QUASI-LEGISLATIVE POWER:

G.R. No. 151908            August 12, 2003

SMART COMMUNICATIONS, INC. (SMART) and PILIPINO TELEPHONE CORPORATION

(PILTEL), petitioners,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION (NTC), respondent.

x---------------------------------------------------------x

G.R. No. 152063 August 12, 2003

GLOBE TELECOM, INC. (GLOBE) and ISLA COMMUNICATIONS CO., INC.

(ISLACOM), petitioners,
vs.
COURT OF APPEALS (The Former 6th Division) and the NATIONAL TELECOMMUNICATIONS
COMMISSION, respondents.

YNARES-SANTIAGO, J.:

Pursuant to its rule-making and regulatory powers, the National Telecommunications Commission
(NTC) issued on June 16, 2000 Memorandum Circular No. 13-6-2000, promulgating rules and
regulations on the billing of telecommunications services. Among its pertinent provisions are the
following:

(1) The billing statements shall be received by the subscriber of the telephone service not
later than 30 days from the end of each billing cycle. In case the statement is received
beyond this period, the subscriber shall have a specified grace period within which to pay the
bill and the public telecommunications entity (PTEs) shall not be allowed to disconnect the
service within the grace period.

(2) There shall be no charge for calls that are diverted to a voice mailbox, voice prompt,
recorded message or similar facility excluding the customer's own equipment.

(3) PTEs shall verify the identification and address of each purchaser of prepaid SIM cards.
Prepaid call cards and SIM cards shall be valid for at least 2 years from the date of first use.
Holders of prepaid SIM cards shall be given 45 days from the date the prepaid SIM card is
fully consumed but not beyond 2 years and 45 days from date of first use to replenish the
SIM card, otherwise the SIM card shall be rendered invalid. The validity of an invalid SIM
card, however, shall be installed upon request of the customer at no additional charge
except the presentation of a valid prepaid call card.

(4) Subscribers shall be updated of the remaining value of their cards before the start of
every call using the cards.

(5) The unit of billing for the cellular mobile telephone service whether postpaid or prepaid
shall be reduced from 1 minute per pulse to 6 seconds per pulse. The authorized rates per
minute shall thus be divided by 10.1
The Memorandum Circular provided that it shall take effect 15 days after its publication in a
newspaper of general circulation and three certified true copies thereof furnished the UP Law
Center. It was published in the newspaper, The Philippine Star, on June 22, 2000.2 Meanwhile, the
provisions of the Memorandum Circular pertaining to the sale and use of prepaid cards and the unit
of billing for cellular mobile telephone service took effect 90 days from the effectivity of the
Memorandum Circular.

On August 30, 2000, the NTC issued a Memorandum to all cellular mobile telephone service
(CMTS) operators which contained measures to minimize if not totally eliminate the incidence of
stealing of cellular phone units. The Memorandum directed CMTS operators to:

a. strictly comply with Section B(1) of MC 13-6-2000 requiring the presentation and
verification of the identity and addresses of prepaid SIM card customers;

b. require all your respective prepaid SIM cards dealers to comply with Section B(1) of MC
13-6-2000;

c. deny acceptance to your respective networks prepaid and/or postpaid customers using
stolen cellphone units or cellphone units registered to somebody other than the applicant
when properly informed of all information relative to the stolen cellphone units;

d. share all necessary information of stolen cellphone units to all other CMTS operators in
order to prevent the use of stolen cellphone units; and

e. require all your existing prepaid SIM card customers to register and present valid
identification cards.3

This was followed by another Memorandum dated October 6, 2000 addressed to all public
telecommunications entities, which reads:

This is to remind you that the validity of all prepaid cards sold on 07 October 2000 and
beyond shall be valid for at least two (2) years from date of first use pursuant to MC 13-6-
2000.

In addition, all CMTS operators are reminded that all SIM packs used by subscribers of
prepaid cards sold on 07 October 2000 and beyond shall be valid for at least two (2) years
from date of first use. Also, the billing unit shall be on a six (6) seconds pulse effective 07
October 2000.

For strict compliance.4

On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino Telephone Corporation
filed against the National Telecommunications Commission, Commissioner Joseph A. Santiago,
Deputy Commissioner Aurelio M. Umali and Deputy Commissioner Nestor C. Dacanay, an action for
declaration of nullity of NTC Memorandum Circular No. 13-6-2000 (the Billing Circular) and the NTC
Memorandum dated October 6, 2000, with prayer for the issuance of a writ of preliminary injunction
and temporary restraining order. The complaint was docketed as Civil Case No. Q-00-42221 at the
Regional Trial Court of Quezon City, Branch 77.5

Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction to regulate the sale
of consumer goods such as the prepaid call cards since such jurisdiction belongs to the Department
of Trade and Industry under the Consumer Act of the Philippines; that the Billing Circular is
oppressive, confiscatory and violative of the constitutional prohibition against deprivation of property
without due process of law; that the Circular will result in the impairment of the viability of the prepaid
cellular service by unduly prolonging the validity and expiration of the prepaid SIM and call cards;
and that the requirements of identification of prepaid card buyers and call balance announcement
are unreasonable. Hence, they prayed that the Billing Circular be declared null and void ab initio.

Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc. filed a joint Motion
for Leave to Intervene and to Admit Complaint-in-Intervention.6 This was granted by the trial court.

On October 27, 2000, the trial court issued a temporary restraining order enjoining the NTC from
implementing Memorandum Circular No. 13-6-2000 and the Memorandum dated October 6, 2000.7

In the meantime, respondent NTC and its co-defendants filed a motion to dismiss the case on the
ground of petitioners' failure to exhaust administrative remedies.

Subsequently, after hearing petitioners' application for preliminary injunction as well as respondent's
motion to dismiss, the trial court issued on November 20, 2000 an Order, the dispositive portion of
which reads:

WHEREFORE, premises considered, the defendants' motion to dismiss is hereby denied for
lack of merit. The plaintiffs' application for the issuance of a writ of preliminary injunction is
hereby granted. Accordingly, the defendants are hereby enjoined from implementing NTC
Memorandum Circular 13-6-2000 and the NTC Memorandum, dated October 6, 2000,
pending the issuance and finality of the decision in this case. The plaintiffs and intervenors
are, however, required to file a bond in the sum of FIVE HUNDRED THOUSAND PESOS
(P500,000.00), Philippine currency.

SO ORDERED.8

Defendants filed a motion for reconsideration, which was denied in an Order dated February 1,
2001.9

Respondent NTC thus filed a special civil action for certiorari and prohibition with the Court of
Appeals, which was docketed as CA-G.R. SP. No. 64274. On October 9, 2001, a decision was
rendered, the decretal portion of which reads:

WHEREFORE, premises considered, the instant petition for certiorari and prohibition is
GRANTED, in that, the order of the court a quo denying the petitioner's motion to dismiss as
well as the order of the court a quo granting the private respondents' prayer for a writ of
preliminary injunction, and the writ of preliminary injunction issued thereby, are hereby
ANNULLED and SET ASIDE. The private respondents' complaint and complaint-in-
intervention below are hereby DISMISSED, without prejudice to the referral of the private
respondents' grievances and disputes on the assailed issuances of the NTC with the said
agency.

SO ORDERED.10

Petitioners' motions for reconsideration were denied in a Resolution dated January 10, 2002 for lack
of merit.11
Hence, the instant petition for review filed by Smart and Piltel, which was docketed as G.R. No.
151908, anchored on the following grounds:

A.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE

NATIONAL TELECOMMUNICATIONS COMMISSION (NTC) AND NOT THE REGULAR
COURTS HAS JURISDICTION OVER THE CASE.

B.

THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN HOLDING THAT

THE PRIVATE RESPONDENTS FAILED TO EXHAUST AN AVAILABLE ADMINISTRATIVE
REMEDY.

C.

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BILLING
CIRCULAR ISSUED BY THE RESPONDENT NTC IS UNCONSTITUTIONAL AND
CONTRARY TO LAW AND PUBLIC POLICY.

D.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE

RESPONDENTS FAILED TO SHOW THEIR CLEAR POSITIVE RIGHT TO WARRANT THE
ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION.12

Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No. 152063, assigning the
following errors:

1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE

DOCTRINES OF PRIMARY JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE
REMEDIES DO NOT APPLY SINCE THE INSTANT CASE IS FOR LEGAL NULLIFICATION
(BECAUSE OF LEGAL INFIRMITIES AND VIOLATIONS OF LAW) OF A PURELY
ADMINISTRATIVE REGULATION PROMULGATED BY AN AGENCY IN THE EXERCISE
OF ITS RULE MAKING POWERS AND INVOLVES ONLY QUESTIONS OF LAW.

2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE

DOCTRINE ON EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY
WHEN THE QUESTIONS RAISED ARE PURELY LEGAL QUESTIONS.

3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE

DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY
WHERE THE ADMINISTRATIVE ACTION IS COMPLETE AND EFFECTIVE, WHEN
THERE IS NO OTHER REMEDY, AND THE PETITIONER STANDS TO SUFFER GRAVE
AND IRREPARABLE INJURY.

4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE

PETITIONERS IN FACT EXHAUSTED ALL ADMINISTRATIVE REMEDIES AVAILABLE TO
THEM.
 5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN ISSUING ITS
QUESTIONED RULINGS IN THIS CASE BECAUSE GLOBE AND ISLA HAVE A CLEAR
RIGHT TO AN INJUNCTION.13

The two petitions were consolidated in a Resolution dated February 17, 2003.14

On March 24, 2003, the petitions were given due course and the parties were required to submit
their respective memoranda.15

We find merit in the petitions.

Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial or

administrative adjudicatory powers. Quasi-legislative or rule-making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the granting
statute and the doctrine of non-delegability and separability of powers.16

The rules and regulations that administrative agencies promulgate, which are the product of a
delegated legislative power to create new and additional legal provisions that have the effect of law,
should be within the scope of the statutory authority granted by the legislature to the administrative
agency. It is required that the regulation be germane to the objects and purposes of the law, and be
not in contradiction to, but in conformity with, the standards prescribed by law.17 They must conform
to and be consistent with the provisions of the enabling statute in order for such rule or regulation to
be valid. Constitutional and statutory provisions control with respect to what rules and regulations
may be promulgated by an administrative body, as well as with respect to what fields are subject to
regulation by it. It may not make rules and regulations which are inconsistent with the provisions of
the Constitution or a statute, particularly the statute it is administering or which created it, or which
are in derogation of, or defeat, the purpose of a statute. In case of conflict between a statute and an
administrative order, the former must prevail.18

Not to be confused with the quasi-legislative or rule-making power of an administrative agency is its
quasi-judicial or administrative adjudicatory power. This is the power to hear and determine
questions of fact to which the legislative policy is to apply and to decide in accordance with the
standards laid down by the law itself in enforcing and administering the same law. The administrative
body exercises its quasi-judicial power when it performs in a judicial manner an act which is
essentially of an executive or administrative nature, where the power to act in such manner is
incidental to or reasonably necessary for the performance of the executive or administrative duty
entrusted to it. In carrying out their quasi-judicial functions, the administrative officers or bodies are
required to investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and
draw conclusions from them as basis for their official action and exercise of discretion in a judicial
nature.19

In questioning the validity or constitutionality of a rule or regulation issued by an administrative

agency, a party need not exhaust administrative remedies before going to court. This principle
applies only where the act of the administrative agency concerned was performed pursuant to its
quasi-judicial function, and not when the assailed act pertained to its rule-making or quasi-legislative
power. In Association of Philippine Coconut Dessicators v. Philippine Coconut Authority,20 it was
held:

The rule of requiring exhaustion of administrative remedies before a party may seek judicial review,
so strenuously urged by the Solicitor General on behalf of respondent, has obviously no application
here. The resolution in question was issued by the PCA in the exercise of its rule- making or
legislative power. However, only judicial review of decisions of administrative agencies made in the
exercise of their quasi-judicial function is subject to the exhaustion doctrine.

Even assuming arguendo that the principle of exhaustion of administrative remedies apply in this
case, the records reveal that petitioners sufficiently complied with this requirement. Even during the
drafting and deliberation stages leading to the issuance of Memorandum Circular No. 13-6-2000,
petitioners were able to register their protests to the proposed billing guidelines. They submitted their
respective position papers setting forth their objections and submitting proposed schemes for the
billing circular.21 After the same was issued, petitioners wrote successive letters dated July 3,
200022 and July 5, 2000,23 asking for the suspension and reconsideration of the so-called Billing
Circular. These letters were not acted upon until October 6, 2000, when respondent NTC issued the
second assailed Memorandum implementing certain provisions of the Billing Circular. This was
taken by petitioners as a clear denial of the requests contained in their previous letters, thus
prompting them to seek judicial relief.

In like manner, the doctrine of primary jurisdiction applies only where the administrative agency
exercises its quasi-judicial or adjudicatory function. Thus, in cases involving specialized disputes, the
practice has been to refer the same to an administrative agency of special competence pursuant to
the doctrine of primary jurisdiction. The courts will not determine a controversy involving a question
which is within the jurisdiction of the administrative tribunal prior to the resolution of that question by
the administrative tribunal, where the question demands the exercise of sound administrative
discretion requiring the special knowledge, experience and services of the administrative tribunal to
determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply with
the premises of the regulatory statute administered. The objective of the doctrine of primary
jurisdiction is to guide a court in determining whether it should refrain from exercising its jurisdiction
until after an administrative agency has determined some question or some aspect of some question
arising in the proceeding before the court. It applies where the claim is originally cognizable in the
courts and comes into play whenever enforcement of the claim requires the resolution of issues
which, under a regulatory scheme, has been placed within the special competence of an
administrative body; in such case, the judicial process is suspended pending referral of such issues
to the administrative body for its view.24

However, where what is assailed is the validity or constitutionality of a rule or regulation issued by
the administrative agency in the performance of its quasi-legislative function, the regular courts have
jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules
issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of
the regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare
a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance,
or regulation in the courts, including the regional trial courts.25 This is within the scope of judicial
power, which includes the authority of the courts to determine in an appropriate action the validity of
the acts of the political departments.26 Judicial power includes the duty of the courts of justice to
settle actual controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government.27

In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-2000 and its
Memorandum dated October 6, 2000 was pursuant to its quasi-legislative or rule-making power. As
such, petitioners were justified in invoking the judicial power of the Regional Trial Court to assail the
constitutionality and validity of the said issuances. In Drilon v. Lim,28 it was held:

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of
Section 187, this authority being embraced in the general definition of the judicial power to
 determine what are the valid and binding laws by the criterion of their conformity to the
fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all
civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as
the accused in a criminal action has the right to question in his defense the constitutionality
of a law he is charged with violating and of the proceedings taken against him, particularly as
they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests
in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in
all cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or
regulation is in question.29

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

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

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

SO ORDERED.

Davide, Jr., C.J., Vitug, and Carpio, JJ., concur.

Azcuna, J., took no part.

SMART COMMUNICATIONS v. NATIONAL TELECOMMUNICATIONS COMMISSION, GR

No. 151908, 2003-08-12
Facts:
National Telecommunications Commission (NTC) issued on June 16, 2000 Memorandum
Circular No. 13-6-2000... rules and regulations on the billing of telecommunications
services... billing statements shall be received by the subscriber of the telephone service
not later than 30 days from the end of each billing cycle. In case the statement is received
beyond this period, the subscriber shall have a specified grace period within which to... pay
the bill and the public telecommunications entity (PTEs) shall not be allowed to disconnect
the service within the grace period
August 30, 2000, the NTC issued a Memorandum to all cellular mobile telephone service
(CMTS) operators which contained measures to minimize if not totally eliminate the
incidence of stealing of cellular phone units... strictly comply with Section B(1) of MC 13-6-
2000 requiring the presentation and verification of the identity and addresses of prepaid SIM
card customers;... another Memorandum dated October 6, 2000 addressed to all public
telecommunications entities... validity of all prepaid cards sold on 07 October 2000 and
beyond shall be valid for at least two (2) years from date of first use... petitioners Isla
Communications Co., Inc. and Pilipino Telephone Corporation filed against the National
Telecommunications Commission,... an action... for declaration of nullity of NTC
Memorandum Circular No. 13-6-2000 (the Billing Circular) and the NTC Memorandum
dated October 6, 2000
Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction to regulate
the sale of consumer goods such as the prepaid call cards since such jurisdiction belongs to
the Department of Trade and Industry under the Consumer Act of the Philippines;... that the
Billing Circular is oppressive, confiscatory and violative of the constitutional prohibition
against deprivation of property without due process of law;... that the Circular will result in
the impairment of the viability of the prepaid cellular service by unduly prolonging... the
validity and expiration of the prepaid SIM and call cards; and that the requirements of
identification of prepaid card buyers and call balance announcement are unreasonable.
Hence, they prayed that the Billing Circular be declared null and void ab initio.
Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc. filed a
joint Motion for Leave to Intervene... the trial court issued a temporary restraining order
enjoining the NTC from implementing Memorandum Circular No. 13-6-2000 and the
Memorandum dated October 6, 2000.
respondent NTC and its co-defendants filed a motion to dismiss the case on the ground of
petitioners' failure to exhaust administrative remedies.
Respondent NTC thus filed a special civil action for certiorari and prohibition with the Court
of Appeals... decision was rendered, the decretal portion of which reads:
WHEREFORE, premises considered, the instant petition for certiorari and prohibition is
GRANTED
Hence, the instant petition for review
Issues:
BILLING CIRCULAR ISSUED BY THE RESPONDENT NTC IS UNCONSTITUTIONAL
AND CONTRARY TO LAW AND PUBLIC POLICY.
Ruling:
We find merit in the petitions.
Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial
or administrative adjudicatory powers
Quasi-legislative or rule-making power is the power to make rules and regulations which
results in delegated legislation that is within the confines... of the granting statute and the
doctrine of non-delegability and separability of powers
The rules and regulations that administrative agencies promulgate, which are the product of
a delegated legislative power to create new and additional legal provisions that have the
effect of law, should be within the scope of the statutory authority granted by the
legislature... to the administrative agency.
It is required that the regulation be germane to the objects and purposes of the law, and be
not in contradiction to, but in conformity with, the standards prescribed by law.
They must conform to and be consistent with the... provisions of the enabling statute in
order for such rule or regulation to be valid
It may not make rules and regulations which are inconsistent with the provisions of the
Constitution or a statute, particularly the statute it is administering or which created it, or
which are in derogation of, or defeat, the purpose of a statute. In case of... conflict between
a statute and an administrative order, the former must prevail.
Not to be confused with the quasi-legislative or rule-making power of an administrative
agency is its quasi-judicial or administrative adjudicatory power.
The administrative body exercises its quasi-judicial power when it performs in a judicial
manner an act which is essentially of an executive or administrative nature, where the...
power to act in such manner is incidental to or reasonably necessary for the performance of
the executive or administrative duty entrusted to it... weigh evidence, and draw conclusions
from them as basis for their official action and exercise of discretion in a judicial nature.
The determination of whether a... specific rule or set of rules issued by an administrative
agency contravenes the law or the constitution is within the jurisdiction of the regular courts
In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-2000 and its
Memorandum dated October 6, 2000 was pursuant to its quasi-legislative or rule-making
power.
petitioners averred that the Circular contravened Civil Code provisions on sales and violated
the constitutional prohibition against the deprivation of property without due process of law.
These are within the competence of the... trial judge
Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case No. Q-00-
42221.
WHEREFORE, in view of the foregoing, the consolidated petitions are GRANTED. The
decision of the Court of Appeals in CA-G.R. SP No. 64274 dated October 9, 2001 and its
Resolution dated January 10, 2002 are REVERSED and SET ASIDE
G.R. No. 217872

ALLIANCE FOR THE FAMILY FOUNDATION, PHILIPPINES, INC. (ALFI) and ATTY. MARIA
CONCEPCION S. NOCHE, in her own behalf and as President of ALFI, JOSE S. SANDEJAS,
ROSIE B. LUISTRO, ELENITA S.A. SANDEJAS, EMILY R. LAWS, EILEEN Z. ARANETA, SALV
ACION C. MONTEIRO, MARIETTA C. GORREZ, ROLANDO M. BAUTISTA, RUBEN T. UMALI,
and MILDRED C. CASTOR , Petitioners
vs.
HON. JANETTE L. GARIN, Secretary-Designate of the Department of Health; NICOLAS
B.LUTERO III, Assistant Secretary of Health, Officer-in-Charge, Food and Drug
Administration; and MARIA LOURDES C. SANTIAGO, Officer in-Charge, Center for Drug
Regulation and Research, Respondents

x-----------------------x

G.R. No. 221866

MARIA CONCEPCION S. NOCHE, in her own behalf and as counsel of Petitioners, JOSE S.
SANDEJAS, ROSIE B. LUISTRO, ELENITA S.A. SANDEJAS, EMILY R. LAWS EILEEN Z.
ARANETA, SALVACION C. MONTEIRO MARIETTA C. GORREZ, ROLANDO M. BAUTISTA,
RUBEN T. UMALI, and MILDRED C. CASTOR, Petitioners
vs.
HON. JANETTE L. GARIN, Secretary-Designate of the Department of Health; NICOLAS B.
LUTERO III, Assistant Secretary of Health; NICOLAS B. LUTERO III, Assistant Secretary of
Health, Officer-in-Charge, Food and Drug Administration; and MARIA LOURDES C.
SANTIAGO, Officer-in-Charge, Center for Drug Regulation and Research, Respondents.

RESOLUTION

MENDOZA, J.:

Subject of this resolution is the Omnibus Motion  filed by the respondents, thru the Office of the
1

Solicitor General (OSG), seeking partial reconsideration of the August 24, 2016 Decision
(Decision),  where the Court resolved the: [1] Petition for Certiorari, Prohibition, Mandamus with
2

Prayer for Issuance of a Temporary Restraining Order and/or Writ of Preliminary Prohibitory and
Mandatory Injunction (G.R. No. 217872); and the [2] Petition for Contempt of Court (G.R. No.
221866), in the following manner:

WHEREFORE, the case docketed as G.R No. 217872 is hereby REMANDED to the Food and
Drugs Administration which is hereby ordered to observe the basic requirements of due process by
conducting a hearing, and allowing the petitioners to be heard, on the re-certified, procured and
administered contraceptive drugs and devices, including Implanon and lmplanon NXT, and to
determine whether they are abortifacients or non-abortifacients.

Pursuant to the expanded jurisdiction of this Court and its power to issue rules for the protection and
enforcement of constitutional rights, the Court hereby:

1. DIRECTS the Food and Drug Administration to formulate the rules of procedure in the
screening, evaluation and approval of all contraceptive drugs and devices that will be used
under Republic Act No. 10354. The rules of procedure shall contain the following minimum
 requirements of due process: (a) publication, notice and hearing, (b) interested parties shall
be allowed to intervene, (c) the standard laid down in the Constitution, as adopted under
Republic Act No. 10354, as to what constitutes allowable contraceptives shall be strictly
followed, that is, those which do not harm or destroy the life of the unborn from
conception/fertilization, (d) in weighing the evidence, all reasonable doubts shall be resolved
in favor of the protection and preservation of the right to life of the unborn from
conception/fertilization, and (e) the other requirements of administrative due process, as
summarized in Ang Tibay v. CIR, shall be complied with.

2. DIRECTS the Department of Health in coordination with other concerned agencies to

formulate the rules and regulations or guidelines which will govern the purchase and
distribution/ dispensation of the products or supplies under Section 9 of Republic Act No.
10354 covered by the certification from the Food and Drug Administration that said product
and supply is made available on the condition that it will not be used as an abortifacient
subject to the following minimum due process requirements: (a) publication, notice and
hearing, and (b) interested parties shall be allowed to intervene. The rules and regulations or
guidelines shall provide sufficient detail as to the manner by which said product and supply
shall be strictly regulated in order that they will not be used as an abortifacient and in order
to sufficiently safeguard the right to life of the unborn.

3. DIRECTS the Department of Health to generate the complete and correct list of the
government's reproductive health programs and services under Republic Act No. 10354
which will serve as the template for the complete and correct information standard and,
hence, the duty to inform under Section 23(a)(l) of Republic Act No. 10354. The Department
of Health is DIRECTED to distribute copies of this template to all health care service
providers covered by Republic Act No. 10354.

The respondents are hereby also ordered to amend the Implementing Rules and Regulations to
conform to the rulings and guidelines in G.R. No. 204819 and related cases.

The above foregoing directives notwithstanding, within 30 days from receipt of this disposition, the
Food and Drugs Administration should commence to conduct the necessary hearing guided by the
cardinal rights of the parties laid down in CIR v. Ang Tibay.

Pending the resolution of the controversy, the motion to lift the Temporary Restraining Order is
DENIED.

With respect to the contempt petition, docketed as G.R No. 221866, it is hereby DENIED for lack of
concrete basis.

SO ORDERED. 3

Arguments of the Respondents

Part 1: Due Process need not be

complied with as the questioned
acts of the Food and Drug
Administration (FDA) were in
the exercise of its Regulatory Powers
In the subject Omnibus Motion, the respondents argued that their actions should be sustained, even
if the petitioners were not afforded notice and hearing, because the contested acts of registering, re-
certifying, procuring, and administering contraceptive drugs and devices were all done in the
exercise of its regulatory power.  They contended that considering that the issuance of the certificate
4

of product registration (CPR) by the FDA under Section 7.04, Rule  of the Implementing Rules and
5

Regulations of Republic Act (R.A.) No. 10354 (RH-IRR) did not involve the adjudication of the
parties' opposing rights and liabilities through an adversarial proceeding, the due process
requirements of notice and hearing need not be complied with. 6

Stated differently, the respondents assert that as long as the act of the FDA is exercised pursuant to
its regulatory power, it need not comply with the due process requirements of notice and hearing.

Corollary to this, the respondents wanted the Court to consider that the FDA had delineated its
functions among different persons and bodies in its organization. Thus, they asked the Court to
make a distinction between the "quasi-judicial powers" exercised by the Director-General of the
FDA under Section 2(b)  of Article 3, Book I of the Implementing Rules and Regulations (IRR) of
7

R.A. No. 9711,  and the "regulatory/administrative powers" exercised by the FDA under Section

8

2(c )(1)   of the same. For the respondents, the distinction given in the above-cited provisions was all
9

but proof that the issuance of CPR did not require notice and hearing.

After detailing the process by which the FDA's Center for Drug Regulation and
Research (CDRR) examined and tested the contraceptives for non-abortifacience,   the respondents
10

stressed that the Decision wreaked havoc on the organizational structure of the FDA, whose myriad
of functions had been carefully delineated in the IRR of R.A. No. 9711.   The respondents, thus,
11

prayed for the lifting of the Temporary Restraining Order (TR0).  12

Part 2: The requirements of due

process need not be complied with as
the elements of procedural due
process laid down in Ang Tibay v.
CIR are not applicable

The respondents further claimed in their omnibus motion that the requirements of due process need
not be complied with because the standards of procedural due process laid down in Ang Tibay v.
CIR   were inapplicable considering that: a) substantial evidence could not be used as a measure in
13

determining whether a contraceptive drug or device was abortifacient;   b) the courts had neither
14

jurisdiction nor competence to review the findings of the FDA on the non-abortifacient character of
contraceptive drugs or devices;   c) the FDA was not bound by the rules of admissibility and
15

presentation of evidence under the Rules of Court;   and d) the findings of the FDA could not be
16

subject of the rule on res judicata and stare-decisis.  17

The respondents then insisted that Implanon and Implanon NXT were not abortifacients and
lamented that the continued injunction of the Court had hampered the efforts of the FDA to provide
for the reproductive health needs of Filipino women. For the respondents, to require them to afford
the parties like the petitioners an opportunity to question their findings would cause inordinate delay
in the distribution of the subject contraceptive drugs and devices which would have a dire impact on
the effective implementation of the RH Law.

The Court's Ruling

After an assiduous assessment of the arguments of the parties, the Court denies the Omnibus
Motion, but deems that a clarification on some points is in order.
Judicial Review

The powers of an administrative body are classified into two fundamental powers: quasi-
legislative and quasi-judicial. Quasi-legislative power, otherwise known as the power of
subordinate legislation, has been defined as the authority delegated by the lawmaking body to the
administrative body to adopt rules and regulations intended to carry out the provisions of law and
implement legislative policy.   "[A] legislative rule is in the nature of subordinate legislation, designed
18

to implement a primary legislation by providing the details thereof."   The exercise by the
19

administrative body of its quasi-legislative power through the promulgation of regulations of general
application does not, as a rule, require notice and hearing. The only exception being where the
Legislature itself requires it and mandates that the regulation shall be based on certain facts as
determined at an appropriate investigation. 20

Quasi-judicial power, on the other hand, is known as the power of the administrative agency to
determine questions of fact to which the legislative policy is to apply, in accordance with the
standards laid down by the law itself.  As it involves the exercise of discretion in determining the
21

rights and liabilities of the parties, the proper exercise of quasi-judicial power requires the
concurrence of two elements: one, jurisdiction which must be acquired by the administrative body
and two, the observance of the requirements of due process, that is, the right to notice and
hearing. 22

On the argument that the certification proceedings were conducted by the FDA in the exercise of its
"regulatory powers" and, therefore, beyond judicial review, the Court holds that it has the power to
review all acts and decisions where there is a commission of grave abuse of discretion. No less than
the Constitution decrees that the Court must exercise its duty to ensure that no grave abuse of
discretion amounting to lack or excess of jurisdiction is committed by any branch or instrumentality of
the Government. Such is committed when there is a violation of the constitutional mandate that "no
person is deprived of life, liberty, and property without due process of law." The Court's power
cannot be curtailed by the FDA's invocation of its regulatory power.

In so arguing, the respondents cited Atty. Carlo L. Cruz in his book, Philippine Administrative Law.

Lest there be any inaccuracy, the relevant portions of the book cited by the respondents are hereby
quoted as follows:

xxx.

B. The Quasi-Judicial Power

xxx

2. Determinative Powers

To better enable the administrative body to exercise its quasi judicial authority, it is also vested
with what is known as determinative powers and functions.

Professor Freund classifies them generally into the enabling powers and the directing powers. The
latter includes the dispensing, the examining, and the summary powers.

The enabling vowers  are those that permit the doing of an act which the law undertakes
to regulate  and which would be unlawful with government approval. The most common
example is the issuance of licenses to engage in a particular business or occupation, like the
operation of a liquor store or restaurant. x x x.   [Emphases and underscoring supplied]
23

From the above, two things are apparent: one, the "enabling powers" cover "regulatory powers" as
defined by the respondents; and two, they refer to a subcategory of a quasi-judicial power which, as
explained in the Decision, requires the compliance with the twin requirements of notice and hearing.
Nowhere from the above-quoted texts can it be inferred that the exercise of "regulatory power"
places an administrative agency beyond the reach of judicial review. When there is grave abuse of
discretion, such as denying a party of his constitutional right to due process, the Court can come in
and exercise its power of judicial review. It can review the challenged acts, whether exercised by the
FDA in its ministerial, quasi-judicial or regulatory power. In the past, the Court exercised its power of
judicial review over acts and decisions of agencies exercising their regulatory powers, such as
DPWH,   TRB,   NEA,   and the SEC,  among others. In Diocese of Bacolod v. Commission on
24 25 26 27

Elections,  the Court properly exercised its power of judicial review over a Comelec resolution issued
28

in the exercise of its regulatory power.

Clearly, the argument of the FDA is flawed.

Petitioners were Denied their

Right to Due Process

Due process of law has two aspects: substantive and procedural. In order that a particular act may
not be impugned as violative of the due process clause, there must be compliance with both the
substantive and the procedural requirements thereof.   Substantive due process refers to the
29

intrinsic validity of a law that interferes with the rights of a person to his property.  Procedural due
30

process, on the other hand, means compliance with the procedures or steps, even periods,
prescribed by the statute, in conformity with the standard of fair play and without arbitrariness on the
part of those who are called upon to administer it. 31

The undisputed fact is that the petitioners were deprived of their constitutional right to due process of
law.

As expounded by the Court, what it found to be primarily deplorable is the failure of the respondents
to act upon, much less address, the various oppositions filed by the petitioners against the product
registration, recertification, procurement, and distribution of the questioned contraceptive drugs and
devices. Instead of addressing the petitioners' assertion that the questioned contraceptive drugs and
devices fell within the definition of an "abortifacient" under Section 4(a) of the RH Law because of
their "secondary mechanism of action which induces abortion or destruction of the fetus inside the
mother's womb or the prevention of the fertilized ovum to reach and be implanted in the mother's
womb,"32 the respondents chose to ignore them and proceeded with the registration, recertification,
procurement, and distribution of several contraceptive drugs and devices.

A cursory reading of the subject Omnibus Motion shows that the respondents proffer no cogent
explanation as to why they did not act on the petitioners' opposition. As stated by the Court in the
Decision, rather than provide concrete action to meet the petitioners' opposition, the respondents
simply relied on their challenge questioning the propriety of the subject petition on technical and
procedural grounds.   The Court, thus, finds the subject motion to be simply a rehash of the earlier
33

arguments presented before, with the respondents still harping on the peculiarity of the FDA's
functions to exempt it from compliance with the constitutional mandate that "no person shall be
deprived oflife, liberty and property without due process of law."
The law and the rules demand
compliance with due process
requirements

A reading of the various provisions, cited by the respondents in support of their assertion that due
process need not be complied with in the approval of contraceptive drugs or devices, all the more
reinforces the Court's conclusion that the FDA did fail to afford the petitioners a genuine opportunity
to be heard.

As outlined by the respondents themselves, the steps by which the FDA approves contraceptive
drugs or devices, demand compliance with the requirements of due process viz:

Step 1. Identify contraceptive products in the database. Create another database containing the
following details of contraceptive products: generic name, dosage strength and form, brand name (if
any), registration number, manufacturer, MAH, and the period of validity of the CPR.

Step 2. Identify contraceptive products which are classified as essential medicines in the Philippine
Drug Formulary.

Step 3. Retrieve the contraceptive product's file and the CPR duplicate of all registered contraceptive
products. Create a database of the contraceptive product's history, including its initial, renewal,
amendment, and/or variation applications.

Step 4. Conduct a preliminary review of the following:

a. general physiology of female reproductive system, including hormones involved, female

reproductive cycle, and conditions of the female reproductive system during pregnancy.

b. classification of hormonal contraceptives;

c. regulatory status of the products in benchmark countries; and

d. mechanism of action of hormonal contraceptives based on reputable journals, meta-

analyses, systemic reviews, evaluation of regulatory authorities in other countries, textbooks,
among others.

Step 5. Issue a notice to all concerned MAHs, requiring them to submit scientific evidence
that their product is non-abortifacient, as defined in the RH Law and Imbong.

Step 6. Post a list of contraceptive products which were applied for re-certification for public
comments in the FDA website.

Step 7. Evaluate contraceptive products for re-certification.

A. Part I (Review of Chemistry, Manufacture and Controls)

1. Unit Dose and Finished Product Formulation

2. Technical Finished Product Specifications

 3. Certificate of Analysis

B. Part II (Evaluation of Whether the Contraceptive Product is Abortifacient)

1. Evaluation of the scientific evidence submitted by the applicant and the public.

2. Review and evaluation of extraneous evidence, e.g., scientific journals, meta-analyses,

etc.

Step 8. Assess and review the documentary requirements submitted by the applicant. Technical
reviewers considered scientific evidence such as meta-analyses, systemic reviews, national and
clinical practice guidelines and recommendations of international medical organizations submitted by
the companies, organizations and individuals, to be part of the review.  [Emphases and Underlining
34

supplied]

The Court notes that the above-outlined procedure is deficient insofar as it only allows public
comments to cases of re-certification. It fails to allow the public to comment in cases where a
reproductive drug or device is being subject to the certification process for the first time. This
is clearly in contravention of the mandate of the Court in lmbong that the IRR should be
amended to conform to it.

More importantly, the Court notes that Step 5 requires the FDA to issue a notice to all concerned
MAHs and require them to submit scientific evidence that their product is non-abortifacient; and that
Step 6 requires the posting of the list of contraceptive products which were applied for re-
certification for public comments in the FDA website.

If an opposition or adverse comment is filed on the ground that the drug or devise has
abortifacient features or violative of the RH Law, based on the pronouncements of the Court in Im
bong or any other law or rule, the FDA is duty-bound to take into account and consider the basis of
the opposition.

To conclude that product registration, recertification, procurement, and distribution of the questioned
contraceptive drugs and devices by the FDA in the exercise of its regulatory power need not comply
with the requirements of due process would render the issuance of notices to concerned MAHs and
the posting of a list of contraceptives for public comment a meaningless exercise. Concerned MAHs
and the public in general will be deprived of any significant participation if what they will submit will
not be considered.

Section 7.04, Rule 7 of the IRR of the RH Law (RH-IRR),  relied upon by the respondents in support
35

of their claims, expressly allows the consideration of conflicting evidence, such as that supplied

by the petitioners in support of their opposition to the approval of certain contraceptive drugs and
devices. In fact, the said provision mandates that the FDA utilize the "best evidence available" to
ensure that no bortifacient is approved as a family planning drug or device. It bears mentioning that
the same provision even allows an independent evidence review group (ERG) to ensure that
evidence for or against the certification of a contraceptive drug or device is duly considered.

Structure of the FDA

As earlier mentioned, the respondents argue that the Decision "wreaked havoc on the organizational
structure of the FDA, whose myriad of functions have been carefully delineated under R.A. No. 9711
IRR."  Citing Section 7.04, Rule 7 of the RH-IRR, the FDA insists that the function it exercises in
36
certifying family planning supplies is in the exercise of its regulatory power, which cannot be the
subject of judicial review, and that it is the Director-General of the FDA who exercises quasi-
judicial powers, citing Section 2(b) of Article 3, Book I of the RH-IRR. 37

The FDA wants the Court to consider that, as a body, it has a distinct and separate personality from
the Director-General, who exercises quasi-judicial power. The Court cannot accommodate the
position of the respondents. Section 6(a) of R.A. No. 3720, as amended by Section 7 of R.A. No.
9711,  provides that "(a) The FDA shall be headed by a director-general with the rank of
38

undersecretary, xxx." How can the head be separated from the body?

For the record, Section 4 of R.A. No. 3720, as amended by Section 5 of R.A. No. 9711, also
recognizes compliance with the requirements of due process, although the proceedings are not
adversarial. Thus:

Section 5. Section 4 of Republic Act No. 3720, as amended, is hereby further amended to read as
follows:

"SEC. 4. To carry out the provisions of this Act, there is hereby created an office to be called the
Food and Drug Administration (FDA) in the Department of Health (DOH). Said Administration shall
be under the Office of the Secretary and shall have the following functions, powers and duties:

"(a) To administer the effective implementation of this Act and of the rules and regulations issued
pursuant to the same;

"(b) To assume primary jurisdiction in the collection of samples of health products;

"(c) To analyze and inspect health products in connection with the implementation of this Act;

"(d) To establish analytical data to serve as basis for the preparation of health products standards,
and to recommend standards of identity, purity, safety, efficacy, quality and fill of container;

"(e) To issue certificates of compliance with technical requirements to serve as basis for the
issuance of appropriate authorization and spot-check for compliance with regulations regarding
operation of manufacturers, importers, exporters, distributors, wholesalers, drug outlets, and other
establishments and facilities of health products, as determined by the FDA;

"xxx

"(h) To conduct appropriate tests on all applicable health products prior to the issuance of
appropriate authorizations to ensure safety, efficacy, purity, and quality;

"(i) To require all manufacturers, traders, distributors, importers, exporters, wholesalers, retailers,
consumers, and non-consumer users of health products to report to the FDA any incident that
reasonably indicates that said product has caused or contributed to the death, serious illness or
serious injury to a consumer, a patient, or any person;

"G) To issue cease and desist orders motu propio or upon verified com plaint for health products,
whether or not registered with the FDA Provided, That for registered health products, the cease and
desist order is valid for thirty (30) days and may be extended for sixty (60) days only after due
process has been observed;
"(k) After due process, to order the ban, recall, and/or withdrawal of any health product found to
have caused the death, serious illness or serious injury to a consumer or patient, or is found to be
imminently injurious, unsafe, dangerous, or grossly deceptive, and to require all concerned to
implement the risk management plan which is a requirement for the issuance of the appropriate
authorization;

"(l) To strengthen the post market surveillance system in monitoring health products as defined in
this Act and incidents of adverse events involving such products;

"(m) To develop and issue standards and appropriate authorizations that would cover
establishments, facilities and health products;

"(n) To conduct, supervise, monitor and audit research studies on health and safety issues of health
products undertaken by entities duly approved by the FDA;

"(o) To prescribe standards, guidelines, and regulations with respect to information, advertisements
and other marketing instruments and promotion, sponsorship, and other marketing activities about
the health products as covered in this Act;

"(p) To maintain bonded warehouses and/or establish the same, whenever necessary or
appropriate, as determined by the director-general for confiscated goods in strategic areas of the
country especially at major ports of entry; and

"(q) To exercise such other powers and perform such other functions as may be necessary to carry
out its duties and responsibilities under this Act. [Emphases supplied]

The Cardinal Rights of Parties in

Administrative Proceedings as
laid down in Ang Tibay v. CIR

In Ang Tibay v. CJR,  the Court laid down the cardinal rights of parties in administrative proceedings,
39

as follows:

1) The right to a hearing, which includes the right to present one's case and submit evidence in
support thereof;

2) The tribunal must consider the evidence presented;

3) The decision must have something to support itself;

4) The evidence must be substantial;

5) The decision must be rendered on the evidence presented at the hearing, or at least contained in
the record and disclosed to the parties affected;

6) The tribunal or body or any of its judges must act on its or his own independent consideration of
the law and facts of the controversy and not simply accept the views of a subordinate in arriving at a
decision; and
7) The board or body should, in all controversial questions, render its decision in such a manner that
the parties to the proceeding can know the various issues involved, and the reason for the decision
rendered.  40

In the Decision, the Court found that the FDA certified, procured and administered contraceptive
drugs and devices, without the observance of the basic tenets of due process, that is, without notice
and without public hearing. It appeared that, other than the notice inviting stakeholders to apply for
certification/recertification of their reproductive health products, there was no showing that the
respondents considered the opposition of the petitioners. Thus, the Court wrote:

Rather than provide concrete evidence to meet the petitioners' opposition, the respondents simply
relied on their challenge questioning the propriety of the subject petition on technical and procedural
grounds. The Court notes that even the letters submitted by the petitioners to the FDA and the DOH
seeking information on the actions taken by the agencies regarding their opposition were left
unanswered as if they did not exist at all. The mere fact that the RH Law was declared as not
unconstitutional does not permit the respondents to run roughshod over the constitutional rights,
substantive and procedural, of the petitioners.

Indeed, although the law tasks the FDA as the primary agency to determine whether a contraceptive
drug or certain device has no abortifacient effects, its findings and conclusion should be allowed to
be questioned and those who oppose the same must be given a genuine opportunity to be heard in
their stance. After all, under Section 4(k) of R.A. No. 3720, as amended by R.A. No. 9711, the FDA
is mandated to order the ban, recall and/ or withdrawal of any health product found to have caused
death, serious illness or serious injury to a consumer or patient, or found to be imminently injurious,
unsafe, dangerous, or grossly deceptive, after due process.

Due to the failure of the respondents to observe and comply with the basic requirements of due
process, the Court is of the view that the certifications/re-certifications and the distribution of the
questioned contraceptive drugs by the respondents should be struck down as violative of the
constitutional right to due process.

Verily, it is a cardinal precept that where there is a violation of basic constitutional rights, the courts
are ousted from their jurisdiction. The violation of a party's right to due process raises a serious
jurisdictional issue which cannot be glossed over or disregarded at will. Where the denial of the
fundamental right to due process is apparent, a decision rendered in disregard of that right is void for
lack of jurisdiction. This rule is equally true in quasi-judicial and administrative proceedings, for the
constitutional guarantee that no man shall be deprived of life, liberty, or property without due process
is unqualified by the type of proceedings (whether judicial or administrative) where he stands to lose
the same. 41

The Court stands by that finding and, accordingly, reiterates its order of remand of the case to the
FDA.

Procedure in the FDA; No Trial-Type Hearing

The Court is of the view that the FDA need not conduct a trial-type hearing. Indeed, due process
does not require the conduct of a trial-type hearing to satisfy its requirements. All that the
Constitution requires is that the FDA afford the people their right to due process of law and decide
on the applications submitted by MAHs after affording the oppositors like the petitioners a genuine
opportunity to present their science-based evidence. As earlier pointed out, this the FDA failed to do.
It simply ignored the opposition of the petitioners. In the case of Perez, et al. v. Philippine Telegraph
and Telephone Company, et al.,   it was stated that:
42
A formal trial-type hearing is not even 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 supporting evidence on which a fair decision can be based.

In the fairly recent case of Vivo v. Pagcor,  the Court explained:

43

The observance of fairness in the conduct of any investigation is at the very heart of procedural due
process. The essence of due process is to be heard, and, as applied to administrative proceedings,
this means a fair and reasonable opportunity to explain one's side, or an opportunity to seek a
reconsideration of the action or ruling complained of. Administrative due process cannot be fully
equated with due process in its strict judicial sense, for in the former a formal or trial-type
hearing is not always necessary, and technical rules of procedure are not strictly
applied. Ledesma v. Court of Appeals elaborates on the well-established meaning of due process in
administrative proceedings in this wise:

x x x Due process, as a constitutional precept, does not always and in all situations require a trial-
type proceeding. Due process is satisfied when a person is notified of the charge against him and
given an opportunity to explain or defend himself. In administrative proceedings, the filing of charges
and giving reasonable opportunity for the person so charged to answer the accusations against him
constitute the minimum requirements of due process. The essence of due process is simply to be
heard, or as applied to administrative proceedings, an opportunity to explain one's side, or an
opportunity to seek a reconsideration of the action or ruling complained of. [Emphasis supplied;
citations omitted]

Best Evidence Available

Section 5, Rule 133 of the Rules of Court provides:

Section 5. In all cases filed before administrative or quasi-judicialbodies, a fact may be deemed

established if it is supported by substantialevidence, or the amount of relevant evidence which a
reasonable mind might accept as adequate to justify a conclusion.

As applied to certification proceedings at the FDA, "substantial evidence" refers to the best

scientific evidence available,  "including but not limited to: meta analyses, systematic reviews,
44

national clinical practice guidelines where available, and recommendations of international medical
organizations," needed to support a conclusion whether a contraceptive drug or device is an
abortifacient or not. The FDA need not be bound or limited by the evidence adduced by the parties,
but it can conduct its own search for related scientific data. It can also consult other technical
scientific experts known in their fields. It is also not bound by the principle of stare decisis or res
judicata, but may update itself and cancel certifications motu proprio when new contrary scientific
findings become available or there arise manifest risks which have not been earlier predicted.

On the Competence of the Court

to review the Findings of the FDA

The fact that any appeal to the courts will involve scientific matters will neither place the actions of
the respondents beyond the need to comply with the requirements of Ang Tibay nor place the
actions of the FDA in certification proceedings beyond judicial review.

It should be pointed out that nowhere in Batas Pambansa Blg. 129, as amended, are the courts
ousted of their jurisdiction whenever the issues involve questions of scientific nature. A court is not
considered incompetent either in reviewing the findings of the FDA simply because it will be
weighing the scientific evidence presented by both the FDA and its oppositors in determining
whether the contraceptive drug or device has complied with the requirements of the law.

Although the FDA is not strictly bound by the technical rules on evidence, as stated in the Rules of
Court, or it cannot be bound by the principle of stare decisis or res judicata, it is not excused from
complying with the requirements of due process. To reiterate for emphasis, due process does not
require that the FDA conduct trial-type hearing to satisfy its requirements. All that the Constitution
requires is that the FDA afford the people their right to due process of law and decide on the
applications submitted by the MAHs after affording the oppositors, like the petitioners, a genuine
opportunity to present their sciencebased evidence.

The Appellate Procedure;

Appeal to the Office of the President

Incidentally, Section 32 of R.A. No. 3720 and Section 9 of Executive Order (E.O.) No. 247 provide
that any decision by the FDA would then be appealable to the Secretary of Health, whose decision,
in tum, may be appealed to the Office of the President (OP). Thus:

Sec. 32. The orders, rulings or decisions of the FDA shall be appealable to the Secretary of
Health. - An appeal shall be deemed perfected upon filing of the notice of appeal and posting of the
corresponding appeal bond.

An appeal shall not stay the decision appealed from unless an order from the Secretary of Health is
issued to stay the execution thereof.

Sec. 9. Appeals. - Decisions of the Secretary (DENR, DA, DOH or DOST) may be appealed to

the Office of the President. Recourse to the courts shall be allowed after exhaustion of all
administrative remedies.

In view thereof, the Court should modify that part of the Decision which allows direct appeal of the
FDA decision to the Court of Appeals.  As stated in the said decision, the FDA decision need not be
1âwphi1

appealed to the Secretary of Health because she herself is a party herein. Considering that the
Executive

Secretary is not a party herein, the appeal should be to the OP as provided in Section 9.

On the Prayer to Lift the TRO

The respondents lament that the assailed decision undermines the functions of the FDA as the
specialized agency tasked to determine whether a contraceptive drug or device is safe, effective and
non-abortifacient. They also claim that the assailed decision requiring notice and hearing would
unduly delay the issuance of CPR thereby affecting public access to State-funded contraceptives.
Finally, in a veritable attempt to sow panic, the respondents claim that the TRO issued by the Court
would result in "a nationwide stockout of family planning supplies in accredited public health
facilities and the commercial market. " 45

On this score, it should be clarified that the Decision simply enjoined the respondents from
registering, recertifying, procuring, and administering only those contraceptive drugs and devices
which were the subjects of the petitioners' opposition, specifically Implanon and Implanon NXT. It
never meant to enjoin the processing of the entire gamut of family planning supplies that have been
declared as unquestionably non-abortifacient. Moreover, the injunction issued by the Court was only
subject to the condition that the respondents afford the petitioners a genuine opportunity to their right
to due process.

