G.R. No.

4349

September 24, 1908

THE UNITED STATES, plaintiff-appellee,

vs.
ANICETO BARRIAS, defendant-appellant.
Ortigas & Fisher for appellant.
Attorney-General Araneta for appellee.
TRACEY, J.:
In the Court of First Instance of the city of Manila the defendant was charged within a violation of paragraphs
70 and 83 of Circular No. 397 of the Insular Collector of Customs, duly published in the Official Gazette and
approved by the Secretary of Finance and Justice.1 After a demurrer to the complaint of the lighter Maude, he
was moving her and directing her movement, when heavily laden, in the Pasig River, by bamboo poles in the
hands of the crew, and without steam, sail, or any other external power. Paragraph 70 of Circular No. 397
reads as follows:
No heavily loaded casco, lighter, or other similar craft shall be permitted to move in the Pasig River
without being towed by steam or moved by other adequate power.
Paragraph 83 reads, in part, as follows:
For the violation of any part of the foregoing regulations, the persons offending shall be liable to a
fine of not less than P5 and not more than P500, in the discretion of the court.
In this court, counsel for the appellant attacked the validity of paragraph 70 on two grounds: First that it is
unauthorized by section 19 of Act No. 355; and, second, that if the acts of the Philippine Commission bear the
interpretation of authorizing the Collector to promulgate such a law, they are void, as constituting an illegal
delegation of legislative power.
The Attorney-General does not seek to sustain the conviction but joins with the counsel for the defense in
asking for the discharge of the prisoner on the first ground stated by the defense, that the rule of the Collector
cited was unauthorized and illegal, expressly passing over the other question of the delegation of legislative
power.
By sections 1, 2, and 3 of Act No. 1136, passed April 29, 1904, the Collector of Customs is authorized to
license craft engaged in the lighterage or other exclusively harbor business of the ports of the Islands, and,
with certain exceptions, all vessels engaged in lightering are required to be so licensed. Sections 5 and 8 read
as follows:
SEC. 5. The Collector of Customs for the Philippine Islands is hereby authorized, empowered, and
directed to promptly make and publish suitable rules and regulations to carry this law into effect
and to regulate the business herein licensed.
SEC. 8. Any person who shall violate the provisions of this Act, or of any rule or regulation made
and issued by the Collector of Customs for the Philippine Islands, under and by authority of this
Act, shall be deemed guilty of a misdemeanor, and upon conviction shall be punished by
imprisonment for not more than six months, or by a fine of not more than one hundred dollars,
United States currency, or by both such fine and imprisonment, at the discretion of the
court; Provided, That violations of law may be punished either by the method prescribed in section
seven hereof, or by that prescribed in this section or by both.

Under this statute, which was not referred to on the argument, or in the original briefs, there is no difficulty in
sustaining the regulation of the Collector as coming within the terms of section 5. Lighterage, mentioned in the
Act, is the very business in which this vessel was engaged, and when heavily laden with hemp she was
navigating the Pasig River below the Bridge of Spain, in the city of Manila. This spot is near the mouth of the
river, the docks whereof are used for the purpose of taking on and discharging freight, and we entertain no
doubt that it was in right sense a part of the harbor, without having recourse to the definition of paragraph 8 of
Customs Administrative Circular No. 136, which reads as follows:
The limits of a harbor for the purpose of licensing vessels as herein prescribed (for the lighterage
and harbor business) shall be considered to include its confluent navigable rivers and lakes, which
are navigable during any season of the year.
The necessity confiding to some local authority the framing, changing, and enforcing of harbor regulations is
recognized throughout the world, as each region and each a harbor requires peculiar use more minute than
could be enacted by the central lawmaking power, and which, when kept within the proper scope, are in their
nature police regulations not involving an undue grant of legislative power.
The complaint in this instance was framed with reference, as its authority, to sections 311 and 319 [19 and
311] at No. 355 of the Philippine Customs Administrative Acts, as amended by Act Nos. 1235 and 1480. Under
Act No. 1235, the Collector is not only empowered to make suitable regulations, but also to "fix penalties for
violation thereof," not exceeding a fine of P500.
This provision of the statute does, indeed, present a serious question.
One of the settled maxims in constitutional law is, that the power conferred upon the legislature to
make laws can not be delegated by that department to any body or authority. Where the sovereign
power of the State has located the authority, there it must remain; only by the constitutional agency
alone the laws must be made until the constitution itself is changed. The power to whose
judgment, wisdom, and patriotism this high prerogative has been intrusted can not relieve itself of
the responsibility by choosing other agencies upon which the power shall be developed, nor can its
substitutes the judgment, wisdom, and patriotism and of any other body for those to which alone
the people have seen fit to confide this sovereign trust. (Cooley's Constitutional limitations, 6th ed.,
p. 137.)
This doctrine is based on the ethical principle that such a delegated power constitutes not only a right but a
duty to be performed by the delegate by the instrumentality of his own judgment acting immediately upon the
matter of legislation and not through the intervening mind of another. In the case of the United
States vs. Breen (40 Fed. Phil. Rep. 402), an Act of Congress allowing the Secretary of War to make such
rules and regulations as might be necessary to protect improvements of the Mississipi River, and providing
that a violation thereof should constitute a misdemeanor, was sustained on the ground that the misdemeanor
was declared not under the delegated power of the Secretary of War, but in the Act of Congress, itself. So also
was a grant to him of power to prescribe rules for the use of canals. (U.S. vs. Ormsbee, 74 Fed. Rep. 207.) but
a law authorizing him to require alteration of any bridge and to impose penalties for violations of his rules was
held invalid, as vesting in him upon a power exclusively lodged in Congress (U.S. vs. Rider, 50 Fed. Rep.,
406.) The subject is considered and some cases reviewed by the Supreme Court of the United States, in
re Kollock (165 U.S. 526), which upheld the law authorizing a commissioner of internal revenue to designate
and stamps on oleomargarine packages, an improper use of which should thereafter constitute a crime or
misdemeanor, the court saying (p. 533):
The criminal offense is fully and completely defined by the Act and the designation by the
Commissioner of the particular marks and brands to be used was a mere matter of detail. The
regulation was in execution of, or supplementary to, but not in conflict with the law itself. . . .

In Massachusetts it has been decided that the legislature may delegate to the governor and counsel the power
to make pilot regulations. (Martin vs. Witherspoon et al., 135 Mass. 175).
In the case of The Board of Harbor Commissioners of the Port of Eureka vs. Excelsior Redwood Company (88
Cal. 491), it was ruled that harbor commissioners can not impose a penalty under statues authorizing them to
do so, the court saying:
Conceding that the legislature could delegate to the plaintiff the authority to make rules and
regulation with reference to the navigation of Humboldt Bay, the penalty for the violation of such
rules and regulations is a matter purely in the hands of the legislature.
Having reached the conclusion that Act No. 1136 is valid, so far as sections 5 and 8 are concerned, and is
sufficient to sustain this prosecution, it is unnecessary that we should pass on the questions discussed in the
briefs as to the extend and validity of the other acts. The reference to them in the complaint is not material, as
we have frequently held that where an offense is correctly described in the complaint an additional reference
to a wrong statute is immaterial.
We are also of the opinion that none of the subsequent statutes cited operate to repeal the aforesaid section
Act No. 1136.
So much of the judgment of the Court of First Instance as convicts the defendant of a violation of Acts Nos.
355 and 1235 is hereby revoked and is hereby convicted of a misdemeanor and punished by a fine of 25
dollars, with costs of both instances. So ordered.
G.R. No. L-45685

November 16, 1937

THE PEOPLE OF THE PHILIPPINE ISLANDS and HONGKONG & SHANGHAI BANKING
CORPORATION,petitioners,
vs.
JOSE O. VERA, Judge . of the Court of First Instance of Manila, and MARIANO CU
UNJIENG, respondents.
Office of the Solicitor General Tuason and City Fiscal Diaz for the Government.
De Witt, Perkins and Ponce Enrile for the Hongkong and Shanghai Banking Corporation.
Vicente J. Francisco, Feria and La O, Orense and Belmonte, and Gibbs and McDonough for respondent Cu
Unjieng.
No appearance for respondent Judge.

LAUREL, J.:
This is an original action instituted in this court on August 19, 1937, for the issuance of the writ of certiorari and
of prohibition to the Court of First Instance of Manila so that this court may review the actuations of the
aforesaid Court of First Instance in criminal case No. 42649 entitled "The People of the Philippine Islands vs.
Mariano Cu Unjieng, et al.", more particularly the application of the defendant Mariano Cu Unjieng therein for
probation under the provisions of Act No. 4221, and thereafter prohibit the said Court of First Instance from
taking any further action or entertaining further the aforementioned application for probation, to the end that
the defendant Mariano Cu Unjieng may be forthwith committed to prison in accordance with the final judgment
of conviction rendered by this court in said case (G. R. No. 41200). 1

Petitioners herein, the People of the Philippine and the Hongkong and Shanghai Banking Corporation, are
respectively the plaintiff and the offended party, and the respondent herein Mariano Cu Unjieng is one of the
defendants, in the criminal case entitled "The People of the Philippine Islands vs. Mariano Cu Unjieng, et al.",
criminal case No. 42649 of the Court of First Instance of Manila and G.R. No. 41200 of this court. Respondent
herein, Hon. Jose O. Vera, is the Judge ad interim of the seventh branch of the Court of First Instance of
Manila, who heard the application of the defendant Mariano Cu Unjieng for probation in the aforesaid criminal
case.
The information in the aforesaid criminal case was filed with the Court of First Instance of Manila on October
15, 1931, petitioner herein Hongkong and Shanghai Banking Corporation intervening in the case as private
prosecutor. After a protracted trial unparalleled in the annals of Philippine jurisprudence both in the length of
time spent by the court as well as in the volume in the testimony and the bulk of the exhibits presented, the
Court of First Instance of Manila, on January 8, 1934, rendered a judgment of conviction sentencing the
defendant Mariano Cu Unjieng to indeterminate penalty ranging from four years and two months of prision
correccional to eight years of prision mayor, to pay the costs and with reservation of civil action to the offended
party, the Hongkong and Shanghai Banking Corporation. Upon appeal, the court, on March 26, 1935, modified
the sentence to an indeterminate penalty of from five years and six months of prision correccional to seven
years, six months and twenty-seven days of prision mayor, but affirmed the judgment in all other respects.
Mariano Cu Unjieng filed a motion for reconsideration and four successive motions for new trial which were
denied on December 17, 1935, and final judgment was accordingly entered on December 18, 1935. The
defendant thereupon sought to have the case elevated on certiorari to the Supreme Court of the United States
but the latter denied the petition forcertiorari in
November, 1936. This court, on
November 24,
1936, denied the petition subsequently filed by the defendant for leave to file a second alternative motion for
reconsideration or new trial and thereafter remanded the case to the court of origin for execution of the
judgment.
The instant proceedings have to do with the application for probation filed by the herein respondent Mariano
Cu Unjieng on
November 27, 1936, before the trial court, under the provisions of Act No. 4221 of the
defunct Philippine Legislature. Herein respondent Mariano Cu Unjieng states in his petition, inter alia, that he
is innocent of the crime of which he was convicted, that he has no criminal record and that he would observe
good conduct in the future. The Court of First Instance of Manila, Judge Pedro Tuason presiding, referred the
application for probation of the Insular Probation Office which recommended denial of the same June 18,
1937. Thereafter, the Court of First Instance of Manila, seventh branch, Judge Jose O. Vera presiding, set the
petition for hearing on April 5, 1937.
On April 2, 1937, the Fiscal of the City of Manila filed an opposition to the granting of probation to the herein
respondent Mariano Cu Unjieng. The private prosecution also filed an opposition on April 5, 1937, alleging,
among other things, that Act No. 4221, assuming that it has not been repealed by section 2 of Article XV of the
Constitution, is nevertheless violative of section 1, subsection (1), Article III of the Constitution guaranteeing
equal protection of the laws for the reason that its applicability is not uniform throughout the Islands and
because section 11 of the said Act endows the provincial boards with the power to make said law effective or
otherwise in their respective or otherwise in their respective provinces. The private prosecution also filed a
supplementary opposition on April 19, 1937, elaborating on the alleged unconstitutionality on Act No. 4221, as
an undue delegation of legislative power to the provincial boards of several provinces (sec. 1, Art. VI,
Constitution). The City Fiscal concurred in the opposition of the private prosecution except with respect to the
questions raised concerning the constitutionality of Act No. 4221.
On June 28, 1937, herein respondent Judge Jose O. Vera promulgated a resolution with a finding that "las
pruebas no han establecido de unamanera concluyente la culpabilidad del peticionario y que todos los hechos
probados no son inconsistentes o incongrentes con su inocencia" and concludes that the herein respondent
Mariano Cu Unjieng "es inocente por duda racional" of the crime of which he stands convicted by this court in
G.R. No. 41200, but denying the latter's petition for probation for the reason that:
. . . Si este Juzgado concediera la poblacion solicitada por las circunstancias y la historia social
que se han expuesto en el cuerpo de esta resolucion, que hacen al peticionario acreedor de la

misma, una parte de la opinion publica, atizada por los recelos y las suspicacias, podria levantarse
indignada contra un sistema de probacion que permite atisbar en los procedimientos ordinarios de
una causa criminal perturbando la quietud y la eficacia de las decisiones ya recaidas al traer a la
superficie conclusiones enteramente differentes, en menoscabo del interes publico que demanda
el respeto de las leyes y del veredicto judicial.

(2) While section 37 of the Administrative Code contains a proviso to the effect that in the absence
of a special provision, the term "province" may be construed to include the City of Manila for the
purpose of giving effect to laws of general application, it is also true that Act No. 4221 is not a law
of general application because it is made to apply only to those provinces in which the respective
provincial boards shall have provided for the salary of a probation officer.

On July 3, 1937, counsel for the herein respondent Mariano Cu Unjieng filed an exception to the resolution
denying probation and a notice of intention to file a motion for reconsideration. An alternative motion for
reconsideration or new trial was filed by counsel on July 13, 1937. This was supplemented by an additional
motion for reconsideration submitted on July 14, 1937. The aforesaid motions were set for hearing on July 31,
1937, but said hearing was postponed at the petition of counsel for the respondent Mariano Cu Unjieng
because a motion for leave to intervene in the case as amici curiae signed by thirty-three (thirty-four) attorneys
had just been filed with the trial court. Attorney Eulalio Chaves whose signature appears in the aforesaid
motion subsequently filed a petition for leave to withdraw his appearance as amicus curiae on the ground that
the motion for leave to intervene as amici curiae was circulated at a banquet given by counsel for Mariano Cu
Unjieng on the evening of July 30, 1937, and that he signed the same "without mature deliberation and purely
as a matter of courtesy to the person who invited me (him)."

(3) Even if the City of Manila were considered to be a province, still, Act No. 4221 would not be
applicable to it because it has provided for the salary of a probation officer as required by section
11 thereof; it being immaterial that there is an Insular Probation Officer willing to act for the City of
Manila, said Probation Officer provided for in section 10 of Act No. 4221 being different and distinct
from the Probation Officer provided for in section 11 of the same Act.

On August 6, 1937, the Fiscal of the City of Manila filed a motion with the trial court for the issuance of an
order of execution of the judgment of this court in said case and forthwith to commit the herein respondent
Mariano Cu Unjieng to jail in obedience to said judgment.
On August 7, 1937, the private prosecution filed its opposition to the motion for leave to intervene as amici
curiaeaforementioned, asking that a date be set for a hearing of the same and that, at all events, said motion
should be denied with respect to certain attorneys signing the same who were members of the legal staff of
the several counsel for Mariano Cu Unjieng. On August 10, 1937, herein respondent Judge Jose O. Vera
issued an order requiring all parties including the movants for intervention as amici curiae to appear before the
court on August 14, 1937. On the last-mentioned date, the Fiscal of the City of Manila moved for the hearing of
his motion for execution of judgment in preference to the motion for leave to intervene as amici curiae but,
upon objection of counsel for Mariano Cu Unjieng, he moved for the postponement of the hearing of both
motions. The respondent judge thereupon set the hearing of the motion for execution on August 21, 1937, but
proceeded to consider the motion for leave to intervene as amici curiae as in order. Evidence as to the
circumstances under which said motion for leave to intervene as amici curiae was signed and submitted to
court was to have been heard on August 19, 1937. But at this juncture, herein petitioners came to this court on
extraordinary legal process to put an end to what they alleged was an interminable proceeding in the Court of
First Instance of Manila which fostered "the campaign of the defendant Mariano Cu Unjieng for delay in the
execution of the sentence imposed by this Honorable Court on him, exposing the courts to criticism and
ridicule because of the apparent inability of the judicial machinery to make effective a final judgment of this
court imposed on the defendant Mariano Cu Unjieng."
The scheduled hearing before the trial court was accordingly suspended upon the issuance of a temporary
restraining order by this court on August 21, 1937.
To support their petition for the issuance of the extraordinary writs of certiorari and prohibition, herein
petitioners allege that the respondent judge has acted without jurisdiction or in excess of his jurisdiction:
I. Because said respondent judge lacks the power to place respondent Mariano Cu Unjieng under probation
for the following reason:
(1) Under section 11 of Act No. 4221, the said of the Philippine Legislature is made to apply only to
the provinces of the Philippines; it nowhere states that it is to be made applicable to chartered
cities like the City of Manila.

II. Because even if the respondent judge originally had jurisdiction to entertain the application for probation of
the respondent Mariano Cu Unjieng, he nevertheless acted without jurisdiction or in excess thereof in
continuing to entertain the motion for reconsideration and by failing to commit Mariano Cu Unjieng to prison
after he had promulgated his resolution of June 28, 1937, denying Mariano Cu Unjieng's application for
probation, for the reason that:
(1) His jurisdiction and power in probation proceedings is limited by Act No. 4221 to the granting or
denying of applications for probation.
(2) After he had issued the order denying Mariano Cu Unjieng's petition for probation on June 28,
1937, it became final and executory at the moment of its rendition.
(3) No right on appeal exists in such cases.
(4) The respondent judge lacks the power to grant a rehearing of said order or to modify or change
the same.
III. Because the respondent judge made a finding that Mariano Cu Unjieng is innocent of the crime for which
he was convicted by final judgment of this court, which finding is not only presumptuous but without foundation
in fact and in law, and is furthermore in contempt of this court and a violation of the respondent's oath of office
as ad interim judge of first instance.
IV. Because the respondent judge has violated and continues to violate his duty, which became imperative
when he issued his order of June 28, 1937, denying the application for probation, to commit his co-respondent
to jail.
Petitioners also avers that they have no other plain, speedy and adequate remedy in the ordinary course of
law.
In a supplementary petition filed on September 9, 1937, the petitioner Hongkong and Shanghai Banking
Corporation further contends that Act No. 4221 of the Philippine Legislature providing for a system of probation
for persons eighteen years of age or over who are convicted of crime, is unconstitutional because it is violative
of section 1, subsection (1), Article III, of the Constitution of the Philippines guaranteeing equal protection of
the laws because it confers upon the provincial board of its province the absolute discretion to make said law
operative or otherwise in their respective provinces, because it constitutes an unlawful and improper
delegation to the provincial boards of the several provinces of the legislative power lodged by the Jones Law
(section 8) in the Philippine Legislature and by the Constitution (section 1, Art. VI) in the National Assembly;
and for the further reason that it gives the provincial boards, in contravention of the Constitution (section 2, Art.
VIII) and the Jones Law (section 28), the authority to enlarge the powers of the Court of First Instance of
different provinces without uniformity. In another supplementary petition dated September 14, 1937, the Fiscal
of the City of Manila, in behalf of one of the petitioners, the People of the Philippine Islands, concurs for the

first time with the issues raised by other petitioner regarding the constitutionality of Act No. 4221, and on the
oral argument held on October 6, 1937, further elaborated on the theory that probation is a form of reprieve
and therefore Act. No. 4221 is an encroachment on the exclusive power of the Chief Executive to grant
pardons and reprieves. On October 7, 1937, the City Fiscal filed two memorandums in which he contended
that Act No. 4221 not only encroaches upon the pardoning power to the executive, but also constitute an
unwarranted delegation of legislative power and a denial of the equal protection of the laws. On October 9,
1937, two memorandums, signed jointly by the City Fiscal and the Solicitor-General, acting in behalf of the
People of the Philippine Islands, and by counsel for the petitioner, the Hongkong and Shanghai Banking
Corporation, one sustaining the power of the state to impugn the validity of its own laws and the other
contending that Act No. 4221 constitutes an unwarranted delegation of legislative power, were presented.
Another joint memorandum was filed by the same persons on the same day, October 9, 1937, alleging that Act
No. 4221 is unconstitutional because it denies the equal protection of the laws and constitutes an unlawful
delegation of legislative power and, further, that the whole Act is void: that the Commonwealth is not estopped
from questioning the validity of its laws; that the private prosecution may intervene in probation proceedings
and may attack the probation law as unconstitutional; and that this court may pass upon the constitutional
question in prohibition proceedings.

period of fifteen days, which motion the trial court was able to resolve in view of the restraining
order improvidently and erroneously issued by this court.lawphi1.net

Respondents in their answer dated August 31, 1937, as well as in their oral argument and memorandums,
challenge each and every one of the foregoing proposition raised by the petitioners.

(10) That on hypothesis that the resolution of this court is not appealable, the trial court retains its
jurisdiction within a reasonable time to correct or modify it in accordance with law and justice; that
this power to alter or modify an order or resolution is inherent in the courts and may be exercise
either motu proprio or upon petition of the proper party, the petition in the latter case taking the
form of a motion for reconsideration.

As special defenses, respondents allege:

(1) That the present petition does not state facts sufficient in law to warrant the issuance of the writ
of certiorari or of prohibition.
(2) That the aforesaid petition is premature because the remedy sought by the petitioners is the
very same remedy prayed for by them before the trial court and was still pending resolution before
the trial court when the present petition was filed with this court.
(3) That the petitioners having themselves raised the question as to the execution of judgment
before the trial court, said trial court has acquired exclusive jurisdiction to resolve the same under
the theory that its resolution denying probation is unappealable.
(4) That upon the hypothesis that this court has concurrent jurisdiction with the Court of First
Instance to decide the question as to whether or not the execution will lie, this court nevertheless
cannot exercise said jurisdiction while the Court of First Instance has assumed jurisdiction over the
same upon motion of herein petitioners themselves.
(5) That upon the procedure followed by the herein petitioners in seeking to deprive the trial court
of its jurisdiction over the case and elevate the proceedings to this court, should not be tolerated
because it impairs the authority and dignity of the trial court which court while sitting in the
probation cases is "a court of limited jurisdiction but of great dignity."
(6) That under the supposition that this court has jurisdiction to resolve the question submitted to
and pending resolution by the trial court, the present action would not lie because the resolution of
the trial court denying probation is appealable; for although the Probation Law does not specifically
provide that an applicant for probation may appeal from a resolution of the Court of First Instance
denying probation, still it is a general rule in this jurisdiction that a final order, resolution or decision
of an inferior court is appealable to the superior court.
(7) That the resolution of the trial court denying probation of herein respondent Mariano Cu Unjieng
being appealable, the same had not become final and executory for the reason that the said
respondent had filed an alternative motion for reconsideration and new trial within the requisite

(8) That the Fiscal of the City of Manila had by implication admitted that the resolution of the trial
court denying probation is not final and unappealable when he presented his answer to the motion
for reconsideration and agreed to the postponement of the hearing of the said motion.
(9) That under the supposition that the order of the trial court denying probation is not appealable,
it is incumbent upon the accused to file an action for the issuance of the writ
ofcertiorari with mandamus, it appearing that the trial court, although it believed that the accused
was entitled to probation, nevertheless denied probation for fear of criticism because the accused
is a rich man; and that, before a petition for certiorari grounded on an irregular exercise of
jurisdiction by the trial court could lie, it is incumbent upon the petitioner to file a motion for
reconsideration specifying the error committed so that the trial court could have an opportunity to
correct or cure the same.

(11) That on the hypothesis that the resolution of the trial court is appealable as respondent allege,
said court cannot order execution of the same while it is on appeal, for then the appeal would not
be availing because the doors of probation will be closed from the moment the accused
commences to serve his sentence (Act No. 4221, sec. 1; U.S. vs. Cook, 19 Fed. [2d], 827).
In their memorandums filed on October 23, 1937, counsel for the respondents maintain that Act No. 4221 is
constitutional because, contrary to the allegations of the petitioners, it does not constitute an undue delegation
of legislative power, does not infringe the equal protection clause of the Constitution, and does not encroach
upon the pardoning power of the Executive. In an additional memorandum filed on the same date, counsel for
the respondents reiterate the view that section 11 of Act No. 4221 is free from constitutional objections and
contend, in addition, that the private prosecution may not intervene in probation proceedings, much less
question the validity of Act No. 4221; that both the City Fiscal and the Solicitor-General are estopped from
questioning the validity of the Act; that the validity of Act cannot be attacked for the first time before this court;
that probation in unavailable; and that, in any event, section 11 of the Act No. 4221 is separable from the rest
of the Act. The last memorandum for the respondent Mariano Cu Unjieng was denied for having been filed out
of time but was admitted by resolution of this court and filed anew on
November 5, 1937. This
memorandum elaborates on some of the points raised by the respondents and refutes those brought up by the
petitioners.
In the scrutiny of the pleadings and examination of the various aspects of the present case, we noted that the
court below, in passing upon the merits of the application of the respondent Mariano Cu Unjieng and in
denying said application assumed the task not only of considering the merits of the application, but of passing
upon the culpability of the applicant, notwithstanding the final pronouncement of guilt by this court. (G.R. No.
41200.) Probation implies guilt be final judgment. While a probation case may look into the circumstances
attending the commission of the offense, this does not authorize it to reverse the findings and conclusive of
this court, either directly or indirectly, especially wherefrom its own admission reliance was merely had on the
printed briefs, averments, and pleadings of the parties. As already observed by this court in Shioji vs.
Harvey ([1922], 43 Phil., 333, 337), and reiterated in subsequent cases, "if each and every Court of First
Instance could enjoy the privilege of overruling decisions of the Supreme Court, there would be no end to
litigation, and judicial chaos would result." A becoming modesty of inferior courts demands conscious
realization of the position that they occupy in the interrelation and operation of the intergrated judicial system
of the nation.

After threshing carefully the multifarious issues raised by both counsel for the petitioners and the respondents,
this court prefers to cut the Gordian knot and take up at once the two fundamental questions presented,
namely, (1) whether or not the constitutionality of Act No. 4221 has been properly raised in these proceedings;
and (2) in the affirmative, whether or not said Act is constitutional. Considerations of these issues will involve a
discussion of certain incidental questions raised by the parties.
To arrive at a correct conclusion on the first question, resort to certain guiding principles is necessary. It is a
well-settled rule that the constitutionality of an act of the legislature will not be determined by the courts unless
that question is properly raised and presented inappropriate cases and is necessary to a determination of the
case; i.e., the issue of constitutionality must be the very lis mota presented. (McGirr vs. Hamilton and Abreu
[1915], 30 Phil., 563, 568; 6 R. C. L., pp. 76, 77; 12 C. J., pp. 780-782, 783.)
The question of the constitutionality of an act of the legislature is frequently raised in ordinary actions.
Nevertheless, resort may be made to extraordinary legal remedies, particularly where the remedies in the
ordinary course of law even if available, are not plain, speedy and adequate. Thus, in Cu Unjieng vs.
Patstone([1922]), 42 Phil., 818), this court held that the question of the constitutionality of a statute may be
raised by the petitioner in mandamus proceedings (see, also, 12 C. J., p. 783); and in Government of the
Philippine Islands vs. Springer ([1927], 50 Phil., 259 [affirmed in Springer vs. Government of the Philippine
Islands (1928), 277 U. S., 189; 72 Law. ed., 845]), this court declared an act of the legislature unconstitutional
in an action of quo warrantobrought in the name of the Government of the Philippines. It has also been held
that the constitutionality of a statute may be questioned in habeas corpus proceedings (12 C. J., p. 783; Bailey
on Habeas Corpus, Vol. I, pp. 97, 117), although there are authorities to the contrary; on an application for
injunction to restrain action under the challenged statute (mandatory, see Cruz vs. Youngberg [1931], 56 Phil.,
234); and even on an application for preliminary injunction where the determination of the constitutional
question is necessary to a decision of the case. (12 C. J., p. 783.) The same may be said as
regards prohibition and certiorari.(Yu Cong Eng vs. Trinidad [1925], 47 Phil., 385; [1926], 271 U. S., 500; 70
Law. ed., 1059; Bell vs. First Judicial District Court [1905], 28 Nev., 280; 81 Pac., 875; 113 A. S. R., 854; 6
Ann. Cas., 982; 1 L. R. A. [N. S], 843, and cases cited). The case ofYu Cong Eng vs. Trinidad, supra, decided
by this court twelve years ago was, like the present one, an original action for certiorari and prohibition. The
constitutionality of Act No. 2972, popularly known as the Chinese Bookkeeping Law, was there challenged by
the petitioners, and the constitutional issue was not met squarely by the respondent in a demurrer. A point was
raised "relating to the propriety of the constitutional question being decided in original proceedings in
prohibition." This court decided to take up the constitutional question and, with two justices dissenting, held
that Act No. 2972 was constitutional. The case was elevated on writ of certiorari to the Supreme Court of the
United States which reversed the judgment of this court and held that the Act was invalid. (271 U. S., 500; 70
Law. ed., 1059.) On the question of jurisdiction, however, the Federal Supreme Court, though its Chief Justice,
said:
By the Code of Civil Procedure of the Philippine Islands, section 516, the Philippine supreme court
is granted concurrent jurisdiction in prohibition with courts of first instance over inferior tribunals or
persons, and original jurisdiction over courts of first instance, when such courts are exercising
functions without or in excess of their jurisdiction. It has been held by that court that the question of
the validity of the criminal statute must usually be raised by a defendant in the trial court and be
carried regularly in review to the Supreme Court. (Cadwallader-Gibson Lumber Co. vs. Del
Rosario, 26 Phil., 192). But in this case where a new act seriously affected numerous persons and
extensive property rights, and was likely to cause a multiplicity of actions, the Supreme Court
exercised its discretion to bring the issue to the act's validity promptly before it and decide in the
interest of the orderly administration of justice. The court relied by analogy upon the cases of Ex
parte Young (209 U. S., 123;52 Law ed., 714; 13 L. R. A. [N. S.] 932; 28 Sup. Ct. Rep., 441; 14
Ann. Ca., 764; Traux vs. Raich, 239 U. S., 33; 60 Law. ed., 131; L. R. A. 1916D, 545; 36 Sup. Ct.
Rep., 7; Ann. Cas., 1917B, 283; and Wilson vs. New, 243 U. S., 332; 61 Law. ed., 755; L. R. A.
1917E, 938; 37 Sup. Ct. Rep., 298; Ann. Cas. 1918A, 1024). Although objection to the jurisdiction
was raise by demurrer to the petition, this is now disclaimed on behalf of the respondents, and
both parties ask a decision on the merits. In view of the broad powers in prohibition granted to that
court under the Island Code, we acquiesce in the desire of the parties.

The writ of prohibition is an extraordinary judicial writ issuing out of a court of superior jurisdiction and directed
to an inferior court, for the purpose of preventing the inferior tribunal from usurping a jurisdiction with which it is
not legally vested. (High, Extraordinary Legal Remedies, p. 705.) The general rule, although there is a conflict
in the cases, is that the merit of prohibition will not lie whether the inferior court has jurisdiction independent of
the statute the constitutionality of which is questioned, because in such cases the interior court having
jurisdiction may itself determine the constitutionality of the statute, and its decision may be subject to review,
and consequently the complainant in such cases ordinarily has adequate remedy by appeal without resort to
the writ of prohibition. But where the inferior court or tribunal derives its jurisdiction exclusively from an
unconstitutional statute, it may be prevented by the writ of prohibition from enforcing that statute. (50 C. J.,
670; Ex parte Round tree [1874, 51 Ala., 42; In re Macfarland, 30 App. [D. C.], 365; Curtis vs. Cornish [1912],
109 Me., 384; 84 A., 799; Pennington vs. Woolfolk [1880], 79 Ky., 13; State vs. Godfrey [1903], 54 W. Va., 54;
46 S. E., 185; Arnold vs. Shields [1837], 5 Dana, 19; 30 Am. Dec., 669.)
Courts of First Instance sitting in probation proceedings derived their jurisdiction solely from Act No. 4221
which prescribes in detailed manner the procedure for granting probation to accused persons after their
conviction has become final and before they have served their sentence. It is true that at common law the
authority of the courts to suspend temporarily the execution of the sentence is recognized and, according to a
number of state courts, including those of Massachusetts, Michigan, New York, and Ohio, the power is
inherent in the courts (Commonwealth vs. Dowdican's Bail [1874], 115 Mass., 133; People vs. Stickel [1909],
156 Mich., 557; 121 N. W., 497; People ex rel. Forsyth vs. Court of Session [1894], 141 N. Y., 288; Weber vs.
State [1898], 58 Ohio St., 616). But, in the leading case of Ex parte United States ([1916], 242 U. S., 27; 61
Law. ed., 129; L. R. A., 1917E, 1178; 37 Sup. Ct. Rep., 72; Ann. Cas. 1917B, 355), the Supreme Court of the
United States expressed the opinion that under the common law the power of the court was limited to
temporary suspension, and brushed aside the contention as to inherent judicial power saying, through Chief
Justice White:
Indisputably under our constitutional system the right to try offenses against the criminal laws and
upon conviction to impose the punishment provided by law is judicial, and it is equally to be
conceded that, in exerting the powers vested in them on such subject, courts inherently possess
ample right to exercise reasonable, that is, judicial, discretion to enable them to wisely exert their
authority. But these concessions afford no ground for the contention as to power here made, since
it must rest upon the proposition that the power to enforce begets inherently a discretion to
permanently refuse to do so. And the effect of the proposition urged upon the distribution of powers
made by the Constitution will become apparent when it is observed that indisputable also is it that
the authority to define and fix the punishment for crime is legislative and includes the right in
advance to bring within judicial discretion, for the purpose of executing the statute, elements of
consideration which would be otherwise beyond the scope of judicial authority, and that the right to
relieve from the punishment, fixed by law and ascertained according to the methods by it provided
belongs to the executive department.
Justice Carson, in his illuminating concurring opinion in the case of Director of Prisons vs. Judge of First
Instance of Cavite (29 Phil., 265), decided by this court in 1915, also reached the conclusion that the power to
suspend the execution of sentences pronounced in criminal cases is not inherent in the judicial function. "All
are agreed", he said, "that in the absence of statutory authority, it does not lie within the power of the courts to
grant such suspensions." (at p. 278.) Both petitioner and respondents are correct, therefore, when they argue
that a Court of First Instance sitting in probation proceedings is a court of limited jurisdiction. Its jurisdiction in
such proceedings is conferred exclusively by Act No. 4221 of the Philippine Legislature.
It is, of course, true that the constitutionality of a statute will not be considered on application for prohibition
where the question has not been properly brought to the attention of the court by objection of some kind (Hill
vs. Tarver [1901], 130 Ala., 592; 30 S., 499; State ex rel. Kelly vs. Kirby [1914], 260 Mo., 120; 168 S. W., 746).
In the case at bar, it is unquestionable that the constitutional issue has been squarely presented not only
before this court by the petitioners but also before the trial court by the private prosecution. The respondent,
Hon. Jose O Vera, however, acting as judge of the court below, declined to pass upon the question on the
ground that the private prosecutor, not being a party whose rights are affected by the statute, may not raise
said question. The respondent judge cited Cooley on Constitutional Limitations (Vol. I, p. 339; 12 C. J., sec.

177, pp. 760 and 762), and McGlue vs. Essex County ([1916], 225 Mass., 59; 113 N. E., 742, 743), as
authority for the proposition that a court will not consider any attack made on the constitutionality of a statute
by one who has no interest in defeating it because his rights are not affected by its operation. The respondent
judge further stated that it may not motu proprio take up the constitutional question and, agreeing with Cooley
that "the power to declare a legislative enactment void is one which the judge, conscious of the fallibility of the
human judgment, will shrink from exercising in any case where he can conscientiously and with due regard to
duty and official oath decline the responsibility" (Constitutional Limitations, 8th ed., Vol. I, p. 332), proceeded
on the assumption that Act No. 4221 is constitutional. While therefore, the court a quo admits that the
constitutional question was raised before it, it refused to consider the question solely because it was not raised
by a proper party. Respondents herein reiterates this view. The argument is advanced that the private
prosecution has no personality to appear in the hearing of the application for probation of defendant Mariano
Cu Unjieng in criminal case No. 42648 of the Court of First Instance of Manila, and hence the issue of
constitutionality was not properly raised in the lower court. Although, as a general rule, only those who are
parties to a suit may question the constitutionality of a statute involved in a judicial decision, it has been held
that since the decree pronounced by a court without jurisdiction is void, where the jurisdiction of the court
depends on the validity of the statute in question, the issue of the constitutionality will be considered on its
being brought to the attention of the court by persons interested in the effect to be given the statute.(12 C. J.,
sec. 184, p. 766.) And, even if we were to concede that the issue was not properly raised in the court below by
the proper party, it does not follow that the issue may not be here raised in an original action of certiorari and
prohibitions. It is true that, as a general rule, the question of constitutionality must be raised at the earliest
opportunity, so that if not raised by the pleadings, ordinarily it may not be raised at the trial, and if not raised in
the trial court, it will not considered on appeal. (12 C. J., p. 786. See, also,Cadwallader-Gibson Lumber Co. vs.
Del Rosario, 26 Phil., 192, 193-195.) But we must state that the general rule admits of exceptions. Courts, in
the exercise of sounds discretion, may determine the time when a question affecting the constitutionality of a
statute should be presented. (In re Woolsey [1884], 95 N. Y., 135, 144.) Thus, in criminal cases, although there
is a very sharp conflict of authorities, it is said that the question may be raised for the first time at any stage of
the proceedings, either in the trial court or on appeal. (12 C. J., p. 786.) Even in civil cases, it has been held
that it is the duty of a court to pass on the constitutional question, though raised for the first time on appeal, if it
appears that a determination of the question is necessary to a decision of the case. (McCabe's Adm'x vs.
Maysville & B. S. R. Co., [1910], 136 ky., 674; 124 S. W., 892; Lohmeyer vs. St. Louis Cordage Co. [1908],
214 Mo., 685; 113 S. W. 1108; Carmody vs. St. Louis Transit Co., [1905], 188 Mo., 572; 87 S. W., 913.) And it
has been held that a constitutional question will be considered by an appellate court at any time, where it
involves the jurisdiction of the court below (State vs. Burke [1911], 175 Ala., 561; 57 S., 870.) As to the power
of this court to consider the constitutional question raised for the first time before this court in these
proceedings, we turn again and point with emphasis to the case of Yu Cong Eng vs. Trinidad, supra. And on
the hypotheses that the Hongkong & Shanghai Banking Corporation, represented by the private prosecution,
is not the proper party to raise the constitutional question here a point we do not now have to decide we
are of the opinion that the People of the Philippines, represented by the Solicitor-General and the Fiscal of the
City of Manila, is such a proper party in the present proceedings. The unchallenged rule is that the person who
impugns the validity of a statute must have a personal and substantial interest in the case such that he has
sustained, or will sustained, direct injury as a result of its enforcement. It goes without saying that if Act No.
4221 really violates the constitution, the People of the Philippines, in whose name the present action is
brought, has a substantial interest in having it set aside. Of grater import than the damage caused by the
illegal expenditure of public funds is the mortal wound inflicted upon the fundamental law by the enforcement
of an invalid statute. Hence, the well-settled rule that the state can challenge the validity of its own laws. In
Government of the Philippine Islands vs. Springer ([1927]), 50 Phil., 259 (affirmed in Springer vs. Government
of the Philippine Islands [1928], 277 U.S., 189; 72 Law. ed., 845), this court declared an act of the legislature
unconstitutional in an action instituted in behalf of the Government of the Philippines. In Attorney General vs.
Perkins ([1889], 73 Mich., 303, 311, 312; 41 N. W. 426, 428, 429), the State of Michigan, through its Attorney
General, instituted quo warranto proceedings to test the right of the respondents to renew a mining
corporation, alleging that the statute under which the respondents base their right was unconstitutional
because it impaired the obligation of contracts. The capacity of the chief law officer of the state to question the
constitutionality of the statute was though, as a general rule, only those who are parties to a suit may question
the constitutionality of a statute involved in a judicial decision, it has been held that since the decree
pronounced by a court without jurisdiction in void, where the jurisdiction of the court depends on the validity of
the statute in question, the issue of constitutionality will be considered on its being brought to the attention of
the court by persons interested in the effect to begin the statute. (12 C.J., sec. 184, p. 766.) And, even if we
were to concede that the issue was not properly raised in the court below by the proper party, it does not follow

that the issue may not be here raised in an original action of certiorari and prohibition. It is true that, as a
general rule, the question of constitutionality must be raised at the earliest opportunity, so that if not raised by
the pleadings, ordinarily it may not be raised a the trial, and if not raised in the trial court, it will not be
considered on appeal. (12 C.J., p. 786. See, also, Cadwallader-Gibson Lumber Co. vs. Del Rosario, 26 Phil.,
192, 193-195.) But we must state that the general rule admits of exceptions. Courts, in the exercise of sound
discretion, may determine the time when a question affecting the constitutionality of a statute should be
presented. (In re Woolsey [19884], 95 N.Y., 135, 144.) Thus, in criminal cases, although there is a very sharp
conflict of authorities, it is said that the question may be raised for the first time at any state of the proceedings,
either in the trial court or on appeal. (12 C.J., p. 786.) Even in civil cases, it has been held that it is the duty of
a court to pass on the constitutional question, though raised for first time on appeal, if it appears that a
determination of the question is necessary to a decision of the case. (McCabe's Adm'x vs. Maysville & B. S. R.
Co. [1910], 136 Ky., 674; 124 S. W., 892; Lohmeyer vs. St. Louis, Cordage Co. [1908], 214 Mo. 685; 113 S.
W., 1108; Carmody vs. St. Louis Transit Co. [1905], 188 Mo., 572; 87 S. W., 913.) And it has been held that a
constitutional question will be considered by an appellate court at any time, where it involves the jurisdiction of
the court below (State vs. Burke [1911], 175 Ala., 561; 57 S., 870.) As to the power of this court to consider the
constitutional question raised for the first time before this court in these proceedings, we turn again and point
with emphasis to the case of Yu Cong Eng. vs. Trinidad, supra. And on the hypothesis that the Hongkong &
Shanghai Banking Corporation, represented by the private prosecution, is not the proper party to raise the
constitutional question here a point we do not now have to decide we are of the opinion that the People
of the Philippines, represented by the Solicitor-General and the Fiscal of the City of Manila, is such a proper
party in the present proceedings. The unchallenged rule is that the person who impugns the validity of a
statute must have a personal and substantial interest in the case such that he has sustained, or will sustain,
direct injury as a result of its enforcement. It goes without saying that if Act No. 4221 really violates the
Constitution, the People of the Philippines, in whose name the present action is brought, has a substantial
interest in having it set aside. Of greater import than the damage caused by the illegal expenditure of public
funds is the mortal wound inflicted upon the fundamental law by the enforcement of an invalid statute. Hence,
the well-settled rule that the state can challenge the validity of its own laws. In Government of the Philippine
Islands vs. Springer ([1927]), 50 Phil., 259 (affirmed in Springer vs. Government of the Philippine Islands
[1928], 277 U.S., 189; 72 Law. ed., 845), this court declared an act of the legislature unconstitutional in an
action instituted in behalf of the Government of the Philippines. In Attorney General vs. Perkings([1889], 73
Mich., 303, 311, 312; 41 N.W., 426, 428, 429), the State of Michigan, through its Attorney General, instituted
quo warranto proceedings to test the right of the respondents to renew a mining corporation, alleging that the
statute under which the respondents base their right was unconstitutional because it impaired the obligation of
contracts. The capacity of the chief law officer of the state to question the constitutionality of the statute was
itself questioned. Said the Supreme Court of Michigan, through Champlin, J.:
. . . The idea seems to be that the people are estopped from questioning the validity of a law
enacted by their representatives; that to an accusation by the people of Michigan of usurpation
their government, a statute enacted by the people of Michigan is an adequate answer. The last
proposition is true, but, if the statute relied on in justification is unconstitutional, it is statute only in
form, and lacks the force of law, and is of no more saving effect to justify action under it than if it
had never been enacted. The constitution is the supreme law, and to its behests the courts, the
legislature, and the people must bow . . . The legislature and the respondents are not the only
parties in interest upon such constitutional questions. As was remarked by Mr. Justice Story, in
speaking of an acquiescence by a party affected by an unconstitutional act of the legislature: "The
people have a deep and vested interest in maintaining all the constitutional limitations upon the
exercise of legislative powers." (Allen vs. Mckeen, 1 Sum., 314.)
In State vs. Doane ([1916], 98 Kan., 435; 158 Pac., 38, 40), an original action (mandamus) was brought by the
Attorney-General of Kansas to test the constitutionality of a statute of the state. In disposing of the question
whether or not the state may bring the action, the Supreme Court of Kansas said:
. . . the state is a proper party indeed, the proper party to bring this action. The state is
always interested where the integrity of its Constitution or statutes is involved.

"It has an interest in seeing that the will of the Legislature is not
disregarded, and need not, as an individual plaintiff must, show grounds of
fearing more specific injury. (State vs. Kansas City 60 Kan., 518 [57 Pac.,
118])." (State vs. Lawrence, 80 Kan., 707; 103 Pac., 839.)
Where the constitutionality of a statute is in doubt the state's law officer, its Attorney-General, or
county attorney, may exercise his bet judgment as to what sort of action he will bring to have the
matter determined, either by quo warranto to challenge its validity (State vs. Johnson, 61 Kan.,
803; 60 Pac., 1068; 49 L.R.A., 662), by mandamus to compel obedience to its terms (State vs.
Dolley, 82 Kan., 533; 108 Pac., 846), or by injunction to restrain proceedings under its
questionable provisions (State ex rel. vs. City of Neodesha, 3 Kan. App., 319; 45 Pac., 122).
Other courts have reached the same conclusion (See State vs. St. Louis S. W. Ry. Co. [1917], 197 S. W.,
1006; State vs. S.H. Kress & Co. [1934], 155 S., 823; State vs. Walmsley [1935], 181 La., 597; 160 S., 91;
State vs. Board of County Comr's [1934], 39 Pac. [2d], 286; First Const. Co. of Brooklyn vs. State [1917], 211
N.Y., 295; 116 N.E., 1020; Bush vs. State {1918], 187 Ind., 339; 119 N.E., 417; State vs. Watkins [1933], 176
La., 837; 147 S., 8, 10, 11). In the case last cited, the Supreme Court of Luisiana said:
It is contended by counsel for Herbert Watkins that a district attorney, being charged with the duty
of enforcing the laws, has no right to plead that a law is unconstitutional. In support of the
argument three decisions are cited, viz.: State ex rel. Hall, District Attorney, vs. Judge of Tenth
Judicial District (33 La. Ann., 1222); State ex rel. Nicholls, Governor vs. Shakespeare, Mayor of
New Orleans (41 Ann., 156; 6 So., 592); and State ex rel., Banking Co., etc. vs. Heard, Auditor (47
La. Ann., 1679; 18 So., 746; 47 L. R. A., 512). These decisions do not forbid a district attorney to
plead that a statute is unconstitutional if he finds if in conflict with one which it is his duty to
enforce. In State ex rel. Hall, District Attorney, vs. Judge, etc., the ruling was the judge should not,
merely because he believed a certain statute to be unconstitutional forbid the district attorney to file
a bill of information charging a person with a violation of the statute. In other words, a judge should
not judicially declare a statute unconstitutional until the question of constitutionality is tendered for
decision, and unless it must be decided in order to determine the right of a party litigant. Stateex
rel. Nicholls, Governor, etc., is authority for the proposition merely that an officer on whom a statute
imposes the duty of enforcing its provisions cannot avoid the duty upon the ground that he
considers the statute unconstitutional, and hence in enforcing the statute he is immune from
responsibility if the statute be unconstitutional. State ex rel. Banking Co., etc., is authority for the
proposition merely that executive officers, e.g., the state auditor and state treasurer, should not
decline to perform ministerial duties imposed upon them by a statute, on the ground that they
believe the statute is unconstitutional.
It is the duty of a district attorney to enforce the criminal laws of the state, and, above all, to
support the Constitution of the state. If, in the performance of his duty he finds two statutes in
conflict with each other, or one which repeals another, and if, in his judgment, one of the two
statutes is unconstitutional, it is his duty to enforce the other; and, in order to do so, he is
compelled to submit to the court, by way of a plea, that one of the statutes is unconstitutional. If it
were not so, the power of the Legislature would be free from constitutional limitations in the
enactment of criminal laws.
The respondents do not seem to doubt seriously the correctness of the general proposition that the state may
impugn the validity of its laws. They have not cited any authority running clearly in the opposite direction. In
fact, they appear to have proceeded on the assumption that the rule as stated is sound but that it has no
application in the present case, nor may it be invoked by the City Fiscal in behalf of the People of the
Philippines, one of the petitioners herein, the principal reasons being that the validity before this court, that the
City Fiscal is estopped from attacking the validity of the Act and, not authorized challenge the validity of the Act
in its application outside said city. (Additional memorandum of respondents, October 23, 1937, pp. 8,. 10, 17
and 23.)

The mere fact that the Probation Act has been repeatedly relied upon the past and all that time has not been
attacked as unconstitutional by the Fiscal of Manila but, on the contrary, has been impliedly regarded by him
as constitutional, is no reason for considering the People of the Philippines estopped from nor assailing its
validity. For courts will pass upon a constitutional questions only when presented before it in bona fide cases
for determination, and the fact that the question has not been raised before is not a valid reason for refusing to
allow it to be raised later. The fiscal and all others are justified in relying upon the statute and treating it as
valid until it is held void by the courts in proper cases.
It remains to consider whether the determination of the constitutionality of Act No. 4221 is necessary to the
resolution of the instant case. For, ". . . while the court will meet the question with firmness, where its decision
is indispensable, it is the part of wisdom, and just respect for the legislature, renders it proper, to waive it, if the
case in which it arises, can be decided on other points." (Ex parte Randolph [1833], 20 F. Cas. No. 11, 558; 2
Brock., 447. Vide, also Hoover vs. wood [1857], 9 Ind., 286, 287.) It has been held that the determination of a
constitutional question is necessary whenever it is essential to the decision of the case (12 C. J., p. 782, citing
Long Sault Dev. Co. vs. Kennedy [1913], 158 App. Div., 398; 143 N. Y. Supp., 454 [aff. 212 N.Y., 1: 105 N. E.,
849; Ann. Cas. 1915D, 56; and app dism 242 U.S., 272]; Hesse vs. Ledesma, 7 Porto Rico Fed., 520; Cowan
vs. Doddridge, 22 Gratt [63 Va.], 458; Union Line Co., vs. Wisconsin R. Commn., 146 Wis., 523; 129 N. W.,
605), as where the right of a party is founded solely on a statute the validity of which is attacked. (12 C.J., p.
782, citing Central Glass Co. vs. Niagrara F. Ins. Co., 131 La., 513; 59 S., 972; Cheney vs. Beverly, 188
Mass., 81; 74 N.E., 306). There is no doubt that the respondent Cu Unjieng draws his privilege to probation
solely from Act No. 4221 now being assailed.
Apart from the foregoing considerations, that court will also take cognizance of the fact that the Probation Act
is a new addition to our statute books and its validity has never before been passed upon by the courts; that
may persons accused and convicted of crime in the City of Manila have applied for probation; that some of
them are already on probation; that more people will likely take advantage of the Probation Act in the future;
and that the respondent Mariano Cu Unjieng has been at large for a period of about four years since his first
conviction. All wait the decision of this court on the constitutional question. Considering, therefore, the
importance which the instant case has assumed and to prevent multiplicity of suits, strong reasons of public
policy demand that the constitutionality of Act No. 4221 be now resolved. (Yu Cong Eng vs. Trinidad [1925], 47
Phil., 385; [1926], 271 U.S., 500; 70 Law. ed., 1059. See 6 R.C.L., pp. 77, 78; People vs. Kennedy [1913], 207
N.Y., 533; 101 N.E., 442, 444; Ann. Cas. 1914C, 616; Borginis vs. Falk Co. [1911], 147 Wis., 327; 133 N.W.,
209, 211; 37 L.R.A. [N.S.] 489; Dimayuga and Fajardo vs. Fernandez [1922], 43 Phil., 304.) In Yu Cong Eng
vs. Trinidad, supra, an analogous situation confronted us. We said: "Inasmuch as the property and personal
rights of nearly twelve thousand merchants are affected by these proceedings, and inasmuch as Act No. 2972
is a new law not yet interpreted by the courts, in the interest of the public welfare and for the advancement of
public policy, we have determined to overrule the defense of want of jurisdiction in order that we may decide
the main issue. We have here an extraordinary situation which calls for a relaxation of the general rule." Our
ruling on this point was sustained by the Supreme Court of the United States. A more binding authority in
support of the view we have taken can not be found.
We have reached the conclusion that the question of the constitutionality of Act No. 4221 has been properly
raised. Now for the main inquiry: Is the Act unconstitutional?
Under a doctrine peculiarly American, it is the office and duty of the judiciary to enforce the Constitution. This
court, by clear implication from the provisions of section 2, subsection 1, and section 10, of Article VIII of the
Constitution, may declare an act of the national legislature invalid because in conflict with the fundamental lay.
It will not shirk from its sworn duty to enforce the Constitution. And, in clear cases, it will not hesitate to give
effect to the supreme law by setting aside a statute in conflict therewith. This is of the essence of judicial duty.
This court is not unmindful of the fundamental criteria in cases of this nature that all reasonable doubts should
be resolved in favor of the constitutionality of a statute. An act of the legislature approved by the executive, is
presumed to be within constitutional limitations. The responsibility of upholding the Constitution rests not on
the courts alone but on the legislature as well. "The question of the validity of every statute is first determined
by the legislative department of the government itself." (U.S. vs. Ten Yu [1912], 24 Phil., 1, 10; Case vs. Board

of Health and Heiser [1913], 24 Phil., 250, 276; U.S. vs. Joson [1913], 26 Phil., 1.) And a statute finally comes
before the courts sustained by the sanction of the executive. The members of the Legislature and the Chief
Executive have taken an oath to support the Constitution and it must be presumed that they have been true to
this oath and that in enacting and sanctioning a particular law they did not intend to violate the Constitution.
The courts cannot but cautiously exercise its power to overturn the solemn declarations of two of the three
grand departments of the governments. (6 R.C.L., p. 101.) Then, there is that peculiar political philosophy
which bids the judiciary to reflect the wisdom of the people as expressed through an elective Legislature and
an elective Chief Executive. It follows, therefore, that the courts will not set aside a law as violative of the
Constitution except in a clear case. This is a proposition too plain to require a citation of authorities.
One of the counsel for respondents, in the course of his impassioned argument, called attention to the fact that
the President of the Philippines had already expressed his opinion against the constitutionality of the Probation
Act, adverting that as to the Executive the resolution of this question was a foregone conclusion. Counsel,
however, reiterated his confidence in the integrity and independence of this court. We take notice of the fact
that the President in his message dated September 1, 1937, recommended to the National Assembly the
immediate repeal of the Probation Act (No. 4221); that this message resulted in the approval of Bill No. 2417
of the Nationality Assembly repealing the probation Act, subject to certain conditions therein mentioned; but
that said bill was vetoed by the President on September 13, 1937, much against his wish, "to have stricken out
from the statute books of the Commonwealth a law . . . unfair and very likely unconstitutional." It is sufficient to
observe in this connection that, in vetoing the bill referred to, the President exercised his constitutional
prerogative. He may express the reasons which he may deem proper for taking such a step, but his reasons
are not binding upon us in the determination of actual controversies submitted for our determination. Whether
or not the Executive should express or in any manner insinuate his opinion on a matter encompassed within
his broad constitutional power of veto but which happens to be at the same time pending determination in this
court is a question of propriety for him exclusively to decide or determine. Whatever opinion is expressed by
him under these circumstances, however, cannot sway our judgment on way or another and prevent us from
taking what in our opinion is the proper course of action to take in a given case. It if is ever necessary for us to
make any vehement affirmance during this formative period of our political history, it is that we are
independent of the Executive no less than of the Legislative department of our government independent in
the performance of our functions, undeterred by any consideration, free from politics, indifferent to popularity,
and unafraid of criticism in the accomplishment of our sworn duty as we see it and as we understand it.
The constitutionality of Act No. 4221 is challenged on three principal grounds: (1) That said Act encroaches
upon the pardoning power of the Executive; (2) that its constitutes an undue delegation of legislative power
and (3) that it denies the equal protection of the laws.
1. Section 21 of the Act of Congress of August 29, 1916, commonly known as the Jones Law, in force at the
time of the approval of Act No. 4221, otherwise known as the Probation Act, vests in the Governor-General of
the Philippines "the exclusive power to grant pardons and reprieves and remit fines and forfeitures". This
power is now vested in the President of the Philippines. (Art. VII, sec. 11, subsec. 6.) The provisions of the
Jones Law and the Constitution differ in some respects. The adjective "exclusive" found in the Jones Law has
been omitted from the Constitution. Under the Jones Law, as at common law, pardon could be granted any
time after the commission of the offense, either before or after conviction (Vide Constitution of the United
States, Art. II, sec. 2;In re Lontok [1922], 43 Phil., 293). The Governor-General of the Philippines was thus
empowered, like the President of the United States, to pardon a person before the facts of the case were fully
brought to light. The framers of our Constitution thought this undesirable and, following most of the state
constitutions, provided that the pardoning power can only be exercised "after conviction". So, too, under the
new Constitution, the pardoning power does not extend to "cases of impeachment". This is also the rule
generally followed in the United States (Vide Constitution of the United States, Art. II, sec. 2). The rule in
England is different. There, a royal pardon can not be pleaded in bar of an impeachment; "but," says
Blackstone, "after the impeachment has been solemnly heard and determined, it is not understood that the
king's royal grace is further restrained or abridged." (Vide, Ex parte Wells [1856], 18 How., 307; 15 Law. ed.,
421; Com. vs. Lockwood [1872], 109 Mass., 323; 12 Am. Rep., 699; Sterling vs. Drake [1876], 29 Ohio St.,
457; 23 am. Rep., 762.) The reason for the distinction is obvious. In England, Judgment on impeachment is
not confined to mere "removal from office and disqualification to hold and enjoy any office of honor, trust, or
profit under the Government" (Art. IX, sec. 4, Constitution of the Philippines) but extends to the whole

punishment attached by law to the offense committed. The House of Lords, on a conviction may, by its
sentence, inflict capital punishment, perpetual banishment, perpetual banishment, fine or imprisonment,
depending upon the gravity of the offense committed, together with removal from office and incapacity to hold
office. (Com. vs. Lockwood, supra.) Our Constitution also makes specific mention of "commutation" and of the
power of the executive to impose, in the pardons he may grant, such conditions, restrictions and limitations as
he may deem proper. Amnesty may be granted by the President under the Constitution but only with the
concurrence of the National Assembly. We need not dwell at length on the significance of these fundamental
changes. It is sufficient for our purposes to state that the pardoning power has remained essentially the same.
The question is: Has the pardoning power of the Chief Executive under the Jones Law been impaired by the
Probation Act?
As already stated, the Jones Law vests the pardoning power exclusively in the Chief Executive. The exercise
of the power may not, therefore, be vested in anyone else.
". . . The benign prerogative of mercy reposed in the executive cannot be taken away nor fettered by any
legislative restrictions, nor can like power be given by the legislature to any other officer or authority. The
coordinate departments of government have nothing to do with the pardoning power, since no person properly
belonging to one of the departments can exercise any powers appertaining to either of the others except in
cases expressly provided for by the constitution." (20 R.C.L., pp., , and cases cited.) " . . . where the pardoning
power is conferred on the executive without express or implied limitations, the grant is exclusive, and the
legislature can neither exercise such power itself nor delegate it elsewhere, nor interfere with or control the
proper exercise thereof, . . ." (12 C.J., pp. 838, 839, and cases cited.) If Act No. 4221, then, confers any
pardoning power upon the courts it is for that reason unconstitutional and void. But does it?
In the famous Killitts decision involving an embezzlement case, the Supreme Court of the United States ruled
in 1916 that an order indefinitely suspending sentenced was void. (Ex parte United States [1916], 242 U.S.,
27; 61 Law. ed., 129; L.R.A. 1917E, 1178; 37 Sup. Ct. Rep., 72; Ann. Cas. 1917B, 355.) Chief Justice White,
after an exhaustive review of the authorities, expressed the opinion of the court that under the common law the
power of the court was limited to temporary suspension and that the right to suspend sentenced absolutely
and permanently was vested in the executive branch of the government and not in the judiciary. But, the right
of Congress to establish probation by statute was conceded. Said the court through its Chief Justice: ". . . and
so far as the future is concerned, that is, the causing of the imposition of penalties as fixed to be subject, by
probation legislation or such other means as the legislative mind may devise, to such judicial discretion as
may be adequate to enable courts to meet by the exercise of an enlarged but wise discretion the infinite
variations which may be presented to them for judgment, recourse must be had Congress whose legislative
power on the subject is in the very nature of things adequately complete." (Quoted in Riggs vs. United States
[1926], 14 F. [2d], 5, 6.) This decision led the National Probation Association and others to agitate for the
enactment by Congress of a federal probation law. Such action was finally taken on March 4, 1925 (chap. 521,
43 Stat. L. 159, U.S.C. title 18, sec. 724). This was followed by an appropriation to defray the salaries and
expenses of a certain number of probation officers chosen by civil service. (Johnson, Probation for Juveniles
and Adults, p. 14.)
In United States vs. Murray ([1925], 275 U.S., 347; 48 Sup. Ct. Rep., 146; 72 Law. ed., 309), the Supreme
Court of the United States, through Chief Justice Taft, held that when a person sentenced to imprisonment by
a district court has begun to serve his sentence, that court has no power under the Probation Act of March 4,
1925 to grant him probation even though the term at which sentence was imposed had not yet expired. In this
case of Murray, the constitutionality of the probation Act was not considered but was assumed. The court
traced the history of the Act and quoted from the report of the Committee on the Judiciary of the United States
House of Representatives (Report No. 1377, 68th Congress, 2 Session) the following statement:
Prior to the so-called Killitts case, rendered in December, 1916, the district courts exercised a form
of probation either, by suspending sentence or by placing the defendants under state probation
officers or volunteers. In this case, however (Ex parte United States, 242 U.S., 27; 61 L. Ed., 129;
L.R.A., 1917E, 1178; 37 Sup. Ct. Rep., 72 Ann. Cas. 1917B, 355), the Supreme Court denied the
right of the district courts to suspend sentenced. In the same opinion the court pointed out the
necessity for action by Congress if the courts were to exercise probation powers in the future . . .

Since this decision was rendered, two attempts have been made to enact probation legislation. In
1917, a bill was favorably reported by the Judiciary Committee and passed the House. In 1920, the
judiciary Committee again favorably reported a probation bill to the House, but it was never
reached for definite action.
If this bill is enacted into law, it will bring the policy of the Federal government with reference to its
treatment of those convicted of violations of its criminal laws in harmony with that of the states of
the Union. At the present time every state has a probation law, and in all but twelve states the law
applies both to adult and juvenile offenders. (see, also, Johnson, Probation for Juveniles and
Adults [1928], Chap. I.)
The constitutionality of the federal probation law has been sustained by inferior federal courts. In Riggs vs.
United States supra, the Circuit Court of Appeals of the Fourth Circuit said:
Since the passage of the Probation Act of March 4, 1925, the questions under consideration have
been reviewed by the Circuit Court of Appeals of the Ninth Circuit (7 F. [2d], 590), and the
constitutionality of the act fully sustained, and the same held in no manner to encroach upon the
pardoning power of the President. This case will be found to contain an able and comprehensive
review of the law applicable here. It arose under the act we have to consider, and to it and the
authorities cited therein special reference is made (Nix vs. James, 7 F. [2d], 590, 594), as is also to
a decision of the Circuit Court of Appeals of the Seventh Circuit (Kriebel vs. U.S., 10 F. [2d], 762),
likewise construing the Probation Act.
We have seen that in 1916 the Supreme Court of the United States; in plain and unequivocal language,
pointed to Congress as possessing the requisite power to enact probation laws, that a federal probation law as
actually enacted in 1925, and that the constitutionality of the Act has been assumed by the Supreme Court of
the United States in 1928 and consistently sustained by the inferior federal courts in a number of earlier cases.
We are fully convinced that the Philippine Legislature, like the Congress of the United States, may legally
enact a probation law under its broad power to fix the punishment of any and all penal offenses. This
conclusion is supported by other authorities. In Ex parte Bates ([1915], 20 N. M., 542; L.R.A. 1916A, 1285; 151
Pac., 698, the court said: "It is clearly within the province of the Legislature to denominate and define all
classes of crime, and to prescribe for each a minimum and maximum punishment." And in State vs. Abbott
([1910], 87 S.C., 466; 33 L.R.A. [N. S.], 112; 70 S. E., 6; Ann. Cas. 1912B, 1189), the court said: "The
legislative power to set punishment for crime is very broad, and in the exercise of this power the general
assembly may confer on trial judges, if it sees fit, the largest discretion as to the sentence to be imposed, as to
the beginning and end of the punishment and whether it should be certain or indeterminate or conditional."
(Quoted in State vs. Teal [1918], 108 S. C., 455; 95 S. E., 69.) Indeed, the Philippine Legislature has defined
all crimes and fixed the penalties for their violation. Invariably, the legislature has demonstrated the desire to
vest in the courts particularly the trial courts large discretion in imposing the penalties which the law
prescribes in particular cases. It is believed that justice can best be served by vesting this power in the courts,
they being in a position to best determine the penalties which an individual convict, peculiarly circumstanced,
should suffer. Thus, while courts are not allowed to refrain from imposing a sentence merely because, taking
into consideration the degree of malice and the injury caused by the offense, the penalty provided by law is
clearly excessive, the courts being allowed in such case to submit to the Chief Executive, through the
Department of Justice, such statement as it may deem proper (see art. 5, Revised Penal Code), in cases
where both mitigating and aggravating circumstances are attendant in the commission of a crime and the law
provides for a penalty composed of two indivisible penalties, the courts may allow such circumstances to offset
one another in consideration of their number and importance, and to apply the penalty according to the result
of such compensation. (Art. 63, rule 4, Revised Penal Code; U.S. vs. Reguera and Asuategui [1921], 41 Phil.,
506.) Again, article 64, paragraph 7, of the Revised Penal Code empowers the courts to determine, within the
limits of each periods, in case the penalty prescribed by law contains three periods, the extent of the evil
produced by the crime. In the imposition of fines, the courts are allowed to fix any amount within the limits
established by law, considering not only the mitigating and aggravating circumstances, but more particularly
the wealth or means of the culprit. (Art. 66, Revised Penal Code.) Article 68, paragraph 1, of the same Code

provides that "a discretionary penalty shall be imposed" upon a person under fifteen but over nine years of
age, who has not acted without discernment, but always lower by two degrees at least than that prescribed by
law for the crime which he has committed. Article 69 of the same Code provides that in case of "incomplete
self-defense", i.e., when the crime committed is not wholly excusable by reason of the lack of some of the
conditions required to justify the same or to exempt from criminal liability in the several cases mentioned in
article 11 and 12 of the Code, "the courts shall impose the penalty in the period which may be deemed proper,
in view of the number and nature of the conditions of exemption present or lacking." And, in case the
commission of what are known as "impossible" crimes, "the court, having in mind the social danger and the
degree of criminality shown by the offender," shall impose upon him either arresto mayor or a fine ranging from
200 to 500 pesos. (Art. 59, Revised Penal Code.)
Under our Revised Penal Code, also, one-half of the period of preventive imprisonment is deducted form the
entire term of imprisonment, except in certain cases expressly mentioned (art. 29); the death penalty is not
imposed when the guilty person is more than seventy years of age, or where upon appeal or revision of the
case by the Supreme Court, all the members thereof are not unanimous in their voting as to the propriety of
the imposition of the death penalty (art. 47, see also, sec. 133, Revised Administrative Code, as amended by
Commonwealth Act No. 3); the death sentence is not to be inflicted upon a woman within the three years next
following the date of the sentence or while she is pregnant, or upon any person over seventy years of age (art.
83); and when a convict shall become insane or an imbecile after final sentence has been pronounced, or
while he is serving his sentenced, the execution of said sentence shall be suspended with regard to the
personal penalty during the period of such insanity or imbecility (art. 79).
But the desire of the legislature to relax what might result in the undue harshness of the penal laws is more
clearly demonstrated in various other enactments, including the probation Act. There is the Indeterminate
Sentence Law enacted in 1933 as Act No. 4103 and subsequently amended by Act No. 4225, establishing a
system of parole (secs. 5 to 100 and granting the courts large discretion in imposing the penalties of the law.
Section 1 of the law as amended provides; "hereafter, in imposing a prison sentence for an offenses punished
by the Revised Penal Code, or its amendments, the court shall sentence the accused to an indeterminate
sentence the maximum term of which shall be that which, in view of the attending circumstances, could be
properly imposed under the rules of the said Code, and to a minimum which shall be within the range of the
penalty next lower to that prescribed by the Code for the offense; and if the offense is punished by any other
law, the court shall sentence the accused to an indeterminate sentence, the maximum term of which shall not
exceed the maximum fixed by said law and the minimum shall not be less than the minimum term prescribed
by the same." Certain classes of convicts are, by section 2 of the law, excluded from the operation thereof.
The Legislature has also enacted the Juvenile Delinquency Law (Act No. 3203) which was subsequently
amended by Act No. 3559. Section 7 of the original Act and section 1 of the amendatory Act have become
article 80 of the Revised Penal Code, amended by Act No. 4117 of the Philippine Legislature and recently
reamended by Commonwealth Act No. 99 of the National Assembly. In this Act is again manifested the
intention of the legislature to "humanize" the penal laws. It allows, in effect, the modification in particular cases
of the penalties prescribed by law by permitting the suspension of the execution of the judgment in the
discretion of the trial court, after due hearing and after investigation of the particular circumstances of the
offenses, the criminal record, if any, of the convict, and his social history. The Legislature has in reality decreed
that in certain cases no punishment at all shall be suffered by the convict as long as the conditions of
probation are faithfully observed. It this be so, then, it cannot be said that the Probation Act comes in conflict
with the power of the Chief Executive to grant pardons and reprieves, because, to use the language of the
Supreme Court of New Mexico, "the element of punishment or the penalty for the commission of a wrong,
while to be declared by the courts as a judicial function under and within the limits of law as announced by
legislative acts, concerns solely the procedure and conduct of criminal causes, with which the executive can
have nothing to do." (Ex parte Bates, supra.) In Williams vs. State ([1926], 162 Ga., 327; 133 S.E., 843), the
court upheld the constitutionality of the Georgia probation statute against the contention that it attempted to
delegate to the courts the pardoning power lodged by the constitution in the governor alone is vested with the
power to pardon after final sentence has been imposed by the courts, the power of the courts to imposed any
penalty which may be from time to time prescribed by law and in such manner as may be defined cannot be
questioned."

We realize, of course, the conflict which the American cases disclose. Some cases hold it unlawful for the
legislature to vest in the courts the power to suspend the operation of a sentenced, by probation or otherwise,
as to do so would encroach upon the pardoning power of the executive. (In re Webb [1895], 89 Wis., 354; 27
L.R.A., 356; 46 Am. St. Rep., 846; 62 N.W., 177; 9 Am. Crim., Rep., 702; State ex rel. Summerfield vs. Moran
[1919], 43 Nev., 150; 182 Pac., 927; Ex parte Clendenning [1908], 22 Okla., 108; 1 Okla. Crim. Rep., 227; 19
L.R.A. [N.S.], 1041; 132 Am. St. Rep., 628; 97 Pac., 650; People vs. Barrett [1903], 202 Ill, 287; 67 N.E., 23;
63 L.R.A., 82; 95 Am. St. Rep., 230; Snodgrass vs. State [1912], 67 Tex. Crim. Rep., 615; 41 L. R. A. [N. S.],
1144; 150 S. W., 162;Ex parte Shelor [1910], 33 Nev., 361;111 Pac., 291; Neal vs. State [1898], 104 Ga., 509;
42 L. R. A., 190; 69 Am. St. Rep., 175; 30 S. E. 858; State ex rel. Payne vs. Anderson [1921], 43 S. D., 630;
181 N. W., 839; People vs. Brown, 54 Mich., 15; 19 N. W., 571; States vs. Dalton [1903], 109 Tenn., 544; 72 S.
W., 456.)
Other cases, however, hold contra. (Nix vs. James [1925; C. C. A., 9th], 7 F. [2d], 590; Archer vs. Snook [1926;
D. C.], 10 F. [2d], 567; Riggs. vs. United States [1926; C. C. A. 4th], 14]) [2d], 5; Murphy vs. States [1926], 171
Ark., 620; 286 S. W., 871; 48 A. L. R., 1189; Re Giannini [1912], 18 Cal. App., 166; 122 Pac., 831; Re
Nachnaber [1928], 89 Cal. App., 530; 265 Pac., 392; Ex parte De Voe [1931], 114 Cal. App., 730; 300 Pac.,
874; People vs. Patrick [1897], 118 Cal., 332; 50 Pac., 425; Martin vs. People [1917], 69 Colo., 60; 168 Pac.,
1171; Belden vs. Hugo [1914], 88 Conn., 50; 91 A., 369, 370, 371; Williams vs. State [1926], 162 Ga., 327;
133 S. E., 843; People vs. Heise [1913], 257 Ill., 443; 100 N. E., 1000; Parker vs. State [1893], 135 Ind., 534;
35 N. E., 179; 23 L. R. A., 859; St. Hillarie, Petitioner [1906], 101 Me., 522; 64 Atl., 882; People vs. Stickle
[1909], 156 Mich., 557; 121 N. W., 497; State vs. Fjolander [1914], 125 Minn., 529; State ex rel. Bottomnly vs.
District Court [1925], 73 Mont., 541; 237 Pac., 525; State vs. Everitt [1913], 164 N. C., 399; 79 S. E., 274; 47
L. R. A. [N. S.], 848; State ex rel. Buckley vs. Drew [1909], 75 N. H., 402; 74 Atl., 875; State vs. Osborne
[1911], 79 N. J. Eq., 430; 82 Atl. 424; Ex parteBates [1915], 20 N. M., 542; L. R. A., 1916 A. 1285; 151 Pac.,
698; People vs. ex rel. Forsyth vs. Court of Session [1894], 141 N. Y., 288; 23 L. R. A., 856; 36 N. E., 386; 15
Am. Crim. Rep., 675; People ex rel. Sullivan vs. Flynn [1907], 55 Misc., 639; 106 N. Y. Supp., 928; People vs.
Goodrich [1914], 149 N. Y. Supp., 406; Moore vs. Thorn [1935], 245 App. Div., 180; 281 N. Y. Supp., 49; Re
Hart [1914], 29 N. D., 38; L. R. A., 1915C, 1169; 149 N. W., 568; Ex parte Eaton [1925], 29 Okla., Crim. Rep.,
275; 233 P., 781; State vs. Teal [1918], 108 S. C., 455; 95 S. E., 69; State vs. Abbot [1910], 87 S. C., 466; 33
L.R.A., [N. S.], 112; 70 S. E., 6; Ann. Cas., 1912B, 1189; Fults vs. States [1854],34 Tenn., 232; Woods vs.
State [1814], 130 Tenn., 100; 169 S. W., 558; Baker vs. State [1814], 130 Tenn., 100; 169 S. W., 558; Baker
vs. State [1913],70 Tex., Crim. Rep., 618; 158 S. W., 998; Cook vs. State [1914], 73 Tex. Crim. Rep., 548; 165
S. W., 573; King vs. State [1914], 72 Tex. Crim. Rep., 394; 162 S. W., 890; Clare vs. State [1932], 122 Tex.
Crim. Rep., 394; 162 S. W., 890; Clare vs. State [1932], 122 Tex. Crim. Rep., 211; 54 S. W. [2d], 127; Re Hall
[1927], 100 Vt., 197; 136 A., 24; Richardson vs. Com. [1921], 131 Va., 802; 109 S.E., 460; State vs. Mallahan
[1911], 65 Wash., 287; 118 Pac., 42; State ex rel. Tingstand vs. Starwich [1922], 119 Wash., 561; 206 Pac., 29;
26 A. L. R., 393; 396.) We elect to follow this long catena of authorities holding that the courts may be legally
authorized by the legislature to suspend sentence by the establishment of a system of probation however
characterized. State ex rel. Tingstand vs. Starwich ([1922], 119 Wash., 561; 206 Pac., 29; 26 A. L. R., 393),
deserved particular mention. In that case, a statute enacted in 1921 which provided for the suspension of the
execution of a sentence until otherwise ordered by the court, and required that the convicted person be placed
under the charge of a parole or peace officer during the term of such suspension, on such terms as the court
may determine, was held constitutional and as not giving the court a power in violation of the constitutional
provision vesting the pardoning power in the chief executive of the state. (Vide, also, Re Giannini [1912], 18
Cal App., 166; 122 Pac., 831.)
Probation and pardon are not coterminous; nor are they the same. They are actually district and different from
each other, both in origin and in nature. In People ex rel. Forsyth vs. Court of Sessions ([1894], 141 N. Y., 288,
294; 36 N. E., 386, 388; 23 L. R. A., 856; 15 Am. Crim. Rep., 675), the Court of Appeals of New York said:
. . . The power to suspend sentence and the power to grant reprieves and pardons, as understood
when the constitution was adopted, are totally distinct and different in their nature. The former was
always a part of the judicial power; the latter was always a part of the executive power. The
suspension of the sentence simply postpones the judgment of the court temporarily or indefinitely,
but the conviction and liability following it, and the civil disabilities, remain and become operative
when judgment is rendered. A pardon reaches both the punishment prescribed for the offense and

the guilt of the offender. It releases the punishment, and blots out of existence the guilt, so that in
the eye of the law, the offender is as innocent as if he had never committed the offense. It removes
the penalties and disabilities, and restores him to all his civil rights. It makes him, as it were, a new
man, and gives him a new credit and capacity. (Ex parteGarland, 71 U. S., 4 Wall., 333; 18 Law.
ed., 366; U. S. vs. Klein, 80 U. S., 13 Wall., 128; 20 Law. ed., 519; Knote vs. U. S., 95 U. S., 149;
24 Law. ed., 442.)
The framers of the federal and the state constitutions were perfectly familiar with the principles
governing the power to grant pardons, and it was conferred by these instruments upon the
executive with full knowledge of the law upon the subject, and the words of the constitution were
used to express the authority formerly exercised by the English crown, or by its representatives in
the colonies. (Ex parte Wells, 59 U. S., 18 How., 307; 15 Law. ed., 421.) As this power was
understood, it did not comprehend any part of the judicial functions to suspend sentence, and it
was never intended that the authority to grant reprieves and pardons should abrogate, or in any
degree restrict, the exercise of that power in regard to its own judgments, that criminal courts has
so long maintained. The two powers, so distinct and different in their nature and character, were
still left separate and distinct, the one to be exercised by the executive, and the other by the
judicial department. We therefore conclude that a statute which, in terms, authorizes courts of
criminal jurisdiction to suspend sentence in certain cases after conviction, a power inherent in
such courts at common law, which was understood when the constitution was adopted to be an
ordinary judicial function, and which, ever since its adoption, has been exercised of legislative
power under the constitution. It does not encroach, in any just sense, upon the powers of the
executive, as they have been understood and practiced from the earliest times. (Quoted with
approval in Directors of Prisons vs. Judge of First Instance of Cavite [1915], 29 Phil., 265, Carson,
J., concurring, at pp. 294, 295.)
In probation, the probationer is in no true sense, as in pardon, a free man. He is not finally and completely
exonerated. He is not exempt from the entire punishment which the law inflicts. Under the Probation Act, the
probationer's case is not terminated by the mere fact that he is placed on probation. Section 4 of the Act
provides that the probation may be definitely terminated and the probationer finally discharged from
supervision only after the period of probation shall have been terminated and the probation officer shall have
submitted a report, and the court shall have found that the probationer has complied with the conditions of
probation. The probationer, then, during the period of probation, remains in legal custody subject to the
control of the probation officer and of the court; and, he may be rearrested upon the non-fulfillment of the
conditions of probation and, when rearrested, may be committed to prison to serve the sentence originally
imposed upon him. (Secs. 2, 3, 5 and 6, Act No. 4221.)
The probation described in the act is not pardon. It is not complete liberty, and may be far from it. It
is really a new mode of punishment, to be applied by the judge in a proper case, in substitution of
the imprisonment and find prescribed by the criminal laws. For this reason its application is as
purely a judicial act as any other sentence carrying out the law deemed applicable to the offense.
The executive act of pardon, on the contrary, is against the criminal law, which binds and directs
the judges, or rather is outside of and above it. There is thus no conflict with the pardoning power,
and no possible unconstitutionality of the Probation Act for this cause. (Archer vs. Snook [1926], 10
F. [2d], 567, 569.)
Probation should also be distinguished from reprieve and from commutation of the sentence. Snodgrass vs.
State ([1912], 67 Tex. Crim. Rep., 615;41 L. R. A. [N. S.], 1144; 150 S. W., 162), is relied upon most strongly
by the petitioners as authority in support of their contention that the power to grant pardons and reprieves,
having been vested exclusively upon the Chief Executive by the Jones Law, may not be conferred by the
legislature upon the courts by means of probation law authorizing the indefinite judicial suspension of
sentence. We have examined that case and found that although the Court of Criminal Appeals of Texas held
that the probation statute of the state in terms conferred on the district courts the power to grant pardons to
persons convicted of crime, it also distinguished between suspensions sentence on the one hand, and
reprieve and commutation of sentence on the other. Said the court, through Harper, J.:

10

That the power to suspend the sentence does not conflict with the power of the Governor to grant
reprieves is settled by the decisions of the various courts; it being held that the distinction between
a "reprieve" and a suspension of sentence is that a reprieve postpones the execution of the
sentence to a day certain, whereas a suspension is for an indefinite time. (Carnal vs. People, 1
Parker, Cr. R., 262; In re Buchanan, 146 N. Y., 264; 40 N. E., 883), and cases cited in 7 Words &
Phrases, pp. 6115, 6116. This law cannot be hold in conflict with the power confiding in the
Governor to grant commutations of punishment, for a commutations is not but to change the
punishment assessed to a less punishment.
In State ex rel. Bottomnly vs. District Court ([1925], 73 Mont., 541; 237 Pac., 525), the Supreme Court of
Montana had under consideration the validity of the adult probation law of the state enacted in 1913, now
found in sections 12078-12086, Revised Codes of 1921. The court held the law valid as not impinging upon
the pardoning power of the executive. In a unanimous decision penned by Justice Holloway, the court said:
. . . . the term "pardon", "commutation", and "respite" each had a well understood meaning at the
time our Constitution was adopted, and no one of them was intended to comprehend the
suspension of the execution of the judgment as that phrase is employed in sections 12078-12086.
A "pardon" is an act of grace, proceeding from the power intrusted with the execution of the laws
which exempts the individual on whom it is bestowed from the punishment the law inflicts for a
crime he has committed (United States vs. Wilson, 7 Pet., 150; 8 Law. ed., 640); It is a remission of
guilt (State vs. Lewis, 111 La., 693; 35 So., 816), a forgiveness of the offense (Cook vs. Middlesex
County, 26 N. J. Law, 326; Ex parte Powell, 73 Ala., 517; 49 Am. Rep., 71). "Commutation" is a
remission of a part of the punishment; a substitution of a less penalty for the one originally imposed
(Lee vs. Murphy, 22 Grat. [Va.] 789; 12 Am. Rep., 563; Rich vs. Chamberlain, 107 Mich., 381; 65
N. W., 235). A "reprieve" or "respite" is the withholding of the sentence for an interval of time (4
Blackstone's Commentaries, 394), a postponement of execution (Carnal vs. People, 1 Parker, Cr.
R. [N. Y.], 272), a temporary suspension of execution (Butler vs. State, 97 Ind., 373).
Few adjudicated cases are to be found in which the validity of a statute similar to our section
12078 has been determined; but the same objections have been urged against parole statutes
which vest the power to parole in persons other than those to whom the power of pardon is
granted, and these statutes have been upheld quite uniformly, as a reference to the numerous
cases cited in the notes to Woods vs. State (130 Tenn., 100; 169 S. W.,558, reported in L. R. A.,
1915F, 531), will disclose. (See, also, 20 R. C. L., 524.)
We conclude that the Probation Act does not conflict with the pardoning power of the Executive. The
pardoning power, in respect to those serving their probationary sentences, remains as full and complete as if
the Probation Law had never been enacted. The President may yet pardon the probationer and thus place it
beyond the power of the court to order his rearrest and imprisonment. (Riggs vs. United States [1926],
14 F. [2d], 5, 7.)
2. But while the Probation Law does not encroach upon the pardoning power of the executive and is not for
that reason void, does section 11 thereof constitute, as contended, an undue delegation of legislative power?
Under the constitutional system, the powers of government are distributed among three coordinate and
substantially independent organs: the legislative, the executive and the judicial. Each of these departments of
the government derives its authority from the Constitution which, in turn, is the highest expression of popular
will. Each has exclusive cognizance of the matters within its jurisdiction, and is supreme within its own sphere.
The power to make laws the legislative power is vested in a bicameral Legislature by the Jones Law
(sec. 12) and in a unicamiral National Assembly by the Constitution (Act. VI, sec. 1, Constitution of the
Philippines). The Philippine Legislature or the National Assembly may not escape its duties and responsibilities
by delegating that power to any other body or authority. Any attempt to abdicate the power is unconstitutional
and void, on the principle that potestas delegata non delegare potest. This principle is said to have originated

with the glossators, was introduced into English law through a misreading of Bracton, there developed as a
principle of agency, was established by Lord Coke in the English public law in decisions forbidding the
delegation of judicial power, and found its way into America as an enlightened principle of free government. It
has since become an accepted corollary of the principle of separation of powers. (5 Encyc. of the Social
Sciences, p. 66.) The classic statement of the rule is that of Locke, namely: "The legislative neither must nor
can transfer the power of making laws to anybody else, or place it anywhere but where the people have."
(Locke on Civil Government, sec. 142.) Judge Cooley enunciates the doctrine in the following oft-quoted
language: "One of the settled maxims in constitutional law is, that the power conferred upon the legislature to
make laws cannot be delegated by that department to any other body or authority. Where the sovereign power
of the state has located the authority, there it must remain; and by the constitutional agency alone the laws
must be made until the Constitution itself is charged. The power to whose judgment, wisdom, and patriotism
this high prerogative has been intrusted cannot relieve itself of the responsibilities by choosing other agencies
upon which the power shall be devolved, nor can it substitute the judgment, wisdom, and patriotism of any
other body for those to which alone the people have seen fit to confide this sovereign trust." (Cooley on
Constitutional Limitations, 8th ed., Vol. I, p. 224. Quoted with approval in U. S. vs. Barrias [1908], 11 Phil.,
327.) This court posits the doctrine "on the ethical principle that such a delegated power constitutes not only a
right but a duty to be performed by the delegate by the instrumentality of his own judgment acting immediately
upon the matter of legislation and not through the intervening mind of another. (U. S. vs. Barrias, supra, at p.
330.)
The rule, however, which forbids the delegation of legislative power is not absolute and inflexible. It admits of
exceptions. An exceptions sanctioned by immemorial practice permits the central legislative body to delegate
legislative powers to local authorities. (Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660; U. S. vs.
Salaveria [1918], 39 Phil., 102; Stoutenburgh vs. Hennick [1889], 129 U. S., 141; 32 Law. ed., 637; 9 Sup. Ct.
Rep., 256; State vs. Noyes [1855], 30 N. H., 279.) "It is a cardinal principle of our system of government, that
local affairs shall be managed by local authorities, and general affairs by the central authorities; and hence
while the rule is also fundamental that the power to make laws cannot be delegated, the creation of the
municipalities exercising local self government has never been held to trench upon that rule. Such legislation
is not regarded as a transfer of general legislative power, but rather as the grant of the authority to prescribed
local regulations, according to immemorial practice, subject of course to the interposition of the superior in
cases of necessity." (Stoutenburgh vs. Hennick, supra.) On quite the same principle, Congress is powered to
delegate legislative power to such agencies in the territories of the United States as it may select. A territory
stands in the same relation to Congress as a municipality or city to the state government. (United States vs.
Heinszen [1907], 206 U. S., 370; 27 Sup. Ct. Rep., 742; 51 L. ed., 1098; 11 Ann. Cas., 688; Dorr vs. United
States [1904], 195 U.S., 138; 24 Sup. Ct. Rep., 808; 49 Law. ed., 128; 1 Ann. Cas., 697.) Courts have also
sustained the delegation of legislative power to the people at large. Some authorities maintain that this may
not be done (12 C. J., pp. 841, 842; 6 R. C. L., p. 164, citing People vs. Kennedy [1913], 207 N. Y., 533; 101
N. E., 442; Ann. Cas., 1914C, 616). However, the question of whether or not a state has ceased to be
republican in form because of its adoption of the initiative and referendum has been held not to be a judicial
but a political question (Pacific States Tel. & Tel. Co. vs. Oregon [1912], 223 U. S., 118; 56 Law. ed., 377; 32
Sup. Cet. Rep., 224), and as the constitutionality of such laws has been looked upon with favor by certain
progressive courts, the sting of the decisions of the more conservative courts has been pretty well drawn.
(Opinions of the Justices [1894], 160 Mass., 586; 36 N. E., 488; 23 L. R. A., 113; Kiernan vs. Portland [1910],
57 Ore., 454; 111 Pac., 379; 1132 Pac., 402; 37 L. R. A. [N. S.], 332; Pacific States Tel. & Tel. Co. vs.
Oregon, supra.) Doubtless, also, legislative power may be delegated by the Constitution itself. Section 14,
paragraph 2, of article VI of the Constitution of the Philippines provides that "The National Assembly may by
law authorize the President, subject to such limitations and restrictions as it may impose, to fix within specified
limits, tariff rates, import or export quotas, and tonnage and wharfage dues." And section 16 of the same
article of the Constitution provides that "In times of war or other national emergency, the National Assembly
may by law authorize the President, for a limited period and subject to such restrictions as it may prescribed,
to promulgate rules and regulations to carry out a declared national policy." It is beyond the scope of this
decision to determine whether or not, in the absence of the foregoing constitutional provisions, the President
could be authorized to exercise the powers thereby vested in him. Upon the other hand, whatever doubt may
have existed has been removed by the Constitution itself.
The case before us does not fall under any of the exceptions hereinabove mentioned.

11

The challenged section of Act No. 4221 in section 11 which reads as follows:
This Act shall apply only in those provinces in which the respective provincial boards have
provided for the salary of a probation officer at rates not lower than those now provided for
provincial fiscals. Said probation officer shall be appointed by the Secretary of Justice and shall be
subject to the direction of the Probation Office. (Emphasis ours.)
In testing whether a statute constitute an undue delegation of legislative power or not, it is usual to inquire
whether the statute was complete in all its terms and provisions when it left the hands of the legislature so that
nothing was left to the judgment of any other appointee or delegate of the legislature. (6 R. C. L., p. 165.) In
the United States vs. Ang Tang Ho ([1922], 43 Phil., 1), this court adhered to the foregoing rule when it held an
act of the legislature void in so far as it undertook to authorize the Governor-General, in his discretion, to issue
a proclamation fixing the price of rice and to make the sale of it in violation of the proclamation a crime.
(See and cf. Compaia General de Tabacos vs. Board of Public Utility Commissioners [1916], 34 Phil., 136.)
The general rule, however, is limited by another rule that to a certain extent matters of detail may be left to be
filled in by rules and regulations to be adopted or promulgated by executive officers and administrative boards.
(6 R. C. L., pp. 177-179.)
For the purpose of Probation Act, the provincial boards may be regarded as administrative bodies endowed
with power to determine when the Act should take effect in their respective provinces. They are the agents or
delegates of the legislature in this respect. The rules governing delegation of legislative power to
administrative and executive officers are applicable or are at least indicative of the rule which should be here
adopted. An examination of a variety of cases on delegation of power to administrative bodies will show that
the ratio decidendiis at variance but, it can be broadly asserted that the rationale revolves around the
presence or absence of a standard or rule of action or the sufficiency thereof in the statute, to aid the
delegate in exercising the granted discretion. In some cases, it is held that the standard is sufficient; in others
that is insufficient; and in still others that it is entirely lacking. As a rule, an act of the legislature is incomplete
and hence invalid if it does not lay down any rule or definite standard by which the administrative officer or
board may be guided in the exercise of the discretionary powers delegated to it. (See Schecter vs. United
States [1925], 295 U. S., 495; 79 L. ed., 1570; 55 Sup. Ct. Rep., 837; 97 A.L.R., 947; People ex rel. Rice vs.
Wilson Oil Co. [1936], 364 Ill., 406; 4 N. E. [2d], 847; 107 A.L.R., 1500 and cases cited. See also R. C. L., title
"Constitutional Law", sec 174.) In the case at bar, what rules are to guide the provincial boards in the exercise
of their discretionary power to determine whether or not the Probation Act shall apply in their respective
provinces? What standards are fixed by the Act? We do not find any and none has been pointed to us by the
respondents. The probation Act does not, by the force of any of its provisions, fix and impose upon the
provincial boards any standard or guide in the exercise of their discretionary power. What is granted, if we may
use the language of Justice Cardozo in the recent case of Schecter, supra, is a "roving commission" which
enables the provincial boards to exercise arbitrary discretion. By section 11 if the Act, the legislature does not
seemingly on its own authority extend the benefits of the Probation Act to the provinces but in reality leaves
the entire matter for the various provincial boards to determine. In other words, the provincial boards of the
various provinces are to determine for themselves, whether the Probation Law shall apply to their provinces or
not at all. The applicability and application of the Probation Act are entirely placed in the hands of the
provincial boards. If the provincial board does not wish to have the Act applied in its province, all that it has to
do is to decline to appropriate the needed amount for the salary of a probation officer. The plain language of
the Act is not susceptible of any other interpretation. This, to our minds, is a virtual surrender of legislative
power to the provincial boards.
"The true distinction", says Judge Ranney, "is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its
execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid
objection can be made." (Cincinnati, W. & Z. R. Co. vs. Clinton County Comrs. [1852]; 1 Ohio St., 77, 88. See
also, Sutherland on Statutory Construction, sec 68.) To the same effect are the decision of this court
in Municipality of Cardona vs. Municipality of Binangonan ([1917], 36 Phil., 547); Rubi vs. Provincial Board of
Mindoro ([1919],39 Phil., 660) andCruz vs. Youngberg ([1931], 56 Phil., 234). In the first of these cases, this
court sustained the validity of the law conferring upon the Governor-General authority to adjust provincial and
municipal boundaries. In the second case, this court held it lawful for the legislature to direct non-Christian

inhabitants to take up their habitation on unoccupied lands to be selected by the provincial governor and
approved by the provincial board. In the third case, it was held proper for the legislature to vest in the
Governor-General authority to suspend or not, at his discretion, the prohibition of the importation of the foreign
cattle, such prohibition to be raised "if the conditions of the country make this advisable or if deceased among
foreign cattle has ceased to be a menace to the agriculture and livestock of the lands."
It should be observed that in the case at bar we are not concerned with the simple transference of details of
execution or the promulgation by executive or administrative officials of rules and regulations to carry into
effect the provisions of a law. If we were, recurrence to our own decisions would be sufficient. (U. S. vs.
Barrias [1908], 11 Phil., 327; U.S. vs. Molina [1914], 29 Phil., 119; Alegre vs. Collector of Customs [1929], 53
Phil., 394; Cebu Autobus Co. vs. De Jesus [1931], 56 Phil., 446; U. S. vs. Gomez [1915], 31 Phil., 218; Rubi
vs. Provincial Board of Mindoro [1919], 39 Phil., 660.)
It is connected, however, that a legislative act may be made to the effect as law after it leaves the hands of the
legislature. It is true that laws may be made effective on certain contingencies, as by proclamation of the
executive or the adoption by the people of a particular community (6 R. C. L., 116, 170-172; Cooley,
Constitutional Limitations, 8th ed., Vol. I, p. 227). In Wayman vs. Southard ([1825], 10 Wheat. 1; 6 Law. ed.,
253), the Supreme Court of the United State ruled that the legislature may delegate a power not legislative
which it may itself rightfully exercise.(Vide, also, Dowling vs. Lancashire Ins. Co. [1896], 92 Wis., 63; 65 N. W.,
738; 31 L. R. A., 112.) The power to ascertain facts is such a power which may be delegated. There is nothing
essentially legislative in ascertaining the existence of facts or conditions as the basis of the taking into effect of
a law. That is a mental process common to all branches of the government. (Dowling vs. Lancashire Ins.
Co., supra; In re Village of North Milwaukee [1896], 93 Wis., 616; 97 N.W., 1033; 33 L.R.A., 938; Nash vs.
Fries [1906], 129 Wis., 120; 108 N.W., 210; Field vs. Clark [1892], 143 U.S., 649; 12 Sup. Ct., 495; 36 Law.
ed., 294.) Notwithstanding the apparent tendency, however, to relax the rule prohibiting delegation of
legislative authority on account of the complexity arising from social and economic forces at work in this
modern industrial age (Pfiffner, Public Administration [1936] ch. XX; Laski, "The Mother of Parliaments",
foreign Affairs, July, 1931, Vol. IX, No. 4, pp. 569-579; Beard, "Squirt-Gun Politics", in Harper's Monthly
Magazine, July, 1930, Vol. CLXI, pp. 147, 152), the orthodox pronouncement of Judge Cooley in his work on
Constitutional Limitations finds restatement in Prof. Willoughby's treatise on the Constitution of the United
States in the following language speaking of declaration of legislative power to administrative agencies:
"The principle which permits the legislature to provide that the administrative agent may determine when the
circumstances are such as require the application of a law is defended upon the ground that at the time this
authority is granted, the rule of public policy, which is the essence of the legislative act, is determined by the
legislature. In other words, the legislature, as it its duty to do, determines that, under given circumstances,
certain executive or administrative action is to be taken, and that, under other circumstances, different of no
action at all is to be taken. What is thus left to the administrative official is not the legislative determination of
what public policy demands, but simply the ascertainment of what the facts of the case require to be done
according to the terms of the law by which he is governed." (Willoughby on the Constitution of the United
States, 2nd ed., Vol. II, p. 1637.) In Miller vs. Mayer, etc., of New York [1883], 109 U.S., 3 Sup. Ct. Rep., 228;
27 Law. ed., 971, 974), it was said: "The efficiency of an Act as a declaration of legislative will must, of course,
come from Congress, but the ascertainment of the contingency upon which the Act shall take effect may be left
to such agencies as it may designate." (See, also, 12 C.J., p. 864; State vs. Parker [1854], 26 Vt., 357;
Blanding vs. Burr [1859], 13 Cal., 343, 258.) The legislature, then may provide that a contingencies leaving to
some other person or body the power to determine when the specified contingencies has arisen. But, in the
case at bar, the legislature has not made the operation of the Prohibition Act contingent upon specified facts or
conditions to be ascertained by the provincial board. It leaves, as we have already said, the entire operation or
non-operation of the law upon the provincial board. the discretion vested is arbitrary because it is absolute and
unlimited. A provincial board need not investigate conditions or find any fact, or await the happening of any
specified contingency. It is bound by no rule, limited by no principle of expendiency announced by the
legislature. It may take into consideration certain facts or conditions; and, again, it may not. It may have any
purpose or no purpose at all. It need not give any reason whatsoever for refusing or failing to appropriate any
funds for the salary of a probation officer. This is a matter which rest entirely at its pleasure. The fact that at
some future time we cannot say when the provincial boards may appropriate funds for the salaries of
probation officers and thus put the law into operation in the various provinces will not save the statute. The
time of its taking into effect, we reiterate, would yet be based solely upon the will of the provincial boards and

12

not upon the happening of a certain specified contingency, or upon the ascertainment of certain facts or
conditions by a person or body other than legislature itself.
The various provincial boards are, in practical effect, endowed with the power of suspending the operation of
the Probation Law in their respective provinces. In some jurisdiction, constitutions provided that laws may be
suspended only by the legislature or by its authority. Thus, section 28, article I of the Constitution of Texas
provides that "No power of suspending laws in this state shall be exercised except by the legislature"; and
section 26, article I of the Constitution of Indiana provides "That the operation of the laws shall never be
suspended, except by authority of the General Assembly." Yet, even provisions of this sort do not confer
absolute power of suspension upon the legislature. While it may be undoubted that the legislature may
suspend a law, or the execution or operation of a law, a law may not be suspended as to certain individuals
only, leaving the law to be enjoyed by others. The suspension must be general, and cannot be made for
individual cases or for particular localities. In Holden vs. James ([1814], 11 Mass., 396; 6 Am. Dec., 174, 177,
178), it was said:
By the twentieth article of the declaration of rights in the constitution of this commonwealth, it is
declared that the power of suspending the laws, or the execution of the laws, ought never to be
exercised but by the legislature, or by authority derived from it, to be exercised in such particular
cases only as the legislature shall expressly provide for. Many of the articles in that declaration of
rights were adopted from the Magna Charta of England, and from the bill of rights passed in the
reign of William and Mary. The bill of rights contains an enumeration of the oppressive acts of
James II, tending to subvert and extirpate the protestant religion, and the laws and liberties of the
kingdom; and the first of them is the assuming and exercising a power of dispensing with and
suspending the laws, and the execution of the laws without consent of parliament. The first article
in the claim or declaration of rights contained in the statute is, that the exercise of such power, by
legal authority without consent of parliament, is illegal. In the tenth section of the same statute it is
further declared and enacted, that "No dispensation by non obstante of or to any statute, or part
thereof, should be allowed; but the same should be held void and of no effect, except a
dispensation be allowed of in such statute." There is an implied reservation of authority in the
parliament to exercise the power here mentioned; because, according to the theory of the English
Constitution, "that absolute despotic power, which must in all governments reside somewhere," is
intrusted to the parliament: 1 Bl. Com., 160.
The principles of our government are widely different in this particular. Here the sovereign and
absolute power resides in the people; and the legislature can only exercise what is delegated to
them according to the constitution. It is obvious that the exercise of the power in question would be
equally oppressive to the subject, and subversive of his right to protection, "according to standing
laws," whether exercised by one man or by a number of men. It cannot be supposed that the
people when adopting this general principle from the English bill of rights and inserting it in our
constitution, intended to bestow by implication on the general court one of the most odious and
oppressive prerogatives of the ancient kings of England. It is manifestly contrary to the first
principles of civil liberty and natural justice, and to the spirit of our constitution and laws, that any
one citizen should enjoy privileges and advantages which are denied to all others under like
circumstances; or that ant one should be subject to losses, damages, suits, or actions from which
all others under like circumstances are exempted.
To illustrate the principle: A section of a statute relative to dogs made the owner of any dog liable to the owner
of domestic animals wounded by it for the damages without proving a knowledge of it vicious disposition. By a
provision of the act, power was given to the board of supervisors to determine whether or not during the
current year their county should be governed by the provisions of the act of which that section constituted a
part. It was held that the legislature could not confer that power. The court observed that it could no more
confer such a power than to authorize the board of supervisors of a county to abolish in such county the days
of grace on commercial paper, or to suspend the statute of limitations. (Slinger vs. Henneman [1875], 38 Wis.,
504.) A similar statute in Missouri was held void for the same reason in State vs. Field ([1853, 17 Mo., 529;59
Am. Dec., 275.) In that case a general statute formulating a road system contained a provision that "if the
county court of any county should be of opinion that the provisions of the act should not be enforced, they

might, in their discretion, suspend the operation of the same for any specified length of time, and thereupon
the act should become inoperative in such county for the period specified in such order; and thereupon order
the roads to be opened and kept in good repair, under the laws theretofore in force." Said the court: ". . . this
act, by its own provisions, repeals the inconsistent provisions of a former act, and yet it is left to the county
court to say which act shall be enforce in their county. The act does not submit the question to the county court
as an original question, to be decided by that tribunal, whether the act shall commence its operation within the
county; but it became by its own terms a law in every county not excepted by name in the act. It did not, then,
require the county court to do any act in order to give it effect. But being the law in the county, and having by
its provisions superseded and abrogated the inconsistent provisions of previous laws, the county court is . . .
empowered, to suspend this act and revive the repealed provisions of the former act. When the question is
before the county court for that tribunal to determine which law shall be in force, it is urge before us that the
power then to be exercised by the court is strictly legislative power, which under our constitution, cannot be
delegated to that tribunal or to any other body of men in the state. In the present case, the question is not
presented in the abstract; for the county court of Saline county, after the act had been for several months in
force in that county, did by order suspend its operation; and during that suspension the offense was committed
which is the subject of the present indictment . . . ." (See Mitchell vs. State [1901], 134 Ala., 392; 32 S., 687.)
True, the legislature may enact laws for a particular locality different from those applicable to other localities
and, while recognizing the force of the principle hereinabove expressed, courts in may jurisdiction have
sustained the constitutionality of the submission of option laws to the vote of the people. (6 R.C.L., p. 171.) But
option laws thus sustained treat of subjects purely local in character which should receive different treatment in
different localities placed under different circumstances. "They relate to subjects which, like the retailing of
intoxicating drinks, or the running at large of cattle in the highways, may be differently regarded in different
localities, and they are sustained on what seems to us the impregnable ground, that the subject, though not
embraced within the ordinary powers of municipalities to make by-laws and ordinances, is nevertheless within
the class of public regulations, in respect to which it is proper that the local judgment should control." (Cooley
on Constitutional Limitations, 5th ed., p. 148.) So that, while we do not deny the right of local self-government
and the propriety of leaving matters of purely local concern in the hands of local authorities or for the people of
small communities to pass upon, we believe that in matters of general of general legislation like that which
treats of criminals in general, and as regards the general subject of probation, discretion may not be vested in
a manner so unqualified and absolute as provided in Act No. 4221. True, the statute does not expressly state
that the provincial boards may suspend the operation of the Probation Act in particular provinces but,
considering that, in being vested with the authority to appropriate or not the necessary funds for the salaries of
probation officers, they thereby are given absolute discretion to determine whether or not the law should take
effect or operate in their respective provinces, the provincial boards are in reality empowered by the legislature
to suspend the operation of the Probation Act in particular provinces, the Act to be held in abeyance until the
provincial boards should decide otherwise by appropriating the necessary funds. The validity of a law is not
tested by what has been done but by what may be done under its provisions. (Walter E. Olsen & Co. vs.
Aldanese and Trinidad [1922], 43 Phil., 259; 12 C. J., p. 786.)
It in conceded that a great deal of latitude should be granted to the legislature not only in the expression of
what may be termed legislative policy but in the elaboration and execution thereof. "Without this power,
legislation would become oppressive and yet imbecile." (People vs. Reynolds, 5 Gilman, 1.) It has been said
that popular government lives because of the inexhaustible reservoir of power behind it. It is unquestionable
that the mass of powers of government is vested in the representatives of the people and that these
representatives are no further restrained under our system than by the express language of the instrument
imposing the restraint, or by particular provisions which by clear intendment, have that effect. (Angara vs.
Electoral Commission [1936], 35 Off. Ga., 23; Schneckenburger vs. Moran [1936], 35 Off. Gaz., 1317.) But, it
should be borne in mind that a constitution is both a grant and a limitation of power and one of these timehonored limitations is that, subject to certain exceptions, legislative power shall not be delegated.
We conclude that section 11 of Act No. 4221 constitutes an improper and unlawful delegation of legislative
authority to the provincial boards and is, for this reason, unconstitutional and void.

13

3. It is also contended that the Probation Act violates the provisions of our Bill of Rights which prohibits the
denial to any person of the equal protection of the laws (Act. III, sec. 1 subsec. 1. Constitution of the
Philippines.)
This basic individual right sheltered by the Constitution is a restraint on all the tree grand departments of our
government and on the subordinate instrumentalities and subdivision thereof, and on many constitutional
power, like the police power, taxation and eminent domain. The equal protection of laws, sententiously
observes the Supreme Court of the United States, "is a pledge of the protection of equal laws." (Yick Wo vs.
Hopkins [1886], 118 U. S., 356; 30 Law. ed., 220; 6 Sup. Ct. Rep., 10464; Perley vs. North Carolina, 249 U. S.,
510; 39 Sup. Ct. Rep., 357; 63 Law. ed., 735.) Of course, what may be regarded as a denial of the equal
protection of the laws in a question not always easily determined. No rule that will cover every case can be
formulated. (Connolly vs. Union Sewer Pipe Co. [1902], 184, U. S., 540; 22 Sup. Ct., Rep., 431; 46 Law. ed.,
679.) Class legislation discriminating against some and favoring others in prohibited. But classification on a
reasonable basis, and nor made arbitrarily or capriciously, is permitted. (Finely vs. California [1911], 222 U. S.,
28; 56 Law. ed., 75; 32 Sup. Ct. Rep., 13; Gulf. C. & S. F. Ry Co. vs. Ellis [1897], 165 U. S., 150; 41 Law. ed.,
666; 17 Sup. Ct. Rep., 255; Smith, Bell & Co. vs. Natividad [1919], 40 Phil., 136.) The classification, however,
to be reasonable must be based on substantial distinctions which make real differences; it must be germane to
the purposes of the law; it must not be limited to existing conditions only, and must apply equally to each
member of the class. (Borgnis vs. Falk. Co. [1911], 147 Wis., 327, 353; 133 N. W., 209; 3 N. C. C. A., 649; 37
L. R. A. [N. S.], 489; State vs. Cooley, 56 Minn., 540; 530-552; 58 N. W., 150; Lindsley vs. Natural Carbonic
Gas Co.[1911], 220 U. S., 61, 79, 55 Law. ed., 369, 377; 31 Sup. Ct. Rep., 337; Ann. Cas., 1912C, 160; Lake
Shore & M. S. R. Co. vs. Clough [1917], 242 U.S., 375; 37 Sup. Ct. Rep., 144; 61 Law. ed., 374; Southern Ry.
Co. vs. Greene [1910], 216 U. S., 400; 30 Sup. Ct. Rep., 287; 54 Law. ed., 536; 17 Ann. Cas., 1247; Truax vs.
Corrigan [1921], 257 U. S., 312; 12 C. J., pp. 1148, 1149.)
In the case at bar, however, the resultant inequality may be said to flow from the unwarranted delegation of
legislative power, although perhaps this is not necessarily the result in every case. Adopting the example given
by one of the counsel for the petitioners in the course of his oral argument, one province may appropriate the
necessary fund to defray the salary of a probation officer, while another province may refuse or fail to do so. In
such a case, the Probation Act would be in operation in the former province but not in the latter. This means
that a person otherwise coming within the purview of the law would be liable to enjoy the benefits of probation
in one province while another person similarly situated in another province would be denied those same
benefits. This is obnoxious discrimination. Contrariwise, it is also possible for all the provincial boards to
appropriate the necessary funds for the salaries of the probation officers in their respective provinces, in which
case no inequality would result for the obvious reason that probation would be in operation in each and every
province by the affirmative action of appropriation by all the provincial boards. On that hypothesis, every
person coming within the purview of the Probation Act would be entitled to avail of the benefits of the Act.
Neither will there be any resulting inequality if no province, through its provincial board, should appropriate any
amount for the salary of the probation officer which is the situation now and, also, if we accept the
contention that, for the purpose of the Probation Act, the City of Manila should be considered as a province
and that the municipal board of said city has not made any appropriation for the salary of the probation officer.
These different situations suggested show, indeed, that while inequality may result in the application of the law
and in the conferment of the benefits therein provided, inequality is not in all cases the necessary result. But
whatever may be the case, it is clear that in section 11 of the Probation Act creates a situation in which
discrimination and inequality are permitted or allowed. There are, to be sure, abundant authorities requiring
actual denial of the equal protection of the law before court should assume the task of setting aside a law
vulnerable on that score, but premises and circumstances considered, we are of the opinion that section 11 of
Act No. 4221 permits of the denial of the equal protection of the law and is on that account bad. We see no
difference between a law which permits of such denial. A law may appear to be fair on its face and impartial in
appearance, yet, if it permits of unjust and illegal discrimination, it is within the constitutional prohibitions. (By
analogy, Chy Lung vs. Freeman [1876], 292 U. S., 275; 23 Law. ed., 550; Henderson vs. Mayor [1876], 92 U.
S., 259; 23 Law. ed., 543; Ex parte Virginia [1880], 100 U. S., 339; 25 Law. ed., 676; Neal vs. Delaware [1881],
103 U. S., 370; 26 Law. ed., 567; Soon Hing vs. Crowley [1885], 113 U. S., 703; 28 Law. ed., 1145, Yick Wo
vs. Hopkins [1886],118 U. S., 356; 30 Law. ed., 220; Williams vs. Mississippi [1897], 170 U. S., 218; 18 Sup.
Ct. Rep., 583; 42 Law. ed., 1012; Bailey vs. Alabama [1911], 219 U. S., 219; 31 Sup. Ct. Rep. 145; 55 Law.
ed., Sunday Lake Iron Co. vs. Wakefield [1918], 247 U. S., 450; 38 Sup. Ct. Rep., 495; 62 Law. ed., 1154.) In
other words, statutes may be adjudged unconstitutional because of their effect in operation (General Oil Co.

vs. Clain [1907], 209 U. S., 211; 28 Sup. Ct. Rep., 475; 52 Law. ed., 754; State vs. Clement Nat. Bank [1911],
84 Vt., 167; 78 Atl., 944; Ann. Cas., 1912D, 22). If the law has the effect of denying the equal protection of the
law it is unconstitutional. (6 R. C. L. p. 372; Civil Rights Cases, 109 U. S., 3; 3 Sup. Ct. Rep., 18; 27 Law. ed.,
835; Yick Wo vs. Hopkins, supra; State vs. Montgomery, 94 Me., 192; 47 Atl., 165; 80 A. S. R., 386; State vs.
Dering, 84 Wis., 585; 54 N. W., 1104; 36 A. S. R., 948; 19 L. R. A., 858.) Under section 11 of the Probation Act,
not only may said Act be in force in one or several provinces and not be in force in other provinces, but one
province may appropriate for the salary of the probation officer of a given year and have probation during
that year and thereafter decline to make further appropriation, and have no probation is subsequent years.
While this situation goes rather to the abuse of discretion which delegation implies, it is here indicated to show
that the Probation Act sanctions a situation which is intolerable in a government of laws, and to prove how
easy it is, under the Act, to make the guaranty of the equality clause but "a rope of sand". (Brewer, J. Gulf C. &
S. F. Ry. Co. vs. Ellis [1897], 165 U. S., 150 154; 41 Law. ed., 666; 17 Sup. Ct. Rep., 255.)lawph!1.net
Great reliance is placed by counsel for the respondents on the case of Ocampo vs. United States ([1914], 234
U. S., 91; 58 Law. ed., 1231). In that case, the Supreme Court of the United States affirmed the decision of this
court (18 Phil., 1) by declining to uphold the contention that there was a denial of the equal protection of the
laws because, as held in Missouri vs. Lewis (Bowman vs. Lewis) decided in 1880 (101 U. S., 220; 25 Law. ed.,
991), the guaranty of the equality clause does not require territorial uniformity. It should be observed, however,
that this case concerns the right to preliminary investigations in criminal cases originally granted by General
Orders No. 58. No question of legislative authority was involved and the alleged denial of the equal protection
of the laws was the result of the subsequent enactment of Act No. 612, amending the charter of the City of
Manila (Act No. 813) and providing in section 2 thereof that "in cases triable only in the court of first instance of
the City of Manila, the defendant . . . shall not be entitled as of right to a preliminary examination in any case
where the prosecuting attorney, after a due investigation of the facts . . . shall have presented an information
against him in proper form . . . ." Upon the other hand, an analysis of the arguments and the decision indicates
that the investigation by the prosecuting attorney although not in the form had in the provinces was
considered a reasonable substitute for the City of Manila, considering the peculiar conditions of the city as
found and taken into account by the legislature itself.
Reliance is also placed on the case of Missouri vs. Lewis, supra. That case has reference to a situation where
the constitution of Missouri permits appeals to the Supreme Court of the state from final judgments of any
circuit court, except those in certain counties for which counties the constitution establishes a separate court of
appeals called St. Louis Court of Appeals. The provision complained of, then, is found in the constitution itself
and it is the constitution that makes the apportionment of territorial jurisdiction.
We are of the opinion that section 11 of the Probation Act is unconstitutional and void because it is also
repugnant to equal-protection clause of our Constitution.
Section 11 of the Probation Act being unconstitutional and void for the reasons already stated, the next inquiry
is whether or not the entire Act should be avoided.
In seeking the legislative intent, the presumption is against any mutilation of a statute, and the
courts will resort to elimination only where an unconstitutional provision is interjected into a statute
otherwise valid, and is so independent and separable that its removal will leave the constitutional
features and purposes of the act substantially unaffected by the process. (Riccio vs. Hoboken, 69
N. J. Law., 649, 662; 63 L. R. A., 485; 55 Atl., 1109, quoted in Williams vs. Standard Oil Co. [1929],
278 U.S., 235, 240; 73 Law. ed., 287, 309; 49 Sup. Ct. Rep., 115; 60 A. L. R., 596.) In Barrameda
vs. Moir ([1913], 25 Phil., 44, 47), this court stated the well-established rule concerning partial
invalidity of statutes in the following language:
. . . where part of the a statute is void, as repugnant to the Organic Law, while another part is valid,
the valid portion, if separable from the valid, may stand and be enforced. But in order to do this, the
valid portion must be in so far independent of the invalid portion that it is fair to presume that the
Legislative would have enacted it by itself if they had supposed that they could not constitutionally
enact the other. (Mutual Loan Co. vs. Martell, 200 Mass., 482; 86 N. E., 916; 128 A. S. R., 446;

14

Supervisors of Holmes Co. vs. Black Creek Drainage District, 99 Miss., 739; 55 Sou., 963.)
Enough must remain to make a complete, intelligible, and valid statute, which carries out the
legislative intent. (Pearson vs. Bass. 132 Ga., 117; 63 S. E., 798.) The void provisions must be
eliminated without causing results affecting the main purpose of the Act, in a manner contrary to
the intention of the Legislature. (State vs. A. C. L. R., Co., 56 Fla., 617, 642; 47 Sou., 969; Harper
vs. Galloway, 58 Fla., 255; 51 Sou., 226; 26 L. R. A., N. S., 794; Connolly vs. Union Sewer Pipe
Co., 184 U. S., 540, 565; People vs. Strassheim, 240 Ill., 279, 300; 88 N. E., 821; 22 L. R. A., N.
S., 1135; State vs. Cognevich, 124 La., 414; 50 Sou., 439.) The language used in the invalid part
of a statute can have no legal force or efficacy for any purpose whatever, and what remains must
express the legislative will, independently of the void part, since the court has no power to
legislate. (State vs. Junkin, 85 Neb., 1; 122 N. W., 473; 23 L. R. A., N. S., 839; Vide, also,. U. S.,
vs. Rodriguez [1918], 38 Phil., 759; Pollock vs. Farmers' Loan and Trust Co. [1895], 158 U. S.,
601, 635; 39 Law. ed., 1108, 1125; 15 Sup. Ct. Rep., 912; 6 R.C.L., 121.)
It is contended that even if section 11, which makes the Probation Act applicable only in those provinces in
which the respective provincial boards provided for the salaries of probation officers were inoperative on
constitutional grounds, the remainder of the Act would still be valid and may be enforced. We should be
inclined to accept the suggestions but for the fact that said section is, in our opinion, is inseparably linked with
the other portions of the Act that with the elimination of the section what would be left is the bare idealism of
the system, devoid of any practical benefit to a large number of people who may be deserving of the intended
beneficial result of that system. The clear policy of the law, as may be gleaned from a careful examination of
the whole context, is to make the application of the system dependent entirely upon the affirmative action of
the different provincial boards through appropriation of the salaries for probation officers at rates not lower
than those provided for provincial fiscals. Without such action on the part of the various boards, no probation
officers would be appointed by the Secretary of Justice to act in the provinces. The Philippines is divided or
subdivided into provinces and it needs no argument to show that if not one of the provinces and this is the
actual situation now appropriate the necessary fund for the salary of a probation officer, probation under Act
No. 4221 would be illusory. There can be no probation without a probation officer. Neither can there be a
probation officer without the probation system.
Section 2 of the Acts provides that the probation officer shall supervise and visit the probationer. Every
probation officer is given, as to the person placed in probation under his care, the powers of the police officer.
It is the duty of the probation officer to see that the conditions which are imposed by the court upon the
probationer under his care are complied with. Among those conditions, the following are enumerated in section
3 of the Act:
That the probationer (a) shall indulge in no injurious or vicious habits;

(h) Shall refrain from violating any law, statute, ordinance, or any by-law or regulation, promulgated
in accordance with law.
The court is required to notify the probation officer in writing of the period and terms of probation. Under
section 4, it is only after the period of probation, the submission of a report of the probation officer and
appropriate finding of the court that the probationer has complied with the conditions of probation that
probation may be definitely terminated and the probationer finally discharged from supervision. Under section
5, if the court finds that there is non-compliance with said conditions, as reported by the probation officer, it
may issue a warrant for the arrest of the probationer and said probationer may be committed with or without
bail. Upon arraignment and after an opportunity to be heard, the court may revoke, continue or modify the
probation, and if revoked, the court shall order the execution of the sentence originally imposed. Section 6
prescribes the duties of probation officers: "It shall be the duty of every probation officer to furnish to all
persons placed on probation under his supervision a statement of the period and conditions of their probation,
and to instruct them concerning the same; to keep informed concerning their conduct and condition; to aid and
encourage them by friendly advice and admonition, and by such other measures, not inconsistent with the
conditions imposed by court as may seem most suitable, to bring about improvement in their conduct and
condition; to report in writing to the court having jurisdiction over said probationers at least once every two
months concerning their conduct and condition; to keep records of their work; make such report as are
necessary for the information of the Secretary of Justice and as the latter may require; and to perform such
other duties as are consistent with the functions of the probation officer and as the court or judge may direct.
The probation officers provided for in this Act may act as parole officers for any penal or reformatory institution
for adults when so requested by the authorities thereof, and, when designated by the Secretary of Justice shall
act as parole officer of persons released on parole under Act Number Forty-one Hundred and Three, without
additional compensation."
It is argued, however, that even without section 11 probation officers maybe appointed in the provinces under
section 10 of Act which provides as follows:
There is hereby created in the Department of Justice and subject to its supervision and control, a
Probation Office under the direction of a Chief Probation Officer to be appointed by the GovernorGeneral with the advise and consent of the Senate who shall receive a salary of four eight hundred
pesos per annum. To carry out this Act there is hereby appropriated out of any funds in the Insular
Treasury not otherwise appropriated, the sum of fifty thousand pesos to be disbursed by the
Secretary of Justice, who is hereby authorized to appoint probation officers and the administrative
personnel of the probation officer under civil service regulations from among those who possess
the qualifications, training and experience prescribed by the Bureau of Civil Service, and shall fix
the compensation of such probation officers and administrative personnel until such positions shall
have been included in the Appropriation Act.

