Deputy Director General, the Commissioners of the BIR and the BOC or their Deputy Commissioners, two representatives from
the rank-and-file employees and a representative from the officials nominated by their recognized organization. 6
Each Board has the duty to (1) prescribe the rules and guidelines for the allocation, distribution and release of the Fund; (2) set criteria and
procedures for removing from the service officials and employees whose revenue collection falls short of the target; (3) terminate personnel in
accordance with the criteria adopted by the Board; (4) prescribe a system for performance evaluation; (5) perform other functions, including the
issuance of rules and regulations and (6) submit an annual report to Congress. 7
The DOF, DBM, NEDA, BIR, BOC and the Civil Service Commission (CSC) were tasked to promulgate and issue the implementing rules and
regulations of RA 9335,8 to be approved by a Joint Congressional Oversight Committee created for such purpose. 9

Page 19 of 134
Petitioners, invoking their right as taxpayers filed this petition challenging the constitutionality of RA 9335, a tax reform legislation. They contend that,
by establishing a system of rewards and incentives, the law "transform[s] the officials and employees of the BIR and the BOC into mercenaries and
bounty hunters" as they will do their best only in consideration of such rewards. Thus, the system of rewards and incentives invites corruption and
undermines the constitutionally mandated duty of these officials and employees to serve the people with utmost responsibility, integrity, loyalty and
efficiency.
Petitioners also claim that limiting the scope of the system of rewards and incentives only to officials and employees of the BIR and the BOC violates
the constitutional guarantee of equal protection. There is no valid basis for classification or distinction as to why such a system should not apply to
officials and employees of all other government agencies.
In addition, petitioners assert that the law unduly delegates the power to fix revenue targets to the President as it lacks a sufficient standard on that
matter. While Section 7(b) and (c) of RA 9335 provides that BIR and BOC officials may be dismissed from the service if their revenue collections fall
short of the target by at least 7.5%, the law does not, however, fix the revenue targets to be achieved. Instead, the fixing of revenue targets has been
delegated to the President without sufficient standards. It will therefore be easy for the President to fix an unrealistic and unattainable target in order
to dismiss BIR or BOC personnel.
Finally, petitioners assail the creation of a congressional oversight committee on the ground that it violates the doctrine of separation of powers.
While the legislative function is deemed accomplished and completed upon the enactment and approval of the law, the creation of the congressional
oversight committee permits legislative participation in the implementation and enforcement of the law.
In their comment, respondents, through the Office of the Solicitor General, question the petition for being premature as there is no actual case or
controversy yet. Petitioners have not asserted any right or claim that will necessitate the exercise of this Court’s jurisdiction. Nevertheless,
respondents acknowledge that public policy requires the resolution of the constitutional issues involved in this case. They assert that the allegation
that the reward system will breed mercenaries is mere speculation and does not suffice to invalidate the law. Seen in conjunction with the declared
objective of RA 9335, the law validly classifies the BIR and the BOC because the functions they perform are distinct from those of the other
government agencies and instrumentalities. Moreover, the law provides a sufficient standard that will guide the executive in the implementation of its
provisions. Lastly, the creation of the congressional oversight committee under the law enhances, rather than violates, separation of powers. It
ensures the fulfillment of the legislative policy and serves as a check to any over-accumulation of power on the part of the executive and the
implementing agencies.
After a careful consideration of the conflicting contentions of the parties, the Court finds that petitioners have failed to overcome the presumption of
constitutionality in favor of RA 9335, except as shall hereafter be discussed.
Actual Case And Ripeness
An actual case or controversy involves a conflict of legal rights, an assertion of opposite legal claims susceptible of judicial adjudication. 10 A closely
related requirement is ripeness, that is, the question must be ripe for adjudication. And a constitutional question is ripe for adjudication when the
governmental act being challenged has a direct adverse effect on the individual challenging it. 11 Thus, to be ripe for judicial adjudication, the
petitioner must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision of the Court. 12
In this case, aside from the general claim that the dispute has ripened into a judicial controversy by the mere enactment of the law even without any
further overt act,13 petitioners fail either to assert any specific and concrete legal claim or to demonstrate any direct adverse effect of the law on
them. They are unable to show a personal stake in the outcome of this case or an injury to themselves. On this account, their petition is procedurally
infirm.
This notwithstanding, public interest requires the resolution of the constitutional issues raised by petitioners. The grave nature of their allegations
tends to cast a cloud on the presumption of constitutionality in favor of the law. And where an action of the legislative branch is alleged to have
infringed the Constitution, it becomes not only the right but in fact the duty of the judiciary to settle the dispute. 14
Accountability of
Public Officers
Section 1, Article 11 of the Constitution states:
Sec. 1. Public office is a public trust. Public officers and employees must at all times be accountable to the people, serve them with utmost
responsibility, integrity, loyalty, and efficiency, act with patriotism, and justice, and lead modest lives.
Public office is a public trust. It must be discharged by its holder not for his own personal gain but for the benefit of the public for whom he holds it in
trust. By demanding accountability and service with responsibility, integrity, loyalty, efficiency, patriotism and justice, all government officials and
employees have the duty to be responsive to the needs of the people they are called upon to serve.
Public officers enjoy the presumption of regularity in the performance of their duties. This presumption necessarily obtains in favor of BIR and BOC
officials and employees. RA 9335 operates on the basis thereof and reinforces it by providing a system of rewards and sanctions for the purpose of
encouraging the officials and employees of the BIR and the BOC to exceed their revenue targets and optimize their revenue-generation capability
and collection.15
The presumption is disputable but proof to the contrary is required to rebut it. It cannot be overturned by mere conjecture or denied in advance (as
petitioners would have the Court do) specially in this case where it is an underlying principle to advance a declared public policy.
Petitioners’ claim that the implementation of RA 9335 will turn BIR and BOC officials and employees into "bounty hunters and mercenaries" is not
only without any factual and legal basis; it is also purely speculative.
A law enacted by Congress enjoys the strong presumption of constitutionality. To justify its nullification, there must be a clear and unequivocal
breach of the Constitution, not a doubtful and equivocal one. 16 To invalidate RA 9335 based on petitioners’ baseless supposition is an affront to the
wisdom not only of the legislature that passed it but also of the executive which approved it.

Page 20 of 134
Public service is its own reward. Nevertheless, public officers may by law be rewarded for exemplary and exceptional performance. A system of
incentives for exceeding the set expectations of a public office is not anathema to the concept of public accountability. In fact, it recognizes and
reinforces dedication to duty, industry, efficiency and loyalty to public service of deserving government personnel.
In United States v. Matthews,17 the U.S. Supreme Court validated a law which awards to officers of the customs as well as other parties an amount
not exceeding one-half of the net proceeds of forfeitures in violation of the laws against smuggling. Citing  Dorsheimer v. United States,18 the U.S.
Supreme Court said:
The offer of a portion of such penalties to the collectors is to stimulate and reward their zeal and industry in detecting fraudulent attempts to
evade payment of duties and taxes.
In the same vein, employees of the BIR and the BOC may by law be entitled to a reward when, as a consequence of their zeal in the enforcement of
tax and customs laws, they exceed their revenue targets. In addition, RA 9335 establishes safeguards to ensure that the reward will not be claimed if
it will be either the fruit of "bounty hunting or mercenary activity" or the product of the irregular performance of official duties. One of these
precautionary measures is embodied in Section 8 of the law:
SEC. 8. Liability of Officials, Examiners and Employees of the BIR and the BOC. –   The officials, examiners, and employees of the [BIR]
and the [BOC] who violate this Act or who are guilty of negligence, abuses or acts of malfeasance or misfeasance or fail to exercise
extraordinary diligence in the performance of their duties shall be held liable for any loss or injury suffered by any business establishment
or taxpayer as a result of such violation, negligence, abuse, malfeasance, misfeasance or failure to exercise extraordinary diligence.
Equal Protection
Equality guaranteed under the equal protection clause is equality under the same conditions and among persons similarly situated; it is equality
among equals, not similarity of treatment of persons who are classified based on substantial differences in relation to the object to be
accomplished.19 When things or persons are different in fact or circumstance, they may be treated in law differently. In Victoriano v. Elizalde Rope
Workers’ Union,20 this Court declared:
The guaranty of equal protection of the laws is not a guaranty of equality in the application of the laws upon all citizens of the [S]tate. It is
not, therefore, a requirement, in order to avoid the constitutional prohibition against inequality, that every man, woman and child should be
affected alike by a statute. Equality of operation of statutes does not mean indiscriminate operation on persons merely as such, but on
persons according to the circumstances surrounding them. It guarantees equality, not identity of rights. The Constitution does not require
that things which are different in fact be treated in law as though they were the same. The equal protection clause does not forbid
discrimination as to things that are different. It does not prohibit legislation which is limited either in the object to which it is directed  or by
the territory within which it is to operate.
The equal protection of the laws clause of the Constitution allows classification. Classification in law, as in the other departments of
knowledge or practice, is the grouping of things in speculation or practice because they agree with one another in certain particulars. A law
is not invalid because of simple inequality. The very idea of classification is that of inequality, so that it goes without saying that the mere
fact of inequality in no manner determines the matter of constitutionality. All that is required of a valid classification is that it be reasonable,
which means that the classification should be based on substantial distinctions which make for real differences, that it must be germane to
the purpose of the law; that it must not be limited to existing conditions only; and that it must apply equally to each member of the class .
This Court has held that the standard is satisfied if the classification or distinction is based on a reasonable foundation or rational basis and
is not palpably arbitrary.
In the exercise of its power to make classifications for the purpose of enacting laws over matters within its jurisdiction, the state is
recognized as enjoying a wide range of discretion. It is not necessary that the classification be based on scientific or marked differences of
things or in their relation. Neither is it necessary that the classification be made with mathematical nicety. Hence, legislative classification
may in many cases properly rest on narrow distinctions, for the equal protection guaranty does not preclude the legislature from
recognizing degrees of evil or harm, and legislation is addressed to evils as they may appear. 21 (emphasis supplied)
The equal protection clause recognizes a valid classification, that is, a classification that has a reasonable foundation or rational basis and not
arbitrary.22 With respect to RA 9335, its expressed public policy is the optimization of the revenue-generation capability and collection of the BIR and
the BOC.23 Since the subject of the law is the revenue- generation capability and collection of the BIR and the BOC, the incentives and/or sanctions
provided in the law should logically pertain to the said agencies. Moreover, the law concerns only the BIR and the BOC because they have the
common distinct primary function of generating revenues for the national government through the collection of taxes, customs duties, fees and
charges.
The BIR performs the following functions:
Sec. 18. The Bureau of Internal Revenue. – The Bureau of Internal Revenue, which shall be headed by and subject to the supervision and
control of the Commissioner of Internal Revenue, who shall be appointed by the President upon the recommendation of the Secretary [of
the DOF], shall have the following functions:
(1) Assess and collect all taxes, fees and charges and account for all revenues collected;
(2) Exercise duly delegated police powers for the proper performance of its functions and duties;
(3) Prevent and prosecute tax evasions and all other illegal economic activities;
(4) Exercise supervision and control over its constituent and subordinate units; and
(5) Perform such other functions as may be provided by law. 24
xxx       xxx       xxx (emphasis supplied)
On the other hand, the BOC has the following functions:

Page 21 of 134
 Sec. 23. The Bureau of Customs. – The Bureau of Customs which shall be headed and subject to the management and control of the
Commissioner of Customs, who shall be appointed by the President upon the recommendation of the Secretary[of the DOF] and
hereinafter referred to as Commissioner, shall have the following functions:
(1) Collect custom duties, taxes and the corresponding fees, charges and penalties;
(2) Account for all customs revenues collected;
(3) Exercise police authority for the enforcement of tariff and customs laws;
(4) Prevent and suppress smuggling, pilferage and all other economic frauds within all ports of entry;
(5) Supervise and control exports, imports, foreign mails and the clearance of vessels and aircrafts in all ports of entry;
(6) Administer all legal requirements that are appropriate;
(7) Prevent and prosecute smuggling and other illegal activities in all ports under its jurisdiction;
(8) Exercise supervision and control over its constituent units;
(9) Perform such other functions as may be provided by law. 25
xxx       xxx       xxx (emphasis supplied)
Both the BIR and the BOC are bureaus under the DOF. They principally perform the special function of being the instrumentalities through which the
State exercises one of its great inherent functions – taxation. Indubitably, such substantial distinction is germane and intimately related to the
purpose of the law. Hence, the classification and treatment accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of equal
protection.
Undue Delegation
Two tests determine the validity of delegation of legislative power: (1) the completeness test and (2) the sufficient standard test. A law is complete
when it sets forth therein the policy to be executed, carried out or implemented by the delegate. 26 It lays down a sufficient standard when it provides
adequate guidelines or limitations in the law to map out the boundaries of the delegate’s authority and prevent the delegation from running riot. 27 To
be sufficient, the standard must specify the limits of the delegate’s authority, announce the legislative policy and identify the conditions under which it
is to be implemented.28
RA 9335 adequately states the policy and standards to guide the President in fixing revenue targets and the implementing agencies in carrying out
the provisions of the law. Section 2 spells out the policy of the law:
SEC. 2. Declaration of Policy. – It is the policy of the State to optimize the revenue-generation capability and collection of the Bureau of
Internal Revenue (BIR) and the Bureau of Customs (BOC) by providing for a system of rewards and sanctions through the creation of a
Rewards and Incentives Fund and a Revenue Performance Evaluation Board in the above agencies for the purpose of encouraging their
officials and employees to exceed their revenue targets.
Section 4 "canalized within banks that keep it from overflowing" 29 the delegated power to the President to fix revenue targets:
SEC. 4. Rewards and Incentives Fund . – A Rewards and Incentives Fund, hereinafter referred to as the Fund, is hereby created, to be
sourced from the collection of the BIR and the BOC in excess of their respective revenue targets of the year, as determined by the
Development Budget and Coordinating Committee (DBCC), in the following percentages:

Excess of Collection of the Excess the Percent (%) of the Excess Collection to Accrue to the
Revenue Targets Fund
30% or below – 15%
More than 30% – 15% of the first 30% plus 20% of the remaining excess

The Fund shall be deemed automatically appropriated the year immediately following the year when the revenue collection target was
exceeded and shall be released on the same fiscal year.
Revenue targets shall refer to the original estimated revenue collection expected of the BIR and the BOC for a given fiscal year as stated
in the Budget of Expenditures and Sources of Financing (BESF) submitted by the President to Congress.  The BIR and the BOC shall
submit to the DBCC the distribution of the agencies’ revenue targets as allocated among its revenue districts in the case of the BIR, and
the collection districts in the case of the BOC.
xxx       xxx       xxx (emphasis supplied)
Revenue targets are based on the original estimated revenue collection expected respectively of the BIR and the BOC for a given fiscal year as
approved by the DBCC and stated in the BESF submitted by the President to Congress. 30 Thus, the determination of revenue targets does not rest
solely on the President as it also undergoes the scrutiny of the DBCC.
On the other hand, Section 7 specifies the limits of the Board’s authority and identifies the conditions under which officials and employees whose
revenue collection falls short of the target by at least 7.5% may be removed from the service:
SEC. 7. Powers and Functions of the Board. –  The Board in the agency shall have the following powers and functions:
xxx       xxx       xxx
(b) To set the criteria and procedures for removing from service officials and employees whose revenue collection falls short of the target
by at least seven and a half percent (7.5%), with due consideration of all relevant factors affecting the level of collection  as provided in the
rules and regulations promulgated under this Act, subject to civil service laws, rules and regulations and compliance with substantive and
procedural due process: Provided, That the following exemptions shall apply:
1. Where the district or area of responsibility is newly-created, not exceeding two years in operation, as has no historical record
of collection performance that can be used as basis for evaluation; and
Page 22 of 134
 2. Where the revenue or customs official or employee is a recent transferee in the middle of the period under consideration
unless the transfer was due to nonperformance of revenue targets or potential nonperformance of revenue targets: Provided,
however, That when the district or area of responsibility covered by revenue or customs officials or employees has suffered from
economic difficulties brought about by natural calamities or force majeure or economic causes as may be determined by the
Board, termination shall be considered only after careful and proper review by the Board.
(c) To terminate personnel in accordance with the criteria adopted in the preceding paragraph: Provided, That such decision shall be
immediately executory: Provided, further, That the application of the criteria for the separation of an official or employee from service under
this Act shall be without prejudice to the application of other relevant laws on accountability of public officers and employees, such as the
Code of Conduct and Ethical Standards of Public Officers and Employees and the Anti-Graft and Corrupt Practices Act;
xxx       xxx       xxx (emphasis supplied)
Clearly, RA 9335 in no way violates the security of tenure of officials and employees of the BIR and the BOC. The guarantee of security of tenure
only means that an employee cannot be dismissed from the service for causes other than those provided by law and only after due process is
accorded the employee.31 In the case of RA 9335, it lays down a reasonable yardstick for removal (when the revenue collection falls short of the
target by at least 7.5%) with due consideration of all relevant factors affecting the level of collection. This standard is analogous to inefficiency and
incompetence in the performance of official duties, a ground for disciplinary action under civil service laws. 32 The action for removal is also subject to
civil service laws, rules and regulations and compliance with substantive and procedural due process.
At any rate, this Court has recognized the following as sufficient standards: "public interest," "justice and equity," "public convenience and welfare"
and "simplicity, economy and welfare."33 In this case, the declared policy of optimization of the revenue-generation capability and collection of the
BIR and the BOC is infused with public interest.
Separation Of Powers
Section 12 of RA 9335 provides:
SEC. 12. Joint Congressional Oversight Committee. – There is hereby created a Joint Congressional Oversight Committee composed of
seven Members from the Senate and seven Members from the House of Representatives. The Members from the Senate shall be
appointed by the Senate President, with at least two senators representing the minority. The Members from the House of Representatives
shall be appointed by the Speaker with at least two members representing the minority. After the Oversight Committee will have approved
the implementing rules and regulations (IRR) it shall thereafter become functus officio and therefore cease to exist.
The Joint Congressional Oversight Committee in RA 9335 was created for the purpose of approving the implementing rules and regulations (IRR)
formulated by the DOF, DBM, NEDA, BIR, BOC and CSC. On May 22, 2006, it approved the said IRR. From then on, it became  functus officio and
ceased to exist. Hence, the issue of its alleged encroachment on the executive function of implementing and enforcing the law may be considered
moot and academic.
This notwithstanding, this might be as good a time as any for the Court to confront the issue of the constitutionality of the Joint Congressional
Oversight Committee created under RA 9335 (or other similar laws for that matter).
The scholarly discourse of Mr. Justice (now Chief Justice) Puno on the concept of congressional oversight   in Macalintal v. Commission on
Elections34 is illuminating:
Concept and bases of congressional oversight
Broadly defined, the power of oversight embraces all activities undertaken by Congress to enhance its understanding of and influence over
the implementation of legislation it has enacted. Clearly, oversight concerns post-enactment measures undertaken by Congress: (a) to
monitor bureaucratic compliance with program objectives, (b) to determine whether agencies are properly administered, (c) to eliminate
executive waste and dishonesty, (d) to prevent executive usurpation of legislative authority, and (d) to assess executive conformity with the
congressional perception of public interest.
The power of oversight has been held to be intrinsic in the grant of legislative power itself and integral to the checks and balances inherent
in a democratic system of government. x x x x x x x x x
Over the years, Congress has invoked its oversight power with increased frequency to check the perceived "exponential accumulation of
power" by the executive branch. By the beginning of the 20 th century, Congress has delegated an enormous amount of legislative authority
to the executive branch and the administrative agencies. Congress, thus, uses its oversight power to make sure that the administrative
agencies perform their functions within the authority delegated to them. x x x x x x x x x
Categories of congressional oversight functions
The acts done by Congress purportedly in the exercise of its oversight powers may be divided into three categories,
namely: scrutiny, investigation and supervision.
a. Scrutiny
Congressional scrutiny implies a lesser intensity and continuity of attention to administrative operations. Its primary purpose is to
determine economy and efficiency of the operation of government activities. In the exercise of legislative scrutiny, Congress may
request information and report from the other branches of government. It can give recommendations or pass resolutions for
consideration of the agency involved.
xxx       xxx       xxx
b. Congressional investigation
While congressional scrutiny is regarded as a passive process of looking at the facts that are readily available,  congressional
investigation involves a more intense digging of facts . The power of Congress to conduct investigation is recognized by the 1987
Constitution under section 21, Article VI, xxx       xxx       xxx
c. Legislative supervision
Page 23 of 134
 The third and most encompassing form by which Congress exercises its oversight power is thru legislative supervision. "Supervision"
connotes a continuing and informed awareness on the part of a congressional committee regarding executive operations in a given
administrative area. While both congressional scrutiny and investigation involve inquiry into past executive branch actions in order to
influence future executive branch performance, congressional supervision allows Congress to scrutinize the exercise of delegated law-
making authority, and permits Congress to retain part of that delegated authority .
Congress exercises supervision over the executive agencies through its veto power. It typically utilizes veto provisions when granting the
President or an executive agency the power to promulgate regulations with the force of law. These provisions require the President or an
agency to present the proposed regulations to Congress, which retains a "right" to approve or disapprove any regulation before it takes
effect. Such legislative veto provisions usually provide that a proposed regulation will become a law after the expiration of a certain period
of time, only if Congress does not affirmatively disapprove of the regulation in the meantime. Less frequently, the statute provides that a
proposed regulation will become law if Congress affirmatively approves it.
Supporters of legislative veto stress that it is necessary to maintain the balance of power between the legislative and the executive
branches of government as it offers lawmakers a way to delegate vast power to the executive branch or to independent agencies while
retaining the option to cancel particular exercise of such power without having to pass new legislation or to repeal existing law. They
contend that this arrangement promotes democratic accountability as it provides legislative check on the activities of unelected
administrative agencies. One proponent thus explains:
It is too late to debate the merits of this delegation policy: the policy is too deeply embedded in our law and practice. It suffices to
say that the complexities of modern government have often led Congress-whether by actual or perceived necessity- to legislate
by declaring broad policy goals and general statutory standards, leaving the choice of policy options to the discretion of an
executive officer. Congress articulates legislative aims, but leaves their implementation to the judgment of parties who may or
may not have participated in or agreed with the development of those aims. Consequently, absent safeguards, in many instances
the reverse of our constitutional scheme could be effected: Congress proposes, the Executive disposes. One safeguard, of
course, is the legislative power to enact new legislation or to change existing law. But without some means of overseeing post
enactment activities of the executive branch, Congress would be unable to determine whether its policies have been
implemented in accordance with legislative intent and thus whether legislative intervention is appropriate.
Its opponents, however, criticize the legislative veto as undue encroachment upon the executive prerogatives. They urge that any post-
enactment measures undertaken by the legislative branch should be limited to scrutiny and investigation; any measure beyond that would
undermine the separation of powers guaranteed by the Constitution. They contend that legislative veto constitutes an impermissible
evasion of the President’s veto authority and intrusion into the powers vested in the executive or judicial branches of government.
Proponents counter that legislative veto enhances separation of powers as it prevents the executive branch and independent agencies
from accumulating too much power. They submit that reporting requirements and congressional committee investigations allow Congress
to scrutinize only the exercise of delegated law-making authority. They do not allow Congress to review executive proposals before they
take effect and they do not afford the opportunity for ongoing and binding expressions of congressional intent. In contrast, legislative veto
permits Congress to participate prospectively in the approval or disapproval of " subordinate law" or those enacted by the executive branch
pursuant to a delegation of authority by Congress. They further argue that legislative veto "is a necessary response by Congress to the
accretion of policy control by forces outside its chambers." In an era of delegated authority, they point out that legislative veto "is the most
efficient means Congress has yet devised to retain control over the evolution and implementation of its policy as declared by statute."
In Immigration and Naturalization Service v. Chadha, the U.S. Supreme Court resolved the validity of legislative veto provisions. The case
arose from the order of the immigration judge suspending the deportation of Chadha pursuant to § 244(c)(1) of the Immigration and
Nationality Act. The United States House of Representatives passed a resolution vetoing the suspension pursuant to § 244(c)(2)
authorizing either House of Congress, by resolution, to invalidate the decision of the executive branch to allow a particular deportable alien
to remain in the United States. The immigration judge reopened the deportation proceedings to implement the House order and the alien
was ordered deported. The Board of Immigration Appeals dismissed the alien’s appeal, holding that it had no power to declare
unconstitutional an act of Congress. The United States Court of Appeals for Ninth Circuit held that the House was without constitutional
authority to order the alien’s deportation and that § 244(c)(2) violated the constitutional doctrine on separation of powers.
On appeal, the U.S. Supreme Court declared § 244(c)(2) unconstitutional. But the Court shied away from the issue of separation of
powers and instead held that the provision violates the presentment clause and bicameralism. It held that the one-house veto was
essentially legislative in purpose and effect. As such, it is subject to the procedures set out in Article I of the Constitution requiring the
passage by a majority of both Houses and presentment to the President. x x x x x x x x x
Two weeks after the Chadha decision, the Court upheld, in memorandum decision, two lower court decisions invalidating the legislative
veto provisions in the Natural Gas Policy Act of 1978 and the Federal Trade Commission Improvement Act of 1980. Following this
precedence, lower courts invalidated statutes containing legislative veto provisions although some of these provisions required the
approval of both Houses of Congress and thus met the bicameralism requirement of Article I. Indeed, some of these veto provisions were
not even exercised.35 (emphasis supplied)
In Macalintal, given the concept and configuration of the power of congressional oversight and considering the nature and powers of a constitutional
body like the Commission on Elections, the Court struck down the provision in RA 9189 (The Overseas Absentee Voting Act of 2003) creating a Joint
Congressional Committee. The committee was tasked not only to monitor and evaluate the implementation of the said law but also to review, revise,
amend and approve the IRR promulgated by the Commission on Elections. The Court held that these functions infringed on the constitutional
independence of the Commission on Elections.36

Page 24 of 134
With this backdrop, it is clear that congressional oversight is not unconstitutional  per se, meaning, it neither necessarily constitutes an encroachment
on the executive power to implement laws nor undermines the constitutional separation of powers. Rather, it is integral to the checks and balances
inherent in a democratic system of government. It may in fact even enhance the separation of powers as it prevents the over-accumulation of power
in the executive branch.
However, to forestall the danger of congressional encroachment "beyond the legislative sphere," the Constitution imposes two basic and related
constraints on Congress.37 It may not vest itself, any of its committees or its members with either executive or judicial power. 38 And, when it exercises
its legislative power, it must follow the "single, finely wrought and exhaustively considered, procedures" specified under the Constitution, 39 including
the procedure for enactment of laws and presentment.
Thus, any post-enactment congressional measure such as this should be limited to scrutiny and investigation. In particular, congressional oversight
must be confined to the following:
(1) scrutiny based primarily on Congress’ power of appropriation and the budget hearings conducted in connection with it, its power to ask
heads of departments to appear before and be heard by either of its Houses on any matter pertaining to their departments and its power of
confirmation40 and
(2) investigation and monitoring41 of the implementation of laws pursuant to the power of Congress to conduct inquiries in aid of
legislation.42
Any action or step beyond that will undermine the separation of powers guaranteed by the Constitution. Legislative vetoes fall in this class.
Legislative veto is a statutory provision requiring the President or an administrative agency to present the proposed implementing rules and
regulations of a law to Congress which, by itself or through a committee formed by it, retains a "right" or "power" to approve or disapprove such
regulations before they take effect. As such, a legislative veto in the form of a congressional oversight committee is in the form of an inward-turning
delegation designed to attach a congressional leash (other than through scrutiny and investigation) to an agency to which Congress has by law
initially delegated broad powers.43 It radically changes the design or structure of the Constitution’s diagram of power as it entrusts to Congress a
direct role in enforcing, applying or implementing its own laws. 44
Congress has two options when enacting legislation to define national policy within the broad horizons of its legislative competence. 45 It can itself
formulate the details or it can assign to the executive branch the responsibility for making necessary managerial decisions in conformity with those
standards.46 In the latter case, the law must be complete in all its essential terms and conditions when it leaves the hands of the legislature. 47 Thus,
what is left for the executive branch or the concerned administrative agency when it formulates rules and regulations implementing the law is to fill up
details (supplementary rule-making) or ascertain facts necessary to bring the law into actual operation (contingent rule-making). 48
Administrative regulations enacted by administrative agencies to implement and interpret the law which they are entrusted to enforce have the force
of law and are entitled to respect.49 Such rules and regulations partake of the nature of a statute 50 and are just as binding as if they have been written
in the statute itself. As such, they have the force and effect of law and enjoy the presumption of constitutionality and legality until they are set aside
with finality in an appropriate case by a competent court. 51 Congress, in the guise of assuming the role of an overseer, may not pass upon their
legality by subjecting them to its stamp of approval without disturbing the calculated balance of powers established by the Constitution. In exercising
discretion to approve or disapprove the IRR based on a determination of whether or not they conformed with the provisions of RA 9335, Congress
arrogated judicial power unto itself, a power exclusively vested in this Court by the Constitution.
Considered Opinion of
Mr. Justice Dante O. Tinga
Moreover, the requirement that the implementing rules of a law be subjected to approval by Congress as a condition for their effectivity violates the
cardinal constitutional principles of bicameralism and the rule on presentment. 52
Section 1, Article VI of the Constitution states:
Section 1. The legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives, except to the extent reserved to the people by the provision on initiative and referendum. (emphasis supplied)
Legislative power (or the power to propose, enact, amend and repeal laws) 53 is vested in Congress which consists of two chambers, the Senate and
the House of Representatives. A valid exercise of legislative power requires the act of both chambers. Corrollarily, it can be exercised neither solely
by one of the two chambers nor by a committee of either or both chambers. Thus, assuming the validity of a legislative veto, both a single-chamber
legislative veto and a congressional committee legislative veto are invalid.
Additionally, Section 27(1), Article VI of the Constitution provides:
Section 27. (1) Every bill passed by the Congress shall, before it becomes a law, be presented to the President. If he approves the same,
he shall sign it, otherwise, he shall veto it and return the same with his objections to the House where it originated, which shall enter the
objections at large in its Journal and proceed to reconsider it. If, after such reconsideration, two-thirds of all the Members of such House
shall agree to pass the bill, it shall be sent, together with the objections, to the other House by which it shall likewise be reconsidered, and
if approved by two-thirds of all the Members of that House, it shall become a law. In all such cases, the votes of each House shall be
determined by yeas or nays, and the names of the members voting for or against shall be entered in its Journal. The President shall
communicate his veto of any bill to the House where it originated within thirty days after the date of receipt thereof; otherwise, it shall
become a law as if he had signed it. (emphasis supplied)
Every bill passed by Congress must be presented to the President for approval or veto. In the absence of presentment to the President, no bill
passed by Congress can become a law. In this sense, law-making under the Constitution is a joint act of the Legislature and of the Executive.
Assuming that legislative veto is a valid legislative act with the force of law, it cannot take effect without such presentment even if approved by both
chambers of Congress.

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In sum, two steps are required before a bill becomes a law. First, it must be approved by both Houses of Congress. 54 Second, it must be presented
to and approved by the President.55 As summarized by Justice Isagani Cruz56 and Fr. Joaquin G. Bernas, S.J.57, the following is the procedure for the
approval of bills:
A bill is introduced by any member of the House of Representatives or the Senate except for some measures that must originate only in
the former chamber.
The first reading involves only a reading of the number and title of the measure and its referral by the Senate President or the Speaker to
the proper committee for study.
The bill may be "killed" in the committee or it may be recommended for approval, with or without amendments, sometimes after public
hearings are first held thereon. If there are other bills of the same nature or purpose, they may all be consolidated into one bill under
common authorship or as a committee bill.
Once reported out, the bill shall be calendared for second reading. It is at this stage that the bill is read in its entirety, scrutinized, debated
upon and amended when desired. The second reading is the most important stage in the passage of a bill.
The bill as approved on second reading is printed in its final form and copies thereof are distributed at least three days before the third
reading. On the third reading, the members merely register their votes and explain them if they are allowed by the rules. No further debate
is allowed.
Once the bill passes third reading, it is sent to the other chamber, where it will also undergo the three readings. If there are differences
between the versions approved by the two chambers, a conference committee 58 representing both Houses will draft a compromise
measure that if ratified by the Senate and the House of Representatives will then be submitted to the President for his consideration.
The bill is enrolled when printed as finally approved by the Congress, thereafter authenticated with the signatures of the Senate President,
the Speaker, and the Secretaries of their respective chambers… 59
The President’s role in law-making.
The final step is submission to the President for approval. Once approved, it takes effect as law after the required publication. 60
Where Congress delegates the formulation of rules to implement the law it has enacted pursuant to sufficient standards established in the said law,
the law must be complete in all its essential terms and conditions when it leaves the hands of the legislature. And it may be deemed to have left the
hands of the legislature when it becomes effective because it is only upon effectivity of the statute that legal rights and obligations become available
to those entitled by the language of the statute. Subject to the indispensable requisite of publication under the due process clause, 61 the
determination as to when a law takes effect is wholly the prerogative of Congress. 62 As such, it is only upon its effectivity that a law may be executed
and the executive branch acquires the duties and powers to execute the said law. Before that point, the role of the executive branch, particularly of
the President, is limited to approving or vetoing the law. 63
From the moment the law becomes effective, any provision of law that empowers Congress or any of its members to play any role in the
implementation or enforcement of the law violates the principle of separation of powers and is thus unconstitutional. Under this principle, a provision
that requires Congress or its members to approve the implementing rules of a law after it has already taken effect shall be unconstitutional, as is a
provision that allows Congress or its members to overturn any directive or ruling made by the members of the executive branch charged with the
implementation of the law.
Following this rationale, Section 12 of RA 9335 should be struck down as unconstitutional. While there may be similar provisions of other laws that
may be invalidated for failure to pass this standard, the Court refrains from invalidating them wholesale but will do so at the proper time when an
appropriate case assailing those provisions is brought before us. 64
The next question to be resolved is: what is the effect of the unconstitutionality of Section 12 of RA 9335 on the other provisions of the law? Will it
render the entire law unconstitutional? No.
Section 13 of RA 9335 provides:
SEC. 13. Separability Clause. – If any provision of this Act is declared invalid by a competent court, the remainder of this Act or any
provision not affected by such declaration of invalidity shall remain in force and effect.
In Tatad v. Secretary of the Department of Energy,65 the Court laid down the following rules:
The general rule is that where part of a statute is void as repugnant to the Constitution, while another part is valid, the valid portion, if
separable from the invalid, may stand and be enforced. The presence of a separability clause in a statute creates the presumption that the
legislature intended separability, rather than complete nullity of the statute. To justify this result, the valid portion must be so far
independent of the invalid portion that it is fair to presume that the legislature would have enacted it by itself if it had supposed that it could
not constitutionally enact the other. Enough must remain to make a complete, intelligible and valid statute, which carries out the legislative
intent. x x x
The exception to the general rule  is that when the parts of a statute are so mutually dependent and connected, as conditions,
considerations, inducements, or compensations for each other, as to warrant a belief that the legislature intended them as a whole, the
nullity of one part will vitiate the rest. In making the parts of the statute dependent, conditional, or connected with one another, the
legislature intended the statute to be carried out as a whole and would not have enacted it if one part is void, in which case if some parts
are unconstitutional, all the other provisions thus dependent, conditional, or connected must fall with them.
The separability clause of RA 9335 reveals the intention of the legislature to isolate and detach any invalid provision from the other provisions so that
the latter may continue in force and effect. The valid portions can stand independently of the invalid section. Without Section 12, the remaining
provisions still constitute a complete, intelligible and valid law which carries out the legislative intent to optimize the revenue-generation capability
and collection of the BIR and the BOC by providing for a system of rewards and sanctions through the Rewards and Incentives Fund and a Revenue
Performance Evaluation Board.

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To be effective, administrative rules and regulations must be published in full if their purpose is to enforce or implement existing law pursuant to a
valid delegation. The IRR of RA 9335 were published on May 30, 2006 in two newspapers of general circulation 66 and became effective 15 days
thereafter.67 Until and unless the contrary is shown, the IRR are presumed valid and effective even without the approval of the Joint Congressional
Oversight Committee.
WHEREFORE, the petition is hereby PARTIALLY GRANTED. Section 12 of RA 9335 creating a Joint Congressional Oversight Committee to
approve the implementing rules and regulations of the law is declared UNCONSTITUTIONAL and therefore NULL and VOID. The constitutionality of
the remaining provisions of RA 9335 is UPHELD. Pursuant to Section 13 of RA 9335, the rest of the provisions remain in force and effect.
SO ORDERED.

G.R. No. 180006               September 28, 2011

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
FORTUNE TOBACCO CORPORATION, Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari filed under Rule 45 of the Rules of Court by petitioner Commissioner of Internal Revenue (CIR),
assailing the decision dated July 12, 2007 1 and the resolution dated October 4, 2007, 2 both issued by the Court of Tax Appeals (CTA) en banc in
CTA E.B. No. 228.
BACKGROUND FACTS
Under our tax laws, manufacturers of cigarettes are subject to pay excise taxes on their products. Prior to January 1, 1997, the excises taxes on
these products were in the form of ad valorem taxes, pursuant to Section 142 of the 1977 National Internal Revenue Code (1977 Tax Code).
Beginning January 1, 1997, Republic Act No. (RA) 8240 3 took effect and a shift from ad valorem to specific taxes was made. Section 142(c) of the
1977 Tax Code, as amended by RA 8240, reads in part:
Sec. 142. Cigars and cigarettes. — x x x.
(c) Cigarettes packed by machine. — There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed
below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (₱10.00) per pack, the tax shall
be Twelve pesos (₱12.00) per pack;
(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos ( ₱6.50) but
does not exceed Ten pesos (₱10.00) per pack, the tax shall be Eight pesos (₱8.00) per pack;
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos ( ₱5.00) but does not exceed Six pesos
and fifty centavos (₱6.50) per pack, the tax shall be Five pesos (₱5.00) per pack;
(4) If the net retail price (excluding the excise tax and the [value]-added tax) is below Five pesos ( ₱5.00) per pack, the tax shall
be One peso (₱1.00) per pack.
xxxx
The specific tax from any brand of cigarettes within the next three (3) years of effectivity of this Act shall not be lower than the tax [which] is due from
each brand on October 1, 1996: Provided, however, That in cases where the specific tax rates imposed in paragraphs (1), (2), (3) and (4)
hereinabove will result in an increase in excise tax of more than seventy percent (70%), for a brand of cigarette, the increase shall take effect in two
tranches: fifty percent (50%) of the increase shall be effective in 1997 and one hundred percent (100%) of the increase shall be effective in 1998.
xxxx
The rates of specific tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall be increased by twelve percent (12%) on
January 1, 2000. [emphases ours]
To implement RA 8240 and pursuant to its rule-making powers, the CIR issued Revenue Regulation No. (RR) 1-97 whose Section 3(c) and (d)
echoed the above-quoted portion of Section 142 of the 1977 Tax Code, as amended. 4
The 1977 Tax Code was later repealed by RA 8424, or the National Internal Revenue Code of 1997 (1997 Tax Code), and Section 142, as amended
by RA 8240, was renumbered as Section 145.
This time, to implement the 12% increase in specific taxes mandated under Section 145 of the 1997 Tax Code and again pursuant to its rule-making
powers, the CIR issued RR 17-99, which reads:
Page 27 of 134
Section 1. New Rates of Specific Tax. The specific tax rates imposed under the following sections are hereby increased by twelve percent (12%) and
the new rates to be levied, assessed, and collected are as follows:

Section Description of Articles Present Specific Tax New Specific Tax Rates
Rates (Prior to January 1, (Effective January 1,
2000) 2000)
145 CIGARS and CIGARETTES    
  B) Cigarettes Packed by Machine    
  (1) Net Retail Price (excluding ₱12.00/pack ₱13.44/pack
VAT & Excise) exceeds ₱10.00
per pack
  (2) Net Retail Price (excluding ₱8.00/pack ₱8.96/pack
VAT & Excise) is ₱6.51 up to
₱10.00 per pack
  (3) Net Retail Price (excluding ₱5.00/pack ₱5.60/pack
VAT & Excise) is ₱5.00 to ₱6.50
per pack
  (4) Net Retail Price (excluding ₱1.00/pack ₱1.12/pack
VAT & Excise) is below ₱5.00 per
pack

Provided, however, that the new specific tax rate for any existing brand of cigars [and] cigarettes packed by machine, distilled spirits, wines and
fermented liquors shall not be lower than the excise tax that is actually being paid prior to January 1, 2000. [emphasis ours]
THE FACTS OF THE CASE
Pursuant to these laws, respondent Fortune Tobacco Corporation (Fortune Tobacco) paid in advance excise taxes for the year 2003 in the amount
of ₱11.15 billion, and for the period covering January 1 to May 31, 2004 in the amount of ₱4.90 billion.5
In June 2004, Fortune Tobacco filed an administrative claim for tax refund with the CIR for erroneously and/or illegally collected taxes in the amount
of ₱491 million.6 Without waiting for the CIR’s action on its claim, Fortune Tobacco filed with the CTA a judicial claim for tax refund. 7
In its decision dated May 26, 2006, the CTA First Division ruled in favor of Fortune Tobacco and granted its claim for refund. 8 The CTA First
Division’s ruling was upheld on appeal by the CTA en banc in its decision dated July 12, 2007. 9 The CIR’s motion for reconsideration of the CTA en
banc’s decision was denied in a resolution dated October 4, 2007. 10
THE ISSUE
Fortune Tobacco’s claim for refund of overpaid excise taxes is based primarily on what it considers as an "unauthorized administrative legislation" on
the part of the CIR. Specifically, it assails the proviso in Section 1 of RR 17-99 that requires the payment of the "excise tax actually being paid prior
to January 1, 2000" if this amount is higher than the new specific tax rate, i.e., the rates of specific taxes imposed in 1997 for each category of
cigarette, plus 12%. It claimed that by including the proviso, the CIR went beyond the language of the law and usurped Congress’ power. As
mentioned, the CTA sided with Fortune Tobacco and allowed the latter to claim the refund.
The CIR disagrees with the CTA’s ruling and assails it before this Court through the present petition for review on certiorari. The CIR posits that the
inclusion of the proviso in Section 1 of RR 17-99 was made to carry into effect the law’s intent and is well within the scope of his delegated legislative
authority.11 He claims that the CTA’s strict interpretation of the law ignored Congress’ intent "to increase the collection of excise taxes by increasing
specific tax rates on ‘sin’ products." 12 He cites portions of the Senate’s deliberation on House Bill No. 7198 (the precursor of RA 8240) that conveyed
the legislative intent to increase the excise taxes being paid. 13
The CIR points out that Section 145(c) of the 1997 Tax Code categorically declares that "[t]he excise tax from any brand of cigarettes within the
[three-year transition period from January 1, 1997 to December 31, 1999] shall not be lower than the tax, which is due from each brand on October
1, 1996." He posits that there is no plausible reason why the new specific tax rates due beginning January 1, 2000 should not be subject to the same
rule as those due during the transition period. To the CIR, the adoption of the "higher tax rule" during the transition period unmistakably shows the
intent of Congress not to lessen the excise tax collection. Thus, the CTA should have construed the ambiguity or omission in Section 145(c) in a
manner that would uphold the law’s policy and intent.
Fortune Tobacco argues otherwise. To it, Section 145(c) of the 1997 Tax Code read and interpreted as it is written; it imposes a 12% increase on the
rates of excise taxes provided under sub-paragraphs (1), (2), (3), and (4) only; it does not say that the tax due during the transition period shall
continue to be collected if the amount is higher than the new specific tax rates. It contends that the "higher tax rule" applies only to the three-year
transition period to offset the burden caused by the shift from ad valorem to specific taxes.
THE COURT’S RULING

Page 28 of 134
Except for the tax period and the amounts involved, 14 the case at bar presents the same issue that the Court already resolved in 2008 in CIR v.
Fortune Tobacco Corporation.15 In the 2008 Fortune Tobacco case, the Court upheld the tax refund claims of Fortune Tobacco after finding invalid
the proviso in Section 1 of RR 17-99. We ruled:
Section 145 states that during the transition period, i.e., within the next three (3) years from the effectivity of the Tax Code, the excise tax from any
brand of cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This qualification, however, is conspicuously absent as
regards the 12% increase which is to be applied on cigars and cigarettes packed by machine, among others, effective on 1 January 2000. Clearly
and unmistakably, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase effective on 1 January
2000 without regard to whether the revenue collection starting from this period may turn out to be lower than that collected prior to this date.
By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the tax actually paid prior to 1 January
2000, Revenue Regulation No. 17-99 effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the
three (3)-year transition period and the specific tax under paragraph C, sub-paragraph (1)-(4), as increased by 12% – a situation not supported by
the plain wording of Section 145 of the Tax Code. 16
Following the principle of stare decisis, 17 our ruling in the present case should no longer come as a surprise. The proviso in Section 1 of RR 17-99
clearly went beyond the terms of the law it was supposed to implement, and therefore entitles Fortune Tobacco to claim a refund of the overpaid
excise taxes collected pursuant to this provision.
The amount involved in the present case and the CIR’s firm insistence of its arguments nonetheless compel us to take a second look at the issue,
but our findings ultimately lead us to the same conclusion. Indeed, we find more reasons to disagree with the CIR’s construction of the law than
those stated in our 2008 Fortune Tobacco ruling, which was largely based on the application of the rules of statutory construction.
Raising government revenue is not the sole objective of RA 8240
That RA 8240 (incorporated as Section 145 of the 1997 Tax Code) was enacted to raise government revenues is a given fact, but this is not the sole
and only objective of the law. 18 Congressional deliberations show that the shift from ad valorem to specific taxes introduced by the law was also
intended to curb the corruption that became endemic to the imposition of ad valorem taxes. 19 Since ad valorem taxes were based on the value of the
goods, the prices of the goods were often manipulated to yield lesser taxes. The imposition of specific taxes, which are based on the volume of
goods produced, would prevent price manipulation and also cure the unequal tax treatment created by the skewed valuation of similar goods.
Rule of uniformity of taxation violated by the proviso in Section 1, RR 17-99
The Constitution requires that taxation should be uniform and equitable. 20 Uniformity in taxation requires that all subjects or objects of taxation,
similarly situated, are to be treated alike both in privileges and liabilities. 21 This requirement, however, is unwittingly violated when the proviso in
Section 1 of RR 17-99 is applied in certain cases. To illustrate this point, we consider three brands of cigarettes, all classified as lower-priced
cigarettes under Section 145(c)(4) of the 1997 Tax Code, since their net retail price is below ₱5.00 per pack:

(D)
(A) (B) (C) (E)
Net Retail New Specific Tax
Ad Valorem Specific Tax Specific Tax New Specific Tax
Brand22 Price per imposing 12%
Tax Due prior under Section Due Jan 1997 Due by Jan 2000
pack increase by Jan
to Jan 1997 145(C)(4) to Dec 1999 per RR 17-99
2000
Camel KS 4.71 5.50 1.00/pack 5.50 1.12/pack 5.50
Champion M 4.56 3.30 1.00/pack 3.30 1.12/pack 3.30
100
Union 4.64 1.09 1.00/pack 1.09 1.12/pack 1.12
American
Blend

Although the brands all belong to the same category, the proviso in Section 1, RR 17-99 authorized the imposition of different (and grossly
disproportionate) tax rates (see column [D]). It effectively extended the qualification stated in the third paragraph of Section 145(c) of the 1997 Tax
Code that was supposed to apply only during the transition period:
The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which
is due from each brand on October 1, 1996[.]
In the process, the CIR also perpetuated the unequal tax treatment of similar goods that was supposed to be cured by the shift from ad valorem to
specific taxes.
The omission in the law in fact reveals the legislative intent not to adopt the "higher tax rule"
The CIR claims that the proviso in Section 1 of RR 17-99 was patterned after the third paragraph of Section 145(c) of the 1997 Tax Code. Since the
law’s intent was to increase revenue, it found no reason not to apply the same "higher tax rule" to excise taxes due after the transition period despite
the absence of a similar text in the wording of Section 145(c). What the CIR misses in his argument is that he applied the rule not only for cigarettes,
but also for cigars, distilled spirits, wines and fermented liquors:
Provided, however, that the new specific tax rate for any existing brand of cigars [and] cigarettes packed by machine, distilled spirits, wines and
fermented liquors shall not be lower than the excise tax that is actually being paid prior to January 1, 2000.

Page 29 of 134
When the pertinent provisions of the 1997 Tax Code imposing excise taxes on these products are read, however, there is nothing similar to the third
paragraph of Section 145(c) that can be found in the provisions imposing excise taxes on distilled spirits (Section 141 23 ) and wines (Section 14224 ).
In fact, the rule will also not apply to cigars as these products fall under Section 145(a). 25
Evidently, the 1997 Tax Code’s provisions on excise taxes have omitted the adoption of certain tax measures. To our mind, these omissions are
telling indications of the intent of Congress not to adopt the omitted tax measures; they are not simply unintended lapses in the law’s wording that, as
the CIR claims, are nevertheless covered by the spirit of the law. Had the intention of Congress been solely to increase revenue collection, a
provision similar to the third paragraph of Section 145(c) would have been incorporated in Sections 141 and 142 of the 1997 Tax Code. This,
however, is not the case.
We note that Congress was not unaware that the "higher tax rule" is a proviso that should ideally apply to the increase after the transition period (as
the CIR embodied in the proviso in Section 1 of RR 17-99). During the deliberations for the law amending Section 145 of the 1997 Tax Code (RA
9334), Rep. Jesli Lapuz adverted to the "higher tax rule" after December 31, 1999 when he stated:
This bill serves as a catch-up measure as government attempts to collect additional revenues due it since 2001. Modifications are necessary indeed
to capture the loss proceeds and prevent further erosion in revenue base. x x x. As it is, it plugs a major loophole in the ambiguity of the law as
evidenced by recent disputes resulting in the government being ordered by the courts to refund taxpayers. 1âwphi1 This bill clarifies that the excise
tax due on the products shall not be lower than the tax due as of the date immediately prior to the effectivity of the act or the excise tax due as of
December 31, 1999.26
This remark notwithstanding, the final version of the bill that became RA 9334 contained no provision similar to the proviso in Section 1 of RR 17-99
that imposed the tax due as of December 31, 1999 if this tax is higher than the new specific tax rates. Thus, it appears that despite its awareness of
the need to protect the increase of excise taxes to increase government revenue, Congress ultimately decided against adopting the "higher tax rule.
WHEREFORE, in view of the foregoing, the petition is DENIED. The decision dated July 12, 2007 and the resolution dated October 4, 2007 of the
Court of Tax Appeals in CTA E.B. No. 228 are AFFIRMED. No pronouncement as to costs.
SO ORDERED.

[G.R. Nos. 94878-94881. May 15, 1991.]

NORBERTO A. ROMUALDEZ III, Petitioner, v. CIVIL SERVICE COMMISSION * and THE PHILIPPINE COCONUT AUTHORITY, Respondents.

Fernando T. Collantes for Petitioner.

DECISION

GANCAYCO, J.:

By this petition the intervention of public respondent Civil Service Commission (SCS) is sought to compel public respondent Philippine Coconut
Authority (PCA) to reinstate and extend a permanent appointment to petitioner as Deputy Administrator for Industrial Research and Market
Development.chanrobles law library : red

Petitioner was appointed and served as a Commercial Attache of the Department of Trade continuously for twelve years from September, 1975 to
August 30, 1987. His civil service eligibilities are: Patrolman of the City of Manila (1963 CS Exam) and a Commercial Attache (1973 CS Exam).

On September 1, 1987, he was transferred to the respondent PCA whereby he was extended an appointment as Deputy Administrator for Industrial
Research and Market Development. 1 The nature of his appointment was "reinstatement" and his employment status was "temporary," for the period
covering September 1, 1987 to August 30, 1988. His appointment was renewed for another six months from September 1, 1988 to February 28,
1989 also on a "temporary" status and subject to certain conditions to which petitioner agreed.chanrobles.com : virtual law library

When his appointment expired on February 28, 1989, the Governing Board did not renew the same so he was promptly informed thereof by the
Acting Chairman of the Board of the PCA, Apolonio V. Bautista. 2

On February 6, 1990, petitioner appealed to respondent CSC. He requested reinstatement to his previous position in PCA and in support of the
request, he invoked the provisions of CSC Memorandum Circular No. 29 dated July 19, 1989. 3

Respondent CSC denied petitioner’s request for reinstatement on May 2, 1990 by way of its Resolution No. 90-407, holding that CSC Memorandum
Circular No. 29 was not applicable to petitioner’s case because it took effect on July 19, 1989 when petitioner had long been out of the government
service since February 28, 1989 and that his reappointment was essentially discretionary on the part of the proper appointing authority.

On May 11, 1990, respondent PCA appointed Mr. Roman Santos to the contested position.
Page 30 of 134
Petitioner moved for a reconsideration of Resolution No. 90-407 but it was denied by respondent CSC in Resolution No. 90-693 dated July 31, 1990.
4

Hence, petitioner filed this petition for certiorari, prohibition and mandamus with a prayer for the issuance of a writ of preliminary injunction and/or
temporary restraining order, raising the following issues —

"1. Public Respondent Civil Service Commission committed grave abuse of discretion amounting to capricious, whimsical, and despotic refusal to
perform a legal/constitutional duty to enforce the Civil Service Law and/or constituting non-feasance/mis-feasance in office in issuing Resolution Nos.
90-407 and 90-693;

2. The legal issue of the applicability of Civil Service Commission Circular No. 29, Series 1989 on the appointment of petitioner as PCA Deputy
Administrator for Industrial Research and Market Development;

3. The legal issue as to whether it is mandatory for an appointing authority to extend permanent appointments to selected appointees with
corresponding civil service eligibilities;

4. Public respondent Civil Service Commission committed grave abuse of discretion amounting to lack of jurisdiction and/or
nonfeasance/misfeasance of official functions in not exercising its authority to enforce/implement the Civil Service Law and in not affording petitioner
who belongs to the career service in the government the protective security of tenure and due process clause of the Philippine 1987 Constitution as
well as the Civil Service Law under P.D. 807;

5. Public respondent Philippine Coconut Authority unlawfully and maliciously deliberately failed/refused to strictly comply with the provision of par. a,
Section 25 of P.D. 807 in the matter of extending permanent appointment to petitioner constituting likewise grave abuse of discretion on the part of
public respondent Civil Service Commission amounting to gross ignorance of the law in not correcting/rectifying such malicious and deliberate non-
compliance, in view of the mandatory directive of Section 8, Rule III of the Civil Service Rules on Personnel Actions and Policies." 5

The petition is devoid of merit.

No doubt the appointment extended to petitioner by respondent PCA as PCA Deputy Administrator for Industrial Research and Market Development
was temporary. Although petitioner was formerly holding a permanent appointment as a commercial attache, he sought and accepted this temporary
appointment to respondent PCA.

His temporary appointment was for a definite period and when it lapsed and was not renewed on February 28, 1987, he complains that there was a
denial of due process. This is not a case of removal from office. Indeed, when he accepted this temporary appointment he was thereby effectively
divested of security of tenure. 6 A temporary appointment does not give the appointee any definite tenure of office but makes it dependent upon the
pleasure of the appointing power. 7 Thus, the matter of converting such a temporary appointment to a permanent one is addressed to the sound
discretion of the appointing authority. Respondent CSC cannot direct the appointing authority to make such an appointment if it is not so disposed. 8

The duty of respondent CSC is to approve or disapprove an appointment. Its attestation is limited to the determination whether the appointee
possesses the required qualifications for the position as the appropriate civil service eligibility. 9

Petitioner invokes CSC Memorandum Circular No. 29, S. 1989, dated July 19, 1989 which provides —

(a) A permanent appointment shall be issued to a person who meets all the requirements for the position to which he is being appointed, including
the appropriate eligibility prescribed, in accordance with the provisions of law, rules and standards promulgated in pursuance thereof. (Section 25
(a), P.D. 807).

(b) While the appointing authority is given a wide latitude of discretion in the selection of personnel for his department or agency, in the exercise of
this discretion he shall be guided by and subject to the Civil Service Law and Rules." 10

As aptly observed by respondent CSC said circular cannot be given retrospective effect as to apply to the case of petitioner who was separated from
the service on February 28, 1989. And even if the said circular may apply to petitioner’s situation, under said circular it is recognized that "the
appointing authority is given a wide latitude of discretion in the selection of personnel of his department or agency." Respondent PCA exercised its
discretion and opted not to extend the appointment of petitioner. It cannot be compelled to extend petitioner’s appointment, much less can it be
directed to extend a permanent appointment to petitioner. A discretionary duty cannot be compelled by mandamus. 11 More so when as in this case
petitioner has not shown a lawful right to the position. If the legal rights of the petitioner are not well-defined, clear and certain, the petition must be
dismissed. 12
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
Page 31 of 134
G.R. No. 144464            November 27, 2001
GILDA G. CRUZ and ZENAIDA C. PAITIM, petitioner,
vs.
THE CIVIL SERVICE COMMISSION, respondent.
KAPUNAN, J.:
Assailed in the instant petition is the decision of the Court of Appeals upholding Resolution No. 981695 of the Civil Service Commission for allegedly
being contrary to law and jurisprudence.
The facts are as follows:
On September 9, 1994, the Chairperson of the Civil Service Commission (CSC), received a letter from a private individual, Carmelita B. Esteban,
claiming that, during the examinations for non-professional in the career civil service, given by the Civil Service Commission, on July 30, 1989 in
Quezon City, Zenaida C. Paitim, the Municipal Treasurer of Norzagaray, Bulacan, falsely pretending to be the examinee, Gilda Cruz, a co-employee
in the said office, took the examinations for the latter. Carmelita Esteban requested the CSC to investigate the matter, appending to said letter,
pictures purporting to be those of Gilda Cruz and Zenaida Paitim.
On September 20, 1994, Erlinda A. Rosas, Director IV of the Commission, issued a Memorandum to Eliseo Gatchalian, the Director of the
Management Information Office of the Commission, requesting the latter to furnish her with the picture seat plan of the room where Gilda G. Cruz
was during the said examination, to ascertain the veracity of the letter-complaint. Eliseo S. Gatchalian did furnish Erlinda Rosas with certified true
copies of the picture seat plans of the rooms where Gilda G. Cruz was assigned not only in the 1989 but also in the 1987 and 1988 career service
(sub-professional) examinations. On November 8, 1994, Erlinda Rosas thereby wrote a Memorandum to Civil Service Commissioner Thelma P.
Gaminde, dated November 8, 1994, declaring that based on the record, she found a prima facie case against Zenaida Paitim and Gilda G. Cruz.
On the basis of said memorandum, a fact finding investigation was conducted. On March 31, 1995, a "Formal Charge" for "Dishonesty, Grave
Misconduct, and Conduct Prejudicial to the Best Interest of the Service" signed by Bella Amilhasan, Director IV of the Civil Service Commission
Regional Office No. 3 was filed against Gilda Cruz and Zenaida C. Paitim, with the Civil Service Commission, docketed as Administrative Case No.
D3-9S-052, which reads as follows:
FORMAL CHARGE
MESDAMES:
This Office has found after a fact finding investigation that a prima facie case exists against you for DISHONESTY, GRAVE MISCONDUCT
and CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE SERVICE, committed as follows:
"That Gilda Cruz applied to take the July 30, 1989 Career Service Subprofessional examination. A verification of our records
revealed that the picture of Cruz pasted in the Picture Seat Plan of the said examination held at Room 21 of the Ramon
Magsaysay Elementary School, Quezon City, bears no resemblance to the pictures of Cruz as appearing in the picture seat
plans of the previous Career Service Subprofessional Examinations which she took last July 26, 1987 and July 31, 1988
respectively. It would appear that the purported picture of Cruz pasted in the Picture Seat Plan of the said July 30, 1989
examination is the picture of a different person. Further verification showed that this picture belongs to a certain Zenaida Paitim,
Municipal Treasurer of Norzagaray, Bulacan who apparently took the said examination on behalf of Cruz and on the basis of the
application bearing the name and personal circumstances of Cruz."
WHEREFORE, Gilda Cruz and Zenaida Paitim are hereby directed to answer in writing and under oath within five (5) days from receipt
hereof. To support your Answer, you may submit supporting documents/sworn statements.
In your Answer, you should state whether you elect to have a formal investigation or waive your right to said investigations should your
Answer be found not satisfactory.
You are advised that you are entitled to the assistance of a counsel.