As the Decision explained, the Court cannot lift the TRO prior to the summary hearing to be
conducted by the FDA. To do so would render the summary hearing an exercise in futility.
Specifically, the respondents would want the Court to consider their argument that Implanon and
Implanon NXT have no abortifacient effects. According to them, "the FDA tested these devices for
safety, efficacy, purity, quality, and non-abortiveness prior to the issuance of certificates of
registration and recertification, and after the promulgation of Imbong."   The Court, however,
46

cannot make such determination or pronouncement at this time. To grant its prayer to lift the
TRO would be premature and presumptuous. Any declaration by the Court at this time would
have no basis because the FDA, which has the mandate and expertise on the matter, has to first
resolve the controversy pending before its office.

This Court also explained in the Decision that the issuance of the TRO did not mean that the FDA
should stop fulfilling its mandate to test, analyze, scrutinize, and inspect other drugs and devices.
Thus:

Nothing in this resolution, however, should be construed as restraining or stopping the FDA from
carrying on its mandate and duty to test, analyze, scrutinize, and inspect drugs and devices. What
are being enjoined are the grant of certifications/re-certifications of contraceptive drugs without
affording the petitioners due process, and the distribution and administration of the questioned
contraceptive drugs and devices including Implanon and Implanon NXT until they are determined to
be safe and non-abortifacient. 47

On Delay

The respondents claim that this judicial review of the administrative decision of the FDA in certifying
and recertifying drugs has caused much delay in the distribution of the subject drugs with a dire
impact on the effective implementation of the RH Law.

In this regard, the respondents have only themselves to blame. Instead of complying with the orders
of the Court as stated in the Decision to conduct a summary hearing, the respondents have returned
to this Court, asking the Court to reconsider the said decision claiming that it has wreaked havoc on
the organizational structure of the FDA.

Had the FDA immediately conducted a summary hearing, by this time it would have finished it and
resolved the opposition of the petitioners.  Note that there was already a finding by the FDA, which
1âwphi1

was its basis in registering, certifying and recertifying the questioned drugs and devices. The
pharmaceutical companies or the MAHs need not present the same evidence it earlier adduced to
convince the FDA unless they want to present additional evidence to fortify their positions. The only
entities that would present evidence would be the petitioners to make their point by proving with
relevant scientific evidence that the contraceptives have abortifacient effects. Thereafter, the FDA
can resolve the controversy.

Indeed, in addition to guaranteeing that no person shall be deprived of life, liberty and property
without due process of law,  the Constitution commands that "all persons shall have the right to a
48

speedy disposition of their cases before all judicial, quasi-judicial and administrative bodies."
49

WHEREFORE, the August 24, 2016 Decision is MODIFIED. Accordingly, the Food and Drug
Administration is ordered to consider the oppositions filed by the petitioners with respect to the listed
drugs, including Implanon and Implanon NXT, based on the standards of the Reproductive Health
Law, as construed in lmbong v. Ochoa, and to decide the case within sixty (60) days from the date it
will be deemed submitted for resolution.

After compliance with due process and upon promulgation of the decision of the Food and Drug
Administration, the Temporary Restraining Order would be deemed lifted if the questioned drugs and
devices are found not abortifacients.

After the final resolution by the Food and Drug Administration, any appeal should be to the Office of
the President pursuant to Section 9 of E.O. No. 247.

As ordered in the August 24, 2016 Decision, the Food and Drug Administration is directed to amend
the Implementing Rules and Regulations of R.A. No. 10354 so that it would be strictly compliant with
the mandates of the Court in lmbong v. Ochoa.

Alliance for the Family Foundation,

Philippines, Inc. (ALFI) et.al. vs. Hon. Garin
(G.R. Nos. 217872 and 221866, 26
April 2017)
Leave a reply

I will summarize the facts as follows:

Petitioners opposed the unilateral act of the Food and Drugs Administration (FDA) on
re-certifying the contraceptive drugs named Implanon and Implanon NXT; the basis
of their opposition hinges on the fact that these drugs are abortifacients. Thus,
according to them, they should have been given notice of the certification
proceedings, and a chance to present evidence that indeed such drugs are
abortifacients.

Respondents, on the other hand, alleged that petitioners are not entitled to notice and
hearing because the said proceedings are done in the exercise of its regulatory power,
not quasi-judicial power; also, they alleged that the Honorable Supreme Court is
incompetent to rule on the instant controversy due to the same reason.

Issues:

(a) Whether or not said controversy is outside the scope of Judicial Review;
(b) Whether or not petitioners were deprived of substantial and procedural due process
of law;

Held/Doctrines:

It is quite fascinating that the Supreme Court again reminded us the two fundamental
powers of an administrative body, in the words of the Honorable Court:

“The powers of an administrative body are classified into two fundamental

powers: quasi-legislative and quasi-judicial. Quasi-legislative power, otherwise
known as the power of subordinate legislation, has been defined as the authority
delegated by the lawmaking body to the administrative body to adopt rules and
regulations intended to carry out the provisions of law and implement legislative
policy. A legislative rule is in the nature of subordinate legislation designed to
implement a primary legislation by providing the details thereof. The exercise by the
administrative body of its quasi-legislative power through the promulgation of
regulations of general application does not, as a rule, require notice and hearing. The
only exception being where the Legislature itself requires it and mandates that the
regulation shall be based on certain facts as determined at an appropriate
investigation.

Quasi-judicial power, on the other hand, is known as the power of the administrative
agency to determine questions of fact to which the legislative policy is to apply, in
accordance with the standards laid down by the law itself. As it involves the exercise
of discretion in determining the rights and liabilities of the parties, the proper exercise
of quasi-judicial power requires the concurrence of two elements: one, jurisdiction
which must be acquired by the administrative body and two, the observance of the
requirements of due process, that is, the right to notice and hearing.”

To answer (a) above, the Supreme Court has this to say, viz:

“On the argument that the certification proceedings were conducted by the FDA in
the exercise of its “regulatory powers” and, therefore, beyond judicial review, the
Court holds that it has the power to review all acts and decisions where there is a
commission of grave abuse of discretion. No less than the Constitution decrees that
the Court must exercise its duty to ensure that no grave abuse of discretion amounting
to lack or excess of jurisdiction is committed by any branch or instrumentality of the
Government. Such is committed when there is a violation of the constitutional
mandate that “no person is deprived of life, liberty, and property without due process
of law.” The Court’s power cannot be curtailed by the FDA’s invocation of its
regulatory power.”
With regard to (b), the Supreme Court ruled that petitioners were deprived of their
Right to Due Process. Perusal of the law and rules of procedure of the instant agency
reveals the need of an issuance of notice to all concerned MAHs and a posting of
the contraceptive products for public comments. These, respondents failed to do.

This was thoroughly explained by the Court, to wit:

“Due process of law has two aspects: substantive and procedural. In order that a
particular act may not be impugned as violative of the due process clause, there must
be compliance with both the substantive and procedural requirements thereof.
Substantive due process refers to the intrinsic validity of a law that interferes with the
rights of a person to his property. Procedural due process, on the other hand, means
compliance with the procedures or steps, even periods, prescribed by the statute, in
conformity with the standard of fair play and without arbitrariness on the part of those
who are called upon to administer it. xxx

xxx To conclude that product registration, recertification, procurement, and

distribution of the questioned contraceptive drugs and devices by the FDA in the
exercise of its regulatory power need not comply with the requirements of due process
would render the issuance of notices to concerned MAHs and the posting of a list of
contraceptives for public comment a meaningless exercise. Concerned MAHs and the
public in general will be deprived of any significant participation if what they will
submit will not be considered.

Section 7.04, Rule 7 of the IRR of the RH Law (RH-IRR), relied upon by the
respondents in support of their claims, expressly allows the consideration of
conflicting evidence, such as that supplied by the petitioners in support of their
opposition to the approval of certain contraceptive drugs and devices. In fact, the said
provision mandated that the FDA utilize the “best evidence available” to ensure that
no abortifacient is approved as family planning drug or device. It bears mentioning
that the same provision even allows an independent evidence review group (ERG) to
ensure that evidence for or against the certification of a contraceptive drug or device is
duly considered.”

 
G.R. No. 163980 August 3, 2006

HOLY SPIRIT HOMEOWNERS ASSOCIATION, INC. and NESTORIO F. APOLINARIO, in his

personal capacity and as President of Holy Spirit Homeowners Association, Inc., Petitioners,
vs.
SECRETARY MICHAEL DEFENSOR, in his capacity as Chairman of the Housing and Urban
Development Coordinating Council (HUDCC), ATTY. EDGARDO PAMINTUAN, in his capacity
as General Manager of the National Housing Authority (NHA), MR. PERCIVAL CHAVEZ, in his
capacity as Chairman of the Presidential Commission for the Urban Poor (PCUP), MAYOR
FELICIANO BELMONTE, in his capacity as Mayor of Quezon City, SECRETARY ELISEA
GOZUN, in her capacity as Secretary of the Department of Environment and Natural
Resources (DENR) and SECRETARY FLORENTE SORIQUEZ, in his capacity as Secretary of
the Department of Public Works and Highways (DPWH) as ex-officio members of the
NATIONAL GOVERNMENT CENTER ADMINISTRATION COMMITTEE, Respondents.

DECISION

TINGA, J.:

The instant petition for prohibition under Rule 65 of the 1997 Rules of Civil Procedure, with prayer for
the issuance of a temporary restraining order and/or writ of preliminary injunction, seeks to prevent
respondents from enforcing the implementing rules and regulations (IRR) of Republic Act No. 9207,
otherwise known as the "National Government Center (NGC) Housing and Land Utilization Act of
2003."

Petitioner Holy Spirit Homeowners Association, Inc. (Association) is a homeowners association from
the West Side of the NGC. It is represented by its president, Nestorio F. Apolinario, Jr., who is a co-
petitioner in his own personal capacity and on behalf of the association.

Named respondents are the ex-officio members of the National Government Center Administration

Committee (Committee). At the filing of the instant petition, the Committee was composed of
Secretary Michael Defensor, Chairman of the Housing and Urban Development Coordinating
Council (HUDCC), Atty. Edgardo Pamintuan, General Manager of the National Housing Authority
(NHA), Mr. Percival Chavez, Chairman of the Presidential Commission for Urban Poor (PCUP),
Mayor Feliciano Belmonte of Quezon City, Secretary Elisea Gozun of the Department of
Environment and Natural Resources (DENR), and Secretary Florante Soriquez of the Department of
Public Works and Highways (DPWH).

Prior to the passage of R.A. No. 9207, a number of presidential issuances authorized the creation
and development of what is now known as the National Government Center (NGC).

On March 5, 1972, former President Ferdinand Marcos issued Proclamation No. 1826, reserving a
parcel of land in Constitution Hills, Quezon City, covering a little over 440 hectares as a national
government site to be known as the NGC. 1

On August 11, 1987, then President Corazon Aquino issued Proclamation No. 137, excluding 150 of
the 440 hectares of the reserved site from the coverage of Proclamation No. 1826 and authorizing
instead the disposition of the excluded portion by direct sale to the bona fide residents therein. 2
In view of the rapid increase in population density in the portion excluded by Proclamation No. 137
from the coverage of Proclamation No. 1826, former President Fidel Ramos issued Proclamation
No. 248 on September 7, 1993, authorizing the vertical development of the excluded portion to
maximize the number of families who can effectively become beneficiaries of the government’s
socialized housing program. 3

On May 14, 2003, President Gloria Macapagal-Arroyo signed into law R.A. No. 9207. Among the
salient provisions of the law are the following:

Sec. 2. Declaration of Policy. – It is hereby declared the policy of the State to secure the land tenure
of the urban poor. Toward this end, lands located in the NGC, Quezon City shall be utilized for
housing, socioeconomic, civic, educational, religious and other purposes.

Sec. 3. Disposition of Certain Portions of the National Government Center Site to Bona Fide
Residents. – Proclamation No. 1826, Series of 1979, is hereby amended by excluding from the
coverage thereof, 184 hectares on the west side and 238 hectares on the east side of
Commonwealth Avenue, and declaring the same open for disposition to bona fide residents
therein: Provided, That the determination of the bona fide residents on the west side shall be based
on the census survey conducted in 1994 and the determination of the bona fide residents on the
east side shall be based on the census survey conducted in 1994 and occupancy verification survey
conducted in 2000: Provided, further, That all existing legal agreements, programs and plans signed,
drawn up or implemented and actions taken, consistent with the provisions of this Act are hereby
adopted.

Sec. 4. Disposition of Certain Portions of the National Government Center Site for Local
Government or Community Facilities, Socioeconomic, Charitable, Educational and Religious
Purposes. – Certain portions of land within the aforesaid area for local government or community
facilities, socioeconomic, charitable, educational and religious institutions are hereby reserved for
disposition for such purposes: Provided, That only those institutions already operating and with
existing facilities or structures, or those occupying the land may avail of the disposition program
established under the provisions this Act; Provided, further, That in ascertaining the specific areas
that may be disposed of in favor of these institutions, the existing site allocation shall be used as
basis therefore: Provided, finally. That in determining the reasonable lot allocation of
such institutions without specific lot allocations, the land area that may be allocated to them shall
be based on the area actually used by said institutions at the time of effectivity of this Act. (Emphasis
supplied.)

In accordance with Section 5 of R.A. No. 9207, 4 the Committee formulated the Implementing Rules
and Regulations (IRR) of R.A. No. 9207 on June 29, 2004. Petitioners subsequently filed the instant
petition, raising the following issues:

WHETHER OR NOT SECTION 3.1 (A.4), 3.1 (B.2), 3.2 (A.1) AND 3.2 (C.1) OF THE RULES AND
REGULATIONS OF REPUBLIC ACT NO. 9207, OTHERWISE KNOWN AS "NATIONAL
GOVERNMENT CENTER (NGC) HOUSING AND LAND UTILIZATION ACT OF 2003" SHOULD BE
DECLARED NULL AND VOID FOR BEING INCONSISTENT WITH THE LAW IT SEEKS TO
IMPLEMENT.

WHETHER OR NOT SECTION 3.1 (A.4), 3.1 (B.2), 3.2 (A.1) AND 3.2 (C.1) OF THE RULES AND
REGULATIONS OF REPUBLIC ACT NO. 9207, OTHERWISE KNOWN AS "NATIONAL
GOVERNMENT CENTER (NGC) HOUSING AND LAND UTILIZATION ACT OF 2003" SHOULD BE
DECLARED NULL AND VOID FOR BEING ARBITRARY, CAPRICIOUS AND WHIMSICAL. 5
First, the procedural matters.

The Office of the Solicitor General (OSG) argues that petitioner Association cannot question the
implementation of Section 3.1 (b.2) and Section 3.2 (c.1) since it does not claim any right over the
NGC East Side. Section 3.1 (b.2) provides for the maximum lot area that may be awarded to a
resident-beneficiary of the NGC East Side, while Section 3.2 (c.1) imposes a lot price escalation
penalty to a qualified beneficiary who fails to execute a contract to sell within the prescribed
period. 6 Also, the OSG contends that since petitioner association is not the duly recognized people’s
organization in the NGC and since petitioners not qualify as beneficiaries, they cannot question the
manner of disposition of lots in the NGC. 7

"Legal standing" or locus standi has been defined as a personal and substantial interest in the case
such that the party has sustained or will sustain direct injury as a result of the governmental act that
is being challenged…. The gist of the question of standing is whether a party alleges "such personal
stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court depends for illumination of difficult constitutional
questions." 8

Petitioner association has the legal standing to institute the instant petition, whether or not it is the
duly recognized association of homeowners in the NGC. There is no dispute that the individual
members of petitioner association are residents of the NGC. As such they are covered and stand to
be either benefited or injured by the enforcement of the IRR, particularly as regards the selection
process of beneficiaries and lot allocation to qualified beneficiaries. Thus, petitioner association may
assail those provisions in the IRR which it believes to be unfavorable to the rights of its members.
Contrary to the OSG’s allegation that the failure of petitioner association and its members to qualify
as beneficiaries effectively bars them from questioning the provisions of the IRR, such circumstance
precisely operates to confer on them the legal personality to assail the IRR. Certainly, petitioner and
its members have sustained direct injury arising from the enforcement of the IRR in that they have
been disqualified and eliminated from the selection process. While it is true that petitioners claim
rights over the NGC West Side only and thus cannot be affected by the implementation of Section
3.1 (b.2), which refers to the NGC East Side, the rest of the assailed provisions of the IRR, namely,
Sections 3.1 (a.4), 3.2 (a.1) and 3.2 (c.1), govern the disposition of lots in the West Side itself or all
the lots in the NGC.

We cannot, therefore, agree with the OSG on the issue of locus standi. The petition does not merit
dismissal on that ground.

There are, however, other procedural impediments to the granting of the instant petition. The OSG
claims that the instant petition for prohibition is an improper remedy because the writ of prohibition
does not lie against the exercise of a quasi-legislative function. 9 Since in issuing the questioned IRR
of R.A. No. 9207, the Committee was not exercising judicial, quasi-judicial or ministerial function,
which is the scope of a petition for prohibition under Section 2, Rule 65 of the 1997 Rules of Civil
Procedure, the instant prohibition should be dismissed outright, the OSG contends. For their part,
respondent Mayor of Quezon City 10 and respondent NHA 11 contend that petitioners violated the
doctrine of hierarchy of courts in filing the instant petition with this Court and not with the Court of
Appeals, which has concurrent jurisdiction over a petition for prohibition.

The cited breaches are mortal. The petition deserves to be spurned as a consequence.

Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial or

administrative adjudicatory powers. Quasi-legislative or rule-making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the granting
statute and the doctrine of non-delegability and separability of powers. 12

In questioning the validity or constitutionality of a rule or regulation issued by an administrative

agency, a party need not exhaust administrative remedies before going to court. This principle,
however, applies only where the act of the administrative agency concerned was performed
pursuant to its quasi-judicial function, and not when the assailed act pertained to its rule-making or
quasi-legislative power. 13

The assailed IRR was issued pursuant to the quasi-legislative power of the Committee expressly
authorized by R.A. No. 9207. The petition rests mainly on the theory that the assailed IRR issued by
the Committee is invalid on the ground that it is not germane to the object and purpose of the statute
it seeks to implement. Where what is assailed is the validity or constitutionality of a rule or regulation
issued by the administrative agency in the performance of its quasi-legislative function, the regular
courts have jurisdiction to pass upon the same. 14

Since the regular courts have jurisdiction to pass upon the validity of the assailed IRR issued by the
Committee in the exercise of its quasi-legislative power, the judicial course to assail its validity must
follow the doctrine of hierarchy of courts. Although the Supreme Court, Court of Appeals and the
Regional Trial Courts have concurrent jurisdiction to issue writs of certiorari,
prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence does not
give the petitioner unrestricted freedom of choice of court forum. 15

True, this Court has the full discretionary power to take cognizance of the petition filed directly with it
if compelling reasons, or the nature and importance of the issues raised, so warrant. 16 A direct
invocation of the Court’s original jurisdiction to issue these writs should be allowed only when there
are special and important reasons therefor, clearly and specifically set out in the petition. 17

In Heirs of Bertuldo Hinog v. Melicor, 18 the Court said that it will not entertain direct resort to it unless
the redress desired cannot be obtained in the appropriate courts, and exceptional and compelling
circumstances, such as cases of national interest and of serious implications, justify the availment of
the extraordinary remedy of writ of certiorari, calling for the exercise of its primary jurisdiction. 19 A
perusal, however, of the petition for prohibition shows no compelling, special or important reasons to
warrant the Court’s taking cognizance of the petition in the first instance. Petitioner also failed to
state any reason that precludes the lower courts from passing upon the validity of the questioned
IRR. Moreover, as provided in Section 5, Article VIII of the

Constitution, 20 the Court’s power to evaluate the validity of an implementing rule or regulation is

generally appellate in nature. Thus, following the doctrine of hierarchy of courts, the instant petition
should have been initially filed with the Regional Trial Court.

A petition for prohibition is also not the proper remedy to assail an IRR issued in the exercise of a
quasi-legislative function. Prohibition is an extraordinary writ directed against any tribunal,
corporation, board, officer or person, whether exercising judicial, quasi-judicial or ministerial
functions, ordering said entity or person to desist from further proceedings when said proceedings
are without or in excess of said entity’s or person’s jurisdiction, or are accompanied with grave
abuse of discretion, and there is no appeal or any other plain, speedy and adequate remedy in the
ordinary course of law. 21 Prohibition lies against judicial or ministerial functions, but not against
legislative or quasi-legislative functions. Generally, the purpose of a writ of prohibition is to keep a
lower court within the limits of its jurisdiction in order to maintain the administration of justice in
orderly channels. 22 Prohibition is the proper remedy to afford relief against usurpation of jurisdiction
or power by an inferior court, or when, in the exercise of jurisdiction in handling matters clearly within
its cognizance the inferior court transgresses the bounds prescribed to it by the law, or where there
is no adequate remedy available in the ordinary course of law by which such relief can be
obtained. 23 Where the principal relief sought is to invalidate an IRR, petitioners’ remedy is an
ordinary action for its nullification, an action which properly falls under the jurisdiction of the Regional
Trial Court. In any case, petitioners’ allegation that "respondents are performing or threatening to
perform functions without or in excess of their jurisdiction" may appropriately be enjoined by the trial
court through a writ of injunction or a temporary restraining order.

In a number of petitions, 24 the Court adequately resolved them on other grounds without

adjudicating on the constitutionality issue when there were no compelling reasons to pass upon the
same. In like manner, the instant petition may be dismissed based on the foregoing procedural
grounds. Yet, the Court will not shirk from its duty to rule on the merits of this petition to facilitate the
speedy resolution of this case. In proper cases, procedural rules may be relaxed or suspended in the
interest of substantial justice. And the power of the Court to except a particular case from its rules
whenever the purposes of justice require it cannot be questioned. 25

Now, we turn to the substantive aspects of the petition. The outcome, however, is just as dismal for
petitioners.

Petitioners assail the following provisions of the IRR:

Section 3. Disposition of Certain portions of the NGC Site to the bonafide residents

3.1. Period for Qualification of Beneficiaries

xxxx

(a.4) Processing and evaluation of qualifications shall be based on the Code of Policies and subject
to the condition that a beneficiary is qualified to acquire only one (1) lot with a minimum of 36 sq. m.
and maximum of 54 sq. m. and subject further to the availability of lots.

xxxx

(b.2) Applications for qualification as beneficiary shall be processed and evaluated based on the
Code of Policies including the minimum and maximum lot allocation of 35 sq. m. and 60 sq. m.

xxxx

3.2. Execution of the Contract to Sell

(a) Westside

(a.1) All qualified beneficiaries shall execute Contract to Sell (CTS) within sixty (60) days from the
effectivity of the IRR in order to avail of the lot at P700.00 per sq. m.

xxxx

(c) for both eastside and westside

(c.1) Qualified beneficiaries who failed to execute CTS on the deadline set in item a.1 above in case
of westside and in case of eastside six (6) months after approval of the subdivision plan shall be
subjected to lot price escalation.

The rate shall be based on the formula to be set by the National Housing Authority factoring therein
the affordability criteria. The new rate shall be approved by the NGC-Administration Committee
(NGC-AC).

Petitioners contend that the aforequoted provisions of the IRR are constitutionally infirm as they are
not germane to and/or are in conflict with the object and purpose of the law sought to be
implemented.

First. According to petitioners, the limitation on the areas to be awarded to qualified beneficiaries
under Sec. 3.1 (a.4) and (b.2) of the IRR is not in harmony with the provisions of R.A. No. 9207,
which mandates that the lot allocation to qualified beneficiaries shall be based on the area actually
used or occupied by bona fide residents without limitation to area. The argument is utterly baseless.

The beneficiaries of lot allocations in the NGC may be classified into two groups, namely, the urban
poor or the bona fide residents within the NGC site and certain government institutions including the
local government. Section 3, R.A. No. 9207 mandates the allocation of additional property within the
NGC for disposition to its bona fide residents and the manner by which this area may be distributed
to qualified beneficiaries. Section 4, R.A. No. 9207, on the other hand, governs the lot disposition to
government institutions. While it is true that Section 4 of R.A. No. 9207 has a proviso mandating that
the lot allocation shall be based on the land area actually used or occupied at the time of the law’s
effectivity, this proviso applies only to institutional beneficiaries consisting of the local government,
socioeconomic, charitable, educational and religious institutions which do not have specific lot
allocations, and not to the bona fide residents of NGC. There is no proviso which even hints that
a bona fide resident of the NGC is likewise entitled to the lot area actually occupied by him.

Petitioners’ interpretation is also not supported by the policy of R.A. No. 9207 and the prior
proclamations establishing the NGC. The government’s policy to set aside public property aims to
benefit not only the urban poor but also the local government and various government institutions
devoted to socioeconomic, charitable, educational and

religious purposes. 26 Thus, although Proclamation No. 137 authorized the sale of lots to bona
fide residents in the NGC, only a third of the entire area of the NGC was declared open for
disposition subject to the condition that those portions being used or earmarked for public or quasi-
public purposes would be excluded from the housing program for NGC residents. The same policy
of rational and optimal land use can be read in Proclamation No. 248 issued by then President
Ramos. Although the proclamation recognized the rapid increase in the population density in the
NGC, it did not allocate additional property within the NGC for urban poor housing but instead
authorized the vertical development of the same 150 hectares identified previously by Proclamation
No. 137 since the distribution of individual lots would not adequately provide for the housing needs
of all the bona fide residents in the NGC.

In addition, as provided in Section 4 of R.A. No. 9207, the institutional beneficiaries shall be
allocated the areas actually occupied by them; hence, the portions intended for the institutional
beneficiaries is fixed and cannot be allocated for other non-institutional beneficiaries. Thus, the
areas not intended for institutional beneficiaries would have to be equitably distributed among
the bona fide residents of the NGC. In order to accommodate all qualified residents, a limitation on
the area to be awarded to each beneficiary must be fixed as a necessary consequence.
Second. Petitioners note that while Sec. 3.2 (a.1) of the IRR fixes the selling rate of a lot at P700.00
per sq. m., R.A. No. 9207 does not provide for the price. They add Sec. 3.2 (c.1) penalizes a
beneficiary who fails to execute a contract to sell within six (6) months from the approval of the
subdivision plan by imposing a price escalation, while there is no such penalty imposed by R.A. No.
9207. Thus, they conclude that the assailed provisions conflict with R.A. No. 9207 and should be
nullified. The argument deserves scant consideration.

Where a rule or regulation has a provision not expressly stated or contained in the statute being
implemented, that provision does not necessarily contradict the statute. A legislative rule is in the
nature of subordinate legislation, designed to implement a primary legislation by providing the details
thereof. 27 All that is required is that the regulation should be germane to the objects and purposes of
the law; that the regulation be not in contradiction to but in conformity with the standards prescribed
by the law. 28

In Section 5 of R.A. No. 9207, the Committee is granted the power to administer, formulate
guidelines and policies, and implement the disposition of the areas covered by the law. Implicit in
this authority and the statute’s objective of urban poor housing is the power of the Committee to
formulate the manner by which the reserved property may be allocated to the beneficiaries. Under
this broad power, the Committee is mandated to fill in the details such as the qualifications of
beneficiaries, the selling price of the lots, the terms and conditions governing the sale and other key
particulars necessary to implement the objective of the law. These details are purposely omitted
from the statute and their determination is left to the discretion of the Committee because the latter
possesses special knowledge and technical expertise over these matters.

The Committee’s authority to fix the selling price of the lots may be likened to the rate-fixing power of
administrative agencies. In case of a delegation of rate-fixing power, the only standard which the
legislature is required to prescribe for the guidance of the administrative authority is that the rate be
reasonable and just. However, it has been held that even in the absence of an express requirement
as to reasonableness, this standard may be implied. 29 In this regard, petitioners do not even claim
that the selling price of the lots is unreasonable.

The provision on the price escalation clause as a penalty imposed to a beneficiary who fails to
execute a contract to sell within the prescribed period is also within the Committee’s authority to
formulate guidelines and policies to implement R.A. No. 9207. The Committee has the power to lay
down the terms and conditions governing the disposition of said lots, provided that these are
reasonable and just. There is nothing objectionable about prescribing a period within which the
parties must execute the contract to sell. This condition can ordinarily be found in a contract to sell
and is not contrary to law, morals, good customs, public order, or public policy.

Third. Petitioners also suggest that the adoption of the assailed IRR suffers from a procedural flaw.
According to them the IRR was adopted and concurred in by several representatives of people’s
organizations contrary to the express mandate of R.A. No. 9207 that only two representatives from
duly recognized peoples’ organizations must compose the NGCAC which promulgated the assailed
IRR. It is worth noting that petitioner association is not a duly recognized people’s organization.

In subordinate legislation, as long as the passage of the rule or regulation had the benefit of a
hearing, the procedural due process requirement is deemed complied with. That there is observance
of more than the minimum requirements of due process in the adoption of the questioned IRR is not
a ground to invalidate the same.

In sum, the petition lacks merit and suffers from procedural deficiencies.
WHEREFORE, the instant petition for prohibition is DISMISSED. Costs against petitioners.

SO ORDERED.

HOLY SPIRIT HOMEOWNERS ASSOCIATION v. SECRETARY MICHAEL DEFENSOR,

GR NO. 163980, 2006-08-03
Facts:
Petitioner Holy Spirit Homeowners Association, Inc. (Association) is a homeowners
association
It is represented by its president, Nestorio F. Apolinario, Jr., who is a co-petitioner in his
own personal capacity and on behalf of the... association.
Named respondents are the ex-officio members of the National Government Center
Administration Committee (Committee).
Prior to the passage of R.A. No. 9207, a number of presidential issuances authorized the
creation and development of what is now known as the National Government Center
(NGC).
On March 5,... On March 5,... 1972,... former President Ferdinand Marcos issued
Proclamation No. 1826, reserving a parcel of land in Constitution Hills, Quezon City,
covering a little over 440 hectares... as a national government site to be known as the NGC.
1987,... then President Corazon Aquino issued Proclamation No. 137, excluding 150 of the
440 hectares of the reserved site from the coverage of Proclamation No. 1826 and
authorizing instead the disposition of the excluded portion by direct sale to the... bona fide
residents therein.
In view of the rapid increase in population density in the portion excluded by Proclamation
No. 137... ormer President Fidel Ramos issued Proclamation No. 248... authorizing the
vertical development of the... excluded portion to maximize the number of families who can
effectively become beneficiaries of the government's socialized housing program.
2003, President Gloria Macapagal-Arroyo signed into law R.A. No. 9207.
mong the salient provisions of the law are the following:
Sec. 3. Disposition of Certain Portions of the National Government Center Site to Bona Fide
Residents. Proclamation No. 1826, Series of 1979, is hereby amended by excluding from
the coverage thereof, 184 hectares on the west side and 238 hectares on the east side of
Commonwealth Avenue, and declaring the same open for disposition to bona fide residents
therein:
In accordance with Section 5 of R.A. No. 9207,[4] the Committee formulated the
Implementing Rules and Regulations (IRR) of R.A. No. 9207
Petitioners subsequently filed the instant petition, raising the following issues:
Issues:
WHETHER OR NOT SECTION 3.1 (A.4), 3.1 (B.2), 3.2 (A.1) AND 3.2 (C.1) OF THE
RULES AND REGULATIONS OF REPUBLIC ACT NO. 9207, OTHERWISE KNOWN AS
"NATIONAL GOVERNMENT CENTER (NGC) HOUSING AND LAND UTILIZATION ACT
OF 2003" SHOULD BE DECLARED NULL AND VOID FOR BEING
INCONSISTENT WITH THE LAW IT SEEKS TO IMPLEMENT.
WHETHER OR NOT SECTION 3.1 (A.4), 3.1 (B.2), 3.2 (A.1) AND 3.2 (C.1) OF THE
RULES AND REGULATIONS OF REPUBLIC ACT NO. 9207, OTHERWISE KNOWN AS
"NATIONAL GOVERNMENT CENTER (NGC) HOUSING AND LAND UTILIZATION ACT
OF 2003" SHOULD BE DECLARED NULL AND VOID FOR BEING ARBITRARY,...
CAPRICIOUS AND WHIMSICAL.
Ruling:
First, the procedural matters.
"Legal standing" or locus standi... defined as a personal and substantial interest in the case
such that the party has sustained or will sustain direct injury as a result of the governmental
act that is being challenged
We cannot, therefore, agree with the OSG on the issue of locus standi. The petition does
not merit dismissal on that ground.
other procedural impediments to the granting of the instant petition
The OSG claims that the instant petition for prohibition is an improper remedy because the
writ of prohibition does not lie against the exercise of a quasi-legislative function.
Since in issuing the questioned IRR... of R.A. No. 9207,... the Committee was not exercising
judicial, quasi-judicial or ministerial function
The cited breaches are mortal. The petition deserves to be spurned as a consequence.
Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial
or administrative adjudicatory powers.
Quasi-legislative or rule-making power is the power to make rules and regulations which
results in delegated legislation that is within the confines... of the granting statute and the
doctrine of non-delegability and separability of powers.
In questioning the validity or constitutionality of a rule or regulation issued by an
administrative agency, a party need not exhaust administrative remedies before going to
court.
his principle, however, applies only where the act of the administrative agency... concerned
was performed pursuant to its quasi-judicial function, and not when the assailed act
pertained to its rule-making or quasi-legislative power.
The assailed IRR was issued pursuant to the quasi-legislative power of the Committee
expressly authorized by R.A. No. 9207.
Where what is assailed is the validity or constitutionality of a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative function, the regular courts
have jurisdiction to pass upon the... same.
Since the regular courts have jurisdiction to pass upon the validity of the assailed IRR
issued by the Committee in the exercise of its quasi-legislative power, the judicial course to
assail its validity must follow the doctrine of hierarchy of courts.
Although the
Supreme Court, Court of Appeals and the Regional Trial Courts have concurrent jurisdiction
to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and
injunction, such concurrence does not give the petitioner unrestricted freedom of choice... of
court forum.
A direct invocation of the Court's original... jurisdiction to issue these writs should be
allowed only when there are special and important reasons therefor, clearly and specifically
set out in the petition.
A petition for prohibition is also not the proper remedy to assail an IRR issued in the
exercise of a quasi-legislative function.
Prohibition lies against judicial or ministerial functions, but not against legislative or quasi-
legislative functions.
Generally, the purpose of a writ of prohibition is to keep a... lower court within the limits of
its jurisdiction in order to maintain the administration of justice in orderly channels.
Where the principal relief sought is to invalidate an IRR, petitioners' remedy is an ordinary
action for its nullification, an action which properly falls under the jurisdiction of the Regional
Trial Court.
In like manner, the instant petition may be dismissed based on... the foregoing procedural
grounds. Yet, the Court will not shirk from its duty to rule on the merits of this petition to
facilitate the speedy resolution of this case. In proper cases, procedural rules may be
relaxed or suspended in the interest of substantial justice. And the... power of the Court to
except a particular case from its rules whenever the purposes of justice require it cannot be
questioned.
Now, we turn to the substantive aspects of the petition. The outcome, however, is just as
dismal for petitioners.
WHEREFORE, the instant petition for prohibition is DISMISSED.
 FIRST DIVISION

[G.R. No. 127624. November 18, 2003.]

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

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

DECISION

AZCUNA, J.:

The present petition for review on certiorari assails the decision 1 of the Court of
Appeals in CA-G.R. SP No. 38223 and its subsequent resolution 2 denying the motion
for reconsideration. The assailed decision and resolution affirmed the decision of the
Court of Tax Appeals (CTA) which denied petitioner BPI Leasing Corporation’s (BLC)
claim for tax refund in CTA Case No. 4252. chanrob1es virtua1 1aw 1ibrary

The facts are not disputed.

BLC is a corporation engaged in the business of leasing properties. 3 For the calendar
year 1986, BLC paid the Commissioner of Internal Revenue (CIR) a total of
P1,139,041.49 representing 4% "contractor’s percentage tax" then imposed by Section
205 of the National Internal Revenue Code (NIRC), based on its gross rentals from
equipment leasing for the said year amounting to P27,783,725.42. 4

On November 10, 1986, the CIR issued Revenue Regulation 19-86. Section 6.2 thereof
provided that finance and leasing companies registered under Republic Act 5980 shall
be subject to gross receipt tax of 5%-3%-1% on actual income earned. This means
that companies registered under Republic Act 5980, such as BLC, are not liable for
"contractor’s percentage tax" under Section 205 but are, instead, subject to "gross
receipts tax" under Section 260 (now Section 122) of the NIRC. Since BLC had earlier
paid the aforementioned "contractor’s percentage tax," it re-computed its tax liabilities
under the "gross receipts tax" and arrived at the amount of P361,924.44.

On April 11, 1988, BLC filed a claim for a refund with the CIR for the amount of
P777,117.05, representing the difference between the P1,139,041.49 it had paid as
"contractor’s percentage tax" and P361,924.44 it should have paid for "gross receipts
tax." 5 Four days later, to stop the running of the prescriptive period for refunds,
petitioner filed a petition for review with the CTA. 6

In a decision dated May 13, 1994, 7 the CTA dismissed the petition and denied BLC’s
claim of refund. The CTA held that Revenue Regulation 19-86, as amended, may only
be applied prospectively such that it only covers all leases written on or after January 1,
1987, as stated under Section 7 of said revenue regulation: chanrob1es virtual 1aw library

Section 7. Effectivity — These regulations shall take effect on January 1, 1987 and shall
be applicable to all leases written on or after the said date.
The CTA ruled that, since BLC’s rental income was all received prior to 1986, it follows
that this was derived from lease transactions prior to January 1, 1987, and hence, not
covered by the revenue regulation.

A motion for reconsideration of the CTA’s decision was filed, but was denied in a
resolution dated July 26, 1995. 8 BLC then appealed the case to the Court of Appeals,
which issued the aforementioned assailed decision and resolution. 9 Hence, the present
petition.
chanrob1es virtua1 1aw 1ibrary

In seeking to reverse the denial of its claim for tax refund, BLC submits that the Court
of Appeals and the CTA erred in not ruling that Revenue Regulation 19-86 may be
applied retroactively so as to allow BLC’s claim for a refund of P777,117.05.

Respondents, on the other hand, maintain that the provision on the date of effectivity
of Revenue Regulation 19-86 is clear and unequivocal, leaving no room for
interpretation on its prospective application. In addition, respondents argue that the
petition should be dismissed on the ground that the Verification/Certification of Non-
Forum Shopping was signed by the counsel of record and not by BLC, through a duly
authorized representative, in violation of Supreme Court Circular 28-91.

In a resolution dated March 29, 2000, 10 the petition was given due course and the
Court required the parties to file their respective Memoranda. Upon submission of the
Memoranda, the issues in this case were delineated, as follows: 11

WHETHER THE INSTANT PETITION FOR REVIEW ON CERTIORARI SUBSTANTIALLY

COMPLIES WITH SUPREME COURT CIRCULAR 28-91.

WHETHER REVENUE REGULATION 19-86, AS AMENDED, IS LEGISLATIVE OR

INTERPRETATIVE IN NATURE.

WHETHER REVENUE REGULATION 19-86, AS AMENDED, IS PROSPECTIVE OR

RETROACTIVE IN ITS APPLICATION.

WHETHER PETITIONER, AS FOUND BY THE COURT OF APPEALS, FAILED TO MEET THE

QUANTUM OF EVIDENCE REQUIRED IN REFUND CASES.

WHETHER PETITIONER, AS FOUND BY THE COURT OF APPEALS, IS ESTOPPED FROM

CLAIMING ITS PRESENT REFUND. chanrob1es virtua1 1aw library

As to the first issue, the Court agrees with respondents’ contention that the petition
should be dismissed outright for failure to comply with Supreme Court Circular 28-91,
now incorporated as Section 2 of Rule 42 of the Rules of Court. The records plainly
show, and this has not been denied by BLC, that the certification was executed by
counsel who has not been shown to have specific authority to sign the same for BLC.

In BA Savings Bank v. Sia, 12 it was held that the certificate of non-forum shopping
may be signed, for and on behalf of a corporation, by a specifically authorized lawyer
who has personal knowledge of the facts required to be disclosed in such document.
This ruling, however, does not mean that any lawyer, acting on behalf of the
corporation he is representing, may routinely sign a certification of non-forum
shopping. The Court emphasizes that the lawyer must be "specifically authorized" in
order validly to sign the certification.

Corporations have no powers except those expressly conferred upon them by the
Corporation Code and those that are implied by or are incidental to its existence. These
powers are exercised through their board of directors and/or duly authorized officers
and agents. Hence, physical acts, like the signing of documents, can be performed only
by natural persons duly authorized for the purpose by corporate bylaws or by specific
act of the board of directors. 13

The records are bereft of the authority of BLC’s counsel to institute the present petition
and to sign the certification of non-forum shopping. While said counsel may be the
counsel of record for BLC, the representation does not vest upon him the authority to
execute the certification on behalf of his client. There must be a resolution issued by
the board of directors that specifically authorizes him to institute the petition and
execute the certification, for it is only then that his actions can be legally binding upon
BLC.

BLC however insists that there was substantial compliance with SC Circular No. 28-91
because the verification/certification was issued by a counsel who had full personal
knowledge that no other petition or action has been filed or is pending before any other
tribunal. According to BLC, said counsel’s law firm has handled this case from the very
beginning and could very well attest and/or certify to the absence of an instituted or
pending case involving the same or similar issues.

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

. . . The CA held that there was substantial compliance with the Rules of Court, citing
Dimagiba v. Montalvo, Jr. [ 202 S CRA 641 ] to the effect that a lawyer who assumes
responsibility for a client’s cause has the duty to know the entire history of the case,
especially if any litigation is commenced. This view, however, no longer holds
authoritative value in the light of Digital Microwave Corporation v. CA [328 SCRA 286],
where it was held that the reason the certification against forum shopping is required to
be accomplished by petitioner himself is that only the petitioner himself has actual
knowledge of whether or not he has initiated similar actions or proceedings in other
courts or tribunals. Even counsel of record may be unaware of such fact. To our mind,
this view is more in accord with the intent and purpose of Revised Circular No. 28-91.
1ibrary
chanrob1es virtua1 1aw

Clearly, therefore, the present petition lacks the proper certification as strictly required
by jurisprudence and the Rules of Court.

Even if the Court were to ignore the aforesaid procedural infirmity, a perusal of the
arguments raised in the petition, indicates that a resolution on the merits would
nevertheless yield the same outcome.

BLC attempts to convince the Court that Revenue Regulation 19-86 is legislative rather
than interpretative in character and hence, should retroact to the date of effectivity of
the law it seeks to interpret.
Administrative issuances may be distinguished according to their nature and substance:
legislative and interpretative. A legislative rule is in the matter of subordinate
legislation, designed to implement a primary legislation by providing the details thereof.
An interpretative rule, on the other hand, is designed to provide guidelines to the law
which the administrative agency is in charge of enforcing. 15

The Court finds the questioned revenue regulation to be legislative in nature. Section 1
of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Section
277 of the NIRC. Section 277 (now Section 244) is an express grant of authority to the
Secretary of Finance to promulgate all needful rules and regulations for the effective
enforcement of the provisions of the NIRC. In Paper Industries Corporation of the
Philippines v. Court of Appeals, 16 the Court recognized that the application of Section
277 calls for none other than the exercise of quasi-legislative or rule-making authority.
Verily, it cannot be disputed that Revenue Regulation 19-86 was issued pursuant to the
rule-making power of the Secretary of Finance, thus making it legislative, and not
interpretative as alleged by BLC.

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

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

After upholding the validity of Revenue Regulation 19-86, the Court now resolves
whether its application should be prospective or retroactive.

The principle is well entrenched that statutes, including administrative rules and
regulations, operate prospectively only, unless the legislative intent to the contrary is
manifest by express terms or by necessary implication. 19 In the present case, there is
no indication that the revenue regulation may operate retroactively. Furthermore, there
is an express provision stating that it "shall take effect on January 1, 1987," and that it
"shall be applicable to all leases written on or after the said date." Being clear on its
prospective application, it must be given its literal meaning and applied without further
interpretation. 20 Thus, BLC is not in a position to invoke the provisions of Revenue
Regulation 19-86 for lease rentals it received prior to January 1, 1987.
It is also apt to add that tax refunds are in the nature of tax exemptions. As such, these
are regarded as in derogation of sovereign authority and are to be strictly construed
against the person or entity claiming the exemption. The burden of proof is upon him
who claims the exemption and he must be able to justify his claim by the clearest grant
under Constitutional or statutory law, and he cannot be permitted to rely upon vague
implications. 21 Nothing that BLC has raised justifies a tax refund.

It is not necessary to rule on the remaining issues,

WHEREFORE, the petition for review is hereby DENIED, and the assailed decision and
resolution of the Court of Appeals are AFFIRMED. No pronouncement as to costs. chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

Davide, Jr., C.J., Panganiban, Ynares-Santiago and Carpio, JJ., concur.

 
BPI LEASING CORP. vs. CA, et al.
GR No. 127624, 18 Nov. 2003
FACTS:
BLC is a corporation engaged in the business of leasing properties. For
thec a l e n d a r   y e a r   1 9 8 6 ,   i t   p a i d   C o m m i s s i o n e r   o f   I n t e r n a l   R e v e n u e   a   t o t a l 
o f   P 1,139,041.49 representing 4% contractor’s percentage tax as imposed by the
National Internal Revenue Code. However, in November 1986, CIR issued
a Revenue Regulation which provides that companies registered under RA 5980, likeBLC, are no
longer liable for contractor’s percentage tax, instead, subject only to g r o s s
receipts tax. Thereafter, BLC filed a claim for refund before the CIR
a n d simultaneously filed a petition for review before the Court of Tax Appeal in order to stop the
running of the prescriptive period for refunds.  Both cases were denied, despite motion for
reconsideration by BLC, hence, they appealed before the Court of Appeals, which the latter affirmed
the decision of CTA and CIR.  Aggrieved by thedecision, BLC instituted a petition before the
SC. However, the certification againstnon-forum shopping attached to the petition was signed by the
counsel on record of the BLC, who was not specifically authorized to do so.

ISSUE:
Whether or not a lawyer is authorized to validly sign, for and in behalf of its client, the certification
of non-forum shopping.

HELD:
It was held that while the certification of non-forum shopping may be signed,f o r
a n   o n   b e h a l f   o f   a   c o r p o r a t i o n ,   b y   a   s p e c i f i c a l l y   a u t h o r i z e d   l a w y e r   w h o   h a s person
al knowledge of the facts required to be disclosed in such document, it does not mean that any
lawyer, acting on behalf of the corporation he is
representing,m a y   r o u t i n e l y   s i g n   a   c e r t i f i c a t i o n   o f   n o n - f o r u m   s h o p p i n g   –   t h e  
l a w y e r   m u s t   b e “specifically authorized” in order to validly sign the certification.Since powers of
corporations are exercised through their board of
directorsa n d / o r   d u l y   a u t h o r i z e d   o f f i c e r s   a n d   a g e n t s ,   p h y s i c a l   a c t s ,   l i k e   t h e   s i g n
ing of documents, can be performed only by natural persons duly authorized fo
r   t h e purpose by corporate by laws or by specific acts of the board of
directors. Beingc o u n s e l   o f   r e c o r d   d o e s   n o t   v e s t   u p o n   a   l a w y e r   t h e   a u t h o r t
y   t o   e x e c u t e   t h e certification on behalf of his client.PETITION DENIED
 G.R. No. 202275, July 17, 2018

THE PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES

(PBOAP), THE SOUTHERN LUZON BUS OPERATORS ASSOCIATION, INC. (SO-
LUBOA), THE INTER CITY BUS OPERATORS ASSOCIATION (INTERBOA), AND
THE CITY OF SAN JOSE DEL MONTE BUS OPERATORS ASSOCIATION
(CSJDMBOA), Petitioners, v. DEPARTMENT OF LABOR AND EMPLOYMENT (DOLE)
AND LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD
(LTFRB), Respondents.

DECISION

LEONEN, J.:

Government created policy based on the finding that the boundary payment scheme
that has since determined the take-home pay of bus drivers and conductors has been
proven inadequate in providing our public utility bus drivers and conductors a decent
and living wage. It decided that this was the best approach to ensure that they get the
economic and social welfare benefits that they deserve. This Court will not stand in its
way. Policy questions are not what this Court decides.

This resolves an original action for certiorari and prohibition, assailing the
constitutionality of the following:

First, the Department of Labor and Employment (DOLE) Department Order No. 118-12,
otherwise known as the Rules and Regulations Governing the Employment and Working
Conditions of Drivers and Conductors in the Public Utility Bus Transport Industry;

Second, all the implementing guidelines issued pursuant to Department Order No. 118-
12, including the National Wages and Productivity Commission's Guidelines No. 1,
series of 2012, otherwise known as the Operational Guidelines on Department Order
No. 118-12; and

Finally, the Land Transportation Franchising and Regulatory Board (LTFRB)

Memorandum Circular No. 2012-001, the subject of which is the Labor Standards
Compliance Certificate.

Petitioners Provincial Bus Operators Association of the Philippines, Southern Luzon Bus
Operators Association, Inc., Inter City Bus Operators Association, and City of San Jose
Del Monte Bus Operators Association (collectively, petitioners) argue that Department
Order No. 118-12 and Memorandum Circular No. 2012-001 violate the constitutional
rights of public utility bus operators to due process of law, equal protection of the laws,
and non-impairment of obligation of contracts.

The facts of the case are as follows:

To ensure road safety and address the risk-taking behavior of bus drivers as its
declared objective, the LTFRB issued Memorandum Circular No. 2012-001 1 on January
4, 2012, requiring "all Public Utility Bus (PUB) operators ... to secure Labor Standards
Compliance Certificates" under pain of revocation of their existing certificates of public
convenience or denial of an application for a new certificate. Memorandum Circular No.
2012-001 more particularly provides:

MEMORANDUM CIRCULAR
NUMBER 2012-001

SUBJECT: LABOR STANDARDS COMPLIANCE CERTIFICATE

This Memorandum Circular covers all Public Utility Bus (PUB) Operators and is being
issued to ensure road safety through linking of labor standards compliance with
franchise regulation.

It is based on a DOLE rapid survey of bus drivers/conductors and operators on the

working conditions and compensation schemes in the bus transport sector. The survey
results, as validated in a series of focus group discussions with bus operators, drivers,
government regulating agencies and experts from the academe in the fields of
engineering and traffic psychology, indicate that the risk[-]taking behavior of drivers is
associated with the lack of proper training on motor skills, safety and on traffic rules
and regulations; poor health due to long work hours and exposure to health hazards
and; lack of income security under a purely commission-based compensation scheme.
The industry players also cited problems with the enforcement of traffic rules and
regulations as well as the franchising and licensing systems.

