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EXPRESS INVESTMENTS VS. BAYANTEL G.R. No. 174457December 5, 2012 Basic Facts: This case involves 7 consolidated petitions for review on certiorari filed inconnection with the corporate rehabilitation of Bayan Telecommunications, Inc.(Bayantel).Bayantel Domestic Corporation engaged in the business providingtelecommunication services98.6% of Bayantel of

owned by Bayan Telecommunications Holdings Corporation (BTHC)85.4% of BTHC owned by the Lopez Group of Companies and Benpres HoldingsCorporationBayantel entered into several credit agreements. To secure said loans, Bayantelexecuted an Omnibus Agreement and an EVTELCO Mortgage Trust Indenture.Pursuant to the Omnibus Agreement, Bayantel executed an Assignment Agreement infavor of the lenders under the Omnibus Agreement (hereinafter, Omnibus Creditors,Bank Creditors, or secured creditors). In the Assignment Agreement, Bayantel bounditself to assign, convey and transfer to the Collateral Agent, certain properties ascollateral security for the prompt and complete payment of its obligations to theOmnibus Creditors.Foreseeing the impossibility of further meeting its obligations, Bayantel sent a proposalfor the restructuring of its debts to the Bank Creditors and the Holders of Notes. Tofacilitate the negotiations between Bayantel and its creditors, an Informal SteeringCommittee was formed. In its initial proposal called the "First Term Sheet," Bayantelsuggested a 25% write-off of the principal owing to the Holders of Notes. The Informal Steering Committee rejected the idea, but accepted Bayantels proposal to pay the restructured debt, pari passu , out of its cash flow This pari passu or equal treatment ofdebts, however, was opposed by the Bank Creditors who invoked their security interestunder the Assignment Agreement.Bayantel continued to pay reduced interest on its debt to the Bank Creditors but stopped paying the Holders of Notes. Bayantels total indebtedness had reached US$674 million or P35.928 billion in unpaid principal and interest. Out of its total liabilities,Bayantel allegedly owes 43.2%

or US$291 million (P15.539 billion) to the Holders of theNotes.The Bank of New York, as trustee for the Holders of the Notes, wrote Bayantel anAcceleration Letter declaring immediately due and payable the principal, premiuminterest, and other monetary obligations on all outstanding Notes. Then, The Bank ofNew York filed a petition for the corporate rehabilitation of Bayantel upon theinstructions of the Informal Steering Committee.Pasig RTC issued a Stay Order, which directed, among others, the suspension of all claims against Bayantel and required the latters creditors and other interested parties to file a comment or opposition to the petition. The court appointed Atty. Noval asreceiver.The Rehabilitation Court gave due course to the petition and directed the RehabilitationReceiver to submit his recommendations to the court within 120 days from the initialhearing. In his report, Atty. Noval classified Bayantels debts into three: 1) Those owed to secured Bank Creditors pursuant to the Omnibus Agreements(Omnibus Creditors);2) Those owed to Holders of the Senior Notes and Bank Creditors combined (ChattelCreditors); 3) Those that Bayantel owed to persons other than FinancialCreditors/unsecured creditors. Subsequently, negotiations for the restructuring of Bayantels debt reached an impasse when the Informal Steering Committee insisted on a pari passu treatment of the claimsof both secured and unsecured creditors.Pasig RTC, acting as a Rehabilitation Court, approved the Report and Recommendations ttached by the Receiver, subject to the following clarifications and/or amendments. Dissatisfied, The Bank of New York filed a Notice of Appeal, so did Avenue AsiaInvestments, L.P., Avenue Asia International, Ltd., Avenue Asia Special Situations Fund II,L.P., Avenue Asia Capital Partners, L.P., and Avenue Asia Special Situations Fund III, L.P.which filed a Joint Record on Appeal.Bayantel submitted an Implementing Term Sheet to the Rehabilitation Court and theReceiver. Claiming that said Term Sheet was inadequate to protect the interest of the 1. The ruling on the pari passu treatment of all creditors whose claims are subject torestructuring shall be maintained and shall extend to all payment terms and treatment of pastdue interest.2. Due regard shall be given to the rights of the secured creditors and no changes in thesecurity positions of the creditors shall be

granted as a result of the rehabilitation plan asamended and approved herein.3. The level of sustainable debt of the rehabilitation plan, as amended, shall be reduced to theamount of [US]$325,000,000 for a period of 19 years.4. Unsustainable debt shall be converted into an appropriate instrument that shall not be afinancial burden for Bayantel.5. All provisions relating to equity in the rehabilitation plan, as approved and amended, muststrictly conform to the requirements of the Constitution limiting foreign ownership to 40%.6. A Monitoring Committee shall be formed composed of representatives from all classes of the restructured debt. The Rehabilitation Receivers role shall be limited to the powers o monitoring and oversight as provided in the Interim Rulescreditors, The Bank of New York filed a Manifestation, praying for the constitution of a Monitoring Committee and the creation of a convertible debt instrument to cover the unsustainable portion of the restructured debt. The Rehabilitation Court issued an Order directing the creation of a Monitoring Committee to be composed of one member each from the group of Omnibus Creditors and unsecured creditors, and a third member to be chosen by the unanimous vote of the first two members. In the same Order, the court defined the scope of the Monitoring Committees authority, as follows: x x x The Monitoring Committee shall participate with the Receiver in monitoring and overseeing the actions of the Board of Directors of Bayantel and may, by majority vote, adopt, modify, revise or substitute, any of the following items: (1) Any proposed Annual OPEX Budgets; (2) Any proposed Annual CAPEX Budgets; (3) Any proposed Reschedule; (4) Any proposed actions by the Receiver on a payment default; (5) Terms of Management Incentivisation Scheme and Management Targets; (6) The EBITDA/Revenue ratios set by the Bayantel Board of Directors; and (7) Any other proposed actions by the Bayantel Board of Directors including, without limitation, issuance of new shares, sale of core and noncore assets, change of business, etc. that will materially affect the terms and conditions of the rehabilitation plan and its implementation. In case of disagreement between the Monitoring Committee and the Board of Directors of Bayantel on any of the foregoing matters, the same shall be submitted to the Court for resolution. Petition of Express Investments III Private Ltd. and Export Development Canada Rehabilitation Proceedings Rehabilitation is an attempt to conserve and administer the assets of an insolvent Winz Naive

corporation in the hope of its eventual return from financial stress to solvency. It contemplates the continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and liquidity. The purpose of rehabilitation proceedings is precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. Rehabilitation shall be undertaken when it is shown that the continued operation of the corporation is economically feasible and its creditors can recover, by way of the present value of payments projected in the plan, more, if the corporation continues as a going concern than if it is immediately liquidated. The law governing rehabilitation and suspension of actions for claims against corporations is PD 902-A, as amended. The Court promulgated A.M. No. 00-8-10-SC or the Interim Rules of Procedure on Corporate Rehabilitation, which applies to petitions for rehabilitation filed by corporations, partnerships and associations pursuant to PD 902-A. RA 8799, otherwise known as the Securities Regulation Code, amended Section 5 of PD 902-A, and transferred to the RTC the jurisdiction of the SEC over petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a rehabilitation receiver or a management committee. In order to effectively exercise such jurisdiction, Section 6(c), PD 902-A empowers the RTC to appoint one or more receivers of the property, real and personal, which is the subject of the pending action before the Commission whenever necessary in order to preserve the rights of the partieslitigants and/or protect the interest of the investing public and creditors. Under Section 6, Rule 4 of the Interim Rules, if the court finds the petition to be sufficient in form and substance, it shall issue, not later than 5 days from the filing of the petition, an Order with the following pertinent effects: (a) Appointing a Rehabilitation Receiver and fixing his bond; (b) Staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or

otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor; (c) Prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of business; (d) Prohibiting the debtor from making any payment of its liabilities outstanding as at the date of filing of the petition; x x x The stay order shall be effective from the date of its issuance until the dismissal of the petition or the termination of the rehabilitation proceedings. Under the Interim Rules, the petition shall be dismissed if no rehabilitation plan is approved by the court upon the lapse of 180 days from the date of the initial hearing. The court may grant an extension beyond this period only if it appears by convincing and compelling evidence that the debtor may successfully be rehabilitated. In no instance, however, shall the period for approving or disapproving a rehabilitation plan exceed 18 months from the date of filing of the petition. On the other hand, Section 27, Rule 4 of the Interim Rules provides when the rehabilitation proceedings is deemed terminated: SEC. 27. Termination of Proceedings. In case of the failure of the debtor to submit the rehabilitation plan, or the disapproval thereof by the court, or the failure of the rehabilitation of the debtor because of failure to achieve the desired targets or goals as set forth therein, or the failure of the said debtor to perform its obligations under thesaid plan, or a determination that the rehabilitation plan may no longer be implementedin accordance with its terms, conditions, restrictions, or assumptions, the court shallupon motion, motu proprio , or upon the recommendation of the RehabilitationReceiver, terminate the proceedings. The proceedings shall also terminate upon thesuccessful implementation of the rehabilitation plan .Hence, unless the petition is dismissed for any reason, the stay order shall be effectiveuntil the rehabilitation plan has been successfully implemented. In the meantime, thedebtor is prohibited from paying any of its outstanding liabilities as of the date of thefiling of the petition except those authorized in the plan under Section 24(c), Rule 4 ofthe Interim Rules.