By Authority of the Commission:

(Sgd.) Bella A. Amilhasan
                Director IV1

The petitioners filed their Answer to the charge entering a general denial of the material averments of the "Formal Charge." They also declared that
they were electing a formal investigation on the matter. The petitioners subsequently filed a Motion to Dismiss averring that if the investigation will
continue, they will be deprived of their right to due process because the Civil Service Commission was the complainant, the Prosecutor and the
Judge, all at the same time.
On July 17, 1995, Director Bella A. Amilhasan issued an order denying the motion. 2 The subsequent motion for reconsideration of said order was
likewise dismissed.
Dulce J. Cochon, Attorney III of the CSC was thereby directed to conduct the formal administrative investigation of petitioners' case.
On November 16, 1995, Dulce J. Cochon issued an "Investigation Report and Recommendation" finding the Petitioners guilty of "Dishonesty" and
ordering their dismissal from the government service, the decretal portion of which reads as follows:
WHEREFORE, foregoing premises considered, this Office recommends the dismissal from the service with all its accessory penalties of
respondents Zenaida Paitim and Gilda Cruz, both employees of the Municipality of Norzagaray, Bulacan for the offenses of Dishonesty,
Grave Misconduct and Conduct Prejudicial to the Best Interest of the Service. Furthermore, this Office recommends the filing of criminal

Page 32 of 134
 charges against them that shall serve as a deterrent to all possible plans of making a mockery to the sanctity of Civil Service Law and
Rules as well as the constitutional mandate that 'A public office is a public trust. (Idem. Supra.)3
The aforesaid "Investigation Report and Recommendation" was then forwarded, to the Civil Service Commission for its consideration and resolution.
On July 1, 1998, the Civil Service Commission issued Resolution No. 981695 finding the petitioners guilty of the charges and ordered their dismissal
from the government service. The decretal portion reads as follows:
WHEREFORE, Zenaida Paitim and Gilda Cruz are hereby found guilty of Dishonesty. Accordingly, they are imposed the penalty of
dismissal from the service with all its accessory penalties. The Civil Service (Subprofessional) Eligibility of Gilda Cruz is also cancelled.
Let a copy of this Resolution, as well as other relevant documents, be furnished the Office of the Ombudsman for whatever action it may
take under the premises."4
Petitioners then went up to the Court of Appeals assailing the resolution of the CSC.
On November 29, 1999, the Court of Appeals dismissed the petition before it. The motion for reconsideration was, likewise, denied on August 9,
2000.
Hence, this petition.
In the instant petition, petitioners raised the following assignment of errors:
I
THE COURT OF APPEALS GRAVELY AND SERIOUSLY ERRED IN HOLDING THAT PETITIONERS' CONSTITUTIONAL RIGHT TO
DUE PROCESS WAS NOT VIOLATED IN ADMINISTRATIVE CASE NO. D3-95-052 WHERE RESPONDENT COMMISSION ACTED AS
THE INVESTIGATOR, THE COMPLAINANT, THE PROSECUTOR, AND THE JUDGE, ALL AT THE SAME TIME, AGAINST
PETITIONERS. IN SO DOING, RESPONDENT COMMISSION COMMITTED A MOCKERY OF ADMINISTRATIVE JUSTICE AND THE
COURT OF APPEALS SANCTIONED IT.
II
THE COURT OF APPEALS GRAVELY AND SERIOUSLY ERRED IN RULING THAT RESPONDENT COMMISSION HAS ORIGINAL
JURISDICTION TO HEAR AND DECIDE A COMPLAINT OR CHARGE WHETHER FILED BY A PRIVATE CITIZEN OR BY THE CIVIL
SERVICE COMMISSION ITSELF. THE LAW VESTS IN RESPONDENT COMMISSION ONLY APPELLATE, NOT ORIGINAL,
JURISDICTION IN ALL ADMINISTRATIVE CASES AGAINST A PUBLIC OFFICIAL OR EMPLOYEE INVOLVING THE IMPOSITION OF A
PENALTY OF REMOVAL OR DISMISSAL FROM OFFICE WHERE THE COMPLAINT THEREFORE WAS NOT FILED BY A PRIVATE
CITIZEN AS IN ADMINISTRATIVE CASE NO. D3-95-052 OF RESPONDENT COMMISSION. 5
We find no merit in the petition.
There is no question that petitioner Zenaida Paitim, masquerading herself as petitioner Gilda Cruz, took the civil service examinations in her behalf.
Gilda Cruz passed the examinations. On the basis of a tip-off that the two public employees were involved in an anomalous act, the CSC conducted
an investigation and verified that the two employees were indeed guilty of dishonesty. Thus, in accordance with the CSC law, the petitioners merited
the penalty of dismissal.
Petitioners maintain that the CSC did not have original jurisdiction to hear and decide the administrative case. Allegedly, in accordance with Section
47(1), Chapter 7, Subtitle A, Title 1, Book V, Administrative Code of 1987, the CSC is vested with appellate jurisdiction only in all administrative
cases where the penalty imposed is removal or dismissal from the office and where the complaint was filed by a private citizen against the
government employee.6 It reads:
SECTION 47. Disciplinary Jurisdiction . — (1) The Commission shall decide upon appeal all administrative disciplinary cases involving the
imposition of a penalty of suspension for more than thirty days, or a fine in an amount exceeding thirty days' salary, demotion in rank or
salary or transfer, removal or dismissal from office. A complaint may be filed directly with the Commission by a private citizen against a
government official or employee in which case it may hear and decide  the case or it may deputize any department or agency or official or
group of officials to conduct the investigation. The results of the investigation shall be submitted to the Commission with recommendation
as to the penalty to be imposed or other action to be taken. 7
(Emphasis supplied.)
Petitioners' invocation of the law is misplaced. The provision is applicable to instances where administrative cases are filed against erring employees
in connection with their duties and functions of the office. This is, however, not the scenario contemplated in the case at bar. It must be noted that the
acts complained of arose from a cheating caused by the petitioners in the Civil Service (Subprofessional) examination. The examinations were under
the direct control and supervision of the Civil Service Commission. The culprits are government employees over whom the Civil Service Commission
undeniably has jurisdiction. Thus, after the petitioners were duly investigated and ascertained whether they were indeed guilty of dishonesty, the
penalty meted was dismissal from the office.
Section 28, Rule XIV of the Omnibus Civil Service Rules and Regulations explicitly provides that the CSC can rightfully take cognizance over any
irregularities or anomalies connected to the examinations, as it reads:
Sec. 28. The Commission shall have original disciplinary jurisdiction over all its officials and employees and over all cases involving civil
service examination anomalies or irregularities."
Petitioners' contention that they were denied due process of law by the fact that the CSC acted as investigator, complainant, prosecutor and judge,
all at the same time against the petitioners is untenable. The CA correctly explained that the CSC is mandated to hear and decide administrative
case instituted by it or instituted before it directly or on appeal including actions of its officers and the agencies attached to it pursuant to Book V, Title
1, Subtitle A, Chapter 3, Section 12, paragraph 11 of the Administrative Code of 1987 which states:
(11) Hear and decide administrative cases instituted by or brought before it directly or on appeal, including contested appointments, and
review decisions and actions of its offices and of the agencies attached to it. Officials and employees who fail to comply with such
decisions, orders, or rulings shall be liable for contempt of the Commission. Its decisions, orders, or rulings shall be final and executory.
Page 33 of 134
 Such decisions, orders, or rulings may be brought to the Supreme Court on certiorari by the aggrieved party within thirty (30) days from
receipt of a copy thereof;
The fact that the complaint was filed by the CSC itself does not mean that it could not be an impartial judge. As an administrative body, its decision
was based on substantial findings. Factual findings of administrative bodies, being considered experts in their field, are binding on the Supreme
Court.8 The records clearly disclose that the petitioners were duly investigated by the CSC and found that:
After a careful examination of the records, the Commission finds respondents guilty as charged.
The photograph pasted over the name Gilda Cruz in the Picture Seat Plan (PSP) during the July 30, 1989 Career Service Examination is
not that of Cruz but of Paitim. Also, the signature over the name of Gilda Cruz in the said document is totally different from the signature of
Gilda Cruz.
It should be stressed that as a matter of procedure, the room examiners assigned to supervise the conduct of a Civil Service examination
closely examine the pictures submitted and affixed on the Picture Seat Plan (CSC Resolution No. 95-3694, Obedencio, Jaime A.). The
examiners carefully compare the appearance of each of the examinees with the person in the picture submitted and affixed on the PSP. In
cases where the examinee does not look like the person in the picture submitted and attached on the PSP, the examiner will not allow the
said person to take the examination (CSC Resolution No. 95-5195, Taguinay, Ma. Theresa)
The facts, therefore, that Paitim's photograph was attached over the name of Gilda Cruz in the PSP of the July 30, 1989 Career Service
Examination, shows that it was Paitim who took the examination.
In a similar case, the Commission ruled:
"It should be stressed that the registered examinee's act of asking or allowing another person to take the examination in her
behalf constitutes that the evidence on record clearly established that another person took the Civil Service Examination for De
Guzman, she should be held liable for the said offense."
At the outset, it is axiomatic that in the offense of impersonation, two persons are always involved. In the instant case, the offense cannot prosper
without the active participation of both Arada and de Leon. Thus, the logical conclusion is that de Leon took the examination for and in behalf of
Arada. Consequently, they are both administratively liable. (Arada, Carolina C. and de Leon, Ponciana Anne M.) 9
It can not be denied that the petitioners were formally charged after a finding that a prima facie case for dishonesty lies against them. They were
properly informed of the charges. They submitted an Answer and were given the opportunity to defend themselves. Petitioners can not, therefore,
claim that there was a denial of due process much less the lack of jurisdiction on the part of the CSC to take cognizance of the case. We do not find
reversible error with the decision of the Court of Appeals in upholding the CSC Resolution.
WHEREFORE, the petition is DENIED. The assailed decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

G.R. No. 139813       January 31, 2001

JOEL BITO-ONON, petitioner,
vs.
HON. JUDGE NELIA YAP FERNANDEZ, R.T.C. Br. 50 – Puerto Princesa City and Palawan, and ELEGIO QUEJANO, JR., respondents.
GONZAGA-REYES, J.:
This Petition for Certiorari and Prohibition with prayer for the issuance of a temporary restraining order and writ of injunction seeks the reversal of the
Order of the Regional Trial Court of Palawan and Puerto Princesa City, 1 Branch 50 in SPL. PROC. NO. 1056 entitled "Elegio F. Quejano, Jr.,
petitioner vs. Joel Bito-Onon, et. al., respondents" which denied herein petitioner's motion to dismiss the Petition for Review of the Resolution of the
Board of Election Supervisors dated August 25, 1997 in case number L-10-97 filed by herein private respondent with said court. 1âwphi1.nêt
It appears from the records that the petitioner, Joel Bito-Onon is the duly elected Barangay Chairman of Barangay Tacras, Narra, Palawan and is the
Municipal Liga Chapter President for the Municipality of Narra, Palawan. The private respondent, Elegio Quejano, Jr. on the other hand, is the duly
elected Barangay Chairman of Barangay Rizal, Magsaysay, Palawan and is the Municipal Liga Chapter President for the Municipality of Magsaysay,
Palawan. Both Onon and Quejano were candidates for the position of Executive Vice-President in the August 23, 1997 election for the Liga ng
Barangay Provincial Chapter of the province of Palawan. Onon was proclaimed the winning candidate in the said election prompting Quejano to file a
post proclamation protest with the Board of Election Supervisors (BES), which was decided against him on August 25, 1997.
Not satisfied with the decision of the BES, Quejano filed a Petition for Review of the decision of the BES with the Regional Trial Court of Palawan
and Puerto Princesa City (RTC). On April 26, 1999, Onon filed a motion to dismiss the Petition for Review raising the issue of jurisdiction. Onon
claimed that the RTC had no jurisdiction to review the decisions rendered by the BES in any post proclamation electoral protest in connection with
the 1997 Liga ng mga Barangay election of officers and directors. In his motion to dismiss, Onon claimed that the Supplemental Guidelines for the
1997 Liga ng mga Barangay election issued by the DILG on August 11, 1997 in its Memorandum Circular No. 97-193, providing for review of
decisions or resolutions of the BES by the regular courts of law is an ultra vires act and is void for being issued without or in excess of jurisdiction, as
its issuance is not a mere act of supervision but rather an exercise of control over the Liga's internal organization.
On June 22, 1999, the RTC denied Onon's motion to dismiss. In its order, the RTC ratiocinated that the Secretary of the Department of Interior and
Local Government2 is vested with the power "to establish and prescribe rules, regulations and other issuances and implementing laws on the general
supervision of local government units and the promotion of local autonomy and monitor compliance thereof by said units." 3 The RTC added that
DILG Circular No. 97-193 was issued by the DILG Secretary pursuant to his rule-making power as provided for under Section 7, Chapter II, Book IV
of the Administrative Code.4 Consequently, the RTC ruled that it had jurisdiction over the petition for review filed by Quejada. 5
Motion for reconsideration of the aforesaid Order was denied 6 prompting the petitioner to file the present petition wherein the following issues are
raised:

Page 34 of 134
 A. WHETHER OR NOT THE QUESTIONED PROVISION IN MEMORANDUM CIRCULAR 97-193 WAS ISSUED BY THE DILG
SECRETARY IN EXCESS OF HIS AUTHORITY.
B. WHETHER OR NOT THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION IN ISSUING THE QUESTIONED
ORDERS.7
In support of his petition, Onon argues that the "Supplemental Guidelines for the 1997 Synchronized Election of the Provincial and Metropolitan
Chapters and for the Election of the National Chapter of the Liga ng mga Barangay" contradicts the "Implementing Rules and Guidelines for the 1997
General Elections of the Liga ng mga Barangay Officers and Directors" and is therefore invalid. Onon alleges that the Liga ng mga Barangay (LIGA)
is not a local government unit considering that a local government unit must have its own source of income, a certain number of population, and a
specific land area in order to exist or be created as such. Consequently, the DILG only has a limited supervisory authority over the LIGA. Moreover,
Onon Argues that even if the DILG has supervisory authority over the LIGA, the act of the DILG in issuing Memorandum Circular No. 97-193 or the
supplemental rules and guidelines for the conduct of the 1997 LIGA elections had the effect of modifying, altering and nullifying the rules prescribed
by the National Liga Board. Onon posits that the issuance of said guidelines allowing an appeal of the decision of the BES to the regular courts
rather than to the National Liga Board is no longer an exercise of supervision but an exercise of control. 8
In his comment to the petition, private respondent Quejano argues that the Secretary of the DILG has competent authority to issue rules and
regulations like Memorandum Circular No. 97-893. The Secretary of DILG's rule-making power is conferred by the Administrative Code. Considering
that the Memorandum Circular was issued pursuant to his rule making power, Quejano insists that the lower court did not commit any reversible
error when it denied Onon's motion to dismiss. 9
On the other hand, the public respondent represented herein by the Solicitor General, filed a separate Manifestation and Motion in Lieu of Comment
agreeing with the position of petitioner Onon. The Solicitor General affirms Onon's claim that in issuing the questioned Memorandum Circular, the
Secretary of the DILG effectively amended the rules and guidelines promulgated by National Liga Board. This act was no longer a mere act of
supervision but one of control. The Solicitor General submits that the RTC committed grave abuse of discretion in not dismissing the petition for
review of the BES decision filed before it for failure of the petitioner to exhaust the rightful remedy which was to appeal to the National Liga Board. 10
On October 27, 1999, this Court denied petitioner Onon's motion for the issuance of restraining order for lack of merit.
After a careful review of the case, we sustain the position of the petitioner.
The resolution of the present controversy requires an examination of the questioned provision of Memorandum Circular No. 97-193 and the
Implementing Rules and Guidelines for the 1997 General Elections of the Liga ng mga Barangay Officers and Directors (Guidelines). The
memorandum circular reads, insofar as pertinent, as follows:
"Any post-proclamation protest must be filed with the BES within twenty-four (24) hours from the closing of the election. The BES shall
decide the same within forty-eight (48) hours from receipt thereof. The decision of the BES shall be final and immediately
executory without prejudice to the filing of a Petition for Review with the regular courts of law. "11 (emphasis supplied)
On the other hand, the GUIDELINES provides that the BES shall have the following among its duties:
"To resolve any post-proclamation electoral protest which must be submitted in writing to this Board within twenty-four (24) hours from the
close of election; provided said Board shall render its decision within forty-eight (48) hours from receipt hereof; and provided further that
the decision must be submitted to the National Liga Headquarters within twenty-four (24) hours from the said decision. The decision of the
Board of Election Supervisors in this respect shall be subject to review by the National Liga Board the decision of which shall be final and
executory."12 (emphasis supplied)
Memorandum Circular No. 97-193 was issued by the DILG Secretary pursuant to the power of general supervision of the President over all local
government units which was delegated to the DILG Secretary by virtue of Administrative Order No. 267 dated February 18, 1992. 13 The President's
power of general supervision over local government units is conferred upon him by the Constitution. 14 The power of supervision is defined as "the
power of a superior officer to see to it that lower officers perform their functions in accordance with law." 15 This is distinguished from the power of
control or "the power of an officer to alter or modify or set aside what a subordinate officer had done in the performance of his duties and to
substitute the judgment of the former for the latter." 16
On many occasions in the past, this court has had the opportunity to distinguish the power of supervision from the power of control. In  Taule vs.
Santos,17 we held that the Chief Executive wielded no more authority than that of checking whether a local government or the officers thereof
perform their duties as provided by statutory enactments. He cannot interfere with local governments provided that the same or its officers act within
the scope of their authority. Supervisory power, when contrasted with control, is the power of mere oversight over an inferior body; it does not include
any restraining authority over such body. 18 Officers in control lay down the rules in the doing of an act. If they are not followed, it is discretionary on
his part to order the act undone or re-done by his subordinate or he may even decide to do it himself. Supervision does not cover such authority.
Supervising officers merely sees to it that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion to
modify or replace them. If the rules are not observed, he may order the work done or re-done to conform to the prescribed rules. He cannot prescribe
his own manner for the doing of the act.19
Does the President's power of general supervision extend to the liga ng mga barangay, which is not a local government unit? 20
We rule in the affirmative. In Opinion No. 41, Series of 1995, the Department of Justice ruled that the liga ng mga barangay is a government
organization, being an association, federation, league or union created by law or by authority of law, whose members are either appointed or elected
government officials. The Local Government Code 21 defines the liga ng mga barangay as an organization of all barangays for the primary purpose of
determining the representation of the liga in the sanggunians, and for ventilating, articulating and crystallizing issues affecting barangay government
administration and securing, through proper and legal means, solutions thereto. 22 The liga shall have chapters at the municipal, city, provincial and
metropolitan political subdivision levels. The municipal and city chapters of the liga shall be composed of the barangay representatives of the
municipal and city barangays respectively. The duly elected presidents of the component municipal and city chapters shall constitute the provincial

Page 35 of 134
chapter or the metropolitan political subdivision chapter. The duly elected presidents of highly urbanized cities, provincial chapters, the Metropolitan
Manila chapter and metropolitan political subdivision chapters shall constitute the National Liga ng mga Barangay. 23
The liga at the municipal, city, provincial, metropolitan political subdivision, and national levels directly elect a president, a vice-president and five (5)
members of the board of directors. The board shall appoint its secretary and treasurer and create such other positions as it may deem necessary for
the management of the chapter.24
The ligas are primarily governed by the provisions of the Local Government Code. 25 However, their respective constitution and by-laws shall govern
all other matters affecting the internal organization of the liga not otherwise provided for in the Local Government Code provided that the constitution
and by-laws shall be suppletory to the provisions of Book III, Title VI of the Local Government Code and shall always conform to the provisions of the
Constitution and existing laws.26
Having in mind the foregoing principles, we rule that Memorandum Circular No. 97-193 of the DILG insofar as it authorizes the filing a Petition for
Review of the decision of the BES with the regular courts in a post proclamation electoral protest is of doubtful constitutionality. We agree with both
the petitioner and the Solicitor General that in authorizing the filing of the petition for review of the decision of the BES with the regular courts, the
DILG Secretary in effect amended and modified the GUIDELINES promulgated by the National Liga Board and adopted by the LIGA which provides
that the decision of the BES shall be subject to review by the National Liga Board. The amendment of the GUIDELINES is more than an exercise of
the power of supervision but is an exercise of the power of control, which the President does not have over the LIGA. Although the DILG is given the
power to prescribe rules, regulations and other issuances, the Administrative Code limits its authority to merely "monitoring compliance" by local
government units of such issuances. 27 To monitor means "to watch, observe or check" and is compatible with the power of supervision of the DILG
Secretary over local governments, which is limited to checking whether the local government unit concerned or the officers thereof perform their
duties as per statutory enactments.28 Besides, any doubt as to the power of the DILG Secretary to interfere with local affairs should be resolved in
favor of the greater autonomy of the local government. 29
The public respondent judge therefore committed grave abuse of discretion amounting to lack or excess of jurisdiction in not dismissing the
respondent's Petition for Review for failure to exhaust all administrative remedies and for lack of jurisdiction.
WHEREFORE, the instant petition is hereby GRANTED. The Order of the Regional Trial Court dated June 22, 1999 is REVERSED and SET ASIDE.
The Petition for Review filed by the private respondent docketed as SPL. PROC. NO. 1056 is DISMISSED.
SO ORDERED.

[G.R. No. 131787. May 19, 1999]

CHINA BANKING CORPORATION AND CBC PROPERTIES AND COMPUTER CENTER, INC., Petitioners, v. THE MEMBERS OF THE BOARD
OF TRUSTEES, HOME DEVELOPMENT MUTUAL FUND (HDMF); HDMF PRESIDENT; AND THE HOME MUTUAL DEVELOPMENT
FUND, Respondents.
DECISION
GONZAGA-REYES, J.:
This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure on pure questions of law from the Order of the Regional Trial Court
of Makati, Branch 59 dated October 10, 1997 and from the Order of the same court dated December 19, 1997 denying petitioners motion for
reconsideration.
Briefly, petitioners China Banking Corporation (CBC) and CBC Properties and Computer Center Inc. (CBC-PCCI) are both employers who were
granted by the Home Development Mutual Fund (HDMF) certificates of waiver dated July 7, 1995 and January 19, 1996 (covering respectively the
periods of July 1, 1995 to June 30, 1996 for CBC and January 1 to December 31, 1995 for CBC-PCCI) for the identical reason of Superior
Retirement Plan pursuant to Section 19 of P. D. 1752 otherwise known as the Home Development Mutual Fund Law of 1980 whereunder employers
who have their own existing provident and/or employees-housing plans may register for annual certification for waiver or suspension from coverage
or participation in the Home Development Mutual Fund created under said law.
It appears that in June 1994, Republic Act No. 7742, amending P. D. 1752 was approved. 1 On September 1, 1995, respondent HDMF Board issued
an Amendment to the Rules and Regulations Implementing R.A. 7742 (The Amendment) and pursuant to said Amendment, the said Board issued on
October 23, 1995 HDMF Circular No. 124-B or the Revised Guidelines and Procedure for filing Application for Waiver or Suspension of Fund
Coverage under P.D. 1752 (Guidelines). Under the Amendment and the Guidelines, a company must have a provident/retirement and housing plan
superior to that provided under the Pag-IBIG Fund to be entitled to exemption/waiver from fund coverage.
CBC and CBC-PCCI applied for renewal of waiver of coverage from the fund for the year 1996, but the applications were disapproved for the
identical reason that:
Our evaluation of your companys application indicates that your retirement plan is not superior to Pag-IBIG Fund. Further, the amended
Implementing Rules and & Regulations of R. A. 7742 provides that to qualify for waiver, a company must have retirement/provident and housing
plans which are both superior to Pag-IBIG Funds.
Petitioners thus filed a petition for certiorari and prohibition before the Regional Trial Court of Makati seeking to annul and declare void the
Amendment and the Guidelines for having been issued in excess of jurisdiction and with grave abuse of discretion amounting to lack of jurisdiction

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alleging that in requiring the employer to have both a retirement/provident plan and an employee housing plan in order to be entitled to a certificate of
waiver or suspension of coverage from the HDMF, the HDMF Board exceeded its rule-making power.
Respondent Board filed a Motion to Dismiss and the court a quo, in its first challenged order dated October 10, 1997 granted the same. The Court
dismissed the petition for certiorari on the grounds (1) that the denial or grant of an application for waiver/coverage is within the power and authority
of the HDMF Board, and the said Board did not exceed its jurisdiction or act with grave abuse of discretion in denying the applications; and (2) the
petitioners have lost their right to appeal by failure to appeal within the periods provided in the Rules for appealing from the order of denial to the
HDMF Board of Trustees, and thereafter, to the Court of Appeals. The Court stated that certiorari will not lie as a substitute for a lost remedy of
appeal.
Motion for reconsideration of the above-Order having been denied in the Order of December 19, 1997, this petition for review was filed under Rule
45 alleging that:
1. The court a quo erred in the appreciation of the issue, as it mistakenly noted that petitioner is contesting the authority of respondent to issue rules
pursuant to its rule-making power;
2. The court a quo erred in observing that the matter being assailed by the petitioners were the denial of their application for waiver (Annexes H and
I), and therefore, appeal is the proper remedy.
Essentially, petitioners contend that it does not question the power of respondent HDMF, as an administrative agency, to issue rules and regulations
to implement P.D. 1752 and Section 5 of R.A. 7742; however, the subject Amendment and Guidelines issued by it should be set aside and declared
null and void for being irrevocably inconsistent with the enabling law, P.D. 1752, as amended by R.A. 7742, which merely requires as a pre-condition
for exemption for coverage, the existence of either a superior provident (retirement) plan or a superior housing plan, and not the concurrence of both
plans.
Petitioners claim that certiorari is the proper remedy as what are being questioned are not the orders denying petitioners application for renewal of
waiver for coverage which were admittedly issued in the exercise of a quasi-judicial function, but rather the validity of the subject Amendment and
Guidelines, which are a patent nullity; hence the doctrine of exhaustion of administrative remedies does not apply.
In their comment, respondents contend that there is no question of law involved. The interpretation of the phrase and/or is not purely a legal question
and it is susceptible of administrative determination. In denying petitioners application for waiver of coverage under Republic Act No. 7742 the
respondent Board was exercising its quasi-judicial function and its findings are generally accorded not only respect but even finality. Moreover, the
Amendment and the Guidelines are consistent with the enabling law, which is a piece of social legislation intended to provide both a savings
generation and a house building program.
We find merit in the petition.
The core issue posed in the court below and in this Court is whether the respondents acted in excess of jurisdiction or with grave abuse of discretion
amounting to lack of jurisdiction in issuing the Amendment to the Rules and Regulations Implementing R.A. 7742 and HDMF Circular No. 124-B on
the Revised Guidelines and Procedure for Filing Application for Waiver or Suspension of Fund Coverage under P.D. 1752, as amended by R.A.
7742, insofar as said Amendment and Guidelines impose as a requirement for exemption from coverage or participation in the Home Development
Mutual Fund the existence of both a superior housing plan and a provident plan.
The procedural issue raised in the petition as to the propriety of certiorari in lieu of appeal has not been traversed by the respondents. Suffice it to
note that the petitioners sought to annul or declare null and void the questioned Amendment and Guidelines and not merely the denial by the
respondent Board of petitioners application for waiver or exemption from coverage of the fund. As noted by the court  a quo, the petition below
squarely raised in issue the validity of the Amendment to the Rules and Regulations and of HDMF Circular No. 124-B insofar as these require the
existence of both provident/retirement and housing plans for the grant of waiver/suspension by the Board and prayed that the same be declared void
for want of jurisdiction.
We hold that it was an error for the court a quo to rule that the petitioners should have exhausted its remedy of appeal from the orders denying their
application for waiver/suspension to the Board of Trustees and thereafter to the Court of Appeals pursuant to the Rules.  Certiorari is an appropriate
remedy to question the validity of the challenged issuances of the HDMF which are alleged to have been issued with grave abuse of discretion
amounting to lack of jurisdiction.2cräläwvirtualibräry
Moreover, among the accepted exceptions to the rule on exhaustion of administrative remedies are: (1) where the question in dispute is purely a
legal one; and (2) where the controverted act is patently illegal or was performed without jurisdiction or in excess of jurisdiction. 3 Moreover,
while certiorari as a remedy may not be used as a substitute for an appeal, especially for a lost appeal, this rule should not be strictly enforced if the
petition is genuinely meritorious. 4 It has been said that where the rigid application of the rules would frustrate substantial justice, or bar the
vindication of a legitimate grievance, the courts are justified in exempting a particular case from the operation of the rules. 5cräläwvirtualibräry
We vote to give the petition due course. The assailed Amendment to the Rules and Regulations and the Revised Guidelines suffer from a legal
infirmity and should be set aside.
The law pertinent to the Home Development Mutual Fund, otherwise known as the Pag-IBIG Fund, should be revisited.
The Human Development Mutual Funds were created by Presidential Decree No. 1530, promulgated on June 11, 1978. The said funds, one for
government employees and another for private employees, were to be established and maintained from contributions by the employees and
counterpart contributions by their employers. P.D. No. 1752, enacted on December 13, 1980, amended P. D. 1530 to make the Home Development
Mutual Fund a body corporate and to make its coverage mandatory upon all employers covered by the Social Security System and the Government
Service Insurance System. Section 19 of P.D. No. 1752 provides for waiver or suspension from coverage or participation in the fund, thus:
Section 19. Existing Provident/Housing Plans. - An employer and/or employee-group who, at the time this Decree becomes effective have their
own provident and/or employee-housing plans, may register with the Fund, for any of the following purposes:

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(a) For annual certification of waiver or suspension from coverage or participation in the Fund, which shall be granted on the basis of verification that
the waiver or suspension does not contravene any effective collective bargaining agreement and that the features of the plan or plans are superior to
the Fund or continue to be so; or
(b) For integration with the Fund, either fully or partially.
The establishment of a separate provident and/or housing plan after the effectivity of this Decree shall not be a ground for waiver of coverage in the
Fund; nor shall such coverage bar any employer and/or employee-group from establishing separate provident and/or housing plans. (underscoring
ours)
On June 17, 1994, Republic Act No. 7742, amending certain sections of P.D. 1752 was approved. Section 5 of the said statute provides that within
sixty (60) days from the approval of the Act, the Board of Trustees of the Home Development Mutual Fund shall promulgate the rules and regulations
necessary for the effective implementation of (this) Act.
Pursuant to the above authority the Home Development Mutual Fund Board of Trustees promulgated The Implementing Rules and Regulations of
Republic Act 7742 amending Presidential Decree No. 1752, Executive Order Nos. 35 and 90, which was published on August 1, 1994. Rule VII
thereof reads:
RULE VII
WAIVER OR SUSPENSION
SECTION 1. Waiver or Suspension-Existing Provident or Retirement Plan.
An employer and/or employee group who has an existing provident or retirement plan as of the effectivity of Republic Act No. 7742, qualified under
Republic Act No. 4917 and actuarially determined to be sound and reasonable by an independent actuary duly accredited by the Insurance
Commission, may apply with the Fund for waiver or suspension of coverage. Such waiver or suspension may be granted by the President of the
Fund on the basis of verification that the waiver or suspension does not contravene any effective collective bargaining or other existing agreement
and that the features of the plan or plans are superior to the Fund and continue to be so. The certificate of waiver or suspension of coverage issued
herein shall only be for a period of one (1) year but the same may be renewed for another year upon the filing of a proper application within a period
of sixty (60) days prior to the expiration of the existing waiver or suspension.
SECTION 2. Waiver or Suspension-Existing Housing Plan.
An employer and/or employee group who has an existing housing plan as of the effectivity of Republic Act No. 7742 may apply with the fund for
waiver or suspension of coverage. Such waiver or suspension of coverage may be granted by the President of the Fund on the basis of verification
that the waiver or suspension of coverage does not contravene any effective collective bargaining or other existing agreement and that the features
of the plan or plans are superior to the Fund and continue to be so. The certificate of waiver or suspension of coverage issued herein shall only be
for a period of one (1) year but the same may be renewed for another year upon the filing of a proper application within a period of sixty (60) days
prior to the expiration of the existing waiver or suspension.
Subsequently, the HDMF Board adopted in its Special Board Meeting held on September 1, 1995, Amendments to the Rules and Regulations
Implementing Republic Act 7742. As amended, Rule VII on Waiver or Suspension now reads:
RULE VII
WAIVER OF SUSPENSION
SECTION 1. Waiver or Suspension Because of Existing Provident/Retirement and Housing Plan.
Any employer with a plan providing both for a provident/retirement and housing benefits for all his employees and existing as of December 14, 1980,
the effectivity date of Presidential Decree No. 1752, may apply with the Fund for waiver or suspension of coverage . The provident/retirement aspect
of the plan must be qualified under R.A. 4917 and actuarially determined to be sound and reasonable by an independent, actuary duly accredited by
the Insurance Commission. The provident/retirement and housing benefits as provided for under the plan must be superior to the
provident/retirement and housing benefits offered by the Fund.
Such waiver or suspension may be granted by the Fund on the basis of actual verification that the waiver or suspension does not contravene any
collective bargaining agreement, any other existing agreement or clearly spelled out management policy and that the features of the plan or plans
are superior to the Fund and continue to be so.
Provided further that the application must be endorsed by the labor union representing a majority of the employees or in the absence thereof by at
least a majority vote of all the employees in the said establishment in a meeting specifically called for the purpose. Provided, furthermore that such a
meeting be held or be conducted under the supervision of an authorized representative from the Fund.
The certificate of waiver or suspension of coverage issued herein shall only be for a period of one (1) year effective upon issuance thereof. No
certificate of waiver issued by the President of the Fund shall have retroactive effect. Application for renewal must be filled within-sixty (60) days prior
to the expiration of the existing waiver or suspension and such application for renewal shall only be granted based on the same conditions and
requirements under which the original application was approved. Pending the approval of the application for waiver or suspension of coverage or the
application for renewal, the employer and his covered employees shall continue to be mandatorily covered by the Fund as provided for under R.A.
7742. (underscoring ours)
On October 23, 1995, HDMF Circular No. 124-B entitled Revised Guidelines and Procedure for Filing Applications for Waiver or Suspension of Fund
Coverage under P.D. No. 1752, as amended by Republic Act No. 7742, was promulgated. The Circular pertinently provides:
I. GROUNDS FOR WAIVER OR SUSPENSION OF FUND COVERAGE
A. SUPERIOR PROVIDENT/RETIREMENT PLAN AND HOUSING PLAN
ANY EMPLOYER WHO HAS A PROVIDENT, RETIREMENT, GRATUITY OR PENSION PLAN AND A HOUSING PLAN, EXISTING AS OF
DECEMBER 14, 1980, THE EFFECTIVITY OF P.D. NO. 1752, may file an application for waiver or suspension from Fund coverage, provided, that -
-

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1. The retirement/provident plan is qualified as such under Republic Act No. 4917 (An Act Providing That Retirement Benefits of Employees of
Private Firms Shall Not Be Subject to Attachment, Levy, or Execution or Any Tax Whatsoever), as certified by the Bureau of Internal Revenue;
2. The retirement/provident plan is actuarially determined to be financially sound and reasonable by an independent actuary duly accredited by the
Insurance Commission;
3. The retirement/provident plan is superior to the retirement /provident benefits offered by the Fund in terms of:
- vesting features

-full and immediate crediting of employers contribution to the employees account, the TAV of which the employee carries with him in the
event he transfers to another employer; or he becomes self-employed or unemployed;

-employers contribution (* For provident plans)

-must be equal to or higher than two percent (2%) of employees monthly compensation, defined in the HDMF Implementing Rules and
Regulations as the employees basic monthly salary plus Cost of Living Allowance;

-retirement age and years of service required to avail of plan benefits

-85 or lower
-10 years of service or less

-amount of benefits extended to EEs (* For retirement plans)

-at least fifty (50%) of monthly compensation, as defined in the HDMF IRR, for every year of service.
4. The housing plan must be superior to the PAG-IBIG Housing Loan Program in terms of:
-residency requirement as employee of the company or member of the plan to avail of housing loan under the plan

-six (6) months or less;

-interest rates

-equal to or lower than the prescribed rates under the PAG-IBIG Expanded Housing Loan Program (EHLP);

- repayment period

-25 years or more;

-loanable amount

-equal to or greater than the maximum loan amount under the PAG-IBIG Expanded Housing Loan Program; and

-percentage of covered EEs benefitted by the Housing Plan

-EEs who have availed of the Housing Plan benefits as of date of waiver application must be no less than five (5%) of the total.

5. The application for waiver or suspension, based on actual verification of the Fund, does not contravene any effective collective bargaining or any
other agreement existing between the employer and his employees.
6. The application must be endorsed by the labor union representing a majority of the employees, or, in the absence thereof, at least a majority vote
of all company employees in a meeting specifically called for the purpose and conducted under the supervision of an authorized representative of the
Fund.
As above stated, when petitioners CBC and CBC-PCCI applied for the renewal of waiver of Fund coverage for the year 1996, the applications were
disapproved on identical grounds namely, that the retirement plan is not superior to Pag-IBIG Fund and that the amended Implementing Rules and
Regulations of R.A. 7742 provides that to qualify for waiver, a company must have retirement/provident and housing plan which are both superior to
Pag-IBIG Funds.
Petitioner contends that respondent, in the exercise of its rule making power has overstepped the bounds and exceeded its limit,. The law provides
as a condition for exemption from coverage, the existence of either a superior provident (retirement) plan, and/or a superior housing plan, and not
the existence of both plans.

Page 39 of 134
On the other hand, respondents claim that the use of the words and/or in Section 19 of P.D. No. 1752, which words are diametrically opposed in
meaning, can only be used interchangeably and not together, and the option of making it either both or any one belongs to the Board of Trustees of
HDMF, which has the power and authority to issue rules and regulations for the effective implementation of the Pag-IBIG Fund Law, and the
guidelines for the grant of waiver or suspension of coverage.
There is no question that the HDMF Board has rule-making powers. Section 5 of R.A. No. 7742 states that the said Board shall promulgate the rules
and regulations necessary for the effective implementation of said Act. Its rule- making power is also provided in Section 13 of P.D. No. 1752 which
states insofar as pertinent that the Board is authorized to make and change needful rules and regulations to provide for, among others,
a. the effective administration, custody, development, utilization and disposition of the Fund or parts thereof including payment of amounts credited
to members or to their beneficiaries or estates;
b. Extension of Fund coverage to other working groups and waiver or suspension of coverage or its enforcement for reasons therein stated.

xxx xxx xxx

i. Other matters that, by express or implied provisions of this Act, shall require implementation by appropriate policies, rules and regulations.
The controversy lies in the legal signification of the words and/or.
In the instant case, the legal meaning of the words and/or should be taken in its ordinary signification, i.e., either and or; e.g. butter and/or eggs
means butter and eggs or butter or eggs.6cräläwvirtualibräry
The term and/or means that effect shall be given to both the conjunctive and and the disjunctive or; or that one word or the other may be taken
accordingly as one or the other will best effectuate the purpose intended by the legislature as gathered from the whole statute. The term is used to
avoid a construction which by the use of the disjunctive or alone will exclude the combination of several of the alternatives or by the use of the
conjunctive and will exclude the efficacy of any one of the alternatives standing alone. 7
It is accordingly ordinarily held that the intention of the legislature in using the term and/or is that the word and and the word or are to be used
interchangeably.8cräläwvirtualibräry
It is seems to us clear from the language of the enabling law that Section 19 of P.D. No. 1752, intended that an employer with a provident plan  or an
employee housing plan superior to that of the fund may obtain exemption from coverage. If the law had intended that the employee should have both
a superior provident plan and a housing plan in order to qualify for exemption, it would have used the words and instead of and/or. Notably,
paragraph (a) of Section 19 requires for annual certification of waiver or suspension, that the features of the  plan or plans are superior to the fund or
continue to be so. The law obviously contemplates that the existence of either plan is considered as sufficient basis for the grant of an exemption;
needless to state, the concurrence of both plans is more than sufficient. To require the existence of both plans would radically impose a more
stringent condition for waiver which was not clearly envisioned by the basic law. By removing the disjunctive word or in the implementing rules the
respondent Board has exceeded its authority.
It is well settled that the rules and regulations which are the product of a deligated power to create new or additional legal provisions that have the
effect of law, should be within the scope of the statutory authority granted by the legislature to the Administrative agency. 9 Department zeal may not
be permitted to outrun the authority conferred by statute. 10 As aptly observed in People vs. Maceren11:
Administrative regulations adopted under legislative authority by a particular department must be in harmony with the provisions of the law, and
should be for the sole purpose of carrying into effect its general provisions. By such regulations, of course, the law itself cannot be extended. U.S. vs.
Tupasi Molina, supra). An administrative agency cannot amend an act of Congress (Santos vs. Estenzo, 109 Phil. 419 422; Teoxon vs. Members of
the Board of Administrators, L-25619, June 30, 1970, 33 SCRA 585; Manuel vs. General Auditing Office, L-28952, December 29, 1971, 42 SCRA
660; Deluao vs. Casteel, L-21906, August 29, 1969 SCRA 350).
The rule making power must be confined to details for regulating the mode or proceeding to carry into effect the law as it has been enacted. The
power cannot be extended to amending or expanding the statutory requirements or to embrace matters not covered by the statute. Rules that
subvert the statute cannot be sanctioned. (University of Santo Tomas vs. Board of Tax Appeals, 93 Phil. 376, 382, citing 12 C. J. 845-46. As to
invalid regulations, see Collector of Internal Revenue vs. Villaflor, 69 Phil. 319; Wise & Co. vs. Meer, 78 Phil. 655, 676; Del Mar vs. Phil. Veterans
Administration, L-27299, June 27, 1973, 51 SCRA 340, 349).
While it may be conceded that the requirement of the concurrence of both plans to qualify for exemption would strengthen the Home Development
Mutual Fund and make it more effective both as a savings generation and a house building program, the basic law should prevail as the embodiment
of the legislative purpose, and the rules and regulations issued to implement said law cannot go beyond its terms and provisions.
We accordingly find merit in petitioners contention that Section 1, Rule VII of the Rules and Regulations Implementing R.A. 7742, and HDMF Circular
No. 124-B and the Revised Guidelines and Procedure for Filing Application for Waiver or Suspension of Fund Coverage under P.D. 1752, as
amended by R.A. 7742, should be declared invalid insofar as they require that an employer must have both a superior retirement/provident plan and
a superior employee housing plan in order to be entitled to a certificate of waiver and suspension of coverage from the HDMF.
WHEREFORE, the petition is given due course and the assailed Orders of the court a quo  dated October 10, 1997 and December 19, 1997 are
hereby set aside. Section 1 of Rule VII of the Amendments to the Rules and Regulations Implementing R.A. 7742, and HDMF Circular No. 124-B
prescribing the Revised Guidelines and Procedure for Filing Applications for Waiver or Suspension of Fund Coverage under P.D. 1752, as amended
by R.A. No. 7742, insofar as they require that an employer should have both a provident/retirement plan superior to the retirement/provident benefits
offered by the Fund and a housing plan superior to the Pag-IBIG housing loan program in order to qualify for waiver or suspension of fund coverage,
are hereby declared null and void.
SO ORDERED.

Page 40 of 134
G.R. No. 131082               June 19, 2000
ROMULO, MABANTA, BUENAVENTURA, SAYOC & DE LOS ANGELES, petitioner,
vs.
HOME DEVELOPMENT MUTUAL FUND, respondent.
DAVIDE, JR., C.J.:
Once again, this Court is confronted with the issue of the validity of the Amendments to the Rules and Regulations Implementing Republic Act No.
7742, which require the existence of a plan providing for both provident/retirement and housing benefits for exemption from the Pag-IBIG Fund
coverage under Presidential Decree No. 1752, as amended.
Pursuant to Section 19 1 of P.D. No. 1752, as amended by R.A. No. 7742, petitioner Romulo, Mabanta, Buenaventura, Sayoc and De Los Angeles
(hereafter PETITIONER), a law firm, was exempted for the period 1 January to 31 December 1995 from the Pag-IBIG Fund coverage by respondent
Home Development Mutual Fund (hereafter HDMF) because of a superior retirement plan. 2
On 1 September 1995, the HDMF Board of Trustees, pursuant to Section 5 of Republic Act No. 7742, issued Board Resolution No. 1011, Series of
1995, amending and modifying the Rules and Regulations Implementing R.A. No. 7742. As amended, Section 1 of Rule VII provides that for a
company to be entitled to a waiver or suspension of Fund coverage, 3 it must have a plan providing for both provident/retirement and housing
benefits superior to those provided under the Pag-IBIG Fund.
On 16 November 1995, PETITIONER filed with the respondent an application for Waiver or Suspension of Fund Coverage because of its superior
retirement plan. 4 In support of said application, PETITIONER submitted to the HDMF a letter explaining that the 1995 Amendments to the Rules are
invalid. 5
In a letter dated 18 March 1996, the President and Chief Executive Officer of HDMF disapproved PETITIONER's application on the ground that the
requirement that there should be both a provident retirement fund and a housing plan is clear in the use of the phrase "and/or," and that the Rules
Implementing R.A. No. 7742 did not amend nor repeal Section 19 of P.D. No. 1752 but merely implement the law. 6
PETITIONER's appeal 7 with the HDMF Board of Trustees was denied for having been rendered moot and academic by Board Resolution No. 1208,
Series of 1996, removing the availment of waiver of the mandatory coverage of the Pag-IBIG Fund, except for distressed employers. 8
On 31 March 1997, PETITIONER filed a petition for review 9 before the Court of Appeals. On motion by HDMF, the Court of Appeals dismissed  10 the
petition on the ground that the coverage of employers and employees under the Home Development Mutual Fund is mandatory in character as
clearly worded in Section 4 of P.D. No. 1752, as amended by R.A. No. 7742. There is no allegation that petitioner is a distressed employer to warrant
its exemption from the Fund coverage. As to the amendments to the Rules and Regulations Implementing R.A. No. 7742, the same are valid. Under
P.D. No. 1752 and R.A. No. 7742 the Board of Trustees of the HDMF is authorized to promulgate rules and regulations, as well as amendments
thereto, concerning the extension, waiver or suspension of coverage under the Pag-IBIG Fund. And the publication requirement was amply met,
since the questioned amendments were published in the 21 October 1995 issue of the Philippine Star, which is a newspaper of general circulation.
PETITIONER's motion for reconsideration 11 was denied. 12 Hence, on 6 November 1997, PETITIONER filed a petition before this Court assailing the
1995 and the 1996 Amendments to the Rules and Regulations Implementing Republic Act No. 7742 for being contrary to law. In support thereof,
PETITIONER contends that the subject 1995 Amendments issued by HDMF are inconsistent with the enabling law, P.D. No. 1752, as amended by
R.A. No. 7742, which merely requires as a pre-condition for exemption from coverage the existence of either a superior provident/retirement plan or
a superior housing plan, and not the concurrence of both plans. Hence, considering that PETITIONER has a provident plan superior to that offered
by the HDMF, it is entitled to exemption from the coverage in accordance with Section 19 of P.D. No. 1752. The 1996 Amendment are also void
insofar as they abolished the exemption granted by Section 19 of P.D. 1752, as amended. The repeal of such exemption involves the exercise of
legislative power, which cannot be delegated to HMDF.
PETITIONER also cites Section 9 (1), Chapter 2, Book VII of the Administrative Code of 1987, which provides:
Sec. 9. Public Participation — (1) If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of
proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.
Since the Amendments to the Rules and Regulations Implementing Republic Act No. 7742 involve an imposition of an additional burden, a public
hearing should have first been conducted to give chance to the employers, like PETITIONER, to be heard before the HDMF adopted the said
Amendments. Absent such public hearing, the amendments should be voided.
Finally, PETITIONER contends that HDMF did not comply with Section 3, Chapter 2, Book VII of the Administrative Code of 1987, which provides
that "[e]very agency shall file with the University of the Philippines Law Center three (3) certified copies of every rule adopted by it."
On the other hand, the HDMF contends that in promulgating the amendments to the rules and regulations which require the existence of a plan
providing for both provident and housing benefits for exemption from the Fund Coverage, the respondent Board was merely exercising its rule-
making power under Section 13 of P.D. No. 1752. It had the option to use "and" only instead of "or" in the rules on waiver in order to effectively
implement the Pag-IBIG Fund Law. By choosing "and," the Board has clarified the confusion brought about by the use of "and/or" in Section 19 of
P.D. No. 1752, as amended.
As to the public hearing, HDMF maintains that as can be clearly deduced from Section 9(1), Chapter 2, Book VII of the Revised Administrative Code
of 1987, public hearing is required only when the law so provides, and if not, only if the same is practicable. It follows that public hearing is only
optional or discretionary on the part of the agency concerned, except when the same is required by law. P.D. No. 1752 does not require that pubic
hearing be first conducted before the rules and regulations implementing it would become valid and effective. What it requires is the publication of
said rules and regulations at least once in a newspaper of general circulation. Having published said 1995 and 1996 Amendments through the
Philippine Star on 21 October 1995 1 and 15 November 1996, 14 respectively, HDMF has complied with the publication requirement.
Finally, HDMF claims that as early as 18 October 1996, it had already filed certified true copies of the Amendments to the Rules and Regulations
with the University of the Philippines Law Center. This fact is evidenced by certified true copies of the Certification from the Office of the National
Administrative Register of the U.P. Law Center. 15
Page 41 of 134
We find for the PETITIONER.
The issue of the validity of the 1995 Amendments to the Rules and Regulations Implementing R.A. No. 7742, specifically Section I, Rule VII on
Waiver and Suspension, has been squarely resolved in the relatively recent case of China Banking Corp. v. The Members of the Board of Trustees
of the HDMF. 16 We held in that case that Section 1 of Rule VII of the Amendments to the Rules and Regulations Implementing R.A. No. 7742, and
HDMF Circular No. 124-B prescribing the Revised Guidelines and Procedure for Filing Application for Waiver or Suspension of Fund Coverage
under P.D. No. 1752, as amended by R.A. No. 7742, are null and void insofar as they require that an employer should have both a
provident/retirement plan and a housing plan superior to the benefits offered by the Fund in order to qualify for waiver or suspension of the Fund
coverage. In arriving at said conclusion, we ruled:
The controversy lies in the legal signification of the words "and/or."
In the instant case, the legal meaning of the words "and/or" should be taken in its ordinary signification,  i.e., "either and or; e.g. butter
and/or eggs means butter and eggs or butter or eggs.
The term "and/or" means that the effect shall be given to both the conjunctive "and" and the disjunctive "or"; or that one word or
the other may be taken accordingly as one or the other will best effectuate the purpose intended by the legislature as gathered
from the whole statute. The term is used to avoid a construction which by the use of the disjunctive "or" alone will exclude the
combination of several of the alternatives or by the use of the conjunctive "and" will exclude the efficacy of any one of the
alternatives standing alone.1avvphi1
It is accordingly ordinarily held that the intention of the legislature in using the term "and/or" is that the word "and" and the word "or" are to
be used interchangeably.
It . . . seems to us clear from the language of the enabling law that Section 19 of P.D. No. 1752 intended that an employer with a provident
plan or  an employee housing plan superior to that of the fund may obtain exemption from coverage. If the law had intended that the
employee [sic] should have both a superior provident plan and a housing plan in order to qualify for exemption, it would have used the
words "and" instead of "and/or." Notably, paragraph (a) of Section 19 requires for annual certification of waiver or suspension, that the
features of the plan or plans  are superior to the fund or continue to be so. The law obviously contemplates that the existence of either plan
is considered as sufficient basis for the grant of an exemption; needless to state, the concurrence of both plans is more than sufficient. To
require the existence of both plans would radically impose a more stringent condition for waiver which was not clearly envisioned by the
basic law. By removing the disjunctive word "or" in the implementing rules the respondent Board has exceeded its authority.
It is without doubt that the HDMF Board has rule-making power as provided in Section 51 17 of R.A. No. 7742 and Section 13 18 of P.D. No. 1752.
However, it is well-settled that rules and regulations, which are the product of a delegated power to create new and additional legal provisions that
have the effect of law, should be within the scope of the statutory authority granted by the legislature to the administrative agency.  19 It is required
that the regulation be germane to the objects and purposes of the law, and be not in contradiction to, but in conformity with, the standards prescribed
by law. 20
In the present case, when the Board of Trustees of the HDMF required in Section 1, Rule VII of the 1995 Amendments to the Rules and Regulations
Implementing R.A. No. 7742 that employers should have both provident/retirement and housing benefits  for all its employees in order to qualify for
exemption from the Fund, it effectively amended Section 19 of P.D. No. 1752. And when the Board subsequently abolished that exemption through
the 1996 Amendments, it repealed Section 19 of P.D. No. 1752. Such amendment and subsequent repeal of Section 19 are both invalid, as they are
not within the delegated power of the Board. The HDMF cannot, in the exercise of its rule-making power, issue a regulation not consistent with the
law it seeks to apply. Indeed, administrative issuances must not override, supplant or modify the law, but must remain consistent with the law they
intend to carry out. 21 Only Congress can repeal or amend the law.
While it may be conceded that the requirement of having both plans to qualify for an exemption, as well as the abolition of the exemption, would
enhance the interest of the working group and further strengthen the Home Development Mutual Fund in its pursuit of promoting public welfare
through ample social services as mandated by the Constitution, we are of the opinion that the basic law should prevail. A department zeal may not
be permitted to outrun the authority conferred by the statute. 22
Considering the foregoing conclusions, it is unnecessary to dwell on the other issues raised.
WHEREFORE, the petition is GRANTED. The assailed decision of 31 July 1997 of the Court of Appeals in CA-G.R. No. SP-43668 and its Resolution
of 15 October 1997 are hereby REVERSED and SET ASIDE. The disapproval by the Home Development Mutual Fund of the application of the
petitioner for waiver or suspension of Fund coverage is SET ASIDE, and the Home Development Mutual Fund is hereby directed to refund to
petitioner all sums of money it collected from the latter.
SO ORDERED.

[G.R. No. 112024. January 28, 1999.]

PHILIPPINE BANK OF COMMUNICATIONS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT
OF APPEALS, Respondents.

DECISION

QUISUMBING, J.:

Page 42 of 134
This petition for review assails the Resolution 1 of the Court of Appeals dated September 22, 1993, affirming the Decision 2 and Resolution 3 of the
Court of Tax Appeals which denied the claims of the petitioner for tax refund and tax credits, and disposing as follows:chanroblesvirtual|awlibrary

"IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED due course. The Decision of the Court of Tax Appeals dated May 20,
1993 and its resolution dated July 20, 1993, are hereby AFFIRMED in toto.

SO ORDERED." 4

The Court of Tax Appeals earlier ruled as follows:jgc:chanrobles.com.ph

"WHEREFORE, petitioner’s claim for refund/tax credit of overpaid income tax for 1985 in the amount of P5,299,749.95 is hereby denied for having
been filed beyond the reglementary period. The 1986 claim for refund amounting to P234,077.69 is likewise denied since petitioner has opted and in
all likelihood automatically credited the same to the succeeding year. The petition for review is dismissed for lack of merit.

SO ORDERED." 5

The facts on record show the antecedent circumstances pertinent to this case.

Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly
income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were
settled by applying PBCom’s tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and
0747-85 for P3,401,701.00 and P1,615,253.00, respectively.

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1985, it
declared a net loss of P25,317,228.00, thereby showing no income tax liability. For the succeeding year, ending December 31, 1986, the petitioner
likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year.

But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding
creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.

On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the
overpayment of taxes in the first and second quarters of 1985.

Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for
P282,795.50 and in 1986 for P234,077.69.

Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988
before the Court of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of Communications v.
Commissioner of Internal Revenue."cralaw virtua1aw library

The losses petitioner incurred as per the summary of petitioner’s claims for refund and tax credit for 1985 and 1986, filed before the Court of Tax
Appeals, are as follows:chanrob1es virtual 1aw library

1985 1986

Net Income (Loss) (P25,317,228.00) (P14,129,602.00)

Tax Due NIL NIL

Quarterly tax

Payments Made 5,016,954.00 —

Tax Withheld at Source 282,795.50 234,077.69

—————— ——————

Page 43 of 134
Excess Tax Payments P5,299,749.50* P234,077.69

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

* CTA’s decision reflects PBCom’s 1985 tax claim as P5,299,749.95. A forty-five centavo difference was noted.

On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of petitioner for a tax refund or credit in the sum
amount of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary period provided for by law. The petitioner’s claim for
refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax
payment in the succeeding year.

On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA’s decision but the same was denied due course for lack of merit. 6

Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals. However on September 22, 1993,
the Court of Appeals affirmed in toto the CTA’s resolution dated July 20, 1993. Hence this petition now before us.

The issues raised by the petitioner are:chanrob1es virtual 1aw library

I. Whether taxpayer PBCom — which relied in good faith on the formal assurances of BIR in RMC No. 7-85 and did not immediately file with the CTA
a petition for review asking for the refund/tax credit of its 1985-86 excess quarterly income tax payments — can be prejudiced by the subsequent
BIR rejection, applied retroactively, of its assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess quarterly income
tax payments is not two years but ten (10). 7

II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBCom’s claim for the refund of P234,077.69 income tax
overpaid in 1986 on the mere speculation, without proof, that there were taxes due in 1987 and that PBCom availed of tax-crediting that year. 8

Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of
prescription, despite petitioner’s reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years?

Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum
Circular No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes are not covered by the two-year prescriptive period under
the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR with ten (10) years under Article
1144 of the Civil Code. The pertinent portions of the circular reads:jgc:chanrobles.com.ph

"REVENUE MEMORANDUM CIRCULAR NO. 7-85

SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE
FINAL ADJUSTMENT RETURN

TO: All Internal Revenue Officers and Others Concerned

Sections 85 and 86 of the National Internal Revenue Code provide:chanrob1es virtual 1aw library
x       x       x

The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which provide:chanrob1es virtual 1aw library
x       x       x

It has been observed, however, that because of the excess tax payments, corporations file claims for recovery of overpaid income tax with the Court
of Tax Appeals within the two-year period from the date of payment, in accordance with Sections 292 and 295 of the National Internal Revenue
Code. It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax credit.

It should be noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code.

In the above provision of the Regulations the corporation may request for the refund of the overpaid income tax or claim for automatic tax credit. To
insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes, this Office
has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in processing said returns. Under these
procedures, the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the return. After which, the
refund or tax credit is granted, and, this procedure was adopted to facilitate immediate action on cases like this.
Page 44 of 134
In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax
credit within the two-year period. As already stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax
returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the
Tax Code within 10 years from the date of payment considering that it is an obligation created by law (Article 1144 of the Civil Code). 9 ( Emphasis
supplied.)

Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result to injustice to taxpayers.
Citing ABS-CBN Broadcasting Corporation v. Court of Tax Appeals 10 petitioner claims that rulings or circulars promulgated by the Commissioner of
Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers. In ABS-CBN case, the Court held that the government is precluded
from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been a misrepresentation
to the taxpayer.

Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rule as follows:chanrobles virtual lawlibrary

"SECTION 246. Non-retroactivity of rulings. — Any revocation, modification or reversal of any of the rules and regulations promulgated in
accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if
the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases:chanrob1es virtual 1aw library

a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal
Revenue;

b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based;

c) where the taxpayer acted in bad faith."cralaw virtua1aw library

Respondent Commissioner of Internal Revenue, through the Solicitor General, argues that the two-year prescriptive period for filing tax cases in
court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally
done on April 15 following the close of the calendar year. As precedents, respondent Commissioner cited cases which adhered to this principle, to
wit: ACCRA Investments Corp. v. Court of Appeals, Et Al., 11 and Commissioner of Internal Revenue v. TMX Sales, Inc., Et Al., 12 Respondent
Commissioner also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on
April 15, 1986, the latter had only until April 15, 1988 to seek relief from the court. Further, respondent Commissioner stresses that when the
petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to
petitioner’s cause of action.

After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the petitioner’s contention, the relaxation of
revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.

Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the
citizenry and to advance the common weal. 13 Due process of law under the Constitution does not require judicial proceedings in tax cases. This
must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. 14

From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative
body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a
court proceeding for the recovery of tax erroneously or illegally collected, viz.:jgc:chanrobles.com.ph

"SECTION 230. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment; Provided however, That the Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid."
(Emphasis supplied)

Page 45 of 134
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment
of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment
Return and final payment of the tax for the year.

In Commissioner of Internal Revenue v. Philippine American Life Insurance Co., 15 this Court explained the application of Sec. 230 of 1977 NIRC,
as follows:jgc:chanrobles.com.ph

"Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be
determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be
April 16, 1986. . . . As we have earlier said in the TMX Sales case, Sections 68, 16 69, 17 and 70 18 on Quarterly Corporate Income Tax Payment
and Section 321 should be considered in conjunction with it." 19

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of
excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR
did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.

It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation
placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous. 20 Thus, courts will not countenance administrative issuances
that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement. 21

In the case of People v. Lim, 22 it was held that rules and regulations issued by administrative officials to implement a law cannot go beyond the
terms and provisions of the latter.

"Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is contrary to the provisions and spirit of Act
No. 4003 as amended, because whereas the prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five years
duration, FAO No. 37-1 fixed no period, that is to say, it establishes an absolute ban for all time. This discrepancy between Act No. 4003 and FAO
No. 37-1 was probably due to an oversight on the part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy, the
basic Act prevails, for the reason that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of the latter. . . In
this connection, the attention of the technical men in the offices of Department Heads who draft rules and regulation is called to the importance and
necessity of closely following the terms and provisions of the law which they intended to implement, this to avoid any possible misunderstanding or
confusion as in the present case." 23

Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. 24 As pointed out by the
respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which
is not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his interpretation could not be given
weight for to do so would, in effect, amend the statute.

As aptly stated by respondent Court of Appeals:jgc:chanrobles.com.ph

"It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is estopped by the principle of non-retroactivity
of BIR rulings. Again We do not agree. The Memorandum Circular, stating that a taxpayer may recover the excess income tax paid within 10 years
from date of payment because this is an obligation created by law, was issued by the Acting Commissioner of Internal Revenue. On the other hand,
the decision, stating that the taxpayer should still file a claim for a refund or tax credit and the corresponding petition for review within the two-year
prescription period, and that the lengthening of the period of limitation on refund from two to ten years would be adverse to public policy and run
counter to the positive mandate of Sec. 230, NIRC, — was the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has no
application in the case at bar because it was not the Commissioner of Internal Revenue who denied petitioner’s claim of refund or tax credit. Rather,
it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the Commissioner of
Internal Revenue is an administrative interpretation which is out of harmony with or contrary to the express provision of a statute (specifically Sec.
230, NIRC), hence, cannot be given weight for to do so would in effect amend the statute."25cralaw:red

Article 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But
administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a
shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and
such wrong interpretation could not place the Government in estoppel to correct or overrule the same. 27 Moreover, the non-retroactivity of rulings
by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and
not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a
claim for exemption and should be construed in strictissimi juris against the taxpayer. 28

Page 46 of 134
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTA’s decision denying its claim for refund of
P234,077.69 (tax overpaid in 1986), based on mere speculation, without proof, that PBCom availed of the automatic tax credit in
1987.chanrobles.com : virtual law library

Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax
computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the
estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.

The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to
request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies
are in the alternative, and the choice of one precludes the other.

As stated by respondent Court of Appeals:jgc:chanrobles.com.ph

"Finally, as to the claimed refund of income tax over-paid in 1986 — the Court of Tax Appeals, after examining the adjusted final corporate annual
income tax return for taxable year 1986, found out that petitioner opted to apply for automatic tax credit. This was the basis used (vis-a-vis the fact
that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that petitioner had indeed availed
of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax
credit are alternative." 30

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax
Return, is a finding of fact which we must respect.

Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to controvert said fact. Thus, we are bound by the
findings of fact by respondent courts, there being no showing of gross error or abuse on their part to disturb our reliance thereon. 31

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from is AFFIRMED, with COSTS against the
petitioner.

SO ORDERED.chanrobles virtual lawlibrary

[G.R. No. 129958. November 25, 1999.]

MIGUEL MELENDRES, JR., Petitioner, v. THE COMMISSION ON ELECTIONS and RUPERTO P. CONCEPCION, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Challenged in this petition for certiorari is the Resolution 1 of the respondent Commission on Elections (COMELEC) dated July 17, 1997, in SPR No.
16-97 entitled "Ruperto P. Concepcion, Petitioner v. Hon. Maria Cristina Cornejo, Presiding Judge, Branch 66, MTC, Pasig City and Miguel
Melendres, Jr., Respondents" the dispositive portion of which reads:chanroblesvirtuallawlibrary:red

WHEREFORE, the questioned Orders of public respondent are hereby set aside for being NULL and VOID. The public respondent is hereby ordered
to cease and desist from further acting on Election Case No. 083-97 entitled Miguel Melendres, Jr. v. Ruperto Concepcion.

SO ORDERED.

Petitioner alleges that the COMELEC gravely abused its discretion in issuing and promulgating ex parte the assailed resolution without complying
with the provisions of Sections 5 and 6 of Rule 28, Section 1 of Rule 10, Sections 1 to 6 of Rule 14, Sections 1 to 4 of Rule 17 and Section 9 of Rule

Page 47 of 134
18, all of the COMELEC Rules of Procedure.

The factual antecedents of the controversy which are matters of record have been summed thus by the COMELEC:chanrob1es virtual 1aw library

Petitioner (herein private respondent Ruperto P. Concepcion) and private respondent (herein petitioner Miguel Melendres, Jr.) were candidates for
the position of Barangay Chairman of Barangay Caniogan, Pasig City, in the May 12, 1997 barangay elections. After the counting of the votes,
petitioner (Concepcion) was proclaimed as the duly elected Barangay Chairman. On May 21, 1997, private respondent (Melendres) filed an election
protest against petitioner (Concepcion) with the Metropolitan Trial Court of Pasig City, contesting therein the results of the election in all forty-seven
(47) precincts of said barangay. The case was assigned to Branch 68.

On June 4, 1997, after the preliminary hearing of the election case, it was shown that no filing or docket fee was paid by the protestant therein, which
payment is required in the COMELEC Rules of Procedure, Rule 37, Sec. 6. Petitioner Concepcion moved to dismiss the case on the ground of
failure to comply with this requirement. In the contested Order, public respondent denied the motion to dismiss on the ground that the requirement of
payment of filing or docket fee is merely an administrative procedural matter and [is] not jurisdictional. Petitioner presented an oral motion for
reconsideration of the Order, which oral motion was promptly denied by public Respondent. Consequently, the contested ballots were scheduled for
review.

On June 16, 1997, Concepcion filed this instant case for Certiorari and Prohibition, with a prayer for a Temporary Restraining order and/or
Preliminary Injunction. On June 25, 1997, he filed an Urgent Motion for Immediate Issuance of a Temporary Restraining Order to "temporarily
restrained (sic) public respondent from commencing with the revision [of the ballots], pending the hearing of the petition, in order to maintain the
status quo and in order that the issues raised and the prayer stated in the petition may not become moot and academic; . . ." The move was
prompted by the Order issued by the public respondent on June 6, 1997, which deferred the revision of ballots to give way to the petition
for certiorari brought to this Commission, as it involves a question of the court’s jurisdiction. The order also stated that, as agreed upon by both
parties, if no injunction is issued by the end of June, 1997, the revision of ballots would proceed.

On July 1, 1997, public respondent issued another Order scheduling the revision of ballots on July 9, considering that no injunctive writ was issued
by the Commission. Consequently, on July 7, 1997, the latter filed a Second Urgent Motion for Immediate Issuance of a Temporary Restraining
Order with this Commission.

On the same day, respondent Melendres filed with the Commission a Manifestation wherein he claimed that the contested issue of non-payment of
filing fee was now moot and academic as the same had been paid on June 6, 1997, ten days before this petition was filed.chanroblesvirtualawlibrary

On the basis of the foregoing factual recital, respondent COMELEC rendered the challenged Order nullifying the orders of the public respondent in
SPR No. 16-97.

Asserting that the COMELEC acted with grave abuse of discretion amounting to lack or excess of jurisdiction, petitioner contends that public
respondent erred —

14.1 in disregarding and violating its own rules, specifically Section 5, Rule 28 of the COMELEC RULES OF PROCEDURE, in not issuing and
serving an order requiring the Respondents to answer the petition filed before it;

14.2 in disregarding and violating its own rules, specifically Section 1, Rule 10 of the COMELEC RULES OF PROCEDURE, in not issuing and
serving the Summons and COPY OF THE PETITION to the Respondents, both private and public, in SPR 16-97;

14.3 in disregarding and violating its own rules, specifically the provisions of Sections 2 to 6, Rule 14 of the COMELEC RULES OF PROCEDURE
requiring the issuance, service and proof of service of summons to the respondents in SPR 16-97;

14.4 in disregarding and violating its own rules, specifically Section 6, Rule 28 and Sections 1 to 4, Rule 17, when it did not set or conduct any
hearing in SPR 16-97;

14.5 in disregarding and violating its own rules when it promulgated the questioned Resolution despite the clear provision of Section 6, Rule 28, that
it shall render judgment only "AFTER SUCH HEARING" ;

14.6 in disregarding and violating its own rules, specifically Section 9 (a), Rule 18 of the COMELEC RULES OF PROCEDURE, when it issued the
questioned Resolution even though SPR 16-97 is not yet DEEMED SUBMITTED FOR DECISION;

14.7 in resolving the Petition (SPR 16-97) without a hearing, when Respondent Concepcion himself requests for a decision on his petition AFTER
HEARING;

14.8 in acting on the Petition for Certiorari raised by Respondent Concepcion even though it involves the denial of his Motion to Dismiss by the lower
Page 48 of 134
Court, a PROHIBITED PLEADING under Section 1, Rule 13 of the COMELEC RULES OF PROCEDURE;

14.9 in ruling on the issue of non-payment of filing fee, when said issue was never raised as a Special or Affirmative Defense in the Answer of
Respondent Concepcion;

14.10 in circumventing its own rules when it allowed the issue of non-payment of filing fee to be discussed even if the same was not raised in the
Answer, but only in a Motion to Dismiss, a prohibited pleading under the RULES;

14.11 in applying the case of Gatchalian v. Court of Appeals 2 even if the Gatchalian case involves the NON-PAYMENT of filing fee, whereas SPR
16-97 involves the WILLFUL REFUSAL of the Clerk of Court to accept the payment of filing fee;

14.12 in applying the Gatchalian case notwithstanding FULL PAYMENT made by the Petitioner following a lawful order of the
Court;chanrobles.com.ph : virtual law library

14.13 in ignoring the real issue in SPR 16-97, which is the right and the authority of the lower court to order the Clerk of Court to accept the payment
of the filing fee in protest cases;

14.14 in overturning the doctrine consistently laid down by the Supreme Court in a long line of decisions that "election cases must be construed
liberally to the end that the will of the people in the choice of public officials may not be defeated by mere technical objections" ; and

14.15 in not applying the decision of the Supreme Court in the case of Rodillas v. Commission on Elections 3 consistent with the provisions of
Section 18 of Rule 42 of the COMELEC RULES OF PROCEDURES."cralaw virtua1aw library

The Court issued a Resolution dated September 14, 1999 which, among others, gave due course to the petition and required the parties to submit
their respective memoranda within thirty (30) days from notice. However, in view of petitioner’s "Urgent Motion for Early Resolution" 4 and private
respondent’s Comment 5 thereon, echoing petitioner’s desire that the petition be "immediately resolved in order that the issues raised may be finally
put to rest," the Court deemed it to the best interest of justice to dispense with the filing of the said memoranda and to forthwith decide the questions
raised on the basis of the parties’ pleadings.

The issues raised here boils down to whether or not: 1.] the payment of the filing fee in an election protest is a jurisdictional requirement and non-
compliance can be a valid basis for the dismissal of the protest; 2.] subsequent full payment of the filing fee after the lapse of the reglementary
period will cure the jurisdictional defect; and, 3.] public respondent observed due process prior to the promulgation of the questioned resolution in
SPR No. 16-97.

With regard to the first issue, it appears from the record that private respondent was proclaimed as the duly elected Punong Barangay of Barangay
Caniogan, Pasig City on May 12, 1997. 6 On May 21, 1997, petitioner filed an election protest challenging the results of the barangay elections with
the Metropolitan Trial Court of Pasig City where the same was docketed as Election Protest Case No. 083-97 and raffled to Branch 68 of said
court.chanrobles.com : virtual law library

On June 4, 1997, after the preliminary hearing of the case, it was shown that no filing or docket fee was paid by petitioner/protestant, 7 prompting
private respondent/protestee to move for the dismissal of the election protest on the ground of lack of jurisdiction for failure to comply with the
jurisdictional requirement of payment of filing fee as required under Section 6, Rule 37 of the COMELEC Rules of Procedure which provides that —

SECTION 6. Filing fee. — No protest shall be given due course without the payment of a filling fee of One Hundred Pesos (P100.00) and the legal
research fee as required by law. (Emphasis supplied).

On June 5, 1997, the Presiding Judge of the Metropolitan Trial Court of Pasig City, Branch 68, issued an Order which reads:chanrob1es virtual 1aw
library

Upon verification with the Clerk of Court, Metropolitan Trial Court of Pasig City, it was found out that indeed, no filing fee was paid for this petition, as
none was collected by the Clerk of Court from all those who filed election protests.

Be that as it may, the question raised in this case is whether or not compliance with Sec. 6, Rule 37 of the COMELEC Rules of Procedure is
jurisdictional.

In ordinary civil actions to which the Revised Rules of Court and other related doctrines apply, the court acquires jurisdiction over the case only upon
payment of the filing fee. It should be noted, however, that the instant case is not an ordinary action but an election case. By express provision of
Rule 143, the Revised Rules of Court shall not apply to election cases except by analogy or in a suppletory character whenever practicable and
convenient. Suffice it to say that the suppletory character is applied only when a law or Rule in question is silent on the matter in contention. The
COMELEC Rule in question is, however, explicit. Under the circumstances, the Revised Rules of Court and its related doctrines do not apply to this
Page 49 of 134
case.

As afore-cited, the COMELEC Rule in question (Sec. 6, Rule 37) is explicit. The Rule does not speak of conferment of jurisdiction upon the Court or
the acquisition by the Court of jurisdiction upon payment of the filing fee. Nothing extant in the COMELEC Rules either expressly or by implication
requires the payment of the filing fee for purposes of conferment upon or acquisition by the Court of jurisdiction over the case. The Rule speaks only
of "giving due course" to the protest upon the payment of the filing fee. Undeniably therefore, the payment of the filing fee is an administrative
procedural matter, proceeding as it does from an administrative body.

Due course has been given to this protest when it was accepted for filing by the Clerk of Court without payment of the filing fee. There was an honest
error of omission on the part of the Clerk of Court as evidenced by the fact that all the other election protests were accepted for filing by the Clerk of
Court without the payment of filing fee. This petition was no exception. There simply was an administrative procedural lapse but which does not
detract from the fact that the Court has jurisdiction over this case as conferred upon it by substantive law, the Omnibus Election Code.