To strictly enforce this Memorandum Circular, the Board, thru the [Department of
Transportation and Communication], shall strengthen cooperation and coordination with
the Department of Labor and Employment.

Labor Standards Compliance Certificate

To ensure compliance with the established standards for employment and the Board's
policies on the promotion of road safety, all Public Utility Bus (PUB) operators are
required to secure Labor Standards Compliance Certificates from the Department of
Labor and Employment (DOLE).

The Certificate shall indicate compliance by the PUB operators with all relevant
legislations on wages, labor standards, terms and conditions of employment, and such
mandatory benefits as may now or in the future be provided under Philippine Labor
Laws; Provided that –

Compensation Scheme

The compensation scheme set or approved by the DOLE shall cover the PUB drivers and
conductors and shall adopt a part-fixed-part performance[-]based compensation
system. The fixed component shall at no time be lower than the applicable minimum
wage in the region. The performance[-]based component shall be based on the net
income of the operator or bus company and on employee safety records such as that in
regard to involvement in road accidents, commission of traffic violations, and
observance of the elementary courtesies of the road.

All PUB drivers and conductors shall be entitled to other mandatory compensation such
as but not limited to overtime, night shift differential, rest day, holiday, birthday, and
service incentive leave pays.

Hours of Work

The number of working hours and rest periods of the drivers and conductors shall be
determined taking into consideration the existing conditions, peculiarities and
requirements of the transport industry.

Benefits

All PUB drivers and conductors shall likewise be entitled to retirement benefits and to all
mandatory social security benefits such as membership in the SSS, Philhealth and Pag-
Ibig as specified by law.

Right to Self Organization

The right of the drivers and conductors to organize themselves to advance their
interests and welfare shall be encouraged. It shall not in any way be abridged or
diminished by way of any agreement or contract entered into in complying with this
issuance or in obtaining the Labor Standards Compliance Certificate.

Nothing herein shall be interpreted to mean as precluding the PUB operators and the
drivers or conductors from entering into collective bargaining agreements granting
them more rights, privileges and benefits.

Company policies and practices, and collective bargaining agreements existing on

effectivity of this issuance which grant more rights, privileges, and benefits to the
drivers and conductors than herein provided shall continue to be in effect and shall not
be diminished by virtue hereof or any subsequent policies or agreements.

The exercise of the right to self-organization shall in no way adversely affect public
safety and convenience.

Effectivity

Failure on the part of the PUB operators to secure and submit to the Board by July 30,
2012 the required Labor Standards Certificates shall be a ground for the immediate
cancellation or revocation of their franchises/[Certificates of Public Convenience].

No application for new [Certificates of Public Convenience] or renewal of existing

[Certificates of Public Convenience] shall thereafter be granted by the Board without
the required Certificates.
This Memorandum Circular shall take effect fifteen (15) days following its publication in
at least two (2) newspapers of general circulation. Let three (3) copies hereof be filed
with the UP [L]aw Center pursuant to Presidential Memorandum Circular No. 11, dated
9 October 1992.

SO ORDERED.

Five (5) days later or on January 9, 2012, the DOLE issued Department Order No. 118-
12, elaborating on the part-fixed-part-performance-based compensation system
referred to in the LTFRB Memorandum Circular No. 2012-001. 2 Department Order No.
118-12, among others, provides for the rule for computing the fixed and the
performance-based component of a public utility bus driver's or conductor's wage.
Relevant portions of Department Order No. 118-12 provide:

DEPARTMENT ORDER N0. 118-12

Series of 2012

RULES AND REGULATIONS GOVERNING THE EMPLOYMENT

AND WORKING CONDITIONS OF DRIVERS AND
CONDUCTORS IN THE PUBLIC UTILITY BUS TRANSPORT
INDUSTRY

Pursuant to the provision of Article 5 of the Labor Code of the Philippines, as amended,
the following rules and regulations are hereby issued to ensure the protection and
welfare of drivers and conductors employed in the public utility bus transport industry:
....

RULE II
TERMS AND CONDITIONS OF EMPLOYMENT

SECTION 1. Employment Agreement for Drivers and Conductors. — There shall

be an agreement in writing between the public utility bus owner/operator and the public
utility bus driver and/or conductor, which shall include the following terms:

a)
Driver['s] or conductor's full name, date of birth or age, address, civil status, and SSS
ID no.;
  
b)
Public Utility Bus owner's/operator's name and address;
  
c)
Place where and date when the employment agreement is entered into;
  
d)
Amount of the driver's or conductor's fixed wage and formula used for calculating the
performance[-]based compensation in accordance with Rule III (Compensation), as
provided hereunder;
  
e)
Hours of work;
  
f)
Wages and wage-related benefits such as overtime pay, holiday pay, premium pay,
13th month pay and leaves;
  
g)
Social security and welfare benefits;
  
h)
Separation and retirement benefits; and
  
i)
Other benefits under existing laws.

The public utility bus owner/operator shall provide the public utility bus
driver/conductor the signed and notarized original copy of the agreement.

SECTION 2. Minimum Benefits. — The public utility bus drivers and conductors are
entitled to the following benefits:

a)
Wages for all actual work during the normal work hours and days shall not be lower
than the applicable minimum wage rates. Wages shall be paid at least once every two
weeks or twice a month at intervals not exceeding 16 days;
  
b)
Twelve (12) Regular Holidays with pay pursuant to Republic Act 9849 (An Act Declaring
The Tenth Day of Zhul Hijja, The Twelfth Month of The Islamic Calendar, A National
Holiday For The Observance of Eidul Adha, Further Amending For The Purpose Section
26, Chapter 7, Book I of Executive Order No. 292, Otherwise Known As The
Administrative Code of 1987, As Amended). The driver/conductor shall be paid holiday
pay of 100% of the minimum wage even if he/she does not report for work, provided
he/she is present or is on leave of absence with pay on the workday immediately
preceding the holiday. If the driver/conductor is required to work on said holiday,
he/she shall be paid 200% of the minimum wage;
  
c)
Rest day of twenty-four (24) consecutive hours for every six (6) consecutive working
days. If the driver/conductor is required to work on a rest day, he/she shall be paid an
additional premium pay of 30% of the basic wage. If the driver/conductor is required to
work on special days under Republic Act No. 9849, he/she shall also be paid an
additional premium pay of 30% of the basic wage. Whenever work is performed on a
rest day, which happens to be also a special day, he/she is entitled to an additional
50% of the basic wage;
  
d)
Overtime pay equivalent to at least 25% of the basic wage on ordinary days and 30%
on regular holidays, special days and rest days for work beyond eight (8) hours per
day;
  
e)
Night shift pay of an additional 10% of the basic wage for work between 10:00 pm and
6:00 am of the following day;
  
f)
Paid service incentive leave of five (5) days for every year of service;
  
g)
13th month pay pursuant to Presidential Decree No. 851, as amended, which entitles
the employee to receive an amount equivalent to 1/12 of the total basic salary earned
within the calendar year, not later than 24 December of each year;
  
h)
Paid maternity leave of sixty (60) days for normal delivery or seventy[-]eight (78) days
for caesarian section delivery, pursuant to Republic Act No. 8282, otherwise known as
the Social Security Act of 1997;
  
i)
Paid paternity leave of seven (7) days, pursuant to Republic Act No. 8187, otherwise
known as the Paternity Leave Act of 1996;
  
j)
Paid parental leave of seven (7) days for solo parents pursuant to Republic Act No.
8972, otherwise known as the Solo Parents' Welfare Act of 2000;
  
k)
Paid leave of ten (10) days for victims of violence against women and their children,
pursuant to Republic Act No. 9262, otherwise known as the Anti-Violence Against
Women and Their Children Act of 2004;
  
l)
Paid special leave for women who underwent surgery caused by gynecological
disorders, pursuant to Republic Act No. 9710, otherwise known as the Magna Carta for
Women; and
  
m)
Retirement pay upon reaching the age of sixty (60) or more, pursuant to Republic Act
No. 7641.

SECTION 3. Hours of Work and Hours of Rest. — The normal hours of work of a
driver and conductor shall not exceed eight (8) hours a day.

If the driver/conductor is required to work overtime, the maximum hours of work shall
not exceed twelve (12) hours in any 24-hour period, subject to the overriding safety
and operational conditions of the public utility bus.

Drivers and conductors shall be entitled to rest periods of at least one (1) hour,
exclusive of meal breaks, within a 12-hour shift.
SECTION 4. Right to Security of Tenure. — Drivers and conductors shall enjoy
security of tenure in their employment as provided by law. Their employment can only
be terminated for just or authorized causes pursuant to the provisions of the Labor
Code, as amended.
....

RULE III
COMPENSATION

SECTION 1. Fixed and Performance[-]Based Compensation Scheme. — Bus

owners and/or operators shall adopt a mutually-agreed upon "part-fixed, part-
performance" based compensation scheme for their bus drivers and conductors.

SECTION 2. Method of Determining Compensation. — Bus owners and/or

operators, in consultation with their drivers and conductors shall determine the
following:

[a]) The fixed component shall be based on an amount mutually agreed upon by the
owner/operator and the driver/conductor, which shall in no case be lower than the
applicable minimum wage for work during normal hours/days. They shall also be
entitled to wage[-]related benefits such as overtime pay, premium pay and holiday pay,
among others.

[b]) The performance-based component shall be based on safety performance, business

performance and other related parameters.

SECTION 3. Operational Guidelines. The [National Wages and Productivity

Commission] shall develop operational guidelines to implement the part-fixed,
part[-]performance-based compensation scheme including the formula that should be
used by public utility bus companies within fifteen (15) days after publication of th[ese]
Rules.

SECTION 4. Submission of Proposed Compensation Scheme. — All public utility

bus owners and/or operators shall submit a proposed compensation scheme, mutually
agreed upon with their drivers/conductors, to the appropriate [Regional Tripartite
Wages and Productivity Board] for information and reference purposes based on Rule
III, Section 2 of th[ese] Rules, within sixty (60) days after the effectivity of this Order.
....

RULE V
SOCIAL PROTECTION

SECTION 1. Social Welfare Benefits. — Without prejudice to established company

policy, collective bargaining agreement or other applicable employment agreement, all
bus drivers and conductors shall be entitled to coverage for social welfare benefits such
as Pagibig Fund (Republic Act No. 7742), PhilHealth (Republic Act No. 7875, as
amended by Republic Act No. 9241), Employees' Compensation Law (Presidential
Decree No. 626), Social Security Law (Republic Act No. 1161 as amended by Republic
Act No. 8282) and other applicable laws.
The cost of health services for the illnesses and injuries suffered by the driver and
conductor shall be covered by mandatory social welfare programs under existing laws.

RULE VI
TRAINING AND DEVELOPMENT

SECTION 1. Assessment and Certification. — The [Technical Education and Skills

Development Authority], in coordination with the [Occupational Safety and Health
Center], the [Land Transportation Office], the LTFRB and the [Metropolitan Manila
Development Authority] shall implement an assessment and certification program for
professional drivers. The assessment will focus on knowledge, attitude and skills.

SECTION 2. Driver Proficiency Standards. — The [Technical Education and Skills

Development Authority] shall work closely with LTFRB in the implementation of its
Department Order No. 2011-25 "Inclusion of Driver Proficiency Standard as Additional
Requirement in the Exercise of the Regulatory Powers of LTFRB to Issue Certificates of
Public Convenience (CPC)". Applicants for CPCs shall present sufficient proof and submit
a list of its drivers who are duly certified by the TESDA.
....

RULE VIII
COMPLIANCE AND ENFORCEMENT

....

SECTION 4. Failure to Comply/Restitute. — In case of violations committed by bus

owners/operators and failure to comply or correct such violations, the DOLE shall
coordinate with the LTFRB on the matter of appropriate action, including possible
cancellation of franchise after due process.

....

RULE IX
MISCELLANEOUS PROVISIONS

SECTION 1. Transitory Provisions. — Th[ese] Rules shall initially cover the public
utility bus transport companies exclusively serving or plying Metro Manila routes and
shall apply to other public utility bus companies by July 2012.

In the first six months but not later than one year from the effectivity of th[ese] Rules,
the provisions herein stated shall be liberally construed to enable compliance by the
public utility bus companies.

SECTION 2. Operational Guidelines. — Operational guidelines to implement th[ese]

Rules shall be issued by concerned DOLE agencies (i.e., [Bureau of Working
Conditions], [Occupational Safety and Health Center], [National Conciliation and
Mediation Board], and [Technical Education and Skills Development Authority]) within
fifteen (15) days after its publication.
SECTION 3. Technical Assistance to Public Utility Bus Transport Companies. —
Public utility bus operators may request for technical assistance from concerned DOLE
agencies in the implementation of th[ese] Rules.

SECTION 4. Non-diminution of Benefits. — Nothing herein shall be construed to

authorize diminution of benefits being enjoyed by the bus drivers and conductors at the
time of the issuance hereof.

SECTION 5. Effect on Existing Company Policy, Contracts or CBAs. — The

minimum benefits provided in th[ese] Rules shall be without prejudice to any company
policy, contract, or Collective Bargaining Agreement (CBA) providing better terms and
conditions of employment.

On January 28, 2012, Atty. Emmanuel A. Mahipus, on behalf of the Provincial Bus
Operators Association of the Philippines, Integrated Metro Manila Bus Operators
Association, Inter City Bus Operators Association, the City of San Jose Del Monte Bus
Operators Association, and Pro-Bus, wrote to then Secretary of Labor and Employment
Rosalinda Dimapilis-Baldoz, requesting to defer the implementation of Department
Order No. 118-12.3 The request, however, was not acted upon.

Meanwhile, on February 27, 2012 and in compliance with Rule III, Section 3 of
Department Order No. 118-12, the National Wages and Productivity Commission issued
NWPC Guidelines No. 1 to serve as Operational Guidelines on Department Order No.
118-12. NWPC Guidelines No. 1 suggested formulae for computing the fixed-based and
the performance-based components of a bus driver's or conductor's wage. Relevant
portions of the NWPC Guidelines, including its Annex "A" on a sample computation
implementing the part-fixed-part-performance-based compensation scheme, are
reproduced below:

NWPC GUIDELINES NO. 1

(series 2012)

OPERATIONAL GUIDELINES ON DEPARTMENT ORDER NO.

118-12 "RULES AND REGULATIONS GOVERNING THE
EMPLOYMENT AND WORKING CONDITIONS OF DRIVERS
AND CONDUCTORS IN THE PUBLIC UTILITY BUS
TRANSPORT INDUSTRY"

Pursuant to Section 3 of Rule III of Department Order No. 118-12 "Rules and
Regulations Governing the Employment and Working Conditions of Drivers and
Conductors in the Public Utility Bus Transport Industry,["] the following operational
guidelines on the adoption of a part fixed, part-performance[-]based compensation
scheme is hereby issued:

RULE I
COVERAGE AND DEFINITION OF TERMS

SECTION 1. Coverage. — Th[ese] Guidelines shall apply to all public utility bus
owners and/or operators employing drivers and conductors. Owners/operators of
coaches, school, tourist and similar buses who are holders of Certificates of Public
Convenience (CPC) issued by the Land Transportation Franchising and Regulatory Board
(LTFRB), however, are not covered by the provisions of th[ese] Guidelines.

RULE II
COMPENSATION

SECTION 1. Part-Fixed, Part-Performance[-]Based Compensation Scheme.

a)
Bus owners and/or operators shall adopt a mutually-agreed upon "part-fixed, part-
performance" based compensation scheme for bus drivers and conductors. It shall take
into consideration revenue, ridership, safety, specific conditions of routes and other
relevant parameters. (Annex A -Sample Computation)

SECTION 2. Fixed Wage Component.

a)
The fixed wage component shall be an amount mutually agreed upon by the
owner/operator and the driver/conductor and shall be paid in legal tender. It shall in no
case be lower than the applicable minimum wage (basic wage + COLA) for work
performed during normal hours/days. It shall include wage[-]related benefits such as
overtime pay, nightshift differential, service incentive leave and premium pay among
others. The payment of 13th month pay, holiday and service incentive leave may be
integrated into the daily wage of drivers and conductors, upon agreement of both
owners/operators and drivers and conductors.

b)
The fixed wage may be based on a time unit of work (e.g. hourly, daily or monthly). It
may also be based on a per trip or per kilometer basis where the drivers/conductors
and operators may consider the minimum number of trips or kilometres/distance
travelled within an 8-hour period, as basis for determining regular/normal workload for
an 8-hour period. The fixed wage may be computed as follows:
  
Fixed Wage (Time Rate)= (Basic Wage + Wage-Related Benefits)
OR
  Fixed Wage (Trip Basis)= Rate per Trip x No. of Trips per Day

SECTION 3. Performance-Based Wage Component.

a)
The performance-based wage component shall be based on business performance,
safety performance and other relevant parameters. Business performance shall consider
revenue/ridership. Safety performance shall consider safety records such as the
incidence of road accident and traffic violation. The performance-based wage may be
computed as follows:
      Reference Amount of Performance Incentive = (Current Average Daily
Earnings - Fixed Wage) x Y%    
Where:
 
i.
Current average daily earnings shall be estimated based on average daily earnings for
2011 and/or prior years, as may be agreed upon.
ii.
Y – range of values (in percent) that correspond to various levels of safety
performance, such that:
  
• The lower the incidence of traffic violations and road accidents, the higher will be the
value of Y and the performance incentive
  

• The higher the incidence of traffic violations and road accidents, the lower will be the
value of Y and the performance incentive

b)
Bus operators/owners and drivers/conductors may modify or use other formula for their
compensation scheme provided it is in accordance with the part-fixed[-]part-
performance[-]based compensation scheme as provided herein.

....

SECTION 7. Submission of Proposed Compensation Scheme. — All public utility

bus owners and/or operators shall submit their proposed compensation scheme,
mutually agreed upon with their drivers/conductors, to the [Regional Tripartite Wage
and Productivity Board] having jurisdiction over the principal place of business of the
public utility bus operator, within sixty (60) days after the effectivity of the Guidelines
using the attached Proposed Compensation Form (Annex B). This form shall be
accomplished in duplicate (2) and shall be accompanied by a duly signed employment
agreement between the bus owner/operator and bus driver and between the bus
owner/operator and bus conductor.

Upon submission, the concerned [Regional Tripartite Wage and Productivity Board] shall
review the compensation scheme for conformity with Rule II of the Guidelines. If found
not in conformance with the Guidelines, the [Regional Tripartite Wage and Productivity
Board] shall provide technical assistance to the concerned bus owner/operator to
correct the non-conformance. The [Regional Tripartite Wage and Productivity Board]
shall thereafter furnish the DOLE-[Regional Office] a copy of the compensation scheme
and the agreements.

RULE III
MISCELLANEOUS PROVISIONS

....

SECTION 2. Non-diminution of Benefits. — Nothing herein shall be construed to

authorize diminution or reduction of existing wages and benefits being enjoyed by the
bus drivers and conductors.
On July 4, 2012, petitioners filed before this Court a Petition with Urgent Request for
Immediate Issuance of a Temporary Restraining Order and/or a Writ of Preliminary
Injunction,4 impleading the DOLE and the LTFRB as respondents. They pray that this
Court enjoin the implementation of Department Order No. 118-12 and Memorandum
Circular No. 2012-001 for being violative of their right to due process, equal protection,
and non impairment of obligation of contracts.

In its July 11, 2012 Resolution,5 this Court deferred the issuance of a status quo
ante order and, instead, required the DOLE and the LTFRB to comment on the Petition.

On July 13, 2012, petitioners filed the Urgent Manifestation with Motion for
Clarification,6 alleging that Atty. Ma. Victoria Gleoresty Guerra announced in a press
conference that this Court agreed to issue a  status quo ante order in the case. They
prayed that this Court clarify whether a status quo ante order was indeed issued.

In its July 13, 2012 Resolution,7 this Court noted without action the Urgent
Manifestation with Motion for Clarification.

A Very Urgent Motion for Reconsideration 8 of the July 13, 2012 Resolution was filed by
petitioners on which respondents filed a Comment.9

On July 27, 2012, the Metropolitan Manila Development Authority (MMDA) filed a
Motion for Leave to Intervene,10 alleging "direct and material interest in upholding the
constitutionality of [Department Order No. 118-12 and Memorandum Circular No. 2012-
001]."11 This Court granted the MMDA's Motion in its August 10, 2012 Resolution. 12

On August 22, 2012, the DOLE and the LTFRB filed their Comment 13 via registered mail
after which petitioners filed their Reply.14 For intervenor MMDA, it filed its Comment-in-
Intervention15 on January 8, 2013.

In its September 3, 2013 Resolution, 16 this Court directed the parties to file their
respective memoranda. In compliance, petitioners filed their Memorandum 17 on October
10, 2013, while the DOLE, the LTFRB, and the MMDA filed a Consolidated
Memorandum18 on November 6, 2013.

As earlier stated, petitioners assail the constitutionality of Department Order No. 118-
12 and Memorandum Circular No. 2012-001, arguing that these issuances violate
petitioners' rights to non-impairment of obligation of contracts, due process of law, and
equal protection of the laws. Particularly with respect to Department Order No. 118-12,
its provisions on the payment of part-fixed-part-performance-based wage allegedly
impair petitioners' obligations under their existing collective bargaining agreements
where they agreed with their bus drivers and conductors on a commission or boundary
basis. They contend that Memorandum Circular No. 2012-001 further requires
compliance with Department Order No. 118-12 under threat of revocation of their
franchises, which allegedly deprive petitioners of the capital they invested in their
businesses in violation of their right to due process of law.

Petitioners add that the initial implementation of Department Order No. 118-12 within
Metro Manila allegedly creates an arbitrary distinction between bus operators operating
in Metro Manila and those operating outside of Metro Manila, in violation of petitioners'
right to equal protection of the laws.

Respondents counter that petitioners have no legal standing to file the present Petition
considering that Department Order No. 118-12 and Memorandum Circular No. 2012-
001 are directed against bus operators, not against associations of bus operators such
as petitioners. They add that petitioners violated the doctrine of hierarchy courts in
directly filing their Petition before this Court. For these reasons, respondents pray for
the dismissal of the Petition.

On the constitutional issues raised by petitioners, respondents contend that Department

Order No. 118-12 and Memorandum Circular No. 2012-001 are valid issuances
promulgated by the DOLE and the LTFRB in the exercise of their quasi-legislative
powers.

Further, they argue that Department Order No. 118-12 and Memorandum Circular No.
2012-001 do not violate public utility bus operators' rights to non-impairment of
obligation of contracts, due process of law, and equal protection of the laws for the
following reasons:

First, Department Order No. 118-12 and Memorandum Circular No. 2012-001 were
issued "[to promote and protect] the welfare of the public utility bus drivers and
conductors"19 and "(to ensure] road safety"20 by imposing a wage system where public
utility bus drivers do not have to compete with one another and drive recklessly for
additional income.21 Department Order No. 118-12 and Memorandum Circular No.
2012-001 are social legislations and police power measures to which petitioners' right
against impairment of obligation of contracts must yield 22;

Second, certificates of public convenience are not property and are always subject to
amendment, alteration, or repeal. Therefore, public utility bus operators cannot argue
that they were deprived of their property without due process of law when the LTFRB
required further compliance with Memorandum Circular No. 2012-001 for bus operators
to retain their franchises23; and

Finally, Department Order No. 118-12 does not violate Metro Manila public utility bus
operators' right to equal protection of the laws since it applies to all public utility bus
operators in the country.24

Based on the pleadings, the issues for this Court's resolution are the following:

First, whether or not petitioners Provincial Bus Operators Association of the Philippines,
Southern Luzon Bus Operators Association, Inc., Inter City Bus Operators Association,
and City of San Jose Del Monte Bus Operators Association have legal standing to sue;

Second, whether or not this case falls under any of the exceptions to the doctrine of
hierarchy of courts;
Third, whether or not the DOLE Department Order No. 118-12 and the LTFRB
Memorandum Circular No. 2012-001 deprive public utility bus operators of their right to
due process of law;

Fourth, whether or not the DOLE Department Order No. 118-12 and the LTFRB
Memorandum Circular No. 2012-001 impair public utility bus operators' right to non-
impairment of obligation of contracts; and

Finally, whether or not the DOLE Department Order No. 118-12 and the LTFRB
Memorandum Circular No. 2012-001 deny public utility bus operators of their right to
equal protection of the laws.

This Court dismisses the Petition. Petitioners fail to respect the doctrine of hierarchy of
courts by directly invoking this Court's jurisdiction without any special reason. They fail
to present an actual controversy ripe for adjudication and do not even have the
requisite standing to file this case. Even if this Court proceeds on the merits, petitioners
fail to show the unconstitutionality of the DOLE Department Order No. 118-12 and the
LTFRB Memorandum Circular No. 2012-001.

The Constitution vests in this Court and such lower courts as may be established by law
the power to "declare executive and legislative acts void if violative of the
Constitution."25 This Court's power of judicial review is anchored on Article VIII, Section
1 of the Constitution:

Section 1. The judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law.

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.

Our governmental structure rests on the principle of separation of powers. Under our
constitutional order, the legislative branch enacts law, the executive branch implements
the law, and the judiciary construes the law. In reality, however, the powers are not as
strictly confined or delineated to each branch. "[T]he growing complexity of modem life,
the multiplication of the subjects of governmental regulation, and the increased
difficulty of administering the laws"26 require the delegation of powers traditionally
belonging to the legislative to administrative agencies. The legislature may likewise
apportion competencies or jurisdictions to administrative agencies over certain conflicts
involving special technical expertise.

Administrative actions reviewable by this Court, therefore, may either be quasi-

legislative or quasi-judicial. As the name implies, quasi-legislative or rule-making power
is the power of an administrative agency to make rules and regulations that have the
force and effect of law so long as they are issued "within the confines of the granting
statute."27 The enabling law must be complete, with sufficient standards to guide the
administrative agency in exercising its rule-making power. 28 As an exception to the rule
on non delegation of legislative power, administrative rules and regulations must 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." 29 In Pangasinan Transportation Co.,
Inc. v. The Public Service Commission,30 this Court recognized the constitutional
permissibility of the grant of quasi-legislative powers to administrative agencies, thus:

One thing, however, is apparent in the development of the principle of separation of

powers and that is that the maxim of delegatus non potest delegari or delegata
potestas non potest delegari, attributed to Bracton (De Legibus et Consuetedinious
Angliae, edited by G.E. Woodbine, Yale University Press, 1922, vol. 2, p. 167) but which
is also recognized in principle in the Roman Law (D. 17.18.3), has been made to adapt
itself to the complexities of modern governments, giving rise to the adoption, within
certain limits, of the principle of "subordinate legislation," not only in the United States
and England but in practically all modem governments. (People vs. Rosenthal and
Osmeña, G. R. Nos. 46076 and 46077, promulgated June 12, 1939.) Accordingly, with
the growing complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the laws, there is
a constantly growing tendency toward the delegation of greater powers by the
legislature, and toward the approval of the practice by the courts. (Dillon Catfish
Drainage Dist. v. Bank of Dillon, 141 S. E. 274, 275, 143 S. Ct. 178; State v. Knox
County, 54 S. W. 2d. 973, 976, 165 Tenn. 319.) In harmony with such growing
tendency, this Court, since the decision in the case of Compañia General de Tabacos de
Filipinas vs. Board of Public Utility Commissioners (34 Phil., 136), relied upon by the
petitioner, has, in instances, extended its seal of approval to the "delegation of greater
powers by the legislature." (Inchausti Steamship Co. vs. Public Utility Commissioner, 44
Phil., 366; Alegre vs. Collector of Customs, 53 Phil., 394; Cebu Autobus Co. vs. De
Jesus, 56 Phil., 446; People vs. Fernandez & Trinidad, G. R. No. 45655, promulgated
June 15, 1938; People vs. Rosenthal & Osmeña, G. R. Nos. 46076, 46077, promulgated
June 12, 1939; and Robb and Hilscher vs. People, G.R. No. 45866, promulgated June
12, 1939.)31

On the other hand, quasi-judicial or administrative adjudicatory power is "the power to

hear and determine questions of fact to which the legislative policy is to apply and to
decide in accordance with the standards laid down by the law itself in enforcing and
administering the same law."32 The constitutional permissibility of the grant of quasi-
judicial powers to administrative agencies has been likewise recognized by this Court.
In the 1931 case of The Municipal Council of Lemery, Batangas v. The Provincial Board
of Batangas,33 this Court declared that the power of the Municipal Board of Lemery to
approve or disapprove a municipal resolution or ordinance is quasi-judicial in nature
and, consequently, may be the subject of a certiorari proceeding.

Determining whether the act under review is quasi-legislative or quasi-judicial is

necessary in determining when judicial remedies may properly be availed of Rules
issued in the exercise of an administrative agency's quasi-legislative power may be
taken cognizance of by courts on the first instance as part of their judicial power, thus:

[W]here what is assailed is the validity or constitutionality of a rule or regulation issued

by the administrative agency in the performance of its quasi-legislative function, the
regular courts have jurisdiction to pass upon the same. The determination of whether a
specific rule or set of rules issued by an administrative agency contravenes the law or
the constitution is within the jurisdiction of the regular courts. Indeed, the Constitution
vests the power of judicial review or the power to declare a law, treaty, international or
executive agreement, presidential decree, order, instruction, ordinance, or regulation in
the courts, including the regional trial courts. This is within the scope of judicial power,
which includes the authority of the courts to determine in an appropriate action the
validity of the acts of the political departments. 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.34 (Citations omitted)

However, in cases involving quasi-judicial acts, Congress may require certain quasi-
judicial agencies to first take cognizance of the case before resort to judicial remedies
may be allowed. This is to take advantage of the special technical expertise possessed
by administrative agencies. Pambujan Sur United Mine Workers v. Samar Mining
Company, Inc.35 explained the doctrine of primary administrative jurisdiction, thus:

That the courts cannot or will not determine a controversy involving a question which is
within the jurisdiction of an administrative tribunal prior to the decision of that question
by the administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the special knowledge, experience, and services of
the administrative tribunal to determine technical and intricate matters of fact, and a
uniformity of ruling is essential to comply with the purposes of the regulatory statute
administered.36

Usually contrasted with the doctrine of primary jurisdiction is the doctrine of exhaustion
of administrative remedies. Though both concepts aim to maximize the special technical
knowledge of administrative agencies, the doctrine of primary administrative
jurisdiction requires courts to not resolve or "determine a controversy involving a
question which is within the jurisdiction of an administrative tribunal." 37 The issue is
jurisdictional and the court, when confronted with a case under the jurisdiction of an
administrative agency, has no option but to dismiss it. 38

In contrast, exhaustion of administrative remedies requires parties to exhaust all the

remedies in the administrative machinery before resorting to judicial remedies. The
doctrine of exhaustion presupposes that the court and the administrative agency have
concurrent jurisdiction to take cognizance of a matter. However, in deference to the
special and technical expertise of the administrative agency, courts must yield to the
administrative agency by suspending the proceedings. As such, parties must exhaust all
the remedies within the administrative machinery before resort to courts is allowed.

Discussion of the doctrines of primary jurisdiction and exhaustion of administrative

remedies aside, the present case does not require the application of either doctrine.
Department Order No. 118-12 and Memorandum Circular No. 2012-001 were issued in
the exercise of the DOLE's39 and the LTFRB's40 quasi-legislative powers and, as
discussed, the doctrines of primary jurisdiction and exhaustion of administrative
remedies may only be invoked in matters involving the exercise of quasi-judicial power.
Specifically, Department Order No. 118-12 enforces the application of labor standards
provisions, i.e., payment of minimum wage and grant of social welfare benefits in the
public bus transportation industry. For its part, Memorandum Circular No. 2012-001
was issued by the LTFRB in the exercise of its power to prescribe the terms and
conditions for the issuance of a certificate of public convenience and its power to
promulgate and enforce rules and regulations on land transportation public utilities.

II

While resort to courts may directly be availed of in questioning the constitutionality of

an administrative rule, parties may not proceed directly before this Court, regardless of
its original jurisdiction over certain matters. This Court's original jurisdiction over
petitions for certiorari and Prohibition 41 may only be invoked for special reasons under
the doctrine of hierarchy of courts.

The doctrine of hierarchy of courts requires that recourse must first be obtained from
lower courts sharing concurrent jurisdiction with a higher court. 42 This is to ensure that
this Court remains a court of last resort so as to "satisfactorily perform the functions
assigned to it by the fundamental charter and immemorial tradition." 43

The doctrine was first enunciated in People v. Cuaresma44 where a petition for certiorari
assailing a trial court order granting a motion to quash was directly filed before this
Court. Noting that there was no special reason for invoking this Court's original
jurisdiction, this Court dismissed the petition and required the "strict observance" of the
policy of hierarchy of courts, thus:

This Court's original jurisdiction to issue writs of certiorari (as well as

prohibition, mandamus, quo warranto, habeas corpus and injunction) is not exclusive.
It is shared by this Court with Regional Trial Courts (formerly Courts of First Instance),
which may issue the writ, enforceable in any part of their respective regions. It is also
shared by this Court, and by the Regional Trial Court, with the Court of Appeals
(formerly, Intermediate Appellate Court), although prior to the effectivity of Batas
Pambansa Bilang 129 on August 14, 1981, the latter's competence to issue the
extraordinary writs was restricted to those "in aid of its appellate jurisdiction." This
concurrence of jurisdiction is not, however, to be taken as according to parties seeking
any of the writs an absolute, unrestrained freedom of choice of the court to which
application therefor will be directed. There is after all a hierarchy of courts. That
hierarchy is determinative of the venue of appeals, and should also serve as a general
determinant of the appropriate forum for petitions for the extraordinary writs. A
becoming regard for that judicial hierarchy most certainly indicates that petitions for
the issuance of extraordinary writs against first level ("inferior") courts should be filed
with the Regional Trial Court, and those against the latter, with the Court of Appeals. A
direct invocation of the Supreme Court's original jurisdiction to issue these writs should
be allowed only when there are special and important reasons therefor, clearly and
specifically set out in the petition. This is established policy. It is a policy that is
necessary to prevent inordinate demands upon the Court's time and attention which are
better devoted to those matters within its exclusive jurisdiction, and to prevent further
over-crowding of the Court's docket. Indeed, the removal of the restriction on the
jurisdiction of the Court of Appeals in this regard, supra — resulting from the deletion of
the qualifying phrase, "in aid of its appellate jurisdiction" — was evidently intended
precisely to relieve this Court pro tanto of the burden of dealing with applications for
the extraordinary writs which, but for the expansion of the Appellate Court['s]
corresponding jurisdiction, would have had to be filed with it.

The Court feels the need to reaffirm that policy at this time, and to enjoin strict
adherence thereto in the light of what it perceives to be a growing tendency on the part
of litigants and lawyers to have their applications for the so-called extraordinary writs,
and sometime even their appeals, passed upon and adjudicated directly and
immediately by the highest tribunal of the land. The proceeding at bar is a case in
point. The application for the writ of certiorari sought against a City Court was brought
directly to this Court although there is discernible special and important reason for not
presenting it to the Regional Trial Court.

The Court therefore closes this decision with the declaration, for the information and
guidance of all concerned, that it will not only continue to enforce the policy, but will
require a more strict observance thereof.45 (Citations omitted)

More recently, this Court in The Diocese of Bacolod v. Commission on

Elections46 explained the purpose of the doctrine: to "ensure that every level of the
judiciary performs its designated roles in an effective and efficient manner." 47 This
Court said:

Trial courts do not only determine the facts from the evaluation of the evidence
presented before them. They are likewise competent to determine issues of law which
may include the validity of an ordinance, statute, or even an executive issuance in
relation to the Constitution. To effectively perform these functions, they are territorially
organized into regions and then into branches. Their writs generally reach within those
territorial boundaries. Necessarily, they mostly perform the all-important task of
inferring the facts from the evidence as these are physically presented before them. In
many instances, the facts occur within their territorial jurisdiction, which properly
present the 'actual case' that makes ripe a determination of the constitutionality of such
action. The consequences, of course, would be national in scope. There are, however,
some cases where resort to courts at their level would not be practical considering their
decisions could still be appealed before the higher courts, such as the Court of Appeals.

The Court of Appeals is primarily designated as an appellate court that reviews the
determination of facts and law made by the trial courts. It is collegiate in nature. This
nature ensures more standpoints in the review of the actions of the trial court. But the
Court of Appeals also has original jurisdiction over most special civil actions. Unlike the
trial courts, its writs can have a nationwide scope. It is competent to determine facts
and, ideally, should act on constitutional issues that may not necessarily be novel
unless there are factual questions to determine.

This court, on the other hand, leads the judiciary by breaking new ground or further
reiterating — in the light of new circumstances or in the light of some confusions of
bench or bar — existing precedents. Rather than a court of first instance or as a
repetition of the actions of the Court of Appeals, this court promulgates these doctrinal
devices in order that it truly performs that role. 48 (Citation omitted)

For this Court to take cognizance of original actions, parties must clearly and
specifically allege in their petitions the special and important reasons for such direct
invocation.49 One such special reason is that the case requires "the proper legal
interpretation of constitutional and statutory provisions."50 Cases of national interest
and of serious implications,51 and those of transcendental importance52 and of first
impression53 have likewise been resolved by this Court on the first instance.

In exceptional cases, this Court has also overlooked the rule to decide cases that have
been pending for a sufficient period of time.54 This Court has resolved original actions
which could have been resolved by the lower courts in the interest of speedy
justice55 and avoidance of delay.56

Generally, the rule on hierarchy of courts may be relaxed when "dictated by public
welfare and the advancement of public policy, or demanded by the broader interest of
justice, or the orders complained of were found to be patent nullities, or the appeal was
considered as clearly an inappropriate remedy." 57 For all other cases, the parties must
have exhausted the remedies available before the lower courts. A petition filed in
violation of the doctrine shall be dismissed. 58

Based on the allegations in the present Petition, this Court finds no special reason for
petitioners to invoke this Court's original jurisdiction.

The alleged "far-reaching consequences"59 and wide "area of coverage"60 of Department

Order No. 118-12 and Memorandum Circular No. 2012-001 are not special reasons.
With these justifications, petitioners could have very well filed their Petition before the
Court of Appeals whose writs, as discussed, are likewise nationwide in scope. The issues
raised are not even of first impression.

Petitioners, therefore, failed to respect the hierarchy of courts.

III

Furthermore, the issues raised in this Petition are not justiciable. The Petition presents
no actual case or controversy.

No less than the Constitution in Article VIII, Section 1 requires an actual controversy for
the exercise of judicial power:

Section 1. The judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law.

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.
(Underscoring supplied)

As a rule, "the constitutionality of a statute will be passed on only if, and to the extent
that, it is directly and necessarily involved in a justiciable controversy and is essential
to the protection of the rights of the parties concerned." 61 A controversy is said to be
justiciable if: first, there is an actual case or controversy involving legal rights that are
capable of judicial determination; second, the parties raising the issue must have
standing or locus standi to raise the constitutional issue; third, the constitutionality
must be raised at the earliest opportunity; and fourth, resolving the constitutionality
must be essential to the disposition of the case. 62

An actual case or controversy is "one which involves a conflict of legal rights, an

assertion of opposite legal claims susceptible of judicial resolution." 63 A case is
justiciable if the issues presented are "definite and concrete, touching on the legal
relations of parties having adverse legal interests." 64 The conflict must be ripe for
judicial determination, not conjectural or anticipatory; otherwise, this Court's decision
will amount to an advisory opinion concerning legislative or executive action. 65 In the
classic words of Angara v. Electoral Commission:66

[T]his power of judicial review is limited to actual cases and controversies to be

exercised after full opportunity of argument by the parties, and limited further to the
constitutional question raised or the very lis mota presented. Any attempt at
abstraction could only lead to dialectics and barren legal questions and to sterile
conclusions unrelated to actualities. Narrowed as its function is in this manner, the
judiciary does not pass upon questions of wisdom, justice or expediency of legislation.
More than that, courts accord the presumption of constitutionality to legislative
enactments, not only because the legislature is presumed to abide by the Constitution
but also because the judiciary in the determination of actual cases and controversies
must reflect the wisdom and justice of the people as expressed through their
representatives in the executive and legislative departments of the governments. 67

Even the expanded jurisdiction of this Court under Article VIII, Section 1 68 does not
provide license to provide advisory opinions. An advisory opinion is one where the
factual setting is conjectural or hypothetical. In such cases, the conflict will not have
sufficient concreteness or adversariness so as to constrain the discretion of this Court.
After all, legal arguments from concretely lived facts are chosen narrowly by the
parties. Those who bring theoretical cases will have no such limits. They can argue up
to the level of absurdity. They will bind the future parties who may have more motives
to choose specific legal arguments. In other words, for there to be a real conflict
between the parties, there must exist actual facts from which courts can properly
determine whether there has been a breach of constitutional text.

The absence of actual facts caused the dismissal of the petitions in Southern
Hemisphere Engagement Network, Inc. v. Anti-Terrorism Council.69 In that case, the
petitioners challenged the constitutionality of Republic Act No. 9372 or the Human
Security Act of 2007 that defines and punishes the crime of terrorism. They contended
that since the enactment of the statute, they had been subjected to "close security
surveillance by state security forces" and branded as "enemies of the State." 70

In dismissing the petitions, this Court said that there were no "sufficient facts to enable
the Court to intelligently adjudicate the issues." 71 Petitioners' allegations of "sporadic
'surveillance' and ... being tagged as 'communist fronts"' were not enough to
substantiate their claim of grave abuse of discretion on the part of public respondents.
Absent actual facts, this Court said that the Southern Hemisphere petitions operated in
the "realm of the surreal and merely imagined." 72 "Allegations of abuse must be
anchored on real events before courts may step in to settle actual controversies
involving rights which are legally demandable and enforceable." 73

The petitioners in Republic of the Philippines v. Herminio Harry Roque, et al.74 likewise

challenged provisions of the Human Security Act, this time, via a petition for
declaratory relief filed before the Regional Trial Court of Quezon City. During the
pendency of the case, this Court decided Southern Hemisphere, where, as just
discussed, the challenge against the constitutionality of the Human Security Act was
dismissed. Thus, the Republic filed a motion to dismiss before the Regional Trial Court,
arguing that the declaratory relief case may no longer proceed.

The Regional Trial Court denied the motion to dismiss on the ground that this Court
in Southern Hemisphere did not pass upon the constitutionality issue. However, this
Court, on certiorari, set aside the Regional Trial Court's order and dismissed the
declaratory relief petitions because they did not properly allege a "state of facts
indicating imminent and inevitable litigation." 75 This Court said:

Pertinently, a justiciable controversy refers to an existing case or controversy that is

appropriate or ripe for judicial determination, not one that is conjectural or merely
anticipatory. Corollary thereto, by "ripening seeds" it is meant, not that sufficient
accrued facts may be dispensed with, but that a dispute may be tried at its inception
before it has accumulated the asperity, distemper, animosity, passion, and violence of a
full blown battle that looms ahead. The concept describes a state of facts indicating
imminent and inevitable litigation provided that the issue is not settled and stabilized
by tranquilizing declaration.

A perusal of private respondents' petition for declaratory relief would show that they
have failed to demonstrate how they are left to sustain or are in immediate danger to
sustain some direct injury as a result of the enforcement of the assailed provisions of
RA 9372. Not far removed from the factual milieu in the Southern Hemisphere cases,
private respondents only assert general interests as citizens, and taxpayers and
infractions which the government could prospectively commit if the enforcement of the
said law would remain untrammelled. As their petition would disclose, private
respondents' fear of prosecution was solely based on remarks of certain government
officials which were addressed to the general public. They, however, failed to show how
these remarks tended towards any prosecutorial or governmental action geared
towards the implementation of RA 9372 against them. In other words, there was no
particular, real or imminent threat to any of them.76 (Citations omitted, emphasis
supplied)

Similar to the petitions in Southern Hemisphere and Roque, the present Petition alleges

no actual facts for this Court to infer the supposed unconstitutionality of Department
Order No. 118-12 and Memorandum Circular No. 2012-001.

According to petitioners, implementing Department Order No. 118-12 and

Memorandum Circular No. 2012-001 "may [result] in [the] diminution of the income
of . . . bus drivers and conductors."77 The allegation is obviously based on speculation
with the use of the word "may." There was even no showing of how granting bus
drivers' and conductors' minimum wage and social welfare benefits would result in
lower income for them.
Petitioners likewise claim that the part-fixed-part-performance-based payment scheme
is "unfit to the nature of operation of public transport system or business." 78 This bare
allegation, again, is not supported by facts from which this Court may conclude that the
payment scheme under Department Order No. 118-12 are unfit to the nature of the
businesses of public bus operators. The "time-immemorial" implementation of the
boundary system does not mean that it is the only payment scheme appropriate for the
public transport industry.

There being no actual facts from which this Court could conclude that Department
Order No. 118-12 and Memorandum Circular No. 2012-001 are unconstitutional, this
case presents no actual controversy.

IV

Not only is this Petition not justiciable for failing to present an actual controversy.
Petitioners do not possess the requisite legal standing to file this suit.

Legal standing or locus standi is the "right of appearance in a court of justice on a given
question."79 To possess legal standing, parties must show "a personal and substantial
interest in the case such that [they have] sustained or will sustain direct injury as a
result of the governmental act that is being challenged." 80 The requirement of direct
injury guarantees that the party who brings suit has such personal stake in the
outcome of the controversy and, in effect, assures "that concrete adverseness which
sharpens the presentation of issues upon which the court depends for illumination of
difficult constitutional questions."81

The requirements of legal standing and the recently discussed actual case and
controversy are both "built on the principle of separation of powers, sparing as it does
unnecessary interference or invalidation by the judicial branch of the actions rendered
by its co-equal branches of government."82 In addition, economic reasons justify the
rule. Thus:

A lesser but not insignificant reason for screening the standing of persons who desire to
litigate constitutional issues is economic in character. Given the sparseness of our
resources, the capacity of courts to render efficient judicial service to our people is
severely limited. For courts to indiscriminately open their doors to all types of suits and
suitors is for them to unduly overburden their dockets, and ultimately render
themselves ineffective dispensers of justice. To be sure, this is an evil that clearly
confronts our judiciary today.83

Standing in private suits requires that actions be prosecuted or defended in the name of
the real party-in-interest,84 interest being "material interest or an interest in issue to be
affected by the decree or judgment of the case[,] [not just] mere curiosity about the
question involved."85 Whether a suit is public or private, the parties must have "a
present substantial interest,'' not a "mere expectancy or a future, contingent,
subordinate, or consequential interest."86 Those who bring the suit must possess their
own right to the relief sought.

Like any rule, the rule on legal standing has exceptions. This Court has taken
cognizance of petitions filed by those who have no personal or substantial interest in
the challenged governmental act but whose petitions nevertheless raise "constitutional
issue[s] of critical significance." 87 This Court summarized the requirements for granting
legal standing to "non traditional suitors"88 in Funa v. Villar,89 thus:

1.) For taxpayers, there must be a claim of illegal disbursement of public funds or that
the tax measure is unconstitutional;

2.) For voters, there must be a showing of obvious interest in the validity of the election
law in question;

3.) For concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and

4.) For legislators, there must be a claim that the official action complained of infringes
their prerogatives as 1egislators.90 (Emphasis in the original)

Another exception is the concept of third-party standing. Under this concept, actions
may be brought on behalf of third parties provided the following criteria are met: first,
"the [party bringing suit] must have suffered an 'injury-in-fact,' thus giving him or her
a 'sufficiently concrete interest' in the outcome of the issue in dispute"; 91 second, "the
party must have a close relation to the third party"; 92 and third, "there must exist some
hindrance to the third party's ability to protect his or her own interests." 93

The concept was first introduced in our jurisdiction in White Light Corp. et al. v. City of
Manila,94 which involved the City of Manila's Ordinance No. 7774 that prohibited "short-
time admission" in hotels, motels, inns, and other similar establishments located in the
City. The Ordinance defined short-time admission as the "admittance and charging of
room rate for less than twelve (12) hours at any given time or the renting out of rooms
more than twice a day or any other term that may be concocted by owners or
managers of [hotels and motels]."95 The declared purpose of the Ordinance was to
protect "the morality of its constituents in general and the youth in particular." 96

Hotel and motel operators White Light Corporation, Titanium Corporation, and Sta.
Mesa Tourist and Development Corporation filed a complaint to prevent the
implementation of the Ordinance. The hotel and motel operators argued, among others,
that the Ordinance violated their clients' rights to privacy,97 freedom of
movement,98 and equal protection of the laws.99

Based on third-party standing, this Court allowed the hotel and motel operators to sue
on behalf of their clients. According to this Court, hotel and motel operators have a
close relation to their customers as they "rely on the patronage of their customers for
their continued viability."100 Preventing customers from availing of short-time rates
would clearly injure the business interests of hotel and motel operators. 101 As for the
requirement of hindrance, this Court said that "the relative silence in constitutional
litigation of such special interest groups in our nation such as the American Civil
Liberties Union in the United States may also be construed as a hindrance for
customers to bring suit."102

Associations were likewise allowed to sue on behalf of their members.

In Pharmaceutical and Health Care Association of the Philippines v. Secretary of
Health,103 the Pharmaceutical and Health Care Association of the Philippines,
"representing its members that are manufacturers of breastmilk substitutes," 104 filed a
petition for certiorari to question the constitutionality of the rules implementing the Milk
Code. The association argued that the provisions of the implementing rules prejudiced
the rights of manufacturers of breastmilk substitutes to advertise their product.

This Court allowed the Pharmaceutical and Health Care Association of the Philippines to
sue on behalf of its members. "[A]n association," this Court said, "has the legal
personality to represent its members because the results of the case will affect their
vital interests."105 In granting the Pharmaceutical and Health Care Association legal
standing, this Court considered the amended articles of incorporation of the association
and found that it was 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." 106 Citing Executive
Secretary v. Court of Appeals,107 this Court declared that "the modern view is that an
association has standing to complain of injuries to its members." 108 This Court
continued:

[This modem] 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.
....