(b) Shall avoid places or persons of disreputable or harmful character;

(c) Shall report to the probation officer as directed by the court or probation officers;
(d) Shall permit the probation officer to visit him at reasonable times at his place of abode or
elsewhere;
(e) Shall truthfully answer any reasonable inquiries on the part of the probation officer concerning
his conduct or condition; "(f) Shall endeavor to be employed regularly; "(g) Shall remain or reside
within a specified place or locality;
(f) Shall make reparation or restitution to the aggrieved parties for actual damages or losses
caused by his offense;

But the probation officers and the administrative personnel referred to in the foregoing section are clearly not
those probation officers required to be appointed for the provinces under section 11. It may be said, reddendo
singula singulis, that the probation officers referred to in section 10 above-quoted are to act as such, not in the
various provinces, but in the central office known as the Probation Office established in the Department of
Justice, under the supervision of the Chief Probation Officer. When the law provides that "the probation officer"
shall investigate and make reports to the court (secs. 1 and 4); that "the probation officer" shall supervise and
visit the probationer (sec. 2; sec. 6, par. d); that the probationer shall report to the "probationer officer" (sec. 3,
par. c.), shall allow "the probationer officer" to visit him (sec. 3, par. d), shall truthfully answer any reasonable
inquiries on the part of "the probation officer" concerning his conduct or condition (sec. 3, par. 4); that the court
shall notify "the probation officer" in writing of the period and terms of probation (sec. 3, last par.), it means the
probation officer who is in charge of a particular probationer in a particular province. It never could have been
intention of the legislature, for instance, to require the probationer in Batanes, to report to a probationer officer
in the City of Manila, or to require a probation officer in Manila to visit the probationer in the said province of
Batanes, to place him under his care, to supervise his conduct, to instruct him concerning the conditions of his
probation or to perform such other functions as are assigned to him by law.

(g) Shall comply with such orders as the court may from time to time make; and

15

That under section 10 the Secretary of Justice may appoint as many probation officers as there are provinces
or groups of provinces is, of course possible. But this would be arguing on what the law may be or should be
and not on what the law is. Between is and ought there is a far cry. The wisdom and propriety of legislation is
not for us to pass upon. We may think a law better otherwise than it is. But much as has been said regarding
progressive interpretation and judicial legislation we decline to amend the law. We are not permitted to read
into the law matters and provisions which are not there. Not for any purpose not even to save a statute from
the doom of invalidity.
Upon the other hand, the clear intention and policy of the law is not to make the Insular Government defray the
salaries of probation officers in the provinces but to make the provinces defray them should they desire to
have the Probation Act apply thereto. The sum of P50,000, appropriated "to carry out the purposes of this Act",
is to be applied, among other things, for the salaries of probation officers in the central office at Manila. These
probation officers are to receive such compensations as the Secretary of Justice may fix "until such positions
shall have been included in the Appropriation Act". It was the intention of the legislature to empower the
Secretary of Justice to fix the salaries of the probation officers in the provinces or later on to include said
salaries in an appropriation act. Considering, further, that the sum of P50,000 appropriated in section 10 is to
cover, among other things, the salaries of the administrative personnel of the Probation Office, what would be
left of the amount can hardly be said to be sufficient to pay even nominal salaries to probation officers in the
provinces. We take judicial notice of the fact that there are 48 provinces in the Philippines and we do not think
it is seriously contended that, with the fifty thousand pesos appropriated for the central office, there can be in
each province, as intended, a probation officer with a salary not lower than that of a provincial fiscal. If this a
correct, the contention that without section 11 of Act No. 4221 said act is complete is an impracticable thing
under the remainder of the Act, unless it is conceded that in our case there can be a system of probation in the
provinces without probation officers.
Probation as a development of a modern penology is a commendable system. Probation laws have been
enacted, here and in other countries, to permit what modern criminologist call the "individualization of the
punishment", the adjustment of the penalty to the character of the criminal and the circumstances of his
particular case. It provides a period of grace in order to aid in the rehabilitation of a penitent offender. It is
believed that, in any cases, convicts may be reformed and their development into hardened criminals aborted.
It, therefore, takes advantage of an opportunity for reformation and avoids imprisonment so long as the
convicts gives promise of reform. (United States vs. Murray [1925], 275 U. S., 347 357, 358; 72 Law. ed., 309;
312, 313; 48 Sup. Ct. Rep., 146; Kaplan vs. Hecht, 24 F. [2d], 664, 665.) The Welfare of society is its chief end
and aim. The benefit to the individual convict is merely incidental. But while we believe that probation is
commendable as a system and its implantation into the Philippines should be welcomed, we are forced by our
inescapable duty to set the law aside because of the repugnancy to our fundamental law.
In arriving at this conclusion, we have endeavored to consider the different aspects presented by able counsel
for both parties, as well in their memorandums as in their oral argument. We have examined the cases brought
to our attention, and others we have been able to reach in the short time at our command for the study and
deliberation of this case. In the examination of the cases and in then analysis of the legal principles involved
we have inclined to adopt the line of action which in our opinion, is supported better reasoned authorities and
is more conducive to the general welfare. (Smith, Bell & Co. vs. Natividad [1919], 40 Phil., 136.) Realizing the
conflict of authorities, we have declined to be bound by certain adjudicated cases brought to our attention,
except where the point or principle is settled directly or by clear implication by the more authoritative
pronouncements of the Supreme Court of the United States. This line of approach is justified because:

(c) The distinct federal and the state judicial organizations of the United States do not embrace the
integrated judicial system of the Philippines (Schneckenburger vs. Moran [1936], 35 Off. Gaz., p.
1317);
(d) "General propositions do not decide concrete cases" (Justice Holmes in Lochner vs. New York
[1904], 198 U. S., 45, 76; 49 Law. ed., 937, 949) and, "to keep pace with . . . new developments of
times and circumstances" (Chief Justice Waite in Pensacola Tel. Co. vs. Western Union Tel. Co.
[1899], 96 U. S., 1, 9; 24 Law. ed., 708; Yale Law Journal, Vol. XXIX, No. 2, Dec. 1919, 141, 142),
fundamental principles should be interpreted having in view existing local conditions and
environment.
Act No. 4221 is hereby declared unconstitutional and void and the writ of prohibition is, accordingly, granted.
Without any pronouncement regarding costs. So ordered.
G.R. No. 76633 October 18, 1988
EASTERN SHIPPING LINES, INC., petitioner,
vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA), MINISTER OF LABOR AND
EMPLOYMENT, HEARING OFFICER ABDUL BASAR and KATHLEEN D. SACO, respondents.
Jimenea, Dala & Zaragoza Law Office for petitioner.
The Solicitor General for public respondent.
Dizon Law Office for respondent Kathleen D. Saco.

CRUZ, J.:
The private respondent in this case was awarded the sum of P192,000.00 by the Philippine Overseas
Employment Administration (POEA) for the death of her husband. The decision is challenged by the petitioner
on the principal ground that the POEA had no jurisdiction over the case as the husband was not an overseas
worker.
Vitaliano Saco was Chief Officer of the M/V Eastern Polaris when he was killed in an accident in Tokyo, Japan,
March 15, 1985. His widow sued for damages under Executive Order No. 797 and Memorandum Circular No.
2 of the POEA. The petitioner, as owner of the vessel, argued that the complaint was cognizable not by the
POEA but by the Social Security System and should have been filed against the State Insurance Fund. The
POEA nevertheless assumed jurisdiction and after considering the position papers of the parties ruled in favor
of the complainant. The award consisted of P180,000.00 as death benefits and P12,000.00 for burial
expenses.

(a) The constitutional relations between the Federal and the State governments of the United
States and the dual character of the American Government is a situation which does not obtain in
the Philippines;

The petitioner immediately came to this Court, prompting the Solicitor General to move for dismissal on the
ground of non-exhaustion of administrative remedies.

(b) The situation of s state of the American Union of the District of Columbia with reference to the
Federal Government of the United States is not the situation of the province with respect to the
Insular Government (Art. I, sec. 8 cl. 17 and 10th Amendment, Constitution of the United States;
Sims vs. Rives, 84 Fed. [2d], 871),

Ordinarily, the decisions of the POEA should first be appealed to the National Labor Relations Commission, on
the theory inter alia that the agency should be given an opportunity to correct the errors, if any, of its
subordinates. This case comes under one of the exceptions, however, as the questions the petitioner is raising
are essentially questions of law. 1 Moreover, the private respondent himself has not objected to the petitioner's

16

direct resort to this Court, observing that the usual procedure would delay the disposition of the case to her
prejudice.
The Philippine Overseas Employment Administration was created under Executive Order No. 797,
promulgated on May 1, 1982, to promote and monitor the overseas employment of Filipinos and to protect
their rights. It replaced the National Seamen Board created earlier under Article 20 of the Labor Code in 1974.
Under Section 4(a) of the said executive order, the POEA is vested with "original and exclusive jurisdiction
over all cases, including money claims, involving employee-employer relations arising out of or by virtue of any
law or contract involving Filipino contract workers, including seamen." These cases, according to the 1985
Rules and Regulations on Overseas Employment issued by the POEA, include "claims for death, disability and
other benefits" arising out of such employment. 2
The petitioner does not contend that Saco was not its employee or that the claim of his widow is not
compensable. What it does urge is that he was not an overseas worker but a 'domestic employee and
consequently his widow's claim should have been filed with Social Security System, subject to appeal to the
Employees Compensation Commission.
We see no reason to disturb the factual finding of the POEA that Vitaliano Saco was an overseas employee of
the petitioner at the time he met with the fatal accident in Japan in 1985.
Under the 1985 Rules and Regulations on Overseas Employment, overseas employment is defined as
"employment of a worker outside the Philippines, including employment on board vessels plying international
waters, covered by a valid contract. 3 A contract worker is described as "any person working or who has
worked overseas under a valid employment contract and shall include seamen" 4 or "any person working
overseas or who has been employed by another which may be a local employer, foreign employer, principal or
partner under a valid employment contract and shall include seamen." 5 These definitions clearly apply to
Vitaliano Saco for it is not disputed that he died while under a contract of employment with the petitioner and
alongside the petitioner's vessel, the M/V Eastern Polaris, while berthed in a foreign country. 6
It is worth observing that the petitioner performed at least two acts which constitute implied or tacit recognition
of the nature of Saco's employment at the time of his death in 1985. The first is its submission of its shipping
articles to the POEA for processing, formalization and approval in the exercise of its regulatory power over
overseas employment under Executive Order NO. 797. 7 The second is its payment 8 of the contributions
mandated by law and regulations to the Welfare Fund for Overseas Workers, which was created by P.D. No.
1694 "for the purpose of providing social and welfare services to Filipino overseas workers."
Significantly, the office administering this fund, in the receipt it prepared for the private respondent's signature,
described the subject of the burial benefits as "overseas contract worker Vitaliano Saco." 9 While this receipt is
certainly not controlling, it does indicate, in the light of the petitioner's own previous acts, that the petitioner
and the Fund to which it had made contributions considered Saco to be an overseas employee.
The petitioner argues that the deceased employee should be likened to the employees of the Philippine Air
Lines who, although working abroad in its international flights, are not considered overseas workers. If this be
so, the petitioner should not have found it necessary to submit its shipping articles to the POEA for processing,
formalization and approval or to contribute to the Welfare Fund which is available only to overseas workers.
Moreover, the analogy is hardly appropriate as the employees of the PAL cannot under the definitions given be
considered seamen nor are their appointments coursed through the POEA.
The award of P180,000.00 for death benefits and P12,000.00 for burial expenses was made by the POEA
pursuant to its Memorandum Circular No. 2, which became effective on February 1, 1984. This circular
prescribed a standard contract to be adopted by both foreign and domestic shipping companies in the hiring of
Filipino seamen for overseas employment. A similar contract had earlier been required by the National
Seamen Board and had been sustained in a number of cases by this Court. 10 The petitioner claims that it had
never entered into such a contract with the deceased Saco, but that is hardly a serious argument. In the first

place, it should have done so as required by the circular, which specifically declared that "all parties to the
employment of any Filipino seamen on board any ocean-going vessel are advised to adopt and use this
employment contract effective 01 February 1984 and to desist from using any other format of employment
contract effective that date." In the second place, even if it had not done so, the provisions of the said circular
are nevertheless deemed written into the contract with Saco as a postulate of the police power of the State. 11
But the petitioner questions the validity of Memorandum Circular No. 2 itself as violative of the principle of nondelegation of legislative power. It contends that no authority had been given the POEA to promulgate the said
regulation; and even with such authorization, the regulation represents an exercise of legislative discretion
which, under the principle, is not subject to delegation.
The authority to issue the said regulation is clearly provided in Section 4(a) of Executive Order No. 797,
reading as follows:
... The governing Board of the Administration (POEA), as hereunder provided shall
promulgate the necessary rules and regulations to govern the exercise of the
adjudicatory functions of the Administration (POEA).
Similar authorization had been granted the National Seamen Board, which, as earlier observed, had itself
prescribed a standard shipping contract substantially the same as the format adopted by the POEA.
The second challenge is more serious as it is true that legislative discretion as to the substantive contents of
the law cannot be delegated. What can be delegated is the discretion to determine how the law may be
enforced, notwhat the law shall be. The ascertainment of the latter subject is a prerogative of the legislature.
This prerogative cannot be abdicated or surrendered by the legislature to the delegate. Thus, in Ynot v.
Intermediate Apellate Court 12 which annulled Executive Order No. 626, this Court held:
We also mark, on top of all this, the questionable manner of the disposition of the
confiscated property as prescribed in the questioned executive order. It is there
authorized that the seized property shall be distributed to charitable institutions and
other similar institutions as the Chairman of the National Meat Inspection
Commission may see fit, in the case of carabaos.' (Italics supplied.) The phrase "may
see fit" is an extremely generous and dangerous condition, if condition it is. It is laden
with perilous opportunities for partiality and abuse, and even corruption. One searches
in vain for the usual standard and the reasonable guidelines, or better still, the
limitations that the officers must observe when they make their distribution. There is
none. Their options are apparently boundless. Who shall be the fortunate beneficiaries
of their generosity and by what criteria shall they be chosen? Only the officers named
can supply the answer, they and they alone may choose the grantee as they see fit,
and in their own exclusive discretion. Definitely, there is here a 'roving commission a
wide and sweeping authority that is not canalized within banks that keep it from
overflowing,' in short a clearly profligate and therefore invalid delegation of legislative
powers.
There are two accepted tests to determine whether or not there is a valid delegation of legislative power, viz,
the completeness test and the sufficient standard test. Under the first test, the law must be complete in all its
terms and conditions when it leaves the legislature such that when it reaches the delegate the only thing he
will have to do is enforce it. 13 Under the sufficient standard test, there must be adequate guidelines or stations
in the law to map out the boundaries of the delegate's authority and prevent the delegation from running riot. 14
Both tests are intended to prevent a total transference of legislative authority to the delegate, who is not
allowed to step into the shoes of the legislature and exercise a power essentially legislative.

17

The principle of non-delegation of powers is applicable to all the three major powers of the Government but is
especially important in the case of the legislative power because of the many instances when its delegation is
permitted. The occasions are rare when executive or judicial powers have to be delegated by the authorities to
which they legally certain. In the case of the legislative power, however, such occasions have become more
and more frequent, if not necessary. This had led to the observation that the delegation of legislative power
has become the rule and its non-delegation the exception.
The reason is the increasing complexity of the task of government and the growing inability of the legislature to
cope directly with the myriad problems demanding its attention. The growth of society has ramified its activities
and created peculiar and sophisticated problems that the legislature cannot be expected reasonably to
comprehend. Specialization even in legislation has become necessary. To many of the problems attendant
upon present-day undertakings, the legislature may not have the competence to provide the required direct
and efficacious, not to say, specific solutions. These solutions may, however, be expected from its delegates,
who are supposed to be experts in the particular fields assigned to them.
The reasons given above for the delegation of legislative powers in general are particularly applicable to
administrative bodies. With the proliferation of specialized activities and their attendant peculiar problems, the
national legislature has found it more and more necessary to entrust to administrative agencies the authority to
issue rules to carry out the general provisions of the statute. This is called the "power of subordinate
legislation."

b. P180,000.00 for other officers, including radio operators and

master electrician
c. P 130,000.00 for ratings.
2. It is understood and agreed that the benefits mentioned above shall be separate and
distinct from, and will be in addition to whatever benefits which the seaman is entitled
to under Philippine laws. ...
3. ...
c. If the remains of the seaman is buried in the Philippines, the
owners shall pay the beneficiaries of the seaman an amount not
exceeding P18,000.00 for burial expenses.
The underscored portion is merely a reiteration of Memorandum Circular No. 22, issued by the National
Seamen Board on July 12,1976, providing an follows:
Income Benefits under this Rule Shall be Considered Additional Benefits.

With this power, administrative bodies may implement the broad policies laid down in a statute by "filling in' the
details which the Congress may not have the opportunity or competence to provide. This is effected by their
promulgation of what are known as supplementary regulations, such as the implementing rules issued by the
Department of Labor on the new Labor Code. These regulations have the force and effect of law.
Memorandum Circular No. 2 is one such administrative regulation. The model contract prescribed thereby has
been applied in a significant number of the cases without challenge by the employer. The power of the POEA
(and before it the National Seamen Board) in requiring the model contract is not unlimited as there is a
sufficient standard guiding the delegate in the exercise of the said authority. That standard is discoverable in
the executive order itself which, in creating the Philippine Overseas Employment Administration, mandated it
to protect the rights of overseas Filipino workers to "fair and equitable employment practices."
Parenthetically, it is recalled that this Court has accepted as sufficient standards "Public interest" in People v.
Rosenthal 15 "justice and equity" in Antamok Gold Fields v. CIR 16 "public convenience and welfare"
in Calalang v. Williams 17 and "simplicity, economy and efficiency" in Cervantes v. Auditor General, 18 to
mention only a few cases. In the United States, the "sense and experience of men" was accepted in Mutual
Film Corp. v. Industrial Commission, 19 and "national security" in Hirabayashi v. United States. 20
It is not denied that the private respondent has been receiving a monthly death benefit pension of P514.42
since March 1985 and that she was also paid a P1,000.00 funeral benefit by the Social Security System. In
addition, as already observed, she also received a P5,000.00 burial gratuity from the Welfare Fund for
Overseas Workers. These payments will not preclude allowance of the private respondent's claim against the
petitioner because it is specifically reserved in the standard contract of employment for Filipino seamen under
Memorandum Circular No. 2, Series of 1984, that
Section C. Compensation and Benefits.
1. In case of death of the seamen during the term of his Contract, the employer shall
pay his beneficiaries the amount of:
a. P220,000.00 for master and chief engineers

All compensation benefits under Title II, Book Four of the Labor Code of the Philippines
(Employees Compensation and State Insurance Fund) shall be granted, in addition to
whatever benefits, gratuities or allowances that the seaman or his beneficiaries may be
entitled to under the employment contract approved by the NSB. If applicable, all
benefits under the Social Security Law and the Philippine Medicare Law shall be
enjoyed by the seaman or his beneficiaries in accordance with such laws.
The above provisions are manifestations of the concern of the State for the working class, consistently with the
social justice policy and the specific provisions in the Constitution for the protection of the working class and
the promotion of its interest.
One last challenge of the petitioner must be dealt with to close t case. Its argument that it has been denied
due process because the same POEA that issued Memorandum Circular No. 2 has also sustained and applied
it is an uninformed criticism of administrative law itself. Administrative agencies are vested with two basic
powers, the quasi-legislative and the quasi-judicial. The first enables them to promulgate implementing rules
and regulations, and the second enables them to interpret and apply such regulations. Examples abound: the
Bureau of Internal Revenue adjudicates on its own revenue regulations, the Central Bank on its own circulars,
the Securities and Exchange Commission on its own rules, as so too do the Philippine Patent Office and the
Videogram Regulatory Board and the Civil Aeronautics Administration and the Department of Natural
Resources and so on ad infinitumon their respective administrative regulations. Such an arrangement has
been accepted as a fact of life of modern governments and cannot be considered violative of due process as
long as the cardinal rights laid down by Justice Laurel in the landmark case of Ang Tibay v. Court of Industrial
Relations 21 are observed.
Whatever doubts may still remain regarding the rights of the parties in this case are resolved in favor of the
private respondent, in line with the express mandate of the Labor Code and the principle that those with less in
life should have more in law.
When the conflicting interests of labor and capital are weighed on the scales of social justice, the heavier
influence of the latter must be counter-balanced by the sympathy and compassion the law must accord the
underprivileged worker. This is only fair if he is to be given the opportunity and the right to assert and defend

18

his cause not as a subordinate but as a peer of management, with which he can negotiate on even plane.
Labor is not a mere employee of capital but its active and equal partner.
WHEREFORE, the petition is DISMISSED, with costs against the petitioner. The temporary restraining order
dated December 10, 1986 is hereby LIFTED. It is so ordered.

Petitioner Rabor next wrote to the Office of the President on 29 January 1992 seeking reconsideration of the
decision of Director Cawad, CSRO-XI. The Office of the President referred Mr. Rabor's letter to the Chairman
of the Civil Service Commission on 5 March 1992.
In its Resolution No. 92-594, dated 28 April 1992, the Civil Service Commission dismissed the appeal of Mr.
Rabor and affirmed the action of Director Cawad embodied in the latter's letter of 26 July 1991. This
Resolution stated in part:

G.R. No. 111812 May 31, 1995

In his appeal, Rabor requested that he be allowed to continue rendering services as
Utility Worker in order to complete the fifteen (15) year service requirement under P.D.
1146.

DIONISIO M. RABOR, petitioner,

vs.
CIVIL SERVICE COMMISSION, respondent.

CSC Memorandum Circular No. 27, s. 1990 provides, in part:

FELICIANO, J.:
Petitioner Dionisio M. Rabor is a Utility Worker in the Office of the Mayor, Davao City. He entered the
government service as a Utility worker on 10 April 1978 at the age of 55 years.
Sometime in May 1991, 1 Alma, D. Pagatpatan, an official in the Office of the Mayor of Davao City, advised
Dionisio M. Rabor to apply for retirement, considering that he had already reached the age of sixty-eight (68)
years and seven (7) months, with thirteen (13) years and one (1) month of government service. Rabor
responded to this advice by exhibiting a "Certificate of Membership" 2 issued by the Government Service
Insurance System ("GSIS") and dated 12 May 1988. At the bottom of this "Certificate of Membership" is a
typewritten statement of the following tenor: "Service extended to comply 15 years service reqts." This
statement is followed by a non-legible initial with the following date "2/28/91."
Thereupon, the Davao City Government, through Ms. Pagatpatan, wrote to the Regional Director of the Civil
Service Commission, Region XI, Davao City ("CSRO-XI"), informing the latter of the foregoing and requesting
advice "as to what action [should] be taken on this matter."
In a letter dated 26 July 1991, Director Filemon B. Cawad of CSRO-XI advised Davao City Mayor Rodrigo R.
Duterte as follows:
Please be informed that the extension of services of Mr. Rabor is contrary to M.C. No.
65 of the Office of the President, the relevant portion of which is hereunder quoted:
Officials and employees who have reached the compulsory
retirement age of 65 years shall not be retained the service,
except for extremely meritorious reasons in which case the
retention shall not exceed six (6) months.
IN VIEW WHEREFORE, please be advised that the services of Mr. Dominador [M.]
Rabor as Utility Worker in that office, is already non-extend[i]ble. 3
Accordingly, on 8 August l991, Mayor Duterte furnished a copy of the 26 July 1991 letter of Director Cawad to
Rabor and advised him "to stop reporting for work effective August 16, 1991." 4
Petitioner Rabor then sent to the Regional Director, CSRO-XI, a letter dated 14 August 1991, asking for
extension of his services in the City Government until he "shall have completed the fifteen (15) years service
[requirement] in the Government so that [he] could also avail of the benefits of the retirement laws given to
employees of the Government." The extension he was asking for was about two (2) years. Asserting that he
was "still in good health and very able to perform the duties and functions of [his] position as Utility Worker,"
Rabor sought "extension of [his] service as an exception to Memorandum Circular No. 65 of the Office of the
President." 5 This request was denied by Director Cawad on 15 August 1991.

1. Any request for extension of service of compulsory retirees to

complete the fifteen years service requirement for retirement
shall be allowed only to permanent appointees in the career
service who are regular members of the Government Service
Insurance System (GSIS) and shall be granted for a period of
not exceeding one (1) year.
Considering that as early as October 18, 1988, Rabor was already due for retirement,
his request for further extension of service cannot be given due course. 6 (Emphasis in
the original)
On 28 October 1992, Mr. Rabor sought reconsideration of Resolution No. 92-594 of the Civil Service
Commission this time invoking the Decision of this Court in Cena v. Civil Service Commission. 7 Petitioner also
asked for reinstatement with back salaries and benefits, having been separated from the government service
effective 16 August 1991. Rabor's motion for reconsideration was denied by the Commission.
Petitioner Rabor sent another letter dated 16 April 1993 to the Office of the Mayor, Davao City, again
requesting that he be allowed to continue rendering service to the Davao City Government as Utility Worker in
order to complete the fifteen (15) years service requirement under P.D. No. 1146. This request was once more
denied by Mayor Duterte in a letter to petitioner dated 19 May 1993. In this letter, Mayor Duterte pointed out
that, underCena grant of the extension of service was discretionary on the part of the City Mayor, but that he
could not grant the extension requested. Mayor Duterte's letter, in relevant part, read:
The matter was referred to the City Legal Office and the Chairman of the Civil Service
Commission, in the advent of the decision of the Supreme Court in the Cena vs. CSC,
et al. (G.R. No. 97419 dated July 3, 1992), for legal opinion. Both the City Legal Officer
and the Chairman of the Civil Service Commission are one in these opinion
that extending you an appointment in order that you may be able to complete the
fifteen-year service requirement is discretionary [on the part of] the City Mayor.
Much as we desire to extend you an appointment but circumstances are that we can
no longer do so.As you are already nearing your 70th birthday may no longer be able
to perform the duties attached to your position. Moreover, the position you had vacated
was already filled up.
We therefore regret to inform you that we cannot act favorably on your
request. 8 (Emphases supplied)
At this point, Mr. Rabor decided to come to this Court. He filed a Letter/Petition dated 6 July 1993 appealing
from Civil Service Resolution No. 92-594 and from Mayor Duterte's letter of 10 May 1993.
The Court required petitioner Rabor to comply with the formal requirements for instituting a special civil action
ofcertiorari to review the assailed Resolution of the Civil Service Commission. In turn, the Commission was
required to comment on petitioner's Letter/Petition. 9 The Court subsequently noted petitioner's Letter of 13

19

September 1993 relating to compliance with the mentioned formal requirements and directed the Clerk of
Court to advise petitioner to engage the services of counsel or to ask for legal assistance from the Public
Attorney's Office (PAO). 10

Sec. 11 Conditions for Old-Age Pension. (a) Old-Age Pension shall be paid to a
member who
(1) has at least fifteen (15) years of service;

The Civil Service Commission, through the Office of the Solicitor General, filed its comment on 16 November
1993. The Court then resolved to give due course to the Petition and required the parties to file memoranda.
Both the Commission and Mr. Rabor (the latter through PAO counsel) did so.
In this proceeding, petitioner Rabor contends that his claim falls squarely within the ruling of this Court in Cena
v. Civil Service Commission. 11
Upon the other hand, the Commission seeks to distinguish this case from Cena. The Commission, through the
Solicitor General, stressed that in Cena, this Court had ruled that the employer agency, the Land Registration
Authority of the Department of Justice, was vested with discretion to grant to Cena the extension requested by
him. The Land Registration Authority had chosen not to exercise its discretion to grant or deny such extension.
In contrast, in the instant case, the Davao City Government did exercise its discretion on the matter and
decided to deny the extension sought by petitioner Rabor for legitimate reasons.
While the Cena decision is barely three (3) years old, the Court considers that it must reexamine the doctrine
ofCena and the theoretical and policy underpinnings thereof. 12
We start by recalling the factual setting of Cena.
Gaudencio Cena was appointed Registrar of the Register of Deeds of Malabon, Metropolitan Manila, on 16
July 1987. He reached the compulsory retirement age of sixty-five (65) years on 22 January 1991. By the latter
date, his government service would have reached a total of eleven (11) years, nine (9) months and six (6)
days. Before reaching his 65th birthday, Cena requested the Secretary of Justice, through the Administrator of
the Land Registration Authority ("LRA") that he be allowed to extend his service to complete the fifteen-year
service requirement to enable him to retire with the full benefit of an Old-Age Pension under Section 11 (b) of
P.D. No. 1146. If Cena's request were granted, he would complete fifteen (15) years of government service on
15 April 1994, at the age of sixty-eight (68) years.
The LRA Administrator sought a ruling from the Civil Service Commission on whether or not Cena's request
could be granted considering that Cena was covered by Civil Service Memorandum No. 27, Series of 1990.
On 17 October 1990, the Commission allowed Cena a one (1) year extension of his service from 22 January
1991 to 22 January 1992 under its Memorandum Circular No. 27. Dissatisfied, Cena moved for
reconsideration, without success. He then came to this Court, claiming that he was entitled to an extension of
three (3) years, three (3) months and twenty-four (24) days to complete the fifteen-year service requirement
for retirement with full benefits under Section 11 (b) of P.D. No. 1146.
This Court granted Cena' s petition in its Decision of 3 July 1992. Speaking through Mr. Justice Medialdea, the
Court held that a government employee who has reached the compulsory retirement age of sixty-five (65)
years, but at the same time has not yet completed fifteen (15) years of government service required under
Section 11 (b) of P.D. No. 1146 to qualify for the Old-Age Pension Benefit, may be granted an extension of his
government service for such period of time as may be necessary to "fill up" or comply with the fifteen (15)-year
service requirement. The Court also held that the authority to grant the extension was a discretionary one
vested in the head of the agency concerned. Thus the Court concluded:
Accordingly, the Petition is GRANTED. The Land Registration Authority (LRA) and
Department of Justice has the discretion to allow petitioner Gaudencio Cena to extend
his 11 years, 9 months and 6 days of government to complete the fifteen-year
service so that he may retire with full benefits under Section 11, paragraph (b) of P.D.
1146. 13 (Emphases supplied)
The Court reached the above conclusion primarily on the basis of the "plain and ordinary meaning" of Section
11 (b) of P.D. No. 1146. Section 11 may be quoted in its entirety:

(2) is at least sixty (60) years of age; and

(3) is separated from the service.
(b) unless the service is extended by appropriate authorities, retirement shall be
compulsory for an employee at sixty-five-(65) years of age with at least fifteen (15)
years of service; Provided, that if he has less than fifteen (15) years of service, he shall
he allowed to continue in the service to completed the fifteen (15) years. (Emphases
supplied)
The Court went on to rely upon the canon of liberal construction which has often been invoked in respect of
retirement statutes:
Being remedial in character, a statute granting a pension or establishing [a] retirement
plan should be liberally construed and administered in favor of persons intended to be
benefitted thereby. The liberal approach aims to achieve the humanitarian purposes of
the law in order that efficiency, security and well-being of government employees may
be enhanced. 14 (Citations omitted)
While Section 11 (b) appeared cast in verbally unqualified terms, there were (and still are) two (2)
administrative issuances which prescribe limitations on the extension of service that may be granted to an
employee who has reached sixty-five (65) years of age.
The first administrative issuance is Civil Service Commission Circular No. 27, Series of 1990, which should be
quoted in its entirety:
TO : ALL HEADS OF DEPARTMENTS, BUREAUS AND AGENCIES OF THE
NATIONAL/LOCAL GOVERNMENTS INCLUDING GOVERNMENT- OWNED AND/OR
CONTROLLED CORPORATIONS WITH ORIGINAL CHARTERS.
SUBJECT : Extension of Service of Compulsory Retiree to Complete the Fifteen Years
Service Requirement for Retirement Purposes.
Pursuant to CSC Resolution No. 90-454 dated May 21, 1990, the Civil Service
Commission hereby adopts and promulgates the following policies and guidelines in
the extension of services of compulsory retirees to complete the fifteen years service
requirement for retirement purposes:
1. Any request for the extension of service of compulsory
retirees to complete the fifteen (15) years service
requirement for retirement shall be allowed only to permanent
appointees in the career service who are regular members of
the Government Service Insurance System (GSIS), and shall
be granted for a period not exceeding one (1) year.
2. Any request for the extension of service of compulsory retiree
to complete the fifteen (15) years service requirement for
retirement who entered the government service at 57 years of
age or over upon prior grant of authority to appoint him or her,
shall no longer be granted.

20

3. Any request for the extension of service to complete the

fifteen (15) years service requirement of retirement shall be
filled not later than three (3) years prior to the date of
compulsory retirement.
4. Any request for the extension of service of a compulsory
retiree who meets the minimum number of years of service for
retirement purposes may be granted for six (6) months only with
no further extension.
This Memorandum Circular shall take effect immediately. (Emphases supplied)
The second administrative issuance Memorandum Circular No. 65 of the Office of the President, dated 14
June 1988 provides:

CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
VELASCO, JR.,

xxx xxx xxx

WHEREAS, this Office has been. receiving requests for reinstatement and/or retention
in the service of employees who have reached the compulsory retirement age of 65
years, despite the strict conditions provided for in Memorandum Circular No. 163,
dated March 5, 1968, as amended.

NACHURA,
REYES,
LEONARDO DE CASTRO, and
BRION, JJ.

WHEREAS, the President has recently adopted a policy to adhere more strictly to the
law providing for compulsory retirement age of 65 years and, in extremely meritorious
cases, to limit the service beyond the age of 65 years to six (6) months only.
Promulgated:
WHEREFORE, the pertinent provision of Memorandum Circular No. 163 or on the
retention in the service of officials or employees who have reached the compulsory
retirement age of 65 years, is hereby amended to read as follows:
Officials or employees who have reached the compulsory
retirement age of 65 yearsshall not be retained in the
service, except for extremely meritorious reasons in which case
the retention shall not exceed six (6) months.

November 27, 2008

x--------------------------------------------------------------------------- x
All heads of departments, bureaus, offices and instrumentalities of the government
including government-owned or controlled corporations, are hereby enjoined to require
their respective offices to strictly comply with this circular.
R E S O L U T I ON
This Circular shall take effect immediately.

TINGA, J.:
This administrative matter pertains to the latest of the spate of requests of some of the members of the
Supreme Court Medical and Dental Services (SCMDS) Division in relation to the grant of hazard allowance.

RE: ENTITLEMENT TO HAZARD PAY A.M. No. 03-9-02-SC

OF SC MEDICAL AND DENTAL
CLINIC PERSONNEL,
Present:
PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,

In the Courts Resolution [1] of 9 September 2003, the SCMDS personnel were declared entitled to
hazard pay according to the provisions of Republic Act (R.A.) No. 7305, [2] otherwise known as The Magna
Carta of Public Health Workers. The resolution paved the way for the issuance of Administrative Circular No.
57-2004[3] which prescribed the guidelines for the grant of hazard allowance in favor of the SCMDS
personnel. Now, eleven members of the same office: namely, Ramon S. Armedilla, Celeste P. Vista, Consuelo
M. Bernal, Remedios L. Patricio, Madonna Catherine G. Dimaisip, Elmer A. Ruez, Marybeth V. Jurado, Mary
Ann D. Barrientos, Angel S. Ambata, Nora T. Juat and Geslaine C. Juanquestion the wisdom behind the
allocation of hazard pay to the SCMDS personnel at large in the manner provided in the said circular.
Administrative Circular No. 57-2004 (the subject Circular) initially classified SCMDS employees according to
the level of exposure to health hazards, as follows: (a) physicians, dentists, nurses, medical technologists,
nursing and dental aides, and physical therapists who render direct, actual and frequent medical services in
the form of consultation, examination, treatment and ancillary care, were said to be subject to high-risk
exposure; and (b) psychologists, pharmacists, optometrists, clerks, data encoders, utility workers, ambulance

21

drivers, and administrative and technical support personnel, to low-risk exposure. [4] Accordingly, employees
exposed to high-risk hazards belonging to Salary Grade 19 and below, and those belonging to Salary Grade
20 and above, were respectively given 27% and 7% of their basic monthly salaries as hazard allowances;
whereas employees open to low-risk hazards belonging to Salary Grade 20 and above, and Salary Grade 19
and below, were respectively given 5% and 25% of their basic monthly salaries as hazard allowances. [5] This
classification, however, was abolished when the Department of Health (DOH)after reviewing the
corresponding job descriptions of the members of the SCMDS personnel and the nature of their exposure to
hazardsdirected that they should all be entitled to a uniform hazard pay rate without regard for the nature of
the risks and hazards to which they are exposed. [6] The dual 25% and 5% hazard allowance rates for all the
members of the SCMDS personnel were retained.
In their Letter[7] dated 21 January 2005 addressed to then Chief Justice Hilario Davide, Jr., eleven of the
SCMDS personnel concernedwho claim to be doctors with salary grades higher than 19 [8] and who allegedly
render front-line and hands-on services but receive less hazard allowance allocations than do those personnel
who do not directly deliver patient carelamented that the classification and the rates of hazard allowance
implemented by the subject Circular seemed to favor only those belonging to Salary Grade 19 and below,
contrary to the very purpose of the grant which is to compensate health workers according to the degree of
exposure to hazards regardless of rank or status. They believe that the grant must be based not on the salary
grade but rather on the degree of hazard to which they are actually exposed; thus, they asked for a
reexamination of the subject Circular.[9]
However, even before the request could be acted upon by the Court, Secretary Francisco Duque III issued
Administrative Order (A.O.) No. 2006-0011[10] on 16 May 2006. The administrative order prescribes amended
guidelines in the payment of hazard pay applicable to all public health workers regardless of the nature of their
appointment. It essentially establishes a 25% hazard pay rate for health workers with salary grade 19 and
below but fixed the hazard allowance of those occupying positions belonging to Salary Grade 20 and above
to P4,989.75 without further increases. [11] In view of this development, some of the SCMDS personnel
concerned,[12] in another Letter dated 19 December 2007 and addressed to Chief Justice Reynato S. Puno,
suggesting that the subject Circular be amended to conform to A.O. No. 2006-0011, and that they accordingly
be paid hazard pay differentials accruing by virtue thereof. [13]
SCMDS Senior Chief Staff Officer Dr. Prudencio Banzon, Jr. indorsed the letter to Deputy Clerk of
Court and Chief Administrative Officer Atty. Eden Candelaria (Atty. Candelaria). [14] On 15 January 2008, Atty.
Candelaria issued a Memorandum [15] finding merit in the request to amend the subject Circular because A.O.
No. 2006-0011 suggests more equitable guidelines on the allocation of hazard allowances among health
workers in the government.[16] Accordingly, she recommended that: (a) the classification as to whether
employees are exposed to high or low-risk hazard, as found in the Circular, be abolished and instead replaced
by the fixed rates provided in A.O. No. 2006-0011; and that (b) the payment of the adjusted hazard allowance
be charged against the regular savings of the Court. [17]
In its Resolution[18] dated 22 January 2008, the Court referred Atty. Candelarias memorandum to the Fiscal
Management and Budget Office (FMBO) and to the Office of the Chief Attorney (OCAT) for comment.
The OCAT posits that the subject Circular may not be amended in accordance with A.O. No. 2006-0011 and in
the manner the personnel concerned desire because, first, the mechanics of payment established by the
administrative order is of doubtful validity; and second, the said administrative order has not been duly
published and hence not binding on the Court. [19] It also points out that the administrative order does not
conform to Section 21 of R.A. No. 7305 in which the rates of hazard pay are clearly based on salary grade. [20]
The FMBO advances a contrary position. It maintains that the subject Circular may be amended
according to the terms of A.O. No. 2006-0011 inasmuch as the latter could put to rest the objection of the
personnel concerned to the allegedly unreasonable and unfair allocation of hazard pay. Additionally, it
recommends that once the amendment is made, the hazard allowances due the SCMDS personnel be
charged against the savings from the regular appropriations of the Court. [21]
This Court has to deny the request because the subject Circular cannot be amended according to
the mechanism of hazard pay allocation under AO No. 2006-0011 without denigrating established
administrative law principles.
Essentially, hazard pay is the premium granted by law to health workers who, by the nature of their
work, are constantly exposed to various risks to health and safety.[22] Section 21 of R.A. No. 7305 provides:
SEC. 21. Hazard Allowance.Public health workers in hospitals, sanitaria, rural health units, main health
centers, health infirmaries, barangay health stations, clinics and other health-related establishments located in

difficult areas, strife-torn or embattled areas, distressed or isolated stations, prison camps, mental hospitals,
radiation-exposed clinics, laboratories or disease-infested areas or in areas declared under state of calamity or
emergency for the duration thereof which expose them to great danger, contagion, radiation, volcanic
activity/eruption, occupational risks or perils to life as determined by the Secretary of Health or the Head of the
unit with the approval of the Secretary of Health, shall be compensated hazard allowances equivalent to at
least twenty-five percent (25%) of the monthly basic salary of health workers receiving salary grade 19 and
below, and five percent (5%) for health workers with salary grade 20 and above.
The implementing rules of R.A. No. 7305 likewise stipulate the same rates of hazard pay. Rule 7.1.5 thereof
states:
7.1.5 Rates of Hazard Pay
a. Public health workers shall be compensated hazard allowances equivalent to at
least twenty-five percent (25%) of the monthly basic salary of health workers receiving
salary grade 19 and below, and five percent (5%) for health workers with salary grade
20 and above. This may be granted on a monthly, quarterly or annual basis. x x x
In a language too plain to be mistaken, R.A. No. 7305 and its implementing rules mandate that the
allocation and distribution of hazard allowances to public health workers within each of the two salary grade
brackets at the respective rates of 25% and 5% be based on the salary grade to which the covered employees
belong. These same rates have in fact been incorporated into the subject Circular to apply to all SCMDS
personnel. The computation of the hazard allowance due should, in turn, be based on the corresponding basic
salary attached to the position of the employee concerned.
To be sure, the law and the implementing rules obviously prescribe the minimum rates of hazard
pay due all health workers in the government, as in fact this is evident in the self-explanatory phrase at least
used in both the law and the rules. No compelling argument may thus be offered against the competence of
the DOH to prescribe, by rules or orders, higher rates of hazard allowance, provided that the same fall within
the limits of the law. As the lead agency in the implementation of the provisions of R.A. No. 7305, it has in fact
been invested with such power by Section 35. [23] Be that as it may, the question that arises is whether that
power is broad enough to vest the DOH with authority to fix an exact amount of hazard pay accruing to public
health workers with Salary Grade 20 and above, deviating from the 5% monthly salary benchmark prescribed
by both the law and its implementing rules.
The DOH possesses no such power.
Fundamental is the precept in administrative law that the rule-making power delegated to an
administrative agency is limited and defined by the statute conferring the power. For this reason, valid
objections to the exercise of this power lie where it conflicts with the authority granted by the legislature. [24]
A mere fleeting glance at A.O. No. 2006-0011 readily reveals that the DOH, in issuing the said
administrative order, has exceeded its limited power of implementing the provisions of R.A. No. 7305. It
undoubtedly sought to modify the rates of hazard pay and the mechanism for its allocation under both the law
and the implementing rules by prescribing a uniform ratelet alone a fixed and exact amountof hazard
allowance for government health workers occupying positions with salary grade 20 and above. The effect of
this measure can hardly be downplayed especially in view of the unmistakable import of the law to establish a
scalar allocation of hazard allowances among public health workers within each of the two salary grade
brackets.

Section 19[25] of R.A. No. 7305 recognizes, for its own purposes, the applicability of the provisions
of R.A. No. 6758[26] (The Salary Standardization Act of 1989) in the determination of the salary scale of all
covered public health workers. Telling is this reference to the scalar schedule of salaries when viewed in light
of the fact that factoring in the salaries of individual employees and the applicable uniform rate of hazard
allowance would yield different results which, when charted against each other, would also bear the scalar
schedule intended by the law.
The object, in other words, of both the law and its implementing rules in providing a uniform rate
for each of the two groups of public health workers is to establish a scalar allocation of the cash equivalents of
the hazard allowance within each of the two groups. A scalar schedule of hazard pay allocation within the
Salary Grade 20 and higher bracket can indeed be achieved only by multiplying the basic monthly salary of
the covered employees by a constant factor that is 25% as the fixed legal rate.Even without an express

22

reference to the scalar schedule of salaries under R.A. No. 6758, it can nevertheless be inferred that R.A. No.
7305, by mandating a fixed rate of hazard allowance for each of the two groups of health workers, intends to
achieve the same effect.

validate an arbitrary or capricious enactment of rules and regulations. [36] Rules which have the
effect of extending or conflicting with the authority-granting statute do not represent a valid
exercise of rule-making power but constitute an attempt by the agency to legislate.[37] In such a
situation, it is said that the issuance becomes void not only for being ultra vires but also for
being unreasonable.[38] The law therefore prevails over the administrative issuance.[39]

Hence, it can only be surmised that the issuance of AO No. 2006-0011 is an attempt to amend the
rates of hazard allowance and the mechanism for its allocation as provided for in R.A. No. 7305 and the
implementing rules because it has the effect of obliterating the intended discrepancy in the cash equivalents of
the hazard allowance for employees falling within the bracket of Salary Grade 20 and above. Without
unnecessarily belaboring this point, the Court finds that the administrative order violates the established
principle that administrative issuances cannot amend an act of Congress. [27] It is void on its face, but only
insofar as it prescribes a predetermined exact amount in cash of the hazard allowance for public health
workers with Salary Grade 20 and above.

The Court takes notice of the fact that the enactment of R.A. No. 7305 has touched off, within the
public health service sector, a surge of negative sentiments regarding the alleged inequitableness and
unfairness of the lawparticularly the provisions thereof relating to the allocation of hazard allowances.Certainly,
the DOH can be reasonably expected to respond to the well-meaning clamor of the public health workers; but
while indeed the DOH is entitled to a certain amount of hegemony over the statutes which it is tasked to
administer, it nevertheless may not go far beyond the letter of the law even if it does perceive that it is acting in
the furtherance of the spirit of the law.[40]

Indeed, when an administrative agency enters into the exercise of the specific power of
implementing a statute, it is bound by what is provided for in the same legislative enactment [28] inasmuch as its
rule-making power is a delegated legislative power which may not be used either to abridge the authority given
by the Congress or the Constitution or to enlarge the power beyond the scope intended. [29] The power may not
be validly extended by implication beyond what may be necessary for its just and reasonable execution. [30] In
other words, the function of promulgating rules and regulations may be legitimately exercised only for the
purpose of carrying out the provisions of a law, inasmuch as the power is confined to implementing the law or
putting it into effect.[31] Therefore, such rules and regulations must not be inconsistent with the provisions of
existing laws, particularly the statute being administered and implemented by the agency concerned, [32] that is
to say, the statute to which the issuance relates.Constitutional and statutory provisions control with respect to
what rules and regulations may be promulgated by such a body, as well as with respect to what fields are
subject to regulation by it.[33]
It must be stressed that the DOH issued the rules and regulations implementing the provisions of
R.A. 7305 pursuant to the authority expressly delegated by Congress. Hence, the DOH, as the delegate
administrative agency, cannot contravene the law from which its rule-making authority has emanated. As the
clich goes, the spring cannot rise higher than its source.[34] In this regard, Fisher observes:

A final note. Just as the power of the DOH to issue rules and regulations is confined to the clear
letter of the law, the Courts hands are likewise tied to interpreting and applying the law. In other words, the
Court cannot infuse vitality, let alone a semblance of validity, to an issuance which on its face is inconsistent
with the law and therefore void, by adopting its terms and in effect implementing the samelest we otherwise
validate an undue exercise by the DOH of its delegated and limited power of implementation. Suffice it to say
that questions relative to the seeming unfairness and inequitableness of the law are matters that lie well within
the legitimate powers of Congress and are well beyond the competence of the Court to address.
In light of the foregoing, there appears to be no more necessity to discuss the issue of the non-publication of
A.O. No. 2006-0011.
WHEREFORE, the request of the Supreme Court Medical and Dental Services Division to amend
Administrative Circular (A.C.) No. 57-2004 according to the provisions of Department of Health Administrative
Order No. 2006-0011 is DENIED. The Court DIRECTS that the payment of hazard allowance in favor of the
personnel concerned be made in accordance with A.C. No. 57-2004.

SO ORDERED.
x x x The often conflicting and ambiguous passages within a law must be
interpreted by executive officials to construct the purpose and intent of
Congress. As important as intent is the extent to which a law is carried
out. President Taft once remarked, Let anyone make the laws of the country, if I
can construe them.

To carry out the laws, administrators issue rules and regulations of their
own. The courts long ago appreciated this need. Rules and regulations must be
received as the acts of the executive, and as such, be binding upon all within the
sphere of his legal and constitutional authority. Current law authorizes the head of
an executive department or military department to prescribe regulations for the
government of his department, the conduct of its employees, the distribution and
performance of its business, and the custody, use, and preservation of its records,
papers, and property.
These duties, primarily of a housekeeping nature, relate only distantly to the
citizenry. Many regulations, however, bear directly on the public. It is here that
administrative legislation must be restricted in its scope and application.
Regulations are not supposed to be a substitute for the general policymaking
that Congress enacts in the form of a public law. Although administrative
regulations are entitled to respect, the authority to prescribe rules and
regulations is not an independent source of power to make laws.
Agency rulemaking must rest on authority granted directly or indirectly
by Congress.[35] (Emphasis supplied)

G.R. No. 166715

August 14, 2008

ABAKADA GURO PARTY LIST (formerly AASJS)1 OFFICERS/MEMBERS SAMSON S. ALCANTARA, ED

VINCENT S. ALBANO, ROMEO R. ROBISO, RENE B. GOROSPE and EDWIN R. SANDOVAL, petitioners,
vs.
HON. CESAR V. PURISIMA, in his capacity as Secretary of Finance, HON. GUILLERMO L. PARAYNO,
JR., in his capacity as Commissioner of the Bureau of Internal Revenue, and HON. ALBERTO D. LINA,
in his Capacity as Commissioner of Bureau of Customs, respondents.
DECISION
CORONA, J.:
This petition for prohibition1 seeks to prevent respondents from implementing and enforcing Republic Act (RA)
93352 (Attrition Act of 2005).
RA 9335 was enacted to optimize the revenue-generation capability and collection of the Bureau of Internal
Revenue (BIR) and the Bureau of Customs (BOC). The law intends to encourage BIR and BOC officials and
employees to exceed their revenue targets by providing a system of rewards and sanctions through the
creation of a Rewards and Incentives Fund (Fund) and a Revenue Performance Evaluation Board (Board). 3 It
covers all officials and employees of the BIR and the BOC with at least six months of service, regardless of
employment status.4

Moreover, although an administrative agency is authorized to exercise its discretion in the

exercise of its power of subordinate legislation, nevertheless, no similar authority exists to

23

The Fund is sourced from the collection of the BIR and the BOC in excess of their revenue targets for the year,
as determined by the Development Budget and Coordinating Committee (DBCC). Any incentive or reward is
taken from the fund and allocated to the BIR and the BOC in proportion to their contribution in the excess
collection of the targeted amount of tax revenue. 5

After a careful consideration of the conflicting contentions of the parties, the Court finds that petitioners have
failed to overcome the presumption of constitutionality in favor of RA 9335, except as shall hereafter be
discussed.
Actual Case And Ripeness

The Boards in the BIR and the BOC are composed of the Secretary of the Department of Finance (DOF) or
his/her Undersecretary, the Secretary of the Department of Budget and Management (DBM) or his/her
Undersecretary, the Director General of the National Economic Development Authority (NEDA) or his/her
Deputy Director General, the Commissioners of the BIR and the BOC or their Deputy Commissioners, two
representatives from the rank-and-file employees and a representative from the officials nominated by their
recognized organization.6
Each Board has the duty to (1) prescribe the rules and guidelines for the allocation, distribution and release of
the Fund; (2) set criteria and procedures for removing from the service officials and employees whose revenue
collection falls short of the target; (3) terminate personnel in accordance with the criteria adopted by the Board;
(4) prescribe a system for performance evaluation; (5) perform other functions, including the issuance of rules
and regulations and (6) submit an annual report to Congress. 7
The DOF, DBM, NEDA, BIR, BOC and the Civil Service Commission (CSC) were tasked to promulgate and
issue the implementing rules and regulations of RA 9335, 8 to be approved by a Joint Congressional Oversight
Committee created for such purpose.9
Petitioners, invoking their right as taxpayers filed this petition challenging the constitutionality of RA 9335, a tax
reform legislation. They contend that, by establishing a system of rewards and incentives, the law "transform[s]
the officials and employees of the BIR and the BOC into mercenaries and bounty hunters" as they will do their
best only in consideration of such rewards. Thus, the system of rewards and incentives invites corruption and
undermines the constitutionally mandated duty of these officials and employees to serve the people with
utmost responsibility, integrity, loyalty and efficiency.

An actual case or controversy involves a conflict of legal rights, an assertion of opposite legal claims
susceptible of judicial adjudication.10 A closely related requirement is ripeness, that is, the question must be
ripe for adjudication. And a constitutional question is ripe for adjudication when the governmental act being
challenged has a direct adverse effect on the individual challenging it. 11 Thus, to be ripe for judicial
adjudication, the petitioner must show a personal stake in the outcome of the case or an injury to himself that
can be redressed by a favorable decision of the Court. 12
In this case, aside from the general claim that the dispute has ripened into a judicial controversy by the mere
enactment of the law even without any further overt act, 13 petitioners fail either to assert any specific and
concrete legal claim or to demonstrate any direct adverse effect of the law on them. They are unable to show a
personal stake in the outcome of this case or an injury to themselves. On this account, their petition is
procedurally infirm.
This notwithstanding, public interest requires the resolution of the constitutional issues raised by petitioners.
The grave nature of their allegations tends to cast a cloud on the presumption of constitutionality in favor of the
law. And where an action of the legislative branch is alleged to have infringed the Constitution, it becomes not
only the right but in fact the duty of the judiciary to settle the dispute. 14
Accountability of
Public Officers
Section 1, Article 11 of the Constitution states:

Petitioners also claim that limiting the scope of the system of rewards and incentives only to officials and
employees of the BIR and the BOC violates the constitutional guarantee of equal protection. There is no valid
basis for classification or distinction as to why such a system should not apply to officials and employees of all
other government agencies.
In addition, petitioners assert that the law unduly delegates the power to fix revenue targets to the President as
it lacks a sufficient standard on that matter. While Section 7(b) and (c) of RA 9335 provides that BIR and BOC
officials may be dismissed from the service if their revenue collections fall short of the target by at least 7.5%,
the law does not, however, fix the revenue targets to be achieved. Instead, the fixing of revenue targets has
been delegated to the President without sufficient standards. It will therefore be easy for the President to fix an
unrealistic and unattainable target in order to dismiss BIR or BOC personnel.
Finally, petitioners assail the creation of a congressional oversight committee on the ground that it violates the
doctrine of separation of powers. While the legislative function is deemed accomplished and completed upon
the enactment and approval of the law, the creation of the congressional oversight committee permits
legislative participation in the implementation and enforcement of the law.
In their comment, respondents, through the Office of the Solicitor General, question the petition for being
premature as there is no actual case or controversy yet. Petitioners have not asserted any right or claim that
will necessitate the exercise of this Courts jurisdiction. Nevertheless, respondents acknowledge that public
policy requires the resolution of the constitutional issues involved in this case. They assert that the allegation
that the reward system will breed mercenaries is mere speculation and does not suffice to invalidate the law.
Seen in conjunction with the declared objective of RA 9335, the law validly classifies the BIR and the BOC
because the functions they perform are distinct from those of the other government agencies and
instrumentalities. Moreover, the law provides a sufficient standard that will guide the executive in the
implementation of its provisions. Lastly, the creation of the congressional oversight committee under the law
enhances, rather than violates, separation of powers. It ensures the fulfillment of the legislative policy and
serves as a check to any over-accumulation of power on the part of the executive and the implementing
agencies.

Sec. 1. Public office is a public trust. Public officers and employees must at all times be
accountable to the people, serve them with utmost responsibility, integrity, loyalty, and efficiency,
act with patriotism, and justice, and lead modest lives.
Public office is a public trust. It must be discharged by its holder not for his own personal gain but for the
benefit of the public for whom he holds it in trust. By demanding accountability and service with responsibility,
integrity, loyalty, efficiency, patriotism and justice, all government officials and employees have the duty to be
responsive to the needs of the people they are called upon to serve.
Public officers enjoy the presumption of regularity in the performance of their duties. This presumption
necessarily obtains in favor of BIR and BOC officials and employees. RA 9335 operates on the basis thereof
and reinforces it by providing a system of rewards and sanctions for the purpose of encouraging the officials
and employees of the BIR and the BOC to exceed their revenue targets and optimize their revenue-generation
capability and collection.15
The presumption is disputable but proof to the contrary is required to rebut it. It cannot be overturned by mere
conjecture or denied in advance (as petitioners would have the Court do) specially in this case where it is an
underlying principle to advance a declared public policy.
Petitioners claim that the implementation of RA 9335 will turn BIR and BOC officials and employees into
"bounty hunters and mercenaries" is not only without any factual and legal basis; it is also purely speculative.
A law enacted by Congress enjoys the strong presumption of constitutionality. To justify its nullification, there
must be a clear and unequivocal breach of the Constitution, not a doubtful and equivocal one. 16 To invalidate
RA 9335 based on petitioners baseless supposition is an affront to the wisdom not only of the legislature that
passed it but also of the executive which approved it.

24

Public service is its own reward. Nevertheless, public officers may by law be rewarded for exemplary and
exceptional performance. A system of incentives for exceeding the set expectations of a public office is not
anathema to the concept of public accountability. In fact, it recognizes and reinforces dedication to duty,
industry, efficiency and loyalty to public service of deserving government personnel.
In United States v. Matthews,17 the U.S. Supreme Court validated a law which awards to officers of the
customs as well as other parties an amount not exceeding one-half of the net proceeds of forfeitures in
violation of the laws against smuggling. Citing Dorsheimer v. United States,18 the U.S. Supreme Court said:
The offer of a portion of such penalties to the collectors is to stimulate and reward their zeal and
industry in detecting fraudulent attempts to evade payment of duties and taxes.
In the same vein, employees of the BIR and the BOC may by law be entitled to a reward when, as a
consequence of their zeal in the enforcement of tax and customs laws, they exceed their revenue targets. In
addition, RA 9335 establishes safeguards to ensure that the reward will not be claimed if it will be either the
fruit of "bounty hunting or mercenary activity" or the product of the irregular performance of official duties. One
of these precautionary measures is embodied in Section 8 of the law:
SEC. 8. Liability of Officials, Examiners and Employees of the BIR and the BOC. The officials,
examiners, and employees of the [BIR] and the [BOC] who violate this Act or who are guilty of
negligence, abuses or acts of malfeasance or misfeasance or fail to exercise extraordinary
diligence in the performance of their duties shall be held liable for any loss or injury suffered by any
business establishment or taxpayer as a result of such violation, negligence, abuse, malfeasance,
misfeasance or failure to exercise extraordinary diligence.

legislative classification may in many cases properly rest on narrow distinctions, for the equal
protection guaranty does not preclude the legislature from recognizing degrees of evil or harm, and
legislation is addressed to evils as they may appear.21 (emphasis supplied)
The equal protection clause recognizes a valid classification, that is, a classification that has a reasonable
foundation or rational basis and not arbitrary.22 With respect to RA 9335, its expressed public policy is the
optimization of the revenue-generation capability and collection of the BIR and the BOC. 23 Since the subject of
the law is the revenue- generation capability and collection of the BIR and the BOC, the incentives and/or
sanctions provided in the law should logically pertain to the said agencies. Moreover, the law concerns only
the BIR and the BOC because they have the common distinct primary function of generating revenues for the
national government through the collection of taxes, customs duties, fees and charges.
The BIR performs the following functions:
Sec. 18. The Bureau of Internal Revenue. The Bureau of Internal Revenue, which shall be
headed by and subject to the supervision and control of the Commissioner of Internal Revenue,
who shall be appointed by the President upon the recommendation of the Secretary [of the DOF],
shall have the following functions:
(1) Assess and collect all taxes, fees and charges and account for all revenues collected;
(2) Exercise duly delegated police powers for the proper performance of its functions and duties;
(3) Prevent and prosecute tax evasions and all other illegal economic activities;

Equal Protection
(4) Exercise supervision and control over its constituent and subordinate units; and
Equality guaranteed under the equal protection clause is equality under the same conditions and among
persons similarly situated; it is equality among equals, not similarity of treatment of persons who are classified
based on substantial differences in relation to the object to be accomplished. 19When things or persons are
different in fact or circumstance, they may be treated in law differently. InVictoriano v. Elizalde Rope Workers
Union,20 this Court declared:
The guaranty of equal protection of the laws is not a guaranty of equality in the application of the
laws upon all citizens of the [S]tate. It is not, therefore, a requirement, in order to avoid the
constitutional prohibition against inequality, that every man, woman and child should be affected
alike by a statute. Equality of operation of statutes does not mean indiscriminate operation on
persons merely as such, but on persons according to the circumstances surrounding them. It
guarantees equality, not identity of rights. The Constitution does not require that things which
are different in fact be treated in law as though they were the same. The equal protection
clause does not forbid discrimination as to things that are different. It does not prohibit
legislation which is limited either in the object to which it is directed or by the territory within
which it is to operate.

(5) Perform such other functions as may be provided by law.24

xxx

xxx

xxx (emphasis supplied)

On the other hand, the BOC has the following functions:

Sec. 23. The Bureau of Customs. The Bureau of Customs which shall be headed and subject to
the management and control of the Commissioner of Customs, who shall be appointed by the
President upon the recommendation of the Secretary[of the DOF] and hereinafter referred to as
Commissioner, shall have the following functions:
(1) Collect custom duties, taxes and the corresponding fees, charges and penalties;

The equal protection of the laws clause of the Constitution allows classification. Classification in
law, as in the other departments of knowledge or practice, is the grouping of things in speculation
or practice because they agree with one another in certain particulars. A law is not invalid because
of simple inequality. The very idea of classification is that of inequality, so that it goes without
saying that the mere fact of inequality in no manner determines the matter of constitutionality. All
that is required of a valid classification is that it be reasonable, which means that the
classification should be based on substantial distinctions which make for real differences,
that it must be germane to the purpose of the law; that it must not be limited to existing
conditions only; and that it must apply equally to each member of the class. This Court has
held that the standard is satisfied if the classification or distinction is based on a reasonable
foundation or rational basis and is not palpably arbitrary.

(2) Account for all customs revenues collected;

In the exercise of its power to make classifications for the purpose of enacting laws over matters
within its jurisdiction, the state is recognized as enjoying a wide range of discretion. It is not
necessary that the classification be based on scientific or marked differences of things or in their
relation. Neither is it necessary that the classification be made with mathematical nicety. Hence,

(6) Administer all legal requirements that are appropriate;

(3) Exercise police authority for the enforcement of tariff and customs laws;
(4) Prevent and suppress smuggling, pilferage and all other economic frauds within all ports of
entry;
(5) Supervise and control exports, imports, foreign mails and the clearance of vessels and aircrafts
in all ports of entry;

(7) Prevent and prosecute smuggling and other illegal activities in all ports under its jurisdiction;

25

(8) Exercise supervision and control over its constituent units;

Revenue targets shall refer to the original estimated revenue collection expected of the BIR
and the BOC for a given fiscal year as stated in the Budget of Expenditures and Sources of
Financing (BESF) submitted by the President to Congress. The BIR and the BOC shall submit
to the DBCC the distribution of the agencies revenue targets as allocated among its revenue
districts in the case of the BIR, and the collection districts in the case of the BOC.

(9) Perform such other functions as may be provided by law.25

xxx

xxx

xxx (emphasis supplied)

xxx

Both the BIR and the BOC are bureaus under the DOF. They principally perform the special function of being
the instrumentalities through which the State exercises one of its great inherent functions taxation.
Indubitably, such substantial distinction is germane and intimately related to the purpose of the law. Hence, the
classification and treatment accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of
equal protection.
Undue Delegation
Two tests determine the validity of delegation of legislative power: (1) the completeness test and (2) the
sufficient standard test. A law is complete when it sets forth therein the policy to be executed, carried out or
implemented by the delegate.26 It lays down a sufficient standard when it provides adequate guidelines or
limitations in the law to map out the boundaries of the delegates authority and prevent the delegation from
running riot.27 To be sufficient, the standard must specify the limits of the delegates authority, announce the
legislative policy and identify the conditions under which it is to be implemented. 28

xxx

Revenue targets are based on the original estimated revenue collection expected respectively of the BIR and
the BOC for a given fiscal year as approved by the DBCC and stated in the BESF submitted by the President
to Congress.30 Thus, the determination of revenue targets does not rest solely on the President as it also
undergoes the scrutiny of the DBCC.
On the other hand, Section 7 specifies the limits of the Boards authority and identifies the conditions under
which officials and employees whose revenue collection falls short of the target by at least 7.5% may be
removed from the service:
SEC. 7. Powers and Functions of the Board. The Board in the agency shall have the following
powers and functions:
xxx

RA 9335 adequately states the policy and standards to guide the President in fixing revenue targets and the
implementing agencies in carrying out the provisions of the law. Section 2 spells out the policy of the law:

xxx

xxx

(b) To set the criteria and procedures for removing from service officials and employees whose
revenue collection falls short of the target by at least seven and a half percent (7.5%), with
due consideration of all relevant factors affecting the level of collection as provided in the
rules and regulations promulgated under this Act, subject to civil service laws, rules and
regulations and compliance with substantive and procedural due process: Provided, That the
following exemptions shall apply:

SEC. 2. Declaration of Policy. It is the policy of the State to optimize the revenue-generation
capability and collection of the Bureau of Internal Revenue (BIR) and the Bureau of Customs
(BOC) by providing for a system of rewards and sanctions through the creation of a Rewards and
Incentives Fund and a Revenue Performance Evaluation Board in the above agencies for the
purpose of encouraging their officials and employees to exceed their revenue targets.

1. Where the district or area of responsibility is newly-created, not exceeding two years
in operation, as has no historical record of collection performance that can be used as
basis for evaluation; and

Section 4 "canalized within banks that keep it from overflowing" 29 the delegated power to the President to fix
revenue targets:

2. Where the revenue or customs official or employee is a recent transferee in the

middle of the period under consideration unless the transfer was due to
nonperformance of revenue targets or potential nonperformance of revenue targets:
Provided, however, That when the district or area of responsibility covered by revenue
or customs officials or employees has suffered from economic difficulties brought about
by natural calamities orforce majeure or economic causes as may be determined by
the Board, termination shall be considered only after careful and proper review by the
Board.

SEC. 4. Rewards and Incentives Fund. A Rewards and Incentives Fund, hereinafter referred to
as the Fund, is hereby created, to be sourced from the collection of the BIR and the BOC in excess
of their respective revenue targets of the year, as determined by the Development Budget
and Coordinating Committee (DBCC), in the following percentages:

Excess of Collection of the Excess the Revenue Percent (%) of the Excess Collection to Accrue to the Fund
Targets

30% or below

15%

More than 30%

15% of the first 30% plus 20% of the remaining excess

(c) To terminate personnel in accordance with the criteria adopted in the preceding paragraph:
Provided, That such decision shall be immediately executory: Provided, further, That the
application of the criteria for the separation of an official or employee from service under
this Act shall be without prejudice to the application of other relevant laws on
accountability of public officers and employees, such as the Code of Conduct and Ethical
Standards of Public Officers and Employees and the Anti-Graft and Corrupt Practices Act;
xxx

The Fund shall be deemed automatically appropriated the year immediately following the year
when the revenue collection target was exceeded and shall be released on the same fiscal year.

xxx (emphasis supplied)

xxx

xxx (emphasis supplied)

Clearly, RA 9335 in no way violates the security of tenure of officials and employees of the BIR and the BOC.
The guarantee of security of tenure only means that an employee cannot be dismissed from the service for
causes other than those provided by law and only after due process is accorded the employee. 31 In the case of
RA 9335, it lays down a reasonable yardstick for removal (when the revenue collection falls short of the target
by at least 7.5%) with due consideration of all relevant factors affecting the level of collection. This standard is
analogous to inefficiency and incompetence in the performance of official duties, a ground for disciplinary

26

action under civil service laws.32 The action for removal is also subject to civil service laws, rules and
regulations and compliance with substantive and procedural due process.
At any rate, this Court has recognized the following as sufficient standards: "public interest," "justice and
equity," "public convenience and welfare" and "simplicity, economy and welfare." 33 In this case, the declared
policy of optimization of the revenue-generation capability and collection of the BIR and the BOC is infused
with public interest.
Separation Of Powers
Section 12 of RA 9335 provides:
SEC. 12. Joint Congressional Oversight Committee. There is hereby created a Joint
Congressional Oversight Committee composed of seven Members from the Senate and seven
Members from the House of Representatives. The Members from the Senate shall be appointed by
the Senate President, with at least two senators representing the minority. The Members from the
House of Representatives shall be appointed by the Speaker with at least two members
representing the minority. After the Oversight Committee will have approved the implementing
rules and regulations (IRR) it shall thereafter become functus officio and therefore cease to exist.
The Joint Congressional Oversight Committee in RA 9335 was created for the purpose of approving the
implementing rules and regulations (IRR) formulated by the DOF, DBM, NEDA, BIR, BOC and CSC. On May
22, 2006, it approved the said IRR. From then on, it became functus officio and ceased to exist. Hence, the
issue of its alleged encroachment on the executive function of implementing and enforcing the law may be
considered moot and academic.
This notwithstanding, this might be as good a time as any for the Court to confront the issue of the
constitutionality of the Joint Congressional Oversight Committee created under RA 9335 (or other similar laws
for that matter).
The scholarly discourse of Mr. Justice (now Chief Justice) Puno on the concept of congressional
oversight in Macalintal v. Commission on Elections34 is illuminating:
Concept and bases of congressional oversight
Broadly defined, the power of oversight embraces all activities undertaken by Congress to
enhance its understanding of and influence over the implementation of legislation it has
enacted. Clearly, oversight concerns post-enactment measures undertaken by Congress:
(a) to monitor bureaucratic compliance with program objectives, (b) to determine whether
agencies are properly administered, (c) to eliminate executive waste and dishonesty, (d) to
prevent executive usurpation of legislative authority, and (d) to assess executive conformity
with the congressional perception of public interest.
The power of oversight has been held to be intrinsic in the grant of legislative power itself and
integral to the checks and balances inherent in a democratic system of government. x x x x x x x x
x
Over the years, Congress has invoked its oversight power with increased frequency to check the
perceived "exponential accumulation of power" by the executive branch. By the beginning of the
20th century, Congress has delegated an enormous amount of legislative authority to the executive
branch and the administrative agencies. Congress, thus, uses its oversight power to make sure
that the administrative agencies perform their functions within the authority delegated to them. x x
xxxxxxx
Categories of congressional oversight functions

The acts done by Congress purportedly in the exercise of its oversight powers may be divided
into three categories, namely: scrutiny, investigation and supervision.
a. Scrutiny
Congressional scrutiny implies a lesser intensity and continuity of attention to
administrative operations. Its primary purpose is to determine economy and efficiency
of the operation of government activities. In the exercise of legislative scrutiny,
Congress may request information and report from the other branches of government.
It can give recommendations or pass resolutions for consideration of the agency
involved.
xxx

xxx

xxx

b. Congressional investigation
While congressional scrutiny is regarded as a passive process of looking at the facts
that are readily available, congressional investigation involves a more intense digging
of facts. The power of Congress to conduct investigation is recognized by the 1987
Constitution under section 21, Article VI, xxx
xxx
xxx
c. Legislative supervision
The third and most encompassing form by which Congress exercises its oversight power is thru
legislative supervision. "Supervision" connotes a continuing and informed awareness on the part of
a congressional committee regarding executive operations in a given administrative area. While
both congressional scrutiny and investigation involve inquiry into past executive branch actions in
order to influence future executive branch performance, congressional supervision allows
Congress to scrutinize the exercise of delegated law-making authority, and permits Congress to
retain part of that delegated authority.
Congress exercises supervision over the executive agencies through its veto power. It typically
utilizes veto provisions when granting the President or an executive agency the power to
promulgate regulations with the force of law. These provisions require the President or an agency
to present the proposed regulations to Congress, which retains a "right" to approve or disapprove
any regulation before it takes effect. Such legislative veto provisions usually provide that a
proposed regulation will become a law after the expiration of a certain period of time, only if
Congress does not affirmatively disapprove of the regulation in the meantime. Less frequently, the
statute provides that a proposed regulation will become law if Congress affirmatively approves it.
Supporters of legislative veto stress that it is necessary to maintain the balance of power between
the legislative and the executive branches of government as it offers lawmakers a way to delegate
vast power to the executive branch or to independent agencies while retaining the option to cancel
particular exercise of such power without having to pass new legislation or to repeal existing law.
They contend that this arrangement promotes democratic accountability as it provides legislative
check on the activities of unelected administrative agencies. One proponent thus explains:
It is too late to debate the merits of this delegation policy: the policy is too deeply
embedded in our law and practice. It suffices to say that the complexities of modern
government have often led Congress-whether by actual or perceived necessity- to
legislate by declaring broad policy goals and general statutory standards, leaving the
choice of policy options to the discretion of an executive officer. Congress articulates
legislative aims, but leaves their implementation to the judgment of parties who may or
may not have participated in or agreed with the development of those aims.
Consequently, absent safeguards, in many instances the reverse of our constitutional
scheme could be effected: Congress proposes, the Executive disposes. One
safeguard, of course, is the legislative power to enact new legislation or to change
existing law. But without some means of overseeing post enactment activities of the
executive branch, Congress would be unable to determine whether its policies have

27

been implemented in accordance with legislative intent and thus whether legislative
intervention is appropriate.
Its opponents, however, criticize the legislative veto as undue encroachment upon the executive
prerogatives. They urge that any post-enactment measures undertaken by the legislative
branch should be limited to scrutiny and investigation; any measure beyond that would
undermine the separation of powers guaranteed by the Constitution. They contend that
legislative veto constitutes an impermissible evasion of the Presidents veto authority and intrusion
into the powers vested in the executive or judicial branches of government. Proponents counter
that legislative veto enhances separation of powers as it prevents the executive branch and
independent agencies from accumulating too much power. They submit that reporting
requirements and congressional committee investigations allow Congress to scrutinize only the
exercise of delegated law-making authority. They do not allow Congress to review executive
proposals before they take effect and they do not afford the opportunity for ongoing and binding
expressions of congressional intent. In contrast, legislative veto permits Congress to participate
prospectively in the approval or disapproval of "subordinate law" or those enacted by the executive
branch pursuant to a delegation of authority by Congress. They further argue that legislative veto
"is a necessary response by Congress to the accretion of policy control by forces outside its
chambers." In an era of delegated authority, they point out that legislative veto "is the most efficient
means Congress has yet devised to retain control over the evolution and implementation of its
policy as declared by statute."
In Immigration and Naturalization Service v. Chadha, the U.S. Supreme Court resolved the
validity of legislative veto provisions. The case arose from the order of the immigration judge
suspending the deportation of Chadha pursuant to 244(c)(1) of the Immigration and Nationality
Act. The United States House of Representatives passed a resolution vetoing the suspension
pursuant to 244(c)(2) authorizing either House of Congress, by resolution, to invalidate the
decision of the executive branch to allow a particular deportable alien to remain in the United
States. The immigration judge reopened the deportation proceedings to implement the House
order and the alien was ordered deported. The Board of Immigration Appeals dismissed the aliens
appeal, holding that it had no power to declare unconstitutional an act of Congress. The United
States Court of Appeals for Ninth Circuit held that the House was without constitutional authority to
order the aliens deportation and that 244(c)(2) violated the constitutional doctrine on separation
of powers.
On appeal, the U.S. Supreme Court declared 244(c)(2) unconstitutional. But the Court shied
away from the issue of separation of powers and instead held that the provision violates the
presentment clause and bicameralism. It held that the one-house veto was essentially legislative in
purpose and effect. As such, it is subject to the procedures set out in Article I of the Constitution
requiring the passage by a majority of both Houses and presentment to the President. x x x x x x x
xx
Two weeks after the Chadha decision, the Court upheld, in memorandum decision, two lower court
decisions invalidating the legislative veto provisions in the Natural Gas Policy Act of 1978 and the
Federal Trade Commission Improvement Act of 1980. Following this precedence, lower courts
invalidated statutes containing legislative veto provisions although some of these provisions
required the approval of both Houses of Congress and thus met the bicameralism requirement of
Article I. Indeed, some of these veto provisions were not even exercised. 35(emphasis supplied)
In Macalintal, given the concept and configuration of the power of congressional oversight and considering the
nature and powers of a constitutional body like the Commission on Elections, the Court struck down the
provision in RA 9189 (The Overseas Absentee Voting Act of 2003) creating a Joint Congressional Committee.
The committee was tasked not only to monitor and evaluate the implementation of the said law but also to
review, revise, amend and approve the IRR promulgated by the Commission on Elections. The Court held that
these functions infringed on the constitutional independence of the Commission on Elections. 36
With this backdrop, it is clear that congressional oversight is not unconstitutional per se, meaning, it neither
necessarily constitutes an encroachment on the executive power to implement laws nor undermines the
constitutional separation of powers. Rather, it is integral to the checks and balances inherent in a democratic
system of government. It may in fact even enhance the separation of powers as it prevents the overaccumulation of power in the executive branch.

However, to forestall the danger of congressional encroachment "beyond the legislative sphere," the
Constitution imposes two basic and related constraints on Congress. 37 It may not vest itself, any of its
committees or its members with either executive or judicial power.38 And, when it exercises its legislative
power, it must follow the "single, finely wrought and exhaustively considered, procedures" specified under the
Constitution,39 including the procedure for enactment of laws and presentment.
Thus, any post-enactment congressional measure such as this should be limited to scrutiny and investigation.
In particular, congressional oversight must be confined to the following:
(1) scrutiny based primarily on Congress power of appropriation and the budget hearings
conducted in connection with it, its power to ask heads of departments to appear before and be
heard by either of its Houses on any matter pertaining to their departments and its power of
confirmation40 and
(2) investigation and monitoring41 of the implementation of laws pursuant to the power of Congress
to conduct inquiries in aid of legislation.42
Any action or step beyond that will undermine the separation of powers guaranteed by the Constitution.
Legislative vetoes fall in this class.
Legislative veto is a statutory provision requiring the President or an administrative agency to present the
proposed implementing rules and regulations of a law to Congress which, by itself or through a committee
formed by it, retains a "right" or "power" to approve or disapprove such regulations before they take effect. As
such, a legislative veto in the form of a congressional oversight committee is in the form of an inward-turning
delegation designed to attach a congressional leash (other than through scrutiny and investigation) to an
agency to which Congress has by law initially delegated broad powers. 43 It radically changes the design or
structure of the Constitutions diagram of power as it entrusts to Congress a direct role in enforcing, applying
or implementing its own laws.44
Congress has two options when enacting legislation to define national policy within the broad horizons of its
legislative competence.45 It can itself formulate the details or it can assign to the executive branch the
responsibility for making necessary managerial decisions in conformity with those standards. 46 In the latter
case, the law must be complete in all its essential terms and conditions when it leaves the hands of the
legislature.47 Thus, what is left for the executive branch or the concerned administrative agency when it
formulates rules and regulations implementing the law is to fill up details (supplementary rule-making) or
ascertain facts necessary to bring the law into actual operation (contingent rule-making). 48
Administrative regulations enacted by administrative agencies to implement and interpret the law which they
are entrusted to enforce have the force of law and are entitled to respect. 49 Such rules and regulations partake
of the nature of a statute 50 and are just as binding as if they have been written in the statute itself. As such,
they have the force and effect of law and enjoy the presumption of constitutionality and legality until they are
set aside with finality in an appropriate case by a competent court. 51 Congress, in the guise of assuming the
role of an overseer, may not pass upon their legality by subjecting them to its stamp of approval without
disturbing the calculated balance of powers established by the Constitution. In exercising discretion to approve
or disapprove the IRR based on a determination of whether or not they conformed with the provisions of RA
9335, Congress arrogated judicial power unto itself, a power exclusively vested in this Court by the
Constitution.
Considered Opinion of
Mr. Justice Dante O. Tinga
Moreover, the requirement that the implementing rules of a law be subjected to approval by Congress as a
condition for their effectivity violates the cardinal constitutional principles of bicameralism and the rule on
presentment.52
Section 1, Article VI of the Constitution states:

28

Section 1. The legislative power shall be vested in the Congress of the Philippines which
shall consist of a Senate and a House of Representatives, except to the extent reserved to the
people by the provision on initiative and referendum. (emphasis supplied)
Legislative power (or the power to propose, enact, amend and repeal laws) 53 is vested in Congress which
consists of two chambers, the Senate and the House of Representatives. A valid exercise of legislative power
requires the act of both chambers. Corrollarily, it can be exercised neither solely by one of the two chambers
nor by a committee of either or both chambers. Thus, assuming the validity of a legislative veto, both a singlechamber legislative veto and a congressional committee legislative veto are invalid.
Additionally, Section 27(1), Article VI of the Constitution provides:
Section 27. (1) Every bill passed by the Congress shall, before it becomes a law, be
presented to the President. If he approves the same, he shall sign it, otherwise, he shall veto it
and return the same with his objections to the House where it originated, which shall enter the
objections at large in its Journal and proceed to reconsider it. If, after such reconsideration, twothirds of all the Members of such House shall agree to pass the bill, it shall be sent, together with
the objections, to the other House by which it shall likewise be reconsidered, and if approved by
two-thirds of all the Members of that House, it shall become a law. In all such cases, the votes of
each House shall be determined by yeas or nays, and the names of the members voting for or
against shall be entered in its Journal. The President shall communicate his veto of any bill to the
House where it originated within thirty days after the date of receipt thereof; otherwise, it shall
become a law as if he had signed it. (emphasis supplied)
Every bill passed by Congress must be presented to the President for approval or veto. In the absence of
presentment to the President, no bill passed by Congress can become a law. In this sense, law-making under
the Constitution is a joint act of the Legislature and of the Executive. Assuming that legislative veto is a valid
legislative act with the force of law, it cannot take effect without such presentment even if approved by both
chambers of Congress.
In sum, two steps are required before a bill becomes a law. First, it must be approved by both Houses of
Congress.54 Second, it must be presented to and approved by the President. 55 As summarized by Justice
Isagani Cruz56 and Fr. Joaquin G. Bernas, S.J.57, the following is the procedure for the approval of bills:
A bill is introduced by any member of the House of Representatives or the Senate except for some
measures that must originate only in the former chamber.
The first reading involves only a reading of the number and title of the measure and its referral by
the Senate President or the Speaker to the proper committee for study.
The bill may be "killed" in the committee or it may be recommended for approval, with or without
amendments, sometimes after public hearings are first held thereon. If there are other bills of the
same nature or purpose, they may all be consolidated into one bill under common authorship or as
a committee bill.
Once reported out, the bill shall be calendared for second reading. It is at this stage that the bill is
read in its entirety, scrutinized, debated upon and amended when desired. The second reading is
the most important stage in the passage of a bill.
The bill as approved on second reading is printed in its final form and copies thereof are distributed
at least three days before the third reading. On the third reading, the members merely register their
votes and explain them if they are allowed by the rules. No further debate is allowed.
Once the bill passes third reading, it is sent to the other chamber, where it will also undergo the
three readings. If there are differences between the versions approved by the two chambers, a
conference committee58 representing both Houses will draft a compromise measure that if ratified
by the Senate and the House of Representatives will then be submitted to the President for his
consideration.

The bill is enrolled when printed as finally approved by the Congress, thereafter authenticated with
the signatures of the Senate President, the Speaker, and the Secretaries of their respective
chambers59
The Presidents role in law-making.
The final step is submission to the President for approval. Once approved, it takes effect as law
after the required publication.60
Where Congress delegates the formulation of rules to implement the law it has enacted pursuant to sufficient
standards established in the said law, the law must be complete in all its essential terms and conditions when
it leaves the hands of the legislature. And it may be deemed to have left the hands of the legislature when it
becomes effective because it is only upon effectivity of the statute that legal rights and obligations become
available to those entitled by the language of the statute. Subject to the indispensable requisite of publication
under the due process clause,61 the determination as to when a law takes effect is wholly the prerogative of
Congress.62 As such, it is only upon its effectivity that a law may be executed and the executive branch
acquires the duties and powers to execute the said law. Before that point, the role of the executive branch,
particularly of the President, is limited to approving or vetoing the law.63
From the moment the law becomes effective, any provision of law that empowers Congress or any of its
members to play any role in the implementation or enforcement of the law violates the principle of separation
of powers and is thus unconstitutional. Under this principle, a provision that requires Congress or its members
to approve the implementing rules of a law after it has already taken effect shall be unconstitutional, as is a
provision that allows Congress or its members to overturn any directive or ruling made by the members of the
executive branch charged with the implementation of the law.
Following this rationale, Section 12 of RA 9335 should be struck down as unconstitutional. While there may be
similar provisions of other laws that may be invalidated for failure to pass this standard, the Court refrains from
invalidating them wholesale but will do so at the proper time when an appropriate case assailing those
provisions is brought before us.64
The next question to be resolved is: what is the effect of the unconstitutionality of Section 12 of RA 9335 on
the other provisions of the law? Will it render the entire law unconstitutional? No.
Section 13 of RA 9335 provides:
SEC. 13. Separability Clause. If any provision of this Act is declared invalid by a competent court,
the remainder of this Act or any provision not affected by such declaration of invalidity shall remain
in force and effect.
In Tatad v. Secretary of the Department of Energy,65 the Court laid down the following rules:
The general rule is that where part of a statute is void as repugnant to the Constitution, while
another part is valid, the valid portion, if separable from the invalid, may stand and be enforced.
The presence of a separability clause in a statute creates the presumption that the legislature
intended separability, rather than complete nullity of the statute. To justify this result, the valid
portion must be so far independent of the invalid portion that it is fair to presume that the
legislature would have enacted it by itself if it had supposed that it could not constitutionally enact
the other. Enough must remain to make a complete, intelligible and valid statute, which carries out
the legislative intent. x x x
The exception to the general rule is that when the parts of a statute are so mutually dependent and
connected, as conditions, considerations, inducements, or compensations for each other, as to
warrant a belief that the legislature intended them as a whole, the nullity of one part will vitiate the
rest. In making the parts of the statute dependent, conditional, or connected with one another, the
legislature intended the statute to be carried out as a whole and would not have enacted it if one
part is void, in which case if some parts are unconstitutional, all the other provisions thus
dependent, conditional, or connected must fall with them.

29

The separability clause of RA 9335 reveals the intention of the legislature to isolate and detach any invalid
provision from the other provisions so that the latter may continue in force and effect. The valid portions can
stand independently of the invalid section. Without Section 12, the remaining provisions still constitute a
complete, intelligible and valid law which carries out the legislative intent to optimize the revenue-generation
capability and collection of the BIR and the BOC by providing for a system of rewards and sanctions through
the Rewards and Incentives Fund and a Revenue Performance Evaluation Board.
To be effective, administrative rules and regulations must be published in full if their purpose is to enforce or
implement existing law pursuant to a valid delegation. The IRR of RA 9335 were published on May 30, 2006 in
two newspapers of general circulation66 and became effective 15 days thereafter.67 Until and unless the
contrary is shown, the IRR are presumed valid and effective even without the approval of the Joint
Congressional Oversight Committee.
WHEREFORE, the petition is hereby PARTIALLY GRANTED. Section 12 of RA 9335 creating a Joint
Congressional Oversight Committee to approve the implementing rules and regulations of the law is
declared UNCONSTITUTIONAL and therefore NULL and VOID. The constitutionality of the remaining
provisions of RA 9335 is UPHELD. Pursuant to Section 13 of RA 9335, the rest of the provisions remain in
force and effect.

AMADO EUROPA, MERCEDITA REYES, CONCHITA

ABARCAR, LUCIO ABERIN, BIENVENIDO BIONG,
SOLOMON CELIZ, WILFREDO CORNEL, TOMAS
FORIO, ROGELIO JUNTERIAL, JAIME PERALTA,
PILAR
RILLAS,
WILFREDO
SAGUN,
JESUS
SUGUITAN, LUIS TORRES, JOSE VERSOZA AND ALL
THE OTHER CONCERNED INCUMBENT AND
RETIRED EMPLOYEES OF THE SOCIAL SECURITY
SYSTEM v. SOCIAL SECURITY SYSTEM***
CONSUELO A. TAGARO, REYNALDO S. CALLANO,
AIDA A. MARTINEZ, PRISCILLA P. COSTES, RICELI C.
MENDOZA, ARISTON CALVO, SAMSON L. MOLAO,
MANUEL SABUTAN, VILMA GONZALES, RUTH C.
MAPANAO, NELSON M. BELGIRA, JESUS ANTONIO
G. DERIJE v. UNIVERSITY OF SOUTHERN
MINDANAO***
CONFEDERATION OF INDEPENDENT UNIONS IN THE
PUBLIC SECTOR (CIU)

SO ORDERED.

ESTHER I. ABADIANO AND OTHER FORTY ONE

THOUSAND INDIVIDUAL TEACHERS INTERVENORS

VICTORIA C. GUTIERREZ, G.R. No. 153266

JOEL R. PEREZ, ARACELI L.
YAMBOT, CORAZON F. SORIANO,
LORNA
P.
TAMOR,
ROMEO S.
CONSIGNADO, DIVINA R. SULIT,
ESTRELITA F. IRESARE, ROSALINDA
L. ALPAY, AUREA L. ILAGAN AND
ALL THE OTHER CONCERNED
EMPLOYEES OF THE OFFICE OF
THE SOLICITOR GENERAL,
Petitioners, Present:
Puno, C.J.,
Carpio,
Corona,

ELPIDIO F. FERRER, MARIKINA CITY FEDERATION

OF
PUBLIC
SCHOOL
TEACHERS,
INC.,
REPRESENTED BY ITS PRESIDENT ELPIDIO F.
FERRER, AND ALL OTHER INDIVIDUAL PUBLIC
SCHOOL
TEACHERS
IN
CENTRAL
LUZON,
NORTHERN
LUZON,
SOUTHERN
TAGALOG,
NATIONAL
CENTRAL
REGION,
CARR
AND
MINDANAO REPRESENTED BY THEIR RESPECTIVE
ATTORNEYS-IN-FACT, ATTORNEYS DANTE ILAYA
AND VIRGINIA SUAREZ-PINLAC AND ACTION AND
SOLIDARITY
FOR
THE
EMPOWERMENT
OF
TEACHERS (ASSERT), REPRESENTED BY ITS
PRESIDENT AMABLE TUIBEIO, ET AL.
Carpio Morales,

Velasco, Jr.,
Nachura,
- versus - Leonardo-De Castro,
Brion,
Peralta,
Bersamin,
Del Castillo,
Abad,
Villarama, Jr.,
Perez, and
Mendoza, JJ.
DEPARTMENT
OF
BUDGET
AND
MANAGEMENT, HONORABLE SECRETARY
EMILIA T. BONCODIN AND DIRECTOR LUZ
M. CANTOR,
Respondents,

UNIVERSITY OF THE PHILIPPINES,

HARRIS M. SINOLINDING, KALANTONGAN P. AKIL,

DAUNDI B. BAKONG, TERESITA C. DE GUZMAN,
QUEENIE A. HABIBUN, JOSE T. MAUN, VIVIENLE P.
MARAGGUN, SAAVEDRA M. MANTIKAYAN, GIJIT C.
PARON, IRWIN R. QUINAIN, DATUMANONG O.
TAGITICAN AND HYDIE P. WONG, AND ALL OTHER
CONCERNED EMPLOYEES OF THE COTABATO
FOUNDATION
COLLEGE
OF
SCIENCE
AND
TECHNOLOGY (CFCST) v. COTABATO FOUNDATION
COLLEGE OF SCIENCE AND TECHNOLOGY AND
DEPARTMENT OF BUDGET AND MANAGEMENT***
FRANCISCA C. CASTRO, DARIO C. VARGAS, MA.
DEBBIE M. RESMA, RAMON P. CASIL, TERESITA C.
BUSADRE, CRISTINA V. MANALO, SAUL SAN RAMON,
ALEXIS R. REBURIANO, ROSALITO D. ROSA, DR.
FERNANDO C. JAVIER, DR. ROSEMARIE M. YAGUIE, DR.
GIL T. MAGBANUA, AND ALL OTHER CONCERNED
PUBLIC SCHOOL TEACHERS OF QUEZON CITY v.
DEPARTMENT OF BUDGET AND MANAGEMENT***
WILMA Q. NOBLEZA, ELEANOR M. CASTRO, JOSE B.
BUSTILLO, JR., ABELARDO E. DE GUZMAN, EDWIN F.
FABRIQUIER, ET AL. v. DBM SECRETARY ROMULO
NERI
AND
DEPARTMENT
OF
BUDGET
AND
MANAGEMENT***

30

- versus EVA VALDEZ FERIA, WILHELMINA BALDO, ROSE

MARIE L. YCASA, GLORIA G. IGNACIO AND HJI. AKMAD
A. ALSAD AND OTHER TWELVE THOUSAND FIVE
HUNDRED INDIVIDUAL TEACHERS
BUREAU
OF
PLANT
INDUSTRY
EMPLOYEES
ASSOCIATION, MARY ANN GUERRERO, ET AL.
Intervenors.
x ------------------------------------------------------------ x

ESTRELLITA C. AMPONIN, JUDITH G.R. No. 159007

A. CUDAL, ROMEO A. PAGALAN,
MARISSA F. PARIAS, AND RAYMOND F.
FLORES, ET AL.,
Petitioners,
- versus COMMISSION ON AUDIT, GUILERMO N.
CARAGUE,
IN
HIS
CAPACITY
AS
CHAIRMAN, RAUL C. FLORES, IN HIS
CAPACITY
AS
COMMISSIONER,
COMMISSION ON AUDIT, AND EMMANUEL
M. DALMAN, IN HIS CAPACITY AS
COMMISSIONER, COMMISSION ON AUDIT,
Respondents.

DEPARTMENT
OF
BUDGET
AND
MANAGEMENT
AND
HONORABLE
SECRETARY ROMULO NERI***,
Respondents.
x ------------------------------------------------- x
NATIONAL HOUSING AUTHORITY, G.R. No. 172713
Petitioner,
- versus EPIFANIO
P.
RECANA,
MERCEDES
AMURAO,
ERASMO
APOSTOL,
FLORENDO ASUNCION,
FIORELLO
JOSEFINA BALTAZAR, ET AL.,
Respondents.
x ------------------------------------------------- x
INSURANCE COMMISSION OFFICERS G.R. No. 173119
AND EMPLOYEES, REPRESENTED BY
INSURANCE COMMISSION EMPLOYEES
WELFARE ASSOCIATION (ICEWA), ET AL.,
Petitioners,
- versus DEPARTMENT
OF
BUDGET
AND
MANAGEMENT AND/OR
HONORABLE
SECRETARY ROLANDO G. ANDAYA, JR.,
Respondents.

x -------------------------------------------------- x
x ------------------------------------------------- x
AUGUSTO R. NIEVES, BONIFACIO G.R. No. 159029
H. ATIVO, TARCELA P. DETERA, NILDA G.
CIELO, ANTHONY M. BRAVO, MARIA
LOURDES G. BARROZO, ANTONIO E.
FUENTES, ALFREDO D. DONOR, RICO B.
NAVA, SR., DOLORES C. HUIDEM AND ALL
THE OTHER CONCERNED EMPLOYEES
OF THE SORSOGON STATE COLLEGE,
Petitioners,
- versus DEPARTMENT
OF
BUDGET
AND
MANAGEMENT
AND
HONORABLE
SECRETARY EMILIA T. BONCODIN,
Respondents.
x ------------------------------------------------- x
KAPISANAN NG MGA MANGGAGAWA G.R. No. 170084
SA
BUREAU
OF
AGRICULTURAL
STATISTICS (KMB), EVELYN C. TIDON,
RIPOL O. ABALOS, BEATRIZ L. HUBILLA,
MA. CHERYL J. TAJONERA, LOLITA DE
HERNANDEZ, FLORA M. MABAMBA,
DELILAH
G.
BASSIG
AND
ALL
CONCERNED INCUMBENT AND RETIRED
EMPLOYEES OF THE BUREAU OF
AGRICULTURAL
STATISTICS,
DEPARTMENT OF AGRICULTURE,
Petitioners,

FIBER INDUSTRY DEVELOPMENT G.R. No. 176477

AUTHORITY EMPLOYEES ASSOCIATION
(FIDAEA), REMEDIOS V.J. ABGONA,
CELERINA
T.
HILARIO,
QUIRINO
U. SANTOS,
GRACE
AURORA
F.
PASTORES, RHISA V. PEGENIA, ET AL.,
Petitioners,
- versus DEPARTMENT
OF
BUDGET
AND
MANAGEMENT AND/OR
HONORABLE
SECRETARY ROLANDO G. ANDAYA, JR.***,
Respondents.
x ------------------------------------------------- x
BUREAU OF ANIMAL INDUSTRY G.R. No. 177990
EMPLOYEES
ASSOCIATION
(BAIEA),
LORY
C.
BANGALISAN,
EDGARDO
VINCULADO, LORENZO J. ABARCA,
ROLANDO M. VASQUEZ, ALFREDO B.
DUCUSIN, ET AL.,
Petitioners,

31

- versus -

already deemed integrated in the basic salary were unauthorized. The Courts ruling in subsequent cases
involving government-owned or controlled corporations followed the De Jesus ruling.

DEPARTMENT
OF
BUDGET
AND
MANAGEMENT AND/OR
HONORABLE
SECRETARY ROLANDO G. ANDAYA, JR.***,
Respondents.
x ------------------------------------------------- x
RE: REQUEST OF SANDIGANBAYAN A.M. No. 06-4-02-SB
FOR AUTHORITY TO USE THEIR SAVINGS
TO PAY THEIR COLA DIFFERENTIAL FROM
JULY 1, 1989 TO MARCH 16, 1999,
Promulgated:
March 18, 2010
x ---------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
These consolidated cases question the inclusion of certain allowances and fringe benefits into the
standardized salary rates for offices in the national government, state universities and colleges, and local
government units as required by the Compensation and Position Classification Act of 1989 and implemented
through the challenged National Compensation Circular 59 (NCC 59).
The Facts and the Case
Congress enacted in 1989 Republic Act (R.A.) 6758, called the Compensation and Position
Classification Act of 1989 to rationalize the compensation of government employees. Its Section 12 directed
the consolidation of allowances and additional compensation already being enjoyed by employees into their
standardized salary rates. But it exempted certain additional compensations that the employees may be
receiving from such consolidation. Thus:
Section 12. Consolidation of Allowances and Compensation. -- All
allowances, except for representation and transportation allowances; clothing
and laundry allowances; subsistence allowance of marine officers and crew on
board government vessels and hospital personnel; hazard pay; allowances of
foreign service personnel stationed abroad; and such other additional
compensation not otherwise specified herein as may be determined by the DBM,
shall be deemed included in the standardized salary rates herein prescribed.
Such other additional compensation, whether in cash or in kind, being received
by incumbents only as of July 1, 1989 not integrated into the standardized salary
rates shall continue to be authorized.
Pursuant to the above, the Department of Budget and Management (DBM) issued NCC 59 dated
September 30, 1989,[1] covering the offices of the national government, state universities and colleges, and
local government units. NCC 59 enumerated the specific allowances and additional compensations which
were deemed integrated in the basic salaries and these included the Cost of Living Allowance (COLA) and
Inflation Connected Allowance (ICA). The DBM re-issued and published NCC 59 on May 3, 2004. [2]
The DBM also issued Corporate Compensation Circular (CCC) 10 dated October 2, 1989,
covering all government-owned or controlled corporations and government financial institutions. The DBM reissued this circular on February 15, 1999 [4] and published it on March 16, 1999. Accordingly, the Commission
on Audit (COA) disallowed the payments of honoraria and other allowances which were deemed integrated
into the standardized salary rates. Employees of government-owned or controlled corporations questioned the
validity of CCC 10 due to its non-publication. In De Jesus v. Commission on Audit,[5] this Court declared CCC
10 ineffective because of such non-publication. Until then, it ordered the COA to pass on audit the employees
honoraria which they were receiving prior to the effectivity of R.A. 6758.
[3]

Meanwhile, the DBM also issued Budget Circular 2001-03 dated November 12, 2001,
clarifyingthat only the exempt allowances under Section 12 of R.A. 6758 may continue to be granted the
employees; all others were deemed integrated in the standardized salary rates. Thus, the payment of
allowances and compensation such as COLA, amelioration allowance, and ICA, among others, which were

On May 16, 2002 employees of the Office of the Solicitor General filed a petition
for certiorari andmandamus in G.R. 153266, questioning the propriety of integrating their COLA into their
standardized salary rates. Employees of other offices of the national government followed suit. In addition,
petitioners in G.R. 159007 questioned the disallowance of the allowances and fringe benefits that the
COA auditing personnel assigned to the Government Service Insurance System (GSIS) used to
get. Petitioners in G.R. 173119 questioned the disallowance of the ICA that used to be paid to the officials and
employees of the Insurance Commission.
The Court caused the consolidation of the petitions and treated them as a class suit for all
government employees, excluding the employees of government-owned or controlled corporations and
government financial institutions. [7]
On October 26, 2005 the DBM issued National Budget Circular 2005-502 [8] which provided that all
Supreme Court rulings on the integration of allowances, including COLA, of government employees under
R.A. 6758 applied only to specific government-owned or controlled corporations since the consolidated cases
covering the national government employees are still pending with this Court.Consequently, the payment of
allowances and other benefits to them, such as COLA and ICA, remained prohibited until otherwise provided
by law or ruled by this Court. The circular further said that all agency heads and other responsible officials and
employees found to have authorized the grant of COLA and other allowances and benefits already integrated
in the basic salary shall be personally held liable for such payment.
The Issues Presented
The common issues presented in these consolidated cases are:
1. Whether or not the COLA should be deemed integrated into the standardized salary rates of the
concerned government employees by virtue of Section 12 of R.A. 6758;
2. Whether or not the ICA may still be paid to officials and employees of the Insurance
Commission;
3. Whether or not the GSIS may still pay the allowances and fringe benefits to COA auditing
personnel assigned to it;
4. Whether or not the non-publication of NCC 59 dated September 30, 1989 in the Official Gazette
or newspaper of general circulation nullifies the integration of the COLA into the standardized salary rates; and
5. Whether or not the grant of COLA to military and police personnel to the exclusion of other
government employees violates the equal protection clause.
The Courts Ruling
One. Petitioners espouse the common theory that the DBM needs to promulgate rules and
regulations before the COLA that they were getting prior to the passage of R.A. 6758 can be deemed
integrated in their standardized salary rates. Respondent DBM counters that R.A. 6758 already specified the
allowances and benefits that were not to be integrated in the new salary rates. All other allowances,
DBM adds, such as COLA, are deemed integrated into those salary rates.
At the heart of the present controversy is Section 12 of R.A. 6758 which is quoted anew for clarity:
Section 12. Consolidation of Allowances and Compensation. -- All
allowances, except for representation and transportation allowances; clothing
and laundry allowances; subsistence allowance of marine officers and crew on
board government vessels and hospital personnel; hazard pay; allowances of
foreign service personnel stationed abroad; and such other additional
compensation not otherwise specified herein as may be determined by the DBM,
shall be deemed included in the standardized salary rates herein prescribed.
Such other additional compensation, whether in cash or in kind, being received
by incumbents only as of July 1, 1989 not integrated into the standardized salary
rates shall continue to be authorized.

[6]

As will be noted from the first sentence above, all allowances were deemed integrated into the
standardized salary rates except the following:

32

(1) representation and transportation allowances;

(2) clothing and laundry allowances;
(3) subsistence allowances of marine officers and crew on board government vessels;
(4) subsistence allowances of hospital personnel;
(5) hazard pay;
(6) allowances of foreign service personnel stationed abroad; and
(7) such other additional compensation not otherwise specified in Section 12 as may be
determined by the DBM.
But, while the provision enumerated certain exclusions, it also authorized the DBM to identify such
other additional compensation that may be granted over and above the standardized salary rates. InPhilippine
Ports Authority Employees Hired After July 1, 1989 v. Commission on Audit,[9] the Court has ruled that while
Section 12 could be considered self-executing in regard to items (1) to (6), it was not so in regard to item
(7). The DBM still needed to amplify item (7) since one cannot simply assume what other allowances were
excluded from the standardized salary rates. It was only upon the issuance and effectivityof the corresponding
implementing rules and regulations that item (7) could be deemed legally completed.
Delegated rule-making is a practical necessity in modern governance because of the increasing
complexity and variety of public functions. Congress has endowed administrative agencies like respondent
DBM with the power to make rules and regulations to implement a given legislation and effectuate its policies.
[10]
Such power is, however, necessarily limited to what the law provides. Implementing rules and regulations
cannot extend the law or expand its coverage, as the power to amend or repeal a statute belongs to the
legislature. Administrative agencies implement the broad policies laid down in a law by filling in only its
details. The regulations must be germane to the objectives and purposes of the law and must conform to the
standards prescribed by law.[11]
In this case, the DBM promulgated NCC 59 [and CCC 10]. But, instead of identifying some of the additional
exclusions that Section 12 of R.A. 6758 permits it to make, the DBM made a list of what allowances and
benefits are deemed integrated into the standardized salary rates. More specifically, NCC 59 identified
the following allowances/additional compensation that are deemed integrated:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)

(12)
(13)

(14)

Cost of Living Allowance (COLA);

Inflation connected allowance;
Living Allowance;
Emergency Allowance;
Additional Compensation of Public Health Nurses assigned to public
health nursing;
Additional Compensation of Rural Health Physicians;
Additional Compensation of Nurses in Malacaang Clinic;
Nurses Allowance in the Air Transportation Office;
Assignment Allowance of School Superintendents;
Post allowance of Postal Service Office employees;
Honoraria/allowances which are regularly given except the following:
a.
those for teaching overload;
b.
in lieu of overtime pay;
c.
for employees on detail with task forces/special projects;
d.
researchers,
experts
and
specialists
who
are
acknowledged authorities in their field of specialization;
e.
lecturers and resource persons;
f.
Municipal Treasurers deputized by the Bureau of Internal
Revenue to collect and remit internal revenue collections;
and
g.
Executive positions in State Universities and Colleges
filled by designation from among their faculty members.
Subsistence Allowance of employees except those authorized under
EO [Executive Order] 346 and uniformed personnel of the Armed
Forces of the Philippines and Integrated National Police;
Laundry Allowance of employees except those hospital/sanitaria
personnel who attend directly to patients and who by the nature of
their duties are required to wear uniforms, prison guards and
uniformed personnel of the Armed Forces of the Philippines and
Integrated National Police; and
Incentive allowance/fee/pay except those authorized under the General
Appropriations Act and Section 33 of P.D. 807.

The drawing up of the above list is consistent with Section 12 above. R.A. 6758 did not prohibit the
DBM from identifying for the purpose of implementation what fell into the class of all allowances. With respect
to what employees benefits fell outside the term apart from those that the law specified, the DBM, said this
Court in a case,[12] needed to promulgate rules and regulations identifying those excluded benefits. This leads
to the inevitable conclusion that until and unless the DBM issues such rules and regulations, the enumerated
exclusions in items (1) to (6) remain exclusive. Thus so, not being an enumerated exclusion, COLA is deemed
already incorporated in the standardized salary rates of government employees under the general rule of
integration.
In any event, the Court finds the inclusion of COLA in the standardized salary rates
proper. InNational Tobacco Administration v. Commission on Audit,[13] the Court ruled that the enumerated
fringe benefits in items (1) to (6) have one thing in commonthey belong to one category of privilege called
allowances which are usually granted to officials and employees of the government to defray or reimburse the
expenses incurred in the performance of their official functions. Consequently, if these allowances are
consolidated with the standardized salary rates, then the government official or employee will be compelled to
spend his personal funds in attending to his duties. On the other hand, item (7) is a catch-all proviso for
benefits in the nature of allowances similar to those enumerated. [14]
Clearly, COLA is not in the nature of an allowance intended to reimburse expenses incurred by officials and
employees of the government in the performance of their official functions. It is not payment in consideration of
the fulfillment of official duty.[15] As defined, cost of living refers to the level of prices relating to a range of
everyday items[16] or the cost of purchasing those goods and services which are included in an accepted
standard level of consumption.[17] Based on this premise, COLA is a benefit intended to cover increases in the
cost of living. Thus, it is and should be integrated into the standardized salary rates.
Two. Petitioning officials and employees of the Insurance Commission question the disallowance
of their ICA on the ground that it is a benefit similar to the educational assistance granted by the Court
inNational Tobacco Administration[18] based on the second sentence of Section 12 of R.A. 6758 that reads:
Such other additional compensation, whether in cash or in kind, being received
by incumbents only as of July 1, 1989 not integrated into the standardized salary
rates shall continue to be authorized.
In National Tobacco Administration, the Court interpreted this provision as referring to benefits in
the nature of financial assistance, or a bonus or other payment made to employees in addition to guaranteed
hourly wages, as contradistinguished from the allowance in the first sentence, which cannot, strictly speaking,
be treated as a bonus or additional income. In financial assistance, reimbursement is not necessary, while in
the case of allowance, reimbursement is required. [19]
To be entitled to the financial assistance under this provision, the following requisites must concur:
(1) the recipients were incumbents when R.A. 6758 took effect on July 1, 1989; (2) they were in fact, receiving
the same, at the time; and (3) such additional compensation is distinct and separate from the excepted
allowances under CCC 10, as it is not integrated into the standardized salary rates. [20]
In this case, ICA, like COLA, falls under the general rule of integration. The DBM specifically
identified it as an allowance or additional compensation integrated into the standardized salary rates. By its
very nature, ICA is granted due to inflation and upon determination that the current salary of officials and
employees of the Insurance Commission is insufficient to address the problem. The DBM determines whether
a need for ICA exists and the fund from which it will be taken. The Insurance Commission cannot, on its own,
determine what allowances are necessary and then grant them to its officials and employees without the
approval of the DBM.
Moreover, ICA does not qualify under the second sentence of Section 12 of R.A. 6758 since the
employees failed to show that they were actually receiving it as of June 30, 1989 or immediately prior to the
implementation of R.A. 6758. The Commissioner of the Insurance Commission requested for authority to
grant ICA from the DBM for the years 1981 [21] and 1984[22] only. There is no evidence that the ICAwere paid in
subsequent years. In the absence of a subsequent authorization granting or restoring ICA to the officials and
employees of the Insurance Commission, there can be no valid legal basis for its continued grant from July 1,
1986.
Three. Petitioners COA auditing personnel assigned to the GSIS question the disallowance of
theirallowances and fringe benefits based on the allowances given to GSIS personnel, namely:
5.6. Payment of other allowances/fringe benefits and all other forms of
compensation granted on top of basic salary, whether in cash or in
kind, x x x shall be discontinued effective November 1, 1989. Payment made for

33

such allowances/fringe benefits after said date shall be considered as illegal

disbursement of public funds.
They alleged that since CCC 10 was declared ineffective, the disallowance should be lifted until the issuance
was published on March 16, 1999.
But, although petitioners alleged that the subject benefits were withheld from them on the basis of
CCC 10, it is clear that the benefits were actually withheld from them on the basis of Section 18 of R.A. 6758,
which reads:
Section 18. Additional Compensation of Commission on Audit
Personnel and of Other Agencies. - In order to preserve the independence and
integrity of the Commission on Audit (COA), its officials and employees are
prohibited from receiving salaries, honoraria, bonuses, allowances or other
emoluments from any government entity, local government unit, and
government-owned and controlled corporations, and government financial
institution, except those compensation paid directly by the COA out of its
appropriations and contributions.
Government entities, including government-owned or controlled
corporations including financial institutions and local government units are
hereby prohibited from assessing or billing other government entities,
government-owned or controlled corporations including financial institutions or
local government units for services rendered by its officials and employees as
part of their regular functions for purposes of paying additional compensation to
said officials and employees.
As aptly pointed out by the COA, Section 18 of R.A. 6758 was complete in itself and was operative
without the aid of any supplementary or enabling legislation. [23] The implementing rules and regulationswere
necessary only for those provisions, such as item (7) of Section 12, which requires further clarification and
interpretation. Thus, notwithstanding the initial non-publication of CCC 10, the disallowance of petitioners
allowances and fringe benefits as COA auditing personnel assigned to the GSIS was valid upon
the effectivity of R.A. 6758.
In Tejada v. Domingo,[24] this Court explained that COA personnel assigned to auditing units of
government-owned or controlled corporations or government financial institutions can receive only such
salaries, allowances or fringe benefits paid directly by the COA out of its appropriations and contributions.The
contributions referred to are the cost of audit services which did not include the extra emoluments or benefits,
such as bank equity pay, longevity pay, amelioration allowance, and meal allowance, which petitioners claim.
The COA is further barred from assessing or billing government-owned or controlled corporations and
government financial institutions for services rendered by its personnel as part of their regular audit functions
for purposes of paying additional compensation to such personnel.
In upholding the disallowance, the Court ruled in Villarea v. Commission on Audit[25] that valid
reasons exist to treat COA officials differently from other national government officials. The primary function of
an auditor is to prevent irregular, unnecessary, excessive or extravagant expenditures of government funds. To
be able to properly perform their constitutional mandate, COA officials need to be insulated from unwarranted
influences, so that they can act with independence and integrity.
Rightly so, the disallowance in this case is valid.
Four. Petitioners argue that since CCC 10 dated October 2, 1989 covering all government-owned
or controlled corporations and government financial institutions was ineffective until its re-issuance and
publication on March 16, 1999, its counterpart, NCC 59 dated September 30, 1989 covering the offices of the
national government, state universities and colleges, and local government units should also be regarded as
ineffective until its re-issuance and publication on May 3, 2004. Thus, the COLA should not be deemed
integrated into the standardized salary rates from 1989 to 2004. Respondents counter that the fact that NCC
59 was not published should not be considered as an obstacle to the integration of COLA into the
standardized salary rates. Accordingly, Budget Circular 2001-03, insofar as it reiterates NCC 59, should not be
treated as ineffective since it merely reaffirms the fact of consolidation of COLA into the employees salary as
mandated by Section 12 of R.A. 6758.
It is a settled rule that publication is required as a condition precedent to the effectivity of a law to
inform the public of its contents before their rights and interests are affected by the same. [26]Administrative
rules and regulations must also be published if their purpose is to enforce or implement existing law pursuant
also to a valid delegation.[27]

Nonetheless, as previously discussed, the integration of COLA into the standardized salary rates is
not dependent on the publication of CCC 10 and NCC 59. This benefit is deemed included in the standardized
salary rates of government employees since it falls under the general rule of integrationall allowances.
More importantly, the integration was not by mere legal fiction since it was factually integrated into
the employees salaries. Records show that the government employees were informed by their respective
offices of their new position titles and their corresponding salary grades when they were furnished with the
Notices of Position Allocation and Salary Adjustment (NPASA). The NPASA provided the breakdown of the
employees gross monthly salary as of June 30, 1989 and the composition of his standardized pay under R.A.
6758.[28] Notably, the COLA was considered part of the employees monthly income.
In truth, petitioners never really suffered any diminution in pay as a consequence of the
consolidation of COLA into their standardized salary rates. There is thus nothing in these cases which can be
the subject of a back pay since the amount corresponding to COLA was never withheld from petitioners in the
first place.[29]
Consequently, the non-publication of CCC 10 and NCC 59 in the Official Gazette or newspaper of
general circulation does not nullify the integration of COLA into the standardized salary rates upon
theeffectivity of R.A. 6758. As the Court has said in Philippine International Trading Corporation v. Commission
on Audit,[30] the validity of R.A. 6758 should not be made to depend on the validity of its implementing rules.
Five. Petitioners contend that the continued grant of COLA to military and police personnel under
CCC 10 and NCC 59 to the exclusion of other government employees violates the equal protection clause of
the Constitution.
But as respondents pointed out, while it may appear that petitioners are questioning the
constitutionality of these issuances, they are in fact attacking the very constitutionality of Section 11 of R.A.
6758. It is actually this provision which allows the uniformed personnel to continue receiving their COLA over
and above their basic pay, thus:
Section 11. Military and Police Personnel. - The base pay of uniformed
personnel of the Armed Forces of the Philippines and the Integrated National
Police shall be as prescribed in the salary schedule for these personnel in R.A.
6638 and R.A. 6648. The longevity pay of these personnel shall be as prescribed
under R.A. 6638, and R.A. 1134 as amended by R.A. 3725 and R.A. 6648:
Provided, however, That the longevity pay of uniformed personnel of the
Integrated National Police shall include those services rendered as uniformed
members of the police, jail and fire departments of the local government units
prior to the police integration.
All existing types of allowances authorized for uniformed personnel of
the Armed Forces of the Philippines and Integrated National Police such as cost
of living allowance, longevity pay, quarters allowance, subsistence allowance,
clothing allowance, hazard pay and other allowances shall continue to be
authorized.
Nothing is more settled than that the constitutionality of a statute cannot be attacked collaterally
because constitutionality issues must be pleaded directly and not collaterally.[31]
In any event, the Court is not persuaded that the continued grant of COLA to the uniformed
personnel to the exclusion of other national government officials run afoul the equal protection clause of the
Constitution. The fundamental right of equal protection of the laws is not absolute, but is subject to reasonable
classification. If the groupings are characterized by substantial distinctions that make real differences, one
class may be treated and regulated differently from another. The classification must also be germane to the
purpose of the law and must apply to all those belonging to the same class. [32]
To be valid and reasonable, the classification must satisfy the following requirements: (1) it must
rest on substantial distinctions; (2) it must be germane to the purpose of the law; (3) it must not be limited to
existing conditions only; and (4) it must apply equally to all members of the same class. [33]
It is clear from the first paragraph of Section 11 that Congress intended the uniformed personnel to
be continually governed by their respective compensation laws. Thus, the military is governed by R.A. 6638,
[34]
as amended by R.A. 9166[35] while the police is governed by R.A. 6648,[36] as amended by R.A. 6975.[37]
Certainly, there are valid reasons to treat the uniformed personnel differently from other national
government officials. Being in charged of the actual defense of the State and the maintenance of internal
peace and order, they are expected to be stationed virtually anywhere in the country. They are likely to be
assigned to a variety of low, moderate, and high-cost areas. Since their basic pay does not vary based on

34

location, the continued grant of COLA is intended to help them offset the effects of living in higher cost areas.
[38]

WHEREFORE, the Court GRANTS the petition in G.R. No. 172713 and DENIES the petitions in
G.R. 153266, 159007, 159029, 170084, 173119, 176477, 177990 and A.M. 06-4-02-SB.