Facts: In an Order dated April 19, 2004, the Rehabilitation Court held that the creditorsof Bayantel, whether secured or unsecured, should be treated equally and on the samefooting or pari passu until the rehabilitation proceedings is terminated in accordancewith the Interim Rules. The court reiterated this pronouncement in another Decision. 1) Issue: Whether secured creditors may enforce preference in payment duringrehabilitation by virtue of a contractual agreement? NO. Held: Section 6(c), PD 902-A provides that upon the appointment of a managementcommittee, rehabilitation receiver, board or body, all actions for claims againstcorporations, partnerships or associations under management or receivership pendingbefore any court, tribunal, board or body shall be suspended accordingly. Thesuspension of action for claims against the corporation under a rehabilitation receiver ormanagement committee embraces all phases of the suit, be it before the trial court orany tribunal or before this Court. The justification for suspension of actions for claims is to enable the managementcommittee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the "rescue" ofthe debtor company. It is intended to give enough breathing space for the managementcommittee or rehabilitation receiver to make the business viable again without havingto divert attention and resources to litigation in various fora. Alemars Sibal & Sons, Inc. v. Judge Elbinias case: During rehabilitation receivership, theassets are held in trust for the equal benefit of all creditors to preclude one fromobtaining an advantage or preference over another by the expediency of anattachment, execution or otherwise As between the creditors, the key phrase is"equality is equity." When a corporation threatened by bankruptcy is taken over by areceiver, all the creditors should stand on equal footing. Not anyone of them shouldbe given any Winz Naive

preference by paying one or some of them ahead of the others .The principle of equality in equity has been cited as the basis for placing secured andunsecured creditors in equal footing or in pari passu with each other duringrehabilitation. Pari passu is used especially of creditors who, in marshaling assets, areentitled to receive out of the same fund without any precedence over each other.In Rizal Commercial Banking Corporation v. Intermediate Appellate Court case: Whenever a distressed corporation asks the SEC for rehabilitation and suspension ofpayments, preferred creditors may no longer assert preference but shall stand on equalfooting with other creditors. Foreclosure shall be disallowed so as not to prejudice othercreditors, or cause discrimination among them. Preferred creditors of distressedcorporations shall stand on equal footing with all other creditors only after arehabilitation receiver or management committee has been appointed.Guidelines for the treatment of claims against corporations undergoing rehabilitation:1. All claims against corporations, partnerships, or associations that are pending beforeany court, tribunal, or board, without distinction as to whether or not a creditor issecured or unsecured, shall be suspended effective upon the appointment of amanagement committee, rehabilitation receiver, board, or body in accordance with theprovisions of Presidential Decree No. 902A.2. Secured creditors retain their preference over unsecured creditors, but enforcementof such preference is equally suspended upon the appointment of a managementcommittee, rehabilitation receiver, board, or body . In the event that the assets of thecorporation, partnership, or association are finally liquidated, however, secured andpreferred credits under the applicable provisions of the Civil Code will definitely havepreference over unsecured ones.

and those already pending in court shall be suspended in whatever stagethey may be. Notwithstanding, secured creditors shall continue to have preferred statusbut the enforcement thereof is likewise held in abeyance. However, if the court laterdetermines that the rehabilitation of the distressed corporation is no longer feasible andits assets are liquidated, secured claims shall enjoy priority in payment.While Section 24(d), Rule 4 of the Interim Rules states that contracts and otherarrangements between the debtor and its creditors shall be interpreted as continuing toapply, this holds true only to the extent that they do not conflict with the provisions ofthe plan. Here, the stipulation in the Assignment Agreement to the effect that Bayantelshall pay petitioners in full and ahead of other creditors out of its cash flow duringrehabilitation directly impinges on the provision of the approved Rehabilitation Plan. Inthe event that the court terminates the proceedings for reasons other than thesuccessful implementation of the plan, the secured creditors may foreclose thesecurities and the proceeds thereof applied to the satisfaction of their preferred claims. 2) Issue: Whether the pari passu treatment of claims violates not only the due regardprovision in the Interim Rules but also the Contract Clause in the 1987 Constitution NO. a) On the Due regard provision When the Rules of Procedure on Corporate Rehabilitation took effect on January 16, 2009, the "due regard" provision was amended to read: SEC. 18. Rehabilitation Plan. The rehabilitation plan shall include (a) the desired business targets or goals and the duration and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall include the manner of its implementation, giving due regard to the interests of secured creditors such as, but not limited, to the non-impairment of their security liens or interests ; x x x. Despite the additional phrase, however, the amendment simply amplifies the meaning of the due regard provision in the Interim Rules. i) The amendment exemplifies what giving due

regard to the interests of secured creditors contemplates, mainly, the non-impairment of securities. ii) The specific reference to security liens and interests, separated by the disjunctive or, describes what the interests of secured creditors consist of. Again, lien pertains only to interests providing security that are created by operation of law while security interests include those acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. iii) The addition of the phrase but not limited in the amendment shuns a rigid application of the provision by recognizing that giving due regard to the interest of secured creditors may be rendered in other ways than taking care that the security liens and interests of secured creditors are adequately protected. Petitioners are not without any remedy to address a deficiency in securities, if and when it comes about. Under Section 12, Rule 4 of the Interim Rules, a secured creditor may file a motion with the Rehabilitation Court for the modification or termination of the stay order. If petitioners can show that arrangements to insure or maintain the property or to make payment or provide additional security therefor is not feasible, the court shall modify the stay order to allow petitioners to enforce their claim that is, to foreclose the mortgage and apply the proceeds thereof to their claims. Be that as it may, the court may deny the creditor this remedy if allowing so would prevent the continuation of the debtor as a going concern or otherwise prevent the approval and implementation of a rehabilitation plan. Neither the "due regard provision" nor contractual arrangements can shackle the Rehabilitation Court in determining the best means of rehabilitating a distressed corporation. The Rehabilitation Court may approve a rehabilitation plan even over the opposition of creditors holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. In determining whether or not the opposition of the creditors is manifestly unreasonable, the court shall consider the following: a) That the plan would likely provide the objecting class of creditors with compensation greater than that which they would have received if the assets of the debtor were sold by a liquidator within a three-month period; b) That the shareholders or owners of the debtor lose at least their controlling interest as a result of the plan;

Basically, once a management committee or rehabilitation receiver has been appointedin accordance with PD 902-A, no action for claims may be initiated against a distressedcorporation

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and c) The Rehabilitation Receiver has recommended approval of the plan. The Receiver concluded that the shareholders shall receive nothing on respondents liquidation while the latters creditors can expect significantly less than full repayment. Moreover, regardless of whether the shareholders will lose at least their controlling interest as a result of the plan, petitioners have signified their conformity with the CA decision to limit the conversion of the unsustainable debt to a maximum of 40% of the fully-paid up capital of respondent corporation. Lastly, the Receiver not only recommended the approval of the Plan by the Rehabilitation Court, he, himself, prepared it. The concurrence of these conditions renders the opposition of petitioners manifestly unreasonable. b) On the Contract Clause Article III, Section 10 of the Constitution mandates that no law impairing the obligation of contracts shall be passed. Any law, which enlarges, abridges, or in any manner changes the intention of the parties, necessarily impairs the contract itself. And even when the change in the contract is done by indirection, there is impairment nonetheless. The non-impairment clause is a limitation on the exercise of legislative power and not of judicial or quasi-judicial power. The prohibition embraces enactments of a governmental law-making body pertaining to its legislative functions. Strictly speaking, it does not cover the exercise by such law-making body of quasi-judicial power. The Decision of the Rehabilitation Court is not a proper subject of the Non-impairment Clause. Petition of Bank of New York and Avenue Asia Capital Group 1) Issue: Whether the CA erred in affirming the sustainable debt fixed by the Rehabilitation Court? Held: It is a question of fact that calls for a recalibration of the evidence presented by the parties before the trial court. 2) Issue:

Whether the admission of Bayantels rehabilitation plan is in violation of the Interim Rules? Held: NO. Rule 4 of the Interim Rules treats of rehabilitation in general, without distinction as to who between the debtor and the creditor initiated the petition

patrimony and ensure a selfreliant and independent national economy effectively controlled by Filipinos. Gamboa v. Teves case: Meaning of capital in the Constitutional provision limiting foreign ownership in public utilities: Considering that common shares have voting rights which translate to control as opposed to preferred shares which usually have no voting rights, the term capital refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital shall include such preferred shares because the right to participate in the control or management of the SEC. 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. corporation is exercised through the right to vote in the election of directors. In short, the term capital refers only to shares of stock that can vote in the election of directors. Applying this, 2 steps must be followed in order to determine whether the conversion of debt to equity in excess of 40% of the outstanding capital stock violates the constitutional limit on foreign ownership of a public utility: 1) Identify into which class of shares the debt shall be converted, whether common shares, preferred shares that have the right to vote in the election of directors or non-voting preferred shares; 2) Determine the number of shares with voting right held by foreign entities prior to conversion. If upon conversion, the total number of shares held by foreign entities exceeds 40% of the capital stock with voting rights, the constitutional limit on foreign ownership is violated. Otherwise, the conversion shall be respected. In its Rehabilitation Plan, among the material financial commitments made by Bayantel is that its shareholders shall relinquish the agreed-upon amount of common Winz Naive