. . . We note that, under its Articles of Incorporation, the respondent was organized . . .
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 ... 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. 109

In Holy Spirit Homeowners Association, Inc. v. Defensor,110 the Holy Spirit Homeowners

Association, Inc. filed a petition for prohibition, praying that this Court enjoin the
National Government Center Administration Committee from enforcing the rules
implementing Republic Act No. 9207. The statute declared the land occupied by the
National Government Center in Constitution Hills, Quezon City distributable to bona fide
beneficiaries. The association argued that the implementing rules went beyond the
provisions of Republic Act No. 9207, unduly limiting the area disposable to the
beneficiaries.

The National Government Center Administration Committee questioned the legal

standing of the Holy Spirit Homeowners Association, Inc., contending that the
association "is not the duly recognized people's organization in the [National
Government Center]."111

Rejecting the National Government Center Administration Committee's argument, this

Court declared that the Holy Spirit Homeowners Association, Inc. "ha[d] the legal
standing to institute the [petition for prohibition] whether or not it is the duly
recognized association of homeowners in the [National Government Center]." 112 This
Court noted that the individual members of the association were residents of the
National Government Center. Therefore, "they are covered and stand to be either
benefited or injured by the enforcement of the [implementing rules], particularly as
regards the selection process of beneficiaries and lot allocation to qualified
beneficiaries."113

In The Executive Secretary v. The Hon. Court of Appeals,114 cited in the earlier

discussed Pharmaceutical and Health Care Association of the Philippines, the Asian
Recruitment Council Philippine Chapter, Inc. filed a petition for declaratory relief for this
Court to declare certain provisions of Republic Act No. 8042 or the Migrant Workers and
Overseas Filipinos Act of 1995 unconstitutional. The association sued on behalf of its
members who were recruitment agencies.

This Court took cognizance of the associations' petition and said that an 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." 115 It noted that the
board resolutions of the individual members of the Asian Recruitment Council Philippine
Chapter, Inc. were attached to the petition, thus, proving that the individual members
authorized the association to sue on their behalf.

The associations in Pharmaceutical and Health Care Association of the Philippines, Holy
Spirit Homeowners Association, Inc., and The Executive Secretary were allowed to sue
on behalf of their members because they sufficiently established who their members
were, that their members authorized the associations to sue on their behalf, and that
the members would be directly injured by the challenged governmental acts.

The liberality of this Court to grant standing for associations or corporations whose
members are those who suffer direct and substantial injury depends on a few factors.

In all these cases, there must be an actual controversy. Furthermore, there should also
be a clear and convincing demonstration of special reasons why the truly injured parties
may not be able to sue.

Alternatively, there must be a similarly clear and convincing demonstration that the
representation of the association is more efficient for the petitioners to bring. They
must further show that it is more efficient for this Court to hear only one voice from the
association. In other words, the association should show special reasons for bringing
the action themselves rather than as a class suit, 116 allowed when the subject matter of
the controversy is one of common or general interest to many persons. In a class suit,
a number of the members of the class are permitted to sue and to defend for the
benefit of all the members so long as they are sufficiently numerous and representative
of the class to which they belong.

In some circumstances similar to those in White Light, the third parties represented by
the petitioner would have special and legitimate reasons why they may not bring the
action themselves. Understandably, the cost to patrons in the White Light case to bring
the action themselves—i.e., the amount they would pay for the lease of the motels—will
be too small compared with the cost of the suit. But viewed in another way, whoever
among the patrons files the case even for its transcendental interest endows benefits
on a substantial number of interested parties without recovering their costs. This is the
free rider problem in economics. It is a negative externality which operates as a
disincentive to sue and assert a transcendental right.

In addition to an actual controversy, special reasons to represent, and disincentives for

the injured party to bring the suit themselves, there must be a showing of the
transcendent nature of the right involved.

Only constitutional rights shared by many and requiring a grounded level of urgency
can be transcendent. For instance, in The Association of Small Landowners in the
Philippines, Inc. v. Secretary of Agrarian Reform,117 the association was allowed to file
on behalf of its members considering the importance of the issue involved, i.e., the
constitutionality of agrarian reform measures, specifically, of then newly enacted
Comprehensive Agrarian Reform Law.

This Court is not a forum to appeal political and policy choices made by the Executive,
Legislative, and other constitutional agencies and organs. This Court dilutes its role in a
democracy if it is asked to substitute its political wisdom for the wisdom of accountable
and representative bodies where there is no unmistakable democratic deficit. It cannot
lose this place in the constitutional order. Petitioners' invocation of our jurisdiction and
the justiciability of their claims must be presented with rigor. Transcendental interest is
not a talisman to blur the lines of authority drawn by our most fundamental law.

As declared at the outset, petitioners in this case do not have standing to bring this
suit. As associations, they failed to establish who their members are and if these
members allowed them to sue on their behalf. While alleging that they are composed of
public utility bus operators who will be directly injured by the implementation of
Department Order No. 118-12 and Memorandum Circular No. 2012-001, petitioners did
not present any proof, such as board resolutions of their alleged members or their own
articles of incorporation authorizing them to act as their members' representatives in
suits involving their members' individual rights.

Some of the petitioners here are not even persons or entities authorized by law or by
the Rules allowed to file a suit in court. As intervenor MMDA sufficiently demonstrated,
petitioners Provincial Bus Operators Association of the Philippines, Southern Luzon Bus
Operators Association, Inc., and Inter City Bus Operators Association, Inc. had their
certificates of incorporation revoked by the Securities and Exchange Commission for
failure to submit the required general information sheets and financial statements for
the years 1996 to 2003.118 With their certificates of incorporation revoked, petitioners
Provincial Bus Operators Association of the Philippines, Southern Luzon Bus Operators
Association, Inc., and Inter City Bus Operators Association, Inc. have no corporate
existence.119 They have no capacity to exercise any corporate power, specifically, the
power to sue in their respective corporate names.

Again, the reasons cited—the "far-reaching consequences" and "wide area of coverage
and extent of effect"120 of Department Order No. 118-12 and Memorandum Circular No.
2012-001—are reasons not transcendent considering that most administrative
issuances of the national government are of wide coverage. These reasons are not
special reasons for this Court to brush aside the requirement of legal standing.
Thus far, petitioners have not satisfied any of the following requirements for this Court
to exercise its judicial power. They have not sufficiently demonstrated why this Court
should exercise its original jurisdiction. The issues they raised are not justiciable.
Finally, as will be shown, they failed to demonstrate any breach of constitutional text.

The protection of private property is the primary function of a constitution. This can be
gleaned in our earliest fundamental law where members of the Malolos Congress
declared their purpose in decreeing the Malolos Constitution: "to secure for [the Filipino
people] the blessings of liberty." It is understood that the rights to enjoy and to dispose
of property are among these blessings considering that several provisions on property
are found in the Constitution. Article 32 of the Malolos Constitution provided that "no
Filipino shall establish ... institutions restrictive of property rights." Likewise, Article 17
provided that "no one shall be deprived of his property by expropriation except on
grounds of public necessity and benefit."

At present, the due process clause, the equal protection clause, and the takings clause
of the Constitution serve as protections from the government's taking of property. The
non-impairment clause may likewise be invoked if the property taken is in the nature of
a contract. In any case, all these constitutional limits are subject to the fundamental
powers of the State, specifically, police power. As such, the burden of proving that the
taking is unlawful rests on the party invoking the constitutional right.

Unfortunately for petitioners, they miserably failed to prove why Department Order No.
118-12 and Memorandum Circular No. 2012-001 are unconstitutional.

VI

Article III, Section 1 of the Constitution provides:

ARTICLE III
Bill of Rights

Section 1. No person shall be deprived of life, liberty, or property without due process
of law, nor shall any person be denied the equal protection of the laws.

The values congealed in the fundamental principle prohibiting the deprivation of life,
liberty, and property "without due process of law" may be those derived within our own
cultures even though the current text is but an incarnation from foreign jurisdictions.

For instance, the phrase "due process of law" does not appear in the Malolos
Constitution of 1899. Still, it had similar provisions in Article 32 stating that "no Filipino
shall establish ... institutions restrictive of property rights." Specific to deprivation of
property was Article 17, which stated that "no one shall be deprived of his property by
expropriation except on grounds of public necessity and benefit, previously declared."
Among the "inviolable rules" found in McKinley's Instructions to the Philippine
Commission was "that no person shall be deprived of life, liberty, or property without
due process of law."121

As it is now worded, the due process clause has appeared in the Philippine Bill of 1902,
the Jones Law, the 1935 and 1973 Constitutions and, finally, in the 1987 Constitution.

The right to due process was first conceptualized in England, appearing in an English
statute of 1354,122 with some early scholars claiming that the right to due process is
fundamentally procedural.123 The statute in which the phrase "due process of law" first
appeared was reportedly enacted to prevent the outlawing of individuals "without their
being summoned to answer for the charges brought against them." 124 The statute,
enacted during Edward the Third's reign, thus provided:

That no man of what Estate or Condition that he be, shall be put out of land or
Tenement, nor taken, nor imprisoned, nor disinherited, nor put to death, without being
brought in answer by due process of law.125

Still, other early scholars asserted that the right to due process originally has a
substantive dimension, requiring that any taking of life, liberty, or property be
according to "the law of the land."126 This is the view of Sir Edward Coke in interpreting
chapter 39 of the Magna Carta on which the due process clause of the United States
Constitution is based.127 Chapter 39 of the Magna Carta provides:

No free man shall be taken, imprisoned, disseised, outlawed, banished, or in any way
destroyed, nor will We proceed against or prosecute him, except by lawful judgment of
his peers and by the law of the land.

Currently, this Court reads the due process clause as requiring both procedural and
substantive elements. In the landmark case of Ermita-Malate Hotel and Motel Operators
Association, Inc. v. The Honorable City Mayor of Manila,128 this Court clarified:

There is no controlling and precise definition of due process. It furnishes though a

standard to which governmental action should conform in order that deprivation of life,
liberty or property, in each appropriate case, be valid. What then is the standard of due
process which must exist both as a procedural and as substantive requisite to free the
challenged ordinance, or any government action for that matter, from the imputation of
legal infirmity; sufficient to spell its doom? It is responsiveness to the supremacy of
reason, obedience to the dictates of justice. Negatively put, arbitrariness is ruled out
and unfairness avoided. To satisfy the due process requirement, official action, to
paraphrase Cardozo, must not outrun the bounds of reasons and result in sheer
oppression. Due process is thus hostile to any official action marred by lack of
reasonableness. Correctly has it been identified as freedom from arbitrariness. It is the
embodiment of the sporting idea of fair play. It exacts fealty "to those strivings for
justice" and judges the act of officialdom of whatever branch "in the light of reason
drawn from considerations of fairness that reflect [democratic] traditions of legal and
political thought." It is not a narrow or "technical conception with fixed content
unrelated to time, place and circumstances," decisions based on such a clause requiring
a "close and perceptive inquiry into fundamental principles of our society." Questions of
due process are not to be treated narrowly or pedantically in slavery to form or
phrases.129 (Citations omitted)

Despite the debate on the historical meaning of "due process of law," compliance with
both procedural and substantive due process is required in this jurisdiction.

The first aspect of due process—procedural due process—"concerns itself with

government action adhering to the established process when it makes an intrusion into
the private sphere."130 It requires notice and hearing, and, as further clarified
in Medenilla v. Civil Service Commission:131

[I]mplies the right of the person affected thereby to be present before the tribunal
which pronounces judgment upon the question of life, liberty, and property in its most
comprehensive sense; to be heard, by testimony or otherwise, and to have the right of
controverting, by proof, every material fact which bears on the question of the right in
the matter involved.132

It is said that due process means "a law which hears before it condemns." 133 The "law"
in the due process clause includes not only statute but also rules issued in the valid
exercise of an administrative agency's quasi-legislative power.

What procedural due process requires depends on the nature of the action. For
instance, judicial proceedings generally require that:

[First,] [t]here must be a court or tribunal clothed with judicial power to hear and
determine the matter before it; [second,] jurisdiction must be lawfully acquired over
the person of the defendant or over the property which is the subject of the
proceeding; [third,] the defendant must be given an opportunity to be heard; and
[fourth,] judgment must be rendered upon lawful hearing. 134

For "trials and investigations of an administrative character," 135Ang Tibay v. Court of

Industrial Relations136 lay down the seven (7) cardinal primary rights, thus:

(1) The first of these rights is the right to a hearing which includes the right of the party
interested or affected to present his own case and submit evidence in support thereof.
In the language of Chief Justice Hughes, in Morgan v. U.S., . . ., "the liberty and
property of the citizen shall be protected by the rudimentary requirements of fair play."

(2) Not only must the party be given an opportunity to present his case and to adduce
evidence tending to establish the rights which he asserts but the tribunal must consider
the evidence presented . . . In the language of this court in Edwards vs. McCoy, ..., "the
right to adduce evidence, without the corresponding duty on the part of the board to
consider it, is vain. Such right is conspicuously futile if the person or persons to whom
the evidence is presented can thrust it aside without notice or consideration."

(3) "While the duty to deliberate does not impose the obligation to decide right, it does
imply a necessity which cannot be disregarded, namely, that of having something to
support its decision. A decision with absolutely nothing to support it is a nullity, a place
when directly attached." (Edwards vs. McCoy, supra.) This principle emanates from the
more fundamental principle that the genius of constitutional government is contrary to
the vesting of unlimited power anywhere. Law is both a grant and a limitation upon
power.

(4) Not only must there be some evidence to support a finding or conclusion ..., but the
evidence must be "substantial." ... "Substantial evidence is more than a mere scintilla.
It means such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion." . . . The statute provides that 'the rules of evidence prevailing in
courts of law and equity shall not be controlling.' The obvious purpose of this and
similar provisions is to free administrative boards from the compulsion of technical rules
so that the mere admission of matter which would be deemed incompetent in judicial
proceedings would not invalidate the administrative order.... But this assurance of a
desirable flexibility in administrative procedure does not go so far as to justify orders
without a basis in evidence having rational probative force. Mere uncorroborated
hearsay or rumor does not constitute substantial evidence....

(5) The decision must be rendered on the evidence presented at the hearing, or at least
contained in the record and disclosed to the parties affected ... Only by confining the
administrative tribunal to the evidence disclosed to the parties, can the latter be
protected in their right to know and meet the case against them. It should not,
however, detract from their duty actively to see that the law is enforced, and for that
purpose, to use the authorized legal methods of securing evidence and informing itself
of facts material and relevant to the controversy....

(6) [The tribunal or officer], therefore, must act on its or his own independent
consideration of the law and facts of the controversy, and not simply accept the views
of a subordinate in arriving at a decision....

(7) [The tribunal or officer] should, in all controversial questions, render its decision in
such a manner that the parties to the proceeding can know the various issues involved,
and the reasons for the decisions rendered. The performance of this duty is inseparable
from the authority conferred upon it.137 (Underscoring supplied; citations omitted)

However, notice and hearing are not required when an administrative agency exercises
its quasi-legislative power. The reason is that in the exercise of quasi-legislative power,
the administrative agency makes no "determination of past events or facts." 138

The other aspect of due process—substantive due process—requires that laws be

grounded on reason139 and be free from arbitrariness. The government must have
"sufficient justification for depriving a person of life, liberty, or property." 140 In the
words of Justice Felix Frankfurter, due process is "the embodiment of the sporting idea
of fair play."141

Essentially, substantive due process is satisfied if the deprivation is done in the exercise
of the police power of the State. Called "the most essential, insistent and
illimitable"142 of the powers of the State, police power is the "authority to enact
legislation that may interfere with personal liberty or property in order to promote the
general welfare."143 In the negative, it is the "inherent and plenary power in the State
which enables it to prohibit all that is hurtful to the comfort, safety, and welfare of
society."144 "The reservation of essential attributes of sovereign power is ... read into
contracts as a postulate of the legal order."145

"[P]olice power is lodged primarily in the National Legislature." 146 However, it "may

delegate this power to the President and administrative boards as well as the
lawmaking bodies of municipal corporations or local government units." 147 "Once
delegated, the agents can exercise only such legislative powers as are conferred on
them by the [National Legislature]."148

Laws requiring the payment of minimum wage, security of tenure, and traffic
safety149 have been declared not violative of due process for being valid police power
legislations. In these cases, the test or standard is whether the law is reasonable. The
interests of the State to promote the general welfare, on the one hand, and the right to
property, on the other, must be balanced. As expounded in Ichong v. Hernandez:150

The conflict, therefore, between police power and the guarantees of due process and
equal protection of the laws is more apparent than real. Properly related, the power and
the guarantees are supposed to coexist. The balancing is the essence or, shall it be
said, the indispensable means for the attainment of legitimate aspirations of any
democratic society. There can be no absolute power, whoever exercise it, for that would
be tyranny. Yet there can neither be absolute liberty, for that would mean license and
anarchy. So the State can deprive persons of life, liberty and property, provided there
is due process of law; and persons may be classified into classes and groups, provided
everyone is given the equal protection of the law. The test or standard, as always, is
reason. The police power legislation must be firmly grounded on public interest and
welfare, and a reasonable relation must exist between purposes and means. And if
distinction and classification ha[ve] been made, there must be a reasonable basis for
said distinction.151

Given the foregoing, this Court finds that Department Order No. 118-12 and
Memorandum Circular No. 2012-001 are not violative of due process, either procedural
or substantive.

Department Order No. 118-12 and Memorandum Circular No. 2012-001 were issued in
the exercise of quasi-legislative powers of the DOLE and the LTFRB, respectively. As
such, notice and hearing are not required for their validity.

In any case, it is undisputed that the DOLE created a Technical Working Group that
conducted several meetings and consultations with interested sectors before
promulgating Department Order No. 118-12. Among those invited were bus drivers,
conductors, and operators with whom officials of the DOLE conducted focused group
discussions.152 The conduct of these discussions more than complied with the
requirements of procedural due process.

Neither are Department Order No. 118-12 and Memorandum Circular No. 2012-001
offensive of substantive due process.

Department Order No. 118-12 and Memorandum Circular No. 2012-001 are reasonable
and are valid police power issuances. The pressing need for Department Order No. 118-
12 is obvious considering petitioners' admission that the payment schemes prior to the
Order's promulgation consisted of the "payment by results," the "commission basis," or
the boundary system. These payment schemes do not guarantee the payment of
minimum wages to bus drivers and conductors. There is also no mention of payment of
social welfare benefits to bus drivers and conductors under these payment schemes
which have allegedly been in effect since "time immemorial."

There can be no meaningful implementation of Department Order No. 118-12 if

violating it has no consequence. As such, the LTFRB was not unreasonable when it
required bus operators to comply with the part-fixed-part-performance-based payment
scheme under pain of revocation of their certificates of public convenience. The LTFRB
has required applicants or current holders of franchises to comply with labor standards
as regards their employees, and bus operators must be reminded that certificates of
public convenience are not property. Certificates of public convenience are franchises
always subject to amendment, repeal, or cancellation. Additional requirements may be
added for their issuance, and there can be no violation of due process when a franchise
is cancelled for non-compliance with the new requirement.

An equally important reason for the issuance of Department Order No. 118-12 and
Memorandum Circular No. 2012-001 is to ensure "road safety" by eliminating the "risk-
taking behaviors" of bus drivers and conductors. This Court in Hernandez v.
Dolor153 observed that the boundary system "place[s] the riding public at the mercy of
reckless and irresponsible drivers—reckless because the measure of their earnings
depends largely upon the number of trips they make and, hence, the speed at which
they drive."154

Behavioral economics explains this phenomenon. The boundary system puts drivers in a
"scarcity mindset" that creates a tunnel vision where bus drivers are nothing but
focused on meeting the boundary required and will do so by any means possible and
regardless of risks.155 They stop for passengers even outside of the designated bus
stops, impeding traffic flow. They compete with other bus drivers for more income
without regard to speed limits and bus lanes. Some drivers even take in performance-
enhancing drugs and, reportedly, even illegal drugs such as shabu, just to get
additional trips. This scarcity mindset is eliminated by providing drivers with a fixed
income plus variable income based on performance. The fixed income equalizes the
playing field, so to speak, so that competition and racing among bus drivers are
prevented. The variable pay provided in Department Order No. 118-12 is based on
safety parameters, incentivizing prudent driving.

In sum, Department Order No. 118-12 and Memorandum Circular No. 2012-001 are in
the nature of social legislations to enhance the economic status of bus drivers and
conductors, and to promote the general welfare of the riding public. They are
reasonable and are not violative of due process.

VII

Related to due process is the non-impairment clause. The Constitution's Article III,
Section 10 provides:

ARTICLE III
Bill of Rights
....
Section 10. No law impairing the obligation of contracts shall be passed.

The non-impairment clause was first incorporated into the United States Constitution
after the American Revolution, an unstable time when worthless money was routinely
issued and the States enacted moratorium laws to extend periods to pay contractual
obligations that further contributed to the lack of confidence to the monetary system
during that time.156 These practices were prohibited under the clause to limit State
interference with free markets and debtor-creditor relationships. 157

The clause was first adopted in our jurisdiction through the Philippine Bill of 1902 and,
similar to the due process clause, has consistently appeared in subsequent
Constitutions.

Since the non-impairment clause was adopted here, this Court has said that its purpose
is to protect purely private agreements from State interference. 158 This is to "encourage
trade and credit by promoting confidence in the stability of contractual relations." 159

There are views, however, that the non-impairment clause is obsolete and redundant
because contracts are considered property, and thus, are protected by the due process
clause. On the other hand, studies show why the non-impairment clause should be
maintained. Aside from its traditional purpose of prohibiting State interference in purely
private transactions, the non-impairment clause serves as a guarantee of the
separation of powers between the judicial and legislative branches of the
government.160 The non impairment clause serves as a check on the legislature "to act
only through generally applicable laws prescribing rules of conduct that operate
prospectively." 161

This approach, called the institutional regularity approach, was applied in United States
v. Diaz Conde and R. Conde.162 The accused in the case lent P300.00 to two (2) debtors
with 5% interest per month, payable within the first 10 days of each and every month.
The Usury Law was subsequently passed in 1916, outlawing the lending of money with
usurious interests.

In 1921, the accused were charged for violating the Usury Law for money lending done
in 1915. The accused were initially convicted but they were subsequently acquitted.
This Court held that the loan contract was valid when it was entered into; thus, to
render a previously valid contract illegal for violating a subsequent law is against the
non-impairment clause. This Court explained:

A law imposing a new penalty, or a new liability or disability, or giving a new right of
action, must not be construed as having a retroactive effect. It is an elementary rule of
contract that the laws in force at the time the contract was made must govern its
interpretation and application. Laws must be construed prospectively and not
retrospectively. If a contract is legal at its inception, it cannot be rendered illegal by any
subsequent legislation. If that were permitted then the obligations of a contract might
be impaired, which is prohibited by the organic law of the Philippine Islands. 163

It is claimed that the institutional regularity approach "offers the soundest theoretical
basis for reviving the [non-impairment clause] as a meaningful constitutional
constraint."164 It is consistent with the government's right to regulate itself, but
prevents "majoritarian abuse."165 With the non-impairment clause, legislature cannot
enact "retroactive laws, selective laws, and laws not supported by a public purpose." 166

At any rate, so long as the non-impairment clause appears in the Constitution, it may
be invoked to question the constitutionality of State actions.

There is an impairment when, either by statute or any administrative rule issued in the
exercise of the agency's quasi-legislative power, the terms of the contracts are changed
either in the time or mode of the performance of the obligation. 167 There is likewise
impairment when new conditions are imposed or existing conditions are dispensed
with.168

Not all contracts, however, are protected under the non-impairment clause. Contracts
whose subject matters are so related to the public welfare are subject to the police
power of the State and, therefore, some of its terms may be changed or the whole
contract even set aside without offending the Constitution; 169 otherwise, "important and
valuable reforms may be precluded by the simple device of entering into contracts for
the purpose of doing that which otherwise may be prohibited." 170

Likewise, contracts which relate to rights not considered property, such as a franchise
or permit, are also not protected by the non-impairment clause. The reason is that the
public right or franchise is always subject to amendment or repeal by the State, 171 the
grant being a mere privilege. In other words, there can be no vested right in the
continued grant of a franchise. Additional conditions for the grant of the franchise may
be made and the grantee cannot claim impairment.

Similar to the right to due process, the right to non-impairment yields to the police
power of the State.

In Anucension v. National Labor Union,172 Hacienda Luisita and the exclusive bargaining

agent of its agricultural workers, National Labor Union, entered into a collective
bargaining agreement. The agreement had a union security clause that required
membership in the union as a condition for employment. Republic Act No. 3350 was
then subsequently enacted in 1961, exempting workers who were members of religious
sects which prohibit affiliation of their members with any labor organization from the
operation of union security clauses.

On the claim that Republic Act No. 3350 violated the obligation of contract, specifically,
of the union security clause found in the collective bargaining agreement, this Court
conceded that "there was indeed an impairment of [the] union security
clause."173 Nevertheless, this Court noted that the "prohibition to impair the obligation
of contracts is not absolute and unqualified" 174 and that "the policy of protecting
contracts against impairment presupposes the maintenance of a government by virtue
of which contractual relations are worthwhile — a government which retains adequate
authority to secure the peace and good order of society." 175 A statute passed to protect
labor is a "legitimate exercise of police power, although it incidentally destroys existing
contract rights."176 "[C]ontracts regulating relations between capital and labor ... are
not merely contractual, and said labor contracts ... [are] impressed with public interest,
[and] must yield to the common good."177
This Court found the purpose behind Republic Act No. 3350 legitimate. Republic Act No.
3350 protected labor by "preventing discrimination against those members of religious
sects which prohibit their members from joining labor unions, confirming thereby their
natural, statutory and constitutional right to work, the fruits of which work are usually
the only means whereby they can maintain their own life and the life of their
dependents."178 This Court, therefore, upheld the constitutionality of Republic Act No.
3350.

Laws regulating public utilities are likewise police power legislations. In Pangasinan
Transportation Co., Inc. v. The Public Service Commission,179 Pangasinan Transportation
Co., Inc. (Pangasinan Transportation) filed an application with the Public Service
Commission to operate 10 additional buses for transporting passengers in Pangasinan
and Tarlac. The Public Service Commission granted the application on the condition that
the authority shall only be for 25 years.

When the Public Service Commission denied Pangasinan Transportation's motion for
reconsideration with respect to the imposition of the 25-year validity period, the bus
company filed a petition for certiorari before this Court. It claimed that it acquired its
certificates of public convenience to operate public utility buses when the Public Service
Act did not provide for a definite period of validity of a certificate of public convenience.
Thus, Pangasinan Transportation claimed that it "must be deemed to have the right [to
hold its certificates of public convenience] in perpetuity." 180

Rejecting Pangasinan Transportation's argument, this Court declared that certificates of

public convenience are granted subject to amendment, alteration, or repeal by
Congress. Statutes enacted for the regulation of public utilities, such as the Public
Service Act, are police power legislations "applicable not only to those public utilities
coming into existence after [their] passage, but likewise to those already established
and in operation."181

Here, petitioners claim that Department Order No. 118-12 and Memorandum Circular
No. 2012-001 violate bus operators' right to non-impairment of obligation of contracts
because these issuances force them to abandon their "time-honored" 182 employment
contracts or arrangements with their drivers and conductors. Further, these issuances
violate the terms of the franchise of bus operators by imposing additional requirements
after the franchise has been validly issued.

Petitioners' arguments deserve scant consideration. For one, the relations between
capital and labor are not merely contractual as provided in Article 1700 of the Civil
Code.183 By statutory declaration, labor contracts are impressed with public interest
and, therefore, must yield to the common good. Labor contracts are subject to special
laws on wages, working conditions, hours of labor, and similar subjects. In other words,
labor contracts are subject to the police power of the State.

As previously discussed on the part on due process, Department Order No. 118-12 was
issued to grant bus drivers and conductors minimum wages and social welfare benefits.
Further, petitioners repeatedly admitted that in paying their bus drivers and
conductors, they employ the boundary system or commission basis, payment schemes
which cause drivers to drive recklessly. Not only does Department Order No. 118-12
aim to uplift the economic status of bus drivers and conductors; it also promotes road
and traffic safety.

Further, certificates ofpub1ic convenience granted to bus operators are subject to

amendment. When certificates of public convenience were granted in 2012,
Memorandum Circular No. 2011-004 on the "Revised Terms and Conditions of
[Certificates of Public Convenience] and Providing Penalties for Violations Thereof” was
already in place. This Memorandum Circular, issued before Memorandum Circular No.
2012-001, already required public utility vehicle operators to comply with labor and
social legislations. Franchise holders cannot object to the reiteration made in
Memorandum Circular No. 2012-001.

All told, there is no violation of the non-impairment clause.

VIII

The equal protection clause was first incorporated in the United States Constitution
through the Fourteenth Amendment, mainly to protect the slaves liberated after the
Civil War from racially discriminatory state laws. 184This was in 1868. When the
Philippines was ceded by Spain to the United States in 1898, provisions of the United
States Constitution were held not to have been automatically applicable here, except
those "parts [falling] within the general principles of fundamental limitations in favor of
personal rights formulated in the Constitution and its amendments." 185 It is said that
the equal protection clause, "[b]eing one such limitation in favor of personal rights
enshrined in the Fourteenth Amendment," was deemed extended in this jurisdiction
upon our cession to the United States.186 The text of the equal protection clause first
appeared in the Philippine Bill of 1902 and has since appeared in our subsequent
Constitutions.

"Equal protection of the laws" requires that "all persons ... be treated alike, under like
circumstances and conditions both as to privileges conferred and liabilities
enforced."187 "The purpose of the equal protection clause is to secure every person
within a state's jurisdiction against intentional and arbitrary discrimination, whether
occasioned by the express terms of a statute or by its improper execution through the
state's duly constituted authorities."188

However, the clause does not prevent the legislature from enacting laws making valid
classifications. Classification is "the grouping of persons or things similar to each other
in certain particulars and different from all others in these same particulars." 189 To be
valid, the classification must be: first, based on "substantial distinctions which make
real differences";190 second, it must be "germane to the purposes of the law"; 191 third, it
must "not be limited to existing conditions only"; 192 and fourth, it must apply to each
member of the class.193

In Ichong v. Hernandez,194 the constitutionality of Republic Act No. 1180 was assailed

for alleged violation of the equal protection clause. The law prohibited aliens from
engaging in retail business in the Philippines. This Court sustained the classification by
citizenship created by Republic Act No. 1180. This Court observed how our economy
primarily relied on retailers to distribute goods to consumers; thus, the legislature saw
it fit to limit the conduct of retail business to Filipinos to protect the country's economic
freedom. This Court said:

Broadly speaking, the power of the legislature to make distinctions and classifications
among persons is not curtailed or denied by the equal protection of the laws clause.
The legislative power admits of a wide scope of discretion, and a law can be violative of
the constitutional limitation only when the classification is without reasonable basis. In
addition to the authorities we have earlier cited, we can also refer to the case of
Lindsley vs. Natural Carbonic Gas Co. (1911), 55 L. ed., 369, which clearly and
succinctly defined the application of equal protection clause to a law sought to be
voided as contrary thereto:

". . . '1. The equal protection clause of the Fourteenth Amendment does not take from
the state the power to classify in the adoption of police laws, but admits of tl1e exercise
of the wide scope of discretion in that regard, and avoids what is done only when it is
without any reasonable basis, and therefore is purely arbitrary. 2. A classification
having some reasonable basis does not offend against that clause merely because it is
not made with mathematical nicety, or because in practice it results in some inequality.
3. When the classification in such a law is called in question, if any state of facts
reasonably can be conceived that would sustain it, the existence of that state of facts at
the time the law was enacted must be assumed. 4. One who assails the classification in
such a law must carry the burden of showing that it does not rest upon any reasonable
basis, but is essentially arbitrary.'"195

The petitioners in Basco v. Philippine Amusement and Gaming Corporation196 claimed

that Presidential Decree No. 1869, the charter of the Philippine Amusement and Gaming
Corporation, was violative of the equal protection guarantee because it only allowed
gambling activities conducted by the Philippine Amusement and Gaming Corporation
but outlawed the other forms. This Court upheld the constitutionality of Presidential
Decree No. 1869 mainly because "[t]he [equal protection] clause does not preclude
classification of individuals who may be accorded different treatment under the law as
long as the classification is not unreasonable or arbitrary." 197

In the recent case of Garcia v. Drilon,198 this Court rejected the argument that Republic
Act No. 9262 or the Anti-Violence Against Women and Children violated the equal
protection guarantee. According to this Court, the "unequal power relationship between
women and men; the fact that women are more likely than men to be victims of
violence; and the widespread gender bias and prejudice against women" 199 justify the
enactment of a law that specifically punishes violence against women.

In the present case, petitioners' sole claim on their equal protection argument is that
the initial implementation of Department Order No. 118-12 in Metro Manila "is not only
discriminatory but is also prejudicial to petitioners." 200 However, petitioners did not
even bother explaining how exactly Department Order No. 118-12 infringed on their
right to equal protection.

At any rate, the initial implementation of Department Order No. 118-12 is not violative
of the equal protection clause. In Taxicab Operators of Metro Manila, Inc. v. The Board
of Transportation,201 this Court upheld the initial implementation of the phase-out of old
taxicab units in Metro Manila because of the "heavier traffic pressure and more constant
use" of the roads. The difference in the traffic conditions in Metro Manila and in other
parts of the country presented a substantial distinction.

The same substantial distinction can be inferred here. Department Order No. 118-12
has also been implemented in other parts of the country. Petitioners' weak argument is
now not only moot. It also deserves no merit.

IX

In constitutional litigation, this Court presumes that official acts of the other branches
of government are constitutional. This Court proceeds on the theory that "before the
act was done or the law was enacted, earnest studies were made by Congress or the
President, or both, to insure that the Constitution would not be breached." 202 Absent a
clear showing of breach of constitutional text, the validity of the law or action shall be
sustained.

WHEREFORE, the Petition is DISMISSED.

SO ORDERED.

PROVINCIAL BUS OPERATORS ASSOCIATION OF PHILIPPINES v. DEPARTMENT OF

LABOR, GR No. 202275, 2018-07-17
Facts:
To ensure road safety and address the risk-taking behavior of bus drivers as its declared
objective, the LTFRB issued Memorandum Circular No. 2012-001[1] on January 4, 2012,
requiring "all Public Utility Bus (PUB) operators ... to secure Labor Standards Compliance
Certificates" under pain of revocation of their existing certificates of public convenience or
denial of an application for a new certificate. Memorandum Circular No. 2012-001 more
particularly provides:
SUBJECT: LABOR STANDARDS COMPLIANCE CERTIFICATE This Memorandum
Circular covers all Public Utility Bus (PUB) Operators and is being issued to ensure road
safety through linking of labor standards compliance with franchise regulation.
To ensure compliance with the established standards for employment and the Board's
policies on the promotion of road safety, all Public Utility Bus (PUB) operators are required
to secure Labor Standards Compliance Certificates from the Department of Labor and
Employment (DOLE).
The Certificate shall indicate compliance by the PUB operators with all relevant legislations
on wages, labor standards, terms and conditions of employment, and such mandatory
benefits as may now or in the future be provided under Philippine Labor Laws
Failure on the part of the PUB operators to secure and submit to the Board by July 30, 2012
the required Labor Standards Certificates shall be a ground for the immediate cancellation
or revocation of their franchises/[Certificates of Public Convenience].
No application for new [Certificates of Public Convenience] or renewal of existing
[Certificates of Public Convenience] shall thereafter be granted by the Board without the
required Certificates. This Memorandum Circular shall take effect fifteen (15) days following
its publication in at least two (2) newspapers of general circulation. Let three (3) copies
hereof be filed with the UP [L]aw Center pursuant to Presidential Memorandum Circular No.
11, dated 9 October 1992.
Issues:
On the constitutional issues raised by petitioners, respondents contend that Department
Order No. 118-12 and Memorandum Circular No. 2012-001 are valid issuances
promulgated by the DOLE and the LTFRB in the exercise of their quasi-legislative powers.
Further, they argue that Department Order No. 118-12 and Memorandum Circular No.
2012-001 do not violate public utility bus operators' rights to non-impairment of obligation of
contracts, due process of law, and equal protection of the laws for the following reasons:
First, Department Order No. 118-12 and Memorandum Circular No. 2012-001 were issued
"[to promote and protect] the welfare of the public utility bus drivers and conductors"[19] and
"(to ensure] road safety"[20] by imposing a wage system where public utility bus drivers do
not have to compete with one another and drive recklessly for additional income.[21]
Department Order No. 118-12 and Memorandum Circular No. 2012-001 are social
legislations and police power measures to which petitioners' right against impairment of
obligation of contracts must yield[22]; Second, certificates of public convenience are not
property and are always subject to amendment, alteration, or repeal. Therefore, public utility
bus operators cannot argue that they were deprived of their property without due process of
law when the LTFRB required further compliance with Memorandum Circular No. 2012-001
for bus operators to retain their franchises[23]; and Finally, Department Order No. 118-12
does not violate Metro Manila public utility bus operators' right to equal protection of the
laws since it applies to all public utility bus operators in the country.
Ruling:
I The Constitution vests in this Court and such lower courts as may be established by law
the power to "declare executive and legislative acts void if violative of the Constitution."[25]
This Court's power of judicial review is anch
The Constitution vests in this Court and such lower courts as may be established by law the
power to "declare executive and legislative acts void if violative of the Constitution."[25] This
Court's power of judicial review is anchored on Article VIII, Section 1 of the Constitution:
Section 1. The judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law. 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.
I The Constitution vests in this Court and such lower courts as may be established by law
the power to "declare executive and legislative acts void if violative of the Constitution."[25]
This Court's power of judicial review is anchored on Article VIII, Section 1 of the
Constitution: Section 1. The judicial power shall be vested in one Supreme Court and in
such lower courts as may be established by law. 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.
II While resort to courts may directly be availed of in questioning the constitutionality of an
administrative rule, parties may not proceed directly before this Court, regardless of its
original jurisdiction over certain matters. This Court's original jurisdiction over petitions for
certiorari and Prohibition[41] may only be invoked for special reasons under the doctrine of
hierarchy of courts. The doctrine of hierarchy of courts requires that recourse must first be
obtained from lower courts sharing concurrent jurisdiction with a higher court.[42] This is to
ensure that this Court remains a court of last resort so as to "satisfactorily perform the
functions assigned to it by the fundamental charter and immemorial tradition."[43] The
doctrine was first enunciated in People v. Cuaresma[44] where a petition for certiorari
assailing a trial court order granting a motion to quash was directly filed before this Court.
Noting that there was no special reason for invoking this Court's original jurisdiction, this
Court dismissed the petition and required the "strict observance" of the policy of hierarchy of
courts
III Furthermore, the issues raised in this Petition are not justiciable. The Petition presents no
actual case or controversy. No less than the Constitution in Article VIII, Section 1 requires
an actual controversy for the exercise of judicial power: Section 1. The judicial power shall
be vested in one Supreme Court and in such lower courts as may be established by law.
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. (Underscoring supplied)
As a rule, "the constitutionality of a statute will be passed on only if, and to the extent that, it
is directly and necessarily involved in a justiciable controversy and is essential to the
protection of the rights of the parties concerned."[61] A controversy is said to be justiciable
if: first, there is an actual case or controversy involving legal rights that are capable of
judicial determination; second, the parties raising the issue must have standing or locus
standi to raise the constitutional issue; third, the constitutionality must be raised at the
earliest opportunity; and fourth, resolving the constitutionality must be essential to the
disposition of the case.[62] An actual case or controversy is "one which involves a conflict of
legal rights, an assertion of opposite legal claims susceptible of judicial resolution."[63] A
case is justiciable if the issues presented are "definite and concrete, touching on the legal
relations of parties having adverse legal interests."[64] The conflict must be ripe for judicial
determination, not conjectural or anticipatory; otherwise, this Court's decision will amount to
an advisory opinion concerning legislative or executive action.[65] In the classic words of
Angara v. Electoral Commission:[66]
IV Not only is this Petition not justiciable for failing to present an actual controversy.
Petitioners do not possess the requisite legal standing to file this suit. Legal standing or
locus standi is the "right of appearance in a court of justice on a given question."[79] To
possess legal standing, parties must show "a personal and substantial interest in the case
such that [they have] sustained or will sustain direct injury as a result of the governmental
act that is being challenged."[80] The requirement of direct injury guarantees that the party
who brings suit has such personal stake in the outcome of the controversy and, in effect,
assures "that concrete adverseness which sharpens the presentation of issues upon which
the court depends for illumination of difficult constitutional questions."[81] The requirements
of legal standing and the recently discussed actual case and controversy are both "built on
the principle of separation of powers, sparing as it does unnecessary interference or
invalidation by the judicial branch of the actions rendered by its co-equal branches of
government."[82] In addition, economic reasons justify the rule
V The protection of private property is the primary function of a constitution. This can be
gleaned in our earliest fundamental law where members of the Malolos Congress declared
their purpose in decreeing the Malolos Constitution: "to secure for [the Filipino people] the
blessings of liberty." It is understood that the rights to enjoy and to dispose of property are
among these blessings considering that several provisions on property are found in the
Constitution. Article 32 of the Malolos Constitution provided that "no Filipino shall
establish ... institutions restrictive of property rights." Likewise, Article 17 provided that "no
one shall be deprived of his property by expropriation except on grounds of public necessity
and benefit." At present, the due process clause, the equal protection clause, and the
takings clause of the Constitution serve as protections from the government's taking of
property. The non-impairment clause may likewise be invoked if the property taken is in the
nature of a contract. In any case, all these constitutional limits are subject to the
fundamental powers of the State, specifically, police power. As such, the burden of proving
that the taking is unlawful rests on the party invoking the constitutional right. Unfortunately
for petitioners, they miserably failed to prove why Department Order No. 118-12 and
Memorandum Circular No. 2012-001 are unconstitutional.
VI
Given the foregoing, this Court finds that Department Order No. 118-12 and Memorandum
Circular No. 2012-001 are not violative of due process, either procedural or substantive.
Department Order No. 118-12 and Memorandum Circular No. 2012-001 were issued in the
exercise of quasi-legislative powers of the DOLE and the LTFRB, respectively. As such,
notice and hearing are not required for their validity.
In any case, it is undisputed that the DOLE created a Technical Working Group that
conducted several meetings and consultations with interested sectors before promulgating
Department Order No. 118-12. Among those invited were bus drivers, conductors, and
operators with whom officials of the DOLE conducted focused group discussions.[152] The
conduct of these discussions more than complied with the requirements of procedural due
process. Neither are Department Order No. 118-12 and Memorandum Circular No. 2012-
001 offensive of substantive due process.
Department Order No. 118-12 and Memorandum Circular No. 2012-001 are reasonable and
are valid police power issuances. The pressing need for Department Order No. 118-12 is
obvious considering petitioners' admission that the payment schemes prior to the Order's
promulgation consisted of the... payment by results," the "commission basis," or the
boundary system. These payment schemes do not guarantee the payment of minimum
wages to bus drivers and conductors. There is also no mention of payment of social welfare
benefits to bus drivers and conductors under these payment schemes which have allegedly
been in effect since "time immemorial."
In sum, Department Order No. 118-12 and Memorandum Circular No. 2012-001 are in the
nature of social legislations to enhance the economic status of bus drivers and conductors,
and to promote the general welfare of the riding public. They are reasonable and are not
violative of due process.
VII Related to due process is the non-impairment clause. The Constitution's Article III,
Section 10 provides: ARTICLE III Bill of Rights . . . . Section 10. No law impairing the
obligation of contracts shall be passed. The non-impairment clause was first incorporated
into the United States Constitution after the American Revolution, an unstable time when
worthless money was routinely issued and the States enacted moratorium laws to extend
periods to pay contractual obligations that further contributed to the lack of confidence to the
monetary system during that time.[156] These practices were prohibited under the clause to
limit State interference with free markets and debtor-creditor relationships.[157] The clause
was first adopted in our jurisdiction through the Philippine Bill of 1902 and, similar to the due
process clause, has consistently appeared in subsequent Constitutions.
Since the non-impairment clause was adopted here, this Court has said that its purpose is
to protect purely private agreements from State interference.[158] This is to "encourage
trade and credit by promoting confidence in the stability of contractual relations."[159]
IX
In constitutional litigation, this Court presumes that official acts of the other branches of
government are constitutional. This Court proceeds on the theory that "before the act was
done or the law was enacted, earnest studies were made by Congress or the President, or
both, to insure that the Constitution would not be breached."[202] Absent a clear showing of
breach of constitutional text, the validity of the law or action shall be sustained.
 EN BANC

G.R. No. 210500, April 02, 2019

KILUSANG MAYO UNO, REPRESENTED BY ITS SECRETARY GENERAL ROGELIO

SOLUTA; REP. FERNANDO HICAP FOR HIMSELF AND AS REPRESENTATIVE OF
THE ANAKPAWIS PARTY-LIST; CENTER FOR TRADE UNION AND HUMAN
RIGHTS, REPRESENTED BY ITS EXECUTIVE DIRECTOR DAISY ARAGO;
JOSELITO USTAREZ AND SALVADOR CARRANZA, FOR THEMSELVES AND IN
REPRESENTATION OF THE NATIONAL FEDERATION OF LABOR UNIONS-KMU;
NENITA GONZAGA, PRESCILA A. MANIQUIZ, REDEN ALCANTARA,
PETITIONERS, v. HON. BENIGNO SIMEON C. AQUINO III, HON. PAQUITO N.
OCHOA, JR., SOCIAL SECURITY COMMISSION, SOCIAL SECURITY SYSTEM, AND
EMILIO S. DE QUIROS, JR., RESPONDENTS.

DECISION

LEONEN, J.:

This Court is called to determine the validity of the Social Security System premium
hike, which took effect in January 2014. The case also involves the application of
doctrines on judicial review, valid delegation of powers, and the exercise of police
power.

This resolves a Petition for Certiorari and Prohibition, 1 praying that a temporary
restraining order and/or writ of preliminary injunction be issued to annul the Social
Security System premium hike embodied in the following issuances: (1) Resolution No.
262-s. 2013 dated April 19, 2013;2 (2) Resolution No. 711-s. 2013 dated September
20, 2013;3 and (3) Circular No. 2013-0104 dated October 2, 2013 (collectively, the
assailed issuances). Kilusang Mayo Uno, together with representatives from recognized
labor centers, labor federations, party-list groups, and Social Security System members
(collectively, Kilusang Mayo Uno, et al.), filed the case against government officials and
agencies involved in issuing the assailed issuances.

On April 19, 2013, the Social Security Commission issued Resolution No. 262-s.
2013,5 which provided an increase in: (1) the Social Security System members'
contribution rate from 10.4% to 11%; and (2) the maximum monthly salary credit from
P15,000.00 to P16,000.00. The increase was made subject to the approval of the
President of the Philippines.6

In a September 6, 2013 Memorandum, the President approved the increase. 7

On September 20, 2013, the Social Security Commission issued Resolution No. 711-s.
2013,8 which approved, among others, the increase in contribution rate and maximum
monthly salary credit.

On October 2, 2013, the Social Security System, through President and Chief Executive
Officer Emilio S. De Quiros, Jr., issued Circular No. 2013-010, 9 which provided the
revised schedule of contributions that would be in effect in January 2014. Per the
circular, the employer and the employee shall equally shoulder the 0.6% increase in
contributions. Thus, the employer would pay a contribution rate of 7.37% (from
7.07%); the employee, 3.63% (from 3.33%).

On January 10, 2014, Kilusang Mayo Uno, et al. filed this Petition for Certiorari and
Prohibition,10 questioning the validity of the assailed issuances.

Maintaining that a majority of them are Social Security System members directly
affected by the premium hike, petitioners assert having the requisite  locus standi to file
the Petition.11 Citing David v. Macapagal-Arroyo,12 they further argue that the other
petitioners' legal personality arises from the transcendental importance of the Petition's
issues.13

Petitioners claim that the assailed issuances were issued per an unlawful delegation of
power to respondent Social Security Commission based on Republic Act No. 8282, or
the Social Security Act. In particular, Section 18 14 allegedly offers vague and unclear
standards, and are incomplete in its terms and conditions. This provision, they claim,
has allowed respondent Social Security Commission to fix contribution rates from time
to time, subject to the President's approval. Petitioners claim that the delegation of the
power had no adequate legal guidelines to map out the boundaries of the delegate's
authority.15

In addition, petitioners claim that the increase in contribution rate violates Section 4(b)
(2) of the Social Security Act,16 which states that the "increases in benefits shall not
require any increase in the rate of contribution[.]" They argue that this proviso
prohibits the increase in contributions if there was no corresponding increase in
benefits.17

Petitioners then argue that the increase in contributions is an invalid exercise of police
power for not being reasonably necessary for the attainment of the purpose sought, as
well as for being unduly oppressive on the labor sector. 18 According to them, the Social
Security System can extend actuarial life and decrease its unfunded liability without
increasing the premiums they pay.19

Petitioners further insist that the revised ratio of contributions between employers and
employees, per the assailed issuances, is grossly unjust to the working class and is
beyond respondents' powers. They claim that for the purposes of justice and
consistency, respondents should have maintained the 70%-30% ratio in the premium
increase. Changing it, they add, is grossly unfair and detrimental to employees. 20

Petitioners further emphasize that the State is required to protect the rights of workers
and promote their welfare under the Constitution. 21

Lastly, petitioners pray that a temporary restraining order and/or writ of preliminary
injunction be issued to stop the implementation of the increase in contributions. They
aver that stopping it is necessary to protect their substantive rights and interests. They
point out that their earnings for food and other basic needs would be reduced and
allocated instead to defraying the amount needed for contributions. 22
The issues for this Court's resolution are:

First, whether or not this Court can exercise its power of judicial review;

Second, whether or not there is an actual case or controversy;

Third, whether or not the doctrine of exhaustion of administrative remedies applies;

Fourth, whether or not petitioners have legal standing to file the Petition; and

Finally, whether or not the assailed issuances were issued in violation of laws and with
grave abuse of discretion.

In connection with the fifth issue, this Court further resolves:

First, whether or not the assailed issuances are void for having been issued under
vague and unclear standards contained in the Social Security Act;

Second, whether or not the increase in Social Security System contributions is

reasonably necessary for the attainment of the purpose sought and is unduly
oppressive upon the labor sector; and

Finally, whether or not the revised ratio of contributions between employers and
employees is grossly unjust to the working class and beyond respondent Social Security
Commission's power to enact.

This Court denies the Petition for lack of merit.