The Court had acquired jurisdiction over the case. The jurisdiction of the Court over a contest attaches when motion containing the proper
jurisdictional averments is filed within the time prescribed by law; the jurisdiction of the Court cannot thereafter be determined by law; what the law
itself may do or may not do (Lucero v. De Guzman, 46 Phil. 852). The payment of the filing fee is not one of the jurisdictional facts required to be
alleged in the petition. At any rate, the sufficiency of the allegations in the petition is not essential for the acquisition of jurisdiction (which had already
been acquired by the filing of the petition, as afore-cited), but only to continue in its exercise, once it has been acquired (Santiago v. Ignacio, 52 Phil.
376).

It is axiomatic that an election contest, involving as it does not only the adjudication and settlement of private interests of the rival candidates but also
the paramount need of dispelling once and for all the uncertainty that beclouds the real choice of the electorate with respect to who shall discharge
the prerogative of the officers within their girt, is a proceeding imbued with public interest which raises it onto a plane over and above ordinary civil
actions. For this reason, broad perspective[s] of public policy impose upon the Courts the imperative duty to ascertain by all means within their
command who is the real candidate elected in an expeditious manner as possible, without being fettered in technicalities and procedural barriers to
the end that the will of the people may not be frustrated (Sibulo vda. de Mesa, Et. Al. v. Hon. Eulogio Mencias, Et. Al. Oct. 29, 1966, citing Ibasco v.
Ilao, Et Al., Dec. 20, 1960.)

On the basis of all the foregoing considerations, it is resolved that the payment of the filing of fee for purposes of an election protest and counter-
protest is not jurisdictional and, hence, non-compliance therewith at the outset will not operate to deprive the Court of jurisdiction conferred upon it by
law and acquired pursuant to the Rules. Accordingly, the Motion to Dismiss the instant petition is hereby denied.

The herein protestant is hereby directed to pay the filing fee of P100.00 with respect to his protest, and the protestee is directed to pay the filing fee
with respect to his counter-protest. 8

Aggrieved, private respondent filed on June 16, 1997 a petition for certiorari and prohibition with respondent Commission on Elections (COMELEC),
docketed as SPR No. 16-97 entitled "Ruperto P. Concepcion, Petitioner v. Hon. Maria Cristina Cornejo and Miguel Melendres, Jr.,
Respondents." chanroblesvirtuallawlibrary:red

The COMELEC overruled the assailed Order of the Metropolitan Trial Court reasoning as follows:chanrob1es virtual 1aw library

Petitioner contends that public respondent committed grave abuse of discretion amounting to lack of jurisdiction in not dismissing the election protest
for failing to comply with the required payment of filing and legal research fees as prescribed in the COMELEC Rules of Procedure, such
requirement being jurisdictional, as opposed to the contention of public Respondent. The COMELEC Rules of Procedure, Rule 37, Sec. 6,
states:chanrob1es virtual 1aw library

SECTION 6. Filing fee. — No protest shall be given due course without the payment of a filing fee of One Hundred Pesos (P100.00) and the legal
research fee as required by law. (Emphasis supplied).

There is no denying private respondent’s failure to comply with this requirement, given the certification of the Clerk of Court of Branch 68. Melendres’
failure to pay said fee at the time the election protest was filed is also clear from the questioned Order and in the July 7, 1997 Manifestation of
Concepcion filed with this Commission. Hence, the contested Orders must be reversed.

In Gatchalian v. Court of Appeals, 9 the Supreme Court has stated clearly that" [i]t is the payment of the filing fee that vests jurisdiction of the court
over the election protest . . ." In the case of Pahilan v. Tabalba, 10 the Court recognized a distinction between the partial payment of filing fees and
the complete absence of such payment. If there is complete absence of payment, the case is not given due course. The court entertained the case
because there was, at least "incomplete payment" of the filing fees. The Court compared this to the case of Malimit v. Degamo 11 wherein there was
no payment of the fees at all. The Supreme Court stated therein that" [b]efore the payment of the docket fees, the case is not deemed duly
registered and docketed." 12

Page 50 of 134
The ruling in Sun Insurance Office Ltd. v. Asuncion 13 is a prelude to the Pahilan ruling. There was likewise an incomplete payment of the said fees
in Sun Insurance, and the

"subsequent payment of the correct [amount was allowed] provided it is within the reglementary period or before prescription has set in . . . [and that]
there was no intent on the part of the petitioners therein to defraud the government . . ." 14

The requirement of payment of filing fees is not, therefore, a mere procedural matter but is, rather, jurisdictional. The Metropolitan Trial Court of
Pasig City, Branch 68 could not be said to have acquired jurisdiction despite the complete failure of the private respondent to pay the said fees.

Private respondent claims that the payment of the filing fee ten (10) days before this petition was filed, rendered the same moot and academic. This
is untenable. The Rules of Procedure of the Commission, in Sec. 6 of Rule 37 requires the payment of the filing fee of one hundred pesos for the
proper court to acquire jurisdiction. However, this has to be read in conjunction with Sec. 4 of the same rule:jgc:chanrobles.com.ph

"SECTION 4. Period within which to file petition. — The petition shall be filed within ten (10) days after the proclamation." chanroblesvirtual|awlibrary

Given the cited rulings of the Supreme Court above, especially those in the Malimit and Gatchalian cases, such late payment does not vest any
jurisdiction upon the Metropolitan Trial Court of Pasig City, Branch 68, said payment having been made beyond the period prescribed.

It needs be stressed that the power of administrative agencies to promulgate rules in the implementation of a statute is necessarily limited to what is
provided for in the legislative enactment. 15 However," [A] long line of cases establish the basic rule that the courts will not interfere in matters which
are addressed to the sound discretion of government agencies entrusted with the regulation of activities coming under the special technical
knowledge and training of such agencies." 16 More explicitly —

Generally, the interpretation of an administrative government agency, which is tasked to implement a statute, is accorded great respect and
ordinarily controls the construction of the courts. 17 The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals, 18 in
this wise:jgc:chanrobles.com.ph

"The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of
diverse administrative agencies for addressing and satisfying those needs; it also relates to the accumulation of experience and growth of
specialized capabilities by the administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. v. Commissioner
of Customs 19 the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the
meaning and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts give much
weight to the government agency or officials charged with the implementation of the law, their competence, expertness, experience and informed
judgment, and the fact that they frequently are drafters of the law they interpret."cralaw virtua1aw library

As a general rule, contemporaneous construction is resorted to for certainty and predictability in the laws, 20 especially those involving specific terms
having technical meanings.

However, courts will not hesitate to set aside such executive interpretation when it is clearly erroneous, or when there is no ambiguity in the rule, 21
or when the language or words used are clear and plain or readily understandable to any ordinary reader. 22

Stated differently, when an administrative agency renders an opinion or issues a statement of policy, it merely interprets a pre-existing law and the
administrative interpretation is at best advisory for it is the courts that finally determine what the law means. 23 Thus an action by an administrative
agency may be set aside by the judicial department if there is an error of law, abuse of power, lack of jurisdiction or grave abuse of discretion clearly
conflicting with the letter and spirit of the law. 24

However, there is no cogent reason to depart from the general rule because the findings of the COMELEC conforms to rather than conflicts with the
governing statute and controlling case law on the matter.

It will be observed that the order of the Metropolitan Trial Court was challenged on certiorari before respondent COMELEC because private
respondent’s motion to dismiss was denied on the basis of the trial court’s observation that the non-payment of filing fees is not jurisdictional but is
merely an administrative matter which did not affect its jurisdiction.chanrobles.com.ph : virtual law library

This ruling of the trial court directly contravenes this Court’s explicit pronouncement in Gatchalian v. Court of Appeals 25 declaring in no uncertain
terms that —

It is the payment of the filing fee that vests jurisdiction of the court over the election protest, not the payment of the docket fees for the claim of
damages and attorney’s fees. For failure to pay the filing fee prescribed under Section 9, Rule 35 of the COMELEC Rules of Procedure," [n]o
protest . . . shall be given due course without the payment of a filing fee in the amount of Three Hundred Pesos (P300.00) for each interest."
(Emphasis and Italics supplied.)chanrobles.com:cralaw:red
Page 51 of 134
Apropos the second issue, the subsequent payment of the filing fee on June 6, 1997 will not extricate petitioner from his predicament considering
that before the payment of the filing fee, a case is not deemed duly registered and docketed. 26 In other words, the date of the payment of the filing
fee is deemed the actual date of the filing of the election protest and, viewed vis-a-vis Section 3, Rule 35 of the COMELEC Rules of Procedure which
provides that —

"SECTION 3. Period to file petition. — The petition shall be filed within ten (10) days following the date of proclamation of the results of the
election."cralaw virtua1aw library

the subsequent payment of the filing fee on June 6, 1997 did not cure the jurisdictional defect because the said date which is deemed the actual date
of filing the election protest is twenty-five (25) days after the proclamation of the results of the election on May 12, 1997 and, needless to state, way
beyond the ten-day reglementary period to file the same. In this regard, it bears stressing that —

"The rule prescribing the ten-day period is mandatory and jurisdictional and the filing of an election protest beyond the period deprives the court of
jurisdiction over the protest. 27 Violation of this rule should not be taken lightly nor should it be brushed aside as a mere procedural lapse that can be
overlooked. The rule is not a mere technicality but an essential requirement, the non-compliance of which would oust the court of jurisdiction over the
case.

In Lim v. COMELEC, 28 citing Kho v. COMELEC, 29 this court reiterated the long standing rule that a counterprotest must be filed within the period
provided by law, otherwise, the court acquires no jurisdiction to entertain it. 30

Relatedly, if the docket fees are not fully paid on time, even if the election protest is timely filed, the court is deprived of jurisdiction over the case." 31
(Emphasis and Italics supplied).

Neither can petitioner seek refuge behind his argument that the motion to dismiss filed by private respondent is a prohibited pleading under Section
1, Rule 13 of the COMELEC Rules of Procedure because the said provision refers to proceedings filed before the COMELEC . The applicable
provisions on the matter are found in Part VI of the Rules of Procedure titled "PROVISIONS GOVERNING ELECTION CONTESTS BEFORE TRIAL
COURT" and as this Court pointedly stated in Aruelo v. Court of Appeals: 32

"It must be noted that nowhere in Part VI of the COMELEC Rules of Procedure is it provided that motions to dismiss and bill of particulars are not
allowed in election protests or quo warranto cases pending before regular courts.

Constitutionally speaking, the COMELEC cannot adopt a rule prohibiting the filing of certain pleadings in the regular courts. The power to promulgate
rules concerning pleadings, practice and procedure in all courts is vested on the Supreme Court." 33 (Emphasis and Italics supplied)

The grounds relied upon to support his position in the third issue is, likewise, no refuge for petitioner who insists that public respondent denied him
his right to due process by violating its own rules. More specifically, petitioner contends that the COMELEC did not comply with the requirements
regarding the issuance and service of summons and conducting hearings for the purpose of receiving evidence under Rule 14 of the COMELEC
Rules. Petitioner’s arguments along this line fails to persuade. It must be borne in mind that the assailed order of the Metropolitan Trial Court was
elevated to the COMELEC by way of certiorari. Section 1, Rule 14 does not require the issuance and service of summons in cases involving appeals
from the decisions of the courts in election protests, special actions, special cases, special reliefs and special proceedings,
viz:jgc:chanrobles.com.ph

"SECTION 1. Clerk to issue summons. — Unless otherwise provided herein, the Clerk of Court concerned shall issue the corresponding summons to
the protestee or respondent within three (3) days following the filing of a protest or petition in ordinary actions except appeals from decisions of
courts in election protest cases, in special actions, special cases, special reliefs and in special proceedings."cralaw virtua1aw library

In relation to the foregoing, Section 4, Rule 28 of the COMELEC Rules provides that:jgc:chanrobles.com.ph

"SECTION 4. Duty of Clerk of Court of the Commission. — Upon the filing of the petition, the Clerk of Court shall calendar the case for an en banc ex
parte hearing of the Commission to determine if it is sufficient in form and substance." (Emphasis and Italics supplied).

It can be clearly gleaned from these complementing provisions of Section 4, Rule 28 that the petitioner has no right to require the COMELEC to first
hear and receive evidence before deciding the merits of the petition for certiorari.chanroblesvirtuallawlibrary:red

At any rate, petitioner can hardly feign denial of due process given the prevailing facts of this case. It appears from the record that on June 16, 1997,
before filing with the COMELEC the petition for certiorari challenging the validity of the Metropolitan Trial Court’s order, petitioner was furnished a
copy of the said petition by registered mail. In fact, no less than petitioner himself expressly admits in the petition 34 that he received a copy of the
petition for certiorari and prohibition on June 19, 1997 or three (3) days after the filing thereof with respondent COMELEC. It must be remembered
that a formal notice would have been an idle ceremony where an adverse party, as in this case, had actual knowledge of the proceedings. 35
Page 52 of 134
What, however, spells finis to any further pretensions of petitioner that he was neither afforded an opportunity to be heard nor was jurisdiction
acquired over his person is his filing on June 23, 1997 of an exhaustive Comment 36 to the petition. Petitioner, in filing the said pleading, submitted
himself to the jurisdiction of respondent COMELEC because as has been consistently held in a litany of cases, jurisdiction over a party is acquired
either by coercive process, generally by service of summons, or by voluntary appearance. 37 In other words, the filing of the Comment as well as a
Manifestation subsequently filed on July 7, 1997 38 cured the lack of summons considering that" [V]oluntary appearance is equivalent to service of
summons, in fact it even cures the defect of summons." 39

Finally, with regard to the requisite of hearing, suffice it to state that —

A formal trial-type hearing is not at all times and in all instances essential to due process. It is enough that the parties are given a fair and reasonable
opportunity to explain their respective sides of the controversy and to present evidence on which a fair decision can be based . . . .
x       x       x

Commenting on the same topic, we said earlier in Zaldivar v. Sandiganbayan 40

"Due process as a constitutional precept does not, always and in all situations, require a trial-type proceedings. The essence of due process is to be
found in the reasonable opportunity to be heard and to submit any evidence one may have in support of one’s defense. "To be heard" does not only
mean verbal arguments in court. One may also be heard through pleadings where opportunity to be heard, either through oral arguments or
pleadings, is accorded, there is no denial of due process. 41

All told, the issue of jurisdiction was rendered moot by petitioner’s active participation in the proceedings below 42 and such active participation of
the petitioner against whom the action was brought is tantamount to an invocation of that jurisdiction and a willingness to abide by the resolution of
the case and will bar said party from later on impugning the court or body’s jurisdiction. 43

WHEREFORE, in view of all the foregoing, the petition is DISMISSED for lack of merit.cralawnad

SO ORDERED.

G.R. No. 92174 December 10, 1993

BOIE-TAKEDA CHEMICALS, INC., petitioner,
vs.
HON. DIONISIO DE LA SERNA, Acting Secretary of the Department of Labor and Employment, respondent.
G.R. No. L-102552 December 10, 1993
PHILIPPINE FUJI XEROX CORP., petitioner,
vs.
CRESENCIANO B. TRAJANO, Undersecretary of the Department of Labor and Employment, and PHILIPPINE FUJI XEROX EMPLOYEES UNION,
respondents.
Herrera, Laurel, De los Reyes, Roxas & Teehankee for Boie-Takeda Chemicals, Inc. and Phil Xerox Corp.
The Solicitor General for public respondents.
NARVASA, C.J.:
What items or items of employee remuneration should go into the computation of thirteenth month pay is the basic issue presented in these
consolidated petitions. Otherwise stated, the question is whether or not the respondent labor officials in computing said benefit, committed "grave
abuse of discretion amounting to lack of jurisdiction," by giving effect to Section 5 of the Revised Guidelines on the implementation of the Thirteenth
Month Pay (Presidential Decree No. 851) promulgated by then Secretary of Labor and Employment, Hon. Franklin Drilon, and overruling petitioner's
contention that said provision constituted a usurpation of legislative power because not justified by or within the authority of the law sought to be
implemented besides being violative of the equal protection of the law clause of the Constitution.
Resolution of the issue entails, first, a review of the pertinent provisions of the laws and implementing regulations.
Sections 1 and 2 of Presidential Decree No. 851, the Thirteenth Month Pay Law, read as follows:

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 Sec 1. All employees are hereby required to pay all their employees receiving basic salary of not more than P1,000.00 a month,
regardless of the nature of the employment, a 13th month pay not later than December 24 of every year.
Sec. 2. Employers already paying their employees a 13th month pay or its equivalent are not covered by this Decree.
The Rules and Regulations Implementing P.D. 851 promulgated by then Labor Minister Blas Ople on December 22, 1975 contained the following
relevant provisions relative to the concept of "thirteenth month pay" and the employers exempted from giving it, to wit:
Sec. 2. Definition of certain terms. — . . .
a) "Thirteenth month pay" shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year;
b) "Basic Salary" shall include all remunerations or earnings paid by an employer to an employee for services rendered but may
not include cost of living allowances granted pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174, profit
sharing payments, and all allowances and monetary benefits which are not considered or integrated as part of the regular or
basic salary of the employee at the time of the promulgation of the Decree on December 16, 1975.
Sec. 3. Employers covered. — . . . (The law applies) to all employers except to:
xxx xxx xxx
c) Employers already paying their employers a 13-month pay or more in calendar year or is equivalent at the time of this
issuance;
xxx xxx xxx
e) Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for
performing a specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on
piece-rate basis in which case the employer shall be covered by this issuance insofar as such workers are concerned.
xxx xxx xxx
The term "its equivalent" as used in paragraph (c) shall include Christmas bonus, mid-year bonus, profit-sharing payments and
other cash bonuses amounting to not less than 1/12th of the basic salary but shall not include cash and stock dividends, cost of
living allowances and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. Where an
employer pays less than 1/12th of the employee's basic salary, the employer shall pay the difference.
Supplementary Rules and Regulations implementing P.D. 851 were subsequently issued by Minister Ople which inter alia  set out items of
compensation not included in the computation of the 13th month pay, viz.:
Sec. 4. Overtime pay, earnings and other remunerations which are not part of the basic salary shall not be included in the
computation of the 13th month pay.
On August 13, 1986, President Corazon C. Aquino promulgated Memorandum Order No. 28, which contained a single provision modifying
Presidential Decree No. 851 by removing the salary ceiling of P1,000.00 a month set by the latter, as follows:
Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all their
rank-and-file employees a 13th month pay not later than December 24, of every year.
Slightly more than a year later, on November 16, 1987, Revised Guidelines on the Implementation of the 13th Month Pay Law were promulgated by
then Labor Secretary Franklin Drilon which, among other things, defined with particularity what remunerative items were and were not embraced in
the concept of 13th month pay, and specifically dealt with employees who are paid a fixed or guaranteed wage plus commission. The relevant
provisions read:
4. Amount and payment of 13th Month Pay.
xxx xxx xxx
The basic salary of an employee for the purpose of computing the 13th month pay shall include all remunerations or earnings
paid by the employer for services rendered but does not include allowances and monetary benefits which are not considered or
integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime,
premium, night differential and holiday pay, and cost-of-living allowances. However, these salary-related benefits should be
included as part of the basic salary in the computation of the 13th month pay if by individual or collective agreement, company
practice or policy, the same are treated as part of the basic salary of the employees.
xxx xxx xxx
5. 13th Month Pay for Certain Types of Employees.
(a) Employees Paid by Results. — Employees who are paid on piece work basis are by law entitled to the 13th month pay.
Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the mandated 13th month pay based
on their total earnings during the calendar year, i.e., on both their fixed or guaranteed wage and commission.
This was the state of the law when the controversies at bar arose out of the following antecedents:
(RE G.R. No. 92174) A routine inspection was conducted on May 2, 1989 in the premises of petitioner Boie-Takeda Chemicals, Inc. by Labor
and Development Officer Reynaldo B. Ramos under Inspection Authority
No. 4-209-89. Finding that Boie-Takeda had not been including the commissions earned by its medical representatives in the computation of their
13th month pay, Ramos served a Notice of Inspection Results 1 on Boie-Takeda through its president, Mr. Benito Araneta, requiring Boie-Takeda
within ten (10) calendar days from notice to effect restitution or correction of "the underpayment of 13th month pay for the year(s) 1986, 1987 and
1988 of Med Rep (Revised Guidelines on the Implementation of 13th month pay # 5) in the total amount of P558,810.89."
Boie-Takeda wrote the Labor Department contesting the Notice of Inspection Results, and expressing the view "that the commission paid to our
medical representatives are not to be included in the computation of the 13th month pay . . . (since the) law and its implementing rules speak of
REGULAR or BASIC salary and therefore exclude all other remunerations which are not part of the REGULAR salary." It pointed out that, "if no sales

Page 54 of 134
is (sic) made under the effort of a particular representative, there is no commission during the period when no sale was transacted, so that
commissions are not and cannot be legally defined as regular in nature.  2
Regional Director Luna C. Piezas directed Boie-Takeda to appear before his Office on June 9 and 16, 1989. On the appointed dates, however, and
despite due notice, no one appeared for Boie-Takeda, and the matter had perforce to be resolved on the basis of the evidence at hand. On July 24,
1989, Director Piezas issued an Order 3 directing Boie-Takeda:
. . . to pay . . . (its) medical representatives and its managers the total amount of FIVE HUNDRED SIXTY FIVE THOUSAND
SEVEN HUNDRED FORTY SIX AND FORTY SEVEN CENTAVOS (P565,746.47) representing underpayment of thirteenth
(13th) month pay for the years 1986, 1987, 1988, inclusive, pursuant to the . . . revised guidelines within ten (10) days from
receipt of this Order.
A motion for reconsideration 4 was seasonably filed by Boie-Takeda under date of August 3, 1989. Treated as an appeal, it was resolved on
January 17, 1990 by then Acting Labor Secretary Dionisio de la Serna, who affirmed the July 24, 1989 Order with modification that the sales
commissions earned by Boie-Takeda's medical representatives before August 13, 1989, the effectivity date of Memorandum Order No. 28 and its
Implementing Guidelines, shall be excluded in the computation of their 13th month pay.  5
Hence the petition docketed as G.R. No. 92174.
(RE G.R. No. 102552) A similar Routine Inspection was conducted in the premises of Philippine Fuji Xerox Corp. on September 7, 1989 pursuant to
Routine Inspection Authority No. NCR-LSED-RI-494-89. In his Notice of Inspection Results, 6 addressed to the Manager, Mr. Nicolas O. Katigbak,
Senior Labor and Employment Officer Nicanor M. Torres noted the following violation committed by Philippine Fuji Xerox Corp., to wit:
Underpayment of 13th month pay of 62 employees, more or less — pursuant to Revised Guidelines on the Implementation of the
13th month pay law for the period covering 1986, 1987 and 1988.
Philippine Fuji Xerox was requested to effect rectification and/or restitution of the noted violation within five (5) working days from notice.
No action having been taken thereon by Philippine Fuji Xerox,
Mr. Eduardo G. Gonzales, President of the Philxerox Employee Union, wrote then Labor Secretary Franklin Drilon requesting a follow-up of the
inspection findings. Messrs. Nicolas and Gonzales were summoned to appear before Labor Employment and Development Officer Mario F. Santos,
NCR Office, Department of Labor for a conciliation conference. When no amicable settlement was reached, the parties were required to file their
position papers.
Subsequently, Regional Director Luna C. Piezas issued an Order dated August 23, 1990, 7 disposing as follows:
WHEREFORE, premises considered, Respondent PHILIPPINE FUJI XEROX is hereby ordered to restitute to its salesmen the
portion of the 13th month pay which arose out of the non-implementation of the said revised guidelines, ten (10) days from
receipt hereof, otherwise,
MR. NICANOR TORRES, the SR. LABOR EMPLOYMENT OFFICER is hereby Ordered to proceed to the premises of the
Respondent for the purpose of computing the said deficiency (sic) should respondent fail to heed his Order.
Philippine Fuji Xerox appealed the aforequoted Order to the Office of the Secretary of Labor. In an Order dated October 120, 1991, Undersecretary
Cresenciano B. Trajano denied the appeal for lack of merit. Hence, the petition in G.R. No. 102552, which was ordered consolidated with G.R. No.
92174 as involving the same issue.
In their almost identically-worded petitioner, petitioners, through common counsel, attribute grave abuse of discretion to respondent labor officials
Hon. Dionisio dela Serna and Undersecretary Cresenciano B. Trajano in issuing the questioned Orders of January 17, 1990 and October 10, 1991,
respectively. They maintain that under P.D. 851, the 13th month pay is based solely on basic salary. As defined by the law itself and clarified by the
implementing and Supplementary Rules as well as by the Supreme Court in a long line of decisions, remunerations which do not form part of the
basic or regular salary of an employee, such as commissions, should not be considered in the computation of the 13th month pay. This being the
case, the Revised Guidelines on the Implementation of the 13th Month Pay Law issued by then Secretary Drilon providing for the inclusion of
commissions in the 13th month pay, were issued in excess of the statutory authority conferred by P.D. 851. According to petitioners, this conclusion
becomes even more evident when considered in light of the opinion rendered by Labor Secretary Drilon himself in "In Re: Labor Dispute at the
Philippine Long Distance Telephone Company" which affirmed the contemporaneous interpretation by then Secretary Ople that commissions are
excluded from the basic salary. Petitioners further contend that assuming that Secretary Drilon did not exceed the statutory authority conferred by
P.D. 851, still the Revised Guidelines are null and void as they violate the equal protection of the law clause.
Respondents through the Office of the Solicitor General question the propriety of petitioners' attack on the constitutionality of the Revised Guidelines
in a petition for certiorari which, they contend, should be confined purely to the correction of errors and/or defects of jurisdiction, including matters of
grave abuse of discretion amounting to lack or excess of jurisdiction and not extend to a collateral attack on the validity and/or constitutionality of a
law or statute. They aver that the petitions do not advance any cogent reason or state any valid ground to sustain the allegation of grave abuse of
discretion, and that at any rate, P.D. No. 851, otherwise known as the 13th Month Pay Law has already been amended by Memorandum Order No.
28 issued by President Corazon C. Aquino on August 13, 1986 so that commissions are now imputed into the computation of the 13th Month Pay.
They add that the Revised Guidelines issued by then Labor Secretary Drilon merely clarified a gray area occasioned by the silence of the law as to
the nature of commissions; and worked no violation of the equal protection clause of the Constitution, said Guidelines being based on reasonable
classification. Respondents point to the case of Songco vs. National Labor Relations Commission , 183 SCRA 610, wherein the Court declared that
Article 97(f) of the Labor Code is explicit that commission is included in the definition of the term "wage".
We rule for the petitioners.
Contrary to respondents' contention, Memorandum Order No. 28 did not repeal, supersede or abrogate P.D. 851. As may be gleaned from the
language of the Memorandum Order No. 28, it merely "modified" Section 1 of the decree by removing the P1,000.00 salary ceiling. The concept of
13th Month Pay as envisioned, defined and implemented under P.D. 851 remained unaltered, and while entitlement to said benefit was no longer
limited to employees receiving a monthly basic salary of not more than P1,000.00, said benefit was, and still is, to be computed on the basic salary of
Page 55 of 134
the employee-recipient as provided under P.D. 851. Thus, the interpretation given to the term "basic salary" as defined in P.D. 851 applies equally to
"basic salary" under Memorandum Order No. 28.
In the case of San Miguel Corp. vs. Inciong, 103 SCRA 139, this Court delineated the coverage of the term "basic salary" as used in P.D. 851. We
said at some length:
Under Presidential Decree 851 and its implementing rules, the basic salary of an employee is used as the basis in the
determination of his 13th month pay. Any compensations or remunerations which are deemed not part of the basic pay is
excluded as basis in the computation of the mandatory bonus.
Under the Rules and Regulations implementing Presidential Decree 851, the following compensations are deemed not part of
the basic salary:
a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of Instructions No. 174;
b) Profit-sharing payments;
c) All allowances and monetary benefits which are not considered or integrated as part of the regular basic
salary of the employee at the time of the promulgation of the Decree on December 16, 1975.
Under a later set of Supplementary Rules and Regulations Implementing Presidential Decree 851 Presidential Decree 851
issued by then Labor Secretary Blas Ople, overtime pay, earnings and other remunerations are excluded as part of the basic
salary and in the computation of the 13th month pay.
The exclusion of the cost-of-living allowances under Presidential Decree 525 and Letter of Instructions No. 174, and profit-
sharing payments indicate the intention to strip basic salary of other payments which are properly considered as "fringe" benefits.
Likewise, the catch-all exclusionary phrase "all allowances and monetary benefits which are not considered or integrated as part
of the basic salary" shows also the intention to strip basic salary of any and all additions which may be in the form of allowances
or "fringe" benefits.
Moreover, the Supplementary Rules and Regulations Implementing Presidential Decree 851 is even more emphatic in declaring
that earnings and other remunerations which are not part of the basic salary shall not be included in the computation of the 13th-
month pay.
While doubt may have been created by the prior Rules and Regulations Implementing Presidential Decree 851 which defines
basic salary to include all remunerations or earnings paid by an employer to an employee, this cloud is dissipated in the later and
more controlling Supplementary Rules and Regulations which categorically exclude from the definitions of basic salary earnings
and other remunerations paid by an employer to an employee. A cursory perusal of the two sets of Rules indicates that what has
hitherto been the subject of a broad inclusion is now a subject of broad exclusion. The Supplementary Rules and Regulations
cure the seeming tendency of the former rules to include all remunerations and earnings within the definition of basic salary.
The all embracing phrase "earnings and other remunerations" which are deemed not part of the basic salary includes within its
meaning payments for sick, vacation, or maternity leaves, premium for works performed on rest days and special holidays, pays
for regular holidays and night differentials. As such they are deemed not part of the basic salary and shall not be considered in
the computation of the 13th-month pay. If they were not excluded, it is hard to find any "earnings and other remunerations"
expressly excluded in the computation of the 13th month pay. Then the exclusionary provision would prove to be idle and with no
purpose.
This conclusion finds strong support under the Labor Code of the Philippines. To cite a few provisions:
Art. 87. Overtime Work. Work may be performed beyond eight (8) hours a day provided that the employee is paid for the
overtime work, additional compensation equivalent to his regular wage plus at least twenty-five (25%) percent thereof.
It is clear that overtime pay is an additional compensation other than and added to the regular wage or basic salary, for reason of
which such is categorically excluded from the definition of basic salary under the Supplementary Rules and Regulations
Implementing Presidential Decree 851.
In Article 93 of the same Code, paragraph
c) work performed on any special holiday shall be paid an additional compensation of at least thirty percent (30%) of the regular
wage of the employee.
It is likewise clear the premiums for special holiday which is at least 30% of the regular wage is an  additional pay other than and
added to the regular wage or basic salary. For similar reason, it shall not be considered in the computation of the 13th month
pay.
Quite obvious from the foregoing is that the term "basic salary" is to be understood in its common, generally-accepted meaning, i.e., as a rate of pay
for a standard work period exclusive of such additional payments as bonuses and overtime. 8 This is how the term was also understood in the case
of Pless v. Franks, 308 S.W. 2nd. 402, 403, 202 Tenn. 630, which held that in statutes providing that pension should not less than 50 percent of
"basic salary" at the time of retirement, the quoted words meant the salary that an employee (e.g., a policeman) was receiving at the time he retired
without taking into consideration any extra compensation to which he might be entitled for extra work.  9
In remunerative schemes consisting of a fixed or guaranteed wage plus commission, the fixed or guaranteed wage is patently the "basic salary" for
this is what the employee receives for a standard work period. Commissions are given for extra efforts exerted in consummating sales or other
related transactions. They are, as such, additional pay, which this Court has made clear do not form part of the "basic salary."
Respondents would do well to distinguish this case from Songco vs. National Labor Relations Commission,  supra, upon which they rely so heavily.
What was involved therein was the term "salary" without the restrictive adjective "basic". Thus, in said case, we construed the term in its generic
sense to refer to all types of "direct remunerations for services rendered," including commissions. In the same case, we also took judicial notice of
the fact "that some salesmen do not receive any basic salary but depend on commissions and allowances or commissions alone, although an
Page 56 of 134
employer-employee relationship exists," which statement is quite significant in that it speaks of a "basic salary" apart and distinct from "commissions"
and "allowances". Instead of supporting respondents' stand, it would appear that Songco itself recognizes that commissions are not part of "basic
salary."
In including commissions in the computation of the 13th month pay, the second paragraph of Section 5(a) of the Revised Guidelines on the
Implementation of the 13th Month Pay Law unduly expanded the concept of "basic salary" as defined in P.D. 851. It is a fundamental rule that
implementing rules cannot add to or detract from the provisions of the law it is designed to implement. Administrative regulations adopted under
legislative authority by a particular department must be in harmony with the provisions of the law they are intended to carry into effect. They cannot
widen its scope. An administrative agency cannot amend an act of Congress. 10
Having reached this conclusion, we deem it unnecessary to discuss the other issues raised in these petitions.
WHEREFORE, the consolidated petitions are hereby GRANTED. The second paragraph of Section 5 (a) of the Revised Guidelines on the
Implementation of the 13th Month Pay Law issued on November 126, 1987 by then Labor Secretary Franklin M. Drilon is declared null and void as
being violative of the law said Guidelines were issued to implement, hence issued with grave abuse of discretion correctible by the writ of prohibition
and certiorari. The assailed Orders of January 17, 1990 and October 10, 1991 based thereon are SET ASIDE.
SO ORDERED.

G.R. No. L-51009 June 10, 1992

LUZON POLYMERS CORPORATION, petitioner,
vs.
HON. PRESIDENTIAL EXECUTIVE ASSISTANT JACOBO C. CLAVE, HON. MINISTER OF LABOR BLAS OPLE and LUZON POLYMERS LABOR
UNION (FFW), respondents.

ROMERO, J.:
This special civil action of certiorari questions the administrative grant of an emergency allowance of fifty pesos to the employees of a corporation
with a capital stock of one million pesos.
The emergency allowance of employees in the private sector has its origin in Presidential Decree No. 390, granting said allowance to government
employees. On March 6, 1974, subsequent to the promulgation of P.D. No. 390, then President Marcos issued Letter of Instructions No. 174 to
implement the policy enunciated in said decree in the private sector. He directed the Secretary of Labor "to take such measures as maybe necessary
to ensure orderly and effective response by employers in the private sector." A pertinent provision of said LOI reads:
3. Determination of Amount of Allowances . — In the spirit of Presidential Decree No. 390 granting allowances to government
employees receiving less than P600.00 monthly, employers are urged to give top priority to their lowest paid workers without
prejudice, however, to extending similar assistance to higher grades of their personnel.
For purposes of construing the minimum guideline, for the private sector, the following scales are recommended:
For large-scale and medium-scale enterprises capitalized at P1 million to 4 million or more, P50.00 or higher;
For small-scale enterprises capitalized at P100.000 to P1 million, P30 or higher;
For enterprises lower than these categories, P15 or higher. (Emphasis supplied.)
To explain the meaning and scope of application of LOI No. 174, on March 11, 1974, the Department of Labor issued an Interpretative Bulletin, a
relevant section of which states:
Sec. 5. Determination of Amount of Allowances. — In determining the amount of allowances that should be given by employers
to meet the recommended minimum standards, the LOI has classified employers into three general categories. As an
implementation policy, the Department of Labor shall consider as sufficient compliance with the scales of allowances
recommended by the LOI if the following monthly allowances are given by employers:
(a) P50.00 or higher where the authorized capital stock of the corporation, or the total assets in the case of other undertakings,
exceeds P1 million;
(b) P30.00 or higher where the authorized capital stock of the corporation, or the total assets in this case of other undertakings,
is not less than P100,000.00 but not more than P1 million; and
(c) P15.00 or higher where the authorized capital stock or total assets, as the case may be, is less than P100,000.00 (Emphasis
supplied.)
On July 31, 1974, the President issued P.D. No. 525 making mandatory the payment of emergency allowance under LOI No. 174. Pertinent sections
thereof provide:
Sec. 1. Effective 1 August 1974, all employers who have not paid their employees emergency allowance in accordance with
Letter of Instructions No. 174 shall pay their employees who are receiving less than P600.00 a month emergency allowance
of P50.00 a month if their capitalization is more than 1 million pesos, P30.00 if their capitalization is more than 100 thousand
pesos but does not exceed 1 million pesos,  and P15.00 if their capitalization is 100 thousand pesos or less; Provided, that this
Decree shall not apply to any severely distressed industry or branch thereof, or enterprise therein, as defined by the Department
of Labor in accordance with established standards and methods of determining the same. (Emphasis supplied.)
xxx xxx xxx
Sec. 3. The Department of Labor and the National Labor Relations Commission shall not entertain any complaints under this
Decree against employers who have complied with Letter of Instructions No. 174 and filed the necessary reports with the
Department of Labor.

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For the guidance of those concerned, on August 5, 1974 then Secretary of Labor Blas F. Ople promulgated the Rules and Regulations Implementing
P.D. No. 525 with the following provisions:
Sec. 7. Amount of Allowances.  — Every covered employer shall give to each of his employees who is receiving less than
P600.00 a month not less than the following monthly allowances:
(a) P50.00 where the authorized capital stock or total assets, whichever is applicable and higher, is P1 million or more;
(b) P30.00 where the authorized capital stock or total assets, whichever is applicable and higher, is at least P100,000.00 but less
than P1 million; and
(c) P15.00 where the authorized capital stock or total assets, whichever is applicable and higher, is less than P100,000.00.
Nothing herein shall prevent employers from granting allowances to their employees who will receive more than P600.00 a
month, including the allowances. An employer, however, may grant his employees an allowance which, if added to their monthly
salary, will not yield to them more than P600.00 a month. (Emphasis supplied.)
Sec. 8. Compliance under LOI No. 174. — The Department of Labor and any of its entities, including the National Labor
Relations Commission and its regional units, shall not entertain complaints against employers who have fully complied with
Letter of Instructions No. 174.
Where an employer has not granted to his employees the full minimum monthly allowance provided in LOI No. 174, such
employer shall, within two (2) months from the effective date of these regulations, grant at least the difference between the
applicable monthly allowance provided in the Decree and that actually paid the employees, retroactive to 1 August 1974.
Under this statutory backdrop, petitioner, a corporation with an authorized capital stock of P1 million and total assets of P2,656,793.45 as of
December 31, 1974, was named a respondent in a complaint for underpayment of emergency allowance filed before Regional Office No. 4 of the
Department of Labor in 1976 by the Luzon Polymers Labor Union (FFW) on behalf of 185 of its members. 1 Alleging that since February 1974,
regular employees of petitioner corporation who were members of the union had been receiving P1.15 daily or P30.00 monthly emergency
allowance, complainant-union contended that its members were entitled to P50.00 monthly emergency allowance in as much as their
employer's total assets were over and above P1 million.
For its part, petitioner corporation claimed that since it had fully complied with LOI No. 174, it had not underpaid its employees. Moreover,  citing Sec.
3 of P.D. No. 525, it questioned the jurisdiction of the Department of Labor to entertain and hear the complaint.
Noting that petitioner corporation had total assets of more than one million in 1973 and 1974 or P1,920,529.04 and P2,676,793.45, respectively,
Officer-in-Charge and Assistant Secretary Vicente Leogardo, Jr. ruled that petitioner had not fully complied with LOI No. 174 and therefore it could
not validly invoke Sec. 8 of the Rules and Regulations Implementing P.D.No. 525, Citing the decision of the Office of the President in "Kalinisan
Workers Association (FFW) v. Kalinisan Incorporated" 2 which held that "capitalization" means the "authorized capital stock or total assets,
whichever is applicable or higher" which meaning was reflected in the Rules and Regulations Implementing P.D. No. 525, the Assistant Secretary's
order of May 23, 1977 accordingly directed the petitioner corporation to pay its complainant-employees the deficiency of the emergency allowance
equivalent to P20 a month from the start of their employment but not earlier than August 1, 1974.
Petitioner appealed to Secretary Ople but the latter dismissed the appeal for lack of merit in the order of February 21, 1978 and directed petitioner
"to pay the difference of P20.00 as awarded in the appealed order." 3 Hence, petitioner elevated the case to the Office of the President which,
through Presidential Executive Assistant Jacobo C. Clave, likewise dismissed the appeal in an undated decision. 4
Having failed to obtain administrative relief, petitioner filed the instant petition for certiorari praying that Sec. 7 of the Rules and Regulations
Implementing P.D. No. 525 be declared null and void "insofar as it increases the liability of employers capitalized at P1 million from P30.00 a month
to P50.00 a month" and that the decision of Presidential Assistant Clave be reversed. Petitioner further prayed that execution of the questioned
decision be stayed pending the resolution of the instant petition. 5 Granting this last prayer, on August 8, 1979 the Court issued a temporary
restraining order enjoining the public respondents from executing the questioned decision. 6
Petitioner contends herein that: (a) in issuing the Rules and Regulations Implementing P.D. No. 525, particularly paragraph 7 thereof, the then
Secretary of Labor exceeded his rule-making power in as much as said paragraph substantially altered and contradicted the provisions of P.D. No.
525; (b) the Secretary of Labor's order of February 21, 1978 requiring petitioner to pay the deficiency of the emergency allowance it had paid its
employees, is contrary to Sec. 3 of P.D. No. 525 providing that the Department of Labor shall not entertain any complaint under said decree against
employers who have complied with LOI No. 174; and (c) the decision of Presidential Executive Assistant Clave is contrary to law as it upholds the
illegal exercise of law-making powers by the Secretary of Labor.
At the outset, it should be clarified that P.D.No. 525 had been superseded by other decrees, notably P.D. Nos. 1123, 1614, 1634 and 1678.  7 This
fact, however, is not a deterrent to the resolution of the instant petition in view of the apparent confusing provisions of the issuances and rules and
regulations involved.
To start with, paragraph 3 of LOI No. 174 mandates the grant of P50 a month emergency allowance for employees of "enterprises capitalized at P1
million to P4 million or more" and P30 for employees of "enterprises capitalized at P100,000 to P1 million." While the determinative factor for the
amount of emergency allowance is simply the capitalization 8 of the employer concerned, the problem lies in the fact that the same provision of LOI
No. 174 categorizes an enterprise capitalized at P1 million as under both the P50 and the P30 brackets of emergency allowance.
This grey area, however, was clarified by the Interpretative Bulletin on LOI No. 174 issued by the Department of Labor. Sec. 5 thereof which is
quoted above states that an employer has to pay the fifty-pesos allowance "where the authorized capital stock of the corporation, or the total assets
in the case of other undertakings, exceeds P1 million or thirty pesos" where the authorized capital stock of the corporation, or the total assets in the
case of other undertakings, is not less than P100,000 but not more than P1 million." Clearly then, the petitioner falls under the bracket of employers
required to give a thirty-peso monthly emergency allowance under LOI No. 174 in view of the undisputed fact that it is a "domestic corporation duly
organized and existing under Philippine laws" with an authorized capital stock of one million pesos. 9

Page 58 of 134
While said administrative interpretation of LOI No. 174 is at best merely advisory for it is only the courts which have the power to determine what LOI
No. 174 really means, 10 it is significant to note that said Sec. 5 of the Interpretative Bulletin was adopted in P.D. No. 525. As aforequoted, Sec. 1 of
said decree states that an emergency allowance of thirty pesos shall be given to employees of corporations with a capitalization of "more than 100
thousand pesos but does not exceed 1 million pesos."
What seems to have muddled the matter are the provisions of Sec. 7 of the Rules and Regulations Implementing P.D. No. 525. Under that section,
petitioner appears to have been covered by the fifty-peso bracket for it states that a monthly emergency allowance of fifty pesos is required "where
the authorized capital stock or total assets, whichever is applicable and higher, is P1 million or more." It should be observed that this provision not
only injects a new determinative factor, i.e., the total assets of the employer, but also provides a choice for the determinative factor: whichever is
higher between the employer's authorized capital stock and its total assets.
An examination of the issuances of the Department of Labor, however, reveals that said option is more apparent than real. In its Interpretative
Bulletin aforementioned, the Department uses as a basis for granting the emergency allowance the "authorized capital stock, or the total assets in
the case of other undertakings." The phrase "authorized capital stock" clearly refers to employers which are incorporated by law and therefore have
authorized capital stocks to speak of. Total assets as a determinative factor should only refer to "other undertakings." The same Interpretative
Bulletin gives a clue as to what "other undertakings" mean, Section 2 thereof states:
Sec. 2. Employees Covered. — The LOI appeals (sic) to all employers in the private sector. Included within the scope of its
application are commercial, industrial, and agricultural establishments and enterprises, as well as all undertakings, institutions
and organizations which are not operated or established for profit or gain, such as schools and other institutions of learning,
hospitals, and charitable and religious organizations.
Excluded from the application of the LOI are employers of house-helpers and persons in the personal service of another in
relation to such workers. (Emphasis supplied) (Rollo, p. 25).
Considering the provisions of this section and in view of the rule of ejusdem generis, the word "undertakings" in Sec. 5 of the Interpretative Bulletin
should refer only to non-profit institutions. Therefore, in categorizing said institutions for the purpose of determining the amount of emergency
allowance for their employees, their "total assets" is the criterion. The petitioner herein, not being a non-profit enterprise, the determinative factor in
gauging the amount of emergency allowance to be granted to its employees is its authorized capital stock.
Sec. 2 of the Interpretative Bulletin is reflected in the Department of Labor's Rules and Regulations Implementing P.D. No. 525. Sec. 1 provides:
Sec. 1. Employees Covered. — The Decree shall apply to all commercial, industrial, and agricultural establishments and
enterprises, as well as to all undertakings; institutions and organizations which are not primarily organized for profit or gain,
except to those specifically exempted under Section 3 of these regulations. ( Rollo, p. 32).
Thus, the same interpretation should necessarily be attached to the phrase "total assets" in Sec. 7 of the Rules and Regulations
Implementing P.D. No. 525: it should refer only to employers which are not incorporated by law and which are strictly non-profit
"undertakings." Corollarily, however, "total assets" maybe the measure for determining the amount of emergency allowance for enterprises
such as single proprietorships and partnerships which are not backed up by capital stocks.
Sec. 7 of the Rules and Regulations, therefore, introduced a matter which is not  germane to the provisions of P.D. No. 525 by considering total
assets as a criterion. Moreover, it further complicated the law by the addition of the phrase "whichever is applicable and higher." In practice, the
exercise of the option expressed in such phrase may lead to absurd situations. As demonstrated in this case, that which is higher, meaning
petitioner's total assets, may not also be applicable because petitioner is not an "undertaking" within the purview of the Interpretative Bulletin and the
Rules and Regulations Implementing P.D. No. 525.
Consequently, Sec. 7 of the said Rules has not conformed with the standards that P.D. No. 525 prescribes. 11 Having been based on an erroneous
decision of the Office of the President, it is further rendered obnoxious by the principle that an administrative agency like the Department of Labor
cannot amend the law it seeks to implement. 12
We need not concern ourselves unduly with regard to petitioner's contention that the complaint for under payment of emergency allowance is barred
by Sec. 3 of P.D. 525. Suffice it to say that Sec. 7 of the Rules is not the proper basis for taking cognizance of the case. As alleged by public
respondents, Sec. 3 clearly states that compliance should be with LOI No. 174 and not with the implementing rules which were subsequently issued
by the Department of Labor.
The issue of the sufficiency of the emergency allowance granted by employers to its employees has been ventilated before this Court.  13 In none of
them, however, was the validity of Sec. 7 of the Rules and Regulations Implementing P.D. No. 525 specifically put in issue as in the instant case.
While this Court has always been guided by the principle that in labor cases, any doubt shall be resolved in favor of the workers, we cannot close our
eyes to the possible abuse of the rule making power on the part of the Secretary of Labor under the guise of promoting social justice and affording
protection to labor.
WHEREFORE, the instant petition for certiorari  is GRANTED. Sec. 7 of the Rules and Regulations Implementing P.D. No. 525 insofar as it is
contradictory to the provisions of said decree as herein by discussed, is hereby declared NULL and VOID. The temporary restraining order issued by
this Court on August 8, 1979 is hereby made PERMANENT. No costs.
SO ORDERED.

G.R. Nos. L-8895 and L-9191             April 30, 1957

SALVADOR A. ARANETA, ETC., ET AL., petitioners,
vs.
THE HON. MAGNO S. GATMAITAN, ETC., ET AL., respondents.

Page 59 of 134
EXEQUIEL SORIANO, ET AL., petitioners-appellees,
vs.
SALVADOR ARANETA, ETC., ET AL., respondents-appellants.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and Solicitor Troadio T. Quiazon for petitioners.
San Juan, Africa and Benedicto for respondents.
FELIX, J.:
San Miguel Bay, located between the provinces of Camarines Norte and Camarines Sur, a part of the National waters of the Philippines with an
extension of about 250 square miles and an average depth of approximately 6 fathoms (Otter trawl explorations in Philippine waters p. 21, Exh. B), is
considered as the most important fishing area in the Pacific side of the Bicol region. Sometime in 1950, trawl 1 operators from Malabon, Navotas and
other places migrated to this region most of them settling at Sabang, Calabanga, Camarines Sur, for the purpose of using this particular method of
fishing in said bay. On account of the belief of sustenance fishermen that the operation of this kind of gear caused the depletion of the marine
resources of that area, there arose a general clamor among the majority of the inhabitants of coastal towns to prohibit the operation of trawls in San
Miguel Bay. This move was manifested in the resolution of December 18, 1953 (Exh. F), passed by the Municipal Mayors' League condemning the
operation of trawls as the cause of the wanton destruction of the shrimp specie and resolving to petition the President of the Philippines to regulate
fishing in San Miguel Bay by declaring it closed for trawl fishing at a certain period of the year. In another resolution dated March 27, 1954, the same
League of Municipal Mayor, prayed the President to protect them and the fish resources of San Miguel Bay by banning the operation of trawls
therein (Exh. 4). The Provincial Governor also made proper presentations to this effect and petitions in behalf of the non-trawl fishermen were
likewise presented to the President by social and civic organizations as the NAMFREL (National Movement for Free Elections) and the COMPADRE
(Committee for Philippine Action in Development, Reconstruction and Education), recommending the cancellation of the licenses of trawl operators
after investigation, if such inquiry would substantiate the charges that the operation of said fishing method was detrimental to the welfare of the
majority of the inhabitants (Exh. 2).
In response to these pleas, the President issued on April 5, 1954, Executive Order No. 22 (50 Off. Gaz., 1421) prohibiting the use of trawls in San
Miguel Bay, but said executive order was amended by Executive Order No. 66, issued on September 23, 1954 (50 Off. Gaz., 4037), apparently in
answer to a resolution of the Provincial Board of Camarines Sur recommending the allowance of trawl fishing during the typhoon season only. On
November 2, 1954, however, Executive Order No. 80 (50 Off. Gaz., 5198) was issued reviving Executive Order No. 22, to take effect after December
31, 1954.
A group of Otter trawl operators took the matter to the court by filing a complaint for injunction and/or declaratory relief with preliminary injunction with
the Court of First Instance of Manila, docketed as Civil Case No. 24867, praying that a writ of preliminary injunction be issued to restrain the
Secretary of Agriculture and Natural Resources and the Director of Fisheries from enforcing said executive order; to declare the same null and void,
and for such other relief as may be just and equitable in the premises.
The Secretary of Agriculture and Natural Resources and the Director of Fisheries, represented by the Legal Adviser of said Department and a
Special Attorney of the Office of the Solicitor General, answered the complaint alleging, among other things, that of the 18 plaintiff (Exequiel Soriano,
Teodora Donato, Felipe Concepcion, Venancio Correa, Santo Gaviana, Alfredo General, Constancio Gutierrez, Arsenio de Guzman, Pedro Lazaro,
Porfirio Lazaro, Deljie de Leon, Jose Nepomuceno, Bayani Pingol, Claudio Salgado, Porfirio, San Juan, Luis Sioco, Casimiro Villar and Enrique
Voluntad), only 11 were issued license to operate fishing boats for the year 1954 (Annex B, petition — L-8895); that the executive orders in question
were issued accordance with law; that the encouragement by the Bureau of Fisheries of the use of Otter trawls should not be construed to mean that
the general welfare of the public could be disregarded, and set up the defenses that since plaintiffs question the validity of the executive orders
issued by the President, then the Secretary of Agriculture and Natural Resources and the Director of Fisheries were not the real parties in interest;
that said executive orders do not constitute a deprivation of property without due process of law, and therefore prayed that the complaint be
dismissed (Exh. B, petition, L-8895).
During the trial of the case, the Governor of Camarines Sur appearing for the municipalities of Siruma, Tinambac, Calabanga, Cabusao and Sipocot,
in said province, called the attention of the Court that the Solicitor General had not been notified of the proceeding. To this manifestation, the Court
ruled that in view of the circumstances of the case, and as the Solicitor General would only be interested in maintaining the legality of the executive
orders sought to be impugned, section 4 of Rule 66 could be interpreted to mean that the trial could go on and the Solicitor General could be notified
before judgement is entered.
After the evidence for both parties was submitted and the Solicitor General was allowed to file his memorandum, the Court rendered decision on
February 2, 1955, the last part of which reads as follows:
The power to close any definite area of the Philippine waters, from the fact that Congress has seen fit to define under what conditions it
may be done by the enactment of the sections cited, in the mind of Congress must be of transcendental significance. It is primarily within
the fields of legislation not of execution: for it goes far and says who can and who can not fish in definite territorial waters. The court can
not accept that Congress had intended to abdicate its inherent right to legislate on this matter of national importance. To accept
respondents' view would be to sanction the exercise of legislative power by executive decrees. If it is San Miguel Bay now, it may be
Davao Gulf tomorrow, and so on. That may be done only by Congress. This being the conclusion, there is hardly need to go any further.
Until the trawler is outlawed by legislative enactment, it cannot be banned from San Miguel Bay by executive proclamation. The remedy for
respondents and population of the coastal towns of Camarines Sur is to go to the Legislature. The result will be to issue the writ prayed for,
even though this be to strike at public clamor and to annul the orders of the President issued in response therefor. This is a task
unwelcome and unpleasant; unfortunately, courts of justice use only one measure for both the rich and poor, and are not bound by the
more popular cause when they give judgments.
IN VIEW WHEREOF, granted; Executive Order Nos. 22, 66 and 80 are declared invalid; the injunction prayed for is ordered to issue; no
pronouncement as to costs.
Page 60 of 134
Petitioners immediately filed an ex-parte motion for the issuance of a writ of injunction which was opposed by the Solicitor General and after the
parties had filed their respective memoranda, the Court issued an order dated February 19, 1955, denying respondents' motion to set aside
judgement and ordering them to file a bond in the sum of P30,000 on or before March 1, 1955, as a condition for the non-issuance of the injunction
prayed for by petitioners pending appeal. The Solicitor General filed a motion for reconsideration which was denied for lack of merit, and the Court,
acting upon the motion for new trial filed by respondents, issued another order on March 3, 1965, denying said motion and granting the injunction
prayed for by petitioners upon the latter's filing a bond for P30,000 unless respondents could secure a writ of preliminary injunction from the
Supreme Court on or before March 15, 1955. Respondents, therefore, brought the matter to this Court in a petition for prohibition and  certiorari with
preliminary injunction, docketed as G.R. No. L-8895, and on the same day filed a notice to appeal from the order of the lower court dated February 2,
1955, which appeal was docketed in this Court as G.R. No. L-9191.
In the petition for prohibition and certiorari, petitioners (respondents therein) contended among other things, that the order of, the respondent Judge
requiring petitioners Secretary of Agriculture and Natural Resources and the Director of Fisheries to post a bond in the sum of P30,000 on or before
March 1, 1955, had been issued without jurisdiction or in excess thereof, or at the very least with grave abuse of discretion, because by requiring the
bond, the Republic of the Philippines was in effect made a party defendant and therefore transformed the suit into one against the Government
which is beyond the jurisdiction of the respondent Judge to entertain; that the failure to give the Solicitor General the opportunity to defend the
validity of the challenged executive orders resulted in the receipt of objectionable matters at the hearing; that Rule 66 of the Rules of Court does not
empower a court of law to pass upon the validity of an executive order in a declaratory relief proceeding; that the respondent Judge did not have the
power to grant the injunction as Section 4 of Rule 39 does not apply to declaratory relief proceedings but only to injunction, receivership and patent
accounting proceedings; and prayed that a writ of preliminary injunction be issued to enjoin the respondent Judge from enforcing its order of March
3, 1955, and for such other relief as may be deem just and equitable in the premises. This petition was given due course and the hearing on the
merits was set by this Court for April 12, 1955, but no writ of preliminary injunction was issued.
Meanwhile, the appeal (G.R. No. L-9191) was heard on October 3, 1956, wherein respondents-appellants ascribed to the lower court the
commission of the following errors:
1. In ruling that the President has no authority to issue Executive Orders Nos. 22, 66 and 80 banning the operation of trawls in San Miguel
Bay;
2. In holding that the power to declare a closed area for fishing purposes has not been delegated to the President of the Philippines under
the Fisheries Act;
3. In not considering Executive Orders Nos. 22, 66 and 80 as declaring a closed season pursuant to Section 7, Act 4003, as amended,
otherwise known as the Fisheries Act;
4. In holding that to uphold the validity of Executive Orders Nos. 22 and 80 would be to sanction the exercise of legislative power by
executive decrees;
5. In its suggestion that the only remedy for respondents and the people of the coastal towns of Camarines Sur and Camarines Norte is to
go to the Legislature; and
6. In declaring Executive Orders Nos. 22, 66 and 80 invalid and in ordering the injunction prayed for to issue.
As Our decision in the prohibition and certiorari case (G.R. No. L-8895) would depend, in the last analysis, on Our ruling in the appeal of the
respondents in case G.R. No. L-9191, We shall first proceed to dispose of the latter case.
It is indisputable that the President issued Executive Orders Nos. 22, 66 and 80 in response to the clamor of the inhabitants of the municipalities
along the coastline of San Miguel Bay. They read as follows:
EXECUTIVE ORDER No. 22
PROHIBITING THE USE OF TRAWLS IN SAN MIGUEL BAY
In order to effectively protect the municipal fisheries of San Miguel Bay, Camarines Norte and Camarines Sur, and to conserve fish and
other aquatic resources of the area, I, RAMON MAGSAYSAY, President of the Philippines, by virtue of the powers vested in me by law, do
hereby order that:
1. Fishing by means of trawls (utase, otter and/or perenzella) of any kind, in the waters comprised within San Miguel Bay, is hereby
prohibited.
2. Trawl shall mean, for the purpose of this Order, a fishing net made in the form of a bag with the mouth kept open by a device, the whole
affair being towed, dragged, trailed or trawled on the bottom of the sea to capture demersal, ground or bottom species.
3. Violation of the provisions of this Order shall subject the offender to the penalty provided under Section 83 of Act 4993, or more than six
months, or both, in the discretion of the Court.
Done in the City of Manila, this 5th day of April, nineteen hundred and fifty-four and of the Independence of the Philippines, the eighth. (50
Off. Gaz. 1421)
EXECUTIVE ORDER No. 66
AMENDING EXECUTIVE ORDER No. 22, DATED APRIL 5, 1954, ENTITLED "PROHIBITING THE USE OF TRAWLS IN SAN MIGUEL
BAY"
By virtue of the powers voted in me by law, I, RAMON MAGSAYSAY, President of the Philippines, do hereby amend Executive Order No.
22, dated April 5, 1954, so as to allow fishing by means of trawls, as defined in said Executive Order, within that portion of San Miguel Bay
north of a straight line drawn from Tacubtacuban Hill in the Municipality of Tinambac, Province of Camarines Sur. Fishing by means of
trawls south of said line shall still be absolutely prohibited.
Done in the City of Manila, this 23rd day of September, in the year of our Lord, nineteen hundred and fifty-four, and of the Independence of
the Philippines, the ninth." (50 Off. Gaz. 4037).
EXECUTIVE ORDER No. 80.
Page 61 of 134
 FURTHER AMENDING EXECUTIVE ORDER No. 22, DATED APRIL 5, 1954, AS AMENDED BY EXECUTIVE ORDER No. 66, DATED
SEPTEMBER 23, 1954.
By virtue of the powers vested in me by law, I, RAMON MAGSAYSAY, President of the Philippines, do hereby amend Executive Order No.
66 dated September 23, 1954, so as to allow fishing by means of trawls, as defined in Executive Order No. 22, dated April 5, 1954, within
the portion of San Miguel Bay North of a straight line drawn from Tacubtacuban Hill in the Municipality of Mercedes, Province of Camarines
Norte to Balocbaloc Point in the Municipality of Tinambac, Province of Camarines Sur, until December 31, 1954, only.
Thereafter, the provisions of said Executive Order No. 22 absolutely prohibiting fishing by means of trawls in all the waters comprised
within the San Miguel Bay shall be revived and given full force and effect as originally provided therein.
Done in the City of Manila, this 2nd day of November, in the year of Our Lord, nineteen hundred and fifty-four and of the Independence of
the Philippines, the ninth. (50 Off. Gaz. 5198)
It is likewise admitted that petitioners assailed the validity of said executive orders in their petition for a writ of injunction and/or declaratory relief filed
with the Court of First Instance of Manila, and that the lower court, upon declaring Executive Orders Nos. 22, 66 and 80 invalid, issued an order
requiring the Secretary of Agriculture and Natural Resources and the Director of Fisheries to post a bond for P30,000 if the writ of injunction
restraining them from enforcing the executive orders in question must be stayed.
The Solicitor General avers that the constitutionality of an executive order cannot be ventilated in a declaratory relief proceeding. We find this
untenable, for this Court taking cognizance of an appeal from the decision of the lower court in the case of  Hilado vs. De la Costa, et al ., 83 Phil.,
471, which involves the constitutionality of another executive order presented in an action for declaratory relief, in effect accepted the propriety of
such action.
This question being eliminated, the main issues left for Our determination with respect to defendants' appeal (G.R. No. L-9191), are:
(1) Whether the Secretary of an Executive Department and the Director of a Bureau, acting in their capacities as such Government officials, could
lawfully be required to post a bond in an action against them;
(2) Whether the President of the Philippines has authority to issue Executive Orders Nos. 22, 66 and 80, banning the operation of trawls in San
Miguel Bay, or, said in other words, whether said Executive Orders Nos. 22, 66 and 80 were issued in accordance with law; and.
(3) Whether Executive Orders Nos. 22, 66 and 80 were valid, for the issuance thereof was not in the exercise of legislative powers unduly delegated
to the President.
Counsel for both parties presented commendable exhaustive defenses in support of their respective stands. Certainly, these cases deserve such
efforts, not only because the constitutionality of an act of a coordinate branch in our tripartite system of Government is in issue, but also because of
the number of inhabitants, admittedly classified as "subsistence fishermen", that may be affected by any ruling that We may promulgate herein.
I. As to the first proposition, it is an elementary rule of procedure that an appeal stays the execution of a judgment. An exception is offered by section
4 of Rule 39 of the Rules of Court which provides that:
SEC. 4. INJUNCTION, RECEIVERSHIP AND PATENT ACCOUNTING, NOT STAYED. — Unless otherwise ordered by the court, a
judgment in an action for injunction or in a receivership action, or a judgment or order directing an accounting in an action for infringement
of letter patent, shall not be stayed after its rendition and before an appeal is taken or during the pendency of an appeal. The trial court,
however, in its discretion, when an appeal is taken from a judgement granting, dissolving or denying an injunction, may make an order
suspending, modifying, restoring, or granting such injunction during the pendency of an appeal, upon such terms as to bond or otherwise
as it may consider proper for the security of the rights of the adverse party.
This provision was the basis of the order of the lower court dated February 19, 1955, requiring the filing by the respondents of a bond for P30,000 as
a condition for the non-issuance of the injunction prayed for by plaintiffs therein, and which the Solicitor General charged to have been issued in
excess of jurisdiction. The State's counsel, however, alleges that while judgment could be stayed in injunction, receivership and patent accounting
cases and although the complaint was styled "Injunction, and/or Declaratory Relief with Preliminary Injunction", the case is necessarily one for
declaratory relief, there being no allegation sufficient to convince the Court that the plaintiffs intended it to be one for injunction. But aside from the
title of the complaint, We find that plaintiffs pray for the declaration of the nullity of Executive Order Nos. 22, 66 and 80; the issuance of a writ of
preliminary injunction, and for such other relief as may be deemed just and equitable. This Court has already held that there are only two requisites
to be satisfied if an injunction is to issue, namely, the existence of the right sought to be protected, and that the acts against which the injunction is to
be directed are violative of said right (North Negros Sugar Co., Inc. vs. Serafin Hidalgo, 63 Phil., 664). There is no question that at least 11 of the
complaining trawl operators were duly licensed to operate in any of the national waters of the Philippines, and it is undeniable that the executive
enactment's sought to be annulled are detrimental to their interests. And considering further that the granting or refusal of an injunction, whether
temporary or permanent, rests in the sound discretion of the Court, taking into account the circumstances and the facts of the particular case
(Rodulfa vs. Alfonso, 76 Phil,, 225, 42 Off. Gaz., 2439), We find no abuse of discretion when the trial Court treated the complaint as one for
injunction and declaratory relief and executed the judgment pursuant to the provisions of section 4 of Rule 39 of the Rules of Court.
On the other hand, it shall be remembered that the party defendants in Civil Case No. 24867 of the Court of First Instance of Manila are Salvador
Araneta, as Secretary of Agriculture and Natural Resources, and, Deogracias Villadolid, as Director of Fisheries, and were sued in such capacities
because they were the officers charged with duty of carrying out the statutes, orders and regulations on fishing and fisheries. In its order of February
19, 1955, the trial court denied defendants' motion to set aside judgment and they were required to file a bond for P30,000 to answer for damages
that plaintiffs were allegedly suffering at that time, as otherwise the injunction prayed for by the latter would be issued.
Because of these facts, We agree with the Solicitor General when he says that the action, being one against herein petitioners as such Government
officials, is essentially one against the Government, and to require these officials to file a bond would be indirectly a requirement against the
Government for as regards bonds or damages that may be proved, if any, the real party in interest would be the Republic of the Philippines (L. S.
Moon and Co. vs. Harrison, 43 Phi., 39; Salgado vs. Ramos, 64 Phil., 724-727, and others). The reason for this pronouncement is understandable;
the State undoubtedly is always solvent (Tolentino vs. Carlos 66 Phil., 140; Government of the P. I. vs. Judge of the Court of First Instance of Iloilo,
Page 62 of 134
34 Phil., 167, cited in Joaquin Gutierrez et al. vs. Camus et al. * G.R. No. L-6725, promulgated October 30, 1954). However, as the records show
that herein petitioners failed to put up the bond required by the lower court, allegedly due to difficulties encountered with the Auditor General's Office
(giving the impression that they were willing to put up said bond but failed to do so for reasons beyond their control), and that the orders subjects of
the prohibition and certiorari proceedings in G.R. No. L-8895, were enforced, if at all, 2 in accordance with section 4 of Rule 39, which We hold to be
applicable to the case at bar, the issue as to the regularity or adequacy of requiring herein petitioners to post a bond, becomes moot and academic.
II. Passing upon the question involved in the second proposition, the trial judge extending the controversy to the determination of which between the
Legislative, and Executive Departments of the Government had "the power to close any definite area of the Philippine waters" instead of limiting the
same to the real issue raised by the enactment of Executive Orders No. 22, 26 and 80, especially the first and the last " absolutely prohibiting fishing
by means trawls in all the waters comprised within the San Miguel Bay", ruled in favor of Congress had not intended to abdicate its power to legislate
on the matter, he maintained as stated before, that "until the trawler is outlawed by legislative enactment, it cannot be banned from San Miguel Bay
by executive proclamation", and that "the remedy for respondents and population of the coastal towns of Camarines Sur is to go to Legislature," and
thus declared said Executive Orders Nos. 22, 66 and 80 invalid".
The Solicitor General, on the contrary, asserts that the President is empowered by law to issue the executive enactment's in question.
Sections 6, 13 and 75 of Act No. 4003, known as the Fisheries Law, the latter two sections as amended by section 1 of Commonwealth Act No. 471,
read as follows:
SEC. 6. WORDS AND PHRASES DEFINED. —Words and terms used in this Act shall be construed as follows:
xxx     xxx     xxx
TAKE or TAKING includes pursuing, shooting, killing, capturing, trapping, snaring, and netting fish and other aquatic animals, and all lesser
acts, such as disturbing, wounding, stupefying; or placing, setting, drawing, or using any net or other device commonly used to take or
collect fish and other aquatic animals, whether they result in taking or not , and includes every attempt to take and every act of assistance
to every other person in taking or attempting to take or collect fish and other aquatic animals: PROVIDED, That whenever taking is allowed
by law, reference is had to taking by lawful means and in lawful manner.
xxx     xxx     xxx
SEC. 13. PROTECTION OF FRY OR FISH EGGS. — Except for scientific or educational purpose or for propagation, it shall be unlawful  to
take or catch fry or fish eggs and the small fish, not more than three (3) centimeters long, known as  siliniasi, in the territorial waters of the
Philippines. Towards this end, the Secretary of Agriculture and Commerce shall be authorized to provide by regulations such restrictions
as may be deemed necessary to be imposed on THE USE OF ANY FISHING NET OR FISHING DEVICE FOR THE PROTECTION OF
FRY OR FISH EGGS; Provided, however , That the Secretary of Agriculture and Commerce shall permit the taking of young of certain
species of fish known as hipon under such restrictions as may be deemed necessary.
SEC. 75. FISH REFUGEES AND SANCTUARIES. — Upon the recommendation of the officer or chief of the bureau, office or service
concerned, the Secretary of Agriculture and Commerce may set aside and establish fishery reservation or fish refuges and sanctuaries to
be administered in the manner to be prescribed by him. All streams, ponds and waters within the game refuge, birds, sanctuaries, national
parks, botanical gardens, communal forest and communal pastures are hereby declared fishing refuges and sanctuaries. It shall be
unlawful for any person, to take, destroy or kill in any of the places aforementioned, or in any manner disturb or drive away or take
therefrom, any fish fry or fish eggs.
Act No. 4003 further provides as follows:
SEC. 83. OTHER VIOLATIONS. — Any other violation of the provisions of this Act or any rules and regulations promulgated thereunder
shall subject the offender to a fine of not more than two hundred pesos, or imprisonment for not more than six months, or both, in the
discretion of the Court.
As may be seen from the just quoted provisions, the law declares unlawful and fixes the penalty for the taking (except for scientific or educational
purposes or for propagation), destroying or killing of any fish fry or fish eggs, and the Secretary of Agriculture and Commerce (now the Secretary of
Agriculture and Natural Resources) is authorized to promulgate regulations restricting the use of any fish net or fishing device (which includes the net
used by trawl fishermen) for the protection of fry or fish eggs, as well as to set aside and establish fishery reservations or fish refuges and
sanctuaries to be administered in the manner prescribed by him, from which no person could lawfully take, destroy or kill in any of the places
aforementioned, or in any manner disturb or drive away or take therefrom any small or immature fish, fry or fish eggs. It is true that said section 75
mentions certain streams, ponds and waters within  the game refuges, . . . communal forest, etc., which the law itself declares fish refuges and
sanctuaries, but this enumeration of places does not curtail the general and unlimited power of the Secretary of Agriculture and Natural Resources in
the first part of section 75, to set aside and establish fishery reservations or fish refuges and sanctuaries, which naturally include seas or bays, like
the San Miguel Bay in Camarines.
From the resolution passed at the Conference of Municipal Mayors held at Tinambac, Camarines Sur, on December 18, 1953 (Exh. F), the following
manifestation is made:
WHEREAS, the continuous operation of said trawls even during the close season as specified in said Executive Order No. 20 caused the
wanton destruction of the mother shrimps laying their eggs and the millions of eggs laid and the inevitable extermination of the shrimps
specie; in order to save the shrimps specie from eventual extermination and in order to conserve the shrimps specie for posterity;
In the brief submitted by the NAMFREL and addressed to the President of the Philippines (Exh. 2), in support of the petition of San Miguel Bay
fishermen (allegedly 6, 175 in number), praying that trawlers be banned from operating in San Miguel Bay, it is stated that:
The trawls ram and destroy the fish corrals. The heavy trawl nets dig deep into the ocean bed. They destroy the fish foods which lies below
the ocean floor. Their daytime catches net millions of shrimps scooped up from the mud. In their nets they bring up the life of the sea:
algea, shell fish and star fish . . .