A motion for reconsideration of the CTAs decision was filed, but was denied in a resolution dated July
26, 1995.[8] BLC then appealed the case to the Court of Appeals, which issued the aforementioned assailed
decision and resolution.[9] Hence, the present petition.
In seeking to reverse the denial of its claim for tax refund, BLC submits that the Court of Appeals and
the CTA erred in not ruling that Revenue Regulation 19-86 may be applied retroactively so as to allow BLCs
claim for a refund of P777,117.05.

SO ORDERED.

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

BPI LEASING CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS, COURT OF TAX
APPEAL AND COMMISSIONER OF INTERNAL REVENUE,respondents.

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

DECISION
AZCUNA, J.:
The present petition for review on certiorari assails the decision[1] of the Court of Appeals in CA-G.R. SP
No. 38223 and its subsequent resolution [2] denying the motion for reconsideration. The assailed decision and
resolution affirmed the decision of the Court of Tax Appeals (CTA) which denied petitioner BPI Leasing
Corporations (BLC) claim for tax refund in CTA Case No. 4252.
The facts are not disputed.
BLC is a corporation engaged in the business of leasing properties. [3] For the calendar year 1986, BLC
paid the Commissioner of Internal Revenue (CIR) a total of P1,139,041.49 representing 4% contractors
percentage tax then imposed by Section 205 of the National Internal Revenue Code (NIRC), based on its
gross rentals from equipment leasing for the said year amounting to P27,783,725.42.[4]
On November 10, 1986, the CIR issued Revenue Regulation 19-86. Section 6.2 thereof provided that
finance and leasing companies registered under Republic Act 5980 shall be subject to gross receipt tax of5%3%-1% on actual income earned. This means that companies registered under Republic Act 5980, such as
BLC, are not liable for contractors percentage tax under Section 205 but are, instead, subject to gross receipts
tax under Section 260 (now Section 122) of the NIRC. Since BLC had earlier paid the aforementioned
contractors percentage tax, it re-computed its tax liabilities under the gross receipts tax and arrived at the
amount of P361,924.44.
On April 11, 1988, BLC filed a claim for a refund with the CIR for the amount of P777,117.05,
representing the difference between the P1,139,041.49 it had paid as contractors percentage tax
and P361,924.44 it should have paid for gross receipts tax. [5] Four days later, to stop the running of the
prescriptive period for refunds, petitioner filed a petition for review with the CTA. [6]
In a decision dated May 13, 1994,[7] the CTA dismissed the petition and denied BLCs claim of
refund. The CTA held that Revenue Regulation 19-86, as amended, may only be applied prospectively such
that it only covers all leases written on or after January 1, 1987, as stated under Section 7 of said revenue
regulation:

In a resolution dated March 29, 2000,[10] the petition was given due course and the Court required the
parties to file their respective Memoranda. Upon submission of the Memoranda, the issues in this case were
delineated, as follows:[11]
WHETHER THE INSTANT PETITION FOR REVIEW ON CERTIORARI SUBSTANTIALLY COMPLIES WITH
SUPREME COURT CIRCULAR 28-91.
WHETHER REVENUE REGULATION 19-86, AS AMENDED, IS LEGISLATIVE OR INTERPRETATIVE IN
NATURE.
WHETHER REVENUE REGULATION 19-86, AS AMENDED, IS PROSPECTIVE OR RETROACTIVE IN ITS
APPLICATION.
WHETHER PETITIONER, AS FOUND BY THE COURT OF APPEALS, FAILED TO MEET THE QUANTUM
OF EVIDENCE REQUIRED IN REFUND CASES.
WHETHER PETITIONER, AS FOUND BY THE COURT OF APPEALS, IS ESTOPPED FROM CLAIMING ITS
PRESENT REFUND.
As to the first issue, the Court agrees with respondents contention that the petition should be dismissed
outright for failure to comply with Supreme Court Circular 28-91, now incorporated as Section 2 of Rule 42 of
the Rules of Court. The records plainly show, and this has not been denied by BLC, that the certification was
executed by counsel who has not been shown to have specific authority to sign the same for BLC.
In BA Savings Bank v. Sia,[12] it was held that the certificate of non-forum shopping may be signed, for
and on behalf of a corporation, by a specifically authorized lawyer who has personal knowledge of the facts
required to be disclosed in such document. This ruling, however, does not mean that any lawyer, acting on
behalf of the corporation he is representing, may routinely sign a certification of non-forum shopping. The
Court emphasizes that the lawyer must be specifically authorized in order validly to sign the certification.

Section 7. Effectivity These regulations shall take effect on January 1, 1987 and shall be applicable to all
leases written on or after the said date.

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

The CTA ruled that, since BLCs rental income was all received prior to 1986, it follows that this was
derived from lease transactions prior to January 1, 1987, and hence, not covered by the revenue regulation.

The records are bereft of the authority of BLCs counsel to institute the present petition and to sign the
certification of non-forum shopping. While said counsel may be the counsel of record for BLC, the

35

representation does not vest upon him the authority to execute the certification on behalf of his client. There
must be a resolution issued by the board of directors that specifically authorizes him to institute the petition
and execute the certification, for it is only then that his actions can be legally binding upon BLC.
BLC however insists that there was substantial compliance with SC Circular No. 28-91 because the
verification/certification was issued by a counsel who had full personal knowledge that no other petition or
action has been filed or is pending before any other tribunal. According to BLC, said counsels law firm has
handled this case from the very beginning and could very well attest and/or certify to the absence of an
instituted or pending case involving the same or similar issues.
The argument of substantial
in Mendigorin v.Cabantog:[14]

compliance

deserves

no

merit,

given

the

Courts

ruling

The CA held that there was substantial compliance with the Rules of Court, citing Dimagiba vs. Montalvo, Jr.
[202 SCRA 641] to the effect that a lawyer who assumes responsibility for a client's cause has the duty to
know the entire history of the case, especially if any litigation is commenced. This view, however, no longer
holds authoritative value in the light of Digital Microwave Corporation vs. CA [328 SCRA 286], where it was
held that the reason the certification against forum shopping is required to be accomplished by petitioner
himself is that only the petitioner himself has actual knowledge of whether or not he has initiated similar
actions or proceedings in other courts or tribunals. Even counsel of record may be unaware of such fact. To
our mind, this view is more in accord with the intent and purpose of Revised Circular No. 28-91.
Clearly, therefore, the present petition lacks the proper certification as strictly required by jurisprudence
and the Rules of Court.
Even if the Court were to ignore the aforesaid procedural infirmity, a perusal of the arguments raised in
the petition indicates that a resolution on the merits would nevertheless yield the same outcome.
BLC attempts to convince the Court that Revenue Regulation 19-86 is legislative rather than
interpretative in character and hence, should retroact to the date of effectivity of the law it seeks to interpret.
Administrative issuances may be distinguished according to their nature and substance: legislative and
interpretative. A legislative rule is in the matter of subordinate legislation, designed to implement a primary
legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide
guidelines to the law which the administrative agency is in charge of enforcing. [15]

render less cumbersome the implementation of the law and substantially increases the burden of those
governed, it behooves the agency to accord at least to those directly affected a chance to be heard and,
thereafter, to be duly informed, before the issuance is given the force and effect of law. In Lhuillier and Fortune
Tobacco, the Court invalidated the revenue memoranda concerned because the same increased the tax
liabilities of the affected taxpayers without affording them due process. In this case, Revenue Regulation 19-86
would be beneficial to the taxpayers as they are subjected to lesser taxes. Petitioner, in fact, is invoking
Revenue Regulation 19-86 as the very basis of its claim for refund. If it were invalid, then petitioner all the
more has no right to a refund.
After upholding the validity of Revenue Regulation 19-86, the Court now resolves whether its
application should be prospective or retroactive.
The principle is well entrenched that statutes, including administrative rules and regulations, operate
prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary
implication.[19] In the present case, there is no indication that the revenue regulation may operate
retroactively.Furthermore, there is an express provision stating that it shall take effect on January 1, 1987, and
that it shall be applicable to all leases written on or after the said date. Being clear on its prospective
application, it must be given its literal meaning and applied without further interpretation. [20] Thus, BLC is not in
a position to invoke the provisions of Revenue Regulation 19-86 for lease rentals it received prior to January 1,
1987.
It is also apt to add that tax refunds are in the nature of tax exemptions. As such, these are regarded as
in derogation of sovereign authority and are to be strictly construed against the person or entity claiming the
exemption. The burden of proof is upon him who claims the exemption and he must be able to justify his claim
by the clearest grant under Constitutional or statutory law, and he cannot be permitted to rely upon vague
implications.[21] Nothing that BLC has raised justifies a tax refund.
It is not necessary to rule on the remaining issues.
WHEREFORE, the petition for review is hereby DENIED, and the assailed decision and resolution of
the Court of Appeals are AFFIRMED. No pronouncement as to costs.
SO ORDERED.

THE BOARD OF TRUSTEES

OF THE GOVERNMENT SERVICE
INSURANCE SYSTEM and
WINSTON F. GARCIA, in his capacity
as GSIS President and General
Manager,
Petitioners,

The Court finds the questioned revenue regulation to be legislative in nature. Section 1 of Revenue
Regulation 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC. Section 277
(now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules
and regulations for the effective enforcement of the provisions of the NIRC. In Paper Industries Corporation of
the Philippines v. Court of Appeals,[16] the Court recognized that the application of Section 277 calls for none
other than the exercise of quasi-legislative or rule-making authority. Verily, it cannot be disputed that Revenue
Regulation 19-86 was issued pursuant to the rule-making power of the Secretary of Finance, thus making it
legislative, and not interpretative as alleged by BLC.
BLC further posits that, assuming the revenue regulation is legislative in nature, it is invalid for want of
due process as no prior notice, publication and public hearing attended the issuance thereof. To support its
view, BLC cited CIR v. Fortune Tobacco, et al.,[17] wherein the Court nullified a revenue memorandum circular
which reclassified certain cigarettes and subjected them to a higher tax rate, holding it invalid for lack of notice,
publication and public hearing.

[18]

The doctrine enunciated in Fortune Tobacco, and reiterated in CIR v. Michel J. Lhuillier Pawnshop, Inc.,
is that when an administrative rule goes beyond merely providing for the means that can facilitate or

- versus ALBERT M. VELASCO and MARIO I.

MOLINA,
Respondents.

G.R. No. 170463

Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
Promulgated:
February 2, 2011

x--------------------------------------------------x
DECISION
CARPIO, J.:
The Case

36

This is a petition for review1 of the 24 September 2004 Decision2 and the 7 October 2005 Order 3 of the
Regional Trial Court of Manila, Branch 19 (trial court), in Civil Case No. 03-108389. In its 24 September 2004
Decision, the trial court granted respondents Albert M. Velasco 4 and Mario I. Molinas5 (respondents) petition
for prohibition. In its 7 October 2005 Order, the trial court denied petitioners Board of Trustees of the
Government Service Insurance System (GSIS) and Winston F. Garcias (petitioners) motion for
reconsideration.
The Facts
On 23 May 2002, petitioners charged respondents administratively with grave misconduct and placed them
under preventive suspension for 90 days.6 Respondents were charged for their alleged participation in the
demonstration held by some GSIS employees denouncing the alleged corruption in the GSIS and calling for
the ouster of its president and general manager, petitioner Winston F. Garcia. 7

WHEREFORE, the petition is GRANTED and respondents Board Resolution No. 197 of August 27,
2003 and No. 372 of November 21, 2000 are hereby declared null and void. The writ of preliminary
injunction issued by this Court is hereby made permanent.
SO ORDERED.20
Petitioners filed a motion for reconsideration. In its 7 October 2005 Order, the trial court denied petitioners
motion.
Hence, this petition.

The Ruling of the Trial Court

In a letter dated 4 April 2003, respondent Mario I. Molina (respondent Molina) requested GSIS Senior Vice
President Concepcion L. Madarang (SVP Madarang) for the implementation of his step increment. 8 On 22 April
2003, SVP Madarang denied the request citing GSIS Board Resolution No. 372 (Resolution No. 372) 9issued
by petitioner Board of Trustees of the GSIS (petitioner GSIS Board) which approved the new GSIS salary
structure, its implementing rules and regulations, and the adoption of the supplemental guidelines on step
increment and promotion.10 The pertinent provision of Resolution No. 372 provides:
A. Step Increment
xxxx
III. Specific Rules:
x x xx
3. The step increment adjustment of an employee who is on preventive suspension shall be
withheld until such time that a decision on the case has been rendered. x x x x
Respondents also asked that they be allowed to avail of the employee privileges under GSIS Board
Resolution No. 306 (Resolution No. 306) approving Christmas raffle benefits for all GSIS officials and
employees effective year 2002.11 Respondents request was again denied because of their pending
administrative case.

On the issue of jurisdiction, the trial court said it can take cognizance of the petition because the territorial area
referred to in Section 4, Rule 65 of the Rules of Court does not necessarily delimit to a particular locality but
rather to the judicial region where the office or agency is situated so that the prohibitive writ can be enforced.
On the merits of the case, the trial court ruled that respondents were entitled to all employee benefits as
provided under the law by reason of their employment. According to the trial court, to deny respondents these
employee benefits for the reason alone that they have pending administrative cases is unjustified since it
would deprive them of what is legally due them without due process of law, inflict punishment on them without
hearing, and violate their right to be presumed innocent.
The trial court also found that the assailed resolutions were not registered with the UP Law Center, per
certification of the Office of the National Administrative Register (ONAR). 21 Since they were not registered, the
trial court declared that the assailed resolutions have not become effective citing Sections 3 and 4, Chapter 2,
Book 7 of the Revised Administrative Code of 1987.22
The Issues
Petitioners raise the following issues:

On 27 August 2003, petitioner GSIS Board issued Board Resolution No. 197 (Resolution No. 197) approving
the following policy recommendations:
B. On the disqualification from promotion of an employee with a pending administrative case
To adopt the policy that an employee with pending administrative case shall be disqualified from
the following during the pendency of the case:
a) Promotion;
b) Step Increment;
c) Performance-Based Bonus; and
d) Other benefits and privileges.
On 14 November 2003, respondents filed before the trial court a petition for prohibition with prayer for a writ of
preliminary injunction.12 Respondents claimed that they were denied the benefits which GSIS employees were
entitled under Resolution No. 306. Respondents also sought to restrain and prohibit petitioners from
implementing Resolution Nos. 197 and 372. Respondents claimed that the denial of the employee benefits
due them on the ground of their pending administrative cases violates their right to be presumed innocent and
that they are being punished without hearing. Respondent Molina also added that he had already earned his
right to the step increment before Resolution No. 372 was enacted. Respondents also argued that the three
resolutions were ineffective because they were not registered with the University of the Philippines (UP) Law
Center pursuant to the Revised Administrative Code of 1987. 13
On 24 November 2003, petitioners filed their comment with motion to dismiss and opposition. 14 On 2
December 2003, respondents filed their opposition to the motion to dismiss. 15 On 5 December 2003,
petitioners filed their reply.16

I
Whether the jurisdiction over the subject matter of Civil Case No. 03-108389 (Velasco, et al. vs.
The Board of Trustees of GSIS, et al., RTC-Manila, Branch 19) lies with the Civil Service
Commission (CSC) and not with the Regional Trial Court of Manila, Branch 19.
II
Whether a Special Civil Action for Prohibition against the GSIS Board or its President and General
Manager exercising quasi-legislative and administrative functions in Pasay City is outside the
territorial jurisdiction of RTC-Manila, Branch 19.
III
Whether internal rules and regulations need not require publication with the Office of the National
[Administrative] Register for their effectivity, contrary to the conclusion of the RTC-Manila, Branch
19.
IV
Whether a regulation, which disqualifies government employees who have pending administrative
cases from the grant of step increment and Christmas raffle benefits is unconstitutional.
V
Whether the nullification of GSIS Board Resolutions is beyond an action for prohibition, and a writ
of preliminary injunction cannot be made permanent without a decision ordering the issuance of a
writ of prohibition.23

On 16 January 2004, the trial court denied petitioners motion to dismiss and granted respondents prayer for a
writ of preliminary injunction.17
The Ruling of the Court
Petitioners filed a motion for reconsideration.18 In its 26 February 2004 Order, the trial court denied petitioners
motion.19
In its 24 September 2004 Decision, the trial court granted respondents petition for prohibition. The dispositive
portion of the 24 September 2004 Decision provides:

The petition is partly meritorious.

Petitioners argue that the Civil Service Commission (CSC), not the trial court, has jurisdiction over Civil Case
No. 03-108389 because it involves claims of employee benefits. Petitioners point out that the trial court should
have dismissed the case for lack of jurisdiction.

37

Sections 2 and 4, Rule 65 of the Rules of Court provide:

Sec. 2. Petition for Prohibition. - When the proceedings of any tribunal, corporation, board, officer
or person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in
excess of its jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal or any other plain, speedy, and adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be rendered commanding the
respondent to desist from further proceedings in the action or matter specified therein, or
otherwise granting such incidental reliefs as law and justice may require.
Sec. 4. Where petition filed. - The petition may be filed not later than sixty (60) days from notice of
the judgment, order or resolution sought to be assailed in the Supreme Court or, if it related to
acts or omissions of a lower court or of a corporation, board, officer or person in the
Regional Trial Court exercising jurisdiction over the territorial area as defined by the
Supreme Court. It may also be filed in the Court of Appeals whether or not the same is in aid of its
appellate jurisdiction, or in the Sandiganbayan if it is in aid of its jurisdiction. If it involves the acts
or omissions of a quasi-judicial agency, and unless otherwise provided by law or these Rules, the
petition shall be filed in and cognizable only by the Court of Appeals. (Emphasis supplied)
Civil Case No. 03-108389 is a petition for prohibition with prayer for the issuance of a writ of preliminary
injunction. Respondents prayed that the trial court declare all acts emanating from Resolution Nos. 372, 197,
and 306 void and to prohibit petitioners from further enforcing the said resolutions. 24 Therefore, the trial court,
not the CSC, has jurisdiction over respondents petition for prohibition.
Petitioners also claim that the petition for prohibition was filed in the wrong territorial jurisdiction because the
acts sought to be prohibited are the acts of petitioners who hold their principal office in Pasay City, while the
petition for prohibition was filed in Manila.

Sec. 21. Original jurisdiction in other cases. - Regional Trial Courts shall exercise original
jurisdiction:
(1) In the issuance of writs of certiorari, prohibition, mandamus, quo warranto, habeas
corpus and injunction,which may be enforced in any part of their respective regions;
x x x (Emphasis supplied)
Since the National Capital Judicial Region is comprised of the cities of Manila, Quezon, Pasay,
Caloocan,Malabon, Mandaluyong, Makati, Pasig, Marikina, Paraaque, Las Pias, Muntinlupa, and Valenzuela
and the municipalities of Navotas, San Juan, Pateros, and Taguig, a writ of prohibition issued by the regional
trial court sitting in the City of Manila, is enforceable in Pasay City. Clearly, the RTC did not err when it took
cognizance of respondents petition for prohibition because it had jurisdiction over the action and the venue
was properly laid before it.
Petitioners also argue that Resolution Nos. 372, 197, and 306 need not be filed with the UP Law Center ONAR
since they are, at most, regulations which are merely internal in nature regulating only the personnel of the
GSIS and not the public.
Not all rules and regulations adopted by every government agency are to be filed with the UP Law Center.
Only those of general or of permanent character are to be filed. According to the UP Law Centers guidelines
for receiving and publication of rules and regulations, interpretative regulations and those merely internal in
nature, that is, regulating only the personnel of the Administrative agency and not the public, need not be filed
with the UP Law Center.
Resolution No. 372 was about the new GSIS salary structure, Resolution No. 306 was about the authority to
pay the 2002 Christmas Package, and Resolution No. 197 was about the GSIS merit selection and promotion
plan. Clearly, the assailed resolutions pertained only to internal rules meant to regulate the personnel of the
GSIS. There was no need for the publication or filing of these resolutions with the UP Law Center.
Petitioners insist that petitioner GSIS Board has the power to issue the assailed resolutions. According to
petitioners, it was within the power of petitioner GSIS Board to disqualify respondents for step increment and
from receiving GSIS benefits from the time formal administrative charges were filed against them until the
cases are resolved.

Section 18 of Batas Pambansa Blg. 129 (BP 129)25 provides:

SEC. 18. Authority to define territory appurtenant to each branch. - The Supreme Court shall
define the territory over which a branch of the Regional Trial Court shall exercise its
authority. The territory thus defined shall be deemed to be the territorial area of the branch
concerned for purposes of determining the venue of all suits, proceedings or actions,
whether civil or criminal, as well as determining the Metropolitan Trial Courts, Municipal Trial
Courts, and Municipal Circuit Trial Courts over which the said branch may exercise appellate
jurisdiction. The power herein granted shall be exercised with a view to making the courts readily
accessible to the people of the different parts of the region and making attendance of litigants and
witnesses as inexpensive as possible. (Emphasis supplied)
In line with this, the Supreme Court issued Administrative Order No. 3 26 defining the territorial jurisdiction of the
regional trial courts in the National Capital Judicial Region, as follows:

The Court notes that the trial court only declared Resolution Nos. 197 and 372 void. The trial court made no
ruling on Resolution No. 306 and respondents did not appeal this matter. Therefore, we will limit our discussion
to Resolution Nos. 197 and 372, particularly to the effects of preventive suspension on the grant of step
increment because this was what respondents raised before the trial court.
First, entitlement to step increment depends on the rules relative to the grant of such benefit. In point are
Section 1(b), Rule II and Section 2, Rule III of Joint Circular No. 1, series of 1990, which provide:
Rule II. Selection Criteria
Section 1. Step increments shall be granted to all deserving officials and employees x x x
(b) Length of Service For those who have rendered continuous satisfactory service in a particular
position for at least three (3) years.
Rule III. Step Increments
xxxx

a. Branches I to LXXXII, inclusive, with seats at Manila over the City of Manila only.
b. Branches LXXXIII to CVII, inclusive, with seats at Quezon City over Quezon City only.
c. Branches CVIII to CXIX, inclusive, with seats at Pasay City over Pasay City only.
xxxx
The petition for prohibition filed by respondents is a special civil action which may be filed in the Supreme
Court, the Court of Appeals, the Sandiganbayan or the regional trial court, as the case may be. 27 It is also a
personal action because it does not affect the title to, or possession of real property, or interest therein. Thus, it
may be commenced and tried where the plaintiff or any of the principal plaintiffs resides, or where the
defendant or any of the principal defendants resides, at the election of the plaintiff. 28 Since respondent
Velasco, plaintiff before the trial court, is a resident of the City of Manila, 29 the petition could properly be filed in
the City of Manila.30 The choice of venue is sanctioned by Section 2, Rule 4 of the Rules of Court.
Moreover, Section 21(1) of BP 129 provides:

Section 2. Length of Service A one (1) step increment shall be granted officials and employees for
every three (3) years of continuous satisfactory service in the position. Years of service in the
position shall include the following:
(a) Those rendered before the position was reclassified to a position title with a lower or the same
salary grade allocation; and
(b) Those rendered before the incumbent was transferred to another position within the same
agency or to another agency without a change in position title and salary grade allocation.
In the initial implementation of step increments in 1990, an incumbent shall be granted step
increments equivalent to one (1) step for every three (3) years of continuous satisfactory service in
a given position occupied as of January 1, 1990.
A grant of step increment on the basis of length of service requires that an employee must have rendered at
least three years of continuous and satisfactory service in the same position to which he is an incumbent. 31 To
determine whether service is continuous, it is necessary to define what actual service is. 32 Actual service refers
to the period of continuous service since the appointment of the official or employee concerned, including the
period or periods covered by any previously approved leave with pay.33

38

Second, while there are no specific rules on the effects of preventive suspension on step increment, we can
refer to the CSC rules and rulings on the effects of the penalty of suspension and approved vacation leaves
without pay on the grant of step increment for guidance.
Section 56(d), Rule IV of the Uniform Rules on Administrative Cases in the Civil Service provides:
Section 56. Duration and effect of administrative penalties. - The following rules shall govern in the
imposition of administrative penalties: x x x
(d) The penalty of suspension shall result in the temporary cessation of work for a period not
exceeding one (1) year.
Suspension of one day or more shall be considered a gap in the continuity of service. During the
period of suspension, respondent shall not be entitled to all money benefits including leave credits.
If an employee is suspended as a penalty, it effectively interrupts the continuity of his government service at
the commencement of the service of the said suspension. This is because a person under penalty of
suspension is not rendering actual service. The suspension will undoubtedly be considered a gap in the
continuity of the service for purposes of the computation of the three year period in the grant of step
increment.34 However, this does not mean that the employee will only be entitled to the step increment after
completing another three years of continuous satisfactory service reckoned from the time the employee has
fully served the penalty of suspension. 35 The CSC has taken this to mean that the computation of the three
year period requirement will only be extended by the number of days that the employee was under
suspension.36 In other words, the grant of step increment will only be delayed by the same number of days that
the employee was under suspension.
This is akin to the status of an employee who incurred vacation leave without pay for purposes of the grant of
step increment.37 Employees who were on approved vacation leave without pay enjoy the liberal application of
the rule on the grant of step increment under Section 60 of CSC Memorandum Circular No. 41, series of 1998,
which provides:
Section 60. Effect of vacation leave without pay on the grant of length of service step increment. For purposes of computing the length of service for the grant of step increment, approved vacation
leave without pay for an aggregate of fifteen (15) days shall not interrupt the continuity of the threeyear service requirement for the grant of step increment. However, if the total number of authorized
vacation leave without pay included within the three-year period exceeds fifteen (15) days, the
grant of one-step increment will only be delayed for the same number of days that an official
or employee was absent without pay. (Emphasis supplied)
Third, on preventive suspension, Sections 51 and 52, Chapter 7, Subtitle A, Title I, Book V of the Revised
Administrative Code of 1987 provide:
SEC. 51. Preventive Suspension. - The proper disciplining authority may preventively suspend any
subordinate officer or employee under his authority pending an investigation, if the charge against such officer
or employee involves dishonesty, oppression or grave misconduct, or neglect in the performance of duty, or if
there are reasons to believe that the respondent is guilty of charges which would warrant his removal from the
service.
SEC. 52. Lifting of Preventive Suspension. Pending Administrative Investigation. - When the
administrative case against the officer or employee under preventive suspension is not
finally decided by the disciplining authority within the period of ninety (90) days after the
date of suspension of the respondent who is not a presidential appointee, the respondent
shall be automatically reinstated in the service: Provided, That when the delay in the
disposition of the case is due to the fault, negligence or petition of the respondent, the period of
delay shall not be counted in computing the period of suspension herein provided. (Emphasis
supplied)
Preventive suspension pending investigation is not a penalty.38 It is a measure intended to enable the
disciplining authority to investigate charges against respondent by preventing the latter from intimidating or in
any way influencing witnesses against him.39 If the investigation is not finished and a decision is not rendered
within that period, the suspension will be lifted and the respondent will automatically be reinstated.
Therefore, on the matter of step increment, if an employee who was suspended as a penalty will be treated
like an employee on approved vacation leave without pay,40 then it is only fair and reasonable to apply the
same rules to an employee who was preventively suspended, more so considering that preventive suspension
is not a penalty. If an employee is preventively suspended, the employee is not rendering actual service and
this will also effectively interrupt the continuity of his government service. Consequently, an employee who was
preventively suspended will still be entitled to step increment after serving the time of his preventive

suspension even if the pending administrative case against him has not yet been resolved or dismissed. The
grant of step increment will only be delayed for the same number of days, which must not exceed 90 days,
that an official or employee was serving the preventive suspension.
Fourth, the trial court was correct in declaring that respondents had the right to be presumed innocent until
proven guilty. This means that an employee who has a pending administrative case filed against him is given
the benefit of the doubt and is considered innocent until the contrary is proven. 41
In this case, respondents were placed under preventive suspension for 90 days beginning on 23 May 2002.
Their preventive suspension ended on 21 August 2002. Therefore, after serving the period of their preventive
suspension and without the administrative case being finally resolved, respondents should have been
reinstated and, after serving the same number of days of their suspension, entitled to the grant of step
increment.
On a final note, social legislation like the circular on the grant of step increment, being remedial in character,
should be liberally construed and administered in favor of the persons to be benefited. The liberal approach
aims to achieve humanitarian purposes of the law in order that the efficiency, security and well-being of
government employees may be enhanced.42
WHEREFORE, we DENY the petition. We AFFIRM with MODIFICATION the 24 September 2004 Decision
and the 7 October 2005 Order of the Regional Trial Court of Manila, Branch 19 in Civil Case No. 03-108389.
We DECLARE the assailed provisions on step increment in GSIS Board Resolution Nos. 197 and 372 VOID.
We MODIFY the 24 September 2004 Decision of the Regional Trial Court of Manila, Branch 19 and rule that
GSIS Board Resolution Nos. 197, 306 and 372 need not be filed with the University of the Philippines Law
Center.
SO ORDERED.

G.R. No. 175220

February 12, 2009

WILLIAM C. DAGAN, CARLOS H. REYES, NARCISO MORALES, BONIFACIO MANTILLA, CESAR

AZURIN, WEITONG LIM, MA. TERESA TRINIDAD, MA. CARMELITA FLORENTINO, Petitioners,
vs.
PHILIPPINE RACING COMMISSION, MANILA JOCKEY CLUB, INC., and PHILIPPINE RACING CLUB,
INC.,Respondents.
DECISION
TINGA, J.:
The subject of this petition for certiorari is the decision 1 of the Court of Appeals in CA-G.R. SP No. 95212,
affirming in toto the judgment2 of the Regional Trial Court of Makati in Civil Case No. 04-1228.
The controversy stemmed from the 11 August 2004 directive 3 issued by the Philippine Racing Commission
(Philracom) directing the Manila Jockey Club, Inc. (MJCI) and Philippine Racing Club, Inc. (PRCI) to
immediately come up with their respective Clubs House Rule to address Equine Infectious Anemia
(EIA)4 problem and to rid their facilities of horses infected with EIA. Said directive was issued pursuant to
Administrative Order No. 55 dated 28 March 1994 by the Department of Agriculture declaring it unlawful for any
person, firm or corporation to ship, drive, or transport horses from any locality or place except when
accompanied by a certificate issued by the authority of the Director of the Bureau of Animal Industry (BAI). 6
In compliance with the directive, MJCI and PRCI ordered the owners of racehorses stable in their
establishments to submit the horses to blood sampling and administration of the Coggins Test to determine

39

whether they are afflicted with the EIA virus. Subsequently, on 17 September 2004, Philracom issued copies of
the guidelines for the monitoring and eradication of EIA. 7
Petitioners and racehorse owners William Dagan (Dagan), Carlos Reyes, Narciso Morales, Bonifacio Montilla,
Cezar Azurin, Weitong Lim, Ma. Teresa Trinidad and Ma. Carmelita Florentino refused to comply with the
directive. First, they alleged that there had been no prior consultation with horse owners. Second, they claimed
that neither official guidelines nor regulations had been issued relative to the taking of blood samples. And
third, they asserted that no documented case of EIA had been presented to justify the undertaking. 8
Despite resistance from petitioners, the blood testing proceeded. The horses, whose owners refused to
comply were banned from the races, were removed from the actual day of race, prohibited from renewing their
licenses or evicted from their stables.
When their complaint went unheeded, the racehorse owners lodged a complaint before the Office of the
President (OP) which in turn issued a directive instructing Philracom to investigate the matter.
For failure of Philracom to act upon the directive of the OP, petitioners filed a petition for injunction with
application for the issuance of a temporary restraining order (TRO). In an order 9 dated 11 November 2004, the
trial court issued a TRO.
Dagan refused to comply with the directives because, according to him, the same are unfair as there are no
implementing rules on the banning of sick horses from races. Consequently, his horses were evicted from the
stables and transferred to an isolation area. He also admitted that three of his horses had been found positive
for EIA.10
Confronted with two issues, namely: whether there were valid grounds for the issuance of a writ of injunction
and whether respondents had acted with whim and caprice in the implementation of the contested guideline,
the trial court resolved both queries in the negative.
The trial court found that most racehorse owners, except for Dagan, had already subjected their racehorses to
EIA testing. Their act constituted demonstrated compliance with the contested guidelines, according to the trial
court. Hence, the acts sought to be enjoined had been rendered moot and academic.
With respect to the subject guidelines, the trial court upheld their validity as an exercise of police power, thus:
The Petitioners submission that the subject guidelines are oppressive and hence confiscatory of proprietary
rights is likewise viewed by this Court to be barren of factual and legal support. The horseracing industry,
needless to state, is imbued with public interest deserving of utmost concern if not constant vigilance. The
Petitioners do not dispute this. It is because of this basic fact that respondents are expected to police the
concerned individuals and adopt measures that will promote and protect the interests of all the stakeholders
starting from the moneyed horse-owners, gawking bettors down to the lowly maintainers of the stables. This is
a clear and valid exercise of police power with the respondents acting for the State. Participation in the
business of horseracing is but a privilege; it is not a right. And no clear acquiescence to this postulation can
there be than the Petitioners' own undertaking to abide by the rules and conditions issued and imposed by the
respondents as specifically shown by their contracts of lease with MCJI. 111avvphi1
Petitioners appealed to the Court of Appeals. In its Decision dated 27 October 2006, the appellate court
affirmed in toto the decision of the trial court.

additional rules and regulations not otherwise inconsistent with the said presidential decree 12 and to perform
such duties and exercise all powers incidental or necessary to the accomplishment of its aims and
objectives.13 It similarly concluded that the petition for prohibition should be dismissed on the ground of
mootness in light of evidence indicating that petitioners had already reconsidered their refusal to have their
horses tested and had, in fact, subsequently requested the administration of the test to the horses. 14
Aggrieved by the appellate courts decision, petitioners filed the instant certiorari petition 15 imputing grave
abuse of discretion on the part of respondents in compelling petitioners to subject their racehorses to blood
testing.
In their amended petition,16 petitioners allege that Philracoms unsigned and undated implementing guidelines
suffer from several infirmities. They maintain that the assailed guidelines do not comply with due process
requirements. Petitioners insist that racehorses already in the MJCI stables were allowed to be so quartered
because the individual horse owners had already complied with the Philracom regulation that horses should
not bear any disease. There was neither a directive nor a rule that racehorses already lodged in the stables of
the racing clubs should again be subjected to the collection of blood samples preparatory to the conduct of the
EIA tests,17 petitioners note. Thus, it came as a surprise to horse owners when told about the administration of
a new Coggins Tests on old horses since the matter had not been taken up with them. 18 No investigation or at
least a summary proceeding was conducted affording petitioners an opportunity to be heard. 19 Petitioners also
aver that the assailed guidelines are ultra vires in that the sanctions imposed for refusing to submit to medical
examination are summary eviction from the stables or arbitrary banning of participation in the races,
notwithstanding the penalties prescribed in the contract of lease. 20
In its Comment,21 the PRCI emphasizes that it merely obeyed the terms of its franchise and abided by the
rules enacted by Philracom.22 For its part, Philracom, through the Office of the Solicitor-General (OSG),
stresses that the case has become moot and academic since most of petitioners had complied with the
guidelines by subjecting their race horses to EIA testing. The horses found unafflicted with the disease were
eventually allowed to join the races.23 Philracom also justified its right under the law to regulate horse
racing.24 MJCI adds that Philracom need
not delegate its rule-making power to the former since MJCIs right to formulate its internal rules is subsumed
under the franchise granted to it by Congress.25
In their Reply,26 petitioners raise for the first time the issue that Philracom had unconstitutionally delegated its
rule-making power to PRCI and MJCI in issuing the directive for them to come up with club rules. In response
to the claim that respondents had merely complied with their duties under their franchises, petitioners counter
that the power granted to PRCI and MJCI under their respective franchises is limited to: (1) the construction,
operation and maintenance of racetracks; (2) the establishment of branches for booking purposes; and (3) the
conduct of horse races.
It appears on record that only Dagan had refused to comply with the orders of respondents. Therefore, the
case subsists as regards Dagan.
Petitioners essentially assail two issuances of Philracom; namely: the Philracom directive 27 and the
subsequent guidelines addressed to MJCI and PRCI.
The validity of an administrative issuance, such as the assailed guidelines, hinges on compliance with the
following requisites:
1. Its promulgation must be authorized by the legislature;

The appellate court upheld the authority of Philracom to formulate guidelines since it is vested with exclusive
jurisdiction over and control of the horse-racing industry per Section 8 of Presidential Decree (P.D.) No. 8. The
appellate court further pointed out that P.D. No. 420 also endows Philracom with the power to prescribe

2. It must be promulgated in accordance with the prescribed procedure;

40

3. It must be within the scope of the authority given by the legislature;

e. To review, modify, approve or disapprove the rules and regulations issued by any person or
entity concerning the conduct of horse races held by them;

4. It must be reasonable.28
All the prescribed requisites are met as regards the questioned issuances. Philracoms authority is drawn from
P.D. No. 420. The delegation made in the presidential decree is valid. Philracom did not exceed its authority.
And the issuances are fair and reasonable.
The rule is that what has been delegated cannot be delegated, or as expressed in the Latin maxim: potestas
delegate non delegare potest. This rule is based upon the ethical principle that such delegated power
constitutes not only a right but a duty to be performed by the delegate by the instrumentality of his own
judgment acting immediately upon the matter of legislation and not through the intervening mind of
another.29 This rule however admits of recognized exceptions30 such as the grant of rule-making power to
administrative agencies. They have been granted by Congress with the authority to issue rules to regulate the
implementation of a law entrusted to them. Delegated rule-making has become a practical necessity in
modern governance due to the increasing complexity and variety of public functions. 31

f. To supervise all such race meeting to assure integrity at all times. It can order the suspension of
any racing event in case of violation of any law, ordinance or rules and regulations;
g. To prohibit the use of improper devices, drugs, stimulants or other means to enhance or diminish
the speed of horse or materially harm their condition;
h. To approve the annual budget of the omission and such supplemental budgets as may be
necessary;
i. To appoint all personnel, including an Executive Director of the Commission, as it may be deem
necessary in the exercise and performance of its powers and duties; and
j. To enter into contracts involving obligations chargeable to or against the funds of the
Commission. (Emphasis supplied)

However, in every case of permissible delegation, there must be a showing that the delegation itself is valid. It
is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or
implemented by the delegate; and (b) fixes a standardthe limits of which are sufficiently determinate and
determinableto which the delegate must conform in the performance of his functions. A sufficient standard is
one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency
to apply it. It indicates the circumstances under which the legislative command is to be effected. 32

Clearly, there is a proper legislative delegation of rule-making power to Philracom. Clearly too, for its part
Philracom has exercised its rule-making power in a proper and reasonable manner. More specifically, its
discretion to rid the facilities of MJCI and PRCI of horses afflicted with EIA is aimed at preserving the security
and integrity of horse races.

P.D. No. 420 hurdles the tests of completeness and standards sufficiency.

Petitioners also question the supposed delegation by Philracom of its rule-making powers to MJCI and PRCI.

Philracom was created for the purpose of carrying out the declared policy in Section 1 which is "to promote
and direct the accelerated development and continued growth of horse racing not only in pursuance of the
sports development program but also in order to insure the full exploitation of the sport as a source of revenue
and employment." Furthermore, Philracom was granted exclusive jurisdiction and control over every aspect of
the conduct of horse racing, including the framing and scheduling of races, the construction and safety of race
tracks, and the security of racing. P.D. No. 420 is already complete in itself.

There is no delegation of power to speak of between Philracom, as the delegator and MJCI and PRCI as
delegates. The Philracom directive is merely instructive in character. Philracom had instructed PRCI and MJCI
to "immediately come up with Clubs House Rule to address the problem and rid their facilities of horses
infected with EIA." PRCI and MJCI followed-up when they ordered the racehorse owners to submit blood
samples and subject their race horses to blood testing. Compliance with the Philracoms directive is part of the
mandate of PRCI and MJCI under Sections 133 of R.A. No. 795334 and Sections 135 and 236 of 8407.37

Section 9 of the law fixes the standards and limitations to which Philracom must conform in the performance of
its functions, to wit:

As correctly proferred by MJCI, its duty is not derived from the delegated authority of Philracom but arises from
the franchise granted to them by Congress allowing MJCI "to do and carry out all such acts, deeds and things
as may be necessary to give effect to the foregoing." 38 As justified by PRCI, "obeying the terms of the
franchise and abiding by whatever rules enacted by Philracom is its duty." 39

Section 9. Specific Powers. Specifically, the Commission shall have the power:
a. To enforce all laws, decrees and executive orders relating to horse-racing that are not expressly
or implied repealed or modified by this Decree, including all such existing rules and regulations
until otherwise modified or amended by the Commission;
b. To prescribe additional rules and regulations not otherwise inconsistent with this Decree;
c. To register race horses, horse owners or associations or federations thereof, and to regulate the
construction of race tracks and to grant permit for the holding of races;
d. To issue, suspend or revoke permits and licenses and to impose or collect fees for the issuance
of such licenses and permits to persons required to obtain the same;

More on the second, third and fourth requisites.

As to the second requisite, petitioners raise some infirmities relating to Philracoms guidelines. They question
the supposed belated issuance of the guidelines, that is, only after the collection of blood samples for the
Coggins Test was ordered. While it is conceded that the guidelines were issued a month after Philracoms
directive, this circumstance does not render the directive nor the guidelines void. The directives validity and
effectivity are not dependent on any supplemental guidelines. Philracom has every right to issue directives to
MJCI and PRCI with respect to the conduct of horse racing, with or without implementing guidelines.
Petitioners also argue that Philracoms guidelines have no force and effect for lack of publication and failure to
file copies with the University of the Philippines (UP) Law Center as required by law.
As a rule, the issuance of rules and regulations in the exercise of an administrative agency of its quasilegislative power does not require notice 7and hearing. 40 In Abella, Jr. v. Civil Service Commission,41 this Court

41

had the occasion to rule that prior notice and hearing are not essential to the validity of rules or regulations
issued in the exercise of quasi-legislative powers since there is no determination of past events or facts that
have to be established or ascertained.42
The third requisite for the validity of an administrative issuance is that it must be within the limits of the powers
granted to it. The administrative body may not make rules and regulations which are inconsistent with the
provisions of the Constitution or a statute, particularly the statute it is administering or which created it, or
which are in derogation of, or defeat, the purpose of a statute. 43
The assailed guidelines prescribe the procedure for monitoring and eradicating EIA. These guidelines are in
accord with Philracoms mandate under the law to regulate the conduct of horse racing in the country.
Anent the fourth requisite, the assailed guidelines do not appear to be unreasonable or discriminatory. In fact,
all horses stabled at the MJCI and PRCIs premises underwent the same procedure. The guidelines
implemented were undoubtedly reasonable as they bear a reasonable relation to the purpose sought to be
accomplished, i.e., the complete riddance of horses infected with EIA.
It also appears from the records that MJCI properly notified the racehorse owners before the test was
conducted.44 Those who failed to comply were repeatedly warned of certain consequences and sanctions.
Furthermore, extant from the records are circumstances which allow respondents to determine from time to
time the eligibility of horses as race entries. The lease contract executed between petitioner and MJC contains
a proviso reserving the right of the lessor, MJCI in this case, the right to determine whether a particular horse
is a qualified horse. In addition, Philracoms rules and regulations on horse racing provide that horses must be
free from any contagious disease or illness in order to be eligible as race entries.
All told, we find no grave abuse of discretion on the part of Philracom in issuing the contested guidelines and
on the part MJCI and PRCI in complying with Philracoms directive.

YNARES-SANTIAGO, J.:
Pursuant to its rule-making and regulatory powers, the National Telecommunications Commission (NTC)
issued on June 16, 2000 Memorandum Circular No. 13-6-2000, promulgating rules and regulations on the
billing of telecommunications services. Among its pertinent provisions are the following:
(1) The billing statements shall be received by the subscriber of the telephone service not later
than 30 days from the end of each billing cycle. In case the statement is received beyond this
period, the subscriber shall have a specified grace period within which to pay the bill and the public
telecommunications entity (PTEs) shall not be allowed to disconnect the service within the grace
period.
(2) There shall be no charge for calls that are diverted to a voice mailbox, voice prompt, recorded
message or similar facility excluding the customer's own equipment.
(3) PTEs shall verify the identification and address of each purchaser of prepaid SIM cards.
Prepaid call cards and SIM cards shall be valid for at least 2 years from the date of first use.
Holders of prepaid SIM cards shall be given 45 days from the date the prepaid SIM card is fully
consumed but not beyond 2 years and 45 days from date of first use to replenish the SIM card,
otherwise the SIM card shall be rendered invalid. The validity of an invalid SIM card, however, shall
be installed upon request of the customer at no additional charge except the presentation of a valid
prepaid call card.
(4) Subscribers shall be updated of the remaining value of their cards before the start of every call
using the cards.
(5) The unit of billing for the cellular mobile telephone service whether postpaid or prepaid shall be
reduced from 1 minute per pulse to 6 seconds per pulse. The authorized rates per minute shall
thus be divided by 10.1

WHEREFORE, the petition is DISMISSED. Costs against petitioner William Dagan.

The Memorandum Circular provided that it shall take effect 15 days after its publication in a newspaper of
general circulation and three certified true copies thereof furnished the UP Law Center. It was published in the
newspaper, The Philippine Star, on June 22, 2000. 2 Meanwhile, the provisions of the Memorandum Circular
pertaining to the sale and use of prepaid cards and the unit of billing for cellular mobile telephone service took
effect 90 days from the effectivity of the Memorandum Circular.

SO ORDERED.

G.R. No. 151908

August 12, 2003

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

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

On August 30, 2000, the NTC issued a Memorandum to all cellular mobile telephone service (CMTS)
operators which contained measures to minimize if not totally eliminate the incidence of stealing of cellular
phone units. The Memorandum directed CMTS operators to:
a. strictly comply with Section B(1) of MC 13-6-2000 requiring the presentation and verification of
the identity and addresses of prepaid SIM card customers;
b. require all your respective prepaid SIM cards dealers to comply with Section B(1) of MC 13-62000;

G.R. No. 152063 August 12, 2003

GLOBE TELECOM, INC. (GLOBE) and ISLA COMMUNICATIONS CO., INC. (ISLACOM), petitioners,
vs.
COURT OF APPEALS (The Former 6th Division) and the NATIONAL TELECOMMUNICATIONS
COMMISSION, respondents.

c. deny acceptance to your respective networks prepaid and/or postpaid customers using stolen
cellphone units or cellphone units registered to somebody other than the applicant when properly
informed of all information relative to the stolen cellphone units;
d. share all necessary information of stolen cellphone units to all other CMTS operators in order to
prevent the use of stolen cellphone units; and

42

e. require all your existing prepaid SIM card customers to register and present valid identification
cards.3
This was followed by another Memorandum dated October 6, 2000 addressed to all public
telecommunications entities, which reads:
This is to remind you that the validity of all prepaid cards sold on 07 October 2000 and beyond
shall be valid for at least two (2) years from date of first use pursuant to MC 13-6-2000.
In addition, all CMTS operators are reminded that all SIM packs used by subscribers of prepaid
cards sold on 07 October 2000 and beyond shall be valid for at least two (2) years from date of first
use. Also, the billing unit shall be on a six (6) seconds pulse effective 07 October 2000.
For strict compliance.4
On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino Telephone Corporation filed
against the National Telecommunications Commission, Commissioner Joseph A. Santiago, Deputy
Commissioner Aurelio M. Umali and Deputy Commissioner Nestor C. Dacanay, an action for declaration of
nullity of NTC Memorandum Circular No. 13-6-2000 (the Billing Circular) and the NTC Memorandum dated
October 6, 2000, with prayer for the issuance of a writ of preliminary injunction and temporary restraining
order. The complaint was docketed as Civil Case No. Q-00-42221 at the Regional Trial Court of Quezon City,
Branch 77.5
Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction to regulate the sale of
consumer goods such as the prepaid call cards since such jurisdiction belongs to the Department of Trade and
Industry under the Consumer Act of the Philippines; that the Billing Circular is oppressive, confiscatory and
violative of the constitutional prohibition against deprivation of property without due process of law; that the
Circular will result in the impairment of the viability of the prepaid cellular service by unduly prolonging the
validity and expiration of the prepaid SIM and call cards; and that the requirements of identification of prepaid
card buyers and call balance announcement are unreasonable. Hence, they prayed that the Billing Circular be
declared null and void ab initio.
Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc. filed a joint Motion for Leave
to Intervene and to Admit Complaint-in-Intervention.6 This was granted by the trial court.
On October 27, 2000, the trial court issued a temporary restraining order enjoining the NTC from implementing
Memorandum Circular No. 13-6-2000 and the Memorandum dated October 6, 2000. 7
In the meantime, respondent NTC and its co-defendants filed a motion to dismiss the case on the ground of
petitioners' failure to exhaust administrative remedies.
Subsequently, after hearing petitioners' application for preliminary injunction as well as respondent's motion to
dismiss, the trial court issued on November 20, 2000 an Order, the dispositive portion of which reads:
WHEREFORE, premises considered, the defendants' motion to dismiss is hereby denied for lack
of merit. The plaintiffs' application for the issuance of a writ of preliminary injunction is hereby
granted. Accordingly, the defendants are hereby enjoined from implementing NTC Memorandum
Circular 13-6-2000 and the NTC Memorandum, dated October 6, 2000, pending the issuance and
finality of the decision in this case. The plaintiffs and intervenors are, however, required to file a
bond in the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00), Philippine currency.
SO ORDERED.8

Defendants filed a motion for reconsideration, which was denied in an Order dated February 1, 2001. 9
Respondent NTC thus filed a special civil action for certiorari and prohibition with the Court of Appeals, which
was docketed as CA-G.R. SP. No. 64274. On October 9, 2001, a decision was rendered, the decretal portion
of which reads:
WHEREFORE, premises considered, the instant petition for certiorari and prohibition is
GRANTED, in that, the order of the court a quo denying the petitioner's motion to dismiss as well
as the order of the court a quo granting the private respondents' prayer for a writ of preliminary
injunction, and the writ of preliminary injunction issued thereby, are hereby ANNULLED and SET
ASIDE. The private respondents' complaint and complaint-in-intervention below are hereby
DISMISSED, without prejudice to the referral of the private respondents' grievances and disputes
on the assailed issuances of the NTC with the said agency.
SO ORDERED.10
Petitioners' motions for reconsideration were denied in a Resolution dated January 10, 2002 for lack of merit. 11
Hence, the instant petition for review filed by Smart and Piltel, which was docketed as G.R. No. 151908,
anchored on the following grounds:
A.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE NATIONAL
TELECOMMUNICATIONS COMMISSION (NTC) AND NOT THE REGULAR COURTS HAS
JURISDICTION OVER THE CASE.
B.
THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN HOLDING THAT THE
PRIVATE RESPONDENTS FAILED TO EXHAUST AN AVAILABLE ADMINISTRATIVE REMEDY.
C.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BILLING
CIRCULAR ISSUED BY THE RESPONDENT NTC IS UNCONSTITUTIONAL AND CONTRARY
TO LAW AND PUBLIC POLICY.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE
RESPONDENTS FAILED TO SHOW THEIR CLEAR POSITIVE RIGHT TO WARRANT THE
ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION. 12
Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No. 152063, assigning the following
errors:
1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINES
OF PRIMARY JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE REMEDIES DO NOT
APPLY SINCE THE INSTANT CASE IS FOR LEGAL NULLIFICATION (BECAUSE OF LEGAL

43

INFIRMITIES AND VIOLATIONS OF LAW) OF A PURELY ADMINISTRATIVE REGULATION

PROMULGATED BY AN AGENCY IN THE EXERCISE OF ITS RULE MAKING POWERS AND
INVOLVES ONLY QUESTIONS OF LAW.
2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINE
ON EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY WHEN THE
QUESTIONS RAISED ARE PURELY LEGAL QUESTIONS.
3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINE
OF EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY WHERE THE
ADMINISTRATIVE ACTION IS COMPLETE AND EFFECTIVE, WHEN THERE IS NO OTHER
REMEDY, AND THE PETITIONER STANDS TO SUFFER GRAVE AND IRREPARABLE INJURY.
4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE PETITIONERS IN
FACT EXHAUSTED ALL ADMINISTRATIVE REMEDIES AVAILABLE TO THEM.
5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN ISSUING ITS
QUESTIONED RULINGS IN THIS CASE BECAUSE GLOBE AND ISLA HAVE A CLEAR RIGHT
TO AN INJUNCTION.13
The two petitions were consolidated in a Resolution dated February 17, 2003. 14
On March 24, 2003, the petitions were given due course and the parties were required to submit their
respective memoranda.15
We find merit in the petitions.
Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial or administrative
adjudicatory powers. Quasi-legislative or rule-making power is the power to make rules and regulations which
results in delegated legislation that is within the confines of the granting statute and the doctrine of nondelegability and separability of powers. 16
The rules and regulations that administrative agencies promulgate, which are the product of a delegated
legislative power to create new and additional legal provisions that have the effect of law, should be within the
scope of the statutory authority granted by the legislature to the administrative agency. It is required that the
regulation be germane to the objects and purposes of the law, and be not in contradiction to, but in conformity
with, the standards prescribed by law.17 They must conform to and be consistent with the provisions of the
enabling statute in order for such rule or regulation to be valid. Constitutional and statutory provisions control
with respect to what rules and regulations may be promulgated by an administrative body, as well as with
respect to what fields are subject to regulation by it. It may not make rules and regulations which are
inconsistent with the provisions of the Constitution or a statute, particularly the statute it is administering or
which created it, or which are in derogation of, or defeat, the purpose of a statute. In case of conflict between a
statute and an administrative order, the former must prevail.18
Not to be confused with the quasi-legislative or rule-making power of an administrative agency is its quasijudicial or administrative adjudicatory power. This is the power to hear and determine questions of fact to
which the legislative policy is to apply and to decide in accordance with the standards laid down by the law
itself in enforcing and administering the same law. The administrative body exercises its quasi-judicial power
when it performs in a judicial manner an act which is essentially of an executive or administrative nature,
where the power to act in such manner is incidental to or reasonably necessary for the performance of the
executive or administrative duty entrusted to it. In carrying out their quasi-judicial functions, the administrative
officers or bodies are required to investigate facts or ascertain the existence of facts, hold hearings, weigh

evidence, and draw conclusions from them as basis for their official action and exercise of discretion in a
judicial nature.19
In questioning the validity or constitutionality of a rule or regulation issued by an administrative agency, a party
need not exhaust administrative remedies before going to court. This principle applies only where the act of
the administrative agency concerned was performed pursuant to its quasi-judicial function, and not when the
assailed act pertained to its rule-making or quasi-legislative power. In Association of Philippine Coconut
Dessicators v. Philippine Coconut Authority,20 it was held:
The rule of requiring exhaustion of administrative remedies before a party may seek judicial review, so
strenuously urged by the Solicitor General on behalf of respondent, has obviously no application here. The
resolution in question was issued by the PCA in the exercise of its rule- making or legislative power. However,
only judicial review of decisions of administrative agencies made in the exercise of their quasi-judicial function
is subject to the exhaustion doctrine.
Even assuming arguendo that the principle of exhaustion of administrative remedies apply in this case, the
records reveal that petitioners sufficiently complied with this requirement. Even during the drafting and
deliberation stages leading to the issuance of Memorandum Circular No. 13-6-2000, petitioners were able to
register their protests to the proposed billing guidelines. They submitted their respective position papers
setting forth their objections and submitting proposed schemes for the billing circular.21 After the same was
issued, petitioners wrote successive letters dated July 3, 2000 22 and July 5, 2000,23 asking for the suspension
and reconsideration of the so-called Billing Circular. These letters were not acted upon until October 6, 2000,
when respondent NTC issued the second assailed Memorandum implementing certain provisions of the Billing
Circular. This was taken by petitioners as a clear denial of the requests contained in their previous letters, thus
prompting them to seek judicial relief.
In like manner, the doctrine of primary jurisdiction applies only where the administrative agency exercises its
quasi-judicial or adjudicatory function. Thus, in cases involving specialized disputes, the practice has been to
refer the same to an administrative agency of special competence pursuant to the doctrine of primary
jurisdiction. The courts will not determine a controversy involving a question which is within the jurisdiction of
the administrative tribunal prior to the resolution of that question by the administrative tribunal, where the
question demands the exercise of sound administrative discretion requiring the special knowledge, experience
and services of the administrative tribunal to determine technical and intricate matters of fact, and a uniformity
of ruling is essential to comply with the premises of the regulatory statute administered. The objective of the
doctrine of primary jurisdiction is to guide a court in determining whether it should refrain from exercising its
jurisdiction until after an administrative agency has determined some question or some aspect of some
question arising in the proceeding before the court. It applies where the claim is originally cognizable in the
courts and comes into play whenever enforcement of the claim requires the resolution of issues which, under
a regulatory scheme, has been placed within the special competence of an administrative body; in such case,
the judicial process is suspended pending referral of such issues to the administrative body for its view. 24
However, where what is assailed is the validity or constitutionality of a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to
pass upon the same. The determination of whether a specific rule or set of rules issued by an administrative
agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the
Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional
trial courts.25 This is within the scope of judicial power, which includes the authority of the courts to determine
in an appropriate action the validity of the acts of the political departments. 26 Judicial power includes the duty
of the courts of justice to settle actual controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government. 27
In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-2000 and its Memorandum
dated October 6, 2000 was pursuant to its quasi-legislative or rule-making power. As such, petitioners were

44

justified in invoking the judicial power of the Regional Trial Court to assail the constitutionality and validity of
the said issuances. In Drilon v. Lim,28 it was held:
We stress at the outset that the lower court had jurisdiction to consider the constitutionality of
Section 187, this authority being embraced in the general definition of the judicial power to
determine what are the valid and binding laws by the criterion of their conformity to the
fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all civil
cases in which the subject of the litigation is incapable of pecuniary estimation, even as the
accused in a criminal action has the right to question in his defense the constitutionality of a law he
is charged with violating and of the proceedings taken against him, particularly as they contravene
the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court
appellate jurisdiction over final judgments and orders of lower courts in all cases in which the
constitutionality or validity of any treaty, international or executive agreement, law, presidential
decree, proclamation, order, instruction, ordinance, or regulation is in question. 29
In their complaint before the Regional Trial Court, petitioners averred that the Circular contravened Civil Code
provisions on sales and violated the constitutional prohibition against the deprivation of property without due
process of law. These are within the competence of the trial judge. Contrary to the finding of the Court of
Appeals, the issues raised in the complaint do not entail highly technical matters. Rather, what is required of
the judge who will resolve this issue is a basic familiarity with the workings of the cellular telephone service,
including prepaid SIM and call cards and this is judicially known to be within the knowledge of a good
percentage of our population and expertise in fundamental principles of civil law and the Constitution.
Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case No. Q-00-42221. The Court of
Appeals erred in setting aside the orders of the trial court and in dismissing the case.
WHEREFORE, in view of the foregoing, the consolidated petitions are GRANTED. The decision of the Court of
Appeals in CA-G.R. SP No. 64274 dated October 9, 2001 and its Resolution dated January 10, 2002 are
REVERSED and SET ASIDE. The Order dated November 20, 2000 of the Regional Trial Court of Quezon City,
Branch 77, in Civil Case No. Q-00-42221 is REINSTATED. This case is REMANDED to the court a quo for
continuation of the proceedings.
SO ORDERED.

The Facts
Petitioners Avelina B. Conte and Leticia Boiser-Palma were former employees of the Social Security
System (SSS) who retired from government service on May 9, 1990 and September 13, 1992,
respectively. They availed of compulsory retirement benefits under Republic Act No. 660. [2]
In addition to retirement benefits provided under R.A. 660, petitioners also claimed SSS financial
assistance benefits granted under SSS Resolution No. 56, series of 1971.
A brief historical backgrounder is in order. SSS Resolution No. 56,[3] approved on January 21, 1971,
provides financial incentive and inducement to SSS employees qualified to retire to avail of retirement benefits
under RA 660 as amended, rather than the retirement benefits under RA 1616 as amended, by giving them
financial assistance equivalent in amount to the difference between what a retiree would have received under
RA 1616, less what he was entitled to under RA 660. The said SSS Resolution No. 56 states:
RESOLUTION NO. 56
WHEREAS, the retirement benefits of SSS employees are provided for under Republic Acts 660 and 1616 as
amended;
WHEREAS, SSS employees who are qualified for compulsory retirement at age 65 or for optional retirement
at a lower age are entitled to either the life annuity under R.A. 660, as amended, or the gratuity under R.A.
1616, as amended;
WHEREAS, a retirement benefit to be effective must be a periodic income as close as possible to the monthly
income that would have been due to the retiree during the remaining years of his life were he still employed;
WHEREAS, the life annuity under R.A. 660, as amended, being closer to the monthly income that was lost on
account of old age than the gratuity under R.A. 1616, as amended, would best serve the interest of the retiree;
WHEREAS, it is the policy of the Social Security Commission to promote and to protect the interest of all SSS
employees, with a view to providing for their well-being during both their working and retirement years;

[G.R. No. 116422. November 4, 1996]

AVELINA B. CONTE and LETICIA BOISER-PALMA, petitioners, vs. COMMISSION ON AUDIT
(COA), respondent.
DECISION
PANGANIBAN, J.:
Are the benefits provided for under Social Security System Resolution No. 56 to be considered simply
as financial assistance for retiring employees, or does such scheme constitute a supplementary retirement
plan proscribed by Republic Act No. 4968?
The foregoing question is addressed by this Court in resolving the instant petition for certiorari which
seeks to reverse and set aside Decision No. 94-126 [1]dated March 15, 1994 of respondent Commission on
Audit, which denied petitioners request for reconsideration of its adverse ruling disapproving claims for
financial assistance under SSS Resolution No. 56.

WHEREAS, the availment of life annuities built up by premiums paid on behalf of SSS employees during their
working years would mean more savings to the SSS;
WHEREAS, it is a duty of the Social Security Commission to effect savings in every possible way for
economical and efficient operations;
WHEREAS, it is the right of every SSS employee to choose freely and voluntarily the benefit he is entitled to
solely for his own benefit and for the benefit of his family;
NOW, THEREFORE, BE IT RESOLVED, That all the SSS employees who are simultaneously qualified for
compulsory retirement at age 65 or for optional retirement at a lower age be encouraged to avail for
themselves the life annuity under R.A. 660, as amended;
RESOLVED, FURTHER, That SSS employees who availed themselves of the said life annuity, in appreciation
and recognition of their long and faithful service, be granted financial assistance equivalent to the gratuity plus
return of contributions under R.A. 1616, as amended, less the five year guaranteed annuity under R.A. 660, as
amended;

45

RESOLVED, FINALLY, That the Administrator be authorized to act on all applications for retirement submitted
by SSS employees and subject to availability of funds, pay the corresponding benefits in addition to the money
value of all accumulated leaves. (underscoring supplied)
Long after the promulgation of SSS Resolution No. 56, respondent Commission on Audit (COA) issued
a ruling, captioned as 3rd Indorsement dated July 10, 1989, [4] disallowing in audit all such claims for financial
assistance under SSS Resolution No. 56, for the reason that: -x x x the scheme of financial assistance authorized by the SSS is similar to those separate retirement plan or
incentive/separation pay plans adopted by other government corporate agencies which results in the increase
of benefits beyond what is allowed under existing retirement laws. In this regard, attention x x x is invited to the
view expressed by the Secretary of Budget and Management dated February 17, 1988 to the COA General
Counsel against the proliferation of retirement plans which, in COA Decision No. 591 dated August 31, 1988,
was concurred in by this Commission. x x x.
Accordingly, all such claims for financial assistance under SSS Resolution No. 56 dated January 21,
1971 should be disallowed in audit. (underscoring supplied)
Despite the aforequoted ruling of respondent COA, then SSS Administrator Jose L. Cuisia, Jr.
nevertheless wrote[5] on February 12, 1990 then Executive Secretary Catalino Macaraig, Jr., seeking
presidential authority for SSS to continue implementing its Resolution No. 56 dated January 21, 1971 granting
financial assistance to its qualified retiring employees.
However, in a letter-reply dated May 28, 1990, [6] then Executive Secretary Macaraig advised
Administrator Cuisia that the Office of the President is not inclined to favorably act on the herein request, let
alone overrule the disallowance by COA of such claims, because, aside from the fact that decisions, order or
actions of the COA in the exercise of its audit functions are appealable to the Supreme Court [7] pursuant to
Sec. 50 of PD 1445, the benefits under said Res. 56, though referred to as financial assistance, constituted
additional retirement benefits, and the scheme partook of the nature of a supplementary pension/retirement
plan proscribed by law.
The law referred to above is RA 4968 (The Teves Retirement Law), which took effect June 17, 1967
and amended CA 186 (otherwise known as the Government Service Insurance Act, or the GSIS Charter),
making Sec. 28 (b) of the latter act read as follows:
(b) Hereafter, no insurance or retirement plan for officers or employees shall be created by employer. All
supplementary retirement or pension plans heretofore in force in any government office, agency or
instrumentality or corporation owned or controlled by the government, are hereby declared inoperative or
abolished; Provided, That the rights of those who are already eligible to retire thereunder shall not be affected.
(underscoring supplied)
On January 12, 1993, herein petitioners filed with respondent COA their letter-appeal/protest [8] seeking
reconsideration of COAs ruling of July 10, 1989 disallowing claims for financial assistance under Res. 56.

Thus this petition for certiorari under Rule 65 of the Rules of Court.
The Issues
The issues[10] submitted by petitioners may be simplified and re-stated thus: Did public respondent
abuse its discretion when it disallowed in audit petitioners claims for benefits under SSS Res. 56?
Petitioners argue that the financial assistance under Res. 56 is not a retirement plan prohibited by RA
4968, and that Res. 56 provides benefits different from and aside from what a retiring SSS employee would be
entitled to under RA 660. Petitioners contend that it is a social amelioration and economic upliftment measure
undertaken not only for the benefit of the SSS but more so for the welfare of its qualified retiring employees.
As such, it should be interpreted in a manner that would give the x x x most advantage to the recipient -- the
retiring employees whose dedicated, loyal, lengthy and faithful service to the agency of government is
recognized and amply rewarded -- the rationale for the financial assistance plan. Petitioners reiterate the
argument in their letter dated January 12, 1993 to COA that:
Motivation can be in the form of financial assistance, during their stay in the service or upon retirement, as in
the SSS Financial Assistance Plan. This is so, because Government has to have some attractive remuneration
programs to encourage well-qualified personnel to pursue a career in the government service, rather than in
the private sector or in foreign countries ...
A more developmental view of the financial institutions grant of certain forms of financial assistance to its
personnel, we believe, would enable government administrators to see these financial forms of remuneration
as contributory to the national developmental efforts for effective and efficient administration of the personnel
programs in different institutions.[11]
The Courts Ruling
Petitioners contentions are not supported by law. We hold that Res. 56 constitutes a supplementary
retirement plan.
A cursory examination of the preambular clauses and provisions of Res. 56 provides a number of clear
indications that its financial assistance plan constitutes a supplemental retirement/pension benefits plan. In
particular, the fifth preambular clause which provides that it is the policy of the Social Security Commission to
promote and to protect the interest of all SSS employees, with a view to providing for their well-being during
both their working and retirement years, and the wording of the resolution itself which states Resolved, further,
that SSS employees who availed themselves of the said life annuity (under RA 660), in appreciation and
recognition of their long and faithful service, be granted financial assistance x x x can only be interpreted to
mean that the benefit being granted is none other than a kind of amelioration to enable the retiring employee
to enjoy (or survive) his retirement years and a reward for his loyalty and service. Moreover, it is plain to see
that the grant of said financial assistance is inextricably linked with and inseparable from the application for
and approval of retirement benefits under RA 660, i.e., that availment of said financial assistance under Res.
56 may not be done independently of but only in conjunction with the availment of retirement benefits under
RA 660, and that the former is in augmentation or supplementation of the latter benefits.

On November 15, 1993, petitioner Conte sought payment from SSS of the benefits under Res. 56.
OnDecember 9, 1993, SSS Administrator Renato C. Valencia denied [9] the request in consonance with the
previous disallowance by respondent COA, but assured petitioner that should the COA change its position, the
SSS will resume the grant of benefits under said Res. 56.

Likewise, then SSS Administrator Cuisias historical overview of the origins and purpose of Res. 56 is
very instructive and sheds much light on the controversy: [12]

On March 15, 1994, respondent COA rendered its COA Decision No. 94-126 denying petitioners
request for reconsideration.

Resolution No. 56, x x x, applies where a retiring SSS employee is qualified to claim under either RA 660
(pension benefit, that is, 5 year lump sum pension and after 5 years, life time pension), or RA 1616 (gratuity
benefit plus return of contribution), at his option. The benefits under RA 660 are entirely payable by GSIS
while those under RA 1616 are entirely shouldered by SSS except the return of contribution by GSIS.

46

Resolution No. 56 came about upon observation that qualified SSS employees have invariably opted to retire
under RA 1616 instead of RA 660 because the total benefit under the former is much greater than the 5-year
lump sum under the latter. As a consequence, the SSS usually ended up virtually paying the entire retirement
benefit, instead of GSIS which is the main insurance carrier for government employees. Hence, the situation
has become so expensive for SSS that a study of the problem became inevitable.
As a result of the study and upon the recommendation of its Actuary, the SSS Management recommended to
the Social Security Commission that retiring employees who are qualified to claim under either RA 660 or
1616 should be encouraged to avail for themselves the life annuity under RA 660, as amended, with the SSS
providing a financial assistance equivalent to the difference between the benefit under RA 1616 (gratuity plus
return of contribution) and the 5-year lump sum pension under RA 660.
The Social Security Commission, as the policy-making body of the SSS approved the recommendation in line
with its mandate to insure the efficient, honest and economical administration of the provisions and purposes
of this Act. (Section 3 (c) of the Social Security Law).
Necessarily, the situation was reversed with qualified SSS employees opting to retire under RA No. 660 or RA
1146 instead of RA 1616, resulting in substantial savings for the SSS despite its having to pay financial
assistance.
Until Resolution No. 56 was questioned by COA. (underscoring part of original text; italics ours)
Although such financial assistance package may have been instituted for noble, altruistic purposes as
well as from self-interest and a desire to cut costs on the part of the SSS, nevertheless, it is beyond any
dispute that such package effectively constitutes a supplementary retirement plan. The fact that it was
designed to equalize the benefits receivable from RA 1616 with those payable under RA 660 and make the
latter program more attractive, merely confirms the foregoing finding.
That the Res. 56 package is labelled financial assistance does not change its essential
nature. Retirement benefits are, after all, a form of reward for an employees loyalty and service to the
employer, and are intended to help the employee enjoy the remaining years of his life, lessening the burden of
worrying about his financial support or upkeep. [13] On the other hand, a pension partakes of the nature of
retained wages of the retiree for a dual purpose: to entice competent people to enter the government service,
and to permit them to retire from the service with relative security, not only for those who have retained their
vigor, but more so for those who have been incapacitated by illness or accident. [14]
Is SSS Resolution No. 56 then within the ambit of and thus proscribed by Sec. 28 (b) of CA 186 as
amended by RA 4968?
We answer in the affirmative. Said Sec. 28 (b) as amended by RA 4968 in no uncertain terms bars the
creation of any insurance or retirement plan -- other than the GSIS -- for government officers and employees,
in order to prevent the undue and inequitous proliferation of such plans. It is beyond cavil that Res. 56
contravenes the said provision of law and is therefore invalid, void and of no effect. To ignore this and rule
otherwise would be tantamount to permitting every other government office or agency to put up its own
supplementary retirement benefit plan under the guise of such financial assistance.
We are not unmindful of the laudable purposes for promulgating Res. 56, and the positive results it
must have had, not only in reducing costs and expenses on the part of the SSS in connection with the pay-out
of retirement benefits and gratuities, but also in improving the quality of life for scores of retirees. But it is
simply beyond dispute that the SSS had no authority to maintain and implement such retirement plan,
particularly in the face of the statutory prohibition. The SSS cannot, in the guise of rule-making, legislate or
amend laws or worse, render them nugatory.

It is doctrinal that in case of conflict between a statute and an administrative order, the former must
prevail.[15] A rule or regulation must conform to and be consistent with the provisions of the enabling statute in
order for such rule or regulation to be valid. [16] The rule-making power of a public administrative body is a
delegated legislative power, which it may not use either to abridge the authority given it by the Congress or the
Constitution or to enlarge its power beyond the scope intended. Constitutional and statutory provisions control
with respect to what rules and regulations may be promulgated by such a body, as well as with respect to what
fields are subject to regulation by it. It may not make rules and regulations which are inconsistent with the
provisions of the Constitution or a statute, particularly the statute it is administering or which created it, or
which are in derogation of, or defeat, the purpose of a statute. [17] Though well-settled is the rule that retirement
laws are liberally interpreted in favor of the retiree, [18] nevertheless, there is really nothing to interpret in either
RA 4968 or Res. 56, and correspondingly, the absence of any doubt as to the ultra-vires nature and illegality of
the disputed resolution constrains us to rule against petitioners.
As a necessary consequence of the invalidity of Res. 56, we can hardly impute abuse of discretion of
any sort to respondent Commission for denying petitioners request for reconsideration of the 3rd Indorsement
of July 10, 1989. On the contrary, we hold that public respondent in its assailed Decision acted with
circumspection in denying petitioners claim. It reasoned thus:
After a careful evaluation of the facts herein obtaining, this Commission finds the instant request to be devoid
of merit. It bears stress that the financial assistance contemplated under SSS Resolution No. 56 is granted to
SSS employees who opt to retire under R.A. No. 660. In fact, by the aggrieved parties own admission (page 2
of the request for reconsideration dated January 12, 1993), it is a financial assistance granted by the SSS
management to its employees, in addition to the retirement benefits under Republic Act No.
660. (underscoring supplied for emphasis) There is therefore no question, that the said financial assistance
partakes of the nature of a retirement benefit that has the effect of modifying existing retirement laws
particularly R.A. No. 660.
Petitioners also asseverate that the scheme of financial assistance under Res. 56 may be likened to the
monetary benefits of government officials and employees who are paid, over and above their salaries and
allowances as provided by statute, an additional honorarium in varying amounts. We find this comparison
baseless and misplaced. As clarified by the Solicitor General: [19]
Petitioners comparison of SSS Resolution No. 56 with the honoraria given to government officials and
employees of the National Prosecution Service of the Department of Justice, Office of the Government
Corporate Counsel and even in the Office of the Solicitor General is devoid of any basis. The monetary
benefits or honoraria given to these officials or employees are categorized as travelling and/or representation
expenses which are incurred by them in the course of handling cases, attending court/administrative hearings,
or performing other field work. These monetary benefits are given upon rendition of service while the financial
benefits under SSS Resolution No. 56 are given upon retirement from service.
In a last-ditch attempt to convince this Court that their position is tenable, petitioners invoke
equity. They believe that they are deserving of justice and equity in their quest for financial assistance under
SSS Resolution No. 56, not so much because the SSS is one of the very few stable agencies of government
where no doubt this recognition and reputation is earned x x x but more so due to the miserable scale of
compensation granted to employees in various agencies to include those obtaining in the SSS. [20]
We must admit we sympathize with petitioners in their financial predicament as a result of their
misplaced decision to avail of retirement benefits under RA 660, with the false expectation that financial
assistance under the disputed Res. 56 will also materialize. Nevertheless, this Court has always held that
equity, which has been aptly described as justice outside legality, is applied only in the absence of, and never
against, statutory law or judicial rules of procedure. [21] In this case, equity cannot be applied to give validity and
effect to Res. 56, which directly contravenes the clear mandate of the provisions of RA 4968.

47

Likewise, we cannot but be aware that the clear imbalance between the benefits available under RA
660 and those under RA 1616 has created an unfair situation for it has shifted the burden of paying such
benefits from the GSIS (the main insurance carrier of government employees) to the SSS. Without the
corrective effects of Res. 56, all retiring SSS employees without exception will be impelled to avail of benefits
under RA 1616. The cumulative effect of such availments on the financial standing and stability of the SSS is
better left to actuarians.But the solution or remedy for such situation can be provided only by Congress.
Judicial hands cannot, on the pretext of showing concern for the welfare of government employees, bestow
equity contrary to the clear provisions of law.
Nevertheless, insofar as herein petitioners are concerned, this Court cannot just sit back and watch as
these two erstwhile government employees, who after spending the best parts of their lives in public service
have retired hoping to enjoy their remaining years, face a financially dismal if not distressed future, deprived of
what should have been due them by way of additional retirement benefits, on account of a bureaucratic booboo improvidently hatched by their higher-ups. It is clear to our mind that petitioners applied for benefits under
RA 660 only because of the incentives offered by Res. 56, and that absent such incentives, they would have
without fail availed of RA 1616 instead. We likewise have no doubt that petitioners are simply innocent
bystanders in this whole bureaucratic rule-making/financial scheme-making drama, and that therefore, to the
extent possible, petitioners ought not be penalized or made to suffer as a result of the subsequently
determined invalidity of Res. 56, the promulgation and implementation of which they had nothing to do with.
And here is where equity may properly be invoked: since SSS employees who are qualified for
compulsory retirement at age 65 or for optional retirement at a lower age are entitled to either the life annuity
under R.A. 660, as amended, or the gratuity under R.A. 1616, as amended, [22] it appears that petitioners, being
qualified to avail of benefits under RA 660, may also readily qualify under RA 1616. It would therefore not be
misplaced to enjoin the SSS to render all possible assistance to petitioners for the prompt processing and
approval of their applications under RA 1616, and in the meantime, unless barred by existing regulations, to
advance to petitioners the difference between the amounts due under RA 1616, and the amounts they already
obtained, if any, under RA 660.
WHEREFORE, the petition is hereby DISMISSED for lack of merit, there having been no grave abuse
of discretion on the part of respondent Commission. The assailed Decision of public respondent
is AFFIRMED, and SSS Resolution No. 56 is hereby declared ILLEGAL, VOID AND OF NO EFFECT. The
SSS is hereby urged to assist petitioners and facilitate their applications under RA 1616, and to advance to
them, unless barred by existing regulations, the corresponding amounts representing the difference between
the two benefits programs.No costs.
SO ORDERED.
G.R. No. L-44291

When this case was called for trial for the arraignment, counsel for the accused appeared stating
that in view of the ruling laid down by this court in criminal case No. 6785 of this court, holding that
the penalty applicable is under section 83 of Act No. 4003 which falls within the original jurisdiction
of the justice of the peace court he requests that the case be remanded to the justice of the peace
court of Cavite which conducted the preliminary investigation, so that the latter may try it, being
within its original jurisdiction.
We agree that it falls within the jurisdiction of the corresponding justice of the peace court, but it
being alleged in the information that the infraction was committed within the waters of the Island of
Corregidor, the competent justice of the peace court is that of Corregidor, not Cavite.
Wherefore, we decree the dismissal of this case, cancelling the bond filed by the accused, with
costs de oficio, without prejudice to the filing by the prosecuting attorney of a new information in
the justice of the peace court of Corregidor, if he so deems convenient. It is so ordered.
In support of his appeal the appellant assigns as the sole alleged error committed by the court a quo its having
dismissed the case on the ground that it does not fall within its original jurisdiction.
On June 18, 1930, the provincial fiscal of Cavite filed against the accused -appellee Augusta A. Santos an
information which reads as follows:
The undersigned Provincial Fiscal accuses Augusta A. Santos of violation of section 28 of Fish and
Game Administrative Order No. 2 and penalized by section 29 thereof committed as follows:
That on or about April 29, 1935, within 1,500 yards north of Cavalry Point, Corregidor Island,
Province of Cavite, P.I., the said accused Augusta A. Santos, the registered owner of two fishing
motor boats Malabon II and Malabon III, did then and there willfully, unlawfully and criminally have
his said boats, manned and operated by his fishermen, fish, loiter and anchor without permission
from the Secretary of Agriculture and Commerce within three (3) kilometers from the shore line of
the Island of Corregidor over which the naval and military authorities of the United States exercise
jurisdiction.
Contrary to law.
Cavite, Cavite, June 18, 1935.

August 15, 1936

Section 28 of Administrative Order No. 2 relative to fish and game, issued by the Secretary of Agriculture and
Commerce, provides as follows:

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,

vs.
AUGUSTO A. SANTOS, defendant-appellee.
Office of the Solicitor-General Hilado for appellant.
Arsenio Santos for appellee.
VILLA-REAL, J.:
This case is before us by virtue of an appeal taken by the prosecuting attorney from the order of the Court of
First Instance of Cavite which reads as follows:

28. Prohibited fishing areas. No boats licensed in accordance with the provisions of Act No.
4003 and this order to catch, collect, gather, take, or remove fish and other sea products from
Philippine waters shall be allowed to fish, loiter, or anchor within 3 kilometers of the shore line of
islands and reservations over which jurisdiction is exercised by naval or military authorities of the
United States, particularly Corregidor, Pulo Caballo, La Monja, El Fraile, and Carabao, and all
other islands and detached rocks lying between Mariveles Reservation on the north side of the
entrance to Manila Bay and Calumpan Point Reservation on the south side of said
entrance: Provided, That boats not subject to license under Act No. 4003 and this order may fish
within the areas mentioned above only upon receiving written permission therefor, which
permission may be granted by the Secretary of Agriculture and Commerce upon recommendation
of the military or naval authorities concerned.

ORDER

48

A violation of this paragraph may be proceeded against under section 45 of the Federal Penal
Code.
The above quoted provisions of Administrative, Order No. 2 were issued by the then Secretary of Agriculture
and Natural Resources, now Secretary of Agriculture and Commerce, by virtue of the authority vested in him
by section 4 of Act No. 4003 which reads as follows:
SEC. 4. Instructions, orders, rules and regulations. The Secretary of Agriculture and Natural
Resources shall from time to time issue such instructions, orders, rules and regulations consistent
with this Act, as may be necessary and proper to carry into effect the provisions thereof and for the
conduct of proceedings arising under such provisions.
The herein accused and appellee Augusto A. Santos is charged with having ordered his fishermen to manage
and operate the motor launches Malabon II and Malabon Ill registered in his name and to fish, loiter and
anchor within three kilometers of the shore line of the Island of Corregidor over which jurisdiction is exercised
by naval and military authorities of the United States, without permission from the Secretary of Agriculture and
Commerce.
These acts constitute a violation of the conditional clause of section 28 above quoted, which reads as follows:
Provided, That boats not subject to license under Act No. 4003 and this order may fish within the
areas mentioned above (within 3 kilometers of the shore line of islands and reservations over
which jurisdiction is exercised by naval and military authorities of the United States, particularly
Corregidor) only upon receiving written permission therefor, which permission may be granted by
the Secretary of Agriculture and Commerce upon recommendation of the military and naval
authorities of concerned. (Emphasis supplied.)
Act No. 4003 contains no similar provision prohibiting boats not subject to license from fishing within three
kilometers of the shore line of islands and reservations over which jurisdiction is exercised by naval and
military authorities of the United States, without permission from the Secretary of Agriculture and Commerce
upon recommendation of the military and naval authorities concerned. Inasmuch as the only authority granted
to the Secretary of Agriculture and Commerce, by section 4 of Act No. 4003, is to issue from time to time such
instructions, orders, rules, and regulations consistent with said Act, as may be necessary and proper to carry
into effect the provisions thereof and for the conduct of proceedings arising under such provisions; and
inasmuch as said Act No. 4003, as stated, contains no provisions similar to those contained in the above
quoted conditional clause of section 28 of Administrative Order No. 2, the conditional clause in question
supplies a defect of the law, extending it. This is equivalent to legislating on the matter, a power which has not
been and cannot be delegated to him, it being exclusively reserved to the then Philippine Legislature by the
Jones Law, and now to the National Assembly by the Constitution of the Philippines. Such act constitutes not
only an excess of the regulatory power conferred upon the Secretary of Agriculture and Commerce, but also
an exercise of a legislative power which he does not have, and therefore said conditional clause is null and
void and without effect (12 Corpus Juris, 845; Rubi vs. Provincial Board of Mindoro, 39 Phil., 660; U.S. vs. Ang
Tang Ho, 43 Phil., 1; U.S. vs. Barrias, 11 Phil., 327).
For the foregoing considerations, we are of the opinion and so hold that the conditional clause of section 28 of
Administrative Order No. 2. issued by the Secretary of Agriculture and Commerce, is null and void and without
effect, as constituting an excess of the regulatory power conferred upon him by section 4 of Act No. 4003 and
an exercise of a legislative power which has not been and cannot be delegated to him.
Wherefore, inasmuch as the facts with the commission of which Augusto A. Santos is charged do not
constitute a crime or a violation of some criminal law within the jurisdiction of the civil courts, the information
filed against him is dismissed, with the costs de oficio. So ordered.

G.R. No. L-6791

March 29, 1954

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
QUE PO LAY, defendant-appellant.
Prudencio de Guzman for appellant.
First Assistant Solicitor General Ruperto Kapunan, Jr., and Solicitor Lauro G. Marquez for appellee.
MONTEMAYOR, J.:
Que Po Lay is appealing from the decision of the Court of First Instance of Manila, finding him guilty of
violating Central Bank Circular No. 20 in connection with section 34 of Republic Act No. 265, and sentencing
him to suffer six months imprisonment, to pay a fine of P1,000 with subsidiary imprisonment in case of
insolvency, and to pay the costs.
The charge was that the appellant who was in possession of foreign exchange consisting of U.S. dollars, U.S.
checks and U.S. money orders amounting to about $7,000 failed to sell the same to the Central Bank through
its agents within one day following the receipt of such foreign exchange as required by Circular No. 20. the
appeal is based on the claim that said circular No. 20 was not published in the Official Gazette prior to the act
or omission imputed to the appellant, and that consequently, said circular had no force and effect. It is
contended that Commonwealth Act. No., 638 and Act 2930 both require said circular to be published in the
Official Gazette, it being an order or notice of general applicability. The Solicitor General answering this
contention says that Commonwealth Act. No. 638 and 2930 do not require the publication in the Official
Gazette of said circular issued for the implementation of a law in order to have force and effect.
We agree with the Solicitor General that the laws in question do not require the publication of the circulars,
regulations and notices therein mentioned in order to become binding and effective. All that said two laws
provide is that laws, resolutions, decisions of the Supreme Court and Court of Appeals, notices and
documents required by law to be of no force and effect. In other words, said two Acts merely enumerate and
make a list of what should be published in the Official Gazette, presumably, for the guidance of the different
branches of the Government issuing same, and of the Bureau of Printing.
However, section 11 of the Revised Administrative Code provides that statutes passed by Congress shall, in
the absence of special provision, take effect at the beginning of the fifteenth day after the completion of the
publication of the statute in the Official Gazette. Article 2 of the new Civil Code (Republic Act No. 386) equally
provides that laws shall take effect after fifteen days following the completion of their publication in the Official
Gazette, unless it is otherwise provided. It is true that Circular No. 20 of the Central Bank is not a statute or
law but being issued for the implementation of the law authorizing its issuance, it has the force and effect of
law according to settled jurisprudence. (See U.S. vs. Tupasi Molina, 29 Phil., 119 and authorities cited therein.)
Moreover, as a rule, circulars and regulations especially like the Circular No. 20 of the Central Bank in
question which prescribes a penalty for its violation should be published before becoming effective, this, on the
general principle and theory that before the public is bound by its contents, especially its penal provisions, a
law, regulation or circular must first be published and the people officially and specifically informed of said
contents and its penalties.
Our Old Civil code, ( Spanish Civil Code of 1889) has a similar provision about the effectivity of laws, (Article 1
thereof), namely, that laws shall be binding twenty days after their promulgation, and that their promulgation
shall be understood as made on the day of the termination of the publication of the laws in the Gazette.
Manresa, commenting on this article is of the opinion that the word "laws" include regulations and circulars
issued in accordance with the same. He says:

49

El Tribunal Supremo, ha interpretado el articulo 1. del codigo Civil en Sentencia de 22 de Junio de

1910, en el sentido de que bajo la denominacion generica de leyes, se comprenden tambien
los Reglamentos, Reales decretos, Instrucciones, Circulares y Reales ordenes dictadas de
conformidad con las mismas por el Gobierno en uso de su potestad. Tambien el poder ejecutivo lo
ha venido entendiendo asi, como lo prueba el hecho de que muchas de sus disposiciones
contienen la advertencia de que empiezan a regir el mismo dia de su publicacion en la Gaceta,
advertencia que seria perfectamente inutil si no fuera de aplicacion al caso el articulo 1.o del
Codigo Civil. (Manresa, Codigo Civil Espaol, Vol. I. p. 52).
In the present case, although circular No. 20 of the Central Bank was issued in the year 1949, it was not
published until November 1951, that is, about 3 months after appellant's conviction of its violation. It is clear
that said circular, particularly its penal provision, did not have any legal effect and bound no one until its
publication in the Official Gazzette or after November 1951. In other words, appellant could not be held liable
for its violation, for it was not binding at the time he was found to have failed to sell the foreign exchange in his
possession thereof.
But the Solicitor General also contends that this question of non-publication of the Circular is being raised for
the first time on appeal in this Court, which cannot be done by appellant. Ordinarily, one may raise on appeal
any question of law or fact that has been raised in the court below and which is within the issues made by the
parties in their pleadings. (Section 19, Rule 48 of the Rules of Court). But the question of non-publication is
fundamental and decisive. If as a matter of fact Circular No. 20 had not been published as required by law
before its violation, then in the eyes of the law there was no such circular to be violated and consequently
appellant committed no violation of the circular or committed any offense, and the trial court may be said to
have had no jurisdiction. This question may be raised at any stage of the proceeding whether or not raised in
the court below.
In view of the foregoing, we reverse the decision appealed from and acquit the appellant, with costs de oficio.
G.R. No. L-32166 October 18, 1977
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,
vs.
HON. MAXIMO A. MACEREN CFI, Sta. Cruz, Laguna, JOSE BUENAVENTURA, GODOFREDO REYES,
BENJAMIN REYES, NAZARIO AQUINO and CARLO DEL ROSARIO, accused-appellees.
Office of the Solicitor General for appellant.

It was alleged in the complaint that the five accused in the morning of March 1, 1969 resorted to electro fishing
in the waters of Barrio San Pablo Norte, Sta. Cruz by "using their own motor banca, equipped with motor; with
a generator colored green with attached dynamo colored gray or somewhat white; and electrocuting device
locally known as sensored with a somewhat webbed copper wire on the tip or other end of a bamboo pole with
electric wire attachment which was attached to the dynamo direct and with the use of these devices or
equipments catches fish thru electric current, which destroy any aquatic animals within its cuffed reach, to the
detriment and prejudice of the populace" (Criminal Case No. 5429).
Upon motion of the accused, the municipal court quashed the complaint. The prosecution appealed. The Court
of First Instance of Laguna affirmed the order of dismissal (Civil Case No. SC-36). The case is now before this
Court on appeal by the prosecution under Republic Act No. 5440.
The lower court held that electro fishing cannot be penalize because electric current is not an obnoxious or
poisonous substance as contemplated in section I I of the Fisheries Law and that it is not a substance at all but
a form of energy conducted or transmitted by substances. The lower court further held that, since the law does
not clearly prohibit electro fishing, the executive and judicial departments cannot consider it unlawful.
As legal background, it should be stated that section 11 of the Fisheries Law prohibits "the use of any
obnoxious or poisonous substance" in fishing.
Section 76 of the same law punishes any person who uses an obnoxious or poisonous substance in fishing
with a fine of not more than five hundred pesos nor more than five thousand, and by imprisonment for not less
than six months nor more than five years.
It is noteworthy that the Fisheries Law does not expressly punish .electro fishing." Notwithstanding the silence
of the law, the Secretary of Agriculture and Natural Resources, upon the recommendation of the
Commissioner of Fisheries, promulgated Fisheries Administrative Order No. 84 (62 O.G. 1224), prohibiting
electro fishing in all Philippine waters. The order is quoted below: +.wph!1
SUBJECT: PROHIBITING ELECTRO FISHING IN ALL WATERS +.wph!1
OF THE PHILIPPINES.
Pursuant to Section 4 of Act No. 4003, as amended, and Section 4 of R.A. No. 3512, the following rules and
regulations regarding the prohibition of electro fishing in all waters of the Philippines are promulgated for the
information and guidance of all concerned.+.wph!1

Rustics F. de los Reyes, Jr. for appellees.

SECTION 1. Definition. Words and terms used in this Order 11 construed as
follows:

AQUINO, J.:t.hqw
This is a case involving the validity of a 1967 regulation, penalizing electro fishing in fresh water fisheries,
promulgated by the Secretary of Agriculture and Natural Resources and the Commissioner of Fisheries under
the old Fisheries Law and the law creating the Fisheries Commission.
On March 7, 1969 Jose Buenaventura, Godofredo Reyes, Benjamin Reyes, Nazario Aquino and Carlito del
Rosario were charged by a Constabulary investigator in the municipal court of Sta. Cruz, Laguna with having
violated Fisheries Administrative Order No. 84-1.

(a) Philippine waters or territorial waters of the Philippines' includes all waters of the
Philippine Archipelago, as defined in the t between the United States and Spain, dated
respectively the tenth of December, eighteen hundred ninety eight and the seventh of
November, nineteen hundred. For the purpose of this order, rivers, lakes and other
bodies of fresh waters are included.
(b) Electro Fishing. Electro fishing is the catching of fish with the use of electric
current. The equipment used are of many electrical devices which may be battery or
generator-operated and from and available source of electric current.
(c) 'Persons' includes firm, corporation, association, agent or employee.

50

(d) 'Fish' includes other aquatic products.

SEC. 2. Prohibition. It shall be unlawful for any person to engage in electro
fishing or to catch fish by the use of electric current in any portion of the Philippine
waters except for research, educational and scientific purposes which must be covered
by a permit issued by the Secretary of Agriculture and Natural Resources which shall
be carried at all times.
SEC. 3. Penalty. Any violation of the provisions of this Administrative Order shall
subject the offender to a fine of not exceeding five hundred pesos (P500.00) or
imprisonment of not extending six (6) months or both at the discretion of the Court.
SEC. 4. Repealing Provisions. All administrative orders or parts thereof
inconsistent with the provisions of this Administrative Order are hereby revoked.
SEC. 5. Effectivity. This Administrative Order shall take effect six (60) days after
its publication in the Office Gazette.

It results that the Court of First Instance of Laguna had no appellate jurisdiction over the case. Its order
affirming the municipal court's order of dismissal is void for lack of motion. This appeal shall be treated as a
direct appeal from the municipal court to this Court. (See People vs. Del Rosario, 97 Phil. 67).
In this appeal, the prosecution argues that Administrative Orders Nos. 84 and 84-1 were not issued under
section 11 of the Fisheries Law which, as indicated above, punishes fishing by means of an obnoxious or
poisonous substance. This contention is not well-taken because, as already stated, the Penal provision of
Administrative Order No. 84 implies that electro fishing is penalized as a form of fishing by means of an
obnoxious or poisonous substance under section 11.
The prosecution cites as the legal sanctions for the prohibition against electro fishing in fresh water fisheries
(1) the rule-making power of the Department Secretary under section 4 of the Fisheries Law; (2) the function
of the Commissioner of Fisheries to enforce the provisions of the Fisheries Law and the regulations
Promulgated thereunder and to execute the rules and regulations consistent with the purpose for the creation
of the Fisheries Commission and for the development of fisheries (Sec. 4[c] and [h] Republic Act No. 3512; (3)
the declared national policy to encourage, Promote and conserve our fishing resources (Sec. 1, Republic Act
No. 3512), and (4) section 83 of the Fisheries Law which provides that "any other violation of" the Fisheries
Law or of any rules and regulations promulgated thereunder "shall subject the offender to a fine of not more
than two hundred pesos, or imprisonment for not more than six months, or both, in the discretion of the court."

On June 28, 1967 the Secretary of Agriculture and Natural Resources, upon the recommendation of the
Fisheries Commission, issued Fisheries Administrative Order No. 84-1, amending section 2 of Administrative
Order No. 84, by restricting the ban against electro fishing to fresh water fisheries (63 O.G. 9963).

As already pointed out above, the prosecution's reference to section 83 is out of place because the penalty for
electro fishing under Administrative order No. 84 is not the same as the penalty fixed in section 83.

Thus, the phrase "in any portion of the Philippine waters" found in section 2, was changed by the amendatory
order to read as follows: "in fresh water fisheries in the Philippines, such as rivers, lakes, swamps, dams,
irrigation canals and other bodies of fresh water."

We are of the opinion that the Secretary of Agriculture and Natural Resources and the Commissioner of
Fisheries exceeded their authority in issuing Fisheries Administrative Orders Nos. 84 and 84-1 and that those
orders are not warranted under the Fisheries Commission, Republic Act No. 3512.

The Court of First Instance and the prosecution (p. 11 of brief) assumed that electro fishing is punishable
under section 83 of the Fisheries Law (not under section 76 thereof), which provides that any other violation of
that law "or of any rules and regulations promulgated thereunder shall subject the offender to a fine of not
more than two hundred pesos (P200), or in t for not more than six months, or both, in the discretion of the
court."

The reason is that the Fisheries Law does not expressly prohibit electro fishing. As electro fishing is not
banned under that law, the Secretary of Agriculture and Natural Resources and the Commissioner of Fisheries
are powerless to penalize it. In other words, Administrative Orders Nos. 84 and 84-1, in penalizing electro
fishing, are devoid of any legal basis.

That assumption is incorrect because 3 of the aforequoted Administrative Order No. 84 imposes a fm of not
exceeding P500 on a person engaged in electro fishing, which amount the 83. It seems that the Department of
Fisheries prescribed their own penalty for swift fishing which penalty is less than the severe penalty imposed
in section 76 and which is not Identified to the at penalty imposed in section 83.
Had Administrative Order No. 84 adopted the fighter penalty prescribed in on 83, then the crime of electro
fishing would be within the exclusive original jurisdiction of the inferior court (Sec. 44 [f], Judiciary Law; People
vs. Ragasi, L-28663, September 22,
We have discussed this pre point, not raised in the briefs, because it is obvious that the crime of electro fishing
which is punishable with a sum up to P500, falls within the concurrent original jurisdiction of the inferior courts
and the Court of First instance (People vs. Nazareno, L-40037, April 30, 1976, 70 SCRA 531 and the cases
cited therein).
And since the instant case was filed in the municipal court of Sta. Cruz, Laguna, a provincial capital, the order
of d rendered by that municipal court was directly appealable to the Court, not to the Court of First Instance of
Laguna (Sec. 45 and last par. of section 87 of the Judiciary Law; Esperat vs. Avila, L-25992, June 30, 1967, 20
SCRA 596).

Had the lawmaking body intended to punish electro fishing, a penal provision to that effect could have been
easily embodied in the old Fisheries Law.
That law punishes (1) the use of obnoxious or poisonous substance, or explosive in fishing; (2) unlawful
fishing in deepsea fisheries; (3) unlawful taking of marine molusca, (4) illegal taking of sponges; (5) failure of
licensed fishermen to report the kind and quantity of fish caught, and (6) other violations.
Nowhere in that law is electro fishing specifically punished. Administrative Order No. 84, in punishing electro
fishing, does not contemplate that such an offense fails within the category of "other violations" because, as
already shown, the penalty for electro fishing is the penalty next lower to the penalty for fishing with the use of
obnoxious or poisonous substances, fixed in section 76, and is not the same as the penalty for "other
violations" of the law and regulations fixed in section 83 of the Fisheries Law.
The lawmaking body cannot delegate to an executive official the power to declare what acts should constitute
an offense. It can authorize the issuance of regulations and the imposition of the penalty provided for in the
law itself. (People vs. Exconde 101 Phil. 11 25, citing 11 Am. Jur. 965 on p. 11 32).
Originally, Administrative Order No. 84 punished electro fishing in all waters. Later, the ban against electro
fishing was confined to fresh water fisheries. The amendment created the impression that electro fishing is not
condemnable per se. It could be tolerated in marine waters. That circumstances strengthens the view that the
old law does not eschew all forms of electro fishing.

51

However, at present, there is no more doubt that electro fishing is punishable under the Fisheries Law and that
it cannot be penalized merely by executive revolution because Presidential Decree No. 704, which is a
revision and consolidation of all laws and decrees affecting fishing and fisheries and which was promulgated
on May 16, 1975 (71 O.G. 4269), expressly punishes electro fishing in fresh water and salt water areas.

administrative agency cannot amend an act of Congress (Santos vs. Estenzo, 109 Phil. 419, 422; Teoxon vs.
Members of the d of Administrators, L-25619, June 30, 1970, 33 SCRA 585; Manuel vs. General Auditing
Office, L-28952, December 29, 1971, 42 SCRA 660; Deluao vs. Casteel, L-21906, August 29, 1969, 29 SCRA
350).

That decree provides: +.wph!1

The rule-making power must be confined to details for regulating the mode or proceeding to carry into effect
the law as it his been enacted. The power cannot be extended to amending or expanding the statutory
requirements or to embrace matters not covered by the statute. Rules that subvert the statute cannot be
sanctioned. (University of Santo Tomas vs. Board of Tax A 93 Phil. 376, 382, citing 12 C.J. 845-46. As to
invalid regulations, see of Internal Revenue vs. Villaflor 69 Phil. 319, Wise & Co. vs. Meer, 78 Phil. 655, 676;
Del March vs. Phil. Veterans Administrative, L-27299, June 27, 1973, 51 SCRA 340, 349).

SEC. 33. Illegal fishing, dealing in illegally caught fish or fishery/aquatic products.
It shall he unlawful for any person to catch, take or gather or cause to be caught, taken
or gathered fish or fishery/aquatic products in Philippine waters with the use of
explosives, obnoxious or poisonous substance, or by the use of electricity as defined in
paragraphs (1), (m) and (d), respectively, of Section 3 hereof: ...
The decree Act No. 4003, as amended, Republic Acts Nos. 428, 3048, 3512 and 3586, Presidential Decrees
Nos. 43, 534 and 553, and all , Acts, Executive Orders, rules and regulations or parts thereof inconsistent with
it (Sec. 49, P. D. No. 704).
The inclusion in that decree of provisions defining and penalizing electro fishing is a clear recognition of the
deficiency or silence on that point of the old Fisheries Law. It is an admission that a mere executive regulation
is not legally adequate to penalize electro fishing.
Note that the definition of electro fishing, which is found in section 1 (c) of Fisheries Administrative Order No.
84 and which is not provided for the old Fisheries Law, is now found in section 3(d) of the decree. Note further
that the decree penalty electro fishing by "imprisonment from two (2) to four (4) years", a punishment which is
more severe than the penalty of a time of not excluding P500 or imprisonment of not more than six months or
both fixed in section 3 of Fisheries Administrative Order No. 84.
An examination of the rule-making power of executive officials and administrative agencies and, in particular,
of the Secretary of Agriculture and Natural Resources (now Secretary of Natural Resources) under the
Fisheries Law sustains the view that he ex his authority in penalizing electro fishing by means of an
administrative order.
Administrative agent are clothed with rule-making powers because the lawmaking body finds it impracticable,
if not impossible, to anticipate and provide for the multifarious and complex situations that may be
encountered in enforcing the law. All that is required is that the regulation should be germane to the defects
and purposes of the law and that it should conform to the standards that the law prescribes (People vs.
Exconde 101 Phil. 1125; Director of Forestry vs. Mu;oz, L-24796, June 28, 1968, 23 SCRA 1183, 1198;
Geukeko vs. Araneta, 102 Phil. 706, 712).
The lawmaking body cannot possibly provide for all the details in the enforcement of a particular statute (U.S.
vs. Tupasi Molina, 29 Phil. 119, 125, citing U.S. vs. Grimaud 220 U.S. 506; Interprovincial Autobus Co., Inc. vs.
Coll. of Internal Revenue, 98 Phil. 290, 295-6).
The grant of the rule-making power to administrative agencies is a relaxation of the principle of separation of
powers and is an exception to the nondeleption of legislative, powers. Administrative regulations or
"subordinate legislation calculated to promote the public interest are necessary because of "the growing
complexity of modem life, the multiplication of the subjects of governmental regulations, and the increased
difficulty of administering the law" Calalang vs. Williams, 70 Phil. 726; People vs. Rosenthal and Osme;a, 68
Phil. 328).
Administrative regulations adopted under legislative authority by a particular department must be in harmony
with the provisions of the law, and should be for the sole purpose of carrying into effect its general provisions.
By such regulations, of course, the law itself cannot be extended. (U.S. vs. Tupasi Molina, supra). An

There is no question that the Secretary of Agriculture and Natural Resources has rule-making powers. Section
4 of the Fisheries law provides that the Secretary "shall from time to time issue instructions, orders, and
regulations consistent" with that law, "as may be and proper to carry into effect the provisions thereof." That
power is now vested in the Secretary of Natural Resources by on 7 of the Revised Fisheries law, Presidential
December No. 704.
Section 4(h) of Republic Act No. 3512 empower the Co of Fisheries "to prepare and execute upon the
approval of the Secretary of Agriculture and Natural Resources, forms instructions, rules and regulations
consistent with the purpose" of that enactment "and for the development of fisheries."
Section 79(B) of the Revised Administrative Code provides that "the Department Head shall have the power to
promulgate, whenever he may see fit do so, all rules, regulates, orders, memorandums, and other
instructions,not contrary to law, to regulate the proper working and harmonious and efficient administration of
each and all of the offices and dependencies of his Department, and for the strict enforcement and proper
execution of the laws relative to matters under the jurisdiction of said Department; but none of said rules or
orders shall prescribe penalties for the violation thereof, except as expressly authorized by law."
Administrative regulations issued by a Department Head in conformity with law have the force of law (Valerie
vs. Secretary of culture and Natural Resources, 117 Phil. 729, 733; Antique Sawmills, Inc. vs. Zayco, L- 20051,
May 30, 1966, 17 SCRA 316). As he exercises the rule-making power by delegation of the lawmaking body, it
is a requisite that he should not transcend the bound demarcated by the statute for the exercise of that power;
otherwise, he would be improperly exercising legislative power in his own right and not as a surrogate of the
lawmaking body.
Article 7 of the Civil Code embodies the basic principle that administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to the laws or the Constitution."
As noted by Justice Fernando, "except for constitutional officials who can trace their competence to act to the
fundamental law itself, a public office must be in the statute relied upon a grant of power before he can
exercise it." "department zeal may not be permitted to outrun the authority conferred by statute." (Radio
Communications of the Philippines, Inc. vs. Santiago, L-29236, August 21, 1974, 58 SCRA 493, 496-8).
"Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon the
administrative agency by law, partake of the nature of a statute, and compliance therewith may be enforced by
a penal sanction provided in the law. This is so because statutes are usually couched in general terms, after
expressing the policy, purposes, objectives, remedies and sanctions intended by the legislature. The details
and the manner of carrying out the law are oftentimes left to the administrative agency entrusted with its
enforcement. In this sense, it has been said that rules and regulations are the product of a delegated power to
create new or additional legal provisions that have the effect of law." The rule or regulation should be within the
scope of the statutory authority granted by the legislature to the administrative agency. (Davis, Administrative
Law, p. 194, 197, cited in Victories Milling Co., Inc. vs. Social Security Commission, 114 Phil. 555, 558).

52

In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic
law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law
(People vs. Lim, 108 Phil. 1091).
This Court in its decision in the Lim case, supra, promulgated on July 26, 1960, called the attention of
technical men in the executive departments, who draft rules and regulations, to the importance and necessity
of closely following the legal provisions which they intend to implement so as to avoid any possible
misunderstanding or confusion.
The rule is that the violation of a regulation prescribed by an executive officer of the government in conformity
with and based upon a statute authorizing such regulation constitutes an offense and renders the offender
liable to punishment in accordance with the provisions of the law (U.S. vs. Tupasi Molina, 29 Phil. 119, 124).
In other words, a violation or infringement of a rule or regulation validly issued can constitute a crime
punishable as provided in the authorizing statute and by virtue of the latter (People vs. Exconde 101 Phil.
1125, 1132).
It has been held that "to declare what shall constitute a crime and how it shall be punished is a power vested
exclusively in the legislature, and it may not be delegated to any other body or agency" (1 Am. Jur. 2nd, sec.
127, p. 938; Texas Co. vs. Montgomery, 73 F. Supp. 527).
In the instant case the regulation penalizing electro fishing is not strictly in accordance with the Fisheries Law,
under which the regulation was issued, because the law itself does not expressly punish electro fishing.
The instant case is similar to People vs. Santos, 63 Phil. 300. The Santos case involves section 28 of Fish and
Game Administrative Order No. 2 issued by the Secretary of Agriculture and Natural Resources pursuant to
the aforementioned section 4 of the Fisheries Law.
Section 28 contains the proviso that a fishing boat not licensed under the Fisheries Law and under the said
administrative order may fish within three kilometers of the shoreline of islands and reservations over which
jurisdiction is exercised by naval and military reservations authorities of the United States only upon receiving
written permission therefor, which permission may be granted by the Secretary upon recommendation of the
military or naval authorities concerned. A violation of the proviso may be proceeded against under section 45
of the Federal Penal Code.
Augusto A. Santos was prosecuted under that provision in the Court of First Instance of Cavite for having
caused his two fishing boats to fish, loiter and anchor without permission from the Secretary within three
kilometers from the shoreline of Corrigidor Island.
This Court held that the Fisheries Law does not prohibit boats not subject to license from fishing within three
kilometers of the shoreline of islands and reservations over which jurisdiction is exercised by naval and military
authorities of the United States, without permission from the Secretary of Agriculture and Natural Resources
upon recommendation of the military and naval authorities concerned.
As the said law does not penalize the act mentioned in section 28 of the administrative order, the promulgation
of that provision by the Secretary "is equivalent to legislating on the matter, a power which has not been and
cannot be delegated to him, it being expressly reserved" to the lawmaking body. "Such an act constitutes not
only an excess of the regulatory power conferred upon the Secretary but also an exercise of a legislative
power which he does not have, and therefore" the said provision "is null and void and without effect". Hence,
the charge against Santos was dismiss.

A penal statute is strictly construed. While an administrative agency has the right to make ranks and
regulations to carry into effect a law already enacted, that power should not be confused with the power to
enact a criminal statute. An administrative agency can have only the administrative or policing powers
expressly or by necessary implication conferred upon it. (Glustrom vs. State, 206 Ga. 734, 58 Second 2d 534;
See 2 Am. Jr. 2nd 129-130).
Where the legislature has delegated to executive or administrative officers and boards authority to promulgate
rules to carry out an express legislative purpose, the rules of administrative officers and boards, which have
the effect of extending, or which conflict with the authority granting statute, do not represent a valid precise of
the rule-making power but constitute an attempt by an administrative body to legislate (State vs. Miles, Wash.
2nd 322, 105 Pac. 2nd 51).
In a prosecution for a violation of an administrative order, it must clearly appear that the order is one which
falls within the scope of the authority conferred upon the administrative body, and the order will be scrutinized
with special care. (State vs. Miles supra).
The Miles case involved a statute which authorized the State Game Commission "to adopt, promulgate,
amend and/or repeal, and enforce reasonable rules and regulations governing and/or prohibiting the taking of
the various classes of game.
Under that statute, the Game Commission promulgated a rule that "it shall be unlawful to offer, pay or receive
any reward, prize or compensation for the hunting, pursuing, taking, killing or displaying of any game animal,
game bird or game fish or any part thereof."
Beryl S. Miles, the owner of a sporting goods store, regularly offered a ten-down cash prize to the person
displaying the largest deer in his store during the open for hunting such game animals. For that act, he was
charged with a violation of the rule Promulgated by the State Game Commission.
It was held that there was no statute penalizing the display of game. What the statute penalized was the taking
of game. If the lawmaking body desired to prohibit the display of game, it could have readily said so. It was not
lawful for the administrative board to extend or modify the statute. Hence, the indictment against Miles was
quashed. The Miles case is similar to this case.
WHEREFORE, the lower court's decision of June 9, 1970 is set aside for lack of appellate jurisdiction and the
order of dismissal rendered by the municipal court of Sta. Cruz, Laguna in Criminal Case No. 5429 is affirmed.
Costs de oficio.
SO ORDERED.
G.R. No. 95832 August 10, 1992
MAYNARD R. PERALTA, petitioner,
vs.
CIVIL SERVICE COMMISSION, respondent.
Tranquilino F. Meris Law Office for petitioner.

PADILLA, J.:

53

Petitioner was appointed Trade-Specialist II on 25 September 1989 in the Department of Trade and Industry
(DTI). His appointment was classified as "Reinstatement/Permanent". Before said appointment, he was
working at the Philippine Cotton Corporation, a government-owned and controlled corporation under the
Department of Agriculture.
On 8 December 1989, petitioner received his initial salary, covering the period from 25 September to 31
October 1989. Since he had no accumulated leave credits, DTI deducted from his salary the amount
corresponding to his absences during the covered period, namely, 29 September 1989 and 20 October
1989, inclusive of Saturdays and Sundays. More specifically, the dates of said absences for which salary
deductions were made, are as follows:
1. 29 September 1989 Friday
2. 30 September 1989 Saturday
3. 01 October 1989 Sunday
4. 20 October 1989 Friday
5. 21 October 1989 Saturday
6. 22 October 1989 Sunday
Petitioner sent a memorandum to Amando T. Alvis (Chief, General Administrative Service) on 15 December
1989 inquiring as to the law on salary deductions, if the employee has no leave credits.
Amando T. Alvis answered petitioner's query in a memorandum dated 30 January 1990 citing Chapter 5.49 of
the Handbook of Information on the Philippine Civil Service which states that "when an employee is on leave
without pay on a day before or on a day immediately preceding a Saturday, Sunday or Holiday, such Saturday,
Sunday, or Holiday shall also be without pay (CSC, 2nd Ind., February 12, 1965)."
Petitioner then sent a latter dated 20 February 1990 addressed to Civil Service Commission (CSC) Chairman
Patricia A. Sto. Tomas raising the following question:
Is an employee who was on leave of absence without pay on a day before or on a day
time immediately preceding a Saturday, Sunday or Holiday, also considered on leave of
absence without pay on such Saturday, Sunday or Holiday? 1
Petitioner in his said letter to the CSC Chairman argued that a reading of the General Leave Law as contained
in the Revised Administrative Code, as well as the old Civil Service Law (Republic Act No. 2260), the Civil
Service Decree (Presidential Decree No. 807), and the Civil Service Rules and Regulation fails to disclose a
specific provision which supports the CSC rule at issue. That being the case, the petitioner contented that he
cannot be deprived of his pay or salary corresponding to the intervening Saturdays, Sundays or Holidays (in
the factual situation posed), and that the withholding (or deduction) of the same is tantamount to a deprivation
of property without due process of law.
On 25 May 1990, respondent Commission promulgated Resolution No. 90-497, ruling that the action of the
DTI in deducting from the salary of petitioner, a part thereof corresponding to six (6) days (September 29, 30,
October 1, 20, 21, 22, 1989) is in order. 2 The CSC stated that:

In a 2nd Indorsement dated February 12, 1965 of this Commission, which embodies
the policy on leave of absence without pay incurred on a Friday and Monday, reads:
Mrs. Rosalinda Gonzales is not entitled to payment of salary
corresponding to January 23 and 24, 1965, Saturday and
Sunday, respectively, it appearing that she was present on
Friday, January 22, 1965 but was on leave without pay
beginning January 25, the succeeding Monday. It is the view of
this Office that an employee who has no more leave credit in
his favor is not entitled to the payment of salary on Saturdays,
Sundays or holidays unless such non-working days occur within
the period of service actually rendered. (Emphasis supplied)
The rationale for the above ruling which applies only to those employees who are being
paid on monthly basis, rests on the assumption that having been absent on either
Monday or Friday, one who has no leave credits, could not be favorably credited with
intervening days had the same been working days. Hence, the above policy that for an
employee on leave without pay to be entitled to salary on Saturdays, Sundays or
holidays, the same must occur between the dates where the said employee actually
renders service. To rule otherwise would allow an employee who is on leave of absent
(sic) without pay for a long period of time to be entitled to payment of his salary
corresponding to Saturdays, Sundays or holidays. It also discourages the employees
who have exhausted their leave credits from absenting themselves on a Friday or
Monday in order to have a prolonged weekend, resulting in the prejudice of the
government and the public in general. 3
Petitioner filed a motion for reconsideration and in Resolution No. 90-797, the respondent Commission denied
said motion for lack of merit. The respondent Commission in explaining its action held:
The Primer on the Civil Service dated February 21, 1978, embodies the Civil Service
Commission rulings to be observed whenever an employee of the government who
has no more leave credits, is absent on a Friday and/or a Monday is enough basis for
the deduction of his salaries corresponding to the intervening Saturdays and Sundays.
What the Commission perceived to be without basis is the demand of Peralta for the
payment of his salaries corresponding to Saturdays and Sundays when he was in
fact on leave of absence without pay on a Friday prior to the said days. A reading of
Republic Act No. 2260 (sic) does not show that a government employee who is on
leave of absence without pay on a day before or immediately preceding Saturdays,
Sunday or legal holiday is entitled to payment of his salary for said days. Further, a
reading of Senate Journal No. 67 dated May 4, 1960 of House Bill No. 41 (Republic Act
No. 2625) reveals that while the law excludes Saturdays, Sundays and holidays in the
computation of leave credits, it does not, however, include a case where the leave of
absence is without pay. Hence, applying the principle of inclusio unius est exclusio
alterius, the claim of Peralta has no merit. Moreover, to take a different posture would
be in effect giving more premium to employees who are frequently on leave of absence
without pay, instead of discouraging them from incurring further absence without
pay. 4
Petitioner's motion for reconsideration having been denied, petitioner filed the present petition.
What is primarily questioned by the petitioner is the validity of the respondent Commission's policy mandating
salary deductions corresponding to the intervening Saturdays, Sundays or Holidays where an employee
without leave credits was absent on the immediately preceding working day.