Procedural infirmities attend the filing of this Petition. To begin with, former President
Benigno Simeon C. Aquino III, as President of the Philippines, is improperly impleaded
here.

The president is the head of the executive branch, 23 a co-equal of the judiciary under
the Constitution. His or her prerogative is entitled to respect from other branches of
government.24 Inter-branch courtesy25 is but a consequence of the doctrine of
separation of powers.26

As such, the president cannot be charged with any suit, civil or criminal in nature,
during his or her incumbency in office. This is in line with the doctrine of the president's
immunity from suit.27

In David,28 this Court explained why it is improper to implead the incumbent President

of the Philippines. The doctrine has both policy and practical considerations:

Settled is the doctrine that the President, during his tenure of office or actual
incumbency, may not be sued in  any civil or criminal case, and there is no need to
provide for it in the Constitution or law. It will degrade the dignity of the high office of
the President, the Head of State, if he can be dragged into court litigations while
serving as such. Furthermore, it is important that he be freed from any form of
harassment, hindrance or distraction to enable him to fully attend to the performance
of his official duties and functions. Unlike the legislative and judicial branch, only one
constitutes the executive branch and anything which impairs his usefulness in the
discharge of the many great and important duties imposed upon him by the
Constitution necessarily impairs the operation of the Government. However, this does
not mean that the President is not accountable to anyone. Like any other official, he
remains accountable to the people but he may be removed from office only in the mode
provided by law and that is by impeachment. 29 (Emphasis in the original, citations
omitted)

As to the propriety of seeking redress from this Court, it is best to be guided by the
power of judicial review as provided in Article VIII, Section 1 of the 1987 Constitution:

ARTICLE VIII
Judicial Department

SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law.

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.
(Emphasis supplied)

This Court has discussed in several cases how the 1987 Constitution has expanded the
scope of judicial power from its traditional understanding. As such, courts are not only
expected to "settle actual controversies involving rights which are legally demandable
and enforceable[,]"30 but are also empowered to determine if any government branch
or instrumentality has acted beyond the scope of its powers, such that there is grave
abuse of discretion.31

This development of the courts' judicial power arose from the use and abuse of the
political question doctrine during the martial law era under former President Ferdinand
Marcos. In Association of Medical Clinics for Overseas Workers, Inc. v. GCC Approved
Medical Centers Association, Inc.,32 this Court held:

In Francisco v. The House of Representatives, we recognized that this expanded

jurisdiction was meant "to ensure the potency of the power of judicial review to curb
grave abuse of discretion by 'any branch or instrumentalities of government.'" Thus, the
second paragraph of Article VIII, Section 1 engraves, for the first time in its history,
into black letter law the "expanded certiorari jurisdiction" of this Court, whose nature
and purpose had been provided in the sponsorship speech of its proponent, former
Chief Justice Constitutional Commissioner Roberto Concepcion[:]

....
The first section starts with a sentence copied from former Constitutions. It says:

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

I suppose nobody can question it.

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

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or instrumentality of the government.

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

....

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

This is the background of paragraph 2 of Section 1, which means that the courts cannot
hereafter evade the duty to settle matters of this nature, by claiming that such matters
constitute a political question.33 (Emphasis in the original, citations omitted)

Rule 65, Sections 1 and 2 of the Rules of Court provides remedies to address grave
abuse of discretion by any government branch or instrumentality, particularly through
petitions for certiorari and prohibition:

SECTION 1. Petition for Certiorari. — When any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal, board or officer, and granting
such incidental reliefs as law and justice may require.

The petition shall be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and pertinent
thereto, and a sworn certification of non-forum shopping as provided in the paragraph
of Section 3, Rule 46.

SECTION 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 or his 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.

The petition shall likewise be accompanied by a certified true copy of the judgment,
order or resolution subject thereof, copies of all pleadings and documents relevant and
pertinent thereto, and a sworn certification of non-forum shopping as provided in the
third paragraph of Section 3, Rule 46.

While these provisions pertain to a tribunal's, board's, or an officer's exercise of

discretion in judicial, quasi-judicial, or ministerial functions, Rule 65 still applies to
invoke the expanded scope of judicial power. In Araullo v. Aquino III,34 this Court
differentiated certiorari from prohibition, and clarified that Rule 65 is the remedy to "set
right, undo[,] and restrain any act of grave abuse of discretion amounting to lack or
excess of jurisdiction by any branch or instrumentality of the Government, even if the
latter does not exercise judicial, quasi-judicial[J or ministerial functions."35

This Court further explained:

The present Rules of Court uses two special civil actions for determining and correcting
grave abuse of discretion amounting to lack or excess of jurisdiction. These are the
special civil actions for certiorari and prohibition, and both are governed by Rule
65. . . .

The ordinary nature and function of the writ of certiorari in our present system are aptly
explained in Delos Santos v. Metropolitan Bank and Trust Company:

....

The sole office of the writ of certiorari is the correction of errors of jurisdiction, which
includes the commission of grave abuse of discretion amounting to lack of jurisdiction.
In this regard, mere abuse of discretion is not enough to warrant the issuance of the
writ. The abuse of discretion must be grave, which means either that the judicial or
quasi-judicial power was exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, or that the respondent judge, tribunal or board evaded a
positive duty, or virtually refused to perform the duty enjoined or to act in
contemplation of law, such as when such judge, tribunal or board exercising judicial or
quasi-judicial powers acted in a capricious or whimsical manner as to be equivalent to
lack of jurisdiction.

Although similar to prohibition in that it will lie for want or excess of

jurisdiction, certiorari is to be distinguished from prohibition by the fact that it is a
corrective remedy used for the re-examination of some action of an inferior tribunal,
and is directed to the cause or proceeding in the lower court and not to the court itself,
while prohibition is a preventative remedy issuing to restrain future action, and is
directed to the court itself. The Court expounded on the nature and function of the writ
of prohibition in Holy Spirit Homeowners Association, Inc. v. Defensor:

A petition for prohibition is also not the proper remedy to assail an IRR issued in the
exercise of a quasi-legislative function. Prohibition is an extraordinary writ directed
against any tribunal, corporation, board, officer or person, whether exercising judicial,
quasi-judicial or ministerial functions, ordering said entity or person to desist from
further proceedings when said proceedings are without or in excess of said entity's or
person's jurisdiction, or are accompanied with grave abuse of discretion, and there is no
appeal or any other plain, speedy and adequate remedy in the ordinary course of law.
Prohibition lies against judicial or ministerial functions, but not against legislative or
quasi-legislative functions. Generally, the purpose of a writ of prohibition is to keep a
lower court within the limits of its jurisdiction in order to maintain the administration of
justice in orderly channels. Prohibition is the proper remedy to afford relief against
usurpation of jurisdiction or power by an inferior court, or when, in the exercise of
jurisdiction in handling matters clearly within its cognizance the inferior court
transgresses the bounds prescribed to it by the law, or where there is no adequate
remedy available in the ordinary course of law by which such relief can be obtained.
Where the principal relief sought is to invalidate an IRR, petitioners' remedy is an
ordinary action for its nullification, an action which properly falls under the jurisdiction
of the Regional Trial Court. In any case, petitioners' allegation that "respondents are
performing or threatening to perform functions without or in excess of their jurisdiction"
may appropriately be enjoined by the trial court through a writ of injunction or a
temporary restraining order.

With respect to the Court, however, the remedies of certiorari and prohibition are
necessarily broader in scope and reach, and the writ of certiorari or prohibition may be
issued to correct errors of jurisdiction committed not only by a tribunal, corporation,
board or officer exercising judicial, quasi-judicial or ministerial functions but also to set
right, undo and restrain any act of grave abuse of discretion amounting to lack or
excess of jurisdiction by any branch or instrumentality of the Government, even if the
latter does not exercise judicial, quasi-judicial or ministerial functions. This application
is expressly authorized by the text of the second paragraph of Section 1, . . . .

Thus, petitions for certiorari and prohibition are appropriate remedies to raise

constitutional issues and to review and/or prohibit or nullify the acts of legislative and
executive officials.36 (Emphasis in the original, citations omitted)
Here, petitioners filed a Petition for both certiorari and prohibition to determine whether
respondents Social Security System and Social Security Commission committed grave
abuse of discretion in releasing the assailed issuances. According to them, these
issuances violated the provisions of the Constitution on the protection of workers,
promotion of social justice, and respect for human rights. 37 They further claim that the
assailed issuances are void for having been issued based on vague and unclear
standards. They also argue that the increase in contributions is an invalid exercise of
police power as it is not reasonably necessary and, thus, unduly oppressive to the labor
sector. Lastly, they insist that the revised ratio in contributions is grossly unjust to the
working class.38

Petitioners must, thus, comply with the requisites for the exercise of the power of
judicial review: (1) there must be an actual case or justiciable controversy before this
Court; (2) the question before this Court must be ripe for adjudication; (3) the person
challenging the act must be a proper party; and (4) the issue of constitutionality must
be raised at the earliest opportunity and must be the very litis mota of the case.39

I (A)

Most important in this list of requisites is the existence of an actual case or

controversy.40 In every exercise of judicial power, whether in the traditional or
expanded sense, this is an absolute necessity.

There is an actual case or controversy if there is a "conflict of legal right, an opposite

legal claims susceptible of judicial resolution." 41 A petitioner bringing a case before this
Court must establish that there is a legally demandable and enforceable right under the
Constitution. There must be a real and substantial controversy, with definite and
concrete issues involving the legal relations of the parties, and admitting of specific
relief that courts can grant.42

This requirement goes into the nature of the judiciary as a co-equal branch of
government. It is bound by the doctrine of separation of powers, and will not rule on
any matter or cause the invalidation of any act, law, or regulation, if there is no actual
or sufficiently imminent breach of or injury to a right. The courts interpret laws, but the
ambiguities may only be clarified in the existence of an actual situation.

In Lozano v. Nograles,43 the petitions assailing House Resolution No. 1109 were

dismissed due to the absence of an actual case or controversy. This Court held that the
"determination of the nature, scope[,] and extent of the powers of government is the
exclusive province of the judiciary, such that any mediation on the part of the latter for
the allocation of constitutional boundaries would amount, not to its supremacy, but to
its mere fulfillment of its 'solemn and sacred obligation' under the Constitution." 44 The
judiciary's awesome power of review is limited in application. 45

Jurisprudence lays down guidelines in determining an actual case or controversy.

In Information Technology Foundation of the Philippines v. Commission on
Elections,46 this Court required that "the pleadings must show an active antagonistic
assertion of a legal right, on the one hand, and a denial thereof on the other; that is, it
must concern a real and not a merely theoretical question or issue." 47 Further, there
must be "an actual and substantial controversy admitting of specific relief through a
decree conclusive in nature, as distinguished from an opinion advising what the law
would be upon a hypothetical state of facts." 48

Courts, thus, cannot decide on theoretical circumstances. They are neither advisory
bodies, nor are they tasked with taking measures to prevent imagined possibilities of
abuse.

Hence, in Southern Hemisphere Engagement Network, Inc. v. Anti-Terrorism

Council,49 this Court ruled:

Without any justiciable controversy, the petitions have become pleas for declaratory
relief, over which the Court has no original jurisdiction. Then again, declaratory actions
characterized by "double contingency," where both the activity the petitioners intend to
undertake and the anticipated reaction to it of a public official are merely theorized, lie
beyond judicial review for lack of ripeness.

The possibility of abuse in the implementation of RA 9372 does not avail to take the
present petitions out of the realm of the surreal and merely imagined, . . . Allegations
of abuse must be anchored on real events before courts may step in to settle actual
controversies involving rights which are legally demandable and
enforceable.50 (Emphasis supplied, citations omitted)

In Republic v. Roque,51 this Court further qualified the meaning of a justiciable

controversy. In dismissing the Petition for declaratory relief before the Regional Trial
Court, which assailed several provisions of the Human Security Act, we explained that
justiciable controversy or ripening seeds refer to:

. . . an existing case or controversy that is appropriate or ripe for judicial

determination, not one that is conjectural or merely anticipatory. Corollary thereto, by
"ripening seeds" it is meant, not that sufficient accrued facts may be dispensed with,
but that a dispute may be tried at its inception before it has accumulated the asperity,
distemper, animosity, passion, and violence of a full blown battle that looms ahead. The
concept describes a state of facts indicating imminent and inevitable litigation provided
that the issue is not settled and stabilized by tranquilizing declaration. 52 (Emphasis
supplied, citations omitted)

The existence of an actual case or controversy depends on the allegations pleaded. 53

Here, petitioners allege that the premium hike, through the assailed issuances, violates
their rights as workers whose welfare is mandated to be protected under the
Constitution.54 They further allege that the issuances are grossly unjust to the working
class and were issued beyond the scope of constitutional powers. 55

Thus, petitioners' allegations present violations of rights provided for under the
Constitution on the protection of workers, and promotion of social justice. 56 They
likewise assert that respondents Social Security Commission and Social Security
System acted beyond the scope of their powers.
This Court, however, notes that petitioners failed to prove how the assailed issuances
violated workers' constitutional rights such that it would warrant a judicial review.
Petitioners cannot merely cite and rely on the Constitution without specifying how these
rights translate to being legally entitled to a fixed amount and proportion of Social
Security System contributions.

Moreover, an actual case or controversy requires that the right must be enforceable
and legally demandable. A complaining party's right is, thus, affected by the rest of the
requirements for the exercise of judicial power: (1) the issue's ripeness and
prematurity; (2) the moot and academic principle; and (3) the party's standing. 57

I (B)

A case is ripe for adjudication when the challenged governmental act is a completed
action such that there is a direct, concrete, and adverse effect on the petitioner. 58 It is,
thus, required that something had been performed by the government branch or
instrumentality before the court may step in, and the petitioner must allege the
existence of an immediate or threatened injury to itself as a result of the challenged
action.59

In connection with acts of administrative agencies, ripeness is ensured under the

doctrine of exhaustion of administrative remedies. Courts may only take cognizance of
a case or controversy if the petitioner has exhausted all remedies available to it under
the law. The doctrine ensures that the administrative agency exercised its power to its
full extent, including its authority to correct or reconsider its actions. It would, thus, be
premature for courts to take cognizance of the case prior to the exhaustion of
remedies, not to mention it would violate the principle of separation of powers. Thus, in
Rule 65 petitions, it is required that no other plain, speedy, or adequate remedy is
available to the party. In Association of Medical Clinics for Overseas Workers, Inc.:

The doctrine of exhaustion of administrative remedies applies to a petition for certiorari,

regardless of the act of the administrative agency concerned,  i.e., whether the act
concerns a quasi-judicial, or quasi-legislative function, or is purely regulatory.

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

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

Additionally, the failure to exhaust administrative remedies affects the ripeness

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

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

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

In these lights, a constitutional challenge, whether presented through the traditional

route or through the Court's expanded jurisdiction, requires compliance with the
ripeness requirement. In the case of administrative acts, ripeness manifests itself
through compliance with the doctrine of exhaustion of administrative
remedies.60 (Emphasis in the original, citations omitted)

Here, it is clear that petitioners failed to exhaust their administrative remedies.

Petitioners allege that they "have no appeal nor any plain, speedy[,] and adequate
remedy under the ordinary course of law except through the instant Petition." 61

However, Sections 4 and 5 of the Social Security Act are clear that the Social Security
Commission has jurisdiction over any dispute arising from the law regarding coverage,
benefits, contributions, and penalties. The law further provides that the aggrieved party
must first exhaust all administrative remedies available before seeking review from the
courts:

SECTION 4. Powers and Duties of the Commission and SSS. — (a) The Commission. —
For the attainment of its main objectives as set forth in Section 2 hereof, the
Commission shall have the following powers and duties:
(1) To adopt, amend and rescind, subject to the approval of the President of the
Philippines, such rules and regulations as may be necessary to carry out the provisions
and purposes of this Act;

....

SECTION 5. Settlement of Disputes. — (a) Any dispute arising under this Act with
respect to coverage, benefits, contributions and penalties thereon or any other matter
related thereto, shall  be cognizable by the Commission, and any case filed with respect
thereto shall be heard by the Commission, or any of its members, or by hearing officers
duly authorized by the Commission and decided within the mandatory period of twenty
(20) days after the submission of the evidence. The filing, determination and settlement
of disputes shall be governed by the rules and regulations promulgated by the
Commission.

(b) Appeal to Courts. — Any decision of the Commission, in the absence of an appeal

therefrom as herein provided, shall become final and executory fifteen (15) days after
the date of notification, and judicial review thereof shall be permitted only after any
party claiming to be aggrieved thereby has exhausted his remedies before the
Commission. The Commission shall be deemed to be a party to any judicial action
involving any such decision and may be represented by an attorney employed by the
Commission, or when requested by the Commission, by the Solicitor General or any
public prosecutor. (Emphasis supplied)

In Luzon Stevedoring Corporation v. Social Security Commission,62 this Court upheld

the jurisdiction and competence of the Social Security Commission with regard to the
grant of authority under the unambiguous provisions of the Republic Act No.
8282.63 This Court stated:

Section 5 of the Social Security Act . . . on its face, would show that any dispute arising
therein "with respect to coverage entitlement to benefits, collection and settlement of
premium contributions and penalties thereon, or any other matter related thereto, shall
be cognizable by the Commission . . . ." On its face, support for the competence of
respondent Commission to decide . . . would thus seem to be evident. 64 (Emphasis
supplied, citations omitted)

In Enorme v. Social Security System,65 this Court categorically sustained the Social

Security Commission's exclusive power and jurisdiction to take cognizance of all
disputes covered under the Social Security Act. 66 Consequently, plaintiffs must first
exhaust all administrative remedies before judicial recourse is allowed. 67

In Social Security Commission v. Court of Appeals,68 this Court upheld the rules of

procedure of the Social Security Commission with regard to the rule on exhaustion of
administrative remedies before a resort to the courts may be permitted:

It now becomes apparent that the permissive nature of a motion for reconsideration
with the SSC must be read in conjunction with the requirements for judicial review, or
the conditions sine qua non before a party can institute certain civil actions. A combined
reading of Section 5 of Rule VI, quoted earlier, and Section 1 of Rule VII of the SSC's
1997 Revised Rules of Procedure reveals that the petitioners are correct in asserting
that a motion for reconsideration is mandatory in the sense that it is a precondition to
the institution of an appeal or a petition for review before the Court of Appeals. Stated
differently, while Rago certainly had the option to file a motion for reconsideration
before the SSC, it was nevertheless mandatory that he do so if he wanted to
subsequently avail of judicial remedies.

....

The policy of judicial bodies to give quasi-judicial agencies, such as the SSC, an
opportunity to correct its mistakes by way of motions for reconsideration or other
statutory remedies before accepting appeals therefrom finds extensive doctrinal support
in the well-entrenched principle of exhaustion of administrative remedies.

The reason for the principle rests upon the presumption that the administrative body, if
given the chance to correct its mistake or error, may amend its decision on a given
matter and decide it properly. The principle insures orderly procedure and withholds
judicial interference until the administrative process would have been allowed to duly
run its course. This is but practical since availing of administrative remedies entails
lesser expenses and provides for a speedier disposition of controversies. Even comity
dictates that unless the available administrative remedies have been resorted to and
appropriate authorities given an opportunity to act and correct the errors committed in
the administrative forum, judicial recourse must be held to be inappropriate,
impermissible, premature, and even unnecessary. 69 (Emphasis supplied, citations
omitted)

Furthermore, jurisdiction is determined by laws enacted by Congress. The doctrine of

exhaustion of administrative remedies ensures that this legislative power is respected
by courts. Courts cannot ignore Congress' determination that the Social Security
Commission is the entity with jurisdiction over any dispute arising from the Social
Security Act with respect to coverage, benefits, contributions, and penalties.

Here, nothing in the records shows that petitioners filed a case before the Social
Security Commission or asked for a reconsideration of the assailed issuances.
Moreover, petitioners did not even try to show that their Petition falls under one (1) of
the exceptions to the doctrine of exhaustion of administrative remedies:

However, we are not unmindful of the doctrine that the principle of exhaustion of
administrative remedies is not an ironclad rule. It may be disregarded (1) when there is
a violation of due process, (2) when the issue involved is purely a legal question, (3)
when the administrative action is patently illegal amounting to lack or excess of
jurisdiction, (4) when there is estoppel on the part of the administrative agency
concerned, (5) when there is irreparable injury, (6) when the respondent is a
department secretary whose acts as an alter ego of the President bears the implied and
assumed approval of the latter, (7) when to require exhaustion of administrative
remedies would be unreasonable, (8) when it would amount to a nullification of a claim,
(9) when the subject matter is a private land in land case proceedings, (10) when the
rule does not provide a plain, speedy and adequate remedy, (11) when there are
circumstances indicating the urgency of judicial intervention, (12) when no
administrative review is provided by law, (13) where the rule of qualified political
agency applies, and (14) when the issue of non-exhaustion of administrative remedies
has been rendered moot.70 (Emphasis in the original, citations omitted)

The doctrine of exhaustion of administrative remedies is settled in jurisprudence. 71 As

early as 1967, this Court has recognized the requirement that parties must exhaust all
administrative remedies available before the Social Security Commission. 72 The Social
Security Commission, then, must be given a chance to render a decision on the issue,
or to correct any alleged mistake or error, before the courts can exercise their power of
judicial review. This Court ruled:

In the case at bar, plaintiff has not exhausted its remedies before the Commission. The
Commission has not even been given a chance to render a decision on the issue raised
by plaintiff herein, because the latter has not appealed to the Commission from the
action taken by the System in insisting upon the enforcement of Circular No.
34.73 (Emphasis in the original)

Thus, petitioners have prematurely invoked this Court's power of judicial review in
violation of the doctrine of exhaustion of administrative remedies.

Notably, petitioners failed to abide by the principle of primary administrative

jurisdiction. This principle states that:

. . . courts cannot or will not determine a controversy involving a question which is

within the jurisdiction of the administrative tribunal prior to the resolution of that
question by the administrative tribunal, where the question demands the exercise of
sound administrative discretion requiring the special knowledge, experience and
services of the administrative tribunal to determine technical and intricate matters of
fact.74

In Republic v. Gallo:75

[U]nder the doctrine of primary administrative jurisdiction, if an administrative tribunal

has jurisdiction over a controversy, courts should not resolve the issue even if it may be
within its proper jurisdiction. This is especially true when the question involves its
sound discretion requiring special knowledge, experience, and services to determine
technical and intricate matters of fact.

In Republic v. Lacap:

Corollary to the doctrine of exhaustion of administrative remedies is the doctrine of

primary jurisdiction; that is, courts cannot or will not determine a controversy involving
a question which is within the jurisdiction of the administrative tribunal prior to the
resolution of that question by the administrative tribunal, where the question demands
the exercise of sound administrative discretion requiring the special knowledge,
experience and services of the administrative tribunal to determine technical and
intricate matters of fact. . . .

Thus, the doctrine of primary administrative jurisdiction refers to the competence of a

court to take cognizance of a case at first instance. Unlike the doctrine of exhaustion of
administrative remedies, it cannot be waived.76 (Emphasis in the original, citations
omitted)

Here, respondent Social Security Commission qualifies as an administrative tribunal,

given sound administrative discretion requiring the special knowledge, experience, and
services of the administrative tribunal to determine technical and intricate matters of
fact. This is evident from the qualifications of its members and its powers and duties
under Sections 3 and 4 of the Social Security Act:

SECTION 3. Social Security System. — (a) . . . The SSS shall be directed and controlled
by a Social Security Commission, hereinafter referred to as 'Commission', composed of
the Secretary of Labor and Employment or his duly designated undersecretary, the SSS
president and seven (7) appointive members, three (3) of whom shall represent the
workers' group, at least one (1) of whom shall be a woman; three (3), the employers'
group, at least one (1) of whom shall be a woman; and one (1), the general public
whose representative shall have adequate knowledge and experience regarding social
security, to be appointed by the President of the Philippines. The six (6) members
representing workers and employers shall be chosen from among the nominees of
workers' and employers' organizations, respectively. . . .

(b) The general conduct of the operations and management functions of the SSS shall
be vested in the SSS President who shall serve as the chief executive officer
immediately responsible for carrying out the program of the SSS and the policies of the
Commission. The SSS President shall be a person who has had previous experience in
technical and administrative fields related to the purposes of this Act. . . .

(c) The Commission, upon the recommendation of the SSS President, shall appoint
an actuary and such other personnel as may be deemed necessary; fix their reasonable
compensation, allowances and other benefits; prescribe their duties and establish such
methods and procedures as may be necessary to insure the efficient, honest and
economical administration of the provisions and purposes of this Act: . . . Provided,
further, That the personnel of the SSS shall be selected only from civil service eligibles
and be subject to civil service rules and regulations:. . .

SECTION 4. Powers and Duties of the Commission and SSS. — (a) The Commission. —
For the attainment of its main objectives as set forth in Section 2 hereof, the
Commission shall have the following powers and duties:

(1) To adopt, amend and rescind, subject to the approval of the President of the Philippines,
such rules and regulations as may be necessary to carry out the provisions and purposes
of this Act;
   
(2) To establish a provident fund for the members which will consist of voluntary
contributions of employers and/or employees, self-employed and voluntary members and
their earnings, for the payment of benefits to such members or their beneficiaries, subject
to such rules and regulations as it may promulgate and approved by the President of the
Philippines;
   
(3) To maintain a Provident Fund which consists of contributions made by both the SSS and
its officials and employees and their earnings, for the payment of benefits to such officials
and employees or their heirs under such terms and conditions as it may prescribe;
   
(4) To approve restructuring proposals for the payment of due but unremitted contributions
and unpaid loan amortizations under such terms and conditions as it may prescribe;
   
(5) To authorize cooperatives registered with the cooperative development authority or
associations registered with the appropriate government agency to act as collecting agents
of the SSS with respect to their members: Provided, That the SSS shall accredit the
cooperative or association: Provided, further, That the persons authorized to collect are
bonded;
   
(6) To compromise or release, in whole or in part any interest, penalty or any civil liability to
SSS in connection with the investments authorized under Section 26 hereof, under such
terms and conditions as it may prescribe and approved by the President of the Philippines;
and
(7) To approve, confirm, pass upon or review any and all actions of the SSS in the proper and
necessary exercise of its powers and duties hereinafter enumerated. (Emphasis supplied)

Thus, under the doctrine of primary administrative jurisdiction, petitioners should have
first filed their case before respondent Social Security Commission.

I (C)

As for mootness, as earlier mentioned, moot cases prevent the actual case or
controversy from becoming justiciable. Courts cannot render judgment after the issue
has already been resolved by or through external developments. This entails that they
can no longer grant or deny the relief prayed for by the complaining party. 77

This is consistent with this Court's deference to the powers of the other branches of
government. This Court must be wary that it is ruling on existing facts before it
invalidates any act or rule.78

Nonetheless, this Court has enumerated circumstances when it may still rule on moot
issues. In David:

Courts will decide cases, otherwise moot and academic, if: first, there is a grave
violation of the Constitution;  second, the exceptional character of the situation and the
paramount public interest is involved; third, when constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and the public;
and  fourth, the case is capable of repetition yet evading review. 79 (Emphasis in the
original, citations omitted)

The third exception is corollary to this Court's power under Article VIII, Section 5(5) of
the 1987 Constitution.80 This Court has the power to promulgate rules and procedures
for the protection and enforcement of constitutional rights, pleading, practice, and
procedure in all courts. It applies where there is a clear need to clarify principles and
processes for the protection of rights.

As for the rest of the exceptions, however, all three (3) circumstances must be present
before this Court may rule on a moot issue. There must be an issue raising a grave
violation of the Constitution, involving an exceptional situation of paramount public
interest that is capable of repetition yet evading review.

Here, since respondent Social Security Commission is set to issue new resolutions for
the Social Security System members' contributions, the issue on the assailed issuances'
validity may be rendered moot. Nonetheless, all the discussed exceptions are present:
(1) petitioners raise violations of constitutional rights; (2) the situation is of paramount
public interest; (3) there is a need to guide the bench, the bar, and the public on the
power of respondent Social Security Commission to increase the contributions; and (4)
the matter is capable of repetition yet evading review, as it involves a question of law
that can recur. Thus, this Court may rule on this case.

I (D)

Petitioners argue that they have the legal standing to file the Petition since: (1) a
majority of them are Social Security System members and are directly affected by the
increase in contributions;81 and (2) other petitioners argue that the standing
requirement must be relaxed since the issues they raise are of transcendental
importance.82

On the contrary, not all petitioners have shown the requisite legal standing to bring the
case before this Court.

Legal standing is the personal and substantial interest of a party in a case "such that
the party has sustained or will sustain direct injury as a result of the governmental act
that is being challenged, alleging more than a generalized grievance." 83

Petitioners Joselito Ustarez, Salvador T. Carranza, Nenita Gonzaga, Prescila A.

Maniquiz, Reden R. Alcantara, and Anakpawis Party-List Representative Fernando
Hicap, for himself, are Social Security System members who stand to suffer direct and
material injury from the assailed issuances' enforcement. They are, thus, clothed with
legal personality to assail the imposed increase in contribution rates and maximum
monthly salary credit.

On the other hand, petitioners Kilusang Mayo Uno, Anakpawis Party-List, Center for
Trade Union and Human Rights, and National Federation of Labor Unions-Kilusang Mayo
Uno all failed to show how they will suffer direct and material injury from the
enforcement of the assailed issuances.
However, jurisprudence is replete with instances when a liberal approach to
determining legal standing was adopted. This has allowed "ordinary citizens, members
of Congress, and civic organizations to prosecute actions involving the constitutionality
or validity of laws, regulations[,] and rulings." 84

This Court has provided instructive guides to determine whether a matter is of

transcendental importance: "(1) the character of the funds or other assets involved in
the case; (2) the presence of a clear case of disregard of a constitutional or statutory
prohibition by the public respondent agency or instrumentality of the government; and
(3) the lack of any other party with a more direct and specific interest in the questions
being raised."85

Here, the assailed issuances set the new contribution rate and its date of effectivity.
The increase in contributions has been in effect since January 2014. As such, the issue
of the validity of increase in contributions is of transcendental importance. The required
legal standing for petitioners must be relaxed.

It is worth noting that this issue affects millions of Filipinos working here and abroad. A
substantial portion of members' salaries goes to the Social Security System fund. To
delay the resolution of such an important issue would be a great disservice to this
Court's duty enshrined in the Constitution.

For all these reasons, and despite the technical infirmities in this Petition, this Court
reviews the assailed issuances.

II

Petitioners' attack on the increase in contribution rate and maximum monthly salary
credit is two (2)-tiered: (1) they assail the validity of the exercise of respondents Social
Security System and Social Security Commission's power under the law; and (2) they
assail the validity of the delegation of power to respondent Social Security Commission.

Petitioners argue that the assailed issuances are void for being issued under vague and
unclear standards under the Social Security Act. They admit that Section 18 allows the
Social Security Commission to fix the contribution rate subject to several conditions.
However, petitioners claim that the term "actuarial calculations" is too vague and
general, and the relationship between the rate of benefits and actuarial calculations is
not clearly defined. Thus, they conclude that the delegation of power to fix the
contribution rate is incomplete in all its terms and conditions.

Petitioners' argument lacks merit.

Petitioners are putting in issue not only the validity of the exercise of the delegated
power, but also the validity of the delegation itself. They are, thus, collaterally attacking
the validity of the Social Security Act's provisions.

Collateral attacks on a presumably valid law are not allowed. Unless a law, rule, or act
is annulled in a direct proceeding, it is presumed valid. 86
Furthermore, the "delegation of legislative power to various specialized administrative
agencies is allowed in the face of increasing complexity of modern life." 87 In Equi-Asia
Placement, Inc. v. Department of Foreign Affairs:88

Given the volume and variety of interactions involving the members of today's society,
it is doubtful if the legislature can promulgate laws dealing with the minutiae aspects of
everyday life. Hence, the need to delegate to administrative bodies, as the principal
agencies tasked to execute laws with respect to their specialized fields, the authority to
promulgate rules and regulations to implement a given statute and effectuate its
policies.89

For a valid exercise of delegation, this Court enumerated the following requisites:

All that is required for the valid exercise of this power of subordinate legislation is that
the regulation must be germane to the objects and purposes of the law; and that the
regulation be not in contradiction to, but in conformity with, the standards prescribed
by the law. Under the first test or the so-called completeness test, the law must be
complete in all its terms and conditions when it leaves the legislature such that when it
reaches the delegate, the only thing he will have to do is to enforce it. The second test
or the sufficient standard test, mandates that there should be adequate guidelines or
limitations in the law to determine the boundaries of the delegate's authority and
prevent the delegation from running riot.90

Simply put, what are needed for a valid delegation are: (1) the completeness of the
statute making the delegation; and (2) the presence of a sufficient standard. 91

To determine completeness, all of the terms and provisions of the law must leave
nothing to the delegate except to implement it. "What only can be delegated is not the
discretion to determine what the law shall be but the discretion to determine how the
law shall be enforced."92

More relevant here, however, is the presence of a sufficient standard under the law.
Enforcement of a delegated power may only be effected in conformity with a sufficient
standard, which is used "to map out the boundaries of the delegate's authority and thus
'prevent the delegation from running riot.'" 93 The law must contain the limitations or
guidelines to determine the scope of authority of the delegate.

Not only is the Social Security Act complete in its terms; it also contains a sufficient
standard for the Social Security Commission to fix the monthly contribution rate and
the minimum and maximum monthly salary credits.

Section 18 states:

SECTION 18. Employee's Contribution. — (a) Beginning as of the last day of the

calendar month when an employee's compulsory coverage takes effect and every
month thereafter during his employment, the employer shall deduct and withhold from
such employee's monthly salary, wage, compensation or earnings, the employee's
contribution in an amount corresponding to his salary, wage, compensation or earnings
during the month in accordance with the following schedule:
 RANGE OF MONTHLY MONTHLY
SALARY
COMPENSATIO SALARY CONTRIBUTIO
BRACKET
N CREDIT N

EMPLOYER EMPLOYEE TOTAL

I 1,000.00-1,249.99 1000 50.70 33.30 84.00

II 1,250.00-1,749.99 1500 76.00 50.00 126.00
III 1,750.00-2,249.99 2000 101.30 66.70 168.00
IV 2,250.00-2,749.99 2500 126.70 83.30 210.00
V 2,750.00-3,249.99 3000 152.00 100.00 252.00
VI 3,250.00-3,749.99 3500 177.30 116.70 294.00
VII 3,750.00-4,249.99 4000 202.70 133.30 336.00
VIII 4,250.00-4,749.99 4500 228.00 150.00 378.00
IX 4,750.00-5,249.99 5000 253.30 166.70 420.00
X 5,250.00-5,749.99 5500 278.70 183.70 462.40
XI 5,750.00-6,249.99 6000 304.00 200.00 504.00
XII 6,250.00-6,749.99 6500 329.30 216.70 546.00
XIII 6,750.00-7,249.99 7000 354.70 233.30 588.00
XIV 7,250.00-7,749.99 7500 380.00 250.00 630.00
XV 7,750.00-8,249.99 8000 405.30 266.70 672.00
XVI 8,250.00-8,749.99 8500 430.70 283.30 714.00
XVII 8,750.00-OVER 9000 456.00 300.00 756.00

The foregoing schedule of contribution shall also apply to self-employed and voluntary
members.

The maximum monthly salary credit shall be Nine thousand pesos (P9,000.00) effective
January Nineteen hundred and ninety six (1996): Provided, That it shall be increased by
One thousand pesos (P1,000.00) every year thereafter until it shall have reached
Twelve thousand pesos (P12,000.00) by Nineteen hundred and ninety nine
(1999): Provided, further, That the minimum and maximum monthly salary credits as
well as the rate of contributions may be fixed from time to time by the Commission
through rules and regulations taking into consideration actuarial calculations and rate of
benefits, subject to the approval of the President of the Philippines. (Emphasis supplied)

In relation to Section 18, Section 4(a) prescribes the powers and duties of the Social
Security Commission. It provides:
SECTION 4. Powers and Duties of the Commission and SSS. — (a) The Commission. —
For the attainment of its main objectives as set forth in Section 2 hereof, the
Commission shall have the following powers and duties:

(1) To adopt, amend and rescind, subject to the approval of the President of the
Philippines, such rules and regulations as may be necessary to carry out the provisions
and purposes of this Act;

....

(7) To approve, confirm, pass upon or review any and all actions of the SSS in the
proper and necessary exercise of its powers and duties hereinafter enumerated.

It is evident from these provisions that the legislature has vested the necessary powers
in the Social Security Commission to fix the minimum and maximum amounts of
monthly salary credits and the contribution rate. The agency does not have to do
anything except implement the provisions based on the standards and limitations
provided by law.

In fixing the contribution rate and the minimum and maximum amounts of monthly
salary credits, the legislature specified the factors that should be considered: "actuarial
calculations and rate of benefits"94 as an additional limit to the Social Security
Commission's rate fixing power under Section 18, the legislature required the approval
of the President of the Philippines.

The Social Security Act clearly specifies the limitations and identifies when and how the
Social Security Commission will fix the contribution rate and the monthly salary credits.

Actuarial science is derived from the concepts of utilitarianism and risk aversion. Thus:

Just as economic systems are the realm of the economist, social systems are the realm
of the sociologist, and electrical systems are the realm of the electrical engineer,
financial security systems have become the realm of the actuary. The uniqueness of the
actuarial profession lies in the actuary's understanding of financial security systems in
general, and the inner workings of the many different types in particular. The role of
the actuary is that of the designer, the adaptor, the problem solver, the risk estimator,
the innovator, and the technician of the continually changing field of financial security
systems.

....

Utilitarianism as a philosophy, and risk aversion as a feature of human psychology, lead

to the evolution of financial security systems as a means of reducing the financial
consequences of unfavorable events. Actuaries are those professionals with a deep
understanding of, and training in, financial security systems; their reason for being,
their complexity, their mathematics, and the way they work.95 (Emphasis supplied)

Actuarial science is "primarily concerned with the study of consequences of events that
involve risk and uncertainty. Actuarial practice identifies, analyzes and assists in the
management of the outcomes—including costs and benefits—associated with events
that involve risk and uncertainty." 96

Actuarial science is relevant to the operation of a social security system, in that "the
actuary plays a crucial role in analysing [the system's] financial status and
recommending appropriate action to ensure its viability. More specifically, the work of
the actuary includes assessing the financial implications of establishing a new scheme,
regularly following up its financial status and estimating the effect of various
modifications that might have a bearing on the scheme during its existence." 97

The application of actuarial calculations in the operation of a social system scheme

requires the determination of benefits. 98 To question the use of "actual calculations" as
factor for fixing rates is to question the policy or wisdom of the legislature, which is a
co-equal branch of government.

As a component of the doctrine of separation of powers, courts must never go into the
question of the wisdom of the policy of the law. 99 In Magtajas v. Pryce Properties
Corporation, Inc.,100 where this Court resolved the issue of the morality of gambling,
this Court held:

The morality of gambling is not a justiciable issue. Gambling is not illegal per se. While
it is generally considered inimical to the interests of the people, there is nothing in the
Constitution categorically proscribing or penalizing gambling or, for that matter, even
mentioning it at all. It is left to Congress to deal with the activity as it sees fit. In the
exercise of its own discretion, the legislature may prohibit gambling altogether or allow
it without limitation or it may prohibit some forms of gambling and allow others for
whatever reasons it may consider sufficient. Thus, it has prohibited jueteng and monte
but permits lotteries, cockfighting and horse-racing. In making such choices, Congress
has consulted its own wisdom, which this Court has no authority to review, much less
reverse. Well has it been said that courts do no[t] sit to resolve the merits of conflicting
theories. That is the prerogative of the political departments. It is settled that questions
regarding the wisdom, morality, or practicibility of statutes are not addressed to the
judiciary but may be resolved only by the legislative and executive departments, to
which the function belongs in our scheme of government.  That function is exclusive.
Whichever way these branches decide, they are answerable only to their own
conscience and the constituents who will ultimately judge their acts, and not to the
courts of justice.101 (Emphasis supplied, citation omitted)

Recently, in Garcia v. Drilon,102 this Court has upheld the long-settled principle that
courts do not go into the wisdom of the law:

It is settled that courts are not concerned with the wisdom, justice, policy, or
expediency of a statute. Hence, we dare not venture into the real motivations and
wisdom of the members of Congress . . . Congress has made its choice and it is not our
prerogative to supplant this judgment. The choice may be perceived as erroneous but
even then, the remedy against it is to seek its amendment or repeal by the legislative.
By the principle of separation of powers, it is the legislative that determines the
necessity, adequacy, wisdom and expediency of any law. We only step in when there is
a violation of the Constitution. 103 (Emphasis supplied, citations omitted)
Hence, the Social Security Act has validly delegated the power to fix the contribution
rate and the minimum and maximum amounts for the monthly salary credits. It is
within the scope of the Social Security Commission's power to fix them, as clearly laid
out in the law.

III

On the question of the validity of the exercise of respondents Social Security

Commission and Social Security System's powers, this Court disagrees with petitioners'
argument that the increase in contribution rate is prohibited by Section 4(b)(2) of the
Social Security Act. The provision states:

SECTION 4. Powers and Duties of the Commission and SSS. . . .

(b) The Social Security System. — Subject to the provision of Section four (4),
paragraph seven (7) hereof, the SSS shall have the following powers and duties:

....

(2) To require the actuary to submit a valuation report on the SSS benefit program
every four (4) years, or more frequently as may be necessary, to undertake the
necessary actuarial studies and calculations concerning increases in benefits taking into
account inflation and the financial stability of the SSS, and to provide for feasible
increases in benefits every four (4) years, including the addition of new ones, under
such rules and regulations as the Commission may adopt, subject to the approval of the
President of the Philippines: Provided, That the actuarial soundness of the reserve fund
shall be guaranteed: Provided, further, That such increases in benefits shall not require
any increase in the rate of contribution[.] (Emphasis supplied)

However, an examination of the provision and the assailed issuances reveals that the
questioned increase in contribution rate was not solely for the increase in members'
benefits, but also to extend actuarial life.

Social Security Commission Resolution No. 262-s.2013 provides:

RESOLVED, That the Commission approve and confirm, as it hereby approves and
confirms, the SSS 2013 Reform Agenda, the effectivity of which shall be as approved by
the President of the Philippines, which aims to address SSS' unfunded liability, extend
SSS' fund life to a more secure level and provide improved benefits for current and
future generations of SSS members, consisting of the following:

1. Increase in the contribution rate from 10.4% to 11%; and

2. Increase in the maximum monthly salary credit (MSC) from P15,000 to
P16,000.

The above is based on the recommendation of the President and CEO in his
memorandum dated 19 November 2012.104
The provisos in Section 4(b)(2) must not be read in isolation, but within the context of
the provision, as well as the policy of the law.

The two (2) provisos refer to the last part of Section 4(b)(2), or on the System's duty
to "provide for feasible increases in benefits every four (4) years, including the addition
of new ones[.]" Section 4(b)(2) states that the "actuarial soundness of the reserve fund
shall be guaranteed" in providing any increase in benefits. As established earlier,
Congress has expressly provided the Social Security System, through the Social
Security Commission, power to fix the minimum and maximum monthly salary credits
and the contribution rate.

To disregard actuarial soundness of the reserves would be to go against the policy of

the law on maintaining a sustainable social security system:

SECTION 2. Declaration of Policy. — It is the policy of the State to establish, develop,

promote and perfect a sound and viable tax-exempt social security system suitable to
the needs of the people throughout the Philippines which shall promote social justice
and provide meaningful protection to members and their beneficiaries against the
hazards of disability, sickness, maternity, old age, death, and other contingencies
resulting in loss of income or financial burden. Towards this end, the State shall
endeavor to extend social security protection to workers and their beneficiaries.
(Emphasis supplied)

Petitioners' argument is, thus, bereft of merit.

In arguing that the increase in contributions is unduly oppressive upon the labor sector,
petitioners are again asking this Court to inquire into the wisdom of the policy behind
the issuances made by the executive branch. This, as earlier said, we cannot and will
not do.105

Furthermore, this Court is not persuaded by petitioners' argument that the increase in
contributions constitutes an unlawful exercise of police power.

Police power has been defined as:

. . . state authority to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare. Persons and property could thus "be
subjected to all kinds of restraints and burdens in order to secure the general comfort,
health and prosperity of the state." [It is] "the power to prescribe regulations to
promote the health, morals, peace, education, good order or safety, and general
welfare of the people."106

To be a valid exercise of police power, there must be a lawful subject and the power is
exercised through lawful means.107 The second requisite requires a reasonable relation
between the purpose and the means.108

Using the parameters above, we hold that the increases reflected in the issuances of
respondents are reasonably necessary to observe the constitutional mandate of
promoting social justice under the Social Security Act. The public interest involved here
refers to the State's goal of establishing, developing, promoting, and perfecting a sound
and viable tax-exempt social security system. To achieve this, the Social Security
System and the Social Security Commission are empowered to adjust from time to time
the contribution rate and the monthly salary credits. Given the past increases since the
inception of the law, the contribution rate increase of 0.6% applied to the
corresponding monthly salary credit does not scream of unreasonableness or injustice.

Moreover, this Court will not delve into petitioners' argument that the revised ratio of
contributions was supposedly inconsistent with previous schemes. 109 Nothing in the law
requires that the ratio of contributions must be set at a 70%-30% sharing in favor of
the employee. Supplanting the executive branch's determination of the proper ratio of
contribution would result in judicial legislation, which is beyond this Court's power.

A parameter of judicial review is determining who can read the Constitution.

Interpreting its text has never been within the exclusive province of the courts. Other
branches of government are equally able to provide their own interpretation of the
provisions of our organic law, especially on the powers conferred by the Constitution
and those delegated by Congress to administrative agencies.

However, other departments' reading or interpretation is limited only to a preliminary

determination. Only this Court can read the text of the Constitution with finality.

In People v. Vera,110 Associate Justice Jose Laurel elucidated on how laws must be

accorded presumption of constitutionality due to the premise that the Constitution binds
all three (3) branches of government. He explained:

Under a doctrine peculiarly American, it is the office and duty of the judiciary to enforce
the Constitution. This court, by clear implication from the provisions of section 2,
subsection 1, and section 10, of Article VIII of the Constitution, may declare an act of
the national legislature invalid because in conflict with the fundamental law. It will not
shirk from its sworn duty to enforce the Constitution. And, in clear cases, it will not
hesitate to give effect to the supreme law by setting aside a statute in conflict
therewith. This is of the essence of judicial duty.

This court is not unmindful of the fundamental criteria in cases of this nature that all
reasonable doubts should be resolved in favor of the constitutionality of a statute. An
act of the legislature approved by the executive, is presumed to be within constitutional
limitations. The responsibility of upholding the Constitution rests not on the courts
alone but on the legislature as well. "The question of the validity of every statute is first
determined by the legislative department of the government itself." . . . And a statute
finally comes before the courts sustained by the sanction of the executive. The
members of the Legislature and the Chief Executive have taken an oath to support the
Constitution and it must be presumed that they have been true to this oath and that in
enacting and sanctioning a particular law they did not intend to violate the Constitution.
The courts cannot but cautiously exercise its power to overturn the solemn declarations
of two of the three grand departments of the government. . . . Then, there is that
peculiar political philosophy which bids the judiciary to reflect the wisdom of the people
as expressed through an elective Legislature and an elective Chief Executive. It follows,
therefore, that the courts will not set aside a law as violative of the Constitution except
in a clear case. This is a proposition too plain to require a citation of
authorities.111 (Emphasis supplied, citations omitted)

As such, courts, in exercising judicial review, should also account for the concept of
"pragmatic adjudication."112 As another parameter of judicial review, adjudicative
pragmatism entails deciding a case with regard to the "present and the future,
unchecked by any felt duty to secure consistency in principle with what other officials
have done in the past[.]"113 The pragmatist judge is:

. . . not uninterested in past decisions, in statutes, and so forth. Far from it. For one
thing, these are repositories of knowledge, even, sometimes, of wisdom, and so it
would be folly to ignore them even if they had no authoritative significance. For
another, a decision that destabilized the law by departing too abruptly from precedent
might have, on balance, bad results. There is often a trade-off between rendering
substantive justice in the case under consideration and maintaining the law's certainty
and predictability. This trade-off, which is perhaps clearest in cases in which a defense
of statute of limitations is raised, will sometimes justify sacrificing substantive justice in
the individual case to consistency with previous cases or with statutes or, in short, with
well-founded expectations necessary to the orderly management of society's business.
Another reason not to ignore the past is that often it is difficult to determine the
purpose and scope of a rule without tracing the rule to its origins.

The pragmatist judge thus regards precedent, statutes, and constitutions both as
sources of potentially valuable information about the likely best result in the present
case and as signposts that must not be obliterated or obscured gratuitously, because
people may be relying upon them.114

Going into the validity of respondents' actions, petitioners must show that the assailed
issuances were made without any reference to any law, or that respondents knowingly
issued resolutions in excess of the authority granted to them under the Social Security
Act to constitute grave abuse of discretion.

Grave abuse of discretion denotes a "capricious, arbitrary[,] and whimsical exercise of

power. The abuse of discretion must be patent and gross as to amount to an evasion of
positive duty or to a virtual refusal to perform a duty enjoined by law, as not to act at
all in contemplation of law, or where the power is exercised in an arbitrary and despotic
manner by reason of passion or hostility." 115

Any act of a government branch, agency, or instrumentality that violates a statute or a

treaty is grave abuse of discretion.116 However, grave abuse of discretion pertains to
acts of discretion exercised in areas outside an agency's granted authority and, thus,
abusing the power granted to it.117 Moreover, it is the agency's exercise of its power
that is examined and adjudged, not whether its application of the law is correct. 118

Here, respondents were only complying with their duties under the Social Security Act
when they issued the assailed issuances. There is no showing that respondents went
beyond the powers under the law that amounts to lack of or in excess of their
jurisdiction. Petitioners' claims are unsubstantiated and, as such, merit no finding of
grave abuse of discretion.
 IV

Petitioners have failed to show that there was an invasion of a material and substantial
right, or that they were entitled to such a right. Moreover, they failed to show that
"there is an urgent and paramount necessity for the writ to prevent serious and
irreparable damage."119 Accordingly, petitioners' prayer for the issuance of a temporary
restraining order and/or writ of preliminary injunction is denied.