Nowhere in said Rule is there any provision that prohibits the debtor in a creditor-initiated petition to file its own rehabilitation plan for consideration by the court. One of the functions and powers of the rehabilitation receiver under Section 14(m) of said Rule is to study the rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the proceedings, together with any comments made thereon. This provision makes particular reference to a debtor-initiated proceeding in which the debtor principally files a rehabilitation plan. In such case, the receiver is tasked, among other things, to study the rehabilitation plan presented by the debtor along with any rehabilitation plan submitted during the proceedings. This implies that the creditors of the distressed corporation, and even the receiver, may file their respective rehabilitation plans. By analogy, the same option may be available to a debtor in creditor-initiated proceedings, which is also found in Rule 4 of the Interim Rules. 3) Issue: Whether the CA is at fault for ruling that the debt-toequity conversion rate of 77.7%, as proposed by The Bank of New York, violates the Filipinization provision of the Constitution? Held: NO, the CA acted correctly in sustaining the 40% debt-to-equity ceiling on conversion. The provision adverted to is Article XII, Section 11 of the 1987 Constitution. This provision explicitly reserves to Filipino citizens control over public utilities, pursuant to an overriding economic goal of the 1987 Constitution: to conserve and develop our

stocks as payment to Unsecured Creditors as per the Term Sheet. Evidently, the parties intend to convert the unsustainable portion of Bayantels debt into common stocks, which have voting rights. If the proposal be allowed, the Omnibus Creditors which are foreign corporations, shall have control over 77.7% of Bayantel, a public utility company. This is precisely the scenario proscribed by the Filipinization provision of the Constitution. 4) Issue: Whether the write-off of the default interest and penalties along with the re-computation of past due interest violate the pari passu treatment of creditors? Held: NO. Section 5(d), Rule 4 of the Interim Rules provides that the rehabilitation plan shall include the means for the execution of the rehabilitation plan, which may include conversion of the debts or any portion thereof to equity, restructuring of the debts, dacion en pago , or sale of assets or of the controlling interest. Debt restructuring may involve conversion of the debt or any portion thereof to equity, sale of the assets of the distressed company and application of the proceeds to the obligation, dacion en pago , debt relief or reduction, modification of the terms of the loan or a combination of these schemes. In this case, the approved Rehabilitation Plan provided for a longer period of payment, the conversion of debt to 40% equity in Bayantel, modification of interest rates on the restructured debt and accrued interest and a write-off or relief from penalties and default interest. These recommendations by the Receiver are perfectly within the powers of the Rehabilitation Court to adopt and approve, as it did adopt and approve. In so doing, no reversible error can be attributed to the Rehabilitation Court. The pertinent portion of the Fallo of said courts Decision dated June 28, 2004 states 1. The ruling on the pari passu treatment of all creditors whose claims are subject to restructuring shall be maintained and shall extend to all payment terms and treatment of past due interest. Thus, the court a quo provided for a uniform application of the pari passu principle among creditor claims and the terms by which they shall be paid, including past due interest. This is consistent with the interpretation accorded by jurisprudence to the pari passu principle that during rehabilitation, the assets of the

distressed corporation are held in trust for the equal benefit of all creditors to preclude one from obtaining an advantage or preference over another. All creditors should stand on equal footing. Not any one of them should be given preference by paying one or some of them ahead of the others. The pari passu treatment of claims during rehabilitation entitles all creditors, whether secured or unsecured, to receive payment out of Bayantels cash flow. Despite their preferred position, therefore, the secured creditors shall not be paid ahead of the unsecured creditors but shall receive payment only in the proportion owing to them. In any event, the debt restructuring schemes complained of shall be implemented among all creditors regardless of class. Both secured and unsecured creditors shall suffer a write-off of penalties and default interest and the escalating interest rates shall be equally imposed on them. The commitment embodied in the pari passu principle only goes so far as to ensure that the assets of the distressed corporation are held in trust for the equal benefit of all creditors. It does not espouse absolute equality in all aspects of debt restructuring. Petition of Bank of New York Facts: The pertinent portion of the fallo of the Decision dated June 28, 2004 provides: 6. A Monitoring Committee shall be formed composed of representatives from all classes of the restructured debt. The Rehabilitation Receivers role shall be limited to the powers of monitoring and oversight as provided in the Interim Rules. All powers provided for in the Report and Recommendations, which exceed the monitoring and oversight functions mandated by the Interim Rules shall be amended accordingly. Bank of New York filed a Manifestation with the Rehabilitation Court for the creation of a monitoring committee in accordance with the above pronouncement. Subsequently, the Rehabilitation Court adopted Bank of New Yorks proposal by constituting a Monitoring Committee that shall participate with the Receiver in monitoring and overseeing the actions of the Board of Directors of Bayantel and may, by majority vote, adopt, modify, revise or substitute any of the following items: x x x x (6) The EBITDA/Revenue ratios set by the Bayantel Board of Directors; and, (7) Any other proposed actions by the Bayantel Board of Directors including, without limitation, issuance of new shares, sale of core and non-core assets, change of business, etc. that will materially

affect the terms and conditions of the rehabilitation plan and its implementation From said Order, Bayantel filed a Manifestation and Motion for Clarification while the secured creditors moved for an increase in the membership of the monitoring committee from 3 to 5 members. The Rehabilitation Court affirmed the creation of a monitoring committee but denied the motion for the appointment of additional members therein. It also made the following dispositions relative to the functions of the Monitoring Committee: (d) To approve the Implementing Term Sheet submitted by the Receiver subject to the following conditions: x x x x ii. The Receiver shall design and formulate with the participation of the Monitoring Committee and Bayantel the convertible debt instrument, as directed of him in the earlier Order of November 9, 2004, for the unsustainable portion of the restructured debt of Bayantel and submit the same to the Court within thirty (30) days from receipt of this Order. Costs, expenses and taxes that may be due on the execution of the convertible debt instrument shall be charged to Bayantel as costs of the rehabilitation proceedings; x x x x iv. The Receiver shall devise a mode or procedure whereby the Monitoring Committee can have immediate and direct access to any information that the Receiver has obtained or received from Bayantel or the Monitoring Accountant in regard to the management and business operations of Bayantel; v. The trading of debt mentioned in the Implementing Term Sheet shall be governed by the pre-petition documents which do not conflict with the Decision of this Court and provided that no transfer shall be made to the Bayantel Group Companies, or any controlling shareholders thereof including Bayan Telecommunications Holdings Corporation ("BTHC"); however, any "buy back" scheme as may be approved by the Monitoring Committee and Bayantel shall be open to all creditors whether secured or unsecured; CA nullified the Orders insofar as they defined the powers and functions of the Monitoring Committee. The appellate court ruled that the Rehabilitation Court committed grave abuse of discretion in vesting the Monitoring Committee with powers beyond monitoring and overseeing Bayantels operations. Issue: Whether the Rehabilitation Court intended for the Monitoring Committee to exercise powers greater than those of the Receiver? Held: NO. The Rehabilitation Courts decision to form a monitoring committee was borne out of creditors concerns over the possession of vast powers by the Receiver. While the Rehabilitation Court was quick to delineate the Receivers Winz Naive

authority, it nevertheless, underscored the value of his role in overseeing the implementation of the Plan. It was on this premise that the Rehabilitation Court appointed the Monitorin Committee to address the concerns raised by the creditors. Yet, in its Orders, theRehabilitation Court equipped the Monitoring Committee with powers well beyond those of the Receivers. Apart from control over respondents budget, the Monitoring Committee may also adopt, modify, revise or even substitute any other proposed actions by respondents Board of Directors, including, without limitation issuance ofnew shares, sale of core and noncore assets, change of business and others that willmaterially affect the terms and conditions of the rehabilitation plan and itsimplementation. Ironically, the court a quo diluted the seeming concentration of powerin the hands of the Receiver but appointed a Committee possessed of even wider discretion over respondents operations. However, the tenor of the Rehabilitation Courts Decision does not contemplate the creation of a Monitoring Committee with broader powers than the Receiver. As thename of the Monitoring Committee itself suggests, its job is to watch, observe or checkespecially for a special purpose. The fundamental task of the Monitoring Committee isto oversee the implementation of the rehabilitation plan as approved by the court. Thisshould not be confused with the functions of the Receiver under the Interim Rules or amanagement committee under PD 902-A.Under Section 14, Rule 4 of the Interim Rules, the Receiver shall not take over themanagement and control of the debtor but shall closely oversee and monitor itsoperations during the pendency of the rehabilitation proceeding. The RehabilitationReceiver shall be considered an officer of the court and his core duty is to assess howbest to rehabilitate the debtor and to preserve its assets pending the determination ofwhether or not it should be rehabilitated and to implement the approved plan.Corporation Law: The corporate powers of all corporations formed under BP Blg. 68 orthe Corporation Code shall be exercised, all business conducted and all property of suchcorporations controlled and held by the board of directors or trustees. Nonetheless, PD902-A presents an exception to this rule.Section 6(d) of PD 902-A empowers the Rehabilitation Court to create and appoint amanagement committee to undertake the management of corporations when there isimminent danger of dissipation, loss, wastage or destruction of assets or otherproperties or paralyzation of business operations of such corporations which may beprejudicial to the interest of minority stockholders, parties-litigants or the generalpublic. In the case of corporations supervised or regulated by government