Page 63 of 134
 The absence of some species or the apparent decline in the catch of some fishermen operating in the bay may be due to several factors,
namely: the indiscriminate catching of fry and immature sizes of fishes , the wide-spread use of explosives inside as well as at the mouth
and approaches of the bay, and the extensive operation of  the trawls. (p.9, Report of Santos B. Rasalan, Exh. A)
Extensive Operation of Trawls: — The strenuous effect of the operations of the 17 TRAWLS of the demersal fisheries of San Miguel Bay  is
better appreciated when we consider the fact that out of its about 850 square kilometers area, only about 350 square kilometers of 5
fathoms up could be trawled. With their continuous operation, is greatly strained. This is shown by the fact that in view of the non-
observance of the close season from May to October, each year, majority of their catch are immature. If their operation would continue
unrestricted, the supply would be greatly depleted. (p. 11), Report of Santos B. Rasalan, Exh. A)
San Miguel Bay — can sustain 3 to 4 small trawlers  (Otter Trawl Explorations in Philippine Waters, Research Report 25 of the Fish and
Wildlife Service, United States Department of the Interior, p. 9 Exhibit B).
According to Annex A of the complaint filed in the lower court in Civil Case No. 24867 — G.R. No. L-9191 (Exh. D, p. 53 of the folder of Exhibits), the
18 plaintiffs-appellees operate 29 trawling boats, and their operation must be in a big scale considering the investments plaintiffs have made
therefore, amounting to P387,000 (Record on Appeal, p. 16-17).
In virtue of the aforementioned provisions of law and the manifestation just copied, We are of the opinion that with or without said Executive Orders,
the restriction and banning of trawl fishing from all Philippine waters come, under the law, within the powers of the Secretary of Agriculture and
Natural Resources, who in compliance with his duties may even cause the criminal prosecution of those who in violation of his instructions,
regulations or orders are caught fishing with trawls in the Philippine waters.
Now, if under the law the Secretary of Agriculture and Natural Resources has authority to regulate or ban the fishing by trawl which, it is claimed,
obnoxious for it carries away fish eggs and fry's which should be preserved, can the President of the Philippines exercise that same power and
authority? Section 10(1), Article VII of the Constitution of the Philippines prescribes:
SEC. 10 (1). The President shall have control  of all the executive departments, bureaus or offices, exercises general supervision over all
local governments as may be provided by law, and take care that the laws be faithfully executed.
Section 63 of the Revised Administrative Code reads as follows:
SEC. 63. EXECUTIVE ORDERS AND EXECUTIVE PROCLAMATION. — Administrative acts and commands of the President of the
Philippines touching the organization or mode of operation of the Government or rearranging or readjusting any of the district, divisions,
parts or ports of the Philippines, and all acts and commands governing the general performance of duties by public employees or
disposing of issues of general concern shall be made in executive orders .
xxx     xxx     xxx
Regarding department organization Section 74 of the Revised Administrative Code also provides that:
All executive functions of the government of the Republic of the Philippines shall be directly under the Executive Departments  subject to
the supervision and control of the President of the Philippines in matters of general policy. The Departments are established for the proper
distribution of the work of the Executive, for the performance of the functions expressly assigned to them by law, and in order that each
branch of the administration may have a chief responsible for its direction and policy. Each Department Secretary shall assume the burden
of, and responsibility for, all activities of the Government under his control and supervision.
For administrative purposes the President of the Philippines shall be considered the Department Head of the Executive Office.
One of the executive departments is that of Agriculture and Natural Resources which by law is placed under the direction and control of the
Secretary, who exercises its functions subject to the general supervision and control of the President of the Philippines (Sec. 75, R. A. C.). Moreover,
"executive orders, regulations, decrees and proclamations relative to matters under the supervision or jurisdiction of a Department, the promulgation
whereof is expressly assigned by law to the President of the Philippines, shall as a general rule, be issued upon proposition and recommendation of
the respective Department" (Sec. 79-A, R.A.C.), and there can be no doubt that the promulgation of the questioned Executive Orders was upon the
proposition and recommendation of the Secretary of Agriculture and Natural Resources and that is why said Secretary, who was and is called upon
to enforce said executive Orders, was made a party defendant in one of the cases at bar (G.R. No. L-9191).
For the foregoing reasons We do hesitate to declare that Executive Orders Nos. 22, 66 and 80, series of 1954, of the President, are valid and issued
by authority of law.
III. But does the exercise of such authority by the President constitute and undue delegation of the powers of Congress?
As already held by this Court, the true distinction between delegation of the power to legislate and the conferring of authority or discretion as to the
execution of law consists in that the former necessary involves a discretion as to what the law shall be, wile in the latter the authority or discretion as
to its execution has to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid objection can be made
(Cruz vs. Youngberg, 56 Phil., 234, 239. See also Rubi, et al. vs. The Provincial Board of Mindoro, 39 Phil., 660).
In the case of U. S. vs. Ang Tang Ho, 43 Phil. 1, We also held:
THE POWER TO DELEGATE. — The Legislature cannot delegate legislative power to enact any law. If Act No. 2868 is a law unto itself,
and it does nothing more than to authorize the Governor-General to make rules and regulations to carry it into effect, then the Legislature
created the law. There is no delegation of power and it is valid. On the other hand, if the act within itself does not define a crime and is not
complete, and some legislative act remains to be done to make it a law or a crime, the doing of which is vested in the Governor-General,
the act is delegation of legislative power, is unconstitutional and void.
From the provisions of Act No. 4003 of the Legislature, as amended by Commonwealth Act No. 471, which have been aforequoted, We find that
Congress (a) declared it unlawful "to take or catch fry or fish eggs in the territorial waters of the Philippines; (b) towards this end, it authorized the
Secretary of Agriculture and Natural Resources to provide by the regulations such restrictions as may be deemed necessary to be imposed  on the
use of any fishing net or fishing device for the protection of fish fry or fish eggs  (Sec. 13); (c) it authorized the Secretary of Agriculture and Natural
Resources to set aside and establish fishery reservations or fish refuges and sanctuaries to be administered in the manner to be prescribed by him
Page 64 of 134
and declared it unlawful for any person to take, destroy or kill in any of said places, or, in any manner disturb or drive away or take therefrom, any
fish fry or fish eggs (See. 75); and (d) it penalizes the execution of such acts declared unlawful and in violation of this Act (No. 4003) or of any rules
and regulations promulgated thereunder, making the offender subject to a fine of not more than P200, or imprisonment for not more than 6 months,
or both, in the discretion of the court (Sec. 83).
From the foregoing it may be seen that in so far as the protection of fish fry or fish egg is concerned, the Fisheries Act is complete in itself, leaving to
the Secretary of Agriculture and Natural Resources the promulgation of rules and regulations to carry into effect the legislative intent. It also appears
from the exhibits on record in these cases that fishing with trawls causes "a wanton destruction of the mother shrimps laying their eggs and the
millions of eggs laid and the inevitable extermination of the shrimps specie" (Exh. F), and that, "the trawls ram and destroy the fish corrals. The
heavy trawl nets dig deep into the ocean bed. They destroy the fish food which lies below the ocean floor. Their daytime catches net millions of
shrimps scooped up from the mud. In their nets they bring up the life of the sea" (Exh- 2).
In the light of these facts it is clear to Our mind that for the protection of fry or fish eggs and small and immature fishes, Congress intended with the
promulgation of Act No. 4003, to prohibit the use of any fish net or fishing device like trawl nets that could endanger and deplete our supply of sea
food, and to that end authorized the Secretary of Agriculture and Natural Resources to provide by regulations such restrictions as he deemed
necessary in order to preserve the aquatic resources of the land. Consequently, when the President, in response to the clamor of the people and
authorities of Camarines Sur issued Executive Order No. 80 absolutely prohibiting fishing by means of trawls in all waters comprised within the San
Miguel Bay, he did nothing but show an anxious regard for the welfare of the inhabitants of said coastal province and dispose of issues of general
concern (Sec. 63, R.A.C.) which were in consonance and strict conformity with the law.
Wherefore, and on the strength of the foregoing considerations We render judgement, as follows:
(a) Declaring that the issues involved in case G.R. No. L-8895 have become moot, as no writ of preliminary injunction has been issued by this Court
the respondent Judge of the Court of First Instance of Manila Branch XIV, from enforcing his order of March 3, 1955; and
(b) Reversing the decision appealed from in case G. R. No. L-9191; dissolving the writ of injunction prayed for in the lower court by plaintiffs, if any
has been actually issued by the court a quo; and declaring Executive Orders Nos. 22, 66 and 80, series of 1954, valid for having been issued by
authority of the Constitution, the Revised Administrative Code and the Fisheries Act.
Without pronouncement as to costs. It is so ordered.

G.R. No. 159149             June 26, 2006

The HONORABLE SECRETARY VINCENT S. PEREZ, in his capacity as the Secretary of the Department of Energy, Petitioner,
vs.
LPG REFILLERS ASSOCIATION OF THE PHILIPPINES, INC., Respondent.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45, assailing the Decision 1 and Order2 of the Regional Trial Court of Pasig City, Branch 161,
in SCA Case No. 2318, which nullified Circular No. 2000-06-010 of the Department of Energy (DOE).
The facts are undisputed.
Batas Pambansa Blg. 33, as amended, penalizes illegal trading, hoarding, overpricing, adulteration, underdelivery, and underfilling of petroleum
products, as well as possession for trade of adulterated petroleum products and of underfilled liquefied petroleum gas (LPG) cylinders. 3 The said law
sets the monetary penalty for violators to a minimum of P20,000 and a maximum of P50,000.4
On June 9, 2000, Circular No. 2000-06-010 was issued by the DOE to implement B.P. Blg. 33, thus:
SECTION 4. NO PRICE DISPLAY BOARD  –
LPG Marketer/LPG Dealer/LPG Retail Outlet
1st Offense - Reprimand/warning letter
2nd Offense - Recommend suspension of business operation to the proper local government unit
3rd Offense - Recommend business closure to the proper local government unit and initiate criminal proceedings
SECTION 5. NO WEIGHING SCALE –
A. LPG Refiller/Marketer
1st Offense - Fine of P5,000
2nd Offense - Fine of P10,000
3rd Offense - Recommend business closure to the proper local government unit
B. Dealer
1st Offense - Fine of P3,000
2nd Offense - Fine of P7,000
3rd Offense - Recommend business closure to the proper local government unit
C. LPG Retail Outlet
1st Offense - Reprimand
2nd Offense - Fine of P500.00
3rd Offense - Fine of P1,000.00
SECTION 6. NO TARE WEIGHT OR INCORRECT TARE WEIGHT MARKINGS. (REQUIREMENT ON ENGRAVED TARE WEIGHT SHALL TAKE
EFFECT TWO (2) YEARS AFTER EFFECTIVITY OF THIS CIRCULAR)
A. LPG Refiller/Marketer
1st Offense - Fine of P3,000 for each cylinder
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 2nd Offense - Fine of P5,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
B. Dealer
1st Offense - Fine of P2,000 for each cylinder
2nd Offense - Fine of P4,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
C. LPG Retail Outlet
1st Offense - Fine of P1,000 for each cylinder
2nd Offense - Fine of P2,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
SECTION 7. NO APPROPRIATE OR AUTHORIZED LPG SEAL
A. LPG Refiller/Marketer
1st Offense - Fine of P3,000 for each cylinder
2nd Offense - Fine of P5,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
B. Dealer
1st Offense - Fine of P2,000 for each cylinder
2nd Offense - Fine of P4,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
C. LPG Retail Outlet
1st Offense - Fine of P1,000 for each cylinder
2nd Offense - Fine of P2,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
SECTION 8. NO TRADE NAME, UNBRANDED LPG CYLINDERS, NO SERIAL NUMBER, NO DISTINGUISHING COLOR, NO EMBOSSED
IDENTIFYING MARKINGS ON CYLINDER OR DISTINCTIVE COLLAR OR DESIGN (REQUIREMENT ON SERIAL NUMBER AND DISTINCTIVE
COLLAR OR DESIGN SHALL TAKE EFFECT TWO (2) YEARS AFTER EFFECTIVITY OF THIS CIRCULAR)
A. LPG Refiller/Marketer
1st Offense - Fine of P4,000 for each cylinder
2nd Offense - Fine of P5,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
B. Dealer
1st Offense - Fine of P3,000 for each cylinder
2nd Offense - Fine of P4,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
C. LPG Retail Outlet
1st Offense - Fine of P1,000 for each cylinder
2nd Offense - Fine of P2,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
SECTION 9. UNDERFILLED LPG CYLINDERS
A. LPG REFILLER/MARKETER
1st Offense - Fine of P4,000 for each cylinder
2nd Offense - Fine of P6,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
B. DEALER
1st Offense - Fine of P3,000 for each cylinder
2nd Offense - Fine of P4,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
C. LPG RETAIL OUTLET
1st Offense - Fine of P1,000 for each cylinder
2nd Offense - Fine of P2,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
SECTION 10. TAMPERING, ALTERING, OR MODIFYING OF LPG CYLINDER THRU ANY MEANS SUCH AS BUT NOT LIMITED TO CHANGING
THE VALVE, REPAINTING, AND RELABELLING BY ANY PERSON OR ENTITY OTHER THAN THE LEGITIMATE AND REGISTERED OWNER
OF THE SAME. FOR THIS PURPOSE, LPG REFILLER, MARKETER, DEALER, OR RETAIL OUTLET, AS THE CASE MAY BE, WHO HAS
POSSESSION OF SUCH ILLEGALLY TAMPERED, ALTERED, OR OTHERWISE MODIFIED LPG CYLINDER SHALL BE HELD LIABLE FOR THIS
OFFENSE
A. LPG Refiller/Marketer
1st Offense - Fine of P5,000 for each cylinder
2nd Offense - Fine of P10,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
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B. Dealer
1st Offense - Fine of P3,000 for each cylinder
2nd Offense - Fine of P5,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
C. LPG Retail Outlet
1st Offense - Fine of P1,500 for each cylinder
2nd Offense - Fine of P3,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
SECTION 11. UNAUTHORIZED DECANTING OR REFILLING OF LPG CYLINDERS
1st Offense - Fine of P5,000 for each cylinder
2nd Offense - Fine of P10,000 for each cylinder
3rd Offense - Recommend business closure to the proper local government unit
SECTION 12. HOARDING OF PETROLEUM PRODUCTS INCLUDING LIQUEFIED PETROLEUM GAS
1st Offense - Fine of P10,000 per cylinder
2nd Offense - Recommend business closure to the proper local government unit plus the filing of appropriate criminal action
SECTION 13. REFUSAL TO ALLOW OR COOPERATE WITH DULY AUTHORIZED INSPECTORS OF THE ENERGY INDUSTRY
ADMINISTRATION BUREAU (EIAB) OF THE DEPARTMENT OF ENERGY IN THE CONDUCT OF THEIR INSPECTION/INVESTIGATION,
WHETHER REGULAR AND ROUTINARY OR COMPLAINT-INITIATED
1st Offense - Fine of P10,000
2nd Offense - Recommend business closure to the proper local government unit
SECTION 14. REFUSAL OR FAILURE TO PAY FINE – The Department of Energy shall recommend to the proper local government unit the closure
of business of a respondent who refuses or fails to pay any administrative fine without prejudice to the filing of an appropriate criminal action if
warranted.5
Respondent LPG Refillers Association of the Philippines, Inc. asked the DOE to set aside the Circular for being contrary to law. The DOE, however,
denied the request for lack of merit.
Respondent then filed a petition for prohibition and annulment with prayer for temporary restraining order and/or writ of preliminary injunction before
the trial court.
After trial on the merits, the trial court nullified the Circular on the ground that it introduced new offenses not included in the law. 6 The court intimated
that the Circular, in providing penalties on a per cylinder basis for each violation, might exceed the maximum penalty under the law. The decretal part
of its Decision reads:
IN VIEW OF THE FOREGOING, this Court renders judgment declaring DOE Circular No. 2000-06-010 null and void and prohibits the respondent
from implementing the same.
SO ORDERED.7
The trial court denied for lack of merit petitioner’s motion for reconsideration. Hence this petition, raising the following issues:
I
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED IN HOLDING THAT "A CLOSE SCRUTINY OF BP 33, PD 1865 AND R.A. NO. 8479
SHOWS THAT OFFENSES LIKE NO PRICE DISPLAY [BOARD], NO WEIGHING SCALE, ETC. SET FORTH IN THE CIRCULAR ARE NOT
PROVIDED FOR IN ANY OF THE THREE (3) LAWS".
II
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED IN HOLDING THAT "A SCRUTINY OF THE NEW SET OF PENALTIES PROVIDED
BY THE CIRCULAR SHOWS THAT THE PENALTIES THIS TIME ARE BASED ON PER CYLINDER BASIS"; THAT "BEING SUCH, NO CEILING
WAS PROVIDED FOR AS TO THE ADMINISTRATIVE FINES"; THAT "AS ILLUSTRATED BY THE PETITIONER, FOR JUST ONE LPG CYLINDER
FOUND VIOLATING AT LEAST SEC[TIONS] 6, 7, 8, 9, 10 AND 11 OF THE [CIRCULAR], A FINE OF P24,000.00 IS IMPOSED;" AND THAT "THIS
WILL CLEARLY BE BEYOND THE P10,000.00 PROVIDED BY THE LAWS."
III
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED IN HOLDING THAT SECTION 16 OF PETITIONER’S CIRCULAR WHICH
AUTHORIZES THE IMPOSITION OF PECUNIARY PENALTIES WITH THE TOTAL FINE NOT EXCEEDING P20,000.00 FOR RETAIL OUTLETS
VIOLATES THE PENALTY CEILING OF P10,000.00 SET UNDER BP BLG. 33, AS AMENDED.
IV
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED IN HOLDING THAT SINCE SECTION 5(g) OF R.A. 7638 FINDS NO REFERENCE
IN DOE CIRCULAR NO. 2000-06-010, THE SAME SHOULD BE DISREGARDED.
V
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED IN HOLDING THAT "ON THE NEW OFFENSES INTRODUCED IN THE CIRCULAR
SUCH AS SECTIONS 4, 5, 10, 13 AND 14 AND THE IMPOSITION OF THE GRADUATED PENALTIES ON ‘A PER CYLINDER BASIS’, THIS
COURT FINDS [NO] REASON TO DISTURB ITS FINDINGS THAT RESPONDENT-MOVANT EXCEEDED ITS AUTHORITY. X X X IT SHOULD BE
REMEMBERED THAT BP BLG. 33 AS AMENDED AND P.D. 1865 ARE CRIMINAL STATUTES AND MUST BE CONSTRUED WITH SUCH
STRICTNESS AS TO CAREFULLY SAFEGUARD THE RIGHTS OF THE DEFENDANT."
VI
WHETHER OR NOT THE COURT A QUO ERRED IN HOLDING THAT "THE ASSAILED CIRCULAR SETS NO MAXIMUM LIMIT AS TO THE FINE
THAT MAY BE IMPOSED ON AN ERRING PERSON OR ENTITY TO WHICH FACT MOVANT CONCEDES. FOR ONE (1) CYLINDER ALONE,
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NOT ONLY DOES THE CIRCULAR MAKE THE FINE EXCESSIVE TO THE EXTENT OF BEING CONFISCATORY, BUT IT EVEN IMPOSES A
PENALTY WHICH MAY EVEN GO BEYOND THAT MAXIMUM IMPOSABLE FINE OF P50,000.00 SET BY P.D. 1865 IN ITS SEC. 4 AFTER A
CRIMINAL PROCEEDING."8
To our mind, the issue raised by petitioner may be reduced to the sole issue of whether the Regional Trial Court of Pasig erred in declaring the
provisions of the Circular null and void, and prohibiting the Circular’s implementation.
Petitioner argues that the penalties for the acts and omissions enumerated in the Circular are sanctioned by Sections 1 9 and 3-A10 of B.P. Blg. 33
and Section 2311 of Republic Act No. 8479.12 Petitioner adds that Sections 5(g) 13 and 2114 of Republic Act No. 763815 also authorize the DOE to
impose the penalties provided in the Circular.
Respondent counters that the enabling laws, B.P. Blg. 33 and R.A. No. 8479, do not expressly penalize the acts and omissions enumerated in the
Circular. Neither is the Circular supported by R.A. No. 7638, respondent claims, since the said law does not pertain to LPG traders. Respondent
maintains that the Circular is not in conformity with the law it seeks to implement.
We resolve to grant the petition.
For an administrative regulation, such as the Circular in this case, to have the force of penal law, (1) the violation of the administrative regulation
must be made a crime by the delegating statute itself; and (2) the penalty for such violation must be provided by the statute itself. 16
The Circular satisfies the first requirement. B.P. Blg. 33, as amended, criminalizes illegal trading, adulteration, underfilling, hoarding, and overpricing
of petroleum products. Under this general description of what constitutes criminal acts involving petroleum products, the Circular merely lists the
various modes by which the said criminal acts may be perpetrated, namely: no price display board, no weighing scale, no tare weight or incorrect
tare weight markings, no authorized LPG seal, no trade name, unbranded LPG cylinders, no serial number, no distinguishing color, no embossed
identifying markings on cylinder, underfilling LPG cylinders, tampering LPG cylinders, and unauthorized decanting of LPG cylinders. These specific
acts and omissions are obviously within the contemplation of the law, which seeks to curb the pernicious practices of some petroleum merchants.
As for the second requirement, we find that the Circular is in accord with the law. Under B.P. Blg. 33, as amended, the monetary penalty for any
person who commits any of the acts aforestated is limited to a minimum of P20,000 and a maximum of P50,000. Under the Circular, the maximum
pecuniary penalty for retail outlets is P20,000,17 an amount within the range allowed by law. However, for the refillers, marketers, and dealers, the
Circular is silent as to any maximum monetary penalty. This mere silence, nonetheless, does not amount to violation of the aforesaid statutory
maximum limit. Further, the mere fact that the Circular provides penalties on a per cylinder basis does not in itself run counter to the law since all that
B.P. Blg. 33 prescribes are the minimum and the maximum limits of penalties.
Clearly, it is B.P. Blg. 33, as amended, which defines what constitute punishable acts involving petroleum products and which set the minimum and
maximum limits for the corresponding penalties. The Circular merely implements the said law, albeit it is silent on the maximum pecuniary penalty for
refillers, marketers, and dealers. Nothing in the Circular contravenes the law.
Noteworthy, the enabling laws on which the Circular is based were specifically intended to provide the DOE with increased administrative and penal
measures with which to effectively curtail rampant adulteration and shortselling, as well as other acts involving petroleum products, which are
inimical to public interest. To nullify the Circular in this case would be to render inutile government efforts to protect the general consuming public
against the nefarious practices of some unscrupulous LPG traders.
WHEREFORE, the petition is GRANTED. The assailed Circular No. 2000-06-010 of DOE is declared valid. The Decision and Order of the Regional
Trial Court of Pasig City, Branch 161, in SCA Case No. 2318, nullifying said Circular and prohibiting its implementation are
hereby REVERSED and SET ASIDE.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 173034             October 9, 2007

PHARMACEUTICAL AND HEALTH CARE ASSOCIATION OF THE PHILIPPINES, petitioner,
vs.
HEALTH SECRETARY FRANCISCO T. DUQUE III; HEALTH UNDER SECRETARIES DR. ETHELYN P. NIETO, DR. MARGARITA M. GALON,
ATTY. ALEXANDER A. PADILLA, & DR. JADE F. DEL MUNDO; and ASSISTANT SECRETARIES DR. MARIO C. VILLAVERDE, DR. DAVID J.
LOZADA, AND DR. NEMESIO T. GAKO, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:

Page 68 of 134
The Court and all parties involved are in agreement that the best nourishment for an infant is mother's milk. There is nothing greater than for a
mother to nurture her beloved child straight from her bosom. The ideal is, of course, for each and every Filipino child to enjoy the unequaled benefits
of breastmilk. But how should this end be attained?
Before the Court is a petition for certiorari under Rule 65 of the Rules of Court, seeking to nullify Administrative Order (A.O.) No. 2006-0012
entitled, Revised Implementing Rules and Regulations of Executive Order No. 51, Otherwise Known as The "Milk Code," Relevant International
Agreements, Penalizing Violations Thereof, and for Other Purposes  (RIRR). Petitioner posits that the RIRR is not valid as it contains provisions that
are not constitutional and go beyond the law it is supposed to implement.
Named as respondents are the Health Secretary, Undersecretaries, and Assistant Secretaries of the Department of Health (DOH). For purposes of
herein petition, the DOH is deemed impleaded as a co-respondent since respondents issued the questioned RIRR in their capacity as officials of
said executive agency.1
Executive Order No. 51 (Milk Code) was issued by President Corazon Aquino on October 28, 1986 by virtue of the legislative powers granted to the
president under the Freedom Constitution. One of the preambular clauses of the Milk Code states that the law seeks to give effect to Article 11 2 of
the International Code of Marketing of Breastmilk Substitutes (ICMBS), a code adopted by the World Health Assembly (WHA) in 1981. From 1982 to
2006, the WHA adopted several Resolutions to the effect that breastfeeding should be supported, promoted and protected, hence, it should be
ensured that nutrition and health claims are not permitted for breastmilk substitutes.
In 1990, the Philippines ratified the International Convention on the Rights of the Child. Article 24 of said instrument provides that State Parties
should take appropriate measures to diminish infant and child mortality, and ensure that all segments of society, specially parents and children, are
informed of the advantages of breastfeeding.
On May 15, 2006, the DOH issued herein assailed RIRR which was to take effect on July 7, 2006.
However, on June 28, 2006, petitioner, representing its members that are manufacturers of breastmilk substitutes, filed the present Petition
for Certiorari and Prohibition with Prayer for the Issuance of a Temporary Restraining Order (TRO) or Writ of Preliminary Injunction.
The main issue raised in the petition is whether respondents officers of the DOH acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and in violation of the provisions of the Constitution in promulgating the RIRR. 3
On August 15, 2006, the Court issued a Resolution granting a TRO enjoining respondents from implementing the questioned RIRR.
After the Comment and Reply had been filed, the Court set the case for oral arguments on June 19, 2007. The Court issued an Advisory (Guidance
for Oral Arguments) dated June 5, 2007, to wit:
The Court hereby sets the following issues:
1. Whether or not petitioner is a real party-in-interest;
2. Whether Administrative Order No. 2006-0012 or the Revised Implementing Rules and Regulations (RIRR) issued by the Department of
Health (DOH) is not constitutional;
2.1 Whether the RIRR is in accord with the provisions of Executive Order No. 51 (Milk Code);
2.2 Whether pertinent international agreements 1 entered into by the Philippines are part of the law of the land and may be implemented by
the DOH through the RIRR; If in the affirmative, whether the RIRR is in accord with the international agreements;
2.3 Whether Sections 4, 5(w), 22, 32, 47, and 52 of the RIRR violate the due process clause and are in restraint of trade; and
2.4 Whether Section 13 of the RIRR on Total Effect provides sufficient standards.
_____________
1 (1) United Nations Convention on the Rights of the Child; (2) the WHO and Unicef "2002 Global Strategy on Infant and Young Child
Feeding;" and (3) various World Health Assembly (WHA) Resolutions.
The parties filed their respective memoranda.
The petition is partly imbued with merit.
On the issue of petitioner's standing
With regard to the issue of whether petitioner may prosecute this case as the real party-in-interest, the Court adopts the view enunciated in
Executive Secretary v. Court of Appeals,4 to wit:
The modern view is that an association has standing to complain of injuries to its members. This view fuses the legal identity of an
association with that of its members. An association has standing to file suit for its workers despite its lack of direct interest if its members
are affected by the action. An organization has standing to assert the concerns of its constituents.
xxxx
x x x We note that, under its Articles of Incorporation, the respondent was organized x x x to act as the representative of any individual,
company, entity or association on matters related to the manpower recruitment industry, and to perform other acts and activities necessary
to accomplish the purposes embodied therein. The respondent is, thus, the appropriate party to assert the rights of its members, because it
and its members are in every practical sense identical. x x x The respondent [association] is but the medium through which its individual
members seek to make more effective the expression of their voices and the redress of their grievances. 5 (Emphasis supplied)
which was reasserted in Purok Bagong Silang Association, Inc. v. Yuipco ,6 where the Court ruled that an association has the legal personality to
represent its members because the results of the case will affect their vital interests. 7
Herein petitioner's Amended Articles of Incorporation contains a similar provision just like in Executive Secretary, that the association is formed "to
represent directly or through approved representatives the pharmaceutical and health care industry before the Philippine Government and any of its
agencies, the medical professions and the general public." 8 Thus, as an organization, petitioner definitely has an interest in fulfilling its avowed
purpose of representing members who are part of the pharmaceutical and health care industry. Petitioner is duly authorized 9 to take the appropriate
course of action to bring to the attention of government agencies and the courts any grievance suffered by its members which are directly affected by
the RIRR. Petitioner, which is mandated by its Amended Articles of Incorporation to represent the entire industry, would be remiss in its duties if it
Page 69 of 134
fails to act on governmental action that would affect any of its industry members, no matter how few or numerous they are. Hence, petitioner, whose
legal identity is deemed fused with its members, should be considered as a real party-in-interest which stands to be benefited or injured by any
judgment in the present action.
On the constitutionality of the provisions of the RIRR
First, the Court will determine if pertinent international instruments adverted to by respondents are part of the law of the land.
Petitioner assails the RIRR for allegedly going beyond the provisions of the Milk Code, thereby amending and expanding the coverage of said law.
The defense of the DOH is that the RIRR implements not only the Milk Code but also various international instruments 10 regarding infant and young
child nutrition. It is respondents' position that said international instruments are deemed part of the law of the land and therefore the DOH may
implement them through the RIRR.
The Court notes that the following international instruments invoked by respondents, namely: (1) The United Nations Convention on the Rights of the
Child; (2) The International Covenant on Economic, Social and Cultural Rights; and (3) the Convention on the Elimination of All Forms of
Discrimination Against Women, only provide in general terms that steps must be taken by State Parties to diminish infant and child mortality and
inform society of the advantages of breastfeeding, ensure the health and well-being of families, and ensure that women are provided with services
and nutrition in connection with pregnancy and lactation. Said instruments do not contain specific provisions regarding the use or marketing of
breastmilk substitutes.
The international instruments that do have specific provisions regarding breastmilk substitutes are the ICMBS and various WHA Resolutions.
Under the 1987 Constitution, international law can become part of the sphere of domestic law either by transformation or incorporation.11 The
transformation method requires that an international law be transformed into a domestic law through a constitutional mechanism such as local
legislation. The incorporation method applies when, by mere constitutional declaration, international law is deemed to have the force of domestic
law.12
Treaties become part of the law of the land through transformation pursuant to Article VII, Section 21 of the Constitution which provides that "[n]o
treaty or international agreement shall be valid and effective unless concurred in by at least two-thirds of all the members of the Senate." Thus,
treaties or conventional international law must go through a process prescribed by the Constitution for it to be transformed into municipal law that can
be applied to domestic conflicts.13
The ICMBS and WHA Resolutions are not treaties as they have not been concurred in by at least two-thirds of all members of the Senate as
required under Section 21, Article VII of the 1987 Constitution.
However, the ICMBS which was adopted by the WHA in 1981 had been transformed into domestic law through local legislation, the Milk Code.
Consequently, it is the Milk Code that has the force and effect of law in this jurisdiction and not the ICMBS per se.
The Milk Code is almost a verbatim reproduction of the ICMBS, but it is well to emphasize at this point that the Code did not adopt the provision in
the ICMBS absolutely prohibiting advertising or other forms of promotion to the general public of products within the scope of the ICMBS.
Instead, the Milk Code expressly provides that advertising, promotion, or other marketing materials may be allowed if such materials are duly
authorized and approved by the Inter-Agency Committee (IAC).
On the other hand, Section 2, Article II of the 1987 Constitution, to wit:
SECTION 2. The Philippines renounces war as an instrument of national policy, adopts the generally accepted principles of international
law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation and amity with all nations.
(Emphasis supplied)
embodies the incorporation method.14
In Mijares v. Ranada,15 the Court held thus:
[G]enerally accepted principles of international law, by virtue of the incorporation clause of the Constitution, form part of the laws of the
land even if they do not derive from treaty obligations. The classical formulation in international law sees those  customary rules accepted
as binding result from the combination [of] two elements: the established, widespread, and consistent practice on the part of States; and a
psychological element known as the opinion juris sive necessitates (opinion as to law or necessity). Implicit in the latter element is a belief
that the practice in question is rendered obligatory by the existence of a rule of law requiring it. 16 (Emphasis supplied)
"Generally accepted principles of international law" refers to norms of general or customary international law which are binding on all states, 17 i.e.,
renunciation of war as an instrument of national policy, the principle of sovereign immunity, 18 a person's right to life, liberty and due
process,19 and pacta sunt servanda,20 among others. The concept of "generally accepted principles of law" has also been depicted in this wise:
Some legal scholars and judges look upon certain "general principles of law" as a primary source of international law because  they have the
"character of jus rationale" and are "valid through all kinds of human societies." (Judge Tanaka in his dissenting opinion in the 1966 South West
Africa Case, 1966 I.C.J. 296). O'Connell holds that certain priniciples are part of international law because they are "basic to legal systems generally"
and hence part of the jus gentium. These principles, he believes, are established by a process of reasoning based on the common identity of all legal
systems. If there should be doubt or disagreement, one must look to state practice and determine whether the municipal law principle provides a just
and acceptable solution. x x x 21 (Emphasis supplied)
Fr. Joaquin G. Bernas defines customary international law as follows:
Custom or customary international law means "a general and consistent practice of states followed by them from a sense of legal
obligation [opinio juris]." (Restatement) This statement contains the two basic elements of custom: the material factor, that is, how states
behave, and the psychological or subjective factor, that is, why they behave the way they do.
xxxx
The initial factor for determining the existence of custom is the actual behavior of states. This includes several elements: duration,
consistency, and generality of the practice of states.
The required duration can be either short or long. x x x
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 xxxx
Duration therefore is not the most important element. More important is the consistency and the generality of the practice. x x x
xxxx
Once the existence of state practice has been established, it becomes necessary to determine why states behave the way they do. Do
states behave the way they do because they consider it obligatory to behave thus or do they do it only as a matter of courtesy? Opinio
juris, or the belief that a certain form of behavior is obligatory, is what makes practice an international rule. Without it, practice is not
law.22 (Underscoring and Emphasis supplied)
Clearly, customary international law is deemed incorporated into our domestic system. 23
WHA Resolutions have not been embodied in any local legislation. Have they attained the status of customary law and should they then be deemed
incorporated as part of the law of the land?
The World Health Organization (WHO) is one of the international specialized agencies allied with the United Nations (UN) by virtue of Article 57, 24 in
relation to Article 6325 of the UN Charter. Under the 1946 WHO Constitution, it is the WHA which determines the policies of the WHO, 26 and has the
power to adopt regulations concerning "advertising and labeling of biological, pharmaceutical and similar products moving in international
commerce,"27 and to "make recommendations to members with respect to any matter within the competence of the Organization." 28 The legal effect
of its regulations, as opposed to recommendations, is quite different.
Regulations, along with conventions and agreements, duly adopted by the WHA bind member states thus:
Article 19. The Health Assembly shall have authority to adopt conventions or agreements with respect to any matter within the competence
of the Organization. A two-thirds vote of the Health Assembly shall be required for the adoption of such  conventions or agreements,
which shall come into force for each Member when accepted by it in accordance with its constitutional processes.
Article 20. Each Member undertakes that it will, within eighteen months after the adoption by the Health Assembly of a convention or
agreement, take action relative to the acceptance of such convention or agreement. Each Member shall notify the Director-General of the
action taken, and if it does not accept such convention or agreement within the time limit, it will furnish a statement of the reasons for non-
acceptance. In case of acceptance, each Member agrees to make an annual report to the Director-General in accordance with Chapter
XIV.
Article 21. The Health Assembly shall have authority to adopt regulations concerning: (a) sanitary and quarantine requirements and other
procedures designed to prevent the international spread of disease; (b) nomenclatures with respect to diseases, causes of death and
public health practices; (c) standards with respect to diagnostic procedures for international use; (d) standards with respect to the safety,
purity and potency of biological, pharmaceutical and similar products moving in international commerce; (e) advertising and labeling of
biological, pharmaceutical and similar products moving in international commerce.
Article 22. Regulations adopted pursuant to Article 21 shall come into force for all Members after due notice has been given of their
adoption by the Health Assembly except for such Members as may notify the Director-General of rejection or reservations within the period
stated in the notice.  (Emphasis supplied)
On the other hand, under Article 23, recommendations of the WHA do not come into force for members, in the same way that conventions or
agreements under Article 19 and regulations under Article 21 come into force. Article 23 of the WHO Constitution reads:
Article 23. The Health Assembly shall have authority to make recommendations to Members with respect to any matter within the
competence of the Organization. (Emphasis supplied)
The absence of a provision in Article 23 of any mechanism by which the recommendation would come into force for member states is conspicuous.
The former Senior Legal Officer of WHO, Sami Shubber, stated that WHA recommendations are generally not binding, but they "carry moral and
political weight, as they constitute the judgment on a health issue of the collective membership of the highest international body in the field of
health."29 Even the ICMBS itself was adopted as a mere recommendation, as WHA Resolution No. 34.22 states:
"The Thirty-Fourth World Health Assembly x x x adopts, in the sense of Article 23 of the Constitution, the International Code of Marketing
of Breastmilk Substitutes annexed to the present resolution." (Emphasis supplied)
The Introduction to the ICMBS also reads as follows:
In January 1981, the Executive Board of the World Health Organization at its sixty-seventh session, considered the fourth draft of the code,
endorsed it, and unanimously recommended to the Thirty-fourth World Health Assembly the text of a resolution by which  it would adopt the
code in the form of a recommendation rather than a regulation. x x x (Emphasis supplied)
The legal value of WHA Resolutions as recommendations is summarized in Article 62 of the WHO Constitution, to wit:
Art. 62. Each member shall report annually on the action taken with respect to recommendations made to it by the Organization, and with
respect to conventions, agreements and regulations.
Apparently, the WHA Resolution adopting the ICMBS and subsequent WHA Resolutions urging member states to implement the ICMBS are merely
recommendatory and legally non-binding. Thus, unlike what has been done with the ICMBS whereby the legislature enacted most of the provisions
into law which is the Milk Code, the subsequent WHA Resolutions, 30 specifically providing for exclusive breastfeeding from 0-6 months, continued
breastfeeding up to 24 months, and absolutely prohibiting advertisements and promotions of breastmilk substitutes, have not been adopted as a
domestic law.
It is propounded that WHA Resolutions may constitute "soft law" or non-binding norms, principles and practices that influence state behavior. 31
"Soft law" does not fall into any of the categories of international law set forth in Article 38, Chapter III of the 1946 Statute of the International Court of
Justice.32 It is, however, an expression of non-binding norms, principles, and practices that influence state behavior. 33 Certain declarations and
resolutions of the UN General Assembly fall under this category. 34 The most notable is the UN Declaration of Human Rights, which this Court has
enforced in various cases, specifically, Government of Hongkong Special Administrative Region v. Olalia ,35 Mejoff v. Director of Prisons,36 Mijares v.
Rañada37 and Shangri-la International Hotel Management, Ltd. v. Developers Group of Companies, Inc.. 38
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The World Intellectual Property Organization (WIPO), a specialized agency attached to the UN with the mandate to promote and protect intellectual
property worldwide, has resorted to soft law as a rapid means of norm creation, in order "to reflect and respond to the changing needs and demands
of its constituents."39 Other international organizations which have resorted to soft law include the International Labor Organization and the Food and
Agriculture Organization (in the form of the Codex Alimentarius).40
WHO has resorted to soft law. This was most evident at the time of the Severe Acute Respiratory Syndrome (SARS) and Avian flu outbreaks.
Although the IHR Resolution does not create new international law binding on WHO member states, it provides an excellent example of
the power of "soft law" in international relations. International lawyers typically distinguish binding rules of international law-"hard law"-from
non-binding norms, principles, and practices that influence state behavior-"soft law." WHO has during its existence generated many soft
law norms, creating a "soft law regime" in international governance for public health.
The "soft law" SARS and IHR Resolutions represent significant steps in laying the political groundwork for improved international
cooperation on infectious diseases. These resolutions clearly define WHO member states' normative duty to cooperate fully with other
countries and with WHO in connection with infectious disease surveillance and response to outbreaks.
This duty is neither binding nor enforceable, but, in the wake of the SARS epidemic, the duty is powerful politically  for two reasons. First,
the SARS outbreak has taught the lesson that participating in, and enhancing, international cooperation on infectious disease controls is in
a country's self-interest x x x if this warning is heeded, the "soft law" in the SARS and IHR Resolution could inform the development of
general and consistent state practice on infectious disease surveillance and outbreak response, perhaps crystallizing eventually into
customary international law on infectious disease prevention and control. 41
In the Philippines, the executive department implemented certain measures recommended by WHO to address the outbreaks of SARS and Avian flu
by issuing Executive Order (E.O.) No. 201 on April 26, 2003 and E.O. No. 280 on February 2, 2004, delegating to various departments broad powers
to close down schools/establishments, conduct health surveillance and monitoring, and ban importation of poultry and agricultural products.
It must be emphasized that even under such an international emergency, the duty of a state to implement the IHR Resolution was still considered not
binding or enforceable, although said resolutions had great political influence.
As previously discussed, for an international rule to be considered as customary law, it must be established that such rule is being followed by states
because they consider it obligatory to comply with such rules ( opinio juris). Respondents have not presented any evidence to prove that the WHA
Resolutions, although signed by most of the member states, were in fact enforced or practiced by at least a majority of the member states; neither
have respondents proven that any compliance by member states with said WHA Resolutions was obligatory in nature.
Respondents failed to establish that the provisions of pertinent WHA Resolutions are customary international law that may be deemed part of the law
of the land.
Consequently, legislation is necessary to transform the provisions of the WHA Resolutions into domestic law. The provisions of the WHA Resolutions
cannot be considered as part of the law of the land that can be implemented by executive agencies without the need of a law enacted by the
legislature.
Second, the Court will determine whether the DOH may implement the provisions of the WHA Resolutions by virtue of its powers and functions
under the Revised Administrative Code even in the absence of a domestic law.
Section 3, Chapter 1, Title IX of the Revised Administrative Code of 1987 provides that the DOH shall  define the national health policy and
implement a national health plan within the framework of the government's general policies and plans, and  issue orders and regulations concerning
the implementation of established health policies.
It is crucial to ascertain whether the absolute prohibition on advertising and other forms of promotion of breastmilk substitutes provided in some WHA
Resolutions has been adopted as part of the national health policy.
Respondents submit that the national policy on infant and young child feeding is embodied in A.O. No. 2005-0014, dated May 23, 2005. Basically,
the Administrative Order declared the following policy guidelines: (1) ideal breastfeeding practices, such as early initiation of breastfeeding, exclusive
breastfeeding for the first six months, extended breastfeeding up to two years and beyond; (2) appropriate complementary feeding, which is to start
at age six months; (3) micronutrient supplementation; (4) universal salt iodization; (5) the exercise of other feeding options; and (6) feeding in
exceptionally difficult circumstances. Indeed, the primacy of breastfeeding for children is emphasized as a national health policy. However, nowhere
in A.O. No. 2005-0014 is it declared that as part of such health policy, the advertisement or promotion of breastmilk substitutes should be absolutely
prohibited.
The national policy of protection, promotion and support of breastfeeding cannot automatically be equated with a total ban on advertising for
breastmilk substitutes.
In view of the enactment of the Milk Code which does not contain a total ban on the advertising and promotion of breastmilk substitutes, but instead,
specifically creates an IAC which will regulate said advertising and promotion, it follows that a total ban policy could be implemented only  pursuant to
a law amending the Milk Code passed by the constitutionally authorized branch of government, the legislature.
Thus, only the provisions of the Milk Code, but not those of subsequent WHA Resolutions, can be validly implemented by the DOH through the
subject RIRR.
Third, the Court will now determine whether the provisions of the RIRR are in accordance with those of the Milk Code.
In support of its claim that the RIRR is inconsistent with the Milk Code, petitioner alleges the following:
1. The Milk Code limits its coverage to children 0-12 months old, but the RIRR extended its coverage to "young children" or those from
ages two years old and beyond:

MILK CODE RIRR

WHEREAS, in order to ensure that safe and adequate Section 2. Purpose – These Revised Rules and Regulations

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 nutrition for infants is provided, there is a need to protect and are hereby promulgated to ensure the provision of safe and
promote breastfeeding and to inform the public about the adequate nutrition for infants and young children by the
proper use of breastmilk substitutes and supplements and promotion, protection and support of breastfeeding and by
related products through adequate, consistent and objective ensuring the proper use of breastmilk substitutes, breastmilk
information and appropriate regulation of the marketing and supplements and related products when these are medically
distribution of the said substitutes, supplements and related indicated and only when necessary, on the basis of
products; adequate information and through appropriate marketing
SECTION 4(e). "Infant" means a person falling within the and distribution.
age bracket of 0-12 months. Section 5(ff). "Young Child" means a person from the age
of more than twelve (12) months up to the age of three (3)
years (36 months).

2. The Milk Code recognizes that infant formula may be a proper and possible substitute for breastmilk in certain instances; but the RIRR
provides "exclusive breastfeeding for infants from 0-6 months" and declares that "there is no substitute nor replacement for breastmilk":

MILK CODE RIRR

WHEREAS, in order to ensure that safe and adequate Section 4. Declaration of Principles – The following are the
nutrition for infants is provided, there is a need to protect and underlying principles from which the revised rules and
promote breastfeeding and to inform the public about regulations are premised upon:
the proper use of breastmilk substitutes and supplements a. Exclusive breastfeeding is for infants from 0 to six (6)
and related products through adequate, consistent and months.
objective information and appropriate regulation of the b. There is no substitute or replacement for breastmilk.
marketing and distribution of the said substitutes,
supplements and related products;

3. The Milk Code only regulates and does not impose unreasonable requirements for advertising and promotion; RIRR imposes an
absolute ban on such activities for breastmilk substitutes intended for infants from 0-24 months old or beyond, and forbids the use of health
and nutritional claims. Section 13 of the RIRR, which provides for a "total effect" in the promotion of products within the scope of the Code,
is vague:

MILK CODE RIRR

SECTION 6. The General Public and Mothers. – Section 4. Declaration of Principles – The following are the
(a) No advertising, promotion or other marketing materials, underlying principles from which the revised rules and
whether written, audio or visual, for products within the regulations are premised upon:
scope of this Code shall be printed, published, distributed, x x x x
exhibited and broadcast unless such materials are duly f. Advertising, promotions, or sponsor-ships of infant
authorized and approved by an inter-agency formula, breastmilk substitutes and other related
committee created herein pursuant to the applicable products are prohibited.
standards provided for in this Code. Section 11. Prohibition – No advertising, promotions,
sponsorships, or marketing materials and activities for
breastmilk substitutes intended for infants and young
children up to twenty-four (24) months, shall be allowed,
because they tend to convey or give subliminal messages or
impressions that undermine breastmilk and breastfeeding or
otherwise exaggerate breastmilk substitutes and/or
replacements, as well as related products covered within the
scope of this Code.
Section 13. "Total Effect" - Promotion of products within the
scope of this Code must be objective and should not equate
or make the product appear to be as good or equal to
breastmilk or breastfeeding in the advertising concept. It
must not in any case undermine breastmilk or breastfeeding.
The "total effect" should not directly or indirectly suggest that
buying their product would produce better individuals, or
resulting in greater love, intelligence, ability, harmony or in
any manner bring better health to the baby or other such
exaggerated and unsubstantiated claim.
Section 15. Content of Materials. - The following shall not be

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 included in advertising, promotional and marketing materials:
a. Texts, pictures, illustrations or information which
discourage or tend to undermine the benefits or superiority
of breastfeeding or which idealize the use of breastmilk
substitutes and milk supplements. In this connection, no
pictures of babies and children together with their mothers,
fathers, siblings, grandparents, other relatives or caregivers
(or yayas) shall be used in any advertisements for infant
formula and breastmilk supplements;
b. The term "humanized," "maternalized," "close to mother's
milk" or similar words in describing breastmilk substitutes or
milk supplements;
c. Pictures or texts that idealize the use of infant and milk
formula.
Section 16. All health and nutrition claims for products within
the scope of the Code are absolutely prohibited. For this
purpose, any phrase or words that connotes to increase
emotional, intellectual abilities of the infant and young child
and other like phrases shall not be allowed.

4. The RIRR imposes additional labeling requirements not found in the Milk Code:

MILK CODE RIRR

SECTION 10. Containers/Label. – Section 26. Content – Each container/label shall contain
(a) Containers and/or labels shall be designed to provide the such message, in both Filipino and English languages, and
necessary information about the appropriate use of the which message cannot be readily separated therefrom,
products, and in such a way as not to discourage relative the following points:
breastfeeding. (a) The words or phrase "Important Notice" or "Government
(b) Each container shall have a clear, conspicuous and Warning" or their equivalent;
easily readable and understandable message in Pilipino or (b) A statement of the superiority of breastfeeding;
English printed on it, or on a label, which message can not (c) A statement that there is no substitute for breastmilk;
readily become separated from it, and which shall include (d) A statement that the product shall be used only on the
the following points: advice of a health worker as to the need for its use and the
(i) the words "Important Notice" or their equivalent; proper methods of use;
(ii) a statement of the superiority of breastfeeding; (e) Instructions for appropriate prepara-tion, and a warning
(iii) a statement that the product shall be used only on the against the health hazards of inappropriate preparation; and
advice of a health worker as to the need for its use and the (f) The health hazards of unnecessary or improper use of
proper methods of use; and infant formula and other related products including
(iv) instructions for appropriate preparation, and a warning information that powdered infant formula may contain
against the health hazards of inappropriate preparation. pathogenic microorganisms and must be prepared and used
appropriately.

5. The Milk Code allows dissemination of information on infant formula to health professionals; the RIRR totally prohibits such activity:

MILK CODE RIRR

SECTION 7. Health Care System. – Section 22. No manufacturer, distributor, or representatives
(b) No facility of the health care system shall be used for the of products covered by the Code shall be allowed to conduct
purpose of promoting infant formula or other products within or be involved in any activity on breastfeeding promotion,
the scope of this Code. This Code does not, however, education and production of Information, Education and
preclude the dissemination of information to health Communication (IEC) materials on breastfeeding, holding of
professionals as provided in Section 8(b). or participating as speakers in classes or seminars for
SECTION 8. Health Workers. - women and children activities and to avoid the use of these
(b) Information provided by manufacturers and distributors to venues to market their brands or company names.
health professionals regarding products within the scope of SECTION 16. All health and nutrition claims for products
this Code shall be restricted to scientific and factual within the scope of the Code are absolutely prohibited. For
matters and such information shall not imply or create a this purpose, any phrase or words that connotes to increase
belief that bottle-feeding is equivalent or superior to emotional, intellectual abilities of the infant and young child
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 breastfeeding. It shall also include the information specified and other like phrases shall not be allowed.
in Section 5(b).

6. The Milk Code permits milk manufacturers and distributors to extend assistance in research and continuing education of health
professionals; RIRR absolutely forbids the same.

MILK CODE RIRR

SECTION 8. Health Workers – Section 4. Declaration of Principles –
(e) Manufacturers and distributors of products within the The following are the underlying principles from which the
scope of this Code may assist in the research, scholarships revised rules and regulations are premised upon:
and continuing education, of health professionals, in i. Milk companies, and their representatives, should not form
accordance with the rules and regulations promulgated by part of any policymaking body or entity in relation to the
the Ministry of Health. advancement of breasfeeding.
SECTION 22. No manufacturer, distributor, or
representatives of products covered by the Code shall be
allowed to conduct or be involved in any activity on
breastfeeding promotion, education and production of
Information, Education and Communication (IEC) materials
on breastfeeding, holding of or participating as speakers in
classes or seminars for women and children activities and to
avoid the use of these venues to market their brands or
company names.
SECTION 32. Primary Responsibility of Health Workers - It
is the primary responsibility of the health workers to
promote, protect and support breastfeeding and appropriate
infant and young child feeding. Part of this responsibility is to
continuously update their knowledge and skills on
breastfeeding. No assistance, support, logistics or training
from milk companies shall be permitted.

7. The Milk Code regulates the giving of donations; RIRR absolutely prohibits it.

MILK CODE RIRR

SECTION 6. The General Public and Mothers. – Section 51. Donations Within the Scope of This Code -
(f) Nothing herein contained shall prevent donations from Donations of products, materials, defined and covered under
manufacturers and distributors of products within the scope the Milk Code and these implementing rules and regulations,
of this Code upon request by or with the approval of the shall be strictly prohibited.
Ministry of Health. Section 52. Other Donations By Milk Companies Not
Covered by this Code. - Donations of products, equipments,
and the like, not otherwise falling within the scope of this
Code or these Rules, given by milk companies and their
agents, representatives, whether in kind or in cash, may only
be coursed through the Inter Agency Committee (IAC),
which shall determine whether such donation be accepted or
otherwise.

8. The RIRR provides for administrative sanctions not imposed by the Milk Code.

MILK CODE RIRR

  Section 46. Administrative Sanctions. – The following
administrative sanctions shall be imposed upon any person,
juridical or natural, found to have violated the provisions of
the Code and its implementing Rules and Regulations:
a) 1st violation – Warning;
b) 2nd violation – Administrative fine of a minimum of Ten
Thousand (P10,000.00) to Fifty Thousand (P50,000.00)

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 Pesos, depending on the gravity and extent of the violation,
including the recall of the offending product;
c) 3rd violation – Administrative Fine of a minimum of Sixty
Thousand (P60,000.00) to One Hundred Fifty Thousand
(P150,000.00) Pesos, depending on the gravity and extent
of the violation, and in addition thereto, the recall of the
offending product, and suspension of the Certificate of
Product Registration (CPR);
d) 4th violation –Administrative Fine of a minimum of Two
Hundred Thousand (P200,000.00) to Five Hundred
(P500,000.00) Thousand Pesos, depending on the gravity
and extent of the violation; and in addition thereto, the recall
of the product, revocation of the CPR, suspension of the
License to Operate (LTO) for one year;
e) 5th and succeeding repeated violations – Administrative
Fine of One Million (P1,000,000.00) Pesos, the recall of the
offending product, cancellation of the CPR, revocation of the
License to Operate (LTO) of the company concerned,
including the blacklisting of the company to be furnished the
Department of Budget and Management (DBM) and the
Department of Trade and Industry (DTI);
f) An additional penalty of Two Thou-sand Five Hundred
(P2,500.00) Pesos per day shall be made for every day the
violation continues after having received the order from the
IAC or other such appropriate body, notifying and penalizing
the company for the infraction.
For purposes of determining whether or not there is
"repeated" violation, each product violation belonging or
owned by a company, including those of their subsidiaries,
are deemed to be violations of the concerned milk company
and shall not be based on the specific violating product
alone.

9. The RIRR provides for repeal of existing laws to the contrary.

The Court shall resolve the merits of the allegations of petitioner seriatim.
1. Petitioner is mistaken in its claim that the Milk Code's coverage is limited only to children 0-12 months old. Section 3 of the Milk Code states:
SECTION 3. Scope of the Code – The Code applies to the marketing, and practices related thereto, of the following products: breastmilk
substitutes, including infant formula; other milk products, foods and beverages, including bottle-fed complementary foods, when marketed
or otherwise represented to be suitable, with or without modification, for use as a partial or total replacement of breastmilk; feeding bottles
and teats. It also applies to their quality and availability, and to information concerning their use.
Clearly, the coverage of the Milk Code is not dependent on the age of the child but on the  kind of product being marketed to the public. The law
treats infant formula, bottle-fed complementary food, and breastmilk substitute as separate and distinct product categories.
Section 4(h) of the Milk Code defines infant formula as "a breastmilk substitute x x x to satisfy the normal nutritional requirements of infants up to
between four to six months of age, and adapted to their physiological characteristics"; while under Section 4(b), bottle-fed complementary food refers
to "any food, whether manufactured or locally prepared, suitable as a complement to breastmilk or infant formula, when either becomes insufficient to
satisfy the nutritional requirements of the infant." An infant under Section 4(e) is a person falling within the age bracket 0-12 months. It is the
nourishment of this group of infants or children aged 0-12 months that is sought to be promoted and protected by the Milk Code.
But there is another target group. Breastmilk substitute is defined under Section 4(a) as "any food being marketed or otherwise presented as a partial
or total replacement for breastmilk, whether or not suitable for that purpose."  This section conspicuously lacks reference to any particular age-group
of children. Hence, the provision of the Milk Code cannot be considered exclusive for children aged 0-12 months. In other words, breastmilk
substitutes may also be intended for young children more than 12 months of age. Therefore, by regulating breastmilk substitutes, the Milk Code also
intends to protect and promote the nourishment of children more than 12 months old.
Evidently, as long as what is being marketed falls within the scope of the Milk Code as provided in Section 3, then it can be subject to regulation
pursuant to said law, even if the product is to be used by children aged over 12 months.
There is, therefore, nothing objectionable with Sections 2 42 and 5(ff)43 of the RIRR.
2. It is also incorrect for petitioner to say that the RIRR, unlike the Milk Code, does not recognize that breastmilk substitutes may be a proper and
possible substitute for breastmilk.