54

During the pendency of this petition, the respondent Commission promulgated Resolution No. 91-540 dated
23 April 1991 amending the questioned policy, considering that employees paid on a monthly basis are not
required to work on Saturdays, Sunday or Holidays. In said amendatory Resolution, the respondent
Commission resolved "to adopt the policy that when an employee, regardless of whether he has leave credits
or not, is absent without pay on day immediately preceding or succeeding Saturday, Sunday or holiday, he
shall not be considered absent on those days." Memorandum Circular No. 16 Series of 1991 dated 26 April
1991, was also issued by CSC Chairman Sto. Tomas adopting and promulgating the new policy and directing
the Heads of Departments, Bureaus and Agencies in the national and local governments, including
government-owned or controlled corporations with original charters, to oversee the strict implementation of the
circular.
Because of these developments, it would seem at first blush that this petition has become moot and academic
since the very CSC policy being questioned has already been amended and, in effect, Resolutions No. 90-497
and 90-797, subject of this petition for certiorari, have already been set aside and superseded. But the issue of
whether or not the policy that had been adopted and in force since 1965 is valid or not, remains unresolved.
Thus, for reasons of public interest and public policy, it is the duty of the Court to make a formal ruling on the
validity or invalidity of such questioned policy.
The Civil Service Act of 1959 (R.A. No. 2260) conferred upon the Commissioner of Civil Service the following
powers and duties:
Sec. 16 (e) with the approval by the President to prescribe, amend and enforce
suitable rules and regulations for carrying into effect the provisions of this Civil Service
Law, and the rules prescribed pursuant to the provisions of this law shall become
effective thirty days after publication in the Official Gazette;
xxx xxx xxx
(k) To perform other functions that properly belong to a central personnel agency. 5
Pursuant to the foregoing provisions, the Commission promulgated the herein challenged policy. Said policy
was embodied in a 2nd Indorsement dated 12 February 1965 of the respondent Commission involving the
case of a Mrs. Rosalinda Gonzales. The respondent Commission ruled that an employee who has no leave
credits in his favor is not entitled to the payment of salary on Saturdays, Sundays or Holidays unless such
non-working days occur within the period of service actually rendered. The same policy is reiterated in the
Handbook of Information on the Philippine Civil Service. 6 Chapter Five on leave of absence provides that:
5.51. When intervening Saturday, Sunday or holiday considered as leave without pay
when an employee is on leave without pay on a day before or on a day immediately
preceding a Saturday, Sunday or holiday, such Saturday, Sunday or holiday shall also
be without pay. (CSC, 2nd Ind., Feb. 12, 1965).
It is likewise illustrated in the Primer on the Civil Service 7 in the section referring to Questions and Answers on
Leave of Absences, which states the following:
27. How is leave of an employee who has no more leave credits computed if:
(1) he is absent
on a Friday and
the following
Monday?

(2) if he is absent
on Friday but
reports to work
the following
Monday?
(3) if he is absent
on a Monday but
present the
preceding
Friday?
- (1) He is
considered on
leave without pay
for 4 days
covering Friday
to Monday;
- (2) He is
considered on
leave without pay
for 3 days from
Friday to
Sunday;
- (3) He is
considered on
leave without pay
for 3 days from
Saturday to
Monday.
When an administrative or executive agency renders an opinion or issues a statement of policy, it merely
interprets a pre-existing law; and the administrative interpretation of the law is at best advisory, for it is the
courts that finally determine what the law means. 8 It has also been held that interpretative regulations need
not be published. 9
In promulgating as early as 12 February 1965 the questioned policy, the Civil Service Commission interpreted
the provisions of Republic Act No. 2625 (which took effect on 17 June 1960) amending the Revised
Administrative Code, and which stated as follows:
Sec. 1. Sections two hundred eighty-four and two hundred eighty-five-A of the
Administrative Code, as amended, are further amended to read as follows:
Sec. 284. After at least six months' continues (sic) faithful, and
satisfactory service, the President or proper head of
department, or the chief of office in the case of municipal
employees may, in his discretion, grant to an employee or
laborer, whether permanent or temporary, of the national
government, the provincial government, the government of a
chartered city, of a municipality, of a municipal district or of
government-owned or controlled corporations other than those
mentioned in Section two hundred sixty-eight, two hundred

55

seventy-one and two hundred seventy-four hereof, fifteen days

vacation leave of absence with full pay, exclusive of Saturdays,
Sundays and holidays, for each calendar year of service.
Sec. 285-A. In addition to the vacation leave provided in the two
preceding sections each employee or laborer, whether
permanent or temporary, of the national government, the
provincial government, the government of a chartered city, of a
municipality or municipal district in any regularly and specially
organized province, other than those mentioned in Section two
hundred sixty-eight, two hundred seventy-one and two hundred
seventy-four hereof, shall be entitled to fifteen days of sick
leave for each year of service with full pay, exclusive of
Saturdays, Sundays and holidays: Provided, That such sick
leave will be granted by the President, Head of Department or
independent office concerned, or the chief of office in case of
municipal employees, only on account of sickness on the part of
the employee or laborer concerned or of any member of his
immediate family.
The Civil Service Commission in its here questioned Resolution No. 90-797 construed R.A. 2625 as referring
only to government employees who have earned leave credits against which their absences may be charged
with pay, as its letters speak only of leaves of absence with full pay. The respondent Commission ruled that a
reading of R.A. 2625 does not show that a government employee who is on leave of absence without pay on a
day before or immediately preceding a Saturday, Sunday or legal holiday is entitled to payment of his salary
for said days.
Administrative construction, if we may repeat, is not necessarily binding upon the courts. Action of an
administrative agency may be disturbed or set aside by the judicial department if there is an error of law, or
abuse of power or lack of jurisdiction or grave abuse of discretion clearly conflicting with either the letter or the
spirit of a legislative enactment. 10
We find this petition to be impressed with merit.

The purpose of the present bill is to exclude from the computation of the leave those
days, Saturdays and Sundays, as well as holidays, because actually the employee is
entitled not to go to office during those days. And it is unfair and unjust to him that
those days should be counted in the computation of leaves. 12
With this in mind, the construction by the respondent Commission of R.A. 2625 is not in accordance with the
legislative intent. R.A. 2625 specifically provides that government employees are entitled to fifteen (15) days
vacation leave of absence with full pay and fifteen (15) days sick leave with full pay, exclusive of Saturdays,
Sundays and Holidays in both cases. Thus, the law speaks of the granting of a right and the law does not
provide for a distinction between those who have accumulated leave credits and those who have exhausted
their leave credits in order to enjoy such right. Ubi lex non distinguit nec nos distinguere debemus. The fact
remains that government employees, whether or not they have accumulated leave credits, are not required by
law to work on Saturdays, Sundays and Holidays and thus they can not be declared absent on such nonworking days. They cannot be or are not considered absent on non-working days; they cannot and should not
be deprived of their salary corresponding to said non-working days just because they were absent without pay
on the day immediately prior to, or after said non-working days. A different rule would constitute a deprivation
of property without due process.
Furthermore, before their amendment by R.A. 2625, Sections 284 and 285-A of the Revised Administrative
Code applied to all government employee without any distinction. It follows that the effect of the amendment
similarly applies to all employees enumerated in Sections 284 and 285-A, whether or not they have
accumulated leave credits.
As the questioned CSC policy is here declared invalid, we are next confronted with the question of what effect
such invalidity will have. Will all government employees on a monthly salary basis, deprived of their salaries
corresponding to Saturdays, Sundays or legal holidays (as herein petitioner was so deprived) since 12
February 1965, be entitled to recover the amounts corresponding to such non-working days?
The general rule vis-a-vis legislation is that an unconstitutional act is not a law; it confers no rights; it imposes
no duties; it affords no protection; it creates no office; it is in legal contemplation as inoperative as though it
had never been passed. 13
But, as held in Chicot County Drainage District vs. Baxter State
Bank: 14

As held in Hidalgo vs. Hidalgo: 11

. . . . where the true intent of the law is clear that calls for the application of the cardinal
rule of statutory construction that such intent or spirit must prevail over the letter
thereof, for whatever is within the spirit of a statute is within the statute, since
adherence to the letter would result in absurdity, injustice and contradictions and would
defeat the plain and vital purpose of the statute.
The intention of the legislature in the enactment of R.A. 2625 may be gleaned from, among others, the
sponsorship speech of Senator Arturo M. Tolentino during the second reading of House Bill No. 41 (which
became R.A. 2625). He said:
The law actually provides for sick leave and vacation leave of 15 days each year of
service to be with full pay. But under the present law, in computing these periods of
leaves, Saturday, Sunday and holidays are included in the computation so that if an
employee should become sick and absent himself on a Friday and then he reports for
work on a Tuesday, in the computation of the leave the Saturday and Sunday will be
included, so that he will be considered as having had a leave of Friday, Saturday,
Sunday and Monday, or four days.

. . . . It is quite clear, however, that such broad statements as to the effect of a

determination of unconstitutionality must be taken with qualifications. The actual
existence of a statute, prior to such determination is an operative fact and may have
consequences which cannot always be ignored. The past cannot always be erased by
a new judicial declaration. The effect of the subsequent ruling as to invalidity may have
to be considered in various aspects with respect to particular relations, individual
and corporate; and particular conduct, private and official.
To allow all the affected government employees, similarly situated as petitioner herein, to claim their deducted
salaries resulting from the past enforcement of the herein invalidated CSC policy, would cause quite a heavy
financial burden on the national and local governments considering the length of time that such policy has
been effective. Also, administrative and practical considerations must be taken into account if this ruling will
have a strict restrospective application. The Court, in this connection, calls upon the respondent Commission
and the Congress of the Philippines, if necessary, to handle this problem with justice and equity to all affected
government employees.
It must be pointed out, however, that after CSC Memorandum Circular No. 16 Series of 1991 amending the
herein invalidated policy was promulgated on 26 April 1991, deductions from salaries made after said date
in contravention of the new CSC policy must be restored to the government employees concerned.

56

WHEREFORE, the petition is GRANTED, CSC Resolutions No. 90-497 and 90-797 are declared NULL and
VOID. The respondent Commission is directed to take the appropriate action so that petitioner shall be paid
the amounts previously but unlawfully deducted from his monthly salary as above indicated. No costs.

there is a need to amend said Memorandum Circular to substantially conform to the

pertinent provisions of Circular No. 9-A.
xxx xxx xxx

SO ORDERED.
C. Practice of Profession
G.R. No. 102549 August 10, 1992
The Secretary (now Minister) of Justice in an Opinion No. 46 Series of 1973
stated inter alia that "members of local legislative bodies, other than the provincial
governors or the mayors, do not keep regular office hours." "They merely attend
meetings or sessions of the provincial board or the city or municipal council" and that
provincial board members are not even required "to have an office in the provincial
building." Consequently, they are not therefore to required to report daily as other
regular government employees do, except when they are delegated to perform certain
administrative functions in the interest of public service by the Governor or Mayor as
the case may be. For this reason, they may, therefore, be allowed to practice their
professions provided that in so doing an authority . . . first be secured from the
Regional Directors pursuant to Memorandum Circular No. 74-58, provided, however,
that no government personnel, property, equipment or supplies shall be utilized in the
practice of their professions. While being authorized to practice their professions, they
should as much as possible attend regularly any and all sessions, which are not very
often, of their Sanggunians for which they were elected as members by their
constituents except in very extreme cases, e.g., doctors who are called upon to save a
life. For this purpose it is desired that they always keep a calendar of the dates of the
sessions, regular or special of their Sanggunians so that conflicts of attending court
cases in the case of lawyers and Sanggunian sessions can be avoided.

EDWIN B. JAVELLANA, petitioner,

vs.
DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT AND LUIS T. SANTOS,
SECRETARY, respondents.
Reyes, Lozada and Sabado for petitioner.

GRIO-AQUINO, J.:
This petition for review on certiorari involves the right of a public official to engage in the practice of his
profession while employed in the Government.
Attorney Erwin B. Javellana was an elected City Councilor of Bago City, Negros Occidental. On October 5,
1989, City Engineer Ernesto C. Divinagracia filed Administrative Case No. C-10-90 against Javellana for: (1)
violation of Department of Local Government (DLG) Memorandum Circular No. 80-38 dated June 10, 1980 in
relation to DLG Memorandum Circular No. 74-58 and of Section 7, paragraph b, No. 2 of Republic Act No.
6713, otherwise known as the "Code of Conduct and Ethical Standards for Public Officials and Employees,"
and (2) for oppression, misconduct and abuse of authority.
Divinagracia's complaint alleged that Javellana, an incumbent member of the City Council or Sanggunian
Panglungsod of Bago City, and a lawyer by profession, has continuously engaged in the practice of law
without securing authority for that purpose from the Regional Director, Department of Local Government, as
required by DLG Memorandum Circular No. 80-38 in relation to DLG Memorandum Circular No. 74-58 of the
same department; that on July 8, 1989, Javellana, as counsel for Antonio Javiero and Rolando Catapang, filed
a case against City Engineer Ernesto C. Divinagracia of Bago City for "Illegal Dismissal and Reinstatement
with Damages" putting him in public ridicule; that Javellana also appeared as counsel in several criminal and
civil cases in the city, without prior authority of the DLG Regional Director, in violation of DLG Memorandum
Circular No. 80-38 which provides:

As to members of the bar the authority given for them to practice their profession shall
always be subject to the restrictions provided for in Section 6 of Republic Act 5185. In
all cases, the practice of any profession should be favorably recommended by the
Sanggunian concerned as a body and by the provincial governors, city or municipal
mayors, as the case may be. (Emphasis ours, pp. 28-30,Rollo.)
On August 13, 1990, a formal hearing of the complaint was held in Iloilo City in which the complainant,
Engineer Divinagracia, and the respondent, Councilor Javellana, presented their respective evidence.
Meanwhile, on September 10, 1990, Javellana requested the DLG for a permit to continue his practice of law
for the reasons stated in his letter-request. On the same date, Secretary Santos replied as follows:
1st Indorsement
September 10, 1990

MEMORANDUM CIRCULAR NO. 80-38

Respectfully returned to Councilor Erwin B. Javellana, Bago City, his within letter dated
September 10, 1990, requesting for a permit to continue his practice of law for reasons
therein stated, with this information that, as represented and consistent with law, we
interpose no objection thereto, provided that such practice will not conflict or tend to
conflict with his official functions.

TO ALL: PROVINCIAL GOVERNORS, CITY AND MUNICIPALITY

MAYORS, KLGCD REGIONAL DIRECTORS AND ALL CONCERNED
SUBJECT: AMENDING MEMORANDUM CIRCULAR NO. 80-18 ON
SANGGUNIAN SESSIONS,PER DIEMS, ALLOWANCES, STAFFING AND
OTHER RELATED MATTERS
In view of the issuance or Circular No. 5-A by the Joint Commission on Local
Government Personnel Administration which affects certain provisions of MC 80-18,

(p. 60, Rollo.)

57

On September 21, 1991, Secretary Luis T. Santos issued Memorandum Circular No. 90-81 setting forth
guidelines for the practice of professions by local elective officials as follows:
TO: All Provincial Governors, City and Municipal Mayors,
Regional Directors and All Concerned.
SUBJECT: Practice of Profession and Private Employment of
Local Elective Officials
Section 7 of Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public
Officials and Employees), states, in part, that "In addition to acts and omission of public
officials . . . now prescribed in the Constitution and existing laws, the following shall
constitute prohibited acts and transactions of any public officials . . . and are hereby
declared to be unlawful: . . . (b) Public Officials. . . during their incumbency shall not:
(1) . . . accept employment as officer, employee, consultant, counsel, broker, agent,
trustee or nominee in any private enterprise regulated, supervised or licensed by their
office unless expressly allowed by law; (2) Engage in the private practice of their
profession unless authorized by the Constitution or law, provided that such practice will
not conflict or tend to conflict with their official functions: . . .
xxx xxx xxx
Under Memorandum Circular No. 17 of the Office of the President dated September 4,
1986, the authority to grant any permission, to accept private employment in any
capacity and to exercise profession, to any government official shall be granted by the
head of the Ministry (Department) or agency in accordance with Section 12, Rule XVIII
of the Revised Civil Service Rules, which provides,in part, that:
No officer shall engage directly in any . . . vocation or profession
. . . without a written permission from the head of the
Department: Provided, that this prohibition will be absolute in
the case of those officers . . . whose duties and responsibilities
require that their entire time be at the disposal of the
Government: Provided, further, That if an employee is granted
permission to engage in outside activities, the time so devoted
outside of office should be fixed by the Chief of the agency to
the end that it will not impair in anyway the efficiency of the
officer or employee . . . subject to any additional conditions
which the head of the office deems necessary in each particular
case in the interest of the service, as expressed in the various
issuances of the Civil Service Commission.
Conformably with the foregoing, the following guidelines are to be observed in the
grant of permission to the practice of profession and to the acceptance of private
employment of local elective officials, to wit:
1) The permission shall be granted by the Secretary of Local
Government;
2) Provincial Governors, City and Municipal Mayors whose
duties and responsibilities require that their entire time be at the
disposal of the government in conformity with Sections 141, 171
and 203 of the Local Government Code (BP 337), are

prohibited to engage in the practice of their profession and to

accept private employment during their incumbency:
3) Other local elective officials may be allowed to practice their
profession or engage in private employment on a limited basis
at the discretion of the Secretary of Local Government, subject
to existing laws and to the following conditions:
a) That the time so devoted outside of
office hours should be fixed by the local
chief executive concerned to the end
that it will not impair in any way the
efficiency of the officials concerned;
b) That no government time, personnel,
funds or supplies shall be utilized in the
pursuit of one's profession or private
employment;
c) That no conflict of interests between
the practice of profession or
engagement in private employment and
the official duties of the concerned
official shall arise thereby;
d) Such other conditions that the
Secretary deems necessary to impose
on each particular case, in the interest of
public service. (Emphasis supplied, pp.
31-32, Rollo.)
On March 25, 1991, Javellana filed a Motion to Dismiss the administrative case against him on the ground
mainly that DLG Memorandum Circulars Nos. 80-38 and 90-81 are unconstitutional because the Supreme
Court has the sole and exclusive authority to regulate the practice of law.
In an order dated May 2, 1991, Javellana's motion to dismiss was denied by the public respondents. His
motion for reconsideration was likewise denied on June 20, 1991.
Five months later or on October 10, 1991, the Local Government Code of 1991 (RA 7160) was signed into law,
Section 90 of which provides:
Sec. 90. Practice of Profession. (a) All governors, city and municipal mayors are
prohibited from practicing their profession or engaging in any occupation other than the
exercise of their functions as local chief executives.
(b) Sanggunian members may practice their professions, engage in any occupation, or
teach in schools except during session hours: Provided, That sanggunian members
who are members of the Bar shall not:
(1) Appear as counsel before any court in any civil case
wherein a local government unit or any office, agency, or
instrumentality of the government is the adverse party;

58

(2) Appear as counsel in any criminal case wherein an officer or

employee of the national or local government is accused of an
offense committed in relation to his office;
(3) Collect any fee for their appearance in administrative
proceedings involving the local government unit of which he is
an official; and
(4) Use property and personnel of the Government except when
the sanggunian member concerned is defending the interest of
the Government.
(c) Doctors of medicine may practice their profession even during official hours of work
only on occasions of emergency: Provided, That the officials concerned do not derive
monetary compensation therefrom. (Emphasis ours.)
Administrative Case No. C-10-90 was again set for hearing on November 26, 1991. Javellana thereupon filed
this petition for certiorari praying that DLG Memorandum Circulars Nos. 80-38 and 90-81 and Section 90 of the
new Local Government Code (RA 7160) be declared unconstitutional and null void because:

is a public trust. The complaint for illegal dismissal filed by Javiero and Catapang against City Engineer
Divinagracia is in effect a complaint against the City Government of Bago City, their real employer, of which
petitioner Javellana is a councilman. Hence, judgment against City Engineer Divinagracia would actually be a
judgment against the City Government. By serving as counsel for the complaining employees and assisting
them to prosecute their claims against City Engineer Divinagracia, the petitioner violated Memorandum
Circular No. 74-58 (in relation to Section 7[b-2] of RA 6713) prohibiting a government official from engaging in
the private practice of his profession, if such practice would represent interests adverse to the government.
Petitioner's contention that Section 90 of the Local Government Code of 1991 and DLG Memorandum Circular
No. 90-81 violate Article VIII, Section 5 of the Constitution is completely off tangent. Neither the statute nor the
circular trenches upon the Supreme Court's power and authority to prescribe rules on the practice of law. The
Local Government Code and DLG Memorandum Circular No. 90-81 simply prescribe rules of conduct for
public officials to avoid conflicts of interest between the discharge of their public duties and the private practice
of their profession, in those instances where the law allows it.
Section 90 of the Local Government Code does not discriminate against lawyers and doctors. It applies to all
provincial and municipal officials in the professions or engaged in any occupation. Section 90 explicitly
provides that sanggunian members "may practice their professions, engage in any occupation, or teach in
schools expect during session hours." If there are some prohibitions that apply particularly to lawyers, it is
because of all the professions, the practice of law is more likely than others to relate to, or affect, the area of
public service.

(1) they violate Article VIII, Section 5 of the 1987 Constitution, which provides:
WHEREFORE, the petition is DENIED for lack of merit. Costs against the petitioner.
Sec. 5. The Supreme Court shall have the following powers:
G.R. No. 119761 August 29, 1996
xxx xxx xxx
(5) Promulgate rules concerning the protection and enforcement of constitutional rights,
pleading, practice, and procedure in all courts, the admission to the practice of law, the
Integrated Bar, and legal assistance to the underprivileged. Such rules shall provide a
simplified and inexpensive procedure for the speedy disposition of cases, shall be
uniform for all courts of the same grade, and shall not diminish, increase, or modify
substantive rights. Rules of procedure of special courts andquasi-judicial bodies shall
remain effective unless disapproved by the Supreme Court.
(2) They constitute class legislation, being discriminatory against the legal and medical professions for only
sanggunian members who are lawyers and doctors are restricted in the exercise of their profession while
dentists, engineers, architects, teachers, opticians, morticians and others are not so restricted (RA 7160, Sec.
90 [b-1]).

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO
CORPORATION,respondents.

VITUG, J.:p
The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent
Court of Appeals 1 affirming the 10th August 1994 decision and the 11th October 1994 resolution of the Court
of Tax Appeals 2("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco Corporation vs. Liwayway
Vinzons-Chato in her capacity as Commissioner of Internal Revenue."
The facts, by and large, are not in dispute.

In due time, the Solicitor General filed his Comment on the petition and the petitioner submitted a Reply. After
deliberating on the pleadings of the parties, the Court resolved to dismiss the petition for lack of merit.
As a matter of policy, this Court accords great respect to the decisions and/or actions of administrative
authorities not only because of the doctrine of separation of powers but also for their presumed
knowledgeability and expertise in the enforcement of laws and regulations entrusted to their jurisdiction
(Santiago vs. Deputy Executive Secretary, 192 SCRA 199, citing Cuerdo vs. COA, 166 SCRA 657). With
respect to the present case, we find no grave abuse of discretion on the part of the respondent, Department of
Interior and Local Government (DILG), in issuing the questioned DLG Circulars Nos. 80-30 and 90-81 and in
denying petitioner's motion to dismiss the administrative charge against him.
In the first place, complaints against public officers and employees relating or incidental to the performance of
their duties are necessarily impressed with public interest for by express constitutional mandate, a public office

Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of
cigarettes.
On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark
registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January 1987, of then
Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential
Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,'
and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign
companies. However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury' and 'More' to
'Premium More,' thereby removing the said brands from the foreign brand category. Proof was also submitted
to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation
register and therefore a local brand." 3 Ad Valorem taxes were imposed on these brands, 4 at the following
rates:

59

BRAND AD VALOREM TAX RATE

E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90

REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS

July 1, 1993
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5

REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT: Reclassification of Cigarettes Subject to Excise Tax
TO: All Internal Revenue Officers and Others Concerned.
In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes
which are locally manufactured are appropriately considered as locally manufactured
cigarettes bearing a foreign brand, this Office is compelled to review the previous
rulings on the matter.
Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956,
provides:

A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June 1993, by the
legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new law
became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue
Code ("NIRC") to read; as follows:
Sec. 142. Cigars and Cigarettes.
xxx xxx xxx
(c) Cigarettes packed by machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below based on the
constructive manufacturer's wholesale price or the actual manufacturer's wholesale
price, whichever is higher:
(1) On locally manufactured cigarettes which are currently classified and taxed at fiftyfive percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five
Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the
minimum tax shall not be less than Three Pesos (P3.00) per pack.
xxx xxx xxx
When the registered manufacturer's wholesale price or the actual manufacturer's
wholesale price whichever is higher of existing brands of cigarettes, including the
amounts intended to cover the taxes, of cigarettes packed in twenties does not exceed
Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty percent
(20%). 7 (Emphasis supplied)
About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue
Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which
expressed:

On locally manufactured cigarettes bearing a foreign brand,

fifty-five percent (55%) Provided, That this rate shall apply
regardless of whether or not the right to use or title to the
foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not
a cigarette bears a foreign brand, the listing of brands
manufactured in foreign countries appearing in the current
World Tobacco Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is
that the locally manufactured cigarettes bear a foreign brand regardless of whether or
not the right to use or title to the foreign brand was sold or transferred by its owner to
the local manufacturer. The brand must be originally owned by a foreign manufacturer
or producer. If ownership of the cigarette brand is, however, not definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in the current
World Tobacco Directory shall govern. . . ."
"HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-Macdonald Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco,
Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera,
Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is
registered in the said directory as being manufactured by (a) Commonwealth
Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco,
Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.
Since there is no showing who among the above-listed manufacturers of the cigarettes
bearing the said brands are the real owner/s thereof, then it follows that the same shall
be considered foreign brand for purposes of determining the ad valorem tax pursuant
to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 41088, dated August 24, 1988, "in cases where it cannot be established or there is dearth
of evidence as to whether a brand is foreign or not, resort to the World Tobacco
Directory should be made."
In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and
"CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby

60

considered locally manufactured cigarettes bearing a foreign brand subject to the

55% ad valorem tax on cigarettes.

II. BEING AN INTERPRETATIVE RULING OR OPINION, THE

PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF
WITH THE UP LAW CENTER AND PRIOR HEARING ARE
NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND
ENFORCEABILITY.

Any ruling inconsistent herewith is revoked or modified accordingly.

(SGD)
LIWAYWAY
VINZONSCHATO
Commissioner
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent via
telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On
15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco
requested for a review, reconsideration and recall of RMC 37-93. The request was denied on 29
July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad
valorem tax deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA.

III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN

NOTIFIED OR RMC 37-93 ON JULY 2, 1993.
IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES
TO ALL LOCALLY MANUFACTURED CIGARETTES
SIMILARLY SITUATED AS "HOPE," "MORE" AND
"CHAMPION" CIGARETTES.
V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM
RECLASSIFYING "HOPE," "MORE" AND "CHAMPION"
CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO.
7654.
VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE
INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY OR
ENFORCEABILITY BUT INTO ITS CORRECTNESS OR
PROPRIETY; RMC 37-93 IS CORRECT. 10

On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:
WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of
cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune
Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and
unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands in
question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section
1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still
classified as other locally manufactured cigarettes and taxed at 45% or 20% as the
case may be.
Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune
Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and
interest, is hereby canceled for lack of legal basis.
Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the
deficiency tax assessment made and issued on petitioner in relation to the
implementation of RMC No. 37-93.

In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can
thus become effective without any prior need for notice and hearing, nor publication, and that its
issuance is not discriminatory since it would apply under similar circumstances to all locally
manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the
effective implementation of the provisions of the National Internal Revenue Code. Let it be made
clear that such authority of the Commissioner is not here doubted. Like any other government
agency, however, the CIR may not disregard legal requirements or applicable principles in the
exercise of its quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances a legislative rule and
aninterpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, 11 the
Court expressed:

SO ORDERED. 9
In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for
reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th
August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate court's
Special Thirteenth Division affirmed in all respects the assailed decision and resolution.

. . . a legislative rule is in the nature of subordinate legislation, designed to implement a

primary legislation by providing the details thereof . In the same way that laws must
have the benefit of public hearing, it is generally required that before a legislative rule
is adopted there must be hearing. In this connection, the Administrative Code of 1987
provides:
Public Participation. If not otherwise required by law, an agency shall, as far as
practicable, publish or circulate notices of proposed rules and afford interested parties
the opportunity to submit their views prior to the adoption of any rule.

In the instant petition, the Solicitor General argues: That

I. RMC 37-93 IS A RULING OR OPINION OF THE
COMMISSIONER OF INTERNAL REVENUE INTERPRETING
THE PROVISIONS OF THE TAX CODE.

(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates
shall have been published in a newspaper of general circulation at least two (2) weeks
before the first hearing thereon.

61

(3) In case of opposition, the rules on contested cases shall be observed.

In addition such rule must be published. On the other hand, interpretative rules are
designed to provide guidelines to the law which the administrative agency is in charge
of enforcing. 12
It should be understandable that when an administrative rule is merely interpretative in nature, its
applicability needs nothing further than its bare issuance for it gives no real consequence more
than what the law itself has already prescribed. When, upon the other hand, the administrative rule
goes beyond merely providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially adds to or increases the burden of those governed, it
behooves the agency to accord at least to those directly affected a chance to be heard, and
thereafter to be duly informed, before that new issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under which it has been
issued, convinces us that the circular cannot be viewed simply as a corrective measure (revoking
in the process the previous holdings of past Commissioners) or merely as construing Section
142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to
place "Hope Luxury," "Premium More" and "Champion" within the classification of locally
manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654.
Specifically, the new law would have its amendatory provisions applied to locally manufactured
cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior
to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion"
cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject
to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no
new tax rate consequence on private respondent's products. Evidently, in order to place "Hope
Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law and
subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing,
the BIR not simply intrepreted the law; verily, it legislated under its quasi-legislative authority. The
due observance of the requirements of notice, of hearing, and of publication should not have been
then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations
It has been observed that one of the problem areas bearing on compliance with
Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the
tax paying public. Unless there is due notice, due compliance therewith may not be
reasonably expected. And most importantly, their strict enforcement could possibly
suffer from legal infirmity in the light of the constitutional provision on "due process of
law" and the essence of the Civil Code provision concerning effectivity of laws,
whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New
Civil Code).
In order that there shall be a just enforcement of rules and regulations, in conformity
with the basic element of due process, the following procedures are hereby prescribed
for the drafting, issuance and implementation of the said Revenue Tax Issuances:
(1) This Circular shall apply only to (a) Revenue Regulations;
(b) Revenue Audit Memorandum Orders; and (c) Revenue
Memorandum Circulars and Revenue Memorandum Orders
bearing on internal revenue tax rules and regulations.
(2) Except when the law otherwise expressly provides, the
aforesaid internal revenue tax issuances shall not begin to be
operative until after due notice thereof may be fairly presumed.

Due notice of the said issuances may be fairly presumed only

after the following procedures have been taken;
xxx xxx xxx
(5) Strict compliance with the foregoing procedures is
enjoined. 13
Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe
and comply with the above requirements before giving effect to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and
equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, are to be
treated alike or put on equal footing both in privileges and liabilities. 14 Thus, all taxable articles or
kinds of property of the same class must be taxed at the same rate 15 and the tax must operate
with the same force and effect in every place where the subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion"
cigarettes and, unless petitioner would be willing to concede to the submission of private
respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo so
expresses in his separate opinion, be considered adjudicatory in nature and thus violative of due
process following the Ang Tibay 16 doctrine, the measure suffers from lack of uniformity of taxation.
In its decision, the CTA has keenly noted that other cigarettes bearing foreign brands have not
been similarly included within the scope of the circular, such as
1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
(a) "PALM TREE" is listed as manufactured by office of
Monopoly, Korea (Exhibit "R")
2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY
(a) "GOLDEN KEY" is listed being manufactured by United
Tobacco, Pakistan (Exhibit "S")
(b) "CANNON" is listed as being manufactured by Alpha
Tobacco, Bangladesh (Exhibit "T")
3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) "WHITE HORSE" is listed as being manufactured by
Rothman's, Malaysia (Exhibit "U")
(b) "RIGHT" is listed as being manufactured by SVENSKA,
Tobaks, Sweden (Exhibit "V-1")
4. Locally manufactured by MIGHTY CORPORATION
(a) "WHITE HORSE" is listed as being manufactured by
Rothman's, Malaysia (Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO CORPORATION

62

(a) "UNION" is listed as being manufactured by Sumatra

Tobacco, Indonesia and Brown and Williamson, USA (Exhibit
"U-3")

HON. DIAZ. But did you not consider that there are similarly situated?
MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue
Memorandum Circular No. 37-93, the other brands came about the would have also
clarified RMC 37-93 by I was saying really because of the fact that I was just recently
appointed and the lack of time, the period that was allotted to us to come up with the
right actions on the matter, we were really caught by the July 3 deadline. But in fact,
We have already prepared a revenue memorandum circular clarifying with the
other . . . does not yet, would have been a list of locally manufactured cigarettes
bearing a foreign brand for excise tax purposes which would include all the other
brands that were mentioned by the Honorable Chairman. (Emphasis supplied) (Exhibit
"FF-2-d," par. IX-4). 18

(b) "WINNER" is listed as being manufactured by Alpha

Tobacco, Bangladesh; Nangyang, Hongkong; Joo Lan,
Malaysia; Pakistan Tobacco Co., Pakistan; Premier Tobacco,
Pakistan and Haggar, Sudan (Exhibit "U-4"). 17
The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the
Committee on Ways and Means of the House of Representatives; viz:
THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You
don't have specific information on other tobacco manufacturers. Now, there are other
brands which are similarly situated. They are locally manufactured bearing foreign
brands. And may I enumerate to you all these brands, which are also listed in the World
Tobacco Directory . . . Why were these brand not reclassified at 55 if your want to give
a level playing filed to foreign manufacturers?

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and
effective administrative issuance.

MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue

Memorandum Circular that was supposed to come after RMC No. 37-93 which have
really named specifically the list of locally manufactured cigarettes bearing a foreign
brand for excise tax purposes and includes all these brands that you mentioned at 55
percent except that at that time, when we had to come up with this, we were forced to
study the brands of Hope, More and Champion because we were given documents
that would indicate the that these brands were actually being claimed or patented in
other countries because we went by Revenue Memorandum Circular 1488 and we
wanted to give some rationality to how it came about but we couldn't find the rationale
there. And we really found based on our own interpretation that the only test that is
given by that existing law would be registration in the World Tobacco Directory. So we
came out with this proposed revenue memorandum circular which we forwarded to the
Secretary of Finance except that at that point in time, we went by the Republic Act
7654 in Section 1 which amended Section 142, C-1, it said, that on locally
manufactured cigarettes which are currently classified and taxed at 55 percent. So we
were saying that when this law took effect in July 3 and if we are going to come up with
this revenue circular thereafter, then I think our action would really be subject to
question but we feel that . . . Memorandum Circular Number 37-93 would really cover
even similarly situated brands. And in fact, it was really because of the study, the short
time that we were given to study the matter that we could not include all the rest of the
other brands that would have been really classified as foreign brand if we went by the
law itself. I am sure that by the reading of the law, you would without that ruling by
Commissioner Tan they would really have been included in the definition or in the
classification of foregoing brands. These brands that you referred to or just read to us
and in fact just for your information, we really came out with a proposed revenue
memorandum circular for those brands. (Emphasis supplied)

SO ORDERED.

(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).

xxx xxx xxx
MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I felt
that we . . . I wanted to come up with a more extensive coverage and precisely why I
asked that revenue memorandum circular that would cover all those similarly situated
would be prepared but because of the lack of time and I came out with a study of RA
7654, it would not have been possible to really come up with the reclassification or the
proper classification of all brands that are listed there. . .(emphasis supplied) (Exhibit
"FF-2d," page IX-1)
xxx xxx xxx

WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is
AFFIRMED. No costs.

Kapunan, J., concurs.

Separate Opinions

BELLOSILLO, J.: separate opinion:

RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June 1993, and
took effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal Revenue Code (NIRC) to
read
Sec. 142. Cigars and cigarettes. . . . . (c) Cigarettes packed by machine. There
shall be levied, assessed and collected on cigarettes packed by machine a tax at the
rates prescribed below based on the constructive manufacturer's wholesale price or the
actual manufacturer's wholesale price, whichever is higher.
(1) On locally manufactured cigarettes which are currently classified and taxed at fiftyfive percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five percent (55%) provided that the minimum tax shall not be less than
Five Pesos (P5.00) per pack (emphasis supplied).
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the
minimum tax shall not be less than Three Pesos (P3.00) per pack.
Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium More and Champion were
considered local brands subjected to an ad valorem tax at the rate of 20-45%. However, on 1 July 1993 or two
(2) days before RA 7654 took effect, petitioner Commissioner of Internal Revenue issued RMC 37-93

63

reclassifying "Hope,More and Champion being manufactured by Fortune Tobacco Corporation . . . . (as) locally
manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes." 1 RMC 3793 in effect subjectedHope Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par.
(c), subpar. (1), NIRC, as amended by RA 7654, imposing upon these cigarette brands an ad valorem tax of
"fifty-five percent (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."
On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA 7654, a
copy of RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of the Bureau of
Internal Revenue was sent by facsimile to the factory of respondent corporation in Parang, Marikina, Metro
Manila. It appears that the letter together with a copy of RMC 37-93 did not immediately come to the
knowledge of private respondent as it was addressed to no one in particular. It was only when the
reclassification of respondent corporation's cigarette brands was reported in the column of Fil C. Sionil
in Business Bulletin on 4 July 1993 that the president of respondent corporation learned of the matter,
prompting him to inquire into its veracity and to request from petitioner a copy of RMC 37-93. On 15 July 1993
respondent corporation received by ordinary mail a certified machine copy of RMC 37-93.
Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith denied by
the Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July 1993 private
respondent was assessed an ad valorem tax deficiency amounting to P9,598,334.00. Respondent corporation
went to the Court of Tax Appeals (CTA) on a petition for review.
On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled
Revenue Memorandum Circular No. 37-93 reclassifying the brands of
cigarettes, viz: Hope, Moreand Champion being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable . .
. . Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune
Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and
interest, is hereby cancelled for lack of legal basis. 2
The CTA held that petitioner Commissioner of Internal Revenue failed to observe due process of
law in issuing RMC 37-93 as there was no prior notice and hearing, and that RMC 37-93 was in
itself discriminatory. The motion to reconsider its decision was denied by the CTA for lack of merit.
On 31 March 1995 respondent Court of Appeals affirmed in toto the decision of the CTA. 3 Hence,
the instant petition for review.
Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope Luxury, Premium
Moreand Champion as locally manufactured cigarettes bearing brands is merely an interpretative ruling which
needs no prior notice and hearing as held in Misamis Oriental Association of Coco Traders, Inc. v. Department
of Finance Secretary. 4 It maintains that neither is the assailed revenue memorandum circular discriminatory
as it merely "lays down the test in determining whether or not a locally manufactured cigarette bears a foreign
brand using (only) the cigarette brands Hope, More and Champion as specific examples." 5
Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative ruling but is
adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis Oriental Association of
Coco Traders, Inc. v. Department of Finance Secretary on which the Solicitor General relies heavily is not
applicable. Respondent Fortune Tobacco Corporation also argues that RMC 37-93 discriminates against its
cigarette brands since those of its competitors which are similarly situated have not been reclassified.
The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance of which
needs no prior notice and hearing, or an adjudicatory ruling which calls for the twin requirements of prior notice
and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.
A brief discourse on the powers and functions of administrative bodies may be instructive.
Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or administrative
adjudicatory powers. Quasi-legislative or rule making power is the power to make rules and regulations which

results in delegated legislation that is within the confines of the granting statute and the doctrine of
nondelegability and separability of powers.
Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an administrative
agency (the other two being supplementary or detailed legislation, and contingent legislation), is promulgated
by the administrative agency to interpret, clarify or explain statutory regulations under which the administrative
body operates. The purpose or objective of an interpretative rule is merely to construe the statute being
administered. It purports to do no more than interpret the statute. Simply, the rule tries to say what the statute
means. Generally, it refers to no single person or party in particular but concerns all those belonging to the
same class which may be covered by the said interpretative rule. It need not be published and neither is a
hearing required since it is issued by the administrative body as an incident of its power to enforce the law and
is intended merely to clarify statutory provisions for proper observance by the people. In Taada
v. Tuvera, 6 this Court expressly said that "[i]interpretative regulations . . . . need not be published."
Quasi-judicial or administrative adjudicatory power on the other hand is the power of the administrative agency
to adjudicate the rights of persons before it. It is the power to hear and determine questions of fact to which the
legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in
enforcing and administering the same law. 7 The administrative body exercises its quasi-judicial power when it
performs in a judicial manner an act which is essentially of an executive or administrative nature, where the
power to act in such manner is incidental to or reasonably necessary for the performance of the executive or
administrative duty entrusted to it. 8 In carrying out their quasi-judicial functions the administrative officers or
bodies are required to investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and
draw conclusions from them as basis for their official action and exercise of discretion in a judicial nature.
Since rights of specific persons are affected it is elementary that in the proper exercise of quasi-judicial power
due process must be observed in the conduct of the proceedings.
The importance of due process cannot be underestimated. Too basic is the rule that no person shall be
deprived of life, liberty or property without due process of law. Thus when an administrative proceeding is
quasi-judicial in character, notice and fair open hearing are essential to the validity of the proceeding. The right
to reasonable prior notice and hearing embraces not only the right to present evidence but also the opportunity
to know the claims of the opposing party and to meet them. The right to submit arguments implies that
opportunity otherwise the right may as well be considered impotent. And those who are brought into contest
with government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairy
advised of what the government proposes and to be heard upon its proposal before it issues its final
command.
There are cardinal primary rights which must be respected in administrative proceedings. The landmark case
ofAng Tibay v. The Court of Industrial Relations 9 enumerated these rights: (1) the right to a hearing, which
includes the right of the party interested or affected to present his own case and submit evidence in support
thereof; (2) the tribunal must consider the evidence presented; (3) the decision must have something to
support itself; (4) the evidence must be substantial; (5) the decision must be rendered on the evidence
presented at the hearing, or at least contained in the record and disclosed to the parties affected; (6) the
tribunal or any of its judges must act on its or his own independent consideration of the law and facts of the
controversy, and not simply accept the views of a subordinate in arriving at a decision; and, (7) the tribunal
should in all controversial questions render its decision in such manner that the parties to the proceeding may
know the various issues involved and the reasons for the decision rendered.
In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice and
hearing, or an adjudicatory rule which demands the observance of due process, a close examination of RMC
37-93 is in order. Noticeably, petitioner Commissioner of Internal Revenue at first interprets Sec. 142, par. (c),
subpar. (1), of the NIRC, as amended, by citing the law and clarifying or explaining what it means
Section 142 (c) (1), National Internal Revenue Code, as amended by R.A. No. 6956,
provides: On locally manufactured cigarettes bearing a foreign brand, fifty-five percent
(55%) Provided, That this rate shall apply regardless of whether or not the right to use
or title to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.

64

Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is
that the locally manufactured cigarettes bear a foreign brand regardless of whether or
not the right to use or title to the foreign brand was sold or transferred by its owner to
the local manufacturer. The brand must be originally owned by a foreign manufacturer
or producer. If ownership of the cigarette brand is, however, not definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in the current
World Tobacco Directory shall govern . . ."
Then petitioner makes a factual finding by declaring that Hope (Luxury), (Premium) More and Champion are
manufactured by other foreign manufacturers
Hope is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. More is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-MacDonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco,
Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera,
Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is
registered in the said directory as being manufactured by: (a) Commonwealth
Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco,
Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.

revenue memorandum circular is merely an interpretative rule or an adjudicatory rule, its very tenor and text,
and the circumstances surrounding its issuance will have no to be considered.
We quote RMC 47-91 promulgated 11 June 1991
Revenue Memorandum Circular No. 47-91
SUBJECT : Taxability of Copra
TO : All Revenue Officials and Employees and Others Concerned.
For the information and guidance of all officials and employees and others concerned,
quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August 17, 1990:
COCOFED MARKETING RESEARCH CORPORATION
6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila
Attenti
on:
Ms. E
smyrn
a
E. Re
yes
Vice
Presi
dent

Finan
ce

From this finding, petitioner thereafter formulates an inference that since it cannot be determined who among
the manufacturers are the real owners of the brands in question, then these cigarette brands should be
considered foreign brands
Since there is no showing who among the above-listed manufacturers of the cigarettes
bearing the said brands are the real owner/s thereof, then it follows that the same shall
be considered foreign brand for purposes of determining the ad valorem tax pursuant
to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 41088, dated August 24, 1988, "in cases where it cannot be established or there is dearth
of evidence as to whether a brand is foreign or not, resort to the World Tobacco
Directory should be made."
Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation
reclassifying its cigarette brands as locally manufactured bearing foreign brands
In view of the foregoing, the aforesaid brands of
cigarettes, viz: Hope, More and Champion being manufactured by Fortune Tobacco
Corporation are hereby considered locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal Revenue was
exercising her quasi-judicial or administrative adjudicatory power. She cited and interpreted the law, made a
factual finding, applied the law to her given set of facts, arrived at a conclusion, and issued a ruling aimed at a
specific individual. Consequently prior notice and hearing are required. It must be emphasized that even the
text alone of RMC 37-93 implies that reception of evidence during a hearing is appropriate if not necessary
since it invokes BIR Ruling No. 410-88, dated August 24, 1988, which provides that "in cases where it cannot
be established or there is dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult
to determine whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because
no hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of the
imagination can RMC 37-93 be considered purely as an interpretative rule requiring no previous notice and
hearing and simply interpreting, construing, clarifying or explaining statutory regulations being administered by
or under which the Bureau of Internal Revenue operates.

Sirs:
This has reference to your letter dated January 16, 1990
wherein you represented that inspite of your VAT registration of
your copra trading company, you are supposed to be exempt
from VAT on the basis of BIR Ruling dated January 8, 1988
which considered copra as an agricultural food product in its
original state. In this connection, you request for a confirmation
of your opinion as aforestated.
In reply, please be informed that copra, being an agricultural
non-food product, is exempt from VAT only if sale is made by
the primary producer pursuant to Section 103 (a) of the Tax
Code, as amended. Thus as a trading company and a
subsequent seller, your sale of copra is already subject to VAT
pursuant to Section 9(b) (1) of Revenue Regulations 5-27.
This revokes VAT Ruling Nos. 009-88 and 279-88.

Very t

(Sgd.) J
Commissi
Re

It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of Finance
Secretary, and RMC 37-93 in the instant case reclassify certain products for purposes of taxation. But the
similarity between the two revenue memorandum circulars ends there. For in properly determining whether a

65

As a clarification, this is the present and official stand of this Office unless sooner
revoked or amended. All revenue officials and employees are enjoined to give this
Circular as wide a publicity as possible.

Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it simply
quotes a VAT Ruling and reminds those concerned that the ruling is the present and official stand of the
Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner manifestly exercised her
quasi-judicial or administrative adjudicatory power, in RMC 47-91 there were no factual findings, no application
of laws to a given set of facts, no conclusions of law, and no dispositive portion directed at any particular party.
Another difference is that in the instant case, the issuance of the assailed revenue memorandum circular
operated to subject the taxpayer to the new law which was yet to take effect, while in Misamis, the disputed
revenue memorandum circular was issued simply to restate and then clarify the prevailing position and ruling
of the administrative agency, and no new law yet to take effect was involved. It merely interpreted an existing
law which had already been in effect for some time and which was not set to be amended. RMC 37-93 is thus
prejudicial to private respondent alone.
A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was ostensibly
issued to subject the cigarette brands of respondent corporation to a new law as it was promulgated two days
before the expiration of the old law and a few hours before the effectivity of the new law. That RMC 37-93 is
particularly aimed only at respondent corporation and its three (3) cigarette brands can be seen from the
dispositive portion of the assailed revenue memorandum circular
In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More,
and Champion being manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.

In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also voted to
uphold the constitutional right of the taxpayer concerned to due process and equal protection of the laws. By a
vote of 3-2, that view prevailed. In sequela, we in the First Division who constituted the majority found
ourselves unjustly drawn into the vortex of a nightmarish episode. The strong ripples whipped up by my
opinion expressed therein and of the majority have yet to varnish when we are again in the imbroglio of a
(Sgd.) JOSE
ONG The unpleasant experience should be reason enough to simply steer clear of this controversy
similarU.dilemma.
Commissioner
of Internal
and surf
on a pretendedloss of judicial objectivity. Such would have been an easy way out, a gracious exit, so
to speak, albeit lame. But to camouflage my leave with a sham excuse would be to turn away from a
professional vow I keep at all times; I would not be true to myself, and to the people I am committed to serve.
Thus, as I have earlier expressed, if placed under similar circumstances in some future time, I shall have to
brave again the prospect of anothervilification and a tarnished image if only to show proudly to the whole world
that under the present dispensation judicial independence in our country is a true component of our
democracy.
In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of such
issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily issued
without prior notice and hearing, and singling out private respondent alone when two days before a new tax
law was to take effect petitioner reclassified and taxed the cigarette brands of private respondent at a higher
rate. Obviously, this was to make it appear that even before the anticipated date of effectivity of the statute
which was undeniably priorly known to petitioner these brands were already currently classified and taxed
at fifty-five percent (55%), thus shoving them into the purview of the law that was to take effect two days after!
For sure, private respondent was not properly informed before the issuance of the questioned memorandum
circular that its cigarette brands Hope Luxury, Premium More and Champion were being reclassified and
subjected to a higher tax rate. Naturally, the result would be to lose financially because private respondent was
still selling its cigarettes at a price based on the old, lower tax rate. Had there been previous notice and
hearing, as claimed by private respondent, it could have very well presented its side, either by opposing the
reclassification, or by acquiescing thereto but increasing the price of its cigarettes to adjust to the higher tax
rate. The reclassification and the ensuing imposition of a tax rate increase therefore could not be anything but
confiscatory if we are also to consider the claim of private respondent that the new tax is even higher than the
cost of its cigarettes.
Accordingly, I vote to deny the petition.

Any ruling inconsistent herewith is revoked or modified accordingly.

Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays down the
test in determining whether or not a locally manufactured cigarette bears a foreign brand using the cigarette
brandsHope, More and Champion as specific examples," cannot be accepted, much less sustained. Without
doubt, RMC 37-93 has a tremendous effect on respondent corporation and solely on respondent
corporation as its deficiency ad valorem tax assessment on its removals of Hope, Luxury, Premium More,
and Champion cigarettes for six (6) hours alone, i.e., from six o'clock in the evening of 2 July 1993 which is
presumably the time respondent corporation was supposed to have received the facsimile message sent by
Deputy Commissioner Victor A. Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was
already P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose except to state and
declare what has been the official stand of the administrative agency on the specific subject matter, and was
indiscriminately directed to all copra traders with no particular individual in mind.
That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be disputed;
hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do we deny her the
exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by constitutional mandate, the
Court must check the exercise of these powers and ascertain whether petitioner has gone beyond the
legitimate bounds of her authority.
In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the wisdom
of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private respondents. It is
simply the faithful observance by government by government of the basic constitutional right of a taxpayer to
due process of law and equal protection of the laws. This is what distresses me no end the manner and the
circumstances under which the cigarettes of private respondent were reclassified and correspondingly taxed
under RMC 37-93, and adjudicatory rule which therefore requires reasonable notice and hearing before its
issuance. It should not be confused with RMC 47-91, which is a mere interpretative rule.

HERMOSISIMA, JR., J.: dissenting

Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for deficiency ad
valoremexcise taxes on its removals of "Hope," "More," and "Champion" cigarettes from 6:00 p.m. to 12:00
midnight of July 2, 1993, in the total amount of P9,598,334.00. It claims that the circular, upon which the
assessment was based and made, is defective, invalid and unenforceable for having been issued without
notice and hearing and in violation of the equal protection clause guaranteed by the Constitution.
The majority upholds these claims of private respondent, convinced that the Circular in question, in the first
place, did not give prior notice and hearing, and so, it could not have been valid and effective. It proceeds to
affirm the factual findings of the Court of Tax Appeals, which findings were considered correct by respondent
Court of Appeals, to the effect that the petitioner Commissioner of Internal Revenue had indeed blatantly failed
to comply with the said twin requirements of notice and hearing, thereby rendering the issuance of the
questioned Circular to be in violation of the due process clause of the Constitution. It is also its dominant
opinion that the questioned Circular discriminates against private respondent Fortune Tobacco Corporation
insofar as it seems to affect only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other
cigarettes apparently of the same kind or classification as these cigarettes manufactured by private
respondent.
With all due respect, I disagree with the majority in its disquisition of the issues and its resulting conclusions.
Section 245 of the National Internal Revenue Code,
as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular

66

Section 245 of the National Internal Revenue Code, as amended, provides:

Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations. The
Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all
needful rules and regulations for the effective enforcement of the provisions of this
Code . . . without prejudice to the power of the Commissioner of Internal Revenue to
make rulings or opinions in connection with the implementation of the provisions of
internal revenue laws, including rulings on the classification of articles for sales tax and
similar purposes.
The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It was issued
in connection with Section 142 (c) (1) of the National Internal Revenue Code, as amended, which imposes ad
valorem excise taxes on locally manufactured cigarettes bearing a foreign brand. The same provision
prescribes the ultimate criterion that determines which cigarettes are to be considered "locally manufactured
cigarettes bearing a foreign brand." It provides:
. . . Whenever it has to be determined whether or not a cigarette bears a foreign brand,
the listing of brands manufactured in foreign countries appearing in the current World
Tobacco Directory shall govern.
There is only one World Tobacco Directory for a given current year, and the same is mandated by
law to be the BIR Commissioner's controlling basis for determining whether or not a particular
locally manufactured cigarette is one bearing a foreign brand. In so making a determination,
petitioner should inquire into the entries in the World Tobacco Directory for the given current year
and shall be held bound by such entries therein. She is not required to subject the results of her
inquiries to feedback from the concerned cigarette manufacturers, and it is doubtlessly not
desirable nor managerially sound to court dispute thereon when the law does not, in the first place,
require debate or hearing thereon. Petitioner may make such a determination because she is the
Chief Executive Officer of the administrative agency that is the Bureau of Internal Revenue in
which are vested quasi-legislative powers entrusted to it by the legislature in recognition of its more
encompassing and unequalled expertise in the field of taxation.
The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is
not unconstitutional, unreasonable and oppressive. It has been necessitated by "the
growing complexity of the modern society" (Solid Homes, Inc. vs. Payawal, 177 SCRA
72, 79). More and more administrative bodies are necessary to help in the regulation of
society's ramified activities. "Specialized in the particular field assigned to them, they
can deal with the problems thereof with more expertise and dispatch than can be
expected from the legislature or the courts of justice" . . . 1
Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to
classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner was acting
well within her prerogatives when she issued the questioned Circular. And in the exercise of such prerogatives
under the law, she has in her favor the presumption of regular performance of official duty which must be
overcome by clearly persuasive evidence of stark error and grave abuse of discretion in order to be overturned
and disregarded.
It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act No.
7654 2on petitioner's power to classify cigarettes. Although the decisions assailed and sought to be reviewed,
as well as the pleadings of private respondent, are replete with alleged admissions of our legislators to the
effect that the said Act was intended to freeze the current classification of cigarettes and make the same an
integral part of the said Act, certainly the repeal, if any, of petitioner's power to classify cigarettes must be
reckoned from the effectivity of the said Act and not before. Suffice it to say that indisputable is the plain fact
that the questioned Circular was issued on July 1, 1993, while the said Act took effect on July 3, 1993.
The contents of the questioned circular have not
been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner

Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code, as
amended, levies the following ad valorem taxes on cigarettes in accordance with their predetermined
classifications as established by the Commissioner of Internal Revenue:
. . . based on the manufacturer's registered wholesale price:
(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%)
Provided, That this rate shall apply regardless of whether or not the right to use or title
to the foreign brand was sold or transferred by its owner to the local manufacturer.
Whenever it has to be determined whether or not a cigarette bears a foreign brand, the
listing of brands manufactured in foreign countries appearing in the current World
Tobacco Directory shall govern.
(2) Other locally manufactured cigarettes, forty five percent (45%).
xxx xxx xxx
Prior to the issuance of the questioned Circular, assessed against and paid by private respondent as ad
valoremexcise taxes on their removals of "Hope," "More," and "Champion" cigarettes were amounts based on
paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was 45% at the most. The
reason for this is that apparently, petitioner's predecessors have all made determinations to the effect that the
said cigarettes were to be considered "other locally manufactured cigarettes" and not "locally manufactured
cigarettes bearing a foreign brand." Even petitioner, until her issuance of the questioned Circular, adhered to
her predecessors' determination as to the proper classification of the above-mentioned cigarettes for purposes
of ad valorem excise taxes. Apparently, the past determination that the said cigarettes were to be classified as
"other locally manufactured cigarettes" was based on private respodnent's convenient move of changing the
names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that "Champion"
was an original Fortune Tobacco Corporation register and, therefore, a local brand. Having registered these
brands with the Philippine Patent Office and with corresponding evidence to the effect, private respondent
paid ad valorem excise taxes computed at the rate of not more than 45% which is the rate applicable to
cigarettes considered as locally manufactured brands.
How these past determinations pervaded notwithstanding their erroneous basis is only tempered by their
innate quality of being merely errors in interpretative ruling, the formulation of which does not bind the
government. Advantage over such errors may precipitously be withdrawn from those who have been
benefiting from them once the same have been discovered and rectified.
Petitioner correctly emphasizes that:
. . . the registration of said brands in the name of private respondent is proof only that it
is the exclusive owner thereof in the Philippines; it does not necessarily follow,
however, that it is the exclusive owner thereof in the whole world. Assuming arguendo
that private respondent is the exclusive owner of said brands in the Philippines, it does
not mean that they are local. Otherwise, they would not have been listed in the WTD as
international brands manufactured by different entities in different countries. Moreover,
it cannot be said that the brands registered in the names of private respondent are not
the same brands listed in the WTD because private respondent is one of the
manufacturers of said brands listed in the WTD. 3
Private respondent attempts to cast doubt on the determination made by petitioner in the questioned Circular
that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the World Tobacco
Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing this out, private respondent
concludes that the entire Circular is erroneous and makes such error the principal proof of its claim that the
nature of the determination embodied in the questioned Circular requires a hearing on the facts and a debate
on the applicable law. Such a determination is adjudicatory in nature and, therefore, requires notice and
hearing. Private respondent is, however, apparently only eager to show error on the part of petitioner for acting
with grave abuse of discretion. Private respondent conveniently forgets that petitioner, equipped with the
expertise in taxation, recognized in that expertise by the legislature that vested in her the power to make rules
respecting classification of articles for taxation purposes, and presumed to have regularly exercised her
prerogatives within the scope of her statutory power to issue determinations specifically under Section 142 (c)

67

(1) in relation to Section 245 of the National Internal Revenue Code, as amended, simply followed the law as
she understood it. Her task was to determine which cigarette brands were foreign, and she was directed by
the law to look into the World Tobacco Directory. Foreign cigarette brands were legislated to be taxed at higher
rates because of their more extensive public exposure and international reputation; their competitive edge
against local brands may easily be checked by imposition of higher tax rates. Private respondent makes a
mountain of the mole hill circumstance that "Hope" is listed, not as being "manufactured" by Japan but as
being "used" by Japan. Whether manufactured or used by Japan, however, "Hope" remains a cigarette brand
that can not be said to be limited to local manufacture in the Philippines. The undeniable fact is that it is a
foreign brand the sales in the Philippines of which are greatly boosted by its international exposure and
reputation. The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify
articles for taxation purposes, to interpret the laws which she is mandated to administer. In interpreting the
same, petitioner must, in general, be guided by the principles underlying taxation, i.e., taxes are the lifeblood
of Government, and revenue laws ought to be interpreted in favor of the Government, for Government can not
survive without the funds to underwrite its varied operational expenses in pursuit of the welfare of the society
which it serves and protects.

compliance therewith may be enforced by a penal sanction provided in the law. This is
so because statutes are usually couched in general terms, after expressing the policy,
purposes, objectives, remedies and sanctions intended by the legislature. The details
and the manner of carrying out the law are often times left to the administrative agency
entrusted with its enforcement. In this sense, it has been said that rules and regulations
are the product of a delegated power to create new or additional legal provisions that
have the effect of law. (Davis, op. cit. p. 194.)

Private respondent claims that its business will be destroyed by the imposition of additional ad valorem taxes
as a result of the effectivity of the questioned Circular. It claims that under the vested rights theory, it cannot
now be made to pay higher taxes after having been assessed for less in the past. Of course private
respondent will trumpet its losses, its interests, after all, being its sole concern. What private respondent fails
to see is the loss of revenue by the Government which, because of erroneous determinations made by its past
revenue commissioners, collected lesser taxes than what it was entitled to in the first place. It is every citizen's
duty to pay the correct amount of taxes. Private respondent will not be shielded by any vested rights, for there
are not vested rights to speak of respecting a wrong construction of the law by administrative officials, and
such wrong interpretation does not place the Government in estoppel to correct or overrule the same. 4

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends upon
whether the statute places specific 'sanctions' behind the regulations authorized, as for example, by making it
a criminal offense to disobey them, or by making conformity with their provisions a condition of the exercise of
legal privileges." 11 This is because interpretative regulations are by nature simply statutory interpretations,
which have behind them no statutory sanction. Such regulations, whether so expressly authorized by statute
or issued only as an incident of statutory administration, merely embody administrative findings of law which
are always subject to judicial determination as to whether they are erroneous or not, even when their issuance
is authorized by statute.

The Questioned Circular embodies an interpretative

ruling of petitioner Commissioner which as such does
not require notice and hearing
As one of the public offices of the Government, the Bureau of Internal Revenue, through its Commissioner,
has grown to be a typical administrative agency vested with a fusion of different governmental powers: the
power to investigate, initiate action and control the range of investigation, the power to promulgate rules and
regulations to better carry out statutory policies, and the power to adjudicate controversies within the scope of
their activities. 5In the realm of administrative law, we understand that such an empowerment of administrative
agencies was evolved in response to the needs of a changing society. This development arose as the need for
broad social control over complex conditions and activities became more and more pressing, and such
complexity could no longer be dealt with effectivity and directly by the legislature or the judiciary. The theory
which underlies the empowerment of administrative agencies like the Bureau of Internal Revenue, is that the
issues with which such agencies deal ought to be decided by experts, and not be a judge, at least not in the
first instance or until the facts have been sifted and arranged. 6
One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to make rules.
The necessity for vesting administrative agencies with this power stems from the impracticability of the
lawmakers providing general regulations for various and varying details pertinent to a particular legislation. 7
The rules that administrative agencies may promulgate may either be legislative or interpretative. The former
is a form of subordinate legislation whereby the administrative agency is acting in a legislative capacity,
supplementing the statute, filling in the details, pursuant to a specific delegation of legislative power. 8
Interpretative rules, on the other hand, are "those which purport to do no more than interpret the statute being
administered, to say what it means." 9
There can be no doubt that there is a distinction between an administrative rule or
regulation and an administrative interpretation of a law whose enforcement is entrusted
to an administrative body. When an administrative agency promulgates rules and
regulations, it "makes" a new law with the force and effect of a valid law, while when it
renders an opinion or gives a statement of policy, it merely interprets a pre-existing law
(Parker, Administrative Law, p. 197; Davis Administrative Law, p. 194). Rules and
regulations when promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, partake of the nature of a statute, and

A rule is binding on the courts as long as the procedure fixed for its promulgation is
followed and its scope is within the statutory authority granted by the legislature, even if
the courts are not in agreement with the policy stated therein or its innate wisdom
(Davis, op. cit. pp. 195-197). On the other hand, administrative interpretation of the law
is at best merely advisory, for it is the courts that finally determine what the law
means. 10

The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making powers
under Section 245 of the National Internal Revenue Code, as amended. Exercising such powers, petitioner reclassified "Hope," "More" and "Champion" cigarettes as locally manufactured cigarettes bearing foreign
brands. The re-classification, as previously explained, is the correct interpretation of Section 142 (c) (1) of the
said Code. The said legal provision is not accompanied by any penal sanction, and no detail had to be filled in
by petitioner. The basis for the classification of cigarettes has been provided for by the legislature, and all
petitioner has to do, on behalf of the government agency she heads, is to proceed to make the proper
determination using the criterion stipulated by the lawmaking body. In making the proper determination,
petitioner gave it a liberal construction consistent with the rule that revenue laws are to be construed in favor
of the Government whose survival depends on the contributions that taxpayers give to the public coffers that
finance public services and other governmental operations.
The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the
enforcement of the laws pertinent to this case and so, the opinion of the Commissioner of Internal Revenue, in
the absence of a clear showing that it is plainly wrong, is entitled to great weight. Private respondent claims
that its rights under previous interpretations of Section 142 (c) (1) may not abruptly be cut by a new
interpretation of the said section, but precisely the said section is subject to various and changing construction,
and hence, any ruling issued by petitioner thereon is necessarily interpretative and not legislative. Private
respondent insists that the questioned circular is adjudicatory in nature because it determined the rights of
private respondent in a controversy involving his tax liability. It also asseverates that the questioned circular
involved administrative action that is particular and immediate, thereby rendering it subject to the requirements
of notice and hearing in compliance with the due process clause of the Constitution.
We find private respondent's arguments to be rather strained.
Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited provisions
in the National Internal Revenue Code, as amended. Such determination was an interpretation by petitioner of
the said legal provisions. If in the course of making the interpretation and embodying the same in the
questioned circular which the petitioner subsequently issued after making such a determination, private
respondent's cigarettes products, by their very nature of being foreign brands as evidenced by their enlistment
in the World Tobacco Directory, which is the controlling basis for the proper classification of cigarettes as
stipulated by the law itself, have come to be classified as locally manufactured cigarettes bearing foreign
brands and as such subject to a tax rate higher than what was previously imposed thereupon based on past
rulings of other revenue commissioners, such a situation is simply a consequence of the performance by
petitioner of here duties under the law. No adjudication took place, much less was there any controversy ripe
for adjudication. The natural consequences of making a classification in accordance with law may not be used
by private respondent in arguing that the questioned circular is in fact adjudicatory in nature. Such an exercise
in driving home a point is illogical as it is fallacious and misplaced.

68

Private respondent concedes that under general rules of administrative law, "a ruling which is merely
'interpretative' in character may not require prior notice to affected parties before its issuance as well as a
hearing" and "for this reason, in most instances, interpretative regulations are not given the force of
law." 12Indeed, "interpretative regulations and those merely internal in nature
. . . need not be published." 13 And it is now settled that only legislative regulations and not interpretative
rulings must have the benefit of public
hearing. 14
Because (1) the questioned circular merely embodied an interpretation or a way of reading and giving
meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2) petitioner did not fill in
any details in the aforecited section but only classified cigarettes on the basis of the World Tobacco Directory
in the light of the paramount principle of construing revenue laws in favor of the Government to the end that
Government collects as much tax money as it is entitled to in order to fulfill its public purposes for the general
good of its citizens; (3) no penal sanction is provided in the aforecited section that was construed by petitioner
in the questioned circular; and (4) a similar circular declassifying copra from being an agricultural food to nonfood product for purposes of the value added tax laws, resulting in the revocation of an exemption previously
enjoyed by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative,
much less, an adjudicatory, action on the part of the revenue commissioner, 15 this Court must not be blind to
the fact that the questioned Circular is indeed an interpretative ruling not subject to notice and hearing.
Neither is the questioned Circular tainted by a
violation of the equal protection clause under the
Constitution
Private respondent anchors its claim of violation of its equal protection rights upon the too obvious fact that
only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the questioned circular.
Because only the cigarettes that they manufacture are enumerated in the questioned circular, private
respondent proceeded to attack the same as being discriminatory against it. On the surface, private
respondent seems to have a point there. A scrutiny of the questioned Circular, however, will show that it is
undisputedly one of general application for all cigarettes that are similarly situated as private respondent's
brands. The new interpretation of Section 142 (1) (c) has been well illustrated in its application upon private
respondent's brands, which illustration is properly a subject of the questioned Circular. Significantly, indicated
as the subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The
reclassification resulted in the foregrounding of private respondent's cigarette brands, which incidentally is
largely due to the controversy spawned no less by private respondent's own action of conveniently changing
its brand names to avoid falling under a classification that would subject it to higher ad valorem tax rates. This
caused then Commissioner Bienvenido Tan to depart from his initial determination that private respondent's
cigarette brands are foreign brands. The consequent specific mention of such brands in the questioned
Circular, does not change the fact that the questioned Circular has always been intended for and did cover, all
cigarettes similarly situated as "Hope," "More" and "Champion." Petitioner is thus correct in stating that:
. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or not
a locally manufactured cigarette bears a foreign brand using the cigarette brands
"Hope," More and "Champion" as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette brands
aforementioned. While it is true that only "Hope," "More" and "Champion" cigarettes are
actually determined as locally manufactured cigarettes bearing a foreign brand, RMC
37-93 does not state that ONLY cigarettes fall under such classification to the exclusion
of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude
the coverage of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does
not exclude the coverage of other cigarettes similarly situated as locally manufactured
cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93 is not discriminatory. 16
Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned Circular
reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and unenforceable and has
rendered the assessment against private respondent of deficiency ad valorem excise taxes to be without legal
basis. The majority agrees with private respondent and respondent Courts. As the foregoing opinion chronicles
the fatal flaws in private respondent's arguments, it becomes more apparent that the questioned Circular is in
fact a valid and subsisting interpretative ruling that the petitioner had power to promulgate and enforce.
WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals and the
Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of Internal Revenue

denying private respondent's request for a review, reconsideration and recall of Revenue Memorandum
Circular No. 37-93 dated July 1, 1993.
Padilla, J., concurs.

Separate Opinions

BELLOSILLO, J.: separate opinion:

RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June 1993, and
took effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal Revenue Code (NIRC) to
read
Sec. 142. Cigars and cigarettes. . . . . (c) Cigarettes packed by machine. There
shall be levied, assessed and collected on cigarettes packed by machine a tax at the
rates prescribed below based on the constructive manufacturer's wholesale price or the
actual manufacturer's wholesale price, whichever is higher.
(1) On locally manufactured cigarettes which are currently classified and taxed at fiftyfive percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five percent (55%) provided that the minimum tax shall not be less than
Five Pesos (P5.00) per pack (emphasis supplied).
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the
minimum tax shall not be less than Three Pesos (P3.00) per pack.
Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium More and Champion were
considered local brands subjected to an ad valorem tax at the rate of 20-45%. However, on 1 July 1993 or two
(2) days before RA 7654 took effect, petitioner Commissioner of Internal Revenue issued RMC 37-93
reclassifying "Hope,More and Champion being manufactured by Fortune Tobacco Corporation . . . . (as) locally
manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes." 1 RMC 3793 in effect subjectedHope Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par.
(c), subpar. (1), NIRC, as amended by RA 7654, imposing upon these cigarette brands an ad valorem tax of
"fifty-five percent (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."
On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA 7654, a
copy of RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of the Bureau of
Internal Revenue was sent by facsimile to the factory of respondent corporation in Parang, Marikina, Metro
Manila. It appears that the letter together with a copy of RMC 37-93 did not immediately come to the
knowledge of private respondent as it was addressed to no one in particular. It was only when the
reclassification of respondent corporation's cigarette brands was reported in the column of Fil C. Sionil
in Business Bulletin on 4 July 1993 that the president of respondent corporation learned of the matter,
prompting him to inquire into its veracity and to request from petitioner a copy of RMC 37-93. On 15 July 1993
respondent corporation received by ordinary mail a certified machine copy of RMC 37-93.
Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith denied by
the Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July 1993 private
respondent was assessed an ad valorem tax deficiency amounting to P9,598,334.00. Respondent corporation
went to the Court of Tax Appeals (CTA) on a petition for review.
On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled

69

Revenue Memorandum Circular No. 37-93 reclassifying the brands of

cigarettes, viz: Hope, Moreand Champion being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable . .
. . Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune
Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and
interest, is hereby cancelled for lack of legal basis. 2
The CTA held that petitioner Commissioner of Internal Revenue failed to observe due process of
law in issuing RMC 37-93 as there was no prior notice and hearing, and that RMC 37-93 was in
itself discriminatory. The motion to reconsider its decision was denied by the CTA for lack of merit.
On 31 March 1995 respondent Court of Appeals affirmed in toto the decision of the CTA. 3 Hence,
the instant petition for review.
Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope Luxury, Premium
Moreand Champion as locally manufactured cigarettes bearing brands is merely an interpretative ruling which
needs no prior notice and hearing as held in Misamis Oriental Association of Coco Traders, Inc. v. Department
of Finance Secretary. 4 It maintains that neither is the assailed revenue memorandum circular discriminatory
as it merely "lays down the test in determining whether or not a locally manufactured cigarette bears a foreign
brand using (only) the cigarette brands Hope, More and Champion as specific examples." 5
Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative ruling but is
adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis Oriental Association of
Coco Traders, Inc. v. Department of Finance Secretary on which the Solicitor General relies heavily is not
applicable. Respondent Fortune Tobacco Corporation also argues that RMC 37-93 discriminates against its
cigarette brands since those of its competitors which are similarly situated have not been reclassified.
The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance of which
needs no prior notice and hearing, or an adjudicatory ruling which calls for the twin requirements of prior notice
and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.
A brief discourse on the powers and functions of administrative bodies may be instructive.
Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or administrative
adjudicatory powers. Quasi-legislative or rule making power is the power to make rules and regulations which
results in delegated legislation that is within the confines of the granting statute and the doctrine of
nondelegability and separability of powers.
Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an administrative
agency (the other two being supplementary or detailed legislation, and contingent legislation), is promulgated
by the administrative agency to interpret, clarify or explain statutory regulations under which the administrative
body operates. The purpose or objective of an interpretative rule is merely to construe the statute being
administered. It purports to do no more than interpret the statute. Simply, the rule tries to say what the statute
means. Generally, it refers to no single person or party in particular but concerns all those belonging to the
same class which may be covered by the said interpretative rule. It need not be published and neither is a
hearing required since it is issued by the administrative body as an incident of its power to enforce the law and
is intended merely to clarify statutory provisions for proper observance by the people. In Taada
v. Tuvera, 6 this Court expressly said that "[i]interpretative regulations . . . . need not be published."
Quasi-judicial or administrative adjudicatory power on the other hand is the power of the administrative agency
to adjudicate the rights of persons before it. It is the power to hear and determine questions of fact to which the
legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in
enforcing and administering the same law. 7 The administrative body exercises its quasi-judicial power when it
performs in a judicial manner an act which is essentially of an executive or administrative nature, where the
power to act in such manner is incidental to or reasonably necessary for the performance of the executive or
administrative duty entrusted to it. 8 In carrying out their quasi-judicial functions the administrative officers or
bodies are required to investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and
draw conclusions from them as basis for their official action and exercise of discretion in a judicial nature.
Since rights of specific persons are affected it is elementary that in the proper exercise of quasi-judicial power
due process must be observed in the conduct of the proceedings.

The importance of due process cannot be underestimated. Too basic is the rule that no person shall be
deprived of life, liberty or property without due process of law. Thus when an administrative proceeding is
quasi-judicial in character, notice and fair open hearing are essential to the validity of the proceeding. The right
to reasonable prior notice and hearing embraces not only the right to present evidence but also the opportunity
to know the claims of the opposing party and to meet them. The right to submit arguments implies that
opportunity otherwise the right may as well be considered impotent. And those who are brought into contest
with government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairy
advised of what the government proposes and to be heard upon its proposal before it issues its final
command.
There are cardinal primary rights which must be respected in administrative proceedings. The landmark case
ofAng Tibay v. The Court of Industrial Relations 9 enumerated these rights: (1) the right to a hearing, which
includes the right of the party interested or affected to present his own case and submit evidence in support
thereof; (2) the tribunal must consider the evidence presented; (3) the decision must have something to
support itself; (4) the evidence must be substantial; (5) the decision must be rendered on the evidence
presented at the hearing, or at least contained in the record and disclosed to the parties affected; (6) the
tribunal or any of its judges must act on its or his own independent consideration of the law and facts of the
controversy, and not simply accept the views of a subordinate in arriving at a decision; and, (7) the tribunal
should in all controversial questions render its decision in such manner that the parties to the proceeding may
know the various issues involved and the reasons for the decision rendered.
In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice and
hearing, or an adjudicatory rule which demands the observance of due process, a close examination of RMC
37-93 is in order. Noticeably, petitioner Commissioner of Internal Revenue at first interprets Sec. 142, par. (c),
subpar. (1), of the NIRC, as amended, by citing the law and clarifying or explaining what it means
Section 142 (c) (1), National Internal Revenue Code, as amended by R.A. No. 6956,
provides: On locally manufactured cigarettes bearing a foreign brand, fifty-five percent
(55%) Provided, That this rate shall apply regardless of whether or not the right to use
or title to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is
that the locally manufactured cigarettes bear a foreign brand regardless of whether or
not the right to use or title to the foreign brand was sold or transferred by its owner to
the local manufacturer. The brand must be originally owned by a foreign manufacturer
or producer. If ownership of the cigarette brand is, however, not definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in the current
World Tobacco Directory shall govern . . ."
Then petitioner makes a factual finding by declaring that Hope (Luxury), (Premium) More and Champion are
manufactured by other foreign manufacturers
Hope is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. More is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-MacDonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco,
Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera,
Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is
registered in the said directory as being manufactured by: (a) Commonwealth
Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco,
Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.
From this finding, petitioner thereafter formulates an inference that since it cannot be determined who among
the manufacturers are the real owners of the brands in question, then these cigarette brands should be
considered foreign brands

70

Since there is no showing who among the above-listed manufacturers of the cigarettes
bearing the said brands are the real owner/s thereof, then it follows that the same shall
be considered foreign brand for purposes of determining the ad valorem tax pursuant
to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 41088, dated August 24, 1988, "in cases where it cannot be established or there is dearth
of evidence as to whether a brand is foreign or not, resort to the World Tobacco
Directory should be made."

E. Re
yes
Vice
Presi
dent

Finan
ce

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation
reclassifying its cigarette brands as locally manufactured bearing foreign brands

Sirs:

In view of the foregoing, the aforesaid brands of

cigarettes, viz: Hope, More and Champion being manufactured by Fortune Tobacco
Corporation are hereby considered locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes.

This has reference to your letter dated January 16, 1990

wherein you represented that inspite of your VAT registration of
your copra trading company, you are supposed to be exempt
from VAT on the basis of BIR Ruling dated January 8, 1988
which considered copra as an agricultural food product in its
original state. In this connection, you request for a confirmation
of your opinion as aforestated.

Any ruling inconsistent herewith is revoked or modified accordingly.

It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal Revenue was
exercising her quasi-judicial or administrative adjudicatory power. She cited and interpreted the law, made a
factual finding, applied the law to her given set of facts, arrived at a conclusion, and issued a ruling aimed at a
specific individual. Consequently prior notice and hearing are required. It must be emphasized that even the
text alone of RMC 37-93 implies that reception of evidence during a hearing is appropriate if not necessary
since it invokes BIR Ruling No. 410-88, dated August 24, 1988, which provides that "in cases where it cannot
be established or there is dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult
to determine whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because
no hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of the
imagination can RMC 37-93 be considered purely as an interpretative rule requiring no previous notice and
hearing and simply interpreting, construing, clarifying or explaining statutory regulations being administered by
or under which the Bureau of Internal Revenue operates.

In reply, please be informed that copra, being an agricultural

non-food product, is exempt from VAT only if sale is made by
the primary producer pursuant to Section 103 (a) of the Tax
Code, as amended. Thus as a trading company and a
subsequent seller, your sale of copra is already subject to VAT
pursuant to Section 9(b) (1) of Revenue Regulations 5-27.
This revokes VAT Ruling Nos. 009-88 and 279-88.

Very t

(Sgd.) J
Commissi
Re

It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of Finance
Secretary, and RMC 37-93 in the instant case reclassify certain products for purposes of taxation. But the
similarity between the two revenue memorandum circulars ends there. For in properly determining whether a
revenue memorandum circular is merely an interpretative rule or an adjudicatory rule, its very tenor and text,
and the circumstances surrounding its issuance will have no to be considered.

As a clarification, this is the present and official stand of this Office unless sooner
revoked or amended. All revenue officials and employees are enjoined to give this
Circular as wide a publicity as possible.

We quote RMC 47-91 promulgated 11 June 1991

(Sgd.) J
Commissi
Re

Revenue Memorandum Circular No. 47-91

SUBJECT : Taxability of Copra
TO : All Revenue Officials and Employees and Others Concerned.

Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it simply
quotes a VAT Ruling and reminds those concerned that the ruling is the present and official stand of the
Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner manifestly exercised her
quasi-judicial or administrative adjudicatory power, in RMC 47-91 there were no factual findings, no application
of laws to a given set of facts, no conclusions of law, and no dispositive portion directed at any particular party.

For the information and guidance of all officials and employees and others concerned,
quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August 17, 1990:
COCOFED MARKETING RESEARCH CORPORATION
6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila
Attenti
on:
Ms. E
smyrn
a

Another difference is that in the instant case, the issuance of the assailed revenue memorandum circular
operated to subject the taxpayer to the new law which was yet to take effect, while in Misamis, the disputed
revenue memorandum circular was issued simply to restate and then clarify the prevailing position and ruling
of the administrative agency, and no new law yet to take effect was involved. It merely interpreted an existing
law which had already been in effect for some time and which was not set to be amended. RMC 37-93 is thus
prejudicial to private respondent alone.
A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was ostensibly
issued to subject the cigarette brands of respondent corporation to a new law as it was promulgated two days
before the expiration of the old law and a few hours before the effectivity of the new law. That RMC 37-93 is

71

particularly aimed only at respondent corporation and its three (3) cigarette brands can be seen from the
dispositive portion of the assailed revenue memorandum circular
In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More,
and Champion being manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.

still selling its cigarettes at a price based on the old, lower tax rate. Had there been previous notice and
hearing, as claimed by private respondent, it could have very well presented its side, either by opposing the
reclassification, or by acquiescing thereto but increasing the price of its cigarettes to adjust to the higher tax
rate. The reclassification and the ensuing imposition of a tax rate increase therefore could not be anything but
confiscatory if we are also to consider the claim of private respondent that the new tax is even higher than the
cost of its cigarettes.
Accordingly, I vote to deny the petition.

Any ruling inconsistent herewith is revoked or modified accordingly.

Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays down the
test in determining whether or not a locally manufactured cigarette bears a foreign brand using the cigarette
brandsHope, More and Champion as specific examples," cannot be accepted, much less sustained. Without
doubt, RMC 37-93 has a tremendous effect on respondent corporation and solely on respondent
corporation as its deficiency ad valorem tax assessment on its removals of Hope, Luxury, Premium More,
and Champion cigarettes for six (6) hours alone, i.e., from six o'clock in the evening of 2 July 1993 which is
presumably the time respondent corporation was supposed to have received the facsimile message sent by
Deputy Commissioner Victor A. Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was
already P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose except to state and
declare what has been the official stand of the administrative agency on the specific subject matter, and was
indiscriminately directed to all copra traders with no particular individual in mind.
That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be disputed;
hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do we deny her the
exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by constitutional mandate, the
Court must check the exercise of these powers and ascertain whether petitioner has gone beyond the
legitimate bounds of her authority.
In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the wisdom
of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private respondents. It is
simply the faithful observance by government by government of the basic constitutional right of a taxpayer to
due process of law and equal protection of the laws. This is what distresses me no end the manner and the
circumstances under which the cigarettes of private respondent were reclassified and correspondingly taxed
under RMC 37-93, and adjudicatory rule which therefore requires reasonable notice and hearing before its
issuance. It should not be confused with RMC 47-91, which is a mere interpretative rule.
In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also voted to
uphold the constitutional right of the taxpayer concerned to due process and equal protection of the laws. By a
vote of 3-2, that view prevailed. In sequela, we in the First Division who constituted the majority found
ourselves unjustly drawn into the vortex of a nightmarish episode. The strong ripples whipped up by my
opinion expressed therein and of the majority have yet to varnish when we are again in the imbroglio of a
similar dilemma. The unpleasant experience should be reason enough to simply steer clear of this controversy
and surf on a pretendedloss of judicial objectivity. Such would have been an easy way out, a gracious exit, so
to speak, albeit lame. But to camouflage my leave with a sham excuse would be to turn away from a
professional vow I keep at all times; I would not be true to myself, and to the people I am committed to serve.
Thus, as I have earlier expressed, if placed under similar circumstances in some future time, I shall have to
brave again the prospect of anothervilification and a tarnished image if only to show proudly to the whole world
that under the present dispensation judicial independence in our country is a true component of our
democracy.
In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of such
issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily issued
without prior notice and hearing, and singling out private respondent alone when two days before a new tax
law was to take effect petitioner reclassified and taxed the cigarette brands of private respondent at a higher
rate. Obviously, this was to make it appear that even before the anticipated date of effectivity of the statute
which was undeniably priorly known to petitioner these brands were already currently classified and taxed
at fifty-five percent (55%), thus shoving them into the purview of the law that was to take effect two days after!
For sure, private respondent was not properly informed before the issuance of the questioned memorandum
circular that its cigarette brands Hope Luxury, Premium More and Champion were being reclassified and
subjected to a higher tax rate. Naturally, the result would be to lose financially because private respondent was

HERMOSISIMA, JR., J.: dissenting

Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for deficiency ad
valoremexcise taxes on its removals of "Hope," "More," and "Champion" cigarettes from 6:00 p.m. to 12:00
midnight of July 2, 1993, in the total amount of P9,598,334.00. It claims that the circular, upon which the
assessment was based and made, is defective, invalid and unenforceable for having been issued without
notice and hearing and in violation of the equal protection clause guaranteed by the Constitution.
The majority upholds these claims of private respondent, convinced that the Circular in question, in the first
place, did not give prior notice and hearing, and so, it could not have been valid and effective. It proceeds to
affirm the factual findings of the Court of Tax Appeals, which findings were considered correct by respondent
Court of Appeals, to the effect that the petitioner Commissioner of Internal Revenue had indeed blatantly failed
to comply with the said twin requirements of notice and hearing, thereby rendering the issuance of the
questioned Circular to be in violation of the due process clause of the Constitution. It is also its dominant
opinion that the questioned Circular discriminates against private respondent Fortune Tobacco Corporation
insofar as it seems to affect only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other
cigarettes apparently of the same kind or classification as these cigarettes manufactured by private
respondent.
With all due respect, I disagree with the majority in its disquisition of the issues and its resulting conclusions.
Section 245 of the National Internal Revenue Code,
as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular
Section 245 of the National Internal Revenue Code, as amended, provides:
Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations. The
Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all
needful rules and regulations for the effective enforcement of the provisions of this
Code . . . without prejudice to the power of the Commissioner of Internal Revenue to
make rulings or opinions in connection with the implementation of the provisions of
internal revenue laws, including rulings on the classification of articles for sales tax and
similar purposes.
The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It was issued
in connection with Section 142 (c) (1) of the National Internal Revenue Code, as amended, which imposes ad
valorem excise taxes on locally manufactured cigarettes bearing a foreign brand. The same provision
prescribes the ultimate criterion that determines which cigarettes are to be considered "locally manufactured
cigarettes bearing a foreign brand." It provides:
. . . Whenever it has to be determined whether or not a cigarette bears a foreign brand,
the listing of brands manufactured in foreign countries appearing in the current World
Tobacco Directory shall govern.
There is only one World Tobacco Directory for a given current year, and the same is mandated by
law to be the BIR Commissioner's controlling basis for determining whether or not a particular

72

locally manufactured cigarette is one bearing a foreign brand. In so making a determination,

petitioner should inquire into the entries in the World Tobacco Directory for the given current year
and shall be held bound by such entries therein. She is not required to subject the results of her
inquiries to feedback from the concerned cigarette manufacturers, and it is doubtlessly not
desirable nor managerially sound to court dispute thereon when the law does not, in the first place,
require debate or hearing thereon. Petitioner may make such a determination because she is the
Chief Executive Officer of the administrative agency that is the Bureau of Internal Revenue in
which are vested quasi-legislative powers entrusted to it by the legislature in recognition of its more
encompassing and unequalled expertise in the field of taxation.
The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is
not unconstitutional, unreasonable and oppressive. It has been necessitated by "the
growing complexity of the modern society" (Solid Homes, Inc. vs. Payawal, 177 SCRA
72, 79). More and more administrative bodies are necessary to help in the regulation of
society's ramified activities. "Specialized in the particular field assigned to them, they
can deal with the problems thereof with more expertise and dispatch than can be
expected from the legislature or the courts of justice" . . . 1
Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to
classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner was acting
well within her prerogatives when she issued the questioned Circular. And in the exercise of such prerogatives
under the law, she has in her favor the presumption of regular performance of official duty which must be
overcome by clearly persuasive evidence of stark error and grave abuse of discretion in order to be overturned
and disregarded.
It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act No.
7654 2on petitioner's power to classify cigarettes. Although the decisions assailed and sought to be reviewed,
as well as the pleadings of private respondent, are replete with alleged admissions of our legislators to the
effect that the said Act was intended to freeze the current classification of cigarettes and make the same an
integral part of the said Act, certainly the repeal, if any, of petitioner's power to classify cigarettes must be
reckoned from the effectivity of the said Act and not before. Suffice it to say that indisputable is the plain fact
that the questioned Circular was issued on July 1, 1993, while the said Act took effect on July 3, 1993.
The contents of the questioned circular have not
been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner
Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code, as
amended, levies the following ad valorem taxes on cigarettes in accordance with their predetermined
classifications as established by the Commissioner of Internal Revenue:
. . . based on the manufacturer's registered wholesale price:
(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%)
Provided, That this rate shall apply regardless of whether or not the right to use or title
to the foreign brand was sold or transferred by its owner to the local manufacturer.
Whenever it has to be determined whether or not a cigarette bears a foreign brand, the
listing of brands manufactured in foreign countries appearing in the current World
Tobacco Directory shall govern.
(2) Other locally manufactured cigarettes, forty five percent (45%).
xxx xxx xxx
Prior to the issuance of the questioned Circular, assessed against and paid by private respondent as ad
valoremexcise taxes on their removals of "Hope," "More," and "Champion" cigarettes were amounts based on
paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was 45% at the most. The
reason for this is that apparently, petitioner's predecessors have all made determinations to the effect that the

said cigarettes were to be considered "other locally manufactured cigarettes" and not "locally manufactured
cigarettes bearing a foreign brand." Even petitioner, until her issuance of the questioned Circular, adhered to
her predecessors' determination as to the proper classification of the above-mentioned cigarettes for purposes
of ad valorem excise taxes. Apparently, the past determination that the said cigarettes were to be classified as
"other locally manufactured cigarettes" was based on private respodnent's convenient move of changing the
names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that "Champion"
was an original Fortune Tobacco Corporation register and, therefore, a local brand. Having registered these
brands with the Philippine Patent Office and with corresponding evidence to the effect, private respondent
paid ad valorem excise taxes computed at the rate of not more than 45% which is the rate applicable to
cigarettes considered as locally manufactured brands.
How these past determinations pervaded notwithstanding their erroneous basis is only tempered by their
innate quality of being merely errors in interpretative ruling, the formulation of which does not bind the
government. Advantage over such errors may precipitously be withdrawn from those who have been
benefiting from them once the same have been discovered and rectified.
Petitioner correctly emphasizes that:
. . . the registration of said brands in the name of private respondent is proof only that it
is the exclusive owner thereof in the Philippines; it does not necessarily follow,
however, that it is the exclusive owner thereof in the whole world. Assuming arguendo
that private respondent is the exclusive owner of said brands in the Philippines, it does
not mean that they are local. Otherwise, they would not have been listed in the WTD as
international brands manufactured by different entities in different countries. Moreover,
it cannot be said that the brands registered in the names of private respondent are not
the same brands listed in the WTD because private respondent is one of the
manufacturers of said brands listed in the WTD. 3
Private respondent attempts to cast doubt on the determination made by petitioner in the questioned Circular
that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the World Tobacco
Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing this out, private respondent
concludes that the entire Circular is erroneous and makes such error the principal proof of its claim that the
nature of the determination embodied in the questioned Circular requires a hearing on the facts and a debate
on the applicable law. Such a determination is adjudicatory in nature and, therefore, requires notice and
hearing. Private respondent is, however, apparently only eager to show error on the part of petitioner for acting
with grave abuse of discretion. Private respondent conveniently forgets that petitioner, equipped with the
expertise in taxation, recognized in that expertise by the legislature that vested in her the power to make rules
respecting classification of articles for taxation purposes, and presumed to have regularly exercised her
prerogatives within the scope of her statutory power to issue determinations specifically under Section 142 (c)
(1) in relation to Section 245 of the National Internal Revenue Code, as amended, simply followed the law as
she understood it. Her task was to determine which cigarette brands were foreign, and she was directed by
the law to look into the World Tobacco Directory. Foreign cigarette brands were legislated to be taxed at higher
rates because of their more extensive public exposure and international reputation; their competitive edge
against local brands may easily be checked by imposition of higher tax rates. Private respondent makes a
mountain of the mole hill circumstance that "Hope" is listed, not as being "manufactured" by Japan but as
being "used" by Japan. Whether manufactured or used by Japan, however, "Hope" remains a cigarette brand
that can not be said to be limited to local manufacture in the Philippines. The undeniable fact is that it is a
foreign brand the sales in the Philippines of which are greatly boosted by its international exposure and
reputation. The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify
articles for taxation purposes, to interpret the laws which she is mandated to administer. In interpreting the
same, petitioner must, in general, be guided by the principles underlying taxation, i.e., taxes are the lifeblood
of Government, and revenue laws ought to be interpreted in favor of the Government, for Government can not
survive without the funds to underwrite its varied operational expenses in pursuit of the welfare of the society
which it serves and protects.
Private respondent claims that its business will be destroyed by the imposition of additional ad valorem taxes
as a result of the effectivity of the questioned Circular. It claims that under the vested rights theory, it cannot
now be made to pay higher taxes after having been assessed for less in the past. Of course private
respondent will trumpet its losses, its interests, after all, being its sole concern. What private respondent fails
to see is the loss of revenue by the Government which, because of erroneous determinations made by its past
revenue commissioners, collected lesser taxes than what it was entitled to in the first place. It is every citizen's
duty to pay the correct amount of taxes. Private respondent will not be shielded by any vested rights, for there

73

are not vested rights to speak of respecting a wrong construction of the law by administrative officials, and
such wrong interpretation does not place the Government in estoppel to correct or overrule the same. 4
The Questioned Circular embodies an interpretative
ruling of petitioner Commissioner which as such does
not require notice and hearing
As one of the public offices of the Government, the Bureau of Internal Revenue, through its Commissioner,
has grown to be a typical administrative agency vested with a fusion of different governmental powers: the
power to investigate, initiate action and control the range of investigation, the power to promulgate rules and
regulations to better carry out statutory policies, and the power to adjudicate controversies within the scope of
their activities. 5In the realm of administrative law, we understand that such an empowerment of administrative
agencies was evolved in response to the needs of a changing society. This development arose as the need for
broad social control over complex conditions and activities became more and more pressing, and such
complexity could no longer be dealt with effectivity and directly by the legislature or the judiciary. The theory
which underlies the empowerment of administrative agencies like the Bureau of Internal Revenue, is that the
issues with which such agencies deal ought to be decided by experts, and not be a judge, at least not in the
first instance or until the facts have been sifted and arranged. 6
One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to make rules.
The necessity for vesting administrative agencies with this power stems from the impracticability of the
lawmakers providing general regulations for various and varying details pertinent to a particular legislation. 7

The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making powers
under Section 245 of the National Internal Revenue Code, as amended. Exercising such powers, petitioner reclassified "Hope," "More" and "Champion" cigarettes as locally manufactured cigarettes bearing foreign
brands. The re-classification, as previously explained, is the correct interpretation of Section 142 (c) (1) of the
said Code. The said legal provision is not accompanied by any penal sanction, and no detail had to be filled in
by petitioner. The basis for the classification of cigarettes has been provided for by the legislature, and all
petitioner has to do, on behalf of the government agency she heads, is to proceed to make the proper
determination using the criterion stipulated by the lawmaking body. In making the proper determination,
petitioner gave it a liberal construction consistent with the rule that revenue laws are to be construed in favor
of the Government whose survival depends on the contributions that taxpayers give to the public coffers that
finance public services and other governmental operations.
The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the
enforcement of the laws pertinent to this case and so, the opinion of the Commissioner of Internal Revenue, in
the absence of a clear showing that it is plainly wrong, is entitled to great weight. Private respondent claims
that its rights under previous interpretations of Section 142 (c) (1) may not abruptly be cut by a new
interpretation of the said section, but precisely the said section is subject to various and changing construction,
and hence, any ruling issued by petitioner thereon is necessarily interpretative and not legislative. Private
respondent insists that the questioned circular is adjudicatory in nature because it determined the rights of
private respondent in a controversy involving his tax liability. It also asseverates that the questioned circular
involved administrative action that is particular and immediate, thereby rendering it subject to the requirements
of notice and hearing in compliance with the due process clause of the Constitution.
We find private respondent's arguments to be rather strained.

The rules that administrative agencies may promulgate may either be legislative or interpretative. The former
is a form of subordinate legislation whereby the administrative agency is acting in a legislative capacity,
supplementing the statute, filling in the details, pursuant to a specific delegation of legislative power. 8
Interpretative rules, on the other hand, are "those which purport to do no more than interpret the statute being
administered, to say what it means." 9
There can be no doubt that there is a distinction between an administrative rule or
regulation and an administrative interpretation of a law whose enforcement is entrusted
to an administrative body. When an administrative agency promulgates rules and
regulations, it "makes" a new law with the force and effect of a valid law, while when it
renders an opinion or gives a statement of policy, it merely interprets a pre-existing law
(Parker, Administrative Law, p. 197; Davis Administrative Law, p. 194). Rules and
regulations when promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, partake of the nature of a statute, and
compliance therewith may be enforced by a penal sanction provided in the law. This is
so because statutes are usually couched in general terms, after expressing the policy,
purposes, objectives, remedies and sanctions intended by the legislature. The details
and the manner of carrying out the law are often times left to the administrative agency
entrusted with its enforcement. In this sense, it has been said that rules and regulations
are the product of a delegated power to create new or additional legal provisions that
have the effect of law. (Davis, op. cit. p. 194.)
A rule is binding on the courts as long as the procedure fixed for its promulgation is
followed and its scope is within the statutory authority granted by the legislature, even if
the courts are not in agreement with the policy stated therein or its innate wisdom
(Davis, op. cit. pp. 195-197). On the other hand, administrative interpretation of the law
is at best merely advisory, for it is the courts that finally determine what the law
means. 10
"Whether a given statutory delegation authorizes legislative or interpretative regulations depends upon
whether the statute places specific 'sanctions' behind the regulations authorized, as for example, by making it
a criminal offense to disobey them, or by making conformity with their provisions a condition of the exercise of
legal privileges." 11 This is because interpretative regulations are by nature simply statutory interpretations,
which have behind them no statutory sanction. Such regulations, whether so expressly authorized by statute
or issued only as an incident of statutory administration, merely embody administrative findings of law which
are always subject to judicial determination as to whether they are erroneous or not, even when their issuance
is authorized by statute.

Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited provisions
in the National Internal Revenue Code, as amended. Such determination was an interpretation by petitioner of
the said legal provisions. If in the course of making the interpretation and embodying the same in the
questioned circular which the petitioner subsequently issued after making such a determination, private
respondent's cigarettes products, by their very nature of being foreign brands as evidenced by their enlistment
in the World Tobacco Directory, which is the controlling basis for the proper classification of cigarettes as
stipulated by the law itself, have come to be classified as locally manufactured cigarettes bearing foreign
brands and as such subject to a tax rate higher than what was previously imposed thereupon based on past
rulings of other revenue commissioners, such a situation is simply a consequence of the performance by
petitioner of here duties under the law. No adjudication took place, much less was there any controversy ripe
for adjudication. The natural consequences of making a classification in accordance with law may not be used
by private respondent in arguing that the questioned circular is in fact adjudicatory in nature. Such an exercise
in driving home a point is illogical as it is fallacious and misplaced.
Private respondent concedes that under general rules of administrative law, "a ruling which is merely
'interpretative' in character may not require prior notice to affected parties before its issuance as well as a
hearing" and "for this reason, in most instances, interpretative regulations are not given the force of
law." 12Indeed, "interpretative regulations and those merely internal in nature
. . . need not be published." 13 And it is now settled that only legislative regulations and not interpretative
rulings must have the benefit of public
hearing. 14
Because (1) the questioned circular merely embodied an interpretation or a way of reading and giving
meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2) petitioner did not fill in
any details in the aforecited section but only classified cigarettes on the basis of the World Tobacco Directory
in the light of the paramount principle of construing revenue laws in favor of the Government to the end that
Government collects as much tax money as it is entitled to in order to fulfill its public purposes for the general
good of its citizens; (3) no penal sanction is provided in the aforecited section that was construed by petitioner
in the questioned circular; and (4) a similar circular declassifying copra from being an agricultural food to nonfood product for purposes of the value added tax laws, resulting in the revocation of an exemption previously
enjoyed by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative,
much less, an adjudicatory, action on the part of the revenue commissioner, 15 this Court must not be blind to
the fact that the questioned Circular is indeed an interpretative ruling not subject to notice and hearing.
Neither is the questioned Circular tainted by a
violation of the equal protection clause under the
Constitution

74

Private respondent anchors its claim of violation of its equal protection rights upon the too obvious fact that
only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the questioned circular.
Because only the cigarettes that they manufacture are enumerated in the questioned circular, private
respondent proceeded to attack the same as being discriminatory against it. On the surface, private
respondent seems to have a point there. A scrutiny of the questioned Circular, however, will show that it is
undisputedly one of general application for all cigarettes that are similarly situated as private respondent's
brands. The new interpretation of Section 142 (1) (c) has been well illustrated in its application upon private
respondent's brands, which illustration is properly a subject of the questioned Circular. Significantly, indicated
as the subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The
reclassification resulted in the foregrounding of private respondent's cigarette brands, which incidentally is
largely due to the controversy spawned no less by private respondent's own action of conveniently changing
its brand names to avoid falling under a classification that would subject it to higher ad valorem tax rates. This
caused then Commissioner Bienvenido Tan to depart from his initial determination that private respondent's
cigarette brands are foreign brands. The consequent specific mention of such brands in the questioned
Circular, does not change the fact that the questioned Circular has always been intended for and did cover, all
cigarettes similarly situated as "Hope," "More" and "Champion." Petitioner is thus correct in stating that:

SERENO, J.:

Before us is a Petition for Review under Rule 45, [1] assailing the Decision[2] and the Resolution[3]of
the Court of Appeals (CA), which nullified the Customs Memorandum Order (CMO) No. 27-2003 [4]on the tariff
classification of wheat issued by petitioner Commissioner of Customs.

The antecedent facts are as follows:

On 7 November 2003, petitioner Commissioner of Customs issued CMO 27-2003. Under the
Memorandum, for tariff purposes, wheat was classified according to the following: (1) importer or consignee;
(2) country of origin; and (3) port of discharge. [5] The regulation provided an exclusive list of corporations, ports

. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or not
a locally manufactured cigarette bears a foreign brand using the cigarette brands
"Hope," More and "Champion" as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette brands
aforementioned. While it is true that only "Hope," "More" and "Champion" cigarettes are
actually determined as locally manufactured cigarettes bearing a foreign brand, RMC
37-93 does not state that ONLY cigarettes fall under such classification to the exclusion
of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude
the coverage of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does
not exclude the coverage of other cigarettes similarly situated as locally manufactured
cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93 is not discriminatory. 16
Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned Circular
reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and unenforceable and has
rendered the assessment against private respondent of deficiency ad valorem excise taxes to be without legal
basis. The majority agrees with private respondent and respondent Courts. As the foregoing opinion chronicles
the fatal flaws in private respondent's arguments, it becomes more apparent that the questioned Circular is in
fact a valid and subsisting interpretative ruling that the petitioner had power to promulgate and enforce.
WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals and the
Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of Internal Revenue
denying private respondent's request for a review, reconsideration and recall of Revenue Memorandum
Circular No. 37-93 dated July 1, 1993.
COMMISSIONER
OF
CUSTOMS
and
COLLECTOR OF THE PORT OF SUBIC,
Petitioners,

the

DISTRICT

G.R. No. 179579

of discharge, commodity descriptions and countries of origin. Depending on these factors, wheat would be
classified either as food grade or feed grade. The corresponding tariff for food grade wheat was 3%, for feed
grade, 7%.

CMO 27-2003 further provided for the proper procedure for protest or Valuation and Classification
Review Committee (VCRC) cases. Under this procedure, the release of the articles that were the subject of
protest required the importer to post a cash bond to cover the tariff differential. [6]

A month after the issuance of CMO 27-2003, on 19 December 2003, respondent filed a Petition for
Declaratory Relief[7] with the Regional Trial Court (RTC) of Las Pias City. It anticipated the implementation of
the regulation on its imported and perishable Chinese milling wheat in transit from China. [8] Respondent
contended that CMO 27-2003 was issued without following the mandate of the Revised Administrative Code
on public participation, prior notice, and publication or registration with the University of the Philippines Law
Center.

Present:
CARPIO, J., Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.

- versus -

HYPERMIX FEEDS CORPORATION,

Respondent.

Respondent also alleged that the regulation summarily adjudged it to be a feed grade supplier
without the benefit of prior assessment and examination; thus, despite having imported food grade wheat, it
would be subjected to the 7% tariff upon the arrival of the shipment, forcing them to pay 133% more than was
proper.

Promulgated:
February 1, 2012

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

Furthermore, respondent claimed that the equal protection clause of the Constitution was violated
when the regulation treated non-flour millers differently from flour millers for no reason at all.

DECISION

75

Lastly, respondent asserted that the retroactive application of the regulation was confiscatory in
nature.

petitioners had substituted the quasi-judicial determination of the commodity by a quasi-legislative

predetermination.[13] The lower court pointed out that a classification based on importers and ports of discharge
were violative of the due process rights of respondent.

On 19 January 2004, the RTC issued a Temporary Restraining Order (TRO) effective for twenty
(20) days from notice.[9]

Dissatisfied with the Decision of the lower court, petitioners appealed to the CA, raising the same
allegations in defense of CMO 27-2003. [14] The appellate court, however, dismissed the appeal. It held that,

Petitioners thereafter filed a Motion to Dismiss. [10] They alleged that: (1) the RTC did not have
jurisdiction over the subject matter of the case, because respondent was asking for a judicial determination of

since the regulation affected substantial rights of petitioners and other importers, petitioners should have
observed the requirements of notice, hearing and publication.

the classification of wheat; (2) an action for declaratory relief was improper; (3) CMO 27-2003 was an internal
administrative rule and not legislative in nature; and (4) the claims of respondent were speculative and

Hence, this Petition.

premature, because the Bureau of Customs (BOC) had yet to examine respondents products. They likewise
opposed the application for a writ of preliminary injunction on the ground that they had not inflicted any injury
through the issuance of the regulation; and that the action would be contrary to the rule that administrative
issuances are assumed valid until declared otherwise.

Petitioners raise the following issues for the consideration of this Court:
I.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE WHICH

IS NOT IN ACCORD WITH THE LAW AND PREVAILING JURISPRUDENCE.

II.

THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE TRIAL

COURT HAS JURISDICTION OVER THE CASE.

On 28 February 2005, the parties agreed that the matters raised in the application for preliminary
injunction and the Motion to Dismiss would just be resolved together in the main case. Thus, on 10 March
2005, the RTC rendered its Decision [11] without having to resolve the application for preliminary injunction and
the Motion to Dismiss.

The Petition has no merit.

We shall first discuss the propriety of an action for declaratory relief.

The trial court ruled in favor of respondent, to wit:

WHEREFORE, in view of the foregoing, the Petition is GRANTED and the
subject Customs Memorandum Order 27-2003 is declared INVALID and OF NO
FORCE AND EFFECT. Respondents Commissioner of Customs, the District Collector
of Subic or anyone acting in their behalf are to immediately cease and desist from
enforcing the said Customs Memorandum Order 27-2003.
SO ORDERED.[12]

The RTC held that it had jurisdiction over the subject matter, given that the issue raised by
respondent concerned the quasi-legislative powers of petitioners. It likewise stated that a petition for
declaratory relief was the proper remedy, and that respondent was the proper party to file it. The court
considered that respondent was a regular importer, and that the latter would be subjected to the application of
the regulation in future transactions.

With regard to the validity of the regulation, the trial court found that petitioners had not followed
the basic requirements of hearing and publication in the issuance of CMO 27-2003. It likewise held that

Rule 63, Section 1 provides:

Who may file petition. Any person interested under a deed, will, contract or
other written instrument, or whose rights are affected by a statute, executive order or
regulation, ordinance, or any other governmental regulation may, before breach or
violation thereof, bring an action in the appropriate Regional Trial Court to determine
any question of construction or validity arising, and for a declaration of his rights or
duties, thereunder.

The requirements of an action for declaratory relief are as follows: (1) there must be a justiciable
controversy; (2) the controversy must be between persons whose interests are adverse; (3) the party seeking
declaratory relief must have a legal interest in the controversy; and (4) the issue involved must be ripe for
judicial determination.[15] We find that the Petition filed by respondent before the lower court meets these
requirements.

First, the subject of the controversy is the constitutionality of CMO 27-2003 issued by petitioner
Commissioner of Customs. In Smart Communications v. NTC,[16] we held:

76

easy to see that business uncertainty will be a constant occurrence for

petitioner. That the sums involved are not minimal is shown by the discussions
during the hearings conducted as well as in the pleadings filed . It may be that the
petitioner can later on get a refund but such has been foreclosed because the Collector
of Customs and the Commissioner of Customs are bound by their own CMO. Petitioner
cannot get its refund with the said agency. We believe and so find that Petitioner has
presented such a stake in the outcome of this controversy as to vest it with standing to
file this petition.[18] (Emphasis supplied)

The determination of whether a specific rule or set of rules issued by an

administrative agency contravenes the law or the constitution is within the jurisdiction
of the regular courts. Indeed, the Constitution vests the power of judicial review or
the power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in the courts,
including the regional trial courts. This is within the scope of judicial power,
which includes the authority of the courts to determine in an appropriate action
the validity of the acts of the political departments. Judicial power includes the
duty of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government. (Emphasis supplied)

Finally, the issue raised by respondent is ripe for judicial determination, because litigation is
inevitable

Meanwhile, in Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance

Secretary,[17] we said:
xxx [A] legislative rule is in the nature of subordinate legislation, designed
to implement a primary legislation by providing the details thereof. xxx
In addition such rule must be published. On the other hand, interpretative rules are
designed to provide guidelines to the law which the administrative agency is in charge
of enforcing.
Accordingly, in considering a legislative rule a court is free to make
three inquiries: (i) whether the rule is within the delegated authority of the
administrative agency; (ii) whether it is reasonable; and (iii) whether it was
issued pursuant to proper procedure. But the court is not free to substitute its
judgment as to the desirability or wisdom of the rule for the legislative body, by its
delegation of administrative judgment, has committed those questions to administrative
judgments and not to judicial judgments. In the case of an interpretative rule, the
inquiry is not into the validity but into the correctness or propriety of the rule. As a
matter of power a court, when confronted with an interpretative rule, is free to (i)give
the force of law to the rule; (ii) go to the opposite extreme and substitute its judgment;
or (iii) give some intermediate degree of authoritative weight to the interpretative rule.
(Emphasis supplied)
Second, the controversy is between two parties that have adverse interests. Petitioners are
summarily imposing a tariff rate that respondent is refusing to pay.

Third, it is clear that respondent has a legal and substantive interest in the implementation of CMO
27-2003. Respondent has adequately shown that, as a regular importer of wheat, on 14 August 2003, it has

[19]

for the simple and uncontroverted reason that respondent is not included in the enumeration of

flour millers classified as food grade wheat importers. Thus, as the trial court stated, it would have to file a
protest case each time it imports food grade wheat and be subjected to the 7% tariff.

It is therefore clear that a petition for declaratory relief is the right remedy given the circumstances
of the case.

Considering that the questioned regulation would affect the substantive rights of respondent as
explained above, it therefore follows that petitioners should have applied the pertinent provisions of Book VII,
Chapter 2 of the Revised Administrative Code, to wit:
Section 3. Filing. (1) Every agency shall file with the University of the
Philippines Law Center three (3) certified copies of every rule adopted by it. Rules in
force on the date of effectivity of this Code which are not filed within three (3) months
from that date shall not thereafter be the bases of any sanction against any party of
persons.
xxx xxx xxx
Section 9. Public Participation. - (1) If not otherwise required by law, an
agency shall, as far as practicable, publish or circulate notices of proposed rules and
afford interested parties the opportunity to submit their views prior to the adoption of
any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the
proposed rates shall have been published in a newspaper of general circulation at least
two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.

actually made shipments of wheat from China to Subic. The shipment was set to arrive in December 2003.
Upon its arrival, it would be subjected to the conditions of CMO 27-2003. The regulation calls for the imposition

When an administrative rule is merely interpretative in nature, its applicability needs nothing further

of different tariff rates, depending on the factors enumerated therein. Thus, respondent alleged that it would be

than its bare issuance, for it gives no real consequence more than what the law itself has already prescribed.

made to pay the 7% tariff applied to feed grade wheat, instead of the 3% tariff on food grade wheat. In

When, on the other hand, the administrative rule goes beyond merely providing for the means that can

addition, respondent would have to go through the procedure under CMO 27-2003, which would undoubtedly

facilitate or render least cumbersome the implementation of the law but substantially increases the burden of

toll its time and resources. The lower court correctly pointed out as follows:

those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and

xxx As noted above, the fact that petitioner is precisely into the business of
importing wheat, each and every importation will be subjected to constant
disputes which will result into (sic) delays in the delivery, setting aside of funds
as cash bond required in the CMO as well as the resulting expenses thereof. It is

thereafter to be duly informed, before that new issuance is given the force and effect of law. [20]

Likewise, in Taada v. Tuvera,[21] we held:

77

The clear object of the above-quoted provision is to give the general

public adequate notice of the various laws which are to regulate their actions
and conduct as citizens. Without such notice and publication, there would be no
basis for the application of the maxim ignorantia legis non excusat. It would be the
height of injustice to punish or otherwise burden a citizen for the transgression
of a law of which he had no notice whatsoever, not even a constructive one.
Perhaps at no time since the establishment of the Philippine Republic has
the publication of laws taken so vital significance that at this time when the people have
bestowed upon the President a power heretofore enjoyed solely by the legislature.
While the people are kept abreast by the mass media of the debates and deliberations
in the Batasan Pambansa and for the diligent ones, ready access to the legislative
records no such publicity accompanies the law-making process of the President. Thus,
without publication, the people have no means of knowing what presidential
decrees have actually been promulgated, much less a definite way of informing
themselves of the specific contents and texts of such decrees. (Emphasis
supplied)

that are excluded from the list import food grade wheat; at the same time, it creates an assumption that those
who meet the criteria do not import feed grade wheat. In the first case, importers are unnecessarily burdened
to prove the classification of their wheat imports; while in the second, the state carries that burden.

Petitioner Commissioner of Customs also went beyond his powers when the regulation limited the
customs officers duties mandated by Section 1403 of the Tariff and Customs Law, as amended. The law
provides:
Section 1403. Duties of Customs Officer Tasked to Examine, Classify, and
Appraise Imported Articles. The customs officer tasked to examine, classify, and
appraise imported articles shall determine whether the packages designated for
examination and their contents are in accordance with the declaration in the
entry, invoice and other pertinent documents and shall make return in such a
manner as to indicate whether the articles have been truly and correctly declared
in the entry as regard their quantity, measurement, weight, and tariff
classification and not imported contrary to law.He shall submit samples to the
laboratory for analysis when feasible to do so and when such analysis is necessary for
the proper classification, appraisal, and/or admission into the Philippines of imported
articles.

Because petitioners failed to follow the requirements enumerated by the Revised Administrative
Code, the assailed regulation must be struck down.

Going now to the content of CMO 27-3003, we likewise hold that it is unconstitutional for being

Likewise, the customs officer shall determine the unit of quantity in

which they are usually bought and sold, and appraise the imported articles in
accordance with Section 201 of this Code.

violative of the equal protection clause of the Constitution.

The equal protection clause means that no person or class of persons shall be deprived of the

Failure on the part of the customs officer to comply with his duties shall
subject him to the penalties prescribed under Section 3604 of this Code.

same protection of laws enjoyed by other persons or other classes in the same place in like circumstances.
Thus, the guarantee of the equal protection of laws is not violated if there is a reasonable classification. For a
classification to be reasonable, it must be shown that (1) it rests on substantial distinctions; (2) it is germane to

The provision mandates that the customs officer must first assess and determine the classification of the

the purpose of the law; (3) it is not limited to existing conditions only; and (4) it applies equally to all members

imported article before tariff may be imposed. Unfortunately, CMO 23-2007 has already classified the article

of the same class.

even before the customs officer had the chance to examine it. In effect, petitioner Commissioner of Customs

[22]

diminished the powers granted by the Tariff and Customs Code with regard to wheat importation when it no
Unfortunately, CMO 27-2003 does not meet these requirements. We do not see how the quality of
wheat is affected by who imports it, where it is discharged, or which country it came from.

Thus, on the one hand, even if other millers excluded from CMO 27-2003 have imported food
grade wheat, the product would still be declared as feed grade wheat, a classification subjecting them to 7%
tariff. On the other hand, even if the importers listed under CMO 27-2003 have imported feed grade wheat,
they would only be made to pay 3% tariff, thus depriving the state of the taxes due. The regulation, therefore,
does not become disadvantageous to respondent only, but even to the state.

It is also not clear how the regulation intends to monitor more closely wheat importations and thus
prevent their misclassification. A careful study of CMO 27-2003 shows that it not only fails to achieve this end,
but results in the opposite. The application of the regulation forecloses the possibility that other corporations

longer required the customs officers prior examination and assessment of the proper classification of the
wheat.

It is well-settled that rules and regulations, which are the product of a delegated power to create
new and additional legal provisions that have the effect of law, should be within the scope of the statutory
authority granted by the legislature to the administrative agency. It is required that the regulation be germane
to the objects and purposes of the law; and that it be not in contradiction to, but in conformity with, the
standards prescribed by law.[23]

In summary, petitioners violated respondents right to due process in the issuance of CMO 27-2003
when they failed to observe the requirements under the Revised Administrative Code. Petitioners likewise
violated respondents right to equal protection of laws when they provided for an unreasonable classification in

78

the application of the regulation. Finally, petitioner Commissioner of Customs went beyond his powers of
delegated authority when the regulation limited the powers of the customs officer to examine and assess
imported articles.

WHEREFORE, in view of the foregoing, the Petition is DENIED.

SO ORDERED.
G.R. No. L-16704

There can be no doubt that there is a distinction between an administrative rule or regulation and an
administrative interpretation of a law whose enforcement is entrusted to an administrative body. When an
administrative agency promulgates rules and regulations, it "makes" a new law with the force and effect of a
valid law, while when it renders an opinion or gives a statement of policy, it merely interprets a pre-existing law
(Parker, Administrative Law, p. 197; Davis, Administrative Law, p. 194). Rules and regulations when
promulgated in pursuance of the procedure or authority conferred upon the administrative agency by law,
partake of the nature of a statute, and compliance therewith may be enforced by a penal sanction provided in
the law. This is so because statutes are usually couched in general terms, after expressing the policy,
purposes, objectives, remedies and sanctions intended by the legislature. The details and the manner of
carrying out the law are often times left to the administrative agency entrusted with its enforcement. In this
sense, it has been said that rules and regulations are the product of a delegated power to create new or
additional legal provisions that have the effect of law. (Davis,op. cit., p. 194.) .

March 17, 1962

VICTORIAS MILLING COMPANY, INC., petitioner-appellant,

vs.
SOCIAL SECURITY COMMISSION, respondent-appellee.
Ross, Selph and Carrascoso for petitioner-appellant.
Office of the Solicitor General and Ernesto T. Duran for respondent-appellee.
BARRERA, J.:
On October 15, 1958, the Social Security Commission issued its Circular No. 22 of the following tenor: .
Effective November 1, 1958, all Employers in computing the premiums due the System, will take
into consideration and include in the Employee's remuneration all bonuses and overtime pay, as
well as the cash value of other media of remuneration. All these will comprise the Employee's
remuneration or earnings, upon which the 3-1/2% and 2-1/2% contributions will be based, up to a
maximum of P500 for any one month.
Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc., through counsel, wrote the Social
Security Commission in effect protesting against the circular as contradictory to a previous Circular No. 7,
dated October 7, 1957 expressly excluding overtime pay and bonus in the computation of the employers' and
employees' respective monthly premium contributions, and submitting, "In order to assist your System in
arriving at a proper interpretation of the term 'compensation' for the purposes of" such computation, their
observations on Republic Act 1161 and its amendment and on the general interpretation of the words
"compensation", "remuneration" and "wages". Counsel further questioned the validity of the circular for lack of
authority on the part of the Social Security Commission to promulgate it without the approval of the President
and for lack of publication in the Official Gazette.
Overruling these objections, the Social Security Commission ruled that Circular No. 22 is not a rule or
regulation that needed the approval of the President and publication in the Official Gazette to be effective, but
a mere administrative interpretation of the statute, a mere statement of general policy or opinion as to how the
law should be construed.
Not satisfied with this ruling, petitioner comes to this Court on appeal.
The single issue involved in this appeal is whether or not Circular No. 22 is a rule or regulation, as
contemplated in Section 4(a) of Republic Act 1161 empowering the Social Security Commission "to adopt,
amend and repeal subject to the approval of the President such rules and regulations as may be necessary to
carry out the provisions and purposes of this Act."