agencies,such as banks and insurance companies, the appointment shall be made upon therequest of the government agency concerned. Otherwise, the Rehabilitation Court may,upon petition or motu proprio, appoint such management committee.The management committee or rehabilitation receiver, board or body shall have thefollowing powers:1) To take custody of, and control over, all the existing assets and property of thedistressed corporation;2) To evaluate the existing assets and liabilities, earnings and operations of thecorporation;3) To determine the best way to salvage and protect the interest of the investors andcreditors;4) To study, review and evaluate the feasibility of continuing operations and restructureand rehabilitate such entities if determined to be feasible by the Rehabilitation Court;and5) It may overrule or revoke the actions of the previous management and board ofdirectors of the entity or entities under management notwithstanding any provision oflaw, articles of incorporation or by-laws to the contrary.In this case, Bank of New York neither filed a petition for the appointment of amanagement committee nor presented evidence to show that there is imminent dangerof dissipation, loss, wastage or destruction of assets or other properties or paralyzationof business operations of Bayantel which may be prejudicial to the interest of theminority stockholders, the creditors or the public. Unless Bank of New York satisfiesthese requisites, the Court cannot sanction the exercise by the Monitoring Committeeof powers that will amount to management of Bayantels operations ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THECOMMISSIONER OF INTERNAL REVENUE1994 Aug 25G.R. No. 115455235 SCRA 630FACTS: The valued-added tax (VAT) is levied on the sale, barter or exchange of goodsand properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic ActNo. 7716 seeks to widen the tax base of the existing VAT system and enhance itsadministration by amending the National Internal Revenue Code.The Chamber of Real Estate and Builders Association (CREBA) contends that theimposition of VAT on sales and leases by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision of non-impairment of contracts.

ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the contractclause under Art. III, sec 10 of the Bill of Rights. RULING: No. The Supreme Court the contention of CREBA, that the imposition of theVAT on the sales and leases of real estate by virtue of contracts entered into prior to theeffectivity of the law would violate the constitutional provision of non-impairment of contracts, is only slightly less abstract but nonetheless hypothetical. It is enough to saythat the parties to a contract cannot, through the exercise of prophetic discernment,fetter the exercise of the taxing power of the State. For not only are existing laws readinto contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes themaintenance of a government which retains adequate authority to secure the peace andgood order of society. In truth, the Contract Clause has never been thought as alimitation on the exercise of the State's power of taxation save only where a taxexemption has been granted for a valid consideration.Such is not the case of PAL in G.R. No. 115852, and the Court does not understand itto make this claim. Rather, its position, as discussed above, is that the removal of its taxexemption cannot be made by a general, but only by a specific, law.Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal andsubstantive aspects as this has been raised in the various cases before it. To sum up,the Court holds:(1) That the procedural requirements of the Constitution have been complied with byCongress in the enactment of the statute;(2) That judicial inquiry whether the formal requirements for the enactment of statutes -beyond those prescribed by the Constitution - have been observed is precluded by theprinciple of separation of powers;(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of religion, nor deny to any of the parties the right to aneducation; and(4) That, in view of the absence of a factual foundation of record, claims that the law isregressive, oppressive and confiscatory and that it violates vested rights protectedunder the Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ of prohibition.WHEREFORE, the petitions are DISMISSED Winz Naive

Manila Electric Company v. Province of Laguna (G.R. No. 131359. May 5, 1999) 18AUG FACTS: MERALCO was granted a franchise by several municipal councils and the National Electrification Administration to operate an electric light and power service in the Laguna. Upon enactment of Local Government Code, the provincial government issued ordinance imposing franchise tax. MERALCO paid under protest and later claims for refund because of the duplicity with Section 1 of P.D. No. 551. This was denied by the governor (Joey Lina) relying on a more recent law (LGC). MERALCO filed with the RTC a complaint for refund, but was dismissed. Hence, this petition. ISSUE: Whether or not the imposition of franchise tax under the provincial ordinance is violative of the non-impairment clause of the Constitution and of P.D. 551. HELD: No. There is no violation of the non-impairment clause for the same must yield to the inherent power of the state (taxation). The provincial ordinance is valid and constitutional. RATIO: The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions of the now repealed Local Tax Code. The 1991 Code explicitly authorizes provincial governments, notwithstanding any exemption granted by any law or other special law, . . . (to) impose a tax on businesses enjoying a franchise. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires Meralco v. Laguna [GR 131359, 5 May 1999]

Third Division, Vitug (J): 4 concur Facts: On various dates, certain municipalities of the Province of Laguna, including, Bian, Sta. Rosa, San Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing laws then in effect, issued resolutions through their respective municipal councils granting franchise in favor of the Manila Electric Company (Meralco) for the supply of electric light, heat and power within their concerned areas. On 19 January 1983, Meralco was likewise granted a franchise by the National Electrification Administration to operate an electric light and power service in the Municipality of Calamba, Laguna. On 12 September 1991, Republic Act 7160 (1991 Local Government Code [LGC]) was enacted to take effect on 1 January 1992 enjoining local government units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Pursuant to the provisions of the Code, Laguna enacted Provincial Ordinance 01-92, effective 1 January 1993, which provided a Franchise Tax (Section 2.09). On the basis of the ordinance, Provincial Treasurer sent a demand letter to Meralco for the corresponding tax payment. Meralco paid the tax under protest. A formal claim for refund was thereafter sent by Meralco to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to PD 551 (Section 1) already included the franchise tax imposed by the Provincial Tax Ordinance. On 28 August 1995, the claim for refund of Meralco was denied in a letter signed by Governor Lina. In denying the claim, the province relied on a more recent law, RA 7160 (1991

LGC), than the old decree invoked by Meralco (PD 551). On 14 February 1996, Meralco filed with the Regional Trial Court (RTC) of Sta. Cruz, Laguna, a complaint for refund, with a prayer for the issuance of a writ of preliminary injunction and/or TRO, against the Province of Laguna and Balazo in his capacity as the Provincial Treasurer of Laguna. The trial court, in its assailed decision of 30 September 1997, dismissed the complaint and declared the ordinance valid, binding, reasonable, and enforceable. Hence, the petition. Issue: Whether the withdrawal of tax exemption to Meralco by the local government unit (province) violates the non-impairment clause of the Constitution. Held: The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions of the now repealed Local Tax Code (PD 231 pursuant to Section 2, Article XI, 1973 Constitution; in effect since 1 July 1973). The 1991 Code explicitly authorizes provincial governments, notwithstanding "any exemption granted by any law or other special law to impose a tax on businesses enjoying a franchise (Section 137). Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local government units, the Local Government Code has effectively withdrawn tax exemptions or incentives theretofore enjoyed by certain entities (Section 193). While tax exemptions contained in special franchises are in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of

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the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires. Indeed, Article XII, Section 11, of the 1987 Constitution is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires Home Building & Loan Association v. Blaisdell Summary In a 5-4 decision authored by Chief Justice Hughes, the Supreme Court held that Minnesotas Mortgage Moratorium Law, which allowed modification of terms for foreclosure and redemption of defaulted mortgages during the Great Depression, did not violate

the Contract Clause, which states that no state shallpass anylaw impairing the obligation of contracts. The Court reasoned that the emergency conditions of the Great Depression justified the exercise of the States continuing and dominant protective power notwithstanding interference with contracts. Chief Justice Hughes explained that, because the Contract Clause is not to be applied with literal exactness, economic conditions may arise in which a temporary restraint of enforcement of contracts will be consistent with the spirit and purpose of the Contract Clause. Analysis This case is activist because the Court contorts the text of the Constitution, nullifying a right enforced by prohibition explicitly written in the Constitution. Contrary to the view of the Court, the minimum requirements of the Contract Clause cannot change in meaning depending on the times and circumstances. If a statute violates the Clause during ordinary times, it must also be in violation of the Clause during harder times. The Founders understood emergencies and economic hardship, having lived through them, and therefore drafted a Constitution to safeguard rights even in these situations. If exigent circumstances are used to create exceptions to that instrument, then a vital purpose of constitutional government is undermined. To relax the requirements of the Constitution in times of emergency, as the Court did here, sets a dangerous precedent and threatens the stability of our nation and its system of limited government Home Building Assn v. Blaisdell Brief Fact Summary. Minnesotas Mortgage Moratorium Law, which was passed in order to grant relief to those with mortgages during the Depression, was upheld as an emergency measure despite its interference with private contracts between mortgagors and mortgagees. Synopsis of Rule of Law. The protective power of the state, the police power, may be exercised in directly preventing the immediate and literal enforcement of contractual obligations by a temporary and conditional restraint where vital public interests would otherwise suffer.

sales of real property during the Depression. It granted local courts authority to extend the period of redemption for foreclosure sales for such additional time as the court may deem just and equitable but not beyond May 1, 1935. Such extensions were conditioned upon an order requiring the mortgagor to pay all or a reasonable part of the fair income of rental value of the property toward the payment of taxes, insurance, interest and principal. No deficiency judgment could be brought during such a court-extended period of redemption. The Defendants, the Blaisdells, obtained a court order under the Act extending the period of redemption on condition that they pay the Association $40 per month, thus, the court modified the lenders contractual right to foreclose. The highest state court sustained the law as an emergency measure. Issue. Whether the provision for this temporary and conditional relief exceeds the power of the state by reason of the contracts clause? Held. No. Judgment of the highest state court affirmed. Not only is the contracts clause qualified by the measure of control which the state retains over the remedial processes, but the state also continues to possess authority to safeguard the vital interests of its people. The protective power of the state, the police power, may be exercised in directly preventing the immediate and literal enforcement of contractual obligations by a temporary and conditional restraint where vital public interests would otherwise suffer. Here, the conditions upon which the period of redemption is extended do not appear unreasonable. Therefore, the Minnesota statute does not violate the contracts clause. Dissent. The contracts clause was meant to foreclose state action impairing the obligations of contracts primarily and especially in respect to such action aimed at giving relief to debtors in time of emergency.