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The entirety of the RIRR, not merely truncated portions thereof, must be considered and construed together. As held in De Luna v. Pascual,44 "[t]he
particular words, clauses and phrases in the Rule should not be studied as detached and isolated expressions, but the whole and every part thereof
must be considered in fixing the meaning of any of its parts and in order to produce a harmonious whole."
Section 7 of the RIRR provides that "when medically indicated and only when necessary,  the use of breastmilk substitutes is proper if based on
complete and updated information." Section 8 of the RIRR also states that information and educational materials should include information on the
proper use of infant formula when the use thereof is needed.
Hence, the RIRR, just like the Milk Code, also recognizes that in certain cases, the use of breastmilk substitutes may be proper.
3. The Court shall ascertain the merits of allegations 3 45 and 446 together as they are interlinked with each other.
To resolve the question of whether the labeling requirements and advertising regulations under the RIRR are valid, it is important to deal first with the
nature, purpose, and depth of the regulatory powers of the DOH, as defined in general under the 1987 Administrative Code, 47 and as delegated in
particular under the Milk Code.
Health is a legitimate subject matter for regulation by the DOH (and certain other administrative agencies) in exercise of police powers delegated to
it. The sheer span of jurisprudence on that matter precludes the need to further discuss it. .48 However, health information, particularly advertising
materials on apparently non-toxic products like breastmilk substitutes and supplements, is a relatively new area for regulation by the DOH. 49
As early as the 1917 Revised Administrative Code of the Philippine Islands, 50 health information was already within the ambit of the regulatory
powers of the predecessor of DOH.51 Section 938 thereof charged it with the duty to protect the health of the people, and vested it with such powers
as "(g) the dissemination of hygienic information among the people and especially the inculcation of knowledge as to the proper care of infants  and
the methods of preventing and combating dangerous communicable diseases."
Seventy years later, the 1987 Administrative Code tasked respondent DOH to carry out the state policy pronounced under Section 15, Article II of the
1987 Constitution, which is "to protect and promote the right to health of the people and  instill health consciousness among them."52 To that end, it
was granted under Section 3 of the Administrative Code the power to "(6) propagate health information and  educate the population on important
health, medical and environmental matters which have health implications." 53
When it comes to information regarding nutrition of infants and young children, however, the Milk Code specifically delegated to the Ministry of
Health (hereinafter referred to as DOH) the power to ensure that there is adequate, consistent and objective information on breastfeeding and use of
breastmilk substitutes, supplements and related products; and the power to control such information. These are expressly provided for in Sections 12
and 5(a), to wit:
SECTION 12. Implementation and Monitoring  –
xxxx
(b) The Ministry of Health shall be principally responsible for the implementation and enforcement of the provisions of this Code. For this
purpose, the Ministry of Health shall have the following powers and functions:
(1) To promulgate such rules and regulations as are necessary or proper for the implementation of this Code and the
accomplishment of its purposes and objectives.
xxxx
(4) To exercise such other powers and functions as may be necessary for or incidental to the attainment of the purposes and
objectives of this Code.
SECTION 5. Information and Education –
(a) The government shall ensure that objective and consistent information is provided on infant feeding, for use by families and those
involved in the field of infant nutrition. This responsibility shall cover the planning, provision, design and dissemination of information, and
the control  thereof, on infant nutrition. (Emphasis supplied)
Further, DOH is authorized by the Milk Code to control the content of any information on breastmilk vis-à-vis breastmilk substitutes, supplement and
related products, in the following manner:
SECTION 5. x x x
(b) Informational and educational materials, whether written, audio, or visual, dealing with the feeding of infants and intended to reach
pregnant women and mothers of infants, shall include clear information on all the following points: (1) the benefits and superiority of
breastfeeding; (2) maternal nutrition, and the preparation for and maintenance of breastfeeding; (3) the negative effect on breastfeeding of
introducing partial bottlefeeding; (4) the difficulty of reversing the decision not to breastfeed; and (5) where needed, the proper use of infant
formula, whether manufactured industrially or home-prepared. When such materials contain information about the use of infant formula,
they shall include the social and financial implications of its use; the health hazards of inappropriate foods or feeding methods; and, in
particular, the health hazards of unnecessary or improper use of infant formula and other breastmilk substitutes. Such materials shall not
use any picture or text which may idealize the use of breastmilk substitutes.
SECTION 8. Health Workers –
xxxx
(b) Information provided by manufacturers and distributors to health professionals regarding products within the scope of this Code shall be
restricted to scientific and factual matters, and such information shall not imply or create a belief that bottlefeeding is equivalent or superior
to breastfeeding. It shall also include the information specified in Section 5(b) .
SECTION 10. Containers/Label –
(a) Containers and/or labels shall be designed to provide the necessary information about the appropriate use of the products, and  in such
a way as not to discourage breastfeeding.
xxxx
(d) The term "humanized," "maternalized" or similar terms shall not be used. (Emphasis supplied)
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The DOH is also authorized to control the purpose of the information and to whom such information may be disseminated under Sections 6 through
9 of the Milk Code54 to ensure that the information that would reach pregnant women, mothers of infants, and health professionals and workers in the
health care system is restricted to scientific and factual matters and shall not imply or create a belief that bottlefeeding is equivalent or superior to
breastfeeding.
It bears emphasis, however, that the DOH's power under the Milk Code to control information regarding breastmilk vis-a-vis breastmilk substitutes is
not absolute as the power to control does not encompass the power to absolutely prohibit the advertising, marketing, and promotion of breastmilk
substitutes.
The following are the provisions of the Milk Code that unequivocally indicate that the control over information given to the DOH is not absolute and
that absolute prohibition is not contemplated by the Code:
a) Section 2 which requires adequate information and appropriate marketing and distribution of breastmilk substitutes, to wit:
SECTION 2. Aim of the Code –  The aim of the Code is to contribute to the provision of safe and adequate nutrition for infants by
the protection and promotion of breastfeeding and by ensuring the proper use of breastmilk substitutes and breastmilk
supplements when these are necessary, on the basis of adequate information and through appropriate marketing and
distribution.
b) Section 3 which specifically states that the Code applies to the marketing of and practices related to breastmilk substitutes, including
infant formula, and to information concerning their use;
c) Section 5(a) which provides that the government shall ensure that objective and consistent information is provided on infant feeding;
d) Section 5(b) which provides that written, audio or visual informational and educational materials shall not use any picture or text which
may idealize the use of breastmilk substitutes and should include information on the health hazards of unnecessary or improper use of said
product;
e) Section 6(a) in relation to Section 12(a) which creates and empowers the IAC to review and examine advertising, promotion, and other
marketing materials;
f) Section 8(b) which states that milk companies may provide information to health professionals but such information should be restricted
to factual and scientific matters and shall not imply or create a belief that bottlefeeding is equivalent or superior to breastfeeding; and
g) Section 10 which provides that containers or labels should not contain information that would discourage breastfeeding and idealize the
use of infant formula.
It is in this context that the Court now examines the assailed provisions of the RIRR regarding labeling and advertising.
Sections 1355 on "total effect" and 2656 of Rule VII of the RIRR contain some labeling requirements, specifically: a) that there be a statement that
there is no substitute to breastmilk; and b) that there be a statement that powdered infant formula may contain pathogenic microorganisms and must
be prepared and used appropriately. Section 16 57 of the RIRR prohibits all health and nutrition claims for products within the scope of the Milk Code,
such as claims of increased emotional and intellectual abilities of the infant and young child.
These requirements and limitations are consistent with the provisions of Section 8 of the Milk Code, to wit:
SECTION 8. Health workers  -
xxxx
(b) Information provided by manufacturers and distributors to health professionals regarding products within the scope of this Code shall
be restricted to scientific and factual matters, and such information shall not imply or create a belief that bottlefeeding
is equivalent or superior to breastfeeding. It shall also include the information specified in Section 5. 58 (Emphasis supplied)
and Section 10(d)59 which bars the use on containers and labels of the terms "humanized," "maternalized," or similar terms.
These provisions of the Milk Code expressly forbid information that would imply or create a belief that there is any milk product equivalent to
breastmilk or which is humanized or maternalized, as such information would be inconsistent with the superiority of breastfeeding.
It may be argued that Section 8 of the Milk Code refers only to information given to health workers regarding breastmilk substitutes, not to containers
and labels thereof. However, such restrictive application of Section 8(b) will result in the absurd situation in which milk companies and distributors
are forbidden to claim to health workers that their products are substitutes or equivalents of breastmilk, and yet be allowed to display on the
containers and labels of their products the exact opposite message. That askewed interpretation of the Milk Code is precisely what Section 5(a)
thereof seeks to avoid by mandating that all information regarding breastmilk vis-a-vis breastmilk substitutes be consistent, at the same time giving
the government control over planning, provision, design, and dissemination of information on infant feeding.
Thus, Section 26(c) of the RIRR which requires containers and labels to state that the product offered is not a substitute for breastmilk, is a
reasonable means of enforcing Section 8(b) of the Milk Code and deterring circumvention of the protection and promotion of breastfeeding as
embodied in Section 260 of the Milk Code.
Section 26(f)61 of the RIRR is an equally reasonable labeling requirement. It implements Section 5(b) of the Milk Code which reads:
SECTION 5. x x x
xxxx
(b) Informational and educational materials, whether written, audio, or visual, dealing with the feeding of infants and intended to reach
pregnant women and mothers of infants, shall include clear information on all the following points: x x x (5) where needed, the proper use
of infant formula, whether manufactured industrially or home-prepared. When such materials contain information about the use of infant
formula, they shall include the social and financial implications of its use;  the health hazards of inappropriate foods or feeding methods;
and, in particular, the health hazards of unnecessary or improper use of infant formula and other breastmilk substitutes . Such materials
shall not use any picture or text which may idealize the use of breastmilk substitutes. (Emphasis supplied)

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The label of a product contains information about said product intended for the buyers thereof. The buyers of breastmilk substitutes are mothers of
infants, and Section 26 of the RIRR merely adds a fair warning about the likelihood of pathogenic microorganisms being present in infant formula
and other related products when these are prepared and used inappropriately.
Petitioner’s counsel has admitted during the hearing on June 19, 2007 that formula milk is prone to contaminations and there is as yet no technology
that allows production of powdered infant formula that eliminates all forms of contamination. 62
Ineluctably, the requirement under Section 26(f) of the RIRR for the label to contain the message regarding health hazards including the possibility of
contamination with pathogenic microorganisms is in accordance with Section 5(b) of the Milk Code.
The authority of DOH to control information regarding breastmilk vis-a-vis breastmilk substitutes and supplements and related products cannot be
questioned. It is its intervention into the area of advertising, promotion, and marketing that is being assailed by petitioner.
In furtherance of Section 6(a) of the Milk Code, to wit:
SECTION 6. The General Public and Mothers. –
(a) No advertising, promotion or other marketing materials, whether written, audio or visual, for products within the scope of this Code shall
be printed, published, distributed, exhibited and broadcast unless such materials are duly authorized and approved by an inter-agency
committee created herein pursuant to the applicable standards provided for in this Code.
the Milk Code invested regulatory authority over advertising, promotional and marketing materials to an IAC, thus:
SECTION 12. Implementation and Monitoring  -
(a) For purposes of Section 6(a) of this Code, an inter-agency committee composed of the following members is hereby created:

Minister of Health ------------------- Chairman

Minister of Trade and Industry ------------------- Member

Minister of Justice ------------------- Member

Minister of Social Services and Development ------------------- Member

The members may designate their duly authorized representative to every meeting of the Committee.
The Committee shall have the following powers and functions:
(1) To review and examine all advertising. promotion or other marketing materials, whether written, audio or visual, on products
within the scope of this Code;
(2) To approve or disapprove, delete objectionable portions from and prohibit the printing, publication, distribution, exhibition and
broadcast of, all advertising promotion or other marketing materials, whether written, audio or visual, on products within the
scope of this Code;
(3) To prescribe the internal and operational procedure for the exercise of its powers and functions as well as the performance of
its duties and responsibilities; and
(4) To promulgate such rules and regulations as are necessary or proper for the implementation of Section 6(a) of this Code.  x x
x (Emphasis supplied)
However, Section 11 of the RIRR, to wit:
SECTION 11. Prohibition – No advertising, promotions, sponsorships, or marketing materials and activities for breastmilk substitutes
intended for infants and young children up to twenty-four (24) months, shall be allowed, because they tend to convey or give subliminal
messages or impressions that undermine breastmilk and breastfeeding or otherwise exaggerate breastmilk substitutes and/or
replacements, as well as related products covered within the scope of this Code.
prohibits advertising, promotions, sponsorships or marketing materials and activities for breastmilk substitutes in line with the RIRR’s declaration of
principle under Section 4(f), to wit:
SECTION 4. Declaration of Principles –
xxxx
(f) Advertising, promotions, or sponsorships of infant formula, breastmilk substitutes and other related products are prohibited.
The DOH, through its co-respondents, evidently arrogated to itself not only the regulatory authority given to the IAC but also imposed absolute
prohibition on advertising, promotion, and marketing.
Yet, oddly enough, Section 12 of the RIRR reiterated the requirement of the Milk Code in Section 6 thereof for prior approval by IAC of all
advertising, marketing and promotional materials prior to dissemination.
Even respondents, through the OSG, acknowledged the authority of IAC, and repeatedly insisted, during the oral arguments on June 19, 2007, that
the prohibition under Section 11 is not actually operational, viz:
SOLICITOR GENERAL DEVANADERA:
xxxx
x x x Now, the crux of the matter that is being questioned by Petitioner is whether or not there is an absolute prohibition on advertising
making AO 2006-12 unconstitutional. We maintained that what AO 2006-12 provides is not an absolute prohibition because Section 11
while it states and it is entitled prohibition it states that no advertising, promotion, sponsorship or marketing materials and activities for

Page 79 of 134
 breast milk substitutes intended for infants and young children up to 24 months shall be allowed because this is the standard they tend to
convey or give subliminal messages or impression undermine that breastmilk or breastfeeding x x x.
We have to read Section 11 together with the other Sections because the other Section, Section 12, provides for the inter agency
committee that is empowered to process and evaluate all the advertising and promotion materials.
xxxx
What AO 2006-12, what it does, it does not prohibit the sale and manufacture, it simply regulates the advertisement and the promotions of
breastfeeding milk substitutes.
xxxx
Now, the prohibition on advertising, Your Honor, must be taken together with the provision on the Inter-Agency Committee that processes
and evaluates because there may be some information dissemination that are straight forward information dissemination. What the AO
2006 is trying to prevent is any material that will undermine the practice of breastfeeding, Your Honor.
xxxx
ASSOCIATE JUSTICE SANTIAGO:
Madam Solicitor General, under the Milk Code, which body has authority or power to promulgate Rules and Regulations regarding the
Advertising, Promotion and Marketing of Breastmilk Substitutes?
SOLICITOR GENERAL DEVANADERA:
Your Honor, please, it is provided that the Inter-Agency Committee, Your Honor.
xxxx
ASSOCIATE JUSTICE SANTIAGO:
x x x Don't you think that the Department of Health overstepped its rule making authority when it totally banned advertising and promotion
under Section 11 prescribed the total effect rule as well as the content of materials under Section 13 and 15 of the rules and regulations?
SOLICITOR GENERAL DEVANADERA:
Your Honor, please, first we would like to stress that there is no total absolute ban. Second, the Inter-Agency Committee is under the
Department of Health, Your Honor.
xxxx
ASSOCIATE JUSTICE NAZARIO:
x x x Did I hear you correctly, Madam Solicitor, that there is no absolute ban on advertising of breastmilk substitutes in the Revised Rules?
SOLICITOR GENERAL DEVANADERA:
Yes, your Honor.
ASSOCIATE JUSTICE NAZARIO:
But, would you nevertheless agree that there is an absolute ban on advertising of breastmilk substitutes intended for children two (2) years
old and younger?
SOLICITOR GENERAL DEVANADERA:
It's not an absolute ban, Your Honor, because we have the Inter-Agency Committee that can evaluate some advertising and promotional
materials, subject to the standards that we have stated earlier, which are- they should not undermine breastfeeding, Your Honor.
xxxx
x x x Section 11, while it is titled Prohibition, it must be taken in relation with the other Sections, particularly 12 and 13 and 15, Your Honor,
because it is recognized that the Inter-Agency Committee has that power to evaluate promotional materials, Your Honor.
ASSOCIATE JUSTICE NAZARIO:
So in short, will you please clarify there's no absolute ban on advertisement regarding milk substitute regarding infants two (2) years
below?
SOLICITOR GENERAL DEVANADERA:
We can proudly say that the general rule is that there is a prohibition, however, we take exceptions and standards have been set. One of
which is that, the Inter-Agency Committee can allow if the advertising and promotions will not undermine breastmilk and breastfeeding,
Your Honor.63
Sections 11 and 4(f) of the RIRR are clearly violative of the Milk Code.
However, although it is the IAC which is authorized to promulgate rules and regulations for the approval or rejection of advertising, promotional, or
other marketing materials under Section 12(a) of the Milk Code, said provision must be related to Section 6 thereof which in turn provides that the
rules and regulations must be "pursuant to the applicable standards provided for in this Code." Said standards are set forth in Sections 5(b), 8(b),
and 10 of the Code, which, at the risk of being repetitious, and for easy reference, are quoted hereunder:
SECTION 5. Information and Education –
xxxx
(b) Informational and educational materials, whether written, audio, or visual, dealing with the feeding of infants and intended to reach
pregnant women and mothers of infants, shall include clear information on all the following points: (1) the benefits and superiority of
breastfeeding; (2) maternal nutrition, and the preparation for and maintenance of breastfeeding; (3) the negative effect on breastfeeding of
introducing partial bottlefeeding; (4) the difficulty of reversing the decision not to breastfeed; and (5) where needed, the proper use of infant
formula, whether manufactured industrially or home-prepared. When such materials contain information about the use of infant formula,
they shall include the social and financial implications of its use; the health hazards of inappropriate foods of feeding methods; and, in
particular, the health hazards of unnecessary or improper use of infant formula and other breastmilk substitutes. Such materials shall not
use any picture or text which may idealize the use of breastmilk substitutes.
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 xxxx
SECTION 8. Health Workers. –
xxxx
(b) Information provided by manufacturers and distributors to health professionals regarding products within the scope of this Code shall be
restricted to scientific and factual matters and such information shall not imply or create a belief that bottle feeding is equivalent or superior
to breastfeeding. It shall also include the information specified in Section 5(b).
xxxx
SECTION 10. Containers/Label –
(a) Containers and/or labels shall be designed to provide the necessary information about the appropriate use of the products, and in such
a way as not to discourage breastfeeding.
(b) Each container shall have a clear, conspicuous and easily readable and understandable message in Pilipino or English printed on it, or
on a label, which message can not readily become separated from it, and which shall include the following points:
(i) the words "Important Notice" or their equivalent;
(ii) a statement of the superiority of breastfeeding;
(iii) a statement that the product shall be used only on the advice of a health worker as to the need for its use and the proper
methods of use; and
(iv) instructions for appropriate preparation, and a warning against the health hazards of inappropriate preparation.
Section 12(b) of the Milk Code designates the DOH as the principal implementing agency for the enforcement of the provisions of the Code. In
relation to such responsibility of the DOH, Section 5(a) of the Milk Code states that:
SECTION 5. Information and Education –
(a) The government shall ensure that objective and consistent information is provided on infant feeding, for use by families and those
involved in the field of infant nutrition. This responsibility shall cover the planning, provision, design and dissemination of information, and
the control thereof, on infant nutrition. (Emphasis supplied)
Thus, the DOH has the significant responsibility to translate into operational terms the standards set forth in Sections 5, 8, and 10 of the Milk Code,
by which the IAC shall screen advertising, promotional, or other marketing materials.
It is pursuant to such responsibility that the DOH correctly provided for Section 13 in the RIRR which reads as follows:
SECTION 13. "Total Effect" - Promotion of products within the scope of this Code must be objective and should not equate or make the
product appear to be as good or equal to breastmilk or breastfeeding in the advertising concept. It must not in any case undermine
breastmilk or breastfeeding. The "total effect" should not directly or indirectly suggest that buying their product would produce better
individuals, or resulting in greater love, intelligence, ability, harmony or in any manner bring better health to the baby or other such
exaggerated and unsubstantiated claim.
Such standards bind the IAC in formulating its rules and regulations on advertising, promotion, and marketing. Through that single provision, the
DOH exercises control over the information content of advertising, promotional and marketing materials on breastmilk  vis-a-vis breastmilk
substitutes, supplements and other related products. It also sets a viable standard against which the IAC may screen such materials before they are
made public.
In Equi-Asia Placement, Inc. vs. Department of Foreign Affairs ,64 the Court held:
x x x [T]his Court had, in the past, accepted as sufficient standards the following: "public interest," "justice and equity," "public convenience
and welfare," and "simplicity, economy and welfare."65
In this case, correct information as to infant feeding and nutrition is infused with public interest and welfare.
4. With regard to activities for dissemination of information to health professionals, the Court also finds that there is no inconsistency between the
provisions of the Milk Code and the RIRR. Section 7(b) 66 of the Milk Code, in relation to Section 8(b) 67 of the same Code, allows dissemination of
information to health professionals but such information is restricted to scientific and factual matters.
Contrary to petitioner's claim, Section 22 of the RIRR does not prohibit the  giving of information to health professionals on scientific and factual
matters. What it prohibits is the involvement of the manufacturer and distributor of the products covered by the Code in activities for the promotion,
education and production of Information, Education and Communication (IEC) materials regarding breastfeeding that are intended for women and
children. Said provision cannot be construed to encompass even the dissemination of information to health professionals, as restricted by the Milk
Code.
5. Next, petitioner alleges that Section 8(e) 68 of the Milk Code permits milk manufacturers and distributors to extend assistance in research and in the
continuing education of health professionals, while Sections 22 and 32 of the RIRR absolutely forbid the same. Petitioner also assails Section
4(i)69 of the RIRR prohibiting milk manufacturers' and distributors' participation in any policymaking body in relation to the advancement of
breastfeeding.
Section 4(i) of the RIRR provides that milk companies and their representatives should not form part of any policymaking body or entity in relation to
the advancement of breastfeeding. The Court finds nothing in said provisions which contravenes the Milk Code. Note that under Section 12(b) of the
Milk Code, it is the DOH which shall be principally responsible for the implementation and enforcement of the provisions of said Code. It is entirely up
to the DOH to decide which entities to call upon or allow to be part of policymaking bodies on breastfeeding. Therefore, the RIRR's prohibition on
milk companies’ participation in any policymaking body in relation to the advancement of breastfeeding is in accord with the Milk Code.
Petitioner is also mistaken in arguing that Section 22 of the RIRR prohibits milk companies from giving reasearch assistance and continuing
education to health professionals. Section 2270 of the RIRR does not pertain to research assistance to or the continuing education of  health
professionals; rather, it deals with breastfeeding promotion and education for women and children. Nothing in Section 22 of the RIRR prohibits milk

Page 81 of 134
companies from giving assistance for research or continuing education to health professionals; hence, petitioner's argument against this particular
provision must be struck down.
It is Sections 971 and 1072 of the RIRR which govern research assistance. Said sections of the RIRR provide that research assistance for health
workers and researchers may be allowed upon approval of an ethics committee, and with certain disclosure requirements imposed on the milk
company and on the recipient of the research award.
The Milk Code endows the DOH with the power to determine how such research or educational assistance may be given by milk companies or
under what conditions health workers may accept the assistance. Thus, Sections 9 and 10 of the RIRR imposing limitations on the kind of research
done or extent of assistance given by milk companies are completely in accord with the Milk Code.
Petitioner complains that Section 3273 of the RIRR prohibits milk companies from giving assistance, support, logistics or training to health workers.
This provision is within the prerogative given to the DOH under Section 8(e) 74 of the Milk Code, which provides that manufacturers and distributors of
breastmilk substitutes may assist in researches, scholarships and the continuing education, of health professionals in accordance with the rules and
regulations promulgated by the Ministry of Health, now DOH.
6. As to the RIRR's prohibition on donations, said provisions are also consistent with the Milk Code. Section 6(f) of the Milk Code provides that
donations may be made by manufacturers and distributors of breastmilk substitutes upon the request or with the approval of the DOH. The law does
not proscribe the refusal of donations. The Milk Code leaves it purely to the discretion of the DOH whether to request or accept such donations. The
DOH then appropriately exercised its discretion through Section 51 75 of the RIRR which sets forth its policy not to request or approve donations from
manufacturers and distributors of breastmilk substitutes.
It was within the discretion of the DOH when it provided in Section 52 of the RIRR that any donation from milk companies not covered by the Code
should be coursed through the IAC which shall determine whether such donation should be accepted or refused. As reasoned out by respondents,
the DOH is not mandated by the Milk Code to accept donations. For that matter, no person or entity can be forced to accept a donation. There is,
therefore, no real inconsistency between the RIRR and the law because the Milk Code does not prohibit the DOH from refusing donations.
7. With regard to Section 46 of the RIRR providing for administrative sanctions that are not found in the Milk Code, the Court upholds petitioner's
objection thereto.
Respondent's reliance on Civil Aeronautics Board v. Philippine Air Lines, Inc. 76 is misplaced. The glaring difference in said case and the present case
before the Court is that, in the Civil Aeronautics Board, the Civil Aeronautics Administration (CAA) was expressly granted by the law (R.A. No. 776)
the power to impose fines and civil penalties, while the Civil Aeronautics Board (CAB) was granted by the same law the power to review on appeal
the order or decision of the CAA and to determine whether to impose, remit, mitigate, increase or compromise such fine and civil penalties. Thus, the
Court upheld the CAB's Resolution imposing administrative fines.
In a more recent case, Perez v. LPG Refillers Association of the Philippines, Inc .,77 the Court upheld the Department of Energy (DOE) Circular No.
2000-06-10 implementing Batas Pambansa (B.P.) Blg.  33. The circular provided for fines for the commission of prohibited acts. The Court found that
nothing in the circular contravened the law because the DOE was expressly authorized by B.P.  Blg. 33 and R.A. No. 7638 to impose fines or
penalties.
In the present case, neither the Milk Code nor the Revised Administrative Code grants the DOH the authority to fix or impose administrative fines.
Thus, without any express grant of power to fix or impose such fines, the DOH cannot provide for those fines in the RIRR. In this regard, the DOH
again exceeded its authority by providing for such fines or sanctions in Section 46 of the RIRR. Said provision is, therefore, null and void.
The DOH is not left without any means to enforce its rules and regulations. Section 12(b) (3) of the Milk Code authorizes the DOH to "cause the
prosecution of the violators of this Code and other pertinent laws on products covered by this Code." Section 13 of the Milk Code provides for the
penalties to be imposed on violators of the provision of the Milk Code or the rules and regulations issued pursuant to it, to wit:
SECTION 13. Sanctions –
(a) Any person who violates the provisions of this Code or the rules and regulations issued pursuant to this Code shall, upon conviction, be
punished by a penalty of two (2) months to one (1) year imprisonment or a fine of not less than One Thousand Pesos ( P1,000.00) nor
more than Thirty Thousand Pesos (P30,000.00) or both. Should the offense be committed by a juridical person, the chairman of the Board
of Directors, the president, general manager, or the partners and/or the persons directly responsible therefor, shall be penalized.
(b) Any license, permit or authority issued by any government agency to any health worker, distributor, manufacturer, or marketing firm or
personnel for the practice of their profession or occupation, or for the pursuit of their business, may, upon recommendation of the Ministry
of Health, be suspended or revoked in the event of repeated violations of this Code, or of the rules and regulations issued pursuant to this
Code. (Emphasis supplied)
8. Petitioner’s claim that Section 57 of the RIRR repeals existing laws that are contrary to the RIRR is frivolous.
Section 57 reads:
SECTION 57. Repealing Clause - All orders, issuances, and rules and regulations or parts thereof inconsistent with these revised rules
and implementing regulations are hereby repealed or modified accordingly.
Section 57 of the RIRR does not provide for the repeal of laws but only orders, issuances and rules and regulations. Thus, said provision is valid as it
is within the DOH's rule-making power.
An administrative agency like respondent possesses quasi-legislative or rule-making power or the power to make rules and regulations which results
in delegated legislation that is within the confines of the granting statute and the Constitution, and subject to the doctrine of non-delegability and
separability of powers.78 Such express grant of rule-making power necessarily includes the power to amend, revise, alter, or repeal the same. 79 This
is to allow administrative agencies flexibility in formulating and adjusting the details and manner by which they are to implement the provisions of a
law,80 in order to make it more responsive to the times. Hence, it is a standard provision in administrative rules that prior issuances of administrative
agencies that are inconsistent therewith are declared repealed or modified.

Page 82 of 134
In fine, only Sections 4(f), 11 and 46 are ultra vires, beyond the authority of the DOH to promulgate and in contravention of the Milk Code and,
therefore, null and void. The rest of the provisions of the RIRR are in consonance with the Milk Code.
Lastly, petitioner makes a "catch-all" allegation that:
x x x [T]he questioned RIRR sought to be implemented by the Respondents is  unnecessary and oppressive, and is offensive to the due
process clause of the Constitution, insofar as the same is in restraint of trade  and because a provision therein is inadequate to provide the
public with a comprehensible basis to determine whether or not they have committed a violation. 81 (Emphasis supplied)
Petitioner refers to Sections 4(f), 82 4(i),83 5(w),84 11,85 22,86 32,87 46,88 and 5289 as the provisions that suppress the trade of milk and, thus, violate the
due process clause of the Constitution.
The framers of the constitution were well aware that trade must be subjected to some form of regulation for the public good. Public interest must be
upheld over business interests.90 In Pest Management Association of the Philippines v. Fertilizer and Pesticide Authority ,91 it was held thus:
x x x Furthermore, as held in Association of Philippine Coconut Desiccators v. Philippine Coconut Authority, despite the fact that "our
present Constitution enshrines free enterprise as a policy, it nonetheless reserves to the government the power to intervene whenever
necessary to promote the general welfare." There can be no question that the unregulated use or proliferation of pesticides would be
hazardous to our environment. Thus, in the aforecited case, the Court declared that "free enterprise does not call for removal of ‘protective
regulations’." x x x It must be clearly explained and proven by competent evidence just exactly how such protective regulation would result
in the restraint of trade. [Emphasis and underscoring supplied]
In this case, petitioner failed to show that the proscription of milk manufacturers’ participation in any policymaking body (Section 4(i)), classes and
seminars for women and children (Section 22); the giving of assistance, support and logistics or training (Section 32); and the giving of donations
(Section 52) would unreasonably hamper the trade of breastmilk substitutes. Petitioner has not established that the proscribed activities are
indispensable to the trade of breastmilk substitutes. Petitioner failed to demonstrate that the aforementioned provisions of the RIRR are
unreasonable and oppressive for being in restraint of trade.
Petitioner also failed to convince the Court that Section 5(w) of the RIRR is unreasonable and oppressive. Said section provides for the definition of
the term "milk company," to wit:
SECTION 5 x x x. (w) "Milk Company" shall refer to the owner, manufacturer, distributor of infant formula, follow-up milk, milk formula, milk
supplement, breastmilk substitute or replacement, or by any other description of such nature, including their representatives who promote
or otherwise advance their commercial interests in marketing those products;
On the other hand, Section 4 of the Milk Code provides:
(d) "Distributor" means a person, corporation or any other entity in the public or private sector engaged in the business (whether directly or
indirectly) of marketing at the wholesale or retail level a product within the scope of this Code. A "primary distributor" is a manufacturer's
sales agent, representative, national distributor or broker.
xxxx
(j) "Manufacturer" means a corporation or other entity in the public or private sector engaged in the business or function (whether directly
or indirectly or through an agent or and entity controlled by or under contract with it) of manufacturing a products within the scope of this
Code.
Notably, the definition in the RIRR merely merged together under the term "milk company" the entities defined separately under the Milk Code as
"distributor" and "manufacturer." The RIRR also enumerated in Section 5(w) the products manufactured or distributed by an entity that would qualify
it as a "milk company," whereas in the Milk Code, what is used is the phrase "products within the scope of this Code." Those are the only differences
between the definitions given in the Milk Code and the definition as re-stated in the RIRR.
Since all the regulatory provisions under the Milk Code apply equally to both manufacturers and distributors, the Court sees no harm in the RIRR
providing for just one term to encompass both entities. The definition of "milk company" in the RIRR and the definitions of "distributor" and
"manufacturer" provided for under the Milk Code are practically the same.
The Court is not convinced that the definition of "milk company" provided in the RIRR would bring about any change in the treatment or regulation of
"distributors" and "manufacturers" of breastmilk substitutes, as defined under the Milk Code.
Except Sections 4(f), 11 and 46, the rest of the provisions of the RIRR are in consonance with the objective, purpose and intent of the Milk Code,
constituting reasonable regulation of an industry which affects public health and welfare and, as such, the rest of the RIRR do not constitute illegal
restraint of trade nor are they violative of the due process clause of the Constitution.
WHEREFORE, the petition is PARTIALLY GRANTED. Sections 4(f), 11 and 46 of Administrative Order No. 2006-0012 dated May 12, 2006 are
declared NULL and VOID for being ultra vires. The Department of Health and respondents are PROHIBITED from implementing said provisions.
The Temporary Restraining Order issued on August 15, 2006 is LIFTED insofar as the rest of the provisions of Administrative Order No. 2006-0012
is concerned.
SO ORDERED.

[G.R. NO. 162070 October 19, 2005]

DEPARTMENT OF AGRARIAN REFORM, represented by SECRETARY JOSE MARI B. PONCE (OIC), Petitioner, v. DELIA T. SUTTON, ELLA T.
SUTTON-SOLIMAN and HARRY T. SUTTON, Respondents.
DECISION
PUNO, J.:

Page 83 of 134
This is a Petition for Review filed by the Department of Agrarian Reform (DAR) of the Decision and Resolution of the Court of Appeals, dated
September 19, 2003 and February 4, 2004, respectively, which declared DAR Administrative Order (A.O.) No. 9, series of 1993, null and void for
being violative of the Constitution.
The case at bar involves a land in Aroroy, Masbate, inherited by respondents which has been devoted exclusively to cow and calf breeding. On
October 26, 1987, pursuant to the then existing agrarian reform program of the government, respondents made a voluntary offer to sell (VOS) 1 their
landholdings to petitioner DAR to avail of certain incentives under the law.
On June 10, 1988, a new agrarian law, Republic Act (R.A.) No. 6657, also known as the Comprehensive Agrarian Reform Law (CARL) of 1988, took
effect. It included in its coverage farms used for raising livestock, poultry and swine.
On December 4, 1990, in an en banc decision in the case of Luz Farms v. Secretary of DAR,2 this Court ruled that lands devoted to livestock and
poultry-raising are not included in the definition of agricultural land. Hence, we declared as unconstitutional certain provisions of the CARL insofar as
they included livestock farms in the coverage of agrarian reform.
In view of the Luz Farms ruling, respondents filed with petitioner DAR a formal request to withdraw their VOS as their landholding was devoted
exclusively to cattle-raising and thus exempted from the coverage of the CARL. 3
On December 21, 1992, the Municipal Agrarian Reform Officer of Aroroy, Masbate, inspected respondents' land and found that it was devoted solely
to cattle-raising and breeding. He recommended to the DAR Secretary that it be exempted from the coverage of the CARL.
On April 27, 1993, respondents reiterated to petitioner DAR the withdrawal of their VOS and requested the return of the supporting papers they
submitted in connection therewith.4 Petitioner ignored their request.
On December 27, 1993, DAR issued A.O. No. 9, series of 1993, 5 which provided that only portions of private agricultural lands used for the raising of
livestock, poultry and swine as of June 15, 1988 shall be excluded from the coverage of the CARL. In determining the area of land to be excluded,
the A.O. fixed the following retention limits, viz: 1:1 animal-land ratio ( i.e.,  1 hectare of land per 1 head of animal shall be retained by the landowner),
and a ratio of 1.7815 hectares for livestock infrastructure for every 21 heads of cattle shall likewise be excluded from the operations of the CARL.
On February 4, 1994, respondents wrote the DAR Secretary and advised him to consider as final and irrevocable the withdrawal of their VOS as,
under the Luz Farms doctrine, their entire landholding is exempted from the CARL.6
On September 14, 1995, then DAR Secretary Ernesto D. Garilao issued an Order 7 partially granting the application of respondents for exemption
from the coverage of CARL. Applying the retention limits outlined in the DAR A.O. No. 9, petitioner exempted 1,209 hectares of respondents' land for
grazing purposes, and a maximum of 102.5635 hectares for infrastructure. Petitioner ordered the rest of respondents' landholding to be segregated
and placed under Compulsory Acquisition.
Respondents moved for reconsideration. They contend that their entire landholding should be exempted as it is devoted exclusively to cattle-raising.
Their motion was denied.8 They filed a notice of appeal 9 with the Office of the President assailing: (1) the reasonableness and validity of DAR A.O.
No. 9, s. 1993, which provided for a ratio between land and livestock in determining the land area qualified for exclusion from the CARL, and (2) the
constitutionality of DAR A.O. No. 9, s. 1993, in view of the Luz Farms case which declared cattle-raising lands excluded from the coverage of
agrarian reform.
On October 9, 2001, the Office of the President affirmed the impugned Order of petitioner DAR. 10 It ruled that DAR A.O. No. 9, s. 1993, does not run
counter to the Luz Farms case as the A.O. provided the guidelines to determine whether a certain parcel of land is being used for cattle-raising.
However, the issue on the constitutionality of the assailed A.O. was left for the determination of the courts as the sole arbiters of such issue.
On appeal, the Court of Appeals ruled in favor of the respondents. It declared DAR A.O. No. 9, s. 1993, void for being contrary to the intent of the
1987 Constitutional Commission to exclude livestock farms from the land reform program of the government. The dispositive portion reads:
WHEREFORE, premises considered, DAR Administrative Order No. 09, Series of 1993 is hereby DECLARED null and void. The assailed order of
the Office of the President dated 09 October 2001 in so far as it affirmed the Department of Agrarian Reform's ruling that petitioners' landholding is
covered by the agrarian reform program of the government is REVERSED and SET ASIDE.
SO ORDERED.11
Hence, this petition.
The main issue in the case at bar is the constitutionality of DAR A.O. No. 9, series of 1993, which prescribes a maximum retention limit for owners of
lands devoted to livestock raising.
Invoking its rule-making power under Section 49 of the CARL, petitioner submits that it issued DAR A.O. No. 9 to limit the area of livestock farm that
may be retained by a landowner pursuant to its mandate to place all public and private agricultural lands under the coverage of agrarian reform.
Petitioner also contends that the A.O. seeks to remedy reports that some unscrupulous landowners have converted their agricultural farms to
livestock farms in order to evade their coverage in the agrarian reform program.
Petitioner's arguments fail to impress.
Administrative agencies are endowed with powers legislative in nature, i.e.,  the power to make rules and regulations. They have been granted by
Congress with the authority to issue rules to regulate the implementation of a law entrusted to them. Delegated rule-making has become a practical
necessity in modern governance due to the increasing complexity and variety of public functions. However, while administrative rules and regulations
have the force and effect of law, they are not immune from judicial review. 12 They may be properly challenged before the courts to ensure that they
do not violate the Constitution and no grave abuse of administrative discretion is committed by the administrative body concerned.
The fundamental rule in administrative law is that, to be valid, administrative rules and regulations must be issued by authority of a law and must not
contravene the provisions of the Constitution.13 The rule-making power of an administrative agency may not be used to abridge the authority given to
it by Congress or by the Constitution. Nor can it be used to enlarge the power of the administrative agency beyond the scope intended. Constitutional
and statutory provisions control with respect to what rules and regulations may be promulgated by administrative agencies and the scope of their
regulations.14

Page 84 of 134
In the case at bar, we find that the impugned A.O. is invalid as it contravenes the Constitution. The A.O. sought to regulate livestock farms by
including them in the coverage of agrarian reform and prescribing a maximum retention limit for their ownership. However, the deliberations of the
1987 Constitutional Commission show a clear intent to exclude, inter alia, all lands exclusively devoted to livestock, swine and poultry - raising. The
Court clarified in the Luz Farms casethat livestock, swine and poultry-raising are industrial activities and do not fall within the definition of
"agriculture" or "agricultural activity." The raising of livestock, swine and poultry is different from crop or tree farming. It is an industrial, not an
agricultural, activity. A great portion of the investment in this enterprise is in the form of industrial fixed assets, such as: animal housing structures
and facilities, drainage, waterers and blowers, feedmill with grinders, mixers, conveyors, exhausts and generators, extensive warehousing facilities
for feeds and other supplies, anti-pollution equipment like bio-gas and digester plants augmented by lagoons and concrete ponds, deepwells,
elevated water tanks, pumphouses, sprayers, and other technological appurtenances. 15
Clearly, petitioner DAR has no power to regulate livestock farms which have been exempted by the Constitution from the coverage of agrarian
reform. It has exceeded its power in issuing the assailed A.O.
The subsequent case of Natalia Realty, Inc. v. DAR16 reiterated our ruling in the Luz Farms case. In Natalia Realty, the Court heldthat industrial,
commercial and residential lands are not covered by the CARL. 17 We stressed anew that while Section 4 of R.A. No. 6657 provides that the CARL
shall cover all public and private agricultural lands, the term "agricultural land" does not include lands classified as mineral, forest, residential,
commercial or industrial. Thus, in Natalia Realty, even portions of the Antipolo Hills Subdivision, which are arable yet still undeveloped, could not be
considered as agricultural lands subject to agrarian reform as these lots were already classified as residential lands.
A similar logical deduction should be followed in the case at bar. Lands devoted to raising of livestock, poultry and swine have been classified as
industrial, not agricultural, lands and thus exempt from agrarian reform. Petitioner DAR argues that, in issuing the impugned A.O., it was seeking to
address the reports it has received that some unscrupulous landowners have been converting their agricultural lands to livestock farms to avoid their
coverage by the agrarian reform. Again, we find neither merit nor logic in this contention.  The undesirable scenario which petitioner seeks to prevent
with the issuance of the A.O. clearly does not apply in this case. Respondents' family acquired their landholdings as early as 1948. They have long
been in the business of breeding cattle in Masbate which is popularly known as the cattle-breeding capital of the Philippines. 18 Petitioner DAR does
not dispute this fact. Indeed, there is no evidence on record that respondents have just recently engaged in or converted to the business of breeding
cattle after the enactment of the CARL that may lead one to suspect that respondents intended to evade its coverage. It must be stressed that what
the CARL prohibits is the conversion of agricultural lands for non-agricultural purposes after the effectivity of the CARL. There has been no change
of business interest in the case of respondents.
Moreover, it is a fundamental rule of statutory construction that the reenactment of a statute by Congress without substantial change is an implied
legislative approval and adoption of the previous law. On the other hand, by making a new law, Congress seeks to supersede an earlier one. 19 In the
case at bar, after the passage of the 1988 CARL, Congress enacted R.A. No. 7881 20 which amended certain provisions of the CARL.
Specifically, the new law changed the definition of the terms "agricultural activity" and "commercial farming" by dropping from its coverage lands that
are devoted to commercial livestock, poultry and swine-raising. 21 With this significant modification, Congress clearly sought to align the provisions of
our agrarian laws with the intent of the 1987 Constitutional Commission to exclude livestock farms from the coverage of agrarian reform.
In sum, it is doctrinal that rules of administrative bodies must be in harmony with the provisions of the Constitution. They cannot amend or extend the
Constitution. To be valid, they must conform to and be consistent with the Constitution. In case of conflict between an administrative order and the
provisions of the Constitution, the latter prevails. 22 The assailed A.O. of petitioner DAR was properly stricken down as unconstitutional as it enlarges
the coverage of agrarian reform beyond the scope intended by the 1987 Constitution.
IN VIEW WHEREOF, the petition is DISMISSED. The assailed Decision and Resolution of the Court of Appeals, dated September 19, 2003 and
February 4, 2004, respectively, are AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Page 85 of 134
[G.R. No. 103144. April 4, 2001.]

PHILSA INTERNATIONAL PLACEMENT and SERVICES CORPORATION, Petitioner, v. THE HON. SECRETARY OF LABOR AND
EMPLOYMENT, VIVENCIO DE MESA, RODRIGO MIKIN and CEDRIC LEYSON, Respondents.

DECISION

GONZAGA-REYES, J.:

This is a petition for certiorari from the Order dated November 25, 1991 issued by public respondent Secretary of Labor and Employment. The
November 25, 1991 Order affirmed en toto the August 29, 1988 Order of the Philippine Overseas Employment Administration (hereinafter the
"POEA") which found petitioner liable for three (3) counts of illegal exaction, two (2) counts of contract substitution and one count of withholding or
unlawful deduction from salaries of workers in POEA Case No. (L) 85-05-0370.

Petitioner Philsa International Placement and Services Corporation (hereinafter referred to as "Philsa") is a domestic corporation engaged in the
recruitment of workers for overseas employment. Sometime in January 1985, private respondents, who were recruited by petitioner for employment
in Saudi Arabia, were required to pay placement fees in the amount of P5,000.00 for private respondent Rodrigo L. Mikin and P6,500.00 each for
private respondents Vivencio A. de Mesa and Cedric P. Leyson 1 .

After the execution of their respective work contracts, private respondents left for Saudi Arabia on January 29, 1985. They then began work for Al-
Hejailan Consultants A/E, the foreign principal of petitioner.

While in Saudi Arabia, private respondents were allegedly made to sign a second contract on February 4, 1985 which changed some of the
provisions of their original contract resulting in the reduction of some of their benefits and privileges 2 . On April 1, 1985, their foreign employer
allegedly forced them to sign a third contract which increased their work hours from 48 hours to 60 hours a week without any corresponding increase
in their basic monthly salary. When they refused to sign this third contract, the services of private respondents were terminated by Al-Hejailan and
they were repatriated to the Philippines 3 .

Page 86 of 134
Upon their arrival in the Philippines, private respondents demanded from petitioner Philsa the return of their placement fees and for the payment of
their salaries for the unexpired portion of their contract. When petitioner refused, they filed a case before the POEA against petitioner Philsa and its
foreign principal, Al-Hejailan., with the following causes of action:chanrob1es virtual 1aw library

1. Illegal dismissal;

2. Payment of salary differentials;

3. Illegal deduction/withholding of salaries;

4. Illegal exactions/refund of placement fees; and

5. Contract substitution. 4

The case was docketed as POEA Case No. (L) 85-05 0370.

Under the rules of the POEA dated May 21, 1985, complaints involving employer-employee relations arising out of or by virtue of any law or contract
involving Filipino workers for overseas employment, including money claims, are adjudicated by the Workers’ Assistance and Adjudication Office
(hereinafter the "WAAO") thru the POEA Hearing Officers5 . On the other hand, complaints involving recruitment violations warranting suspension or
cancellation of the license of recruiting agencies are cognizable by the POEA thru its Licensing and Recruitment Office (hereinafter the "LRO"). 6 In
cases where a complaint partakes of the nature of both an employer-employee relationship case and a recruitment regulation case, the POEA
Hearing Officer shall act as representative of both the WAAO and the LRO and both cases shall be heard simultaneously. In such cases, the Hearing
Officer shall submit two separate recommendations for the two aspects of the case. 7

In the case at bench, the first two causes of action were in the nature of money claims arising from the employer-employee relations and were
properly cognizable by the WAAO. The last two causes of action were in the nature of recruitment violations and may be investigated by the LRO.
The third cause of action, illegal deduction/withholding of salary, is both a money claim and a violation of recruitment regulations and is thus under
the investigatory jurisdiction of both the WAAO and the LRO.

Several hearings were conducted before the POEA Hearing Officer on the two aspects of private respondents’ complaint. During these hearings,
private respondents supported their complaint with the presentation of both documentary and testimonial evidence. When it was its turn to present its
evidence, petitioner failed to do so and consequently, private respondents filed a motion to decide the case on the basis of the evidence on record. 8

On the aspects of the case involving money claims arising from the employer-employee relations and illegal dismissal, the POEA rendered a
decision dated August 31, 1988 9 , the dispositive portion of which reads:jgc:chanrobles.com.ph

"CONFORMABLY TO THE FOREGOING, judgment is hereby rendered ordering respondent PHILSA INTERNATIONAL PLACEMENT AND
SERVICE CORPORATION to pay complainants, jointly and severally with its principal Al-Hejailan, the following amounts, to wit:chanrob1es virtual
1aw library

1. TWO THOUSAND TWO HUNDRED TWENTY FIVE SAUDI RIYALS (SR2,225.00) to each complainant, representing the refund of their unpaid
separation pay;

2. ONE THOUSAND SAUDI RIYALS (SR1,000.00) for V.A. de Mesa alone, representing the salary deduction from his March salary;

3. TWO THOUSAND SAUDI RIYALS (SR2,000.00) each for R.I. Mikin and C.A.P. Leyson only, representing their differential pay for the months of
February and March, 1985; and

4. Five percent (5%) of the total awards as and by way of attorney’s fees.

All payments of the abovestated awards shall be made in Philippine Currency equivalent to the prevailing exchange rate according to the Central
Bank at the time of payment.

All other claims of complainants as well as the counterclaims of respondent are dismissed for lack of merit.

SO ORDERED." 10

Under the Rules and Regulations of the POEA, the decision of the POEA-Adjudication Office on matters involving money claims arising from the
employer-employee relationship of overseas Filipino workers may be appealed to the National Labor Relations Commission (hereinafter the
"NLRC)11 . Thus, as both felt aggrieved by the said POEA Decision, petitioner and private respondents filed separate appeals from the August 31,
Page 87 of 134
1988 POEA Decision to the NLRC.

In a decision dated July 26, 1989 12 , the NLRC modified the appealed decision of the POEA Adjudication Office by deleting the award of salary
deductions and differentials. These awards to private respondents were deleted by the NLRC considering that these were not raised in the complaint
filed by private respondents. The NLRC likewise stated that there was nothing in the text of the decision which would justify the award.

Private respondents filed a Motion for Reconsideration but the same was denied by the NLRC in a Resolution dated October 25; 1989.

Private respondents then elevated the July 26, 1989 decision of the NLRC to the Supreme Court in a petition for review for certiorari where it was
docketed as G.R. No. 89089. However, in a Resolution dated October 25, 1989, the petition was dismissed outright for "insufficiency in form and
substance, having failed to comply with the Rules of Court and Circular No. 1-88 requiring submission of a certified true copy of the questioned
resolution dated August 23, 1989." 13

Almost simultaneous with the promulgation of the August 31, 1988 decision of the POEA on private respondents’ money claims, the POEA issued a
separate Order dated August 29, 1988 14 resolving the recruitment violations aspect of private respondents’ complaint. In this Order, the POEA
found petitioner guilty of illegal exaction, contract substitution, and unlawful deduction. The dispositive portion of this August 29, 1988 POEA Order
reads:jgc:chanrobles.com.ph

"WHEREFORE, premises considered, this Office finds herein respondent PHILSA International Placement and Services Corporation liable for three
(3) counts of illegal exaction, two (2) counts of contract substitution and one count of withholding or unlawful deduction from salaries of workers.

Accordingly, respondent is hereby ordered to refund the placement fees in the amount of P2,500.00 to Rodrigo L. Mikin, P4,000.00, each, to
Vivencio A. de Mesa and Cedric A.P. Leyson plus restitution of the salaries withheld in the amount of SR1,000.00 to Vivencio A. de Mesa.

Moreover, respondent’s license is hereby suspended for eight (8) months to take effect immediately and to remain as such until full refund and
restitution of the above-stated amounts have been effected or in lieu thereof, it is fined the amount of SIXTY THOUSAND (P60,000.00) PESOS plus
restitution.

SO ORDERED."cralaw virtua1aw library

In line with this August 29, 1988 Order, petitioner deposited the check equivalent to the claims of private respondents and paid the corresponding
fine under protest. From the said Order, petitioner filed a Motion for Reconsideration which was subsequently denied in an Order dated October 10,
1989.

Under the POEA Rules and Regulations, the decision of the POEA thru the LRO suspending or canceling a license or authority to act as a
recruitment agency may be appealed to the Ministry (now Department) of Labor and Employment. 15 Accordingly, after the denial of its motion for
reconsideration, petitioner appealed the August 21, 1988 Order to the Secretary of Labor and Employment. However, in an Order dated September
13, 199116 , public respondent Secretary of Labor and Employment affirmed en toto the assailed Order. Petitioner filed a Motion for Reconsideration
but this was likewise denied in an Order dated November 25, 1991.

Hence, the instant Petition for Certiorari where petitioner raises the following grounds for the reversal of the questioned Orders:chanrob1es virtual
1aw library
I

THE PUBLIC RESPONDENT HAS ACTED WITHOUT OR IN EXCESS OF JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION IN
HOLDING PETITIONER GUILTY OF ILLEGAL EXACTIONS. THE FINDING IS NOT SUPPORTED BY EVIDENCE AND IN ANY EVENT, THE LAW
ON WHICH THE CONVICTION IS BASED IS VOID.
II

THE PUBLIC RESPONDENT HAS ACTED WITHOUT OR IN EXCESS OF JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION IN
PENALIZING PETITIONER WITH CONTRACT SUBSTITUTION. IN THE PREMISES, THE CONTRACT SUBSTITUTION IS VALID AS IT
IMPROVED THE TERMS AND CONDITIONS OF PRIVATE RESPONDENTS’ EMPLOYMENT.
III.

THE PUBLIC RESPONDENT HAS ACTED WITHOUT OR IN EXCESS OF JURISDICTION, OR WITH GRAVE ABUSE OF DISCRETION IN
HOLDING PETITIONER LIABLE FOR ILLEGAL DEDUCTIONS/WITHHOLDING OF SALARIES FOR THE SUPREME COURT ITSELF HAS
ALREADY ABSOLVED PETITIONER FROM THIS CHARGE.
Page 88 of 134
With respect to the first ground, petitioner would want us to overturn the findings of the POEA, subsequently affirmed by the Secretary of the
Department of Labor and Employment, that it is guilty of illegal exaction committed by collecting placement fees in excess of the amounts allowed by
law. This issue, however, is a question of fact which cannot be raised in a petition for certiorari under Rule 65. 17 As we have previously
held:jgc:chanrobles.com.ph

"It should be noted, in the first place, that the instant petition is a special civil action for certiorari under Rule 65 of the Revised Rules of Court. An
extraordinary remedy, its use is available only and restrictively in truly exceptional cases wherein the action of an inferior court, board or officer
performing judicial or quasi-judicial acts is challenged for being wholly void on grounds of jurisdiction. The sole office of the writ of certiorari is the
correction of errors of jurisdiction including the commission of grave abuse of discretion amounting to lack or excess of jurisdiction. It does not
include correction of public respondent NLRC’s evaluation of the evidence and factual findings based thereon, which are generally accorded not only
great respect but even finality." 18

The question of whether or not petitioner charged private respondents placement fees in excess of that allowed by law is clearly a question of fact
which is for public respondent POEA, as a trier of facts, to determine. As stated above, the settled rule is that the factual findings of quasi-judicial
agencies like the POEA, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only
respect, but at times even finality if such findings are supported by substantial evidence. 19

On this point, we have carefully examined the records of the case and it is clear that the ruling of public respondent POEA that petitioner is guilty of
illegal exaction is supported by substantial evidence. Aside from the testimonial evidence offered by private respondents, they also presented
documentary evidence consisting of receipts issued by a duly authorized representative of petitioner which show the payment of amounts in excess
of those allowed by the POEA. In contrast, petitioner did not present any evidence whatsoever to rebut the claims of private respondents despite the
many opportunities for them to do so.

Petitioner insists, however, that it cannot be held liable for illegal exaction as POEA Memorandum Circular No. 11, Series of 1983, which
enumerated the allowable fees which may be collected from applicants, is void for lack of publication.

There is merit in the argument.

In Tañada v. Tuvera 20 , the Court held, as follows:jgc:chanrobles.com.ph

"We hold therefore that all statutes, including those of local application and private laws, shall be published as a condition for their effectivity, which
shall begin fifteen days after publication unless a different effectivity date is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of legislative powers whenever the
same are validly delegated by the legislature or, at present, directly conferred by the Constitution: Administrative rules and regulations must also be
published if their purpose is to enforce or implement existing law pursuant to a valid delegation.

Interpretative regulations and those merely internal in nature, that is, regulating only the personnel of the administrative agency and the public, need
not be published. Neither is publication required of the so-called letter of instructions issued by the administrative superiors concerning the rules or
guidelines to be followed by their subordinates in the performance of their duties."cralaw virtua1aw library

Applying this doctrine, we have previously declared as having no force and effect the following administrative issuances: a) Rules and Regulations
issued by the Joint Ministry of Health-Ministry of Labor and Employment Accreditation Committee regarding the accreditation of hospitals, medical
clinics and laboratories 21; b) Letter of Instruction No. 416 ordering the suspension of payments due and payable by distressed copper mining
companies to the national government 22; c) Memorandum Circulars issued by the POEA regulating the recruitment of domestic helpers to Hong
Kong 23; d) Administrative Order No. SOCPEC 89-08-01 issued by the Philippine International Trading Corporation regulating applications for
importation from the People’s Republic of China 24; and e) Corporate Compensation Circular No. 10 issued by the Department of Budget and
Management discontinuing the payment of other allowances and fringe benefits to government officials and employees 25 . In all these cited cases,
the administrative issuances questioned therein were uniformly struck down as they were not published or filed with the National Administrative
Register as required by the Administrative Code of 1987 26 .

POEA Memorandum Circular No. 2, Series of 1983 must likewise be declared ineffective as the same was never published or filed with the National
Administrative Register.

POEA Memorandum Order No. 2, Series of 1983 provides for the applicable schedule of placement and documentation fees for private employment
agencies or authority holders. Under the said Order, the maximum amount which may be collected from prospective Filipino overseas workers is
P2,500.00. The said circular was apparently issued in compliance with the provisions of Article 32 of the Labor Code which provides, as
follows:jgc:chanrobles.com.ph

Page 89 of 134
"ARTICLE 32. Fees to be paid by workers. — Any person applying with a private fee-charging employment agency for employment assistance shall
not be charged any fee until he has obtained employment through its efforts or has actually commenced employment. Such fee shall be always
covered with the approved receipt clearly showing the amount paid. The Secretary of Labor shall promulgate a schedule of allowable fees."
(Emphasis supplied)

It is thus clear that the administrative circular under consideration is one of those issuances which should be published for its effectivity, since its
purpose is to enforce and implement an existing law pursuant to a valid delegation 27 . Considering that POEA Administrative Circular No. 2, Series
of 1983 has not as yet been published or filed with the National Administrative Register, the same is ineffective and may not be enforced.

The Office of the Solicitor General argues however that the imposition of administrative sanctions on petitioner was based not on the questioned
administrative circular but on Article 32 and Article 34 (a) 28 of the Labor Code.

The argument is not meritorious. The said articles of the Labor Code were never cited, much less discussed, in the body of the questioned Orders of
the POEA and Secretary of Labor and Employment. In fact, the said Orders were consistent in mentioning that petitioner’s violation of Administrative
Circular No. 2, Series of 1983 was the basis for the imposition of administrative sanctions against petitioner. Furthermore, even assuming that
petitioner was held liable under the said provisions of the Labor Code, Articles 32 and 34 (a) of the Labor Code presupposes the promulgation of a
valid schedule of fees by the Department of Labor and Employment. Considering that, as, previously discussed, Administrative Circular No. 2, Series
of 1983 embodying such a schedule of fees never took effect, there is thus no basis for the imposition of the administrative sanctions against
petitioner. Moreover, under Book VI, Chapter II, Section 3 of the Administrative Code of 1987," (r)ules in force on the date of the effectivity of this
Code which are not filed within three (3) months from that date shall not thereafter be the basis of any sanction against any party or persons."
Considering that POEA Administrative Circular No. 2 was never filed with the National Administrative Register, the same cannot be used as basis for
the imposition of administrative sanctions against petitioner.

The Office of the Solicitor General likewise argues that the questioned administrative circular is not among those requiring publication contemplated
by Tañada v. Tuvera as it is addressed only to a specific group of persons and not to the general public.

Again, there is no merit in this argument.

The fact that the said circular is addressed only to a specified group, namely private employment agencies or authority holders, does not take it away
from the ambit of our ruling in Tañada v. Tuvera. In the case of Phil. Association of Service Exporters v. Torres 29 , the administrative circulars
questioned therein were addressed to an even smaller group, namely Philippine and Hong Kong agencies engaged in the recruitment of workers for
Hong Kong, and still the Court ruled therein that, for lack of proper publication, the said circulars may not be enforced or implemented.

Our pronouncement in Tañada v. Tuvera is clear and categorical. Administrative rules and regulations must be published if their purpose is to
enforce or implement existing law pursuant to a valid delegation., The only exceptions are interpretative regulations, those merely internal in nature,
or those so-called letters of instructions issued by administrative superiors concerning the rules and guidelines to be followed by their subordinates in
the performance of their duties. Administrative Circular No. 2, Series of 1983 has not been shown to fall under any of these exceptions.

In this regard, the Solicitor General’s reliance on the case of Yaokasin v. Commissioner of Customs 30 is misplaced. In the said case, the validity of
certain Customs Memorandum Orders were upheld despite their lack of publication as they were addressed to a particular class of persons, the
customs collectors, who were also the subordinates of the Commissioner of the Bureau of Customs. As such, the said Memorandum Orders clearly
fall under one of the exceptions to the publication requirement, namely those dealing with instructions from an administrative superior to a
subordinate regarding the performance of their duties, a circumstance which does not obtain in the case at bench.

With respect to the second ground, petitioner would want us to review the findings of fact of the POEA regarding the two counts of alleged contract
substitution. Again, this is a question of fact which may not be disturbed if the same is supported by substantial evidence. A reading of the August
29, 1988 Order of the POEA shows that, indeed, the ruling that petitioner is guilty of two (2) counts of prohibited contract substitution is supported by
substantial evidence. Thus:jgc:chanrobles.com.ph

"2. As admitted by respondent, there was definitely a contract of substitution in the first count. The first contract was duly approved by the
Administration and, therefore, the parties are bound by the terms and condition thereof until its expiration. The mere intention of respondents to
increase the number of hours of work, even if there was a corresponding increase in wage is clear violation of the contract as approved by the
Administration, and notwithstanding the same, the amendment is evidently contrary to law, morals, good customs and public policy and hence, must
be shunned (Art. 1306, Civil Code of the Philippines, Book III, Title I, Chapter 1, Article 83, Labor Code of the Philippines, as amended). Moreover, it
would appear that the proposed salary increase corresponding to the increase in number of work bonus may just have been a ploy as complainant
were (sic) thereafter not paid at the increased rate.

As to contract substitution in the second part, a third contract was emphatically intended by respondent to be signed by complainants which,
however, was not consummated due to the adamant refusal of complainants to sign thereon. Mere intention of the respondent to commit contract
substitution for a second time should not be left unpunished. It is the duty of this Office to repress such acts by teaching agencies a lesson to avoid
Page 90 of 134
repetition of the same violation." 31

With respect to the third ground, petitioner argues that the public respondent committed grave abuse of discretion in holding petitioner liable for
illegal deductions/withholding of salaries considering that the Supreme Court itself has already absolved petitioner from this charge. Petitioner
premises its argument on the fact that the July 26, 1989 Decision of the NLRC absolving it from private respondent de Mesa’s claim for salary
deduction has already attained finality by reason of the dismissal of private respondents’ petition for certiorari of the said NLRC decision by the
Supreme Court.

Petitioner is correct in stating that the July 26, 1989 Decision of the NLRC has attained finality by reason of the dismissal of the petition
for certiorari assailing the same. However, the said NLRC Decision dealt only with the money claims of private respondents arising from employer-
employee relations and illegal dismissal and as such, it is only for the payment of the said money claims that petitioner is absolved. The
administrative sanctions, which are distinct and separate from the money claims of private respondents, may still be properly imposed by the POEA.
In fact, in the August 31, 1988 Decision of the POEA dealing with the money claims of private respondents, the POEA Adjudication Office precisely
declared that "respondent’s liability for said money claims is without prejudice to and independent of its liabilities for the recruitment violations aspect
of the case which is the subject of a separate Order." 32

The NLRC Decision absolving petitioner from paying private respondent de Mesa’s claim for salary deduction based its ruling on a finding that the
said money claim was not raised in the complaint 33 . While there may be questions regarding such finding of the NLRC, the finality of the said
NLRC Decision prevents us from modifying or reviewing the same. But the fact that the claim for salary deduction was not raised by private
respondents in their complaint will not bar the POEA from holding petitioner liable for illegal deduction or withholding of salaries as a ground for the
suspension or cancellation of petitioner’s license.

Under the POEA Rules and Regulations, the POEA, on its own initiative, may conduct the necessary proceeding for the suspension or cancellation
of the license of any private placement agency on any of the grounds mentioned therein. 34 As such, even without a written complaint from an
aggrieved party, the POEA can initiate proceedings against an erring private placement agency and, if the result of its investigation so warrants,
impose the corresponding administrative sanction thereof. Moreover, the POEA, in an investigation of an employer-employee relationship case, may
still hold a respondent liable for administrative sanctions if, in the course of its investigation, violations of recruitment regulations are uncovered. 35 It
is thus clear that even if recruitment violations were not included in a complaint for money claims initiated by a private complainant, the POEA, under
its rules, may still take cognizance of the same and impose administrative sanctions if the evidence so warrants.

As such, the fact that petitioner has been absolved by final judgment for the payment of the money claim to private respondent de Mesa does not
mean that it is likewise absolved from the administrative sanctions which may be imposed as a result of the unlawful deduction or withholding of
private respondents’ salary. The POEA thus committed no grave abuse of discretion in finding petitioner administratively liable of one count of
unlawful deduction/withholding of salary.

To summarize, petitioner should be absolved from the three (3) counts of illegal exaction as POEA Administrative Circular No. 2, Series of 1983
could not be the basis of administrative sanctions against petitioner for lack of publication. However, we affirm the ruling of the POEA and the
Secretary of Labor and Employment that petitioner should be held administratively liable for two (2) counts of contract substitution and one (1) count
of withholding or unlawful deduction of salary.

Under the applicable schedule of penalties imposed by the POEA, the penalty for each count of contract substitution is suspension of license for two
(2) months or a fine of P10,000.00 while the penalty for withholding or unlawful deduction of salaries is suspension of license for two (2) months or
fine equal to the salary withheld but not less than P10,000.00 plus restitution of the amount in both instances 36 . Applying the said schedule on the
instant case, the license of petitioner should be suspended for six (6) months or, in lieu thereof, it should be ordered to pay fine in the amount of
P30,000.00. Petitioner should likewise pay the amount of SR1,000.00 to private respondent Vivencio A. de Mesa as restitution for the amount
withheld from his salary.

WHEREFORE, premises considered, the September 13, 1991 and November 25, 1991 Orders of public respondent Secretary of Labor and
Employment are hereby MODIFIED. As modified, the license of private respondent Philsa International Placement and Services Corporation is
hereby suspended for six (6) months or, in lieu thereof, it is hereby ordered to pay the amount of P30,000.00 as fine. Petitioner is likewise ordered to
pay the amount of SR1,000.00 to private respondent Vivencio A. de Mesa. All other monetary awards are deleted.

SO ORDERED.

G.R. No. 109023 August 12, 1998

RODOLFO S. DE JESUS, EDELWINA DE PARUNGAO, VENUS M. POZON AND other similarly situated personnel of the LOCAL WATER
UTILITIES ADMINISTRATION (LWUA), Petitioners, vs. COMMISSION ON AUDIT AND LEONARDO L. JAMORALIN in his capacity as COA-LWUA
Corporate Auditor, Respondents.

Page 91 of 134
 
PURISIMA, J.:
The pivotal issue raised in this petition is whether or not the petitioners are entitled to the payment of honoraria which they were receiving prior to the
effectivity of Rep. Act 6758.
Petitioners are employees of the Local Water Utilities Administration (LWUA). Prior to July 1, 1989, they were receiving honoraria as designated
members of the LWUA Board Secretariat and the Pre-Qualification, Bids and Awards Committee.
On July 1, 1989, Republic Act No. 6758 (Rep. Act 6758), entitled "An Act Prescribing A Revised Compensation and Position Classification System in
the Government and For Other Purposes", took effect. Section 12 of said law provides for the consolidation of allowances and additional
compensation into standardized salary rates. Certain additional compensations, however, were exempted from consolidation.
Sec. 12. Rep. Act 6758, reads -
Sec. 12. - Consolidation of Allowances and Compensation. - Allowances, except for representation and transportation allowances; clothing and
laundry allowances; subsistense allowance of marine officers and crew on board government vessels and hospital personnel; hazard pay:
allowances of foreign services personnel stationed abroad; and such other additional compensation not otherwise specified herein as may be
determined by the DBM, shall be deemed included in the standardized salary rules herein prescribed.  Such other additional compensation, whether
in cash or in kind, being received by incumbents as of July 1, 1989 no integrated into the standardized salary rates shall continue to be
authorized. 1 (Emphasis supplied)
To implement Rep. Act 6758, the Department of Budget and Management (DBM) issued Corporate Compensation Circular No. 10 (DBM-CCC No.
10), discontinuing without qualification effective November 1, 1989, all allowances and fringe benefits granted on top of basic salary.
Paragraph 5.6 of DBM-CCC No. 10 provides:
Payment of other allowances fringe benefits and all other forms of compensation granted on top of basic salary, whether in cash or in kind, . . . shall
be discontinued effective November 1, 1989. Payment made for such allowances fringe benefits after said date shall be considered as illegal
disbursement of public funds. 2
Pursuant to the aforesaid Law and Circular, respondent Leonardo Jamoralin, as corporate auditor, disallowed on post audit, the payment of
honoraria to the herein petitioners.
Aggrieved, petitioners appealed to the COA, questioning the validity and enforceability of DBM-CCC No. 10. More specifically, petitioners contend
that DBM-CCC No. 10 is inconsistent with the provisions of Rep. Act 6758 (the law it is supposed to implement) and, therefore, void. And it is without
force and effect because it was not published in the Official Gazette; petitioners stressed.
In its decision dated January 29, 1993, the COA upheld the validity and effectivity of DBM-CCC No. 10 and sanctioned the disallowance of
petitioners' honoraria. 3
Undaunted, petitioners found their way to this court via the present petition, posing the questions:
(1) Whether or not par. 5.6 of DBM-CCC No. 10 can supplant or negate the express provisions of Sec. 12 of Rep. Act 6758 which it seeks to
implement; and
(2) Whether or not DBM-CCC No. 10 is legally effective despite its lack of publication in the Official Gazette.
Petitioners are of the view that par. 5.6 of DBM-CCC No. 10 prohibiting fringe benefits and allowances effective November 1, 1989, is violative of
Sec. 12 of Rep. Act 6758 which authorizes payment of additional compensation not integrated into the standardized salary which incumbents were
enjoying prior to July 1, 1989.
To buttress petitioners' stance, the Solicitor General presented a Manifestation and Motion in Lieu of Comment, opining that Sec. 5.6 of DBM-CCC
No. 10 is a nullity for being inconsistent with and repugnant to the very law it is intended to implement. The Solicitor General theorized, that:
. . . following the settled principle that implementing rules must necessarily adhere to and not depart from the provisions of the statute it seeks to
implement, it is crystal clear that Section 5.6 of DBM-CCC No. 10 is a  patient nullity. An implementing rule can only be declared valid if it is in
harmony with the provision of the legislative act and for the sole purpose of carrying into effect its general provisions. When an implementing rule is
inconsistent or repugnant to the provision of the statute it seeks to interpret, the mandate of the statute must prevail and must be followed. 4
Respondent COA, on the other hand, pointed out that to allow honoraria without statutory, presidential or DBM authority, as in this case, would run
counter to Sec. 8, Article IX-B of the Constitution which proscribes payment of "additional or double compensation, unless specifically authorized by
law." Therefore, the grant of honoraria or like allowances requires a specific legal or statutory authority. And DBM-CCC No. 10 need not be published
for it is merely an interpretative regulation of a law already published 5; COA concluded.
In his Motion for Leave to intervene, the DBM Secretary asserted that the honoraria in question are considered included in the basic salary, for the
reason that they are not listed as exceptions under Sec. 12 of Rep. Act 6758.
Before resolving the other issue - whether or not Paragraph 5.6 of DBM-CCC No. 10 can supplant or negate the pertinent provisions of Rep. Act
6758 which it seeks to implement, we have to tackle first the other question whether or not DBM-CCC No. 10 has legal force and effect
notwithstanding the absence of publication thereof in the Official Gazette. This should take precedence because should we rule that publication in
the Official Gazette or in a newspaper of general circulation in the Philippines 6 is sine qua non to the effectiveness or enforceability of DBM-CCC
No. 10, resolution of the first issue posited by petitioner would not be necessary.
The applicable provision of law requiring publication in the Official Gazette is found in Article 2 of the New Civil Code of the Philippines, which reads:
Art. 2. Laws shall take effect after fifteen days following the completion of their publications in the Official Gazette, unless it is otherwise provided.
This code shall take effect one year after such publication.
In Tanada v. Tuvera, 146 SCRA 453, 454, this Court succinctly construed the aforecited provision of law in point, thus:
We hold therefore that all statutes, including those of local application and privates laws, shall be published as a condition for their effectivity, which
shall begin after fifteen days after publication unless a different effectivity date is fixed by the legislature.