WHEREFORE, the Petition is DENIED for lack of merit. Resolution Nos. 262-s. 2013
and 711-s. 2013 issued by the Social Security Commission, as well as Circular No.
2013-010 issued by the Social Security System, are valid. The prayer for the issuance
of a temporary restraining order and/or writ of preliminary injunction is also DENIED.

G.R. No. 76633 October 18, 1988

EASTERN SHIPPING LINES, INC., petitioner,

vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA), MINISTER OF LABOR
AND EMPLOYMENT, HEARING OFFICER ABDUL BASAR and KATHLEEN D.
SACO, respondents.

Jimenea, Dala & Zaragoza Law Office for petitioner.

The Solicitor General for public respondent.

Dizon Law Office for respondent Kathleen D. Saco.

CRUZ, J.:

The private respondent in this case was awarded the sum of P192,000.00 by the Philippine Overseas Employment Administration (POEA)
for the death of her husband. The decision is challenged by the petitioner on the principal ground that the POEA had no jurisdiction over the
case as the husband was not an overseas worker.

Vitaliano Saco was Chief Officer of the M/V Eastern Polaris when he was killed in an accident in
Tokyo, Japan, March 15, 1985. His widow sued for damages under Executive Order No. 797 and
Memorandum Circular No. 2 of the POEA. The petitioner, as owner of the vessel, argued that the
complaint was cognizable not by the POEA but by the Social Security System and should have been
filed against the State Insurance Fund. The POEA nevertheless assumed jurisdiction and after
considering the position papers of the parties ruled in favor of the complainant. The award consisted
of P180,000.00 as death benefits and P12,000.00 for burial expenses.

The petitioner immediately came to this Court, prompting the Solicitor General to move for dismissal
on the ground of non-exhaustion of administrative remedies.

Ordinarily, the decisions of the POEA should first be appealed to the National Labor Relations
Commission, on the theory inter alia that the agency should be given an opportunity to correct the
errors, if any, of its subordinates. This case comes under one of the exceptions, however, as the
questions the petitioner is raising are essentially questions of law.   Moreover, the private respondent
1
himself has not objected to the petitioner's direct resort to this Court, observing that the usual
procedure would delay the disposition of the case to her prejudice.

The Philippine Overseas Employment Administration was created under Executive Order No. 797,
promulgated on May 1, 1982, to promote and monitor the overseas employment of Filipinos and to
protect their rights. It replaced the National Seamen Board created earlier under Article 20 of the
Labor Code in 1974. Under Section 4(a) of the said executive order, the POEA is vested with
"original and exclusive jurisdiction over all cases, including money claims, involving employee-
employer relations arising out of or by virtue of any law or contract involving Filipino contract
workers, including seamen." These cases, according to the 1985 Rules and Regulations on
Overseas Employment issued by the POEA, include "claims for death, disability and other benefits"
arising out of such employment.  2

The petitioner does not contend that Saco was not its employee or that the claim of his widow is not
compensable. What it does urge is that he was not an overseas worker but a 'domestic employee
and consequently his widow's claim should have been filed with Social Security System, subject to
appeal to the Employees Compensation Commission.

We see no reason to disturb the factual finding of the POEA that Vitaliano Saco was an overseas
employee of the petitioner at the time he met with the fatal accident in Japan in 1985.

Under the 1985 Rules and Regulations on Overseas Employment, overseas employment is defined
as "employment of a worker outside the Philippines, including employment on board vessels plying
international waters, covered by a valid contract.   A contract worker is described as "any person
3

working or who has worked overseas under a valid employment contract and shall include
seamen"   or "any person working overseas or who has been employed by another which may be a
4

local employer, foreign employer, principal or partner under a valid employment contract and shall
include seamen."   These definitions clearly apply to Vitaliano Saco for it is not disputed that he died
5

while under a contract of employment with the petitioner and alongside the petitioner's vessel, the
M/V Eastern Polaris, while berthed in a foreign country.  6

It is worth observing that the petitioner performed at least two acts which constitute implied or tacit
recognition of the nature of Saco's employment at the time of his death in 1985. The first is its
submission of its shipping articles to the POEA for processing, formalization and approval in the
exercise of its regulatory power over overseas employment under Executive Order NO. 797.   The 7

second is its payment   of the contributions mandated by law and regulations to the Welfare Fund for
8

Overseas Workers, which was created by P.D. No. 1694 "for the purpose of providing social and
welfare services to Filipino overseas workers."

Significantly, the office administering this fund, in the receipt it prepared for the private respondent's
signature, described the subject of the burial benefits as "overseas contract worker Vitaliano
Saco."   While this receipt is certainly not controlling, it does indicate, in the light of the petitioner's
9

own previous acts, that the petitioner and the Fund to which it had made contributions considered
Saco to be an overseas employee.

The petitioner argues that the deceased employee should be likened to the employees of the
Philippine Air Lines who, although working abroad in its international flights, are not considered
overseas workers. If this be so, the petitioner should not have found it necessary to submit its
shipping articles to the POEA for processing, formalization and approval or to contribute to the
Welfare Fund which is available only to overseas workers. Moreover, the analogy is hardly
appropriate as the employees of the PAL cannot under the definitions given be considered seamen
nor are their appointments coursed through the POEA.
The award of P180,000.00 for death benefits and P12,000.00 for burial expenses was made by the
POEA pursuant to its Memorandum Circular No. 2, which became effective on February 1, 1984.
This circular prescribed a standard contract to be adopted by both foreign and domestic shipping
companies in the hiring of Filipino seamen for overseas employment. A similar contract had earlier
been required by the National Seamen Board and had been sustained in a number of cases by this
Court.   The petitioner claims that it had never entered into such a contract with the deceased Saco,
10

but that is hardly a serious argument. In the first place, it should have done so as required by the
circular, which specifically declared that "all parties to the employment of any Filipino seamen on
board any ocean-going vessel are advised to adopt and use this employment contract effective 01
February 1984 and to desist from using any other format of employment contract effective that date."
In the second place, even if it had not done so, the provisions of the said circular are nevertheless
deemed written into the contract with Saco as a postulate of the police power of the State.  11

But the petitioner questions the validity of Memorandum Circular No. 2 itself as violative of the
principle of non-delegation of legislative power. It contends that no authority had been given the
POEA to promulgate the said regulation; and even with such authorization, the regulation represents
an exercise of legislative discretion which, under the principle, is not subject to delegation.

The authority to issue the said regulation is clearly provided in Section 4(a) of Executive Order No.
797, reading as follows:

... The governing Board of the Administration (POEA), as hereunder provided shall
promulgate the necessary rules and regulations to govern the exercise of the
adjudicatory functions of the Administration (POEA).

Similar authorization had been granted the National Seamen Board, which, as earlier observed, had
itself prescribed a standard shipping contract substantially the same as the format adopted by the
POEA.

The second challenge is more serious as it is true that legislative discretion as to the substantive
contents of the law cannot be delegated. What can be delegated is the discretion to
determine how the law may be enforced, not what the law shall be. The ascertainment of the latter
subject is a prerogative of the legislature. This prerogative cannot be abdicated or surrendered by
the legislature to the delegate. Thus, in Ynot v. Intermediate Apellate Court   which annulled
12

Executive Order No. 626, this Court held:

We also mark, on top of all this, the questionable manner of the disposition of the
confiscated property as prescribed in the questioned executive order. It is there
authorized that the seized property shall be distributed to charitable institutions and
other similar institutions as the Chairman of the National Meat Inspection
Commission may see fit, in the case of carabaos.' (Italics supplied.) The phrase
"may see fit" is an extremely generous and dangerous condition, if condition it is. It is
laden with perilous opportunities for partiality and abuse, and even corruption. One
searches in vain for the usual standard and the reasonable guidelines, or better still,
the limitations that the officers must observe when they make their distribution. There
is none. Their options are apparently boundless. Who shall be the fortunate
beneficiaries of their generosity and by what criteria shall they be chosen? Only the
officers named can supply the answer, they and they alone may choose the grantee
as they see fit, and in their own exclusive discretion. Definitely, there is here a 'roving
commission a wide and sweeping authority that is not canalized within banks that
keep it from overflowing,' in short a clearly profligate and therefore invalid delegation
of legislative powers.
There are two accepted tests to determine whether or not there is a valid delegation of legislative
power, viz, the completeness test and the sufficient standard test. Under the first test, the law must
be complete in all its terms and conditions when it leaves the legislature such that when it reaches
the delegate the only thing he will have to do is enforce it.   Under the sufficient standard test, there
13

must be adequate guidelines or stations in the law to map out the boundaries of the delegate's
authority and prevent the delegation from running riot.  14

Both tests are intended to prevent a total transference of legislative authority to the delegate, who is
not allowed to step into the shoes of the legislature and exercise a power essentially legislative.

The principle of non-delegation of powers is applicable to all the three major powers of the
Government but is especially important in the case of the legislative power because of the many
instances when its delegation is permitted. The occasions are rare when executive or judicial powers
have to be delegated by the authorities to which they legally certain. In the case of the legislative
power, however, such occasions have become more and more frequent, if not necessary. This had
led to the observation that the delegation of legislative power has become the rule and its non-
delegation the exception.

The reason is the increasing complexity of the task of government and the growing inability of the
legislature to cope directly with the myriad problems demanding its attention. The growth of society
has ramified its activities and created peculiar and sophisticated problems that the legislature cannot
be expected reasonably to comprehend. Specialization even in legislation has become necessary.
To many of the problems attendant upon present-day undertakings, the legislature may not have the
competence to provide the required direct and efficacious, not to say, specific solutions. These
solutions may, however, be expected from its delegates, who are supposed to be experts in the
particular fields assigned to them.

The reasons given above for the delegation of legislative powers in general are particularly
applicable to administrative bodies. With the proliferation of specialized activities and their attendant
peculiar problems, the national legislature has found it more and more necessary to entrust to
administrative agencies the authority to issue rules to carry out the general provisions of the statute.
This is called the "power of subordinate legislation."

With this power, administrative bodies may implement the broad policies laid down in a statute by
"filling in' the details which the Congress may not have the opportunity or competence to provide.
This is effected by their promulgation of what are known as supplementary regulations, such as the
implementing rules issued by the Department of Labor on the new Labor Code. These regulations
have the force and effect of law.

Memorandum Circular No. 2 is one such administrative regulation. The model contract prescribed
thereby has been applied in a significant number of the cases without challenge by the employer.
The power of the POEA (and before it the National Seamen Board) in requiring the model contract is
not unlimited as there is a sufficient standard guiding the delegate in the exercise of the said
authority. That standard is discoverable in the executive order itself which, in creating the Philippine
Overseas Employment Administration, mandated it to protect the rights of overseas Filipino workers
to "fair and equitable employment practices."

Parenthetically, it is recalled that this Court has accepted as sufficient standards "Public interest"
in People v. Rosenthal   "justice and equity" in Antamok Gold Fields v. CIR   "public convenience
15 16

and welfare" in Calalang v. Williams   and "simplicity, economy and efficiency" in Cervantes v.
17

Auditor General,   to mention only a few cases. In the United States, the "sense and experience of
18
men" was accepted in Mutual Film Corp. v. Industrial Commission,   and "national security"
19

in Hirabayashi v. United States.  20

It is not denied that the private respondent has been receiving a monthly death benefit pension of
P514.42 since March 1985 and that she was also paid a P1,000.00 funeral benefit by the Social
Security System. In addition, as already observed, she also received a P5,000.00 burial gratuity from
the Welfare Fund for Overseas Workers. These payments will not preclude allowance of the private
respondent's claim against the petitioner because it is specifically reserved in the standard contract
of employment for Filipino seamen under Memorandum Circular No. 2, Series of 1984, that—

Section C. Compensation and Benefits.—

1. In case of death of the seamen during the term of his Contract, the employer shall
pay his beneficiaries the amount of:

a. P220,000.00 for master and chief engineers

b. P180,000.00 for other officers, including radio operators and

master electrician

c. P 130,000.00 for ratings.

2. It is understood and agreed that the benefits mentioned above shall be separate
and distinct from, and will be in addition to whatever benefits which the seaman is
entitled to under Philippine laws. ...

3. ...

c. If the remains of the seaman is buried in the Philippines, the

owners shall pay the beneficiaries of the seaman an amount not
exceeding P18,000.00 for burial expenses.

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

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

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

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

One last challenge of the petitioner must be dealt with to close t case. Its argument that it has been
denied due process because the same POEA that issued Memorandum Circular No. 2 has also
sustained and applied it is an uninformed criticism of administrative law itself. Administrative
agencies are vested with two basic powers, the quasi-legislative and the quasi-judicial. The first
enables them to promulgate implementing rules and regulations, and the second enables them to
interpret and apply such regulations. Examples abound: the Bureau of Internal Revenue adjudicates
on its own revenue regulations, the Central Bank on its own circulars, the Securities and Exchange
Commission on its own rules, as so too do the Philippine Patent Office and the Videogram
Regulatory Board and the Civil Aeronautics Administration and the Department of Natural Resources
and so on ad infinitum on their respective administrative regulations. Such an arrangement has been
accepted as a fact of life of modern governments and cannot be considered violative of due process
as long as the cardinal rights laid down by Justice Laurel in the landmark case of Ang Tibay v. Court
of Industrial Relations   are observed.
21

Whatever doubts may still remain regarding the rights of the parties in this case are resolved in favor
of the private respondent, in line with the express mandate of the Labor Code and the principle that
those with less in life should have more in law.

When the conflicting interests of labor and capital are weighed on the scales of social justice, the
heavier influence of the latter must be counter-balanced by the sympathy and compassion the law
must accord the underprivileged worker. This is only fair if he is to be given the opportunity and the
right to assert and defend his cause not as a subordinate but as a peer of management, with which
he can negotiate on even plane. Labor is not a mere employee of capital but its active and equal
partner.

WHEREFORE, the petition is DISMISSED, with costs against the petitioner. The temporary
restraining order dated December 10, 1986 is hereby LIFTED. It is so ordered.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

G.R. No. 76633 October 18, 1988

EASTERN SHIPPING LINES, INC., petitioner,
vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA),
MINISTER OF LABOR AND EMPLOYMENT, HEARING OFFICER ABDUL
BASAR and KATHLEEN D. SACO, respondents.
FACTS:
A Chief Officer of a ship was killed in an accident in Japan. The widow filed a
complaint for charges against the Eastern Shipping Lines with POEA, based
on a Memorandum Circular No. 2, issued by the POEA which stipulated death
benefits and burial for the family of overseas workers. ESL questioned the
validity of the memorandum circular as violative of the principle of non-
delegation of legislative power. It contends that no authority had been given
the POEA to promulgate the said regulation; and even with such
authorization, the regulation represents an exercise of legislative discretion
which, under the principle, is not subject to delegation. Nevertheless, POEA
assumed jurisdiction and decided the case.
ISSUE:
Whether or not the Issuance of Memorandum Circular No. 2 is a violation of
non-delegation of powers.

HELD:
No. SC held that there was a valid delegation of powers.

The authority to issue the said regulation is clearly provided in Section 4(a) of
Executive Order No. 797. … “The governing Board of the Administration
(POEA), as hereunder provided shall promulgate the necessary rules and
regulations to govern the exercise of the adjudicatory functions of the
Administration (POEA).”

It is true that legislative discretion as to the substantive contents of the law

cannot be delegated. What can be delegated is the discretion to determine
how the law may be enforced, not what the law shall be. The ascertainment of
the latter subject is a prerogative of the legislature. This prerogative cannot be
abdicated or surrendered by the legislature to the delegate.

The reasons given above for the delegation of legislative powers in general
are particularly applicable to administrative bodies. With the proliferation of
specialized activities and their attendant peculiar problems, the national
legislature has found it more and more necessary to entrust to administrative
agencies the authority to issue rules to carry out the general provisions of the
statute. This is called the “power of subordinate legislation.”
With this power, administrative bodies may implement the broad policies laid
down in a statute by “filling in’ the details which the Congress may not have
the opportunity or competence to provide. This is effected by their
promulgation of what are known as supplementary regulations, such as the
implementing rules issued by the Department of Labor on the new Labor
Code. These regulations have the force and effect of law.

There are two accepted tests to determine whether or not there is a valid
delegation of legislative power:

1. Completeness test – the law must be complete in all its terms and conditions
when it leaves the legislature such that when it reaches the delegate the only
thing he will have to do is enforce it.
2. Sufficient standard test – there must be adequate guidelines or stations in
the law to map out the boundaries of the delegate’s authority and prevent the
delegation from running riot.
Both tests are intended to prevent a total transference of legislative authority
to the delegate, who is not allowed to step into the shoes of the legislature
and exercise a power essentially legislative.
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) 93352 (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

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.

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:

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 Percent (%) of the Excess Collection to Accrue

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

The Fund shall be deemed automatically appropriated the year immediately following the year
when the revenue collection target was exceeded and shall be released on the same fiscal year.

Revenue targets shall refer to the original estimated revenue collection expected of the
BIR and the BOC for a given fiscal year as stated in the Budget of Expenditures and
Sources of Financing (BESF) submitted by the President to Congress. The BIR and the
BOC shall submit to the DBCC the distribution of the agencies’ revenue targets as allocated
among its revenue districts in the case of the BIR, and the collection districts in the case of the
BOC.

xxx       xxx       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

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
xx

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
20th 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

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

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 statute50 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.

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 committee58 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.

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 circulation66 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.

Puno, C.J., Quisumbing, Ynares-Santiago, Carpio, Austria-Martinez, Corona, Carpio-Morales,

Azcuna,  Tinga, Chico-Nazario, Velasco, Jr., Nachura, Reyes, Leonardo-de-Castro, Brion, JJ., concur.
violates the due process clause
embodied in Article III, Section 1
of the Constitution, as it imposes
an
unfair and additional tax burden on
the people, in that:
(1) the 12% increase is ambiguous
because it does not state if the rate
would be returned to the
original 10% if the conditions are
no longer satisfied;
(2) the rate is unfair and
unreasonable, as the people are
unsure of the applicable VAT rate
from
year to year; and
(3) the increase in the VAT rate,
which is supposed to be an
incentive to the President to raise
the VAT collection to at least 2
4
/
5
of the GDP of the previous year,
should only be based on fiscal
adequacy.
10. Petitioners’ further claim that
the inclusion of a stand-by
authority granted to the President
by the
Bicameral Conference Committee
is a violation of the "no-
amendment rule" upon last reading
of a bill
laid down in Article VI, Section
26(2) of the Constitution.
Issues:
1. Whether or not R.A. No. 9337
has violated the provisions in
Article VI, Section 24, and Article
VI,
Section 26 (2) of the Constitution.
2. Whether or not there was an
undue delegation of legislative
power in violation of Article VI
Sec
28 Par 1 and 2 of the Constitution.
3. Whether or not there was a
violation of the due process and
equal protection under Article III
Sec. 1 of the Constitution.
Rulings:
1. R.A. No. 9337 has not violated
the provisions. The revenue bill
exclusively originated in the
House of Representatives, the
Senate was acting within its
constitutional power to introduce
amendments to the House bill
when it included provisions in
Senate Bill No. 1950 amending
corporate income taxes,
percentage, excise and franchise
taxes. Verily, Article VI, Section
24 of
the Constitution does not contain
any prohibition or limitation on the
extent of the amendments
that may be introduced by the
Senate to the House revenue bill.
2. There is no undue delegation of
legislative power but only of the
discretion as to the execution
of a law. This is constitutionally
permissible. Congress does not
abdicate its functions or unduly
delegate power when it describes
what job must be done, who must
do it, and what is the scope
of his authority; in our complex
economy that is frequently the
only way in which the legislative
process can go forward.
3. The equal protection clause
under the Constitution means that
“no person or class of persons
shall be deprived of the same
protection of laws which is
enjoyed by other persons or other
classes in the same place and in
like circumstances.” The Supreme
Court held no decision on this
matter. The power of the State to
make reasonable and natural
classifications for the purposes
of taxation has long been
established. Whether it relates to
the subject of taxation, the kind of
property, the rates to be levied,
or the amounts to be raised, the
methods of assessment,
valuation and collection, the
State’s power is entitled to
presumption of validity. As a rule,
the
judiciary will not interfere
with such power absent a
clear showing of
unreasonableness,
discrimination, or arbitrariness.
G.R. No. 166715       August 14, 2008
ABAKADA GURO PARTY LIST (formerly AASJS) 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.

CORONA, J.:

This petition for prohibitionseeks to prevent respondents from implementing and enforcing

Republic Act (RA) 9335(Attrition Act of 2005).

FACTS:

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).

It covers all officials and employees of the BIR and the BOC with at least six months

of service, regardless of employment status. The Fund is sourced from the collection of the

BIR and the BOC in excess of theirrevenue targets for the year, as determined by the

Development Budget and Coordinating Committee (DBCC). Any incentive or reward is taken

from the fund and allocated to the BIR and the BOC in proportion to their contribution in

the excess collection of the targeted amount of tax revenue.

The 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,to be approved by a

Joint Congressional Oversight Committee created for such purpose.

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

 The fixing of revenue targets which has been delegated to the President without

sufficient standards will therefore be a ground in order to dismiss BIR and BOC

personnel if the President sets an unrealistic and unattainable target.

 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.

Respondent’s comment:

 They 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.

 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 fulfilment 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.

ISSUES:

1. Whether or not RA 9335 constitutional?

2. Whether or not the limitation of the scope of the system of rewards and incentives only to officials and

employees of the BIR and BOC violates the constitutional guarantee of equal protection?

3. Whether or not the law unduly delegates the power to fix revenue targets to the President?

4. Whether or not the creation of the congressional oversight committee violates the doctrine of
separation of powers?

RULING:

An actual case or controversy involves a conflict of legal rights, an assertion of opposite legal

claims susceptible of judicial adjudication.It means that there is a direct adverse effect on the

individual challenging it.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

favourable decision of the Court.

In this case,petitioners fail 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.

1. YES. 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.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.
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.

2. NO. InUnited States v. Matthews,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.
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.
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.InVictoriano v. Elizalde Rope Workers’ Union,
this Court declared:

…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.

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.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.

3. NO. Two tests determine the validity of delegation of legislative power: (1) the

completeness test and (2) the sufficient standard test. A law is complete when it sets forth
therein the policy to be executed, carried out or implemented by the delegate.It lays down a
sufficient standard when it provides adequate guidelines or limitations in the law to map out the
boundaries of the delegate’s authority and prevent the delegation from running riot.To be
sufficient, the standard must specify the limits of the delegate’s authority, announce the
legislative policy and identify the conditions under which it is to be implemented.
RA 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.
Revenue targets are based on the original estimated revenue collection expected
respectively of the BIR and the BOC for a given fiscal year as approved by the DBCC and
stated in the BESF submitted by the President to Congress. Thus, the
determination ofrevenue targets does notrest solely on the President as it also
undergoes the scrutiny ofthe DBCC.

4. YES. 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 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.
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.
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.

DISPOSITIVE:
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.

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."   Ad Valorem taxes were imposed on these brands,   at the following rates:
3 4

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%
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,   was enacted, on 10 June 1993, by
6

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%).   (Emphasis supplied)
7

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.

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,   the Court expressed:
11

. . . 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.   Thus, all
14

taxable articles or kinds of property of the same class must be taxed at the same rate   and
15

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   doctrine, the measure suffers from
16

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.

 (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").  7
1

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.

Kapunan, J., concurs.

Separate Opinions

 
BELLOSILLO, J.: separate opinion:

RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June
1993, and took effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal
Revenue Code (NIRC) to read —

Sec. 142. Cigars and cigarettes. — . . . . (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 percent (55%) provided that the minimum tax shall not be less
than Five Pesos (P5.00) per pack (emphasis supplied).

(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.

Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium

More and Champion were considered local brands subjected to an ad valorem tax at the rate of 20-
45%. However, on 1 July 1993 or two (2) days before RA 7654 took effect, petitioner Commissioner
of Internal Revenue issued RMC 37-93 reclassifying "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."   RMC 37-93 in effect
1

subjected Hope Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par.

(c), subpar. (1), NIRC, as amended by RA 7654, imposing upon these cigarette brands an ad
valorem tax of "fifty-five percent (55%) provided that the minimum tax shall not be less than Five
Pesos (P5.00) per pack."

On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA
7654, a copy of RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of
the Bureau of Internal Revenue was sent by facsimile to the factory of respondent corporation in
Parang, Marikina, Metro Manila. It appears that the letter together with a copy of RMC 37-93 did not
immediately come to the knowledge of private respondent as it was addressed to no one in
particular. It was only when the reclassification of respondent corporation's cigarette brands was
reported in the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the president of
respondent corporation learned of the matter, prompting him to inquire into its veracity and to
request from petitioner a copy of RMC 37-93. On 15 July 1993 respondent corporation received by
ordinary mail a certified machine copy of RMC 37-93.

Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith
denied by the Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July
1993 private respondent was assessed an ad valorem tax deficiency amounting to P9,598,334.00.
Respondent corporation went to the Court of Tax Appeals (CTA) on a petition for review.

On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled —

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
. . . . 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 cancelled for lack of legal basis. 
2

The CTA held that petitioner Commissioner of Internal Revenue failed to observe due
process of law in issuing RMC 37-93 as there was no prior notice and hearing, and that
RMC 37-93 was in itself discriminatory. The motion to reconsider its decision was denied by
the CTA for lack of merit. On 31 March 1995 respondent Court of Appeals affirmed in
toto the decision of the CTA.   Hence, the instant petition for review.
3

Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope
Luxury, Premium More and Champion as locally manufactured cigarettes bearing brands is merely
an interpretative ruling which needs no prior notice and hearing as held in Misamis Oriental
Association of Coco Traders, Inc. v. Department of Finance Secretary.   It maintains that neither is
4

the assailed revenue memorandum circular discriminatory as it merely "lays down the test in
determining whether or not a locally manufactured cigarette bears a foreign brand using (only) the
cigarette brands Hope, More and Champion as specific examples."  5

Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative
ruling but is adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis
Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary on which the
Solicitor General relies heavily is not applicable. Respondent Fortune Tobacco Corporation also
argues that RMC 37-93 discriminates against its cigarette brands since those of its competitors
which are similarly situated have not been reclassified.

The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance
of which needs no prior notice and hearing, or an adjudicatory ruling which calls for the twin
requirements of prior notice and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.

A brief discourse on the powers and functions of administrative bodies may be instructive.

Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or

administrative adjudicatory powers. Quasi-legislative or rule making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the granting
statute and the doctrine of nondelegability and separability of powers.

Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an
administrative agency (the other two being supplementary or detailed legislation, and contingent
legislation), is promulgated by the administrative agency to interpret, clarify or explain statutory
regulations under which the administrative body operates. The purpose or objective of an
interpretative rule is merely to construe the statute being administered. It purports to do no more
than interpret the statute. Simply, the rule tries to say what the statute means. Generally, it refers to
no single person or party in particular but concerns all those belonging to the same class which may
be covered by the said interpretative rule. It need not be published and neither is a hearing required
since it is issued by the administrative body as an incident of its power to enforce the law and is
intended merely to clarify statutory provisions for proper observance by the people. In Tañada
v. Tuvera,   this Court expressly said that "[i]interpretative regulations . . . . need not be published."
6

Quasi-judicial or administrative adjudicatory power on the other hand is the power of the
administrative agency to adjudicate the rights of persons before it. It is the power to hear and
determine questions of fact to which the legislative policy is to apply and to decide in accordance
with the standards laid down by the law itself in enforcing and administering the same law.   The7

administrative body exercises its quasi-judicial power when it performs in a judicial manner an act
which is essentially of an executive or administrative nature, where the power to act in such manner
is incidental to or reasonably necessary for the performance of the executive or administrative duty
entrusted to it.   In carrying out their quasi-judicial functions the administrative officers or bodies are
8

required to investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and
draw conclusions from them as basis for their official action and exercise of discretion in a judicial
nature. Since rights of specific persons are affected it is elementary that in the proper exercise of
quasi-judicial power due process must be observed in the conduct of the proceedings.

The importance of due process cannot be underestimated. Too basic is the rule that no person shall
be deprived of life, liberty or property without due process of law. Thus when an administrative
proceeding is quasi-judicial in character, notice and fair open hearing are essential to the validity of
the proceeding. The right to reasonable prior notice and hearing embraces not only the right to
present evidence but also the opportunity to know the claims of the opposing party and to meet
them. The right to submit arguments implies that opportunity otherwise the right may as well be
considered impotent. And those who are brought into contest with government in a quasi-judicial
proceeding aimed at the control of their activities are entitled to be fairy advised of what the
government proposes and to be heard upon its proposal before it issues its final command.

There are cardinal primary rights which must be respected in administrative proceedings. The
landmark case of Ang Tibay v. The Court of Industrial Relations   enumerated these rights: (1) the
9

right to a hearing, which includes the right of the party interested or affected to present his own case
and submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3)
the decision must have something to support itself; (4) the evidence must be substantial; (5) the
decision must be rendered on the evidence presented at the hearing, or at least contained in the
record and disclosed to the parties affected; (6) the tribunal or any of its judges must act on its or his
own independent consideration of the law and facts of the controversy, and not simply accept the
views of a subordinate in arriving at a decision; and, (7) the tribunal should in all controversial
questions render its decision in such manner that the parties to the proceeding may know the
various issues involved and the reasons for the decision rendered.

In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice
and hearing, or an adjudicatory rule which demands the observance of due process, a close
examination of RMC 37-93 is in order. Noticeably, petitioner Commissioner of Internal Revenue at
first interprets Sec. 142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and
clarifying or explaining what it means —

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 . . ."

Then petitioner makes a factual finding by declaring that Hope (Luxury),

(Premium) More and Champion are manufactured by other foreign manufacturers —

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.

From this finding, petitioner thereafter formulates an inference that since it cannot be determined
who among the manufacturers are the real owners of the brands in question, then these cigarette
brands should be considered foreign brands —

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."

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation
reclassifying its cigarette brands as locally manufactured bearing foreign brands —
 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.

It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal
Revenue was exercising her quasi-judicial or administrative adjudicatory power. She cited and
interpreted the law, made a factual finding, applied the law to her given set of facts, arrived at a
conclusion, and issued a ruling aimed at a specific individual. Consequently prior notice and hearing
are required. It must be emphasized that even the text alone of RMC 37-93 implies that reception of
evidence during a hearing is appropriate if not necessary since it invokes BIR Ruling No. 410-88,
dated August 24, 1988, which provides that "in cases where it cannot be established or there is
dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to determine
whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because no
hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of
the imagination can RMC 37-93 be considered purely as an interpretative rule — requiring no
previous notice and hearing and simply interpreting, construing, clarifying or explaining statutory
regulations being administered by or under which the Bureau of Internal Revenue operates.

It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of
Finance Secretary, and RMC 37-93 in the instant case reclassify certain products for purposes of
taxation. But the similarity between the two revenue memorandum circulars ends there. For in
properly determining whether a revenue memorandum circular is merely an interpretative rule or an
adjudicatory rule, its very tenor and text, and the circumstances surrounding its issuance will have
no to be considered.

We quote RMC 47-91 promulgated 11 June 1991 —

Revenue Memorandum Circular No. 47-91

SUBJECT : Taxability of Copra

TO : All Revenue Officials and Employees and Others Concerned.

For the information and guidance of all officials and employees and others
concerned, quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August
17, 1990:

COCOFED MARKETING RESEARCH CORPORATION

6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila

Attention: Ms. Esmyrn
a E. Reyes
Vice President —
Finance

Sirs:
 This has reference to your letter dated January 16, 1990 wherein you
represented that inspite of your VAT registration of your copra trading
company, you are supposed to be exempt from VAT on the basis of
BIR Ruling dated January 8, 1988 which considered copra as an
agricultural food product in its original state. In this connection, you
request for a confirmation of your opinion as aforestated.

In reply, please be informed that copra, being an agricultural non-

food product, is exempt from VAT only if sale is made by the primary
producer pursuant to Section 103 (a) of the Tax Code, as amended.
Thus as a trading company and a subsequent seller, your sale of
copra is already subject to VAT pursuant to Section 9(b) (1) of
Revenue Regulations 5-27.

This revokes VAT Ruling Nos. 009-88 and 279-88.

Very
truly
yours,

(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue

As a clarification, this is the present and official stand of this Office unless sooner
revoked or amended. All revenue officials and employees are enjoined to give this
Circular as wide a publicity as possible.

(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue

Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it
simply quotes a VAT Ruling and reminds those concerned that the ruling is the present and official
stand of the Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner
manifestly exercised her quasi-judicial or administrative adjudicatory power, in RMC 47-91 there
were no factual findings, no application of laws to a given set of facts, no conclusions of law, and no
dispositive portion directed at any particular party.
Another difference is that in the instant case, the issuance of the assailed revenue memorandum
circular operated to subject the taxpayer to the new law which was yet to take effect, while
in Misamis, the disputed revenue memorandum circular was issued simply to restate and then clarify
the prevailing position and ruling of the administrative agency, and no new law yet to take effect was
involved. It merely interpreted an existing law which had already been in effect for some time and
which was not set to be amended. RMC 37-93 is thus prejudicial to private respondent alone.

A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was
ostensibly issued to subject the cigarette brands of respondent corporation to a new law as it was
promulgated two days before the expiration of the old law and a few hours before the effectivity of
the new law. That RMC 37-93 is particularly aimed only at respondent corporation and its three (3)
cigarette brands can be seen from the dispositive portion of the assailed revenue memorandum
circular —

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.

Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays
down the test in determining whether or not a locally manufactured cigarette bears a foreign brand
using the cigarette brands Hope, More and Champion as specific examples," cannot be accepted,
much less sustained. Without doubt, RMC 37-93 has a tremendous effect on respondent corporation
— and solely on respondent corporation — as its deficiency ad valorem tax assessment on its
removals of Hope, Luxury, Premium More, and Champion cigarettes for six (6) hours alone, i.e.,
from six o'clock in the evening of 2 July 1993 which is presumably the time respondent corporation
was supposed to have received the facsimile message sent by Deputy Commissioner Victor A.
Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already
P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose except to state and
declare what has been the official stand of the administrative agency on the specific subject matter,
and was indiscriminately directed to all copra traders with no particular individual in mind.

That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be
disputed; hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do
we deny her the exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by
constitutional mandate, the Court must check the exercise of these powers and ascertain whether
petitioner has gone beyond the legitimate bounds of her authority.

In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the
wisdom of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private
respondents. It is simply the faithful observance by government by government of the basic
constitutional right of a taxpayer to due process of law and equal protection of the laws. This is what
distresses me no end — the manner and the circumstances under which the cigarettes of private
respondent were reclassified and correspondingly taxed under RMC 37-93, and adjudicatory rule
which therefore requires reasonable notice and hearing before its issuance. It should not be
confused with RMC 47-91, which is a mere interpretative rule.

In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also
voted to uphold the constitutional right of the taxpayer concerned to due process and equal
protection of the laws. By a vote of 3-2, that view prevailed. In sequela, we in the First Division who
constituted the majority found ourselves unjustly drawn into the vortex of a nightmarish episode. The
strong ripples whipped up by my opinion expressed therein — and of the majority — have yet to
varnish when we are again in the imbroglio of a similar dilemma. The unpleasant experience should
be reason enough to simply steer clear of this controversy and surf on a pretended loss of judicial
objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to
camouflage my leave with a sham excuse would be to turn away from a professional vow I keep at
all times; I would not be true to myself, and to the people I am committed to serve. Thus, as I have
earlier expressed, if placed under similar circumstances in some future time, I shall have to brave
again the prospect of another vilification and a tarnished image if only to show proudly to the whole
world that under the present dispensation judicial independence in our country is a true component
of our democracy.

In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of
such issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily
issued — without prior notice and hearing, and singling out private respondent alone — when two
days before a new tax law was to take effect petitioner reclassified and taxed the cigarette brands of
private respondent at a higher rate. Obviously, this was to make it appear that even before the
anticipated date of effectivity of the statute — which was undeniably priorly known to petitioner —
these brands were already currently classified and taxed at fifty-five percent (55%), thus shoving
them into the purview of the law that was to take effect two days after!

For sure, private respondent was not properly informed before the issuance of the questioned
memorandum circular that its cigarette brands Hope Luxury, Premium More and Champion were
being reclassified and subjected to a higher tax rate. Naturally, the result would be to lose financially
because private respondent was still selling its cigarettes at a price based on the old, lower tax rate.
Had there been previous notice and hearing, as claimed by private respondent, it could have very
well presented its side, either by opposing the reclassification, or by acquiescing thereto but
increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and the
ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are
also to consider the claim of private respondent that the new tax is even higher than the cost of its
cigarettes.

Accordingly, I vote to deny the petition.

HERMOSISIMA, JR., J.: dissenting

Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for
deficiency ad valorem excise taxes on its removals of "Hope," "More," and "Champion" cigarettes
from 6:00 p.m. to 12:00 midnight of July 2, 1993, in the total amount of P9,598,334.00. It claims that
the circular, upon which the assessment was based and made, is defective, invalid and
unenforceable for having been issued without notice and hearing and in violation of the equal
protection clause guaranteed by the Constitution.

The majority upholds these claims of private respondent, convinced that the Circular in question, in
the first place, did not give prior notice and hearing, and so, it could not have been valid and
effective. It proceeds to affirm the factual findings of the Court of Tax Appeals, which findings were
considered correct by respondent Court of Appeals, to the effect that the petitioner Commissioner of
Internal Revenue had indeed blatantly failed to comply with the said twin requirements of notice and
hearing, thereby rendering the issuance of the questioned Circular to be in violation of the due
process clause of the Constitution. It is also its dominant opinion that the questioned Circular
discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect
only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of
the same kind or classification as these cigarettes manufactured by private respondent.

With all due respect, I disagree with the majority in its disquisition of the issues and its resulting
conclusions.

Section 245 of the National Internal Revenue Code,

as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular

Section 245 of the National Internal Revenue Code, as amended, provides:

Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations. —

The Secretary of Finance, upon recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code . . . without prejudice to the power of the Commissioner of
Internal Revenue 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.

The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It
was issued in connection with Section 142 (c) (1) of the National Internal Revenue Code, as
amended, which imposes ad valorem excise taxes on locally manufactured cigarettes bearing a
foreign brand. The same provision prescribes the ultimate criterion that determines which cigarettes
are to be considered "locally manufactured cigarettes bearing a foreign brand." It provides:

. . . 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.

There is only one World Tobacco Directory for a given current year, and the same is
mandated by law to be the BIR Commissioner's controlling basis for determining whether or
not a particular locally manufactured cigarette is one bearing a foreign brand. In so making a
determination, petitioner should inquire into the entries in the World Tobacco Directory for
the given current year and shall be held bound by such entries therein. She is not required to
subject the results of her inquiries to feedback from the concerned cigarette manufacturers,
and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the
law does not, in the first place, require debate or hearing thereon. Petitioner may make such
a determination because she is the Chief Executive Officer of the administrative agency that
is the Bureau of Internal Revenue in which are vested quasi-legislative powers entrusted to it
by the legislature in recognition of its more encompassing and unequalled expertise in the
field of taxation.

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" . . .  1
Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to
classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner
was acting well within her prerogatives when she issued the questioned Circular. And in the exercise
of such prerogatives under the law, she has in her favor the presumption of regular performance of
official duty which must be overcome by clearly persuasive evidence of stark error and grave abuse
of discretion in order to be overturned and disregarded.

It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act
No. 7654   on petitioner's power to classify cigarettes. Although the decisions assailed and sought to
2

be reviewed, as well as the pleadings of private respondent, are replete with alleged admissions of
our legislators to the effect that the said Act was intended to freeze the current classification of
cigarettes and make the same an integral part of the said Act, certainly the repeal, if any, of
petitioner's power to classify cigarettes must be reckoned from the effectivity of the said Act and not
before. Suffice it to say that indisputable is the plain fact that the questioned Circular was issued on
July 1, 1993, while the said Act took effect on July 3, 1993.

The contents of the questioned circular have not

been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner

Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code,
as amended, levies the following ad valorem taxes on cigarettes in accordance with their
predetermined classifications as established by the Commissioner of Internal Revenue:

. . . based on the manufacturer's registered wholesale price:

(1) 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.

(2) Other locally manufactured cigarettes, forty five percent (45%).

x x x           x x x          x x x

Prior to the issuance of the questioned Circular, assessed against and paid by private respondent
as ad valorem excise taxes on their removals of "Hope," "More," and "Champion" cigarettes were
amounts based on paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was
45% at the most. The reason for this is that apparently, petitioner's predecessors have all made
determinations to the effect that the said cigarettes were to be considered "other locally
manufactured cigarettes" and not "locally manufactured cigarettes bearing a foreign brand." Even
petitioner, until her issuance of the questioned Circular, adhered to her predecessors' determination
as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise
taxes. Apparently, the past determination that the said cigarettes were to be classified as "other
locally manufactured cigarettes" was based on private respodnent's convenient move of changing
the names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that
"Champion" was an original Fortune Tobacco Corporation register and, therefore, a local brand.
Having registered these brands with the Philippine Patent Office and with corresponding evidence to
the effect, private respondent paid ad valorem excise taxes computed at the rate of not more than
45% which is the rate applicable to cigarettes considered as locally manufactured brands.

How these past determinations pervaded notwithstanding their erroneous basis is only tempered by
their innate quality of being merely errors in interpretative ruling, the formulation of which does not
bind the government. Advantage over such errors may precipitously be withdrawn from those who
have been benefiting from them once the same have been discovered and rectified.

Petitioner correctly emphasizes that:

. . . the registration of said brands in the name of private respondent is proof only that
it is the exclusive owner thereof in the Philippines; it does not necessarily follow,
however, that it is the exclusive owner thereof in the whole world. Assuming
arguendo that private respondent is the exclusive owner of said brands in the
Philippines, it does not mean that they are local. Otherwise, they would not have
been listed in the WTD as international brands manufactured by different entities in
different countries. Moreover, it cannot be said that the brands registered in the
names of private respondent are not the same brands listed in the WTD because
private respondent is one of the manufacturers of said brands listed in the WTD.  3

Private respondent attempts to cast doubt on the determination made by petitioner in the questioned
Circular that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the
World Tobacco Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing
this out, private respondent concludes that the entire Circular is erroneous and makes such error the
principal proof of its claim that the nature of the determination embodied in the questioned Circular
requires a hearing on the facts and a debate on the applicable law. Such a determination is
adjudicatory in nature and, therefore, requires notice and hearing. Private respondent is, however,
apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion.
Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation,
recognized in that expertise by the legislature that vested in her the power to make rules respecting
classification of articles for taxation purposes, and presumed to have regularly exercised her
prerogatives within the scope of her statutory power to issue determinations specifically under
Section 142 (c) (1) in relation to Section 245 of the National Internal Revenue Code, as amended,
simply followed the law as she understood it. Her task was to determine which cigarette brands were
foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign cigarette
brands were legislated to be taxed at higher rates because of their more extensive public exposure
and international reputation; their competitive edge against local brands may easily be checked by
imposition of higher tax rates. Private respondent makes a mountain of the mole hill circumstance
that "Hope" is listed, not as being "manufactured" by Japan but as being "used" by Japan. Whether
manufactured or used by Japan, however, "Hope" remains a cigarette brand that can not be said to
be limited to local manufacture in the Philippines. The undeniable fact is that it is a foreign brand the
sales in the Philippines of which are greatly boosted by its international exposure and reputation.
The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify
articles for taxation purposes, to interpret the laws which she is mandated to administer. In
interpreting the same, petitioner must, in general, be guided by the principles underlying
taxation, i.e., taxes are the lifeblood of Government, and revenue laws ought to be interpreted in
favor of the Government, for Government can not survive without the funds to underwrite its varied
operational expenses in pursuit of the welfare of the society which it serves and protects.

Private respondent claims that its business will be destroyed by the imposition of additional ad
valorem taxes as a result of the effectivity of the questioned Circular. It claims that under the vested
rights theory, it cannot now be made to pay higher taxes after having been assessed for less in the
past. Of course private respondent will trumpet its losses, its interests, after all, being its sole
concern. What private respondent fails to see is the loss of revenue by the Government which,
because of erroneous determinations made by its past revenue commissioners, collected lesser
taxes than what it was entitled to in the first place. It is every citizen's duty to pay the correct amount
of taxes. Private respondent will not be shielded by any vested rights, for there are not vested rights
to speak of respecting a wrong construction of the law by administrative officials, and such wrong
interpretation does not place the Government in estoppel to correct or overrule the same.  4

The Questioned Circular embodies an interpretative

ruling of petitioner Commissioner which as such does
not require notice and hearing

As one of the public offices of the Government, the Bureau of Internal Revenue, through its
Commissioner, has grown to be a typical administrative agency vested with a fusion of different
governmental powers: the power to investigate, initiate action and control the range of investigation,
the power to promulgate rules and regulations to better carry out statutory policies, and the power to
adjudicate controversies within the scope of their activities.   In the realm of administrative law, we
5

understand that such an empowerment of administrative agencies was evolved in response to the
needs of a changing society. This development arose as the need for broad social control over
complex conditions and activities became more and more pressing, and such complexity could no
longer be dealt with effectivity and directly by the legislature or the judiciary. The theory which
underlies the empowerment of administrative agencies like the Bureau of Internal Revenue, is that
the issues with which such agencies deal ought to be decided by experts, and not be a judge, at
least not in the first instance or until the facts have been sifted and arranged. 6

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to
make rules. The necessity for vesting administrative agencies with this power stems from the
impracticability of the lawmakers providing general regulations for various and varying details
pertinent to a particular legislation. 
7

The rules that administrative agencies may promulgate may either be legislative or interpretative.
The former is a form of subordinate legislation whereby the administrative agency is acting in a
legislative capacity, supplementing the statute, filling in the details, pursuant to a specific delegation
of legislative power. 
8

Interpretative rules, on the other hand, are "those which purport to do no more than interpret the
statute being administered, to say what it means."  9

There can be no doubt that there is a distinction between an administrative rule or

regulation and an administrative interpretation of a law whose enforcement is
entrusted to an administrative body. When an administrative agency promulgates
rules and regulations, it "makes" a new law with the force and effect of a valid law,
while when it renders an opinion or gives a statement of policy, it merely interprets a
pre-existing law (Parker, Administrative Law, p. 197; Davis Administrative Law, p.
194). Rules and regulations when promulgated in pursuance of the procedure or
authority conferred upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal sanction provided in
the law. This is so because statutes are usually couched in general terms, after
expressing the policy, purposes, objectives, remedies and sanctions intended by the
legislature. The details and the manner of carrying out the law are often times left to
the administrative agency entrusted with its enforcement. In this sense, it has been
 said that rules and regulations are the product of a delegated power to create new or
additional legal provisions that have the effect of law. (Davis, op. cit. p. 194.)

A rule is binding on the courts as long as the procedure fixed for its promulgation is
followed and its scope is within the statutory authority granted by the legislature,
even if the courts are not in agreement with the policy stated therein or its innate
wisdom (Davis, op. cit. pp. 195-197). 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.  10

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends

upon whether the statute places specific 'sanctions' behind the regulations authorized, as for
example, by making it a criminal offense to disobey them, or by making conformity with their
provisions a condition of the exercise of legal privileges."   This is because interpretative regulations
11

are by nature simply statutory interpretations, which have behind them no statutory sanction. Such
regulations, whether so expressly authorized by statute or issued only as an incident of statutory
administration, merely embody administrative findings of law which are always subject to judicial
determination as to whether they are erroneous or not, even when their issuance is authorized by
statute.

The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making
powers under Section 245 of the National Internal Revenue Code, as amended. Exercising such
powers, petitioner re-classified "Hope," "More" and "Champion" cigarettes as locally manufactured
cigarettes bearing foreign brands. The re-classification, as previously explained, is the correct
interpretation of Section 142 (c) (1) of the said Code. The said legal provision is not accompanied by
any penal sanction, and no detail had to be filled in by petitioner. The basis for the classification of
cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the
government agency she heads, is to proceed to make the proper determination using the criterion
stipulated by the lawmaking body. In making the proper determination, petitioner gave it a liberal
construction consistent with the rule that revenue laws are to be construed in favor of the
Government whose survival depends on the contributions that taxpayers give to the public coffers
that finance public services and other governmental operations.

The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the
enforcement of the laws pertinent to this case and so, the opinion of the Commissioner of Internal
Revenue, in the absence of a clear showing that it is plainly wrong, is entitled to great weight. Private
respondent claims that its rights under previous interpretations of Section 142 (c) (1) may not
abruptly be cut by a new interpretation of the said section, but precisely the said section is subject to
various and changing construction, and hence, any ruling issued by petitioner thereon is necessarily
interpretative and not legislative. Private respondent insists that the questioned circular is
adjudicatory in nature because it determined the rights of private respondent in a controversy
involving his tax liability. It also asseverates that the questioned circular involved administrative
action that is particular and immediate, thereby rendering it subject to the requirements of notice and
hearing in compliance with the due process clause of the Constitution.

We find private respondent's arguments to be rather strained.

Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited

provisions in the National Internal Revenue Code, as amended. Such determination was an
interpretation by petitioner of the said legal provisions. If in the course of making the interpretation
and embodying the same in the questioned circular which the petitioner subsequently issued after
making such a determination, private respondent's cigarettes products, by their very nature of being
foreign brands as evidenced by their enlistment in the World Tobacco Directory, which is the
controlling basis for the proper classification of cigarettes as stipulated by the law itself, have come
to be classified as locally manufactured cigarettes bearing foreign brands and as such subject to a
tax rate higher than what was previously imposed thereupon based on past rulings of other revenue
commissioners, such a situation is simply a consequence of the performance by petitioner of here
duties under the law. No adjudication took place, much less was there any controversy ripe for
adjudication. The natural consequences of making a classification in accordance with law may not
be used by private respondent in arguing that the questioned circular is in fact adjudicatory in nature.
Such an exercise in driving home a point is illogical as it is fallacious and misplaced.