Discussion. The majority incorporates a broad interpretation of the police power in holding that a state may use its police power to impair private contracts where certain conditions are met. Rutter v. Esteban [GR L-3708, 18 May 1953] Winz Naive

Facts. The Minnesota Mortgage Moratorium Law of 1933 authorized relief from mortgage foreclosures and execution

En Banc, Bautista-Angelo (J): 6 concur, 1 concurs with dispositive part Facts: On 20 August 1941, Royal L. Rutter sold to Placido J. Esteban 2 parcels of land situated in the City of Manila. To secure the payment of said balance of P4,800, a first mortgage over the same parcels of land has been constituted in favor of Rutter. The deed of sale having been registered, a new title was issued in favor of Placido J. Esteban with the mortgage duly annotated on the back thereof. Esteban failed to pay the two installments as agreed upon, as well as the interest that had accrued thereon, and so on 2 August 1949, Rutter instituted an action in the Court of First Instance (CFI) Manila to recover the balance due, the interest due thereon, and the attorney's fees stipulated in the contract. The complaint also contains a prayer for the sale of the properties mortgaged in accordance with law. Esteban admitted averments of the complaint but set up defense on the moratorium clause embodied in RA 342 (approved 26 July 1948), allowing a war sufferer 8 years from the settlement of his claim by the Philippine War Damage Commission. After a motion for summary judgment has been presented by Esteban, and the requisite evidence submitted covering the relevant facts, the court rendered judgment dismissing the complaint holding that the obligation which Rutter seeks to enforce is not yet demandable under the moratorium law. Rutter filed a motion for reconsideration wherein he raised for the first time the constitutionality of the moratorium law, but the motion was denied. Rutter appealed.

Issue: Whether Republic Act 342 is unconstitutional for being violative of the constitutional provision forbidding the impairment of the obligation of contracts. Held: Statutes declaring a moratorium on the enforcement of monetary obligations are not of recent enactment. These moratorium laws are not new. Moratorium laws have been adopted "during times of financial distress, especially when incident to, or caused by, a war." The Moratorium Law is a valid exercise by the State of its police power, being an emergency measure. Although conceding that the obligations of the contract were impaired, the impairment was within the police power of the State as that power was called into exercise by the public economic emergency which the legislature had found to exist. Not only is the constitutional provision (contract clause) qualified by the measure of control which the State retains over remedial processes, but the State also continues to possess authority to safeguard the vital interest of its people. It does not matter that legislation appropriate to that end "has the result of modifying or abrogating contracts already in effect." Not only are existing laws read into contracts in order to fix obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government by virtue of which contractual relations are worth while, a government which retains adequate authority to secure the peace and good order of society. Some of these laws, however, have

also been declared "void as to contracts made before their passage where the suspension of remedies prescribed is indefinite or unreasonable in duration." The true test, therefore, of the constitutionality of a moratorium statute lies in the determination of the period of suspension of the remedy. It is required that such suspension be definite and reasonable, otherwise it would be violative of the constitution. Herein, obligations had been pending since 1945 as a result of the issuance of Executive Orders 25 and 32 and at present their enforcement is still inhibited because of the enactment of Republic Act 342 and would continue to be unenforceable during the 8-year period granted to prewar debtors to afford them an opportunity to rehabilitate themselves, which in plain language means that the creditors would have to observe a vigil of at least 12 years before they could effect a liquidation of their investment dating as far back as 1941. This period seems to be unreasonable, if not oppressive. While the purpose of Congress is plausible, and should be commended, the relief accorded works injustice to creditors who are practically left at the mercy of the debtors. Their hope to effect collection becomes extremely remote, more so if the credits are unsecured. And the injustice is more patent when, under the law, the debtor is not even required to pay interest during the operation of the relief. Thus, the Court declared that the continued operation and enforcement of Republic Act 342 at the present time is unreasonable and oppressive, and should not be prolonged a minute longer, and the same should be declared null and void and without effect. This also holds true as regards Executive Orders 25 and 32,

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considering that said Orders contain no limitation whatsoever in point of time as regards the suspension of the enforcement and effectivity of monetary obligations. This pronouncement is most especially needed in view of the revival clause embodied in said Act if and when it is declared unconstitutional or invalid Rutter v. Esteban (G.R. No. L-3708. May 18, 1953) FACTS: Rutter sold to Placido a parcel of land through full payment of the half and two installments of the other half of the agreed amount. The first half was paid then war came through Japanese occupation. Rutter filed an action to claim to recover the balance due to the CFI. Esteban set up the defense of moratorium clause embodied in Republic Act No. 342. The CFI dismissed the case upholding the moratorium of 8 years had not yet lapsed. In Rutters motion, he raised the constitutionality issue for the first time, but said motion was denied. ISSUE: Whether or not Republic Act No. 342 is unconstitutional being violative of the constitutional provision forbidding the impairment of the obligation of contracts (Article III, Section 1, 1935 Constitution). HELD: Yes. R.A. No. 342 was declared unconstitutional. RATIO: Consistent with what [the Supreme Court] believe to be as the only course dictated by justice, fairness and righteousness, [the Supreme Court] feel that the only way open to us under the present circumstances is to declare that the continued operation and enforcement of Republic Act No. 342 x x x is unreasonable and oppressive, and should not be prolonged a minute longer, and, therefore, the same should be declared null and void and without effect.

DELROSARIO, petitioner, vs. VICTORIANO DE LOS SANTOS, TOMAS DE LOS SANTOS and THE COURT OF AGRARIAN RELATIONS,respondents. This petition for the review of a decision of the Court of Agrarian Relations represents still another attempt to assail the validity of Section 14 of the Agricultural Tenancy Act of 1955, 1 which empowers a tenant "to change the tenancy contract from one of share tenancy to the leasehold tenancy and vice versa and from one crop-sharing arrangement to another of the share tenancy." Such attempts in the past on the part of landowners were singularly unsuccessful, its validity having been consistently upheld. A similar fate is in store for the effort of petitionerlandowner in this case. The decision of the Court of Agrarian Relations must be upheld. Two petitions were filed by now-respondents Victorino de los Santos and Tomas de los Santos before respondent Court of Agrarian Relations on April 28, 1961, manifesting their desire, as tenants of herein petitioner-landowner, Ernesto del Rosario, to take advantage of Section 14 and to adopt the leasehold system provided, thus changing their previous status as tenants. In the answer submitted on May 5, 1961, the validity of the above legal provision was challenged. It was not until October 26, 1962, that a decision was rendered by the Court of Agrarian Relations, rejecting the claim of unconstitutionality of the above section as without merit and declaring the relationship between respondent tenants and petitioner-landowner to be one of leasehold tenancy effective as of the agricultural year 1961-1962 in a joint decision on the two petitions filed before it. From the aforesaid joint decision, this petition for review was filed. As in the case of the proceedings before the Court of Agrarian Relations, a single opinion suffices to dispose of the matter and to reaffirm once again the constitutionality of Section 14 of the Agricultural Tenancy Act. 1. Tenancy legislation is a manifestation of the deep and earnest concern to solve an age-old problem that has afflicted Philippine society, with its roots going back to the nineteenth century. The framers of the Constitution mindful of the then growing feeling of dissatisfaction with the ability of the government to cope with the poverty and misery of the vast majority of our people inserted the protection to labor 2 and social justice 3 provisions of the Constitution. Thus they left no doubt about the validity of remedial legislation intended to minimize, if not to do away entirely with, the oppressive condition that usually

was associated with agricultural labor. In no sphere of governmental activity then could there be less receptivity to claims on the part of those adversely affected that thereby their property rights were not given the respect the Constitution affords. More specifically as far as the social justice principle is concerned, there is the translation into reality of its significance as popularized by the late President Magsaysay: He who has less in life should have more in law. In the second year of his term, the Agricultural Tenancy Act of 1955 was passed. The particular provision, once again assailed in this litigation, as previously mentioned, vested in the tenants "the right to change the tenancy contract from one of share tenancy to leasehold tenancy and vice versa and from one-cropsharing arrangement to another of the share tenancy." 4 Its validity was first sustained in De Ramas v. Court of Agrarian Relations. 5 This Court, through Justice Labrador, spoke of the objective of the law thus: "The purpose of this Act, according to Section 2 thereof, is 'to establish agricultural tenancy relations between landholders and tenants upon the principle of social justice; to afford adequate protection to the rights of both tenants and landlords, to insure an equitable division of the produce and income derived from the land; to provide tenant-farmers with incentives to greater and more efficient agricultural production; to bolster their economic position and to encourage their participation in the development of peaceful, vigorous and democratic rural communities.'" Its justification in the light of our history was stressed in this wise: "The history of land tenancy, especially in Central Luzon, is a dark spot in the social life and history of the people. It was among the tenants of Central Luzon that the late Pedro Abad Santos, acting as a saviour of the tenant class, which for generations has been relegated to a life of bondage, without hope of salvation or improvement, enunciated a form of socialism as a remedy for the pitiful condition of the tenants of Central Luzon. It was in Central Luzon also that the tenants forming the PKM organization of tenants and, during the war, the Hukbalahap, rose in arms against the constituted authority as their only salvation from permanent thraldom. According to statistics, whereas at the beginning of the century we had only 19% of the people belonging to the tenant class, after 60 years of prevailing, the percentage has reached 39%. It is the desire to improve the condition of the peasant class that must have impelled the Legislature to adopt Winz Naive