Page 92 of 134
Covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of legislative powers whenever the
same are validly delegated by the legislature or, at present, directly conferred by the Constitution. Administrative rules and regulations must also be
published if their purpose is to enforced or implement existing law pursuant to a valid delegation.
Interpretative regulations and those merely internal in nature, that is, regulating only the personnel of the administrative agency and not the public,
need not be published. Neither is publication required of the so-called letters of instructions issued by administrative superiors concerning the rules
or guidelines to be followed by their subordinates in the performance of their duties.
Accordingly, even the charter of a city must be published notwithstanding that it applies to only one portion of the national territory and directly affects
only the inhabitants of that place. All presidential decrees must be published, including, even, say those naming a public place after a favored
individual or exempting him from a certain prohibitions or requirements. The circulars issued by the Monetary Board must be published if they are
meant not merely interpret but to  "fill in details" of the Central Bank Act which that body supposed to enforce. (Emphasis ours)
The same ruling was reiterated in the case of Philippine Association of Service Exporters, Inc. vs. Torres , 212 SCRA 299 [1992].
On the need for publication of subject DBM-CCC No. 10, we rule in the affirmative. Following the doctrine enunciated in Tanada, publication in the
Official Gazette or in a newspaper of general circulation in the Philippines is required since DBM-CCC No. 10 is in the nature of an administrative
circular the purpose of which is to enforce or implement an existing law. Stated differently, to be effective and enforceable, DBM-CCC No. 10 must
go through the requisite publication in the Official Gazette or in a newspaper of general circulation in the Philippines.
In the present case under scrutiny, it is decisively clear that DBM-CCC No. 10, which completely disallows payment of allowances and other
additional compensation to government officials and employees, starting November 1, 1989, is not a mere interpretative or internal regulation. It is
something more than that. And why not, when it tends to deprive government workers of their allowances and additional compensation sorely
needed to keep body and soul together. At the very least, before the said circular under attack may be permitted to substantially reduce their income,
the government officials and employees concerned should be apprised and alerted by the publication of subject circular in the Official Gazette or in a
newspaper of general circulation in the Philippines - to the end that they be given amplest opportunity to voice out whatever opposition they may
have, and to ventilate their stance on the matter. This approach is more in keeping with democratic precepts and rudiments of fairness and
transparency.
In light of the foregoing disquisition on the ineffectiveness of DBM-CCC No. 10 due to its non-publication in the Official Gazette or in a newspaper of
general circulation in the country, as required by law, resolution of the other issue at bar is unnecessary.
WHEREFORE, the Petition is hereby GRANTED, the assailed Decision of respondent Commission on Audit is SET ASIDE, and respondents are
ordered to pass on audit the honoraria of petitioners. No pronouncement as to costs.
SO ORDERED.

G.R. No. 119761 August 29, 1996

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION, respondents.
 
VITUG, J.:p
The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent Court of Appeals 1 affirming the 10th
August 1994 decision and the 11th October 1994 resolution of the Court of Tax Appeals  2 ("CTA") in C.T.A. Case No. 5015, entitled "Fortune
Tobacco Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and
"More" cigarettes. In a letter, dated 06 January 1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon
Diaz of the Presidential Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as
foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the
names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium  More,' thereby removing the said brands from the foreign brand category. Proof was also
submitted to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local
brand." 3 Ad Valorem  taxes were imposed on these brands, 4 at the following rates:
BRAND AD VALOREM  TAX RATE
E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
Page 93 of 134
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5
A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June 1993, by the legislature and signed into law, on 14
June 1993, by the President of the Philippines. The new law became effective on 03 July 1993. It amended Section 142(c)(1) of the
National Internal Revenue Code ("NIRC") to read; as follows:
Sec. 142. Cigars and Cigarettes. —
xxx xxx xxx
(c) Cigarettes packed by machine. — There shall be levied, assessed and collected on cigarettes packed by machine a tax at the
rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price,
whichever is higher:
(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%)  or the exportation of
which is not authorized by contract or otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five Pesos
(P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent (45%)  provided that the minimum tax shall not be less than Three
Pesos (P3.00) per pack.
xxx xxx xxx
When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price whichever is higher of existing
brands of cigarettes, including the amounts intended to cover the taxes, of cigarettes packed in twenties does not exceed Four
Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty percent (20%). 7 (Emphasis supplied)
About a month after  the enactment and two (2) days before  the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC
37-93"), was issued by the BIR the full text of which expressed:
REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
July 1,
1993
REVENUE MEMORANDUM CIRCULAR NO. 37-93
SUBJECT: Reclassification of Cigarettes Subject to Excise Tax
TO: All Internal Revenue Officers and Others Concerned.
In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes which are locally manufactured are
appropriately considered as locally manufactured cigarettes bearing a foreign brand, this Office is compelled to review the
previous rulings on the matter.
Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides:
On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this rate
shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by
its owner to the local manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco
Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad valorem  tax on cigarettes is that the locally manufactured cigarettes
bear a foreign brand regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner
to the local manufacturer. The brand must be originally owned by a foreign manufacturer or producer. If ownership of the
cigarette brand is, however, not definitely determinable, ". . . the listing of brands manufactured in foreign countries appearing in
the current World Tobacco Directory shall govern. . . ."
"HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan and (b) Fortune Tobacco,
Philippines. "MORE" is listed in the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-Macdonald Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g)
Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is registered in the said directory as
being manufactured by (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco,
Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.
Page 94 of 134
 Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the real
owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the  ad valorem  tax
pursuant to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in
cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to the World
Tobacco Directory should be made."
In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by
Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem  tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
(SGD) LIWAYWAY VINZONS-CHATO
Commissioner
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent  via telefax a copy of RMC 37-93 to Fortune
Tobacco but it was addressed to no one in particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy
of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco requested for a review, reconsideration
and recall of RMC 37-93. The request was denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune
Tobacco for ad valorem  tax deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8
On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:
WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: "HOPE," "MORE" and
"CHAMPION" being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem  tax on cigarettes is found to be defective, invalid and unenforceable, such that when R.A. No.
7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to
Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still classified as other locally
manufactured cigarettes and taxed at 45% or 20% as the case may be.
Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of
P9,598,334.00, exclusive of surcharge and interest, is hereby canceled for lack of legal basis.
Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency tax assessment made and
issued on petitioner in relation to the implementation of RMC No. 37-93.
SO ORDERED. 9
In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th August 1994 decision and 11th October
1994 resolution. On 31 March 1993, the appellate court's Special Thirteenth Division affirmed in all respects the assailed decision and
resolution.
In the instant petition, the Solicitor General argues: That —
I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL REVENUE
INTERPRETING THE PROVISIONS OF THE TAX CODE.
II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF RMC 37-93, FILING OF
COPIES THEREOF WITH THE UP LAW CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS
VALIDITY, EFFECTIVITY AND ENFORCEABILITY.
III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-93 ON JULY 2, 1993.
IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY MANUFACTURED
CIGARETTES SIMILARLY SITUATED AS "HOPE," "MORE" AND "CHAMPION" CIGARETTES.
V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING "HOPE," "MORE" AND
"CHAMPION" CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654.
VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO ITS VALIDITY,
EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS
CORRECT. 10
In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become effective without any prior
need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would apply under similar circumstances to
all locally manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective implementation of the provisions
of the National Internal Revenue Code. Let it be made clear that such authority of the Commissioner is not here doubted. Like any other
government agency, however, the CIR may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative
powers.
Let us first distinguish between two kinds of administrative issuances — a legislative rule  and an interpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, 11 the Court expressed:

Page 95 of 134
 . . . a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the
details thereof  . In the same way that laws must have the benefit of public hearing, it is generally required that before a
legislative rule is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides:
Public Participation. — If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of
proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper
of general circulation at least two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.
In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the law
which the administrative agency is in charge of enforcing . 12
It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than
its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the
administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the
law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected
a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot
be viewed simply as a corrective measure (revoking in the process the previous holdings of past Commissioners) or merely as construing
Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium
More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them
covered by RA 7654. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which  at
the time of its effectivity  were not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury,"
"Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not  bearing foreign brand subject to
45% ad valorem  tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence on private
respondent's products. Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the
amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply
intrepreted the law; verily, it legislated under its quasi-legislative   authority. The due observance of the requirements of notice, of hearing,
and of publication should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations
It has been observed that one of the problem areas bearing on compliance with Internal Revenue Tax rules and regulations is
lack or insufficiency of due notice to the tax paying public. Unless there is due notice, due compliance therewith may not be
reasonably expected. And most importantly, their strict enforcement could possibly suffer from legal infirmity in the light of the
constitutional provision on "due process of law" and the essence of the Civil Code provision concerning effectivity of laws,
whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil Code).
In order that there shall be a just enforcement of rules and regulations, in conformity with the basic element of due process, the
following procedures are hereby prescribed for the drafting, issuance and implementation of the said Revenue Tax Issuances:
(1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum Orders; and
(c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax
rules and regulations.
(2) Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not
begin to be operative until after due notice thereof may be fairly presumed.
Due notice of the said issuances may be fairly presumed only after the following procedures have been
taken;
x x x           x x x          x x x
(5) Strict compliance with the foregoing procedures is
enjoined. 13
Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and comply with the above
requirements before giving effect to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and equitable. Uniformity requires that all
subjects or objects of taxation, similarly situated, are to be treated alike or put on equal footing both in privileges and liabilities. 14 Thus, all
taxable articles or kinds of property of the same class must be taxed at the same rate 15 and the tax must operate with the same force and
effect in every place where the subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, unless petitioner would be
willing to concede to the submission of private respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo
so expresses in his separate opinion, be considered adjudicatory  in nature and thus violative of due process following the Ang
Tibay  16  doctrine, the measure suffers from lack of uniformity of taxation. In its decision, the CTA has keenly noted that other cigarettes
bearing foreign brands have not been similarly included within the scope of the circular, such as —
1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
Page 96 of 134
 (a) "PALM TREE" is listed as manufactured by office of Monopoly, Korea (Exhibit "R")
2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY
(a) "GOLDEN KEY" is listed being manufactured by United Tobacco, Pakistan (Exhibit "S")
(b) "CANNON" is listed as being manufactured by Alpha Tobacco, Bangladesh (Exhibit "T")
3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia (Exhibit "U")
(b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit "V-1")
4. Locally manufactured by MIGHTY CORPORATION
(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia (Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO CORPORATION
(a) "UNION" is listed as being manufactured by Sumatra Tobacco, Indonesia and Brown and Williamson,
USA (Exhibit "U-3")
(b) "WINNER" is listed as being manufactured by Alpha Tobacco, Bangladesh; Nangyang, Hongkong; Joo
Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit "U-
4"). 17
The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the Committee on Ways and Means of the
House of Representatives; viz:
THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't have specific information on other
tobacco manufacturers. Now, there are other brands which are similarly situated. They are locally manufactured bearing foreign
brands. And may I enumerate to you all these brands, which are also listed in the World Tobacco Directory . . . Why were these
brand not reclassified at 55 if your want to give a level playing filed to foreign manufacturers?
MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum Circular that was supposed to come
after RMC No. 37-93 which have really named specifically the list of locally manufactured cigarettes bearing a foreign brand for
excise tax purposes and includes all these brands that you mentioned at 55 percent  except that at that time, when we had to
come up with this, we were forced to study the brands of Hope, More and Champion because we were given documents that
would indicate the that these brands were actually being claimed or patented in other countries because we went by Revenue
Memorandum Circular 1488 and we wanted to give some rationality to how it came about but we couldn't find the rationale there.
And we really found based on our own interpretation that the only test that is given by that existing law would be registration in
the World Tobacco Directory. So we came out with this proposed revenue memorandum circular which we forwarded to the
Secretary of Finance except that at that point in time, we went by the Republic Act 7654 in Section 1 which amended Section
142, C-1, it said, that on locally manufactured cigarettes which are currently classified and taxed at 55 percent.  So we were
saying that when this law took effect in July 3 and if we are going to come up with this revenue circular thereafter, then I think our
action would really be subject to question  but we feel that . . . Memorandum Circular Number 37-93 would really cover even
similarly situated brands. And in fact, it was really because of the study, the short time that we were given to study the matter
that we could not include all the rest of the other brands that would have been really classified as foreign brand if we went by the
law itself. I am sure that by the reading of the law, you would without that ruling by Commissioner Tan they would really have
been included in the definition or in the classification of foregoing brands. These brands that you referred to or just read to us and
in fact just for your information, we really came out with a proposed revenue memorandum circular for those brands . (Emphasis
supplied)
(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).
xxx xxx xxx
MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I felt that we . . . I wanted to come up with a
more extensive coverage and precisely why I asked that revenue memorandum circular that would cover all those similarly
situated would be prepared but because of the lack of time and I came out with a study of RA 7654, it would not have been
possible to really come up with the reclassification or the proper classification of all brands that are listed there . . .  (emphasis
supplied) (Exhibit "FF-2d," page IX-1)
xxx xxx xxx
HON. DIAZ. But did you not consider that there are similarly situated?
MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue Memorandum Circular No. 37-93, the other
brands came about the would have also clarified RMC 37-93 by I was saying really because of the fact that I was just recently
appointed and the lack of time, the period that was allotted to us to come up with the right actions on the matter, we were really
caught by the July 3 deadline. But in fact, We have already prepared a revenue memorandum circular clarifying with the
other  . . . does not yet, would have been a list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes
which would include all the other brands that were mentioned by the Honorable Chairman . (Emphasis supplied) (Exhibit "FF-2-
d," par. IX-4). 18
All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED. No costs.
SO ORDERED.

Page 97 of 134
G.R. No. 108524 November 10, 1994
MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner,
vs.
DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT
OFFICER, BIR MISAMIS ORIENTAL, respondents.
Damasing Law Office for petitioner.

MENDOZA, J.:
This is a petition for prohibition and injunction seeking to nullify Revenue Memorandum Circular No. 47-91 and enjoin the collection by respondent
revenue officials of the Value Added Tax (VAT) on the sale of copra by members of petitioner organization. 1
Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members, individually or collectively, are engaged in
the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on
June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b) of the National Internal
Revenue Code and, therefore, exempt from VAT at all stages of production or distribution.
Respondents represent departments of the executive branch of government charged with the generation of funds and the assessment, levy and
collection of taxes and other imposts.
The pertinent provision of the NIRC states:
Sec. 103. Exempt Transactions. — The following shall be exempt from the value-added tax:
(a) Sale of nonfood agricultural, marine and forest products in their original state by the primary producer or the owner of the land
where the same are produced;
(b) Sale or importation in their original state of agricultural and marine food products, livestock and poultry of a kind generally
used as, or yielding or producing foods for human consumption, and breeding stock and genetic material therefor;
Under §103(a), as above quoted, the sale of agricultural non-food products in their original state is exempt from VAT only if the sale is made by the
primary producer or owner of the land from which the same are produced. The sale made by any other person or entity, like a trader or dealer, is not
exempt from the tax. On the other hand, under §103(b) the sale of agricultural food products in their original state is exempt from VAT at all stages of
production or distribution regardless of who the seller is.
The question is whether copra is an agricultural food or non-food product for purposes of this provision of the NIRC. On June 11, 1991, respondent
Commissioner of Internal Revenue issued the circular in question, classifying copra as an agricultural non-food product and declaring it "exempt from
VAT only if the sale is made by the primary producer pursuant to Section 103(a) of the Tax Code, as amended." 2
The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food
product under §103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on various grounds, which will be presently discussed although not in the
order raised in the petition for prohibition.
First. Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the BIR is the competent government agency to
determine the proper classification of food products. Petitioner cites the opinion of Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect
that copra should be considered "food" because it is produced from coconut which is food and 80% of coconut products are edible.
On the other hand, the respondents argue that the opinion of the BIR, as the government agency charged with the implementation and interpretation
of the tax laws, is entitled to great respect.
We agree with respondents. In interpreting §103(a) and (b) of the NIRC, the Commissioner of Internal Revenue gave it a strict construction
consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state. Indeed, even Dr.
Kintanar said that his classification of copra as food was based on "the broader definition of food which includes agricultural commodities and other
components used in the manufacture/processing of food." The full text of his letter reads:
10 April 1991
Mr. VICTOR A. DEOFERIO, JR.
Chairman VAT Review Committee
Bureau of Internal Revenue
Diliman, Quezon City
Dear Mr. Deoferio:
This is to clarify a previous communication made by this Office about copra in a letter dated 05 December 1990 stating that
copra is not classified as food. The statement was made in the context of BFAD's regulatory responsibilities which focus mainly
on foods that are processed and packaged, and thereby copra is not covered.
However, in the broader definition of food which include agricultural commodities and other components used in the
manufacture/ processing of food, it is our opinion that copra should be classified as an agricultural food product since copra is
produced from coconut meat which is food and based on available information, more than 80% of products derived from copra
are edible products.
Very truly yours,
QUINTIN L. KINTANAR,
M.D., Ph.D.
Director
Assistant Secretary of Health

Page 98 of 134
 for Standards and
Regulations
Moreover, as the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence
of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the
exercise of his power under § 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal
revenue laws, including rulings on the classification of articles for sales tax and similar purposes ."
Second. Petitioner complains that it was denied due process because it was not heard before the ruling was made. There is a distinction in
administrative law between legislative rules and interpretative rules. 3 There would be force in petitioner's argument if the circular in question were in
the nature of a legislative rule. But it is not. It is a mere interpretative rule.
The reason for this distinction is that a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by
providing the details thereof. In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is
adopted there must be hearing. In this connection, the Administrative Code of 1987 provides:
Public Participation. — If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of
proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper
of general circulation at least two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed. 4
In addition such rule must be published. 5 On the other hand, interpretative rules are designed to provide guidelines to the law which the
administrative agency is in charge of enforcing.
Accordingly, in considering a legislative rule a court is free to make three inquiries: (i) whether the rule is within the delegated authority of the
administrative agency; (ii) whether it is reasonable; and (iii) whether it was issued pursuant to proper procedure. But the court is not free to substitute
its judgment as to the desirability or wisdom of the rule for the legislative body, by its delegation of administrative judgment, has committed those
questions to administrative judgments and not to judicial judgments. In the case of an interpretative rule, the inquiry is not into the validity but into the
correctness or propriety of the rule. As a matter of power a court, when confronted with an interpretative rule, is free to (i) give the force of law to the
rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative
rule. 6
In the case at bar, we find no reason for holding that respondent Commissioner erred in not considering copra as an "agricultural food product" within
the meaning of § 103(b) of the NIRC. As the Solicitor General contends, "copra  per se is not food, that is, it is not intended for human consumption.
Simply stated, nobody eats copra for food." That previous Commissioners considered it so, is not reason for holding that the present interpretation is
wrong. The Commissioner of Internal Revenue is not bound by the ruling of his predecessors. 7 To the contrary, the overruling of decisions is
inherent in the interpretation of laws.
Third. Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution because while
coconut farmers and copra producers are exempt, traders and dealers are not, although both sell copra in its original state. Petitioners add that oil
millers do not enjoy tax credit out of the VAT payment of traders and dealers.
The argument has no merit. There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra
traders and dealers, on the other. The former  produce and sell  copra, the latter merely sell  copra. The Constitution does not forbid the differential
treatment of persons so long as there is a reasonable basis for classifying them differently. 8
It is not true that oil millers are exempt from VAT. Pursuant to § 102 of the NIRC, they are subject to 10% VAT on the sale of services. Under § 104
of the Tax Code, they are allowed to credit the input tax on the sale of copra by traders and dealers, but there is no tax credit if the sale is made
directly by the copra producer as the sale is VAT exempt. In the same manner, copra traders and dealers are allowed to credit the input tax on the
sale of copra by other traders and dealers, but there is no tax credit if the sale is made by the producer.
Fourth. It is finally argued that RMC No. 47-91 is counterproductive because traders and dealers would be forced to buy copra from coconut farmers
who are exempt from the VAT and that to the extent that prices are reduced the government would lose revenues as the 10% tax base is
correspondingly diminished.
This is not so. The sale of agricultural non-food products is exempt from VAT only when made by the primary producer or owner of the land from
which the same is produced, but in the case of agricultural food products their sale in their original state is exempt at all stages of production or
distribution. At any rate, the argument that the classification of copra as agricultural non-food product is counterproductive is a question of wisdom or
policy which should be addressed to respondent officials and to Congress.
WHEREFORE, the petition is DISMISSED.
SO ORDERED.

G.R. No. 101279 August 6, 1992

PHILIPPINE ASSOCIATION OF SERVICE EXPORTERS, INC., petitioner,
vs.
HON. RUBEN D. TORRES, as Secretary of the Department of Labor & Employment, and JOSE N. SARMIENTO, as Administrator of the
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION, respondents.
De Guzman, Meneses & Associates for petitioner.

GRIÑO-AQUINO, J.:

Page 99 of 134
This petition for prohibition with temporary restraining order was filed by the Philippine Association of Service Exporters (PASEI, for short), to prohibit
and enjoin the Secretary of the Department of Labor and Employment (DOLE) and the Administrator of the Philippine Overseas Employment
Administration (or POEA) from enforcing and implementing DOLE Department Order No. 16, Series of 1991 and POEA Memorandum Circulars Nos.
30 and 37, Series of 1991, temporarily suspending the recruitment by private employment agencies of Filipino domestic helpers for Hong Kong and
vesting in the DOLE, through the facilities of the POEA, the task of processing and deploying such workers.
PASEI is the largest national organization of private employment and recruitment agencies duly licensed and authorized by the POEA, to engaged in
the business of obtaining overseas employment for Filipino landbased workers, including domestic helpers.
On June 1, 1991, as a result of published stories regarding the abuses suffered by Filipino housemaids employed in Hong Kong, DOLE Secretary
Ruben D. Torres issued Department Order No. 16, Series of 1991, temporarily suspending the recruitment by private employment agencies of
"Filipino domestic helpers going to Hong Kong" (p. 30, Rollo). The DOLE itself, through the POEA took over the business of deploying such Hong
Kong-bound workers.
In view of the need to establish mechanisms that will enhance the protection for Filipino domestic helpers going to Hong
Kong, the recruitment of the same by private employment agencies is hereby temporarily suspended  effective 1 July 1991. As
such, the DOLE through the facilities of the Philippine Overseas Employment Administration shall take over the processing and
deployment of household workers bound for Hong Kong, subject to guidelines to be issued for said purpose.
In support of this policy, all DOLE Regional Directors and the Bureau of Local Employment's regional offices are likewise directed
to coordinate with the POEA in maintaining a manpower pool of prospective domestic helpers to Hong Kong on a regional basis.
For compliance. (Emphasis ours; p. 30, Rollo.)
Pursuant to the above DOLE circular, the POEA issued Memorandum Circular No. 30, Series of 1991, dated July 10, 1991, providing GUIDELINES
on the Government processing and deployment of Filipino domestic helpers to Hong Kong and the accreditation of Hong Kong recruitment agencies
intending to hire Filipino domestic helpers.
Subject: Guidelines on the Temporary Government Processing and Deployment of Domestic Helpers to Hong Kong.
Pursuant to Department Order No. 16, series of 1991 and in order to operationalize the temporary government processing and
deployment of domestic helpers (DHs) to Hong Kong resulting from the temporary suspension of recruitment by private
employment agencies for said skill and host market, the following guidelines and mechanisms shall govern the implementation of
said policy.
I. Creation of a joint POEA-OWWA Household Workers Placement Unit (HWPU)
An ad hoc, one stop Household Workers Placement Unit [or HWPU] under the supervision of the POEA shall take charge of the
various operations involved in the Hong Kong-DH industry segment:
The HWPU shall have the following functions in coordination with appropriate units and other entities concerned:
1. Negotiations with and Accreditation of Hong Kong Recruitment Agencies
2. Manpower Pooling
3. Worker Training and Briefing
4. Processing and Deployment
5. Welfare Programs
II. Documentary Requirements and Other Conditions for Accreditation of Hong Kong Recruitment Agencies or Principals
Recruitment agencies in Hong Kong intending to hire Filipino DHs for their employers may negotiate with the HWPU in Manila
directly or through the Philippine Labor Attache's Office in Hong Kong.
xxx xxx xxx
X. Interim Arrangement
All contracts stamped in Hong Kong as of June 30 shall continue to be processed by POEA until 31 July 1991 under the name of
the Philippine agencies concerned. Thereafter, all contracts shall be processed with the HWPU.
Recruitment agencies in Hong Kong shall submit to the Philippine Consulate General in Hong kong a list of their accepted
applicants in their pool within the last week of July. The last day of acceptance shall be July 31 which shall then be the basis of
HWPU in accepting contracts for processing. After the exhaustion of their respective pools the only source of applicants will be
the POEA manpower pool.
For strict compliance of all concerned. (pp. 31-35, Rollo.)
On August 1, 1991, the POEA Administrator also issued Memorandum Circular No. 37, Series of 1991, on the processing of employment contracts
of domestic workers for Hong Kong.
TO: All Philippine and Hong Kong Agencies engaged in the recruitment of Domestic helpers for Hong Kong
Further to Memorandum Circular No. 30, series of 1991 pertaining to the government processing and deployment of domestic
helpers (DHs) to Hong Kong, processing of employment contracts which have been attested by the Hong Kong Commissioner of
Labor up to 30 June 1991 shall be processed by the POEA Employment Contracts Processing Branch up to 15 August 1991
only.
Effective 16 August 1991, all Hong Kong recruitment agent/s hiring DHs from the Philippines shall recruit under the new scheme
which requires prior accreditation which the POEA.
Recruitment agencies in Hong Kong may apply for accreditation at the Office of the Labor Attache, Philippine Consulate General
where a POEA team is posted until 31 August 1991. Thereafter, those who failed to have themselves accredited in Hong Kong
may proceed to the POEA-OWWA Household Workers Placement Unit in Manila for accreditation before their recruitment and
processing of DHs shall be allowed.
Page 100 of 134
 Recruitment agencies in Hong Kong who have some accepted applicants in their pool after the cut-off period shall submit this list
of workers upon accreditation. Only those DHs in said list will be allowed processing outside of the HWPU manpower pool.
For strict compliance of all concerned. (Emphasis supplied, p. 36, Rollo.)
On September 2, 1991, the petitioner, PASEI, filed this petition for prohibition to annul the aforementioned DOLE and POEA circulars and to prohibit
their implementation for the following reasons:
1. that the respondents acted with grave abuse of discretion and/or in excess of their rule-making authority in issuing said
circulars;
2. that the assailed DOLE and POEA circulars are contrary to the Constitution, are unreasonable, unfair and oppressive; and
3. that the requirements of publication and filing with the Office of the National Administrative Register were not complied with.
There is no merit in the first and second grounds of the petition.
Article 36 of the Labor Code grants the Labor Secretary the power to restrict and regulate recruitment and placement activities.
Art. 36. Regulatory Power. — The Secretary of Labor shall have the power to restrict and regulate the recruitment and placement
activities of all agencies within the coverage of this title [Regulation of Recruitment and Placement Activities] and is hereby
authorized to issue orders and promulgate rules and regulations to carry out the objectives and implement the provisions of this
title. (Emphasis ours.)
On the other hand, the scope of the regulatory authority of the POEA, which was created by Executive Order No. 797 on May 1, 1982 to take over
the functions of the Overseas Employment Development Board, the National Seamen Board, and the overseas employment functions of the Bureau
of Employment Services, is broad and far-ranging for:
1. Among the functions inherited by the POEA from the defunct Bureau of Employment Services was the power and duty:
"2. To establish and maintain a registration and/or licensing system to regulate private sector participation in
the recruitment and placement of workers, locally and overseas , . . ." (Art. 15, Labor Code, Emphasis
supplied). (p. 13, Rollo.)
2. It assumed from the defunct Overseas Employment Development Board the power and duty:
3. To recruit and place workers for overseas employment of Filipino contract workers on a government to
government arrangement and in such other sectors as policy may dictate . . . (Art. 17, Labor Code.) (p.
13, Rollo.)
3. From the National Seamen Board, the POEA took over:
2. To regulate and supervise the activities of agents or representatives of shipping companies in the hiring of
seamen for overseas employment; and secure the best possible terms of employment for contract seamen
workers and secure compliance therewith. (Art. 20, Labor Code.)
The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is not unconstitutional, unreasonable and oppressive. It has been
necessitated by "the growing complexity of the modern society" (Solid Homes, Inc. vs. Payawal, 177 SCRA 72, 79). More and more administrative
bodies are necessary to help in the regulation of society's ramified activities. "Specialized in the particular field assigned to them, they can deal with
the problems thereof with more expertise and dispatch than can be expected from the legislature or the courts of justice" ( Ibid.).
It is noteworthy that the assailed circulars do not prohibit the petitioner from engaging in the recruitment and deployment of Filipino landbased
workers for overseas employment. A careful reading of the challenged administrative issuances discloses that the same fall within the "administrative
and policing powers expressly or by necessary implication conferred" upon the respondents (People vs. Maceren, 79 SCRA 450). The power to
"restrict and regulate conferred by Article 36 of the Labor Code involves a grant of police power (City of Naga vs. Court of Appeals, 24 SCRA 898).
To "restrict" means "to confine, limit or stop" (p. 62, Rollo) and whereas the power to "regulate" means "the power to protect, foster, promote,
preserve, and control with due regard for the interests, first and foremost, of the public, then of the utility and of its patrons" (Philippine
Communications Satellite Corporation vs. Alcuaz, 180 SCRA 218).
The Solicitor General, in his Comment, aptly observed:
. . . Said Administrative Order [ i.e., DOLE Administrative Order No. 16] merely restricted the scope or area of petitioner's
business operations by excluding therefrom recruitment and deployment of domestic helpers for Hong Kong till after the
establishment of the "mechanisms" that will enhance the protection of Filipino domestic helpers going to Hong Kong. In
fine, other than the recruitment and deployment of Filipino domestic helpers for Hongkong, petitioner may still deploy other class
of Filipino workers  either for Hongkong and other countries and all other classes of Filipino workers for other countries.
Said administrative issuances, intended to curtail, if not to end, rampant violations of the rule against excessive collections of
placement and documentation fees, travel fees and other charges committed by private employment agencies recruiting and
deploying domestic helpers to Hongkong. [They are reasonable, valid and justified under the general welfare clause of the
Constitution, since the recruitment and deployment business, as it is conducted today, is affected with public interest.
xxx xxx xxx
The alleged takeover [of the business of recruiting and placing Filipino domestic helpers in Hongkong] is merely a remedial
measure, and expires after its purpose shall have been attained. This is evident from the tenor of Administrative Order No. 16
that recruitment of Filipino domestic helpers going to Hongkong by private employment agencies are hereby " temporarily
suspended effective July 1, 1991."
The alleged takeover is limited in scope, being confined to recruitment of domestic helpers going to Hongkong only.
xxx xxx xxx
. . . the justification for the takeover of the processing and deploying of domestic helpers for Hongkong resulting from the
restriction of the scope of petitioner's business is confined solely to the unscrupulous practice of private employment agencies
Page 101 of 134
 victimizing applicants for employment as domestic helpers for Hongkong and not the whole recruitment business in the
Philippines. (pp. 62-65, Rollo.)
The questioned circulars are therefore a valid exercise of the police power as delegated to the executive branch of Government.
Nevertheless, they are legally invalid, defective and unenforceable for lack of power publication and filing in the Office of the National Administrative
Register as required in Article 2 of the Civil Code, Article 5 of the Labor Code and Sections 3(1) and 4, Chapter 2, Book VII of the Administrative
Code of 1987 which provide:
Art. 2. Laws shall take effect after fifteen (15) days following the completion of their publication in the Official Gazatte, unless it is
otherwise provided. . . . (Civil Code.)
Art. 5. Rules and Regulations. — The Department of Labor and other government agencies charged with the administration and
enforcement of this Code or any of its parts shall promulgate the necessary implementing rules and regulations. Such rules and
regulations shall become effective fifteen (15) days after announcement of their adoption  in newspapers of general circulation.
(Emphasis supplied, Labor Code, as amended.)
Sec. 3. Filing. — (1) Every agency shall file with the University of the Philippines Law Center, three (3) certified copies of every
rule adopted by it. Rules in force on the date of effectivity of this Code which are not filed within three (3) months shall not
thereafter be the basis of any sanction against any party or persons. (Emphasis supplied, Chapter 2, Book VII of the
Administrative Code of 1987.)
Sec. 4. Effectivity. — In addition to other rule-making requirements provided by law not inconsistent with this Book, each rule
shall become effective fifteen (15) days from the date of filing as above provided  unless a different date is fixed by law, or
specified in the rule in cases of imminent danger to public health, safety and welfare, the existence of which must be expressed
in a statement accompanying the rule. The agency shall take appropriate measures to make emergency rules known to persons
who may be affected by them. (Emphasis supplied, Chapter 2, Book VII of the Administrative Code of 1987).
Once, more we advert to our ruling in Tañada vs. Tuvera, 146 SCRA 446 that:
. . . Administrative rules and regulations must also be published if their purpose is to enforce or implement existing law pursuant
also to a valid delegation. (p. 447.)
Interpretative regulations and those merely internal in nature, that is, regulating only the personnel of the administrative agency
and not the public, need not be published. Neither is publication required of the so-called letters of instructions issued by
administrative superiors concerning the rules or guidelines to be followed by their subordinates in the performance of their duties.
(p. 448.)
We agree that publication must be in full or it is no publication at all since its purpose is to inform the public of the content of the
laws. (p. 448.)
For lack of proper publication, the administrative circulars in question may not be enforced and implemented.
WHEREFORE, the writ of prohibition is GRANTED. The implementation of DOLE Department Order No. 16, Series of 1991, and POEA
Memorandum Circulars Nos. 30 and 37, Series of 1991, by the public respondents is hereby SUSPENDED pending compliance with the statutory
requirements of publication and filing under the aforementioned laws of the land.
SO ORDERED.

G.R. No. L-64279 April 30, 1984

ANSELMO L. PESIGAN and MARCELINO L. PESIGAN, petitioners,
vs.
JUDGE DOMINGO MEDINA ANGELES, Regional Trial Court, Caloocan City Branch 129, acting for REGIONAL TRIAL COURT of Camarines Norte,
now presided over by JUDGE NICANOR ORIÑO, Daet Branch 40; DRA. BELLA S. MIRANDA, ARNULFO V. ZENAROSA, ET AL., respondents.
Quiazon, De Guzman Makalintal and Barot for petitioners.
The Solicitor General for respondents.

AQUINO, J.:ñé+.£ªwph!1
At issue in this case is the enforceability, before publication in the Official Gazette of June 14, 1982, of Presidential Executive Order No. 626-A
dated October 25, 1980,  providing for the confiscation and forfeiture by the government of carabaos transported from one province to another.
Anselmo L. Pesigan and Marcelo L. Pesigan, carabao dealers, transported in an Isuzu ten-wheeler truck in the evening of April 2, 1982 twenty-six
carabaos and a calf from Sipocot, Camarines Sur with Padre Garcia, Batangas, as the destination.
They were provided with (1) a health certificate from the provincial veterinarian of Camarines Sur, issued under the Revised Administrative Code and
Presidential Decree No. 533, the Anti-Cattle Rustling Law of 1974; (2) a permit to transport large cattle issued under the authority of the provincial
commander; and (3) three certificates of inspection, one from the Constabulary command attesting that the carabaos were not included in the list of
lost, stolen and questionable animals; one from the LIvestock inspector, Bureau of Animal Industry of Libmanan, Camarines Sur and one from the
mayor of Sipocot.
Page 102 of 134
In spite of the permit to transport and the said four certificates, the carabaos, while passing at Basud, Camarines Norte, were confiscated by
Lieutenant Arnulfo V. Zenarosa, the town's police station commander, and by Doctor Bella S. Miranda, provincial veterinarian. The confiscation was
basis on the aforementioned Executive Order No. 626-A which provides "that henceforth, no carabao, regardless of age, sex, physical condition or
purpose and no carabeef shall be transported from one province to another.  The carabaos or carabeef transported in violation of this Executive
Order as amended shall be subject to confiscation and forfeiture by the government to be distributed ... to deserving farmers through dispersal as the
Director of Animal Industry may see fit, in the case of carabaos" (78 OG 3144).
Doctor Miranda distributed the carabaos among twenty-five farmers of Basud, and to a farmer from the Vinzons municipal nursery (Annex 1).
The Pesigans filed against Zenarosa and Doctor Miranda an action for replevin for the recovery of the carabaos allegedly valued at P70,000 and
damages of P92,000. The replevin order could not be executed by the sheriff. In his order of April 25, 1983 Judge Domingo Medina Angeles, who
heard the case at Daet and who was later transferred to Caloocan City, dismissed the case for lack of cause of action.
The Pesigans appealed to this Court under Rule 45 of the Rules of Court and section 25 of the Interim Rules and pursuant to Republic Act No. 5440,
a 1968 law which superseded Rule 42 of the Rules of Court.
We hold that the said executive order should not be enforced against the Pesigans on April 2, 1982 because, as already noted, it is a penal
regulation published more than two months later in the Official Gazette dated June 14, 1982.  It became effective only fifteen days thereafter as
provided in article 2 of the Civil Code and section 11 of the Revised Administrative Code.
The word "laws" in article 2 (article 1 of the old Civil Code) includes circulars and regulations which prescribe penalties. Publication is necessary to
apprise the public of the contents of the regulations and make the said penalties binding on the persons affected thereby. (People vs. Que Po Lay,
94 Phil. 640; Lim Hoa Ting vs. Central Bank of the Phils., 104 Phil. 573; Balbuna vs. Secretary of Education, 110 Phil. 150.)
The Spanish Supreme Court ruled that "bajo la denominacion generica de leyes, se comprenden tambien los reglamentos, Reales decretos,
Instrucciones, Circulares y Reales ordenes dictadas de conformidad con las mismas por el Gobierno en uso de su potestad (1 Manresa, Codigo
Civil, 7th Ed., p. 146.)
Thus, in the Que Po Lay case, a person, convicted by the trial court of having violated Central Bank Circular No. 20 and sentenced to six months'
imprisonment and to pay a fine of P1,000, was acquitted  by this Court because the circular was published in the Official Gazette  three months after
his conviction. He was not bound by the circular.
That ruling applies to a violation of Executive Order No. 626-A because its confiscation and forfeiture provision or sanction makes it a penal
statute. Justice and fairness dictate that the public must be informed of that provision by means of publication in the Gazette before violators of the
executive order can be bound thereby.
The cases of Police Commission vs. Bello, L-29960, January 30, 1971, 37 SCRA 230 and Philippine Blooming Mills vs. Social Security System , 124
Phil. 499, cited by the respondents, do not involve the enforcement of any penal regulation.
Commonwealth Act No. 638 requires that all Presidential executive orders having general applicability should be published in the Official Gazette. It
provides that "every order or document which shag prescribe a penalty shall be deemed to have general applicability and legal effect."
Indeed, the practice has always been to publish executive orders in the Gazette. Section 551 of the Revised Administrative Code provides that even
bureau "regulations and orders shall become effective only when approved by the Department Head and published in the Official Gazette or
otherwise publicly promulgated". (See Commissioner of Civil Service vs. Cruz, 122 Phil. 1015.)
In the instant case, the livestock inspector and the provincial veterinarian of Camarines Norte and the head of the Public Affairs Office of the Ministry
of Agriculture were unaware of Executive Order No. 626-A. The Pesigans could not have been expected to be cognizant of such an executive order.
It results that they have a cause of action for the recovery of the carabaos. The summary confiscation was not in order. The recipients of the
carabaos should return them to the Pesigans. However, they cannot transport the carabaos to Batangas because they are now bound by the said
executive order. Neither can they recover damages. Doctor Miranda and Zenarosa acted in good faith in ordering the forfeiture and dispersal of the
carabaos.
WHEREFORE, the trial court's order of dismissal and the confiscation and dispersal of the carabaos are reversed and set aside. Respondents
Miranda and Zenarosa are ordered to restore the carabaos, with the requisite documents, to the petitioners, who as owners are entitled to possess
the same, with the right to dispose of them in Basud or Sipocot, Camarines Sur. No costs.
SO ORDERED.1äwphï1.ñët

G.R. No. 148579             February 5, 2007

GMA NETWORK, INC., Petitioner,
vs.
MOVIE AND TELEVISION REVIEW AND CLASSIFICATION BOARD, Respondent.
DECISION
CORONA, J.:
Subject of this petition for review under Rule 45 of the Rules of Court is the June 18, 2001 decision 1 of the Court of Appeals (CA) affirming the
January 7, 2000 order2 of respondent Movie and Television Review and Classification Board (MTRCB) which read:
In view thereof, the BOARD, by the undersigned, hereby imposes the administrative penalty of SUSPENSION FROM AIRING/BROADCASTING any
program on EMC Channel 27 for a period of seven (7) days which period shall commence immediately upon receipt of this Order. Your failure to
comply with this ORDER shall be construed by the BOARD as defiance on your part of a lawful order of the BOARD.
The facts follow.

Page 103 of 134

Petitioner GMA Network, Inc. operates and manages the UHF television station, EMC Channel 27. On January 7, 2000, respondent MTRCB issued
an order of suspension against petitioner for airing "Muro Ami: The Making" without first securing a permit from it as provided in Section 7 of PD
1986.3
The penalty of suspension was based on Memorandum Circular 98-17 dated December 15, 1998 4 which provided for the penalties for exhibiting a
program without a valid permit from the MTRCB.
Petitioner moved for reconsideration of the suspension order and, at the same time, informed MTRCB that Channel 27 had complied with the
suspension order by going off the air since midnight of January 11, 2000. It also filed a letter-protest which was merely "noted" by the MTRCB
thereby, in effect, denying both the motion for reconsideration and letter-protest.
Petitioner then filed with the CA a petition for certiorari which was dismissed in the now assailed June 18, 2001 decision. The January 7, 2000
suspension order issued by MTRCB was affirmed in toto.
Hence, this recourse.
The pivotal issues for our resolution are:
(1) whether the MTRCB has the power or authority to review the show "Muro Ami: The Making" prior to its broadcast by television and
(2) whether Memorandum Circular No. 98-17 was enforceable and binding on petitioner.
First, Section 3 of PD 19865 empowers the MTRCB to screen, review and examine all motion pictures, television programs including publicity
materials. This power of prior review is highlighted in its Rules and Regulations, particularly Section 7 thereof, which reads:
SECTION 7. REQUIREMENT OF PRIOR REVIEW. -- No motion picture, television program or related publicity material shall be imported, exported,
produced, copied, distributed, sold, leased, exhibited or broadcasted by television without prior permit issued by the BOARD after review of the
motion picture, television program or publicity material.
The only exemptions from the MTRCB’s power of review are those expressly mentioned in Section 7, 6 such as (1) television programs imprinted or
exhibited by the Philippine Government and/or departments and agencies, and (2) newsreels.
According to the CA, the subject program was a publicity for the movie, "Muro Ami." In adopting this finding, we hold that "Muro Ami: The Making,"
did not fall under any of the exemptions and was therefore within the power of review of MTRCB.
On the other hand, petitioner claims that "Muro Ami: The Making" was a public affairs  program.7 Even if that were so, our resolution of this issue
would not change. This Court has already ruled that a public affairs program -- described as a variety of news treatment; a cross between pure
television news and news-related commentaries, analysis and/or exchange of opinions -- is within the MTRCB’s power of review. 8 Clearly, "Muro
Ami: The Making" (which petitioner claims to be a public affairs program) was well within the purview of MTRCB’s power of prior review. 1awphi1.net
However, while MTRCB had jurisdiction over the subject program, Memorandum Circular 98-17, which was the basis of the suspension order, was
not binding on petitioner. The Administrative Code of 1987, particularly Section 3 thereof, expressly requires each agency to file with the Office of the
National Administrative Register (ONAR) of the University of the Philippines Law Center three certified copies of every rule adopted by it.
Administrative issuances which are not published or filed with the ONAR are ineffective and may not be enforced. 9
Memorandum Circular No. 98-17, which provides for the penalties for the first, second and third offenses for exhibiting programs without valid permit
to exhibit, has not been registered with the ONAR as of January 27, 2000. 10 Hence, the same is yet to be effective.11 It is thus unenforceable since it
has not been filed in the ONAR. 12 Consequently, petitioner was not bound by said circular and should not have been meted the sanction provided
thereunder.
WHEREFORE, the instant petition is PARTIALLY GRANTED. The decision of the Court of Appeals dated June 18, 2001, insofar as it affirmed the
public respondent Movie and Television Review and Classification Board’s jurisdiction over "Muro Ami: The Making," is hereby  AFFIRMED with the
MODIFICATION that the suspension order issued against petitioner GMA Network, Inc. pursuant to Memorandum Circular No. 98-17 is hereby
declared null and void.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 173918             April 8, 2008

REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF ENERGY (DOE), petitioner,
vs.
PILIPINAS SHELL PETROLEUM CORPORATION, respondent.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision dated 4 August 2006 of the Court of Appeals in
C.A. G.R. SP No. 82183.1 The appellate court reversed the Decision2 dated 19 August 2003 of the Office of the President in OP NO. Case 96-H-
6574 and declared that Ministry of Finance (MOF) Circular No. 1-85 dated 15 April 1985, as amended, is ineffective for failure to comply with Section
3 of Chapter 2, Book 7 of the Administrative Code of 1987, 3 which requires the publication and filing in the Office of the National Administration
Register (ONAR) of administrative issuances. Thus, surcharges provided under the aforementioned circular cannot be imposed upon respondent
Pilipinas Shell Petroleum Corporation.
Respondent is a corporation duly organized existing under the laws of the Philippines. It is engaged in the business of refining oil, marketing
petroleum, and other related activities.4

Page 104 of 134

The Department of Energy (DOE) is a government agency under the direct control and supervision of the Office of the President. The Department is
mandated by Republic Act No. 7638 to prepare, integrate, coordinate, supervise and control all plans, programs, projects and activities of the
Government relative to energy exploration, development, utilization, distribution and conservation.
On 10 October 1984, the Oil Price Stabilization Fund (OPSF) was created under Presidential Decree No. 1956 for the purpose of minimizing
frequent price changes brought about by exchange rate adjustments and/or increase in world market prices of crude oil and imported petroleum
products.5
Letter of Instruction No. 1431 dated 15 October 1984 was issued directing the utilization of the OPSF to reimburse oil companies the additional costs
of importation of crude oil and petroleum products due to fluctuation in foreign exchange rates to assure adequate and continuous supply of
petroleum products at reasonable prices.6
Letter of Instruction No. 1441, issued on 20 November 1984, mandated the Board of Energy (now, the Energy Regulatory Board) to review and reset
prices of domestic oil products every two months to reflect the prevailing prices of crude oil and petroleum. The prices were regulated by adjusting
the OPSF impost, increasing or decreasing this price component as necessary to maintain the balance between revenues and claims on the OPSF. 7
On 27 February 1987, Executive Order No. 137 was enacted to amend P. D. No. 1956. It expanded the sources and utilization of the OPSF in order
to maintain stability in the domestic prices of oil products at reasonable levels. 8
On 4 December 1991, the Office of Energy Affairs (OEA), now the DOE, informed the respondent that respondent’s contributions to the OPSF for
foreign exchange risk charge for the period December 1989 to March 1991 were insufficient. OEA Audit Task Force noted a total underpayment
of P14,414,860.75 by respondent to the OPSF. As a consequence of the underpayment, a surcharge of  P11,654,782.31 was imposed upon
respondent. The said surcharge was imposed pursuant to MOF Circular No. 1-85, as amended by Department of Finance (DOF) Circular No. 2-
94,9 which provides that:
2. Remittance of payment to the OPSF as provided for under Section 5 of MOF Order No. 11-85 shall be made not later than 20 th of the
month following the month of remittance of the foreign exchange payment for the import or the month of payment to the domestic
producers in the case of locally produced crude. Payment after the specified date shall be subject to a surcharge of fifteen percent (15%)
of the amount, if paid within thirty (30) days from the due date plus two percent (2%) per month if paid after thirty days. 10 (Emphasis
supplied.)
On 9 December 1991, the OEA wrote another letter 11 to respondent advising the latter of its additional underpayment to the OPSF of the foreign
exchange risk fee in the amount of P10,139,526.56 for the period April 1991 to October 1991. In addition, surcharges in the amount
of P2,806,656.65 were imposed thereon.
In a letter dated 20 January 1992 addressed to the OEA, respondent justified that its calculations for the transactions in question were based on a
valid interpretation of MOF Order NO. 11-85 dated 12 April 1985 and MOE Circular No. 85-05-82 dated 16 May 1985. 12
On 24 March 1992, respondent paid the OEA in full the principal amount of its underpayment, totaling P24,554,387.31, but not the surcharges.13
In a letter14 dated 15 March 1996, OEA notified the respondent that the latter is required to pay the OPSF a total amount of  P18,535,531.40 for
surcharges on the late payment of foreign exchange risk charges for the period December 1989 to October 1991.
In a letter15 dated 11 July 1996, the DOE reiterated its demand for respondent to settle the surcharges due. Otherwise, the DOE warned that it would
proceed against the respondent’s Irrevocable Standby Letter of Credit to recover its unpaid surcharges.
On 19 July 1996, respondent filed a Notice of Appeal before the Office of the President. The Office of the President affirmed the conclusion of the
DOE, contained in its letters dated 15 March 1996 and 11 July 1996. While it admitted that the implementation of MOF Circular No. 1-85 is
contingent upon its publication and filing with the ONAR, it noted that respondent failed to adduce evidence of lack of compliance with such
requirements. The aforementioned Decision reads:16
Given the foregoing, the DOE’s implementation of MOF Circular 1-85 by imposing surcharges on Pilipinas Shell is only proper. Like this
Office, the DOE is bound to presume the validity of that administrative regulation.
WHEREFORE, premises considered, the Decision of the Department of Energy, contained in its letters dated 15 March 1996 and 11 July
1996, is hereby AFFIRMED in toto.
Respondent filed a Motion for Reconsideration of the Decision dated 19 August 2003 of the Office of the President, which was denied on 28
November 2003.17
Respondent filed an appeal before the Court of Appeals wherein it presented Certifications dated 9 February 2004 18 and 11 February 200419 issued
by ONAR stating that DOF Circular No. 2-94 and MOF Circular No. 1-85 respectively, have not been filed before said office.
The Court of Appeals reversed the Decision of the Office of the President in O.P. CASE No. 96-H-6574 and ruled that MOF Circular 1-85, as
amended, was ineffective for failure to comply with the requirement to file with ONAR. It decreed that even if the said circular was issued by then
Acting Minister of Finance Alfredo de Roda, Jr. long before the Administrative Code of 1987, Section 3 of Chapter 2, Book 7 thereof specifies that
rules already in force on the date of the effectivity of the Administrative Code of 1987 must be filed within three months from the date of effectivity of
said Code, otherwise such rules cannot thereafter be the basis of any sanction against any party or persons. 20 According to the dispositive of the
appellate court’s Decision:21
WHEREFORE, the instant petition is hereby GRANTED. The Decision dated August 19, 2003 and the Resolution dated November 28,
2003 of the Office of the President, are hereby REVERSED.
ACCORDINGLY, the imposition of surcharges upon petitioner is hereby declared without legal basis.
On 25 September 2006, petitioner filed the present Petition for Review on Certiorari, wherein the following issues were raised: 22
I
THE SURCHARGE IMPOSED BY MINISTRY OF FINANCE (MOF) CIRCULAR No. 1-85 HAS BEEN AFFIRMED BY E.O. NO. 137
HAVING RECEIVED VITALITY FROM A LEGISLATIVE ENACTMENT, MOF CIRCULAR NO. 1-85 CANNOT BE RENDERED INVALID BY

Page 105 of 134

 THE SUBSEQUENT ENACTMENT OF A LAW REQUIRING REGISTRATION OF THE MOF CIRCULAR WITH THE OFFICE OF THE
NATIONAL REGISTER
II
ASSUMING THAT THE REGISTRATION OF MOF NO. 1-85 IS REQUIRED, RESPONDENT WAIVED ITS OBJECTION ON THE BASIS
OF NON-REGISTRATION WHEN IT PAID THE AMOUNT REQUIRED BY PETITIONER.
This petition is without merit.
As early as 1986, this Court in Tañada v. Tuvera23 enunciated that publication is indispensable in order that all statutes, including administrative rules
that are intended to enforce or implement existing laws, attain binding force and effect, to wit:
We hold therefore that all statutes, including those of local application and private laws, shall be published as a condition for their
effectivity, which shall begin fifteen days after publication unless a different effectivity date is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of legislative powers
whenever the same are validly delegated by the legislature or, at present, directly conferred by the Constitution.  Administrative rules and
regulations must also be published if their purpose is to enforce or implement existing law pursuant also to a valid delegation . (Emphasis
provided.)
Thereafter, the Administrative Code of 1987 was enacted, with Section 3 of Chapter 2, Book VII thereof specifically providing that:
Filing. — (1) Every agency shall file with the University of the Philippines Law Center three (3) certified copies of every rule adopted by
it. Rules in force on the date of effectivity of this Code which are not filed within three (3) months from the date shall not thereafter be the
basis of any sanction against any party or persons.
(2) The records officer of the agency, or his equivalent functionary, shall carry out the requirements of this section under pain of disciplinary
action.
(3) A permanent register of all rules shall be kept by the issuing agency and shall be open to public inspection. (Emphasis provided.)
Under the doctrine of Tanada v. Tuvera,24 the MOF Circular No. 1-85, as amended, is one of those issuances which should be published before it
becomes effective since it is intended to enforce Presidential Decree No. 1956. The said circular should also comply with the requirement stated
under Section 3 of Chapter 2, Book VII of the Administrative Code of 1987 – filing with the ONAR in the University of the Philippines Law Center – for
rules that are already in force at the time the Administrative Code of 1987 became effective. These requirements of publication and filing were put in
place as safeguards against abuses on the part of lawmakers and as guarantees to the constitutional right to due process and to information on
matters of public concern and, therefore, require strict compliance.
In the present case, the Certifications dated 11 February 2004 25 and 9 February 200426 issued by ONAR prove that MOF Circular No. 1-85 and its
amendatory rule, DOF Circular No. 2-94, have not been filed before said office. Moreover, petitioner was unable to controvert respondent’s allegation
that neither of the aforementioned circulars were published in the Official Gazette or in any newspaper of general circulation. Thus, failure to comply
with the requirements of publication and filing of administrative issuances renders MOF Circular No. 1-85, as amended, ineffective.
In National Association of Electricity Consumers for Reforms v. Energy Regulatory Board ,27 this Court emphasized that both the requirements of
publication and filing of administrative issuances intended to enforce existing laws are mandatory for the effectivity of said issuances. In support of its
ruling, it specified several instances wherein this Court declared administrative issuances, which failed to observe the proper requirements, to have
no force and effect:
Nowhere from the above narration does it show that the GRAM Implementing Rules was published in the Official Gazette or in a
newspaper of general circulation. Significantly, the effectivity clauses of both the GRAM and ICERA Implementing Rules uniformly provide
that they "shall take effect immediately." These clauses made no mention of their publication in either the Official Gazette or in a
newspaper of general circulation. Moreover, per the Certification dated January 11, 2006 of the Office of the National Administrative
Register (ONAR), the said implementing rules and regulations were not likewise filed with the said office in contravention of the
Administrative Code of 1987.
Applying the doctrine enunciated in Tañada v. Tuvera, the Court has previously declared as having no force and effect the following
administrative issuances: (1) Rules and Regulations issued by the Joint Ministry of Health-Ministry of Labor and Employment Accreditation
Committee regarding the accreditation of hospitals, medical clinics and laboratories; (2) Letter of Instruction No. 1416 ordering the
suspension of payments due and payable by distressed copper mining companies to the national government; (3) Memorandum Circulars
issued by the Philippine Overseas Employment Administration regulating the recruitment of domestic helpers to Hong Kong; (4)
Administrative Order No. SOCPEC 89-08-01 issued by the Philippine International Trading Corporation regulating applications for
importation from the People’s Republic of China; (5) Corporation Compensation Circular No. 10 issued by the Department of Budget and
Management discontinuing the payment of other allowances and fringe benefits to government officials and employees; and (6) POEA
Memorandum Circular No. 2 Series of 1983 which provided for the schedule of placement and documentation fees for private employment
agencies or authority holders.
In all these cited cases, the administrative issuances questioned therein were uniformly struck down as they were not published or filed
with the National Administrative Register. On the other hand, in Republic v. Express Telecommunications Co., Inc , the Court declared that
the 1993 Revised Rules of the National Telecommunications Commission had not become effective despite the fact that it was filed with
the National Administrative Register because the same had not been published at the time. The Court emphasized therein that "publication
in the Official Gazette or a newspaper of general circulation is a condition sine qua non before statutes, rules or regulations can take
effect."
Petitioner’s argument that respondent waived the requisite registration of MOF Circular No. 1-85, as amended, when it paid in full the principal
amount of underpayment totaling P24,544,387.31, is specious. MOF Circular No. 1-85, as amended imposes surcharges, while respondents’
underpayment is based on MOF Circular No. 11-85 dated 12 April 1985.
Page 106 of 134
Petitioner also insists that the registration of MOF Circular No. 1-85, as amended, with the ONAR is no longer necessary since the respondent knew
of its existence, despite its non-registration. This argument is seriously flawed and contrary to jurisprudence. Strict compliance with the requirements
of publication cannot be annulled by a mere allegation that parties were notified of the existence of the implementing rules concerned. Hence, also
in National Association of Electricity Consumers for Reforms v. Energy Regulatory Board , this Court pronounced:
In this case, the GRAM Implementing Rules must be declared ineffective as the same was never published or filed with the National
Administrative Register. To show that there was compliance with the publication requirement, respondents MERALCO and the ERC dwell
lengthily on the fact that parties, particularly the distribution utilities and consumer groups, were duly notified of the public consultation on
the ERC’s proposed implementing rules. These parties participated in the said public consultation and even submitted their comments
thereon.
However, the fact that the parties participated in the public consultation and submitted their respective comments is not compliance with
the fundamental rule that the GRAM Implementing Rules, or any administrative rules whose purpose is to enforce or implement existing
law, must be published in the Official Gazette or in a newspaper of general circulation . The requirement of publication of implementing
rules of statutes is mandatory and may not be dispensed with altogether even if, as in this case, there was public consultation and
submission by the parties of their comments.28 (Emphasis provided.)
Petitioner further avers that MOF Circular No. 1-85, as amended, gains its vitality from the subsequent enactment of Executive Order No. 137, which
reiterates the power of then Minister of Finance to promulgate the necessary rules and regulations to implement the executive order. Such
contention is irrelevant in the present case since the power of the Minister of Finance to promulgate rules and regulations is not under dispute. The
issue rather in the Petition at bar is the ineffectivity of his administrative issuance for non-compliance with the requisite publication and filing with the
ONAR. And while MOF Circular No. 1-85, as amended, may be unimpeachable in substance, the due process requirements of publication and filing
cannot be disregarded. Moreover, none of the provisions of Executive Order No. 137 exempts MOF Circular No. 1-85, as amended from the
aforementioned requirements.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED and the assailed Decision dated 4 August 2006 of the Court of Appeals in C.A. G.R.
SP No. 82183 is AFFIRMED. No cost.
SO ORDERED.

G.R. No. 170463               February 2, 2011

THE BOARD OF TRUSTEES OF THE GOVERNMENT SERVICE INSURANCE SYSTEM and WINSTON F. GARCIA, in his capacity as GSIS
President and General Manager, Petitioners,
vs.
ALBERT M. VELASCO and MARIO I. MOLINA, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review 1 of the 24 September 2004 Decision 2 and the 7 October 2005 Order 3 of the Regional Trial Court of Manila, Branch 19
(trial court), in Civil Case No. 03-108389. In its 24 September 2004 Decision, the trial court granted respondents Albert M. Velasco 4 and Mario I.
Molina’s5 (respondents) petition for prohibition. In its 7 October 2005 Order, the trial court denied petitioners Board of Trustees of the Government
Service Insurance System (GSIS) and Winston F. Garcia’s (petitioners) motion for reconsideration.
The Facts
On 23 May 2002, petitioners charged respondents administratively with grave misconduct and placed them under preventive suspension for 90
days.6 Respondents were charged for their alleged participation in the demonstration held by some GSIS employees denouncing the alleged
corruption in the GSIS and calling for the ouster of its president and general manager, petitioner Winston F. Garcia. 7
In a letter dated 4 April 2003, respondent Mario I. Molina (respondent Molina) requested GSIS Senior Vice President Concepcion L. Madarang (SVP
Madarang) for the implementation of his step increment. 8 On 22 April 2003, SVP Madarang denied the request citing GSIS Board Resolution No. 372
(Resolution No. 372)9 issued by petitioner Board of Trustees of the GSIS (petitioner GSIS Board) which approved the new GSIS salary structure, its
implementing rules and regulations, and the adoption of the supplemental guidelines on step increment and promotion. 10 The pertinent provision of
Resolution No. 372 provides:
A. Step Increment
xxxx
III. Specific Rules:
x x xx
3. The step increment adjustment of an employee who is on preventive suspension shall be withheld until such time that a decision on the case has
been rendered. x x x x
Respondents also asked that they be allowed to avail of the employee privileges under GSIS Board Resolution No. 306 (Resolution No. 306)
approving Christmas raffle benefits for all GSIS officials and employees effective year 2002. 11 Respondents’ request was again denied because of
their pending administrative case.
On 27 August 2003, petitioner GSIS Board issued Board Resolution No. 197 (Resolution No. 197) approving the following policy recommendations:
B. On the disqualification from promotion of an employee with a pending administrative case
To adopt the policy that an employee with pending administrative case shall be disqualified from the following during the pendency of the case:
a) Promotion;
b) Step Increment;
Page 107 of 134
 c) Performance-Based Bonus; and
d) Other benefits and privileges.
On 14 November 2003, respondents filed before the trial court a petition for prohibition with prayer for a writ of preliminary injunction. 12 Respondents
claimed that they were denied the benefits which GSIS employees were entitled under Resolution No. 306. Respondents also sought to restrain and
prohibit petitioners from implementing Resolution Nos. 197 and 372. Respondents claimed that the denial of the employee benefits due them on the
ground of their pending administrative cases violates their right to be presumed innocent and that they are being punished without hearing.
Respondent Molina also added that he had already earned his right to the step increment before Resolution No. 372 was enacted. Respondents also
argued that the three resolutions were ineffective because they were not registered with the University of the Philippines (UP) Law Center pursuant
to the Revised Administrative Code of 1987.13
On 24 November 2003, petitioners filed their comment with motion to dismiss and opposition. 14 On 2 December 2003, respondents filed their
opposition to the motion to dismiss.15 On 5 December 2003, petitioners filed their reply.16
On 16 January 2004, the trial court denied petitioners’ motion to dismiss and granted respondents’ prayer for a writ of preliminary injunction. 17
Petitioners filed a motion for reconsideration.18 In its 26 February 2004 Order, the trial court denied petitioners’ motion. 19
In its 24 September 2004 Decision, the trial court granted respondents’ petition for prohibition. The dispositive portion of the 24 September 2004
Decision provides:
WHEREFORE, the petition is GRANTED and respondents’ Board Resolution No. 197 of August 27, 2003 and No. 372 of November 21, 2000 are
hereby declared null and void. The writ of preliminary injunction issued by this Court is hereby made permanent.
SO ORDERED.20
Petitioners filed a motion for reconsideration. In its 7 October 2005 Order, the trial court denied petitioners’ motion.
Hence, this petition.
The Ruling of the Trial Court
On the issue of jurisdiction, the trial court said it can take cognizance of the petition because the "territorial area" referred to in Section 4, Rule 65 of
the Rules of Court "does not necessarily delimit to a particular locality but rather to the judicial region where the office or agency is situated so that
the prohibitive writ can be enforced."
On the merits of the case, the trial court ruled that respondents were entitled to all employee benefits as provided under the law by reason of their
employment. According to the trial court, to deny respondents these employee benefits for the reason alone that they have pending administrative
cases is unjustified since it would deprive them of what is legally due them without due process of law, inflict punishment on them without hearing,
and violate their right to be presumed innocent.
The trial court also found that the assailed resolutions were not registered with the UP Law Center, per certification of the Office of the National
Administrative Register (ONAR).21 Since they were not registered, the trial court declared that the assailed resolutions have not become effective
citing Sections 3 and 4, Chapter 2, Book 7 of the Revised Administrative Code of 1987. 22
The Issues
Petitioners raise the following issues:
I
Whether the jurisdiction over the subject matter of Civil Case No. 03-108389 (Velasco, et al. vs. The Board of Trustees of GSIS, et al.,
RTC-Manila, Branch 19) lies with the Civil Service Commission (CSC) and not with the Regional Trial Court of Manila, Branch 19.
II
Whether a Special Civil Action for Prohibition against the GSIS Board or its President and General Manager exercising quasi-legislative
and administrative functions in Pasay City is outside the territorial jurisdiction of RTC-Manila, Branch 19.
III
Whether internal rules and regulations need not require publication with the Office of the National [Administrative] Register for their
effectivity, contrary to the conclusion of the RTC-Manila, Branch 19.
IV
Whether a regulation, which disqualifies government employees who have pending administrative cases from the grant of step increment
and Christmas raffle benefits is unconstitutional.
V
Whether the nullification of GSIS Board Resolutions is beyond an action for prohibition, and a writ of preliminary injunction cannot be made
permanent without a decision ordering the issuance of a writ of prohibition. 23
The Ruling of the Court
The petition is partly meritorious.
Petitioners argue that the Civil Service Commission (CSC), not the trial court, has jurisdiction over Civil Case No. 03-108389 because it involves
claims of employee benefits. Petitioners point out that the trial court should have dismissed the case for lack of jurisdiction.
Sections 2 and 4, Rule 65 of the Rules of Court provide:
Sec. 2. Petition for Prohibition. - When the proceedings of any tribunal, corporation, board, officer or person, whether exercising judicial, quasi-
judicial or ministerial functions, are without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction,
and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent to desist from further
proceedings in the action or matter specified therein, or otherwise granting such incidental reliefs as law and justice may require.
Sec. 4. Where petition filed. - The petition may be filed not later than sixty (60) days from notice of the judgment, order or resolution sought to be
assailed in the Supreme Court or, if it related to acts or omissions of a lower court or of a corporation, board, officer or person in the Regional Trial
Page 108 of 134
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 jurisdiction. If it involves the acts or omissions of a quasi-judicial
agency, and unless otherwise provided by law or these Rules, the petition shall be filed in and cognizable only by the Court of Appeals. (Emphasis
supplied)
Civil Case No. 03-108389 is a petition for prohibition with prayer for the issuance of a writ of preliminary injunction. Respondents prayed that the trial
court declare all acts emanating from Resolution Nos. 372, 197, and 306 void and to prohibit petitioners from further enforcing the said
resolutions.24 Therefore, the trial court, not the CSC, has jurisdiction over respondents’ petition for prohibition.
Petitioners also claim that the petition for prohibition was filed in the wrong territorial jurisdiction because the acts sought to be prohibited are the acts
of petitioners who hold their principal office in Pasay City, while the petition for prohibition was filed in Manila.
Section 18 of Batas Pambansa Blg. 129 (BP 129)25 provides:
SEC. 18. Authority to define territory appurtenant to each branch.  - The Supreme Court shall define the territory over which a branch of the Regional
Trial Court shall exercise its authority. The territory thus defined shall be deemed to be the territorial area of the branch concerned for purposes of
determining the venue of all suits, proceedings or actions, whether civil or criminal , as well as determining the Metropolitan Trial Courts, Municipal
Trial Courts, and Municipal Circuit Trial Courts over which the said branch may exercise appellate jurisdiction. The power herein granted shall be
exercised with a view to making the courts readily accessible to the people of the different parts of the region and making attendance of litigants and
witnesses as inexpensive as possible. (Emphasis supplied)
In line with this, the Supreme Court issued Administrative Order No. 3 26 defining the territorial jurisdiction of the regional trial courts in the National
Capital Judicial Region, as follows:
a. Branches I to LXXXII, inclusive, with seats at Manila – over the City of Manila only.
b. Branches LXXXIII to CVII, inclusive, with seats at Quezon City – over Quezon City only.
c. Branches CVIII to CXIX, inclusive, with seats at Pasay City – over Pasay City only.
xxxx
The petition for prohibition filed by respondents is a special civil action which may be filed in the Supreme Court, the Court of Appeals, the
Sandiganbayan or the regional trial court, as the case may be. 27 It is also a personal action because it does not affect the title to, or possession of
real property, or interest therein. Thus, it may be commenced and tried where the plaintiff or any of the principal plaintiffs resides, or where the
defendant or any of the principal defendants resides, at the election of the plaintiff. 28 Since respondent Velasco, plaintiff before the trial court, is a
resident of the City of Manila,29 the petition could properly be filed in the City of Manila. 30 The choice of venue is sanctioned by Section 2, Rule 4 of
the Rules of Court.
Moreover, Section 21(1) of BP 129 provides:
Sec. 21. Original jurisdiction in other cases. - Regional Trial Courts shall exercise original jurisdiction:
(1) In the issuance of writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction, which may be enforced in any part of
their respective regions; x x x (Emphasis supplied)
Since the National Capital Judicial Region is comprised of the cities of Manila, Quezon, Pasay, Caloocan, Malabon, Mandaluyong, Makati, Pasig,
Marikina, Parañaque, Las Piñas, Muntinlupa, and Valenzuela and the municipalities of Navotas, San Juan, Pateros, and Taguig, a writ of prohibition
issued by the regional trial court sitting in the City of Manila, is enforceable in Pasay City. Clearly, the RTC did not err when it took cognizance of
respondents’ petition for prohibition because it had jurisdiction over the action and the venue was properly laid before it.
Petitioners also argue that Resolution Nos. 372, 197, and 306 need not be filed with the UP Law Center ONAR since they are, at most, regulations
which are merely internal in nature – regulating only the personnel of the GSIS and not the public.
Not all rules and regulations adopted by every government agency are to be filed with the UP Law Center. Only those of general or of permanent
character are to be filed. According to the UP Law Center’s guidelines for receiving and publication of rules and regulations, "interpretative
regulations and those merely internal in nature, that is, regulating only the personnel of the Administrative agency and not the public," need not be
filed with the UP Law Center.
Resolution No. 372 was about the new GSIS salary structure, Resolution No. 306 was about the authority to pay the 2002 Christmas Package, and
Resolution No. 197 was about the GSIS merit selection and promotion plan. Clearly, the assailed resolutions pertained only to internal rules meant to
regulate the personnel of the GSIS. There was no need for the publication or filing of these resolutions with the UP Law Center.
Petitioners insist that petitioner GSIS Board has the power to issue the assailed resolutions. According to petitioners, it was within the power of
petitioner GSIS Board to disqualify respondents for step increment and from receiving GSIS benefits from the time formal administrative charges
were filed against them until the cases are resolved.
The Court notes that the trial court only declared Resolution Nos. 197 and 372 void. The trial court made no ruling on Resolution No. 306 and
respondents did not appeal this matter. Therefore, we will limit our discussion to Resolution Nos. 197 and 372, particularly to the effects of preventive
suspension on the grant of step increment because this was what respondents raised before the trial court.
First, entitlement to step increment depends on the rules relative to the grant of such benefit. In point are Section 1(b), Rule II and Section 2, Rule III
of Joint Circular No. 1, series of 1990, which provide:
Rule II. Selection Criteria
Section 1. Step increments shall be granted to all deserving officials and employees x x x
(b) Length of Service – For those who have rendered continuous satisfactory service in a particular position for at least three (3) years.
Rule III. Step Increments
xxxx
Section 2. Length of Service – A one (1) step increment shall be granted officials and employees for every three (3) years of continuous satisfactory
service in the position. Years of service in the position shall include the following:
Page 109 of 134
(a) Those rendered before the position was reclassified to a position title with a lower or the same salary grade allocation; and
(b) Those rendered before the incumbent was transferred to another position within the same agency or to another agency without a change in
position title and salary grade allocation.
In the initial implementation of step increments in 1990, an incumbent shall be granted step increments equivalent to one (1) step for every three (3)
years of continuous satisfactory service in a given position occupied as of January 1, 1990.
A grant of step increment on the basis of length of service requires that an employee must have rendered at least three years of continuous and
satisfactory service in the same position to which he is an incumbent. 31 To determine whether service is continuous, it is necessary to define what
actual service is.32 "Actual service" refers to the period of continuous service since the appointment of the official or employee concerned, including
the period or periods covered by any previously approved leave with pay. 33
Second, while there are no specific rules on the effects of preventive suspension on step increment, we can refer to the CSC rules and rulings on the
effects of the penalty of suspension and approved vacation leaves without pay on the grant of step increment for guidance.
Section 56(d), Rule IV of the Uniform Rules on Administrative Cases in the Civil Service provides:
Section 56. Duration and effect of administrative penalties. - The following rules shall govern in the imposition of administrative penalties: x x x
(d) The penalty of suspension shall result in the temporary cessation of work for a period not exceeding one (1) year.
Suspension of one day or more shall be considered a gap in the continuity of service. During the period of suspension, respondent shall not be
entitled to all money benefits including leave credits.
If an employee is suspended as a penalty, it effectively interrupts the continuity of his government service at the commencement of the service of the
said suspension. This is because a person under penalty of suspension is not rendering actual service. The suspension will undoubtedly be
considered a gap in the continuity of the service for purposes of the computation of the three year period in the grant of step increment. 34 However,
this does not mean that the employee will only be entitled to the step increment after completing another three years of continuous satisfactory
service reckoned from the time the employee has fully served the penalty of suspension. 35 The CSC has taken this to mean that the computation of
the three year period requirement will only be extended by the number of days that the employee was under suspension. 36 In other words, the grant
of step increment will only be delayed by the same number of days that the employee was under suspension.
This is akin to the status of an employee who incurred vacation leave without pay for purposes of the grant of step increment. 37 Employees who were
on approved vacation leave without pay enjoy the liberal application of the rule on the grant of step increment under Section 60 of CSC
Memorandum Circular No. 41, series of 1998, which provides:
Section 60. Effect of vacation leave without pay on the grant of length of service step increment. - For purposes of computing the length of service for
the grant of step increment, approved vacation leave without pay for an aggregate of fifteen (15) days shall not interrupt the continuity of the three-
year service requirement for the grant of step increment. However, if the total number of authorized vacation leave without pay included within the
three-year period exceeds fifteen (15) days, the grant of one-step increment will only be delayed for the same number of days that an official or
employee was absent without pay. (Emphasis supplied)
Third, on preventive suspension, Sections 51 and 52, Chapter 7, Subtitle A, Title I, Book V of the Revised Administrative Code of 1987 provide:
SEC. 51. Preventive Suspension. - The proper disciplining authority may preventively suspend any subordinate officer or employee under his
authority pending an investigation, if the charge against such officer or employee involves dishonesty, oppression or grave misconduct, or neglect in
the performance of duty, or if there are reasons to believe that the respondent is guilty of charges which would warrant his removal from the service.
SEC. 52. Lifting of Preventive Suspension. Pending Administrative Investigation.  - When the administrative case against the officer or employee
under preventive suspension is not finally decided by the disciplining authority within the period of ninety (90) days after the date of suspension of the
respondent who is not a presidential appointee, the respondent shall be automatically reinstated in the service : Provided, That when the delay in the
disposition of the case is due to the fault, negligence or petition of the respondent, the period of delay shall not be counted in computing the period of
suspension herein provided. (Emphasis supplied)
Preventive suspension pending investigation is not a penalty. 38 It is a measure intended to enable the disciplining authority to investigate charges
against respondent by preventing the latter from intimidating or in any way influencing witnesses against him. 39 If the investigation is not finished and
a decision is not rendered within that period, the suspension will be lifted and the respondent will automatically be reinstated.
Therefore, on the matter of step increment, if an employee who was suspended as a penalty will be treated like an employee on approved vacation
leave without pay,40 then it is only fair and reasonable to apply the same rules to an employee who was preventively suspended, more so
considering that preventive suspension is not a penalty. If an employee is preventively suspended, the employee is not rendering actual service and
this will also effectively interrupt the continuity of his government service. Consequently, an employee who was preventively suspended will still be
entitled to step increment after serving the time of his preventive suspension even if the pending administrative case against him has not yet been
resolved or dismissed. The grant of step increment will only be delayed for the same number of days, which must not exceed 90 days, that an official
or employee was serving the preventive suspension.
Fourth, the trial court was correct in declaring that respondents had the right to be presumed innocent until proven guilty. This means that an
employee who has a pending administrative case filed against him is given the benefit of the doubt and is considered innocent until the contrary is
proven.41
In this case, respondents were placed under preventive suspension for 90 days beginning on 23 May 2002. 1avvphi1 Their preventive suspension
ended on 21 August 2002. Therefore, after serving the period of their preventive suspension and without the administrative case being finally
resolved, respondents should have been reinstated and, after serving the same number of days of their suspension, entitled to the grant of step
increment.
On a final note, social legislation like the circular on the grant of step increment, being remedial in character, should be liberally construed and
administered in favor of the persons to be benefited. The liberal approach aims to achieve humanitarian purposes of the law in order that the
efficiency, security and well-being of government employees may be enhanced. 42
Page 110 of 134
WHEREFORE, we DENY the petition. We AFFIRM with MODIFICATION the 24 September 2004 Decision and the 7 October 2005 Order of the
Regional Trial Court of Manila, Branch 19 in Civil Case No. 03-108389. We DECLARE the assailed provisions on step increment in GSIS Board
Resolution Nos. 197 and 372 VOID. We MODIFY the 24 September 2004 Decision of the Regional Trial Court of Manila, Branch 19 and rule that
GSIS Board Resolution Nos. 197, 306 and 372 need not be filed with the University of the Philippines Law Center.
SO ORDERED.