A rule is binding on the courts so long as the procedure fixed for its promulgation is followed and its scope is
within the statutory authority granted by the legislature, even if the courts are not in agreement with the policy
stated therein or its innate wisdom (Davis, op. cit., 195-197). On the other hand, administrative interpretation
of the law is at best merely advisory, for it is the courts that finally determine what the law means.
Circular No. 22 in question was issued by the Social Security Commission, in view of the amendment of the
provisions of the Social Security Law defining the term "compensation" contained in Section 8 (f) of Republic
Act No. 1161 which, before its amendment, reads as follows: .
(f) Compensation All remuneration for employment include the cash value of any remuneration
paid in any medium other than cash except (1) that part of the remuneration in excess of P500
received during the month; (2) bonuses, allowances or overtime pay; and (3) dismissal and all
other payments which the employer may make, although not legally required to do so.
Republic Act No. 1792 changed the definition of "compensation" to:
(f) Compensation All remuneration for employment include the cash value of any remuneration
paid in any medium other than cash except that part of the remuneration in excess of P500.00
received during the month.
It will thus be seen that whereas prior to the amendment, bonuses, allowances, and overtime pay given in
addition to the regular or base pay were expressly excluded, or exempted from the definition of the term
"compensation", such exemption or exclusion was deleted by the amendatory law. It thus became necessary
for the Social Security Commission to interpret the effect of such deletion or elimination. Circular No. 22 was,
therefore, issued to apprise those concerned of the interpretation or understanding of the Commission, of the
law as amended, which it was its duty to enforce. It did not add any duty or detail that was not already in the
law as amended. It merely stated and circularized the opinion of the Commission as to how the law should be
construed.1wph1.t
The case of People v. Jolliffe (G.R. No. L-9553, promulgated on May 30, 1959) cited by appellant, does not
support its contention that the circular in question is a rule or regulation. What was there said was merely that
a regulation may be incorporated in the form of a circular. Such statement simply meant that the substance
and not the form of a regulation is decisive in determining its nature. It does not lay down a general proposition
of law that any circular, regardless of its substance and even if it is only interpretative, constitutes a rule or
regulation which must be published in the Official Gazette before it could take effect.
The case of People v. Que Po Lay (50 O.G. 2850) also cited by appellant is not applicable to the present case,
because the penalty that may be incurred by employers and employees if they refuse to pay the
corresponding premiums on bonus, overtime pay, etc. which the employer pays to his employees, is not by
reason of non-compliance with Circular No. 22, but for violation of the specific legal provisions contained in
Section 27(c) and (f) of Republic Act No. 1161.

79

We find, therefore, that Circular No. 22 purports merely to advise employers-members of the System of what,
in the light of the amendment of the law, they should include in determining the monthly compensation of their
employees upon which the social security contributions should be based, and that such circular did not require
presidential approval and publication in the Official Gazette for its effectivity.
It hardly need be said that the Commission's interpretation of the amendment embodied in its Circular No. 22,
is correct. The express elimination among the exemptions excluded in the old law, of all bonuses, allowances
and overtime pay in the determination of the "compensation" paid to employees makes it imperative that such
bonuses and overtime pay must now be included in the employee's remuneration in pursuance of the
amendatory law. It is true that in previous cases, this Court has held that bonus is not demandable because it
is not part of the wage, salary, or compensation of the employee. But the question in the instant case is not
whether bonus is demandable or not as part of compensation, but whether, after the employer does, in fact,
give or pay bonus to his employees, such bonuses shall be considered compensation under the Social
Security Act after they have been received by the employees. While it is true that terms or words are to be
interpreted in accordance with their well-accepted meaning in law, nevertheless, when such term or word is
specifically defined in a particular law, such interpretation must be adopted in enforcing that particular law, for
it can not be gainsaid that a particular phrase or term may have one meaning for one purpose and another
meaning for some other purpose. Such is the case that is now before us. Republic Act 1161 specifically
defined what "compensation" should mean "For the purposes of this Act". Republic Act 1792 amended such
definition by deleting same exemptions authorized in the original Act. By virtue of this express substantial
change in the phraseology of the law, whatever prior executive or judicial construction may have been given to
the phrase in question should give way to the clear mandate of the new law.
IN VIEW OF THE FOREGOING, the Resolution appealed from is hereby affirmed, with costs against
appellant. So ordered.
[G.R. No. 163448. March 08, 2005]
NATIONAL FOOD AUTHORITY (NFA), and JUANITO M. DAVID, in his capacity as Regional Director, NFA
Regional Office No. 1, San Juan, La Union, petitioners, vs. MASADA SECURITY AGENCY,
INC., represented by its Acting President & General Manager, COL. EDWIN S. ESPEJO
(RET.), respondents.

the daily wage by multiplying the amount of the mandated increase by 30 days and denied the same with
respect to the adjustments in the other benefits and remunerations computed on the basis of the daily wage.
Respondent sought the intervention of the Office of the Regional Director, Regional Office No. I, La
Union, as Chairman of the Regional Tripartite Wages and Productivity Board and the DOLE Secretary through
the Executive Director of the National Wages and Productivity Commission. Despite the advisory [5] of said
offices sustaining the claim of respondent that the increase mandated by Republic Act No. 6727 (RA 6727)
and the wage orders issued by the RTWPB is not limited to the daily pay, NFA maintained its stance that it is
not liable to pay the corresponding adjustments in the wage related benefits of respondents security guards.
On May 4, 2001, respondent filed with the Regional Trial Court of Quezon, City, Branch 83, a case for
recovery of sum of money against NFA. Docketed as Civil Case No. Q-01-43988, the complaint [6] sought
reimbursement of the following amounts allegedly paid by respondent to the security guards, to wit:
P2,949,302.84, for unpaid wage related benefits brought about by the effectivity of Wage Order Nos. RB 1-05
and RB CAR-04;[7] RB 1-06 and RB CAR-05; [8] RB 1-07 and RB CAR-06; [9] and P975,493.04 for additional cost
and margin, plus interest. It also prayed for damages and litigation expenses. [10]
In its answer with counterclaim,[11] NFA denied that respondent paid the security guards their wage
related benefits and that it shouldered the additional costs and margin arising from the implementation of the
wage orders. It admitted, however, that it heeded respondents request for adjustment only with respect to
increase in the minimum wage and not with respect to the other wage related benefits. NFA argued that
respondent cannot demand an adjustment on said salary related benefits because it is bound by their contract
expressly limiting NFAs obligation to pay only the increment in the daily wage.
At the pre-trial, the only issue raised was whether or not respondent is entitled to recover from NFA the
wage related benefits of the security guards.[12]
On September 19, 2002, the trial court rendered a decision [13] in favor of respondent holding that NFA is
liable to pay the security guards wage related benefits pursuant to RA 6727, because the basis of the
computation of said benefits, like overtime pay, holiday pay, SSS and Pag-ibig premium, is the increased
minimum wage. It also found NFA liable for the consequential adjustments in administrative costs and margin.
The trial court absolved defendant Juanito M. David having been impleaded in his official capacity as Regional
Director of NFA Regional Office No. 1, San Juan, La Union. The dispositive portion thereof, reads:

DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review under Rule 45 of the Rules of Court is the February 12, 2004
decision[1]of the Court of Appeals in CA-G.R. CV No. 76677, which dismissed the appeal filed by petitioner
National Food Authority (NFA) and its April 30, 2004 resolution denying petitioners motion for reconsideration.
The antecedent facts show that on September 17, 1996, respondent MASADA Security Agency, Inc.,
entered into a one year[2] contract[3] to provide security services to the various offices, warehouses and
installations of NFA within the scope of the NFA Region I, comprised of the provinces of Pangasinan, La
Union, Abra, Ilocos Sur and Ilocos Norte. Upon the expiration of said contract, the parties extended the
effectivity thereof on a monthly basis under same terms and condition. [4]

WHEREFORE, judgment is hereby rendered in favor of plaintiff MASADA Security Agency, Inc., and against
defendant National Food Authority ordering said defendant to make the corresponding adjustment in the
contract price in accordance with the increment mandated under the various wage orders, particularly Wage
Order Nos. RBI-05, RBCAR-04, RBI-06, RBCAR-05, RBI-07 and RBCAR-06 and to pay plaintiff the amounts
representing the adjustments in the wage-related benefits of the security guards and consequential increase in
its administrative cost and margin upon presentment by plaintiff of the corresponding voucher claims.
Plaintiffs claims for damages and attorneys fees and defendants counterclaim for damages are
hereby DENIED.
Defendant Juanito M. David is hereby absolved from any liability.
SO ORDERED.[14]

Meanwhile, the Regional Tripartite Wages and Productivity Board issued several wage orders
mandating increases in the daily wage rate. Accordingly, respondent requested NFA for a corresponding
upward adjustment in the monthly contract rate consisting of the increases in the daily minimum wage of the
security guards as well as the corresponding raise in their overtime pay, holiday pay, 13 th month pay, holiday
and rest day pay. It also claimed increases in Social Security System (SSS) and Pag-ibig premiums as well as
in the administrative costs and margin. NFA, however, granted the request only with respect to the increase in

NFA appealed to the Court of Appeals but the same was dismissed on February 12, 2004. The
appellate court held that the proper recourse of NFA is to file a petition for review under Rule 45 with this
Court, considering that the appeal raised a pure question of law. Nevertheless, it proceeded to discuss the
merits of the case for purposes of academic discussion and eventually sustained the ruling of the trial court

80

that NFA is under obligation to pay the administrative costs and margin and the wage related benefits of the
respondents security guards.[15]
On April 30, 2004, the Court of Appeals denied NFAs motion for reconsideration. [16] Hence, the instant
petition.
The issue for resolution is whether or not the liability of principals in service contracts under Section 6
of RA 6727 and the wage orders issued by the Regional Tripartite Wages and Productivity Board is limited only
to the increment in the minimum wage.
At the outset, it should be noted that the proper remedy of NFA from the adverse decision of the trial
court is a petition for review under Rule 45 directly with this Court because the issue involved a question of
law. However, in the interest of justice we deem it wise to overlook the procedural technicalities if only to
demonstrate that despite the procedural infirmity, the instant petition is impressed with merit. [17]
RA 6727[18] (Wage Rationalization Act), which took effect on July 1, 1989, [19] declared it a policy of the
State to rationalize the fixing of minimum wages and to promote productivity-improvement and gain-sharing
measures to ensure a decent standard of living for the workers and their families; to guarantee the rights of
labor to its just share in the fruits of production; to enhance employment generation in the countryside through
industrial dispersal; and to allow business and industry reasonable returns on investment, expansion and
growth.[20]
In line with its declared policy, RA 6727, created the National Wages and Productivity Commission
(NWPC),[21] vested, inter alia, with the power to prescribe rules and guidelines for the determination of
appropriate minimum wage and productivity measures at the regional, provincial or industry levels; [22] and the
Regional Tripartite Wages and Productivity Boards (RTWPB) which, among others, determine and fix the
minimum wage rates applicable in their respective region, provinces, or industries therein and issue the
corresponding wage orders, subject to the guidelines issued by the NWPC. [23] Pursuant to its wage fixing
authority, the RTWPB issue wage orders which set the daily minimum wage rates. [24]
Payment of the increases in the wage rate of workers is ordinarily shouldered by the employer. Section
6 of RA 6727, however, expressly lodged said obligation to the principals or indirect employers in construction
projects and establishments providing security, janitorial and similar services. Substantially the same provision
is incorporated in the wage orders issued by the RTWPB.[25] Section 6 of RA 6727, provides:
SEC. 6. In the case of contracts for construction projects and for security, janitorial and similar services, the
prescribedincreases in the wage rates of the workers shall be borne by the principals or clients of the
construction/service contractors and the contract shall be deemed amended accordingly. In the event,
however, that the principal or client fails to pay the prescribed wage rates, the construction/service contractor
shall be jointly and severally liable with his principal or client. (Emphasis supplied)
NFA claims that its additional liability under the aforecited provision is limited only to the payment of the
increment in the statutory minimum wage rate, i.e., the rate for a regular eight (8) hour work day.
The contention is meritorious.

The term wage as used in Section 6 of RA 6727 pertains to no other than the statutory minimum wage
which is defined under the Rules Implementing RA 6727 as the lowest wage rate fixed by law that an employer
can pay his worker.[26] The basis thereof under Section 7 of the same Rules is the normal working hours, which
shall not exceed eight hours a day. Hence, the prescribed increases or the additional liability to be borne by
the principal under Section 6 of RA 6727 is the increment or amount added to the remuneration of an
employee for an 8-hour work.
Expresio unius est exclusio alterius. Where a statute, by its terms, is expressly limited to certain
matters, it may not, by interpretation or construction, be extended to others. [27] Since the increase in wage
referred to in Section 6 pertains to the statutory minimum wage as defined herein, principals in service
contracts cannot be made to pay the corresponding wage increase in the overtime pay, night shift differential,
holiday and rest day pay, premium pay and other benefits granted to workers. While basis of said
remuneration and benefits is the statutory minimum wage, the law cannot be unduly expanded as to include
those not stated in the subject provision.
The settled rule in statutory construction is that if the statute is clear, plain and free from ambiguity, it
must be given its literal meaning and applied without interpretation. This plain meaning rule or verba
legis derived from the maxim index animi sermo est (speech is the index of intention) rests on the valid
presumption that the words employed by the legislature in a statute correctly express its intention or will and
preclude the court from construing it differently. The legislature is presumed to know the meaning of the words,
to have used words advisedly, and to have expressed its intent by use of such words as are found in the
statute. Verba legis non est recedendum, or from the words of a statute there should be no departure. [28]
The presumption therefore is that lawmakers are well aware that the word wage as used in Section 6
means the statutory minimum wage. If their intention was to extend the obligation of principals in service
contracts to the payment of the increment in the other benefits and remuneration of workers, it would have so
expressly specified. In not so doing, the only logical conclusion is that the legislature intended to limit the
additional obligation imposed on principals in service contracts to the payment of the increment in the statutory
minimum wage.
The general rule is that construction of a statute by an administrative agency charged with the task of
interpreting or applying the same is entitled to great weight and respect. The Court, however, is not bound to
apply said rule where such executive interpretation, is clearly erroneous, or when there is no ambiguity in the
law interpreted, or when the language of the words used is clear and plain, as in the case at bar. Besides,
administrative interpretations are at best advisory for it is the Court that finally determines what the law means.
[29]
Hence, the interpretation given by the labor agencies in the instant case which went as far as
supplementing what is otherwise not stated in the law cannot bind this Court.
It is not within the province of this Court to inquire into the wisdom of the law for indeed, we are bound
by the words of the statute. [30] The law is applied as it is. At any rate, the interest of the employees will not be
adversely affected if the obligation of principals under the subject provision will be limited to the increase in the
statutory minimum wage. This is so because all remuneration and benefits other than the increased statutory
minimum wage would be shouldered and paid by the employer or service contractor to the workers concerned.
Thus, in the end, all allowances and benefits as computed under the increased rate mandated by RA 6727
and the wage orders will be received by the workers.

In construing the word wage in Section 6 of RA 6727, reference must be had to Section 4 (a) of the
same Act. It states:

Moreover, the law secures the welfare of the workers by imposing a solidary liability on principals and
the service contractors. Under the second sentence of Section 6 of RA 6727, in the event that the principal or
client fails to pay the prescribed wage rates, the service contractor shall be held solidarily liable with the
former. Likewise, Articles 106, 107 and 109 of the Labor Code provides:

SEC. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates for all workers and employees
in the private sector, whether agricultural or non-agricultural, shall be increased by twenty-five pesos (P25)
per day (Emphasis supplied)

ART. 106. Contractor or Subcontractor. Whenever an employer enters into contract with another person for the
performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall
be paid in accordance with the provisions of this Code.

81

In the event that the contractor or subcontractor fails to pay the wage of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees
to the extent of the work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him.
ART. 107. Indirect Employer. The provisions of the immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not being an employer, contracts with an independent
contractor for the performance of any work, task, job or project.

G.R. No. 126999

August 30, 2000

SGMC REALTY CORPORATION, petitioner,

vs.
OFFICE OF THE PRESIDENT (OP), RIDGEVIEW REALTY CORPORATION, SM INVESTMENTS
CORPORATION, MULTI-REALTY DEVELOPMENT CORP., HENRY SY SR., HENRY SY JR., HANS T. SY,
MARY UY TY and VICTOR LIM, respondents.
RESOLUTION

ART. 109. Solidary Liability. The provisions of existing laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his contractor or subcontractor for any violation of any
provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they
shall be considered as direct employers.
Based on the foregoing interpretation of Section 6 of RA 6727, the parties may enter into stipulations
increasing the liability of the principal. So long as the minimum obligation of the principal, i.e., payment of the
increased statutory minimum wage is complied with, the Wage Rationalization Act is not violated.
In the instant case, Article IV.4 of the service contract provides:
IV.4. In the event of a legislated increase in the minimum wage of security guards and/or in the PADPAO rate,
the AGENCY may negotiate for an adjustment in the contract price. Any adjustment shall be applicable only to
the increment, based on published and circulated rates and not on mere certification. [31]
In the same vein, paragraph 3 of NFA Memorandum AO-98-03- states:
3. For purposes of wage adjustments, consider only the rate based on the wage Order issued by
the Regional Tripartite Wage Productivity Board (RTWPB). Unless otherwise provided in the
Wage Order issued by the RTWPB, the wage adjustment shall be limited to the increment in
the legislated minimum wage;[32]
The parties therefore acknowledged the application to their contract of the wage orders issued by the
RTWPB pursuant to RA 6727. There being no assumption by NFA of a greater liability than that mandated by
Section 6 of the Act, its obligation is limited to the payment of the increased statutory minimum wage rates
which, as admitted by respondent, had already been satisfied by NFA. [33] Under Article 1231 of the Civil Code,
one of the modes of extinguishing an obligation is by payment. Having discharged its obligation to respondent,
NFA no longer have a duty that will give rise to a correlative legal right of respondent. The latters complaint for
collection of remuneration and benefits other than the increased minimum wage rate, should therefore be
dismissed for lack of cause of action.
The same goes for respondents claim for administrative cost and margin. Considering that respondent
failed to establish a clear obligation on the part of NFA to pay the same as well as to substantiate the amount
thereof with documentary evidence, the claim should be denied.
WHEREFORE, the petition is GRANTED. The February 12, 2004 decision and the April 30, 2004
resolution of the Court of Appeals which dismissed petitioner National Food Authoritys appeal and motion for
reconsideration, respectively, in CA-G.R. CV No. 76677, are REVERSED and SET ASIDE. The complaint filed
by respondent MASADA Security Agency, Inc., docketed as Civil Case No. Q-01-43988, before the Regional
Trial Court of Quezon, City, Branch 83, is ordered DISMISSED.
SO ORDERED.

QUISUMBING, J.:
In this special civil action for certiorari, petitioner seeks to set aside the decision 1 of public respondent
rendered on June 18, 1996, in OP Case No. 95-L-6333, and its order 2 dated October 1, 1996, denying the
motion for reconsideration.
The records disclose that on March 29, 1994, petitioner filed before the Housing and Land Use Regulatory
Board (HLURB) a complaint for breach of contract, violation of property rights and damages against private
respondents. After the parties filed their pleadings and supporting documents, the arbiter rendered a decision
dismissing petitioner's complaint as well as private respondents' counterclaim.1wphi1.nt
Petitioner then filed a petition for review with the Board of Commissioners of the HLURB which, however,
dismissed said petition. On October 23, 1995, petitioner received a copy of said decision of the Board of
Commissioners. On November 20, 1995, petitioner filed an appeal with public respondent. After the parties
filed their memorandum, they filed their respective draft decisions as ordered by public respondent.
On June 18, 1996, public respondent, without delving into the merits of the case, rendered the assailed
decision which reads:
"IN VIEW OF THE FOREGOING, the appeal is hereby DISMISSED for being filed out of time.
"SO ORDERED."3
Petitioner seasonably filed a motion for reconsideration which was denied. Undaunted, petitioner filed the
instant petition, alleging that public respondent committed grave abuse of discretion amounting to lack or
excess of jurisdiction:
[I]
. . . IN HOLDING THAT THE PERIOD TO APPEAL FROM THE HOUSING AND LAND USE
REGULATORY BOARD TO THE OFFICE OF THE PRESIDENT IS FIFTEEN (15) DAYS AND NOT
THIRTY (30) DAYS AS MANDATED IN THE 1994 RULES OF PROCEDURE ADOPTED BY THE
HOUSING AND LAND USE REGULATORY BOARD, AN ADMINISTRATIVE AGENCY UNDER
THE SUPERVISION AND CONTROL OF PUBLIC RESPONDENT OFFICE OF THE PRESIDENT.
[II]
. . . IN DISREGARDING THE 1994 RULES OF PROCEDURE OF THE HOUSING AND LAND
USE REGULATORY BOARD WITHOUT DECLARING THE SAME ILLEGAL AND/OR INVALID,
AND IN DISREGARDING THE WELL-ESTABLISHED DOCTRINE OF LIBERAL CONSTRUCTION
OF THE ADMINISTRATIVE RULES OF PROCEDURE IN ORDER TO PROMOTE THEIR OBJECT

82

AND TO ASSIST THE PARTIES IN CLAIMING JUST, SPEEDY AND INEXPENSIVE

DETERMINATION OF THEIR RESPECTIVE CLAIMS AND DEFENSES. 4
The fundamental issue for resolution is whether or not public respondent committed grave abuse of discretion
in ruling that the reglementary period within which to appeal the decision of HLURB to public respondent is
fifteen days.
Petitioner contends that the period of appeal from the HLURB to the Office of the President is thirty (30) days
from receipt by the aggrieved party of the decision appealed from in accordance with Section 27 of the 1994
Rules of Procedure of HLURB and Section 1 of Administrative Order No. 18, series of 1987, of the Office of
the President.
However, we find petitioner's contention bereft of merit, because of its reliance on a literal reading of cited
rules without correlating them to current laws as well as presidential decrees on the matter.

In this case, petitioner received a copy of the decision of HLURB on October 23, 1995.1wphi1 Considering
that the reglementary period to appeal is fifteen days, petitioner has only until November 7, 1995, to file its
appeal. Unfortunately, petitioner filed its appeal with public respondent only on November 20, 1995 or twentyeight days from receipt of the appealed decision, which is obviously filed out of time.
As the appeal filed by petitioner was not taken within the reglementary period, the prescriptive period for
perfecting an appeal continues to run. Consequently, the decision of the HLURB became final and executory
upon the lapse of fifteen days from receipt of the decision. Hence, the decision became immutable; it can no
longer be amended nor altered by public respondent. Accordingly, inasmuch as the timely perfection of an
appeal is a jurisdictional requisite, public respondent has no more authority to entertain the petitioner's appeal.
Otherwise, any amendment or alteration made which substantially affects the final and executory judgment
would be null and void for lack of jurisdiction.10
Thus, in this case public respondent cannot be faulted of grave abuse of discretion in ruling that the period of
appeal is fifteen days and in forthrightly dismissing petitioner's appeal as the same was clearly filed out of
time.

Section 27 of the 1994 HLURB Rules of Procedure provides as follows:

"Section 27. Appeal to the Office of the President. Any party may, upon notice to the Board and
the other party, appeal the decision of the Board of Commissioners or its division to the Office of
the President within thirty (30) days from receipt thereof pursuant to and in accordance with
Administrative Order No. 18, of the Office of the President dated February 12, 1987. Decision of
the President shall be final subject only to review by the Supreme Court on certiorari or on
questions of law."5
On the other hand, Administrative Order No. 18, series of 1987, issued by public respondent reads:
"Section 1. Unless otherwise governed by special laws, an appeal to the Office of the President
shall be taken within thirty (30) days from receipt by the aggrieved party of the
decision/resolution/order complained of or appealed from." 6
As pointed out by public respondent, the aforecited administrative order allows aggrieved party to file its
appeal with the Office of the President within thirty (30) days from receipt of the decision complained of.
Nonetheless, such thirty-day period is subject to the qualification that there are no other statutory periods of
appeal applicable. If there are special laws governing particular cases which provide for a shorter or longer
reglementary period, the same shall prevail over the thirty-day period provided for in the administrative order.
This is in line with the rule in statutory construction that an administrative rule or regulation, in order to be
valid, must not contradict but conform to the provisions of the enabling law. 7

Worth mentioning, just days prior to the promulgation of the assailed decision of public respondent, the
HLURB adopted on June 10, 1996, its 1996 Rules of Procedure. Significantly, Section 2, Rule XVIII of said
rules provides that any party may, upon notice to the HLURB and the other party, appeal a decision rendered
by the Board of Commissioners en banc or by one of its divisions to the Office of the President within fifteen
15 calendar days from receipt thereof in accordance with P.D. 1344 and A.O. 18, series of 1987. 11 Apparently,
the amendment was made pursuant to the pronouncements of public respondent in earlier cases 12 it decided
that appeals to the Office of the President from the decision of HLURB should be filed within fifteen (15) days
from receipt thereof. At present therefore, decisions rendered by HLURB is appealable to the Office of the
President within fifteen (15) calendar days from receipt thereof.
Finally, we find that the instant petition ought not to have been directly filed with this Court. For while we have
concurrent jurisdiction with the Regional Trial Courts and the Court of Appeals to issue writs of certiorari, this
concurrence is not to be taken as an unrestrained freedom of choice concerning the court to which application
for the writ will be directed. There is after all a hierarchy of courts. That hierarchy is determinative of the venue
of appeals, and should also serve as a general determinant of the appropriate forum for petitions for the
extraordinary writs.13A direct invocation of the Supreme Court's original jurisdiction to issue these extraordinary
writs is allowed only when there are special and important reasons therefor, clearly and specifically set out in
the petition.14
WHEREFORE, the instant petition is DISMISSED for utter lack of merit. Costs against petitioner.
SO ORDERED.1wphi1.nt

We note that indeed there are special laws that mandate a shorter period of fifteen (15) days within which to
appeal a case to public respondent. First, Section 15 of Presidential Decree No. 957 provides that the
decisions of the National Housing Authority (NHA) shall become final and executory after the lapse of fifteen
(15) days from the date of receipt of the decision. Second, Section 2 of Presidential Decree No. 1344 states
that decisions of the National Housing Authority shall become final and executory after the lapse of fifteen (15)
days from the date of its receipt. The latter decree provides that the decisions of NHA is appealable only to the
Office of the President. Further, we note that the regulatory functions of NHA relating to housing and land
development has been transferred to Human Settlements Regulatory Commission, now known as
HLURB.8 Thus, said presidential issuances providing for a reglementary period of appeal of fifteen days apply
in this case. Accordingly, the period of appeal of thirty (30) days set forth in Section 27 of HLURB 1994 Rules
of Procedure no longer holds true for being in conflict with the provisions of aforesaid presidential decrees. For
it is axiomatic that administrative rules derive their validity from the statute that they are intended to implement.
Any rule which is not consistent with statute itself is null and void. 9

G.R. No. 159694

January 27, 2006

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AZUCENA T. REYES, Respondent.
x -- -- -- -- -- -- -- -- -- -- -- -- -- x
G.R. No. 163581

January 27, 2006

83

AZUCENA T. REYES, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must be
informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment
is void. Being invalid, the assessment cannot in turn be used as a basis for the perfection of a tax compromise.
The Case
Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of Court, assailing the
August 8, 2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No. 71392. The dispositive portion of the
assailed Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is ANNULLED
and SET ASIDE without prejudice to the action of the National Evaluation Board on the proposed compromise
settlement of the Maria C. Tancinco estates tax liability." 4

"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a
compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing the
heirs inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyess] offer, pointing out
that since the estate tax is a charge on the estate and not on the heirs, the latters financial incapacity is
immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient to
settle the tax liability. Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or before April
15, 2000[;] otherwise, the notice of sale of the subject property would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in
the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement
Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at public auction on
August 8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction
sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax proceedings against the
estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of
tax without surcharge [or] interest.
"Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection Enforcement Division to
proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for
[R]eview with the Court of Tax Appeals (or CTA), docketed as CTA Case No. 6124.

The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 square-meter residential lot and an
old house thereon (or subject property) located at 4931 Pasay Road, Dasmarias Village, Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or
Abad), Revenue District Office No. 50 (South Makati) conducted an investigation on the decedents estate (or
estate). Subsequently, it issued a Return Verification Order. But without the required preliminary findings
being submitted, it issued Letter of Authority No. 132963 for the regular investigation of the estate tax case.
Azucena T. Reyes (or [Reyes]), one of the decedents heirs, received the Letter of Authority on March 14,
1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or BIR), issued a
preliminary assessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the
heirs of the decedent (or heirs) received a final estate tax assessment notice and a demand letter, both dated
April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n behalf of the heirs
on the ground that the subject property had already been sold by the decedent sometime in 1990.
"On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a preliminary collection
letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11,
1999 by Notices of Levy on Real Property and Tax Lien against it.

"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo
Order, which was granted by the CTA on July 26, 2000. Upon [Reyess] filing of a surety bond in the amount
ofP27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and
refrain from proceeding with the auction sale of the subject property or from issuing a [W]arrant of [D]istraint or
[G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or unless a contrary order is
issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisdiction
over the case[,] because the assessment against the estate is already final and executory; and (ii) that the
petition was filed out of time. In a [R]esolution dated November 23, 2000, the CTA denied [the CIRs] motion.
"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue Regulation
(or RR) No. 6-2000 and Revenue Memorandum Order (or RMO) No. 42-2000 offering certain taxpayers with
delinquent accounts and disputed assessments an opportunity to compromise their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or
compromise) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as implemented
by RR No. 6-2000 and RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the CTA
scheduled on January 9, 2001, citing her pending application for compromise with the BIR. The motion was
granted and the hearing was reset to February 6, 2001.
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this time on
the ground that she had already paid the compromise amount of P1,062,778.20 but was still awaiting approval

84

of the National Evaluation Board (or NEB). The CTA granted the motion and reset the hearing to February 27,
2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed
Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet signed the
compromise[,] because of procedural red tape requiring the initials of four Deputy Commissioners on relevant
documents before the compromise is signed by the [CIR]. [Reyes] posited that the absence of the requisite
initials and signature[s] on said documents does not vitiate the perfected compromise.
"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyess] application
for compromise with the BIR cannot be considered a perfected or consummated compromise.
"On March 9, 2001, the CTA denied [Reyess] motion, prompting her to file a Motion for Reconsideration Ad
Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion for [R]econsideration with the
suggestion that[,] for an orderly presentation of her case and to prevent piecemeal resolutions of different
issues, [Reyes] should file a [S]upplemental [P]etition for [R]eview[,] setting forth the new issue of whether
there was already a perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4, 2001 by
its Amplificatory Arguments (for the Supplemental Petition for Review), raising the following issues:
1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of Finance, of
a tax liability pending in court, that was accepted and paid by the taxpayer, is a perfected and consummated
compromise.
2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP) that requires
approval by the BIR [NEB].

"Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated that at
the time the questioned assessment notice and letter of demand were issued, the heirs knew very well the law
and the facts on which the same were based. It also observed that the petition was not filed within the 30-day
reglementary period provided under Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the Tax Code." 5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory
and unequivocal in their requirement. The assessment notice and the demand letter should have stated the
facts and the law on which they were based; otherwise, they were deemed void. 6 The appellate court held that
while administrative agencies, like the BIR, were not bound by procedural requirements, they were still
required by law and equity to observe substantive due process. The reason behind this requirement, said the
CA, was to ensure that taxpayers would be duly apprised of -- and could effectively protest -- the basis of tax
assessments against them.7 Since the assessment and the demand were void, the proceedings emanating
from them were likewise void, and any order emanating from them could never attain finality.
The appellate court added, however, that it was premature to declare as perfected and consummated the
compromise of the estates tax liability. It explained that, where the basic tax assessed exceeded P1 million, or
where the settlement offer was less than the prescribed minimum rates, the National Evaluation Boards (NEB)
prior evaluation and approval were the conditio sine qua non to the perfection and consummation of any
compromise.8 Besides, the CA pointed out, Section 204(A) of the Tax Code applied to all compromises,
whether government-initiated or not. 9 Where the law did not distinguish, courts too should not distinguish.
Hence, this Petition.10
The Issues
In GR No. 159694, petitioner raises the following issues for the Courts consideration:

"Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax liability
under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either the NEB or the
Regional Evaluation Board (or REB), as the case may be.

"I.
Whether petitioners assessment against the estate is valid.

"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted on July 11,
2001. After submission of memoranda, the case was submitted for [D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:
WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED. Accordingly,
[Reyes] is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen Million Five Hundred
Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78), computed as follows:
xxxxxxxxx
[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due
of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section 249(c) of the Tax
Code, as amended.
"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated
compromise of the estates tax liability[,] if the NEB has approved [Reyess] application for compromise in
accordance with RR No. 6-2000, as implemented by RMO No. 42-2000.

"II.
Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts and the
law on which the assessment in question is based, after she had opted to propose several compromises on
the estate tax due, and even prematurely acting on such proposal by paying 20% of the basic estate tax
due."11
The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid;
and, second, whether the compromise entered into is also valid.
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate

85

The second paragraph of Section 228 of the Tax Code 12 is clear and mandatory. It provides as follows:
"Sec. 228. Protesting of Assessment. --

At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be
informed of both the law and facts on which the assessment was based. Thus, the CIR should have required
the assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law.
The old regulation governing the issuance of estate tax assessment notices ran afoul of the rule that tax
regulations -- old as they were -- should be in harmony with, and not supplant or modify, the law. 16

xxxxxxxxx
"The taxpayers shall be informed in writing of the law and the facts on which the assessment is made:
otherwise, the assessment shall be void."
In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of
estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon
the provisions of former Section 22913 prior to its amendment by Republic Act (RA) No. 8424, otherwise known
as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the
assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22,
1998, the final estate tax assessment notice, as well as demand letter, was also issued. During those dates,
RA 8424 was already in effect. The notice required under the old law was no longer sufficient under
the new law.
To be simply informed in writing of the investigation being conducted and of the recommendation for the
assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly
assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and the facts on
which the assessment was based. It does not at all conform to the compulsory requirement under Section 228.
Moreover, the Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of
investigation and was not even the requisite notice under the law.
The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which
deals with remedies. Being procedural in nature, can its provision then be applied retroactively? The answer is
yes.
The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create
new or take away vested rights, do not fall under the general rule against the retroactive operation of
statutes.14Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision
does not create new or take away vested rights. In both instances, it can surely be applied retroactively.
Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are
excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested
rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering
that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code. 15 While it
is desirable for the government authority or administrative agency to have one immediately issued after a law
is passed, the absence of the regulation does not automatically mean that the law itself would become
inoperative.

It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the
imagination, though, to still issue a regulation that would simply require tax officials to inform the taxpayer, in
any manner, of the law and the facts on which an assessment was based. That requirement is neither difficult
to make nor its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute. 17 RR 12-99
is one such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on September
6, 1999, this regulation was to retroact to January 1, 1998 -- a date prior to the issuance of the preliminary
assessment notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has been
amended. Furthermore, in case of discrepancy between the law as amended and its implementing but old
regulation, the former necessarily prevails.18 Thus, between Section 228 of the Tax Code and the pertinent
provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law. The law
must still be followed, even though the existing tax regulation at that time provided for a different procedure.
The regulation then simply provided that notice be sent to the respondent in the form prescribed, and that no
consequence would ensue for failure to comply with that form.
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process.
Not only was the law here disregarded, but no valid notice was sent, either. A void assessment bears no valid
fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present their case and adduce supporting evidence. 19 In the
instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with
the unequivocal mandate of first informing the taxpayer of the governments claim, there can be no deprivation
of property, because no effective protest can be made. 20 The haphazard shot at slapping an assessment,
supposedly based on estate taxations general provisions that are expected to be known by the taxpayer, is
utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the
lack of basis for -- not to mention the insufficiency of -- the gross figures and details of the itemized deductions
indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that
appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government,
their assessment and collection "should be made in accordance with law as any arbitrariness will negate the
very reason for government itself."21
Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the
negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot be
rendered nugatory by a mere act of the CIR .
Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory provisions of law are
void, except when the law itself authorizes the validity of those acts. 23 Failure to comply with Section 228 does

86

not only render the assessment void, but also finds no validation in any provision in the Tax Code. We cannot
condone errant or enterprising tax officials, as they are expected to be vigilant and law-abiding.
Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the compromise on the estate tax liability has been
perfected and consummated, considering the earlier determination that the assessment against the estate was
void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax
involved exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the NEB composed of the petitioner and four deputy
commissioners.
Finally, as correctly held by the appellate court, this provision applies to all compromises, whether
government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not
distinguish, we should not distinguish.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as
to costs.
SO ORDERED.

G.R. No. 147096

On May 6, 1993, and prior to the issuance of any notice of hearing by the NTC with respect to Bayantel's
original application, Bayantel filed an urgent ex-parte motion to admit an amended application.3 On May 17,
1993, the notice of hearing issued by the NTC with respect to this amended application was published in the
Manila Chronicle. Copies of the application as well as the notice of hearing were mailed to all affected parties.
Subsequently, hearings were conducted on the amended application. But before Bayantel could complete the
presentation of its evidence, the NTC issued an Order dated December 19, 1993 stating:
In view of the recent grant of two (2) separate Provisional Authorities in favor of ISLACOM and
GMCR, Inc., which resulted in the closing out of all available frequencies for the service being
applied for by herein applicant, and in order that this case may not remain pending for an indefinite
period of time, AS PRAYED FOR, let this case be, as it is, hereby ordered ARCHIVED without
prejudice to its reinstatement if and when the requisite frequency becomes available.
SO ORDERED.4
On June 18, 1998, the NTC issued Memorandum Circular No. 5-6-98 re-allocating five (5) megahertz (MHz) of
the radio frequency spectrum for the expansion of CMTS networks. The re-allocated 5 MHz were taken from
the following bands: 1730-1732.5 / 1825-1827.5 MHz and 1732.5-1735 / 1827.5-1830 MHz. 5
Likewise, on March 23, 1999, Memorandum Circular No. 3-3-99 was issued by the NTC re-allocating an
additional five (5) MHz frequencies for CMTS service, namely: 1735-1737.5 / 1830-1832.5 MHz; 1737.5-1740 /
1832.5-1835 MHz; 1740-1742.5 / 1835-1837.5 MHz; and 1742.5-1745 / 1837.5-1840 MHz. 6

January 15, 2002

REPUBLIC OF THE PHILIPPINES, represented by NATIONAL TELECOMMUNICATIONS

COMMISSION,petitioner,
vs.
EXPRESS TELECOMMUNICATION CO., INC. and BAYAN TELECOMMUNICATIONS CO.,
INC., respondents.
x---------------------------------------------------------x
G.R. No. 147210

Commission on or before February 15, 1993, and deferring the acceptance of any application filed after said
date until further orders.2

January 15, 2002

BAYAN TELECOMMUNICATIONS (Bayantel), INC., petitioner,

vs.
EXPRESS TELECOMMUNICATION CO., INC. (Extelcom), respondent.
YNARES-SANTIAGO, J.:
On December 29, 1992, International Communications Corporation (now Bayan Telecommunications, Inc. or
Bayantel) filed an application with the National Telecommunications Commission (NTC) for a Certificate of
Public Convenience or Necessity (CPCN) to install, operate and maintain a digital Cellular Mobile Telephone
System/Service (CMTS) with prayer for a Provisional Authority (PA). The application was docketed as NTC
Case No. 92-486.1

On May 17, 1999, Bayantel filed an Ex-Parte Motion to Revive Case, 7 citing the availability of new frequency
bands for CMTS operators, as provided for under Memorandum Circular No. 3-3-99.
On February 1, 2000, the NTC granted BayanTel's motion to revive the latter's application and set the case for
hearings on February 9, 10, 15, 17 and 22, 2000. 8 The NTC noted that the application was ordered archived
without prejudice to its reinstatement if and when the requisite frequency shall become available.
Respondent Express Telecommunication Co., Inc. (Extelcom) filed in NTC Case No. 92-486 an Opposition
(With Motion to Dismiss) praying for the dismissal of Bayantel's application. 9 Extelcom argued that Bayantel's
motion sought the revival of an archived application filed almost eight (8) years ago. Thus, the documentary
evidence and the allegations of respondent Bayantel in this application are all outdated and should no longer
be used as basis of the necessity for the proposed CMTS service. Moreover, Extelcom alleged that there was
no public need for the service applied for by Bayantel as the present five CMTS operators --- Extelcom, Globe
Telecom, Inc., Smart Communication, Inc., Pilipino Telephone Corporation, and Isla Communication
Corporation, Inc. --- more than adequately addressed the market demand, and all are in the process of
enhancing and expanding their respective networks based on recent technological developments. 1wphi1.nt
Extelcom likewise contended that there were no available radio frequencies that could accommodate a new
CMTS operator as the frequency bands allocated in NTC Memorandum Circular No. 3-3-99 were intended for
and had in fact been applied for by the existing CMTS operators. The NTC, in its Memorandum Circular No. 41-93, declared it its policy to defer the acceptance of any application for CMTS. All the frequency bands
allocated for CMTS use under the NTC's Memorandum Circular No. 5-11-88 and Memorandum Circular No. 212-92 had already been allocated to the existing CMTS operators. Finally, Extelcom pointed out that Bayantel
is its substantial stockholder to the extent of about 46% of its outstanding capital stock, and Bayantel's
application undermines the very operations of Extelcom.

Shortly thereafter, or on January 22, 1993, the NTC issued Memorandum Circular No. 4-1-93 directing all
interested applicants for nationwide or regional CMTS to file their respective applications before the

87

On March 13, 2000, Bayantel filed a Consolidated Reply/Comment, 10 stating that the opposition was actually a
motion seeking a reconsideration of the NTC Order reviving the instant application, and thus cannot dwell on
the material allegations or the merits of the case. Furthermore, Extelcom cannot claim that frequencies were
not available inasmuch as the allocation and assignment thereof rest solely on the discretion of the NTC.
In the meantime, the NTC issued on March 9, 2000 Memorandum Circular No. 9-3-2000, re-allocating the
following radio frequency bands for assignment to existing CMTS operators and to public telecommunication
entities which shall be authorized to install, operate and maintain CMTS networks, namely: 1745-1750MHz /
1840-1845MHz; 1750-1775MHz / 1845-1850MHz; 1765-1770MHz / 1860-1865MHz; and 1770-1775MHz /
1865-1870MHz.11
On May 3, 2000, the NTC issued an Order granting in favor of Bayantel a provisional authority to operate
CMTS service.12 The Order stated in pertinent part:
On the issue of legal capacity on the part of Bayantel, this Commission has already taken notice of
the change in name of International Communications Corporation to Bayan Telecommunications,
Inc. Thus, in the Decision entered in NTC Case No. 93-284/94-200 dated 19 July 1999, it was
recognized that Bayan Telecommunications, Inc., was formerly named International
Communications Corp. Bayantel and ICC Telecoms, Inc. are one and the same entity, and it
necessarily follows that what legal capacity ICC Telecoms has or has acquired is also the legal
capacity that Bayantel possesses.
On the allegation that the Commission has committed an error in allowing the revival of the instant
application, it appears that the Order dated 14 December 1993 archiving the same was anchored
on the non-availability of frequencies for CMTS. In the same Order, it was expressly stated that the
archival hereof, shall be without prejudice to its reinstatement "if and when the requisite frequency
becomes available." Inherent in the said Order is the prerogative of the Commission in reviving the
same, subject to prevailing conditions. The Order of 1 February 2001, cited the availability of
frequencies for CMTS, and based thereon, the Commission, exercising its prerogative, revived and
reinstated the instant application. The fact that the motion for revival hereof was made ex-parte by
the applicant is of no moment, so long as the oppositors are given the opportunity to be later heard
and present the merits of their respective oppositions in the proceedings.
On the allegation that the instant application is already obsolete and overtaken by developments,
the issue is whether applicant has the legal, financial and technical capacity to undertake the
proposed project. The determination of such capacity lies solely within the discretion of the
Commission, through its applicable rules and regulations. At any rate, the oppositors are not
precluded from showing evidence disputing such capacity in the proceedings at hand. On the
alleged non-availability of frequencies for the proposed service in view of the pending applications
for the same, the Commission takes note that it has issued Memorandum Circular 9-3-2000,
allocating additional frequencies for CMTS. The eligibility of existing operators who applied for
additional frequencies shall be treated and resolved in their respective applications, and are not in
issue in the case at hand.
Accordingly, the Motions for Reconsideration filed by SMARTCOM and GLOBE
TELECOMS/ISLACOM and the Motion to Dismiss filed by EXTELCOM are hereby DENIED for
lack of merit.13
The grant of the provisional authority was anchored on the following findings:

1. Due to the operational mergers between Smart Communications, Inc. and Pilipino Telephone
Corporation (Piltel) and between Globe Telecom, Inc. (Globe) and Isla Communications, Inc.
(Islacom), free and effective competition in the CMTS market is threatened. The fifth operator,
Extelcom, cannot provide good competition in as much as it provides service using the analog
AMPS. The GSM system dominates the market.
2. There are at present two applicants for the assignment of the frequencies in the 1.7 Ghz and 1.8
Ghz allocated to CMTS, namely Globe and Extelcom. Based on the number of subscribers
Extelcom has, there appears to be no congestion in its network - a condition that is necessary for
an applicant to be assigned additional frequencies. Globe has yet to prove that there is congestion
in its network considering its operational merger with Islacom.
3. Based on the reports submitted to the Commission, 48% of the total number of cities and
municipalities are still without telephone service despite the more than 3 million installed lines
waiting to be subscribed.
CONCLUSIONS:
1. To ensure effective competition in the CMTS market considering the operational merger of some
of the CMTS operators, new CMTS operators must be allowed to provide the service.
2. The re-allocated frequencies for CMTS of 3 blocks of 5 Mhz x 2 is sufficient for the number of
applicants should the applicants be qualified.
3. There is a need to provide service to some or all of the remaining cities and municipalities
without telephone service.
4. The submitted documents are sufficient to determine compliance to the technical requirements.
The applicant can be directed to submit details such as channeling plans, exact locations of cell
sites, etc. as the project implementation progresses, actual area coverage ascertained and traffic
data are made available. Applicant appears to be technically qualified to undertake the proposed
project and offer the proposed service.
IN VIEW OF THE FOREGOING and considering that there is prima facie evidence to show that
Applicant is legally, technically and financially qualified and that the proposed service is technically
feasible and economically viable, in the interest of public service, and in order to facilitate the
development of telecommunications services in all areas of the country, as well as to ensure
healthy competition among authorized CMTS providers, let a PROVISIONAL AUTHORITY
(P.A.) be issued to Applicant BAYAN TELECOMMUNICATIONS, INC. authorizing it to construct,
install, operate and maintain a Nationwide Cellular Mobile Telephone Systems (CMTS), subject
to the following terms and conditions without prejudice to a final decision after completion of the
hearing which shall be called within thirty (30) days from grant of authority, in accordance with
Section 3, Rule 15, Part IV of the Commission's Rules of Practice and Procedure. xxx. 14
Extelcom filed with the Court of Appeals a petition for certiorari and prohibition, 15 docketed as CA-G.R. SP No.
58893, seeking the annulment of the Order reviving the application of Bayantel, the Order granting Bayantel a
provisional authority to construct, install, operate and maintain a nationwide CMTS, and Memorandum Circular
No. 9-3-2000 allocating frequency bands to new public telecommunication entities which are authorized to
install, operate and maintain CMTS.

COMMENTS:
On September 13, 2000, the Court of Appeals rendered the assailed Decision, 16 the dispositive portion of
which reads:

88

WHEREFORE, the writs of certiorari and prohibition prayed for are GRANTED. The Orders of
public respondent dated February 1, 2000 and May 3, 2000 in NTC Case No. 92-486 are
hereby ANNULLED and SET ASIDE and the Amended Application of respondent Bayantel
is DISMISSED without prejudice to the filing of a new CMTS application. The writ of preliminary
injunction issued under our Resolution dated August 15, 2000, restraining and enjoining the
respondents from enforcing the Orders dated February 1, 2000 and May 3, 2000 in the said NTC
case is hereby made permanent. The Motion for Reconsideration of respondent Bayantel dated
August 28, 2000 is denied for lack of merit.
SO ORDERED.

17

Bayantel filed a motion for reconsideration of the above decision. 18 The NTC, represented by the Office of the
Solicitor General (OSG), also filed its own motion for reconsideration. 19 On the other hand, Extelcom filed a
Motion for Partial Reconsideration, praying that NTC Memorandum Circular No. 9-3-2000 be also declared
null and void.20
On February 9, 2001, the Court of Appeals issued the assailed Resolution denying all of the motions for
reconsideration of the parties for lack of merit.21
Hence, the NTC filed the instant petition for review on certiorari, docketed as G.R. No. 147096, raising the
following issues for resolution of this Court:
A. Whether or not the Order dated February 1, 2000 of the petitioner which revived the application
of respondent Bayantel in NTC Case No. 92-486 violated respondent Extelcom's right to
procedural due process of law;
B. Whether or not the Order dated May 3, 2000 of the petitioner granting respondent Bayantel a
provisional authority to operate a CMTS is in substantial compliance with NTC Rules of Practice
and Procedure and Memorandum Circular No. 9-14-90 dated September 4, 1990. 22
Subsequently, Bayantel also filed its petition for review, docketed as G.R. No. 147210, assigning the following
errors:
I. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS INTERPRETATION OF THE
PRINCIPLE OF "EXHAUSTION OF ADMINISTRATIVE REMEDIES" WHEN IT FAILED TO
DISMISS HEREIN RESPONDENT'S PETITION FOR CERTIORARI DESPITE ITS FAILURE TO
FILE A MOTION FOR RECONSIDERATION.
II. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING THAT THE REVIVAL OF
NTC CASE NO. 92-486 ANCHORED ON A EX-PARTE MOTION TO REVIVE CASE WAS
TANTAMOUNT TO GRAVE ABUSE OF DISCRETION ON THE PART OF THE NTC.
III. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT DENIED THE MANDATE OF THE
NTC AS THE AGENCY OF GOVERNMENT WITH THE SOLE DISCRETION REGARDING
ALLOCATION OF FREQUENCY BAND TO TELECOMMUNICATIONS ENTITIES.
IV. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS INTERPRETATION OF THE LEGAL
PRINCIPLE THAT JURISDICTION ONCE ACQUIRED CANNOT BE LOST WHEN IT DECLARED
THAT THE ARCHIVED APPLICATION SHOULD BE DEEMED AS A NEW APPLICATION IN VIEW
OF THE SUBSTANTIAL CHANGE IN THE CIRCUMSTANCES ALLEGED IN ITS AMENDMENT
APPLICATION.

V. CONTRARY TO THE FINDING OF THE COURT OF APPEALS, THE ARCHIVING OF THE

BAYANTEL APPLICATION WAS A VALID ACT ON THE PART OF THE NTC EVEN IN THE
ABSENCE OF A SPECIFIC RULE ON ARCHIVING OF CASES SINCE RULES OF PROCEDURE
ARE, AS A MATTER OF COURSE, LIBERALLY CONSTRUED IN PROCEEDINGS BEFORE
ADMINISTRATIVE BODIES AND SHOULD GIVE WAY TO THE GREATER HIERARCHY OF
PUBLIC WELFARE AND PUBLIC INTEREST.
VI. CONTRARY TO THE FINDING OF THE COURT OF APPEALS, THE ARCHIVING OF
BAYANTEL'S APPLICATION WAS NOT VIOLATIVE OF THE SUMMARY NATURE OF THE
PROCEEDINGS IN THE NTC UNDER SEC. 3, RULE 1 OF THE NTC REVISED RULES OF
PROCEDURE.
VII. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING THAT THE ARCHIVING OF
BAYANTEL'S APPLICATION WAS VIOLATIVE OF THE ALLEGED DECLARED POLICY OF THE
GOVERNMENT ON THE TRANSPARENCY AND FAIRNESS OF ADMINISTRATIVE PROCESS
IN THE NTC AS LAID DOWN IN SEC 4(1) OF R.A. NO. 7925.
VIII. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING THAT THE NTC
VIOLATED THE PROVISIONS OF THE CONSTITUTION PERTAINING TO DUE PROCESS OF
LAW.
IX. THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT THE MAY 3, 2000
ORDER GRANTING BAYANTEL A PROVISIONAL AUTHORITY SHOULD BE SET ASIDE AND
REVERSED.
i. Contrary to the finding of the Court of Appeals, there was no violation of the NTC Rule that the
legal, technical, financial and economic documentations in support of the prayer for provisional
authority should first be submitted.
ii. Contrary to the finding of the Court of Appeals, there was no violation of Sec. 3, Rule 15 of the
NTC Rules of Practice and Procedure that a motion must first be filed before a provisional authority
could be issued.
iii. Contrary to the finding of the Court of Appeals that a plea for provisional authority necessitates a
notice and hearing, the very rule cited by the petitioner (Section 5, Rule 4 of the NTC Rules of
Practice and Procedure) provides otherwise.
iv. Contrary to the finding of the Court of Appeals, urgent public need is not the only basis for the
grant of a provisional authority to an applicant;
v. Contrary to the finding of the Court of Appeals, there was no violation of the constitutional
provision on the right of the public to information when the Common Carrier Authorization
Department (CCAD) prepared its evaluation report. 23
Considering the identity of the matters involved, this Court resolved to consolidate the two petitions. 24
At the outset, it is well to discuss the nature and functions of the NTC, and analyze its powers and authority as
well as the laws, rules and regulations that govern its existence and operations.
The NTC was created pursuant to Executive Order No. 546, promulgated on July 23, 1979. It assumed the
functions formerly assigned to the Board of Communications and the Telecommunications Control Bureau,
which were both abolished under the said Executive Order. Previously, the NTC's functions were merely those

89

of the defunct Public Service Commission (PSC), created under Commonwealth Act No. 146, as amended,
otherwise known as the Public Service Act, considering that the Board of Communications was the successorin-interest of the PSC. Under Executive Order No. 125-A, issued in April 1987, the NTC became an attached
agency of the Department of Transportation and Communications.
In the regulatory telecommunications industry, the NTC has the sole authority to issue Certificates of Public
Convenience and Necessity (CPCN) for the installation, operation, and maintenance of communications
facilities and services, radio communications systems, telephone and telegraph systems. Such power includes
the authority to determine the areas of operations of applicants for telecommunications services. Specifically,
Section 16 of the Public Service Act authorizes the then PSC, upon notice and hearing, to issue Certificates of
Public Convenience for the operation of public services within the Philippines "whenever the Commission finds
that the operation of the public service proposed and the authorization to do business will promote the public
interests in a proper and suitable manner." 25 The procedure governing the issuance of such authorizations is
set forth in Section 29 of the said Act, the pertinent portion of which states:
All hearings and investigations before the Commission shall be governed by rules adopted by the
Commission, and in the conduct thereof, the Commission shall not be bound by the technical rules
of legal evidence. xxx.
In granting Bayantel the provisional authority to operate a CMTS, the NTC applied Rule 15, Section 3 of its
1978 Rules of Practice and Procedure, which provides:
Sec. 3. Provisional Relief. --- Upon the filing of an application, complaint or petition or at any stage
thereafter, the Board may grant on motion of the pleader or on its own initiative, the relief prayed
for, based on the pleading, together with the affidavits and supporting documents attached thereto,
without prejudice to a final decision after completion of the hearing which shall be called within
thirty (30) days from grant of authority asked for. (underscoring ours)
Respondent Extelcom, however, contends that the NTC should have applied the Revised Rules which were
filed with the Office of the National Administrative Register on February 3, 1993. These Revised Rules deleted
the phrase "on its own initiative;" accordingly, a provisional authority may be issued only upon filing of the
proper motion before the Commission.
In answer to this argument, the NTC, through the Secretary of the Commission, issued a certification to the
effect that inasmuch as the 1993 Revised Rules have not been published in a newspaper of general
circulation, the NTC has been applying the 1978 Rules.
The absence of publication, coupled with the certification by the Commissioner of the NTC stating that the
NTC was still governed by the 1978 Rules, clearly indicate that the 1993 Revised Rules have not taken effect
at the time of the grant of the provisional authority to Bayantel. The fact that the 1993 Revised Rules were filed
with the UP Law Center on February 3, 1993 is of no moment. There is nothing in the Administrative Code of
1987 which implies that the filing of the rules with the UP Law Center is the operative act that gives the rules
force and effect. Book VII, Chapter 2, Section 3 thereof merely states:
Filing. --- (1) Every agency shall file with the University of the Philippines Law Center three (3)
certified copes of every rule adopted by it. Rules in force on the date of effectivity of this Code
which are not filed within three (3) months from the date shall not thereafter be the basis of any
sanction against any party or persons.
(2) The records officer of the agency, or his equivalent functionary, shall carry out the requirements
of this section under pain or disciplinary action.

(3) A permanent register of all rules shall be kept by the issuing agency and shall be open to public
inspection.
The National Administrative Register is merely a bulletin of codified rules and it is furnished only to the Office
of the President, Congress, all appellate courts, the National Library, other public offices or agencies as the
Congress may select, and to other persons at a price sufficient to cover publication and mailing or distribution
costs.26 In a similar case, we held:
This does not imply however, that the subject Administrative Order is a valid exercise of such
quasi-legislative power. The original Administrative Order issued on August 30, 1989, under which
the respondents filed their applications for importations, was not published in the Official Gazette
or in a newspaper of general circulation. The questioned Administrative Order, legally, until it is
published, is invalid within the context of Article 2 of Civil Code, which reads:
"Article 2. Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette (or in a newspaper of general circulation in the
Philippines), unless it is otherwise provided. x x x"
The fact that the amendments to Administrative Order No. SOCPEC 89-08-01 were filed with, and
published by the UP Law Center in the National Administrative Register, does not cure the defect
related to the effectivity of the Administrative Order.
This Court, in Taada vs. Tuvera (G.R. No. L-63915, December 29, 1986, 146 SCRA 446) stated,
thus:
"We hold therefore that all statutes, including those of local application and private
laws, shall be published as a condition for their effectivity, which shall begin fifteen days
after publication unless a different effectivity is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders promulgated by the
President in the exercise of legislative power or, at present, directly conferred by the
Constitution. Administrative Rules and Regulations must also be published if their
purpose is to enforce or implement existing law pursuant also to a valid delegation.
Interpretative regulations and those merely internal in nature, that is, regulating only
the personnel of the administrative agency and not the public, need not be published.
Neither is publication required of the so-called letters of instructions issued by
administrative superiors concerning the rules or guidelines to be followed by their
subordinates in the performance of their duties.
xxx
We agree that the publication must be in full or it is no publication at all since its
purpose is to inform the public of the contents of the laws."
The Administrative Order under consideration is one of those issuances which should be published
for its effectivity, since its purpose is to enforce and implement an existing law pursuant to a valid
delegation, i.e., P.D. 1071, in relation to LOI 444 and EO 133. 27
Thus, publication in the Official Gazette or a newspaper of general circulation is a condition sine qua
non before statutes, rules or regulations can take effect. This is explicit from Executive Order No. 200, which
repealed Article 2 of the Civil Code, and which states that:

90

Laws shall take effect after fifteen days following the completion of their publication either in the
Official Gazette or in a newspaper of general circulation in the Philippines, unless it is otherwise
provided.28
The Rules of Practice and Procedure of the NTC, which implements Section 29 of the Public Service Act (C.A.
146, as amended), fall squarely within the scope of these laws, as explicitly mentioned in the case Taada v.
Tuvera.29
Our pronouncement in Taada vs. Tuvera is clear and categorical. Administrative rules and
regulations must be published if their purpose is to enforce or implement existing law pursuant to a
valid delegation. The only exceptions are interpretative regulations, those merely internal in nature,
or those so-called letters of instructions issued by administrative superiors concerning the rules
and guidelines to be followed by their subordinates in the performance of their duties. 30
Hence, the 1993 Revised Rules should be published in the Official Gazette or in a newspaper of general
circulation before it can take effect. Even the 1993 Revised Rules itself mandates that said Rules shall take
effect only after their publication in a newspaper of general circulation. 31 In the absence of such publication,
therefore, it is the 1978 Rules that governs.
In any event, regardless of whether the 1978 Rules or the 1993 Revised Rules should apply, the records show
that the amended application filed by Bayantel in fact included a motion for the issuance of a provisional
authority. Hence, it cannot be said that the NTC granted the provisional authority motu proprio. The Court of
Appeals, therefore, erred when it found that the NTC issued its Order of May 3, 2000 on its own initiative. This
much is acknowledged in the Decision of the Court of Appeals:
As prayer, ICC asked for the immediate grant of provisional authority to construct, install, maintain
and operate the subject service and to charge the proposed rates and after due notice and
hearing, approve the instant application and grant the corresponding certificate of public
convenience and necessity.32
The Court of Appeals also erred when it declared that the NTC's Order archiving Bayantel's application was
null and void. The archiving of cases is a widely accepted measure designed to shelve cases in which no
immediate action is expected but where no grounds exist for their outright dismissal, albeit without prejudice. It
saves the petitioner or applicant from the added trouble and expense of re-filing a dismissed case. Under this
scheme, an inactive case is kept alive but held in abeyance until the situation obtains wherein action thereon
can be taken.
In the case at bar, the said application was ordered archived because of lack of available frequencies at the
time, and made subject to reinstatement upon availability of the requisite frequency. To be sure, there was
nothing irregular in the revival of the application after the condition therefor was fulfilled.
While, as held by the Court of Appeals, there are no clear provisions in the Rules of the NTC which expressly
allow the archiving of any application, this recourse may be justified under Rule 1, Section 2 of the 1978
Rules, which states:
Sec. 2. Scope.--- These rules govern pleadings, practice and procedure before the Board of
Communications (now NTC) in all matters of hearing, investigation and proceedings within the
jurisdiction of the Board. However, in the broader interest of justice and in order to best serve the
public interest, the Board may, in any particular matter, except it from these rules and apply such
suitable procedure to improve the service in the transaction of the public business. (underscoring
ours)

The Court of Appeals ruled that the NTC committed grave abuse of discretion when it revived Bayantel's
application based on an ex-parte motion. In this regard, the pertinent provisions of the NTC Rules:
Sec. 5. Ex-parte Motions. --- Except for motions for provisional authorization of proposed services
and increase of rates, ex-parte motions shall be acted upon by the Board only upon showing of
urgent necessity therefor and the right of the opposing party is not substantially impaired. 33
Thus, in cases which do not involve either an application for rate increase or an application for a provisional
authority, the NTC may entertain ex-parte motions only where there is an urgent necessity to do so and no
rights of the opposing parties are impaired.1wphi1.nt
The Court of Appeals ruled that there was a violation of the fundamental right of Extelcom to due process
when it was not afforded the opportunity to question the motion for the revival of the application. However, it
must be noted that said Order referred to a simple revival of the archived application of Bayantel in NTC Case
No. 92-426. At this stage, it cannot be said that Extelcom's right to procedural due process was prejudiced. It
will still have the opportunity to be heard during the full-blown adversarial hearings that will follow. In fact, the
records show that the NTC has scheduled several hearing dates for this purpose, at which all interested
parties shall be allowed to register their opposition. We have ruled that there is no denial of due process where
full-blown adversarial proceedings are conducted before an administrative body.34 With Extelcom having fully
participated in the proceedings, and indeed, given the opportunity to file its opposition to the application, there
was clearly no denial of its right to due process.
In Zaldivar vs. Sandiganbayan (166 SCRA 316 [1988]), we held that the right to be heard does not
only refer to the right to present verbal arguments in court. A party may also be heard through his
pleadings. where opportunity to be heard is accorded either through oral arguments or pleadings,
there is no denial of procedural due process. As reiterated in National Semiconductor (HK)
Distribution, Ltd. vs. NLRC (G.R. No. 123520, June 26, 1998), the essence of due process is
simply an opportunity to be heard, or as applied to administrative proceedings, an opportunity to
explain one's side. Hence, in Navarro III vs. Damaso (246 SCRA 260 [1995]), we held that a formal
or trial-type hearing is not at all times and not in all instances essential. Plainly, petitioner was not
denied due process.35
Extelcom had already entered its appearance as a party and filed its opposition to the application. It was
neither precluded nor barred from participating in the hearings thereon. Indeed, nothing, not even the Order
reviving the application, bars or prevents Extelcom and the other oppositors from participating in the hearings
and adducing evidence in support of their respective oppositions. The motion to revive could not have possibly
caused prejudice to Extelcom since the motion only sought the revival of the application. It was merely a
preliminary step towards the resumption of the hearings on the application of Bayantel. The latter will still have
to prove its capability to undertake the proposed CMTS. Indeed, in its Order dated February 1, 2000, the NTC
set several hearing dates precisely intended for the presentation of evidence on Bayantel's capability and
qualification. Notice of these hearings were sent to all parties concerned, including Extelcom.
As regards the changes in the personal circumstances of Bayantel, the same may be ventilated at the
hearings during Bayantel's presentation of evidence. In fact, Extelcom was able to raise its arguments on this
matter in the Opposition (With Motion to Dismiss) anent the re-opening and re-instatement of the application of
Bayantel. Extelcom was thus heard on this particular point.
Likewise, the requirements of notice and publication of the application is no longer necessary inasmuch as the
application is a mere revival of an application which has already been published earlier. At any rate, the
records show that all of the five (5) CMTS operators in the country were duly notified and were allowed to raise
their respective oppositions to Bayantel's application through the NTC's Order dated February 1, 2000.

91

It should be borne in mind that among the declared national policies under Republic Act No. 7925, otherwise
known as the Public Telecommunications Policy Act of the Philippines, is the healthy competition among
telecommunications carriers, to wit:
A healthy competitive environment shall be fostered, one in which telecommunications carriers are
free to make business decisions and to interact with one another in providing telecommunications
services, with the end in view of encouraging their financial viability while maintaining affordable
rates.36
The NTC is clothed with sufficient discretion to act on matters solely within its competence. Clearly, the need
for a healthy competitive environment in telecommunications is sufficient impetus for the NTC to consider all
those applicants who are willing to offer competition, develop the market and provide the environment
necessary for greater public service. This was the intention that came to light with the issuance of
Memorandum Circular 9-3-2000, allocating new frequency bands for use of CMTS. This memorandum circular
enumerated the conditions prevailing and the reasons which necessitated its issuance as follows:
- the international accounting rates are rapidly declining, threatening the subsidy to the local
exchange service as mandated in EO 109 and RA 7925;
- the public telecommunications entities which were obligated to install, operate and maintain
local exchange network have performed their obligations in varying degrees;
- after more than three (3) years from the performance of the obligations only 52% of the total
number of cities and municipalities are provided with local telephone service.
- there are mergers and consolidations among the existing cellular mobile telephone service
(CMTS) providers threatening the efficiency of competition;
-

there is a need to hasten the installation of local exchange lines in unserved areas;

- there are existing CMTS operators which are experiencing congestion in the network resulting
to low grade of service;
- the consumers/customers shall be given the freedom to choose CMTS operators from which
they could get the service.37
Clearly spelled out is the need to provide enhanced competition and the requirement for more landlines and
telecommunications facilities in unserved areas in the country. On both scores, therefore, there was sufficient
showing that the NTC acted well within its jurisdiction and in pursuance of its avowed duties when it allowed
the revival of Bayantel's application.
We now come to the issue of exhaustion of administrative remedies. The rule is well-entrenched that a party
must exhaust all administrative remedies before resorting to the courts. The premature invocation of the
intervention of the court is fatal to one's cause of action. This rule would not only give the administrative
agency an opportunity to decide the matter by itself correctly, but would also prevent the unnecessary and
premature resort to courts.38 In the case of Lopez v. City of Manila,39 we held:
As a general rule, where the law provides for the remedies against the action of an administrative
board, body or officer, relief to courts can be sought only after exhausting all remedies provided.
The reason rests upon the presumption that the administrative body, if given the chance to correct
its mistake or error, may amend its decision on a given matter and decide it properly. Therefore,
where a remedy is available within the administrative machinery, this should be resorted to before

resort can be made to the courts, not only to give the administrative agency the opportunity to
decide the matter by itself correctly, but also to prevent unnecessary and premature resort to
courts.
Clearly, Extelcom violated the rule on exhaustion of administrative remedies when it went directly to the Court
of Appeals on a petition for certiorari and prohibition from the Order of the NTC dated May 3, 2000, without
first filing a motion for reconsideration. It is well-settled that the filing of a motion for reconsideration is a
prerequisite to the filing of a special civil action for certiorari.
The general rule is that, in order to give the lower court the opportunity to correct itself, a motion for
reconsideration is a prerequisite to certiorari. It also basic that petitioner must exhaust all other
available remedies before resorting to certiorari. This rule, however, is subject to certain exceptions
such as any of the following: (1) the issues raised are purely legal in nature, (2) public interest is
involved, (3) extreme urgency is obvious or (4) special circumstances warrant immediate or more
direct action.40
This case does not fall under any of the recognized exceptions to this rule. Although the Order of the NTC
dated May 3, 2000 granting provisional authority to Bayantel was immediately executory, it did not preclude
the filing of a motion for reconsideration. Under the NTC Rules, a party adversely affected by a decision, order,
ruling or resolution may within fifteen (15) days file a motion for reconsideration. That the Order of the NTC
became immediately executory does not mean that the remedy of filing a motion for reconsideration is
foreclosed to the petitioner.41
Furthermore, Extelcom does not enjoy the grant of any vested interest on the right to render a public service.
The Constitution is quite emphatic that the operation of a public utility shall not be exclusive. Thus:
No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted to citizens of the Philippines or to corporations 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, alteraion, or repeal by the Congress when the common good so
requires. xxx xxx xxx.42
In Radio Communications of the Phils., Inc. v. National Telecommunications Commission, 43 we held:
It is well within the powers of the public respondent to authorize the installation by the private
respondent network of radio communications systems in Catarman, Samar and San Jose,
Mindoro. Under the circumstances, the mere fact that the petitioner possesses a franchise to put
up and operate a radio communications system in certain areas is not an insuperable obstacle to
the public respondent's issuing the proper certificate to an applicant desiring to extend the same
services to those areas. The Constitution mandates that a franchise cannot be exclusive in nature
nor can a franchise be granted except that it must be subject to amendment, alteration, or even
repeal by the legislature when the common good so requires. (Art. XII, sec. 11 of the 1986
Constitution). There is an express provision in the petitioner's franchise which provides compliance
with the above mandate (RA 2036, sec. 15).
Even in the provisional authority granted to Extelcom, it is expressly stated that such authority is not exclusive.
Thus, the Court of Appeals erred when it gave due course to Extelcom's petition and ruled that it constitutes an
exception to the rule on exhaustion of administrative remedies.

92

Also, the Court of Appeals erred in annulling the Order of the NTC dated May 3, 2000, granting Bayantel a
provisional authority to install, operate and maintain CMTS. The general rule is that purely administrative and
discretionary functions may not be interfered with by the courts. Thus, in Lacuesta v. Herrera,44 it was held:
xxx (T)he powers granted to the Secretary of Agriculture and Commerce (natural resources) by law
regarding the disposition of public lands such as granting of licenses, permits, leases and
contracts, or approving, rejecting, reinstating, or canceling applications, are all executive and
administrative in nature. It is a well recognized principle that purely administrative and discretionary
functions may not be interfered with by the courts. (Coloso vs. Board of Accountancy, G.R. No. L5750, April 20, 1953) In general, courts have no supervising power over the proceedings and
actions of the administrative departments of the government. This is generally true with respect to
acts involving the exercise of judgement or discretion and findings of fact. (54 Am. Jur. 558-559)
xxx.
The established exception to the rule is where the issuing authority has gone beyond its statutory authority,
exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse
of discretion.45 None of these obtains in the case at bar.
Moreover, in petitions for certiorari, evidentiary matters or matters of fact raised in the court below are not
proper grounds nor may such be ruled upon in the proceedings. As held in National Federation of Labor v.
NLRC:46
At the outset, it should be noted that a petition for certiorari under Rule 65 of the Rules of Court will
prosper only if there is a showing of grave abuse of discretion or an act without or in excess of
jurisdiction on the part of the National Labor Relations Commission. It does not include an inquiry
as to the correctness of the evaluation of evidence which was the basis of the labor official or
officer in determining his conclusion. It is not for this Court to re-examine conflicting evidence, reevaluate the credibility of witnesses nor substitute the findings of fact of an administrative tribunal
which has gained expertise in its special field. Considering that the findings of fact of the labor
arbiter and the NLRC are supported by evidence on record, the same must be accorded due
respect and finality.
This Court has consistently held that the courts will not interfere in matters which are addressed to the sound
discretion of the government agency entrusted with the regulation of activities coming under the special and
technical training and knowledge of such agency.47 It has also been held that the exercise of administrative
discretion is a policy decision and a matter that can best be discharged by the government agency concerned,
and not by the courts.48 In Villanueva v. Court of Appeals,49 it was held that findings of fact which are supported
by evidence and the conclusion of experts should not be disturbed. This was reiterated in Metro Transit
Organization, Inc. v. National Labor Relations Commission, 50 wherein it was ruled that factual findings of quasijudicial bodies which have acquired expertise because their jurisdiction is confined to specific matters are
generally accorded not only respect but even finality and are binding even upon the Supreme Court if they are
supported by substantial evidence.1wphi1.nt
Administrative agencies are given a wide latitude in the evaluation of evidence and in the exercise of its
adjudicative functions. This latitude includes the authority to take judicial notice of facts within its special
competence.
In the case at bar, we find no reason to disturb the factual findings of the NTC which formed the basis for
awarding the provisional authority to Bayantel. As found by the NTC, Bayantel has been granted several
provisional and permanent authorities before to operate various telecommunications services. 51 Indeed, it was
established that Bayantel was the first company to comply with its obligation to install local exchange lines
pursuant to E.O. 109 and R.A. 7925. In recognition of the same, the provisional authority awarded in favor of
Bayantel to operate Local Exchange Services in Quezon City, Malabon, Valenzuela and the entire Bicol region
was made permanent and a CPCN for the said service was granted in its favor. Prima facie evidence was

likewise found showing Bayantel's legal, financial and technical capacity to undertake the proposed cellular
mobile telephone service.
Likewise, the May 3, 2000 Order did not violate NTC Memorandum Circular No. 9-14-90 dated September 4,
1990, contrary to the ruling of the Court of Appeals. The memorandum circular sets forth the procedure for the
issuance of provisional authority thus:
EFFECTIVE THIS DATE, and as part of the Commission's drive to streamline and fast track action
on applications/petitions for CPCN other forms of authorizations, the Commission shall be
evaluating applications/petitions for immediate issuance of provisional authorizations, pending
hearing and final authorization of an application on its merit.
For this purpose, it is hereby directed that all applicants/petitioners seeking for provisional
authorizations, shall submit immediately to the Commission, either together with their application or
in a Motion all their legal, technical, financial, economic documentations in support of their prayer
for provisional authorizations for evaluation. On the basis of their completeness and their having
complied with requirements, the Commission shall be issuing provisional authorizations.
Clearly, a provisional authority may be issued even pending hearing and final determination of an application
on its merits.
Finally, this Court finds that the Manifestations of Extelcom alleging forum shopping on the part of the NTC and
Bayantel are not impressed with merit. The divisions of the Supreme Court are not to be considered as
separate and distinct courts. The Supreme Court remains a unit notwithstanding that it works in divisions.
Although it may have three divisions, it is but a single court. Actions considered in any of these divisions and
decisions rendered therein are, in effect, by the same Tribunal. The divisions of this Court are not to be
considered as separate and distinct courts but as divisions of one and the same court. 52
Moreover, the rules on forum shopping should not be literally interpreted. We have stated thus:
It is scarcely necessary to add that Circular No. 28-91 must be so interpreted and applied as to
achieve the purposes projected by the Supreme Court when it promulgated that circular. Circular
No. 28-91 was designed to serve as an instrument to promote and facilitate the orderly
administration of justice and should not be interpreted with such absolute literalness as to subvert
its own ultimate and legitimate objection or the goal of all rules of procedure which is to achieve
substantial justice as expeditiously as possible. 53
Even assuming that separate actions have been filed by two different parties involving essentially the same
subject matter, no forum shopping was committed as the parties did not resort to multiple judicial remedies.
The Court, therefore, directed the consolidation of the two cases because they involve essentially the same
issues. It would also prevent the absurd situation wherein two different divisions of the same court would
render altogether different rulings in the cases at bar.
We rule, likewise, that the NTC has legal standing to file and initiate legal action in cases where it is clear that
its inaction would result in an impairment of its ability to execute and perform its functions. Similarly, we have
previously held in Civil Service Commission v. Dacoycoy54 that the Civil Service Commission, as an aggrieved
party, may appeal the decision of the Court of Appeals to this Court.
As correctly stated by the NTC, the rule invoked by Extelcom is Rule 65 of the Rules of Civil Procedure, which
provides that public respondents shall not appear in or file an answer or comment to the petition or any
pleading therein.55 The instant petition, on the other hand, was filed under Rule 45 where no similar
proscription exists.

93

WHEREFORE, in view of the foregoing, the consolidated petitions are GRANTED. The Court of Appeals'
Decision dated September 13, 2000 and Resolution dated February 9, 2001 are REVERSED and SET ASIDE.
The permanent injunction issued by the Court of Appeals is LIFTED. The Orders of the NTC dated February 1,
2000 and May 3, 2000 are REINSTATED. No pronouncement as to costs.

the total gross basic salary paid by the employer during the calendar year. Such gross basic salary includes:
(1) regular salary or wage; (2) payments for sick, vacation and maternity leaves; (3) premium for work
performed on rest days or holidays: (4) holiday pay for worked or unworked regular holiday; and (5)
emergency allowance if given in the form of a wage adjustment." 7

SO ORDERED.

Petitioner, on the other hand, assails as erroneous the aforesaid order, ruling and opinions, vigorously
contends that Presidential Decree 851 speaks only of basic salary as basis for the determination of the 13thmonth pay; submits that payments for sick, vacation, or maternity leaves, night differential pay, as well as
premium paid for work performed on rest days, special and regular holidays do not form part of the basic
salary; and concludes that the inclusion of those payments in the computation of the 13th-month pay is clearly
not sanctioned by Presidential Decree 851.

G.R. No. L-49774 February 24, 1981

SAN MIGUEL CORPORATION (CAGAYAN COCA-COLA PLANT), petitioner,
vs.
Hon. AMADO G. INCIONG, Deputy Minister of Labor and CAGAYAN COCA-COLA FREE WORKERS
UNION,respondents.

The Court finds petitioner's contention meritorious.

The provision in dispute is Section 1 of Presidential Decree 851 and provides:

DE CASTRO, J.:
Petition for certiorari and prohibition, with preliminary injunction to review the Order 1 dated December 19,
1978 rendered by the Deputy Minister of Labor in STF ROX Case No. 009-77 docketed as "Cagayan CocaCola Free Workers Union vs. Cagayan Coca-Cola Plant, San Miguel Corporation, " which denied herein
petitioner's motion for reconsideration and ordered the immediate execution of a prior Order 2 dated June 7,
1978.
On January 3, 1977, Cagayan Coca-Cola Free Workers Union, private respondent herein, filed a complaint
against San Miguel Corporation (Cagayan Coca-Cola Plant), petitioner herein, alleging failure or refusal of the
latter to include in the computation of 13th- month pay such items as sick, vacation or maternity leaves,
premium for work done on rest days and special holidays, including pay for regular holidays and night
differentials.
An Order 3 dated February 15, 1977 was issued by Regional Office No. X where the complaint was filed
requiring herein petitioner San Miguel Corporation (Cagayan Coca-Cola Plant) "to pay the difference of
whatever earnings and the amount actually received as 13th month pay excluding overtime premium and
emergency cost of living allowance. "
Herein petitioner appealed from that Order to the Minister of Labor in whose behalf the Deputy Minister of
Labor Amado G. Inciong issued an Order 4 dated June 7, 1978 affirming the Order of Regional Office No. X
and dismissing the appeal for lack of merit. Petitioner's motion for reconsideration having been denied, it filed
the instant petition.
On February 14, 1979, this Court issued a Temporary Restraining Order 5 enjoining respondents from
enforcing the Order dated December 19, 1978.

All employers are hereby required to pay all their employees receiving a basic salary of
not more than Pl,000 a month, regardless of the nature of the employment, a 13thmonth pay not later than December 24 of every year.
Section 2 of the Rules and Regulations for the implementation of Presidential Decree 851 provides:
a) Thirteenth-month pay shall mean one twelfth (1/12) of the basic salary of an
employee within a calendar year
b) Basic salary shall include all remunerations on earnings paid by an employer to an
employee for services rendered but may not include cost-of-living allowances granted
pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174, profit sharing
payments and all allowances and monetary benefits which are not considered or
integrated as part of the regular or basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.
Under Presidential Decree 851 and its implementing rules, the basic salary of an employee is used as the
basis in the determination of his 13th-month pay. Any compensations or remunerations which are deemed not
part of the basic pay is excluded as basis in the computation of the mandatory bonus.
Under the Rules and Regulations Implementing Presidential Decree 851, the following compensations are
deemed not part of the basic salary:
a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of
Instructions No. 174;
b) Profit sharing payments;

The crux of the present controversy is whether or not in the computation of the 13th-month pay under
Presidential Decree 851, payments for sick, vacation or maternity leaves, premium for work done on rest days
and special holidays, including pay for regular holidays and night differentials should be considered.
Public respondent's consistent stand on the matter since the effectivity of Presidential Decree 851 is that
"payments for sick leave, vacation leave, and maternity benefits, as well as salaries paid to employees for
work performed on rest days, special and regular holidays are included in the computation of the 13th-month
pay. 6 On its part, private respondent cited innumerable past rulings, opinions and decisions rendered by then
Acting Labor Secretary Amado G. Inciong to the effect that, "in computing the mandatory bonus, the basis is

c) All allowances and monetary benefits which are not considered or integrated as part
of the regular basic salary of tile employee at the time of the promulgation of the
Decree on December 16, 1975.
Under a later set of Supplementary Rules and Regulations Implementing Presidential Decree 851 issued by
the then Labor Secretary Blas Ople, overtime pay, earnings and other remunerations are excluded as part of
the basic salary and in the computation of the 13th-month pay.

94

The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter of Instructions No. 174,
and profit sharing payments indicate the intention to strip basic salary of other payments which are properly
considered as "fringe" benefits. Likewise, the catch-all exclusionary phrase "all allowances and monetary
benefits which are not considered or integrated as part of the basic salary" shows also the intention to strip
basic salary of any and all additions which may be in the form of allowances or "fringe" benefits.
Moreover, the Supplementary Rules and Regulations Implementing Presidential Decree 851 is even more
emphatic in declaring that earnings and other remunerations which are not part of the basic salary shall not be
included in the computation of the 13th-month pay.
While doubt may have been created by the prior Rules and Regulations Implementing Presidential Decree 851
which defines basic salary to include all remunerations or earnings paid by an employer to an employee, this
cloud is dissipated in the later and more controlling Supplementary Rules and Regulations which categorically,
exclude from the definition of basic salary earnings and other remunerations paid by employer to an
employee. A cursory perusal of the two sets of Rules indicates that what has hitherto been the subject of a
broad inclusion is now a subject of broad exclusion. The Supplementary rules and Regulations cure the
seeming tendency of the former rules to include all remunerations and earnings within the definition of basic
salary.
The all-embracing phrase "earnings and other renumeration" which are deemed not part of the basic salary
includes within its meaning payments for sick, vacation, or maternity leaves. Maternity premium for works
performed on rest days and special holidays pays for regular holidays and night differentials. As such they are
deemed not part of the basic salary and shall not be considered in the computation of the 13th-month they,
were not so excluded, it is hard to find any "earnings and other remunerations" expressly excluded in the
computation of the 13th-month pay. Then the exclusionary provision would prove to be Idle and with no
purpose.
This conclusion finds strong support under the Labor Code of the Philippines. To cite a few provisions:
Art. 87. overtime work. Work may be performed beyond eight hours a day provided
what the employee is paid for the overtime work, additional compensation equivalent to
his regular wage plus at least twenty-five (25%) percent thereof.
It is clear that overtime pay is an additional compensation other than and added to the regular wage or basic
salary, for reason of which such is categorically excluded from the definition of basic salary under the
Supplementary Rules and Regulations Implementing Presidential Decree 851.
In Article 93 of the same Code, paragraph
c) work performed on any special holiday shall be paid an additional compensation of
at least thirty percent (30%) of the regular wage of the employee.
It is likewise clear that prernium for special holiday which is at least 30% of the regular wage is an additional
compensation other than and added to the regular wage or basic salary. For similar reason it shall not be
considered in the computation of the 13th- month pay.
WHEREFORE, the Orders of the Deputy Labor Minister dated June 7, 1978 and December 19, 1978 are
hereby set aside and a new one entered as above indicated. The Temporary Restraining Order issued by this
Court on February 14, 1979 is hereby made permanent. No pronouncement as to costs.
SO ORDERED.

G.R. No. L-19337

September 30, 1969

ASTURIAS SUGAR CENTRAL, INC., petitioner,

vs.
COMMISSIONER OF CUSTOMS and COURT OF TAX APPEALS, respondents.
Laurea, Laurea and Associates for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Esmeraldo Umali and Solicitor
Sumilang V. Bernardo for respondents.

CASTRO, J.:
This is a petition for review of the decision of the Court of Tax Appeals of November 20, 1961, which denied
recovery of the sum of P28,629.42, paid by the petitioner, under protest, in the concept of customs duties and
special import tax, as well as the petitioner's alternative remedy to recover the said amount minus one per cent
thereof by way of a drawback under sec. 106 (b) of the Tariff and Customs Code.
The petitioner Asturias Sugar Central, Inc. is engaged in the production and milling of centrifugal sugar for
exert, the sugar so produced being placed in containers known as jute bags. In 1957 it made two importations
of jute bags. The first shipment consisting of 44,800 jute bags and declared under entry 48 on January 8,
1967, entered free of customs duties and special import tax upon the petitioner's filing of Re-exportation and
Special Import Tax Bond no. 1 in the amounts of P25,088 and P2,464.50, conditioned upon the exportation of
the jute bags within one year from the date of importation. The second shipment consisting of 75,200 jute bags
and declared under entry 243 on February 8, 1957, likewise entered free of customs duties and special import
tax upon the petitioner's filing of Re-exportation and Special Import Tax Bond no. 6 in the amounts of P42,112
and P7,984.44, with the same conditions as stated in bond no. 1.
Of the 44,800 jute bags declared under entry 48, only 8,647 were exported within one year from the date of
importation as containers of centrifugal sugar. Of the 75,200 jute bags declared under entry 243, only 25,000
were exported within the said period of one year. In other words, of the total number of imported jute bags only
33,647 bags were exported within one year after their importation. The remaining 86,353 bags were exported
after the expiration of the one-year period but within three years from their importation.
On February 6, 1958 the petitioner, thru its agent Theo. H. Davies & Co., Far East, Ltd., requested the
Commissioner of Customs for a week's extension of Re-exportation and Special Import Tax Bond no. 6 which
was to expire the following day, giving the following as the reasons for its failure to export the remaining jute
bags within the period of one year: (a) typhoons and severe floods; (b) picketing of the Central railroad line
from November 6 to December 21, 1957 by certain union elements in the employ of the Philippine Railway
Company, which hampered normal operations; and (c) delay in the arrival of the vessel aboard which the
petitioner was to ship its sugar which was then ready for loading. This request was denied by the
Commissioner per his letter of April 15, 1958.
Due to the petitioner's failure to show proof of the exportation of the balance of 86,353 jute bags within one
year from their importation, the Collector of Customs of Iloilo, on March 17, 1958, required it to pay the amount
of P28,629.42 representing the customs duties and special import tax due thereon, which amount the
petitioner paid under protest.
In its letter of April 10, 1958, supplemented by its letter of May 12, 1958, the petitioner demanded the refund of
the amount it had paid, on the ground that its request for extension of the period of one year was filed on time,
and that its failure to export the jute bags within the required one-year period was due to delay in the arrival of
the vessel on which they were to be loaded and to the picketing of the Central railroad line. Alternatively, the

95

petitioner asked for refund of the same amount in the form of a drawback under section 106(b) in relation to
section 105(x) of the Tariff and Customs Code.
After hearing, the Collector of Customs of Iloilo rendered judgment on January 21, 1960 denying the claim for
refund. From his action, appeal was taken to the Commissioner of Customs who upheld the decision of the
Collector. Upon a petition for review the Court of Tax Appeals affirmed the decision of the Commissioner of
Customs.
The petitioner imputes three errors to the Court of Tax Appeals, namely:
1. In not declaring that force majeure and/or fortuitous event is a sufficient justification for the
failure of the petitioner to export the jute bags in question within the time required by the bonds.
2. In not declaring that it is within the power of the Collector of Customs and/or the Commissioner
of Customs to extend the period of one (1) year within which the jute bags should be exported.
3. In not declaring that the petitioner is entitled to a refund by way of a drawback under the
provisions of section 106, par. (b), of the Tariff and Customs Code.
1. The basic issue tendered for resolution is whether the Commissioner of Customs is vested, under the
Philippine Tariff Act of 1909, the then applicable law, with discretion to extend the period of one year provided
for in section 23 of the Act. Section 23 reads:
SEC. 23. That containers, such as casks, large metal, glass, or other receptacles which are, in the
opinion of the collector of customs, of such a character as to be readily identifiable may be
delivered to the importer thereof upon identification and the giving of a bond with sureties
satisfactory to the collector of customs in an amount equal to double the estimated duties thereon,
conditioned for the exportation thereof or payment of the corresponding duties thereon within one
year from the date of importation, under such rules and regulations as the Insular Collector of
Customs shall provide.1
To implement the said section 23, Customs Administrative Order 389 dated December 6, 1940 was
promulgated, paragraph XXVIII of which provides that "bonds for the re-exportation of cylinders and other
containers are good for 12 months without extension," and paragraph XXXI, that "bonds for customs brokers,
commercial samples, repairs and those filed to guarantee the re-exportation of cylinders and other containers
are not extendible."
And insofar as jute bags as containers are concerned, Customs Administrative Order 66 dated August 25,
1948 was issued, prescribing rules and regulations governing the importation, exportation and identification
thereof under section 23 of the Philippine Tariff Act of 1909. Said administrative order provides:
That importation of jute bags intended for use as containers of Philippine products for exportation
to foreign countries shall be declared in a regular import entry supported by a surety bond in an
amount equal to double the estimated duties, conditioned for the exportation or payment of the
corresponding duties thereon within one year from the date of importation.
It will be noted that section 23 of the Philippine Tariff Act of 1909 and the superseding sec. 105(x) of the Tariff
and Customs Code, while fixing at one year the period within which the containers therein mentioned must be
exported, are silent as to whether the said period may be extended. It was surely by reason of this silence that
the Bureau of Customs issued Administrative Orders 389 and 66, already adverted to, to eliminate confusion
and provide a guide as to how it shall apply the law, 2 and, more specifically, to make officially known its policy
to consider the one-year period mentioned in the law as non-extendible.

Considering that the statutory provisions in question have not been the subject of previous judicial
interpretation, then the application of the doctrine of "judicial respect for administrative construction," 3 would,
initially, be in order.
Only where the court of last resort has not previously interpreted the statute is the rule applicable that courts
will give consideration to construction by administrative or executive departments of the state. 41awphl.nt
The formal or informal interpretation or practical construction of an ambiguous or uncertain statute
or law by the executive department or other agency charged with its administration or enforcement
is entitled to consideration and the highest respect from the courts, and must be accorded
appropriate weight in determining the meaning of the law, especially when the construction or
interpretation is long continued and uniform or is contemporaneous with the first workings of the
statute, or when the enactment of the statute was suggested by such agency.5
The administrative orders in question appear to be in consonance with the intention of the legislature to limit
the period within which to export imported containers to one year, without extension, from the date of
importation. Otherwise, in enacting the Tariff and Customs Code to supersede the Philippine Tariff Act of 1909,
Congress would have amended section 23 of the latter law so as to overrule the long-standing view of the
Commissioner of Customs that the one-year period therein mentioned is not extendible.
Implied legislative approval by failure to change a long-standing administrative construction is not
essential to judicial respect for the construction but is an element which greatly increases the
weight given such construction.6
The correctness of the interpretation given a statute by the agency charged with administering its
provision is indicated where it appears that Congress, with full knowledge of the agency's
interpretation, has made significant additions to the statute without amending it to depart from the
agency's view.7
Considering that the Bureau of Customs is the office charged with implementing and enforcing the provisions
of our Tariff and Customs Code, the construction placed by it thereon should be given controlling
weight.1awphl.nt
In applying the doctrine or principle of respect for administrative or practical construction, the courts often refer
to several factors which may be regarded as bases of the principle, as factors leading the courts to give the
principle controlling weight in particular instances, or as independent rules in themselves. These factors are
the respect due the governmental agencies charged with administration, their competence, expertness,
experience, and informed judgment and the fact that they frequently are the drafters of the law they interpret;
that the agency is the one on which the legislature must rely to advise it as to the practical working out of the
statute, and practical application of the statute presents the agency with unique opportunity and experiences
for discovering deficiencies, inaccuracies, or improvements in the statute; ... 8
If it is further considered that exemptions from taxation are not favored, 9 and that tax statutes are to be
construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, 10 then we are
hard put to sustain the petitioner's stand that it was entitled to an extension of time within which to export the
jute bags and, consequently, to a refund of the amount it had paid as customs duties.
In the light of the foregoing, it is our considered view that the one-year period prescribed in section 23 of the
Philippine Tariff Act of 1909 is non-extendible and compliance therewith is mandatory.
The petitioner's argument that force majeure and/or fortuitous events prevented it from exporting the jute bags
within the one-year period cannot be accorded credit, for several reasons. In the first place, in its decision of
November 20, 1961, the Court of Tax Appeals made absolutely no mention of or reference to this argument of

96

the petitioner, which can only be interpreted to mean that the court did not believe that the "typhoons, floods
and picketing" adverted to by the petitioner in its brief were of such magnitude or nature as to effectively
prevent the exportation of the jute bags within the required one-year period. In point of fact nowhere in the
record does the petitioner convincingly show that the so-called fortuitous events or force majeure referred to
by it precluded the timely exportation of the jute bags. In the second place, assuming, arguendo, that the oneyear period is extendible, the jute bags were not actually exported within the one-week extension the petitioner
sought. The record shows that although of the remaining 86,353 jute bags 21,944 were exported within the
period of one week after the request for extension was filed, the rest of the bags, amounting to a total of
64,409, were actually exported only during the period from February 16 to May 24, 1958, long after the
expiration of the one-week extension sought by the petitioner. Finally, it is clear from the record that the
typhoons and floods which, according to the petitioner, helped render impossible the fulfillment of its obligation
to export within the one-year period, assuming that they may be placed in the category of fortuitous events or
force majeure, all occurred prior to the execution of the bonds in question, or prior to the commencement of
the one-year period within which the petitioner was in law required to export the jute bags.
2. The next argument of the petitioner is that granting that Customs Administrative Order 389 is valid and
binding, yet "jute bags" cannot be included in the phrase "cylinders and other containers" mentioned therein. It
will be noted, however, that the Philippine Tariff Act of 1909 and the Tariff and Customs Code, which
Administrative Order 389 seeks to implement, speak of "containers" in general. The enumeration following the
word "containers" in the said statutes serves merely to give examples of containers and not to specify the
particular kinds thereof. Thus, sec. 23 of the Philippine Tariff Act states, "containers such as casks large
metals, glass or other receptacles," and sec. 105 (x) of the Tariff and Customs Code mentions "large
containers," giving as examples "demijohn cylinders, drums, casks and other similar receptacles of metal,
glass or other materials." (emphasis supplied) There is, therefore, no reason to suppose that the customs
authorities had intended, in Customs Administrative Order 389 to circumscribe the scope of the word
"container," any more than the statures sought to be implemented actually intended to do.
3. Finally, the petitioner claims entitlement to a drawback of the duties it had paid, by virtue of section 106 (b)
of the Tariff and Customs Code, 11 which reads:
SEC. 106. Drawbacks: ...
b. On Articles Made from Imported Materials or Similar Domestic Materials and Wastes Thereof.
Upon the exportation of articles manufactured or produced in the Philippines, including the
packing, covering, putting up, marking or labeling thereof, either in whole or in part of imported
materials, or from similar domestic materials of equal quantity and productive manufacturing
quality and value, such question to be determined by the Collector of Customs, there shall be
allowed a drawback equal in amount to the duties paid on the imported materials so used, or
where similar domestic materials are used, to the duties paid on the equivalent imported similar
materials, less one per cent thereof: Provided, That the exportation shall be made within three
years after the importation of the foreign material used or constituting the basis for drawback ... .
The petitioner argues that not having availed itself of the full exemption granted by sec. 105(x) of the Tariff and
Customs Code due to its failure to export the jute bags within one year, it is nevertheless, by authority of the
above-quoted provision, entitled to a 99% drawback of the duties it had paid, averring further that sec. 106(b)
does not presuppose immediate payment of duties and taxes at the time of importation.

where import duties are first paid, subject to refund to the extent of 99% of the amount paid, provided the
articles mentioned therein are exported within three years from importation.
It would seem then that the Government would forego collecting duties on the articles mentioned in section
105(x) of Tariff and Customs Code as long as it is assured, by the filing of a bond, that the same shall be
exported within the relatively short period of one year from the date of acceptance of the import entry. Where
an importer cannot provide such assurance, then the Government, under sec. 106(b) of said Code, would
require payment of the corresponding duties first. The basic purpose of the two provisions is the same, which
is, to enable a local manufacturer to compete in foreign markets, by relieving him of the disadvantages
resulting from having to pay duties on imported merchandise, thereby building up export trade and
encouraging manufacture in the country. 12But there is a difference, and it is this: under section 105(x) full
exemption is granted to an importer who justifies the grant of exemption by exporting within one-year. The
petitioner, having opted to take advantage of the provisions of section 105(x), may not, after having failed to
comply with the conditions imposed thereby, avoid the consequences of such failure by being allowed a
drawback under section 106(b) of the same Act without having complied with the conditions of the latter
section.
For it is not to be supposed that the legislature had intended to defeat compliance with the terms of section
105(x) thru a refuge under the provisions of section 106(b). A construction should be avoided which affords an
opportunity to defeat compliance with the terms of a statute. 13 Rather courts should proceed on the theory that
parts of a statute may be harmonized and reconciled with each other.
A construction of a statute which creates an inconsistency should be avoided when a reasonable interpretation
can be adopted which will not do violence to the plain words of the act and will carry out the intention of
Congress.
In the construction of statutes, the courts start with the assumption that the legislature intended to
enact an effective law, and the legislature is not to be presumed to have done a vain thing in the
enactment of a statute. Hence, it is a general principle, embodied in the maxim, "ut res magis
valeat quam pereat," that the courts should, if reasonably possible to do so without violence to the
spirit and language of an act, so interpret the statute to give it efficient operation and effect as a
whole. An interpretation should, if possible, be avoided under which a statute or provision being
construed is defeated, or as otherwise expressed, nullified, destroyed, emasculated, repealed,
explained away, or rendered insignificant, meaningless, inoperative, or nugatory. 14
ACCORDINGLY, the judgment of the Court of Tax Appeals of November 20, 1961 is affirmed, at petitioner's
cost.
G.R. No. 96681 December 2, 1991
HON. ISIDRO CARIO, in his capacity as Secretary of the Department of Education, Culture & Sports,
DR. ERLINDA LOLARGA, in her capacity as Superintendent of City Schools of Manila, petitioners,
vs.
THE COMMISSION ON HUMAN RIGHTS, GRACIANO BUDOY, JULIETA BABARAN, ELSA IBABAO,
HELEN LUPO, AMPARO GONZALES, LUZ DEL CASTILLO, ELSA REYES and APOLINARIO
ESBER, respondents.

The contention is palpably devoid of merit.

The provisions invoked by the petitioner (to sustain his claim for refund) offer two options to an importer. The
first, under sec. 105 (x), gives him the privilege of importing, free from import duties, the containers mentioned
therein as long as he exports them within one year from the date of acceptance of the import entry, which
period as shown above, is not extendible. The second, presented by sec. 106 (b), contemplates a case

NARVASA, J.:p
The issue raised in the special civil action of certiorari and prohibition at bar, instituted by the Solicitor General,
may be formulated as follows: where the relief sought from the Commission on Human Rights by a party in a

97

case consists of the review and reversal or modification of a decision or order issued by a court of justice or
government agency or official exercising quasi-judicial functions, may the Commission take cognizance of the
case and grant that relief? Stated otherwise, where a particular subject-matter is placed by law within the
jurisdiction of a court or other government agency or official for purposes of trial and adjudgment, may the
Commission on Human Rights take cognizance of the same subject-matter for the same purposes of hearing
and adjudication?
The facts narrated in the petition are not denied by the respondents and are hence taken as substantially
correct for purposes of ruling on the legal questions posed in the present action. These facts, 1 together with
others involved in related cases recently resolved by this Court 2 or otherwise undisputed on the record, are
hereunder set forth.
1. On September 17, 1990, a Monday and a class day, some 800 public school teachers, among them
members of the Manila Public School Teachers Association (MPSTA) and Alliance of Concerned Teachers
(ACT) undertook what they described as "mass concerted actions" to "dramatize and highlight" their plight
resulting from the alleged failure of the public authorities to act upon grievances that had time and again been
brought to the latter's attention. According to them they had decided to undertake said "mass concerted
actions" after the protest rally staged at the DECS premises on September 14, 1990 without disrupting classes
as a last call for the government to negotiate the granting of demands had elicited no response from the
Secretary of Education. The "mass actions" consisted in staying away from their classes, converging at the
Liwasang Bonifacio, gathering in peaceable assemblies, etc. Through their representatives, the teachers
participating in the mass actions were served with an order of the Secretary of Education to return to work in
24 hours or face dismissal, and a memorandum directing the DECS officials concerned to initiate dismissal
proceedings against those who did not comply and to hire their replacements. Those directives
notwithstanding, the mass actions continued into the week, with more teachers joining in the days that
followed. 3
Among those who took part in the "concerted mass actions" were the eight (8) private respondents herein,
teachers at the Ramon Magsaysay High School, Manila, who had agreed to support the non-political demands
of the MPSTA. 4
2. For failure to heed the return-to-work order, the CHR complainants (private respondents) were
administratively charged on the basis of the principal's report and given five (5) days to answer the charges.
They were also preventively suspended for ninety (90) days "pursuant to Section 41 of P.D. 807" and
temporarily replaced (unmarked CHR Exhibits, Annexes F, G, H). An investigation committee was
consequently formed to hear the charges in accordance with P.D. 807. 5
3. In the administrative case docketed as Case No. DECS 90-082 in which CHR complainants Graciano
Budoy, Jr., Julieta Babaran, Luz del Castillo, Apolinario Esber were, among others, named respondents, 6 the
latter filed separate answers, opted for a formal investigation, and also moved "for suspension of the
administrative proceedings pending resolution by . . (the Supreme) Court of their application for issuance of an
injunctive writ/temporary restraining order." But when their motion for suspension was denied by Order dated
November 8, 1990 of the Investigating Committee, which later also denied their motion for reconsideration
orally made at the hearing of November 14, 1990, "the respondents led by their counsel staged a walkout
signifying their intent to boycott the entire proceedings." 7 The case eventually resulted in a Decision of
Secretary Cario dated December 17, 1990, rendered after evaluation of the evidence as well as the answers,
affidavits and documents submitted by the respondents, decreeing dismissal from the service of Apolinario
Esber and the suspension for nine (9) months of Babaran, Budoy and del Castillo. 8
4. In the meantime, the "MPSTA filed a petition for certiorari before the Regional Trial Court of Manila against
petitioner (Cario), which was dismissed (unmarked CHR Exhibit, Annex I). Later, the MPSTA went to the
Supreme Court (on certiorari, in an attempt to nullify said dismissal, grounded on the) alleged violation of the
striking teachers" right to due process and peaceable assembly docketed as G.R. No. 95445, supra. The ACT
also filed a similar petition before the Supreme Court . . . docketed as G.R. No. 95590." 9 Both petitions in this
Court were filed in behalf of the teacher associations, a few named individuals, and "other teacher-members

so numerous similarly situated" or "other similarly situated public school teachers too numerous to be
impleaded."
5. In the meantime, too, the respondent teachers submitted sworn statements dated September 27, 1990 to
the Commission on Human Rights to complain that while they were participating in peaceful mass actions,
they suddenly learned of their replacements as teachers, allegedly without notice and consequently for
reasons completely unknown to them. 10
6. Their complaints and those of other teachers also "ordered suspended by the . . . (DECS)," all numbering
forty-two (42) were docketed as "Striking Teachers CHR Case No. 90775." In connection therewith the
Commission scheduled a "dialogue" on October 11, 1990, and sent a subpoena to Secretary Cario requiring
his attendance therein. 11
On the day of the "dialogue," although it said that it was "not certain whether he (Sec. Cario) received the
subpoena which was served at his office, . . . (the) Commission, with the Chairman presiding, and
Commissioners Hesiquio R. Mallilin and Narciso C. Monteiro, proceeded to hear the case;" it heard the
complainants' counsel (a) explain that his clients had been "denied due process and suspended without formal
notice, and unjustly, since they did not join the mass leave," and (b) expatiate on the grievances which were
"the cause of the mass leave of MPSTA teachers, (and) with which causes they (CHR complainants)
sympathize." 12 The Commission thereafter issued an Order 13 reciting these facts and making the following
disposition:
To be properly apprised of the real facts of the case and be accordingly guided in its
investigation and resolution of the matter, considering that these forty two teachers are
now suspended and deprived of their wages, which they need very badly, Secretary
Isidro Cario, of the Department of Education, Culture and Sports, Dr. Erlinda Lolarga,
school superintendent of Manila and the Principal of Ramon Magsaysay High School,
Manila, are hereby enjoined to appear and enlighten the Commission en banc on
October 19, 1990 at 11:00 A.M. and to bring with them any and all documents relevant
to the allegations aforestated herein to assist the Commission in this matter. Otherwise,
the Commission will resolve the complaint on the basis of complainants' evidence.
xxx xxx xxx
7. Through the Office of the Solicitor General, Secretary Cario sought and was granted leave to file a motion
to dismiss the case. His motion to dismiss was submitted on November 14, 1990 alleging as grounds therefor,
"that the complaint states no cause of action and that the CHR has no jurisdiction over the case." 14
8. Pending determination by the Commission of the motion to dismiss, judgments affecting the "striking
teachers" were promulgated in two (2) cases, as aforestated, viz.:
a) The Decision dated December l7, 1990 of Education Secretary Cario in Case No.
DECS 90-082, decreeing dismissal from the service of Apolinario Esber and the
suspension for nine (9) months of Babaran, Budoy and del Castillo; 15 and
b) The joint Resolution of this Court dated August 6, 1991 in G.R. Nos. 95445 and
95590 dismissing the petitions "without prejudice to any appeals, if still timely, that the
individual petitioners may take to the Civil Service Commission on the matters
complained of," 16 and inter alia "ruling that it was prima facie lawful for petitioner
Cario to issue return-to-work orders, file administrative charges against recalcitrants,
preventively suspend them, and issue decision on those charges." 17

98

9. In an Order dated December 28, 1990, respondent Commission denied Sec. Cario's motion to dismiss and
required him and Superintendent Lolarga "to submit their counter-affidavits within ten (10) days . . . (after
which) the Commission shall proceed to hear and resolve the case on the merits with or without respondents
counter affidavit." 18 It held that the "striking teachers" "were denied due process of law; . . . they should not
have been replaced without a chance to reply to the administrative charges;" there had been a violation of
their civil and political rights which the Commission was empowered to investigate; and while expressing its
"utmost respect to the Supreme Court . . . the facts before . . . (it) are different from those in the case decided
by the Supreme Court" (the reference being unmistakably to this Court's joint Resolution of August 6, 1991 in
G.R. Nos. 95445 and 95590, supra).
It is to invalidate and set aside this Order of December 28, 1990 that the Solicitor General, in behalf of
petitioner Cario, has commenced the present action of certiorari and prohibition.
The Commission on Human Rights has made clear its position that it does not feel bound by this Court's joint
Resolution in G.R. Nos. 95445 and 95590, supra. It has also made plain its intention "to hear and resolve the
case (i.e., Striking Teachers HRC Case No. 90-775) on the merits." It intends, in other words, to try and decide
or hear and determine, i.e., exercise jurisdiction over the following general issues:

The Commission was created by the 1987 Constitution as an independent office. 23 Upon its constitution, it
succeeded and superseded the Presidential Committee on Human Rights existing at the time of the effectivity
of the Constitution. 24 Its powers and functions are the following 25
(1) Investigate, on its own or on complaint by any party, all forms of human rights
violations involving civil and political rights;
(2) Adopt its operational guidelines and rules of procedure, and cite for contempt for
violations thereof in accordance with the Rules of Court;
(3) Provide appropriate legal measures for the protection of human rights of all persons
within the Philippines, as well as Filipinos residing abroad, and provide for preventive
measures and legal aid services to the underprivileged whose human rights have been
violated or need protection;
(4) Exercise visitorial powers over jails, prisons, or detention facilities;

1) whether or not the striking teachers were denied due process, and just cause exists for the imposition of
administrative disciplinary sanctions on them by their superiors; and

(5) Establish a continuing program of research, education, and information to enhance

respect for the primacy of human rights;

2) whether or not the grievances which were "the cause of the mass leave of MPSTA teachers, (and) with
which causes they (CHR complainants) sympathize," justify their mass action or strike.

(6) Recommend to the Congress effective measures to promote human rights and to
provide for compensation to victims of violations of human rights, or their families;

The Commission evidently intends to itself adjudicate, that is to say, determine with character of finality and
definiteness, the same issues which have been passed upon and decided by the Secretary of Education,
Culture & Sports, subject to appeal to the Civil Service Commission, this Court having in fact, as
aforementioned, declared that the teachers affected may take appeals to the Civil Service Commission on said
matters, if still timely.

(7) Monitor the Philippine Government's compliance with international treaty obligations
on human rights;

The threshold question is whether or not the Commission on Human Rights has the power under the
Constitution to do so; whether or not, like a court of justice, 19 or even a quasi-judicial agency, 20 it has
jurisdiction or adjudicatory powers over, or the power to try and decide, or hear and determine, certain specific
type of cases, like alleged human rights violations involving civil or political rights.
The Court declares the Commission on Human Rights to have no such power; and that it was not meant by
the fundamental law to be another court or quasi-judicial agency in this country, or duplicate much less take
over the functions of the latter.
The most that may be conceded to the Commission in the way of adjudicative power is that it
may investigate, i.e., receive evidence and make findings of fact as regards claimed human rights violations
involving civil and political rights. But fact finding is not adjudication, and cannot be likened to the judicial
function of a court of justice, or even a quasi-judicial agency or official. The function of receiving evidence and
ascertaining therefrom the facts of a controversy is not a judicial function, properly speaking. To be considered
such, the faculty of receiving evidence and making factual conclusions in a controversy must be accompanied
by the authority of applying the law to those factual conclusions to the end that the controversy may be
decided or determined authoritatively, finally and definitively, subject to such appeals or modes of review as
may be provided by law. 21 This function, to repeat, the Commission does not have. 22
The proposition is made clear by the constitutional provisions specifying the powers of the Commission on
Human Rights.

(8) Grant immunity from prosecution to any person whose testimony or whose
possession of documents or other evidence is necessary or convenient to determine
the truth in any investigation conducted by it or under its authority;
(9) Request the assistance of any department, bureau, office, or agency in the
performance of its functions;
(10) Appoint its officers and employees in accordance with law; and
(11) Perform such other duties and functions as may be provided by law.
As should at once be observed, only the first of the enumerated powers and functions bears any resemblance
to adjudication or adjudgment. The Constitution clearly and categorically grants to the Commission the power
toinvestigate all forms of human rights violations involving civil and political rights. It can exercise that power
on its own initiative or on complaint of any person. It may exercise that power pursuant to such rules of
procedure as it may adopt and, in cases of violations of said rules, cite for contempt in accordance with the
Rules of Court. In the course of any investigation conducted by it or under its authority, it may grant immunity
from prosecution to any person whose testimony or whose possession of documents or other evidence is
necessary or convenient to determine the truth. It may also request the assistance of any department, bureau,
office, or agency in the performance of its functions, in the conduct of its investigation or in extending such
remedy as may be required by its findings. 26
But it cannot try and decide cases (or hear and determine causes) as courts of justice, or even quasi-judicial
bodies do. To investigate is not to adjudicate or adjudge. Whether in the popular or the technical sense, these
terms have well understood and quite distinct meanings.

99

"Investigate," commonly understood, means to examine, explore, inquire or delve or probe into, research on,
study. The dictionary definition of "investigate" is "to observe or study closely: inquire into systematically. "to
search or inquire into: . . . to subject to an official probe . . .: to conduct an official inquiry." 27 The purpose of
investigation, of course, is to discover, to find out, to learn, obtain information. Nowhere included or intimated
is the notion of settling, deciding or resolving a controversy involved in the facts inquired into by application of
the law to the facts established by the inquiry.

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

The legal meaning of "investigate" is essentially the same: "(t)o follow up step by step by patient inquiry or
observation. To trace or track; to search into; to examine and inquire into with care and accuracy; to find out by
careful inquisition; examination; the taking of evidence; a legal inquiry;" 28 "to inquire; to make an
investigation," "investigation" being in turn describe as "(a)n administrative function, the exercise of which
ordinarily does not require a hearing. 2 Am J2d Adm L Sec. 257; . . . an inquiry, judicial or otherwise, for the
discovery and collection of facts concerning a certain matter or matters." 29

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

"Adjudicate," commonly or popularly understood, means to adjudge, arbitrate, judge, decide, determine,
resolve, rule on, settle. The dictionary defines the term as "to settle finally (the rights and duties of the parties
to a court case) on the merits of issues raised: . . . to pass judgment on: settle judicially: . . . act as
judge." 30 And "adjudge" means "to decide or rule upon as a judge or with judicial or quasi-judicial powers: . . .
to award or grant judicially in a case of controversy . . . ." 31
In the legal sense, "adjudicate" means: "To settle in the exercise of judicial authority. To determine finally.
Synonymous with adjudge in its strictest sense;" and "adjudge" means: "To pass on judicially, to decide, settle
or decree, or to sentence or condemn. . . . Implies a judicial determination of a fact, and the entry of a
judgment." 32

In any event, the investigation by the Commission on Human Rights would serve no useful purpose. If its
investigation should result in conclusions contrary to those reached by Secretary Cario, it would have no
power anyway to reverse the Secretary's conclusions. Reversal thereof can only by done by the Civil Service
Commission and lastly by this Court. The only thing the Commission can do, if it concludes that Secretary
Cario was in error, is to refer the matter to the appropriate Government agency or tribunal for assistance; that
would be the Civil Service Commission. 35 It cannot arrogate unto itself the appellate jurisdiction of the Civil
Service Commission.
WHEREFORE, the petition is granted; the Order of December 29, 1990 is ANNULLED and SET ASIDE, and
the respondent Commission on Human Rights and the Chairman and Members thereof are prohibited "to hear
and resolve the case (i.e., Striking Teachers HRC Case No. 90-775) on the merits."
SO ORDERED.
G.R. No. 153310

Hence it is that the Commission on Human Rights, having merely the power "to investigate," cannot and
should not "try and resolve on the merits" (adjudicate) the matters involved in Striking Teachers HRC Case No.
90-775, as it has announced it means to do; and it cannot do so even if there be a claim that in the
administrative disciplinary proceedings against the teachers in question, initiated and conducted by the DECS,
their human rights, or civil or political rights had been transgressed. More particularly, the Commission has no
power to "resolve on the merits" the question of (a) whether or not the mass concerted actions engaged in by
the teachers constitute and are prohibited or otherwise restricted by law; (b) whether or not the act of carrying
on and taking part in those actions, and the failure of the teachers to discontinue those actions, and return to
their classes despite the order to this effect by the Secretary of Education, constitute infractions of relevant
rules and regulations warranting administrative disciplinary sanctions, or are justified by the grievances
complained of by them; and (c) what where the particular acts done by each individual teacher and what
sanctions, if any, may properly be imposed for said acts or omissions.
These are matters undoubtedly and clearly within the original jurisdiction of the Secretary of Education, being
within the scope of the disciplinary powers granted to him under the Civil Service Law, and also, within the
appellate jurisdiction of the Civil Service Commission.
Indeed, the Secretary of Education has, as above narrated, already taken cognizance of the issues and
resolved them, 33 and it appears that appeals have been seasonably taken by the aggrieved parties to the
Civil Service Commission; and even this Court itself has had occasion to pass upon said issues. 34
Now, it is quite obvious that whether or not the conclusions reached by the Secretary of Education in
disciplinary cases are correct and are adequately based on substantial evidence; whether or not the
proceedings themselves are void or defective in not having accorded the respondents due process; and
whether or not the Secretary of Education had in truth committed "human rights violations involving civil and
political rights," are matters which may be passed upon and determined through a motion for reconsideration
addressed to the Secretary Education himself, and in the event of an adverse verdict, may be reviewed by the
Civil Service Commission and eventually the Supreme Court.