Private respondent concedes that under general rules of administrative law, "a ruling which is merely
'interpretative' in character may not require prior notice to affected parties before its issuance as well
as a hearing" and "for this reason, in most instances, interpretative regulations are not given the
force of law."   Indeed, "interpretative regulations and those merely internal in nature
12

. . . need not be published."   And it is now settled that only legislative regulations and not
13

interpretative rulings must have the benefit of public

hearing. 14

Because (1) the questioned circular merely embodied an interpretation or a way of reading and
giving meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2)
petitioner did not fill in any details in the aforecited section but only classified cigarettes on the basis
of the World Tobacco Directory in the light of the paramount principle of construing revenue laws in
favor of the Government to the end that Government collects as much tax money as it is entitled to
in order to fulfill its public purposes for the general good of its citizens; (3) no penal sanction is
provided in the aforecited section that was construed by petitioner in the questioned circular; and (4)
a similar circular declassifying copra from being an agricultural food to non-food product for
purposes of the value added tax laws, resulting in the revocation of an exemption previously enjoyed
by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative,
much less, an adjudicatory, action on the part of the revenue commissioner,   this Court must not be
15

blind to the fact that the questioned Circular is indeed an interpretative ruling not subject to notice
and hearing.

Neither is the questioned Circular tainted by a

violation of the equal protection clause under the
Constitution

Private respondent anchors its claim of violation of its equal protection rights upon the too obvious
fact that only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the
questioned circular. Because only the cigarettes that they manufacture are enumerated in the
questioned circular, private respondent proceeded to attack the same as being discriminatory
against it. On the surface, private respondent seems to have a point there. A scrutiny of the
questioned Circular, however, will show that it is undisputedly one of general application for all
cigarettes that are similarly situated as private respondent's brands. The new interpretation of
Section 142 (1) (c) has been well illustrated in its application upon private respondent's brands,
which illustration is properly a subject of the questioned Circular. Significantly, indicated as the
subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The
reclassification resulted in the foregrounding of private respondent's cigarette brands, which
incidentally is largely due to the controversy spawned no less by private respondent's own action of
conveniently changing its brand names to avoid falling under a classification that would subject it to
higher ad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his
initial determination that private respondent's cigarette brands are foreign brands. The consequent
specific mention of such brands in the questioned Circular, does not change the fact that the
questioned Circular has always been intended for and did cover, all cigarettes similarly situated as
"Hope," "More" and "Champion." Petitioner is thus correct in stating that:

. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or
not a locally manufactured cigarette bears a foreign brand using the cigarette brands
"Hope," More and "Champion" as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette brands
aforementioned. While it is true that only "Hope," "More" and "Champion" cigarettes
are actually determined as locally manufactured cigarettes bearing a foreign brand,
RMC 37-93 does not state that ONLY cigarettes fall under such classification to the
exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does
not exclude the coverage of other cigarettes similarly situated. Otherwise stated,
RMC 37-93 does not exclude the coverage of other cigarettes similarly situated as
locally manufactured cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93
is not discriminatory. 
16

Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned
Circular reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and
unenforceable and has rendered the assessment against private respondent of deficiency ad
valorem excise taxes to be without legal basis. The majority agrees with private respondent and
respondent Courts. As the foregoing opinion chronicles the fatal flaws in private respondent's
arguments, it becomes more apparent that the questioned Circular is in fact a valid and subsisting
interpretative ruling that the petitioner had power to promulgate and enforce.

WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals
and the Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of
Internal Revenue denying private respondent's request for a review, reconsideration and recall of
Revenue Memorandum Circular No. 37-93 dated July 1, 1993.

Padilla, J., concurs.

Separate Opinions

BELLOSILLO, J.: separate opinion:

RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June
1993, and took effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal
Revenue Code (NIRC) to read —

Sec. 142. Cigars and cigarettes. — . . . . (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 percent (55%) provided that the minimum tax shall not be less
than Five Pesos (P5.00) per pack (emphasis supplied).

(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.

Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium

More and Champion were considered local brands subjected to an ad valorem tax at the rate of 20-
45%. However, on 1 July 1993 or two (2) days before RA 7654 took effect, petitioner Commissioner
of Internal Revenue issued RMC 37-93 reclassifying "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."   RMC 37-93 in effect
1

subjected Hope Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par.

(c), subpar. (1), NIRC, as amended by RA 7654, imposing upon these cigarette brands an ad
valorem tax of "fifty-five percent (55%) provided that the minimum tax shall not be less than Five
Pesos (P5.00) per pack."

On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA
7654, a copy of RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of
the Bureau of Internal Revenue was sent by facsimile to the factory of respondent corporation in
Parang, Marikina, Metro Manila. It appears that the letter together with a copy of RMC 37-93 did not
immediately come to the knowledge of private respondent as it was addressed to no one in
particular. It was only when the reclassification of respondent corporation's cigarette brands was
reported in the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the president of
respondent corporation learned of the matter, prompting him to inquire into its veracity and to
request from petitioner a copy of RMC 37-93. On 15 July 1993 respondent corporation received by
ordinary mail a certified machine copy of RMC 37-93.

Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith
denied by the Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July
1993 private respondent was assessed an ad valorem tax deficiency amounting to P9,598,334.00.
Respondent corporation went to the Court of Tax Appeals (CTA) on a petition for review.

On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled —

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
. . . . 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 cancelled for lack of legal basis. 2

The CTA held that petitioner Commissioner of Internal Revenue failed to observe due
process of law in issuing RMC 37-93 as there was no prior notice and hearing, and that
RMC 37-93 was in itself discriminatory. The motion to reconsider its decision was denied by
the CTA for lack of merit. On 31 March 1995 respondent Court of Appeals affirmed in
toto the decision of the CTA.   Hence, the instant petition for review.
3

Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope
Luxury, Premium More and Champion as locally manufactured cigarettes bearing brands is merely
an interpretative ruling which needs no prior notice and hearing as held in Misamis Oriental
Association of Coco Traders, Inc. v. Department of Finance Secretary.   It maintains that neither is
4

the assailed revenue memorandum circular discriminatory as it merely "lays down the test in
determining whether or not a locally manufactured cigarette bears a foreign brand using (only) the
cigarette brands Hope, More and Champion as specific examples."  5

Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative
ruling but is adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis
Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary on which the
Solicitor General relies heavily is not applicable. Respondent Fortune Tobacco Corporation also
argues that RMC 37-93 discriminates against its cigarette brands since those of its competitors
which are similarly situated have not been reclassified.

The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance
of which needs no prior notice and hearing, or an adjudicatory ruling which calls for the twin
requirements of prior notice and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.

A brief discourse on the powers and functions of administrative bodies may be instructive.

Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or

administrative adjudicatory powers. Quasi-legislative or rule making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the granting
statute and the doctrine of nondelegability and separability of powers.

Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an
administrative agency (the other two being supplementary or detailed legislation, and contingent
legislation), is promulgated by the administrative agency to interpret, clarify or explain statutory
regulations under which the administrative body operates. The purpose or objective of an
interpretative rule is merely to construe the statute being administered. It purports to do no more
than interpret the statute. Simply, the rule tries to say what the statute means. Generally, it refers to
no single person or party in particular but concerns all those belonging to the same class which may
be covered by the said interpretative rule. It need not be published and neither is a hearing required
since it is issued by the administrative body as an incident of its power to enforce the law and is
intended merely to clarify statutory provisions for proper observance by the people. In Tañada
v. Tuvera,   this Court expressly said that "[i]interpretative regulations . . . . need not be published."
6

Quasi-judicial or administrative adjudicatory power on the other hand is the power of the
administrative agency to adjudicate the rights of persons before it. It is the power to hear and
determine questions of fact to which the legislative policy is to apply and to decide in accordance
with the standards laid down by the law itself in enforcing and administering the same law.   The7

administrative body exercises its quasi-judicial power when it performs in a judicial manner an act
which is essentially of an executive or administrative nature, where the power to act in such manner
is incidental to or reasonably necessary for the performance of the executive or administrative duty
entrusted to it.   In carrying out their quasi-judicial functions the administrative officers or bodies are
8

required to investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and
draw conclusions from them as basis for their official action and exercise of discretion in a judicial
nature. Since rights of specific persons are affected it is elementary that in the proper exercise of
quasi-judicial power due process must be observed in the conduct of the proceedings.

The importance of due process cannot be underestimated. Too basic is the rule that no person shall
be deprived of life, liberty or property without due process of law. Thus when an administrative
proceeding is quasi-judicial in character, notice and fair open hearing are essential to the validity of
the proceeding. The right to reasonable prior notice and hearing embraces not only the right to
present evidence but also the opportunity to know the claims of the opposing party and to meet
them. The right to submit arguments implies that opportunity otherwise the right may as well be
considered impotent. And those who are brought into contest with government in a quasi-judicial
proceeding aimed at the control of their activities are entitled to be fairy advised of what the
government proposes and to be heard upon its proposal before it issues its final command.

There are cardinal primary rights which must be respected in administrative proceedings. The
landmark case of Ang Tibay v. The Court of Industrial Relations   enumerated these rights: (1) the
9

right to a hearing, which includes the right of the party interested or affected to present his own case
and submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3)
the decision must have something to support itself; (4) the evidence must be substantial; (5) the
decision must be rendered on the evidence presented at the hearing, or at least contained in the
record and disclosed to the parties affected; (6) the tribunal or any of its judges must act on its or his
own independent consideration of the law and facts of the controversy, and not simply accept the
views of a subordinate in arriving at a decision; and, (7) the tribunal should in all controversial
questions render its decision in such manner that the parties to the proceeding may know the
various issues involved and the reasons for the decision rendered.

In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice
and hearing, or an adjudicatory rule which demands the observance of due process, a close
examination of RMC 37-93 is in order. Noticeably, petitioner Commissioner of Internal Revenue at
first interprets Sec. 142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and
clarifying or explaining what it means —

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 . . ."

Then petitioner makes a factual finding by declaring that Hope (Luxury),

(Premium) More and Champion are manufactured by other foreign manufacturers —

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.

From this finding, petitioner thereafter formulates an inference that since it cannot be determined
who among the manufacturers are the real owners of the brands in question, then these cigarette
brands should be considered foreign brands —

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."

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation
reclassifying its cigarette brands as locally manufactured bearing foreign brands —

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.

It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal
Revenue was exercising her quasi-judicial or administrative adjudicatory power. She cited and
interpreted the law, made a factual finding, applied the law to her given set of facts, arrived at a
conclusion, and issued a ruling aimed at a specific individual. Consequently prior notice and hearing
are required. It must be emphasized that even the text alone of RMC 37-93 implies that reception of
evidence during a hearing is appropriate if not necessary since it invokes BIR Ruling No. 410-88,
dated August 24, 1988, which provides that "in cases where it cannot be established or there is
dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to determine
whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because no
hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of
the imagination can RMC 37-93 be considered purely as an interpretative rule — requiring no
previous notice and hearing and simply interpreting, construing, clarifying or explaining statutory
regulations being administered by or under which the Bureau of Internal Revenue operates.

It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of
Finance Secretary, and RMC 37-93 in the instant case reclassify certain products for purposes of
taxation. But the similarity between the two revenue memorandum circulars ends there. For in
properly determining whether a revenue memorandum circular is merely an interpretative rule or an
adjudicatory rule, its very tenor and text, and the circumstances surrounding its issuance will have
no to be considered.

We quote RMC 47-91 promulgated 11 June 1991 —

Revenue Memorandum Circular No. 47-91

SUBJECT : Taxability of Copra
TO : All Revenue Officials and Employees and Others Concerned.

For the information and guidance of all officials and employees and others
concerned, quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August
17, 1990:

COCOFED MARKETING RESEARCH CORPORATION

6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila

Attention: Ms. Esmyrn
a E. Reyes
Vice President —
Finance

Sirs:

This has reference to your letter dated January 16, 1990 wherein you
represented that inspite of your VAT registration of your copra trading
company, you are supposed to be exempt from VAT on the basis of
BIR Ruling dated January 8, 1988 which considered copra as an
agricultural food product in its original state. In this connection, you
request for a confirmation of your opinion as aforestated.

In reply, please be informed that copra, being an agricultural non-

food product, is exempt from VAT only if sale is made by the primary
producer pursuant to Section 103 (a) of the Tax Code, as amended.
Thus as a trading company and a subsequent seller, your sale of
copra is already subject to VAT pursuant to Section 9(b) (1) of
Revenue Regulations 5-27.

This revokes VAT Ruling Nos. 009-88 and 279-88.

Very
truly
yours,

(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue
 As a clarification, this is the present and official stand of this Office unless sooner
revoked or amended. All revenue officials and employees are enjoined to give this
Circular as wide a publicity as possible.

(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue

Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it
simply quotes a VAT Ruling and reminds those concerned that the ruling is the present and official
stand of the Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner
manifestly exercised her quasi-judicial or administrative adjudicatory power, in RMC 47-91 there
were no factual findings, no application of laws to a given set of facts, no conclusions of law, and no
dispositive portion directed at any particular party.

Another difference is that in the instant case, the issuance of the assailed revenue memorandum
circular operated to subject the taxpayer to the new law which was yet to take effect, while
in Misamis, the disputed revenue memorandum circular was issued simply to restate and then clarify
the prevailing position and ruling of the administrative agency, and no new law yet to take effect was
involved. It merely interpreted an existing law which had already been in effect for some time and
which was not set to be amended. RMC 37-93 is thus prejudicial to private respondent alone.

A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was
ostensibly issued to subject the cigarette brands of respondent corporation to a new law as it was
promulgated two days before the expiration of the old law and a few hours before the effectivity of
the new law. That RMC 37-93 is particularly aimed only at respondent corporation and its three (3)
cigarette brands can be seen from the dispositive portion of the assailed revenue memorandum
circular —

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.

Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays
down the test in determining whether or not a locally manufactured cigarette bears a foreign brand
using the cigarette brands Hope, More and Champion as specific examples," cannot be accepted,
much less sustained. Without doubt, RMC 37-93 has a tremendous effect on respondent corporation
— and solely on respondent corporation — as its deficiency ad valorem tax assessment on its
removals of Hope, Luxury, Premium More, and Champion cigarettes for six (6) hours alone, i.e.,
from six o'clock in the evening of 2 July 1993 which is presumably the time respondent corporation
was supposed to have received the facsimile message sent by Deputy Commissioner Victor A.
Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already
P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose except to state and
declare what has been the official stand of the administrative agency on the specific subject matter,
and was indiscriminately directed to all copra traders with no particular individual in mind.

That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be
disputed; hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do
we deny her the exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by
constitutional mandate, the Court must check the exercise of these powers and ascertain whether
petitioner has gone beyond the legitimate bounds of her authority.

In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the
wisdom of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private
respondents. It is simply the faithful observance by government by government of the basic
constitutional right of a taxpayer to due process of law and equal protection of the laws. This is what
distresses me no end — the manner and the circumstances under which the cigarettes of private
respondent were reclassified and correspondingly taxed under RMC 37-93, and adjudicatory rule
which therefore requires reasonable notice and hearing before its issuance. It should not be
confused with RMC 47-91, which is a mere interpretative rule.

In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also
voted to uphold the constitutional right of the taxpayer concerned to due process and equal
protection of the laws. By a vote of 3-2, that view prevailed. In sequela, we in the First Division who
constituted the majority found ourselves unjustly drawn into the vortex of a nightmarish episode. The
strong ripples whipped up by my opinion expressed therein — and of the majority — have yet to
varnish when we are again in the imbroglio of a similar dilemma. The unpleasant experience should
be reason enough to simply steer clear of this controversy and surf on a pretended loss of judicial
objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to
camouflage my leave with a sham excuse would be to turn away from a professional vow I keep at
all times; I would not be true to myself, and to the people I am committed to serve. Thus, as I have
earlier expressed, if placed under similar circumstances in some future time, I shall have to brave
again the prospect of another vilification and a tarnished image if only to show proudly to the whole
world that under the present dispensation judicial independence in our country is a true component
of our democracy.

In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of
such issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily
issued — without prior notice and hearing, and singling out private respondent alone — when two
days before a new tax law was to take effect petitioner reclassified and taxed the cigarette brands of
private respondent at a higher rate. Obviously, this was to make it appear that even before the
anticipated date of effectivity of the statute — which was undeniably priorly known to petitioner —
these brands were already currently classified and taxed at fifty-five percent (55%), thus shoving
them into the purview of the law that was to take effect two days after!

For sure, private respondent was not properly informed before the issuance of the questioned
memorandum circular that its cigarette brands Hope Luxury, Premium More and Champion were
being reclassified and subjected to a higher tax rate. Naturally, the result would be to lose financially
because private respondent was still selling its cigarettes at a price based on the old, lower tax rate.
Had there been previous notice and hearing, as claimed by private respondent, it could have very
well presented its side, either by opposing the reclassification, or by acquiescing thereto but
increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and the
ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are
also to consider the claim of private respondent that the new tax is even higher than the cost of its
cigarettes.

Accordingly, I vote to deny the petition.

HERMOSISIMA, JR., J.: dissenting

Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for
deficiency ad valorem excise taxes on its removals of "Hope," "More," and "Champion" cigarettes
from 6:00 p.m. to 12:00 midnight of July 2, 1993, in the total amount of P9,598,334.00. It claims that
the circular, upon which the assessment was based and made, is defective, invalid and
unenforceable for having been issued without notice and hearing and in violation of the equal
protection clause guaranteed by the Constitution.

The majority upholds these claims of private respondent, convinced that the Circular in question, in
the first place, did not give prior notice and hearing, and so, it could not have been valid and
effective. It proceeds to affirm the factual findings of the Court of Tax Appeals, which findings were
considered correct by respondent Court of Appeals, to the effect that the petitioner Commissioner of
Internal Revenue had indeed blatantly failed to comply with the said twin requirements of notice and
hearing, thereby rendering the issuance of the questioned Circular to be in violation of the due
process clause of the Constitution. It is also its dominant opinion that the questioned Circular
discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect
only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of
the same kind or classification as these cigarettes manufactured by private respondent.

With all due respect, I disagree with the majority in its disquisition of the issues and its resulting
conclusions.

Section 245 of the National Internal Revenue Code,

as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular

Section 245 of the National Internal Revenue Code, as amended, provides:

Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations. —

The Secretary of Finance, upon recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code . . . without prejudice to the power of the Commissioner of
Internal Revenue 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.

The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It
was issued in connection with Section 142 (c) (1) of the National Internal Revenue Code, as
amended, which imposes ad valorem excise taxes on locally manufactured cigarettes bearing a
foreign brand. The same provision prescribes the ultimate criterion that determines which cigarettes
are to be considered "locally manufactured cigarettes bearing a foreign brand." It provides:
 . . . 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.

There is only one World Tobacco Directory for a given current year, and the same is
mandated by law to be the BIR Commissioner's controlling basis for determining whether or
not a particular locally manufactured cigarette is one bearing a foreign brand. In so making a
determination, petitioner should inquire into the entries in the World Tobacco Directory for
the given current year and shall be held bound by such entries therein. She is not required to
subject the results of her inquiries to feedback from the concerned cigarette manufacturers,
and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the
law does not, in the first place, require debate or hearing thereon. Petitioner may make such
a determination because she is the Chief Executive Officer of the administrative agency that
is the Bureau of Internal Revenue in which are vested quasi-legislative powers entrusted to it
by the legislature in recognition of its more encompassing and unequalled expertise in the
field of taxation.

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" . . . 1

Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to
classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner
was acting well within her prerogatives when she issued the questioned Circular. And in the exercise
of such prerogatives under the law, she has in her favor the presumption of regular performance of
official duty which must be overcome by clearly persuasive evidence of stark error and grave abuse
of discretion in order to be overturned and disregarded.

It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act
No. 7654   on petitioner's power to classify cigarettes. Although the decisions assailed and sought to
2

be reviewed, as well as the pleadings of private respondent, are replete with alleged admissions of
our legislators to the effect that the said Act was intended to freeze the current classification of
cigarettes and make the same an integral part of the said Act, certainly the repeal, if any, of
petitioner's power to classify cigarettes must be reckoned from the effectivity of the said Act and not
before. Suffice it to say that indisputable is the plain fact that the questioned Circular was issued on
July 1, 1993, while the said Act took effect on July 3, 1993.

The contents of the questioned circular have not

been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner

Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code,
as amended, levies the following ad valorem taxes on cigarettes in accordance with their
predetermined classifications as established by the Commissioner of Internal Revenue:

. . . based on the manufacturer's registered wholesale price:

 (1) 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.

(2) Other locally manufactured cigarettes, forty five percent (45%).

x x x           x x x          x x x

Prior to the issuance of the questioned Circular, assessed against and paid by private respondent
as ad valorem excise taxes on their removals of "Hope," "More," and "Champion" cigarettes were
amounts based on paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was
45% at the most. The reason for this is that apparently, petitioner's predecessors have all made
determinations to the effect that the said cigarettes were to be considered "other locally
manufactured cigarettes" and not "locally manufactured cigarettes bearing a foreign brand." Even
petitioner, until her issuance of the questioned Circular, adhered to her predecessors' determination
as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise
taxes. Apparently, the past determination that the said cigarettes were to be classified as "other
locally manufactured cigarettes" was based on private respodnent's convenient move of changing
the names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that
"Champion" was an original Fortune Tobacco Corporation register and, therefore, a local brand.
Having registered these brands with the Philippine Patent Office and with corresponding evidence to
the effect, private respondent paid ad valorem excise taxes computed at the rate of not more than
45% which is the rate applicable to cigarettes considered as locally manufactured brands.

How these past determinations pervaded notwithstanding their erroneous basis is only tempered by
their innate quality of being merely errors in interpretative ruling, the formulation of which does not
bind the government. Advantage over such errors may precipitously be withdrawn from those who
have been benefiting from them once the same have been discovered and rectified.

Petitioner correctly emphasizes that:

. . . the registration of said brands in the name of private respondent is proof only that
it is the exclusive owner thereof in the Philippines; it does not necessarily follow,
however, that it is the exclusive owner thereof in the whole world. Assuming
arguendo that private respondent is the exclusive owner of said brands in the
Philippines, it does not mean that they are local. Otherwise, they would not have
been listed in the WTD as international brands manufactured by different entities in
different countries. Moreover, it cannot be said that the brands registered in the
names of private respondent are not the same brands listed in the WTD because
private respondent is one of the manufacturers of said brands listed in the WTD.  3

Private respondent attempts to cast doubt on the determination made by petitioner in the questioned
Circular that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the
World Tobacco Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing
this out, private respondent concludes that the entire Circular is erroneous and makes such error the
principal proof of its claim that the nature of the determination embodied in the questioned Circular
requires a hearing on the facts and a debate on the applicable law. Such a determination is
adjudicatory in nature and, therefore, requires notice and hearing. Private respondent is, however,
apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion.
Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation,
recognized in that expertise by the legislature that vested in her the power to make rules respecting
classification of articles for taxation purposes, and presumed to have regularly exercised her
prerogatives within the scope of her statutory power to issue determinations specifically under
Section 142 (c) (1) in relation to Section 245 of the National Internal Revenue Code, as amended,
simply followed the law as she understood it. Her task was to determine which cigarette brands were
foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign cigarette
brands were legislated to be taxed at higher rates because of their more extensive public exposure
and international reputation; their competitive edge against local brands may easily be checked by
imposition of higher tax rates. Private respondent makes a mountain of the mole hill circumstance
that "Hope" is listed, not as being "manufactured" by Japan but as being "used" by Japan. Whether
manufactured or used by Japan, however, "Hope" remains a cigarette brand that can not be said to
be limited to local manufacture in the Philippines. The undeniable fact is that it is a foreign brand the
sales in the Philippines of which are greatly boosted by its international exposure and reputation.
The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify
articles for taxation purposes, to interpret the laws which she is mandated to administer. In
interpreting the same, petitioner must, in general, be guided by the principles underlying
taxation, i.e., taxes are the lifeblood of Government, and revenue laws ought to be interpreted in
favor of the Government, for Government can not survive without the funds to underwrite its varied
operational expenses in pursuit of the welfare of the society which it serves and protects.

Private respondent claims that its business will be destroyed by the imposition of additional ad
valorem taxes as a result of the effectivity of the questioned Circular. It claims that under the vested
rights theory, it cannot now be made to pay higher taxes after having been assessed for less in the
past. Of course private respondent will trumpet its losses, its interests, after all, being its sole
concern. What private respondent fails to see is the loss of revenue by the Government which,
because of erroneous determinations made by its past revenue commissioners, collected lesser
taxes than what it was entitled to in the first place. It is every citizen's duty to pay the correct amount
of taxes. Private respondent will not be shielded by any vested rights, for there are not vested rights
to speak of respecting a wrong construction of the law by administrative officials, and such wrong
interpretation does not place the Government in estoppel to correct or overrule the same.  4

The Questioned Circular embodies an interpretative

ruling of petitioner Commissioner which as such does
not require notice and hearing

As one of the public offices of the Government, the Bureau of Internal Revenue, through its
Commissioner, has grown to be a typical administrative agency vested with a fusion of different
governmental powers: the power to investigate, initiate action and control the range of investigation,
the power to promulgate rules and regulations to better carry out statutory policies, and the power to
adjudicate controversies within the scope of their activities.   In the realm of administrative law, we
5

understand that such an empowerment of administrative agencies was evolved in response to the
needs of a changing society. This development arose as the need for broad social control over
complex conditions and activities became more and more pressing, and such complexity could no
longer be dealt with effectivity and directly by the legislature or the judiciary. The theory which
underlies the empowerment of administrative agencies like the Bureau of Internal Revenue, is that
the issues with which such agencies deal ought to be decided by experts, and not be a judge, at
least not in the first instance or until the facts have been sifted and arranged. 6

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to
make rules. The necessity for vesting administrative agencies with this power stems from the
impracticability of the lawmakers providing general regulations for various and varying details
pertinent to a particular legislation. 
7

The rules that administrative agencies may promulgate may either be legislative or interpretative.
The former is a form of subordinate legislation whereby the administrative agency is acting in a
legislative capacity, supplementing the statute, filling in the details, pursuant to a specific delegation
of legislative power. 
8

Interpretative rules, on the other hand, are "those which purport to do no more than interpret the
statute being administered, to say what it means."  9

There can be no doubt that there is a distinction between an administrative rule or

regulation and an administrative interpretation of a law whose enforcement is
entrusted to an administrative body. When an administrative agency promulgates
rules and regulations, it "makes" a new law with the force and effect of a valid law,
while when it renders an opinion or gives a statement of policy, it merely interprets a
pre-existing law (Parker, Administrative Law, p. 197; Davis Administrative Law, p.
194). Rules and regulations when promulgated in pursuance of the procedure or
authority conferred upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal sanction provided in
the law. This is so because statutes are usually couched in general terms, after
expressing the policy, purposes, objectives, remedies and sanctions intended by the
legislature. The details and the manner of carrying out the law are often times left to
the administrative agency entrusted with its enforcement. In this sense, it has been
said that rules and regulations are the product of a delegated power to create new or
additional legal provisions that have the effect of law. (Davis, op. cit. p. 194.)

A rule is binding on the courts as long as the procedure fixed for its promulgation is
followed and its scope is within the statutory authority granted by the legislature,
even if the courts are not in agreement with the policy stated therein or its innate
wisdom (Davis, op. cit. pp. 195-197). 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.  10

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends

upon whether the statute places specific 'sanctions' behind the regulations authorized, as for
example, by making it a criminal offense to disobey them, or by making conformity with their
provisions a condition of the exercise of legal privileges."   This is because interpretative regulations
11

are by nature simply statutory interpretations, which have behind them no statutory sanction. Such
regulations, whether so expressly authorized by statute or issued only as an incident of statutory
administration, merely embody administrative findings of law which are always subject to judicial
determination as to whether they are erroneous or not, even when their issuance is authorized by
statute.

The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making
powers under Section 245 of the National Internal Revenue Code, as amended. Exercising such
powers, petitioner re-classified "Hope," "More" and "Champion" cigarettes as locally manufactured
cigarettes bearing foreign brands. The re-classification, as previously explained, is the correct
interpretation of Section 142 (c) (1) of the said Code. The said legal provision is not accompanied by
any penal sanction, and no detail had to be filled in by petitioner. The basis for the classification of
cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the
government agency she heads, is to proceed to make the proper determination using the criterion
stipulated by the lawmaking body. In making the proper determination, petitioner gave it a liberal
construction consistent with the rule that revenue laws are to be construed in favor of the
Government whose survival depends on the contributions that taxpayers give to the public coffers
that finance public services and other governmental operations.

The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the
enforcement of the laws pertinent to this case and so, the opinion of the Commissioner of Internal
Revenue, in the absence of a clear showing that it is plainly wrong, is entitled to great weight. Private
respondent claims that its rights under previous interpretations of Section 142 (c) (1) may not
abruptly be cut by a new interpretation of the said section, but precisely the said section is subject to
various and changing construction, and hence, any ruling issued by petitioner thereon is necessarily
interpretative and not legislative. Private respondent insists that the questioned circular is
adjudicatory in nature because it determined the rights of private respondent in a controversy
involving his tax liability. It also asseverates that the questioned circular involved administrative
action that is particular and immediate, thereby rendering it subject to the requirements of notice and
hearing in compliance with the due process clause of the Constitution.

We find private respondent's arguments to be rather strained.

Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited

provisions in the National Internal Revenue Code, as amended. Such determination was an
interpretation by petitioner of the said legal provisions. If in the course of making the interpretation
and embodying the same in the questioned circular which the petitioner subsequently issued after
making such a determination, private respondent's cigarettes products, by their very nature of being
foreign brands as evidenced by their enlistment in the World Tobacco Directory, which is the
controlling basis for the proper classification of cigarettes as stipulated by the law itself, have come
to be classified as locally manufactured cigarettes bearing foreign brands and as such subject to a
tax rate higher than what was previously imposed thereupon based on past rulings of other revenue
commissioners, such a situation is simply a consequence of the performance by petitioner of here
duties under the law. No adjudication took place, much less was there any controversy ripe for
adjudication. The natural consequences of making a classification in accordance with law may not
be used by private respondent in arguing that the questioned circular is in fact adjudicatory in nature.
Such an exercise in driving home a point is illogical as it is fallacious and misplaced.

Private respondent concedes that under general rules of administrative law, "a ruling which is merely
'interpretative' in character may not require prior notice to affected parties before its issuance as well
as a hearing" and "for this reason, in most instances, interpretative regulations are not given the
force of law."   Indeed, "interpretative regulations and those merely internal in nature
12

. . . need not be published."   And it is now settled that only legislative regulations and not
13

interpretative rulings must have the benefit of public

hearing. 14

Because (1) the questioned circular merely embodied an interpretation or a way of reading and
giving meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2)
petitioner did not fill in any details in the aforecited section but only classified cigarettes on the basis
of the World Tobacco Directory in the light of the paramount principle of construing revenue laws in
favor of the Government to the end that Government collects as much tax money as it is entitled to
in order to fulfill its public purposes for the general good of its citizens; (3) no penal sanction is
provided in the aforecited section that was construed by petitioner in the questioned circular; and (4)
a similar circular declassifying copra from being an agricultural food to non-food product for
purposes of the value added tax laws, resulting in the revocation of an exemption previously enjoyed
by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative,
much less, an adjudicatory, action on the part of the revenue commissioner,   this Court must not be
15

blind to the fact that the questioned Circular is indeed an interpretative ruling not subject to notice
and hearing.

Neither is the questioned Circular tainted by a

violation of the equal protection clause under the
Constitution

Private respondent anchors its claim of violation of its equal protection rights upon the too obvious
fact that only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the
questioned circular. Because only the cigarettes that they manufacture are enumerated in the
questioned circular, private respondent proceeded to attack the same as being discriminatory
against it. On the surface, private respondent seems to have a point there. A scrutiny of the
questioned Circular, however, will show that it is undisputedly one of general application for all
cigarettes that are similarly situated as private respondent's brands. The new interpretation of
Section 142 (1) (c) has been well illustrated in its application upon private respondent's brands,
which illustration is properly a subject of the questioned Circular. Significantly, indicated as the
subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The
reclassification resulted in the foregrounding of private respondent's cigarette brands, which
incidentally is largely due to the controversy spawned no less by private respondent's own action of
conveniently changing its brand names to avoid falling under a classification that would subject it to
higher ad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his
initial determination that private respondent's cigarette brands are foreign brands. The consequent
specific mention of such brands in the questioned Circular, does not change the fact that the
questioned Circular has always been intended for and did cover, all cigarettes similarly situated as
"Hope," "More" and "Champion." Petitioner is thus correct in stating that:

. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or
not a locally manufactured cigarette bears a foreign brand using the cigarette brands
"Hope," More and "Champion" as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette brands
aforementioned. While it is true that only "Hope," "More" and "Champion" cigarettes
are actually determined as locally manufactured cigarettes bearing a foreign brand,
RMC 37-93 does not state that ONLY cigarettes fall under such classification to the
exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does
not exclude the coverage of other cigarettes similarly situated. Otherwise stated,
RMC 37-93 does not exclude the coverage of other cigarettes similarly situated as
locally manufactured cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93
is not discriminatory. 
16

Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned
Circular reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and
unenforceable and has rendered the assessment against private respondent of deficiency ad
valorem excise taxes to be without legal basis. The majority agrees with private respondent and
respondent Courts. As the foregoing opinion chronicles the fatal flaws in private respondent's
arguments, it becomes more apparent that the questioned Circular is in fact a valid and subsisting
interpretative ruling that the petitioner had power to promulgate and enforce.

WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals
and the Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of
Internal Revenue denying private respondent's request for a review, reconsideration and recall of
Revenue Memorandum Circular No. 37-93 dated July 1, 1993.

Padilla, J., concurs.

COMMISSIONER OF INTERNAL REVENUE v. HON. COURT OF

APPEALS, HON. COURT OF TAX APPEALS and FORTUNE
TOBACCO CORPORATION. G.R. No. 119761. August 29, 1996]
FACTS: 

Fortune Tobacco Corporation 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. 

The CIR initially classified 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in
the World Tobacco Directory as belonging to foreign companies. However, Fortune changed the
names of 'Hope' to Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands
from the foreign brand category. Fortune also submitted proof the BIR that 'Champion' was an
original register and therefore a local brand. Ad Valorem taxes were imposed on these brands. 

RA 7654 was passed in it was provided that 55% ad valorem tax will be imposed on local brands
carrying a foreign name. Two days before the effectivity of RA 7654, the BIR issued Revenue
Memorandum Circular No. 37-93,  in which Fortune was to be imposed 55% ad valorem tax on the
three brands classifying them as local brands carrying a foreign name.

Fortune filed a petition with the CTA which was granted finding the RMC as defective. The CIR filed
a motion for reconsideration with the CTA which was denied, then to the CA, an appeal, which was
also denied.

ISSUE: Whether the RMC was valid.

RULING:

NO. The RMC was made to place the three brands as locally made 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 RMC, the brands were subjected to
45% ad valorem tax. In so doing, the BIR not simply interpreted the law but 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.

The Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and
effective administrative issuance.
G.R. No. 114714 April 21, 1995

THE CONFERENCE OF MARITIME MANNING AGENCIES, INC., ALSTER INTERNATIONAL

SHIPPING, INC., CREAMSHIP MANAGEMENT INC., EL GRANDE SHIPPING CORP.,
EASTGATE (INT'L.) MARITIME AGENCIES, INC., FILIPINAS KALAYAAN OVERSEAS SHIPPING
CORP., INTERWORLD SHIPPING CORP., JZEL COMPANY, INC. , LAINE SHIPPING AGENCY
CORP., MARINERS SERVICES, CORP., MARITIME SERVICES & MGT., INC., MID OCEAN
(PHILS.) MARINE AGENCY, OCEAN EAST AGENCY CORP., PASIA-PHIL. GROUP, INC., PHIL.
MARINE CONSULTANT INC., SEASTAR MARINE SERVICES, INC., TSM SHIPPING (PHILS.)
INC., TRANS-MED (MANILA) CORPORATION, petitioners,
vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION, HON. NIEVES CONFESSOR AND
THE HON. FELICISIMO JOSON, respondent.

DAVIDE, JR., J.:

Petitioner Conference of Maritime Manning Agencies, Inc., an incorporated association of licensed

Filipino manning agencies, and its co-petitioners, all licensed manning agencies which hire and
recruit Filipino seamen for and in behalf of their respective foreign shipowner-principals, urge us to
annul Resolution No. 01, series of 1994, of the Governing Board" of the Philippine Overseas
Employment Administration (POEA) and POEA Memorandum Circular No. 05, series of 1994, on the
grounds that:

(1) The POEA does not have the power and authority to fix and
promulgate rates affecting death and workmen's compensation of
Filipino seamen working in ocean-going vessels; only Congress can.

(2) Even granting that the POEA has that power, it, nevertheless,
violated the standards for its exercise.

(3) The resolution and the memorandum circular are unconstitutional

because they violate the equal protection and non-impairment of
obligation of contracts clauses of the Constitution.

(4) The resolution and the memorandum circular are not, valid acts of
the Governing Board because the private sector representative
mandated by law has not been appointed by the President since the
creation of the POEA.

Governing Board Resolution No. 01, issued on 14 January 1994,  read as follows:
1

GOVERNING RESOLUTION NO. 01 SERIES OF 1994.

WHEREAS, it is the policy of the Administration to afford protection to Filipino

overseas contract workers, including seafarers and their families, promote their
interest and safeguard their welfare;
WHEREAS, the Administration under its mandate has the power and function to
secure the best terms and conditions of employment of Filipino contract workers land
ensure compliance therewith;

WHEREAS, the minimum compensation and other benefits in cases of death,

disability and loss or damage to crew's effects provided under the POEA Standard
Employment Contract for seafarers which was revised in 1989 are now becoming
very much lesser than the prevailing international standards and those given to
unionized seafarers as provided by their collective bargaining agreements;

WHEREAS, the Tripartite Technical Working Group convened for the purpose of
deliberating the compensation and benefits provided under the POEA Standard
Employment Contract for seafarers has recommended for the upgrading of the said
compensation and benefits;

WHEREAS, for the interest of Filipino seafarers and their families, there is an urgent
need to improve and realign the minimum compensation and other benefits provided
under the POEA Standard Employment Contract for seafarers in order to keep them
at par with prevailing international standards and those provided under collective
bargaining agreements.

NOW, THEREFORE, the POEA Governing Board, in a meeting duly convened,

hereby resolves to amend and increase the compensation and other benefits as
specified under Part II, Section. C, paragraph 1 and Section L, paragraphs 1 and 2 of
the POEA Standard Employment Contract for Seafarers which shall henceforth read
as follows:

I. Section C. COMPENSATION AND BENEFITS

1. In case of death of the seaman during the term of his Contract, the
employer shall pay his beneficiaries the Philippine Currency
equivalent to the amount of US$50,000 and an additional amount of
US$7,000 to each child under the age of twenty-one (21) but not
exceeding four children at the exchange rate prevailing during the
time of payment.

Where the death is caused by warlike activity while sailing within a

declared warzone or war risk area, the compensation payable shall
be doubled. The employer shall undertake appropriate warzone
insurance coverage for this purpose.

xxx xxx xxx

III. The maximum rate provided under Appendix I-A shall likewise be
adjusted to US$50,000 regardless of rank and position of the
seafarer.

IV. Upon effectivity, the new compensation and other benefits herein
provided shall apply to any Filipino seafarer on board any vessel,
provided, that the cause of action occurs after this Resolation takes
effect.
 V. This Resolution shall take effect after sixty (60) days from
publication in a newspaper of general circulation.

Memorandum Circular No. 05, issued on 19 January 1994  by POEA Administrator Felicisimo Joson
2

and addressed to all Filipino seafarers, manning agencies, shipownersl managers and principals
hiring Filipino seafarers, informed them .that Governing Board Resolution No. 01 adjusted the rates
of compensation and other benefits in Part II, Section C. paragraph 1; Section L, paragraphs 1 and
2; and Appendix 1-A of the POEA Standard Employment Contracts for Seafarers, which adjustments
took effect on 20 March 1994, and that:

VI. Upon effectivity, the new compensation and other benefits shall
apply to any Filipino seafarer already on-board any vessel provided,
that the case of action occurs after the said compensation and
benefits take effect;

The Tripartite Technical Working Group mentioned in the Resolution, which convened on 7 January
1994, was composed of the following:

1. DA Crescencio M. Siddayao, POEA

2. Dir. Angeles T. Wong, POEA
3. Dir. Jaime P. Jimenez; POEA
4. Dir. Lorna O. Fajardo, POEA
5. OIC Salome Mendoza, POEA
6. Capt. Gregorio Oca, AMOSUP
7. Atty, Romeo Occena, PSU-ALUI-TUCP
8. Mr. Vicente Aldanese, FAME
9. Capt. Emmanuel L. Regio, PAMSS
10. Atty. Rexlito Bermudez, COMMA
11. Atty. Alexandro W. Cruje, POEA
12 Hr. Jay Rosauro Baluyot, POEA
13. Ms. Magdalena Sarcos, POEA
14. Atty. Augusto Arreza, FSA 3

In their, comment. the public respondents contend that the petition is without merit and should de
dismissed because (a) the issuance of the challenged resolution and memorandum circular was a
valid exercise of the POEA's rule-making authority or power of subordinate legislation which this
Court had sustained in Eastern Shipping Lines, Inc. vs. POEA;  (b) the "non-appointment" of the third
4

member of the Governing Board bees not necessarily invalidate the acts of the Board, for it has
been functioning "under the advisement of t the Tripartite Technical Working Group which group is
incidentally constituted by the private sector, i.e., seafarer employers and/or associations of manning
agencies including herein petitioner," for which reason "the third member complement . . . has been
substantially represented by said technical working group";  and(d) the consensus on the increase in
5

the rates of compensation and other benefits was arrived at after appropriate consultations with the
shipowners and the private sector; the Board therefore soundly exercised its discretion.

In view of the importance of the issues raised, we gave due course to the petition and required the
parties to submit their respective memoranda. The petitioners while the public respondents opted to
adopt their comment as their memorandum.

The constitutional challenge of the rule-making power of the POEA-based on impermissible

delegation of legislative power had been, as correctly contented by the public respondents, brushed
aside by this Court in Eastern Shipping Lines, Inc. vs. POEA.  The petitioner in that , case assailed
6
the constitutionality of Memorandum Circular No. 02 of the POEA (effective February 1984) which
prescribed a standard contract to be adopted by both foreign and domestic shipping companies in
the hiring of Filipino seamen for overseas. The challenged resolution and memorandum overseas
employment circular here merely further amended Memorandum Circular No. 02, which was earlier
amended in 1989 per Memorandum Circular No. 41, 7 series of 1989.

In sustaining the rule-making authority of the POEA and in holding against the
claimed infirmity of delegation of legislative power, Eastern first considered the
history of the charter of the POEA and then discussed separately the above
constitutional issues thus:

[T]he petitioner questions the validity of Memorandum Circular No. 2 itself as

violative of the principle of non-delegation of legislative power. It contends that no
authority had been given the POEA to promulgate the said regulation; and even with
such authorization, the regulation represents an exercise of legislative discretion
which, under the principle, is not subject to delegation.

The authority to issue the said regulation is clearly provided in Section 4(a) of
Executive Order No. 797, reading as follows:

. . . The governing Board of the Administration (POEA), as hereunder provided, shall

promulgate the necessary rules and regulations to govern the exercise of the
adjudicatory functions of the Administration (POEA).

Similar authorization had been granted the National Seamen Board, which, as earlier
observed, had itself prescribed a standard shipping contract substantially the same
as the format adopted by the POEA.

The second challenge is more serious as it is true that legislative discretion as to the
substantive contents of the law cannot be delegated. What can be delegated is the
discretion to determine how the law may been forced, not what the law shall be. The
ascertainment of the latter subject is a prerogative of the legislature. This prerogative
cannot be abdicated or surrendered by the legislature to the delegate. . . .

...

The principle, of non-delegation of powers is applicable to all the three major powers
of the Government but is especially important in the case of the legislative power
because of the many instances when delegation is permitted. The occasions are rare
when executive or judicial powers have to be delegated by the authorities to which
they legally pertain. In the case of legislative power, however, such occasions have
become more and more frequent, if not necessary. This had led to the observation
that the delegation of legislative power has become the rule and its non-delegation
the exception.

The reason is the increasing complexity of the task of government and the growing
inability of the legislature to cope directly with the myriad problems demanding its
attention. The growth of society has ramified its activities and created peculiar and
sophisticated problems that the legislature cannot be expected reasonably to
comprehend. Specialization even in legislation has become necessary. To many of
the problems attendant upon present-day undertakings, the legislature may not have
the competence to provide the required direct and efficacious not to say, specific
 solutions. These solutions may, however, be expected from its delegates, who are
supposed to be experts in the particular fields assigned to them.

The reasons given above for the delegation of legislative powers in general are
particularly applicable to administrative bodies. With the proliferation of specialized
activities and their attendant peculiar problems, the national legislature has found it
more and more necessary to entrust to administrative agencies the authority to issue
rules to carry out the general provisions of the statute. This is called the "power of
subordinate legislation."

With this power, administrative bodies may implement the broad policies laid down in
a statute by "filling in" the details which the Congress may not have the opportunity
or competence to provide. This is effected by their promulgation of what are known
as supplementary regulations, such as the implementing rules issued by the
Department of Labor on the new Labor Code. These regulations have the force and
effect of law.

...

Memorandum Circular No. 2 is one such administrative regulation. The podel

contract prescribed thereby has been applied in a significant number of the cases
without challenge by the employer. The power of the POEA, (and before it the
National Seamen Board) in requiring the model contract is not unlimited as there is a
sufficient standard guiding the delegate in the exercise of the said authority. That
standard is discoverable in the executive order itself which, in creating the Philippine
Overseas Employment Administration, mandated it to protect the rights of overseas
Filipino workers to "fair and equitable employment practices.8

The POEA mandate referred to as providing the reasonable standard for the exercise of the POEA's rule-making authority is found in the
statement of powers and functions of the said office in paragraph (a), Section 4 of E.O. 797, to wit:

(a) The Administration shall formulate and undertake in coordination where

necessary with the appropriate entities concerned, a systematic program for
promoting and monitoring the overseas employment of Filipino workers taking into
consideration domestic manpower requirements, and to protect their rights to fair and
equitable employment practices. It shall have original and exclusive jurisdiction over
all cases, including money claims, involving employer-employee relations arising out
of or by virtue of any law or contract involving Filipino workers for overseas
employment, including seamen. This adjudicatory function shall be, undertaken in
appropriate circumstances in consultation with the Construction Industry Authority of
the Philippines. The governing Board of the Administration, as hereinunder provided,
shall promulgate the necessary rules and regulations to govern the exercise of the
adjudicatory functions of the Administration.

It is, of course, well established in our jurisdiction that, while the making of laws is a non-delegable
power that pertains exclusively to Congress, nevertheless, the latter may constitutionally delegate
the authority to promulgate rules and regulations to implement a given legislation and effectuate its
policies, for the reason that the legislature finds it impracticable, if not impossible, to anticipate
situations that may be met in carrying the law into effect. All that is required is that the regulation
should be germane to the objects and purposes of the law; that the regulation be not in contradiction
to but in conformity with the standards prescribed by the law.  This is the principle of subordinate
9

legislation which was discussed by this Court in People vs. Rosenthal   and in Pangasinan 10

Transportation vs. Public Service Commission.  Thus in Calalang vs. Williams,   this Court stated:
11 12
 In the case of People vs. Rosenthal and Osmeña, G.R. Nos. 46076 and 46077,
promulgated June 12, 1939, and in Pangasinan Transportation vs. The Public
Service Commission, G.R. No. 47065, promulgated June 26, 1940, this Court had
occasion to observe that the principle of separation of powers has been made to
adapt itself to the complexities of modern governments, giving rise to the adoption,
within certain limits, of the principle of "subordinate legislation" not only in the United
States and England but in practically all modern governments. Accordingly, with the
growing complexity of modern life, the multiplication of the subjects of governmental
regulations, and the increased difficulty of administering the laws, the rigidity of the
theory of separation of governmental powers has, to a large extent, been relaxed by
permitting the delegation of greater powers by the legislative and vesting a larger
amount of discretion in administrative and executive officials, not only in the
execution of the laws, but also in the promulgation of certain rules and regulations
calculated to promote public interest.

That the challenged resolution and memorandum circular, which merely further amended the
previous Memorandum Circular No. 02, strictly conform to the sufficient and valid standard of "fair
and equitable employment practices" prescribed in E.O. No. 797 can no longer be disputed.  13

There is, as well, no merit to the claim that the assailed resolution and memorandum circular violate
the equal protection and contract clauses of the Constitution. To support its contention of in equality,
the petitioners claim discrimination against foreign shipowners and principals employing Filipino
seamen and in favor of foreign employers employing overseas Filipinos who are not seamen. It is an
established principle of constitutional law that the guaranty of equal protection of the laws is not
violated by legislation based on reasonable classification. And for the classification to be reasonable,
it (1) must rest on substantial distinctions; (2) must be germane to the purpose of the law; (3) must
not be limited to existing conditions only; and (4) must apply equally to all members of the same
class.   There can be no dispute about the dissimilarities between land-based and sea-based
14

Filipino overseas workers in terms of, among other things, work environment, safety, dangers and
risks to life and limb, and accessibility to social, civic, and spiritual activities.

Nor is there-merit; in the claim that the resolution and memorandum circular violate the contract
clause of the Bill of Rights.

The executive order creating the POEA was enacted to further implement the social justice
provisions of the 1973. Constitution, which have been greatly enhanced and expanded in the 1987
Constitution by placing them under a separate Article.   The Article on Social Justice was aptly
15

described as the "heart of the new Charter" by the President of the 1986 Constitution Commission,
retired Justice-Cecilia Muñoz-Palma.   Social justice is identified with the broad scope of the police
16

power of the state and requires the extensive use of such power.   In Calalang vs. Williams,   this.
17 18

Court, speaking through Justice Jose P. Laurel, expounded on social justice thus:

Social justice is "neither communism, nor despotism, nor atomism, nor anarchy," but
the Humanization of laws and the equalization of social and economic forces by the
State so that justice in its rational and objectively secular conception may at least be
approximated. Social justice means the promotion of the welfare of all the people, the
adoption by the Government of measures calculated to insure economic stability of
all the competent elements of society, through the maintenance of a proper
economic and social equilibrium in the interrelations of the members of the
community, constitutionally, through the adoption of measures legally justifiable, or
extra-constitutionally, through the exercise of powers underlying the existence of all
governments on the time-honored principle of salus populi est suprema lex.
 Social justice, therefore, must be founded on the recognition of the necessity of
interdependence among divers and diverse units of a society and of the protection
that should be equally and evenly extended to all groups as a combined force in our
social and economic life, consistent with the fundamental and paramount objective of
the state of promoting the health, comfort, and quiet of all persons, and of bringing
about "the greatest good to the greatest number."