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the provisions as a whole of the Agricultural Tenancy Act, and particularly Section 14 [thereof]." The opinion in the De Ramas decision, after setting forth that the legal question posed was whether there was an unconstitutional impairment of the obligation of an existing contract, explained why the answer must be in the negative. Thus: "Obligations of contracts must yield to a proper exercise of the police power when such power is exercised, as in this case, to preserve the security of the State and the means adopted are reasonably adapted to the accomplishment of that end and are not arbitrary or oppressive." The De Ramas decision was subsequently followed in several cases. 6 Then in Ilusorio v. Court of Agrarian Relations, 7 in sustaining once again the validity of the above Section 14, this Court, in an opinion by the then Justice, now Chief Justice, Concepcion, declared: "We find no cogent reason to depart from the view we have so far adhered to, which is in consonance with our consistent jurisprudence on the police power of the State." As distinguished from the De Ramas holding, the objection to the validity of Section 14 in this case was premised not only on the alleged impairment of an existing obligation but likewise on the transgression to the freedom of contract concept which is embraced in the liberty safeguarded by the due process clause. Its validity then as a police power measure is now beyond question. 8 It thus appears indisputable that reinforced by the protection to labor and social justice provisions of the Constitution, the attribute of police power justifies the enactment of statutory provisions of this character. That public interest would be served by governmental measures intended to aid the economically under-privileged is apparent to all. Nor is the means relied upon to attain such a valid objective unreasonable or oppressive. Considering that in the adjustment or reconciliation of the conflicting claims to property and state authority, it suffices that there be a rational basis for the legislative act, it is easily understandable why, from the enactment of the Constitution with its avowed concern for those who have less in life, the constitutionality of such legislation has been repeatedly upheld. Thus prior to the Agricultural Tenancy Act of 1955, there were previous statutes which likewise passed the test of validity in earlier decisions. The first decision of importance is Tapang v. Court of Industrial Relations. 9 In that case, the argument that the

then Tenancy Law 10 was unconstitutional because it impaired the obligation of contracts was considered by the court to be without any force as outside of the fact that the contract entered into between the petitioner and the husband of the respondent during his lifetime and the respondent herself after his death was without a fixed period, the work being accomplished from year to year, the Constitution ordains the promotion of social justice and the protection to labor, specially to working women. Then came Ongsiako v. Gamboa, 11 which sustained the retroactive effect of an amendatory act 12 to then tenancy statute as against the contention that there was a violation of the non-impairment clause. This constitutional provision is no bar, according to this Court, for legislation affecting existing conditions enacted by the State in the proper exercise of the police power. The unanimous opinion of this Court in the recently decided Genuino v. Court of Agrarian Relations, 13 with its unqualified approval of the power of Congress to abolish share tenancy, as reflected in the latest legislation on the subject,14 as against the contention that with the limitation on the freedom of contract there is a deprivation of property without due process of law, evinces unmistakably the firmness with which it adheres to the view that the police power is of sufficient amplitude and scope to free from the taint of constitutional infirmity legislation intended to ameliorate the sad plight of Filipino tenants and agricultural workers. Thereby, this Court has manifested its fidelity to the constitutional intent so obvious from a cursory glance at the applicable provisions of the Constitution. That will explain why every challenge hurled against the validity of this particular provision was, from the outset, doomed to futility. 2. In addition, another issue which according to the petition for review is "now squarely raised before this [Court] is whether or not the use of a tractor of a land-owner in addition to his carabao and farm implements is a ground for a disqualification of said land-owner to undertake the personal cultivation of his own land and the ejectment of his tenants" pursuant to the Agricultural Tenancy Act? 15 That point would have been deserving of further inquiry were it not for the express finding of the Court of Agrarian Relations that respondent, now Petitioner before this Court, "does not have the bona fide intention to cultivate the landholding in question personally." 16 That is a finding of fact supported by substantial evidence, and as such, binding upon this Court. It cannot therefore be disturbed on appeal. 17 The latest formulation of the above principle as set forth in Lapina v. Court of Agrarian

Relations, 18 in an opinion by Justice Dizon, is to the effect that its finding of fact must be accepted "unless it is shown to be unfounded or arbitrarily arrived at, or that the [Court] had failed to consider important evidence to the contrary." There is no occasion therefore to consider further the issue of whether or not the ejectmennt of now respondents-tenants would lie. WHEREFORE, the decision of the Court of Agrarian Relations now under review is affirmed. With costs against petitioner. 1wph1.t National Development Company and New Agrix vs. Philippine VeteransBank (192 SCRA 257) Facts:Agrix Marketing executed in favor of respondent a real estate mortgage overthree parcels of land. Agrix later on went bankrupt. In order to rehabilitate thecompany, then President Marcos issued Presidential Decree 1717 whichmandated, among others, the extinguishing of all the mortgages and liensattaching to the property of Agrix, and creating a Claims Committee to processclaims against the company to be administered mainly by NDC. Respondentthereon filed a claim against the company before the Committee. Petitionershowever filed a petition with the RTC of Calamba, Laguna invoking the provision of the law which cancels all mortgage liens against it. Respondent took measures toextrajudicially foreclose which the petitioners opposed by filing another case inthe same court. These cases were consolidated. The RTC held in favor of therespondent on the ground of unconstitutionality of the decree; mainly violation of the separation of powers, impairment of obligation of contracts, and violation of the equal protection clause. Hence this petition ISSUE/HELD: 1) WON PD 1717 is constitutional NO, not valid exercise of police power 2)WON New Agrix, Inc was validly constituted NO new corporation, being neither owned norcontrolled by the Government, should have been created only by general and not speciallaw. RATIO: The Court is especially disturbed by Section 4(1) of the decree extinguishing all mortgagesand other liens attaching to the assets of AGRIX. It also notes, with equal concern, therestriction in Subsection (ii) thereof that all "unsecured obligations shall not Winz Naive

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bear interest"and in Subsection (iii) that "all accrued interests, penalties or charges as of date hereof pertaining to the obligations, whether secured or unsecured, shall not be recognized."

New Agrix, Inc. was created by special decree notwithstanding the provision of Article XIV,Section 4 of the 1973 Constitution, then in force, that: SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation,organization, or regulation of private corporations, unless such corporations are owned orcontrolled by the Government or any subdivision or instrumentality thereof.The new corporation is neither owned nor controlled by the government. The NationalDevelopment Corporation was merely required to extend a loan of not more thanP10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC would undertake themanagement of the corporation, but with the obligation of making periodic reports to theAgrix board of directors. After payment of the loan, the said board can then appoint its ownmanagement. The stocks of the new corporation are to be issued to the old investors andstockholders of AGRIX upon proof of their claims against the abolished corporation. Theyshall then be the owners of the new corporation. New Agrix, Inc. is entirely private andso should have been organized under the Corporation Law in accordance with theabove-cited constitutional provision. On estoppel Philippine Veterans Bank not estopped. Filed with Claims Comittee during Marcos time whenPres Marcos was absolute ruler and nobody questions him. Futile. No PD issued by Marcosthat time was declared unconstitutionalMendoza case was not the same, since Mendoza received settlement of stocks P40,000.Here PVB did not receive single centavo. PHILCONSA vs Enriquez GR No. 113105, August 19, 1994 FACTS: House Bill No. 10900, the General Appropriation Bill of 1994 (GAB of 1994), was passed and approved by both houses of Congress on December 17, 1993. As passed, it imposed conditions and limitations on certain items of appropriations in the proposed budget previously submitted by the President. It also authorized members of Congress to propose and identify projects in the pork barrels allotted to them and to realign their respective operating budgets.