March 2, 2004

MEGAWORLD GLOBUS ASIA, INC., petitioner,

vs.
DSM CONSTRUCTION AND DEVELOPMENT CORPORATION and PRUDENTIAL GUARANTEE AND
ASSURANCE, INC., respondents.
DECISION
TINGA, J.:
Before this Court is a Petition for Review on Certiorari assailing the Decision dated February 14, 2002, of the
Court of Appeals in CA G.R. SP No. 67432, 1 which affirmed the Decision2 of the Construction Industry
Arbitration Commission (CIAC)3 dated September 8, 2001, in CIAC Case No. 22-2000 finding petitioner
Megaworld Globus Asia, Inc., liable to DSM Construction in the amount of P62,760,558.49.
The antecedents are as follows:
Relative to the construction of a condominium project called "The Salcedo Park," located at H.V. dela Costa
St., Salcedo Village, Makati City, the project owner, Megaworld, entered into three separate contracts with
DSM Construction, namely: (1) Contract for Architectural Finishing Works; (2) Contract for Interior Finishing
Works; and (3) Contract for Supply and Installation of Kitchen Cabinets and Closets. The total contract price,
which was initially placed at P300 Million, was later reduced to P240 Million when the items for kitchen
cabinets and walk-in closets were deleted.4 The contracts also contain a stipulation for Retention
Money, which is a portion of the total contract price (usually, as in this case, 10%) set aside by the project
owner from all approved billings and retained for a certain period to guarantee the performance by the
contractor of all corrective works during the defect-liability period which, in this case, is twelve months from the
issuance of the Taking Over Certificate of Works.5
The Letter of Award for Architectural Finishing Works provides that the period for commencement and
completion shall be twelve months, from August 1, 1997 to July 31, 1998. However, on February 21, 2000,
representatives of both Megaworld and DSM Construction entered into an Interim Agreement whereby they

100

agreed on a new schedule of the turnover of units from the 26 th floor to the 40th floor, which was the last of the
contracted works.6The consideration agreed upon in the Interim Agreement was P53,000,000.00. Of this
amount, P3,000,000.00 was to be released immediately while five (5) equal installments of P7,000,000.00
were to be released depending on the turn-over of units from the 26 th floor to the 40th floor. The remaining
amount of P15,000,000.00 of theP53,000,000.00 consisted of half of the retention money.7
Because of the differences that arose from the billings, DSM Construction filed on August 21, 2002,
a Complaintbefore the CIAC for compulsory arbitration, claiming payment of P97,743,808.33 for the
outstanding balance of the three construction contracts, variation works, labor escalation, preliminaries loss
and expense, earned retention money, interests, and attorneys fees. 8 DSM Construction alleged that it already
commenced the finishing works on the existing 12 floors on August 1, 1997, instead of waiting for the entire
40-floor structure to be completed. At one time, DSM Construction worked with other contractors whose work
often depended on, interfered or conflicted with said contractors. Delay by a trade contractor would start a
chain reaction by delaying or putting off other works.9
Interposing mainly the defense of delay in the turn-over of units and the poor quality of work of DSM
Construction, Megaworld filed its Answer and made a counter-claim for loss of profits, liquidated damages,
costs of take-over and rectification works, administration expenses, interests, attorneys fees and cost of
arbitration in the total amount of P85,869,870.28.10
Prudential Guarantee and Assurance, Inc. (PGAI), which issued a Performance Bond to guarantee
Megaworlds contractual obligation on the project, was impleaded by Megaworld as a third-party respondent. 11
On March 28, 2001, the parties signed before the members of the Arbitral Tribunal the Terms of
Reference12(TOR) where they setforth their admitted facts,13 respective documentary evidence,14 summary of
claims15 and issues to be resolved by the tribunal.16 After presenting their evidence in the form of affidavits of
witnesses,17 the parties submitted their respective memoranda/draft decisions. 18
On October 19, 2001, the Arbitral Tribunal promulgated its Decision dated September 28, 2001,
awardingP62,760,558.49 to DSM Construction and P9,473,799.46 to Megaworld. 19
Megaworld filed a Petition for Review under Rule 43 of the Rules of Civil Procedure before the Court of
Appeals. It faulted the Arbitral Tribunal for finding that DSM Construction achieved a 95.56% level of
accomplishment as of February 14, 2000; for absolving DSM Corporation of the consequences of the alleged
delay in the performance of its work; and for ruling that DSM Construction had complied with the contractual
requirements for filing requests for extension. Megaworld likewise questioned the sufficiency of evidence to
justify the awards for liquidated damages; the balance of the contract price; the balance of amounts payable
on account of the Interim Agreementof February 21, 2000; the amount of P6,596,675.55 for variation orders;
the amount of P29,380,902.35 as reimbursement for preliminaries/loss and expense; the amount
of P413,041.52 for labor escalation costs; and the balance of the retention money in the amount
of P14,700,000.00 despite its award of P11,820,000.00 under the February 21, 2000, Interim Agreement.
Finally, Megaworld claimed that the Arbitral Tribunal erred in denying its claim for liquidated damages,
expenses incurred for the cost of take-over work, administrative expenses, and its recourse against PGAI and
for limiting its recovery for rectification work to only P9,197,863.55.20
On February 14, 2002, the Court of Appeals promulgated its Decision21 affirming that of the Arbitral Tribunal.
The court pointed out that only questions of law may be raised before it on appeal from an award of the
CIAC.22 That pronouncement notwithstanding, the Court of Appeals proceeded to review the decision of the
Arbitral Tribunal and found the same to be amply supported by evidence. 23
Megaworld sought reconsideration of the Court of Appeals Decision arguing, among other things, that the
appellate court ignored the ruling in Metro Construction, Inc. v. Chatham Properties24 that the review of the
CIAC award may involve either questions of fact, law, or both fact and law.
The Court of Appeals denied the motion for reconsideration in its Resolution25 dated April 25, 2002. While
acknowledging that the findings of fact of the CIAC may be questioned in line with Metro Construction,26 the
appellate court stressed that the tribunals decision is not devoid of factual or evidentiary support.
Megaworld elevated the case to this Court through the present Petition, advancing the following grounds, viz:

I
THE COURT OF APPEALS IN EFFECT REFUSED TO HEED THE RULE LAID DOWN BY THIS Honorable
Court in the Metro Construction, INC. vs. Chatham properties, inc. case when it dismissed mgais petition
despite the grave questions of both fact and law brought before it by the petitioner.
II
the finding of the appellate court that the decision was based on substantial evidence adduced by both parties
sans any review of the record or of attachments of dsm is fatally wrong, such finding being merely an adoption
of the tribunals decision which, as earlier pointed out, was not supported by competent, credible and
admissible evidence.
III
the court of appeals seriously erred in giving blanket approval of all the unfounded claims and conclusions of
the ciac arbitral tribunals SEPTEMBER 28, 2001 decision to the detriment of petitioners cardinal right to due
process, particularly to its right to administrative due process.
IV
the findings and conclusions made by a highly partisan ciac arbitral tribunal have no basis on the evidence on
record. hence, the exception to the rule that only questions of law may be brought to the honorable court is
applicable in the case AT bar.27
Although Megaworld, at the outset, 28 intimates that the case involves grave questions of both fact and law, a
cursory reading of the Petition reveals that, except for the amorphous advertence to administrative due
process, the alleged errors fundamentally involve only questions of fact. Megaworlds plea for the Court to
pass upon the findings of facts of the Arbitral Tribunal, which were upheld by the appellate court, must perforce
fail.
To jumpstart its bid, Megaworld exploits the Court of Appeals pronouncement in the assailed decision that only
questions of law may be raised before it from an award of the CIAC. The appellate court did so, Megaworld
continues, in evident disregard of Metro Construction.29
Under Section 19 of Executive Order No. 1008, 30 the CIACs arbitral award "shall be final and inappealable
except on questions of law which shall be appealable to the Supreme Court." In Metro Construction, however,
this Court held that, with the modification of E.O. No. 1008 by subsequent laws and issuances, 31 decisions of
the CIAC may be appealed to the Court of Appeals not only on questions of law but also on questions of fact
and mixed questions of law and fact.
Of such subsequent laws and issuances, only Section 1,32 Rule 43 of the 1997 Rules of Civil Procedure
expressly mentions the CIAC. While an argument may be made that procedural rules cannot modify
substantive law, adding in support thereof that Section 1, Rule 43 has increased the jurisdiction of the Court of
Appeals by expanding the scope of review of CIAC awards, or that it contravenes the rationale for arbitration,
extant from the record is the fact that no party raised such argument. Consequently, the matter need not be
delved into.
In any case, the attack against the merits of the Court of Appeals Decision must fail. Although Metro
Constructionmay have been unbeknownst to the appellate court when it promulgated its Decision, the fact
remains that, as noted therein,33 it reviewed the findings of facts of the CIAC and ruled that the findings are
amply supported by the evidence.
The Court of Appeals is presumed to have reviewed the case based on the Petition and its annexes, and
weighed them against the Comment of DSM Construction and the Decision of the Arbitral Tribunal to arrive at
the conclusion that the said Decision is based on substantial evidence. In administrative or quasi-judicial

101

bodies like the CIAC, a fact may be established if supported by substantial evidence or that amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion. 34

subsequent works up to September 22, 2000, when DSM Construction supposedly stopped working on the
project, had not been established. 49

The tenability of the assailed Decision is clear from the following discussion of the arguments raised by
Megaworld before the Court of Appeals which significantly are the same arguments it has raised before this
Court.

This Court observes that between the two contrasting claims of Megaworld and DSM Construction on the
percentage of work accomplishment, the Arbitral Tribunal instead accorded weight to the assessment of DLS
which is the project surveyor. Apart from being reasonable, DLSs evaluation is impartial. Thus, as correctly
pointed out by the Arbitral Tribunal, DLS rejected DSM Constructions 99% accomplishment claim when it
limited its evaluation to only 95.56%.

Issue of Accomplishment Level

Megaworld contested the finding of 95.56% level of accomplishment by the Arbitral Tribunal, alleging that the
receipts DSM Construction issued for payments under the Interim Agreement show that the latter only
achieved 90% accomplishment up to the 31st floor while the 32nd to the 34th floors were only 60%
completed.35 Megaworld insisted, therefore, that the level of accomplishment was nowhere near 90%.
DSM Construction countered that Megaworld, in claiming a level of accomplishment of only 90%, contradicted
its own Project Manager, TCGI,36 which came up with a different percentage of accomplishment that are
notably higher than Megaworlds computation. 37
In resolving this issue, the Arbitral Tribunal relied on the computation of Davis Langdon & Seah (DLS), the
projects independent surveyor,38 which found the level of accomplishment as of February 14, 2000, to be
95.56%. DLSs computation is recited in Exhibit "NN",39 thus:

Issues of Delay and Liquidated Damages

Next, Megaworld attributed the delay in the completion of the construction project solely to DSM Construction.
The latter countered that among the causes of delay was the lack of coordination among trade contractors and
the absence of a general contractor.50 Although the contract purportedly contains a provision for the
coordination of trade contractors, the lack of privity among them prevented coordination such that DSM
Construction could not require compliance on the part of the other trade contractors.
The Arbitral Tribunal decided this question by turning to Section 2.01 of the General Conditions of the
Contract, which states:
2.01 SITE, ACCESS & WORKS
The Contractor shall accept the Site as found on the date for possession and at their own expense clear the
site of any debris which may have been left by the preceding occupants/contractors.

Architectural Finishing :40

The 24th Progress Billing evaluated
by DLS covering the period
November 15, 1999 to December 15,
1999 over the Contract Price for
Architectural Finishing Works.

=
95.62%

The Arbitral Tribunal held that Section 2.01 presupposes that on the date of possession by DSM Construction
of the work premises, the preceding contractor had already left the same. 51 The tribunal explained that the
delay incurred by other trade contractors also resulted in the delay of the work of DSM Construction.

Php26,228,091.7344Php28,556,915.1745

=
91.84%

It also pointed out that under Section 5.3 (1) 52 of the Interim Agreement,53 Megaworld is required to complete
and turn over to DSM Construction preceding works for the latter to complete their works in accordance with
the Revised Work Schedule. Section 5.3 (1), the Arbitral Tribunal noted, even allows DSM Construction to
recover losses incurred on account of the standby time of DSMs personnel/manpower or workers mobilized
while Megaworld is not ready to turn over the preceding works. The Arbitral Tribunal further held that, in
accordance with Section 5.3 (2)54 of the Interim Agreement, DSM Construction was entitled to an extension of
time corresponding to the number of days of delay reckoned from the time the preceding work item or area
should have been turned over to DSM Construction. Consequently, such delay, which is not exclusively
imputable to DSM Construction, negates the claim for liquidated damages by Megaworld. 55

Php49,383,114.6747Php50,685,416.5548

=
95.55%

In affirming the Arbitral Tribunals disposition of the issues of delay and payment of liquidated damages, the
appellate court noted that the Arbitral Tribunal narrated the claims and defenses of both DSM Construction
and Megaworld before making an evaluation thereof and arriving at its conclusion. 56 Clearly, the evidence and
arguments were carefully weighed to justify the said disposition.

Php213,658,888.77 41Php223,456,756.68 42

Kitchen Cabinets & Bedroom Closets:43

The 9th Progress Billing evaluated by
DLS covering the period December 1,
1999 to December 9, 1999 over the
contract price for Kitchen Cabinet and
Bedroom Closet.
Interior Finishing Works:46
The 13th Progress Billing evaluated
by DLS covering the period January
8, 2000 to February 7, 2000 for the
Interior Finishing Works over the
contract price for Interior Finishing
Work.
Php213,658,888.77 +

Php26,228,091.72 +

Php49,383,114.67 =

289,270,295.17=95.56%

Php223,456,756.68

Php 28,556,915.17

Php50,685,416.55

302,699,097.40

Clearly, thus, CIACs finding that the level of accomplishment of DSM Construction as of February 12, 2002,
stood at 95.56% was affirmed by the Court of Appeals because it is supported by substantial evidence.

The Tribunals finding that the project had already been delayed even before DSM Construction commenced
its work is borne out by the evidence. In his letter, Exhibit X-2, 57 Project Management Consultant Eduardo C.
Arrojado, conceded that the previous contractors had delayed the project, at the same time faulting DSM
Construction for incurring its own delay. Furthermore, the work of DSM Construction pertaining as it did to the
architectural and interior finishing stages as well as the supply and installation of kitchen cabinets and closets,
obviously related to the final details and completion stage of the project. Thus, commencement of its task had
to depend on the turn over of the complete work of the prior contractors. Hence, the delay of the previous
contractors resulted in the delay of DSM Constructions work.
Issues of the Contract Price Balance and Retention Money

The Court of Appeals also noted that the Arbitral Tribunal did not give due course to all of DSM Constructions
claims. Indeed, the Arbitral Tribunal rejected the construction companys demand for payment for subsequent
works done after February 12, 2000, because Exhibit "OO," on which DSM Constructions demand was based,
does not bear any mark that it had been received by Megaworld. Thus, the Arbitral Tribunal concluded that

Megaworld also questioned the Arbitral Tribunals awards of P7,129,825.19 corresponding to the balance of
the contract price, and P11,820,000.00 pursuant to the Interim Agreement.58 Megaworld alleged that DSM
Construction was no longer entitled to the balance of the contract price and the retention money after the latter

102

received payments pursuant to the Interim Agreement in the amounts of P5,444,553.18 for the 26th to the
28thfloors, another P5,444,553.18 for the 29th to the 31st floors at a 90% completion rate, and P4,161,818.18 for
the 32nd to the 34th floors which were 60% completed. Megaworld also contended that since it spent more
money to complete the scope of work of DSM Construction, the latter was no longer entitled to any of the
balance.
On the other hand, DSM Construction argued that the award was justified in view of the failure of Megaworld
to controvert the amount of P7,129,825.19 included in the Account Overview of DLS. DSM Construction also
emphasized that it was not claiming the entire P53 Million under the Interim Agreement but only the amount
corresponding to the actual work done. Even based on DLSs computation, a total of P11,820,000.00 of
retention money is still unpaid out of the 50% agreed to be released under the Interim
Agreement (P15,000,000.00 lessP3,180,000.00 retention money or P11,820,000.00 for the paid billings). 59
The Arbitral Tribunal ruled that the balance claimed under the three contracts was based on what DSM
Construction had actually accomplished less the payments it had previously received. Considering that the
remaining works which were performed by another trade contractor, Deticio and Isabedra Builders, were paid
directly by Megaworld, no other cost for work accomplished in the Interim Agreement is due DSM Construction
except the retention money of P11,820,000.00.60
The Court of Appeals affirmed the award of the Arbitral Tribunal regarding the balance of the contract price
ofP7,129,825.19 and the retention money of P11,820,000.00 to DSM Construction. The Court of Appeals
noted that the Arbitral Tribunal again narrated the claims and defenses of both DSM Construction and
Megaworld before arriving at its conclusion. The appellate court further stated that the mere fact that the
tribunal did not award the whole amount claimed by DSM Construction (P12,820,000.00) and instead awarded
only P11,820,000.00 belies Megaworlds allegation that the tribunal adopted "hook, line and sinker" DSM
Constructions claims.61
This Court finds the award of the balance of the contract price of P7,129,825.20 justified in view of DLS
explanation in Exhibit MM-362 that the amount of P7,129,825.20 represented the unpaid billing for architectural,
interior and kitchen billings before Megaworld and DSM Construction drafted the Interim Agreement.
Issue of Variation Works
Megaworld also disputed before the Court of Appeals the P6,686,675.5563 award by the Arbitral Tribunal for
variation works. Variation works consist of the addition, omission or alteration to the kind, quality or quantity of
the works.64 DSM Construction originally claimed a total of P26,208,639.00 for variation works done but, of this
claim, the Arbitral Tribunal only awarded P6,686,675.55 in line with the evaluation of DLS.
Megaworld conceded that DSM Construction performed additional works to the extent of P5,036,252.81.
However, Megaworld claimed that since it incurred expenses when it hired another trade contractor to take
over the works left uncompleted by DSM Construction, the latter lost its right to claim such amount especially
since DSM Construction did not comply with the documentation when claiming variation works. 65

This Court is convinced that payments for variation works is due. Undoubtedly, variation works were performed
by DSM Construction. This was confirmed by Engineer Eduardo C. Arrojado who testified that he
recommended the payment for substantial additional works to DSM Construction. He further stated that since
time was of the essence in the completion of the project, there were variation orders which were performed
without the prior approval of the owner. However, he explained that this was a common construction practice.
Finally, he stated that he agreed with the evaluation of DLS. 70
The testimony justified the Arbitral Tribunals reliance on the evaluation made by DLS which limited the claim
for variation works to P6,596,675.55.
Issue of Preliminaries/Loss and Expense
Megaworld also disputed the award of P29,380,902.35 for preliminaries/losses and expense.
The provision for preliminaries/loss and expense in the contract assumes a direct loss and/or expense
incurred in the regular progress of work for which the contractor would not be reimbursed under any other
provision of the contract.71 DSM Constructions claim for preliminaries/loss and expense in the amount
of P36,603,192.82 covered the loss and expense incurred on payroll, equipment rental, materials and site
clearing on account of such factors as delay in the execution of the works for causes not attributable to DSM
Construction.72
Megaworld refused to recognize DSM Constructions claim because the latter allegedly failed to comply with
Clause 6.16 of the Conditions of Contract, which imposes a two-month deadline for submission of claims for
preliminaries reckoned from "the happening of the event giving rise to the loss and expense." 73 DSM
Construction, however, argued that the documentary evidence shows that out of the four claims for
preliminaries, only one (Exhibit MM-5 with an evaluation of P17,552,722.47), covering the period August 1,
1998 to April 1999, was submitted beyond the two-months requirement. 74 DSM Construction also pointed out
that the two-month requirement for this claim was waived by Megaworld through DLS when the latter
recognized the validity of claims by coming up with an evaluation of P17,552,722.47 for the period covered
in Exhibit MM-5.75
The Arbitral Tribunal ruled that DSM Construction was entitled to extended preliminaries considering that delay
was not attributable to DSM Construction. The Arbitral Tribunal observed that Megaworld did not present
evidence to refute the claim for extended preliminaries which were previously evaluated by DLS. However,
after assessing the two previous evaluations by DLS, the tribunal ruled that the claims for hauling and disposal
and cleaning and clearing of debris should not be included in the extended preliminaries. Hence, the Arbitral
Tribunal reduced the amount of P44,051.62 from the claim of P2,655,879.89 per Exhibit "MM7," and P3,883,309.54 from the claim of P5,651,235.24 per Exhibit "MM-8," such amounts being
unnecessary.76
The appellate court affirmed the award, stressing the fact that the Arbitral Tribunal denied some of the claims
which it did not find valid.77

DSM Construction asserted that the Arbitral Tribunal, in fact, should have awarded P26,208,639.00 instead of
limiting the award to only P6,686,675.55 because it was not even disputed that variation works were
performed. It also contended that it cannot be faulted for the lack of documentation because the fault lay on
Megaworlds project manager who failed to forward the variation orders to DLS. 66

DSM Constructions entitlement to the payment for preliminaries was explained by Engineer Eduardo C.
Arrojado to be the necessary result of the extension of the contract between DSM Construction and
Megaworld.78 Notably, majority of the claims of DSM Construction was reduced by the Arbitral Tribunal on the
basis of Exhibit MM-479 or the Summary of Variation Order Status Report prepared by DLS.

The Arbitral Tribunal ruled in favor of DSM Construction, holding that there was enough evidence to prove that
the contractor made a request for change or variation orders. The Arbitral Tribunal also found the testimony of
Engineer Eduardo C. Arrojado convincing, factual and balanced despite Megaworlds attempt to discredit him.
However, while the amount claimed for variation works was P26,208,639.00, the Arbitral Tribunal limited the
awarded to only P6,686,675.5567 since a closer scrutiny of the other items indicated that some works were not
performed.68

Although the Arbitral Tribunal ruled that DSM Construction was entitled to claim for preliminaries, the award
was not based on the claim of DSM Construction but on the evaluation made by DLS.

The appellate court upheld the award of the Arbitral Tribunal because the award was based not only on the
documentary exhibits prepared by DLS but on the testimony of Engineer Eduardo C. Arrojado, as well. 69

The foregoing disquisition adequately shows that the evidence on record supports the findings of facts of the
Arbitral Tribunal on which the Court of Appeals based its decision. In fact, although not all the exhibits in the
Arbitral Tribunal were presented before the Court of Appeals, the record of the appellate court contains the
operative facts and the substance of said exhibits, thus enabling the intelligent disposition of the issues
presented before it. This Court went over all the records, including the exhibits, to ascertain whether the
appellate court missed any crucial point. It did not.

103

The alleged undue favor accorded by the Arbitral Tribunal to DSM Construction is belied by the fact that the
Arbitral Tribunal did not grant all of DSM Constructions claims. In majority of DSM Constructions claims, the
Arbitral Tribunal awarded amounts lower than what DSM Construction demanded. The Arbitral Tribunal also
granted some of Megaworlds claims.80
Neither did the Court of Appeals merely "swallow hook, line and sinker" the award of the Arbitral Tribunal.
While the appellate court affirmed the decision of the Arbitral Tribunal, it also ruled in favor of Megaworld when
it limited DSM Constructions lien to only six units instead of all the condominium units to which DSM was
entitled under the Contract, rationalizing that the P62 Million award can be covered by the value of the six
units of the condominium project.81
Considering that the computations, as well as the propriety of the awards of the Arbitral Tribunal, are
unquestionably factual issues that have been discussed and ruled upon by Arbitral Tribunal and affirmed by
the Court of Appeals, we cannot depart from such findings. Findings of fact of administrative agencies and
quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters,
are generally accorded not only respect, but finality when affirmed by the Court of Appeals. 82
Megaworld, however, adamantly contends that the present case constitutes an exception to the above rule
because: (1) there is grave abuse of discretion in the appreciation of facts; (2) the judgment is premised on
misapprehension of facts; and, (3) the findings of fact of the Court of Appeals is premised on the supposed
absence of evidence and is contradicted by the evidence on record. 83
We disagree. None of these flaws appear in this case. Grave abuse of discretion means the capricious or
whimsical exercise of judgment that is so patent and gross as to amount to an evasion of positive duty or a
virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is
exercised in an arbitrary and despotic manner by reason of passion or hostility.84 No abuse of discretion was
established by Megaworld. On the contrary, what is apparent is Megaworlds effort to attribute grave abuse of
discretion to the Arbitral Tribunal simply because of the unfavorable judgment against it. Megaworlds assertion
that there was misapprehension of facts and that the evidence is insufficient to support the decision is also
untenable. TheDecisions of the Arbitral Tribunal and the Court of Appeals adequately explain the reasons
therefor and are supported by substantial evidence.
Likewise unmeritorious is Megaworlds assertion that it was deprived of administrative due process. The
Arbitral Tribunal considered the arguments and the evidence submitted by both parties. That it accorded
greater weight to DSM Constructions evidence, by itself, does not constitute a denial of due process.
WHEREFORE, the Petition is DENIED. The Decision dated February 14, 2001, of the Court of Appeals is
AFFIRMED. The Temporary Restraining Order issued by this Court on July 12, 2002, is hereby LIFTED. Costs
against Petitioner.

Trial Court. In its assailedDecision, the appellate court declared respondent First United Constructors
Corporation (FUCC) entitled to just compensation for blasting works it undertook in relation to a contract for
the construction of power facilities it entered into with petitioner. The Court of Appeals, however, deleted the
award for attorneys fees having found no basis therefor.
The facts culled from the Decision of the Court of Appeals are undisputed:
On April 14, 1992, NPC and FUCC entered into a contract for the construction of power facilities (civil works)
Schedule 1 1x20 MW Bacon-Manito II Modular Geothermal Power Plant (Cawayan area) and Schedule 1A
1x20 MW Bacon-Manito II Modular Geothermal Power Plant (Botong area) in Bacon, Sorsogon (BACMAN II).
The total contract price for the two schedules is P108,493,966.30, broken down as follows:
SCHEDULE
1 Cawayan area P52,081,421.00
1A Botong area P56,412,545.30
______________
P108,493,966.30
Appended with the Contract is the contract price schedule which was submitted by the respondent FUCC
during the bidding. The price for grading excavation was P76.00 per cubic meter.
Construction activities commenced in August 1992. In the latter part of September 1992 and after excavating
5.0 meters above the plant elevation, FUCC requested NPC that it be allowed to blast to the design grade of
495 meters above sea level as its dozers and rippers could no longer excavate. It further requested that it be
paid P1,346.00 per cubic meter similar to the rate of NPCs project in Palinpinon.
While blasting commenced on October 6, 1992, NPC and FUCC were discussing the propriety of an extra
work order and if such is in order, at what price should FUCC be paid.
Sometime in March 1993, NPC Vice President for Engineering Construction, Hector Campos, created a task
force to review FUCCs blasting works. The technical task force recommended that FUCC be paid P458.07 per
cubic meter as such being the price agreed upon by FUCC.

SO ORDERED.
[G.R. No. 148318. November 22, 2004]
NATIONAL POWER CORPORATION, petitioner, vs. HON. ROSE MARIE ALONZO-LEGASTO, as
Presiding Judge, RTC of Quezon City, Branch 99, JOSE MARTINEZ, Deputy Sheriff, RTC of
Quezon City, CARMELO V. SISON, Chairman, Arbitration Board, and FIRST UNITED
CONSTRUCTORS CORPORATION, respondents.
DECISION
TINGA, J.:
National Power Corporation (NPC) filed the instant Petition for Review[1] dated July 19, 2001, assailing
theDecision[2] of the Court of Appeals dated May 28, 2001 which affirmed with modification
the Order[3] and Writ of Execution[4] respectively dated May 22, 2000 and June 9, 2000 issued by the Regional

The matter was further referred to the Department of Public [W]orks and Highways (DPWH), which in a letter
dated May 19, 1993, recommended the price range of P500.00 to P600.00 per cubic meter as reasonable. It
further opined that the price of P983.75 per cubic meter proposed by Lauro R. Umali, Project Manager of
BACMAN II was high. A copy of the DPWH letter is attached as Annex C, FUCCs Exhibit EEE-Arbitration.
In a letter dated June 28, 1993, FUCC formally informed NPC that it is accepting the proposed price
of P458.07 per cubic meter. A copy of the said letter is attached as Annex D, FUCCs Exhibit L Arbitration.
In the meantime, by March 1993, the works in Botong area were in considerable delay. By May 1993, civil
works in Botong were kept at a minimum until on November 1, 1993, the entire operation in the area
completely ceased and FUCC abandoned the project.

104

Several written and verbal warnings were given by NPC to FUCC. On March 14, 1994, NPCs Board of
Directors passed Resolution No. 94-63 approving the recommendation of President Francisco L. Viray to take
over the contract. President Virays recommendation to take over the project was compelled by the need to
stave-off huge pecuniary and non-monetary losses, namely:

1. Defendant shall process and pay the undisputed unpaid billings of Plaintiff in connection with
the entire project fifteen (15) days after a reconciliation of accounts by both Plaintiff and
Defendant or thirty (30) days from the date of approval of this Compromise Agreement by
the Court whichever comes first. Both parties agree to submit and include those accounts
which could not be reconciled among the issues to be arbitrated as hereunder provided;

(a) Generation loss estimated to be at P26,546,400/month;

(b)

Payment of steam penalties

at P10,206,048.00/month;

to

PNOC-EDC

the

amount

estimated

to

be

(c) Payment of liquidated damages due to the standby of electromechanical contractor;

(d) Loss of guaranteed protection (warranties) of all delivered plant equipment and accessories
as Mitsubishi Corporation, electromechanical contractor, will not be liable after six months of
delivery.
To prevent NPC from taking over the project, on March 28, 1994, FUCC filed an action for Specific
Performance and Damages with Preliminary Injunction and Temporary Restraining Order before Branch 99,
Regional Trial Court, Quezon City.
Under paragraph 19 of its Complaint, FUCC admitted that it agreed to pay the price of P458.07 per cubic
meter.
On April 5, 1994, Judge de Guzman issued a temporary restraining order and on April 21, 1994, the trial court
resolved to grant the application for issuance of a writ of preliminary injunction.
On July 7, 1994, NPC filed a Petition for Certiorari with Prayer for Temporary Restraining Order and
Preliminary Injunction before the First Division of the Court of Appeals asserting that no injunction may issue
against any government projects pursuant to Presidential Decree 1818.
On July 8, 1994, the Court of Appeals through then Associate Justice Bernardo Pardo issued a temporary
restraining order and on October 20, 1994, the said court rendered a Decision granting NPCs Petition
for Certiorari and setting aside the lower courts Order dated April 21, 1994 and the Writ of Preliminary
Injunction dated May 5, 1994.
However, notwithstanding the dissolution by the Court of Appeals of the said injunction, on July 15, 1995,
FUCC filed a Complaint before the Office of the Ombudsman against several NPC employees for alleged
violation of Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act. Together with
the complaint was an Urgent Ex-Parte Motion for the issuance of a cease and [d]esist [o]rder to restrain NPC
and other NPC officials involved in the BACMAN II project from canceling and/or from taking over FUCCs
contract for civil works of said project.
Then on November 16, 1994, FUCC filed before the Supreme Court a Petition for Review assailing the
Decision of the Court of [A]ppeals dated October 20, 1994. In its Comment, NPC raised the issue that FUCC
resorted to forum shopping as it applied for a cease and desist order before the National Ombudsman despite
the dissolution of the injunction by the Court of Appeals.
Pending the petition filed by FUCC before the Supreme Court, on April 20, 1995 the NPC and FUCC entered
into a Compromise Agreement.

2. Plaintiff accepts and acknowledges that Defendant shall have the right to proceed with the
works by re-bidding or negotiating the project immediately upon the signing of herein
Compromise Agreement;
3. This Compromise Agreement shall serve as the Supplemental Agreement for payment of
plaintiffs blasting works at the Botong site;
4. Upon approval of this Compromise Agreement by the Court or Plaintiffs receipt of payment of
this undisputed unpaid billings from Defendant whichever comes first, the parties shall
immediately file a Joint Manifestation and Motion for the withdrawal of the following Plaintiffs
petition from the Supreme Court, Plaintiffs Complaint from the National Ombudsman, the
Complaint and Amended Complaint from the RTC, Br. 99 of Quezon City;
5. Upon final resolution of the Arbitration, as hereunder prescribed, the parties shall immediately
execute the proper documents mutually terminating Plaintiffs contract for the civil works of
the BACMAN II Project (Contract No. Sp90DLM-918 (I & A);
6. Such mutual termination of Plaintiffs contract shall have the following effects and/or
consequences: (a) the construction works of Plaintiff at the Kawayan and Bolong sites, at its
present stage of completion, shall be accepted and/or deemed to have been accepted by
defendant; (b) Plaintiff shall have no more obligation to Defendant in respect of the
BACMAN II Project except as provided in clause (e) below; (c) Defendant shall release all
retention moneys of plaintiff within a maximum period of thirty (30) days from the date of
final Resolution of the Arbitration; (d) no retention money shall thenceforth be withheld by
Defendant in its payment to Plaintiff under this Compromise Agreement, and (e) Plaintiff
shall put up a one-year guaranty bond for its completed civil works at the Kawayan site,
retroactive to the date of actual use of the plant by defendant;
7. Plaintiffs blasting works claims and other unresolved claims, as well as the claims of damages
of both parties shall be settled through a two stage process to wit:
STAGE 1
7.1 Plaintiff and Defendant shall execute and sign this Compromise Agreement
which they will submit for approval by this Court. Under this Compromise
Agreement both parties agree that:
xxx xxx
STAGE 2
7.1 The parties shall submit for arbitration to settle: (a) the price of blasting, (b) both
parties claims for damages, delays, interests, and (c) all other unresolved
claims of both parties, including the exact volume of blasted rocks;

Under the Compromise Agreement, the parties agreed on the following:

105

7.2 The arbitration shall be through a three-member commission to be appointed by

the Honorable Court. Each party shall nominate one member. The Chairman
of the Arbitration Board shall be [a] person mutually acceptable to both parties,
preferably from the academe;

WHEREFORE, the Arbitration Award issued by the Arbitration Board is hereby APPROVED and the Motion for
Execution filed by plaintiff hereby GRANTED. The Motion to Vacate Award filed by defendant is hereby
DENIED for lack of merit.
Accordingly, let a writ of execution be issued to enforce the Arbitration Award.

7.3 The parties shall likewise agree upon the terms under which the arbitrable
issues shall be referred to the Arbitration Board. The terms of reference shall
form part of the Compromise Agreement and shall be submitted by the parties
to the Honorable Court within a period of seven (7) days from the signing of
the Compromise Agreement;
7.4 The Arbitration Board shall have a non-extendible period of three (3) months
within which to complete the arbitration process and submit its Decision to the
Honorable Court;
7.5 The parties agree that the Decision of the Arbitration Board shall be final and
executory;
7.6 By virtue of this Compromise Agreement, except as herein provided, the parties
shall mutually waive, forgo and dismiss all of their other claims and/or
counterclaim in this case. Plaintiff and defendant warrant that after approval by
the Court of this Compromise Agreement neither party shall file Criminal or
Administrative cases or suits against each other or its Board or member of its
officials on grounds arising from the case.
The Compromise Agreement was subsequently approved by the Court on May 24, 1995.
The case was subsequently referred by the parties to the arbitration board pursuant to their Compromise
Agreement. On December 9, 1999 the Arbitration Board rendered its ruling the dispositive portion of which
states:
WHEREFORE, claimant is hereby declared entitled to an award of P118,681,328.28 as just compensation for
blasting works, plus ten percent (10%) thereof for attorneys fees and expenses of litigation.
Considering that payment in the total amount of P36,550,000.00 had previously been made, respondent is
hereby ordered to pay claimant the remaining sum of P82,131,328.28 for attorneys fees and expenses of
litigation.
Pursuant to the Compromise Agreement approved by this Honorable Court, the parties have agreed that the
decision of the Arbitration Board shall be final and executory.
SO ORDERED.
On December 10, 1999 plaintiff FUCC filed a Motion for Execution while defendant NPC filed a Motion to
Vacate Award by the Arbitration Board on December 20, 1999.
On May 22, 2000 Presiding Judge Rose Marie Alonzo Legasto issued an order the dispositive portion of which
states:

SO ORDERED.[5] (Bracketed words supplied)

NPC went to the Court of Appeals on the lone issue of whether respondent judge acted with grave
abuse of discretion in issuing the Order dated May 22, 2000 and directing the issuance of a Writ of Execution.
In its assailed Decision, the appellate court declared that the court a quo did not commit grave abuse of
discretion considering that the Arbitration Board acted pursuant to its powers under the Compromise
Agreement and that its award has factual and legal bases.
The Court of Appeals gave primacy to the court-approved Compromise Agreement entered into by the
parties and concluded that they intended the decision of the arbitration panel to be final and executory. Said
the court:
For one, what the price agreed to be submitted for arbitration are pure issues of fact (i.e., the price of blasting;
both parties claims for damages, delay, interests and all other unresolved claims of both parties, including the
exact volume of blasted rocks). Also, the manner by which the Arbitration Board was formed and the terms
under which the arbitrable issues were referred to said Board are specified in the agreement. Clearly, the
parties had left to the Arbitration Board the final adjudication of their remaining claims and waived their right to
question said Decision of the Board. Hence, they agreed in clear and unequivocal terms in the Compromise
Agreement that said Decision would be immediately final and executory. Plaintiff relied upon this stipulation in
complying with its various obligations under the agreement. To allow defendant to now go back on its word and
start questioning the Decision would be grossly unfair considering that the latter was also a party to the
Compromise Agreement entered into part of which dealt with the creation of the Arbitration Board. [6]
The appellate court likewise held that petitioner failed to present evidence to prove its claim of bias and
partiality on the part of the Chairman of the Arbitration Board, Mr. Carmelo V. Sison (Mr. Sison).
Further, the Court of Appeals found that blasting is not part of the unit price for grading and structural
excavation provided for in the contract for the BACMAN II Project, and that there was no perfected contract
between the parties for an extra work order for blasting. Nonetheless, since FUCC relied on the representation
of petitioners officials that the extra work order would be submitted to its Board of Directors for approval and
that the blasting works would be paid, the Court of Appeals ruled that FUCC is entitled to just compensation on
grounds of equity and promissory estoppel.
Anent the issue of just compensation, the appellate court took into account the estimate prepared by a
certain Mr. Lauro R. Umali (Mr. Umali), Project Manager of the BACMAN II Project, which itemized the various
costs involved in blasting works and came up with P1,310.82 per cubic meter, consisting of the direct cost for
drilling, blasting excavation, stockpiling and hauling, and a 30% mark up for overhead, contractors tax and
contingencies. This estimate was later changed to P983.75 per cubic meter to which FUCC agreed. The Court
of Appeals, however, held that just compensation should cover only the direct costs plus 10% for overhead
expenses. Thus, it declared that the amount of P763.00[7] per cubic meter is sufficient. Since the total volume
of blasted rocks as computed by Dr. Benjamin Buensuceso, Jr. [8] of the U.P. College of Engineering is
97,032.16 cubic meters, FUCC is entitled to the amount of P74,035,503.50 as just compensation.
Although the Court of Appeals adjudged FUCC entitled to interest, [9] the dispositive portion of the
assailedDecision[10] did not provide for the payment of interest. Moreover, the award of attorneys fees was
deleted as there was no legal and factual ground for its imposition.

106

Petitioner, represented by the Office of the Solicitor General in the instant Petition, rehashes its
submissions before the Court of Appeals. It claims that the appellate court failed to pass upon the following
issues:
1. The Chairman of the Arbitration Board showed extreme bias in prejudging the case.
2. The Chairman of the Arbitration Board greatly exceeded his powers when he mediated for
settlement in the court of arbitration proceedings.
3. The Chairman of the Arbitration Board committed serious irregularity in hastily convening the
Board in two days, which thereafter released its report.
4. The Arbitration Board Committed manifest injustice prejudicial to petitioner based on the
following:
a. It rendered an award based on equity despite the mandatory provision of the law.
b. The Boards decision to justify that equity applies herein despite the fact that FUCC
never submitted its own actual costs for blasting and PHESCO, INC., the
succeeding contractor, did not employ blasting but used ordinary excavation
method at P75.59 per cubic meter which is approximately the same unit price of
plaintiff (FUCC).
c. It gravely erred when the Board claimed that an award of just compensation must be
given to respondent FUCC for what it has actually spent and yet instead of using
as basis P458.07 which is the price agreed upon by FUCC, it chose
an estimate made by an NPC employee.
d. It gravely erred when it relied heavily on the purported letter of NPC Project Manager
Lauro R. Umali, when the same has not been identified nor were the handwritten
entries in Annex ii established to be made by him.
5. The Arbitration Board gravely erred in computing interest at 12% and from the time of plaintiffs
extrajudicial claim despite the fact that herein case is an action for specific performance and
not for payment of loan or forbearance of money, and despite the fact that it has resolved
that there was no perfected contract and there was no bad faith on the part of defendant.
6. On June 25, 2000, NPC discovered the Sub-Contract Agreement of FUCC with a unit
price of onlyP430/per cubic meter.[11] [Emphasis in the original]
Specifically, petitioner asserts that Mr. Sison exhibited bias and prejudgment when he exhorted it to pay
FUCC for the blasting works after concluding that the latter was allowed to blast. Moreover, Mr. Sison allegedly
attempted to mediate the conflict between the parties in violation of Section 20, [12] paragraph 2 of Republic Act
No. 876 (R.A. 876) otherwise known as the Arbitration Law. Petitioner also questions the abrupt manner by
which the decision of the Arbitration Board was released.
Petitioner avers that FUCCs claim for blasting works was not approved by authorized officials in
accordance with Presidential Decree No. 1594 (P.D. 1594) and its implementing rules which specifically
require the approval of the extra work by authorized officials before an extra work order may be issued in favor
of the contractor. Thus, it should not be held liable for the claim. If at all, only the erring officials should be held
liable. Further, FUCC did not present evidence to prove the actual expenses it incurred for the blasting works.
What the Arbitration Board relied upon was the memorandum of Mr. Umali which was neither identified or

authenticated during the arbitration proceedings nor marked as evidence for FUCC. Moreover, the figures
indicated in Mr. Umalis memorandum were allegedly mere estimates and were recommendatory at most.
Petitioner likewise claims that its succeeding contractor, Phesco, Inc. (Phesco), was able to excavate
the same rock formation without blasting.
Finally, it asserts that the award of P763.00 per cubic meter has no factual and legal basis as the subcontract between FUCC and its blasting sub-contractor, Dynamic Blasting Specialists of the Philippines
(Dynamic), was only P430.00 per cubic meter.
In its Comment[13] dated October 15, 2001, FUCC points out that petitioners arguments are exactly the
same as the ones it raised before the Arbitration Board, the trial court and the Court of Appeals. Moreover, in
the Compromise Agreement between the parties, petitioner committed to abide by the decision of the
Arbitration Board. It should not now be allowed to question the decision.
FUCC likewise notes that Atty. Jose G. Samonte (Atty. Samonte), one of the members of the Arbitration
Board, was nominated by petitioner itself. If there was any irregularity in its proceedings such as the bias and
prejudgment petitioner imputes upon Mr. Sison, Atty. Samonte would have complained. As it is, Atty. Samonte
concurred in the decision of the Arbitration Board and dissented only as to the award of attorneys fees.
As regards the issue of interest, FUCC claims that the case involves forbearance of money and not a
claim for damages for breach of an obligation in which case interest on the amount of damages awarded may
be imposed at the rate of six percent (6%) per annum.
Finally, FUCC asserts that its sub-contract agreement with Dynamic is not newly-discovered evidence.
Petitioners lawyers allegedly had a copy of the sub-contract in their possession. In any event, the unit price
ofP430.00 per cubic meter appearing in the sub-contract represents only a fraction of the costs incurred by
FUCC for the blasting works.
Petitioner filed a Reply[14] dated March 18, 2002 reiterating its earlier submissions.
The parties in the present case mutually agreed to submit to arbitration the settlement of the price of
blasting, the parties claims for damages, delay and interests and all other unresolved claims including the
exact volume of blasted rocks.[15] They further mutually agreed that the decision of the Arbitration Board shall
be final and immediately executory.[16]
A stipulation submitting an ongoing dispute to arbitration is valid. As a rule, the arbitrators award cannot
be set aside for mere errors of judgment either as to the law or as to the facts. Courts are generally without
power to amend or overrule merely because of disagreement with matters of law or facts determined by the
arbitrators. They will not review the findings of law and fact contained in an award, and will not undertake to
substitute their judgment for that of the arbitrators. A contrary rule would make an arbitration award the
commencement, not the end, of litigation. Errors of law and fact, or an erroneous decision on matters
submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly and honestly made.
Judicial review of an arbitration award is, thus, more limited than judicial review of a trial. [17]
However, an arbitration award is not absolute and without exceptions. Where the conditions described
in Articles 2038, 2039 and 2040 of the Civil Code [18] applicable to both compromises and arbitrations are
obtaining, the arbitrators award may be annulled or rescinded. [19] Additionally, judicial review of an arbitration
award is warranted when the complaining party has presented proof of the existence of any of the grounds for
vacating, modifying or correcting an award outlined under Sections 24 and 25 of R.A. 876, viz:

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Section 24. Grounds for vacating an award. In any of the following cases, the court must make an order
vacating the award upon the petition of any party to the controversy when such party proves affirmatively that
in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of them; or

had prejudged the case do not suffice to establish evident partiality. Neither does the fact that a party was
disadvantaged by the decision of the arbitration committee prove evident partiality.[21]
According to the appellate court, [p]etitioner was never deprived of the right to present evidence nor
was there any showing that the Board showed signs of any bias in favor of FUCC. As correctly found by the
trial court, this Court cannot find its way to support petitioners contention that there was evident partiality in the
assailed Award of the Arbitrator in favor of the respondent because the conclusion of the Board, which the
Court found to be well-founded, is fully supported by substantial evidence. [22]

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified to act as such under
section nine hereof, and willfully refrained from disclosing such disqualifications or of any
other misbehavior by which the rights of any party have been materially prejudiced; or

However, we take exception to the arbitrators determination that based on promissory estoppel per
se or alone, FUCC is entitled to just compensation for blasting works for the reasons discussed hereunder.

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual,
final and definite award upon the subject matter submitted to them was not made.

Section 9 of P.D. No. 1594, entitled Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts, provides:

When an award is vacated, the court, in its discretion, may direct a new hearing either before the same
arbitrators or before a new arbitrator or arbitrators to be chosen in the manner provided in the submission or
contract for the selection of the original arbitrator or arbitrators, and any provision limiting the time in which the
arbitrators may make a decision shall be deemed applicable to the new arbitration to commence from the date
of the courts order.
Where the court vacates an award, costs not exceeding fifty pesos and disbursements may be awarded to the
prevailing party and the payment thereof may be enforced in like manner as the payment of costs upon the
motion in an action.
Section 25. Grounds for modifying or correcting an award. In any one of the following cases, the court must
make an order modifying or correcting the award, upon the application of any party to the controversy which
was arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident mistake in the
description of any person, thing or property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the
merits of the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits of the controversy,
and if it had been a commissioners report, the defect could have been amended or
disregarded by the court.
The order may modify and correct the award so as to effect the intent thereof and promote justice between the
parties.
In this case, petitioner does not specify which of the foregoing grounds it relies upon for judicial review.
Petitioner avers that if and when the factual circumstances referred to in the provisions aforementioned are
present, judicial review of the award is warranted. [20] From its presentation of issues, however, it appears that
the alleged evident partiality of Mr. Sison is singled out as a ground to vacate the boards decision.
We note, however, that the Court of Appeals found that petitioner did not present any proof to back up
its claim of evident partiality on the part of Mr. Sison. Its averments to the effect that Mr. Sison was biased and

There is no reason to depart from this conclusion.

SECTION 9. Change Order and Extra Work Order.A change order or extra work order may be issued only for
works necessary for the completion of the project and, therefore, shall be within the general scope of the
contract as bid[ded] and awarded. All change orders and extra work orders shall be subject to the approval of
the Minister of Public Works, Transportation and Communications, the Minister of Public Highways, or the
Minister of Energy, as the case may be.
The pertinent portions of the Implementing Rules and Regulations of P.D. 1594 provide:
CI - Contract Implementation:
These Provisions Refer to Activities During Project Construction, i.e., After Contract Award
Until Completion, Except as May Otherwise be Specifically Referred to Provisions Under
Section II. IB - Instructions to Bidders.
CI 1 - Variation Orders - Change Order/Extra Work Order/Supplemental Agreement
4. An Extra Work Order may be issued by the implementing official to cover the
introduction of new work items after the same has been found to strictly comply with
Section CI-1-1 and approved by the appropriate official if the amount of the Extra Work
Order is within the limits of the former's authority to approve original contracts and under
the following conditions:
a. Where there are additional works needed and necessary for the completion, improvement or
protection of the project which were not included as items of work in the original contract.
b. Where there are subsurface or latent physical conditions at the site differing materially from
those indicated in the contract.
c. Where there are duly unknown physical conditions at the site of an unusual nature differing
materially from those ordinarily encountered and generally recognized as inherent in the work or
character provided for in the contract.
d. Where there are duly approved construction drawings or any instruction issued by the
implementing office/agency during the term of contract which involve extra cost.

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6. A separate Supplemental Agreement may be entered into for all Change Orders and
Extra Work Orders if the aggregate amount exceeds 25% of the escalated original contract
price. All change orders/extra work orders beyond 100% of the escalated original contract
cost shall be subject to public bidding except where the works involved are inseparable
from the original scope of the project in which case negotiation with the incumbent
contractor may be allowed, subject to approval by the appropriate authorities.
7. Any Variation Order (Change Order, Extra Work Order or Supplemental Agreement) shall be
subject to the escalation formula used to adjust the original contract price less the cost of
mobilization. In claiming for any Variation Order, the contractor shall, within seven (7) calendar
days after such work has been commenced or after the circumstances leading to such
condition(s) leading to the extra cost, and within 28 calendar days deliver a written
communication giving full and detailed particulars of any extra cost in order that it may be
investigated at that time. Failure to provide either of such notices in the time stipulated shall
constitute a waiver by the contractor for any claim. The preparation and submission of Change
Orders, Extra Work Orders or Supplemental Agreements are as follows:
a. If the Project Engineer believes that a Change Order, Extra Work Order or Supplemental
Agreement should be issued, he shall prepare the proposed Order or Supplemental Agreement
accompanied with the notices submitted by the contractor, the plans therefore, his computations
as to the quantities of the additional works involved per item indicating the specific stations where
such works are needed, the date of his inspections and investigations thereon, and the log book
thereof, and a detailed estimate of the unit cost of such items of work, together with his
justifications for the need of such Change Order, Extra Work Order or Supplemental Agreement,
and shall submit the same to the Regional Director of office/agency/corporation concerned.
b. The Regional Director concerned, upon receipt of the proposed Change Order, Extra Work
Order or Supplemental Agreement shall immediately instruct the technical staff of the Region to
conduct an on-the-spot investigation to verify the need for the work to be prosecuted. A report of
such verification shall be submitted directly to the Regional Director concerned.
c. The Regional Director concerned after being satisfied that such Change Order, Extra Work
Order or Supplemental Agreement is justified and necessary, shall review the estimated quantities
and prices and forward the proposal with the supporting documentation to the head of
office/agency/corporation for consideration.
d. If, after review of the plans, quantities and estimated unit cost of the items of work involved, the
proper office/agency/corporation committee empowered to review and evaluate Change Orders,
Extra Work Orders or Supplemental Agreements recommends approval thereof, the head of
office/agency/corporation, believing the Change Order, Extra Work Order or Supplemental
Agreement to be in order, shall approve the same. The limits of approving authority for any
individual, and the aggregate of, Change Orders, Extra Work Orders or Supplemental
Agreements for any project of the head of office/agency/corporation shall not be greater than
those granted for an original project.
CI 3 - Conditions under which Contractor is to Start Work under Variation Orders and Receive
Payments
1. Under no circumstances shall a contractor proceed to commence work under any
Change Order, Extra Work Order or Supplemental Agreement unless it has been approved
by the Secretary or his duly authorized representative. Exceptions to the preceding rule are
the following:

a. The Regional Director, or its equivalent position in agencies/offices/corporations without

plantilla position for the same, may, subject to the availability of funds, authorize the immediate
start of work under any Change or Extra Work Order under any or all of the following conditions:
(1) In the event of an emergency where the prosecution of the work is urgent to avoid detriment to
public service, or damage to life and/or property; and/or
(2) When time is of the essence; provided, however, that such approval is valid on work done up
to the point where the cumulative increase in value of work on the project which has not yet been
duly fully approved does not exceed five percent (5%) of the adjusted original contract price,
or P500,000 whichever is less; provided, further, that immediately after the start of work, the
corresponding Change/Extra Work Order shall be prepared and submitted for approval in
accordance with the above rules herein set. Payments for works satisfactorily accomplished on
any Change/Extra Work Order may be made only after approval of the same by the Secretary or
his duly authorized representative.
b. For a Change/Extra Work Order involving a cumulative amount exceeding five percent
(5%) of the original contract price or original adjusted contract price no work thereon may
be commenced unless said Change/Extra Work Order has been approved by the Secretary
or his duly authorized representative.[Emphasis supplied]
It is petitioners submission, and FUCC does not deny, that the claim for payment of blasting works in
Botong alone was approximately P170,000,000.00, a figure which far exceeds the original contract price
ofP80,000,000.00 for two (2) project sites. Under the foregoing implementing rules, for an extra work order
which exceeds 5% of the original contract price, no blasting work may be commenced without the approval of
the Secretary or his duly authorized representative. Moreover, the procedure for the preparation and approval
of the extra work order outlined under Contract Implementation (CI) 1(7) above should have been complied
with. Accordingly, petitioners officials should not have authorized the commencement of blasting works nor
should FUCC have proceeded with the same.
The following events, culled from the decision of the Arbitration Board and the assailed Decision, are
made the bases for the finding of promissory estoppel on the part of petitioner:
1. After claimant [respondent herein] encountered what it claimed to be massive hard rock
formation (Testimony of witness Dumaliang, TSN, 28 October 1996, pp. 41-42; Testimony of witness
Lataquin, 28 November 1996, pp. 2-3; 20-23; Exh. JJJ and sub-markings) and informed
respondent [petitioner herein] about it, respondents own geologists went to the Botong site to
investigate and confirmed the rock formation and recommended blasting (Cf. Memorandum of Mr.
Petronilo E. Pana, Acting Manager of the Geoscience Services Department and the report of the geologists
who conducted the site investigation; Exhs. F and F-1).
2. Claimant asked for clearance to blast the rock formation to the design grade (Letter dated 28 September
1992; Exh. UU).The engineers of respondent at the project site advised claimant to proceed with its
suggested method of extraction(Order/Instruction given by Mr. Reuel R. Declaro and Mr. Francis A. Paderna
dated 29 September 1992; Exh. C).
3. Claimant requested that the intended blasting works be confirmed as extra work order by
responsible officials of respondent directly involved in the BACMAN II Project (i.e., then BACMAN II Project
Manager, Mr. Lauro R. Umali and Mr. Angelito G. Senga, Section Chief, Civil Engineering Design of
respondents Design Department which bidded the project). These officials issued verbal instructions to
the effect: (a) that claimant could blast the rock formation down to the design grade of 495 masl; (b)
that said blasting works would be an extra work order; and (c) that claimant would be paid for said
blasting works using the price per cubic meter for similar blasting works at Palinpinon, or atP1,346.00
per cubic meter.

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4. Claimant sent two (2) confirmatory letters to respondent, both addressed to its President, one dated 30
September 1992, and sent through Mr. Angelito Senga, Chief Civil Design Thermal, the other dated 02
October 1992, and sent through Mr. Lauro R. Umali, Project ManagerBacMan II (Exhs. D and E; Testimony of
witness Dumaliang, TSN, 28 October 1996, pp. 43-49). The identical letters read:
We wish to confirm your instruction for us to proceed with the blasting of the Botong Plant site to the design
grade pending issuance of the relevant variation order. This is to avoid delay in the implementation of this
critical project due to the urgent need to blast rocks on the plant site.
We are confirming further your statement that the said blasting works is an extra work order and that we will be
paid using the price established in your Palinpinon contract with Phesco.
Thank you for your timely action and we look forward to the immediate issuance of the extra work order.
We are now mobilizing equipment and manpower for the said work and hope to start blasting next week.
5. Respondent received the letters but did not reply thereto nor countermand the earlier instructions
given to claimant to proceed with the blasting works. The due execution and authenticity of these letters
(Exhs. D-1 and E-1) and the fact of receipt (Exhs. D-2 and E-2) were duly proved by claimant (Testimony of
witness Dumaliang, TSN, 28 October 1996, 43-49).
6. In mid-October 1992, three (3) Vice-Presidents of respondent visited the project site and were
informed of claimants blasting activities. While respondent claims that one of the Vice-Presidents, Mr.
Rodrigo Falcon, raised objections to claimants blasting works as an extra work order, they instructed
claimant to speed up the works because of the power crisis then hounding the country. Stipulation no.
24 of the Joint Stipulation of Facts of the parties which reads: 24. In mid-October 1992, three (3) VicePresidents of respondent, namely: Mr. Hector N. Campos, Sr., of Engineering Construction, Mr. C.A. Pastoral
of Engineering Design, and Mr. Rodrigo P. Falcon, visited the project site and were likewise apprised of
claimants blasting activities. They never complained about the blasting works, much less ordered its
cessation. In fact, no official of respondent ever ordered that the blasting works be stopped.
7. After visiting Botong, Mr. Hector N. Campos, Sr., then Vice President of Engineering Construction,
instructed Mr. Fernando A. Magallanes then Manager of the Luzon Engineering Projects Department, to
evaluate claimants blasting works and to submit his recommendations on the proper price therefor. In a
memorandum dated 17 November 1992 (Exh. G and sub-markings), Mr. Magallanes confirmed that
claimants blasting works was an extra work order and recommended that it be paid at the price for
similar blasting works at Palinpinon, or at P1,346.00 per cubic meter. Mr. Campos concurred with the
findings and recommendations of Mr. Magallanes and instructed Mr. Lauro R. Umali, then Project
Manager of BacMan II, to implement the same as shown by his instructions scribbled on the
memorandum.
8. Mr. Umali and the project team prepared proposed Extra Work Order No. 2 Blasting (Exh. DDD
Memorandum of Mr. Umali to Mr. Campos dated 20 January 1993 forwarding proposed Extra Work
Order No. 2), recommending a price of P983.75 per cubic meter for claimants blasting works. Claimant
agreed to this price (Testimony of witness Dumaliang, 7 November 1996, p. 48).
9. On 19 February 1993, claimant brought the matter of its unpaid blasting works to the attention of the then
NPC Chairman [also Secretary of the Department of Energy then] Delfin L. Lazaro during a meeting with the
multi-sectoral task force monitoring the implementation of power plant projects, who asked then NPC
President Pablo B. Malixi what he was doing about the problem. President Malixi thereafter convened
respondents vice-presidents and ordered them to quickly document the variation order and pay
claimant. The vice-president, and specifically Mr. Campos, pledged that the variation order for
claimants blasting works would be submitted for the approval of the NPC Board during the first week

of March 1993. Claimant thereafter sent respondent a letter dated 22 February 1993 (Ex. K) to confirm
this pledge (Testimony of witness Dumaliang, 7 November 1996, pp. 28-30).
10. Mr. Campos created a task force (i.e., the Technical Task Force on the Study and Review of Extra Work
Order No. 2; Exh. FFF) to review claimants blasting works. After several meetings with the task force,
claimant agreed to the lower price of P458.07 per cubic meter, in exchange for quick
payment (Testimony of witness Dumaliang, 7 November 1996, p. 30).
11. However, no variation order was issued and no payment came, although it appears from two (2)
radiograms sent by Mr. Campos to Mr. Paderna at the project site that the variation order was being
processed and that payment to claimant was forthcoming (Exhs. AAA and BBB).
12. Respondent asked the Department of Public Works and Highways (DPWH) about the standard prices for
blasting in the projects of the DPWH. The DPWH officially replied to respondents query in a letter dated 19
May 1993 but the task force still failed to seek Board approval for claimants variation order. The task force
eventually recommended that the issue of grading excavation and structural excavation and the unit prices
therefor be brought into voluntary arbitration (Testimony of witness Dumaliang, 7 November 1996, pp. 30-57).
13. Claimant thereafter saw Mr. Francisco L. Viray, the new NPC President, who proposed that claimant
accept the price of P458.07 per cubic meter for its blasting works with the balance of its claim to be the
subject of arbitration. Claimant accepted the offer and sent the letter dated 28 September 1993 (Exh. O)
to formalize said acceptance. However, no variation order was issued and the promised payment never
came. (Testimony of witness Dumaliang, 7 November 1996, p. 58).
14. After some time, claimant met Mr. Viray on 19 October 1993 at the project site, and with some NPC
officers in attendance, particularly Mr. Gilberto A. Pastoral, Vice-President for Engineering Design, who
was instructed by Mr. Viray to prepare the necessary memorandum (i.e., that claimant would be
paid P458.07 per cubic meter with the balance of its claim to be the subject of arbitration) for the
approval of the NPC Board. Claimant formalized what transpired during this meeting in its letter to Mr.
Pastoral dated 22 October 1993 (Exhibit R). But no action was taken by Mr. Pastoral and no variation
order was issued by respondent (Testimony of witness Dumaliang, 7 November 1996, pp. 57-58).
[23]
[Emphasis supplied and bracketed words]
Promissory estoppel may arise from the making of a promise, even though without consideration, if it
was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it
would be virtually to sanction the perpetration of fraud or would result in other injustice. [24] Promissory estoppel
presupposes the existence of a promise on the part of one against whom estoppel is claimed. The promise
must be plain and unambiguous and sufficiently specific so that the court can understand the obligation
assumed and enforce the promise according to its terms. [25]
In the present case, the foregoing events clearly evince that the promise that the blasting works would
be paid was predicated on the approval of the extra work order by petitioners Board. Even FUCC
acknowledged that the blasting works should be an extra work order and requested that the extra work order
be confirmed as such and approved by the appropriate officials. Notably, even as the extra work order
allegedly promised to it was not yet forthcoming, FUCC commenced blasting.
The alleged promise to pay was therefore conditional and up to this point, promissory estoppel cannot
be established as the basis of petitioners liability especially in light of P.D. 1594 and its implementing rules of
which both parties are presumed to have knowledge. In Mendoza v. Court of Appeals, supra, we ruled that [a]
cause of action for promissory estoppel does not lie where an alleged oral promise was conditional, so that
reliance upon it was not reasonable. It does not operate to create liability where it does not otherwise exist.

110

Petitioners argument that it is not bound by the acts of its officials who acted beyond the scope of their
authority in allowing the blasting works is correct. Petitioner is a government agency with a juridical personality
separate and distinct from the government. It is not a mere agency of the government but a corporate entity
performing proprietary functions. It has its own assets and liabilities and exercises corporate powers, including
the power to enter into all contracts, through its Board of Directors.
In this case, petitioners officials exceeded the scope of their authority when they authorized FUCC to
commence blasting works without an extra work order properly approved in accordance with P.D. 1594. Their
acts cannot bind petitioner unless it has ratified such acts or is estopped from disclaiming them. [26]
However, the Compromise Agreement entered into by the parties, petitioner being represented by its
President, Mr. Guido Alfredo A. Delgado, acting pursuant to its Board Resolution No. 95-54 dated April 3,
1995, is a confirmatory act signifying petitioners ratification of all the prior acts of its officers. Significantly, the
parties agreed that [t]his Compromise Agreement shall serve as the Supplemental Agreement for the payment
of plaintiffs blasting works at the Botong site [27] in accordance with CI 1(6) afore-quoted. In other words, it is
primarily by the force of this Compromise Agreement that the Court is constrained to declare FUCC entitled to
payment for the blasting works it undertook.
Moreover, since the blasting works were already rendered by FUCC and accepted by petitioner and in
the absence of proof that the blasting was done gratuitously, it is but equitable that petitioner should make
compensation therefor, pursuant to the principle that no one should be permitted to enrich himself at the
expense of another.[28]
This brings us to the issue of just compensation.
The parties proposed in the terms of reference jointly submitted to the Arbitration Board that should
FUCC be adjudged entitled to just compensation for its blasting works, the price therefor should be determined
based on the payment for blasting works in similar projects of FUCC and the amount it paid to its blasting
subcontractor.[29] They agreed further that the price of the blasting at the Botong site . . . shall range from
Defendants position of P76.00 per cubic meter as per contract to a maximum of P1,144.00[30]
Petitioner contends that the Arbitration Board, trial court and the appellate court unduly relied on the
memorandum of Mr. Umali which was allegedly not marked as an exhibit. We note, however, that this
memorandum actually forms part of the record of the case as Exhibit DDD. [31] Moreover, both the Arbitration
Board and the Court of Appeals found that Mr. Umalis proposal is the best evidence on record as it is
supported by detailed cost estimates that will serve as basis to determine just compensation.
While the Arbitration Board found that FUCC did not present evidence showing the amount it paid to its
blasting sub-contractor, it did present testimony to the effect that it incurred other costs and expenses on top of
the actual blasting cost. Hence, the amount of P430.00 per cubic meter indicated in FUCCs Contract of
Agreement with Dynamic is not controlling.
Moreover, FUCC presented evidence showing that in two (2) other projects where blasting works were
undertaken, petitioner paid the contractors P1,346 per cubic meter for blasting and disposal of solid rocks in
the Palinpinon project and P1,144.51 per cubic meter for rock excavation in the Hermosa Balintawak project.
Besides, while petitioner claims that in a contract with Wilper Construction for the construction of the Tayabas
sub-station, the price agreed for blasting was only P96.13, petitioner itself did not present evidence in support
of this claim.[32]
Parenthetically, the point raised by petitioner that its subsequent contractor, Phesco, did not undertake
blasting works in excavating the same rock formation is extraneous and irrelevant. The fact is that petitioner
allowed FUCC to blast and undertook to pay for the blasting works.

At this point, we hearken to the rule that the findings of the Arbitration Board, affirmed by the trial court
and the Court of Appeals and supported as they are by substantial evidence, should be accorded not only
respect but finality.[33] Accordingly, the amount of P763.00 per cubic meter fixed by the Arbitration Board and
affirmed by the appellate court as just compensation should stand.
As regards the issue of interest, while the appellate court declared in the body of its Decision that
interest which would represent the cost of the money spent be imposed on the money actually spent by
claimant for the blasting works, [34] there is no pronouncement as to the payment of interest in the dispositive
portion of theDecision even as it specifically deleted the award of attorneys fees.
Despite its knowledge of the appellate courts omission, FUCC did not file a motion for reconsideration
or appeal from its Decision. In failing to do so, FUCC allowed the Decision to become final as to it.
In Edwards v. Arce,[35] we ruled that in a case decided by a court, the true judgment of legal effect is that
entered by the clerk of said court pursuant to the dispositive part of its decision. The only portion of the
decision that may be the subject of execution is that which is ordained or decreed in the dispositive portion.
Whatever may be found in the body of the decision can only be considered as part of the reasons or
conclusions of the court and serve only as guides to determine the ratio decidendi.[36]
Even so, the Court allows a judgment which had become final and executory to be clarified when there
is an ambiguity caused by an omission or mistake in the dispositive portion of the decision. [37] In Reinsurance
Company of the Orient, Inc. v. Court of Appeals,[38] we held:
In Republic Surety and Insurance Company, Inc. v. Intermediate Appellate Court, the Court applying the above
doctrine said:
xxx We clarify, in other words, what we did affirm. What is involved here is not what is ordinarily regarded as a
clerical error in the dispositive part of the decision of the Court of First Instance, which type of error is perhaps
best typified by an error in arithmetical computation. At the same time, what is involved here is not a correction
of an erroneous judgment or dispositive portion of a judgment. What we believe is involved here is in the
nature of an inadvertent omission on the part of the Court of First Instance (which should have been noticed
by private respondents counsel who had prepared the complaint), of what might be described as a
logical follow-through of something set forth both in the body of the decision and in the dispositive portion
thereof: the inevitable follow-through, or translation into, operational or behavioral terms, of the annulment of
the Deed of Sale with Assumption of Mortgage, from which petitioners title or claim of title embodied in TCT
133153 flows. (Italics supplied)[39]
In this case, the omission of the award of interest was obviously inadvertent. Correction is therefore in
order. However, we do not agree with the Arbitration Board that the interest should be computed at 12%. Since
the case does not involve a loan or forbearance of money, goods or credit and court judgments thereon, the
interest due shall be computed at 6% per annum computed from the time the claim was made in 1992 as
determined by the Arbitration Board and in accordance with Articles 2209 and 1169 of the Civil Code. The
actual base for the computation of legal interest shall be on the amount finally adjudged. [40] Further, when the
judgment awarding a sum of money becomes final and executory, the rate of legal interest shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.[41]
WHEREFORE, the petition is GRANTED in part. The appealed decision is MODIFIED in that the
amount ofP74,035,503.50 shall earn legal interest of six percent (6%) from 1992. A twelve percent (12%)
interest, in lieu of six percent (6%), shall be imposed on such amount upon finality of this decision until the
payment thereof.
SO ORDERED.

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G.R. No. 77372 April 29, 1988

LUPO L. LUPANGCO, RAYMOND S. MANGKAL, NORMAN A. MESINA, ALEXANDER R. REGUYAL,
JOCELYN P. CATAPANG, ENRICO V. REGALADO, JEROME O. ARCEGA, ERNESTOC. BLAS, JR.,
ELPEDIO M. ALMAZAN, KARL CAESAR R. RIMANDO, petitioner,
vs.
COURT OF APPEALS and PROFESSIONAL REGULATION COMMISSION, respondent.

Not satisfied therewith, respondent PRC, on November 10, 1986, filed with the Court of Appeals a petition for
the nullification of the above Order of the lower court. Said petiton was granted in the Decision of the Court of
Appeals promulagated on January 13, 1987, to wit:
WHEREFORE, finding the petition meritorious the same is hereby GRANTED and the
other dated October 21, 1986 issued by respondent court is declared null and void. The
respondent court is further directed to dismiss with prejudice Civil Case No. 86-37950
for want of jurisdiction over the subject matter thereof. No cost in this instance.

Balgos & Perez Law Offices for petitioners.

SO ORDERED. 2
The Solicitor General for respondents.
Hence, this petition.
The Court of Appeals, in deciding that the Regional Trial Court of Manila had no jurisdiction to entertain the
case and to enjoin the enforcement of the Resolution No. 105, stated as its basis its conclusion that the
Professional Regulation Commission and the Regional Trial Court are co-equal bodies. Thus it held

GANCAYCO, J.:
Is the Regional Trial Court of the same category as the Professional Regulation Commission so that it cannot
pass upon the validity of the administrative acts of the latter? Can this Commission lawfully prohibit the
examiness from attending review classes, receiving handout materials, tips, or the like three (3) days before
the date of the examination? Theses are the issues presented to the court by this petition for certiorari to
review the decision of the Court of Appeals promulagated on January 13, 1987, in CA-G.R. SP No.
10598, * declaring null and void the other dated Ocober 21, 1986 issued by the Regional Trial Court of Manila,
Branch 32 in Civil Case No. 86-37950 entitled " Lupo L. Lupangco, et al. vs. Professional Regulation
Commission."

That the petitioner Professional Regulatory Commission is at least a co-equal body

with the Regional Trial Court is beyond question, and co-equal bodies have no power
to control each other or interfere with each other's acts. 3
To strenghten its position, the Court of Appeals relied heavily on National Electrification Administration vs.
Mendoza, 4 which cites Pineda vs. Lantin 5 and Philippine Pacific Fishing, Inc. vs. Luna, 6 where this Court held
that a Court of First Instance cannot interfere with the orders of the Securities and Exchange Commission, the
two being co-equal bodies.

The records shows the following undisputed facts:

After a close scrutiny of the facts and the record of this case,
On or about October 6, 1986, herein respondent Professional Regulation Commission (PRC) issued
Resolution No. 105 as parts of its "Additional Instructions to Examiness," to all those applying for admission to
take the licensure examinations in accountancy. The resolution embodied the following pertinent provisions:
No examinee shall attend any review class, briefing, conference or the like conducted
by, or shall receive any hand-out, review material, or any tip from any school, college or
university, or any review center or the like or any reviewer, lecturer, instructor official or
employee of any of the aforementioned or similars institutions during the three days
immediately proceeding every examination day including examination day.
Any examinee violating this instruction shall be subject to the sanctions prescribed by
Sec. 8, Art. III of the Rules and Regulations of the Commission. 1
On October 16, 1986, herein petitioners, all reviewees preparing to take the licensure examinations in
accountancy schedule on October 25 and November 2 of the same year, filed on their own behalf of all others
similarly situated like them, with the Regional Trial Court of Manila, Branch XXXII, a complaint for injuction with
a prayer with the issuance of a writ of a preliminary injunction against respondent PRC to restrain the latter
from enforcing the above-mentioned resolution and to declare the same unconstitution.
Respondent PRC filed a motion to dismiss on October 21, 1987 on the ground that the lower court had no
jurisdiction to review and to enjoin the enforcement of its resolution. In an Order of October 21, 1987, the lower
court declared that it had jurisdiction to try the case and enjoined the respondent commission from enforcing
and giving effect to Resolution No. 105 which it found to be unconstitutional.

We rule in favor of the petitioner.

The cases cited by respondent court are not in point. It is glaringly apparent that the reason why this Court
ruled that the Court of First Instance could not interfere with the orders of the Securities and Exchange
Commission was that this was so provided for by the law. In Pineda vs. Lantin, We explained that whenever a
party is aggrieved by or disagree with an order or ruling of the Securities and Exchange Commission, he
cannot seek relief from courts of general jurisdiction since under the Rules of Court and Commonwealth Act
No. 83, as amended by Republic Act No. 635, creating and setting forth the powers and functions of the old
Securities and Exchange Commission, his remedy is to go the Supreme Court on a petition for review.
Likewise, in Philippine Pacific Fishing Co., Inc. vs. Luna, it was stressed that if an order of the Securities and
Exchange Commission is erroneous, the appropriate remedy take is first, within the Commission itself, then, to
the Supreme Court as mandated in Presidential Decree No. 902-A, the law creating the new Securities and
Exchange Commission. Nowhere in the said cases was it held that a Court of First Instance has no jurisdiction
over all other government agencies. On the contrary, the ruling was specifically limited to the Securities and
Exchange Commission.
The respondent court erred when it place the Securities and Exchange Commission and the Professional
Regulation Commsision in the same category. As alraedy mentioned, with respect to the Securities and
Exchange Commission, the laws cited explicitly provide with the procedure that need be taken when one is
aggrieved by its order or ruling. Upon the other hand, there is no law providing for the next course of action for
a party who wants to question a ruling or order of the Professional Regulation Commission. Unlike
Commonwealth Act No. 83 and Presidential Decree No. 902-A, there is no provision in Presidential Decree
No. 223, creating the Professional Regulation Commission, that orders or resolutions of the Commission are
appealable either to the Court of Appeals or to theSupreme Court. Consequently, Civil Case No. 86-37950,
which was filed in order to enjoin the enforcement of a resolution of the respondent Professional Regulation

112

Commission alleged to be unconstitutional, should fall within the general jurisdiction of the Court of First
Instance, now the Regional Trial Court. 7
What is clear from Presidential Decree No. 223 is that the Professional Regulation Commission is attached to
the Office of the President for general direction and coordination. 8 Well settled in our jurisprudence is the view
that even acts of the Office of the President may be reviewed by the Court of First Instance (now the Regional
Trial Court). In Medalla vs. Sayo, 9 this rule was thoroughly propounded on, to wit:
In so far as jurisdiction of the Court below to review by certiorari decisions and/or
resolutions of the Civil Service Commission and of the residential Executive Asssistant
is concerned, there should be no question but that the power of judicial review should
be upheld. The following rulings buttress this conclusion:
The objection to a judicial review of a Presidential act arises
from a failure to recognize the most important principle in our
system of government, i.e., the separation of powers into three
co-equal departments, the executives, the legislative and the
judicial, each supreme within its own assigned powers and
duties. When a presidential act is challenged before the courts
of justice, it is not to be implied therefrom that the Executive is
being made subject and subordinate to the courts. The legality
of his acts are under judicial review, not because the Executive
is inferior to the courts, but because the law is above the Chief
Executive himself, and the courts seek only to interpret, apply
or implement it (the law). A judicial review of the President's
decision on a case of an employee decided by the Civil Service
Board of Appeals should be viewed in this light and the bringing
of the case to the Courts should be governed by the same
principles as govern the jucucial review of all administrative acts
of all administrative officers. 10
Republic vs. Presiding Judge, CFI of Lanao del Norte, Br. II, 11 is another case in point. Here, "the Executive
Office"' of the Department of Education and Culture issued Memorandum Order No. 93 under the authority of
then Secretary of Education Juan Manuel. As in this case, a complaint for injunction was filed with the Court of
First Instance of Lanao del Norte because, allegedly, the enforcement of the circular would impair some
contracts already entered into by public school teachers. It was the contention of petitioner therein that "the
Court of First Instance is not empowered to amend, reverse and modify what is otherwise the clear and explicit
provision of the memorandum circular issued by the Executive Office which has the force and effect of law." In
resolving the issue, We held:
... We definitely state that respondent Court lawfully acquired jurisdiction in Civil Case
No. II-240 (8) because the plaintiff therein asked the lower court for relief, in the form of
injunction, in defense of a legal right (freedom to enter into contracts) . . . . .
Hence there is a clear infringement of private respondent's constitutional right to enter
into agreements not contrary to law, which might run the risk of being violated by the
threatened implementation of Executive Office Memorandum Circular No. 93, dated
February 5, 1968, which prohibits, with certain exceptions, cashiers and disbursing
officers from honoring special powers of attorney executed by the payee
employees. The respondent Court is not only right but duty bound to take cognizance
of cases of this nature wherein a constitutional and statutory right is allegedly infringed
by the administrative action of a government office. Courts of first Instance have
original jurisdiction over all civil actions in which the subject of the litigation is not
capable of pecuniary estimation (Sec. 44, Republic Act 296, as
amended). 12 (Emphasis supplied.)

In San Miguel Corporation vs. Avelino, 13 We ruled that a judge of the Court of First Instance has the authority
to decide on the validity of a city tax ordinance even after its validity had been contested before the Secretary
of Justice and an opinion thereon had been rendered.
In view of the foregoing, We find no cogent reason why Resolution No. 105, issued by the respondent
Professional Regulation Commission, should be exempted from the general jurisdiction of the Regional Trial
Court.
Respondent PRC, on the other hand, contends that under Section 9, paragraph 3 of B.P. Blg. 129, it is the
Court of Appeals which has jurisdiction over the case. The said law provides:
SEC. 9. Jurisdiction. The Intermediate Appellate Court shall exercise:
xxx xxx xxx
(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions,
orders, or awards of Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, except those falling within the appellate
jurisdiction of the Supreme Court in accordance with the Constitution, the provisions of
this Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the
fourth paragraph of Section 17 of the Judiciary Act of 1948.
The contention is devoid of merit.
In order to invoke the exclusive appellate jurisdiction of the Court of Appeals as provided for in Section 9,
paragraph 3 of B.P. Blg. 129, there has to be a final order or ruling which resulted from proceedings wherein
the administrative body involved exercised its quasi-judicial functions. In Black's Law Dictionary, quasijudicial is defined as a term applied to the action, discretion, etc., of public administrative officers or bodies
required to investigate facts, or ascertain the existence of facts, hold hearings, and draw conclusions from
them, as a basis for their official action, and to exercise discretion of a judicial nature. To expound
thereon, quasi-judicialadjudication would mean a determination of rights, privileges and duties resulting in a
decision or order which applies to a specific situation . 14 This does not cover rules and regulations of general
applicability issued by the administrative body to implement its purely administrative policies and functions like
Resolution No. 105 which was adopted by the respondent PRC as a measure to preserve the integrity of
licensure examinations.
The above rule was adhered to in Filipinas Engineering and Machine Shop vs. Ferrer. 15 In this case, the issue
presented was whether or not the Court of First Instance had jurisdiction over a case involving an order of the
Commission on Elections awarding a contract to a private party which originated from an invitation to bid. The
said issue came about because under the laws then in force, final awards, judgments, decisions or orders of
the Commission on Elections fall within the exclusive jurisdiction of the Supreme Court by way of certiorari.
Hence, it has been consistently held that "it is the Supreme Court, not the Court of First Instance, which has
exclusive jurisdiction to review on certiorari final decisions, orders, or rulings of the Commission on Elections
relative to the conduct of elections and the enforcement of election laws." 16
As to whether or not the Court of First Instance had jurisdiction in saidcase, We said:
We are however, far from convinced that an order of the COMELEC awarding a
contract to a private party, as a result of its choice among various proposals submitted
in response to its invitation to bid comes within the purview of a "final order" which is
exclusively and directly appealable to this court on certiorari. What is contemplated by
the term "final orders, rulings and decisions, of the COMELEC reviewable by certiorari
by the Supreme Court as provided by law are those rendered in actions or proceedings

113

before the COMELEC and taken cognizance of by the said body in the exercise of its
adjudicatory or quasi-judicial powers. (Emphasis supplied.)
xxx xxx xxx
We agree with petitioner's contention that the order of the Commission granting the
award to a bidder is not an order rendered in a legal controversy before it wherein the
parties filed their respective pleadings and presented evidence after which the
questioned order was issued; and that this order of the commission was issued
pursuant to its authority to enter into contracts in relation to election purposes. In short,
the COMELEC resolution awarding the contract in favor of Acme was not issued
pursuant to its quasi-judicial functions but merely as an incident of its inherent
administrative functions over the conduct of elections, and hence, the said resolution
may not be deemed as a "final order reviewable by certiorari by the Supreme
Court. Being non-judicial in character, no contempt order may be imposed by the
COMELEC from said order, and no direct and exclusive appeal by certiorari to this
Tribunal lie from such order. Any question arising from said order may be well taken in
an ordinary civil action before the trial courts. (Emphasis supplied.) 17
One other case that should be mentioned in this regard is Salud vs. Central Bank of the Philippines. 18 Here,
petitioner Central Bank, like respondent in this case, argued that under Section 9, paragraph 3 of B.P. Blg.
129, orders of the Monetary Board are appealable only to the Intermediate Appellate Court. Thus:
The Central Bank and its Liquidator also postulate, for the very first time, that the
Monetary Board is among the "quasi-judicial ... boards" whose judgments are within the
exclusive appellate jurisdiction of the IAC; hence, it is only said Court, "to the exclusion
of the Regional Trial Courts," that may review the Monetary Board's resolutions. 19

It is an aixiom in administrative law that administrative authorities should not act arbitrarily and capriciously in
the issuance of rules and regulations. To be valid, such rules and regulations must be reasonable and fairly
adapted to the end in view. If shown to bear no reasonable relation to the purposes for which they are
authorized to be issued, then they must be held to be invalid. 22
Resolution No. 105 is not only unreasonable and arbitrary, it also infringes on the examinees' right to liberty
guaranteed by the Constitution. Respondent PRC has no authority to dictate on the reviewees as to how they
should prepare themselves for the licensure examinations. They cannot be restrained from taking all the lawful
steps needed to assure the fulfillment of their ambition to become public accountants. They have every right to
make use of their faculties in attaining success in their endeavors. They should be allowed to enjoy their
freedom to acquire useful knowledge that will promote their personal growth. As defined in a decision of the
United States Supreme Court:
The term "liberty" means more than mere freedom from physical restraint or the
bounds of a prison. It means freedom to go where one may choose and to act in such
a manner not inconsistent with the equal rights of others, as his judgment may dictate
for the promotion of his happiness, to pursue such callings and vocations as may be
most suitable to develop his capacities, and giv to them their highest enjoyment. 23
Another evident objection to Resolution No. 105 is that it violates the academic freedom of the schools
concerned. Respondent PRC cannot interfere with the conduct of review that review schools and centers
believe would best enable their enrolees to meet the standards required before becoming a full fledged public
accountant. Unless the means or methods of instruction are clearly found to be inefficient, impractical, or
riddled with corruption, review schools and centers may not be stopped from helping out their students. At this
juncture, We call attention to Our pronouncement in Garcia vs. The Faculty Admission Committee, Loyola
School of Theology, 24 regarding academic freedom to wit:
... It would follow then that the school or college itself is possessed of such a right. It
decides for itself its aims and objectives and how best to attain them. It is free from
outside coercion or interference save possibly when the overriding public welfare calls
for some restraint. It has a wide sphere of autonomy certainly extending to the choice
of students. This constitutional provision is not to be construed in a niggardly manner or
in a grudging fashion.

Anent the posture of the Central Bank, We made the following pronouncement:
The contention is utterly devoid of merit. The IAC has no appellate jurisdiction over
resolution or orders of the Monetary Board. No law prescribes any mode of appeal
from the Monetary Board to the IAC. 20
In view of the foregoing, We hold that the Regional Trial Court has jurisdiction to entertain Civil Case No. 8637950 and enjoin the respondent PRC from enforcing its resolution.
Although We have finally settled the issue of jurisdiction, We find it imperative to decide once and for all the
validity of Resolution No. 105 so as to provide the much awaited relief to those who are and will be affected by
it.
Of course, We realize that the questioned resolution was adopted for a commendable purpose which is "to
preserve the integrity and purity of the licensure examinations." However, its good aim cannot be a cloak to
conceal its constitutional infirmities. On its face, it can be readily seen that it is unreasonable in that an
examinee cannot even attend any review class, briefing, conference or the like, or receive any hand-out,
review material, or any tip from any school, collge or university, or any review center or the like or any
reviewer, lecturer, instructor, official or employee of any of the aforementioned or similar institutions . ... 21
The unreasonableness is more obvious in that one who is caught committing the prohibited acts even without
any ill motives will be barred from taking future examinations conducted by the respondent PRC. Furthermore,
it is inconceivable how the Commission can manage to have a watchful eye on each and every examinee
during the three days before the examination period.

Needless to say, the enforcement of Resolution No. 105 is not a guarantee that the alleged leakages in the
licensure examinations will be eradicated or at least minimized. Making the examinees suffer by depriving
them of legitimate means of review or preparation on those last three precious days-when they should be
refreshing themselves with all that they have learned in the review classes and preparing their mental and
psychological make-up for the examination day itself-would be like uprooting the tree to get ride of a rotten
branch. What is needed to be done by the respondent is to find out the source of such leakages and stop it
right there. If corrupt officials or personnel should be terminated from their loss, then so be it. Fixers or
swindlers should be flushed out. Strict guidelines to be observed by examiners should be set up and if
violations are committed, then licenses should be suspended or revoked. These are all within the powers of
the respondent commission as provided for in Presidential Decree No. 223. But by all means the right and
freedom of the examinees to avail of all legitimate means to prepare for the examinations should not be
curtailed.
In the light of the above, We hereby REVERSE and SET ASIDE, the decision of the Court of Appeals in CAG.R. SP No. 10591 and another judgment is hereby rendered declaring Resolution No. 105 null and void and
of no force and effect for being unconstitutional. This decision is immediately executory. No costs.
SO ORDERED.
G.R. No. 73123 September 2, 1991

114

IN RE: PETITION FOR DECLARATION OF INSOLVENCY OF [A] FILAND MANUFACTURING AND

ESTATE DEVELOPMENT COMPANY; [B] TOP CONSTRUCTION ENTERPRISES, INC. AND [C] SPOUSES
EMILIO CHING AND INAI TEH; EMILIO CHING, petitioner, LAND BANK OF THE PHILIPPINES, oppositor.
LAND BANK OF THE PHILIPPINES, petitioner,
vs.
HON. DIONISIO N. CAPISTRANO, JUDGE OF THE REGIONAL TRIAL COURT OF PASAY CITY, EMILIO
CHING AND FILAND MANUFACTURING AND ESTATE DEVELOPMENT CO., INC., respondents.
Lily K. Gruba and Florencio S. Jimenez for Land Bank of the Philippines.

the petitioners, without bond, to which assignee the Clerk of Court, thru the Branch
Sheriff, shall deliver any and all real and personal properties, estates and effects, as
well as the pertinent papers and all deeds, vouchers, books of accounts, papers, notes,
bonds, bills and securities taken by him pursuant to the order of this Court of January
29, 1985.
The assignee is hereby ordered to comply with the time limit provided for in Sec. 43 of
Act 1956, and for this purpose, hereby sets his report for hearing on October 29, 1985,
at 9:00 A.M.
SO ORDERED. 4

FERNAN, C.J.:p
Assailed in this petition for review on certiorari is the jurisdiction of the Regional Trial Court (RTC) of Pasay
City over a petition for declaration of insolvency of two (2) private corporations.
The antecedent facts are undisputed:
On September 19, 1980, private respondents Filand Manufacturing and Estate Development Co., Inc.
(hereafter, Filand Manufacturing) and Emilio Ching obtained from petitioner Land Bank of the Philippines a
loan in the amount of Ten Million Pesos (P10,000,000.00). Private respondents having failed to pay the loan
on its due date, petitioner instituted before the RTC of Manila a complaint for recovery thereof, docketed as
Civil Case No. 0184-P.
During the pendency of the collection suit on December 29, 1984, private respondents Filand Manufacturing,
Emilio Ching and his spouse Inai Teh and Top Construction Enterprises, Inc., thru Emilio Ching, filed before
the respondent RTC of Pasay City a petition docketed as Special Proceedings No. 3232P for declaration of
insolvency. Cited as ground therefor was their inability to pay the various debts and liabilities incurred by them,
either jointly or solidarily or guaranteed by one for the other, in the course of their businesses, such inability
being due to business reserves brought about by the fire on January 2, 1984 which gutted the old Holiday
Plaza Building then owned and operated by Filand Manufacturing, as well as the economic crisis which
gripped the country following the assassination of former Senator Benigno S. Aquino in 1983. 1
Acting on said petition, respondent court on January 29, 1985 issued an Order of Adjudication declaring
private respondents insolvent pursuant to Section 18 of the Insolvency Law (Act No. 1956). The Sheriff of
Pasay City was "directed to take possession of, and safely keep, until the appointment of a receiver or
assignee, all the deeds, vouchers, books of account, papers, notes, bonds, bills and securities of (therein)
petitioners, and all the real and personal properties, estates and effects of the same petitioners, except such
as may, by law, be exempt from execution." Respondent court set "March 25, 1985 at 9:00 A.M. in its premises
... as the date of the meeting of the creditors of the petitioners for them to choose an assignee/assignees of
the estates of the petitioners." 2
Petitioner bank moved for a reconsideration of the Order of Adjudication on two (2) grounds, namely: (1) that
the court has no jurisdiction over the subject matter of the petition insofar as petitioning corporations are
concerned; and (2) the petition is defective in form and substance. 3 After an exchange of pleadings between
petitioner and private respondents, respondent court issued on July 19, 1985 an Order upholding its
jurisdiction over the petition and appointing petitioner bank as the assignee for and in behalf of all the creditors
without bond, thus:
WHEREFORE, all motions seeking to have this Court make a declaration that it has no
jurisdiction over the above-entitled proceeding are hereby DENIED, and the Land Bank
of the Philippines is appointed as the assignee for and in behalf of all the creditors of

Petitioner bank declined the appointment and the City Treasurer of Pasay City, being the second biggest
creditor of private respondents, was appointed in its stead Petitioner bank then filed a Notice of Appeal and a
Record on Appeal on August 19, 1985, on the basis of which the respondent court forwarded the records of
the case directly to this Court.
By resolution dated September 23, 1985, the Court resolved to "REQUIRE the Branch Clerk of Court of the
(respondent court) to EXPLAIN why he forwarded to this Court the aforesaid records when the mode of
seeking review by this Court of a lower court's judgment under R.A. 5440 is by petition for review on certiorari;
and the Presiding Judge of said trial court is also directed to EXPLAIN why he accepted and approved the
forwarding to this Court of the aforesaid records, both within ten (10) days from notice hereof." Petitioner bank
and/or counsel were also "REQUIRED to EXPLAIN within ten (10) days from notice ..., since they failed to pay
timely the docket and legal research fund fees and to file timely a petition for review on certiorari under R.A.
5440 why the judgment sought to be reviewed should not be now deemed final and executory and the records
returned for execution of judgment". 5 Upon submission of the required explanations, the Court on December
4, 1985 resolved to require the petitioner bank to file a petition for review on certiorari and to pay the docket
and legal research fund fees, both within a non-extendible period of ten (10) days from notice. 6 This Order
was seasonably complied with.
After the private respondents had submitted their comment on the petition, petitioner bank filed on March 24,
1986 a "Manifestation with motion for issuance of writ of preliminary injunction" informing the Court that on
March 3, 1986, the respondent court rendered a decision in Special Proceedings No. 3232-P, providing in its
dispositive portion as follows:
WHEREFORE, judgment is hereby rendered, as follows:
1. Petitioners Filand Manufacturing & Estate Development Co., Inc., and Top
Construction Enterprises, Inc., are declared by this Court as insolvent and, pursuant to
Sec. 52 of Act 1956, as amended, their properties and assets shall be distributed to the
creditors in the proceeding with respect to the appointment of the City Treasurer of
Pasay City as receiver of their estates and effects. However, they are not discharged
from their liabilities in accordance with Sec. 52 of Act 1956, as amended.
2. Petitioners spouses Emilio Ching and Inai Teh are likewise declared insolvent and
their application for discharge is hereby approved, and they are hereby ordered
discharged and released from all claims, debts, liabilities and demands, whether actual
or contingent, and whether personally or as guarantors or in a joint and solidary
capacity, with respect to the obligations set forth in the schedule and inventory of
accounts due and payable, Annex 'A' of the petition, as well as with respect to the
obligations and creditors listed in the manifestation of April 29, 1985, and the
supplemental manifestation dated May 22, 1985, in the above-entitled proceedings.

115

The other aspect of the above-entitled proceedings as regards the receiver and all
incidents and matters in connection with his functions and duties are hereby
considered as mere interlocutory matters in the process of winding up this proceeding.

'Appeals to the Supreme Court shall be taken by petition for certiorari which shall be
governed by Rule 45 of the Rules of Court.
xxx xxx xxx

SO ORDERED. 7
Acting on said manifestation and motion, the Court on April 14, 1986 issued a temporary restraining order
enjoining the respondent court from enforcing its decision of March 3, 1986. 8 The temporary restraining order
was however lifted insofar as private respondents spouses Emilio Ching and Inai Teh were concerned, the
latter being natural persons over whom the jurisdiction of the respondent court is not being questioned. 9
In its petition, given due course by the Court per resolution dated January 28, 1987, petitioner bank advances
the argument that it is the Securities and Exchange Commission (SEC), rather than the Regional Trial Court
(RTC) which has jurisdiction over the petition for declaration of insolvency filed by private respondent
corporations. This theory is allegedly anchored on specific provisions of Presidential Decree No. 902-A, as
amended, namely: Sections 3, 5(d) and 6(c) and (d), which petitioner bank construes as having repealed the
Insolvency Law (Act 1956), which confers jurisdiction over insolvency proceedings on the regular courts.
Private respondents maintain the opposite view, contending simply that a petition for declaration of insolvency
is not one of those cases enumerated under Section 5, P.D. No. 902-A, as amended, over which the SEC has
original and exclusive jurisdiction.
In view of the far reaching importance of the issue presented before the Court, both from a legal and economic
standpoint, we resolved to implead the SEC as a party to this case and to require it to inform the Court of its
practice regarding insolvency proceedings. 10 The SEC thru the Solicitor General, filed its memorandum on
December 13, 1989.
After deliberating on the SEC's memorandum, the Court resolved to set the case for hearing on May 14, 1990
at 10:00 o'clock in the morning. A senior and knowledgeable officer of the SEC was requested to "appear and
inform the Court of the law and practice actually applied and followed by the SEC in respect of suspension of
payments by, and voluntary and involuntary insolvencies of Philippine corporations . ..." Former SEC
Chairman Julito Sulit, Jr. was appointed amicus curiae and was requested to appear at the hearing in that
capacity. 11
Before addressing the principal issue in the instant petition, the Court notes with dismay that the petitioner and
the lower court appear to be still in the dark as to the proper mode of appeal to this Court. Hence, for their
elucidation as well as the others similarly misinformed, we deem it proper to quote the following resolution
dated March 1, 1990 of the Court en banc in UDK 9748, "Murillo v. Consul":
R.A. No. 5440 changed the mode of appeal from courts of first instance (now Regional
Trial Courts) to the Supreme Court in cases involving only questions of law, or the
constitutionality or validity of any treaty, law, ordinance, etc. or the legality of any tax,
impost, assessment or toll, etc., or the jurisdiction of any inferior court, from ordinary
appeal i.e., by notice of appeal, record on appeal and appeal bond, under Rule 41
to appeal by certiorari, under Rule 45.
xxx xxx xxx
At present then, except in criminal cases where the penalty imposed is life
imprisonment or reclusion perpetua, there is no way by which judgments of regional
trial courts may be appealed to this Court except by petition for review on certiorari in
accordance with Rule 45 of the Rules of Court, in relation to Section 17 of the Judiciary
Act of 1948, as amended. The proposition is clearly stated in the Interim Rules:

... To repeat, appeals to this Court cannot now be made by petition for review or by
notice of appeal (and, in certain instances, by record on appeal), but only by petition for
review on certiorari under Rule 45. As was stressed by this Court as early as 1980
in Buenbrazo v. Marave, 101 SCRA 848, all the members of the bench and bar are
charged with knowledge, not only that since the enactment of Republic Act No. 6031 in
1969,' 'the review of the decision of the Court of First Instance in a case exclusively
cognizable by the inferior court ... cannot be made in an ordinary appeal or by record
on appeal but also that 'appeal by record on appeal to the Supreme Court under Rule
42 of the Rules of Court was abolished by Republic Act No. 5440 which, as already
stated, took effect on September 9, 1968.' Similarly, in Santos, Jr. v. C.A., 152 SCRA
378, this Court declared that 'Republic Act No. 5440 had long superseded Rule 41 and
Section 1, Rule 122 of the Rules of Court on direct appeals from the court of first
instance to the Supreme Court in civil and criminal cases,' ... and that 'direct appeals to
this Court from the trial court on questions of law had to be through the filing of a
petition for review on certiorari, wherein this Court could either give due course to the
proposed appeal or deny it outright to prevent the clogging of its docket with
unmeritorious and dilatory appeals.
Going now to the issue of jurisdiction raised in this petition and considering the arguments proferred by the
parties' respective counsel, the view spoused by the amicus curiae as well as the submissions of the SEC thru
the Office of the Solicitor General and its Assistant Executive Director, we find for private respondents.
Under Act 1956, otherwise known as the Insolvency Law, jurisdiction over proceedings for suspension of
payments, voluntary and involuntary insolvency is exclusively vested in the regular courts. However, P.D. No.
1758 issued in 1981 added to the exclusive and original jurisdiction of the SEC defined and delineated in
Section 5 of P.D. 902-A, 12 the following:
d) 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 sufficient 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 Management Committee created
pursuant to this Decree.
It is petitioner's contention that said additional par. (d) effectively repealed the Insolvency Law so as to transfer
and confer upon the SEC jurisdiction theretofore enjoyed by the regular courts over proceedings for
suspension of payments and voluntary and involuntary insolvency. We do not share such interpretation.
The SEC like any other administrative body, is a tribunal of limited jurisdiction and as such, could wield only
such powers as are specifically granted to it by its enabling statute. 13 Its jurisdiction should be interpreted
in strictissimi juris. 14
Section 5, par. (d) should be construed as vesting upon the SEC original and exclusive jurisdiction only over
petitions to be declared in a state of suspension of payments, which may either be: (a) a simple petition for
suspension of payments based on the provisions of the Insolvency Law, or (b) a similar petition accompanied
by a prayer for the creation/appointment of a management committee and/or rehabilitation receiver based on
the provisions of P.D. No. 902-A. Said provision cannot be stretched to include petitions for insolvency. The
reason is that under said Section 5, par. (d) above-quoted, the jurisdiction of the SEC over cases where the

116

corporation, partnership or association has no sufficient assets to cover its liabilities, (and therefore insolvent)
is qualified by the conjunctive phrase "but is under the management of a Rehabilitation Receiver or
Management Committee created pursuant to this Decree." This qualification effectively circumscribes the
jurisdiction of the SEC over insolvent corporations, partnerships and associations, and consequently, over
proceedings for the declaration of insolvency. It demonstrates beyond doubt that jurisdiction over insolvency
proceedings pertains neither in the first instance nor exclusively to the SEC but only in continuation of or as an
incident to the exercise of its jurisdiction over petitions to be declared in a state of suspension of payments
wherein the petitioning corporation, partnership or association had previously been placed under a
rehabilitation receiver or management committee by the SEC itself.
Viewed differently, where the petition filed is one for declaration of a state of suspension of payments due to a
recognition of the inability to pay one's debts and liabilities, and where the petitioning corporation either: (a)
has sufficient property to cover all its debts but foresees the impossibility of meeting them when they fall due
(solvent but illiquid or (b) has no sufficient property (insolvent) but is under the management of a rehabilitation
receiver or a management committee, the applicable law is P.D. No. 902-A pursuant to Sec. 5 par. (d) thereof.
However, if the petitioning corporation has no sufficient assets to cover its liabilities and is not under a
rehabilitation receiver or a management committee created under P.D. No. 902-A and does not seek merely to
have the payments of its debts suspended, but seeks a declaration of insolvency, as in this case, the
applicable law is Act 1956 on voluntary insolvency, specifically section 14 thereof, which provides:
Sec. 14. An insolvent debtor, owing debts exceeding in amount the sum of one
thousand pesos, may apply to be discharged from his debts and liabilities by petition to
the Court of First Instance of the province or city in which he has resided for six month
next preceding the filing of such petition. In his petition, he shall set forth his place of
residence, the period of his residence therein immediately prior to filing said petition,
his inability to pay all his debts in full, his willingness to surrender all his property,
estate, and effects not exempt from execution for the benefit of his creditors, and an
application to be adjudged an insolvent. He shall annex to his petition a schedule and
inventory in the form hereinafter provided. The filing of such petition shall be an act of
insolvency.
Neither could the grant of additional powers to SEC under Section 6(c) and (d) of P.D. No. 902- A, as
amended, be construed as vesting upon it exclusive and original jurisdiction over insolvency proceedings. The
pertinent provisions read:
SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess
the following powers:
xxx xxx xxx
c) To appoint one or more receivers of the property, real and personal, which is the
subject of the action pending before the Commission in accordance with the pertinent
provisions of the Rules of Court in such other cases whenever necessary to preserve
the rights of the parties-litigants to and/or protect the interest of the investing public and
creditors; Provided, however, that the Commission may, in appropriate cases, appoint a
rehabilitation receiver of corporations, partnerships or other associations not
supervised or regulated by other government agencies who shall have, in addition to
the powers of a regular receiver under the provisions of the Rules of Court, such
functions and powers as are provided for in the succeeding paragraph (d) hereof;
Provided, further that the Commission may appoint a rehabilitation receiver of
corporations, partnerships or other nations supervised or regulated by other
government agencies, such as banks and insurance companies, upon request of the
government agency concerned; Provided, finally that upon appointment of a
management committee, rehabilitation receiver, board or body pursuant to this Decree,
all actions for claims against corporations, partnerships or nations under management

or receivership pending before any court, tribunal, board or body shall be suspended
accordingly.
d) To create and appoint a management committee, board, or body upon petition
or motu proprio to undertake the management of corporations, partnerships or other
associations not supervised or regulated by other government agencies in appropriate
cases when there is imminent danger of dissipation, loss, wastage or destruction of
assets or other properties or paralization of business operations of such corporations
or entities which may be prejudicial to the interest of minority stockholders, partieslitigants or the general public; Provided, further, that the Commission may create or
appoint a management committee, board or body to undertake the management of
corporations, partnerships or other associations supervised or regulated by other
government agencies, such as banks and insurance companies, upon request of the
government agency concerned.
The management committee or rehabilitation receiver, board or body shall have the
power to take custody of, and control over, all the existing assets and property of such
entities under management; to evaluate the existing assets and liabilities, earnings and
operations of such corporations, partnerships or other associations, to determine the
best way to wage and protect the interest of the investors and creditors; to study,
review and evaluate the feasibility of continuing operations and restructure and
rehabilitate such entities if determined to be feasible by the Commission. It shall report
and be responsible to the Commission until dissolved by order of the Commission:
Provided, however, that the Commission may, on the basis of the findings and
recommendation of the management committee, or rehabilitation receiver, board or
body, or on its own findings, determine that the continuance in business of such
corporation or entity would not be feasible or profitable nor work to the best interest of
the stockholders, parties-litigants, creditors, or the general public, order the dissolution
of such corporation entity and its remaining assets liquidated accordingly.
The management committee or rehabilitation receiver, board or body may overrule or
revoke the actions of the previous management and board of directors of the entity or
entities under management notwithstanding any provision of law, articles of
incorporation or by-laws to the contrary.
The management committee, or rehabilitation receiver, board or body shall not be
subject to any action, claim or demand for, or in connection with any act done or
omitted to be done by it in good faith in the exercise of its functions, or in connection
with the exercise of its powers herein conferred.
As declared by the law itself, these are merely ancillary powers to enable the SEC to effectively exercise its
jurisdiction. These additional ancillary powers can be exercised only in connection with an action pending
before the SEC and therefore had to be viewed in relation to Section 5 which defines the SEC's original and
exclusive jurisdiction. Section 6 does not enlarge or add to the exclusive and original jurisdiction of the SEC as
particularly enumerated under Section 5 of said Presidential Decree, as amended.
A well-recognized rule in statutory construction is that repeals by implication are not favored and will not be so
declared unless it be manifest that the legislature so intended. 15 When statutes are in pari material they
should be construed together. In construing them the old statutes relating to the same subject matter should
be compared with the new provisions and if possible by reasonable construction, both should be so construed
that effect may be given to every provision of each. 16
Construing P.D. 902-A, as amended, in relation to Act 1956, we rule that insofar as petitions for declaration of
insolvency of private corporations are concerned, it is the regular court that has exclusive and original

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jurisdiction thereon. The SEC may entertain such petitions only as an incident of and in continuation of its
already acquired jurisdiction over petitions to be declared in the state of suspension of payments in the two (2)
cases provided in Section 5 (d) of P.D. 902-A, as amended.
WHEREFORE, the instant petition for review on certiorari is DENIED. The temporary restraining order issued
on April 14, 1986 is LIFTED. No pronouncement as to costs.

Kind of property

---

Isuzu dump truck

Motor number

---

E120-229598

Chassis No.

---

SPZU50-1772440

Number of CXL

---

Color

---

Blue

Owned By

---

Mr. Jaime Ancla

SO ORDERED.

[G.R. No. 116033. February 26, 1997]

ALFREDO L. AZARCON, petitioner, vs. SANDIGANBAYAN, PEOPLE OF THE PHILIPPINES and JOSE C.
BATAUSA, respondents.
DECISION
PANGANIBAN, J.:
Does the Sandiganbayan have jurisdiction over a private individual who is charged with malversation of
public funds as a principal after the said individual had been designated by the Bureau of Internal Revenue as
a custodian of distrained property? Did such accused become a public officer and therefore subject to the graft
courts jurisdiction as a consequence of such designation by the BIR?
These are the main questions in the instant petition for review of respondent Sandiganbayans
Decision[1] in Criminal Case No. 14260 promulgated on March 8, 1994, convicting petitioner of malversation of
public funds and property, and Resolution [2] dated June 20, 1994, denying his motion for new trial or
reconsideration thereof.

the same having been this day seized and left in (my) possession pending investigation by the Commissioner
of Internal Revenue or his duly authorized representative. (I) further promise that (I) will faithfully keep,
preserve, and, to the best of (my) ability, protect said goods, articles, and things seized from defacement,
demarcation, leakage, loss, or destruction in any manner; that (I) will neither alter nor remove, nor permit
others to alter or remove or dispose of the same in any manner without the express authority of the
Commissioner of Internal Revenue; and that (I) will produce and deliver all of said goods, articles, and things
upon the order of any court of the Philippines, or upon demand of the Commissioner of Internal Revenue or
any authorized officer or agent of the Bureau of Internal Revenue. [6]
Subsequently, Alfredo Azarcon wrote a letter dated November 21, 1985 to the BIRs Regional Director
for Revenue Region 10 B, Butuan City stating that

The Facts

Petitioner Alfredo Azarcon owned and operated an earth-moving business, hauling dirt and ore. [3] His
services were contracted by the Paper Industries Corporation of the Philippines (PICOP) at its concession in
Mangagoy, Surigao del Sur. Occasionally, he engaged the services of sub-contractors like Jaime Ancla whose
trucks were left at the formers premises.[4] From this set of circumstances arose the present controversy.
x x x It appears that on May 25, 1983, a Warrant of Distraint of Personal Property was issued by the Main
Office of the Bureau of Internal Revenue (BIR) addressed to the Regional Director (Jose Batausa) or his
authorized representative of Revenue Region 10, Butuan City commanding the latter to distraint the goods,
chattels or effects and other personal property of Jaime Ancla, a sub-contractor of accused Azarcon and, a
delinquent taxpayer. The Warrant of Garnishment was issued to accused Alfredo Azarcon ordering him to
transfer, surrender, transmit and/or remit to BIR the property in his possession owned by taxpayer Ancla. The
Warrant of Garnishment was received by accused Azarcon on June 17, 1985. [5]
Petitioner Azarcon, in signing the Receipt for Goods, Articles, and Things Seized Under Authority of the
National Internal Revenue, assumed the undertakings specified in the receipt the contents of which are
reproduced as follows:
(I), the undersigned, hereby acknowledge to have received from Amadeo V. San Diego, an Internal Revenue
Officer, Bureau of Internal Revenue of the Philippines, the following described goods, articles, and things:

x x x while I have made representations to retain possession of the property and signed a receipt of the same,
it appears now that Mr. Jaime Ancla intends to cease his operations with us. This is evidenced by the fact that
sometime in August, 1985 he surreptitiously withdrew his equipment from my custody. x x x In this connection,
may I therefore formally inform you that it is my desire to immediately relinquish whatever responsibilities I
have over the above-mentioned property by virtue of the receipt I have signed. This cancellation shall take
effect immediately. x x x .[7]
Incidentally, the petitioner reported the taking of the truck to the security manager of PICOP, Mr. Delfin Panelo,
and requested him to prevent this truck from being taken out of the PICOP concession. By the time the order
to bar the trucks exit was given, however, it was too late. [8]
Regional Director Batausa responded in a letter dated May 27, 1986, to wit:
An analysis of the documents executed by you reveals that while you are (sic) in possession of the dump truck
owned by JAIME ANCLA, you voluntarily assumed the liabilities of safekeeping and preserving the unit in
behalf of the Bureau of Internal Revenue. This is clearly indicated in the provisions of the Warrant of
Garnishment which you have signed, obliged and committed to surrender and transfer to this office. Your
failure therefore, to observe said provisions does not relieve you of your responsibility.[9]
Thereafter, the Sandiganbayan found that

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On 11 June 1986, Mrs. Marilyn T. Calo, Revenue Document Processor of Revenue Region 10 B, Butuan City,
sent a progress report to the Chief of the Collection Branch of the surreptitious taking of the dump truck and
that Ancla was renting out the truck to a certain contractor by the name of Oscar Cueva at PICOP (Paper
Industries Corporation of the Philippines, the same company which engaged petitioners earth moving
services), Mangagoy, Surigao del Sur. She also suggested that if the report were true, a warrant of
garnishment be reissued against Mr. Cueva for whatever amount of rental is due from Ancla until such time as
the latters tax liabilities shall be deemed satisfied. x x x However, instead of doing so, Director Batausa filed a
letter-complaint against the (herein Petitioner) and Ancla on 22 January 1988, or after more than one year had
elapsed from the time of Mrs. Calos report. [10]
Provincial Fiscal Pretextato Montenegro forwarded the records of the complaint x x x to the Office of the
Tanodbayan on May 18, 1988. He was deputized Tanodbayan prosecutor and granted authority to conduct
preliminary investigation on August 22, 1988, in a letter by Special Prosecutor Raul Gonzales approved by
Ombudsman (Tanodbayan) Conrado Vasquez.[11]
Along with his co-accused Jaime Ancla, petitioner Azarcon was charged before the Sandiganbayan with
the crime of malversation of public funds or property under Article 217 in relation to Article 222 of the Revised
Penal Code (RPC) in the following Information [12]filed on January 12, 1990, by Special Prosecution Officer
Victor Pascual:

WHEREFORE, the Court finds accused Alfredo Azarcon y Leva GUILTY beyond reasonable doubt as principal
of Malversation of Public Funds defined and penalized under Article 217 in relation to Article 222 of the
Revised Penal Code and, applying the Indeterminate Sentence Law, and in view of the mitigating
circumstance of voluntary surrender, the Court hereby sentences the accused to suffer the penalty of
imprisonment ranging from TEN (10) YEARS and ONE (1) DAY ofprision mayor in its maximum period to
SEVENTEEN (17) YEARS, FOUR (4) MONTHS and ONE (1) DAY of Reclusion Temporal. To indemnify the
Bureau of Internal Revenue the amount of P80,831.59; to pay a fine in the same amount without subsidiary
imprisonment in case of insolvency; to suffer special perpetual disqualification; and, to pay the costs.
Considering that accused Jaime Ancla has not yet been brought within the jurisdiction of this Court up to this
date, let this case be archived as against him without prejudice to its revival in the event of his arrest or
voluntary submission to the jurisdiction of this Court.
SO ORDERED.
Petitioner, through new counsel, [22] filed a motion for new trial or reconsideration on March 23, 1994,
which was denied by the Sandiganbayan in its Resolution [23] dated December 2, 1994.
Hence, this petition.

That on or about June 17, 1985, in the Municipality of Bislig, Province of Surigao del Sur, Philippines, and
within the jurisdiction of this Honorable Court, accused Alfredo L. Azarcon, a private individual but who, in his
capacity as depository/administrator of property seized or deposited by the Bureau of Internal Revenue,
having voluntarily offered himself to act as custodian of one Isuzu Dumptruck (sic) with Motor No. E12022958, Chasis No. SPZU 50-1772440, and number CXL-6 and was authorized to be such under the authority
of the Bureau of Internal Revenue, has become a responsible and accountable officer and said motor vehicle
having been seized from Jaime C. Ancla in satisfaction of his tax liability in the total sum of EIGHTY
THOUSAND EIGHT HUNDRED THIRTY ONE PESOS and 59/100 (P80,831.59) became a public property
and the value thereof as public fund, with grave abuse of confidence and conspiring and confederating with
said Jaime C. Ancla, likewise, a private individual, did then and there wilfully, (sic) unlawfully and feloniously
misappropriate, misapply and convert to his personal use and benefit the aforementioned motor vehicle or the
value thereof in the aforestated amount, by then and there allowing accused Jaime C. Ancla to remove,
retrieve, withdraw and tow away the said Isuzu Dumptruck (sic) with the authority, consent and knowledge of
the Bureau of Internal Revenue, Butuan City, to the damage and prejudice of the government in the amount
of P80,831.59 in a form of unsatisfied tax liability.
CONTRARY TO LAW.
The petitioner filed a motion for reinvestigation before the Sandiganbayan on May 14, 1991, alleging
that: (1)the petitioner never appeared in the preliminary investigation; and (2) the petitioner was not a public
officer, hence a doubt exists as to why he was being charged with malversation under Article 217 of the
Revised Penal Code.[13] The Sandiganbayan granted the motion for reinvestigation on May 22, 1991. [14] After
the reinvestigation, Special Prosecution Officer Roger Berbano, Sr., recommended the withdrawal of the
information[15] but was overruled by the Ombudsman.[16]
A motion to dismiss was filed by petitioner on March 25, 1992 on the ground that the Sandiganbayan
did not have jurisdiction over the person of the petitioner since he was not a public officer. [17] On May 18, 1992,
the Sandiganbayan denied the motion. [18]
When the prosecution finished presenting its evidence, the petitioner then filed a motion for leave to file
demurrer to evidence which was denied on November 16, 1992, for being without merit. [19] The petitioner then
commenced and finished presenting his evidence on February 15, 1993.

The Issues

The petitioner submits the following reasons for the reversal of the Sandiganbayans assailed Decision
and Resolution:
I. The Sandiganbayan does not have jurisdiction over crimes committed solely by private
individuals.
II. In any event, even assuming arguendo that the appointment of a private individual as a
custodian or a depositary of distrained property is sufficient to convert such individual into a
public officer, the petitioner cannot still be considered a public officer because:
[A]
There is no provision in the National Internal Revenue Code which authorizes the Bureau of Internal Revenue
to constitute private individuals as depositaries of distrained properties.
[B]
His appointment as a depositary was not by virtue of a direct provision of law, or by election or by appointment
by a competent authority.
III. No proof was presented during trial to prove that the distrained vehicle was actually owned by the accused
Jaime Ancla; consequently, the governments right to the subject property has not been established.

The Respondent Courts Decision

IV. The procedure provided for in the National Internal Revenue Code concerning the disposition of distrained
property was not followed by the B.I.R., hence the distraint of personal property belonging to Jaime C. Ancla
and found allegedly to be in the possession of the petitioner is therefore invalid.

On March 8, 1994, respondent Sandiganbayan [20] rendered a Decision,[21] the dispositive portion of
which reads:

V. The B.I.R. has only itself to blame for not promptly selling the distrained property of accused Jaime C. Ancla
in order to realize the amount of back taxes owed by Jaime C. Ancla to the Bureau. [24]

119

In fine, the fundamental issue is whether the Sandiganbayan had jurisdiction over the subject matter of
the controversy. Corollary to this is the question of whether petitioner can be considered a public officer by
reason of his being designated by the Bureau of Internal Revenue as a depositary of distrained property.

The Courts Ruling

The petition is meritorious.

The Information does not charge petitioner Azarcon of being a co-principal, accomplice or accessory to
a public officer committing an offense under the Sandiganbayans jurisdiction. Thus, unless petitioner be
proven a public officer, the Sandiganbayan will have no jurisdiction over the crime charged. Article 203 of the
RPC determines who are public officers:
Who are public officers. -- For the purpose of applying the provisions of this and the preceding titles of the
book, any person who, by direct provision of the law, popular election, popular election or appointment by
competent authority, shall take part in the performance of public functions in the Government of the Philippine
Islands, or shall perform in said Government or in any of its branches public duties as an employee, agent, or
subordinate official, of any rank or classes, shall be deemed to be a public officer.
Thus,

Jurisdiction of the Sandiganbayan

It is hornbook doctrine that in order (to) ascertain whether a court has jurisdiction or not, the provisions
of the law should be inquired into. [25] Furthermore, the jurisdiction of the court must appear clearly from the
statute law or it will not be held to exist. It cannot be presumed or implied. [26] And for this purpose in criminal
cases, the jurisdiction of a court is determined by the law at the time of commencement of the action. [27]
In this case, the action was instituted with the filing of this information on January 12, 1990; hence, the
applicable statutory provisions are those of P.D. No. 1606, as amended by P.D. No. 1861 on March 23, 1983,
but prior to their amendment by R.A. No. 7975 on May 16, 1995. At that time, Section 4 of P.D. No. 1606
provided that:
SEC. 4. Jurisdiction. -- The Sandiganbayan shall exercise:
(a) Exclusive original jurisdiction in all cases involving:
(1) Violations of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices
Act, Republic Act No. 1379, and Chapter II, Section 2, Title VII of the Revised Penal Code;
(2) Other offenses or felonies committed by public officers and employees in relation to their office, including
those employed in government-owned or controlled corporations, whether simple or complexed with other
crimes, where the penalty prescribed by law is higher than prision correccional or imprisonment for six (6)
years, or a fine of P6,000.00: PROVIDED, HOWEVER, that offenses or felonies mentioned in this paragraph
where the penalty prescribed by law does not exceed prision correccional or imprisonment for six (6) years or
a fine of P6,000.00 shall be tried by the proper Regional Trial Court, Metropolitan Trial Court, Municipal Trial
Court and Municipal Circuit Trial Court.
xxxxxxxxx
In case private individuals are charged as co-principals, accomplices or accessories with the public officers or
employees, including those employed in government-owned or controlled corporations, they shall be tried
jointly with said public officers and employees.
x x x x x x x x x.
The foregoing provisions unequivocally specify the only instances when the Sandiganbayan will have
jurisdiction over a private individual, i.e. when the complaint charges the private individual either as a coprincipal, accomplice or accessory of a public officer or employee who has been charged with a crime within
its jurisdiction.

Azarcon: A Public Officer or A Private Individual?