G.R. No. 199082               July 23, 2013

JOSE MIGUEL T. ARROYO, Petitioner,
vs.
DEPARTMENT OF JUSTICE; COMMISSION ON ELECTIONS; HON. LEILA DE LIMA, in her capacity as Secretary of the Department of Justice;
HON. SIXTO BRILLANTES, JR., in his capacity as Chairperson of the Commission on Elections; and the JOINT DOJ-COMELEC PRELIMINARY
INVESTIGATION COMMITTEE and FACT-FINDING TEAM, Respondents.
x-----------------------x
G.R. No. 199085
BENJAMIN S. ABALOS, SR., Petitioner,
vs.
HON. LEILA DE LIMA, in capacity as Secretary of Justice; HON. SIXTO S. BRILLANTES, JR., in his capacity as COMELEC Chairperson; RENE V.
SARMIENTO, LUCENITO N. TAGLE, ARMANDO V. VELASCO, ELIAS R. YUSOPH, CHRISTIAN ROBERT S. LIM AND AUGUSTO C. LAGMAN, in
their capacity as COMELEC COMMISSIONERS; CLARO A. ARELLANO, GEORGE C. DEE, JACINTO G. ANG, ROMEO B. FORTES AND
MICHAEL D. VILLARET, in their capacity as CHAIRPERSON AND MEMBERS, RESPECTIVELY, OF THE JOINT DOJ-COMELEC PRELIMINARY
INVESTIGATION COMMITTEE ON THE 2004 AND 2007 ELECTION FRAUD, Respondents.
x-----------------------x
G.R. No. 199118
GLORIA MACAPAGAL-ARROYO, Petitioner,
vs.
COMMISSION ON ELECTIONS, represented by Chairperson Sixto S. Brillantes, Jr., DEPARTMENT OF JUSTICE, represented by Secretary Leila
M. De Lima, JOINT DOJ-COMELEC PRELIMINARY INVESTIGATION COMMITTEE, SENATOR AQUILINO M. PIMENTEL III, and DOJ-COMELEC
FACT FINDING TEAM, Respondents.
RESOLUTION
PERALTA, J.:
For resolution are the separate motions for reconsideration filed by movants Gloria Macapagal Arroyo (GMA) 1 in G.R. No. 199118 and Jose Miguel
T. Arroyo (Mike Arroyo )2 in G.R. No. 199082 praying that the Court take a second look at our September 18, 2012 Decision 3 dismissing their
petitions and supplemental petitions against respondents Commission on Elections (Comelec), the Department of Justice (DOJ), Senator Aquilino M.
Pimentel III (Senator Pimentel), Joint DOJ-Comelec Preliminary Investigation Committee (Joint Committee) and DOJ-Comelec Fact-Finding Team
(Fact-Finding Team), et al.
For a better perspective, we briefly state the relevant factual and procedural antecedents as found by the Court in the assailed decision, to wit:
On August 15, 2011, the Comelec and the DOJ issued Joint Order No. 001-2011 creating and constituting a Joint Committee and Fact-Finding Team
(referred to as Joint Panel) on the 2004 and 2007 National Elections electoral fraud and manipulation cases. The Joint Committee was mandated to
conduct the necessary preliminary investigation on the basis of the evidence gathered and the charges recommended by the Fact-Finding Team.
The Fact-Finding Team, on the other hand, was created for the purpose of gathering real, documentary, and testimonial evidence which can be
utilized in the preliminary investigation to be conducted by the Joint Committee. Pursuant to Section 7 4 of the Joint Order, on August 23, 2011, the
Joint Committee promulgated its Rules of Procedure.
In its Initial Report5 dated October 20, 2011, the Fact-Finding Team concluded that manipulation of the results in the May 14, 2007 senatorial
elections in the provinces of North and South Cotabato, and Maguindanao was indeed perpetrated. 6 The Fact-Finding Team recommended, among
others, that petitioner Benjamin S. Abalos, Sr. (Abalos) be subjected to preliminary investigation for electoral sabotage for conspiring to manipulate
the election results in North and South Cotabato; that GMA and Abalos be subjected to another preliminary investigation for manipulating the
election results in Maguindanao;7 and, that Mike Arroyo be subjected to further investigation. 8 The case was docketed as DOJ-Comelec Case No.
001-2011.
Meanwhile, on October 17, 2011, Senator Pimentel filed a ComplaintAffidavit 9 for Electoral Sabotage against petitioners and twelve others, and
several John Does and Jane Does. The case was docketed as DOJ-Comelec Case No. 002-2011.
On October 24, 2011, the Joint Committee issued two subpoenas against petitioners in DOJ-Comelec Case Nos. 001-2011 and 002-2011. 10 On
November 3, 2011, petitioners, through counsel, appeared before the Joint Committee 11 and respondents therein were ordered to submit their
Counter-Affidavits by November 14, 2011.12
Thereafter, petitioners filed before the Court separate Petitions for Certiorari and Prohibition with Prayer for the Issuance of a Temporary Restraining
Order (TRO) and/or Writ of Preliminary Injunction assailing the creation of the Joint Panel. 13 The petitions were eventually consolidated.
On November 14, 2011, Mike Arroyo filed a Motion to Defer Proceedings 14 before the Joint Committee, in view of the pendency of his petition before
the Court. On the same day, GMA filed before the Joint Committee an Omnibus Motion Ad Cautelam 15 to require Senator Pimentel to furnish her with
documents referred to in his complaint-affidavit and for the production of election documents as basis for the charge of electoral sabotage. GMA
prayed that she be allowed to file her counter-affidavit within ten (10) days from receipt of the requested documents. 16 Petitioner Abalos, for his part,
filed a Motion to Suspend Proceedings (Ex Abundante Ad Cautelam), 17 in view of the pendency of his petition brought before the Court.
Page 111 of 134
In an Order18 dated November 15, 2011, the Joint Committee denied the aforesaid motions of petitioners. GMA, subsequently, filed a motion for
reconsideration.19
On November 16, 2011, the Joint Committee promulgated a Joint Resolution which was later indorsed to the Comelec. 20 On November 18, 2011, the
Comelec en banc issued a Resolution21 approving and adopting the Joint Resolution subject to modifications. The Comelec resolved, among others,
that an information for electoral sabotage be filed against GMA and Abalos, while the charges against Mike Arroyo be dismissed for insufficiency of
evidence.
On even date, pursuant to the above Resolution, the Comelec’s Law Department filed with the Regional Trial Court (RTC), Pasay City, an
Information against petitioner GMA, Governor Andal Ampatuan, Sr., and Atty. Lintang H. Bedol, for violation of Section 42(b)(3) of Republic Act (RA)
No. 9369, amending Section 27 (b) of RA 6646, docketed as Criminal Case No. RPSY-11-04432-CR. 22 The case was raffled to Branch 112 and the
corresponding Warrant of Arrest was issued which was served on GMA on the same day. 23
On November 18, 2011, GMA filed with the RTC an Urgent Omnibus Motion Ad Cautelam 24 with leave to allow the Joint Committee to resolve the
motion for reconsideration filed by GMA, to defer issuance of a warrant of arrest and a hold departure order, and to proceed to judicial determination
of probable cause. She, likewise, filed with the Comelec a Motion to Vacate Ad Cautelam 25 praying that its Resolution be vacated for being null and
void. The RTC, nonetheless, issued a Warrant for her arrest which was duly served. GMA was later arraigned and she entered a plea of "not guilty."
She was, for some time, on hospital arrest but was able to obtain temporary liberty when her motion for bail was granted. At present, she is again on
hospital arrest by virtue of a warrant issued in another criminal case.
On September 18, 2012, the Court rendered the assailed Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, the petitions and supplemental petitions are DISMISSED. Comelec Resolution No. 9266 dated August 2, 2011,
Joint Order No. 001-2011 dated August 15, 2011, and the Fact- Finding Team’s Initial Report dated October 20, 2011, are declared VALID.
However, the Rules of Procedure on the Conduct of Preliminary Investigation on the Alleged Election Fraud in the 2004 and 2007 National Elections
is declared INEFFECTIVE for lack of publication.
In view of the constitutionality of the Joint Panel and the proceedings having been conducted in accordance with Rule 112 of the Rules on Criminal
Procedure and Rule 34 of the Comelec Rules of Procedure, the conduct of the preliminary investigation is hereby declared VALID.
Let the proceedings in the Regional Trial Court of Pasay City, Branch 112, where the criminal cases for electoral sabotage against petitioners GMA
and Abalos are pending, proceed with dispatch.
SO ORDERED.26
Hence, these motions for reconsideration.
Issues
Mike Arroyo reiterates his arguments on the independence of the Comelec as basis in nullifying the subject joint DOJ-Comelec resolutions. Echoing
Justice Arturo Brion in his Dissenting and Concurring Opinion, 27 Mike Arroyo insists that the creation of the Joint Panel undermines the decisional
independence of the Comelec.28
Mike Arroyo also maintains that the DOJ should conduct preliminary investigation only when deputized by the Comelec but not exercise concurrent
jurisdiction.29 Finally, as has been repeatedly pointed out in his earlier pleadings before the Court, Mike Arroyo claims that the proceedings involving
the electoral sabotage case were rushed because of pressures from the executive branch of the government. 30
For her part, GMA claims that in availing of the procedural remedies available, she merely exercised her earnest efforts to defend herself and should
not have been deemed by the Court as acts which purportedly tend to demonstrate that she either waived or forfeited her right to submit her counter-
affidavit and countervailing evidence.31 Citing several cases decided by the Court, she likewise faults the Court in not upholding her right to ask for
additional time within which to submit her counter-affidavit and countervailing evidence. 32 GMA highlights that the subject Comelec Resolution
creating the Joint Panel is different from the previous Comelec resolutions requesting the DOJ Secretary to assign prosecutors to assist the
Comelec, as the latter emphasize the role of the DOJ as deputized agency in the conduct of preliminary investigation. She maintains that it is the
Comelec and not the Joint Committee that has the primary, if not exclusive, authority to conduct preliminary investigation of election cases. 33
In their Consolidated Comment,34 respondents defend the creation of the Joint Committee and argue that it does not undermine the independence of
the Comelec as a constitutional body because it is still the Comelec that ultimately determines probable cause. 35 As to the conduct of the preliminary
investigation, respondents maintain that no rights were violated as GMA was afforded the opportunity to defend herself, submit her counter-affidavit
and other countervailing evidence.36 They, thus, consider GMA’s claim of availing of the remedial measures as "delaying tactics" employed to thwart
the investigation of charges against her by the Joint Committee. 37
The Court’s Ruling
Clearly from the above discussion, movants raise issues that have been thoroughly explained by the Court in the assailed decision. The issues were
all addressed and the explanation was exhaustive, thus, we find no reason to disturb the Court’s conclusions.
At any rate, if only to address the motions of the movants herein and to put an end to the questions attached to the creation of the Joint Panel and,
consequently, to the performance of their assigned tasks, we hereby reiterate our findings and conclusions made in the assailed decision.
This is not the first time that the Court is confronted with the issue of whether the Comelec has the exclusive power to investigate and prosecute
cases of violations of election laws. In Barangay Association for National Advancement and Transparency (BANAT) Party-List v. Commission on
Elections,38 the constitutionality of Section 43 39 of RA 936940 had already been raised by petitioners therein and addressed by the Court. While
recognizing the Comelec’s exclusive power to investigate and prosecute cases under Batas Pambansa Bilang 881 or the Omnibus Election Code,
the Court pointed out that the framers of the 1987 Constitution did not have such intention. This exclusivity is thus a legislative enactment that can
very well be amended by Section 43 of RA 9369. Therefore, under the present law, the Comelec and other prosecuting arms of the government,
such as the DOJ, now exercise concurrent jurisdiction in the investigation and prosecution of election offenses.
Indeed, as aptly pointed out by GMA, there is a discrepancy between Comelec Resolution No. 3467 41 dated January 12, 2001 and Joint Order No.
001-2011, dated August 15, 2011, creating and constituting a Joint Committee and Fact-Finding Team on the 2004 and 2007 National Elections
Page 112 of 134
electoral fraud and manipulation cases. However, GMA seemed to miss the date when these two resolutions were promulgated by the Comelec. It is
noteworthy that Comelec Resolution No. 3467 was issued when Section 265 of the Omnibus Election Code was still effective, while Joint Order No.
001-2011 as well as Comelec Resolution Nos. 8733 42 and 905743 mentioned in the assailed decision but missed out by GMA in her motion, were
issued during the effectivity of Section 43 of RA 9369, giving the Comelec and other prosecuting arms of the government the concurrent jurisdiction
to investigate and prosecute election offenses. This amendment paved the way for the discrepancy. In Comelec Resolution No. 3467, the Comelec
maintained the continuing deputation of prosecutors and the Comelec Law Department was tasked to supervise the investigatory and prosecutory
functions of the task force pursuant to the mandate of the Omnibus Election Code. However, with the amendment, the Comelec likewise changed
the tenor of the later resolutions to reflect the new mandate of the Comelec and other prosecuting arms of the government now exercising concurrent
jurisdiction. Thus, the Comelec Law Department and the Office of the Chief State Prosecutor of the DOJ were tasked to jointly supervise the
investigatory and prosecutory functions of the Comelec-DOJ Task Force. Considering, therefore, that the later resolutions, including Joint Order No.
001-2011, were issued pursuant to Section 43 of RA 9369 amending Section 265 of BP 881 which was declared "constitutional" in Banat, there is no
reason for us to declare otherwise. To maintain the previous role of other prosecuting arms of the government as mere deputies despite the
amendment would mean challenging Section 43 of RA 9369 anew which has already been settled in Banat.
To be sure, the creation of a Joint Committee is not repugnant to the concept of "concurrent jurisdiction" authorized by the amendatory law. As we
explained in our September 18, 2012 Decision:
x x x The doctrine of concurrent jurisdiction means equal jurisdiction to deal with the same subject matter. Contrary to the contention of the
petitioners, there is no prohibition on simultaneous exercise of power between two coordinate bodies. What is prohibited is the situation where one
files a complaint against a respondent initially with one office (such as the Comelec) for preliminary investigation which was immediately acted upon
by said office and the re-filing of substantially the same complaint with another office (such as the DOJ). The subsequent assumption of jurisdiction
by the second office over the cases filed will not be allowed. Indeed, it is a settled rule that the body or agency that first takes cognizance of the
complaint shall exercise jurisdiction to the exclusion of the others.
xxxx
None of these problems would likely arise in the present case. The Comelec and the DOJ themselves agreed that they would exercise their
concurrent jurisdiction jointly. Although the preliminary investigation was conducted on the basis of two complaints – the initial report of the Fact-
Finding Team and the complaint of Senator Pimentel – both complaints were filed with the Joint Committee. Consequently, the complaints were filed
with and the preliminary investigation was conducted by only one investigative body. Thus, we find no reason to disallow the exercise of concurrent
jurisdiction jointly by those given such authority. This is especially true in this case given the magnitude of the crimes allegedly committed by
petitioners. The joint preliminary investigation also serves to maximize the resources and manpower of both the Comelec and the DOJ for the prompt
disposition of the cases.44
Notwithstanding the grant of concurrent jurisdiction, the Comelec and the DOJ nevertheless included a provision in the assailed Joint Order whereby
the resolutions of the Joint Committee finding probable cause for election offenses shall still be approved by the Comelec in accordance with the
Comelec Rules of Procedure.45 With more reason, therefore, that we cannot consider the creation of the Joint Committee as an abdication of the
Comelec’s independence enshrined in the 1987 Constitution.
Finally, we focus on the validity of the preliminary investigation conducted by the Joint Committee.
The procedure in conducting the preliminary investigation is governed by Rule 112 of the Revised Rules on Criminal Procedure and Rule 34 of the
Comelec Rules of Procedure. Under both Rules, 46 the respondent shall submit his counter-affidavit and that of his witnesses and other supporting
documents relied upon for his defense, within ten (10) days from receipt of the subpoena, with the complaint and supporting affidavits and
documents.47 Also in both Rules, respondent is given the right to examine evidence, but such right of examination is limited only to the documents or
evidence submitted by complainants which she may not have been furnished and to copy them at her expense. 48
As to the alleged denial of GMA’s right to examine documents, we maintain that no right was violated in view of the limitation of such right as set
forth above. We reiterate our explanation in the assailed decision, to wit:
While it is true that Senator Pimentel referred to certain election documents which served as bases in the allegations of significant findings specific to
the protested municipalities involved, there were no annexes or attachments to the complaint filed. As stated in the Joint Committee’s Order dated
November 15, 2011 denying GMA’s Omnibus Motion Ad Cautelam, Senator Pimentel was ordered to furnish petitioners with all the supporting
evidence. However, Senator Pimentel manifested that he was adopting all the affidavits attached to the Fact-Finding Team’s Initial Report.
Therefore, when GMA was furnished with the documents attached to the Initial Report, she was already granted the right to examine as guaranteed
by the Comelec Rules of Procedure and the Rules on Criminal Procedure. Those were the only documents submitted by the complainants to the
Committee. If there are other documents that were referred to in Senator Pimentel’s complaint but were not submitted to the Joint Committee, the
latter considered those documents unnecessary at that point (without foreclosing the relevance of other evidence that may later be presented during
the trial) as the evidence submitted before it were considered adequate to find probable cause against her. x x x 491âwphi1
Neither was GMA’s right violated when her motion for extension of time within which to submit her counter-affidavit and countervailing evidence was
consequently denied. The Rules use the term "shall" in requiring the respondent to submit counter-affidavit and other countervailing evidence within
ten (10) days from receipt of the subpoena. It is settled that the use of the word "shall" which is a word of command, underscores the mandatory
character of the rule.50 As in any other rule, though, liberality in the application may be allowed provided that the party is able to present a compelling
justification for the non-observance of the mandatory rules. In the 2008 Revised Manual for Prosecutors, investigating prosecutors allow or grant
motions or requests for extension of time to submit counter-affidavits when the interest of justice demands that respondent be given reasonable time
or sufficient opportunity to engage the services of counsel; examine voluminous records submitted in support of the complaint or undertake research
on novel, complicated or technical questions or issues of law and facts of the case. 51
In this case, GMA claimed that she could not submit her counteraffidavit within the prescribed period because she needed to examine documents
mentioned in Senator Pimentel’s complaint-affidavit. It appeared, however, that said documents were not submitted to the Joint Committee and the
Page 113 of 134
only supporting documents available were those attached to the Initial Report of the Fact-Finding Team. Admittedly, GMA was furnished those
documents. Thus, at the time she asked for the extension of time within which to file her counter-affidavit, she very well knew that the documents she
was asking were not in the record of the case. Obviously, she was not furnished those documents because they were not submitted to the Joint
Committee. Logically, she has no right to examine said documents. We cannot, therefore, fault the Joint Committee in consequently denying her
motion for extension to file counter-affidavit as there was no compelling justification for the non-observance of the period she was earlier required to
follow.
And as we held in the assailed decision:
There might have been overzealousness on the part of the Joint Committee in terminating the investigation, endorsing the Joint Resolution to the
Comelec for approval, and in filing the information in court.
However, speed in the conduct of proceedings by a judicial or quasijudicial officer cannot per se be instantly attributed to an injudicious performance
of functions. The orderly administration of justice remains the paramount consideration with particular regard to the peculiar circumstances of each
case. To be sure, petitioners were given the opportunity to present countervailing evidence. Instead of complying with the Joint Committee’s
directive, several motions were filed but were denied by the Joint Committee. Consequently, petitioners’ right to submit counter-affidavit and
countervailing evidence was forfeited. Taking into account the constitutional right to speedy disposition of cases and following the procedures set
forth in the Rules on Criminal Procedure and the Comelec Rules of Procedure, the Joint Committee finally reached its conclusion and referred the
case to the Comelec. The latter, in turn, performed its task and filed the information in court. Indeed, petitioners were given the opportunity to be
heard. They even actively participated in the proceedings and in fact filed several motions before the Joint Committee. Consistent with the
constitutional mandate of speedy disposition of cases, unnecessary delays should be avoided. 52
Finally, in our assailed decision, we already took judicial notice that not only did GMA enter a plea of "not guilty," she also filed a Motion for Bail and
after due hearing, it was granted. Apparently, she benefited from the RTC Order giving her temporary liberty. In filing the motion before the RTC and
actively participating therein, she has chosen to seek judicial remedy before the RTC where the electoral sabotage case is pending instead of the
executive remedy of going back to the Joint Committee for the submission of her counter-affidavit and countervailing evidence. Besides, as
thoroughly discussed in the assailed decision, the irregularity or even the absence of preliminary investigation does not impair the validity of the
information filed against her.
WHEREFORE, premises considered, the Motions for Reconsideration are DENIED for lack of merit.
SO ORDERED.

G.R. No. 180705               November 27, 2012

EDUARDO M. COJUANGCO, JR., Petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
DECISION
VELASCO, JR., J.:
The Case
Of the several coconut levy appealed cases that stemmed from certain issuances of the Sandiganbayan in its Civil Case No. 0033, the present
recourse proves to be one of the most difficult.
In particular, the instant petition for review under Rule 45 of the Rules of Court assails and seeks to annul a portion of the Partial Summary Judgment
dated July 11, 2003, as affirmed in a Resolution of December 28, 2004, both rendered by the Sandiganbayan in its Civil Case ("CC") No. 0033-A
(the judgment shall hereinafter be referred to as "PSJ-A"), entitled "Republic of the Philippines, Plaintiff, v. Eduardo M. Cojuangco, Jr., et al.,
Defendants, COCOFED, et al., BALLARES, et al., Class Action Movants." CC No. 0033-A is the result of the splitting into eight (8) amended
complaints of CC No. 0033 entitled, "Republic of the Philippines v. Eduardo Cojuangco, Jr., et al.," a suit for recovery of ill-gotten wealth commenced
by the Presidential Commission on Good Government ("PCGG"), for the Republic of the Philippines ("Republic"), against Eduardo M. Cojuangco, Jr.
("Cojuangco") and several individuals, among them, Ferdinand E. Marcos, Maria Clara Lobregat ("Lobregat"), and Danilo S. Ursua ("Ursua"). Each of
the eight (8) subdivided complaints, CC No. 0033-A to CC No. 0033-H, correspondingly impleaded as defendants only the alleged participants in the
transaction/s subject of the suit, or who are averred as owner/s of the assets involved.
Apart from this recourse, We clarify right off that PSJ-A was challenged in two other separate but consolidated petitions for review, one commenced
by COCOFED et al., docketed as G.R. Nos. 177857-58, and the other, interposed by Danilo S. Ursua, and docketed as G.R. No. 178193.
By Decision dated January 24, 2012, in the aforesaid G.R. Nos. 177857-58 (COCOFED et al. v. Republic) and G.R. No. 178193 (Ursua v. Republic)
consolidated cases1 (hereinafter collectively referred to as "COCOFED v. Republic"), the Court addressed and resolved all key matters elevated to it
in relation to PSJ-A, except for the issues raised in the instant petition which have not yet been resolved therein. In the same decision, We made
clear that: (1) PSJ-A is subject of another petition for review interposed by Eduardo Cojuangco, Jr., in G.R. No. 180705, entitled Eduardo M.
Cojuangco, Jr. v. Republic of the Philippines, which shall be decided separately by the Court, 2 and (2) the issues raised in the instant petition should
not be affected by the earlier decision "save for determinatively legal issues directly addressed therein." 3
For a better perspective, the instant recourse seeks to reverse the Partial Summary Judgment 4 of the anti-graft court dated July 11, 2003, as
reiterated in a Resolution5 of December 28, 2004, denying COCOFED’s motion for reconsideration, and the May 11, 2007 Resolution 6 denying
COCOFED’s motion to set case for trial and declaring the partial summary judgment final and appealable, all issued in PSJ-A. In our adverted
January 24, 2012 Decision in COCOFED v. Republic, we affirmed with modification PSJ-A of the Sandiganbayan, and its Partial Summary Judgment
in Civil Case No. 0033-F, dated May 7, 2004 (hereinafter referred to as "PSJ-F’). 7

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More specifically, We upheld the Sandiganbayan’s ruling that the coconut levy funds are special public funds of the Government. Consequently, We
affirmed the Sandiganbayan’s declaration that Sections 1 and 2 of Presidential Decree ("P.D.") 755, Section 3, Article III of P.D. 961 and Section 3,
Article III of P.D. 1468, as well as the pertinent implementing regulations of the Philippine Coconut Authority ("PCA"), are unconstitutional for allowing
the use and/or the distribution of properties acquired through the coconut levy funds to private individuals for their own direct benefit and absolute
ownership. The Decision also affirmed the Government’s ownership of the six CIIF companies, the fourteen holding companies, and the CIIF block of
San Miguel Corporation shares of stock, for having likewise been acquired using the coconut levy funds. Accordingly, the properties subject of the
January 24, 2012 Decision were declared owned by and ordered reconveyed to the Government, to be used only for the benefit of all coconut
farmers and for the development of the coconut industry.
By Resolution of September 4, 2012,8 the Court affirmed the above-stated Decision promulgated on January 24, 2012.
It bears to stress at this juncture that the only portion of the appealed Partial Summary Judgment dated July 11, 2003 ("PSJ-A") which remains at
issue revolves around the following decretal holdings of that court relating to the "compensation" paid to petitioner for exercising his personal and
exclusive option to acquire the FUB/UCPB shares.9 It will be recalled that the Sandiganbayan declared the Agreement between the PCA and
Cojuangco containing the assailed "compensation" null and void for not having the required valuable consideration. Consequently, the UCPB shares
of stocks that are subject of the Agreement were declared conclusively owned by the Government. It also held that the Agreement did not have the
effect of law as it was not published as part of P.D. 755, even if Section 1 thereof made reference to the same.
Facts
We reproduce, below, portions of the statement of facts in COCOFED v. Republic relevant to the present case: 10
In 1971, Republic Act No. ("R.A.") 6260 was enacted creating the Coconut Investment Company ("CIC") to administer the Coconut Investment Fund
("CIF"), which, under Section 8 thereof, was to be sourced from a PhP 0.55 levy on the sale of every 100 kg. of copra. Of the PhP 0.55 levy of which
the copra seller was – or ought to be – issued COCOFUND receipts, PhP 0.02 was placed at the disposition of COCOFED, the national association
of coconut producers declared by the
Philippine Coconut Administration ("PHILCOA" now "PCA") as having the largest membership.
The declaration of martial law in September 1972 saw the issuance of several presidential decrees ("P.D.") purportedly designed to improve the
coconut industry through the collection and use of the coconut levy fund. While coming generally from impositions on the first sale of copra, the
coconut levy fund came under various names x x x. Charged with the duty of collecting and administering the Fund was PCA. Like COCOFED with
which it had a legal linkage, the PCA, by statutory provisions scattered in different coco levy decrees, had its share of the coco levy.
The following were some of the issuances on the coco levy, its collection and utilization, how the proceeds of the levy will be managed and by whom
and the purpose it was supposed to serve:
1. P.D. No. 276 established the Coconut Consumers Stabilization Fund ("CCSF") and declared the proceeds of the CCSF levy
as trust fund, to be utilized to subsidize the sale of coconut-based products, thus stabilizing the price of edible oil.
2. P.D. No. 582 created the Coconut Industry Development Fund ("CIDF") to finance the operation of a hybrid coconut seed
farm.
3. Then came P.D. No. 755 providing under its Section 1 the following:
It is hereby declared that the policy of the State is to provide readily available credit facilities to the coconut farmers at
preferential rates; that this policy can be expeditiously and efficiently realized by the implementation of the "Agreement
for the Acquisition of a Commercial Bank for the benefit of Coconut Farmers" executed by the PCA…; and that the
PCA is hereby authorized to distribute, for free, the shares of stock of the bank it acquired to the coconut farmers….
Towards achieving the policy thus declared, P.D. No. 755, under its Section 2, authorized PCA to utilize the CCSF and
the CIDF collections to acquire a commercial bank and deposit the CCSF levy collections in said bank interest free, the
deposit withdrawable only when the bank has attained a certain level of sufficiency in its equity capital. The same
section also decreed that all levies PCA is authorized to collect shall not be considered as special and/or fiduciary
funds or form part of the general funds of the government within the contemplation of P.D. No. 711.
4. P.D. No. 961 codified the various laws relating to the development of coconut/palm oil industries.
5. The relevant provisions of P.D. No. 961, as later amended by P.D. No. 1468 (Revised Coconut Industry Code), read:
ARTICLE III
Levies
Section 1. Coconut Consumers Stabilization Fund Levy. — The PCA is hereby empowered to impose and collect …
the Coconut Consumers Stabilization Fund Levy, ….
….
Section 5. Exemption. — The CCSF and theCIDF as well as all disbursements as herein authorized, shall not be
construed … as special and/or fiduciary funds, or as part of the general funds of the national government within the
contemplation of PD 711; … the intention being that said Fund and the disbursements thereof as herein authorized for
the benefit of the coconut farmers shall be owned by them in their private capacities: …. (Emphasis supplied)
6. Letter of Instructions No. ("LOI") 926, s. of 1979, made reference to the creation, out of other coco levy funds, of the Coconut
Industry Investment Fund ("CIIF") in P.D. No. 1468 and entrusted a portion of the CIIF levy to UCPB for investment, on behalf of
coconut farmers, in oil mills and other private corporations, with the following equity ownership structure:
Section 2. Organization of the Cooperative Endeavor. – The UCPB, in its capacity as the investment arm of the
coconut farmers thru the CIIF … is hereby directed to invest, on behalf of the coconut farmers, such portion of the CIIF
… in private corporations … under the following guidelines:

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 a) The coconut farmers shall own or control at least … (50%) of the outstanding voting capital stock of the private
corporation acquired thru the CIIF and/or corporation owned or controlled by the farmers thru the CIIF …. (Words in
bracket added.)
Through the years, a part of the coconut levy funds went directly or indirectly to finance various projects and/or was converted
into various assets or investments.11 Relevant to the present petition is the acquisition of the First United Bank ("FUB"), which
was subsequently renamed as United Coconut Planters Bank ("UCPB"). 12
Apropos the intended acquisition of a commercial bank for the purpose stated earlier, it would appear that FUB was the bank of
choice which Pedro Cojuangco’s group (collectively, "Pedro Cojuangco") had control of. The plan, then, was for PCA to buy all of
Pedro Cojuangco’s shares in FUB. However, as later events unfolded, a simple direct sale from the seller (Pedro) to PCA did not
ensue as it was made to appear that Cojuangco had the exclusive option to acquire the former’s FUB controlling interests.
Emerging from this elaborate, circuitous arrangement were two deeds. The first one was simply denominated as Agreement,
dated May 1975, entered into by and between Cojuangco for and in his behalf and in behalf of "certain other buyers", and Pedro
Cojuangco in which the former was purportedly accorded the option to buy 72.2% of FUB’s outstanding capital stock, or 137,866
shares (the "option shares," for brevity), at PhP 200 per share. On its face, this agreement does not mention the word "option."
The second but related contract, dated May 25, 1975, was denominated as Agreement for the Acquisition of a Commercial Bank
for the Benefit of the Coconut Farmers of the Philippines. It had PCA, for itself and for the benefit of the coconut farmers,
purchase from Cojuangco the shares of stock subject of the First Agreement for PhP200.00 per share. As additional
consideration for PCA’s buy-out of what Cojuangco would later claim to be his exclusive and personal option, it was stipulated
that, from PCA, Cojuangco shall receive equity in FUB amounting to 10%, or 7.22%, of the 72.2%, or fully paid shares. And so as
not to dilute Cojuangco’s equity position in FUB, later UCPB, the PCA agreed under paragraph 6 (b) of the second agreement to
cede over to the former a number of fully paid FUB shares out of the shares it (PCA) undertakes to eventually subscribe. It was
further stipulated that Cojuangco would act as bank president for an extendible period of 5 years.
Apart from the aforementioned 72.2%, PCA purchased from other FUB shareholders 6,534 shares of which Cojuangco, as may
be gathered from the records, got 10%..
While the 64.98% portion of the option shares (72.2% – 7.22% = 64.98%) ostensibly pertained to the farmers, the corresponding
stock certificates supposedly representing the farmers’ equity were in the name of and delivered to PCA. There were, however,
shares forming part of the aforesaid 64.98% portion, which ended up in the hands of non-farmers. The remaining 27.8% of the
FUB capital stock were not covered by any of the agreements.
Under paragraph # 8 of the second agreement, PCA agreed to expeditiously distribute the FUB shares purchased to such
"coconut farmers holding registered COCOFUND receipts" on equitable basis.
As found by the Sandiganbayan, the PCA appropriated, out of its own fund, an amount for the purchase of the said 72.2% equity,
albeit it would later reimburse itself from the coconut levy fund.
And per Cojuangco’s own admission, PCA paid, out of the CCSF, the entire acquisition price for the 72.2% option shares. 13
As of June 30, 1975, the list of FUB stockholders included Cojuangco with 14,440 shares and PCA with 129,955 shares. 14 It would appear later that,
pursuant to the stipulation on maintaining Cojuangco’s equity position in the bank, PCA would cede to him 10% of its subscriptions to (a) the
authorized but unissued shares of FUB and (b) the increase in FUB’s capital stock (the equivalent of 158,840 and 649,800 shares, respectively). In
all, from the "mother" PCA shares, Cojuangco would receive a total of 95,304 FUB (UCPB) shares broken down as follows: 14,440 shares + 10%
(158,840 shares) + 10% (649,800 shares) = 95,304. 15
We further quote, from COCOFED v. Republic, facts relevant to the instant case: 16
Shortly after the execution of the PCA – Cojuangco Agreement, President Marcos issued, on July 29, 1975, P.D. No. 755 directing x x x as narrated,
PCA to use the CCSF and CIDF to acquire a commercial bank to provide coco farmers with "readily available credit facilities at preferential rate" x x
x.
Then came the 1986 EDSA event. One of the priorities of then President Corazon C. Aquino’s revolutionary government was the recovery of ill-
gotten wealth reportedly amassed by the Marcos family and close relatives, their nominees and associates. Apropos thereto, she issued Executive
Order Nos. (EO) 1, 2 and 14, as amended by E.O. 14-A, all series of 1986. E.O. 1 created the PCGG and provided it with the tools and processes it
may avail of in the recovery efforts; 17 E.O. No. 2 asserted that the ill-gotten assets and properties come in the form of shares of stocks, etc., while
E.O. No. 14 conferred on the Sandiganbayan exclusive and original jurisdiction over ill-gotten wealth cases, with the proviso that "technical rules of
procedure and evidence shall not be applied strictly" to the civil cases filed under the EO. Pursuant to these issuances, the PCGG issued numerous
orders of sequestration, among which were those handed out x x x against shares of stock in UCPB purportedly owned by or registered in the names
of (a) the more than a million coconut farmers, (b) the CIIF companies and (c) Cojuangco, Jr., including the SMC shares held by the CIIF companies.
On July 31, 1987, the PCGG instituted before the Sandiganbayan a recovery suit docketed thereat as CC No. 0033.
xxxx
3. Civil Case 0033 x x x would be subdivided into eight complaints, docketed as CC 0033-A to CC 0033-H.
xxxx
5. By Decision of December 14, 2001, in G.R. Nos. 147062-64 (Republic v. COCOFED), 18 the Court declared the coco levy funds as prima facie
public funds. And purchased as the sequestered UCPB shares were by such funds, beneficial ownership thereon and the corollary voting rights
prima facie pertain, according to the Court, to the government.
xxxx
Correlatively, the Republic, on the strength of the December 14, 2001 ruling in Republic v. COCOFED and on the argument, among others, that the
claim of COCOFED and Ballares et al., over the subject UCPB shares is based solely on the supposed COCOFUND receipts issued for payment of
Page 116 of 134
the RA 6260 CIF levy, filed a Motion for Partial Summary Judgment RE: COCOFED, et al. and Ballares, et al. dated April 22, 2002, praying that a
summary judgment be rendered declaring:
a. That Section 2 of [PD] 755, Section 5, Article III of P.D. 961 and Section 5, Article III of P.D. No. 1468 are unconstitutional;
b. That x x x (CIF) payments under x x x (R.A.) No. 6260 are not valid and legal bases for ownership claims over UCPB shares;
and
c. That COCOFED, et al., and Ballares, et al. have not legally and validly obtained title over the subject UCPB shares.
Right after it filed the Motion for Partial Summary Judgment RE: COCOFED, et al. and Ballares, et al., the Republic interposed a Motion for Partial
Summary Judgment Re: Eduardo M. Cojuangco, Jr., praying that a summary judgment be rendered:
a. Declaring that Section 1 of P.D. No. 755 is unconstitutional insofar as it validates the provisions in the "PCA-Cojuangco Agreement x x
x" dated May 25, 1975 providing payment of ten percent (10%) commission to defendant Cojuangco with respect to the FUB, now UCPB
shares subject matter thereof;
b. Declaring that x x x Cojuangco, Jr. and his fronts, nominees and dummies, including x x x and Danilo S. Ursua, have not legally and
validly obtained title over the subject UCPB shares; and
c. Declaring that the government is the lawful and true owner of the subject UCPB shares registered in the names of … Cojuangco, Jr. and
the entities and persons above-enumerated, for the benefit of all coconut farmers. x x x
Following an exchange of pleadings, the Republic filed its sur-rejoinder praying that it be conclusively declared the true and absolute owner of the
coconut levy funds and the UCPB shares acquired therefrom. 19
We quote from COCOFED v. Republic:20
A joint hearing on the separate motions for summary judgment to determine what material facts exist with or without controversy then ensued. By
Order of March 11, 2003, the Sandiganbayan detailed, based on this Court’s ruling in related ill-gotten cases, the parties’ manifestations made in
open court and the pleadings and evidence on record, the facts it found to be without substantial controversy, together with the admissions and/or
extent of the admission made by the parties respecting relevant facts, as follows:
As culled from the exhaustive discussions and manifestations of the parties in open court of their respective pleadings and evidence on record, the
facts which exist without any substantial controversy are set forth hereunder, together with the admissions and/or the extent or scope of the
admissions made by the parties relating to the relevant facts:
1. The late President Ferdinand E. Marcos was President x x x for two terms under the 1935 Constitution and, during the second
term, he declared Martial Law through Proclamation No. 1081 dated September 21, 1972.
2. On January 17, 1973, he issued Proclamation No. 1102 announcing the ratification of the 1973 Constitution.
3. From January 17, 1973 to April 7, 1981, he x x x exercised the powers and prerogative of President under the 1935
Constitution and the powers and prerogative of President x x x the 1973 Constitution.
He x x x promulgated various P.D.s, among which were P.D. No. 232, P.D. No. 276, P.D. No. 414, P.D. No. 755, P.D. No. 961
and P.D. No. 1468.
4. On April 17, 1981, amendments to the 1973 Constitution were effected and, on June 30, 1981, he, after being elected
President, "reassumed the title and exercised the powers of the President until 25 February 1986."
5. Defendants Maria Clara Lobregat and Jose R. Eleazar, Jr. were PCA Directors x x x during the period 1970 to 1986 x x x.
6. Plaintiff admits the existence of the following agreements which are attached as Annexes "A" and "B" to the Opposition dated
October 10, 2002 of defendant Eduardo M. Cojuangco, Jr. to the above-cited Motion for Partial Summary Judgment:
a) "This Agreement made and entered into this ______ day of May, 1975 at Makati, Rizal, Philippines, by and between:
PEDRO COJUANGCO, Filipino, of legal age and with residence at 1575 Princeton St., Mandaluyong, Rizal, for and in
his own behalf and in behalf of certain other stockholders of First United Bank listed in Annex "A" attached hereto
(hereinafter collectively called the SELLERS);
– and –
EDUARDO COJUANGCO, JR., Filipino, of legal age and with residence at 136 9th Street corner Balete Drive, Quezon
City, represented in this act by his duly authorized attorney-in-fact, EDGARDO J. ANGARA, for and in his own behalf
and in behalf of certain other buyers, (hereinafter collectively called the BUYERS)";
WITNESSETH: That
WHEREAS, the SELLERS own of record and beneficially a total of 137,866 shares of stock, with a par value of
P100.00 each, of the common stock of the First United Bank (the "Bank"), a commercial banking corporation existing
under the laws of the Philippines;
WHEREAS, the BUYERS desire to purchase, and the SELLERS are willing to sell, the aforementioned shares of stock
totaling 137,866 shares (hereinafter called the "Contract Shares") owned by the SELLERS due to their special
relationship to EDUARDO COJUANGCO, JR.;
NOW, THEREFORE, for and in consideration of the premises and the mutual covenants herein contained, the parties
agree as follows:
1. Sale and Purchase of Contract Shares
Subject to the terms and conditions of this Agreement, the SELLERS hereby sell, assign, transfer and
convey unto the BUYERS, and the BUYERS hereby purchase and acquire, the Contract Shares free and
clear of all liens and encumbrances thereon.
2. Contract Price

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 The purchase price per share of the Contract Shares payable by the BUYERS is P200.00 or an aggregate
price of P27,573,200.00 (the "Contract Price").
3. Delivery of, and payment for, stock certificates
Upon the execution of this Agreement, (i) the SELLERS shall deliver to the BUYERS the stock certificates
representing the Contract Shares, free and clear of all liens, encumbrances, obligations, liabilities and other
burdens in favor of the Bank or third parties, duly endorsed in blank or with stock powers sufficient to transfer
the shares to bearer; and (ii) BUYERS shall deliver to the SELLERS P27,511,295.50 representing the
Contract Price less the amount of stock transfer taxes payable by the SELLERS, which the BUYERS
undertake to remit to the appropriate authorities. (Emphasis added.)
4. Representation and Warranties of Sellers
The SELLERS respectively and independently of each other represent and warrant that:
(a) The SELLERS are the lawful owners of, with good marketable title to, the Contract Shares and
that (i) the certificates to be delivered pursuant thereto have been validly issued and are fully paid
and non-assessable; (ii) the Contract Shares are free and clear of all liens, encumbrances,
obligations, liabilities and other burdens in favor of the Bank or third parties x x x.
This representation shall survive the execution and delivery of this Agreement and the
consummation or transfer hereby contemplated.
(b) The execution, delivery and performance of this Agreement by the SELLERS does not conflict
with or constitute any breach of any provision in any agreement to which they are a party or by
which they may be bound.
(c) They have complied with the condition set forth in Article X of the Amended Articles of
Incorporation of the Bank.
5. Representation of BUYERS
xxxx
6. Implementation
The parties hereto hereby agree to execute or cause to be executed such documents and instruments as
may be required in order to carry out the intent and purpose of this Agreement.
7. Notices
xxxx
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands at the place and on the date first above
written.

PEDRO COJUANGCO EDUARDO COJUANGCO, JR.

(on his own behalf and in (on his own behalf and in behalf
behalf of the other Sellers of the other Buyers)
listed in Annex "A" hereof) (BUYERS)
(SELLERS)

By:
EDGARDO J. ANGARA
Attorney-in-Fact
xxxx
b) "Agreement for the Acquisition of a Commercial Bank for the Benefit of the Coconut Farmers of the Philippines, made and
entered into this 25th day of May 1975 at Makati, Rizal, Philippines, by and between:
EDUARDO M. COJUANGCO, JR., Filipino, of legal age, with business address at 10th Floor, Sikatuna Building, Ayala
Avenue, Makati, Rizal, hereinafter referred to as the SELLER;
– and –
PHILIPPINE COCONUT AUTHORITY, a public corporation created by Presidential Decree No. 232, as amended, for
itself and for the benefit of the coconut farmers of the Philippines, (hereinafter called the BUYER)"
WITNESSETH: That
WHEREAS, on May 17, 1975, the Philippine Coconut Producers Federation ("PCPF"), through its Board of Directors,
expressed the desire of the coconut farmers to own a commercial bank which will be an effective instrument to solve
the perennial credit problems and, for that purpose, passed a resolution requesting the PCA to negotiate with the
SELLER for the transfer to the coconut farmers of the SELLER’s option to buy the First United Bank (the "Bank") under
such terms and conditions as BUYER may deem to be in the best interest of the coconut farmers and instructed Mrs.
Maria Clara Lobregat to convey such request to the BUYER;
WHEREAS, the PCPF further instructed Mrs. Maria Clara Lobregat to make representations with the BUYER to utilize
its funds to finance the purchase of the Bank;

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WHEREAS, the SELLER has the exclusive and personal option to buy 144,400 shares (the "Option Shares") of the
Bank, constituting 72.2% of the present outstanding shares of stock of the Bank, at the price of P200.00 per share,
which option only the SELLER can validly exercise;
WHEREAS, in response to the representations made by the coconut farmers, the BUYER has requested the SELLER
to exercise his personal option for the benefit of the coconut farmers;
WHEREAS, the SELLER is willing to transfer the Option Shares to the BUYER at a price equal to his option price of
P200 per share;
WHEREAS, recognizing that ownership by the coconut farmers of a commercial bank is a permanent solution to their
perennial credit problems, that it will accelerate the growth and development of the coconut industry and that the policy
of the state which the BUYER is required to implement is to achieve vertical integration thereof so that coconut farmers
will become participants in, and beneficiaries of the development and growth of the coconut industry, the BUYER
approved the request of PCPF that it acquire a commercial bank to be owned by the coconut farmers and,
appropriated, for that purpose, the sum of P150 Million to enable the farmers to buy the Bank and capitalize the Bank
to such an extension as to be in a position to adopt a credit policy for the coconut farmers at preferential rates;
WHEREAS, x x x the BUYER is willing to subscribe to additional shares ("Subscribed Shares") and place the Bank in a
more favorable financial position to extend loans and credit facilities to coconut farmers at preferential rates;
NOW, THEREFORE, for and in consideration of the foregoing premises and the other terms and conditions hereinafter
contained, the parties hereby declare and affirm that their principal contractual intent is (1) to ensure that the coconut
farmers own at least 60% of the outstanding capital stock of the Bank; and (2) that the SELLER shall receive
compensation for exercising his personal and exclusive option to acquire the Option Shares, for transferring such
shares to the coconut farmers at the option price of P200 per share, and for performing the management services
required of him hereunder.
1. To ensure that the transfer to the coconut farmers of the Option Shares is effected with the least possible
delay and to provide for the faithful performance of the obligations of the parties hereunder, the parties
hereby appoint the Philippine National Bank as their escrow agent (the "Escrow Agent").
Upon execution of this Agreement, the BUYER shall deposit with the Escrow Agent such amount as may be
necessary to implement the terms of this Agreement x x x.
2. As promptly as practicable after execution of this Agreement, the SELLER shall exercise his option to
acquire the Option Share and SELLER shall immediately thereafter deliver and turn over to the Escrow
Agent such stock certificates as are herein provided to be received from the existing stockholders of the
Bank by virtue of the exercise on the aforementioned option x x x.
3. To ensure the stability of the Bank and continuity of management and credit policies to be adopted for the
benefit of the coconut farmers, the parties undertake to cause the stockholders and the Board of Directors of
the Bank to authorize and approve a management contract between the Bank and the SELLER under the
following terms:
(a) The management contract shall be for a period of five (5) years, renewable for another five (5)
years by mutual agreement of the SELLER and the Bank;
(b) The SELLER shall be elected President and shall hold office at the pleasure of the Board of
Directors. While serving in such capacity, he shall be entitled to such salaries and emoluments as
the Board of Directors may determine;
(c) The SELLER shall recruit and develop a professional management team to manage and
operate the Bank under the control and supervision of the Board of Directors of the Bank;
(d) The BUYER undertakes to cause three (3) persons designated by the SELLER to be elected to
the Board of Directors of the Bank;
(e) The SELLER shall receive no compensation for managing the Bank, other than such salaries or
emoluments to which he may be entitled by virtue of the discharge of his function and duties as
President, provided x x x and
(f) The management contract may be assigned to a management company owned and controlled
by the SELLER.
4. As compensation for exercising his personal and exclusive option to acquire the Option Shares and for
transferring such shares to the coconut farmers, as well as for performing the management services required
of him, SELLER shall receive equity in the Bank amounting, in the aggregate, to 95,304 fully paid shares in
accordance with the procedure set forth in paragraph 6 below;
5. In order to comply with the Central Bank program for increased capitalization of banks and to ensure that
the Bank will be in a more favorable financial position to attain its objective to extend to the coconut farmers
loans and credit facilities, the BUYER undertakes to subscribe to shares with an aggregate par value of
P80,864,000 (the "Subscribed Shares"). The obligation of the BUYER with respect to the Subscribed Shares
shall be as follows:

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 (a) The BUYER undertakes to subscribe, for the benefit of the coconut farmers, to shares with an
aggregate par value of P15,884,000 from the present authorized but unissued shares of the Bank;
and
(b) The BUYER undertakes to subscribe, for the benefit of the coconut farmers, to shares with an
aggregate par value of P64,980,000 from the increased capital stock of the Bank, which
subscriptions shall be deemed made upon the approval by the stockholders of the increase of the
authorized capital stock of the Bank from P50 Million to P140 Million.
The parties undertake to declare stock dividends of P8 Million out of the present authorized but unissued
capital stock of P30 Million.
6. To carry into effect the agreement of the parties that the SELLER shall receive as his compensation
95,304 shares:
(a) The Escrow Agent shall, upon receipt from the SELLER of the stock certificates representing
the Option Shares, duly endorsed in blank or with stock powers sufficient to transfer the same to
bearer, present such stock certificates to the Transfer Agent of the Bank and shall cause such
Transfer Agent to issue stock certificates of the Bank in the following ratio: one share in the name
of the SELLER for every nine shares in the name of the BUYER.
(b) With respect to the Subscribed Shares, the BUYER undertakes, in order to prevent the dilution
of SELLER’s equity position, that it shall cede over to the SELLER 64,980 fully-paid shares out of
the Subscribed Shares. Such undertaking shall be complied with in the following manner: upon
receipt of advice that the BUYER has subscribed to the Subscribed Shares upon approval by the
stockholders of the increase of the authorized capital stock of the Bank, the Escrow Agent shall
thereupon issue a check in favor of the Bank covering the total payment for the Subscribed Shares.
The Escrow Agent shall thereafter cause the Transfer Agent to issue a stock certificates of the
Bank in the following ratio: one share in the name of the SELLER for every nine shares in the
name of the BUYER.
7. The parties further undertake that the Board of Directors and management of the Bank shall establish and implement a loan
policy for the Bank of making available for loans at preferential rates of interest to the coconut farmers x x x.
8. The BUYER shall expeditiously distribute from time to time the shares of the Bank, that shall be held by it for the benefit of the
coconut farmers of the Philippines under the provisions of this Agreement, to such, coconut farmers holding registered
COCOFUND receipts on such equitable basis as may be determine by the BUYER in its sound discretion.
9. x x x x
10. To ensure that not only existing but future coconut farmers shall be participants in and beneficiaries of the credit policies, and
shall be entitled to the benefit of loans and credit facilities to be extended by the Bank to coconut farmers at preferential rates,
the shares held by the coconut farmers shall not be entitled to pre-emptive rights with respect to the unissued portion of the
authorized capital stock or any increase thereof.
11. After the parties shall have acquired two-thirds (2/3) of the outstanding shares of the Bank, the parties shall call a special
stockholders’ meeting of the Bank:
(a) To classify the present authorized capital stock of P50,000,000 divided into 500,000 shares, with a par value of
P100.00 per share into: 361,000 Class A shares, with an aggregate par value of P36,100,000 and 139,000 Class B
shares, with an aggregate par value of P13,900,000. All of the Option Shares constituting 72.2% of the outstanding
shares, shall be classified as Class A shares and the balance of the outstanding shares, constituting 27.8% of the
outstanding shares, as Class B shares;
(b) To amend the articles of incorporation of the Bank to effect the following changes:
(i) change of corporate name to First United Coconut Bank;
(ii) replace the present provision restricting the transferability of the shares with a limitation on ownership by
any individual or entity to not more than 10% of the outstanding shares of the Bank;
(iii) provide that the holders of Class A shares shall not be entitled to pre-emptive rights with respect to the
unissued portion of the authorized capital stock or any increase thereof; and
(iv) provide that the holders of Class B shares shall be absolutely entitled to pre-emptive rights, with respect
to the unissued portion of Class B shares comprising part of the authorized capital stock or any increase
thereof, to subscribe to Class B shares in proportion t the subscriptions of Class A shares, and to pay for
their subscriptions to Class B shares within a period of five (5) years from the call of the Board of Directors.
(c) To increase the authorized capital stock of the Bank from P50 Million to P140 Million, divided into 1,010,800 Class
A shares and 389,200 Class B shares, each with a par value of P100 per share;
(d) To declare a stock dividend of P8 Million payable to the SELLER, the BUYER and other stockholders of the Bank
out of the present authorized but unissued capital stock of P30 Million;
(e) To amend the by-laws of the Bank accordingly; and
(f) To authorize and approve the management contract provided in paragraph 2 above.