Pursuant to the procedure on the passage and enactment of bills as prescribed by the Constitution, Congress presented the said bill to the President for consideration and approval. On December 30, 1993, the President signed the bill into law, and declared the same to have become Republic Act NO. 7663, entitled AN ACT APPROPRIATING FUNDS FOR THE OPERATION OF THE GOVERNMENT OF THE PHILIPPINES FROM JANUARY ONE TO DECEMBER THIRTY ONE, NINETEEN HUNDRED AND NINETY-FOUR, AND FOR OTHER PURPOSES (GAA of 1994). On the same day, the President delivered his Presidential Veto Message, specifying the provisions of the bill he vetoed and on which he imposed certain conditions, as follows: 1. Provision on Debt Ceiling, on the ground that this debt reduction scheme cannot be validly done through the 1994 GAA. And that appropriations for payment of public debt, whether foreign or domestic, are automatically appropriated pursuant to the Foreign Borrowing Act and Section 31 of P.D. No. 1177 as reiterated under Section 26, Chapter 4, Book VI of E.O. No. 292, the Administrative Code of 1987. 2. Special provisions which authorize the use of income and the creation, operation and maintenance of revolving funds in the appropriation for State Universities and Colleges (SUCs), 3. Provision on 70% (administrative)/30% (contract) ratio for road maintenance. 4. Special provision on the purchase by the AFP of medicines in compliance with the Generics Drugs Law (R.A. No. 6675). 5. The President vetoed the underlined proviso in the appropriation for the modernization of the AFP of the Special Provision No. 2 on the Use of Fund, which requires the prior approval of the Congress for the release of the corresponding modernization funds, as well as the entire Special Provision No. 3 on the Specific Prohibition which states that the said Modernization Fund shall not be used for payment of six (6) additional S-211 Trainer planes, 18 SF-260 Trainer planes and 150 armored personnel carriers 5. New provision authorizing the Chief of Staff to use savings in the AFP to augment pension and gratuity funds.

On constitutionality of PD (Bill of Rights) "no person shall be deprived of life, liberty or property without due course of law nor shallany person be denied the equal protection of the law"Sec 10 "no law impairing the obligation of contracts shall be passed."Defense: Property rights subject to regulation under Police Power for the promotion of common welfare Court says: The police power is not a panacea for all constitutional maladies. Neither doesits mere invocation conjure an instant and automatic justification for every act of thegovernment depriving a person of his life, liberty or property. A legislative act based on the police power requires the concurrence of a lawful subject anda lawful method. In more familiar words, a) the interests of the public generally, asdistinguished from those of a particular class, should justify the interference of the state;and b) the means employed are reasonably necessary for the accomplishment of thepurpose and not unduly oppressive upon individuals.Public interest not identited and link to welfare of greater number not established. Decreewas issued to favour only special group of investors. Assuming there is valid public interest,method is oppressive since there was no consideration pain on the extinction of mortgagerights. There was arbitrary taking of property (Mortgage lien property right)The decree operated, to use the words of a celebrated case, 3 " with an evil eye and anuneven hand." -AGRIX was singled out for government help, among othercorporations where the stockholders or investors were also swindled. Decree impairs the obligation of the contract between AGRIX and the private respondentwithout justification. On creation of New Agrix

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7. Conditions on the appropriation for the Supreme Court, Ombudsman, COA, and CHR, the Congress ISSUES: 1. Whether or not the petitioners have locus standi 2. Whether or not the conditions imposed by the President in the items of the GAA of 1994: (a) for the Supreme Court, (b) Commission on Audit (COA), (c) Ombudsman, (d) Commission on Human Rights, (CHR), (e) Citizen Armed Forces Geographical Units (CAFGUS) and (f) State Universities and Colleges (SUCs) are constitutional 3. Whether or not the veto of the special provision in the appropriation for debt service and the automatic appropriation of funds therefore is constitutional. HELD: Locus Standi We rule that a member of the Senate, and of the House of Representatives for that matter, has the legal standing to question the validity of a presidential veto or a condition imposed on an item in an appropriation bill. To the extent the powers of Congress are impaired, so is the power of each member thereof, since his office confers a right to participate in the exercise of the powers of that institution (Coleman v. Miller, 307 U.S. 433 [1939]; Holtzman v. Schlesinger, 484 F. 2d 1307 [1973]). Veto of the Provisions The veto power, while exercisable by the President, is actually a part of the legislative process (Memorandum of Justice Irene Cortes as Amicus Curiae, pp. 3-7). There is, therefore, sound basis to indulge in the presumption of validity of a veto. The burden shifts on those questioning the validity thereof to show that its use is a violation of the Constitution. The vetoed provision on the debt servicing is clearly an attempt to repeal Section 31 of P.D. No. 1177 (Foreign Borrowing Act) and E.O. No. 292, and to reverse the debt payment policy. As held by the court in Gonzales, the repeal of these laws should be done in a separate law, not in the appropriations law. In the veto of the provision relating to SUCs, there was no undue discrimination when the President vetoed said special provisions while allowing similar provisions in other government agencies. If

some government agencies were allowed to use their income and maintain a revolving fund for that purpose, it is because these agencies have been enjoying such privilege before by virtue of the special laws authorizing such practices as exceptions to the one-fund policy (e.g., R.A. No. 4618 for the National Stud Farm, P.D. No. 902-A for the Securities and Exchange Commission; E.O. No. 359 for the Department of Budget and Managements Procurement Service). The veto of the second paragraph of Special Provision No. 2 of the item for the DPWH is unconstitutional. The Special Provision in question is not an inappropriate provision which can be the subject of a veto. It is not alien to the appropriation for road maintenance, and on the other hand, it specifies how the said item shall be expended 70% by administrative and 30% by contract. The Special Provision which requires that all purchases of medicines by the AFP should strictly comply with the formulary embodied in the National Drug Policy of the Department of Health is an appropriate provision. Being directly related to and inseparable from the appropriation item on purchases of medicines by the AFP, the special provision cannot be vetoed by the President without also vetoing the said item (Bolinao Electronics Corporation v. Valencia, 11 SCRA 486 [1964]). The requirement in Special Provision No. 2 on the use of Fund for the AFP modernization program that the President must submit all purchases of military equipment to Congress for its approval, is an exercise of the congressional or legislative veto. However the case at bench is not the proper occasion to resolve the issues of the validity of the legislative veto as provided in Special Provisions Nos. 2 and 3 because the issues at hand can be disposed of on other grounds. Therefore, being inappropriate provisions, Special Provisions Nos. 2 and 3 were properly vetoed. Furthermore, Special Provision No. 3, prohibiting the use of the Modernization fund for payment of the trainer planes and armored personnel carriers, which have been contracted for by the AFP, is violative of the Constitutional prohibition on the passage of laws that impair the obligation of contracts (Art. III, Sec. 10), more so, contracts entered into by the Government itself. The veto of said special provision is therefore valid. The Special Provision, which allows the Chief of Staff to use savings to augment the pension fund for the AFP being managed

by the AFP Retirement and Separation Benefits System is violative of Sections 25(5) and 29(1) of the Article VI of the Constitution. Regarding the deactivation of CAFGUS, we do not find anything in the language used in the challenged Special Provision that would imply that Congress intended to deny to the President the right to defer or reduce the spending, much less to deactivate 11,000 CAFGU members all at once in 1994. But even if such is the intention, the appropriation law is not the proper vehicle for such purpose. Such intention must be embodied and manifested in another law considering that it abrades the powers of the Commander-in-Chief and there are existing laws on the creation of the CAFGUs to be amended. On the conditions imposed by the President on certain provisions relating to appropriations to the Supreme Court, constitutional commissions, the NHA and the DPWH, there is less basis to complain when the President said that the expenditures shall be subject to guidelines he will issue. Until the guidelines are issued, it cannot be determined whether they are proper or inappropriate. Under the Faithful Execution Clause, the President has the power to take necessary and proper steps to carry into execution the law (Schwartz, On Constitutional Law, p. 147 [1977]). These steps are the ones to be embodied in the guidelines FPIB VS CA 252 SCRA 259 Business Organization Corporation Law Liability of the Corporation Apparent Authority In 1987, the a manager of First Philippine International Bank (FPIB), Mercurio Rivera, entered into a contract of sale with Demetrio Demetria and Jose Janolo for the purpose of selling lands owned by the bank to Demetria and Janolo. FPIB at that time is already under conservatorship and the conservator assigned was Leonida Encarnacion. Later, Demetria and Janolo sold the land they bought to Carlos Ejercito. Later however, Encarnacion sought the repudiation of the contracts entered into by Rivera. She asserted that the bank is already in conservatorship hence the contracts are done without authority; that as conservator, she is the one empowered to dispose the assets of the bank.

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ISSUE: Whether or not the real property sales contracts entered into by a property manager, like Rivera, are valid for being entered into with apparent authority. HELD: Yes. Rivera was acting with apparent authority. This can be gleaned from the fact that Rivera has been advertised by the bank as the go-to guy as far as disposition of assets is concerned. Rivera is the manager of the property management department of the bank and as such is in charge of the assets of the bank. Therefore, the fact that there is already a conservator is of no moment. Rivera has been the active participant in all the transactions involving the lands subject of the contracts. He was advertised as such. The buyers therefore are not expected to know Rivera is not supposed to be in charge of the selling of the properties Civil Law Contract of Sale Parties to a Sales Contract Producers Bank (now called First Philippine International Bank), which has been under conservatorship since 1984, is the owner of 6 parcels of land. The Bank had an agreement with Demetrio Demetria and Jose Janolo for the two to purchase the parcels of land for a purchase price of P5.5 million pesos. The said agreement was made by Demetria and Janolo with the Banks manager, Mercurio Rivera. Later however, the Bank, through its conservator, Leonida Encarnacion, sought the repudiation of the agreement as it alleged that Rivera was not authorized to enter into such an agreement, hence there was no valid contract of sale. Subsequently, Demetria and Janolo sued Producers Bank. The regional trial court ruled in favor of Demetria et al. The Bank filed an appeal with the Court of Appeals. Meanwhile, Henry Co, who holds 80% shares of stocks with the said Bank, filed a motion for intervention with the trial court. The trial court denied the motion since the trial has been concluded already and the case is now pending appeal. Subsequently, Co, assisted by ACCRA law office, filed a separate civil case against Demetria and Janolo seeking to have the purported contract of sale be declared unenforceable against the Bank. Demetria et al argued that the second case constitutes forum shopping. ISSUES: 1. Whether or not there is forum shopping. 2. Whether or not there is a perfected contract of sale.

