G.R. No.

88211 October 27, 1989

FERDINAND E. MARCOS, IMELDA R. MARCOS, FERDINAND R. MARCOS.
JR., IRENE M. ARANETA, IMEE M. MANOTOC, TOMAS MANOTOC,
GREGORIO ARANETA, PACIFICO E. MARCOS, NICANOR YIGUEZ and
PHILIPPINE CONSTITUTION ASSOCIATION (PHILCONSA), represented by its
President, CONRADO F. ESTRELLA, petitioners,
vs.
HONORABLE RAUL MANGLAPUS, CATALINO MACARAIG, SEDFREY
ORDOEZ, MIRIAM DEFENSOR SANTIAGO, FIDEL RAMOS, RENATO DE
VILLA, in their capacity as Secretary of Foreign Affairs, Executive Secretary,
Secretary of Justice, Immigration Commissioner, Secretary of National Defense and
Chief of Staff, respectively, respondents.
RESOLUTION
EN BANC:
In its decision dated September 15,1989, the Court, by a vote of eight (8) to seven (7),
dismissed the petition, after finding that the President did not act arbitrarily or with grave
abuse of discretion in determining that the return of former President Marcos and his
family at the present time and under present circumstances pose a threat to national
interest and welfare and in prohibiting their return to the Philippines. On September 28,
1989, former President Marcos died in Honolulu, Hawaii. In a statement, President
Aquino said:
In the interest of the safety of those who will take the death of Mr. Marcos in widely and
passionately conflicting ways, and for the tranquility of the state and order of society, the
remains of Ferdinand E. Marcos will not be allowed to be brought to our country until
such time as the government, be it under this administration or the succeeding one, shall
otherwise decide. [Motion for Reconsideration, p. 1; Rollo, p, 443.]
On October 2, 1989, a Motion for Reconsideration was filed by petitioners, raising the
following major arguments:
1. to bar former President Marcos and his family from returning to the Philippines is to
deny them not only the inherent right of citizens to return to their country of birth but also
the protection of the Constitution and all of the rights guaranteed to Filipinos under the
Constitution;
2. the President has no power to bar a Filipino from his own country; if she has, she had
exercised it arbitrarily; and
3. there is no basis for barring the return of the family of former President Marcos. Thus,
petitioners prayed that the Court reconsider its decision, order respondents to issue the
necessary travel documents to enable Mrs. Imelda R. Marcos, Ferdinand R. Marcos, Jr.,
Irene M. Araneta, Imee M. Manotoc, Tommy Manotoc and Gregorio Araneta to return to
the Philippines, and enjoin respondents from implementing President Aquino's decision
to bar the return of the remains of Mr. Marcos, and the other petitioners, to the
Philippines.
Commenting on the motion for reconsideration, the Solicitor General argued that the
motion for reconsideration is moot and academic as to the deceased Mr. Marcos.
Moreover, he asserts that "the 'formal' rights being invoked by the Marcoses under the
label 'right to return', including the label 'return of Marcos' remains, is in reality or