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 The parties agree that they shall vote their shares and take all the necessary corporate action in order to carry into effect the
foregoing provisions of this paragraph 11, including such other amendments of the articles of incorporation and by-laws of the
Bank as are necessary in order to implement the intention of the parties with respect thereto.
12. It is the contemplation of the parties that the Bank shall achieve a financial and equity position to be able to lend to the
coconut farmers at preferential rates.
In order to achieve such objective, the parties shall cause the Bank to adopt a policy of reinvestment, by way of stock dividends,
of such percentage of the profits of the Bank as may be necessary.
13. The parties agree to execute or cause to be executed such documents and instruments as may be required in order to carry
out the intent and purpose of this Agreement.
IN WITNESS WHEREOF x x x
PHILIPPINE COCONUT AUTHORITY
(BUYER)
By:

EDUARDO COJUANGCO, JR. MARIA CLARA L. LOBREGAT

(SELLER)

xxxx
7. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the x x x (PCA) was the "other buyers" represented by defendant
Eduardo M. Cojuangco, Jr. in the May 1975 Agreement entered into between Pedro Cojuangco (on his own behalf and in behalf of other sellers
listed in Annex "A"of the agreement) and defendant Eduardo M. Cojuangco, Jr. (on his own behalf and in behalf of the other buyers). Defendant
Cojuangco insists he was the "only buyer" under the aforesaid Agreement.
8. Defendant Eduardo M. Cojuangco, Jr. did not own any share in the x x x (FUB) prior to the execution of the two Agreements x x x.
9. Defendants Lobregat, et al., and COCOFED, et al., and Ballares, et al. admit that in addition to the 137,866 FUB shares of Pedro Cojuangco, et al.
covered by the Agreement, other FUB stockholders sold their shares to PCA such that the total number of FUB shares purchased by PCA …
increased from 137,866 shares to 144,400 shares, the OPTION SHARES referred to in the Agreement of May 25, 1975. Defendant Cojuangco did
not make said admission as to the said 6,534 shares in excess of the 137,866 shares covered by the Agreement with Pedro Cojuangco.
10. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the Agreement, described in Section 1 of Presidential Decree
(P.D.) No. 755 dated July 29, 1975 as the "Agreement for the Acquisition of a Commercial Bank for the Benefit of Coconut Farmers" executed by the
Philippine Coconut Authority" and incorporated in Section 1 of P.D. No. 755 by reference, refers to the "AGREEMENT FOR THE ACQUISITION OF
A COMMERCIAL BANK FOR THE BENEFIT OF THE COCONUT FARMERS OF THE PHILIPPINES" dated May 25, 1975 between defendant
Eduardo M. Cojuangco, Jr. and the PCA (Annex "B" for defendant Cojuangco’s OPPOSITION TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY
JUDGMENT RE: EDUARDO M. COJUANGCO, JR. dated September 18, 2002).
Plaintiff refused to make the same admission.
11. As to whether P.D. No. 755 and the text of the agreement described therein was published, the Court takes judicial notice that P.D. No. 755 was
published in x x x volume 71 of the Official Gazette but the text of the agreement x x x was not so published with P.D. No. 755.
12. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the PCA used public funds x x x in the total amount of P150
million, to purchase the FUB shares amounting to 72.2% of the authorized capital stock of the FUB, although the PCA was later reimbursed from the
coconut levy funds and that the PCA subscription in the increased capitalization of the FUB, which was later renamed the x x x (UCPB), came from
the said coconut levy funds x x x.
13. Pursuant to the May 25, 1975 Agreement, out of the 72.2% shares of the authorized and the increased capital stock of the FUB (later UCPB),
entirely paid for by PCA, 64.98% of the shares were placed in the name of the "PCA for the benefit of the coconut farmers" and 7,22% were given to
defendant Cojuangco. The remaining 27.8% shares of stock in the FUB which later became the UCPB were not covered by the two (2) agreements
referred to in item no. 6, par. (a) and (b) above. "There were shares forming part of the aforementioned 64.98% which were later sold or transferred
to non-coconut farmers.
14. Under the May 27, 1975 Agreement, defendant Cojuangco’s equity in the FUB (now UCPB) was ten percent (10%) of the shares of stock
acquired by the PCA for the benefit of the coconut farmers.
15. That the fully paid 95.304 shares of the FUB, later the UCPB, acquired by defendant x x x Cojuangco, Jr. pursuant to the May 25, 1975
Agreement were paid for by the PCA in accordance with the terms and conditions provided in the said Agreement. 16. Defendants Lobregat, et al.
and COCOFED, et al. and Ballares, et al. admit that the affidavits of the coconut farmers (specifically, Exhibit "1-Farmer" to "70-Farmer") uniformly
state that:
a. they are coconut farmers who sold coconut products;
b. in the sale thereof, they received COCOFUND receipts pursuant to R.A. No. 6260;
c. they registered the said COCOFUND receipts; and
d. by virtue thereof, and under R.A. No. 6260, P.D. Nos. 755, 961 and 1468, they are allegedly entitled to the subject UCPB
shares.
but subject to the following qualifications:
a. there were other coconut farmers who received UCPB shares although they did not present said COCOFUND receipt because
the PCA distributed the unclaimed UCPB shares not only to those who already received their UCPB shares in exchange for their

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 COCOFUND receipts but also to the coconut farmers determined by a national census conducted pursuant to PCA
administrative issuances;
b. there were other affidavits executed by Lobregat, Eleazar, Ballares and Aldeguer relative to the said distribution of the
unclaimed UCPB shares; and
c. the coconut farmers claim the UCPB shares by virtue of their compliance not only with the laws mentioned in item (d) above
but also with the relevant issuances of the PCA such as, PCA Administrative Order No. 1, dated August 20, 1975 (Exh. "298-
Farmer"); PCA Resolution No. 033-78 dated February 16, 1978….
The plaintiff did not make any admission as to the foregoing qualifications.
17. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. claim that the UCPB shares in question have legitimately become the
private properties of the 1,405,366 coconut farmers solely on the basis of their having acquired said shares in compliance with R.A. No. 6260, P.D.
Nos. 755, 961 and 1468 and the administrative issuances of the PCA cited above.
18. On the other hand, defendant … Cojuangco, Jr. claims ownership of the UCPB shares, which he holds, solely on the basis of the two
Agreements…. (Emphasis and words in brackets added.)
On July 11, 2003, the Sandiganbayan issued the assailed PSJ-A, ruling in favor of the Republic, disposing insofar as pertinent as follows: 21
WHEREFORE, in view of the foregoing, we rule as follows:
xxxx
C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO, JR.) dated September 18, 2002 filed by plaintiff.
1. Sec. 1 of P.D. No. 755 did not validate the Agreement between PCA and defendant Eduardo M. Cojuangco, Jr. dated May 25, 1975 nor
did it give the Agreement the binding force of a law because of the non-publication of the said Agreement.
2. Regarding the questioned transfer of the shares of stock of FUB (later UCPB) by PCA to defendant Cojuangco or the so-called
"Cojuangco UCPB shares" which cost the PCA more than Ten Million Pesos in CCSF in 1975, we declare, that the transfer of the following
FUB/UCPB shares to defendant Eduardo M. Cojuangco, Jr. was not supported by valuable consideration, and therefore null and void:
a. The 14,400 shares from the "Option Shares";
b. Additional Bank Shares Subscribed and Paid by PCA, consisting of:
1. Fifteen Thousand Eight Hundred Eighty-Four (15,884) shares out of the authorized but unissued shares of the bank,
subscribed and paid by PCA;
2. Sixty Four Thousand Nine Hundred Eighty (64,980) shares of the increased capital stock subscribed and paid by
PCA; and
3. Stock dividends declared pursuant to paragraph 5 and paragraph 11 (iv) (d) of the Agreement.
3. The above-mentioned shares of stock of the FUB/UCPB transferred to defendant Cojuangco are hereby declared conclusively owned by
the plaintiff Republic of the Philippines.
4. The UCPB shares of stock of the alleged fronts, nominees and dummies of defendant Eduardo M. Cojuangco, Jr. which form part of the
72.2% shares of the FUB/UCPB paid for by the
PCA with public funds later charged to the coconut levy funds, particularly the CCSF, belong to the plaintiff Republic of the Philippines as their true
and beneficial owner.
Let trial of this Civil Case proceed with respect to the issues which have not been disposed of in this Partial Summary Judgment. For this purpose,
the plaintiff’s Motion Ad Cautelam to Present
Additional Evidence dated March 28, 2001 is hereby GRANTED. 22 (Emphasis and underlining added.)
As earlier explained, the core issue in this instant petition is Part C of the dispositive portion in PSJ-A declaring the 7.22% FUB (now UCPB) shares
transferred to Cojuangco, plus the other shares paid by the PCA as "conclusively" owned by the Republic. Parts A and B of the same dispositive
portion have already been finally resolved and adjudicated by this Court in COCOFED v. Republic on January 24, 2012. 23
From PSJ-A, Cojuangco moved for partial reconsideration but the Sandiganbayan, by Resolution 24 of December 28, 2004, denied the motion.
Hence, the instant petition.
The Issues
Cojuangco’s petition formulates the issues in question form, as follows: 25
a. Is the acquisition of the so-called Cojuangco, Jr. UCPB shares by petitioner Cojuangco x x x "not supported by valuable consideration
and, therefore, null and void"?
b. Did the Sandiganbayan have jurisdiction, in Civil Case No. 0033-A, an "ill-gotten wealth" case brought under EO Nos. 1 and 2, to
declare the Cojuangco UCPB shares acquired by virtue of the Pedro Cojuangco, et al. Agreement and/or the PCA Agreement null and void
because "not supported by valuable consideration"?
c. Was the claim that the acquisition by petitioner Cojuangco of shares representing 7.2% of the outstanding capital stock of FUB (later
UCPB) "not supported by valuable consideration", a "claim" pleaded in the complaint and may therefore be the basis of a "summary
judgment" under Section 1, Rule 35 of the Rules of Court?
d. By declaring the Cojuangco UCPB shares as "not supported by valuable consideration, and therefore, null and void", did the
Sandiganbayan effectively nullify the PCA Agreement? May the Sandiganbayan nullify the PCA Agreement when the parties to the
Agreement, namely: x x x concede its validity? If the PCA Agreement be deemed "null and void", should not the FUB (later UCPB) shares
revert to petitioner Cojuangco (under the PCA Agreement) or to Pedro Cojuangco, et al. x x x? Would there be a basis then, even
assuming the absence of consideration x x x, to declare 7.2% UCPB shares of petitioner Cojuangco as "conclusively owned by the plaintiff
Republic of the Philippines"?26
The Court’s Ruling
Page 122 of 134
I
THE SANDIGANBAYAN HAS JURISDICTION OVER THE SUBJECT MATTER OF THE SUBDIVIDED AMENDED COMPLAINTS, INCLUDING THE
SHARES ALLEGEDLY ACQUIRED BY COJUANGCO BY VIRTUE OF THE PCA AGREEMENTS.
The issue of jurisdiction over the subject matter of the subdivided amended complaints has peremptorily been put to rest by the Court in its January
24, 2012 Decision in COCOFED v. Republic. There, the Court, citing Regalado 27 and settled jurisprudence, stressed the following interlocking
precepts: Subject matter jurisdiction is conferred by law, not by the consent or acquiescence of any or all of the parties. In turn, the issue on whether
a suit comes within the penumbra of a statutory conferment is determined by the allegations in the complaint, regardless of whether or not the suitor
will be entitled to recover upon all or part of the claims asserted.
The Republic’s material averments in its complaint subdivided in CC No. 0033-A included the following:
CC No. 0033-A
12. Defendant Eduardo M. Cojuangco, Jr. served as a public officer during the Marcos administration. During the period of his incumbency as a
public officer, he acquired assets, funds and other property grossly and manifestly disproportionate to his salaries, lawful income and income from
legitimately acquired property.
13. Defendant Eduardo M. Cojuangco, Jr., taking undue advantage of his association, influence, connection, and acting in unlawful concert with
Defendants Ferdinand E. Marcos and Imelda R. Marcos, AND THE INDIVIDUAL DEFENDANTS, embarked upon devices, schemes and stratagems,
to unjustly enrich themselves at the expense of Plaintiff and the Filipino people, such as when he –
a) manipulated, beginning the year 1975 with the active collaboration of Defendants x x x Maria Clara Lobregat, Danilo Ursua etc., the
purchase by . . . (PCA) of 72.2% of the outstanding capital stock of the x x x (FUB) which was subsequently converted into a universal
bank named x x x (UCPB) through the use of the Coconut Consumers Stabilization Fund (CCSF) being initially in the amount of
P85,773,100.00 in a manner contrary to law and to the specific purposes for which said coconut levy funds were imposed and collected
under P.D. 276, and with sinister designs and under anomalous circumstances, to wit:
(i) Defendant Eduardo Cojuangco, Jr. coveted the coconut levy funds as a cheap, lucrative and risk-free source of funds with
which to exercise his private option to buy the controlling interest in FUB; thus, claiming that the 72.2% of the outstanding capital
stock of FUB could only be purchased and transferred through the exercise of his "personal and exclusive action option to
acquire the 144,000 shares" of the bank, Defendant Eduardo M. Cojuangco, Jr. and PCA, x x x executed on May 26, 1975 a
purchase agreement which provides, among others, for the payment to him in fully paid shares as compensation thereof 95,384
shares worth P1,444,000.00 with the further condition that he shall manage and control the bank as Director and President for a
term of five (5) years renewable for another five (5) years and to designate three (3) persons of his choice who shall be elected
as members of the Board of Directors of the Bank;
(ii) to legitimize a posteriori his highly anomalous and irregular use and diversion of government funds to advance his own private
and commercial interests, Defendant Eduardo Cojuangco, Jr. caused the issuance by Defendant Ferdinand E. Marcos of PD 755
(a) declaring that the coconut levy funds shall not be considered special and fiduciary and trust funds and do not form part of the
general funds of the National Government, conveniently repealing for that purpose a series of previous decrees, PDs 276 and
414, establishing the character of the coconut levy funds as special, fiduciary, trust and governmental funds; (b) confirming the
agreement between Defendant Eduardo Cojuangco, Jr. and PCA on the purchase of FUB by incorporating by reference said
private commercial agreement in PD 755;
(iii)To further consolidate his hold on UCPB, Defendant Eduardo Cojuangco, Jr. imposed as consideration and conditions for the
purchase that (a) he gets one out of every nine shares given to PCA, and (b) he gets to manage and control UCPB as president
for a term of five (5) years renewable for another five (5) years;
(iv) To perpetuate his opportunity to deal with and make use of the coconut levy funds x x x Cojuangco, Jr. caused the issuance
by Defendant Ferdinand E. Marcos of an unconstitutional decree (PD 1468) requiring the deposit of all coconut levy funds with
UCPB, interest free to the prejudice of the government.
(v) In gross violation of their fiduciary positions and in contravention of the goal to create a bank for the coconut farmers of the
country, the capital stock of UCPB as of February 25, 1986 was actually held by the defendants, their lawyers, factotum and
business associates, thereby finally gaining control of the UCPB by misusing the names and identities of the so-called "more
than one million coconut farmers."
14. The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, constitute gross abuse of official position
and authority, flagrant breach of public trust and fiduciary obligations, brazen abuse of right and power, and unjust enrichment, violation of
the constitution and laws of the Republic of the Philippines, to the grave and irreparable damage of Plaintiff and the Filipino people. 28
In no uncertain terms, the Court has upheld the Sandiganbayan’s assumption of jurisdiction over the subject matter of Civil Case Nos. 0033-A and
0033-F.29 The Court wrote:
Judging from the allegations of the defendants’ illegal acts thereat made, it is fairly obvious that both CC Nos. 0033-A and CC 0033-F partake, in the
context of EO Nos. 1, 2 and 14, series of 1986, the nature of ill-gotten wealth suits. Both deal with the recovery of sequestered shares, property or
business enterprises claimed, as alleged in the corresponding basic complaints, to be ill-gotten assets of President Marcos, his cronies and
nominees and acquired by taking undue advantage of relationships or influence and/or through or as a result of improper use, conversion or
diversion of government funds or property. Recovery of these assets––determined as shall hereinafter be discussed as prima facie ill-gotten––falls
within the unquestionable jurisdiction of the Sandiganbayan. 30
P.D. No. 1606, as amended by R.A. 7975 and E.O. No. 14, Series of 1986, vests the Sandiganbayan with, among others, original jurisdiction over
civil and criminal cases instituted pursuant to and in connection with E.O. Nos. 1, 2, 14 and 14-A. Correlatively, the PCGG Rules and Regulations
defines the term "Ill-Gotten Wealth" as "any asset, property, business enterprise or material possession of persons within the purview of E.O. Nos. 1
Page 123 of 134
and 2, acquired by them directly, or indirectly thru dummies, nominees, agents, subordinates and/or business associates by any of the following
means or similar schemes":
(1) Through misappropriation, conversion, misuse or malversation of public funds or raids on the public treasury;
(2) x x x x
(3) By the illegal or fraudulent conveyance or disposition of assets belonging to the government or any of its subdivisions, agencies or
instrumentalities or government-owned or controlled corporations;
(4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity or any other form of interest or participation in any
business enterprise or undertaking;
(5) Through the establishment of agricultural, industrial or commercial monopolies or other combination and/or by the issuance,
promulgation and/or implementation of decrees and orders intended to benefit particular persons or special interests; and
(6) By taking undue advantage of official position, authority, relationship or influence for personal gain or benefit. (Emphasis supplied)
Section 2(a) of E.O. No. 1 charged the PCGG with the task of assisting the President in "The recovery of all ill-gotten wealth accumulated by former
… President Marcos, his immediate family, relatives, subordinates and close associates … including the takeover or sequestration of all business
enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking undue advantage of their
public office and/or using their powers, authority, influence, connections or relationship." Complementing the aforesaid Section 2(a) is Section 1 of
E.O. No. 2 decreeing the freezing of all assets "in which the Marcoses their close relatives, subordinates, business associates, dummies, agents or
nominees have any interest or participation."
The Republic’s averments in the amended complaints, particularly those detailing the alleged wrongful acts of the defendants, sufficiently reveal that
the subject matter thereof comprises the recovery by the Government of ill-gotten wealth acquired by then President Marcos, his cronies or their
associates and dummies through the unlawful, improper utilization or diversion of coconut levy funds aided by P.D. No. 755 and other sister decrees.
President Marcos himself issued these decrees in a brazen bid to legalize what amounts to private taking of the said public funds.
xxxx
There was no actual need for Republic, as plaintiff a quo, to adduce evidence to show that the Sandiganbayan has jurisdiction over the subject
matter of the complaints as it leaned on the averments in the initiatory pleadings to make visible the jurisdiction of the Sandiganbayan over the ill-
gotten wealth complaints. As previously discussed, a perusal of the allegations easily reveals the sufficiency of the statement of matters disclosing
the claim of the government against the coco levy funds and the assets acquired directly or indirectly through said funds as ill-gotten wealth.
Moreover, the Court finds no rule that directs the plaintiff to first prove the subject matter jurisdiction of the court before which the complaint is filed.
Rather, such burden falls on the shoulders of defendant in the hearing of a motion to dismiss anchored on said ground or a preliminary hearing
thereon when such ground is alleged in the answer.
xxxx
Lest it be overlooked, this Court has already decided that the sequestered shares are prima facie ill-gotten wealth rendering the issue of the validity
of their sequestration and of the jurisdiction of the Sandiganbayan over the case beyond doubt. In the case of COCOFED v. PCGG, We stated that:
It is of course not for this Court to pass upon the factual issues thus raised. That function pertains to the Sandiganbayan in the first instance. For
purposes of this proceeding, all that the Court needs to determine is whether or not there is prima facie justification for the sequestration ordered by
the PCGG. The Court is satisfied that there is. The cited incidents, given the public character of the coconut levy funds, place petitioners COCOFED
and its leaders and officials, at least prima facie, squarely within the purview of Executive Orders Nos. 1, 2 and 14, as construed and applied in
BASECO, to wit:
"1. that ill-gotten properties (were) amassed by the leaders and supporters of the previous regime;
"a. more particularly, that ‘(i) Ill-gotten wealth was accumulated by x x x Marcos, his immediate family, relatives, subordinates and close associates, x
x x (and) business enterprises and entities (came to be) owned or controlled by them, during x x x (the Marcos) administration, directly or through
nominees, by taking undue advantage of their public office and using their powers, authority, influence, connections or relationships’;
"b. otherwise stated, that ‘there are assets and properties purportedly pertaining to the Marcoses, their close relatives, subordinates, business
associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or
illegal use of funds or properties owned by the Government x x x or any of its branches, instrumentalities, enterprises, banks or financial institutions,
or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment x x x;
xxxx
2. The petitioners’ claim that the assets acquired with the coconut levy funds are privately owned by the coconut farmers is founded on certain
provisions of law, to wit Sec. 7, RA 6260 and Sec. 5, Art. III, PD 1468… (Words in bracket added; italics in the original).
xxxx
E.O. 1, 2, 14 and 14-A, it bears to stress, were issued precisely to effect the recovery of ill-gotten assets amassed by the Marcoses, their associates,
subordinates and cronies, or through their nominees. Be that as it may, it stands to reason that persons listed as associated with the Marcoses refer
to those in possession of such ill-gotten wealth but holding the same in behalf of the actual, albeit undisclosed owner, to prevent discovery and
consequently recovery. Certainly, it is well-nigh inconceivable that ill-gotten assets would be distributed to and left in the hands of individuals or
entities with obvious traceable connections to Mr. Marcos and his cronies. The Court can take, as it has in fact taken, judicial notice of schemes and
machinations that have been put in place to keep ill-gotten assets under wraps. These would include the setting up of layers after layers of shell or
dummy, but controlled, corporations31 or manipulated instruments calculated to confuse if not altogether mislead would-be investigators from
recovering wealth deceitfully amassed at the expense of the people or simply the fruits thereof. Transferring the illegal assets to third parties not
readily perceived as Marcos cronies would be another. So it was that in PCGG v. Pena, the Court, describing the rule of Marcos as a "well
entrenched plundering regime of twenty years," noted the magnitude of the past regime’s organized pillage and the ingenuity of the plunderers and
pillagers with the assistance of experts and the best legal minds in the market. 32
Page 124 of 134
Prescinding from the foregoing premises, there can no longer be any serious challenge as to the Sandiganbayan’s subject matter jurisdiction. And in
connection therewith, the Court wrote in COCOFED v. Republic, that the instant petition shall be decided separately and should not be affected by
the January 24, 2012 Decision, "save for determinatively legal issues directly addressed" therein. 33 Thus:
We clarify that PSJ-A is subject of another petition for review interposed by Eduardo Cojuangco, Jr., in G.R. No. 180705 entitled, Eduardo M.
Cojuangco, Jr. v. Republic of the Philippines, which shall be decided separately by this Court. Said petition should accordingly not be affected by this
Decision save for determinatively legal issues directly addressed herein. 34 (Emphasis Ours.)
We, therefore, reiterate our holding in COCOFED v. Republic respecting the Sandiganbayan’s jurisdiction over the subject matter of Civil Case No.
0033-A, including those matters whose adjudication We shall resolve in the present case.
II
PRELIMINARILY, THE AGREEMENT BETWEEN THE PCA AND EDUARDO M. COJUANGCO, JR. DATED MAY 25, 1975 CANNOT BE
ACCORDED THE STATUS OF A LAW FOR THE LACK OF THE REQUISITE PUBLICATION.
It will be recalled that Cojuangco’s claim of ownership over the UCPB shares is hinged on two contract documents the respective contents of which
formed part of and reproduced in their entirety in the aforecited Order 35 of the Sandiganbayan dated March 11, 2003. The first contract refers to the
agreement entered into by and between Pedro Cojuangco and his group, on one hand, and Eduardo M. Cojuangco, Jr., on the other, bearing date
"May 1975"36 (hereinafter referred to as "PC-ECJ Agreement"), while the second relates to the accord between the PCA and Eduardo M. Cojuangco,
Jr. dated May 25, 1975 (hereinafter referred to as "PCA-Cojuangco Agreement"). The PC-ECJ Agreement allegedly contains, inter alia, Cojuangco’s
personal and exclusive option to acquire the FUB ("UCPB") shares from Pedro and his group. The PCA-Cojuangco Agreement shows PCA’s
acquisition of the said option from Eduardo M. Cojuangco, Jr.
Section 1 of P.D. No. 755 incorporated, by reference, the "Agreement for the Acquisition of a Commercial Bank for the Benefit of the Coconut
Farmers" executed by the PCA. Particularly, Section 1 states:
Section 1. Declaration of National Policy. It is hereby declared that the policy of the State is to provide readily available credit facilities to the coconut
farmers at preferential rates; that this policy can be expeditiously and efficiently realized by the implementation of the "Agreement for the Acquisition
of a Commercial Bank for the benefit of the Coconut Farmers" executed by the Philippine Coconut Authority, the terms of which "Agreement" are
hereby incorporated by reference; and that the Philippine Coconut Authority is hereby authorized to distribute, for free, the shares of stock of the
bank it acquired to the coconut farmers under such rules and regulations it may promulgate. (Emphasis Ours.)
It bears to stress at this point that the PCA-Cojuangco Agreement referred to above in Section 1 of P.D. 755 was not reproduced or attached as an
annex to the same law. And it is well-settled that laws must be published to be valid. In fact, publication is an indispensable condition for the
effectivity of a law. Tañada v. Tuvera37 said as much:
Publication of the law is indispensable in every case x x x.
xxxx
We note at this point the conclusive presumption that every person knows the law, which of course presupposes that the law has been published if
the presumption is to have any legal justification at all. It is no less important to remember that Section 6 of the Bill of Rights recognizes "the right of
the people to information on matters of public concern," and this certainly applies to, among others, and indeed especially, the legislative enactments
of the government.
xxxx
We hold therefore that all statutes, including those of local application and private laws, shall be published as a condition for their effectivity, which
shall begin fifteen days after publication unless a different effectivity date is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of legislative powers whenever the
same are validly delegated by the legislature, or, at present, directly conferred by the Constitution. Administrative rules and regulations must also be
published if their purpose is to enforce or implement existing law pursuant also to a valid delegation. 38
We even went further in Tañada to say that:
Laws must come out in the open in the clear light of the sun instead of skulking in the shadows with their dark, deep secrets. Mysterious
pronouncements and rumored rules cannot be recognized as binding unless their existence and contents are confirmed by a valid publication
intended to make full disclosure and give proper notice to the people. The furtive law is like a scabbarded saber that cannot feint, parry or cut unless
the naked blade is drawn.39
The publication, as further held in Tañada, must be of the full text of the law since the purpose of publication is to inform the public of the contents of
the law. Mere referencing the number of the presidential decree, its title or whereabouts and its supposed date of effectivity would not satisfy the
publication requirement.40
In this case, while it incorporated the PCA-Cojuangco Agreement by reference, Section 1 of P.D. 755 did not in any way reproduce the exact terms
of the contract in the decree. Neither was acopy thereof attached to the decree when published. We cannot, therefore, extend to the said
Agreement the status of a law. Consequently, We join the Sandiganbayan in its holding that the PCA-Cojuangco Agreement shall be treated as an
ordinary transaction between agreeing minds to be governed by contract law under the Civil Code.
III
THE PCA-COJUANGCO AGREEMENT IS A VALID CONTRACT FOR HAVING THE REQUISITE CONSIDERATION.
In PSJ-A, the Sandiganbayan struck down the PCA-Cojuangco Agreement as void for lack of consideration/cause as required under Article 1318,
paragraph 3 in relation to Article 1409, paragraph 3 of the Civil Code. The Sandiganbayan stated:
In sum, the evidence on record relied upon by defendant Cojuangco negates the presence of: (1) his claimed personal and exclusive option to buy
the 137,866 FUB shares; and (2) any pecuniary advantage to the government of the said option, which could compensate for generous payment to
him by PCA of valuable shares of stock, as stipulated in the May 25, 1975 Agreement between him and the PCA. 41
On the other hand, the aforementioned provisions of the Civil Code state:
Page 125 of 134
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Emphasis supplied) 42
Art. 1409. The following contracts are inexistent and void from the beginning:
xxxx
(3) Those whose cause or object did not exist at the time of the transaction; 43
The Sandiganbayan found and so tagged the alleged cause for the agreement in question, i.e., Cojuangco’s "personal and exclusive option to
acquire the Option Shares," as fictitious. A reading of the purchase agreement between Cojuangco and PCA, so the Sandiganbayan ruled, would
show that Cojuangco was not the only seller; thus, the option was, as to him, neither personal nor exclusive as he claimed it to be. Moreover, as the
Sandiganbayan deduced, that option was inexistent on the day of execution of the PCA-Cojuangco Agreement as the Special Power of Attorney
executed by Cojuangco in favor of now Senator Edgardo J. Angara, for the latter to sign the PC-ECJ Agreement, was dated May 25, 1975 while the
PCA-Cojuangco Agreement was also signed on May 25, 1975. Thus, the Sandiganbayan believed that when the parties affixed their signatures on
the second Agreement, Cojuangco’s option to purchase the FUB shares of stock did not yet exist. The Sandiganbayan further ruled that there was
no justification in the second Agreement for the compensation of Cojuangco of 14,400 shares, which it viewed as exorbitant. Additionally, the
Sandiganbayan ruled that PCA could not validly enter, in behalf of FUB/UCPB, into a veritable bank management contract with Cojuangco, PCA
having a personality separate and distinct from that of FUB. As such, the Sandiganbayan concluded that the PCA-Cojuangco Agreement was null
and void. Correspondingly, the Sandiganbayan also ruled that the sequestered FUB (UCPB) shares of stock in the name of Cojuangco are
conclusively owned by the Republic.
After a circumspect study, the Court finds as inconclusive the evidence relied upon by Sandiganbayan to support its ruling that the PCA-Cojuangco
Agreement is devoid of sufficient consideration. We shall explain.
Rule 131, Section 3(r) of the Rules of Court states:
Sec. 3. Disputable presumptions.—The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other
evidence:
xxxx
(r) That there was a sufficient consideration for a contract;
The Court had the occasion to explain the reach of the above provision in Surtida v. Rural Bank of Malinao (Albay), Inc., 44 to wit:
Under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1) private transactions have been fair and regular; (2)
the ordinary course of business has been followed; and (3) there was sufficient consideration for a contract. A presumption may operate against an
adversary who has not introduced proof to rebut it. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting
evidence to meet the legal presumption or the prima facie case created thereby, and which if no proof to the contrary is presented and offered, will
prevail. The burden of proof remains where it is, but by the presumption, the one who has that burden is relieved for the time being from introducing
evidence in support of the averment, because the presumption stands in the place of evidence unless rebutted.
The presumption that a contract has sufficient consideration cannot be overthrown by the bare uncorroborated and self-serving assertion of
petitioners that it has no consideration. To overcome the presumption of consideration, the alleged lack of consideration must be shown by
preponderance of evidence. Petitioners failed to discharge this burden x x x. (Emphasis Ours.)
The assumption that ample consideration is present in a contract is further elucidated in Pentacapital Investment Corporation v. Mahinay: 45
Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful unless the debtor proves the contrary. Moreover, under
Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1) private transactions have been fair and regular; (2) the
ordinary course of business has been followed; and (3) there was sufficient consideration for a contract. A presumption may operate against an
adversary who has not introduced proof to rebut it. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting
evidence to meet the legal presumption or the prima facie case created thereby, and which, if no proof to the contrary is presented and offered, will
prevail. The burden of proof remains where it is, but by the presumption, the one who has that burden is relieved for the time being from introducing
evidence in support of the averment, because the presumption stands in the place of evidence unless rebutted. 46 (Emphasis supplied.)
The rule then is that the party who stands to profit from a declaration of the nullity of a contract on the ground of insufficiency of consideration––
which would necessarily refer to one who asserts such nullity––has the burden of overthrowing the presumption offered by the aforequoted Section
3(r). Obviously then, the presumption contextually operates in favor of Cojuangco and against the Republic, as plaintiff a quo, which then had the
burden to prove that indeed there was no sufficient consideration for the Second Agreement. The Sandiganbayan’s stated observation, therefore,
that based on the wordings of the Second Agreement, Cojuangco had no personal and exclusive option to purchase the FUB shares from Pedro
Cojuangco had really little to commend itself for acceptance. This, as opposed to the fact that such sale and purchase agreement is memorialized in
a notarized document whereby both Eduardo Cojuangco, Jr. and Pedro Cojuangco attested to the correctness of the provisions thereof, among
which was that Eduardo had such option to purchase. A notarized document, Lazaro v. Agustin 47 teaches, "generally carries the evidentiary weight
conferred upon it with respect to its due execution, and documents acknowledged before a notary public have in their favor the disputable
presumption of regularity."
In Samanilla v. Cajucom,48 the Court clarified that the presumption of a valid consideration cannot be discarded on a simple claim of absence of
consideration, especially when the contract itself states that consideration was given:
x x x This presumption appellants cannot overcome by a simple assertion of lack of consideration. Especially may not the presumption be so lightly
set aside when the contract itself states that consideration was given, and the same has been reduced into a public instrument will all due formalities
and solemnities as in this case. (Emphasis ours.)
A perusal of the PCA-Cojuangco Agreement disclosed an express statement of consideration for the transaction:
Page 126 of 134
NOW, THEREFORE, for and in consideration of the foregoing premises and the other terms and conditions hereinafter contained, the parties hereby
declare and affirm that their principal contractual intent is (1) to ensure that the coconut farmers own at least 60% of the outstanding capital stock of
the Bank, and (2) that the SELLER shall receive compensation for exercising his personal and exclusive option to acquire the Option Shares, for
transferring such shares to the coconut farmers at the option price of P200 per share, and for performing the management services required of him
hereunder.
xxxx
4. As compensation for exercising his personal and exclusive option to acquire the Option ShareApplying Samanilla to the case at bar, the express
and positive declaration by the parties of the presence of adequate consideration in the contract makes conclusive the presumption of sufficient
consideration in the PCA Agreement. Moreover, the option to purchase shares and management services for UCPB was already availed of by
petitioner Cojuangco for the benefit of the PCA. The exercise of such right resulted in the execution of the PC-ECJ Agreement, which fact is not
disputed. The document itself is incontrovertible proof and hard evidence that petitioner Cojuangco had the right to purchase the subject FUB (now
UCPB) shares. Res ipsa loquitur.
The Sandiganbayan, however, pointed to the perceived "lack of any pecuniary value or advantage to the government of the said option, which could
compensate for the generous payment to him by PCA of valuable shares of stock, as stipulated in the May 25, 1975 Agreement between him and
the PCA."49
Inadequacy of the consideration, however, does not render a contract void under Article 1355 of the Civil Code:
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or
undue influence. (Emphasis supplied.)
Alsua-Betts v. Court of Appeals50 is instructive that lack of ample consideration does not nullify the contract:
Inadequacy of consideration does not vitiate a contract unless it is proven which in the case at bar was not, that there was fraud, mistake or undue
influence. (Article 1355, New Civil Code). We do not find the stipulated price as so inadequate to shock the court’s conscience, considering that the
price paid was much higher than the assessed value of the subject properties and considering that the sales were effected by a father to her
daughter in which case filial love must be taken into account. (Emphasis supplied.)s and for transferring such shares to the coconut farmers, as well
as for performing the management services required of him, SELLER shall receive equity in the Bank amounting, in the aggregate, to 95,304 fully
paid shares in accordance with the procedure set forth in paragraph 6 below. (Emphasis supplied.)
Vales v. Villa51 elucidates why a bad transaction cannot serve as basis for voiding a contract:
x x x Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-
sided contracts, or annul the effects of foolish acts. x x x Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose
money by them – indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation of
law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it.
(Emphasis ours.)
While one may posit that the PCA-Cojuangco Agreement puts PCA and the coconut farmers at a disadvantage, the facts do not make out a clear
case of violation of any law that will necessitate the recall of said contract. Indeed, the anti-graft court has not put forward any specific stipulation
therein that is at war with any law, or the Constitution, for that matter. It is even clear as day that none of the parties who entered into the two
agreements with petitioner Cojuangco contested nor sought the nullification of said agreements, more particularly the PCA who is always provided
legal advice in said transactions by the Government corporate counsel, and a battery of lawyers and presumably the COA auditor assigned to said
agency. A government agency, like the PCA, stoops down to level of an ordinary citizen when it enters into a private transaction with private
individuals. In this setting, PCA is bound by the law on contracts and is bound to comply with the terms of the PCA-Cojuangco Agreement which is
the law between the parties. With the silence of PCA not to challenge the validity of the PCA-Cojuangco Agreement and the inability of government
to demonstrate the lack of ample consideration in the transaction, the Court is left with no other choice but to uphold the validity of said agreements.
While consideration is usually in the form of money or property, it need not be monetary. This is clear from Article 1350 which reads:
Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other;
in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liability of the benefactor.
(Emphasis supplied.)
Gabriel v. Monte de Piedad y Caja de Ahorros52 tells us of the meaning of consideration:
x x x A consideration, in the legal sense of the word, is some right, interest, benefit, or advantage conferred upon the promisor, to which he is
otherwise not lawfully entitled, or any detriment, prejudice, loss, or disadvantage suffered or undertaken by the promisee other than to such as he is
at the time of consent bound to suffer. (Emphasis Ours.)
The Court rules that the transfer of the subject UCPB shares is clearly supported by valuable consideration.
To justify the nullification of the PCA-Cojuangco Agreement, the Sandiganbayan centered on the alleged imaginary option claimed by petitioner to
buy the FUB shares from the Pedro Cojuangco group. It relied on the phrase "in behalf of certain other buyers" mentioned in the PC-ECJ Agreement
as basis for the finding that petitioner’s option is neither personal nor exclusive. The pertinent portion of said agreement reads:
EDUARDO COJUANGCO, JR., Filipino, of legal age and with residence at 136 9th Street corner Balete Drive, Quezon City, represented in this act
by his duly authorized attorney-in-fact, EDGARDO J. ANGARA, for and in his own behalf and in behalf of certain other buyers, (hereinafter
collectively called the "BUYERS"); x x x.
A plain reading of the aforequoted description of petitioner as a party to the PC-ECJ Agreement reveals that petitioner is not only the buyer. He is the
named buyer and there are other buyers who were unnamed. This is clear from the word "BUYERS." If petitioner is the only buyer, then his
description as a party to the sale would only be "BUYER." It may be true that petitioner intended to include other buyers. The fact remains, however,
that the identities of the unnamed buyers were not revealed up to the present day. While one can conjure or speculate that PCA may be one of the
buyers, the fact that PCA entered into an agreement to purchase the FUB shares with petitioner militates against such conjecture since there would
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be no need at all to enter into the second agreement if PCA was already a buyer of the shares in the first contract. It is only the parties to the PC-
ECJ Agreement that can plausibly shed light on the import of the phrase "certain other buyers" but, unfortunately, petitioner was no longer allowed to
testify on the matter and was precluded from explaining the transactions because of the motion for partial summary judgment and the eventual
promulgation of the July 11, 2003 Partial Summary Judgment.
Even if conceding for the sake of argument that PCA is one of the buyers of the FUB shares in the PC-ECJ Agreement, still it does not necessarily
follow that petitioner had no option to buy said shares from the group of Pedro Cojuangco. In fact, the very execution of the first agreement
undeniably shows that he had the rights or option to buy said shares from the Pedro Cojuangco group. Otherwise, the PC-ECJ Agreement could not
have been consummated and enforced. The conclusion is incontestable that petitioner indeed had the right or option to buy the FUB shares as
buttressed by the execution and enforcement of the very document itself.
We can opt to treat the PC-ECJ Agreement as a totally separate agreement from the PCA-Cojuangco Agreement but it will not detract from the fact
that petitioner actually acquired the rights to the ownership of the FUB shares from the Pedro Cojuangco group. The consequence is he can legally
sell the shares to PCA. In this scenario, he would resell the shares to PCA for a profit and PCA would still end up paying a higher price for the FUB
shares. The "profit" that will accrue to petitioner may just be equal to the value of the shares that were given to petitioner as commission. Still we can
only speculate as to the true intentions of the parties. Without any evidence adduced on this issue, the Court will not venture on any unproven
conclusion or finding which should be avoided in judicial adjudication.
The anti-graft court also inferred from the date of execution of the special power of attorney in favor of now Senator Edgardo J. Angara, which is May
25, 1975, that the PC-ECJ Agreement appears to have been executed on the same day as the PCA-Cojuangco Agreement (dated May 25, 1975).
The coincidence on the dates casts "doubts as to the existence of defendant Cojuangco’s prior ‘personal and exclusive’ option to the FUB shares."
The fact that the execution of the SPA and the PCA-Cojuangco Agreement occurred sequentially on the same day cannot, without more, be the
basis for the conclusion as to the non-existence of the option of petitioner. Such conjecture cannot prevail over the fact that without petitioner
Cojuangco, none of the two agreements in question would have been executed and implemented and the FUB shares could not have been
successfully conveyed to PCA.
Again, only the parties can explain the reasons behind the execution of the two agreements and the SPA on the same day. They were, however,
precluded from elucidating the reasons behind such occurrence. In the absence of such illuminating proof, the proposition that the option does not
exist has no leg to stand on.
More importantly, the fact that the PC-ECJ Agreement was executed not earlier than May 25, 1975 proves that petitioner Cojuangco had an option to
buy the FUB shares prior to that date. Again, it must be emphasized that from its terms, the first Agreement did not create the option.It, however,
proved the exercise of the option by petitioner.
The execution of the PC-ECJ Agreement on the same day as the PCA-Cojuangco Agreement more than satisfies paragraph 2 thereof which
requires petitioner to exercise his option to purchase the FUB shares as promptly as practicable after, and not before, the execution of the second
agreement, thus:
2. As promptly as practicable after execution of this Agreement, the SELLER shall exercise his option to acquire the Option Shares and SELLER
shall immediately thereafter deliver and turn over to the Escrow Agent such stock certificates as are herein provided to be received from the existing
stockholders of the bank by virtue of the exercise on the aforementioned option. The Escrow Agent shall thereupon issue its check in favor of the
SELLER covering the purchase price for the shares delivered. (Emphasis supplied.)
The Sandiganbayan viewed the compensation of petitioner of 14,400 FUB shares as exorbitant. In the absence of proof to the contrary and
considering the absence of any complaint of illegality or fraud from any of the contracting parties, then the presumption that "private transactions
have been fair and regular"53 must apply.
Lastly, respondent interjects the thesis that PCA could not validly enter into a bank management agreement with petitioner since PCA has a
personality separate and distinct from that of FUB. Evidently, it is PCA which has the right to challenge the stipulations on the management contract
as unenforceable. However, PCA chose not to assail said stipulations and instead even complied with and implemented its prestations contained in
said stipulations by installing petitioner as Chairman of UCPB. Thus, PCA has waived and forfeited its right to nullify said stipulations and is now
estopped from questioning the same.
In view of the foregoing, the Court is left with no option but to uphold the validity of the two agreements in question.
IV
COJUANGCO IS NOT ENTITLED TO THE UCPB SHARES WHICH WERE BOUGHT WITH PUBLIC FUNDS AND HENCE, ARE PUBLIC
PROPERTY.
The coconut levy funds were exacted for a
special public purpose. Consequently, any
use or transfer of the funds that directly
benefits private individuals should be
invalidated.
The issue of whether or not taxpayers’ money, or funds and property acquired through the imposition of taxes may be used to benefit a private
individual is once again posed. Preliminarily, the instant case inquires whether the coconut levy funds, and accordingly, the UCPB shares acquired
using the coconut levy funds are public funds. Indeed, the very same issue took center stage, discussed and was directly addressed in COCOFED v.
Republic. And there is hardly any question about the subject funds’ public and special character. The following excerpts from COCOFED v.
Republic,54 citing Republic v. COCOFED and related cases, settle once and for all this core, determinative issue:
Indeed, We have hitherto discussed, the coconut levy was imposed in the exercise of the State’s inherent power of taxation. As We wrote in
Republic v. COCOFED:

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Indeed, coconut levy funds partake of the nature of taxes, which, in general, are enforced proportional contributions from persons and properties,
exacted by the State by virtue of its sovereignty for the support of government and for all public needs.
Based on its definition, a tax has three elements, namely: a) it is an enforced proportional contribution from persons and properties; b) it is imposed
by the State by virtue of its sovereignty; and c) it is levied for the support of the government. The coconut levy funds fall squarely into these elements
for the following reasons:
(a) They were generated by virtue of statutory enactments imposed on the coconut farmers requiring the payment of prescribed amounts. Thus, PD
No. 276, which created the … (CCSF), mandated the following:
"a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other coconut products, shall be imposed on every first sale, in
accordance with the mechanics established under RA 6260, effective at the start of business hours on August 10, 1973.
"The proceeds from the levy shall be deposited with the Philippine National Bank or any other government bank to the account of the Coconut
Consumers Stabilization Fund, as a separate trust fund which shall not form part of the general fund of the government."
The coco levies were further clarified in amendatory laws, specifically PD No. 961 and PD No. 1468 – in this wise:
"The Authority (PCA) is hereby empowered to impose and collect a levy, to be known as the Coconut Consumers Stabilization Fund Levy, on every
one hundred kilos of copra resecada, or its equivalent … delivered to, and/or purchased by, copra exporters, oil millers, desiccators and other end-
users of copra or its equivalent in other coconut products. The levy shall be paid by such copra exporters, oil millers, desiccators and other end-
users of copra or its equivalent in other coconut products under such rules and regulations as the Authority may prescribe. Until otherwise prescribed
by the Authority, the current levy being collected shall be continued."
Like other tax measures, they were not voluntary payments or donations by the people. They were enforced contributions exacted on pain of penal
sanctions, as provided under PD No. 276:
"3. Any person or firm who violates any provision of this Decree or the rules and regulations promulgated thereunder, shall, in addition to penalties
already prescribed under existing administrative and special law, pay a fine of not less than P2, 500 or more than P10,000, or suffer cancellation of
licenses to operate, or both, at the discretion of the Court."
Such penalties were later amended thus: ….
(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative authorities of the State. Indeed, the CCSF was collected
under PD No. 276, …."
(c) They were clearly imposed for a public purpose. There is absolutely no question that they were collected to advance the government’s avowed
policy of protecting the coconut industry.
This Court takes judicial notice of the fact that the coconut industry is one of the great economic pillars of our nation, and coconuts and their
byproducts occupy a leading position among the country’s export products; ….
Taxation is done not merely to raise revenues to support the government, but also to provide means for the rehabilitation and the stabilization of a
threatened industry, which is so affected with public interest as to be within the police power of the State ….
Even if the money is allocated for a special purpose and raised by special means, it is still public in character…. In Cocofed v. PCGG, the Court
observed that certain agencies or enterprises "were organized and financed with revenues derived from coconut levies imposed under a succession
of law of the late dictatorship … with deposed Ferdinand Marcos and his cronies as the suspected authors and chief beneficiaries of the resulting
coconut industry monopoly." The Court continued: "…. It cannot be denied that the coconut industry is one of the major industries supporting the
national economy. It is, therefore, the State’s concern to make it a strong and secure source not only of the livelihood of a significant segment of the
population, but also of export earnings the sustained growth of which is one of the imperatives of economic stability. (Emphasis Ours.)
The following parallel doctrinal lines from Pambansang Koalisyon ng mga Samahang Magsasaka at Manggagawa sa Niyugan (PKSMMN) v.
Executive Secretary55 came next:
The Court was satisfied that the coco-levy funds were raised pursuant to law to support a proper governmental purpose. They were raised with the
use of the police and taxing powers of the State for the benefit of the coconut industry and its farmers in general. The COA reviewed the use of the
funds. The Bureau of Internal Revenue (BIR) treated them as public funds and the very laws governing coconut levies recognize their public
character.
The Court has also recently declared that the coco-levy funds are in the nature of taxes and can only be used for public purpose. Taxes are enforced
proportional contributions from persons and property, levied by the State by virtue of its sovereignty for the support of the government and for all its
public needs. Here, the coco-levy funds were imposed pursuant to law, namely, R.A. 6260 and P.D. 276. The funds were collected and managed by
the PCA, an independent government corporation directly under the President. And, as the respondent public officials pointed out, the pertinent laws
used the term levy, which means to tax, in describing the exaction.
Of course, unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money to boost the government’s general funds but to provide means
for the rehabilitation and stabilization of a threatened industry, the coconut industry, which is so affected with public interest as to be within the police
power of the State. The funds sought to support the coconut industry, one of the main economic backbones of the country, and to secure economic
benefits for the coconut farmers and far workers. The subject laws are akin to the sugar liens imposed by Sec. 7(b) of P.D. 388, and the oil price
stabilization funds under P.D. 1956, as amended by E.O. 137.
From the foregoing, it is at once apparent that any property acquired by means of the coconut levy funds, such as the subject UCPB shares, should
be treated as public funds or public property, subject to the burdens and restrictions attached by law to such property. COCOFED v. Republic,
delved into such limitations, thusly:
We have ruled time and again that taxes are imposed only for a public purpose. "They cannot be used for purely private purposes or for the
exclusive benefit of private persons." When a law imposes taxes or levies from the public, with the intent to give undue benefit or advantage to
private persons, or the promotion of private enterprises, that law cannot be said to satisfy the requirement of public purpose. In Gaston v. Republic
Planters Bank, the petitioning sugar producers, sugarcane planters and millers sought the distribution of the shares of stock of the Republic Planters
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Bank (RPB), alleging that they are the true beneficial owners thereof. In that case, the investment, i.e., the purchase of RPB, was funded by the
deduction of PhP 1.00 per picul from the sugar proceeds of the sugar producers pursuant to P.D. No. 388. In ruling against the petitioners, the Court
held that to rule in their favor would contravene the general principle that revenues received from the imposition of taxes or levies "cannot be used
for purely private purposes or for the exclusive benefit of private persons." The Court amply reasoned that the sugar stabilization fund is to "be
utilized for the benefit of the entire sugar industry, and all its components, stabilization of the domestic market including foreign market, the industry
being of vital importance to the country’s economy and to national interest."
Similarly in this case, the coconut levy funds were sourced from forced exactions decreed under P.D. Nos. 232, 276 and 582, among others, with the
end-goal of developing the entire coconut industry. Clearly, to hold therefore, even by law, that the revenues received from the imposition of the
coconut levies be used purely for private purposes to be owned by private individuals in their private capacity and for their benefit, would contravene
the rationale behind the imposition of taxes or levies.
Needless to stress, courts do not, as they cannot, allow by judicial fiat the conversion of special funds into a private fund for the benefit of private
individuals. In the same vein, We cannot subscribe to the idea of what appears to be an indirect – if not exactly direct – conversion of special funds
into private funds, i.e., by using special funds to purchase shares of stocks, which in turn would be distributed for free to private individuals. Even if
these private individuals belong to, or are a part of the coconut industry, the free distribution of shares of stocks purchased with special public funds
to them, nevertheless cannot be justified. The ratio in Gaston, as articulated below, applies mutatis mutandis to this case:
The stabilization fees in question are levied by the State … for a special purpose – that of "financing the growth and development of the sugar
industry and all its components, stabilization of the domestic market including the foreign market." The fact that the State has taken possession of
moneys pursuant to law is sufficient to constitute them as state funds even though they are held for a special purpose….
That the fees were collected from sugar producers etc., and that the funds were channeled to the purchase of shares of stock in respondent Bank do
not convert the funds into a trust fund for their benefit nor make them the beneficial owners of the shares so purchased. It is but rational that the fees
be collected from them since it is also they who are benefited from the expenditure of the funds derived from it. …. 56
In this case, the coconut levy funds were being exacted from copra exporters, oil millers, desiccators and other end-users of copra or its equivalent in
other coconut products.57 Likewise so, the funds here were channeled to the purchase of the shares of stock in UCPB. Drawing a clear parallelism
between Gaston and this case, the fact that the coconut levy funds were collected from the persons or entities in the coconut industry, among others,
does not and cannot entitle them to be beneficial owners of the subject funds – or more bluntly, owners thereof in their private capacity.
Parenthetically, the said private individuals cannot own the UCPB shares of stocks so purchased using the said special funds of the
government.58 (Emphasis Ours.)
As the coconut levy funds partake of the nature of taxes and can only be used for public purpose, and importantly, for the purpose for which it was
exacted, i.e., the development, rehabilitation and stabilization of the coconut industry, they cannot be used to benefit––whether directly or
indirectly–– private individuals, be it by way of a commission, or as the subject Agreement interestingly words it, compensation. Consequently,
Cojuangco cannot stand to benefit by receiving, in his private capacity, 7.22% of the FUB shares without violating the constitutional caveat that
public funds can only be used for public purpose. Accordingly, the 7.22% FUB (UCPB) shares that were given to Cojuangco shall be returned to the
Government, to be used "only for the benefit of all coconut farmers and for the development of the coconut industry." 59
The ensuing are the underlying rationale for declaring, as unconstitutional, provisions that convert public property into private funds to be used
ultimately for personal benefit:
… not only were the laws unconstitutional for decreeing the distribution of the shares of stock for free to the coconut farmers and therefore negating
the public purposed declared by P.D. No. 276, i.e., to stabilize the price of edible oil and to protect the coconut industry. They likewise reclassified
the coconut levy fund as private fund, to be owned by private individuals in their private capacities, contrary to the original purpose for the creation of
such fund. To compound the situation, the offending provisions effectively removed the coconut levy fund away from the cavil of public funds which
normally can be paid out only pursuant to an appropriation made by law. The conversion of public funds into private assets was illegally allowed, in
fact mandated, by these provisions. Clearly therefore, the pertinent provisions of P.D. Nos. 755, 961 and 1468 are unconstitutional for violating
Article VI, Section 29 (3) of the Constitution. In this context, the distribution by PCA of the UCPB shares purchased by means of the coconut levy
fund – a special fund of the government – to the coconut farmers is, therefore, void. 60
It is precisely for the foregoing that impels the Court to strike down as unconstitutional the provisions of the PCA-Cojuangco Agreement that allow
petitioner Cojuangco to personally and exclusively own public funds or property, the disbursement of which We so greatly protect if only to give light
and meaning to the mandates of the Constitution.
As heretofore amply discussed, taxes are imposed only for a public purpose. 61 They must, therefore, be used for the benefit of the public and not for
the exclusive profit or gain of private persons. 62 Otherwise, grave injustice is inflicted not only upon the Government but most especially upon the
citizenry––the taxpayers––to whom We owe a great deal of accountability.
In this case, out of the 72.2% FUB (now UCPB) shares of stocks PCA purchased using the coconut levy funds, the May 25, 1975 Agreement
between the PCA and Cojuangco provided for the transfer to the latter, by way of compensation, of 10% of the shares subject of the agreement, or a
total of 7.22% fully paid shares. In sum, Cojuangco received public assets – in the form of FUB (UCPB) shares with a value then of ten million eight
hundred eighty-six thousand pesos (PhP 10,886,000) in 1975, paid by coconut levy funds. In effect, Cojuangco received the aforementioned asset
as a result of the PCA-Cojuangco Agreement, and exclusively benefited himself by owning property acquired using solely public funds. Cojuangco,
no less, admitted that the PCA paid, out of the CCSF, the entire acquisition price for the 72.2% option shares. 63 This is in clear violation of the
prohibition, which the Court seeks to uphold.1âwphi1
We, therefore, affirm, on this ground, the decision of the Sandiganbayan nullifying the shares of stock transfer to Cojuangco. Accordingly, the UCPB
shares of stock representing the 7.22% fully paid shares subject of the instant petition, with all dividends declared, paid or issued thereon, as well as
any increments thereto arising from, but not limited to, the exercise of pre-emptive rights, shall be reconveyed to the Government of the Republic of

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the Philippines, which as We previously clarified, shall "be used only for the benefit of all coconut farmers and for the development of the coconut
industry."64
But apart from the stipulation in the PCA-Cojuangco Agreement, more specifically paragraph 4 in relation to paragraph 6 thereof, providing for the
transfer to Cojuangco for the UCPB shares adverted to immediately above, other provisions are valid and shall be enforced, or shall be respected, if
the corresponding prestation had already been performed. Invalid stipulations that are independent of, and divisible from, the rest of the agreement
and which can easily be separated therefrom without doing violence to the manifest intention of the contracting minds do not nullify the entire
contract.65
WHEREFORE, Part C of the appealed Partial Summary Judgment in Sandiganbayan Civil Case No. 0033-A is AFFIRMED with modification. As
MODIFIED, the dispositive portion in Part C of the Sandiganbayan’s Partial Summary Judgment in Civil Case No. 0033-A, shall read as follows:
C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO, JR.) dated September 18, 2002 filed by Plaintiff.
1. Sec. 1 of P.D. No. 755 did not validate the Agreement between PCA and defendant Eduardo M. Cojuangco, Jr. dated May 25, 1975 nor
did it give the Agreement the binding force of a law because of the non-publication of the said Agreement.
2. The Agreement between PCA and defendant Eduardo M. Cojuangco, Jr. dated May 25, 1975 is a valid contract for having the requisite
consideration under Article 1318 of the Civil Code.
3. The transfer by PCA to defendant Eduardo M. Cojuangco, Jr. of 14,400 shares of stock of FUB (later UCPB) from the "Option Shares"
and the additional FUB shares subscribed and paid by PCA, consisting of
a. Fifteen Thousand Eight Hundred Eighty-Four (15,884) shares out of the authorized but unissued shares of the bank,
subscribed and paid by PCA;
b. Sixty Four Thousand Nine Hundred Eighty (64,980) shares of the increased capital stock subscribed and paid by PCA; and
c. Stock dividends declared pursuant to paragraph 5 and paragraph 11 (iv) (d) of the PCA-Cojuangco Agreement dated May 25,
1975. or the so-called "Cojuangco-UCPB shares" is declared unconstitutional, hence null and void. 1âwphi1
4. The above-mentioned shares of stock of the FUB/UCPB transferred to defendant Cojuangco are hereby declared conclusively owned by
the Republic of the Philippines to be used only for the benefit of all coconut farmers and for the development of the coconut industry, and
ordered reconveyed to the Government.
5. The UCPB shares of stock of the alleged fronts, nominees and dummies of defendant Eduardo M. Cojuangco, Jr. which form part of the
72.2% shares of the FUB/UCPB paid for by the PCA with public funds later charged to the coconut levy funds, particularly the CCSF,
belong to the plaintiff Republic of the Philippines as their true and beneficial owner.
Accordingly, the instant petition is hereby DENIED.
Costs against petitioner Cojuangco.
SO ORDERED.

G.R. No. L-60548 November 10, 1986

PHILIPPINE GLOBAL COMMUNICATIONS, INC., petitioner,
vs.
HON. BENJAMIN RELOVA, in his capacity as Presiding Judge, Court of First Instance of Manila, Branch XI, PHILIPPINE TELEGRAPH AND
TELEPHONE CORPORATION, CAPITOL WIRELESS, INC. and RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., respondents.
Franklin M. Drilon for petitioner.
Andres T. Velardo, Dante P. Mercado, Edgardo D. Rivera, Mila T. Federis and Celedonio P. Balasbas for respondents.

FERIA, J.:
In this petition for review on certiorari, the Philippine Global Communications, Inc., seeks to set aside the decision, dated April 27, 1982 rendered by
respondent Judge Benjamin Relova of Branch XI of the then Court of First Instance of Manila in Civil Case No. R-82-37 21 entitled "In the Matter of
the Petition for the Declaratory Judgment Regarding the Construction of the R.A. Nos. 4617 and 4630," the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered declaring respondent Philippine Global Communications, Inc., without authority to
establish, maintain and operate, apart from its single principal station in Makati, any other branch or station within the Philippines.
In view of the foregoing resolution on the main petition, the counterclaim interposed by respondent must be, as it is hereby,
DISMISSED.
At this juncture, it may not be amiss to invite attention to our decision in the case of Metropolitan Waterworks and Sewerage System vs. The Court of
Appeals and City of Dagupan, G.R. No. L-54526 promulgated on August 25, 1986, which pointed out the common error of joining the court or judge
who rendered the decision appealed from as a party respondent in an appeal by certiorari to this Court under Rule 45 of the Rules of Court; when
correctly the only parties in an appeal by certiorari are the appellant as petitioner and the appellee as respondent: and it is in the special civil action
of certiorari under Section 5 of Rule 65 of the Rules of Court where the court or judge is required to be joined as a party defendant or respondent.
The antecedent facts in this case are briefly as follows:
On May 10, 1976, petitioner filed with the Board of Communications (BOC), now the National Telecommunications Commission, an application for
authority to establish a branch station in Cebu City for the purpose of rendering international telecommunication services from Cebu City to any point
outside the Philippines where it is authorized to operate. Said application was opposed by private respondents.
Meanwhile, on March 24, 1977, while petitioner's application was pending, the BOC issued Memorandum Circular No. 77-13 designating the
Metropolitan Manila area as the sole gateway" (point of entrance into or exit from) for communications in the Philippines and defining what
constitutes "domestic record operations.

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On January 16, 1979, the BOC granted petitioner provisional authority to establish a station in Cebu City "subject to the condition that as soon as
domestic carriers shall have upgraded their facilities, applicant shall cease its operation and interface with domestic carriers. " Then, on May 24,
1979, the BOC granted petitioner final authority to establish a "branch/station" in Cebu City and, subject to its prior approval, anywhere in the
Philippines. Respondents filed a joint motion for reconsideration of said decision.
On August 27, 1979, pending resolution of the joint motion for reconsideration, private respondents filed with the lower court a petition for declaratory
judgment regarding the proper construction of petitioner's franchise, R.A. No. 4617. Petitioner moved to dismiss the petition but said motion was
denied. Petitioner then assailed the aforesaid order on the ground of lack of jurisdiction, but this Court sustained the lower court and held that the suit
for declaratory relief fell within the competence of the Judiciary and did not require prior action by the administrative agency concerned under the
concept of primary jurisdiction. (G.R. No. L-52819, October 2, 1980, 100 SCRA 254)
After the issues were joined, the parties at the pre-trial conference agreed to submit the case for decision on the bases of their respective pleadings
and memoranda because the issues involved are legal. On April 27, 1982, the lower court rendered the judgment above quoted. Hence, this petition.
The legal issues raised in this petition are as follows: (1) Whether or not petitioner is authorized under its legislative franchise, Republic Act No.
4617, to establish stations or substations in places or points outside Metropolitan Manila; and (2) Whether or not the establishment of such stations
or substations constitutes "domestic service" within the terms of petitioner's legislative franchise.
In its Second Supplemental Memorandum filed on July 16, 1984, petitioner belatedly claims that the declaratory judgment was improperly made, as it
was based on the pleadings alone, although the declaratory relief petition presented genuine issues of fact that required trial. Considering, however,
the above-stated agreement of the parties to submit the case for decision on the basis of their respective pleadings and memoranda (petitioner's
brief, p. 14 and respondents' brief, p. 12), the lower court could not be faulted for rendering judgment accordingly.
However, we rule that the lower court erred in rendering the decision appealed from, inasmuch as the same is contrary to the provisions of
petitioner's legislative franchise (R.A. No. 4617) as well as the contemporaneous construction placed upon it by the governmental agency charged
with its enforcement and the opinion of the former Secretary of Justice.
Section 1 of petitioner's franchise provides:
Section 1. — There is hereby granted to the RCA Communications Inc., hereinafter referred to as the Grantee, the right and the
privelege of constructing, maintaining and operating communications system by radio wire, satellites, and other means now
known to science or which in the future may be developed for the reception and transmission of messages between any point in
the Philippines to points exterior thereto, including airplanes, airships or vessels even though such airplanes, airships or vessels,
may be located within the territorial limits of the Philippines.
RCA Communications, Inc. was subsequently renamed Philippine Global Communications, Inc., herein petitioner.
It is always timely to reiterate that: "the first and fundamental duty of courts, in our judgment, is to apply the law. Construction and interpretation
come only after it has been demonstrated that application is impossible or inadequate without them. "(Lizarraga Hermanos vs. Yap Tico, 24 Phil.
504, 513; Republic Flour Mills, Inc. vs. Commissioner of Customs, 39 SCRA 269)
Moreover, legislative intent must be ascertained from a consideration of the statute as a whole. As the Court reiterated in the case of  Aisporna vs.
Court of Appeals:
... The particular words, clauses and phrases should not be studied as detached and isolated expressions, but the whole and
every part of the statute must be considered in fixing the meaning of any of its parts and in order to produce harmonious whole.
(Araneta vs. Concepcion, 99 Phil. 709; Tamayo vs. Gsell, 35 Phil. 953; Lopez vs. El Hogar Filipino, 47 Phil. 249; Chartered Bank
vs. Imperial, 48 Phil 931) A statute must be so construed as to harmonize and give effect to all its provisions whenever possible.
(People vs. Polmon, 86 Phil; 350) (113 SCRA 459,466; April 12, 1982)
The lower court held that the word "any" in the abovequoted Section 1 of the law means a single point within the Philippines where petitioner at its
choice, subject to approval by the proper governmental agency, can establish and maintain a reception and communication station or system. It also
held that the establishment, maintenance and operation of franchise or stations anywhere in the Philippines or even within Metropolitan Manila
outside or apart from petitioner's principal or main station in Makati constitute "domestic communication service" in violation of Section 17 of said law.
However, a reading of other sections of the law aside from Sections 1 and 17 cited by the lower court would lead to no other conclusion than that
said law authorizes petitioner to construct, maintain and operate, apart from its principal station in Makati, other stations or branches within the
Philippines for purposes of its international communications operations.
Section 3 of the law provides that "for the purpose of carrying out the privilege granted herein, the grantee may establish  stations in such places in
the Philippines as the grantee may select and the Secretary of Public Works and Communications may approve.
Section 4 (a) provides that "the Secretary of Public Works and Communications shall have the power to allot to the grantee the frequencies and
wave lengths to be used thereunder and determine the stations  to and from which each such frequency and wave lengths may be used, and issue to
the grantee a license for such use. "
Section 6 provides that "a special right is reserved to the Government of the Republic of the Philippines, in time of war, insurrection, or domestic
trouble, to take over and operate the said stations upon the order and direction of any authorized department of the Government of the Philippines,
such department to compensate the grantee for the use of said stations during the period when they shall be so operated by the said Government. "
Section 9 provides that "the grantee shall hold the national, provincial,  and municipal  governments of the Philippines, harmless from all claims,
accounts, demands, or actions arising out of accidents or injuries, whether the property or to persons, caused by the construction or operation of
the stations of the grantee."
With respect to the principle of contemporaneous construction of a statute by the executive officers of the government whose duty it is to execute it, it
is well to reiterate that:
... As far back as In re Allen, (2 Phil. 630) a 1903 decision, Justice McDonough, as ponente, cited this excerpt from the leading
American case of Pennoyer v. McConnaughy, decided in 1891: "The principle that the contemporaneous construction of a
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 statute by the executive officers of the government, whose duty it is to execute it, is entitled to great respect, and should
ordinarily control the construction of the statute by the courts, is so firmly embedded in our jurisprudence that no authorities need
be cited to support it.' ( Ibid, 640. Pennoyer v. McConnaughly is cited in 140 US 1. The excerpt is on p. 23 thereof. Cf.
Government v. Municipality of Binalonan, 32 Phil, 634 [1915]) There was a paraphrase by Justice Malcolm of such a
pronouncement in Molina v. Rafferty, (37 Phil. 545) a 1918 decision:" Courts will and should respect the contemporaneous
construction placed upon a statute by the executive officers whose duty it is to enforce it, and unless such interpretation is clearly
erroneous will ordinarily be controlled thereby. ( Ibid, 555) Since then, such a doctrine has been reiterated in numerous decisions.
(Cases cited) (Philippine Association of Free Labor Unions [PAFLU] vs. Bureau of Labor Relations, August 21, 1976, 72 SCRA
396, 402)
In its decision of May 24, 1979 granting petitioner final authority to establish a branch/station in Cebu City, the BOC construed the legislative
franchise of petitioner, as follows:
It was the earlier contention of this Board when it issued Memorandum Circular No. 77-13 (See incl. 1 of said Circular) that no
international record carrier could establish stations in any point of the country, for purposes of carrying out its international record
operations except in Metropolitan Manila Area. However, a careful review and deliberation on the stand taken by the applicant
herein as discussed in position paper it submitted to the Board on February 21, 1978 and a cursory review of the individual
franchises of each international carrier as well as of an earlier opinion expressed by the Secretary of Justice to the Chairman of
the defunct Radio Control Board has convinced the board that by virtue of applicant's franchise, Memorandum Circular No. 77-13
is not violated by authorizing applicant to establish a branch station in Cebu City solely for its international record operations. In
view thereof and in the interest of continued efficient, adequate and satisfactory services, the Board of Communications hereby
makes final the provisional authority granted to applicant herein on January 16, 1979 not only on the grounds stated in said
Order but also for reasons that subject to the approval of this Board, applicant may establish branch stations in any point within
the country for the purpose of receiving and transmitting messages to countries outside the Philippines where it is authorized to
render international telecommunications services in accordance with its franchise and Memorandum Circular No. 77-13.
Metropolitan Manila remains to be the 'sole' gateway; hence, all messages received and transmitted in the course of a carrier's
international record carrier operation, must be coursed through said gateway.
The earlier opinion of the Secretary of Justice referred to in said decision was the opinion rendered by Secretary of Justice Pedro Tuason on June
17, 1954 (Opinion No. 146), on the interpretation to be given to the clause found in Section 1 of the original franchise granted to the predecessor-in-
interest of Globe-Mackay Cable and Radio Corporation (Act No. 3495 approved on December 8, 1928, as amended by Act No. 3692 and Republic
Act No. 4630). Globe-Mackay Cable and Radio Corporation was originally one of the respondents in the Petition for Declaratory Judgment, but it was
subsequently dropped as a party respondent. The clause in question reads:
The sending of commercial wireless telegraphic messages from points within the Philippine Islands to points exterior thereto,
including airplanes, airships, and vessels, even though such airplanes, airships, or vessels be located within the territorial limits
of the Philippine Islands, and the receiving of commercial wireless messages from such exterior points.
This clause is similar to that found in Section 1 of Republic Act No. 4630, approved on June 19, 1965, which is Identical to Section 1 of Republic Act
No. 4617 except as to the name of the grantee.
The opinion of the Secretary of Justice states:
... In Opinion No. 76 the view taken was that a message, to fall within the purview of the franchise, once sent by a transmitter
within the Philippines, cannot be received by any station within the Philippines even for the purpose of retransmitting such
message to points outside the Philippines. I believe that the interpretation given to the above-quoted clause was too strict and
does not conform with the spirit of said provision. I take the view that the franchise has reference to the destination of the
message and not to the manner of transmittal. Not as to whether it should be sent to the point of destination directly or through
relays. The reservation in favor of the Philippine Government under section 4 of the franchise of "all wire- less communications
between points of stations within the Philippine Islands' is clearly intended to refer only to domestic communications.
It should be understood, however, that no extra fees or tolls could be collected for the transmittal of messages from a relay
station to the principal station in Manila. For to do so would make it a domestic service and would bring such service in
competition with the domestic radio and telegraph service of the Bureau of Posts.
The above-quoted opinion was reiterated and reaffirmed by the Undersecretary of Justice on November 28, 1973, in answer to the query of the
Acting Chairman of the Foreign Trade Zone Authority as to whether or not Globe-Mackay Cable and Radio Corporation is "authorized under its
franchise to set a relay station inside the Foreign Trade Zone in Mariveles, Bataan, which will receive interstate communications for onward
transmission by its main station in Manila.
The above-stated opinions of the Secretary of Justice and Undersecretary of Justice are material because Republic Acts Nos. 4630 and 4617 are
in pari materia. As the Court has reiterated:
Statutes are said to be in pari materia when they relate to the same person or thing, or to the same class of persons or things, or
have the same purpose or object. (Sutherland Statutory Construction, Vol. 11, pp. 535-536) When statutes are in  pari materia;
the rule of statutory construction dictates that they should be construed together. (Black on Interpretation of Laws, Sec. 106) ...
(City of Naga vs. Agna, May 31, 1976, 71 SCRA 176, 184)
Finally, on October 25, 1983, the National Telecommunications Commission, with the approval of the Ministry of Transportation and
Communications, issued Memorandum Circular No. 08-8-83 which adopted guidelines in the implementation of the government policy of designating
Metropolitan Manila as the international gateway for purposes of domestic and international communications opera- tions. Among the provisions of
said Memorandum Circular which are pertinent to the case at bar are the following:
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 1.1. The International Record Carriers (IRCs) shall continue to own, construct and expand, as may be required by the service,
their own stations, inside plant, branches and terminals within the Metro Manila Area necessary for them to conduct their
business of providing international telecommunications service in the country in accordance with their respective franchise and
as authorized by the appropriate government regulatory agency.
xxx xxx xxx
2.1 The IRCs shall not maintain public offices outside the gateway. They may, however, be allowed to establish customer
terminals with the necessary marketing and technical support outside Metro Manila. ...
xxx xxx xxx
2.3. International telecommunications requirements of non- equipped or walk-in customers shall be served thru the public offices
of the domestic record carrier/s (DRCs). All existing public offices of IRCs may continue operating until such time as the DRC(s)
can provide the facilities required by the IRCs or an Interconnect Agree- ment between the IRC(s) and DRC(s) shall have been
duly approved by NTC.
The last-quoted provision confirms that the existing public offices of International Record Carriers were duly authorized by their respective legislative
franchises.
WHEREFORE, the decision appealed from is reversed and judgment is hereby rendered declaring petitioner with authority to establish, maintain and
operate, in accordance with its franchise and Memorandum Circular No. 08-8-83, any other branch or station within the Philippines apart from its
single principal station in Makati, Metro Manila.
SO ORDERED.

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