HELD: Yes. There is forum shopping because there is identity of interest and parties between the first case and the second case. There is identity of interest because both cases sought to have the agreement, which involves the same property, be declared unenforceable as against the Bank. There is identity of parties even though the first case is in the name of the bank as defendant, and the second case is in the name of Henry Co as plaintiff. There is still forum shopping here because Henry Co essentially represents the bank. Both cases aim to have the bank escape liability from the agreement it entered into with Demetria et al. The Supreme Court did not lay down any disciplinary action against the ACCRA lawyers but they were warned that a repetition will be dealt with more severely. Yes. There is a perfected contract of sale because the bank manager, Rivera, entered into the agreement with apparent authority. This apparent authority has been duly proved by the evidence presented which showed that in all the dealings and transactions, Rivera participated actively without the opposition of the conservator. In fact, in the advertisements and announcements of the bank, Rivera was designated as the go-to guy in relation to the disposition of the Banks assets The Supreme Court also discussed that to combat forum shopping, which originated as a concept in international law, the principle of forum non conveniens was developed. The doctrine of forum non conveniens provides that a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most convenient or available forum and the parties are not precluded from seeking remedies elsewhere LMM vs Abiera The respect to be paid a stipulation in a collective bargaining contract, when apparently it came into collision with a statutory right, lay at the root of the dispute in this certiorari and prohibition proceeding now before this Court. Congress in 1961 amended the pertinent provision of the Industrial Peace Act by exempting from the operation of a closed shop or a union security shop agreement members of any religious sects which prohibit affiliation of their members in any such labor organization.

[1] The above saving clause notwithstanding, petitioner union. Lakas Ng Manggagawang Makabayan (LMM), was able to prevail on the employer, the Marinduque Mining and Industrial Corporation, to terminate the services of private respondents, [2] adherents of the Iglesia ni Cristo sect, one of the tenets of which prohibits membership in any labor organization. To regain their status as such employees, private respondents filed a petition for mandamus with the Court of First Instance of Negros Occidental presided by respondent Judge, the Honorable Carlos Abiera. They sought and were able to obtain a writ of preliminary mandatory injunction, the allegations in their petition having been admitted by petitioner Union as one of the respondents before the lower court, the sole defense interposed being raised by it being the alleged lack of jurisdiction. Thusunsuccessful, petitioner Union elevated the matter to this Court. It raised the same fundamental question, the absence of jurisdiction. We find for petitioner and proceed to explain why. chanroblespublishingcompany In the petition filed on September 9,1968, the main reliance is placed by petitioner Union on a collective bargaining agreement with the employer, the Marinduque Miningand Industrial Corporation, entered into on November 1, 1967 and effective for three years, one of the provisions of which required members of such Union and those who become such thereafter to continue and remain with that status in good standing on a condition of continued employment. [3] Reference is then made to private respondents having been members of petitioner Union even prior to such collective bargaining agreement.[4] Subsequently, however, on May 7, 1968, to be more precise, and during the effectivity of such collective bargaining contract private respondents tendered their irrevocable resignations as such members and disauthorized the latter to withdraw the checkoff of union dues, private respondents relying on their being adherents of the Iglesia ni Cristo sect and therefore falling within the terms of the Republic Act earlier referred to. [5] After failing in its attempts to have them resume their membership, petitioner Union recommended to the employer their dismissal and such Winz Naive

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recommendation was carried out by reason of and [pursuant] to the particular provisions of the existing collective bargaining contract. [6] As a result, private respondents in turn filed a petition for mandamus with preliminary mandatory injunction and damages on July 1, 1968 with the Court of First Instance ofNegros Occidental presided by respondent Judge. [7] There was a motion to dismiss and opposition to the issuance of the writ of preliminary mandatory injunction filed by petitioner Union on July 22, 1968.[8] Then came on August 5, 1968 an order granting the prayer for a writ of preliminary mandatory injunction ordering their employer to reinstate private respondents and such writ of preliminary mandatory injunction was accordingly issued on August 8, 1968. [9] There was a motion for the dissolution of such writ but it was denied by respondent Judge. Hence this petition.[10] chanroblespublishingcompany This Court in a resolution of September 12, 1968 required respondents to file an answer and at the same time issued a writ of preliminary injunction restraining the enforcement of the challenged order of August 5, 1968 as well asthe writ of preliminary mandatory injunction of August 8, 1968 issuedpursuant thereto. In the answer filed on October 8, 1968, there was an admission of the facts alleged in the petition except as to allegations devoid of factual basis and such as are legal conclusions of petitioner. [11] chanroblespublishingcompany The sole question before this Court then is one of jurisdiction. As stated at the outset, petitioner in the light of the controlling statutory provision could validly impugn the jurisdiction of respondent Judge. 1. It does not admit of doubt that the collective bargaining contract between petitioner and the Marinduque Mining and Industrial Corporation of 1967must be deemed to have incorporated within its terms the 1961 amendment of the Industrial Peace Act exempting from the operation of a closed shop or a union securityshop agreement members of

any religious sects which prohibit affiliation of their members in any such labor organization. If it were not so, then the collective bargaining agreement itself could be properly assailed as the freedomof contract recognized by the Civil Code while it empowers the parties to establish such stipulations, clauses, terms and conditions as they may deem convenient is limited by the requirement that they should not be contrary to law.[12] The principle is thus well-settled that an existing law enters into and forms part of a valid contract without the need for the parties expressly making reference to it. Only thus could its validity insofar as some of its provisions are concerned be assured. On the assumption then that private respondents could lay claim to the protection of the above exemption provision, the fundamental question, the only one before this Court, is whether such a statutory right could be vindicated in an ordinary court as was done hereor in the Court of Industrial Relations? chanroblespublishingcompany 2. There can be no dispute as to the answer. Under the Industrial Peace Act, it is madean unfair labor practice for a labor organization, such as petitioner here, [t]o cause or attempt to cause an employer to discriminate against an employee in violation of subsection (a) (4) or to discriminate against an employee with respect to whom membership in such organization has been denied or terminated on some ground other than the usual terms and conditions under which membership or continuation of membership is made available to other members.[13] Reference is thus made to an earlier subsection of said act making it an unfair labor practice for an employer to discriminate in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization. [14] There is this proviso which as originally worded when the measure was enacted in 1953 reads thus: That nothing in thisAct or in any other Act or statute of the Republic of the Philippines shall preclude an employer from making an agreement with a labor organization to require as a condition of employment membership therein, if such labor organization is the representative of the employees as provided in section twelve. [15] Then, as was set forth at the outset of this opinion, came the 1961 amendment with members of religious sects as beneficiaries and thus entitled to exemption from a closed shop or a union security shop. It is an integral part of the section on what constitutes an unfair labor practice. chanroblespublishingcompany

Under the next section of the Industrial Peace Act, the jurisdiction over an unfair labor practice case, whether on the part of management or of a labor union, is vested with the Court of Industrial Relations. Thus: The Court shall have jurisdiction over the prevention of unfair labor practices and is empowered toprevent any person from engaging in any unfair labor practice. This power shall be exclusive and shall not be affected by any other means of adjustment or prevention that has been or may be established by an agreement,code, law or otherwise. [16] This Court then ever since the effectivity of such Act has no choice but to adhere to the view that the Court of Industrial Relations and not a court of first instance, is vested with jurisdiction over every kind ofan unfair labor practice case. [17] Petitioner must thus be sustained. chanroblespublishingcompany 3. It only remains to be added that unless the legislative act granting the above exemption tocertain religious sects remains unmodified and no challenge is hurled against its validity resulting in its nullification, the parties to any contract must live up faithfully to its terms. It is a fundamental postulate that however broad the freedom of contracting parties may be, it does not go so far as to countenance disrespect for orfailure to observe a legal prescription. The statute takes precedence; a stipulation in a collective bargaining must yield to it. That is to adhere to the rule of law. chanroblespublishingcompany WHEREFORE, the writ of certiorari is granted annulling the order of respondent Judge of August 5, 1968 granting the prayer of private respondents for a preliminary mandatory injunction as well as the writ of preliminary injunction thereafter issued on the 8th day of August, 1968. Respondent Judge is prohibited from proceeding further with the mandamus petition filed by private respondents which is ordered dismissed. The writof preliminary injunction issued by this Court under its resolution of September 12, 1968 is made permanent. chanroblespublishingcompany

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