The constitutional prohibition against impairing contractual obligations is not absolute and is not to
be read with literal exactness . It is restricted to contracts with respect to property or some object of
value and which confer rights that maybe asserted in a court of justice; it has no application to
statutes relating to public subjects within the domain of the general legislative powers of the State
and involving the public rights and public welfare of the entire community affected by it. It does not
prevent a proper exercise by the State of its police power by enacting regulations reasonably
necessary to secure the health, safety, morals; comfort, or general welfare of the community, even
though contracts may thereby be affected, for such matters cannot be placed by contract beyond the
power of the State to regulate and control them.  19

Verily, the freedom to contract is not absolute; all contracts and all rights are subject to the police
power of the State and not only may regulations which affect them be established by the State, but
all such regulations must be subject to change from time to time, as the general, well-being of the
community may require, or as the circumstances may change, or as experience may demonstrate
the necessity.   And under the Civil Code, contracts of labor are explicitly subject to the police power
20

of the State because they are not ordinary contracts but are impresses with public interest. Article
1700 thereof expressly provides:

Art. 1700. The relations between capital and labor are not merely contractual. They
are so impressed with public interest that labor contracts lust yield to the common
good. Therefore, such contracts are subject to the special laws on labor unions,
collective bargaining, strikes and lockouts, closed shop, wages, working conditions,
hours of labor and similar subjects.

The challenged resolution and memorandum circular being valid implementations of E.O. No. 797,
which was enacted under the police power of the State, they cannot be struck down on the ground
that they violate the contract clause. To hold otherwise is to alter long-established constitutional
doctrine and to subordinate the police power to the contract clause.

The last issue concerns the contention that without the appointment by the President of the third
member of the governing board, the POEA cannot legally function and exercise its powers. This
contention merits scant consideration. Section 4 of E.O. No. 797 indubitably declares the immediate
creation of the POEA. Thus upon the effectivity of E.O. No. 797, the POEA attained its juridical
personality. The appointment of the third member "who shall be well versed, in the field of overseas
employment," provided for in paragraph (b) of the said Section, was not meant to be a sine gua non
to the birth of the POEA, much less to the validity of the acts of the Board. As a matter of fact, in the
same paragraph the President is given the "discretion [to] designate a Deputy Administrator as the
third member of the Board."

WHEREFORE, for lack of merit, the instant petition is DISMISSED with costs against the petitioners.

SO ORDERED.

Padilla, Bellosillo, Quiason and Kapunan, JJ., concur.

CONFERENCE OF MARITIME MANNING AGENCIES v. PHILIPPINE OVERSEAS
EMPLOYMENT ADMINISTRATION, GR No. 114714, 1995-04-21
Facts:
Maritime Manning Agencies, Inc., an incorporated association of licensed Filipino manning
agencies... all licensed manning agencies which hire and recruit Filipino seamen for and in
behalf of their respective... foreign shipowner-principals, urge us to annul Resolution No. 01,
series of 1994, of the Governing Board of the Philippine Overseas Employment
Administration (POEA) and POEA Memorandum Circular No. 05, series of 1994... grounds
(1)
The POEA does not have the power and authority to fix and promulgate rates affecting
death and workmen's compensation of Filipino seamen working in ocean-going vessels;
only Congress can.
(2)
Even granting that the POEA has that power, it, nevertheless, violated the standards for its
exercise.
(3)
The resolution and the memorandum circular are unconstitutional because they violate the
equal protection and non-impairment of obligation of contracts clauses of the Constitution.
(4)
The resolution and the memorandum circular are not valid acts of the Governing Board
because the private sector representative mandated by law has not been appointed by the
President since the creation of the POEA.
amend and increase the compensation and other benefits
In case of death of the seaman during the term of his Contract, the employer shall pay his
beneficiaries the Philippine Currency equivalent to the amount of US$50,000 and an
additional amount of US$7,000 to each child under the age of twenty-one (21) but... not
exceeding four children at the exchange rate prevailing during the time of payment.
Where the death is caused by warlike activity while sailing within a declared warzone or war
risk area, the compensation payable shall be doubled. The employer shall undertake
appropriate warzone insurance coverage for this purpose."
POEA Administrator Felicisimo Joson and addressed to all Filipino seafarers, manning
agencies, shipowners, managers and principals hiring Filipino seafarers, informed them that
Governing Board
Resolution No. 01 adjusted the rates of compensation and other benefits... public
respondents contend that the petition is without merit and should be dismissed because (a)
the issuance of the challenged resolution and memorandum circular was a valid exercise of
the POEA's rule-making authority or power of subordinate legislation... which this Court had
sustained in Eastern Shipping Lines, Inc. vs. POEA[4] (b) the "non-appointment" of the third
member of the Governing Board does not necessarily invalidate the acts of the Board, for it
has been functioning "under the advisement... of the Tripartite Technical Working Group
which group is incidentally constituted by the private sector, i.e., seafarer employers and/or
associations of manning agencies including herein petitioner," for which reason "the third
member complement ... has been substantially... represented by said technical working
group";[5] and (c) the consensus on the increase in the rates of compensation and other
benefits was arrived at after appropriate consultations with the shipowners and the private
sector; the Board therefore soundly... exercised its discretion.
Issues:
the constitutionality of Memorandum Circular No. 02 of the POEA (effective 1 February
1984) which prescribed a standard contract to be adopted by both foreign and domestic
shipping companies in the hiring of Filipino seamen for... overseas employment... the
validity of Memorandum Circular No. 2 itself as violative of the principle of non-delegation of
legislative power.
Ruling:
Memorandum Circular No. 2 is one such administrative regulation.  The model contract
prescribed thereby has been applied in a significant number of the cases without challenge
by the employer.  The power of the POEA (and before it the National Seamen Board) in...
requiring the model contract is not unlimited as there is a sufficient standard guiding the
delegate in the exercise of the said authority.  That standard is discoverable in the executive
order itself which, in creating the Philippine Overseas Employment Administration,...
mandated it to protect the rights of overseas Filipino workers to "fair and equitable
employment practices."... instant petition is DISMISSED
Principles:
t legislative discretion as to the substantive contents of the law cannot be delegated.  What
can be delegated is the discretion to determine how the law may be enforced, not what the
law shall be.
The principle of non-delegation of powers is applicable to all the three major powers of the
Government but is especially important in the case of the legislative power because of the
many instances when its delegation is permitted.  The occasions are rare when executive
or... judicial powers have to be delegated by the authorities to which they legally pertain.  In
the case of legislative power, however, such occasions have become more and more
frequent, if not necessary.  This had led to the observation that the delegation of
legislative... power has become the rule and its non-delegation the exception.
the increasing complexity of the task of government and the growing inability of the
legislature to cope directly with the myriad problems demanding its attention.  The growth of
society has ramified its activities and created peculiar and sophisticated... problems that the
legislature cannot be expected reasonably to comprehend.  Specialization even in
legislation has become necessary.  To many of the problems attendant upon present-day
undertakings, the legislature may not have the competence to provide the required... direct
and efficacious, not to say, specific solutions.  These solutions may, however, be expected
from its delegates, who are supposed to be experts in the particular fields assigned to them.
With the proliferation of specialized activities and their attendant peculiar problems, the
national legislature has found it more and more... necessary to entrust to administrative
agencies the authority to issue rules to carry out the general provisions of the statute.  This
is called the "power of subordinate legislation."
With this power, administrative bodies may implement the broad policies laid down in a
statute by "filling in" the details which the Congress may not have the opportunity or
competence to provide.  This is effected by their promulgation of what are known as
supplementary... regulations, such as the implementing rules issued by the Department of
Labor on the new Labor Code.  These regulations have the force and effect of law.
It is, of course, well established in our jurisdiction that, while the making of laws is a non-
delegable power that pertains exclusively to Congress, nevertheless, the latter may
constitutionally delegate the authority to promulgate rules and regulations to implement a
given... legislation and effectuate its policies, for the reason that the legislature finds it
impracticable, if not impossible, to anticipate situations that may be met in carrying the law
into effect.  All that is required is that the regulation should be germane to the objects... and
purposes of the law; that the regulation be not in contradiction to but in conformity with the
standards prescribed by the law.
The executive order creating the POEA was enacted to further implement the social justice
provisions of the 1973 Constitution, which have been greatly enhanced and expanded in the
1987 Constitution by placing them under a separate Article
The challenged resolution and memorandum circular being valid implementations of E.O.
797, which was enacted under the police power of the State, they cannot be struck down on
the ground that they violate the contract clause.  To hold otherwise is to alter long-
established... constitutional doctrine and to subordinate the police power to the contract
clause.
G.R. No. 190837               March 5, 2014

REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF FOOD AND DRUGS (now
FOOD AND DRUG ADMINISTRATION), Petitioner,
vs.
DRUGMAKER'S LABORATORIES, INC. and TERRAMEDIC, INC., Respondents.

DECISION

PERLAS-BERNABE, J.:

This is a direct recourse to the Court from the Regional Trial Court of Muntinlupa City, Branch 256
(RTC), through a petition for review on certiorari,  raising a pure question of law. In particular,
1

petitioner Republic of the Philippines, represented by the Bureau.of Food and Drugs (BFAD), now
Food and Drug Administration (FDA), assails the Order  dated December 18, 2009 of the RTC in
2

Civil Case No. 08-124 which: (a) declared BF AD Circular Nos. 1 and 8, series of 1997 (Circular
Nos. 1 and 8, s. 1997) null and void; (b) ordered the issuance of writs of permanent injunction and
prohibition against the FDA in implementing the aforesaid circulars; and ( c) directed the FDA to
issue Certificates of Product Registration (CPR) in favor of respondents Drugmaker's Laboratories,
Inc. and Terrarriedic, Inc. (respondents).

The Facts

The FDA  was created pursuant to Republic Act No. (RA) 3720,  otherwise known as the "Food,
3 4

Drug, and Cosmetic Act," primarily in order "to establish safety or efficacy standards and quality
measures for foods, drugs and devices, and cosmetic product[s]."  On March 15, 1989, the
5

Department of Health (DOH), thru then-Secretary Alfredo R.A. Bengzon, issued Administrative Order
No. (AO) 67, s. 1989, entitled "Revised Rules and Regulations on Registration of Pharmaceutical
Products." Among others, it required drug manufacturers to register certain drug and medicine
products with the FDA before they may release the same to the market for sale. In this relation, a
satisfactory bioavailability /bioequivalence  (BA/BE) test is needed for a manufacturer to secure a
6 7

CPR for these products. However, the implementation of the BA/BE testing requirement was put on
hold because there was no local facility capable of conducting the same. The issuance of Circular
No. 1, s. 1997  resumed the FDA’s implementation of the BA/BE testing requirement with the
8

establishment of BA/BE testing facilities in the country. Thereafter, the FDA issued Circular No. 8, s.
1997  which provided additional implementation details concerning the BA/BE testing requirement on
9

drug products. 10

Respondents manufacture and trade a "multisource pharmaceutical product"  with the generic name
11

of rifampicin  – branded as "Refam 200mg/5mL Suspension" (Refam) – for the treatment of adults
12

and children suffering from pulmonary and extra-pulmonary tuberculosis.  On November 15, 1996,
13

respondents applied for and were issued a CPR for such drug, valid for five (5) years, or until
November 15, 2001.  At the time of the CPR’s issuance, Refam did not undergo BA/BE testing since
14

there was still no facility capable of conducting BA/BE testing. Sometime in 2001, respondents
applied for and were granted numerous yearly renewals of their CPR for Refam, which lasted until
November 15, 2006, albeit with the condition that they submit satisfactory BA/BE test results for said
drug.15

Accordingly, respondents engaged the services of the University of the Philippines’ (Manila)
Department of Pharmacology and Toxicology, College of Medicine to conduct BA/BE testing on
Refam, the results of which were submitted to the FDA.  In turn, the FDA sent a letter dated July 31,
16
2006 to respondents, stating that Refam is "not bioequivalent with the reference drug."  This
17

notwithstanding, the FDA still revalidated respondents’ CPR for Refam two (2) more times, effective
until November 15, 2008, the second of which came with a warning that no more further
revalidations shall be granted until respondents submit satisfactory BA/BE test results for Refam. 18

Instead of submitting satisfactory BA/BE test results for Refam, respondents filed a petition for
prohibition and annulment of Circular Nos. 1 and 8, s. 1997 before the RTC, alleging that it is the
DOH, and not the FDA, which was granted the authority to issue and implement rules concerning RA
3720. As such, the issuance of the aforesaid circulars and the manner of their promulgation
contravened the law and the Constitution.  They further averred that that the non-renewal of the
19

CPR due to failure to submit satisfactory BA/BE test results would not only affect Refam, but their
other products as well.
20

During the pendency of the case, RA 9711,  otherwise known as the "Food and Drug Administration
21

[FDA] Act of 2009," was enacted into law.

The RTC Ruling

In an Order  dated December 18, 2009, the RTC ruled in favor of respondents, and thereby declared
22

Circular Nos. 1 and 8, s. 1997 null and void, ordered the issuance of writs of permanent injunction
and prohibition against the FDA in implementing the aforesaid circulars, and directed the FDA to
issue CPRs in favor of respondents’ products.

The RTC held that there is nothing in RA 3720 which granted either the FDA the authority to issue
and implement the subject circulars, or the Secretary of Health the authority to delegate his powers
to the FDA. For these reasons, it concluded that the issuance of Circular Nos. 1 and 8, s.

1997 constituted an illegal exercise of legislative and administrative powers and, hence, must be
struck down. 23

Accordingly, the RTC issued a Writ of Permanent Injunction  dated January 19, 2010, enjoining the
24

FDA and all persons acting for and under it from enforcing Circular Nos. 1 and 8, s. 1997 and
directing them to approve the renewal and revalidation of respondents’ products without submitting
satisfactory BA/BE test results.

Aggrieved, the FDA sought direct recourse to the Court through the instant petition with an urgent
prayer for the immediate issuance of a temporary restraining order and/or a writ of preliminary
injunction against the implementation of the RTC’s Order dated December 18, 2009 and Writ of
Permanent Injunction dated January 19, 2010.  The Court granted FDA’s application and issued a
25

Temporary Restraining Order  dated February 24, 2010, effective immediately and continuing until
26

further orders.

The Issue Before the Court

The primordial issue in this case is whether or not the FDA may validly issue and implement Circular
Nos. 1 and 8, s. 1997. In resolving this issue, there is a need to determine whether or not the
aforesaid circulars partake of administrative rules and regulations and, as such, must comply with
the requirements of the law for its issuance.
The FDA contends that it has the authority to issue Circular Nos. 1 and 8, s. 1997 as it is the agency
mandated by law to administer and enforce laws, including rules and regulations issued by the DOH,
that pertain to the registration of pharmaceutical products.
27

For their part, respondents maintain that under RA 3720, the power to make rules to implement the
law is lodged with the Secretary of Health, not with the FDA.  They also argue that the assailed
28

circulars are void for lack of prior hearing, consultation, and publication.
29

The Court’s Ruling

The petition is meritorious.

Administrative agencies may exercise quasi-legislative or rule-making powers only if there exists a
law which delegates these powers to them. Accordingly, the rules so promulgated must be within the
confines of the granting statute and must involve no discretion as to what the law shall be, but
merely the authority to fix the details in the execution or enforcement of the policy set out in the law
itself, so as to conform with the doctrine of separation of powers and, as an adjunct, the doctrine of
non-delegability of legislative power.
30

An administrative regulation may be classified as a legislative rule, an interpretative rule, or a

contingent rule. Legislative rules are in the nature of subordinate legislation and designed to
implement a primary legislation by providing the details thereof.  They usually implement existing
31

law, imposing general, extra-statutory obligations pursuant to authority properly delegated by

Congress  and effect a change in existing law or policy which affects individual rights and
32

obligations.  Meanwhile, interpretative rules are intended to interpret, clarify or explain existing
33

statutory regulations under which the administrative body operates. Their purpose or objective is
merely to construe the statute being administered and purport to do no more than interpret the
statute. Simply, they try to say what the statute means and refer to no single person or party in
particular but concern all those belonging to the same class which may be covered by the said
rules.  Finally, contingent rules are those issued by an administrative authority based on the
34

existence of certain facts or things upon which the enforcement of the law depends. 35

In general, an administrative regulation needs to comply with the requirements laid down by
Executive Order No. 292, s. 1987, otherwise known as the "Administrative Code of 1987," on prior
notice, hearing, and publication in order to be valid and binding, except when the same is merely an
interpretative rule. This is because "[w]hen an administrative rule is merely interpretative in nature,
its applicability needs nothing further than its bare issuance, for it gives no real consequence more
than what the law itself has already prescribed. When, on the other hand, the administrative rule
goes beyond merely providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially increases the burden of those governed, it behooves the
agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly
informed, before that new issuance is given the force and effect of law." 36

In the case at bar, it is undisputed that RA 3720, as amended by Executive Order No. 175, s.
1987  prohibits, inter alia, the manufacture and sale of pharmaceutical products without obtaining
37

the proper CPR from the FDA.  In this regard, the FDA has been deputized by the same law to
38

accept applications for registration of pharmaceuticals and, after due course, grant or reject such
applications.  To this end, the said law expressly authorized the Secretary of Health, upon the
39

recommendation of the FDA Director, to issue rules and regulations that pertain to the registration of
pharmaceutical products. 40
In accordance with his rule-making power under RA 3720, the Secretary of Health issued AO 67, s.
1989 in order to provide a comprehensive set of guidelines covering the registration of
pharmaceutical products. AO 67, s. 1989, required, among others, that certain pharmaceutical
products undergo BA/BE testing prior to the issuance of CPR, contrary to respondents’ assertion
that it was Circular Nos. 1 and 8, s. 1997 that required such tests.
41

Despite the fact that the BA/BE testing requirement was already in place as early as the date of
effectivity of AO 67, s. 1989, its implementation was indefinitely shelved due to lack of facilities
capable of conducting the same. It was only sometime in 1997 when technological advances in the
country paved the way for the establishment of BA/BE testing facilities, thus allowing the rule’s
enforcement. Owing to these developments, the FDA (then, the BFAD) issued Circular No. 1, s.
1997, the full text of which reads:

In Annex 1 of A.O. 67 s. 1989 which is entitled Requirement for Registration provides that
"Bioavailability/Bioequivalence study for certain drugs as determined by BFAD" is required for [(i)]
Tried and Tested Drug, (ii) Established Drug, and (iii) Pharmaceutical Innovation of Tried and Tested
or Established Drug.

Drugs requiring strict precaution in prescribing and dispensing contained in the List-B (Prime) were
the drugs identified by BFAD in the process of registration that will be required
"Bioavailability/Bioequivalence" studies. However, due to the supervening factor that there had yet
been no bioavailability testing unit in the country when the A.O. 67 s. 1989 became effective, the
Bureau did not strictly enforce the said requirement.

The supervening factor no longer exist [sic] as of date. As a matter of fact, one of the registered
products tested by the Bioavailability Testing Unit at the University of Sto. Tomas under the NDP
Cooperation Project of the Philippines and Australia failed to meet the standard of bioavailability.
This finding brings forth the fact that there may be registered products which do not or may no longer
meet bioavailability standard.

Wherefore, all drugs manufacturers, traders, distributor-importers of products contained or identified

in the list b’ (prime) provided for by BFAD, a copy of which is made part of this circular, are advised
that all pending initial and renewal registration of the products aforementioned, as well as all
applications for initial and renewal registration of the same, shall henceforth be required to submit
bioavailability test with satisfactory results on the products sought to be registered or renewed
conducted by any bioavailability testing units here or abroad, duly recognized by the BFAD under the
Dept. of Health.  (Emphases and underscoring supplied)
1âwphi1

The FDA then issued Circular No. 8, s. 1997 to supplement Circular No. 1, s. 1997 in that it
reiterates the importance of the BA/BE testing requirement originally provided for by AO 67, s.
1989.1âwphi1

A careful scrutiny of the foregoing issuances would reveal that AO 67, s. 1989 is actually the rule
that originally introduced the BA/BE testing requirement as a component of applications for the
issuance of CPRs covering certain pharmaceutical products. As such, it is considered an
administrative regulation – a legislative rule to be exact – issued by the Secretary of Health in
consonance with the express authority granted to him by RA 3720 to implement the statutory
mandate that all drugs and devices should first be registered with the FDA prior to their manufacture
and sale. Considering that neither party contested the validity of its issuance, the Court deems that
AO 67, s. 1989 complied with the requirements of prior hearing, notice, and publication pursuant to
the presumption of regularity accorded to the government in the exercise of its official duties.
42
On the other hand, Circular Nos. 1 and 8, s. 1997 cannot be considered as administrative
regulations because they do not: (a) implement a primary legislation by providing the details thereof;
(b) interpret, clarify, or explain existing statutory regulations under which the FDA operates; and/or
(c) ascertain the existence of certain facts or things upon which the enforcement of RA 3720
depends. In fact, the only purpose of these circulars is for the FDA to administer and supervise the
implementation of the provisions of AO 67, s. 1989, including those covering the BA/BE testing
requirement, consistent with and pursuant to RA 3720.  Therefore, the FDA has sufficient authority
43

to issue the said circulars and since they would not affect the substantive rights of the parties that
they seek to govern – as they are not, strictly speaking, administrative regulations in the first place –
no prior hearing, consultation, and publication are needed for their validity.

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

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

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

SO ORDERED.

REPUBLIC v. DRUGMAKER’S LABORATORIES, GR No. 190837, 2014-03-05

Facts:
This is a direct recourse to the Court from the Regional Trial Court of Muntinlupa City,
Branch 256 (RTC), through a petition for review on certiorari,... raising a pure question of
law. In particular, petitioner Republic of the
Philippines, represented by the Bureau of Food and Drugs (BFAD), now Food and Drug
Administration (FDA)... assails the Order[2] dated December 18, 2009 of the RTC in Civil
Case No. 08-124 which: (a) declared BFAD Circular Nos. 1 and 8, series of 1997
(Circular Nos. 1 and 8, s. 1997) null and void; (b) ordered the issuance of writs of
permanent injunction and prohibition against the FDA in implementing the aforesaid
circulars; and (c) directed the FDA to issue Certificates of Product Registration (CPR) in
favor... of respondents Drugmaker's Laboratories, Inc. and Terramedic, Inc. (respondents).
was created pursuant to Republic Act No. (RA) 3720,... otherwise known as the "Food,
Drug, and Cosmetic Act," primarily in order "to establish safety or efficacy standards and
quality measures for foods, drugs and devices,... and cosmetic product[s]."
On March 15, 1989, the Department of Health (DOH), thru then-Secretary Alfredo R.A.
Bengzon, issued Administrative Order No. (AO) 67, s. 1989, entitled "Revised Rules and
Regulations on Registration of Pharmaceutical Products."
Among others, it required drug manufacturers to register certain drug and medicine
products with the FDA before they may release the same to the market for sale.
(BA/BE) test is needed for a manufacturer to secure a CPR for these products. However,
the implementation of the BA/BE testing requirement was put on hold because there was no
local facility capable of conducting the same.
The issuance of Circular No. 1, s. 1997... resumed the FDA's implementation of the BA/BE
testing requirement with the establishment of BA/BE testing facilities in the country.
Thereafter, the F
DA issued Circular No. 8, s. 1997... which provided additional implementation details...
concerning the BA/BE testing requirement on drug products.
Respondents manufacture and trade a "multisource pharmaceutical product"... with the
generic name of rifampicin... branded as "Refam 200mg/5mL Suspension" (Refam) for the
treatment of adults and children... suffering from pulmonary and extra-pulmonary
tuberculosis.[13] On November 15, 1996, respondents applied for and were issued a CPR
for such drug, valid for five (5) years, or until November 15, 2001.[14] At the time of the
CPR's... issuance, Refam did not undergo BA/BE testing since there was still no facility
capable of conducting BA/BE testing. Sometime in 2001, respondents applied for and were
granted numerous yearly renewals of their CPR for Refam, which lasted until November 15,
2006,... albeit with the condition that they submit satisfactory BA/BE test results for said
drug.
Accordingly, respondents engaged the services of the University of the Philippines' (Manila)
Department of Pharmacology and Toxicology, College of Medicine to conduct BA/BE testing
on Refam, the results of which were submitted to the FDA.
In... turn, the FDA sent a letter dated July 31, 2006 to respondents, stating that Refam is
"not bioequivalent with the reference drug."
This notwithstanding, the FDA still revalidated respondents' CPR for Refam two (2) more
times, effective... until November 15, 2008, the second of which came with a warning that
no more further revalidations shall be granted until respondents submit satisfactory BA/BE
test results for Refam.
Instead of submitting satisfactory BA/BE test results for Refam, respondents filed a petition
for prohibition and annulment of Circular Nos. 1 and 8, s. 1997 before the RTC, alleging that
it is the DOH, and not the FDA, which was granted the authority to issue and... implement
rules concerning RA 3720. As such, the issuance of the aforesaid circulars and the manner
of their promulgation contravened the law and the Constitution.
They further averred that that the non-renewal of the CPR due to failure to submit...
satisfactory BA/BE test results would not only affect Refam, but their other products as well.
During the pendency of the case, RA 9711,... otherwise known as the "Food and Drug
Administration [FDA] Act of 2009," was enacted into law.
In an Order... a... dated December 18, 2009, the RTC ruled in favor of respondents, and
thereby declared Circular Nos. 1 and 8, s. 1997 null and void, ordered the issuance of writs
of permanent injunction and prohibition against the FDA in implementing the... aforesaid
circulars, and directed the FDA to issue CPRs in favor of respondents' products.
The RTC held that there is nothing in RA 3720 which granted either the FDA the authority to
issue and implement the subject circulars, or the Secretary of Health the authority to
delegate his powers to the FDA. For these reasons, it concluded that the issuance of
Circular Nos. 1... and 8, s. 1997 constituted an illegal exercise of legislative and
administrative powers and, hence, must be struck down.
Accordingly, the RTC issued a Writ of Permanent Injunction[24] dated January 19, 2010,
enjoining the FDA and all persons acting for and under it from enforcing Circular Nos. 1 and
8, s. 1997 and directing them to approve the renewal and revalidation of... respondents'
products without submitting satisfactory BA/BE test results.
Aggrieved, the FDA sought direct recourse to the Court through the instant petition with an
urgent prayer for the immediate issuance of a temporary restraining order and/or a writ of
preliminary injunction against the implementation of the RTC's Order dated December 18,
2009 and
Writ of Permanent Injunction dated January 19, 2010.[25] The Court granted FDA's
application and issued a Temporary Restraining Order[26] dated February 24, 2010,
effective immediately and continuing until further orders.
The FDA contends that it has the authority to issue Circular Nos. 1 and 8, s. 1997 as it is
the agency mandated by law to administer and enforce laws, including rules and regulations
issued by the DOH, that pertain to the registration of pharmaceutical products.
Issues:
The primordial issue in this case is whether or not the FDA may validly issue and implement
Circular Nos. 1 and 8, s. 1997. In resolving this issue, there is a need to determine whether
or not the aforesaid circulars partake of administrative rules and regulations and, as such,...
must comply with the requirements of the law for its issuance.
Ruling:
The petition is meritorious.
Administrative agencies may exercise quasi-legislative or rule-making powers only if there
exists a law which delegates these powers to them.
Accordingly, the rules so promulgated must be within the confines of the granting statute
and must involve no discretion as to what the... law shall be, but merely the authority to fix
the details in the execution or enforcement of the policy set out in the law itself, so as to
conform with the doctrine of separation of powers and, as an adjunct, the doctrine of non-
delegability of legislative power.
An administrative regulation may be classified as a legislative rule, an interpretative rule, or
a contingent rule. Legislative rules are in the nature of subordinate legislation and designed
to implement a primary legislation by providing the details thereof.[31] They usually
implement existing law, imposing general, extra-statutory obligations pursuant to authority
properly delegated by Congress[32] and effect a change in existing law or policy which
affects individual rights and... obligations.[33] Meanwhile, interpretative rules are intended to
interpret, clarify or explain existing statutory regulations under which the administrative body
operates. Their purpose or objective is merely to construe the statute being... administered
and purport to do no more than interpret the statute. Simply, they try to say what the statute
means and refer to no single person or party in particular but concern all those belonging to
the same class which may be covered by the said rules.[34] Finally, contingent rules are
those issued by an administrative authority based on the existence of certain facts or things
upon which the enforcement of the law depends.[35]
In general, an administrative regulation needs to comply with the requirements laid down by
Executive Order No. 292, s. 1987, otherwise known as the "Administrative Code of 1987,"
on prior notice, hearing, and publication in order to be valid and binding, except when the
same is... merely an interpretative rule. This is because "[w]hen an administrative rule is
merely interpretative in nature, its applicability needs nothing further than its bare issuance,
for it gives no real consequence more than what the law itself has already prescribed.
When, on the... other hand, the administrative rule goes beyond merely providing for the
means that can facilitate or render least cumbersome the implementation of the law but
substantially increases the burden of those governed, it behooves the agency to accord at
least to those directly... affected a chance to be heard, and thereafter to be duly informed,
before that new issuance is given the force and effect of law."[36]
In the case at bar, it is undisputed that RA 3720, as amended by Executive Order No. 175,
s. 1987[37] prohibits, inter alia, the manufacture and sale of pharmaceutical products
without obtaining the proper CPR from the FDA.[38]
In this regard, the FDA has been deputized by the same law to accept applications for
registration of pharmaceuticals and, after due course, grant or reject such applications.[39]
To this end, the said law expressly authorized the Secretary of Health, upon... the
recommendation of the FDA Director, to issue rules and regulations that pertain to the
registration of pharmaceutical products.
WHEREFORE, the petition is GRANTED. The Order dated December 18, 2009 and the
Writ of Permanent Injunction dated January 19, 2010 of the Regional Trial Court of
Muntinlupa City, Branch 256 in Civil Case No. 08-124 are hereby SET ASIDE. BFAD
Circular Nos. 1... and 8, series of 1997 are declared VALID. Accordingly, the Court's
Temporary Restraining Order dated February 24, 2010 is hereby made PERMANENT.
SO ORDERED.
Principles:
In accordance with his rule-making power under RA 3720, the Secretary of Health issued
AO 67, s. 1989 in order to provide a comprehensive set of guidelines covering the
registration of pharmaceutical products. AO 67, s. 1989, required, among others, that
certain... pharmaceutical products undergo BA/BE testing prior to the issuance of CPR,
contrary to respondents' assertion that it was Circular Nos. 1 and 8, s. 1997 that required
such tests.
Despite the fact that the BA/BE testing requirement was already in place as early as the
date of effectivity of AO 67, s. 1989, its implementation was indefinitely shelved due to lack
of facilities capable of conducting the same. It was only sometime in 1997 when
technological... advances in the country paved the way for the establishment of BA/BE
testing facilities, thus allowing the rule's enforcement. Owing to these developments, the
FDA (then, the BFAD) issued Circular No. 1, s. 1997, the full text of which reads:
In Annex 1 of A.O. 67 s. 1989 which is entitled Requirement for Registration provides that
"Bioavailability/Bioequivalence study for certain drugs as determined by BFAD" is required
for [(i)] Tried and Tested Drug, (ii) Established Drug, and (iii) Pharmaceutical
Innovation of Tried and Tested or Established Drug.
Drugs requiring strict precaution in prescribing and dispensing contained in the List-B
(Prime) were the drugs identified by BFAD in the process of registration that will be required
"Bioavailability/Bioequivalence" studies. However, due to the supervening factor that... there
had yet been no bioavailability testing unit in the country when the A.O. 67 s. 1989 became
effective, the Bureau did not strictly enforce the said requirement.
The supervening factor no longer exist [sic] as of date. As a matter of fact, one of the
registered products tested by the Bioavailability Testing Unit at the University of Sto. Tomas
under the NDP Cooperation Project of the Philippines and Australia failed... to meet the
standard of bioavailability. This finding brings forth the fact that there may be registered
products which do not or may no longer meet bioavailability standard.
Wherefore, all drugs manufacturers, traders, distributor-importers of products contained or
identified in the list b' (prime) provided for by BFAD, a copy of which is made part of this
circular, are advised that all pending initial and renewal registration of the products...
aforementioned, as well as all applications for initial and renewal registration of the same,
shall henceforth be required to submit bioavailability test with satisfactory results on the
products sought to be registered or renewed conducted by any bioavailability testing units...
here or abroad, duly recognized by the BFAD under the Dept. of Health. (Emphases and
underscoring supplied)
The FDA then issued Circular No. 8, s. 1997 to supplement Circular No. 1, s. 1997 in that it
reiterates the importance of the BA/BE testing requirement originally provided for by AO 67,
s. 1989.
A careful scrutiny of the foregoing issuances would reveal that AO 67, s. 1989 is actually
the rule that originally introduced the BA/BE testing requirement as a component of
applications for the issuance of CPRs covering certain pharmaceutical products. As such, it
is... considered an administrative regulation a legislative rule to be exact issued by the
Secretary of Health in consonance with the express authority granted to him by RA 3720 to
implement the statutory mandate that all drugs and devices should first be registered with
the FDA prior... to their manufacture and sale. Considering that neither party contested the
validity of its issuance, the Court deems that AO 67, s. 1989 complied with the requirements
of prior hearing, notice, and publication pursuant to the presumption of regularity accorded
to the government... in the exercise of its official duties.[42]
On the other hand, Circular Nos. 1 and 8, s. 1997 cannot be considered as administrative
regulations because they do not: (a) implement a primary legislation by providing the details
thereof; (b) interpret, clarify, or explain existing statutory regulations under which the FDA...
operates; and/or (c) ascertain the existence of certain facts or things upon which the
enforcement of RA 3720 depends. In fact, the only purpose of these circulars is for the FDA
to administer and supervise the implementation of the provisions of AO 67, s. 1989,
including those... covering the BA/BE testing requirement, consistent with and pursuant to
RA 3720.[43] Therefore, the FDA has sufficient authority to issue the said circulars and
since they would not affect the substantive rights of the parties that they seek to govern as...
they are not, strictly speaking, administrative regulations in the first place no prior hearing,
consultation, and publication are needed for their validity.
In sum, the Court holds that Circular Nos. 1 and 8, s. 1997 are valid issuances and binding
to all concerned parties, including the respondents in this case.
As a final note, while the proliferation of generic drugs and medicines is indeed a welcome
development as it effectively ensures access to affordable quality drugs and medicines for
all through their lower prices, the State, through the FDA, which is the government...
instrumentality tasked on this matter, must nevertheless be vigilant in ensuring that the
generic drugs and medicines released to the market are safe and effective for use.
G.R. No. L-63915 December 29, 1986

LORENZO M. TAÑ;ADA, ABRAHAM F. SARMIENTO, and MOVEMENT OF ATTORNEYS FOR

BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. (MABINI), petitioners,
vs.
HON. JUAN C. TUVERA, in his capacity as Executive Assistant to the President, HON.
JOAQUIN VENUS, in his capacity as Deputy Executive Assistant to the President,
MELQUIADES P. DE LA CRUZ, ETC., ET AL., respondents.

RESOLUTION

CRUZ, J.:

Due process was invoked by the petitioners in demanding the disclosure of a number of presidential
decrees which they claimed had not been published as required by law. The government argued that
while publication was necessary as a rule, it was not so when it was "otherwise provided," as when
the decrees themselves declared that they were to become effective immediately upon their
approval. In the decision of this case on April 24, 1985, the Court affirmed the necessity for the
publication of some of these decrees, declaring in the dispositive portion as follows:

WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all
unpublished presidential issuances which are of general application, and unless so
published, they shall have no binding force and effect.

The petitioners are now before us again, this time to move for reconsideration/clarification of that
decision.   Specifically, they ask the following questions:
1

1. What is meant by "law of public nature" or "general applicability"?

2. Must a distinction be made between laws of general applicability and laws which are not?

3. What is meant by "publication"?

4. Where is the publication to be made?

5. When is the publication to be made?

Resolving their own doubts, the petitioners suggest that there should be no distinction between laws
of general applicability and those which are not; that publication means complete publication; and
that the publication must be made forthwith in the Official Gazette.  2

In the Comment   required of the then Solicitor General, he claimed first that the motion was a
3

request for an advisory opinion and should therefore be dismissed, and, on the merits, that the
clause "unless it is otherwise provided" in Article 2 of the Civil Code meant that the publication
required therein was not always imperative; that publication, when necessary, did not have to be
made in the Official Gazette; and that in any case the subject decision was concurred in only by
three justices and consequently not binding. This elicited a Reply   refuting these arguments. Came
4

next the February Revolution and the Court required the new Solicitor General to file a Rejoinder in
view of the supervening events, under Rule 3, Section 18, of the Rules of Court. Responding, he
submitted that issuances intended only for the internal administration of a government agency or for
particular persons did not have to be 'Published; that publication when necessary must be in full and
in the Official Gazette; and that, however, the decision under reconsideration was not binding
because it was not supported by eight members of this Court.  5

The subject of contention is Article 2 of the Civil Code providing as follows:

ART. 2. Laws shall take effect after fifteen days following the completion of their publication
in the Official Gazette, unless it is otherwise provided. This Code shall take effect one year
after such publication.

After a careful study of this provision and of the arguments of the parties, both on the original petition
and on the instant motion, we have come to the conclusion and so hold, that the clause "unless it is
otherwise provided" refers to the date of effectivity and not to the requirement of publication itself,
which cannot in any event be omitted. This clause does not mean that the legislature may make the
law effective immediately upon approval, or on any other date, without its previous publication.

Publication is indispensable in every case, but the legislature may in its discretion provide that the
usual fifteen-day period shall be shortened or extended. An example, as pointed out by the present
Chief Justice in his separate concurrence in the original decision,   is the Civil Code which did not
6

become effective after fifteen days from its publication in the Official Gazette but "one year after such
publication." The general rule did not apply because it was "otherwise provided. "

It is not correct to say that under the disputed clause publication may be dispensed with altogether.
The reason. is that such omission would offend due process insofar as it would deny the public
knowledge of the laws that are supposed to govern the legislature could validly provide that a law e
effective immediately upon its approval notwithstanding the lack of publication (or after an
unreasonably short period after publication), it is not unlikely that persons not aware of it would be
prejudiced as a result and they would be so not because of a failure to comply with but simply
because they did not know of its existence, Significantly, this is not true only of penal laws as is
commonly supposed. One can think of many non-penal measures, like a law on prescription, which
must also be communicated to the persons they may affect before they can begin to operate.

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.

The term "laws" should refer to all laws and not only to those of general application, for strictly
speaking all laws relate to the people in general albeit there are some that do not apply to them
directly. An example is a law granting citizenship to a particular individual, like a relative of President
Marcos who was decreed instant naturalization. It surely cannot be said that such a law does not
affect the public although it unquestionably does not apply directly to all the people. The subject of
such law is a matter of public interest which any member of the body politic may question in the
political forums or, if he is a proper party, even in the courts of justice. In fact, a law without any
bearing on the public would be invalid as an intrusion of privacy or as class legislation or as an ultra
vires act of the legislature. To be valid, the law must invariably affect the public interest even if it
might be directly applicable only to one individual, or some of the people only, and t to the public as
a whole.
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 a also be
published if their purpose is to enforce or implement existing law pursuant also 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 a
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 certain prohibitions or requirements. The circulars issued by the
Monetary Board must be published if they are meant not merely to interpret but to "fill in the details"
of the Central Bank Act which that body is supposed to enforce.

However, no publication is required of the instructions issued by, say, the Minister of Social Welfare
on the case studies to be made in petitions for adoption or the rules laid down by the head of a
government agency on the assignments or workload of his personnel or the wearing of office
uniforms. Parenthetically, municipal ordinances are not covered by this rule but by the Local
Government Code.

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 contents of the laws. As correctly pointed out by the petitioners, the mere mention of the
number of the presidential decree, the title of such decree, its whereabouts (e.g., "with Secretary
Tuvera"), the supposed date of effectivity, and in a mere supplement of the Official Gazette cannot
satisfy the publication requirement. This is not even substantial compliance. This was the manner,
incidentally, in which the General Appropriations Act for FY 1975, a presidential decree undeniably
of general applicability and interest, was "published" by the Marcos administration.   The evident
7

purpose was to withhold rather than disclose information on this vital law.

Coming now to the original decision, it is true that only four justices were categorically for publication
in the Official Gazette   and that six others felt that publication could be made elsewhere as long as
8

the people were sufficiently informed.   One reserved his vote   and another merely acknowledged
9 10

the need for due publication without indicating where it should be made.   It is therefore necessary
11

for the present membership of this Court to arrive at a clear consensus on this matter and to lay
down a binding decision supported by the necessary vote.

There is much to be said of the view that the publication need not be made in the Official Gazette,
considering its erratic releases and limited readership. Undoubtedly, newspapers of general
circulation could better perform the function of communicating, the laws to the people as such
periodicals are more easily available, have a wider readership, and come out regularly. The trouble,
though, is that this kind of publication is not the one required or authorized by existing law. As far as
we know, no amendment has been made of Article 2 of the Civil Code. The Solicitor General has not
pointed to such a law, and we have no information that it exists. If it does, it obviously has not yet
been published.
At any rate, this Court is not called upon to rule upon the wisdom of a law or to repeal or modify it if
we find it impractical. That is not our function. That function belongs to the legislature. Our task is
merely to interpret and apply the law as conceived and approved by the political departments of the
government in accordance with the prescribed procedure. Consequently, we have no choice but to
pronounce that under Article 2 of the Civil Code, the publication of laws must be made in the Official
Gazett and not elsewhere, as a requirement for their effectivity after fifteen days from such
publication or after a different period provided by the legislature.

We also hold that the publication must be made forthwith or at least as soon as possible, to give
effect to the law pursuant to the said Article 2. There is that possibility, of course, although not
suggested by the parties that a law could be rendered unenforceable by a mere refusal of the
executive, for whatever reason, to cause its publication as required. This is a matter, however, that
we do not need to examine at this time.

Finally, the claim of the former Solicitor General that the instant motion is a request for an advisory
opinion is untenable, to say the least, and deserves no further comment.

The days of the secret laws and the unpublished decrees are over. This is once again an open
society, with all the acts of the government subject to public scrutiny and available always to public
cognizance. This has to be so if our country is to remain democratic, with sovereignty residing in the
people and all government authority emanating from them.

Although they have delegated the power of legislation, they retain the authority to review the work of
their delegates and to ratify or reject it according to their lights, through their freedom of expression
and their right of suffrage. This they cannot do if the acts of the legislature are concealed.

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.

WHEREFORE, it is hereby declared that all laws as above defined shall immediately upon their
approval, or as soon thereafter as possible, be published in full in the Official Gazette, to become
effective only after fifteen days from their publication, or on another date specified by the legislature,
in accordance with Article 2 of the Civil Code.

SO ORDERED.

Teehankee, C.J., Feria, Yap, Narvasa, Melencio-Herrera, Alampay, Gutierrez, Jr., and Paras, JJ.,
concur.

Separate Opinions

FERNAN, J., concurring:

While concurring in the Court's opinion penned by my distinguished colleague, Mr. Justice Isagani A.
Cruz, I would like to add a few observations. Even as a Member of the defunct Batasang Pambansa,
I took a strong stand against the insidious manner by which the previous dispensation had
promulgated and made effective thousands of decrees, executive orders, letters of instructions, etc.
Never has the law-making power which traditionally belongs to the legislature been used and
abused to satisfy the whims and caprices of a one-man legislative mill as it happened in the past
regime. Thus, in those days, it was not surprising to witness the sad spectacle of two presidential
decrees bearing the same number, although covering two different subject matters. In point is the
case of two presidential decrees bearing number 1686 issued on March 19, 1980, one granting
Philippine citizenship to Michael M. Keon the then President's nephew and the other imposing a tax
on every motor vehicle equipped with airconditioner. This was further exacerbated by the issuance
of PD No. 1686-A also on March 19, 1980 granting Philippine citizenship to basketball players
Jeffrey Moore and Dennis George Still

The categorical statement by this Court on the need for publication before any law may be made
effective seeks prevent abuses on the part of the lawmakers and, at the same time, ensures to the
people their constitutional right to due process and to information on matters of public concern.

FELICIANO, J., concurring:

I agree entirely with the opinion of the court so eloquently written by Mr. Justice Isagani A. Cruz. At
the same time, I wish to add a few statements to reflect my understanding of what the Court is
saying.

A statute which by its terms provides for its coming into effect immediately upon approval thereof, is
properly interpreted as coming into effect immediately upon publication thereof in the Official Gazette
as provided in Article 2 of the Civil Code. Such statute, in other words, should not be regarded as
purporting literally to come into effect immediately upon its approval or enactment and without need
of publication. For so to interpret such statute would be to collide with the constitutional obstacle
posed by the due process clause. The enforcement of prescriptions which are both unknown to and
unknowable by those subjected to the statute, has been throughout history a common tool of
tyrannical governments. Such application and enforcement constitutes at bottom a negation of the
fundamental principle of legality in the relations between a government and its people.

At the same time, it is clear that the requirement of publication of a statute in the Official Gazette, as
distinguished from any other medium such as a newspaper of general circulation, is embodied in a
statutory norm and is not a constitutional command. The statutory norm is set out in Article 2 of the
Civil Code and is supported and reinforced by Section 1 of Commonwealth Act No. 638 and Section
35 of the Revised Administrative Code. A specification of the Official Gazette as the prescribed
medium of publication may therefore be changed. Article 2 of the Civil Code could, without creating a
constitutional problem, be amended by a subsequent statute providing, for instance, for publication
either in the Official Gazette or in a newspaper of general circulation in the country. Until such an
amendatory statute is in fact enacted, Article 2 of the Civil Code must be obeyed and publication
effected in the Official Gazette and not in any other medium.

Separate Opinions

FERNAN, J., concurring:

While concurring in the Court's opinion penned by my distinguished colleague, Mr. Justice Isagani A.
Cruz, I would like to add a few observations. Even as a Member of the defunct Batasang Pambansa,
I took a strong stand against the insidious manner by which the previous dispensation had
promulgated and made effective thousands of decrees, executive orders, letters of instructions, etc.
Never has the law-making power which traditionally belongs to the legislature been used and
abused to satisfy the whims and caprices of a one-man legislative mill as it happened in the past
regime. Thus, in those days, it was not surprising to witness the sad spectacle of two presidential
decrees bearing the same number, although covering two different subject matters. In point is the
case of two presidential decrees bearing number 1686 issued on March 19, 1980, one granting
Philippine citizenship to Michael M. Keon the then President's nephew and the other imposing a tax
on every motor vehicle equipped with airconditioner. This was further exacerbated by the issuance
of PD No. 1686-A also on March 19, 1980 granting Philippine citizenship to basketball players
Jeffrey Moore and Dennis George Still

The categorical statement by this Court on the need for publication before any law may be made
effective seeks prevent abuses on the part of the lawmakers and, at the same time, ensures to the
people their constitutional right to due process and to information on matters of public concern.

FELICIANO, J., concurring:

I agree entirely with the opinion of the court so eloquently written by Mr. Justice Isagani A. Cruz. At
the same time, I wish to add a few statements to reflect my understanding of what the Court is
saying.

A statute which by its terms provides for its coming into effect immediately upon approval thereof, is
properly interpreted as coming into effect immediately upon publication thereof in the Official Gazette
as provided in Article 2 of the Civil Code. Such statute, in other words, should not be regarded as
purporting literally to come into effect immediately upon its approval or enactment and without need
of publication. For so to interpret such statute would be to collide with the constitutional obstacle
posed by the due process clause. The enforcement of prescriptions which are both unknown to and
unknowable by those subjected to the statute, has been throughout history a common tool of
tyrannical governments. Such application and enforcement constitutes at bottom a negation of the
fundamental principle of legality in the relations between a government and its people.

At the same time, it is clear that the requirement of publication of a statute in the Official Gazette, as
distinguished from any other medium such as a newspaper of general circulation, is embodied in a
statutory norm and is not a constitutional command. The statutory norm is set out in Article 2 of the
Civil Code and is supported and reinforced by Section 1 of Commonwealth Act No. 638 and Section
35 of the Revised Administrative Code. A specification of the Official Gazette as the prescribed
medium of publication may therefore be changed. Article 2 of the Civil Code could, without creating a
constitutional problem, be amended by a subsequent statute providing, for instance, for publication
either in the Official Gazette or in a newspaper of general circulation in the country. Until such an
amendatory statute is in fact enacted, Article 2 of the Civil Code must be obeyed and publication
effected in the Official Gazette and not in any other medium.
Lorenzo M. Tañada, Abraham F. Sarmiento, and Movement of Attorneys for
Brotherhood, Integrity and Nationalism, Inc. (MABINI), petitioners, versus
Hon. Juan C. Tuvera, in his capacity as Executive Assistant to the President,
Hon. Joaquin Venus, in his capacity as Deputy Executive Assistant to the
President, Melquiades P. de la Cruz, etc., et al., respondents.
No. L-63915     December 29, 1986

Facts:

Due process was invoked by the petitioners in demanding the disclosure of a number of
presidential decrees which they claimed had not been published as required by law. The
government argued that while publication was necessary as a rule, it was not so when it
was “otherwise provided,” as when the decrees themselves declared that they we to
become effective and immediately upon their approval.

The petitioners suggest that there should be no distinction between laws of general
applicability and those which are not, that publication means complete publication; and
that the publication must be made forthwith the Official Gazette.

Issue:

Whether or not the Presidential decrees are covered by the provisions of Article 2 of the
New Civil Code, on the necessity of publication for its effectivity.

Held:

The clause “unless otherwise provided” refers to the date of effectivity and not to the
requirement of publication itself. Publication is indispensable in every case, but the
legislature may in its discretion provide that the usual fifteen day period shall be
shortened or extended. The term “laws” should refer to all laws and not only to those of
general application, for strictly speaking all laws related to the people in general albeit
there are some that do not apply to them directly.

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. Administrative rules and
regulations must also be published if their purpose is to enforce or implement existing
law pursuant also to a valid delegation.

There is much to be said of the view that the publication need not be