(to) be a public officer, one must be -(1) Taking part in the performance of public functions in the government, or
Performing in said Government or any of its branches public duties as an employee, agent, or subordinate
official, of any rank or class; and
(2) That his authority to take part in the performance of public functions or to perform public duties must be -a. by direct provision of the law, or
b. by popular election, or
c. by appointment by competent authority.[28]
Granting arguendo that the petitioner, in signing the receipt for the truck constructively distrained by the
BIR, commenced to take part in an activity constituting public functions, he obviously may not be deemed
authorized by popular election. The next logical query is whether petitioners designation by the BIR as a
custodian of distrained property qualifies as appointment by direct provision of law, or by competent authority.
[29]
We answer in the negative.
The Solicitor General contends that the BIR, in effecting constructive distraint over the truck allegedly
owned by Jaime Ancla, and in requiring the petitioner Alfredo Azarcon who was in possession thereof to sign
a pro forma receipt for it, effectively designated petitioner a depositary and, hence, citing U.S. vs. Rastrollo,
[30]
a public officer.[31] This is based on the theory that
(t)he power to designate a private person who has actual possession of a distrained property as a depository
of distrained property is necessarily implied in the BIRs power to place the property of a delinquent tax payer
(sic) in distraint as provided for under Sections 206, 207 and 208 (formerly Sections 303, 304 and 305) of the
National Internal Revenue Code, (NIRC) x x x. [32]
We disagree. The case of U.S. vs. Rastrollo is not applicable to the case before us simply because the
facts therein are not identical, similar or analogous to those obtaining here. While the cited case involved
a judicialdeposit of the proceeds of the sale of attached property in the hands of the debtor, the case at bench
dealt with the BIRs administrative act of effecting constructive distraint over alleged property of taxpayer Ancla
in relation to his back taxes, property which was received by petitioner Azarcon. In the cited case, it was
clearly within the scope of that courts jurisdiction and judicial power to constitute the judicial deposit and give
the depositary a character equivalent to that of a public official. [33] However, in the instant case, while the BIR
had authority to require petitioner Azarcon to sign a receipt for the distrained truck, the NIRC did not grant it
power to appoint Azarcon a public officer.
It is axiomatic in our constitutional framework, which mandates a limited government, that its branches
and administrative agencies exercise only that power delegated to them as defined either in the Constitution or
in legislation or in both.[34] Thus, although the appointing power is the exclusive prerogative of the President, x
x x[35] the quantum of powers possessed by an administrative agency forming part of the executive branch will

120

still be limited to that conferred expressly or by necessary or fair implication in its enabling act. Hence, (a)n
administrative officer, it has been held, has only such powers as are expressly granted to him and those
necessarily implied in the exercise thereof. [36] Corollarily, implied powers are those which are necessarily
included in, and are therefore of lesser degree than the power granted. It cannot extend to other matters not
embraced therein, nor are not incidental thereto. [37] For to so extend the statutory grant of power would be an
encroachment on powers expressly lodged in Congress by our Constitution. [38] It is true that Sec. 206 of the
NIRC, as pointed out by the prosecution, authorizes the BIR to effect a constructive distraint by requiring any
person to preserve a distrained property, thus:

S/SGT. JOSE SANTIAGO, petitioner-appellant,

vs.
LT. COL. CELSO ALIKPALA, ET AL., respondents-appellees.
Floro A. Sarmiento and Noe Maines for petitioner-appellant.
Cuadrato Palma and the Office of the Solicitor General for respondents-appellees.

xxxxxxxxx
The constructive distraint of personal property shall be effected by requiring the taxpayer or any person
having possession or control of such property to sign a receipt covering the property distrained and
obligate himself to preserve the same intact and unaltered and not to dispose of the same in any
manner whatever without the express authority of the Commissioner.
xxxxxxxxx
However, we find no provision in the NIRC constituting such person a public officer by reason of such
requirement. The BIRs power authorizing a private individual to act as a depositary cannot be stretched to
include the power to appoint him as a public officer. The prosecution argues that Article 222 of the Revised
Penal Code x x x defines the individuals covered by the term officers under Article 217 [39] x x x of the same
Code.[40] And accordingly, since Azarcon became a depository of the truck seized by the BIR he also became a
public officer who can be prosecuted under Article 217 x x x. [41]
The Court is not persuaded. Article 222 of the RPC reads:
Officers included in the preceding provisions. -- The provisions of this chapter shall apply to private individuals
who, in any capacity whatever, have charge of any insular, provincial or municipal funds, revenues, or property
and to any administrator or depository of funds or property attached, seized or deposited by public authority,
even if such property belongs to a private individual.
Legislative intent is determined principally from the language of a statute. Where the language of a
statute is clear and unambiguous, the law is applied according to its express terms, and interpretation would
be resorted to only where a literal interpretation would be either impossible or absurd or would lead to an
injustice.[42] This is particularly observed in the interpretation of penal statutes which must be construed with
such strictness as to carefully safeguard the rights of the defendant x x x. [43] The language of the foregoing
provision is clear. A private individual who has in his charge any of the public funds or property enumerated
therein and commits any of the acts defined in any of the provisions of Chapter Four, Title Seven of the RPC,
should likewise be penalized with the same penalty meted to erring public officers. Nowhere in this provision is
it expressed or implied that a private individual falling under said Article 222 is to be deemed a public officer.
After a thorough review of the case at bench, the Court thus finds petitioner Alfredo Azarcon and his coaccused Jaime Ancla to be both private individuals erroneously charged before and convicted by Respondent
Sandiganbayan which had no jurisdiction over them. The Sandiganbayans taking cognizance of this case is of
no moment since (j)urisdiction cannot be conferred by x x x erroneous belief of the court that it had jurisdiction.
[44]
As aptly and correctly stated by the petitioner in his memorandum:
From the foregoing discussion, it is evident that the petitioner did not cease to be a private individual when he
agreed to act as depositary of the garnished dump truck. Therefore, when the information charged him and
Jaime Ancla before the Sandiganbayan for malversation of public funds or property, the prosecution was in
fact charging two private individualswithout any public officer being similarly charged as a coconspirator. Consequently, the Sandiganbayan had no jurisdiction over the controversy and therefore all the
proceedings taken below as well as the Decision rendered by Respondent Sandiganbayan, are null and void
for lack of jurisdiction.[45]
WHEREFORE, the questioned Resolution and Decision of the
hereby SET ASIDE and declared NULL and VOID for lack of jurisdiction. No costs.
SO ORDERED.
G.R. No. L-25133

September 28, 1968

Sandiganbayan

are

FERNANDO, J.:
The validity of a court-martial proceeding was challenged in the lower court on due process grounds to show
lack of jurisdiction. Petitioner, a sergeant in the Philippine Army and the accused in a court-martial proceeding,
through a writ of certiorari and prohibition, filed on April 17, 1963, with the lower court, sought to restrain
respondents, the officers, constituting the court-martial, that was then in the process of trying petitioner for
alleged violation of two provisions of the Articles of War, from continuing with the proceedings on the ground of
its being without jurisdiction. There was likewise a plea for a restraining order, during the pendency of his
petition, but it was unsuccessful.
No response, either way, was deemed necessary by the then Presiding Judge of the lower court, now Justice
Nicasio Yatco of the Court of Appeals, as petitioner had, in the meanwhile, been convicted by the court-martial.
The lower court verdict, rendered on September 16, 1963, was one of dismissal, as in its opinion, "this case
had already become moot and academic ... ."
An appeal was taken to us, the same due process objections being raised. We think that the question before
us is of such import and significance that an easy avoidance through the technicality of the "moot and
academic" approach hardly recommends itself. For reasons to be more fully set forth, we find that such courtmartial was not lawfully convened, and, consequently, devoid of jurisdiction. Accordingly, we reverse the lower
court.
There was a stipulation of facts submitted to the lower court on July 10, 1963, to the following effect: "That the
arraignment of the petitioner on December 17, 1962 was for the purpose of avoiding prescription pursuant to
Article of War 38 of one of the offenses with which the accused is charged since, as charged, same was
allegedly committed on or about December 18, 1960; That prior to the said arraignment, no written summons
or subpoena was issued addressed to the petitioner or his counsel, informing them of said arraignment; That
instead of said written summons or subpoena Col. Eladio Samson, Constabulary Staff Judge Advocate called
up First Sergeant Manuel Soriano at the Headquarters II Philippine Constabulary Zone, Camp Vicente Lim,
Canlubang, Laguna on December 16, 1962 by telephone with instructions to send the petitioner to HPC,
Camp Crame, Quezon City, under escort, for arraignment and only for arraignment; That upon arrival in HPC,
the petitioner was directed to proceed to the PC Officer's Clubhouse, where a General Court-Martial
composed of the respondents, created to try the case of 'People vs. Capt. Egmidio Jose, for violation of
Articles of War 96 and 97', pursuant to paragraph 10, Special Order No. 14, Headquarters Philippine
Constabulary, dated 18 July 1962, ..., was to resume, as scheduled, the trial of 'People vs. Pfc. Numeriano
Ohagan, for violation of Articles of War 64, 85, and 97'; That it was only at the time (December 17, 1962) that
petitioner learned that he will be arraigned for alleged violation of Articles of War 85 and 97, after being
informed by one of the respondents, Capt. Cuadrato Palma as Trial Judge Advocate why he was there; That
prior to that arraignment on December 17, 1962 there was no special order published by the Headquarters
Philippine Constabulary creating or directing the General Court-Martial composed of the respondents to
arraign and try the case against the petitioner, there however was already an existing court trying another
case; That the respondents relied on the first indorsement of the Acting Adjutant General, HPC, Camp Crame,
Quezon City, dated December 14, 1962 and addressed to the Trial Judge Advocate of the General Courtmartial ... directing the said Trial Judge Advocate to refer the case against petitioner to the above-mentioned
court, ...; That the above paragraph 10, Special Order No. 14 dated 18 July 1962, does not contain the phrase

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'and such other cases which may be referred to it,' but however said orders were amended only on 8 January
1963, to include such phrase, ... ." 1
It was further stipulated that petitioner's counsel did object to his arraignment asserting that a general courtmartial then convened was without jurisdiction, as there was no special order designating respondents to
compose a general court-martial for the purpose of trying petitioner, as petitioner was not furnished a copy of
the charge sheet prior to his arraignment as required in the Manual for Court-Martial, except on the very day
thereof, and as there was no written summons or subpoena served on either the petitioner, as accused, or the
counsel. Respondents, acting as the general court-martial, overruled the above objections, and the Trial Judge
Advocate was then ordered to proceed to read the charges and specifications against petitioner over the
vigorous objections of counsel. It was shown, likewise, in the stipulation of facts, that the case, having been
postponed to February 21, 1963, petitioner's counsel had in the meanwhile complained to the Chief of
Constabulary against the proceedings on the ground of its nullity, and sought to have respondents restrained
from continuing with the trial of petitioner due to such lack of jurisdiction but the Chief of Constabulary ruled
that he could not act on such complaint until the records of the trial were forwarded to him for review. With
such a ruling, and with the denial of two other motions by petitioner upon the court-martial being convened
anew on February 21, 1963, one to invalidate his arraignment on December 17, 1962, and the other to quash
the complaint based on the denial of due process and lack of jurisdiction, the present petition for certiorari and
prohibition was filed with the lower court. 2
As above noted, the lower court dismissed the petition due to its belief that, petitioner having been convicted in
the meanwhile, there being no restraining order, the matter had become moot and academic. As was set forth
earlier, we differ, the alleged lack of jurisdiction being too serious a matter to be thus summarily ignored.
The firm insistence on the part of petitioner that the general court-martial lacks jurisdiction on due process
grounds, cannot escape notice. The basic objection was the absence of a special order "designating
respondents to compose a general court-martial to convene and try the case of petitioner; ... ." It was
expressly stipulated that the respondents were convened to try the case of a certain Capt. Egmidio Jose and
not that filed against petitioner. As a matter of fact, the opening paragraph of the stipulation of facts made clear
that he was arraigned on December 17, 1962 by respondents as a general court-martial appointed precisely to
try the above Capt. Jose solely "for the purpose of avoiding prescription pursuant to Article of War 38 of one of
the offenses with which the accused is charged ... ."
Is such a departure from what the law and regulations 3 prescribe offensive to the due process clause? If it
were, then petitioner should be sustained in his plea for a writ of certiorari and prohibition, as clearly the denial
of the constitutional right would oust respondents of jurisdiction, even on the assumption that they were vested
with it originally. Our decisions to that effect are impressive for their unanimity.
In Harden v. The Director of Prisons, 4 Justice Tuason, speaking for the Court, explicitly announced that
"deprivation of any fundamental or constitutional rights" justify a proceeding for habeas corpus on the ground
of lack of jurisdiction. Abriol v. Homeres 5 is even more categorical. In that case, the action of a lower court,
denying the accused the opportunity to present proof for his defense, his motion for dismissal failing, was held
by this Court as a deprivation of his right to due process. As was made clear by the opinion of Justice Ozaeta:
"No court of justice under our system of government has the power to deprive him of that right. If the accused
does not waive his right to be heard but on the contrary as in the instant case invokes the right, and the
court denies it to him, that court no longer has jurisdiction to proceed; it has no power to sentence the accused
without hearing him in his defense; and the sentence thus pronounced is void and may be collaterally attacked
in a habeas corpus proceeding." 6
A recent decision rendered barely a month ago, in Chavez v. Court of Appeals, 7 is even more in point. Here,
again, habeas corpus was relied upon by petitioner whose constitutional rights were not respected, but, in
addition, the special civil actions of certiorari and mandamus were likewise availed of, in view of such
consequent lack of jurisdiction. The stress though in the opinion of Justice Sanchez was on habeas corpus.
Thus: "The course which petitioner takes is correct. Habeas corpus is a high prerogative writ. It is traditionally
considered as an exceptional remedy to release a person whose liberty is illegally restrained such as when the

accused's constitutional rights are disregarded. Such defect results in the absence or loss of jurisdiction and
therefore invalidates the trial and the consequent conviction of the accused whose fundamental right was
violated. That void judgment of conviction may be challenged by collateral attack, which precisely is the
function of habeas corpus. This writ may issue even if another remedy which is less effective may be availed
of by the defendant."
The due process concept rightfully referred to as "a vital and living force in our jurisprudence" calls for respect
and deference, otherwise the governmental action taken suffers from a fatal infirmity. As was so aptly
expressed by the then Justice, now Chief Justice, Concepcion: "... acts of Congress, as well as those of the
Executive, can deny due process only under pain of nullity, and judicial proceedings suffering from the same
flaw are subject to the same sanction, any statutory provision to the contrary notwithstanding." 8
The crucial question, then, is whether such failure to comply with the dictates of the applicable law insofar as
convening a valid court martial is concerned, amounts to a denial of due process. We hold that it does. There
is such a denial not only under the broad standard which delimits the scope and reach of the due process
requirement, but also under one of the specific elements of procedural due process.
It is to be admitted that there is no controlling and precise definition of due process which, at the most
furnishes a standard to which governmental action should conform in order to impress with the stamp of
validity any deprivation of life, liberty or property. A recent decision of this Court, in Ermita-Malate Hotel v.
Mayor of Manila 9treated the matter thus: "It is responsiveness to the supremacy of reason, obedience to the
dictates of justice. Negatively put, arbitrariness is ruled out and unfairness avoided. To satisfy the due process
requirement, official action, to paraphrase Cardozo, must not outrun the bounds of reason and result in sheer
oppression. Due process is thus hostile to any official action marred by lack of reasonableness. Correctly has
it been identified as freedom from arbitrariness. It is the embodiment of the sporting idea of fair play. It exacts
fealty 'to those strivings for justice' and judges the act of officialdom of whatever branch 'in the light of reason
drawn from considerations of fairness that reflect [democratic] traditions of legal and political thought.'"
Nor is such a reliance on the broad reach of due process the sole ground on which the lack of jurisdiction of
the court-martial convened in this case could be predicated. Recently, stress was laid anew by us on the first
requirement of procedural due process, namely, the existence of the court or tribunal clothed with judicial, or
quasi-judicial, power to hear and determine the matter before it. 10 This is a requirement that goes back
to Banco Espaol-Filipino v. Palanca, a decision rendered half a century ago. 11
There is the express admission in the statement of facts that respondents, as a court-martial, were not
convened to try petitioner but someone else, the action taken against petitioner being induced solely by a
desire to avoid the effects of prescription; it would follow then that the absence of a competent court or tribunal
is most marked and undeniable. Such a denial of due process is therefore fatal to its assumed authority to try
petitioner. The writ ofcertiorari and prohibition should have been granted and the lower court, to repeat, ought
not to have dismissed his petition summarily.
The significance of such insistence on a faithful compliance with the regular procedure of convening courtmartials in accordance with law cannot be over-emphasized. As was pointed out by Justice Tuason in Ruffy v.
The Chief of Staff, Philippine Army: 12 "Courts-martial are agencies of executive character, and one of the
authorities for the ordering of courts-martial has been held to be attached to the constitutional functions of the
President as Commander-in-Chief, independently of legislation. (Winthrop's Military Law and Precedents, 2d
Edition, p. 49.) Unlike courts of law, they are not a portion of the judiciary." Further on, his opinion continues:
"Not belonging to the judicial branch of the government, it follows that courts-martial must pertain to the
executive department; and they are in fact simply instrumentalities of the executive power, provided by
Congress for the President as Commander-in-Chief, to aid him in properly commanding the army and navy
and enforcing discipline therein, and utilized under his orders or those of his authorized military
representatives." 13

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It is even more indispensable, therefore, that such quasi-judicial agencies, clothed with the solemn
responsibility of depriving members of the Armed Forces of their liberties, even of their lives, as a matter of
fact, should be held all the more strictly bound to manifest fidelity to the fundamental concept of fairness and
the avoidance of arbitrariness for which due process stands as a living vital principle. If it were otherwise, then,
abuses, even if not intended, might creep in, and the safeguards so carefully thrown about the freedom of an
individual, ignored or disregarded. Against such an eventuality, the vigilance of the judiciary furnishes a shield.
That is one of its grave responsibilities. Such a trust must be lived up to; such a task cannot be left undone.

And considering that the Collector of Customs has exceeded his jurisdiction or committed a grave abuse of
discretion in imposing the fine of P5,000.00 on the vessel without the benefit of an investigation or hearing as
requested by A. V. Rocha, the National Development Company, as owner of the vessel, as well as A. V. Rocha
as agent and operator thereof, filed the instant special civil action of certiorari with preliminary injunction before
the Court of First Instance of Manila against the official abovementioned. The court, finding the petition for
injunction sufficient in form and substance, issued ex parte the writ prayed for upon the filing of a bond in the
amount of P5,00.00.

WHEREFORE, the order of respondent Court of September 6, 1963, dismissing the petition for certiorari and
prohibition is reversed, and the writ of certiorari and prohibition granted, annulling the proceedings as well as
the decision rendered by respondents as a court-martial and perpetually restraining them from taking any
further action on the matter. Without pronouncement as to costs.

Respondent set up the following special defenses: (1) the court a quo has no jurisdiction to act on matters
arising from violations of the Customs Law, but the Court of Tax Appeals; (2) assuming that it has, petitioners
have not exhausted all available administrative remedies, one of which is to appeal to the Commissioner of
Customs; (3) the requirements of administrative due process have already been complied with in that the
written notice given by respondent to petitioner Rocha clearly specified the nature of the violation complained
of and that the defense set up by Rocha constitute merely a legal issue which does not require further
investigation; and (4) the investigation conducted by the customs authorities showed that the television set in
question was unloaded by the ship's doctor without going thru the custom house as required by law and was
not declared either in the ship's manifest or in the crew declaration list.

G.R. No. L-19180

October 31, 1963

NATIONAL DEVELOPMENT COMPANY, ET AL., petitioners-appellees,

vs.
THE COLLECTOR OF CUSTOMS OF MANILA, respondent-appellant.
Ross, Selph and Carrascoso for petitioners-appellees.
Office of the Solicitor General for respondent-appellant.

On the basis of the stipulation of facts submitted by the parties, the court a quo rendered decision setting
aside the ruling of respondent which imposes a fine of P5,000.00 on the vessel Doa Nati payable within 48
hours from receipt thereof. The court stated that said ruling appears to be unjust and arbitrary because the
party affected has not been accorded the investigation it requested from the Collector of Customs.

BAUTISTA ANGELO, J.:

Respondent interposed the present appeal.

The National Development Company which is engaged in the shipping business under the name of "Philippine
National Lines" is the owner of steamship "S.S. Doa Nati" whose local agent in Manila is A. V. Rocha. On
August 4, 1960, the Collector of Customs sent a notice to C.F. Sharp & Company as alleged operator of the
vessel informing it that said vessel was apprehended and found to have committed a violation of the customs
laws and regulations in that it carried an unmanifested cargo consisting of one RCA Victor TV set 21" in
violation of Section 2521 of the Tariff and Customs Code. Inserted in said notice is a note of the following
tenor: "The above article was being carried away by Dr. Basilio de Leon y Mendez, official doctor of M/S "Doa
Nati" who readily admitted ownership of the same." C.F. Sharp & Company was given 48 hours to show cause
why no administrative fine should be imposed upon it for said violation.

When the customs authorities found that the vessel Doa Nati carried on board an unmanifested cargo
consisting of one RCA Victor TV set 21" in violation of Section 2521 of the Tariff and Customs Code,
respondent sent a written notice to C. F. Sharp & Company, believing it to be the operator or agent of the
vessel, and when the latter referred the notice to A. V. Rocha, the real operator of the vessel, for such step as
he may deem necessary to be taken the latter answered the letter stating that the television set was not cargo
and so was not required by law to be manifested, and he added to his answer the following: "If this explanation
is not sufficient, we request that this case be set for investigation and hearing in order to enable the vessel to
be informed of the evidence against it to sustain the charge and to present evidence in its defense.
"Respondent, however, replied to this letter saying that said television was a cargo within the meaning of the
law and so he does not find his explanation satisfactory and then and there imposed on the vessel a fine of
P5,00.00. Respondent even went further. He ordered that said fine be paid within 48 hours from receipt with a
threat that the vessel would be denied clearance and a warrant of seizure would be issued if the fine will not
be paid. Considering this to be a grave abuse of discretion, petitioners commenced the present action for
certiorari before the court a quo.

C.F. Sharp & Company, not being the agent or operator of the vessel, referred the notice to A. V. Rocha, the
agent and operator thereof, who on August 8, 1960, answered the notice stating, among other things, that the
television set referred to therein was not a cargo of the vessel and, therefore, was not required by law to be
manifested. Rocha stated further: "If this explanation is not sufficient, we request that this case be set for
investigation and hearing in order to enable the vessel to be informed of the evidence against it to sustain the
charge and to present evidence in its defense."
The Collector of Customs replied to Rocha on August 9, 1960 stating that the television set in question was a
cargo on board the vessel and that he does not find his explanation satisfactory enough to exempt the vessel
from liability for violating Section 2521 of the Tariff and Customs Code. In said letter, the collector imposed a
fine of P5,000.00 on the vessel and ordered payment thereof within 48 hours with a threat that he will deny
clearance to said vessel and will issue a warrant of seizure and detention against it if the fine is not paid.

We find this action proper for it really appears that petitioner Rocha was not given an opportunity to prove that
the television set complained of is not a cargo that needs to be manifested as required by Section 2521 of the
Tariff and Customs Code. Under said section, in order that an imported article or merchandise may be
considered a cargo that should be manifested it is first necessary that it be so established for the reason that
there are other effects that a vessel may carry that are excluded from the requirement of the law, among which
are the personal effects of the members of the crew. The fact that the set in question was claimed by the
customs authorities not to be within the exception does not automatically make the vessel liable. It is still
necessary that the vessel, its owner or operator, be given a chance to show otherwise. This is precisely what
petitioner Rocha has requested in his letter. Not only was he denied this chance, but respondent collector
immediately imposed upon the vessel the huge fine of P5,000.00. This is a denial of the elementary rule of due
process.
True it is that the proceedings before the Collector of Customs insofar as the determination of any act or
irregularity that may involve a violation of any customs law or regulation is concerned, or of any act arising
under the Tariff and Customs Code, are not judicial in character, but merely administrative, where the rules of

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procedure are generally disregarded, but even in the administrative proceedings due process should be
observed because that is a right enshrined in our Constitution. The right to due process is not merely statutory.
It is a constitutional right. Indeed, our Constitution provides that "No person shall be deprived of life, liberty, or
property without due process of law", which clause epitomize the principle of justice which hears before it
condemns, which proceeds upon inquiry and renders judgment only after trial. That this principle applies with
equal force to administrative proceedings was well elaborated upon by this Court in the Ang Tibay case as
follows:
... The fact, however, that the Court of Industrial Relations may be said to be free from the rigidity
of certain procedural requirements does not mean that it can, in justiciable case coming before it,
entirely ignore or disregard the fundamental and essential requirements of due process in trials
and investigations of an administrative character.
... There are cardinal primary rights which must be respected even in proceedings of this character.
The first of these rights is the right to a hearing, which includes the right of the party interested or
affected to present his own case and submit evidence in support thereof. Not only must the party
be given an opportunity to present his case and to adduce evidence tending to establish the rights
which he asserts but the tribunal must consider the evidence presented. While the duty to
deliberate does not impose the obligation to decide right, it does imply a necessity which cannot be
disregarded, namely, that of having something to support its decision. No only must there be some
evidence to support a finding or conclusion, but the evidence must be substantial. The decision
must be rendered on the evidence presented at the hearing, or at least contained in the record and
disclosed to the parties affected. The Court of Industrial Relations or any of its judges, therefore,
must act on its or his own independent consideration of the law and facts of the controversy, and
not simply accept the views of a subordinate in arriving at a decision. The Court of Industrial
Relations should, in all controversial questions, render its decision in such a manner that the
parties to the proceeding can know the various issues involved, and the reason for the decision
rendered. The performance of this duty is inseparable from the authority conferred upon it. (Ang
Tibay, et al. v. The Court of Industrial Relations, et al., 40 O.G., No. 11, Supp. p. 29).

REBECCA D. BAGDOG, MARILYNNA C. KU, MARISSA M. SAMSON, HENEDINA B.CARILLO,

NICASIO C. BRAVO, RUTH F. LACANILAO, MIRASOL C. BALIGOD, FELISA S. VILLACRUEL,
MA. VIOLETA ELIZABETH Y. HERNANDEZ, ANTONIO C. OCAMPO, ADRIANO S. VALENCIA
and ELEUTERIO S. VARGAS, respondents.
DECISION
PANGANIBAN, J.:
Due process of law requires notice and hearing. Hearing, on the other hand, presupposes a competent
and impartial tribunal. The right to be heard and, ultimately, the right to due process of law lose meaning in the
absence of an independent, competent and impartial tribunal.
Statement of the Case
This principium is explained by this Court as it resolves this petition for review on certiorari assailing the
May 21, 1993 Decision[1] of the Court of Appeals [2] in CA-G.R. SP No. 29107 which affirmed the trial courts
decision,[3] as follows:
WHEREFORE, the decision appealed from is AFFIRMED and the appeal is DISMISSED.
The Hon. Armand Fabella is hereby ORDERED substituted as respondent-appellant in place of former
Secretary Isidro Cario and henceforth this fact should be reflected in the title of this case.
SO ORDERED.[4]
The Antecedent Facts

There is, therefore, no point in the contention that the court a quo has no jurisdiction over the present case
because what is here involved is not whether the imposition of the fine by the Collector of Customs on the
operator of the ship is correct or not but whether he acted properly in imposing said fine without first giving the
operator an opportunity to be heard. Here we said that he acted improvidently and so the action taken against
him is in accordance with Rule 67 of our Rules of Court.
Another point raised is that petitioners have brought this action prematurely for they have not yet exhausted all
the administrative remedies available to them, one of which is to appeal the ruling to the Commissioner of
Customs. This may be true, but such step we do not consider a plain, speedy or adequate remedy in the
ordinary course of law as would prevent petitioners from taking the present action, for it is undisputed that
respondent collector has acted in utter disregard of the principle of due process.
WHEREFORE, the decision appealed from is affirmed. No costs.
[G.R. No. 110379. November 28, 1997]
HON. ARMAND FABELLA, in his capacity as SECRETARY OF THE DEPARTMENT OF EDUCATION,
CULTURE AND SPORTS; DR. NILO ROSAS, in his capacity as REGIONAL DIRECTOR,
DECS-NCR; DR. BIENVENIDO ICASIANO, in his capacity as the SUPERINTENDENT OF THE
QUEZON CITY SCHOOLS and DIVISION; ALMA BELLA O. BAUTISTA, AURORA C.
VALENZUELA and TERESITA V. DIMAGMALIW,petitioners, vs. THE COURT OF APPEALS,
ROSARITO A. SEPTIMO, ERLINDA B. DE LEON, CLARISSA T. DIMAANO, WILFREDO N.
BACANI, MARINA R. VIVAR, VICTORIA S. UBALDO, JENNIE L. DOGWE, NORMA L.
RONGCALES, EDITA C. SEPTIMO, TERESITA E. EVANGELISTA, CATALINA R. FRAGANTE,

The facts, as found by Respondent Court, are as follows:

On September 17, 1990, then DECS Secretary Cario issued a return-to-work order to all public school
teachers who had participated in talk-outs and strikes on various dates during the period September 26, 1990
to October 18, 1990. The mass action had been staged to demand payment of 13th month differentials,
clothing allowances and passage of a debt-cap bill in Congress, among other things.
On October 18, 1990, Secretary Cario filed administrative cases against herein petitioner-appellees,
who are teachers of the Mandaluyong High School. The charge sheets required petitioner-appellees to explain
in writing why they should not be punished for having taken part in the mass action in violation of civil service
laws and regulations, to wit:
1. grave misconduct;
2. gross neglect of duty;
3. gross violation of Civil Service Law and rules on reasonable office regulations;
4. refusal to perform official duty;
5. conduct prejudicial to the best interest of the service;

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6. absence without leave (AWOL)

At the same time, Secretary Cario ordered petitioner-appellee to be placed under preventive
suspension.
The charges were subsequently amended by DECS-NCR Regional Director Nilo Rosas on November
7, 1990 to include the specific dates when petitioner-appellees allegedly took part in the strike.
Administrative hearings started on December 20, 1990. Petitioner-appellees counsel objected to the
procedure adopted by the committee and demanded that he be furnished a copy of the guidelines adopted by
the committee for the investigation and imposition of penalties. As he received no response from the
committee, counsel walked out. Later, however, counsel, was able to obtain a copy of the guidelines.
On April 10, 1991, the teachers filed a an injunctive suit (Civil Case No. 60675) with the Regional Trial
Court in Quezon City, charging the committee appointed by Secretary Cario with fraud and deceit and praying
that it be stopped from further investigating them and from rendering any decision in the administrative
case. However, the trial court denied them a restraining order.
They then amended their complaint and made it one for certiorari and mandamus. They alleged that the
investigating committee was acting with grave abuse of discretion because its guidelines for investigation
place the burden of proof on them by requiring them to prove their innocence instead of requiring Secretary
Cario and his staff to adduce evidence to prove the charges against the teachers.
On May 30, 1991, petitioner-appellee Adriano S. Valencia of the Ramon Magsaysay High School filed a
motion to intervene, alleging that he was in the same situation as petitioners since he had likewise been
charged and preventively suspended by respondent-appellant Cario for the same grounds as the other
petitioner-appellees and made to shoulder the burden of proving his innocence under the committees
guidelines. The trial court granted his motion on June 3, 1991 and allowed him to intervene.
On June 11, 1991, the Solicitor General answered the petitioner for certiorari and mandamus in behalf
of respondent DECS Secretary. In the main he contended that, in accordance with the doctrine of primary
resort, the trial court should not interfere in the administrative proceedings.
The Solicitor General also asked the trial court to reconsider its order of June 3, 1991, allowing
petitioner-appellee Adriano S. Valencia to intervene in the case.
Meanwhile, the DECS investigating committee rendered a decision on August 6, 1991, finding the
petitioner-appellees guilty, as charged and ordering their immediate dismissal.
On August 15, 1991, the trial court dismissed the petition for certiorari and mandamus for lack of
merit.Petitioner-appellees moved for a reconsideration, but their motion was denied on September 11, 1991.
The teachers then filed a petition for certiorari with the Supreme Court which, on February 18, 1992,
issued a resolution en banc declaring void the trial courts order of dismissal and reinstating petitionerappellees action, even as it ordered the latters reinstatement pending decision of their case.
Accordingly, on March 25, 1992, the trial court set the case for hearing. June 8, 1992, it issued a pretrial order which reads:
As prayed for by Solicitor Bernard Hernandez, let this case be set for pre-trial conference on June 17, 1992 at
1:30 p.m., so as to expedite the proceedings hereof. In which case, DECS Secretary Isidro Cario, as the

principal respondent, is hereby ordered to PERSONALLY APPEAR before this Court on said date and time,
with a warning that should he fail to show up on said date, the Court will declare him as IN DEFAULT. Stated
otherwise, for the said Pre-Trial Conference, the Court will not recognize any representative of his.
By agreement of the parties, the trial conference was reset on June 26, 1992. However, Secretary
Cario failed to appear in court on the date set. It was explained that he had to attend a conference in
Maragondon, Cavite. Instead, he was represented by Atty. Reno Capinpin, while the other respondents were
represented by Atty. Jocelyn Pili. But the court just the same declared them as in default. The Solicitor General
moved for a reconsideration, reiterating that Cario could not personally come on June 26, 1992 because of
prior commitment in Cavite. It was pointed out that Cario was represented by Atty. Reno Capinpin, while the
other respondents were represented by Atty. Jocelyn Pili, both of the DECS-NCR and that both had special
powers of attorney. But the Solicitor Generals motion for reconsideration was denied by the trial court. In its
order of July 15, 1992, the court stated:
The Motion For Reconsideration dated July 3, 1992 filed by the respondents thru counsel, is hereby DENIED
for lack of merit. It appears too obvious that respondents simply did not want to comply with the lawful orders
of the Court.
The respondents having lost their standing in Court, the Manifestation and Motion, dated July 3, 1992 filed by
the Office of the Solicitor General is hereby DENIED due course.
SO ORDERED.
On July 3, 1992, the Solicitor General informed the trial court that Cario had ceased to be DECS
Secretary and asked for his substitution. But the court failed to act on his motion.
The hearing of the case was thereafter conducted ex parte with only the teachers allowed to present
their evidence.
On August 10, 1992, the trial court rendered a decision, in which it stated:
The Court is in full accord with petitioners contention that Rep. Act No. 4670 otherwise known as the Magna
Carta for Public School Teachers is the primary law that governs the conduct of investigation in administrative
cases filed against public school teachers, with Pres. Decree No. 807 as its supplemental law. Respondents
erred in believing and contending that Rep. Act. No. 4670 has already been superseded by the applicable
provisions of Pres. Decree No. 807 and Exec. Order No. 292. Under the Rules of Statutory Construction, a
special law, Rep. Act. No. 4670 in the case at bar, is not regarded as having been replaced by a general law,
Pres. Decree No. 807, unless the intent to repeal or alter the same is manifest. A perusal of Pres. Decree No.
807 reveals no such intention exists, hence, Rep. Act No. 4670 stands. In the event that there is conflict
between a special and a general law, the former shall prevail since it evidences the legislators intent more
clearly than that of the general statute and must be taken as an exception to the General Act. The provision of
Rep. Act No. 4670 therefore prevails over Pres. Decree No. 807 in the composition and selection of the
members of the investigating committee. Consequently, the committee tasked to investigate the charges filed
against petitioners was illegally constituted, their composition and appointment being violative of Sec. 9 of
Rep. Act. No. 4670 hence all acts done by said body possess no legal color whatsoever.
Anent petitioners claim that their dismissal was effected without any formal investigation, the Court, after
consideration of the circumstances surrounding the case, finds such claim meritorious. Although it cannot be
gain said that respondents have a cause of action against the petitioner, the same is not sufficient reason to
detract from the necessity of basic fair play. The manner of dismissal of the teachers is tainted with illegality. It
is a dismissal without due process. While there was a semblance of investigation conducted by the
respondents their intention to dismiss petitioners was already manifest when it adopted a procedure provided

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for by law, by shifting the burden of proof to the petitioners, knowing fully well that the teachers would boycott
the proceedings thereby giving them cause to render judgment ex-parte.

Whether or not Respondent Court of Appeals seriously erred and committed grave abuse of discretion
in applying strictly the provision of R.A. No. 4670 in the composition of the investigating committee.

The DISMISSAL therefore of the teachers is not justified, it being arbitrary and violative of the teachers right to
due process. Due process must be observed in dismissing the teachers because it affects not only their
position but also their means of livelihood.

III

WHEREFORE, premises considered, the present petition is hereby GRANTED and all the questioned
orders/decisions of the respondents are hereby declared NULL and VOID and are hereby SET ASIDE.
The reinstatement of all the petitioners to their former positions without loss of seniority and promotional rights
is hereby ORDERED.
The payment, if any, of all the petitioners back salaries, allowances, bonuses, and other benefits and
emoluments which may have accrued to them during the entire period of their preventive suspension and/or
dismissal from the service is hereby likewise ORDERED.

Whether or not Respondent Court of Appeals committed grave abuse of discretion in dismissing the
appeal and in affirming the trial courts decision. [8]
These issues, all closely related, boil down to a single question: whether private respondents were
denied due process of law.
The Courts Ruling
The petition is bereft of merit. We agree with the Court of Appeals that private respondents were denied
due process of law.
Denial of Due Process

SO ORDERED.[5]
From this adverse decision of the trial court, former DECS Secretary Isidro Cario filed an appeal with
the Court of Appeals raising the following grounds:
I. The trial court seriously erred in declaring appellants as in default.
II. The trial court seriously erred in not ordering the proper substitution of parties.
III. The trial court seriously erred in holding that R.A. No. 4670, otherwise known as Magna
Carta for Public School Teachers, should govern the conduct of the investigations
conducted.
IV. The trial court seriously erred in ruling that the dismissal of the teachers are without due
process.[6]
As mentioned earlier, the Court of Appeals affirmed the RTC decision, holding in the main that private
respondents were denied due process in the administrative proceedings instituted against them.
Hence, this petition for review.[7]
The Issues
Before us, petitioners raise the following issues:
I
Whether or not Respondent Court of Appeals committed grave abuse of discretion in holding in effect
that private respondents were denied due process of law.
II

At the outset, we must stress that we are tasked only to determine whether or not due process of law
was observed in the administrative proceedings against herein private respondents. We note the Solicitor
Generals extensive disquisition that government employees do not have the right to strike. [9] On this point, the
Court, in the case of Bangalisan vs. Court of Appeals,[10] has recently pronounced, through Mr. Justice Florenz
D. Regalado:
It is the settled rule in this jurisdiction that employees in the public service may not engage in strikes. While the
Constitution recognizes the right of government employees to organize, they are prohibited from staging
strikes, demonstrations mass leaves, walk-outs and other forms of mass action which will result in temporary
stoppage or disruption of public services. The right of government employees to organize is limited only to the
formation of unions or associations, without including the right to strike.
More recently, in Jacinto vs. Court of Appeals,[11] the Court explained the schoolteachers right to
peaceful assembly vis-a-vis their right to mass protest:
Moreover, the petitioners here, except Merlinda Jacinto, were not penalized for the exercise of their right to
assemble peacefully and to petition the government for a redress of grievances. Rather, the Civil Service
Commission found them guilty of conduct prejudicial to the best interest of the service for having absented
themselves without proper authority, from their schools during regular school days, in order to participate in the
mass protest, their absence ineluctably resulting in the non-holding of classes and in the deprivation of
students of education, for which they were responsible. Had petitioners availed themselves of their free time -recess, after classes, weekends or holidays -- to dramatize their grievances and to dialogue with the proper
authorities within the bounds of law, no one -- not the DECS, the CSC or even this Court -- could have held
them liable for the valid exercise of their constitutionally guaranteed rights. As it was, the temporary stoppage
of classes resulting from their activity necessarily disrupted public services, the very evil sought to be
forestalled by the prohibition against strikes by government workers. Their act by its nature was enjoined by
the Civil Service law, rules and regulations, for which they must, therefore, be made answerable.[12]
In the present case, however, the issue is not whether the private respondents engaged in any
prohibited activity which may warrant the imposition of disciplinary sanctions against them as a result of
administrative proceedings. As already observed, the resolution of this case revolves around the question of
due process of law, not on the right of government workers to strike. The issue is not whether private
respondents may be punished for engaging in a prohibited action but whether, in the course of the

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investigation of the alleged proscribed activity, their right to due process has been violated. In short, before
they can be investigated and meted out any penalty, due process must first be observed.
In administrative proceedings, due process has been recognized to include the following: (1) the right to
actual or constructive notice of the institution of proceedings which may affect a respondents legal rights; (2) a
real opportunity to be heard personally or with the assistance of counsel, to present witnesses and evidence in
ones favor, and to defend ones rights; (3) a tribunal vested with competent jurisdiction and so constituted as to
afford a person charged administratively a reasonable guarantee of honesty as well as impartiality ; and (4) a
finding by said tribunal which is supported by substantial evidence submitted for consideration during the
hearing or contained in the records or made known to the parties affected. [13]
The legislature enacted a special law, RA 4670 known as the Magna Carta for Public School Teachers,
which specifically covers administrative proceedings involving public schoolteachers. Section 9 of said law
expressly provides that the committee to hear public schoolteachers administrative cases should be
composed of the school superintendent of the division as chairman, a representative of the local or any
existing provincial or national teachers organization and a supervisor of the division. The pertinent provisions
of RA 4670 read:
Sec. 8. Safeguards in Disciplinary Procedure. Every teacher shall enjoy equitable safeguards at each stage of
any disciplinary procedure and shall have:
a. the right to be informed, in writing, of the charges;

Petitioners argue that the DECS complied with Section 9 of RA 4670, because all the teachers who
were members of the various committees are members of either the Quezon City Secondary Teachers
Federation or the Quezon City Elementary Teachers Federation [15] and are deemed to be the representatives
of a teachers organization as required by Section 9 of RA 4670.
We disagree. Mere membership of said teachers in their respective teachers organizations does
not ipso facto make them authorized representatives of such organizations as contemplated by Section 9 of
RA 4670.Under this section, the teachers organization possesses the right to indicate its choice of
representative to be included by the DECS in the investigating committee. Such right to designate cannot be
usurped by the secretary of education or the director of public schools or their underlings. In the instant case,
there is no dispute that none of the teachers appointed by the DECS as members of its investigating
committee was ever designated or authorized by a teachers organization as its representative in said
committee.
Contrary to petitioners asseverations,[16] RA 4670 is applicable to this case. It has not been expressly
repealed by the general law PD 807, which was enacted later, nor has it been shown to be inconsistent with
the latter. It is a fundamental rule of statutory construction that repeals by implication are not favored. An
implied repeal will not be allowed unless it is convincingly and unambiguously demonstrated that the two laws
are so clearly repugnant and patently inconsistent that they cannot co-exist. This is based on the rationale that
the will of the legislature cannot be overturned by the judicial function of construction and interpretation. Courts
cannot take the place of Congress in repealing statutes. Their function is to try to harmonize, as much as
possible, seeming conflicts in the laws and resolve doubts in favor of their validity and co-existence. [17] Thus, a
subsequent general law does not repeal a prior special law, unless the intent to repeal or alter is manifest,
although the terms of the general law are broad enough to include the cases embraced in the special law. [18]

b. the right to full access to the evidence in the case;

c. the right to defend himself and to be defended by a representative of his choice and/or by his organization,
adequate time being given to the teacher for the preparation of his defense; and
c. the right to appeal to clearly designated authorities. No publicity shall be given to any disciplinary action
being taken against a teacher during the pendency of his case.
Sec. 9. Administrative Charges. Administrative charges against a teacher shall be heard initially by a
committee composed of the corresponding School Superintendent of the Division or a duly authorized
representative who would at least have the rank of a division supervisor, where the teacher belongs, as
chairman, a representative of the local or, in its absence, any existing provincial or national teachers
organization and a supervisor of the Division, the last two to be designated by the Director of Public
Schools. The committee shall submit its findings, and recommendations to the Director of Public Schools
within thirty days from the termination of the hearings: Provided, however, That where the school
superintendent is the complainant or an interested party, all the members of the committee shall be appointed
by the Secretary of Education.

The aforementioned Section 9 of RA 4670, therefore, reflects the legislative intent to impose a standard
and a separate set of procedural requirements in connection with administrative proceedings involving public
schoolteachers. Clearly, private respondents right to due process of law requires compliance with these
requirements laid down by RA 4670. Verba legis non est recedendum.
Hence, Respondent Court of Appeals, through Mr. Justice Vicente V. Mendoza who is now a member of
this Court, perceptively and correctly stated:
Respondent-appellants argue that the Magna Carta has been superseded by the Civil Service Decree (P.D.
No. 807) and that pursuant to the latter law the head of a department, like the DECS secretary, or a regional
director, like the respondent-appellant Nilo Rosas, can file administrative charges against a subordinate,
investigate him and take disciplinary action against him if warranted by his findings. Respondent-appellants
cite in support of their argument the following provisions of the Civil Service Decree (P.D. No. 807):
Sec. 37. Disciplinary Jurisdiction. -xxx xxx xxx

The foregoing provisions implement the Declaration of Policy of the statute; that is, to promote the
terms of employment and career prospects of schoolteachers.
In the present case, the various committees formed by DECS to hear the administrative charges
against private respondents did not include a representative of the local or, in its absence, any existing
provincial or national teachers organization as required by Section 9 of RA 4670. Accordingly, these
committees were deemed to have no competent jurisdiction. Thus, all proceedings undertaken by them were
necessarily void.They could not provide any basis for the suspension or dismissal of private respondents. The
inclusion of a representative of a teachers organization in these committees was indispensable to ensure an
impartial tribunal.It was this requirement that would have given substance and meaning to the right to be
heard. Indeed, in any proceeding, the essence of procedural due process is embodied in the basic
requirement of notice and a realopportunity to be heard.[14]

b) The heads of departments, agencies and instrumentalities xxx shall have jurisdiction to investigate and
decide matters involving disciplinary action against officers and employees under their jurisdiction xxx .
Sec. 38,. Procedure in Administrative Cases Against Non-Presidential Appointees. a) Administrative Proceedings may be commenced against a subordinate officer or the employee by the head
of department or officer of equivalent rank, or head of local government, or chiefs of agencies, or regional
directors, or upon sworn, written complaint of any other persons.

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There is really no repugnance between the Civil Service Decree and the Magna Carta for Public School
Teachers. Although the Civil Service Decree gives the head of department or the regional director jurisdiction
to investigate and decide disciplinary matters, the fact is that such power is exercised through committees. In
cases involving public school teachers, the Magna Carta provides that the committee be constituted as
follows:
Sec. 9. Administrative Charges. - Administrative charges against a teacher shall be heard initially by a
committee composed of the corresponding School Superintendent of the Division or a duly authorized
representative who would at least have the rank of a division supervisor, where the teacher belongs, as
chairman, a representative of the local or, in its absence, any existing provincial or national teachers
organization and a supervisor of the Division, the last two to be designated by the Director of Public
Schools. The committee shall submit its findings, and recommendations to the Director of Public Schools
within thirty days from the termination of the hearings: Provided, however, that where the school
superintendent is the complainant or an interested party, all the members of the committee shall be appointed
by the Secretary of Education.
Indeed, in the case at bar, neither the DECS [s]ecretary nor the DECS-NCR regional director personally
conducted the investigation but entrusted it to a committee composed of a division supervisor, secondary and
elementary school teachers, and consultants. But there was no representative of a teachers organization. This
is a serious flaw in the composition of the committee because the provision for the representation of a
teachers organization is intended by law for the protection of the rights of teachers facing administrative
charges.
There is thus nothing in the Magna Carta that is in any way inconsistent with the Civil Service Decree insofar
as procedures for investigation is concerned. To the contrary, the Civil Service Decree, [S]ec. 38(b) affirms the
Magna Carta by providing that the respondent in an administrative case may ask for a formal investigation,
which was what the teachers did in this case by questioning the absence of a representative of a teachers
organization in the investigating committee.
The administrative committee considered the teachers to have waived their right to a hearing after the latters
counsel walked out of the preliminary hearing. The committee should not have made such a ruling because
the walk out was staged in protest against the procedures of the committee and its refusal to give the teachers
counsel a copy of the guidelines. The committee concluded its investigation and ordered the dismissal of the
teachers without giving the teachers the right to full access of the evidence against them and the opportunity
to defend themselves. Its predisposition to find petitioner-appellees guilty of the charges was in fact noted by
the Supreme Court when in its resolution in G.R. No. 101943 (Rosario Septimo v. Judge Martin Villarama, Jr.)
it stated:

of private respondents and the payment to them of salaries, allowances, bonuses and other benefits that
accrued to their benefit during the entire duration of their suspension or dismissal. [21] Because the
administrative proceedings involved in this case are void, no delinquency or misconduct may be imputed to
private respondents. Moreover, the suspension or dismissal meted on them is baseless. Private respondents
should, as a consequence, be reinstated [22] and awarded all monetary benefits that may have accrued to them
during the period of their unjustified suspension or dismissal. [23] This Court will never countenance a denial of
the fundamental right to due process, which is a cornerstone of our legal system.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any
reversible error on the part of the Court of Appeals. The assailed Decision is thus AFFIRMED.
SO ORDERED.
G.R. No. 89687 September 26, 1990
MARIA B. LUPO, petitioner,
vs
ADMINISTRATIVE ACTION BOARD (AAB) (Department of Transportation & Communications Republic
of the Philippines) and JUSTICE ONOFRE A. VILLALUZ, respondents.
Baga, Castronuevo, Balitaan & Associates for petitioner.

PARAS, J.:
In this petition for prohibition, petitioner seeks the issuance of an order or writ of prohibition which would direct
public respondents Administrative Action Board and Chairman Onofre A. Villaluz to permanently desist from
assuming jurisdiction over Adm. Case No. AAB-034-88 until the same is finally disposed of by the Telecoms
Office, Region V at Legaspi City and to refrain from issuing orders setting the aforecited case for hearing.
Petitioner substantially assails the Resolution dated September 30, 1988 of then Secretary Rainerio O. Reyes
of the Department of Transportation and Communications which suspended her for one year and disqualified
her for promotion for a period of one year and also, the Order of July 5, 1989 of Chairman Onofre A. Villaluz of
the Administrative Action Board of said department which set Adm. Case No. AAB-034-88 for trial.

The facts and issues in this case are similar to the facts and issues in Hon. Isidro Cario, et al. v. Hon. Carlos
C. Ofilada, et al. G.R. No. 100206, August 22, 1961.

The prefatory facts are:

As in the Cario v. Ofilada case, the officials of the Department of Culture and Education are predisposed to
summarily hold the petitioners guilty of the charges against them. In fact, in this case Secretary Cario, without
awaiting formal administrative procedures and on the basis of reports and implied admissions found the
petitioners guilty as charged and dismissed them from the service in separate decisions dated May 16, 1991
and August 6, 1991. The teachers went to court.The Court dismissed the case. [19]

On November 5, 1987, Fructuoso B. Arroyo, OIC/CDO, Message Center and then CDO of Telecom Office
stationed at Buhi, Camarines Sur, filed a complaint for Dishonesty Thru Falsification (Multiple) of Official
Documents against Maria B. Lupo, herein petitioner, as Chief of Personnel Section, Telecom Office, Region V
at Legaspi City. The complaint was based on the alleged exclusion of several names from the Certification (on
the list of employees) submitted by petitioner in compliance with a Confidential Memorandum of Director Claro
Morante.

Furthermore, this Court sees no valid reason to disregard the factual findings and conclusions of the
Court of Appeals. It is not our function to assess and evaluate all over again the evidence, testimonial and
documentary, adduced by the parties particularly where, such as here, the findings of both the trial court and
the appellate court coincide.[20]
It is as clear as day to us that the Court of Appeals committed no reversible error in affirming the trial
courts decision setting aside the questioned orders of petitioners; and ordering the unqualified reinstatement

The aforesaid complaint was actually triggered off by the inquiry of Ignacio B. Arroyo, brother of complainant
Fructuoso B. Arroyo, into the alleged illegal termination of the former's niece, Nenita Arroyo Noceda, as a daily
wage clerk at Buhi Telecom Exchange in Camarines Sur, in violation of a contract previously entered into
between a certain Gloria D. Palermo, lot donor and former Bureau Director Ceferino S. Carreon, donee of the
lot. The lot is located at Sta. Clara, Buhi on which the Telecom Office was to be constructed. This inquiry of
Ignacio B. Arroyo was dismissed for lack of merit on September 16, 1987.

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It appears that the basis for the complaint of Fructuoso Arroyo from whom Ignacio sought assistance was
petitioner's exclusion of certain names of newly hired employees in Region V who appeared related to certain
ranking officials of the region, for the purpose of keeping under wraps the appointment of said employees from
Ignacio Arroyo who had previously complained of the alleged illegal termination of his niece Nenita A. Noceda.
Petitioner had to falsify the list which she submitted in compliance with Regional Director Morante's
Confidential Memorandum to the alleged prejudice of Noceda and for the purpose of protecting her future
interest in the sense that those excluded (who should have been included) were close relatives of ranking
officials of the Telecommunications Office of Region V. Telecom Investigator Florencio Calapano, acting on the
unverified complaint of Fructuoso Arroyo, conducted an informal fact-finding inquiry and came out with a
Memorandum recommending that petitioner be sternly warned that a repetition of a similar offense in the
future would be dealt with more drastically and that the case should be considered closed.
Based solely on the aforesaid Memorandum, the Secretary of the Department of Transportation and
Communications handed down a Resolution on September 30, 1988 finding petitioner "guilty as charged" and
suspending her for one year and disqualify her for promotion for a period of one year. Petitioner moved for
reconsideration of the resolution but the same was denied. She thus appealed the resolution and order of
denial of the motion for reconsideration to the Civil Service Commission for review, anchoring her appeal on
lack of due process in the proceedings.
On March 2, 1989 the Civil Service Commission, thru its Merit Systems Board, issued the Order setting aside
the resolution of the Department of Transportation and Communications and remanding the case to the
Telecom Office of Region V for further investigation to conform with the procedural requirements of due
process.
Instead of complying with the above order, respondent Chairman Villaluz of the AAB issued the Order of July
5, 1989 setting the case for trial on August 3, 1989.
On August 2, 1989, petitioner filed a Manifestation and Motion informing respondent Villaluz that no formal
charge had been instituted by the Telecommunications Office against her and respondents, therefore, had no
jurisdiction over the case. Respondents denied said manifestation and motion for lack of merit in the Order of
August 7, 1989 and again set the case for hearing on August 23, 1989.
Hence, this petition.
Petitioner avers that respondent AAB never acquired jurisdiction over Adm. Case No. AAB-034-88 because of
the absence of a formal charge against her and that the proceedings conducted by Regional Investigator
Florencio Calapano was a mere fact-finding inquiry.
Respondent Chairman of the AAB however, contends that the Order of the Merit Systems Board of the Civil
Service Commission was rendered without lawful authority since petitioner's appeal to said Board was filed
when the assailed resolution had already become final and executory; that the Board, not having acquired
jurisdiction to entertain the appeal for having been filed beyond the reglementary period could not have legally
rendered its decision in the said administrative case. Likewise, respondents claim that Regional Office No. V
could no longer take cognizance of the case as per order of the Merit Systems Board for the reason that the
decision had already become final and executory.
Complaints against employees, like petitioner herein, who belong to the Civil Service Career System are still
governed by P.D. No. 807. This mandate of P.D. No. 807 has been recognized and implemented by
respondent Administrative Action Board when it declared in Office Order No. 88-318 dated July 1, 1988 that
the Board shall observe the pertinent civil service rules and policies designed to expedite action on cases
referred to it. (Emphasis supplied)

SECTION 37. Disciplinary Jurisdiction. (a) The Commission shall decide upon
appeal all administrative disciplinary cases involving the imposition of a penalty of
suspension for more than thirty days, or fine in an amount, exceeding thirty days'
salary, demotion in rank or salary or transfer, removal or dismissal from office. A
complaint may be filed directly with the Commission by a private citizen against a
government official or employee in which case it may hear any department or agency
or and decide the case or it may deputize official or group of officials to conduct the
investigation. The results of the investigation shall be submitted to the Commission with
recommendation as to the penalty to be imposed or other action to be taken.
(b) The heads of departments, agencies and instrumentalities, provinces, cities and
municipalities shall have jurisdiction to investigate and decide matters involving
disciplinary action against officers and employees under their jurisdiction. Their
decisions shall be final in case the penalty imposed is suspension for not more than
thirty days or fine in an amount not exceeding thirty days' salary. In case the decision
rendered by a bureau or office head is appealable to the Commission, the same may
be initially appealed to the department and finally to the Commission and pending
appeal, the same shall be executory except when the penalty is removal, in which case
the same shall be executory only after confirmation by the department head.
(c) An investigation may be entrusted to regional director or similar officials who shall
make the necessary report and recommendation to the chief of bureau or office or
department within the period specified in Paragraph (d) of the following Section.
(d) An appeal shall not stop the decision from being executory, and in case the penalty
is suspension or removal, the respondent shall be considered as having been under
preventive suspension during the pendency of the appeal in the event he wins an
appeal.
SEC. 38. Procedure in Administrative Cases Against Non-Presidential Appointees.
a) Administrative proceedings may be commenced against a subordinate officer or
employee by the head of department or office of equivalent rank, or head of local
government, or chiefs of agencies, or regional directors, or upon sworn, written
complaint of any other persons.
(b) In the case of a complaint filed by any other persons, the complainant shall submit
sworn statements covering his testimony and those of his witnesses together with his
documentary evidence. If on the basis of such papers a prima facie case is found not
to exist, the disciplining authority shall dismiss the case. If a prima facie case exist, he
shall notify the respondent in writing, of the charges against the latter, to which shall be
attached copies of the complaint, sworn statements and other documents submitted,
and the respondent shall be allowed not less than seventy-two hours after receipt of
the complaint to answer the charges in writing under oath, together with supporting
sworn statements and documents, in which he shall indicate whether or not he elects a
formal investigation if his answer is not considered satisfactory. If the answer is found
satisfactory, the disciplining authority shall dismiss the case.
(c) Although a respondent does not request a formal investigation, one shall
nevertheless be conducted when from the allegations of the complaint and the answer
of the respondent, including the supporting documents, the merits of the case cannot
be decided judiciously without conducting such an investigation. . . .
Petitioner's contentions appear meritorious.

The pertinent provisions of the aforecited Civil Service Law read as follows:

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It should be noted that under Section 37 (b) as aforequoted, the decisions of heads of departments become
final only in cases where the penalty imposed is suspension for not more than thirty (30) days or fine in an
amount not exceeding thirty (30) days' salary. In the case, therefore, of petitioner who had been made to suffer
the penalty of suspension for one (1) year, such penalty should not have been implemented without the appeal
to the Civil Service Commission for proper review.
Notably, paragraph (a) of the above Section explicitly provides that the Commission shall decide upon appeal
all administrative disciplinary cases involving the imposition of a penalty of suspension for more than 30 days,
or fine in an amount exceeding 30 days' salary. Clearly, the enforcement of the penalty imposed upon
petitioner under the resolution of the Secretary of the Department of Transportation and Communications was
premature.
From the very start, the basis upon which this case was investigated had been defective and irregular. For, the
letter-complaint of Fructuoso Arroyo was not verified and yet, the same was haphazardly made the basis of
the informal inquiry. It should be stressed that par. (a) of Sec. 38 mandates that administrative proceedings
may be commenced against an employee by the head of the department or office of equivalent rank or upon
sworn written complaint of any other person. It should also be noted that under paragraph (b) of said Section,
a respondent is given the option to elect a formal investigation of the charge against him if his answer is not
found satisfactory. In the case of petitioner, it appears that when her answer to the unverified complaint was
found unsatisfactory, she was never given a chance to decide whether or not to submit herself to a formal
investigation.
The Memorandum of Telecom Investigator Calapano to the Regional Director is merely recommendatory since
it was only the outcome of a fact finding investigation based on the unverified complaint. Note that the informal
investigation was only an inquiry into the alleged dishonest acts of petitioner in which case, the Memorandum
could not be made as the basis for any final resolution of the case. The legal and proper procedure should
have been for the Regional Director of Region V, the alter ego of the department secretary to initiate the formal
complaint on the basis of the results of the inquiry of the Telecom Investigator. Instead of observing the
mandatory rules on formal investigations as prescibed by PD No. 807, the DOTC Secretary cut corners and
apparently railroaded this case by rendering the assailed resolution.
Even the Telecom Investigator did not know what he was doing. He exceeded his authority by imposing in the
Memorandum a penalty in the form of a warning to petitioner. His job was limited to an inquiry into the facts
and a determination on whether or not a prima facie case existed. His findings were merely preparatory to the
filing of the necessary formal administrative case by the Regional Director.
It should be noted with alarm that the Telecom Director who was supposed to review the findings of the
Telecom Investigator merely affixed his approval within the Memorandum (p. 7 of Memorandum), thus
obviously indicating that he never reviewed the merits of the case.
It appears highly irregular that Asst. Secretary Sibal of the DOTC, in his letter dated August 2, 1989 to
Chairman Villaluz of the Administrative Action Board, informed the latter that his Office did not file any
administrative complaint against petitioner nor had it filed a formal charge against her for whatever
administrative offense. Note that even with this letter, Chairman Villaluz proceeded to order the hearing of this
case. This is a clear indication that for lack of coordination among the DOTC authorities and the Regional
Office, the mandatory requirements of due process to which petitioner was entitled were irreverently ignored.

the tribunal or body or any of its judges must act on its or his own independent consideration of the law and
facts of the controversy, and not simply accept the views of a subordinate; (7) the board or body should in all
controversial questions, render its decision in such manner that the parties to the proceeding can know the
various issues involved, and the reason for the decision rendered. (Emphasis supplied)
Evidently, respondents denied petitioner her right to a formal and full-blown administrative proceedings which
she never had.
WHEREFORE, the Resolution dated September 30, 1988 of the Secretary of the Department of
Transportation and Communications and the proceedings before the Administrative Action Board are hereby
declared NULL and VOID. The Secretary of the DOTC is hereby directed to restore to petitioner's record of
service the period which she served under suspension and to delete from her personnel file the period within
which she was disqualified for promotion.
SO ORDERED.
G.R. No. 93868

February 19, 1991

ARDELIZA MEDENILLA, petitioner,

vs.
CIVIL SERVICE COMMISSION, AMPARO DELLOSA, ROSALINDA JURIA and MARITA
BURDEOS,respondents.

GUTIERREZ, JR., J.:

This is a petition seeking the annulment of the resolutions issued by the Civil Service Commission which
disapproved the appointment of the petitioner to the position of Supervising Human Manpower Development
Officer.
Petitioner Ardeliza Medenilla was a contractual employee of the Department of Public Works and Highways
(DPWH) occupying the position of Public Relations Officer II.
In 1987, Medenilla was detailed as Technical Assistant in the Office of the Assistant Secretary for
Administration and Manpower Management.
Pursuant to Executive Order No. 124 dated January 30, 1987, a reorganization ensued within the DPWH and
all the positions therein were abolished. A revised staffing pattern together with the guidelines on the selection
and placement of personnel was issued.
Included in the revised staffing pattern is the contested position of Supervising Human Resource Development
Officer.
On January 2, 1989, the petitioner was appointed to the disputed position.

Thus, in the case of Jose Rizal College v. National Labor Relations Commission (G.R. No. 65482, December
1, 1987) this Court reiterated the "cardinal primary" requirements of due process in administrative proceedings
and these are: (1) the right to a hearing which includes, the right to present one's case and submit evidence in
support thereof; (2) the tribunal must consider the evidence presented; (3) the decision must have something
to support itself, (4) the evidence must be substantial, and substantial evidence means such evidence as a
reasonable mind must accept as adequate to support a conclusion; (5) the decision must be based on the
evidence presented at the hearing, or at least contained in the record and disclosed to the parties affected; (6)

On January 27, 1989, respondents Amparo Dellosa, Rosalinda Juria and Marita Burdeos together with Matilde
Angeles, Catalina Espinas, Alicia Nercelles and Ramon Racela, all of whom are employees in the Human
Resource Training and Material Development Division, Administrative and Manpower Management Service of
the DPWH, jointly lodged a protest before the DPWH task force on reorganization contesting the appointment
of the petitioner to the position.

130

The protestants alleged that since they are next-in-rank employees, one of them should have been appointed
to the said position.

The petitioner on March 23, 1990 filed a motion for reconsideration of the resolution. On May 30, 1990 a
supplement to the Motion for Reconsideration was also filed. However, prior thereto, the Commission on May
23, 1990 denied the petitioner's motion for reconsideration. The pertinent portions of the denial are:

On August 2, 1989, the task force on reorganization dismissed the protest. The dispositive portion of its
decision reads as follows:
Premises considered, the Task Force on Reorganization Appeals finds the instant protest of
Matilde Angeles, et al. without merit and hereby recommends to the Honorable Secretary that the
appointment of Ardeliza Medenilla to the contested position of Supervising Human Resource
Development Officer be upheld. (Rollo, p. 26)
Not satisfied, the private respondents appealed the decision to the Civil Service Commission. The Commission
found:
On the onset, it appears that protestee Medenilla does not possess the required qualifications for
the position. . . . Moreover, her eligibility is PD 907, being a cum laude graduate. Let it be
considered appropriate only for appointment to "second level positions" which require the
application of knowledge and skills within the appointee's field of study. (Rollo, p. 28-29)
xxx

xxx

xxx

xxx

xxx

2. Experience of Medenilla
Medenilla alleges that the Commission failed to appreciate her 3 years and 8 months of experience
directly relevant to Human Resource Development. Looking more deeply into her experience as
reflected in her CS Form 212, we could not distinguish her experience directly relevant to the field
of Human Resource Development. The certification of a certain Elvira H. Villania stated her duties
in the Guthrie-Jensen Consultants, Inc. in her one (1) year and (7) months as Research and
Publication Officer of working included "providing research assistance to our Management
Consultants in drawing up performance appraisal system, merit promotion system and conducting
development for our client-companies." Notwithstanding, assuming that her 1 year and 7 months
experience in the company is relevant, yet, compared to the experience of the protestants in the
field of Human Resource Development, said experience is obviously outweighed. There is no
dispute that Medenilla has experience as a Researcher but said experience is basically on the field
of journalism and information. (Rollo, p. 35)

xxx
xxx

Further, it also appears that Medenilla is a contractual employee assigned or detailed with the
Office of the Assistant Secretary for Administrations and Manpower Management (the appointing
authority) as Public Relations Officer II, while protestants are all permanent employee of the
Division (Human Resources Planning) where the vancancy exist.
Indeed, RA 6656 does not preclude the appointment of contractuals to a new staffing pattern,
however, in the presence and availability of qualified permanent next-in-rank employees in the
organization, the latter has to be preferred, unless a contractual employee possesses superior
qualifications that could justify her appointment. However, in this case, we see no superior
qualifications or any special reasons for preferring Medenilla over the protestants. (Rollo, p. 29)
We find merit in the protest. While as earlier mentioned, the appointing authority is given the wide
latitude of discretion, to sustain the appointment of Medenilla may give the appointing power
unnecessary opportunities to act capriciously and thus thwart the natural and reasonable
expectation of the officer next-in-rank to any vacant position, to be promoted to it As held
in Millares v. Subido, G.R. No. L-23281, promulgated August 10, 1967, the Supreme Court held:
We, therefore, hold that in the event of there occurring a vacancy, the officer next-in-rank must, as
far as practicable and as the appointing authority sees it in his best judgment and estimation, be
promoted . . . and that it is only in cases of promotion, where an employee other than the ranking
one is promoted, is the appointing power under duty to give "special reason or reasons" for his
action . . . .

xxx

xxx

4. Education background and eligibility of Medenilla.

. . . Notwithstanding, we are inclined to reconsider our position that the educational background is
not relevant. AB may therefore be taken as a relevant degree for purposes of qualifying to the
position. As such, her PD 907 eligibility may be considered appropriate." (Rollo, p. 37)
xxx

xxx

xxx

Granting for the sake of argument that the DPWH adhered to its rules relative to reorganization, is
at this point, no longer material and controlling. What is now the issue is whether Medenilla indeed
possesses superior qualifications over any of the protestants. (Rollo, p. 38)
xxx

xxx

xxx

The edge of 1.30% of Medenilla over Dellosa cannot be considered by this Commission significant
enough to presume and declare that Medenilla possesses far superior qualifications over the
protestant and to warrant the appointment of a contractual employee over a permanent employee
of the Department. (Rollo, p. 39)
Hence, this petition.

Again, the special reasons advanced by the appointing authority in this case is (sic) not enough.
Considering further that appointee is not meeting the minimum qualification standards set by his
own office, she could not be said to possess far superior qualification than those permanent nextin-rank employees of the Department. (Rollo, pp. 30-31)

The petitioner interposes the following grounds:

I

Thus, on February 28, 1990, the Commission promulgated the assailed resolution, the dispositive portion of
which reads:
WHEREFORE, foregoing premises considered, the Commission resolved to disapprove the
promotional appointment of Ardeliza Medenilla to the position of Supervising Human Manpower
Development Officer. Accordingly, the appointing authority may choose from among protestants
Amparo Dellosa, Marita Burdeos and Rosalinda Juria who to promote to the said position. The
Civil Service Field Office is directed to implement this resolution accordingly." (Rollo, p. 31)

The resolutions were issued by the Respondent Commission, without giving notice to the petitioner
of the existence of an appeal filed before the CSC, thereby denying the petitioner due process of
law.
II

131

The Civil Service Commission committed grave abuse of discretion amounting to lack of
jurisdiction in disapproving the appointment of the petitioner. Its function, is limited only to
determine whether the appointee possesses the appropriate civil service eligibility and not whether
another is more qualified than the petitioner.
Without giving due course to the petition, the Court on July 10, 1990, issued a temporary restraining order
enjoining the Commission from implementing the assailed resolutions.

with at least human resource Officer

9 units in post development Manpower
Development
Officer

Anent the first ground, the petitioner contends that she was not notified by the Civil Service Commission of the
existence of the appeal before it. The resolutions, therefore, were allegedly issued in violation of the
petitioner's constitutionally guaranteed due process of law.
The public respondent, on the other hand, advances the argument that what due process abhors is not lack of
previous notice but the absolute lack of opportunity to be heard. Since the petitioner filed a motion for
reconsideration, she cannot now complain that she was deprived of due process.

Relevant RA
1080
Relevant

The petitioner's first contention is without merit.

Second Level

"Due process of law implies the right of the person affected thereby to be present before the tribunal which
pronounces judgment upon the question of life, liberty, and property in its most comprehensive sense; to be
heard, by testimony or otherwise, and to have the right of controverting, by proof, every material fact which
bears on the question of the light in the matter involved." (Black's Law Dictionary, 4th Edition, p. 590)

Eligibility

The essence of due process is the opportunity to be heard. The presence of a party is not always the
cornerstone of due process. (Asprec v. Itchon, 16 SCRA 921 [1966]; Auyong Hian v. Court of Tax Appeals, 59
SCRA 110 [1974]; Assistant Executive Secretary for Legal Affairs of the Office of the President of the
Philippines v. Court of Appeals, G.R. No. 76761, January 9, 1989). What the law prohibits is not the absence
of previous notice but the absolute absence thereof and lack of opportunity to be heard. (Tajonero v.
Lamarosa, 110 SCRA 438 [1981])

(Professional)

In the case at bar, any defect was cured by the filing of a motion for reconsideration. (see De Leon v. Comelec,
129 SCRA 117 [1984])
The second contention of the petitioner alleges that the Commission acted with grave abuse of discretion in
disapproving her appointment.
The public respondent views it otherwise. The Civil Service Commission asserts that being the Central
Personnel Agency of the Government, it is the final arbiter on civil service matters.
The Commission alleges, that, pursuant to RA 6656, the Commission is authorized to act on appeals by
aggrieved employees in the course of reorganization and, therefore, it has the power to reverse or modify any
decision brought before it on appeal.
The petitioner's second contention is impressed with merit.
The qualification standards for the contested position are as follows:
EDUCATION EXPERIENCE CIVIL SERVICE
REQUIREMENT REQUIREMENT ELIGIBILITY
Bachelor's degree 2 years of Manpower-Youth
relevant to the job experience in Development

Career Service

First Grade
Supervisor
It is not disputed that the petitioner possesses the appropriate civil service eligibility and requisite educational
background. The public respondent itself, in its resolution dated May 23, 1990, considered the petitioner's PD
No. 907 eligibility appropriate for the position. (Rollo, p. 37)
The controversy then centers on the experience of the petitioner.
The Commission contends that the experience of Medenilla is basically in the field of journalism and not in
Human Resource Development. The Commission also alleges that since the petitioner is merely a contractual
employee, in the absence of superior qualifications, the private respondents must be preferred not only for the
reason that they are permanent career service employees but most especially because they are next-in-rank
to the disputed position.
In support of its argument, the Commission cited in the disputed resolution, the case of Millares v. Subido, 20
SCRA 954 where this Court held:
. . . A vacant position shall be filled by promotion of the ranking officer or employee. And only
where, for special reason or reasons of which the affected officer or employee will be notified, this
mode of recruitment on selection cannot be observed, that the position may be filled by transfer, or
re-employment, or by getting from the certified list of appropriate eligibles, in that order.
Finally, the public respondent advances the view that, since the Revised Administrative Code of 1987 now
provides that the Commission shall "take appropriate action on all appointment" its authority, therefore, is no
longer limited to the mere approval or disapproval of appointments submitted to it.
A careful review of the records of the case, will reveal that the petitioner possesses the requisite experience
for the contested position.

132

The petitioner, not only was a cum laude graduate from the University of the Philippines, she has also
acquired plenty of experience in the field of Human Resource Development, to wit:
She was rated and ranked number one in the Trainor's Training Program (120 hours) conducted
for the DPWH by the Phil-Tao, Inc., a private firm. Ms. Dellosa was ranked number 7, Mrs. Juria
was ranked number 10; Mrs. Burdeos did not attend the seminar. This training program was
undertaken to strengthen the capabilities of HRD personnel, and to make them more effective in
the discharge of their functions.
She is a recipient of a special commendation, given by Executive Director Remedios I. Rikken of
the National Commission in the Role of Filipino Woman, for her efficiency and exemplary
performance as a facilitator in the conduct of the workshops during the Second Congress of
Women in Government. (Letter of Ms. Rikken addressed to Sec. Estuar attached as ANNEX "B".).
She obtained in her on-going MBA studies at the De La Salle University, which she pursued as an
entrance scholar, the highest grade of 4.0, equivalent to "Excellent" in 2 HRD related subjects
Organizational Management which call for the integration of concepts with concrete experience.
She participated in the preparation and dissemination of the corporate planning processes installed
and institutionalized in the DPWH. Corporate Planning was introduced by Secretary Fiorello R.
Estuar and is now being implemented in all government offices as instructed by the President.
She conducted orientation/reorientation courses in DPWH Regional Offices on (a) Management By
Objectives and Results Evaluation, the Performance Appraisal System, and (b) a specifically
designed Performance Appraisal System for DPWH District Engineers and Division Chiefs, being
officially used by the DPWH.
She participated in the conceptualizing and drafting of the Department Order on the DPWH
Incentives and Awards System, set up in compliance with RA No. 6713." (Rollo, p. 63)
The public respondent failed to consider that the petitioner, in her one year and seven months experience with
Guthrie-Jensen was engaged in research relating to performance appraisal systems and merit promotion
systems which duties are all related to Human Resource Development.
Precisely, it was because of her experience with Guthrie-Jensen that the petitioner was detailed from January
1987 until December 1988 in the Office of the Assistant Secretary for Administration and Manpower
Management, where she was asked to assist in human resource planning.
The rejoinder filed during the proceedings before the Commission, by the Assistant Secretary for
Administrative and Manpower Management, Carolina Mangawang, is very revealing. The disputed position
requires of the holder of the office, skills in human resource developmental planning, research and statistics.
The petitioner possesses these skills in more than appropriate quantities.
The argument of the public respondent that the petitioner must possess superior qualifications in order to be
preferred over the private respondents deserves no credit.

xxx

xxx

Sec. 4. Officers and employees holding permanent appointments shall be given preference for
appointment to new positions in the approved staffing pattern comparable to their former positions
or if there are not enough comparable positions, to position next lower in rank.
Undoubtedly, old employees should be considered first. But it does not necessarily follow that they should then
automatically be appointed.
The preference given to permanent employees assumes that employees working in a Department for longer
periods have gained not only superior skills but also greater dedication to the public service. This is not always
true and the law, moreover, does not preclude the infusion of new blood, younger dynamism, or necessary
talents into the government service. If, after considering all the current employees, the Department Secretary
cannot find among them the person he needs to revive a moribund office or to upgrade second rate
performance, there is nothing in the Civil Service Law to prevent him from reaching out to other Departments
or to the private sector provided all his acts are bona fide for the best interest of the public service and the
person chosen has the needed qualifications. In the present case, there is no indication that the petitioner was
chosen for any other reason except to bring in a talented person with the necessary eligibilities and
qualifications for important assignments in the Department.
The reason behind P.D. No. 907 (which grants civil service eligibility to college graduates with at least cum
laudehonors) of attracting honor graduates into the public service would be negated if they always have to
start as Clerk I and wait for hundreds of deadwood above them to first go into retirement before they can hope
for significant and fulfilling assignments.
The Commission's reliance on the dictum in Millares v. Subido, 20 SCRA 954 [19671 is misplaced. The ruling
inMillares has already been superseded by later decisions. We have already held in cases subsequent to
Millares that the next-in-rank rule is not absolute; it only applies in cases of promotion (see Pineda v. Claudio,
28 SCRA 34 [19691). And even in promotions, it can be disregarded for sound reasons made known to the
next-in-rank. The appointing authority, under the Civil Service Law, is allowed to fill vacancies by promotion,
transfer of present employees, reinstatement, reemployment, and appointment of outsiders who have
appropriate civil service eligibility, not necessarily in that order. (see Pineda v. Claudio, supra; Luego v. Civil
Service Commission, 143 SCRA 327 [1986]) There is no legal fiat that a vacancy must be filled only by
promotion; the appointing authority is given wide discretion to fill a vacancy from among the several
alternatives provided for by law.
In this case, the contested position was created in the course of reorganization.1wphi1 The position appears
to be a new one. The applicability, therefore, of the next-in-rank rule does not come in clearly. Besides, as
earlier stated, said rule is not absolute. There are valid exceptions.
Granting for the sake of argument that the case involves a promotional appointment, the next-in-rank rule must
give way to the exigencies of the public service. The intent of the Civil Service Laws not merely to bestow
upon permanent employees the advantage arising from their long employment but most specially, it is to foster
a more efficient public service. Any other factor must, therefore, yield to the demand for an effective
government, which necessarily entails the appointment of competent, qualified and proficient personnel. The
deliberation of this Court in the case of Aguilar v. Nieva, Jr., 40 SCRA 113 [19711 is illuminating, to wit:
xxx

It can be readily seen that the petitioner possesses superior qualifications. As earlier stated, she is a cum
laude graduate of the University of the Philippines. She was ranked No. 1 in the department wide training
program handled by a private firm. Two of the respondents were ranked way below while a third did not even
participate. She was commended for exemplary performance as facilitator during the Second Congress of
Women in Government. She received the highest grades from De la Salle University in her MBA studies. She
helped draft the human resource program for the entire DPWH. Inspire of her being a new employee, she was
assigned to conduct seminars on Performance Appraisal Systems and on Management by Objectives and
Results for the DPWH. She was precisely drafted from a private firm to assist in human resource planning for
the DPWH. Her work is apparently highly satisfactory as the top administrators of the DPWH not only
appointed her but have asked the respondent Commission to validate the appointment.

xxx

xxx

xxx

. . . It is not enough that an aspirant is qualified and eligible or that he is next-in-rank or in line for
promotion, albeit by passive prescription. It is just necessary, in order for public administration to
be dynamic and responsive to the needs of the times, that the local executive be allowed the
choice of men of its confidence, provided they are qualified and eligible, who in his best estimation
are possessed of the requisite reputation, integrity, knowledgeability, energy and judgment.
(Emphasis supplied, p. 121)
The point raised by the public respondent that, pursuant to the Revised Administrative Code of 1987, it is
authorized to revoke appointments, must necessarily fail.

The respondents rely on Section 4 of R.A. 6656, which reads:

133

We have already ruled on several occasions that when the appointee is qualified, the Civil Service
Commission has no choice but to attest to the appointment. It is not within its prerogative to revoke an
appointee on the ground that substituting its judgment for that of the appointing power, another person has
better qualifications for the job.
Once the function is discharged, the participation of the Civil Service Commission in the appointment process
ceases. The only purpose of attestation is to determine whether the appointee possesses the requisite civil
service eligibility, no more than that is left for the Civil Service Commission to do. (see Luego v. CSC, 143
SCRA 327 [1986]; Central Bank of the Philippines v. CSC, 171 SCRA 744 [1989]; Secretary Oscar Orbos v.
CSC, G.R. No. 92561, September 12, 1990; Gaspar v. CSC, G.R. No. 90799, October 18, 1990).
The rationale of this doctrine is that the power of appointment is essentially discretionary. The discretion to be
granted to the appointing authority, if not plenary must at least be sufficient.
After all, not only is the appointing authority the officer primarily responsible for the administration of the office
but he is also in the best position to determine who among the prospective appointees can efficiently
discharge the functions of the position (see Villegas v. Subido, 30 SCRA 498 [1969]). As between the
Commission which only looks into paper qualifications and the appointing authority who views not only the
listed qualifications but also the prospective appointees themselves, the work to be accomplished, the
objectives of the Department, etc., the Court sustains the Department Head.
WHEREFORE, the petition is hereby GRANTED. The resolutions issued by the Civil Service Commission
dated February 28, 1990 and May 23, 1990 are SET ASIDE. The restraining order issued by this Court on July
10, 1990 is made permanent.
SO ORDERED.
[G.R. No. 126625. September 23, 1997]
KANLAON CONSTRUCTION ENTERPRISES CO., INC., petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, 5TH DIVISION, and BENJAMIN RELUYA, JR., EDGARDO GENAYAS,
ERNESTO CANETE, PROTACIO ROSALES, NESTOR BENOYA, RODOLFO GONGOB, DARIO
BINOYA, BENJAMIN BASMAYOR, ABELARDO SACURA, FLORENCIO SACURA, ISABELO
MIRA, NEMESIO LACAR, JOSEPH CABIGKIS, RODRIGO CILLON, VIRGILIO QUIZON,
GUARINO EVANGELISTA, ALEJANDRO GATA, BENEDICTO CALAGO, NILO GATA, DIONISIO
PERMACIO, JUANITO SALUD, ADOR RIMPO, FELIPE ORAEZ, JULIETO TEJADA, TEOTIMO
LACIO, ONOFRE QUIZON, RUDY ALVAREZ, CRESENCIO FLORES, ALFREDO PERMACIO,
CRESENCIO ALVIAR, HERNANI SURILA, DIOSDADO SOLON, CENON ALBURO, ZACARIAS
ORTIZ, EUSEBIO BUSTILLO, GREGORIO BAGO, JERRY VARGAS, EDUARDO BUENO,
PASCUAL HUDAYA, ROGELIO NIETES, and REYNALDO NIETES, respondents.
DECISION
PUNO, J.:

In 1990, private respondents filed separate complaints against petitioner before Sub-Regional
Arbitration Branch XII, Iligan City. Numbering forty-one (41) in all, they claimed that petitioner paid them wages
below the minimum and sought payment of their salary differentials and thirteenth-month pay. Engineers
Estacio and Dulatre were named co-respondents.
Some of the cases were assigned to Labor Arbiter Guardson A. Siao while the others were assigned to
Labor Arbiter Nicodemus G. Palangan. Summonses and notices of preliminary conference were issued and
served on the two engineers and petitioner through Engineer Estacio. The preliminary conferences before the
labor arbiters were attended by Engineers Estacio and Dulatre and private respondents. At the conference of
June 11, 1990 before Arbiter Siao, Engineer Estacio admitted petitioner's liability to private respondents and
agreed to pay their wage differentials and thirteenth-month pay on June 19, 1990. As a result of this
agreement, Engineer Estacio allegedly waived petitioner's right to file its position paper. [1] Private respondents
declared that they, too, were dispensing with their position papers and were adopting their complaints as their
position paper.[2]
On June 19, 1990, Engineer Estacio appeared but requested for another week to settle the
claims. Labor Arbiter Siao denied this request. On June 21, 1990, Arbiter Siao issued an order granting the
complaint and directing petitioner to pay private respondents' claims. Arbiter Siao held:
"x x x.
"Considering the length of time that has elapsed since these cases were filed, and what the complainants
might think as to how this branch operates and/or conducts its proceedings as they are now restless, this
Arbiter has no other alternative or recourse but to order the respondent to pay the claims of the complainants,
subject of course to the computation of the Fiscal Examiner II of this Branch pursuant to the oral manifestation
of respondent. The Supreme Court ruled: 'Contracts though orally made are binding on the parties.' (Lao Sok
v. Sabaysabay, 138 SCRA 134).
"Similarly, this Branch would present in passing that 'a court cannot decide a case without facts either admitted
or agreed upon by the parties or proved by evidence.' (Yu Chin Piao v. Lim Tuaco, 33 Phil. 92; Benedicto v.
Yulo, 26 Phil. 160),
"WHEREFORE, premises considered, the respondent is hereby ordered to pay the individual claims of the
above-named complainants representing their wage differentials within ten (10) days from receipt of this Order.
"The Fiscal Examiner II of this Branch is likewise hereby ordered to compute the individual claims of the herein
complainants.
"SO ORDERED." [3]
On June 29, 1990, Arbiter Palangan issued a similar order, thus:

In this petition for certiorari, petitioner Kanlaon Construction Enterprises Co., Inc. seeks to annul the
decision of respondent National Labor Relations Commission, Fifth Division and remand the cases to the
Arbitration Branch for a retrial on the merits.

"When the above-entitled cases were called for hearing on June 19, 1990 at 10:00 a.m. respondent thru their
representative manifested that they were willing to pay the claims of the complainants and promised to pay the
same on June 28, 1990 at 10:30 a.m.

Petitioner is a domestic corporation engaged in the construction business nationwide with principal
office at No. 11 Yakan St., La Vista Subdivision, Quezon City. In 1988, petitioner was contracted by the
National Steel Corporation to construct residential houses for its plant employees in Steeltown, Sta. Elena,
Iligan City. Private respondents were hired by petitioner as laborers in the project and worked under the
supervision of Engineers Paulino Estacio and Mario Dulatre. In 1989, the project neared its completion and
petitioner started terminating the services of private respondents and its other employees.

"However, when these cases were called purposely to materialize the promise of the respondent, the latter
failed to appear without any valid reason.
"Considering therefore that the respondent has already admitted the claims of the complainants, we believe
that the issues raised herein have become moot and academic.

134

"WHEREFORE, premises considered, the above-entitled cases are hereby ordered Closed and Terminated,
however, the respondent is hereby ordered to pay the complainants their differential pay and 13th-month pay
within a period of ten (10) days from receipt hereof based on the employment record on file with the
respondent.
"SO ORDERED." [4]
Petitioner appealed to respondent National Labor Relations Commission. It alleged that it was denied
due process and that Engineers Estacio and Dulatre had no authority to represent and bind
petitioner. Petitioner's appeal was filed by one Atty. Arthur Abundiente.
In a decision dated April 27, 1992, respondent Commission affirmed the orders of the Arbiters.
Petitioner interposed this petition alleging that the decision of respondent Commission was rendered
without jurisdiction and in grave abuse of discretion. Petitioner claims that:

"Section 4. Service of Notices and Resolutions.-- (a) Notices or summons and copies of orders, resolutions or
decisions shall be served on the parties to the case personally by the bailiff or duly authorized public officer
within three (3) days from receipt thereof or by registered mail; Provided that where a party is represented by
counsel or authorized representative, service shall be made on such counsel or authorized
representative; provided further that in cases of decision and final awards, copies thereof shall be served on
both the parties and their counsel; provided finally, that in case where the parties are so numerous, service
shall be made on counsel and upon such number of complainants as may be practicable, which shall be
considered substantial compliance with Article 224 (a) of the Labor Code, as amended.
"x x x.
"Section 5. Proof and completeness of service.-- The return is prima facie proof of the facts indicated therein.
Service by registered mail is complete upon receipt by the addressee or his agent. x x x."
Under the NLRC Rules of Procedure, summons on the respondent shall be served personally or by registered
mail on the party himself. If the party is represented by counsel or any other authorized representative or
agent, summons shall be served on such person.

"I
"THE QUESTIONED DECISION RENDERED BY THE HONORABLE COMMISSION IS A NULLITY, IT
HAVING BEEN ISSUED WITHOUT JURISDICTION;

It has been established that petitioner is a private domestic corporation with principal address in
Quezon City. The complaints against petitioner were filed in Iligan City and summonses therefore served on
Engineer Estacio in Iligan City. The question now is whether Engineer Estacio was an agent and
authorizedrepresentative of petitioner.

II
"PUBLIC RESPONDENT NATIONAL LABOR RELATIONS COMMISSION GRAVELY ABUSED ITS
DISCRETION IN ARBITRARILY, CAPRICIOUSLY AND WHIMSICALLY MAKING THE FOLLOWING
CONCLUSIONS BASED NOT ON FACTS AND EVIDENCE BUT ON SPECULATION, SURMISE AND
CONJECTURE:
A. Petitioner was deprived of the constitutional right to due process of law when it was adjudged by the NLRC
liable without trial on the merits and without its knowledge;
B. The NLRC erroneously, patently and unreasonably interpreted the principle that the NLRC and its
Arbitration Branch are not strictly bound by the rules of evidence;
C. There is no legal nor actual basis in the NLRC's ruling that petitioner is already in estoppel to disclaim the
authority of its alleged representatives.
D. The NLRC committed manifest error in relying merely on private respondents unsubstantiated complaints to
hold petitioner liable for damages." [5]
In brief, petitioner alleges that the decisions of the labor arbiters and respondent Commission are void
for the following reasons: (1) there was no valid service of summons; (2) Engineers Estacio and Dulatre and
Atty. Abundiente had no authority to appear and represent petitioner at the hearings before the arbiters and on
appeal to respondent Commission; (3) the decisions of the arbiters and respondent Commission are based on
unsubstantiated and self-serving evidence and were rendered in violation of petitioner's right to due process.
Service of summons in cases filed before the labor arbiters is governed by Sections 4 and 5 of Rule IV
of the New Rules of Procedure of the NLRC. They provide:

To determine the scope or meaning of the term "authorized representative" or "agent" of parties on
whom summons may be served, the provisions of the Revised Rules of Court may be resorted to. [6]
Under the Revised Rules of Court, [7] service upon a private domestic corporation or partnership must
be made upon its officers, such as the president, manager, secretary, cashier, agent, or any of its
directors. These persons are deemed so integrated with the corporation that they know their responsibilities
and immediately discern what to do with any legal papers served on them. [8]
In the case at bar, Engineer Estacio, assisted by Engineer Dulatre, managed and supervised the
construction project. [9] According to the Solicitor General and private respondents, Engineer Estacio attended
to the project in Iligan City and supervised the work of the employees thereat. As manager, he had sufficient
responsibility and discretion to realize the importance of the legal papers served on him and to relay the same
to the president or other responsible officer of petitioner. Summons for petitioner was therefore validly served
on him.
Engineer Estacio's appearance before the labor arbiters and his promise to settle the claims of private
respondents is another matter.
The general rule is that only lawyers are allowed to appear before the labor arbiter and respondent
Commission in cases before them. The Labor Code and the New Rules of Procedure of the NLRC,
nonetheless, lists three (3) exceptions to the rule, viz:
"Section 6. Appearances.-- x x x.
"A non-lawyer may appear before the Commission or any Labor Arbiter only if:
"(a) he represents himself as party to the case;

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"(b) he represents the organization or its members, provided that he shall be made to present written proof
that he is properly authorized; or
"(c) he is a duly-accredited member of any legal aid office duly recognized by the Department of Justice or the
Integrated Bar of the Philippines in cases referred thereto by the latter. x x x." [10]
A non-lawyer may appear before the labor arbiters and the NLRC only if: (a) he represents himself as a
party to the case; (b) he represents an organization or its members, with written authorization from them; or (c)
he is a duly accredited member of any legal aid office duly recognized by the Department of Justice or the
Integrated Bar of the Philippines in cases referred to by the latter. [11]
Engineers Estacio and Dulatre were not lawyers. Neither were they duly-accredited members of a legal
aid office. Their appearance before the labor arbiters in their capacity as parties to the cases was authorized
under the first exception to the rule. However, their appearance on behalf of petitioner required written proof of
authorization. It was incumbent upon the arbiters to ascertain this authority especially since both engineers
were named co-respondents in the cases before the arbiters. Absent this authority, whatever statements and
declarations Engineer Estacio made before the arbiters could not bind petitioner.
The appearance of Atty. Arthur Abundiente in the cases appealed to respondent Commission did not
cure Engineer Estacio's representation. Atty. Abundiente, in the first place, had no authority to appear before
the respondent Commission. The appellants' brief he filed was verified by him, not by petitioner. [12] Moreover,
respondent Commission did not delve into the merits of Atty. Abundiente's appeal and determine whether
Engineer Estacio was duly authorized to make such promise. It dismissed the appeal on the ground that
notices were served on petitioner and that the latter was estopped from denying its promise to pay.
Nevertheless, even assuming that Engineer Estacio and Atty. Abundiente were authorized to appear as
representatives of petitioner, they could bind the latter only in procedural matters before the arbiters and
respondent Commission. Petitioner's liability arose from Engineer Estacio's alleged promise to pay. A promise
to pay amounts to an offer to compromise and requires a special power of attorney or the express consent of
petitioner. The authority to compromise cannot be lightly presumed and should be duly established by
evidence.[13] This is explicit from Section 7 of Rule III of the NLRC Rules of Procedure, viz:
"Section 7. Authority to bind party.-- Attorneys and other representatives of parties shall have authority to bind
their clients in all matters of procedure; but they cannot, without a special power of attorney or express
consent, enter into a compromise agreement with the opposing party in full or partial discharge of a client's
claim."
The promise to pay allegedly made by Engineer Estacio was made at the preliminary conference and
constituted an offer to settle the case amicably. The promise to pay could not be presumed to be a single
unilateral act, contrary to the claim of the Solicitor General. [14] A defendant's promise to pay and settle the
plaintiff's claims ordinarily requires a reciprocal obligation from the plaintiff to withdraw the complaint and
discharge the defendant from liability. [15] In effect, the offer to pay was an offer to compromise the cases.

Section 3 of Rule V of the NLRC Rules of Procedure provides:

"Section 3. Submission of Position Papers/Memorandum.-- Should the parties fail to agree upon an amicable
settlement, in whole or in part, during the conferences, the Labor Arbiter shall issue an order stating therein
the matters taken up and agreed upon during the conferences and directing the parties to simultaneously file
their respective verified position papers.
"x x x."
After petitioner's alleged representative failed to pay the workers' claims as promised, Labor Arbiters
Siao and Palangan did not order the parties to file their respective position papers. The arbiters forthwith
rendered a decision on the merits without at least requiring private respondents to substantiate their
complaints. The parties may have earlier waived their right to file position papers but petitioner's waiver was
made by Engineer Estacio on the premise that petitioner shall have paid and settled the claims of private
respondents at the scheduled conference. Since petitioner reneged on its "promise," there was a failure to
settle the case amicably. This should have prompted the arbiters to order the parties to file their position
papers.
Article 221 of the Labor Code mandates that in cases before labor arbiters and respondent
Commission, they "shall use every and all reasonable means to ascertain the facts in each case speedily and
objectively and without regard to technicalities of law or procedure, all in the interest of due process." The rule
that respondent Commission and the Labor Arbiters are not bound by technical rules of evidence and
procedure should not be interpreted so as to dispense with the fundamental and essential right of due
process. [20] And this right is satisfied, at the very least, ' when the parties are given the opportunity to submit
position papers. [21] Labor Arbiters Siao and Palangan erred in dispensing with this requirement.
Indeed, the labor arbiters and the NLRC must not, at the expense of due process, be the first to
arbitrarily disregard specific provisions of the Rules which are precisely intended to assist the parties in
obtaining the just, expeditious and inexpensive settlement of labor disputes. [22]
IN VIEW WHEREOF, the petition for certiorari is granted. The decision of the National Labor Relations
Commission, Fifth Division, is annulled and set aside and the case is remanded to the Regional Arbitration
Branch, Iligan City for further proceedings.
SO ORDERED.
G.R. No. 110571 March 10, 1994
FIRST LEPANTO CERAMICS, INC., petitioner,
vs.
THE COURT OF APPEALS and MARIWASA MANUFACTURING, INC., respondents.

In civil cases, an offer to compromise is not an admission of any liability, and is not admissible in
evidence against the offeror. [16] If this rule were otherwise, no attempt to settle litigation could safely be
made. [17]Settlement of disputes by way of compromise is an accepted and desirable practice in courts of law
and administrative tribunals. [18] In fact, the Labor Code mandates the labor arbiter to exert all efforts to enable
the parties to arrive at an amicable settlement of the dispute within his jurisdiction on or before the first
hearing. [19]

Castillo, Laman, Tan & Pantaleon for petitioner.

Clearly, respondent Commission gravely abused its discretion in affirming the decisions of the labor
arbiters which were not only based on unauthorized representations, but were also made in violation of
petitioner's right to due process.

NOCON, J.:

De Borja, Medialdea, Ata, Bello, Guevarra & Serapio for private respondent.

136

Brought to fore in this petition for certiorari and prohibition with application for preliminary injunction is the
novel question of where and in what manner appeals from decisions of the Board of Investments (BOI) should
be filed. A thorough scrutiny of the conflicting provisions of Batas Pambansa Bilang 129, otherwise known as
the "Judiciary Reorganization Act of 1980," Executive Order No. 226, also known as the Omnibus Investments
Code of 1987 and Supreme Court Circular No. 1-91 is, thus, called for.
Briefly, this question of law arose when BOI, in its decision dated December 10, 1992 in BOI Case No. 92-005
granted petitioner First Lepanto Ceramics, Inc.'s application to amend its BOI certificate of registration by
changing the scope of its registered product from "glazed floor tiles" to "ceramic tiles." Eventually, oppositor
Mariwasa filed a motion for reconsideration of the said BOI decision while oppositor Fil-Hispano Ceramics, Inc.
did not move to reconsider the same nor appeal therefrom. Soon rebuffed in its bid for reconsideration,
Mariwasa filed a petition for review with respondent Court of Appeals pursuant to Circular 1-91.

Petitioner argues that the Judiciary Reorganization Act of 1980 or Batas Pambansa Bilang 129 and Circular 191, "Prescribing the Rules Governing Appeals to the Court of Appeals from a Final Order or Decision of the
Court of Tax Appeals and Quasi-Judicial Agencies" cannot be the basis of Mariwasa's appeal to respondent
court because the procedure for appeal laid down therein runs contrary to Article 82 of E.O. 226, which
provides that appeals from decisions or orders of the BOI shall be filed directly with this Court, to wit:
Judicial relief. All orders or decisions of the Board
(of Investments) in cases involving the provisions of this Code shall immediately be
executory. No appeal from the order or decision of the Board by the party adversely
affected shall stay such an order or decision; Provided, that all appeals shall be filed
directly with the Supreme Court within thirty (30) days from receipt of the order or
decision.

Acting on the petition, respondent court required the BOI and petitioner to comment on Mariwasa's petition
and to show cause why no injunction should issue. On February 17, 1993, respondent court temporarily
restrained the BOI from implementing its decision. This temporary restraining order lapsed by its own terms on
March 9, 1993, twenty (20) days after its issuance, without respondent court issuing any preliminary injunction.

On the other hand, Mariwasa maintains that whatever "obvious inconsistency" or "irreconcilable repugnancy"
there may have been between B.P. 129 and Article 82 of E.O. 226 on the question of venue for appeal has
already been resolved by Circular 1-91 of the Supreme Court, which was promulgated on February 27, 1991
or four (4) years after E.O. 226 was enacted.

On February 24, 1993, petitioner filed a "Motion to Dismiss Petition and to Lift Restraining Order" on the
ground that respondent court has no appellate jurisdiction over BOI Case No. 92-005, the same being
exclusively vested with the Supreme Court pursuant to Article 82 of the Omnibus Investments Code of 1987.

Sections 1, 2 and 3 of Circular 1-91, is herein quoted below:

On May 25, 1993, respondent court denied petitioner's motion to dismiss, the dispositive portion of which
reads as follows:
WHEREFORE, private respondent's motion to dismiss the petition is hereby DENIED,
for lack of merit.
Private respondent is hereby given an inextendible period of ten (10) days from receipt
hereof within which to file its comment to the petition. 1
Upon receipt of a copy of the above resolution on June 4, 1993, petitioner decided not to file any motion for
reconsideration as the question involved is essentially legal in nature and immediately filed a petition
for certiorariand prohibition before this Court.
Petitioner posits the view that respondent court acted without or in excess of its jurisdiction in issuing the
questioned resolution of May 25, 1993, for the following reasons:
I. Respondent court has no jurisdiction to entertain Mariwasa's appeal from the BOI's
decision in BOI Case No. 92-005, which has become final.
II. The appellate jurisdiction conferred by statute upon this Honorable Court cannot be
amended or superseded by Circular No. 1-91. 2
Petitioner then concludes that:

1. Scope. These rules shall apply to appeals from final orders or decisions of the
Court of Tax Appeals. They shall also apply to appeals from final orders or decisions of
any quasi-judicial agency from which an appeal is now allowed by statute to the Court
of Appeals or the Supreme Court. Among these agencies are the Securities and
Exchange Commission, Land Registration Authority, Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board, National Telecommunications
Commission, Secretary of Agrarian Reform and Special Agrarian Courts under RA
6657, Government Service Insurance System, Employees Compensation Commission,
Agricultural Inventions Board, Insurance Commission and Philippine Atomic Energy
Commission.
2. Cases not covered. These rules shall not apply to decisions and interlocutory
orders of the National Labor Relations Commission or the Secretary of Labor and
Employment under the Labor Code of the Philippines, the Central Board of
Assessment Appeals, and other quasi-judicial agencies from which no appeal to the
courts is prescribed or allowed by statute.
3. Who may appeal and where to appeal. The appeal of a party affected by a final
order, decision, or judgment of the Court of Tax Appeals or of a quasi-judicial agency
shall be taken to the Court of Appeals within the period and in the manner herein
provided, whether the appeal involves questions of fact or of law or mixed questions of
fact and law. From final judgments or decisions of the Court of Appeals, the aggrieved
party may appeal by certiorari to the Supreme Court as provided in Rule 45 of the
Rules of Court.
It may be called that Section 9(3) of B.P. 129 vests appellate jurisdiction over all final judgments, decisions,
resolutions, orders or awards of quasi-judicial agencies on the Court of Appeals, to wit:

III. Mariwasa has lost it right to appeal . . . in this case. 3

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions,
orders, awards of Regional Trial Courts and
quasi-judicial agencies, instrumentalities, boards or commissions, except those falling
within the appellate jurisdiction of the Supreme Court in accordance with the
Constitution, the provisions of this Act, and of subparagraph (1) of the third paragraph

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and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of
1948.
The Intermediate Appellate Court shall have the power to try cases and conduct
hearings, receive evidence and perform any and all acts necessary to resolve factual
issues raised in cases falling within its original and appellate jurisdiction, including the
power to grant and conduct new trials or further proceedings.
These provisions shall not apply to decisions and interlocutory orders issued under the
Labor Code of the Philippines and by the Central Board of Assessment Appeals.
Clearly evident in the aforequoted provision of B.P. 129 is the laudable objective of providing a uniform
procedure of appeal from decisions of all quasi-judicial agencies for the benefit of the bench and the bar.
Equally laudable is the twin objective of B.P. 129 of unclogging the docket of this Court to enable it to attend to
more important tasks, which in the words of Dean Vicente G. Sinco, as quoted in our decision in Conde
v. Intermediate Appellate Court 4is "less concerned with the decisions of cases that begin and end with the
transient rights and obligations of particular individuals but is more intertwined with the direction of national
policies, momentous economic and social problems, the delimitation of governmental authority and its impact
upon fundamental rights.
In Development Bank of the Philippines vs. Court of Appeals, 5 this Court noted that B.P. 129 did not deal only
with "changes in the rules on procedures" and that not only was the Court of Appeals reorganized, but its
jurisdiction and powers were also broadened by Section 9 thereof. Explaining the changes, this Court said:
. . . Its original jurisdiction to issue writs of mandamus,
prohibition, certiorari and habeas corpus, which theretofore could be exercised only in
aid of its appellate jurisdiction, was expanded by (1) extending it so as to include the
writ of quo warranto, and also (2) empowering it to issue all said extraordinary writs
"whether or not in aid of its appellate jurisdiction." Its appellate jurisdiction was also
extended to cover not only final judgments of Regional Trial Courts, but also "all final
judgments, decisions, resolutions, orders or awards of . . . quasi-judicial agencies,
instrumentalities, boards or commissions, except those falling within the appellate
jurisdiction of the Supreme Court in accordance with the Constitution, the provisions of
this Act, and of sub-paragraph (1) of the third paragraph and subparagraph (4) of the
fourth paragraph of Section 17 of the Judiciary Act of 1948," it being noteworthy in this
connection that the text of the law is broad and comprehensive, and the explicitly
stated exceptions have no reference whatever to the Court of Tax Appeals. Indeed, the
intention to expand the original and appellate jurisdiction of the Court of Appeals over
quasi-judicial agencies, instrumentalities, boards, or commissions, is further stressed
by the last paragraph of Section 9 which excludes from its provisions, only the
"decisions and interlocutory orders issued under the Labor Code of the Philippines and
by the Central Board of Assessment Appeals." 6
However, it cannot be denied that the lawmaking system of the country is far from perfect. During the
transitional period after the country emerged from the Marcos regime, the lawmaking power was lodged on the
Executive Department. The obvious lack of deliberation in the drafting of our laws could perhaps explain the
deviation of some of our laws from the goal of uniform procedure which B.P. 129 sought to promote.
In exempli gratia, Executive Order No. 226 or the Omnibus Investments Code of 1987 provides that all
appeals shall be filed directly with the Supreme Court within thirty (30) days from receipt of the order or
decision.
Noteworthy is the fact that presently, the Supreme Court entertains ordinary appeals only from decisions of the
Regional Trial Courts in criminal cases where the penalty imposed is reclusion perpetua or higher. Judgments

of regional trial courts may be appealed to the Supreme Court only by petition for review on certiorari within
fifteen (15) days from notice of judgment in accordance with Rule 45 of the Rules of Court in relation to
Section 17 of the Judiciary Act of 1948, as amended, this being the clear intendment of the provision of the
Interim Rules that "(a)ppeals to the Supreme Court shall be taken by petition for certiorari which shall be
governed by Rule 45 of the Rules of Court." Thus, the right of appeal provided in E.O. 226 within thirty (30)
days from receipt of the order or decision is clearly not in consonance with the present procedure before this
Court. Only decisions, orders or rulings of a Constitutional Commission (Civil Service Commission,
Commission on Elections or Commission on Audit), may be brought to the Supreme Court on original petitions
for certiorari under Rule 65 by the aggrieved party within thirty (30) days form receipt of a copy thereof. 7
Under this contextual backdrop, this Court, pursuant to its Constitutional power under Section 5(5), Article VIII
of the 1987 Constitution to promulgate rules concerning pleading, practice and procedure in all courts, and by
way of implementation of B.P. 129, issued Circular 1-91 prescribing the rules governing appeals to the Court of
Appeals from final orders or decisions of the Court of Tax Appeals and quasi-judicial agencies to eliminate
unnecessary contradictions and confusing rules of procedure.
Contrary to petitioner's contention, although a circular is not strictly a statute or law, it has, however, the force
and effect of law according to settled jurisprudence. 8 In Inciong v. de Guia, 9 a circular of this Court was
treated as law. In adopting the recommendation of the Investigating Judge to impose a sanction on a judge
who violated Circular No. 7 of this Court dated
September 23, 1974, as amended by Circular No. 3 dated April 24, 1975 and Circular No. 20 dated October 4,
1979, requiring raffling of cases, this Court quoted the ratiocination of the Investigating Judge, brushing aside
the contention of respondent judge that assigning cases instead of raffling is a common practice and holding
that respondent could not go against the circular of this Court until it is repealed or otherwise modified, as
"(L)aws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by
disuse, or customs or practice to the contrary." 10
The argument that Article 82 of E.O. 226 cannot be validly repealed by Circular 1-91 because the former
grants a substantive right which, under the Constitution cannot be modified, diminished or increased by this
Court in the exercise of its rule-making powers is not entirely defensible as it seems. Respondent correctly
argued that Article 82 of E.O. 226 grants the right of appeal from decisions or final orders of the BOI and in
granting such right, it also provided where and in what manner such appeal can be brought. These latter
portions simply deal with procedural aspects which this Court has the power to regulate by virtue of its
constitutional rule-making powers.
The case of Bustos v. Lucero 11 distinguished between rights created by a substantive law and those arising
from procedural law:
Substantive law creates substantive rights . . . . Substantive rights is a term which
includes those rights which one enjoys under the legal system prior to the disturbance
of normal relations (60 C.J., 980). Substantive law is that part of the law which creates,
defines and regulates rights, or which regulates rights and duties which give rise to a
cause of action, as oppossed to adjective or remedial law, which prescribes the method
of enforcing rights or obtains a redress for their invasion. 12
Indeed, the question of where and in what manner appeals from decisions of the BOI should be brought
pertains only to procedure or the method of enforcing the substantive right to appeal granted by E.O. 226. In
other words, the right to appeal from decisions or final orders of the BOI under E.O. 226 remains and
continues to be respected. Circular 1-91 simply transferred the venue of appeals from decisions of this agency
to respondent Court of Appeals and provided a different period of appeal, i.e., fifteen (15) days from notice. It
did not make an incursion into the substantive right to appeal.
The fact that BOI is not expressly included in the list of quasi-judicial agencies found in the third sentence of
Section 1 of Circular 1-91 does not mean that said circular does not apply to appeals from final orders or

138

decision of the BOI. The second sentence of Section 1 thereof expressly states that "(T)hey shall also apply to
appeals from final orders or decisions of any quasi-judicial agency from which an appeal is now allowed by
statute to the Court of Appeals or the Supreme Court." E.O. 266 is one such statute. Besides, the enumeration
is preceded by the words "(A)mong these agencies are . . . ," strongly implying that there are other quasijudicial agencies which are covered by the Circular but which have not been expressly listed therein. More
importantly, BOI does not fall within the purview of the exclusions listed in Section 2 of the circular. Only the
following final decisions and interlocutory orders are expressly excluded from the circular, namely, those of: (1)
the National Labor Relations Commission; (2) the Secretary of Labor and Employment; (3) the Central Board
of Assessment Appeals and (4) other quasi-judicial agencies from which no appeal to the courts is prescribed
or allowed by statute. Since in DBP v. CA 13 we upheld the appellate jurisdiction of the Court of Appeals over
the Court of Tax Appeals despite the fact that the same is not among the agencies reorganized by B.P. 129, on
the ground that B.P. 129 is broad and comprehensive, there is no reason why BOI should be excluded from
Circular 1-91, which is but implementary of said law.
Clearly, Circular 1-91 effectively repealed or superseded Article 82 of E.O. 226 insofar as the manner and
method of enforcing the right to appeal from decisions of the BOI are concerned. Appeals from decisions of
the BOI, which by statute was previously allowed to be filed directly with the Supreme Court, should now be
brought to the Court of Appeals.
WHEREFORE, in view of the foregoing reasons, the instant petition for certiorari and prohibition with
application for temporary restraining order and preliminary injunction is hereby DISMISSED for lack of merit.
The Temporary Restraining Order issued on July 19, 1993 is hereby LIFTED.
SO ORDERED.

The complaint was filed on July 14, 1966. The defendants filed their respective answers alleging inter alia that
the complaint averred no sufficient facts to show the courts jurisdiction. On December 6, 1966 the court
issued an order finding the defendants objection meritorious, but allowing the plaintiff to file an amended
complaint within a period of ten days. The pertinent portion of the said order reads as
follows:jgc:chanrobles.com.ph
"Section 1816 of the Administrative Code vests in the Director of Forestry the . . . jurisdiction and authority
over the demarcation, protection, management, reproduction, reforestation, occupancy, and use of all public
forests and forest reserves and over the granting of licenses for game and fish, and for the taking of forest
products, including stone and earth, therefrom. The decision of the Director of Forestry on the subject is not
subject to judicial review unless in the exercise of such jurisdiction he committed a grave abuse of his
discretion which amounts to a denial of due process of law to the party adversely affected. While the complaint
alleges that the Director of Forestry acted with grave abuse of his discretion and in violation of due process of
law provision of the Constitution of the Philippines this allegation alone is insufficient for the court to intervene
and review the actuation of the Director of Forestry. Specific acts and instances from which the grave abuse of
discretion amounting to a denial of due process of law may be deduced, must be alleged. The complaint does
not allege any such fact. On the contrary, the complaint states that two motions for reconsideration were
denied by the Director of Forestry; that an appeal was made to the Secretary of Agriculture and Natural
Resources, who likewise sustained the decision of the Director of Forestry. The fact that the Secretary of
Agriculture and Natural Resources decided the appeal without waiting for the completion of the reinvestigation
that he ordered does not constitute a violation of the due process of law provision of the Constitution as in
the appeal the Secretary of Agriculture and Natural Resources was only called upon to pass on the sufficiency
of the evidence before the Director of Forestry. The Secretary of Agriculture and Natural Resources was not
required to conduct a new investigation of the case. He and the Director of Forestry may have committed an
error in the appreciation of the evidence before them. But such an error is not sufficient ground for the
intervention of the court who likewise may fall into a similar mistake. There is no allegation that the plaintiff was
not heard nor that the Director of Forestry decided the case without taking evidence. On the contrary,
reinvestigations were even made after which the Director of Forestry arrived at the conclusion subject of the
present action. Clearly the plaintiff was given due process."cralaw virtua1aw library
On March 3, 1967 the plaintiff filed an amended complaint, incorporating the amendments in paragraphs 7 and
8 of the original complaint, as shown in the following underlined recitals:jgc:chanrobles.com.ph

[G.R. No. L-28218. February 27, 1971.]

MAGNO MANUEL, Plaintiff-Appellant, v. MARIANO VILLENA, THE DIRECTOR OF FORESTRY, THE
SECRETARY OF DEPARTMENT OF AGRICULTURE AND NATURAL RESOURCES, DefendantsAppellees.
Tirso U. Aganon, for Plaintiff-Appellant.
Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio A. Torres and Solicitor Alicia
V. Sempio-Diy for Defendants-Appellees.

DECISION

MAKALINTAL, J.:

This is an appeal from the order of the Court of First Instance of Tarlac dismissing the complaint in Civil Case
No. 4226 entitled "Magno Manuel v. Mariano Villena, the Director of Forestry and the Secretary of Agriculture
and Natural Resources," wherein the plaintiff sought annulment of the decision of said public officials rejecting
his application for a Tree Farm Permit over a 20-hectare parcel of public land, which was included in a 66hectare area covered by a similar application of private defendant Mariano Villena.
The main thrust of the complaint is that the administrative decision sought to be set aside violated the plaintiffs
right to due process. The averments in support thereof are substantially as follows: that the plaintiff had been
in continuous possession of the land in question since 1939; that being an ignorant farmer he did not file his
Tree Farm application (No. 13312) until June 1954; that the Director of Forestry rejected the same because a
prior application (No. 3852) had been filed by Mariano Villena in November 1955; that two motions for
reconsideration of the rejection order were turned down; that the plaintiff thereafter appealed to the Secretary
of Agriculture and Natural Resources, but the appeal was dismissed by him; that on motion for reconsideration
the Secretary found that the previous investigation conducted by the District Forester was not in accordance
with the rules and regulations of the Bureau, and so ordered another investigation to be made; but that before
said investigation was terminated the Secretary rendered a decision dismissing the appeal.

"7. That on February 2, 1957, with grave abuse of discretion and in violation of the due process of law
provision of the Constitution of the Philippines, in that from the very inception of this case in the Bureau of
Forestry up to the filing of his appeal in the Department of Agriculture and Natural Resources appellant
(Magno Manuel) has not really been assisted or formally represented by counsel in any of the proceedings
therein; and that in the investigation conducted by the District Forester concerned there was no showing that a
notice has been sent to him so as to have afforded him an opportunity to solicit for the services of a
lawyer . . ."cralaw virtua1aw library
"8. That the legal staff of the said Department began and conducted a formal investigation of the case, but the
investigation was not completed, thus, said investigation, not being completed, was not in accordance with the
due process of law provision of the Constitution to which constitutional right herein plaintiff is entitled and of
which he was deprived; that despite the incomplete investigation, which was against the due process provision
of the Constitution and the Administrative circulars and orders pertinent thereto, the defendant Secretary of
Agriculture and Natural Resources, with grave abuse of discretion and in violation of the due process
provision of the Constitution rendered a decision on August 12, 1965, arbitrarily, capriciously, and illegally
dismissing the appeal of plaintiff Magno Manuel, saying that there is no merit in his appeal."cralaw virtua1aw
library
On March 21, 1967 defendant Villena moved to dismiss the amended complaint on the ground that it did not
cure the defects of the original one, and still contained sufficient allegations to make out a cause of action or to
confer jurisdiction upon the court to set aside or annul the administrative decision complained of. The court
found the motion meritorious and hence dismissed the complaint in its order of June 24, 1967. The said order
of dismissal is the subject of the present appeal.
The proceedings challenged in the complaint refer to the approval or rejection of an application for a Tree
Farm Permit. Under Section 1838 of the Revised Administrative Code, quoted below, this function falls within
the jurisdiction of the Director of Forestry with the approval of the Secretary of Agriculture and Natural
Resources.
"SECTION 1838. Leasing of forest land for special purposes. The Director of Forestry with the approval of
the Secretary of Agriculture and Natural Resources, may, upon such terms as he may deem reasonable, lease
or grant go any Filipino citizen or association of persons duly incorporated and authorized by the Constitution
to acquire lands of the public domain, permits for the use of forest lands or vacant public lands not declared

139

agricultural land for a period not exceeding twenty-five years, for the establishment of sawmills, lumber yards,
timber depots, logging camps, rights-of-way and plantations for the raising of nipa and/or other palms,
bacauan, medicinal plants or trees of economic value . . ."cralaw virtua1aw library

vital phase of the hearing if any, was omitted? No facts of this or similar nature are alleged in the complaint.
The trial court consequently did not err in ruling as it did and issuing an order of dismissal.
WHEREFORE the order appealed from is affirmed, with costs against Appellant.

The power thus conferred on the Director of Forestry with the approval of the Secretary of Agriculture and
Natural Resources is basically executive or administrative in nature. 1 And courts, as a rule, refuse to interfere
with proceedings undertaken by administrative bodies or officials in the exercise of administrative functions.
This is so because such bodies are generally better equipped technically to decide administrative questions
and that non-legal factors, such as government policy on the matter, are usually involved in the decisions.
There are, of course, limits to the exercise of administrative discretion. Administrative proceedings may be
reviewed by the courts upon a showing that "the board or official has gone beyond his statutory authority,
exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse
of discretion" 2 or that the decision is vitiated by fraud, imposition or mistake. 3
The complaint here alleges denial of due process and grave abuse of discretion, in that appellant was not
formally represented by counsel at any stage of the proceedings before the Director of Forestry and the
Secretary of Agriculture and Natural Resources; that there was no showing that notice was sent to him so as
to afford him an opportunity to obtain the services of a lawyer; and that the Secretary dismissed the appeal
before the completion of the reinvestigation he had ordered.
The above circumstances however do not necessarily constitute a violation of due process or grave abuse of
discretion. Section 1838 of the Revised Administrative Code does not require that the investigation be in the
nature of a court trial. In deciding administrative questions, administrative bodies or officials generally enjoy
wide discretion. Technical rules of procedure are not strictly enforced, and due process of law in the strict
judicial sense is not indispensable. 4 It is sufficient that the substantive due process requirement of fairness
and reasonableness be observed.
Appellant does not allege that he was denied opportunity to be heard-only that "there was no showing that a
notice was sent to him so as to afford him opportunity to solicit the services of a lawyer" to represent him in all
stages of the investigation. Absence of previous notice is not of itself a substantial defect; what the law abhors
is the lack of opportunity to be heard. 5 In this case the plaintiff was not denied such opportunity, as it appears
that he filed two separate motions for reconsideration before the Director of Forestry and then upon their
denial appealed to the Secretary of Agriculture and Natural Resources.

[A.M. No. MTJ-02-1404. December 14, 2004]

EXEC. JUDGE HENRY B. BASILLA, complainant, vs. JUDGE AMADO L. BECAMON, Clerk of Court
LOLITA DELOS REYES and Junior Process Server EDDIE DELOS REYES, MCTC, PlacerEsperanza-Cawayan, Masbate, respondents.
RESOLUTION
GARCIA, J.:
Under consideration is the sworn letter-complaint [1] (with enclosures) dated December 6, 2000 filed with
the Office of the Court Administrator by herein complainant, Executive Judge Henry B. Basilla, of the Regional
Trial Court, Branch 49, Cataingan, Masbate against herein respondents, namely: Judge Amado L.
Becamon of the Municipal Circuit Trial Court (MCTC) of Placer-Esperanza-Cawayan, Masbate; his clerk of
court Lolita delos Reyes; and process server Eddie delos Reyes, charging them with gross neglect of duty
and/or grave misconduct, gross ignorance of the law and violation of Canon 3 of the Code of Judicial Conduct
on the part of respondent judge, relative to Civil Case No. 288 (MCTC Case No. 263-C), entitled Visitacion
Mahusay vda. de Du vs. Benjamin Du, et al., an action for recovery of possession and ownership of land.

It was not essential, either, that appellant be represented by a lawyer. The investigation conducted by the
Bureau of Forestry under Section 1838 of the Revised Administrative Code was purely fact-finding. It was not
required to be in the form of a trial where both parties, each represented by counsel, confront each other and
their witnesses. In any case, appellant does not allege that the presence of a lawyer could have altered the
result of the investigation. He does not even cite any substantial error in the findings of the Director of Forestry
which could have been avoided, if a lawyer had represented him.

In an earlier administrative case filed by the same complainant against the three (3) herein
respondents, priorly docketed as A.M. No. MTJ-02-1438, entitled Exec. Judge Henry B. Basilia[2] vs. Judge
Amado L. Becamon, Clerk of Court Lolita delos Reyes and Process Server Eddie delos Reyes, this Court, in
an en bancResolution promulgated on January 22, 2004 (420 SCRA 608), found respondent Judge Amado L.
Becamon liable for gross ignorance of the law and procedure and imposed upon him a fine in the amount of
P21,000, while his co-respondents therein, Lolita delos Reyes and Eddie delos Reyes, were found guilty of
simple neglect of duty and were each fined in the amount equivalent to one month and one day of their
respective salaries.

It should be noted that in the order of the Acting Secretary of Agriculture and Natural Resources dated March
15, 1960, a formal investigation of the case was ordered. That the investigation was actually conducted is not
denied, and is borne out by the decision of the Secretary dismissing the plaintiffs appeal, in which it is
stated:jgc:chanrobles.com.ph

A close examination of A.M. No. MTJ-02-1438 and the present case, A.M. No. MTJ-02-1404, reveals
that the latter case presents the same matter and raises the same issues as that of the earlier administrative
case.Hereunder is our comparative study anent the complaint in both cases:

"An investigation pursuant to the standing rules and regulations was duly conducted by an attorney of the
Legal Staff of this Department and the pertinent portions of his report are hereunder quoted as follows:"
Appellant says that the investigation was incomplete. He does not, however, point out how incomplete it was,
or in what aspect it had not been completed, or in what manner the incompleteness constituted grave abuse of
discretion or violated the requirement of due process. We have examined the documents and pleadings
reproduced in the appellants record on appeal, particularly the decision of the Secretary of Agriculture and
Natural Resources which is sought to be set aside, and we find that said decision is based on a thorough
analysis of the facts as revealed by the evidence. Thus the Secretary concluded:jgc:chanrobles.com.ph
"We have thoroughly and carefully checked the findings of facts enumerated above against the reverberating
backdrop of the voluminous proofs, oral, documentary, presented and adduced by the contending parties
herein, and we found that the said findings of facts are sufficiently and fully sustained by the evidence of the
record. We are also in complete accord with the evaluation and appreciation of the evidence and the
discussion and elucidation on the merits of the case contained in the investigators Remarks and
Comments."cralaw virtua1aw library

A.M. No. MTJ-02- 1438 arose from an Order dated April 5, 2000 issued by Executive Judge Henry B.
Basilla dismissing the appeal in Civil Case No. 288 (MCTC Case No. 263-C) for being frivolous and filed out of
time. In that same Order, Judge Basilla likewise required herein respondents to explain in writing why they
should not be dealt with administratively. In full, said Order reads:
ORDER
After considering the following facts in the record:
1. Judgment of the court a quo dated January 15, 1999 (mailed to counsels only on March 2,
1999) was received by defendants-appellants thru counsel on March 12, 1999 (p. 369,
rec.);

In order to justify a review of the aforesaid decision on the ground that it was based on an investigation which
was incomplete, it is not enough to make a bare allegation of incompleteness. Was the appellant for instance,
denied the right to present his evidence? If so, what evidence was it, and how would it affect the result? What

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2. Motion for reconsideration of the decision by defendants-appellants thru counsel was filed
with the court a quoon March 15, 1999 by registered mail (p. 371, registry receipt, rec.);
3. Order of the court a quo dated May 7, 1999 denying the motion for reconsideration (p. 381,
rec.);
4. Motion for execution of judgment dated September 9, 1999 filed with the
court a quo on September 14, 1999(rec.);
5. Order dated February 14, 2000 of the court a quo denying motion for execution of judgment
and granting defendants fifteen (15) days to appeal (p. 400, rec.);

In compliance with your letter dated October 25, 2000, I, in my capacity as Executive Judge, after a careful
study of the record in Civil Case No. 288 (MCTC Case No. 263-C) entitled Visitacion Mahusay vda. de Du,
Plaintiff vs. Benjamin Du, et al., Defendants for Recovery of Possession and Ownership of Land, hereby
formally charge administratively Judge Amado L. Becamon, Mrs. Lolita delos Reyes, Clerk of Court II and Mr.
Eddie delos Reyes, Junior Process Server, of MCTC of Placer-Cawayan-Esperanza, Masbate, for Gross
Neglect of Duty and/or Grave Misconduct, for Ignorance of Law and for violation of Canon 3 of the Code of
Judicial Conduct of 1989 (specially for Judge Amado L. Becamon) --- committed by freezing and delaying the
release of the decision and the order denying to reconsider it, for one and a half months and five months,
respectively, and extending the period of appeal fixed by the rules, and for receiving the appeal fee and after
which approving the appeal despite the time to do so had long elapsed.
Attached herewith are the following documents:

6. Notice of appeal filed with the court a quo on November 3, 1999 (p. 412, rec.);

1.) Annex A Order dated April 5, 2000;

7. Appeal fee paid after four (4) months on March 14, 2000 (p. 427, rec.); and

2.) Annex B Judgment of the court a quo dated January 15, 1999 (mailed to counsel only on
March 2, 1999, p. 365, registry receipt, rec.) was received by defendants-appellants
thru counsel on March 12, 1999 (p. 369, rec.);

8. Order of the court a quo dated March 14, 2000 approving the appeal. (p. 429, rec.)
the court hereby resolved to dismiss the appeal for being filed out of time and frivolous.

3.) Annex C Motion for Reconsideration of the decision by defendants-appellants thru counsel
was filed with the court a quo on March 15, 1999 by registered mail (p. 371, registry
receipt, rec.);

The court has observed that:

1. Judge Amado L. Becamon, Mrs. Lolita delos Reyes and Mr. Eddie delos Reyes released the
decision only after one month and a half (1 1/2) (p. 365, registry receipt, rec.) and the
order dated May 7, 1999 denying the motion for reconsideration only after five (5)
months (p. 381, registry receipt, rec.);
2. Judge Amado L. Becamon extended the period of appeal fixed by the Rules (p. 400, rec.);
3. The court still received the appeal fee on March 14, 2000 despite the lapse of the period of
appeal (p. 427, rec.); and
4. Judge Amado L. Becamon still approved the appeal despite the lapse of the period of appeal
(p. 429, rec.).
And, considering the gross irregularity in the record, Judge Amado L. Becamon, Mrs. Lolita delos Reyes, Clerk
of Court II, and Eddie delos Reyes, Process Server, of the 4 th MCTC of Placer-Cawayan-Esperanza, Masbate
are hereby ordered to explain in writing within ten (10) days from notice why they should not be dealt with
administratively for grave misconduct, ignorance of law and dishonesty.
Furnish a copy of this order to Honorable Court Administrator for his information.
So ordered.
On the other hand, the present case - A.M. No. MTJ-02-1404 - stemmed from a sworn letter-complaint
of the same complainant against the very same respondents addressed to then Court Administrator Alfredo L.
Benipayo. In said sworn letter-complaint, Judge Henry B. Basilla averred:

4.) Annex D Order of the court a quo dated May 7, 1999 denying the motion for reconsideration
(p. 381, registry receipt, rec.);
5.) Annex E Motion for execution of judgment dated September 9, 1999 filed with the
court a quo on September 14, 1999 (rec.);
6.) Annex F Order dated February 14, 2000 of the court a quo denying motion for execution of
judgment and granting defendants fifteen (15) days to appeal (p. 400, rec.);
6.) Annex G Notice of appeal filed with the court a quo on November 3, 1999 (p. 412, rec.);
8.) Annex H Appeal fee paid after four (4) months on March 14, 2000 (p. 427, rec.);
9.) Annex I Order of the court a quo dated March 14, 2000 approving the appeal (p. 429, rec.).
Clear it is from the above that both A.M. No. MTJ-02-1438 and the instant administrative case - A.M.
No. MTJ-02-1404 - refer to the same subject matter, raise the same issues and involve the same parties.
Applying the principle of res judicata or bar by prior judgment, the present administrative case becomes
dismissible. Section 47, Rule 39 of the Rules of Court enunciates the rule of res judicata or bar by prior
judgment, thus:
SEC. 47. Effect of judgments or final orders. - The effect of a judgment or final order rendered by a court of
the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows:
xxx xxx xxx

141

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any other
matter that could have been raised in relation thereto, conclusive between the parties and their successors-ininterest by title subsequent to the commencement of the action or special proceeding, litigating for the same
thing and under the same title and in the same capacity;
Under the said doctrine, a matter that has been adjudicated by a court of competent jurisdiction must
be deemed to have been finally and conclusively settled if it arises in any subsequent litigation between the
same parties and for the same cause.[3] It provides that [a] final judgment on the merits rendered by a court of
competent jurisdiction is conclusive as to the rights of the parties and their privies; and constitutes an absolute
bar to subsequent actions involving the same claim, demand, or cause of action. [4] Res judicata is based on
the ground that the party to be affected, or some other with whom he is in privity, has litigated the same matter
in the former action in a court of competent jurisdiction, and should not be permitted to litigate it again. [5]
This principle frees the parties from undergoing all over again the rigors of unnecessary suits and
repetitious trials. At the same time, it prevents the clogging of court dockets. Equally important, res
judicata stabilizes rights and promotes the rule of law.[6]
The records reveal that the two (2) administrative cases stemmed from the same factual circumstances
between the same parties. The earlier administrative case (A.M. No. MTJ-02-1438) which was already
terminated in our en banc Resolution of January 22, 2004, arose when the OCA was furnished with a copy of
the order dated April 5, 2000 issued by complainant Judge Henry B. Basilla. Complete record of MCTC Case
No. 263-C was also transmitted to the said office, and, after evaluating the matter, Deputy Court Administrator
Jose P. Perez, in his Report dated April 19, 2002, recommended that the same be re-docketed as a regular
administrative matter, which recommendation was adopted by this Court in its Resolution of July 10, 2002, and
accordingly had the matter docketed as A.M. No. MTJ-02-1438.
Meanwhile, on December 6, 2000, Executive Judge Henry B. Basilla, in compliance with then Court
Administrator Alfredo L. Benipayos letter dated October 25, 2000, filed his sworn letter-complaint formally
charging herein respondents for the same irregularities committed by them relative to the same MCTC Case
No. 263-C. Later, in his January 16, 2002 Report, the incumbent Court Administrator, Presbitero J. Velasco,
Jr., recommended the re-docketing of the present complaint as a regular administrative matter. And, in our
Resolution dated February 27, 2002, we adopted said recommendation and thus docketed that very same
letter-complaint as A.M. No. MTJ-02-1404. This explain why two (2) administrative cases, having identical
subject matter, cause of action and involving the same parties existed.
WHEREFORE, the instant administrative complaint is DISMISSED for being a mere duplication of the
complaint in A.M. No. MTJ-02-1438 which, to stress, was already resolved by this Court in its en
bancResolution promulgated on January 22, 2004 (420 SCRA 608).
SO ORDERED.

DECISION
PUNO, C.J.:
This is a Petition for Review on Certiorari under Rule 45 filed by the National Housing Authority (NHA) against
the Court of Appeals, the Regional Trial Court of San Pedro Laguna, Branch 31, and private respondent
Segunda Almeida.
On June 28, 1959, the Land Tenure Administration (LTA) awarded to Margarita Herrera several portions of
land which are part of the Tunasan Estate in San Pedro, Laguna. The award is evidenced by an Agreement to
Sell No. 3787.1 By virtue of Republic Act No. 3488, the LTA was succeeded by the Department of Agrarian
Reform (DAR). On July 31, 1975, the DAR was succeeded by the NHA by virtue of Presidential Decree No.
757.2 NHA as the successor agency of LTA is the petitioner in this case.
The records show that Margarita Herrera had two children: Beatriz Herrera-Mercado (the mother of private
respondent) and Francisca Herrera. Beatriz Herrera-Mercado predeceased her mother and left heirs.
Margarita Herrera passed away on October 27, 1971.3
On August 22, 1974, Francisca Herrera, the remaining child of the late Margarita Herrera executed a Deed of
Self-Adjudication claiming that she is the only remaining relative, being the sole surviving daughter of the
deceased. She also claimed to be the exclusive legal heir of the late Margarita Herrera.
The Deed of Self-Adjudication was based on a Sinumpaang Salaysay dated October 7, 1960, allegedly
executed by Margarita Herrera. The pertinent portions of which are as follows:
SINUMPAANG SALAYSAY
SA SINO MAN KINAUUKULAN;
Akong si MARGARITA HERRERA, Filipina, may 83 taong gulang, balo, kasalukuyang naninirahan
at tumatanggap ng sulat sa Nayon ng San Vicente, San Pedro Laguna, sa ilalim ng panunumpa ay
malaya at kusang loob kong isinasaysay at pinagtitibay itong mga sumusunod:
1. Na ako ay may tinatangkilik na isang lagay na lupang tirikan (SOLAR), tumatayo sa Nayon ng
San Vicente, San Pedro, Laguna, mayroong PITONG DAAN AT PITUMPU'T ISANG (771)
METRONG PARISUKAT ang laki, humigit kumulang, at makikilala sa tawag na Lote 17, Bloke 55,
at pag-aari ng Land Tenure Administration;
2. Na ang nasabing lote ay aking binibile, sa pamamagitan ng paghuhulog sa Land Tenure
Administration, at noong ika 30 ng Julio, 1959, ang Kasunduang sa Pagbibile (AGREEMENT TO
SELL No. 3787) ay ginawa at pinagtibay sa Lungsod ng Maynila, sa harap ng Notario Publico na si
G. Jose C. Tolosa, at lumalabas sa kaniyang Libro Notarial bilang Documento No. 13, Pagina No.
4; Libro No. IV, Serie ng 1959;

G.R. No. 162784

June 22, 2007

NATIONAL HOUSING AUTHORITY, petitioner,

vs.
SEGUNDA ALMEIDA, COURT OF APPEALS, and RTC of SAN PEDRO, LAGUNA, BR. 31, respondents.

3. Na dahilan sa ako'y matanda na at walang ano mang hanap buhay, ako ay nakatira at
pinagsisilbihan nang aking anak na si Francisca Herrera, at ang tinitirikan o solar na nasasabi sa
unahan ay binabayaran ng kaniyang sariling cuarta sa Land Tenure Administration;
4. Na alang-alang sa nasasaysay sa unahan nito, sakaling ako'y bawian na ng Dios ng aking
buhay, ang lupang nasasabi sa unahan ay aking ipinagkakaloob sa nasabi kong anak na

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FRANCISCA HERRERA, Filipina, nasa katamtamang gulang, kasal kay Macario Berroya,
kasalukuyang naninirahan at tumatanggap ng sulat sa Nayong ng San Vicente, San Pedro
Laguna, o sa kaniyang mga tagapagmana at;
5. Na HINIHILING KO sa sino man kinauukulan, na sakaling ako nga ay bawian na ng Dios ng
aking buhay ay KILALANIN, IGALANG at PAGTIBAYIN ang nilalaman sa pangalan ng aking anak
na si Francisca Herrera ang loteng nasasabi sa unahan.
SA KATUNAYAN NG LAHAT, ako ay nag-didiit ng hinlalaki ng kanan kong kamay sa ibaba nito at
sa kaliwang gilid ng unang dahon, dito sa Lungsod ng Maynila, ngayong ika 7 ng Octubre, 1960. 4
The said document was signed by two witnesses and notarized. The witnesses signed at the left-hand side of
both pages of the document with the said document having 2 pages in total. Margarita Herrera placed her
thumbmark5 above her name in the second page and at the left-hand margin of the first page of the document.
The surviving heirs of Beatriz Herrera-Mercado filed a case for annulment of the Deed of Self-Adjudication
before the then Court of First Instance of Laguna, Branch 1 in Binan, Laguna (now, Regional Trial Court
Branch 25). The case for annulment was docketed as Civil Case No. B-1263. 6
On December 29, 1980, a Decision in Civil Case No. B-1263 (questioning the Deed of Self-Adjudication) was
rendered and the deed was declared null and void. 7
During trial on the merits of the case assailing the Deed of Self-Adjudication, Francisca Herrera filed an
application with the NHA to purchase the same lots submitting therewith a copy of the "Sinumpaang Salaysay"
executed by her mother. Private respondent Almeida, as heir of Beatriz Herrera-Mercado, protested the
application.
In a Resolution8 dated February 5, 1986, the NHA granted the application made by Francisca Herrera, holding
that:
From the evidence of the parties and the records of the lots in question, we gathered the following
facts: the lots in question are portions of the lot awarded and sold to the late Margarita Herrera on
July 28, 1959 by the defunct Land Tenure Administration; protestant is the daughter of the late
Beatriz Herrera Mercado who was the sister of the protestee; protestee and Beatriz are children of
the late Margarita Herrera; Beatriz was the transferee from Margarita of Lot Nos. 45, 46, 47, 48
and 49, Block 50; one of the lots transferred to Beatriz, e.g. Lot 47, with an area of 148 square
meters is in the name of the protestant; protestant occupied the lots in question with the
permission of the protestee; protestee is a resident of the Tunasan Homesite since birth; protestee
was born on the lots in question; protestee left the place only after marriage but resided in a lot
situated in the same Tunasan Homesite; her (protestee) son Roberto Herrera has been occupying
the lots in question; he has been there even before the death of the late Margarita Herrera; on
October 7, 1960, Margarita Herrera executed a "Sinumpaang Salaysay" whereby she waived
or transferred all her rights and interest over the lots in question in favor of the protestee;
and protestee had paid the lots in question in full on March 8, 1966 with the defunct Land Tenure
Administration.
This Office finds that protestee has a better preferential right to purchase the lots in question. 9
Private respondent Almeida appealed to the Office of the President. 10 The NHA Resolution was affirmed by the
Office of the President in a Decision dated January 23, 1987. 11

On February 1, 1987, Francisca Herrera died. Her heirs executed an extrajudicial settlement of her estate
which they submitted to the NHA. Said transfer of rights was approved by the NHA. 12 The NHA executed
several deeds of sale in favor of the heirs of Francisca Herrera and titles were issued in their
favor.13 Thereafter, the heirs of Francisca Herrera directed Segunda Mercado-Almeida to leave the premises
that she was occupying.
Feeling aggrieved by the decision of the Office of the President and the resolution of the NHA, private
respondent Segunda Mercado-Almeida sought the cancellation of the titles issued in favor of the heirs of
Francisca. She filed a Complaint on February 8, 1988, for "Nullification of Government Lot's Award," with
the Regional Trial Court of San Pedro, Laguna, Branch 31.
In her complaint, private respondent Almeida invoked her forty-year occupation of the disputed properties, and
re-raised the fact that Francisca Herrera's declaration of self-adjudication has been adjudged as a nullity
because the other heirs were disregarded. The defendant heirs of Francisca Herrera alleged that the
complaint was barred by laches and that the decision of the Office of the President was already final and
executory.14 They also contended that the transfer of purchase of the subject lots is perfectly valid as the same
was supported by a consideration and that Francisca Herrera paid for the property with the use of her own
money.15 Further, they argued that plaintiff's occupation of the property was by mere tolerance and that they
had been paying taxes thereon.16
The Regional Trial Court issued an Order dated June 14, 1988 dismissing the case for lack of
jurisdiction.17 The Court of Appeals in a Decision dated June 26, 1989 reversed and held that the Regional
Trial Court had jurisdiction to hear and decide the case involving "title and possession to real property within its
jurisdiction."18The case was then remanded for further proceedings on the merits.
A pre-trial was set after which trial ensued.
On March 9, 1998, the Regional Trial Court rendered a Decision setting aside the resolution of the NHA and
the decision of the Office of the President awarding the subject lots in favor of Francisca Herrera. It declared
the deeds of sale executed by NHA in favor of Herrera's heirs null and void. The Register of Deeds of Laguna,
Calamba Branch was ordered to cancel the Transfer Certificate of Title issued. Attorney's fees were also
awarded to private respondent.
The Regional Trial Court ruled that the "Sinumpaang Salaysay" was not an assignment of rights but a
disposition of property which shall take effect upon death. It then held that the said document must first be
submitted to probate before it can transfer property.
Both the NHA and the heirs of Francisca Herrera filed their respective motions for reconsideration which were
both denied on July 21, 1998 for lack of merit. They both appealed to the Court of Appeals. The brief for the
heirs of Francisca Herrera was denied admission by the appellate court in a Resolution dated June 14, 2002
for being a "carbon copy" of the brief submitted by the NHA and for being filed seventy-nine (79) days late.
On August 28, 2003, the Court of Appeals affirmed the decision of the Regional Trial Court, viz:
There is no dispute that the right to repurchase the subject lots was awarded to Margarita Herrera
in 1959. There is also no dispute that Margarita executed a "Sinumpaang Salaysay" on October 7,
1960. Defendant NHA claims that the "Sinumpaang Salaysay" is, in effect, a waiver or transfer of
rights and interest over the subject lots in favor of Francisca Herrera. This Court is disposed to
believe otherwise. After a perusal of the "Sinumpaang Salaysay" of Margarita Herrera, it can be
ascertained from its wordings taken in their ordinary and grammatical sense that the document is a
simple disposition of her estate to take effect after her death. Clearly the Court finds that the
"Sinumpaang Salaysay" is a will of Margarita Herrera. Evidently, if the intention of Margarita
Herrera was to merely assign her right over the lots to her daughter Francisca Herrera, she should

143

have given her "Sinumpaang Salaysay" to the defendant NHA or to Francisca Herrera for
submission to the defendant NHA after the full payment of the purchase price of the lots or even
prior thereto but she did not. Hence it is apparent that she intended the "Sinumpaang Salaysay" to
be her last will and not an assignment of rights as what the NHA in its resolution would want to
make it appear. The intention of Margarita Herrera was shared no less by Francisca Herrera who
after the former's demise executed on August 22, 1974 a Deed of Self-Adjudication claiming that
she is her sole and legal heir. It was only when said deed was questioned in court by the surviving
heirs of Margarita Herrera's other daughter, Beatriz Mercado, that Francisca Herrera filed an
application to purchase the subject lots and presented the "Sinumpaang Salaysay" stating that it is
a deed of assignment of rights.19
The Court of Appeals ruled that the NHA acted arbitrarily in awarding the lots to the heirs of Francisca Herrera.
It upheld the trial court ruling that the "Sinumpaang Salaysay" was not an assignment of rights but one that
involved disposition of property which shall take effect upon death. The issue of whether it was a valid will
must first be determined by probate.
Petitioner NHA elevated the case to this Court.
Petitioner NHA raised the following issues:
A. WHETHER OR NOT THE RESOLUTION OF THE NHA AND THE DECISION OF THE OFFICE
OF THE PRESIDENT HAVE ATTAINED FINALITY, AND IF SO, WHETHER OR NOT THE
PRINCIPLE OF ADMINISTRATIVE RES JUDICATA BARS THE COURT FROM FURTHER
DETERMINING WHO BETWEEN THE PARTIES HAS PREFERENTIAL RIGHTS FOR AWARD
OVER THE SUBJECT LOTS;
B. WHETHER OR NOT THE COURT HAS JURISDICTION TO MAKE THE AWARD ON THE
SUBJECT LOTS; AND
C. WHETHER OR NOT THE AWARD OF THE SUBJECT LOTS BY THE NHA IS ARBITRARY.

facts, hold hearings, and draw conclusions from them, as a basis for their official action and to exercise
discretion of a judicial nature.23 However, administrative agencies are not considered courts, in their strict
sense. The doctrine of separation of powers reposes the three great powers into its three (3) branchesthe
legislative, the executive, and the judiciary. Each department is co-equal and coordinate, and supreme in its
own sphere. Accordingly, the executive department may not, by its own fiat, impose the judgment of one of its
agencies, upon the judiciary. Indeed, under the expanded jurisdiction of the Supreme Court, it is empowered to
"determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the Government." 24 Courts have an expanded role under the
1987 Constitution in the resolution of societal conflicts under the grave abuse clause of Article VIII which
includes that duty to check whether the other branches of government committed an act that falls under the
category of grave abuse of discretion amounting to lack or excess of jurisdiction. 25
Next, petitioner cites Batas Pambansa Blg. 129 or the Judiciary Reorganization Act of 1980 26 where it is
therein provided that the Intermediate Appellate Court (now, Court of Appeals) shall exercise the "exclusive
appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards, of the Regional Trial
Courts and Quasi-Judicial agencies, instrumentalities, boards or commissions, except those falling within the
jurisdiction of the Supreme Court in accordance with the Constitution" 27 and contends that the Regional Trial
Court has no jurisdiction to rule over awards made by the NHA.
Well-within its jurisdiction, the Court of Appeals, in its decision of August 28, 2003, already ruled that the issue
of the trial court's authority to hear and decide the instant case has already been settled in the decision of the
Court of Appeals dated June 26, 1989 (which has become final and executory on August 20, 1989 as per entry
of judgment dated October 10, 1989).28 We find no reason to disturb this ruling. Courts are duty-bound to put
an end to controversies. The system of judicial review should not be misused and abused to evade the
operation of a final and executory judgment. 29 The appellate court's decision becomes the law of the case
which must be adhered to by the parties by reason of policy.30
Next, petitioner NHA contends that its resolution was grounded on meritorious grounds when it considered the
application for the purchase of lots. Petitioner argues that it was the daughter Francisca Herrera who filed her
application on the subject lot; that it considered the respective application and inquired whether she had all the
qualifications and none of the disqualifications of a possible awardee. It is the position of the petitioner that
private respondent possessed all the qualifications and none of the disqualifications for lot award and hence
the award was not done arbitrarily.

We rule for the respondents.

Res judicata is a concept applied in review of lower court decisions in accordance with the hierarchy of courts.
But jurisprudence has also recognized the rule of administrative res judicata: "the rule which forbids the
reopening of a matter once judicially determined by competent authority applies as well to the judicial and
quasi-judicial facts of public, executive or administrative officers and boards acting within their jurisdiction as to
the judgments of courts having general judicial powers . . . It has been declared that whenever final
adjudication of persons invested with power to decide on the property and rights of the citizen is examinable
by the Supreme Court, upon a writ of error or a certiorari, such final adjudication may be pleaded as res
judicata."20 To be sure, early jurisprudence were already mindful that the doctrine of res judicata cannot be
said to apply exclusively to decisions rendered by what are usually understood as courts without unreasonably
circumscribing the scope thereof and that the more equitable attitude is to allow extension of the defense to
decisions of bodies upon whom judicial powers have been conferred.
21

In Ipekdjian Merchandising Co., Inc. v. Court of Tax Appeals, the Court held that the rule prescribing that
"administrative orders cannot be enforced in the courts in the absence of an express statutory provision for
that purpose" was relaxed in favor of quasi-judicial agencies.
In fine, it should be remembered that quasi-judicial powers will always be subject to true judicial powerthat
which is held by the courts. Quasi-judicial power is defined as that power of adjudication of an administrative
agency for the "formulation of a final order." 22 This function applies to the actions, discretion and similar acts of
public administrative officers or bodies who are required to investigate facts, or ascertain the existence of

The petitioner further argues that assuming that the "Sinumpaang Salaysay" was a will, it could not bind the
NHA.31 That, "insofar as [the] NHA is concerned, it is an evidence that the subject lots were indeed transferred
by Margarita Herrera, the original awardee, to Francisca Herrera was then applying to purchase the same
before it."32
We are not impressed. When the petitioner received the "Sinumpaang Salaysay," it should have noted that the
effectivity of the said document commences at the time of death of the author of the instrument; in her words
"sakaling ako'y bawian na ng Dios ng aking buhay" Hence, in such period, all the interests of the person
should cease to be hers and shall be in the possession of her estate until they are transferred to her heirs by
virtue of Article 774 of the Civil Code which provides that:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and
obligations to the extent of the value of the inheritance, of a person are transmitted through his
death to another or others either by his will or by operation of law.33
By considering the document, petitioner NHA should have noted that the original applicant has already passed
away. Margarita Herrera passed away on October 27, 1971. 34 The NHA issued its resolution35 on February 5,
1986. The NHA gave due course to the application made by Francisca Herrera without considering that the
initial applicant's death would transfer all her property, rights and obligations to the estate including whatever
interest she has or may have had over the disputed properties. To the extent of the interest that the original

144

owner had over the property, the same should go to her estate. Margarita Herrera had an interest in the
property and that interest should go to her estate upon her demise so as to be able to properly distribute them
later to her heirsin accordance with a will or by operation of law.
The death of Margarita Herrera does not extinguish her interest over the property. Margarita Herrera had an
existing Contract to Sell36 with NHA as the seller. Upon Margarita Herrera's demise, this Contract to Sell was
neither nullified nor revoked. This Contract to Sell was an obligation on both partiesMargarita Herrera and
NHA. Obligations are transmissible.37 Margarita Herrera's obligation to pay became transmissible at the time of
her death either by will or by operation of law.
If we sustain the position of the NHA that this document is not a will, then the interests of the decedent should
transfer by virtue of an operation of law and not by virtue of a resolution by the NHA. For as it stands, NHA
cannot make another contract to sell to other parties of a property already initially paid for by the decedent.
Such would be an act contrary to the law on succession and the law on sales and obligations. 38
When the original buyer died, the NHA should have considered the estate of the decedent as the next
"person"39likely to stand in to fulfill the obligation to pay the rest of the purchase price. The opposition of other
heirs to the repurchase by Francisca Herrera should have put the NHA on guard as to the award of the lots.
Further, the Decision in the said Civil Case No. B-1263 (questioning the Deed of Self-Adjudication) which
rendered the deed therein null and void40 should have alerted the NHA that there are other heirs to the
interests and properties of the decedent who may claim the property after a testate or intestate proceeding is
concluded. The NHA therefore acted arbitrarily in the award of the lots.
We need not delve into the validity of the will. The issue is for the probate court to determine. We affirm the
Court of Appeals and the Regional Trial Court which noted that it has an element of testamentary disposition
where (1) it devolved and transferred property; (2) the effect of which shall transpire upon the death of the
instrument maker.41
IN VIEW WHEREOF, the petition of the National Housing Authority is DENIED. The decision of the Court of
Appeals in CA-G.R. No. 68370 dated August 28, 2003, affirming the decision of the Regional Trial Court of
San Pedro, Laguna in Civil Case No. B-2780 dated March 9, 1998, is hereby AFFIRMED.

CARPIO, J.:
The Case
Before the Court is a petition for review [1] assailing the 10 July 2004 Decision [2] and 18 October 2004 Order[3] of
the Regional Trial Court of Quezon City, Branch 217 (trial court), in Civil Case No. Q-98-33442 for Damages.

The Antecedent Facts

Judge Felimon Abelita III (petitioner) filed a complaint for Damages under Articles 32(4) and (9) of the Civil
Code against P/Supt. German B. Doria (P/Supt. Doria) and SPO3 Cesar Ramirez (SPO3 Ramirez).Petitioner
alleged in his complaint that on 24 March 1996, at around 12 noon, he and his wife were on their way to their
house in Bagumbayan, Masbate, Masbate when P/Supt. Doria and SPO3 Ramirez (respondents),
accompanied by 10 unidentified police officers, requested them to proceed to the Provincial PNP
Headquarters at Camp Boni Serrano, Masbate, Masbate. Petitioner was suspicious of the request and told
respondents that he would proceed to the PNP Headquarters after he had brought his wife home. Petitioner
alleged that when he parked his car in front of their house, SPO3 Ramirez grabbed him, forcibly took the key
to his Totoya Lite Ace van, barged into the vehicle, and conducted a search without a warrant. The search
resulted to the seizure of a licensed shotgun. Petitioner presented the shotguns license to
respondents. Thereafter, SPO3 Ramirez continued his search and then produced a .45 caliber pistol which he
allegedly found inside the vehicle. Respondents arrested petitioner and detained him, without any appropriate
charge, at the PNP special detention cell.
P/Supt. Doria alleged that his office received a telephone call from a relative of Rosa Sia about a shooting
incident in Barangay Nursery. He dispatched a team headed by SPO3 Ramirez to investigate the
incident.SPO3 Ramirez later reported that a certain William Sia was wounded while petitioner, who was
implicated in the incident, and his wife just left the place of the incident. P/Supt. Doria looked for petitioner and
when he found him, he informed him of the incident report. P/Supt. Doria requested petitioner to go with him to
the police headquarters as he was reported to be involved in the incident.Petitioner agreed but suddenly sped
up his vehicle and proceeded to his residence. P/Supt. Doria and his companions chased petitioner. Upon
reaching petitioners residence, they caught up with petitioner as he was about to run towards his house. The
police officers saw a gun in the front seat of the vehicle beside the drivers seat as petitioner opened the door.
They also saw a shotgun at the back of the drivers seat. The police officers confiscated the firearms and
arrested petitioner. P/Supt. Doria alleged that his men also arrested other persons who were identified to be
with petitioner during the shooting incident. Petitioner was charged with illegal possession of firearms and
frustrated murder. An administrative case was also filed against petitioner before this Court. [4]
The Decision of the Trial Court

No cost.

In its 10 July 2004 Decision, the trial court dismissed petitioners complaint.
SO ORDERED.

JUDGE FELIMON ABELITA III, G.R. No. 170672

Petitioner,
Present:
PUNO, C.J., Chairperson,
- versus - CARPIO,
CORONA,
LEONARDO-DE CASTRO, and
BERSAMIN, JJ.
P/SUPT. GERMAN B. DORIA Promulgated:
and SPO3 CESAR RAMIREZ,
Respondents. August 14, 2009
x - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

The trial court found that petitioner was at the scene of the shooting incident in Barangay Nursery. The trial
court ruled that the police officers who conducted the search were of the belief, based on reasonable grounds,
that petitioner was involved in the incident and that the firearm used in the commission of the offense was in
his possession. The trial court ruled that petitioners warrantless arrest and the warrantless seizure of the
firearms were valid and legal. The trial court gave more credence to the testimonies of respondents who were
presumed to have performed their duties in accordance with law. The trial court rejected petitioners claim of
frame-up as weak and insufficient to overthrow the positive testimonies of the police officers who conducted
the arrest and the incidental search. The trial court
concluded that petitioners claim for damages under Article 32 of the Civil Code is not warranted under the
circumstances.
Petitioner filed a motion for reconsideration.
In its 18 October 2004 Order, the trial court denied the motion.
Hence, the petition before this Court.
The Issues

DECISION

The issues in this case are the following:

145

1.

Whether the warrantless arrest and warrantless search and

seizure were illegal under Section 5, Rule 113 of the 1985
Rules on Criminal Procedure;

2.

Whether respondents are civilly liable for damages under

Articles 32(4) and (9) of the Civil Code; and

3.

Whether the findings in the administrative case against

petitioner are conclusive in this case.
The Ruling of this Court

evidence in plain view is inadvertent; and (3) it is immediately apparent to the officer that the item he observes
may be evidence of a crime, contraband or otherwise subject to seizure. [10]
In this case, the police authorities were in the area because that was where they caught up with petitioner
after the chase. They saw the firearms inside the vehicle when petitioner opened the door. Since a shooting
incident just took place and it was reported that petitioner was involved in the incident, it was apparent to the
police officers that the firearms may be evidence of a crime. Hence, they were justified in seizing the firearms.
Civil Liability Under Article 32 of the Civil Code
Petitioner alleges that respondents are civilly liable under paragraphs (4) and (9) of Article 32 of the Civil
Code.

The petition has no merit.

Paragraphs (4) and (9) of Article 32 of the Civil Code respectively state:
Application of Section 5, Rule 113 of the
1985 Rules on Criminal Procedure
Petitioner alleges that his arrest and the search were unlawful under Section 5, Rule 113 of the 1985 Rules on
Criminal Procedure. Petitioner alleges that for the warrantless arrest to be lawful, the arresting officer must
have personal knowledge of facts that the person to be arrested has committed, is actually committing, or is
attempting to commit an offense. Petitioner alleges that the alleged shooting incident was just relayed to the
arresting officers, and thus they have no personal knowledge of facts as required by the Rules.

Art. 32. Any public officer or employee, or any private individual, who directly or
indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the
following rights and liberties of another person shall be liable to the latter for damages:
xxxx
(4) Freedom from arbitrary or illegal detention;
xxxx

We do not agree.
Section 5, Rule 113 of the 1985 Rules on Criminal Procedure states:
Sec. 5. Arrest without warrant; when lawful. A peace officer or a private person may,
without a warrant, arrest a person:
(a) When, in his presence, the person to be arrested has committed, is actually
committing, or is attempting to commit an offense;
(b) When an offense has in fact just been committed and he has personal knowledge of facts indicating that
the person to be arrested has committed it; and
(c) When the person to be arrested is a prisoner who has escaped from a penal
establishment or place where he is serving final judgment or temporarily confined while
his case is pending, or has escaped while being transferred from one confinement to
another.

(9) The right to be secure in ones person, house, papers, and effects against unreasonable searches and
seizures;
xxxx
In this case, it was established that petitioner was lawfully arrested without a
warrant and that firearms were validly seized from his possession. The trial
court found that petitioner was charged with illegal possession of firearms
and frustrated murder. We agree with the trial court in rejecting petitioners
allegation that he was merely framed-up. We also agree with the trial court
that respondents were presumed to be performing their duties in
accordance with law. Hence, respondents should not be held civilly liable
for their actions.
Res Judicata Does Not Apply

For the warrantless arrest under this Rule to be valid, two requisites must concur: (1) the offender has just
committed an offense; and (2) the arresting peace officer or private person has personal knowledge of facts
indicating that the person to be arrested has committed it. [5]
Personal knowledge of facts must be based on probable cause, which means an actual belief or reasonable
grounds of suspicion.[6] The grounds of suspicion are reasonable when, in the absence of actual belief of the
arresting officers, the suspicion that the person to be arrested is probably guilty of committing the offense is
based on actual facts, i.e., supported by circumstances sufficiently strong in themselves to create the probable
cause of guilt of the person to be arrested. [7] A reasonable suspicion, therefore, must be founded on probable
cause, coupled with good faith on the part of the peace officers making the arrest. [8]

Respondents raise the defense of res judicata against petitioners claim for damages.
Res judicata has two aspects: bar by prior judgment and conclusiveness of judgment provided under Section
47(b) and (c), Rule 39, respectively, of the 1997 Rules of Civil Procedure [11] which provide:
Sec. 47. Effect of judgments or final orders. The effect of a judgment or final order
rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or
final order, may be as follows:
xxx

Section 5, Rule 113 of the 1985 Rules on Criminal Procedure does not require the arresting officers to
personally witness the commission of the offense with their own eyes. In this case, P/Supt. Doria received a
report about the alleged shooting incident. SPO3 Ramirez investigated the report and learned from witnesses
that petitioner was involved in the incident. They were able to track down petitioner, but when invited to the
police headquarters to shed light on the incident, petitioner initially agreed then sped up his vehicle, prompting
the police authorities to give chase. Petitioners act of trying to get away, coupled with the incident report which
they investigated, is enough to raise a reasonable suspicion on the part of the police authorities as to the
existence of probable cause.

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any other
matter that could have been raised in relation thereto, conclusive between the parties and their successors in
interest by title subsequent to the commencement of the action or special proceeding, litigating for the same
thing and under the same title and in the same capacity; and
(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have
been adjudged in a former judgment or final order which appears upon its face to have been so adjudged, or
which was actually and necessarily included therein or necessary thereto.

Plain View Doctrine

Bar by prior judgment and conclusiveness of judgment differ as follows:
The seizure of the firearms was justified under the plain view doctrine.
Under the plain view doctrine, objects falling in the plain view of an officer who has a right to be in the position
to have that view are subject to seizure and may be presented as evidence. [9] The plain view doctrine applies
when the following requisites concur: (1) the law enforcement officer in search of the evidence has a prior
justification for an intrusion or is in a position from which he can view a particular area; (2) the discovery of the

There is bar by prior judgment when, as between the first case where the judgment
was rendered and the second case that is sought to be barred, there is identity of
parties, subject matter, and causes of action. In this instance, the judgment in the first
case constitutes an absolute bar to the second action. Otherwise put, the judgment or
decree of the court of competent jurisdiction on the merits concludes the litigation

146

between the parties, as well as their privies, and constitutes a bar to a new action or
suit involving the same cause of action before the same or other tribunal.
But where there is identity of parties in the first and second cases, but no identity of
causes of action, the first judgment is conclusive only as to those matters actually and
directly controverted and determined and not as to matters merely involved therein.
This is the concept of res judicata known as conclusiveness of judgment. Stated
differently, any right, fact or matter in issue directly adjudicated or necessarily involved
in the determination of an action before a competent court in which judgment is
rendered on the merits is conclusively settled by the judgment therein and cannot again
be litigated between the parties and their privies whether or not the claim, demand,
purpose, or subject matter of the two actions is the same. [12]

VELASCO, JR.,
NACHURA,**
REYES,
DE CASTRO, and
BRION,** JJ.
Promulgated:
October 6, 2008
x-------------------------------------------------x
DECISION

For res judicata to apply, the following requisites must be present:

(a) the former judgment or order must be final;
(b) it must be a judgment or order on the merits, that is, it was rendered after a consideration of the evidence
or stipulations submitted by the parties at the trial of the case;
(c) it must have been rendered by a court having jurisdiction over the subject matter and the parties; and
(d) there must be, between the first and second actions, identity of parties, of subject matter, and of cause of
action; this requisite is satisfied if the two actions are substantially between the same parties. [13]
While the present case and the administrative case are based on the same essential facts and circumstances,
the doctrine of res judicata will not apply. An administrative case deals with the administrative liability which
may be incurred by the respondent for the commission of the acts complained of. [14] The case before us deals
with the civil liability for damages of the police authorities.There is no identity of causes of action in the
cases. While identity of causes of action is not required in the application of res judicata in the concept of
conclusiveness of judgment,[15] it is required that there must always be identity of parties in the first and second
cases.
There is no identity of parties between the present case and the administrative case. The administrative case
was filed by Benjamin Sia Lao (Sia Lao) against petitioner. Sia Lao is not a party to this case.Respondents in
the present case were not parties to the administrative case between Sia Lao and petitioner. In the present
case, petitioner is the complainant against respondents. Hence, while res judicatais not a defense to
petitioners complaint for damages, respondents nevertheless cannot be held liable for damages as discussed
above.
WHEREFORE, we DENY the petition. We AFFIRM the 10 July 2004 Decision and 18 October 2004 Order of
the Regional Trial Court of Quezon City, Branch 217, in Civil Case No. Q-98-33442.
SO ORDERED.
SECURITIES AND EXCHANGE COMMISSION,
Petitioner,

- versus -

INTERPORT RESOURCES CORPORATION, MANUEL S.

RECTO, RENE S. VILLARICA, PELAGIO RICALDE, ANTONIO
REINA, FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO
TANCHAN, JR.,
Respondents.

G.R. No. 135808

Present:

PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,*
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,

CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision, [1]dated
20 August 1998, rendered by the Court of Appeals in C.A.-G.R. SP No. 37036, enjoining petitioner Securities
and Exchange Commission (SEC) from taking cognizance of or initiating any action against the respondent
corporation Interport Resources Corporation (IRC) and members of its board of directors, respondents Manuel
S. Recto, Rene S. Villarica, Pelagio Ricalde, Antonio Reina, Francisco Anonuevo, Joseph Sy and
Santiago Tanchan, Jr., with respect to Sections 8, 30 and 36 of the Revised Securities Act.In the same
Decision of the appellate court, all the proceedings taken against the respondents, including the assailed SEC
Omnibus Orders of 25 January 1995 and 30 March 1995, were declared void.
The antecedent facts of the present case are as follows.
On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement
withGanda Holdings Berhad (GHB). Under the Memorandum of Agreement, IRC acquired 100% or the
entire capital stock of Ganda Energy Holdings, Inc. (GEHI),[2] which would own and operate a 102 megawatt
(MW) gas turbine power-generating barge. The agreement also stipulates that GEHI would assume a fiveyear power purchase contract with National Power Corporation. At that time, GEHIspower-generating barge
was 97% complete and would go on-line by mid-September of 1994. In exchange, IRC will issue to GHB
55% of the expanded capital stock of IRC amounting to 40.88 billion shares which had a total par value
of P488.44 million.[3]
On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc.
(PRCI). PRCI owns 25.724 hectares of real estate property in Makati. Under the Agreement, GHB, a
member of the Westmont Group of Companies in Malaysia, shall extend or arrange a loan required to pay
for the proposed acquisition by IRC of PRCI.[4]
IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent
through facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile
machine of the SEC could not receive it. Upon the advice of the SEC, the IRC sent the press release on the
morning of 9 August 1994.[5]
The SEC averred that it received reports that IRC failed to make timely public disclosures of its
negotiations with GHB and that some of its directors, respondents herein, heavily traded IRC shares
utilizing this material insider information. On 16 August 1994, the SEC Chairman issued a directive
requiring IRC to submit to the SEC a copy of its aforesaid Memorandum of Agreement with GHB. The SEC
Chairman further directed all principal officers of IRC to appear at a hearing before the Brokers and
Exchanges Department (BED) of the SEC to explain IRCs failure to immediately disclose the information as
required by the Rules on Disclosure of Material Facts.[6]
In compliance with the SEC Chairmans directive, the IRC sent a letter dated 16 August 1994 to the SEC,
attaching thereto copies of the Memorandum of Agreement. Its directors, Manuel Recto,
Rene Villaricaand Pelagio Ricalde, also appeared before the SEC on 22 August 1994 to explain IRCs
alleged failure to immediately disclose material information as required under the Rules on Disclosure of
Material Facts.[7]
On 19 September 1994, the SEC Chairman issued an Order finding that IRC violated the Rules on
Disclosure of Material Facts, in connection with the Old Securities Act of 1936, when it failed to make timely
disclosure of its negotiations with GHB. In addition, the SEC pronounced that some of the officers and

147

directors of IRC entered into transactions involving IRC shares in violation of Section 30, in relation to
Section 36, of the Revised Securities Act.[8]
Respondents filed an Omnibus Motion, dated 21 September 1994, which was superseded by an Amended
Omnibus Motion, filed on 18 October 1994, alleging that the SEC had no authority to investigate the subject
matter, since under Section 8 of Presidential Decree No. 902-A, [9] as amended by Presidential Decree No.
1758, jurisdiction was conferred upon the Prosecution and Enforcement Department (PED) of the
SEC. Respondents also claimed that the SEC violated their right to due process when it ordered that the
respondents appear before the SEC and show cause why no administrative, civil or criminal sanctions
should be imposed on them, and, thus, shifted the burden of proof to the respondents. Lastly, they sought
to have their cases tried jointly given the identical factual situations surrounding the alleged violation
committed by the respondents.[10]
Respondents also filed a Motion for Continuance of Proceedings on 24 October 1994, wherein they moved
for discontinuance of the investigations and the proceedings before the SEC until the undue publicity had
abated and the investigating officials had become reasonably free from prejudice and public pressure. [11]
No formal hearings were conducted in connection with the aforementioned motions, but on 25 January
1995, the SEC issued an Omnibus Order which thus disposed of the same in this wise: [12]
WHEREFORE, premised on the foregoing considerations, the Commission
resolves and hereby rules:
1. To create a special investigating panel to hear and decide the instant case in
accordance with the Rules of Practice and Procedure Before the Prosecution and
Enforcement Department (PED), Securities and Exchange Commission, to be composed
of Attys. James K. Abugan, Medardo Devera (Prosecution and Enforcement Department),
and Jose Aquino (Brokers and Exchanges Department), which is hereby directed to
expeditiously resolve the case by conducting continuous hearings, if possible.

In the dispositive portion of its Decision, dated 20 August 1998, the Court of Appeals ruled
that[22]:
WHEREFORE, [herein petitioner SECs] Motion for Leave to Quash SEC Omnibus
Orders is hereby DENIED. The petition for certiorari, prohibition and mandamus is
GRANTED. Consequently, all proceedings taken against [herein respondents] in this
case, including the Omnibus Orders of January 25, 1995 and March 30, 1995 are
declared null and void. The writ of preliminary injunction is hereby made
permanent and, accordingly, [SEC] is hereby prohibited from taking cognizance
or initiating any action, be they civil, criminal, or administrative against [respondents]
with respect to Sections 8 (Procedure for Registration), 30 (Insiders duty to disclose
when trading) and 36 (Directors, Officers and Principal Stockholders) in relation to
Sections 46 (Administrative sanctions) 56 (Penalties) 44 (Liabilities of Controlling
persons) and 45 (Investigations, injunctions and prosecution of offenses) of the
Revised Securities Act and Section 144 (Violations of the Code) of the Corporation
Code. (Emphasis provided.)
The SEC filed a Motion for Reconsideration, which the Court of Appeals denied in a
Resolution[23] issued on 30 September 1998.
Hence, the present petition, which relies on the following grounds [24]:
I
THE COURT OF APPEALS ERRED WHEN IT DENIED PETITIONERS MOTION FOR
LEAVE TO QUASH THE ASSAILED SEC OMNIBUS ORDERS DATED JANUARY 25
AND MARCH 30, 1995.
II

2. To recall the show cause orders dated September 19, 1994 requiring the respondents
to appear and show cause why no administrative, civil or criminal sanctions should be
imposed on them.
3. To deny the Motion for Continuance for lack of merit.
Respondents filed an Omnibus Motion for Partial Reconsideration, [13] questioning the creation of the special
investigating panel to hear the case and the denial of the Motion for Continuance. The SEC denied
reconsideration in its Omnibus Order dated 30 March 1995.[14]
The respondents filed a petition before the Court of Appeals docketed as C.A.-G.R. SP No. 37036,
questioning the Omnibus Orders dated 25 January 1995 and 30 March 1995.[15] During the proceedings
before the Court of Appeals, respondents filed a Supplemental Motion [16] dated 16 May 1995, wherein they
prayed for the issuance of a writ of preliminary injunction enjoining the SEC and its agents from
investigating and proceeding with the hearing of the case against respondents herein. On 5 May 1995, the
Court of Appeals granted their motion and issued a writ of preliminary injunction, which effectively enjoined
the SEC from filing any criminal, civil or administrative case against the respondents herein. [17]
On 23 October 1995, the SEC filed a Motion for Leave to Quash SEC Omnibus Orders so that
the case may be investigated by the PED in accordance with the SEC Rules and Presidential Decree No.
902-A, and not by the special body whose creation the SEC had earlier ordered. [18]
[19]

The Court of Appeals promulgated a Decision on 20 August 1998. It determined that there
were no implementing rules and regulations regarding disclosure, insider trading, or any of the provisions of
the Revised Securities Acts which the respondents allegedly violated. The Court of Appeals likewise noted
that it found no statutory authority for the SEC to initiate and file any suit for civil liability under Sections 8,
30 and 36 of the Revised Securities Act. Thus, it ruled that no civil, criminal or administrative proceedings
may possibly be held against the respondents without violating their rights to due process and equal
protection. It further resolved that absent any implementing rules, the SEC cannot be allowed to quash the
assailed Omnibus Orders for the sole purpose of re-filing the same case against the respondents. [20]
The Court of Appeals further decided that the Rules of Practice and Procedure Before the PED,
which took effect on 14 April 1990, did not comply with the statutory requirements contained in the
Administrative Code of 1997. Section 8, Rule V of the Rules of Practice and Procedure Before the PED
affords a party the right to be present but without the right to cross-examine witnesses presented against
him, in violation of Section 12(3), Chapter 3, Book VII of the Administrative Code. [21]

THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE IS NO

STATUTORY AUTHORITY WHATSOEVER FOR PETITIONER SEC TO INITIATE AND
FILE ANY SUIT BE THEY CIVIL, CRIMINAL OR ADMINISTRATIVE AGAINST
RESPONDENT CORPORATION AND ITS DIRECTORS WITH RESPECT TO
SECTION 30 (INSIDERS DUTY TO DISCOLSED [sic] WHEN TRADING) AND 36
(DIRECTORS OFFICERS AND PRINCIPAL STOCKHOLDERS) OF THE REVISED
SECURITIES ACT; AND
III
THE COURT OF APPEALS ERRED WHEN IT RULED THAT RULES OF PRACTICE
AND PROSECUTION BEFORE THE PED AND THE SICD RULES OF PROCEDURE
ON ADMINISTRATIVE ACTIONS/PROCEEDINGS[25] ARE INVALID AS THEY FAIL TO
COMPLY WITH THE STATUTORY REQUIREMENTS CONTAINED IN THE
ADMINISTRATIVE CODE OF 1987.
The petition is impressed with merit.
Before discussing the merits of this case, it should be noted that while this case was pending
in this Court, Republic Act No. 8799, otherwise known as the Securities Regulation Code, took effect on 8
August 2000. Section 8 of Presidential Decree No. 902-A, as amended, which created the PED, was
already repealed as provided for in Section 76 of the Securities Regulation Code:
SEC.
76. Repealing
Clause.
The
Revised
Securities
Act
(Batas Pambansa Blg. 178), as amended, in its entirety, and Sections 2, 4 and 8 of
Presidential Decree 902-A, as amended, are hereby repealed. All other laws, orders,
rules and regulations, or parts thereof, inconsistent with any provision of this Code are
hereby repealed or modified accordingly.
Thus, under the new law, the PED has been abolished, and the Securities Regulation Code has
taken the place of the Revised Securities Act.
The Court now proceeds with a discussion of the present case.

148

I. Sctions 8, 30 and 36 of the Revised Securities

Act do not require the enactment of
implementing rules to make them
binding and effective.

The Court of Appeals ruled that absent any implementing rules for Sections 8, 30 and 36 of the
Revised Securities Act, no civil, criminal or administrative actions can possibly be had against the respondents
without violating their right to due process and equal protection, citing as its basis the case Yick Wo v. Hopkins.
[26]
This is untenable.

Section 30 of the Revised Securities Act

Section 30 of the Revised Securities Act reads:
Sec. 30. Insiders duty to disclose when trading. (a) It shall be unlawful
for an insider to sell or buy a security of the issuer, if he knows a fact of special
significance with respect to the issuer or the security that is not generally available,
unless (1) the insider proves that the fact is generally available or (2) if the other party
to the transaction (or his agent) is identified, (a) the insider proves that the other party
knows it, or (b) that other party in fact knows it from the insider or otherwise.

In the absence of any constitutional or statutory infirmity, which may concern Sections 30 and 36 of
the Revised Securities Act, this Court upholds these provisions as legal and binding. It is well settled that
every law has in its favor the presumption of validity. Unless and until a specific provision of the law is declared
invalid and unconstitutional, the same is valid and binding for all intents and purposes. [27] The mere absence of
implementing rules cannot effectively invalidate provisions of law, where a reasonable construction that will
support the law may be given. In People v. Rosenthal,[28] this Court ruled that:

(b) Insider means (1) the issuer, (2) a director or officer of, or a person
controlling, controlled by, or under common control with, the issuer, (3) a person whose
relationship or former relationship to the issuer gives or gave him access to a fact of
special significance about the issuer or the security that is not generally available, or
(4) a person who learns such a fact from any of the foregoing insiders as defined in this
subsection, with knowledge that the person from whom he learns the fact is such an
insider.

In this connection we cannot pretermit reference to the rule that legislation should not
be held invalid on the ground of uncertainty if susceptible of any reasonable
construction that will support and give it effect. An Act will not be declared inoperative
and ineffectual on the ground that it furnishes no adequate means to secure the
purpose for which it is passed, if men of common sense and reason can devise and
provide the means, and all the instrumentalities necessary for its execution are within
the reach of those intrustedtherewith. (25 R.C.L., pp. 810, 811)

(c) A fact is of special significance if (a) in addition to being material it would

be likely, on being made generally available, to affect the market price of a security to a
significant extent, or (b) a reasonable person would consider it especially important
under the circumstances in determining his course of action in the light of such factors
as the degree of its specificity, the extent of its difference from information generally
available previously, and its nature and reliability.

In Garcia v. Executive Secretary,[29] the Court underlined the importance of the presumption of
validity of laws and the careful consideration with which the judiciary strikes down as invalid acts of the
legislature:
The policy of the courts is to avoid ruling on constitutional questions and to presume
that the acts of the political departments are valid in the absence of a clear and
unmistakable showing to the contrary. To doubt is to sustain. This presumption is
based on the doctrine of separation of powers which enjoins upon each department a
becoming respect for the acts of the other departments. The theory is that as the joint
act of Congress and the President of the Philippines, a law has been carefully studied
and determined to be in accordance with the fundamental law before it was finally
enacted.
The necessity for vesting administrative authorities with power to make rules and regulations is
based on the impracticability of lawmakers providing general regulations for various and varying details of
management.[30] To rule that the absence of implementing rules can render ineffective an act of Congress,
such as the Revised Securities Act, would empower the administrative bodies to defeat the legislative will by
delaying the implementing rules. To assert that a law is less than a law, because it is made to depend on a
future event or act, is to rob the Legislature of the power to act wisely for the public welfare whenever a law is
passed relating to a state of affairs not yet developed, or to things future and impossible to fully know. [31] It is
well established that administrative authorities have the power to promulgate rules and regulations to
implement a given statute and to effectuate its policies, provided such rules and regulations conform to the
terms and standards prescribed by the statute as well as purport to carry into effect its general policies.
Nevertheless, it is undisputable that the rules and regulations cannot assert for themselves a more extensive
prerogative or deviate from the mandate of the statute. [32]Moreover, where the statute contains sufficient
standards and an unmistakable intent, as in the case of Sections 30 and 36 of the Revised Securities Act,
there should be no impediment to its implementation.
The reliance placed by the Court of Appeals in Yick Wo v. Hopkins[33] shows a glaring error. In the
cited case, this Court found unconstitutional an ordinance which gave the board of supervisors authority to
refuse permission to carry on laundries located in buildings that were not made of brick and stone, because it
violated the equal protection clause and was highly discriminatory and hostile to Chinese residents and not
because the standards provided therein were vague or ambiguous.
This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the Revised
Securities Act, such that the acts proscribed and/or required would not be understood by a person of ordinary
intelligence.

(d) This section shall apply to an insider as defined in subsection (b) (3)
hereof only to the extent that he knows of a fact of special significance by virtue of his
being an insider.
The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed
information is the gravamen of illegal conduct. The intent of the law is the protection of investors against fraud,
committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders are
obligated to disclose material information to the other party or abstain from trading the shares of his
corporation. This duty to disclose or abstain is based on two factors: first, the existence of a relationship giving
access, directly or indirectly, to information intended to be available only for a corporate purpose and not for
the personal benefit of anyone; and second, the inherent unfairness involved when a party takes advantage of
such information knowing it is unavailable to those with whom he is dealing. [34]
In the United States (U.S.), the obligation to disclose or abstain has been traditionally imposed on
corporate insiders, particularly officers, directors, or controlling stockholders, but that definition has since been
[35]
expanded. The term insiders now includes persons whose relationship or former relationship to the issuer
gives or gave them access to a fact of special significance about the issuer or the security that is not generally
available, and one who learns such a fact from an insider knowing that the person from whom he learns the
fact is such an insider. Insiders have the duty to disclose material facts which are known to them by virtue of
their position but which are not known to persons with whom they deal and which, if known, would affect their
investment judgment. In some cases, however, there may be valid corporate reasons for the nondisclosure of
material information. Where such reasons exist, an issuers decision not to make any public disclosures is not
ordinarily considered as a violation of insider trading.At the same time, the undisclosed information should not
be improperly used for non-corporate purposes, particularly to disadvantage other persons with whom an
insider might transact, and therefore the insider must abstain from entering into transactions involving such
securities.[36]
Respondents further aver that under Section 30 of the Revised Securities Act, the SEC still needed
to define the following terms: material fact, reasonable person, nature and reliability and generally
[37]
available.
In determining whether or not these terms are vague, these terms must be evaluated in the
context of Section 30 of the Revised Securties Act. To fully understand how the terms were used in the
aforementioned provision, a discussion of what the law recognizes as a fact of special significance is required,
since the duty to disclose such fact or to abstain from any transaction is imposed on the insider only in
connection with a fact of special significance.
Under the law, what is required to be disclosed is a fact of special significance which may be (a)
a material fact which would be likely, on being made generally available, to affect the market price of a security
to a significant extent, or (b) one which a reasonable person would consider especially important in
determining his course of action with regard to the shares of stock.

149

(a) Material Fact The concept of a material fact is not a new one. As early as 1973, the Rules
Requiring Disclosure of Material Facts by Corporations Whose Securities Are Listed In Any Stock Exchange or
Registered/Licensed Under the Securities Act, issued by the SEC on 29 January 1973, explained that [a] fact
is material if it induces or tends to induce or otherwise affect the sale or purchase of its securities. Thus,
Section 30 of the Revised Securities Act provides that if a fact affects the sale or purchase of securities, as
well as its price, then the insider would be required to disclose such information to the other party to the
transaction involving the securities. This is the first definition given to a fact of special significance.
(b.1) Reasonable Person The second definition given to a fact of special significance involves the judgment
of a reasonable person. Contrary to the allegations of the respondents, a reasonable person is not a
problematic legal concept that needs to be clarified for the purpose of giving effect to a statute; rather, it is the
standard on which most of our legal doctrines stand. The doctrine on negligence uses the discretion of the
reasonable man as the standard. [38] A purchaser in good faith must also take into account facts which put a
reasonable man on his guard. [39] In addition, it is the belief of the reasonable and prudent man that an offense
was committed that sets the criteria for probable cause for a warrant of arrest. [40]This Court, in such cases,
differentiated the reasonable and prudent man from a person with training in the law such as a prosecutor or a
judge, and identified him as the average man on the street, who weighs facts and circumstances without
resorting to the calibrations of our technical rules of evidence of which his knowledge is nil. Rather, he relies
on the calculus of common sense of which all reasonable men have in abundance. [41] In the same vein, the
U.S. Supreme Court similarly determined its standards by the actual significance in the deliberations of a
reasonable investor, when it ruled in TSC Industries, Inc. v. Northway, Inc.,[42] that the determination of
materiality requires delicate assessments of the inferences a reasonable shareholder would draw from a given
set of facts and the significance of those inferences to him.
(b.2) Nature and Reliability The factors affecting the second definition of a fact of special
significance, which is of such importance that it is expected to affect the judgment of a reasonable man, were
substantially lifted from a test of materiality pronounced in the case In the Matter of Investors Management
Co., Inc.[43]:
Among the factors to be considered in determining whether information is material
under this test are the degree of its specificity, the extent to which it differs from
information previously publicly disseminated, and its reliability in light of its nature and
source and the circumstances under which it was received.
It can be deduced from the foregoing that the nature and reliability of a significant fact in determining the
course of action a reasonable person takes regarding securities must be clearly viewed in connection with the
particular circumstances of a case. To enumerate all circumstances that would render the nature and reliability
of a fact to be of special significance is close to impossible. Nevertheless, the proper adjudicative body would
undoubtedly be able to determine if facts of a certain nature and reliability can influence a reasonable persons
decision to retain, sell or buy securities, and thereafter explain and justify its factual findings in its decision.
(c) Materiality Concept A discussion of the materiality concept would be relevant to both a
material fact which would affect the market price of a security to a significant extent and/or a fact which a
reasonable person would consider in determining his or her cause of action with regard to the shares of
stock. Significantly, what is referred to in our laws as a fact of special significance is referred to in theU.S. as
the materiality concept and the latter is similarly not provided with a precise definition. In Basic v. Levinson,
[44]
the U.S. Supreme Court cautioned against confining materiality to a rigid formula, stating thus:
A bright-line rule indeed is easier to follow than a standard that requires the exercise of
judgment in the light of all the circumstances. But ease of application alone is not an
excuse for ignoring the purposes of the Securities Act and Congress policy
decisions. Any approach that designates a single fact or occurrence as always
determinative of an inherently fact-specific finding such as materiality, must necessarily
beoverinclusive or underinclusive.
Moreover, materiality will depend at any given time upon a balancing of both the indicated probability that the
event will occur and the anticipated magnitude of the event in light of the totality of the company activity. [45] In
drafting the Securities Act of 1934, the U.S. Congress put emphasis on the limitations to the definition of
materiality:
Although the Committee believes that ideally it would be desirable to have absolute
certainty in the application of the materiality concept, it is its view that such a goal is
illusory and unrealistic. The materiality concept is judgmental in nature and it is
not possible to translate this into a numerical formula. The Committee's advice
to the [SEC] is to avoid this quest for certainty and to continue consideration of

materiality on a case-by-case basis as disclosure problems are identified. House

Committee on Interstate and Foreign Commerce, Report of the Advisory Committee on
Corporate Disclosure to the Securities and Exchange Commission, 95th Cong.,
1st Sess., 327 (Comm.Print 1977). (Emphasis provided.)[46]
(d) Generally Available Section 30 of the Revised Securities Act allows the insider the
defense that in a transaction of securities, where the insider is in possession of facts of special
significance, such information is generally available to the public. Whether information found in a
newspaper, a specialized magazine, or any cyberspace media be sufficient for the term generally
available is a matter which may be adjudged given the particular circumstances of the case. The
standards cannot remain at a standstill. A medium, which is widely used today was, at some previous
point in time, inaccessible to most. Furthermore, it would be difficult to approximate how the rules may
be applied to the instant case, where investigation has not even been started. Respondents failed to
allege that the negotiations of their agreement with GHB were made known to the public through any
form of media for there to be a proper appreciation of the issue presented.
Section 36(a) of the Revised Securities Act
As regards Section 36(a) of the Revised Securities Act, respondents claim that the term beneficial
ownership is vague and that it requires implementing rules to give effect to the law. Section 36(a) of the
Revised Securities Act is a straightforward provision that imposes upon (1) a beneficial owner of more than ten
percent of any class of any equity security or (2) a director or any officer of the issuer of such security, the
obligation to submit a statement indicating his or her ownership of the issuers securities and such changes in
his or her ownership thereof. The said provision reads:
Sec. 36. Directors, officers and principal stockholders. (a) Every person who is
directly or indirectly the beneficial owner of more than ten per centum of any [class] of
any equity security which is registered pursuant to this Act, or who is [a] director or an
officer of the issuer of such security, shall file, at the time of the registration of such
security on a securities exchange or by the effective date of a registration statement or
within ten days after he becomes such a beneficial owner, director or officer, a
statement with the Commission and, if such security is registered on a securities
exchange, also with the exchange, of the amount of all equity securities of such issuer
of which he is the beneficial owner, and within ten days after the close of each calendar
month thereafter, if there has been a change in such ownership during such month,
shall file with the Commission, and if such security is registered on a securities
exchange, shall also file with the exchange, a statement indicating his ownership at the
close of the calendar month and such changes in his ownership as have occurred
during such calendar month. (Emphasis provided.)
Section 36(a) refers to the beneficial owner. Beneficial owner has been defined in the following manner:
[F]irst, to indicate the interest of a beneficiary in trust property (also called equitable
ownership); andsecond, to refer to the power of a corporate shareholder to buy or sell
the shares, though the shareholder is not registered in the corporations books as the
owner. Usually, beneficial ownership is distinguished from naked ownership, which is
the enjoyment of all the benefits and privileges of ownership, as against possession of
the bare title to property.[47]
Even assuming that the term beneficial ownership was vague, it would not affect respondents case, where the
respondents are directors and/or officers of the corporation, who are specifically required to comply with the
reportorial requirements under Section 36(a) of the Revised Securities Act. The validity of a statute may be
contested only by one who will sustain a direct injury as a result of its enforcement. [48]
Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure in the
securities market and prevent unscrupulous individuals, who by their positions obtain non-public information,
from taking advantage of an uninformed public. No individual would invest in a market which can be
manipulated by a limited number of corporate insiders. Such reaction would stifle, if not stunt, the growth of the
securities market. To avert the occurrence of such an event, Section 30 of the Revised Securities Act
prevented the unfair use of non-public information in securities transactions, while Section 36 allowed the SEC
to monitor the transactions entered into by corporate officers and directors as regards the securities of their
companies.
In the case In the Matter of Investors Management Co., [49] it was cautioned that the broad language
of the anti-fraud provisions, which include the provisions on insider trading, should not be circumscribed by

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fine distinctions and rigid classifications. The ambit of anti-fraud provisions is necessarily broad so as to
embrace the infinite variety of deceptive conduct. [50]
In Tatad v. Secretary of Department of Energy,[51] this Court brushed aside a contention, similar to
that made by the respondents in this case, that certain words or phrases used in a statute do not set
determinate standards, declaring that:
Petitioners contend that the words as far as practicable, declining and stable should
have been defined in R.A. No. 8180 as they do not set determinate and determinable
standards. This stubborn submission deserves scant consideration. The dictionary
meanings of these words are well settled and cannot confuse men of reasonable
intelligence. x x x. The fear of petitioners that these words will result in the exercise of
executive discretion that will run riot is thus groundless. To be sure, the Court has
sustained the validity of similar, if not more general standards in other cases.
Among the words or phrases that this Court upheld as valid standards were simplicity and dignity, [52]public
interest,[53] and interests of law and order.[54]
The Revised Securities Act was approved on 23 February 1982. The fact that the Full Disclosure
Rules were promulgated by the SEC only on 24 July 1996 does not render ineffective in the meantime Section
36 of the Revised Securities Act. It is already unequivocal that the Revised Securities Act requires full
disclosure and the Full Disclosure Rules were issued to make the enforcement of the law more consistent,
efficient and effective. It is equally reasonable to state that the disclosure forms later provided by the SEC, do
not, in any way imply that no compliance was required before the forms were provided.The effectivity of a
statute which imposes reportorial requirements cannot be suspended by the issuance of specified forms,
especially where compliance therewith may be made even without such forms. The forms merely made more
efficient the processing of requirements already identified by the statute.
For the same reason, the Court of Appeals made an evident mistake when it ruled that no civil, criminal or
administrative actions can possibly be had against the respondents in connection with Sections 8, 30 and 36
of the Revised Securities Act due to the absence of implementing rules. These provisions are sufficiently clear
and complete by themselves. Their requirements are specifically set out, and the acts which are enjoined are
determinable. In particular, Section 8 [55] of the Revised Securities Act is a straightforward enumeration of the
procedure for the registration of securities and the particular matters which need to be reported in the
registration statement thereof. The Decision, dated 20 August 1998, provides no valid reason to exempt the
respondent IRC from such requirements. The lack of implementing rules cannot suspend the effectivity of
these provisions. Thus, this Court cannot find any cogent reason to prevent the SEC from exercising its
authority to investigate respondents for violation of Section 8 of the Revised Securities Act.

II. The right to cross-examination is not absolute

and cannot be demanded during
investigative proceedings before the
PED.

documents and the affidavits of their witnesses, if any which shall take the place of
their direct testimony. The parties shall furnish each other with copies of the position
papers together with the supporting affidavits and documents submitted by them.
Section 6. Determination of necessity of hearing. Immediately after the submission by
the parties of their position papers and supporting documents, the Hearing Officer shall
determine whether there is a need for a formal hearing. At this stage, he may, in his
discretion, and for the purpose of making such determination, elicit pertinent facts or
information, including documentary evidence, if any, from any party or witness to
complete, as far as possible, the facts of the case. Facts or information so elicited may
serve as basis for his clarification or simplifications of the issues in the
case. Admissions and stipulation of facts to abbreviate the proceedings shall be
encouraged.
Section 7. Disposition of Case. If the Hearing Officer finds no necessity of further
hearing after the parties have submitted their position papers and supporting
documents, he shall so inform the parties stating the reasons therefor and shall ask
them to acknowledge the fact that they were so informed by signing the minutes of the
hearing and the case shall be deemed submitted for resolution.
As such, the PED Rules provided that the Hearing Officer may require the parties to submit their respective
verified position papers, together with all supporting documents and affidavits of witnesses. A formal hearing
was not mandatory; it was within the discretion of the Hearing Officer to determine whether there was a need
for a formal hearing. Since, according to the foregoing rules, the holding of a hearing before the PED is
discretionary, then the right to cross-examination could not have been demanded by either party.
Secondly, it must be pointed out that Chapter 3, Book VII of the Administrative Code, entitled
Adjudication, does not affect the investigatory functions of the agencies. The law creating the PED, Section 8
of Presidential Decree No. 902-A, as amended, defines the authority granted to the PED, thus:

SEC. 8. The Prosecution and Enforcement Department shall have, subject to the
Commissions control and supervision, the exclusive authority to investigate, on
complaint or motu proprio, any act or omission of the Board of Directors/Trustees of
corporations, or of partnerships, or of other associations, or of their stockholders,
officers or partners, including any fraudulent devices, schemes or representations, in
violation of any law or rules and regulations administered and enforced by the
Commission; to file and prosecute in accordance with law and rules and regulations
issued by the Commission and in appropriate cases, the corresponding criminal or civil
case before the Commission or the proper court or body upon prima facie finding of
violation of any laws or rules and regulations administered and enforced by the
Commission; and to perform such other powers and functions as may be provided by
law or duly delegated to it by the Commission. (Emphasis provided.)

In its assailed Decision dated 20 August 1998, the Court of Appeals pronounced that the PED
Rules of Practice and Procedure was invalid since Section 8, Rule V [56] thereof failed to provide for the parties
right to cross-examination, in violation of the Administrative Code of 1987 particularly Section 12(3), Chapter 3,
Book VII thereof. This ruling is incorrect.
Firstly, Section 4, Rule I of the PED Rules of Practice and Procedure, categorically stated that the
proceedings before the PED are summary in nature:
Section 4. Nature of Proceedings Subject to the requirements of due process,
proceedings before the PED shall be summary in nature not necessarily adhering to or
following the technical rules of evidence obtaining in the courts of law. The Rules of
Court may apply in said proceedings in suppletory character whenever practicable.
Rule V of the PED Rules of Practice and Procedure further specified that:
Section 5. Submission of Documents During the preliminary conference/hearing, or
immediately thereafter, the Hearing Officer may require the parties to simultaneously
submit their respective verified position papers accompanied by all supporting

The law creating PED empowers it to investigate violations of the rules and regulations promulgated by the
SEC and to file and prosecute such cases. It fails to mention any adjudicatory functions insofar as the PED is
concerned. Thus, the PED Rules of Practice and Procedure need not comply with the provisions of the
Administrative Code on adjudication, particularly Section 12(3), Chapter 3, Book VII.
In Cario v. Commission on Human Rights,[57] this Court sets out the distinction between investigative and
adjudicative functions, thus:
Investigate, commonly understood, means to examine, explore, inquire or
delve or probe into, research on, study. The dictionary definition of investigate is to
observe or study closely; inquire into systematically: to search or inquire into xx to
subject to an official probe xx: to conduct an official inquiry.The purpose of an
investigation, of course is to discover, to find out, to learn, obtain information. Nowhere

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included or intimated is the notion of settling, deciding or resolving a controversy

involved in the facts inquired into by application of the law to the facts established by
the inquiry.
The legal meaning of investigate is essentially the same: (t)o follow up step
by step by patient inquiry or observation. To trace or track; to search into; to examine
and inquire into with care and accuracy; to find out by careful inquisition; examination;
the taking of evidence; a legal inquiry; to inquire; to make an investigation, investigation
being in turn described as (a)n administrative function, the exercise of which ordinarily
does not require a hearing. 2 Am J2d Adm L Sec. 257; xx an inquiry, judicial or
otherwise, for the discovery and collection of facts concerning a certain matter or
matters.

Even assuming that these are adjudicative functions, the PED, in the instant case, exercised its
investigative powers; thus, respondents do not have the requisite standing to assail the validity of the rules on
adjudication. A valid source of a statute or a rule can only be contested by one who will sustain a direct injury
as a result of its enforcement. [58] In the instant case, respondents are only being investigated by the PED for
their alleged failure to disclose their negotiations with GHB and the transactions entered into by its directors
involving IRC shares. The respondents have not shown themselves to be under any imminent danger of
sustaining any personal injury attributable to the exercise of adjudicative functions by the SEC.They are not
being or about to be subjected by the PED to charges, fees or fines; to citations for contempt; or to the
cancellation of their certificate of registration under Section 1(h), Rule II of the PED Rules of Practice and
Procedure.
To repeat, the only powers which the PED was likely to exercise over the respondents were
investigative in nature, to wit:

Adjudicate, commonly or popularly understood, means to adjudge,

arbitrate, judge, decide, determine, resolve, rule on, settle. The dictionary defines the
term as to settle finally (the rights and duties of parties to a court case) on the merits of
issues raised: xx to pass judgment on: settle judicially: xx act as judge. And adjudge
means to decide or rule upon as a judge or with judicial or quasi-judicial powers: xx to
award or grant judicially in a case of controversy x x x.

Section 1. Authority of the Prosecution and Enforcement Department Pursuant to

Presidential Decree No. 902-A, as amended by Presidential Decree No. 1758, the
Prosecution and Enforcement Department is primarily charged with the following:
xxxx
b.

In a legal sense, adjudicate means: To settle in the exercise of judicial

authority. To determine finally.Synonymous with adjudge in its strictest sense; and
adjudge means: To pass on judicially, to decide, settle, or decree, or to sentence or
condemn. x x x Implies a judicial determination of a fact, and the entry of a judgment.

xxxx
e.

Files and prosecutes civil or criminal cases before the Commission and other
courts of justice involving violations of laws and decrees enforced by the
Commission and the rules and regulations promulgatedthereunder;

f.

Prosecutes erring directors, officers and stockholders of corporations and

partnerships, commercial paper issuers or persons in accordance with the
pertinent rules on procedures;

There is no merit to the respondents averment that the sections under Chapter 3, Book VII of the
Administrative Code, do not distinguish between investigative and adjudicatory functions. Chapter 3, Book VII
of the Administrative Code, is unequivocally entitled Adjudication.
Respondents insist that the PED performs adjudicative functions, as enumerated under Section
1(h) and (j), Rule II; and Section 2(4), Rule VII of the PED Rules of Practice and Procedure:
Section 1. Authority of the Prosecution and Enforcement Department Pursuant to
Presidential Decree No. 902-A, as amended by Presidential Decree No. 1758, the
Prosecution and Enforcement Department is primarily charged with the following:
xxxx
(h) Suspends or revokes, after proper notice and hearing in accordance with these
Rules, the franchise or certificate of registration of corporations, partnerships or
associations, upon any of the following grounds:
1. Fraud in procuring its certificate of registration;

Initiates proper investigation of corporations and partnerships or persons, their

books, records and other properties and assets, involving their business
transactions, in coordination with the operating department involved;

The authority granted to the PED under Section 1(b), (e), and (f), Rule II of the PED Rules of Practice and
Procedure, need not comply with Section 12, Chapter 3, Rule VII of the Administrative Code, which affects
only the adjudicatory functions of administrative bodies. Thus, the PED would still be able to investigate the
respondents under its rules for their alleged failure to disclose their negotiations with GHB and the
transactions entered into by its directors involving IRC shares.
This is not to say that administrative bodies performing adjudicative functions are required to
strictly comply with the requirements of Chapter 3, Rule VII of the Administrative Code, particularly, the right to
cross-examination. It should be noted that under Section 2.2 of Executive Order No. 26, issued on7 October
1992, abbreviated proceedings are prescribed in the disposition of administrative cases:

2. Serious misrepresentation as to what the corporation can do or is doing to the great

prejudice of or damage to the general public;

2. Abbreviation of Proceedings. All administrative agencies are hereby directed to

adopt and include in their respective Rules of Procedure the following provisions:
xxxx

3. Refusal to comply or defiance of any lawful order of the Commission restraining

commission of acts which would amount to a grave violation of its franchise;
xxxx
(j)

2.2 Rules adopting, unless otherwise provided by special laws and without prejudice to
Section 12, Chapter 3, Book VII of the Administrative Code of 1987, the mandatory use
of affidavits in lieu of direct testimonies and the preferred use of depositions whenever
practicable and convenient.

Imposes charges, fines and fees, which by law, it is authorized to collect;

xxxx
Section 2. Powers of the Hearing Officer. The Hearing Officer shall have the following
powers:
xxxx
4. To cite and/or declare any person in direct or indirect contempt in accordance with
pertinent provisions of the Rules of Court.

As a consequence, in proceedings before administrative or quasi-judicial bodies, such as the

National Labor Relations Commission and the Philippine Overseas Employment Agency, created under laws
which authorize summary proceedings, decisions may be reached on the basis of position papers or other
documentary evidence only. They are not bound by technical rules of procedure and evidence. [59]In fact, the
hearings before such agencies do not connote full adversarial proceedings. [60] Thus, it is not necessary for the
rules to require affiants to appear and testify and to be cross-examined by the counsel of the adverse party. To
require otherwise would negate the summary nature of the administrative or quasi-judicial proceedings.
[61]
In Atlas Consolidated Mining and Development Corporation v. Factoran, Jr.,[62] this Court stated that:
[I]t is sufficient that administrative findings of fact are supported by evidence, or
negatively stated, it is sufficient that findings of fact are not shown to be unsupported
by evidence. Substantial evidence is all that is needed to support an administrative

152

finding of fact, and substantial evidence is such relevant evidence as a reasonable

mind might accept as adequate to support a conclusion.

Justice (DOJ) for preliminary investigation, while the SEC nevertheless retains limited investigatory powers.
[70]
Additionally, the SEC may still impose the appropriate administrative sanctions under Section 54 of the
aforementioned law.[71]

In order to comply with the requirements of due process, what is required, among other things, is that every
litigant be given reasonable opportunity to appear and defend his right and to introduce relevant evidence in
his favor.[63]

In Morato v. Court of Appeals,[72] the cases therein were still pending before the PED for
investigation and the SEC for resolution when the Securities Regulations Code was enacted. The case before
the SEC involved an intra-corporate dispute, while the subject matter of the other case investigated by the
PED involved the schemes, devices, and violations of pertinent rules and laws of the companys board of
directors. The enactment of the Securities Regulations Code did not result in the dismissal of the cases; rather,
this Court ordered the transfer of one case to the proper regional trial court and the SEC to continue with the
investigation of the other case.

III. The Securities Regulations Code did not

repeal Sections 8, 30 and 36 of the
Revised Securities Act since said
provisions were reenacted in the new
law.
The Securities Regulations Code absolutely repealed the Revised Securities Act. While the
absolute repeal of a law generally deprives a court of its authority to penalize the person charged with the
violation of the old law prior to its appeal, an exception to this rule comes about when the repealing law
punishes the act previously penalized under the old law. The Court, in Benedicto v. Court of Appeals, sets
down the rules in such instances:[64]
As a rule, an absolute repeal of a penal law has the effect of depriving the
court of its authority to punish a person charged with violation of the old law prior to its
repeal. This is because an unqualified repeal of a penal law constitutes a legislative act
of rendering legal what had been previously declared as illegal, such that the offense
no longer exists and it is as if the person who committed it never did so. There are,
however, exceptions to the rule. One is the inclusion of a saving clause in the
repealing statute that provides that the repeal shall have no effect on pending
actions. Another exception is where the repealing act reenactsthe former statute and
punishes the act previously penalized under the old law. In such instance, the act
committed before the reenactment continues to be an offense in the statute books and
pending cases are not affected, regardless of whether the new penalty to be imposed
is more favorable to the accused. (Emphasis provided.)
In the present case, a criminal case may still be filed against the respondents despite the repeal,
since Sections 8, [65] 12,[66] 26,[67] 27[68] and 23[69] of the Securities Regulations Code impose duties that are
substantially similar to Sections 8, 30 and 36 of the repealed Revised Securities Act.
Section 8 of the Revised Securities Act, which previously provided for the registration of securities
and the information that needs to be included in the registration statements, was expanded under Section 12,
in connection with Section 8 of the Securities Regulations Code. Further details of the information required to
be disclosed by the registrant are explained in the Amended Implementing Rules and Regulations of the
Securities Regulations Code, issued on 30 December 2003, particularly Sections 8 and 12 thereof.
Section 30 of the Revised Securities Act has been reenacted as Section 27 of the Securities
Regulations Code, still penalizing an insiders misuse of material and non-public information about the issuer,
for the purpose of protecting public investors. Section 26 of the Securities Regulations Code even widens the
coverage of punishable acts, which intend to defraud public investors through various devices, misinformation
and omissions.
Section 23 of the Securities Regulations Code was practically lifted from Section 36(a) of the
Revised Securities Act. Both provisions impose upon (1) a beneficial owner of more than ten percent of any
class of any equity security or (2) a director or any officer of the issuer of such security, the obligation to submit
a statement indicating his or her ownership of the issuers securities and such changes in his or her ownership
thereof.
Clearly, the legislature had not intended to deprive the courts of their authority to punish a person
charged with violation of the old law that was repealed; in this case, the Revised Securities Act.
IV. The

SEC retained the jurisdiction to

investigate violations of the Revised
Securities Act, reenacted in the
Securities Regulations Code, despite
the abolition of the PED.

Section 53 of the Securities Regulations Code clearly provides that criminal complaints for
violations of rules and regulations enforced or administered by the SEC shall be referred to the Department of

The case at bar is comparable to the aforecited case. In this case, the SEC already commenced the
investigative proceedings against respondents as early as 1994. Respondents were called to appear before
the SEC and explain their failure to disclose pertinent information on 14 August 1994. Thereafter, the SEC
Chairman, having already made initial findings that respondents failed to make timely disclosures of their
negotiations with GHB, ordered a special investigating panel to hear the case. The investigative proceedings
were interrupted only by the writ of preliminary injunction issued by the Court of Appeals, which became
permanent by virtue of the Decision, dated 20 August 1998, in C.A.-G.R. SP No. 37036.During
the pendency of this case, the Securities Regulations Code repealed the Revised Securities Act. As
in Morato v. Court of Appeals, the repeal cannot deprive SEC of its jurisdiction to continue investigating the
case; or the regional trial court, to hear any case which may later be filed against the respondents.
V. The instant case has not yet prescribed.
Respondents have taken the position that this case is moot and academic, since any criminal complaint that
may be filed against them resulting from the SECs investigation of this case has already prescribed. [73] They
point out that the prescription period applicable to offenses punished under special laws, such as violations of
the Revised Securities Act, is twelve years under Section 1 of Act No. 3326, as amended by Act No. 3585 and
Act No. 3763, entitled An Act to Establish Periods of Prescription for Violations Penalized by Special Acts and
Municipal Ordinances and to Provide When Prescription Shall Begin to Act. [74] Since the offense was
committed in 1994, they reasoned that prescription set in as early as 2006 and rendered this case moot. Such
position, however, is incongruent with the factual circumstances of this case, as well as the applicable laws
and jurisprudence.
It is an established doctrine that a preliminary investigation interrupts the prescription period. [75] A
preliminary investigation is essentially a determination whether an offense has been committed, and whether
there is probable cause for the accused to have committed an offense:
A preliminary investigation is merely inquisitorial, and it is often the only means of
discovering the persons who may be reasonably charged with a crime, to enable the fiscal to
prepare the complaint or information. It is not a trial of the case on the merits and has no
purpose except that of determining whether a crime has been committed or whether there is
probable cause to believe that the accused is guilty thereof. [76]
Under Section 45 of the Revised Securities Act, which is entitled Investigations, Injunctions and
Prosecution of Offenses, the Securities Exchange Commission (SEC) has the authority to make such
investigations as it deems necessary to determine whether any person has violated or is about to violate any
provision of this Act XXX. After a finding that a person has violated the Revised Securities Act, the SEC may
refer the case to the DOJ for preliminary investigation and prosecution.
While the SEC investigation serves the same purpose and entails substantially similar duties as
the preliminary investigation conducted by the DOJ, this process cannot simply be
disregarded. In Baviera v.Paglinawan,[77] this Court enunciated that a criminal complaint is first filed with the
SEC, which determines the existence of probable cause, before a preliminary investigation can be
commenced by the DOJ. In the aforecited case, the complaint filed directly with the DOJ was dismissed on the
ground that it should have been filed first with the SEC. Similarly, the offense was a violation of the Securities
Regulations Code, wherein the procedure for criminal prosecution was reproduced from Section 45 of the
Revised Securities Act. [78] This Court affirmed the dismissal, which it explained thus:
The Court of Appeals held that under the above provision, a criminal
complaint for violation of any law or rule administered by the SEC must first be filed
with the latter. If the Commission finds that there is probable cause, then it should refer
the case to the DOJ. Since petitioner failed to comply with the foregoing procedural
requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint in
I.S. No. 2004-229.

153

A criminal charge for violation of the Securities Regulation Code is a

specialized dispute. Hence, it must first be referred to an administrative agency of
special competence, i.e., the SEC. Under the doctrine of primary jurisdiction, courts
will not determine a controversy involving a question within the jurisdiction of the
administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the specialized knowledge and expertise of said
administrative tribunal to determine technical and intricate matters of fact. The
Securities Regulation Code is a special law. Its enforcement is particularly vested in
the SEC. Hence, all complaints for any violation of the Code and its implementing
rules and regulations should be filed with the SEC. Where the complaint is criminal in
nature, the SEC shall indorse the complaint to the DOJ for preliminary investigation
and prosecution as provided in Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner committed a fatal
procedural lapse when he filed his criminal complaint directly with the DOJ. Verily, no
grave abuse of discretion can be ascribed to the DOJ in dismissing petitioners
complaint.

The said case puts in perspective the nature of the investigation undertaken by the SEC, which is
a requisite before a criminal case may be referred to the DOJ. The Court declared that it is imperative that the
criminal prosecution be initiated before the SEC, the administrative agency with the special competence.

It should be noted that the SEC started investigative proceedings against the respondents as early
as 1994. This investigation effectively interrupted the prescription period. However, said proceedings were
disrupted by a preliminary injunction issued by the Court of Appeals on 5 May 1995, which effectively enjoined
the SEC from filing any criminal, civil, or administrative case against the respondents herein. [79] Thereafter,
on 20 August 1998, the appellate court issued the assailed Decision in C.A. G.R. SP. No. 37036 ordering that
the writ of injunction be made permanent and prohibiting the SEC from taking cognizance of and initiating any
action against herein respondents. The SEC was bound to comply with the aforementioned writ of preliminary
injunction and writ of injunction issued by the Court of Appeals enjoining it from continuing with the
investigation of respondents for 12 years. Any deviation by the SEC from the injunctive writs would be
sufficient ground for contempt. Moreover, any step the SEC takes in defiance of such orders will be considered
void for having been taken against an order issued by a court of competent jurisdiction.
An investigation of the case by any other administrative or judicial body would likewise be
impossible pending the injunctive writs issued by the Court of Appeals. Given the ruling of this Court
inBaviera v. Paglinawan,[80] the DOJ itself could not have taken cognizance of the case and conducted its
preliminary investigation without a prior determination of probable cause by the SEC. Thus, even presuming
that the DOJ was not enjoined by the Court of Appeals from conducting a preliminary investigation, any
preliminary investigation conducted by the DOJ would have been a futile effort since the SEC had only started
with its investigation when respondents themselves applied for and were granted an injunction by the Court of
Appeals.
Moreover, the DOJ could not have conducted a preliminary investigation or filed a criminal case
against the respondents during the time that issues on the effectivity of Sections 8, 30 and 36 of the Revised
Securities Act and the PED Rules of Practice and Procedure were still pending before the Court of
Appeals. After the Court of Appeals declared the aforementioned statutory and regulatory provisions invalid
and, thus, no civil, criminal or administrative case may be filed against the respondents for violations thereof,
the DOJ would have been at a loss, as there was no statutory provision which respondents could be accused
of violating.
Accordingly, it is only after this Court corrects the erroneous ruling of the Court of Appeals in its
Decision dated 20 August 1998 that either the SEC or DOJ may properly conduct any kind of investigation
against the respondents for violations of Sections 8, 30 and 36 of the Revised Securities Act.Until then, the
prescription period is deemed interrupted.
To reiterate, the SEC must first conduct its investigations and make a finding of probable cause in
accordance with the doctrine pronounced in Baviera v. Paglinawan.[81] In this case, the DOJ was precluded
from initiating a preliminary investigation since the SEC was halted by the Court of Appeals from continuing
with its investigation. Such a situation leaves the prosecution of the case at a standstill, and neither the SEC
nor the DOJ can conduct any investigation against the respondents, who, in the first place, sought the
injunction to prevent their prosecution. All that the SEC could do in order to break the impasse was to have the

Decision of the Court of Appeals overturned, as it had done at the earliest opportunity in this case. Therefore,
the period during which the SEC was prevented from continuing with its investigation should not be counted
against it. The law on the prescription period was never intended to put the prosecuting bodies in an
impossible bind in which the prosecution of a case would be placed way beyond their control; for even if they
avail themselves of the proper remedy, they would still be barred from investigating and prosecuting the case.
Indubitably, the prescription period is interrupted by commencing the proceedings for the
prosecution of the accused. In criminal cases, this is accomplished by initiating the preliminary
investigation. The prosecution of offenses punishable under the Revised Securities Act and the Securities
Regulations Code is initiated by the filing of a complaint with the SEC or by an investigation conducted by the
SEC motu proprio. Only after a finding of probable cause is made by the SEC can the DOJ instigate a
preliminary investigation. Thus, the investigation that was commenced by the SEC in 1995, soon after it
discovered the questionable acts of the respondents, effectively interrupted the prescription period. Given the
nature and purpose of the investigation conducted by the SEC, which is equivalent to the preliminary
investigation conducted by the DOJ in criminal cases, such investigation would surely interrupt the prescription
period.
VI. The Court of Appeals was justified in
denying SECs Motion for Leave to
Quash SEC Omnibus Orders dated 23
October 1995.
The SEC avers that the Court of Appeals erred when it denied its Motion for Leave to Quash SEC
Omnibus Orders, dated 23 October 1995, in the light of its admission that the PED had the sole authority to
investigate the present case. On this matter, this Court cannot agree with the SEC.
In the assailed decision, the Court of Appeals denied the SECs Motion for Leave to Quash SEC
Omnibus Orders, since it found other issues that were more important than whether or not the PED was the
proper body to investigate the matter. Its refusal was premised on its earlier finding that no criminal, civil, or
administrative case may be filed against the respondents under Sections 8, 30 and 36 of the Revised
Securities Act, due to the absence of any implementing rules and regulations. Moreover, the validity of the
PED Rules on Practice and Procedure was also raised as an issue. The Court of Appeals, thus, reasoned that
if the quashal of the orders was granted, then it would be deprived of the opportunity to determine the validity
of the aforementioned rules and statutory provisions. In addition, the SEC would merely pursue the same case
without the Court of Appeals having determined whether or not it may do so in accordance with due process
requirements. Absent a determination of whether the SEC may file a case against the respondents based on
the assailed provisions of the Revised Securities Act, it would have been improper for the Court of Appeals to
grant the SECs Motion for Leave to Quash SEC Omnibus Orders.
IN ALL, this Court rules that no implementing rules were needed to render effective Sections 8, 30
and 36 of the Revised Securities Act; nor was the PED Rules of Practice and Procedure invalid, prior to the
enactment of the Securities Regulations Code, for failure to provide parties with the right to cross-examine the
witnesses presented against them. Thus, the respondents may be investigated by the appropriate authority
under the proper rules of procedure of the Securities Regulations Code for violations of Sections 8, 30, and 36
of the Revised Securities Act.[82]
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This Court
herebyREVERSES the assailed Decision of the Court of Appeals promulgated on 20 August 1998 in CA-G.R.
SP No. 37036 and LIFTS the permanent injunction issued pursuant thereto. This Court
furtherDECLARES that the investigation of the respondents for violations of Sections 8, 30 and 36 of the
Revised Securities Act may be undertaken by the proper authorities in accordance with the Securities
Regulations Code. No costs.
SO ORDERED.
G.R. No. L-19850

January 30, 1964

VIGAN ELECTRIC LIGHT COMPANY, INC., petitioner,

vs.
THE PUBLIC SERVICE COMMISSION, respondent.
Raymundo A. Armovit for petitioner.
Federico S. Arlos and P. H. del Pilar for respondent.
CONCEPCION, J.:

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This is an original action for certiorari to annul an order of respondent Public Service Commission. Upon the
filing of the petition and the submission and approval of the corresponding bond, we issued a writ of injunction
restraining said respondent from enforcing the order complained of Republic Act No. 316, approved on June
19, 1948, granted petitioner Vigan Electric Light Company, Inc., a franchise to construct, maintain and operate
an electric light, heat and/or power plant for the purpose of generating and distributing light, heat and/or power,
for sale within the limits of several municipalities of the province of Ilocos Sur. Accordingly, petitioner secured
from respondent on May 31, 1950, a certificate of public convenience to render electric light, heat and/or
power services in said municipalities and to charge its customers and/or consumers the following rates:

We also denounce the sale of TWO THOUSAND (2,000) ELECTRIC METERS in blackmarket by
the Vigan Electric Light Company to Avegon Co., as anomalous and illegal. Said electric meters
were imported from Japan by the Vigan Electric Light Company in behalf of the consumers of
electric current from said electric company. The Vigan Electric Light Company has commercialized
these privilege which property belong to the people.
We also report that the electric meters in Vigan used by the consumers had been installed in bad
faith and they register excessive rates much more than the actual consumption.1wph1.t

FLAT RATE

1 20 watt bulb per month ............................................................

P2.30

1 25 watt bulb per month ............................................................

3.00

1 40 watt bulb per month ............................................................

4.50

1 50 watt bulb per month ............................................................

5.50

1 60 watt bulb per month ............................................................

6.50

1 75 watt bulb per month ............................................................

7.50

1 80 watt bulb per month ............................................................

8.00

1 100 watt bulb per month ............................................................

1 150 watt bulb per month ............................................................
1 200 watt bulb per month ............................................................

METER RATE

For the first 15

For the first 15 Kw. hrs. ............................................................
For the next 35 Kw. hrs. ............................................................
For the next 50 Kw. hrs. ............................................................
For all over 100 Kw. hrs. ............................................................
Minimum Charge: P6.00 per month for connection of 200 watts
or less; plus P0.01 per watt per month for connection in excess
of 200 watts.

and directing the petitioner to comment on these charges. In reply to said communications, petitioner's counsel
wrote to respondent, on February 1, 1962, a letter asking that the conference scheduled for February 12 be
postponed to March 12, and another letter stating inter alia:
In connection therewith, please be informed that my client, the Vigan Electric Light Co., Inc., has
not had any dealing with the Avegon Co., Inc., relative to the 2,000 electric meter mentioned in the
petition. Attached hereto as Annex "1" and made an integral part thereof is a certification to that
effect by Avegon Co., Inc.
Furthermore, as counsel for Vigan Electric Light Co., Inc., I wish to inform this Honorable
Commission that the charge that said company installed the electric meters in bad faith and that
said meters registered excessive rates could have no valid basis because all of these meters have
been inspected checked, tested and sealed by your office.

9.00 On March 15, 1962, petitioner received a communication form the General Auditing Office notifying him that
one Mr. Cesar A. Damole had "been instructed to make an audit and examination of the books and other
13.00 records of account" of said petitioner, "under the provisions of Commonwealth Act No. 325 and in accordance
with the request of the Public Service Commission contained in its letter dated March 12, 1962", and directing
17.00 petitioner to cooperate with said Mr. Damole "for the successful accomplishment of his work". Subsequently,
respondent issued a subpoena duces tecum requiring petitioner to produce before the former, during a
conference scheduled for April 10, 1962, certain books of account and financial statements specified in said
process. On the date last mentioned petitioner moved to quash the subpoena duces tecum. The motion was
not acted upon in said conference of April 10, 1962. However, it was then decided that the next conference be
held on April 30, 1962, which was later postponed to May 21, 1962. When petitioner's representatives
appeared before respondent, on the date last mentioned, they were advised by the latter that the scheduled
conference had been cancelled, that the petition to quash the subpoena duces tecum had been granted, and
P0.40 that, on May 17, 1962, respondent had issued an order, from which we quote:
We now have the audit report of the General Auditing Office dated May 4, 1962, covering the
operation of the Vigan Electric Light Co., Inc. in Vigan, Bantay and Cagayan, Ilocos Sur, for the
period from January 1 to December 31, 1961. We find from the report that the total invested capital
of the utility as of December 31, 1961, entitled to return amounted to P118,132.55, and its net
operating income for rate purposes of P53,692.34 represents 45.45% of its invested capital; that in
order to earn 12% per annum, the utility should have a computed revenue by rates of
P182,012.78; and that since it realized an actual revenue by rates of P221,529.17, it had an
excess revenue by rates of P39,516.39, which is 17.84% of the actual revenue by rates and
33.45% of the invested capital. In other words, the present rates of the Vigan Electric Light Co.,
Inc. may be reduced by 17.84%, or in round figure, by 18%.

TEMPORARY RATE
P0.01 per watt per night.
On May 22, 1957, petitioner, acting with respondent's approval, entered into a contract for the purchase of
electric power and energy from the National Power Corporation, for resale, in the course of the business of
said petitioner, to its customers, to whom, in fact, petitioner resold said electric power and energy, in
accordance with the above schedule of rates. About five (5) years later, or on January 16, 1962, respondent
advised petitioner of a conference to be held on February 12, 1962 for the purpose of revising its authorized
rates. Soon thereafter, petitioner received a letter of respondent informing the former of an alleged letterpetition of "Congressman Floro Crisologo and 107 alleged residents of Vigan Ilocos Sur", charging the
following:

Upon consideration of the foregoing, and finding that the Vigan Electric Light Co., Inc. is making a
net operating profit in excess of the allowable return of 12% on its invested capital, we believe that
it is in the public interest and in consonance with Section 3 of Republic Act No. 3043 that reduction
of its rates to the extent of its excess revenue be put into effect immediately.
WHEREFORE, Vigan Electric Light Co., Inc. is hereby ordered to reduce the present meter rates
for its electric service effective upon the billing for the month of June, 1962, to wit:
METER RATE 24-HOUR SERVICE
For the first 15 kwh per month at P0.328 per kwh

155

For the next 35 kwh per month at P0.246 per kwh

For the next 50 kwh per month at P0.205 per kwh
For all over 100 kwh per month at P0.164 per kwh
Minimum Charge: P4.90 per month for connection of 200 was or less plus P0.01 per
watt per month for connection in excess of 200 watts.
TEMPORARY LIGHTING
P0.01 per watt per night.
Minimum Charge: P1.00
Billings to customers shall be made to the nearest multiple of five centavos. The above rates may be revised,
modified or altered at anytime for any just cause and/or in the public service.
Soon later, or on June 25, 1962, petitioner herein instituted the present action for certiorari to annul said order
of May 17, 1962, upon the ground that, since its Corporate inception in 1948, petitioner it "never was able to
give and never made a single dividend declaration in favor of its stockholders" because its operation from
1949 to 1961 had resulted in an aggregate loss of P113,351.523; that in the conference above mentioned
petitioner had called the attention of respondent to the fact that the latter had not furnished the former a "copy
of the alleged letter-petition of Congressman Crisologo and others"; that respondent then expressed the view
that there was no necessity of serving copy of said letter to petitioner, because respondent was merely holding
informal conferences to ascertain whether petitioner would consent to the reduction of its rates; that petitioner
objected to said reduction without a hearing, alleging that its rates could be reduced only if proven by evidence
validly adduced to be excessive; that petitioner offered to introduce evidence to show the reasonableness of
its aforementioned rates, and even the fairness of its increase; that petitioner was then assured that it would
be furnished a copy of the aforementioned letter-petition and that a hearing would be held, if a reduction of its
rates could not be agreed upon; that petitioner had not even been served a copy of the auditor's report upon
which the order complained of is based; that such order had been issued without notice and hearing; and that,
accordingly, petitioner had been denied due process.
In its answer respondent admitted some allegations of the complaint and denied other allegations thereof,
particularly the conclusions drawn by petitioner. Likewise, respondent alleged that it granted petitioner's motion
to quash the aforementioned subpoena duces tecum because the documents therein referred to had already
been audited and examined by the General Auditing Office, the report on which was on file with said
respondent; that the latter had directed that petitioner be served a copy of said report; and that, although this
has not, as yet, been actually done, petitioner could have seen and examined said report had it really wanted
to do so. By way of special defenses, respondent, moreover, alleged that the disputed order had been issued
under its delegated legislative authority, the exercise of which does not require previous notice and hearing;
and that petitioner had not sought a reconsideration of said order, and had, accordingly, failed to exhaust all
administrative remedies.
In support of its first special defense respondent maintains that rate-fixing is a legislative function; that
legislative or rule-making powers may constitutionally be exercised without previous notice of hearing; and that
the decision in Ang Tibay vs. Court of Industrial Relations (69 Phil., 635) in which we held that such notice
and hearing are essential to the validity of a decision of the Public Service Commission is not in point
because, unlike the order complained of which respondent claims to be legislative in nature the Ang
Tibay case referred to a proceeding involving the exercise of judicial functions.
At the outset, it should be noted, however, that, consistently with the principle of separation of powers, which
underlies our constitutional system, legislative powers may not be delegated except to local governments, and
only to matters purely of local concern (Rubi vs. Provincia Board, 39 Phil., 660; U.S. vs. Heinszen, 206 U.S.
370). However, Congress may delegate to administrative agencies of the government the power to supply the
details in the execution or enforcement of a policy laid down by a which is complete in itself (Calalang vs.
Williams, 70 Phil. 726; Pangasinan Trans. Co. vs. Public Service Commission, 70 Phil., 221; People vs.
Rosenthal, 68 Phil., 328; People vs. Vera, 65 Phil., 56; Cruz vs. Youngberg, 56 Phil. 234; Alegre vs. Collector
of Customs, 53 Phil., 394; U.S. vs. Ang Tang Ho 43 Phil., 1; Schechter vs. U.S., 295 U.S., 495 Mulford vs.

Smith, 307 U.S., 38; Bowles vs. Willingham, 321 U.S., 503). Such law is not deemed complete unless it lays
down a standard or pattern sufficiently fixed or determinate, or, at least, determinable without requiring another
legislation, to guide the administrative body concerned in the performance of its duty to implement or enforce
said Policy (People vs. Lim Ho, L-12091, January 28, 1960; Araneta vs. Gatmaitan, L-8895, April 30, 1957;
Cervantes vs. Auditor General, L-4043, May 26, 1952; Philippine Association of Colleges vs. Secretary of
Education, 51 Off. Gaz., 6230; People vs. Arnault, 48 Off. Gaz., 4805; Antamok Gold Fields vs. Court of
Industrial Relations, 68 Phil., 340; U.S. vs. Barrias, 11 Phil., 327; Yakus vs. White, 321 U.S., 414; Ammann vs.
Mallonce, 332 U.S., 245; U.S. vs. Rock Royal Corp. 307 U.S., 533; Mutual Film Corp. vs. Industrial
Commission, 276 U.S., 230). Otherwise, there would be no reasonable means to ascertain whether or not said
body has acted within the scope of its authority, and, as a consequence, the power of legislation would
eventually be exercised by a branch of the Government other than that in which it is lodged by the
Constitution, in violation, not only of the allocation of powers therein made, but, also, of the principle of
separation of powers. Hence, Congress his not delegated, and cannot delegate legislative powers to the
Public Service Commission.
Moreover, although the rule-making power and even the power to fix rates when such rules and/or rates are
meant to apply to all enterprises of a given kind throughout the Philippines may partake of a legislative
character, such is not the nature of the order complained of. Indeed, the same applies exclusively to petitioner
herein. What is more, it is predicated upon the finding of fact based upon a report submitted by the General
Auditing Office that petitioner is making a profit of more than 12% of its invested capital, which is denied by
petitioner. Obviously, the latter is entitled to cross-examine the maker of said report, and to introduce evidence
to disprove the contents thereof and/or explain or complement the same, as well as to refute the conclusion
drawn therefrom by the respondent. In other words, in making said finding of fact, respondent performed a
functionpartaking of a quasi-judicial character the valid exercise of which demands previous notice and
hearing.
Indeed, sections 16(c) and 20 (a) of Commonwealth Act No. 146, explicitly require notice Indeed hearing. The
pertinent parts thereof provide:
SEC. 16. The Commission shall have the power, upon proper notice and hearing in accordance
with the rules and provision of this Act, subject to the limitations and exception mentioned and
saving provisions to the contrary:
xxx

xxx

xxx

(c) To fix and determine individual or joint rates, tolls charges, classifications, or schedules thereof,
as well as commutation, mileage kilometrage, and other special rates which shall be imposed,
observed, and followed thereafter by any public service: Provided, That the Commission may in its
discretion approve rates proposed by public services provisionally and without necessity of any
hearing; but it shall call a hearing thereof within thirty days thereafter, upon publication and
notice to the concerns operating in the territory affected: Provided, further, That in case the public
service equipment of an operator is use principally or secondarily for the promotion of a private
business the net profits of said private business shall be considered in relation with the public
service of such operator for the purpose of fixing the rates.
SEC. 20. Acts requiring the approval of the Commission. Subject to established limitations and
exception and saving provisions to the contrary, it shall be unlawful for any public service or for the
owner, lessee or operator thereof, without the approval and authorization of the Commission
previously had
(a) To adopt, establish, fix, impose, maintain, collect or carry into effect any individual or joint rates,
commutation mileage or other special rate, toll, fare, charge, classification or itinerary. The
Commission shall approve only those that are just and reasonable and not any that are unjustly
discriminatory or unduly preferential, only upon reasonable notice to the public services and other
parties concerned, giving them reasonable opportunity to be heard, ... . (Emphasis supplied.)
Since compliance with law must be presumed, it should be assumed that petitioner's current rates were fixed
by respondent after proper notice and hearing. Hence, modification of such rates cannot be made, over
petitioner's objection, without such notice and hearing, particularly considering that the factual basis of the
action taken by respondent is assailed by petitioner. The rule applicable is set forth in the American
Jurisprudence the following language:

156

Whether notice and a hearing in proceedings before a public service commission are
necessary depends chiefly upon statutory or constitutional provisions applicable to such
proceedings, which make notice and hearing, prerequisite to action by the commission, and upon
the nature and object of such proceedings, that is, whether the proceedings, are, on the one hand,
legislative and rule-making in character, or are, on the other hand, determinative and judicial or
quasi-judicial, affecting the rights an property of private or specific persons. As a general rule, a
public utility must be afforded some opportunity to be heard as to the propriety and
reasonableness of rates fixed for its services by a public service commission.(43 Am. Jur. 716;
Emphasis supplied.)
Wherefore, we hold that the determination of the issue involved in the order complained of partakes of the
nature of a quasi-judicial function and that having been issued without previous notice and hearing said order
is clearly violative of the due process clause, and, hence, null and void, so that a motion for reconsideration
thereof is not an absolute prerequisite to the institution of the present action for certiorari (Ayson vs. Republic.
50 Off. Gaz., 5810). For this reason considering that said order was being made effective on June 1, 1962, or
almost immediately after its issuance (on May 17, 1962), we find that petitioner was justified in commencing
this proceedings without first filing said motion (Guerrero vs. Carbonell, L-7180, March 15, 1955).
WHEREFORE, the writ prayed for is granted and the preliminary injunction issued by this Court hereby made
permanent. It is so ordered.
G.R. No. 164026

December 23, 2008

SECURITIES AND EXCHANGE COMMISSION, petitioner,

vs.
GMA NETWORK, INC., respondent.
DECISION

On October 20, 1995, the petitioner formally protested the assessment amounting
to P1,212,200.00 for its application for extension of corporate term.
On February 20, 1996, the SEC approved the other amendments to the petitioners Articles of
Incorporation, specifically Article 1 thereof referring to the corporate name of the petitioner as well
as Article 2 thereof referring to the principal purpose for which the petitioner was formed.
On March 19, 1996, the petitioner requested for an official opinion/ruling from the SEC on the
validity and propriety of the assessment for application for extension of its corporate term.
Consequently, the respondent SEC, through Associate Commissioner Fe Eloisa C. Gloria, on April
18, 1996, issued its ruling upholding the validity of the questioned assessment, the dispositive
portion of which states:
"In light of the foregoing, we believe that the questioned assessment is in accordance with
law. Accordingly, you are hereby required to comply with the required filing fee."
An appeal from the aforequoted ruling of the respondent SEC was subsequently taken by the
petitioner on the ground that the assessment of filing fees for the petitioners application for
extension of corporate term equivalent to 1/10 of 1% of the authorized capital stock plus 20%
thereof is not in accordance with law.
On September 26, 2001, following three (3) motions for early resolution filed by the petitioner, the
respondent SEC En Banc issued the assailed order dismissing the petitioners appeal, the
dispositive portion of which provides as follows:

TINGA, J.:

WHEREFORE, for lack of merit, the instant Appeal is hereby dismissed.

Petitioner Securities and Exchange Commission (SEC) assails the Decision 1 dated February 20, 2004 of the
Court of Appeals in CA-G.R. SP No. 68163, which directed that SEC Memorandum Circular No. 1, Series of
1986 should be the basis for computing the filing fee relative to GMA Network, Inc.s (GMAs) application for
the amendment of its articles of incorporation for purposes of extending its corporate term.

SO ORDERED.2

The undisputed facts as narrated by the appellate court are as follows:

On August 19, 1995, the petitioner, GMA NETWORK, INC., (GMA, for brevity), a domestic
corporation, filed an application for collective approval of various amendments to its Articles of
Incorporation and By-Laws with the respondent Securities and Exchange Commission, (SEC, for
brevity). The amendments applied for include, among others, the change in the corporate name of
petitioner from "Republic Broadcasting System, Inc." to "GMA Network, Inc." as well as the
extension of the corporate term for another fifty (50) years from and after June 16, 2000.
Upon such filing, the petitioner had been assessed by the SECs Corporate and Legal Department
a separate filing fee for the application for extension of corporate term equivalent to 1/10 of 1% of
its authorized capital stock plus 20% thereof or an amount of P1,212,200.00.
On September 26, 1995, the petitioner informed the SEC of its intention to contest the legality and
propriety of the said assessment. However, the petitioner requested the SEC to approve the other
amendments being requested by the petitioner without being deemed to have withdrawn its
application for extension of corporate term.

In its petition for review3 with the Court of Appeals, GMA argued that its application for the extension of its
corporate term is akin to an amendment and not to a filing of new articles of incorporation. It further averred
that SEC Memorandum Circular No. 2, Series of 1994, which the SEC used as basis for
assessing P1,212,200.00 as filing fee for the extension of GMAs corporate term, is not valid.
The appellate court agreed with the SECs submission that an extension of the corporate term is a grant of a
fresh license for a corporation to act as a juridical being endowed with the powers expressly bestowed by the
State. As such, it is not an ordinary amendment but is analogous to the filing of new articles of incorporation.
However, the Court of Appeals ruled that Memorandum Circular No. 2, Series of 1994 is legally invalid and
ineffective for not having been published in accordance with law. The challenged memorandum circular,
according to the appellate court, is not merely an internal or interpretative rule, but affects the public in
general. Hence, its publication is required for its effectivity.
The appellate court denied reconsideration in a Resolution 4 dated June 9, 2004.
In its Memorandum5 dated September 6, 2005, the SEC argues that it issued the questioned memorandum
circular in the exercise of its delegated legislative power to fix fees and charges. The filing fees required by it
are allegedly uniformly imposed on the transacting public and are essential to its supervisory and regulatory
functions. The fees are not a form of penalty or sanction and, therefore, require no publication.

157

For its part, GMA points out in its Memorandum,6 dated September 23, 2005, that SEC Memorandum Circular
No. 1, Series of 1986 refers to the filing fees for amended articles of incorporation where the amendment
consists of extending the term of corporate existence. The questioned circular, on the other hand, refers only
to filing fees for articles of incorporation. Thus, GMA argues that the former circular, being the one that
specifically treats of applications for the extension of corporate term, should apply to its case.

However, we agree with the Court of Appeals that the questioned memorandum circular is invalid as it does
not appear from the records that it has been published in the Official Gazette or in a newspaper of general
circulation. Executive Order No. 200, which repealed Art. 2 of the Civil Code, provides that "laws shall take
effect after fifteen days following the completion of their publication either in the Official Gazette or in a
newspaper of general circulation in the Philippines, unless it is otherwise provided."

Assuming that Memorandum Circular No. 2, Series of 1994 is applicable, GMA avers that the latter did not
take effect and cannot be the basis for the imposition of the fees stated therein for the reasons that it was
neither filed with the University of the Philippines Law Center nor published either in the Official Gazette or in a
newspaper of general circulation as required under existing laws.

In Taada v. Tuvera,10 the Court, expounding on the publication requirement, held:

It should be mentioned at the outset that the authority of the SEC to collect and receive fees as authorized by
law is not in question.7 Its power to collect fees for examining and filing articles of incorporation and by-laws
and amendments thereto, certificates of increase or decrease of the capital stock, among others, is
recognized. Likewise established is its power under Sec. 7 of P.D. No. 902-A to recommend to the President
the revision, alteration, amendment or adjustment of the charges which it is authorized to collect.
The subject of the present inquiry is not the authority of the SEC to collect and receive fees and charges, but
rather the validity of its imposition on the basis of a memorandum circular which, the Court of Appeals held, is
ineffective.
Republic Act No. 3531 (R.A. No. 3531) provides that where the amendment consists in extending the term of
corporate existence, the SEC "shall be entitled to collect and receive for the filing of the amended articles of
incorporation the same fees collectible under existing law as the filing of articles of incorporation." 8 As is
clearly the import of this law, the SEC shall be entitled to collect and receive the same fees it assesses and
collects both for the filing of articles of incorporation and the filing of an amended articles of incorporation for
purposes of extending the term of corporate existence.
The SEC, effectuating its mandate under the aforequoted law and other pertinent laws, 9 issued SEC
Memorandum Circular No. 1, Series of 1986, imposing the filing fee of 1/10 of 1% of the authorized capital
stock but not less than P300.00 nor more than P100,000.00 for stock corporations, and 1/10 of 1% of the
authorized capital stock but not less than P200.00 nor more than P100,000.00 for stock corporations without
par value, for the filing of amended articles of incorporation where the amendment consists of extending the
term of corporate existence.
Several years after, the SEC issued Memorandum Circular No. 2, Series of 1994, imposing new fees and
charges and deleting the maximum filing fee set forth in SEC Circular No. 1, Series of 1986, such that the fee
for the filing of articles of incorporation became 1/10 of 1% of the authorized capital stock plus 20% thereof but
not less thanP500.00.
A reading of the two circulars readily reveals that they indeed pertain to different matters, as GMA points out.
SEC Memorandum Circular No. 1, Series of 1986 refers to the filing fee for the amendment of articles of
incorporation to extend corporate life, while Memorandum Circular No. 2, Series of 1994 pertains to the filing
fee for articles of incorporation. Thus, as GMA argues, the former circular, being squarely applicable and, more
importantly, being more favorable to it, should be followed.
What this proposition fails to consider, however, is the clear directive of R.A. No. 3531 to impose the same
fees for the filing of articles of incorporation and the filing of amended articles of incorporation to reflect an
extension of corporate term. R.A. No. 3531 provides an unmistakable standard which should guide the SEC in
fixing and imposing its rates and fees. If such mandate were the only consideration, the Court would have
been inclined to rule that the SEC was correct in imposing the filing fees as outlined in the questioned
memorandum circular, GMAs argument notwithstanding.

We hold therefore that all statutes, including those of local application and private laws, shall be
published as a condition for their effectivity, which shall begin fifteen days after publication unless a
different effectivity date is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders promulgated by the President
in the exercise of legislative powers whenever the same are validly delegated by the legislature, or,
at present, directly conferred by the Constitution. Administrative rules and regulations must also be
published if their purpose is to enforce or implement existing law pursuant also to a valid
delegation.
Interpretative regulations and those merely internal in nature, that is, regulating only the personnel
of the administrative agency and not the public, need not be published. Neither is publication
required of the so-called letters of instructions issued by administrative superiors concerning the
rules or guidelines to be followed by their subordinates in the performance of their duties. 11
The questioned memorandum circular, furthermore, has not been filed with the Office of the National
Administrative Register of the University of the Philippines Law Center as required in the Administrative Code
of 1987.12
In Philsa International Placement and Services Corp. v. Secretary of Labor and Employment,13 Memorandum
Circular No. 2, Series of 1983 of the Philippine Overseas Employment Administration, which provided for the
schedule of placement and documentation fees for private employment agencies or authority holders, was
struck down as it was not published or filed with the National Administrative Register.
The questioned memorandum circular, it should be emphasized, cannot be construed as simply interpretative
of R.A. No. 3531. This administrative issuance is an implementation of the mandate of R.A.
No. 3531 and indubitably regulates and affects the public at large. It cannot, therefore, be considered a mere
internal rule or regulation, nor an interpretation of the law, but a rule which must be declared ineffective as it
was neither published nor filed with the Office of the National Administrative Register.
A related factor which precludes consideration of the questioned issuance as interpretative in nature merely is
the fact the SECs assessment amounting to P1,212,200.00 is exceedingly unreasonable and amounts to an
imposition. A filing fee, by legal definition, is that charged by a public official to accept a document for
processing. The fee should be just, fair, and proportionate to the service for which the fee is being collected, in
this case, the examination and verification of the documents submitted by GMA to warrant an extension of its
corporate term.
Rate-fixing is a legislative function which concededly has been delegated to the SEC by R.A. No. 3531 and
other pertinent laws. The due process clause, however, permits the courts to determine whether the regulation
issued by the SEC is reasonable and within the bounds of its rate-fixing authority and to strike it down when it
arbitrarily infringes on a persons right to property.

158

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 68163, dated
February 20, 2004, and its Resolution, dated June 9, 2004, are AFFIRMED. No pronouncement as to costs.
SO ORDERED.

159