substance a 'right' to destabilize the country, a 'right' to hide the Marcoses' incessant
shadowy orchestrated efforts at destabilization." [Comment, p. 29.] Thus, he prays that
the Motion for Reconsideration be denied for lack of merit.
We deny the motion for reconsideration.
1. It must be emphasized that as in all motions for reconsideration, the burden is upon the
movants, petitioner herein, to show that there are compelling reasons to reconsider the
decision of the Court.
2. After a thorough consideration of the matters raised in the motion for reconsideration,
the Court is of the view that no compelling reasons have been established by petitioners
to warrant a reconsideration of the Court's decision.
The death of Mr. Marcos, although it may be viewed as a supervening event, has not
changed the factual scenario under which the Court's decision was rendered. The threats
to the government, to which the return of the Marcoses has been viewed to provide a
catalytic effect, have not been shown to have ceased. On the contrary, instead of erasing
fears as to the destabilization that will be caused by the return of the Marcoses, Mrs.
Marcos reinforced the basis for the decision to bar their return when she called President
Aquino "illegal," claiming that it is Mr. Marcos, not Mrs. Aquino, who is the "legal"
President of the Philippines, and declared that the matter "should be brought to all the
courts of the world." [Comment, p. 1; Philippine Star, October 4, 1989.]
3. Contrary to petitioners' view, it cannot be denied that the President, upon whom
executive power is vested, has unstated residual powers which are implied from the grant
of executive power and which are necessary for her to comply with her duties under the
Constitution. The powers of the President are not limited to what are expressly
enumerated in the article on the Executive Department and in scattered provisions of the
Constitution. This is so, notwithstanding the avowed intent of the members of the
Constitutional Commission of 1986 to limit the powers of the President as a reaction to
the abuses under the regime of Mr. Marcos, for the result was a limitation of specific
power of the President, particularly those relating to the commander-in-chief clause, but
not a diminution of the general grant of executive power.
That the President has powers other than those expressly stated in the Constitution is
nothing new. This is recognized under the U.S. Constitution from which we have
patterned the distribution of governmental powers among three (3) separate branches.
Article II, [section] 1, provides that "The Executive Power shall be vested in a President
of the United States of America." In Alexander Hamilton's widely accepted view, this
statement cannot be read as mere shorthand for the specific executive authorizations that
follow it in [sections] 2 and 3. Hamilton stressed the difference between the sweeping
language of article II, section 1, and the conditional language of article I, [section] 1: "All
legislative Powers herein granted shall be vested in a Congress of the United States . . ."
Hamilton submitted that "[t]he [article III enumeration [in sections 2 and 31 ought
therefore to be considered, as intended merely to specify the principal articles implied in
the definition of execution power; leaving the rest to flow from the general grant of that
power, interpreted in confomity with other parts of the Constitution...
In Myers v. United States, the Supreme Court accepted Hamilton's proposition,
concluding that the federal executive, unlike the Congress, could exercise power from
sources not enumerated, so long as not forbidden by the constitutional text: the executive
power was given in general terms, strengthened by specific terms where emphasis was

regarded as appropriate, and was limited by direct expressions where limitation was
needed. . ." The language of Chief Justice Taft in Myers makes clear that the
constitutional concept of inherent power is not a synonym for power without limit; rather,
the concept suggests only that not all powers granted in the Constitution are themselves
exhausted by internal enumeration, so that, within a sphere properly regarded as one of
"executive' power, authority is implied unless there or elsewhere expressly limited.
[TRIBE, AMERICAN CONSTITUTIONAL LAW 158-159 (1978).]
And neither can we subscribe to the view that a recognition of the President's implied or
residual powers is tantamount to setting the stage for another dictatorship. Despite
petitioners' strained analogy, the residual powers of the President under the Constitution
should not be confused with the power of the President under the 1973 Constitution to
legislate pursuant to Amendment No. 6 which provides:
Whenever in the judgment of the President (Prime Minister), there exists a grave
emergency or a threat or imminence thereof, or whenever the interim Batasang Pambansa
or the regular National Assembly fails or is unable to act adequately on any matter for
any reason that in his judgment requires immediate action, he may, in order to meet the
exigency, issue the necessary decrees, orders, or letters of instruction, which shall form
part of the law of the land,
There is no similarity between the residual powers of the President under the 1987
Constitution and the power of the President under the 1973 Constitution pursuant to
Amendment No. 6. First of all, Amendment No. 6 refers to an express grant of power. It
is not implied. Then, Amendment No. 6 refers to a grant to the President of the specific
power of legislation.
4. Among the duties of the President under the Constitution, in compliance with his (or
her) oath of office, is to protect and promote the interest and welfare of the people. Her
decision to bar the return of the Marcoses and subsequently, the remains of Mr. Marcos at
the present time and under present circumstances is in compliance with this bounden
duty. In the absence of a clear showing that she had acted with arbitrariness or with grave
abuse of discretion in arriving at this decision, the Court will not enjoin the
implementation of this decision.
ACCORDINGLY, the Court resolved to DENY the Motion for Reconsideration for lack
of merit."

[G.R. No. 157684. April 27, 2005]

DEPARTMENT OF HEALTH, petitioner, vs. PRISCILLA G. CAMPOSANO,

ENRIQUE L. PEREZ, and IMELDA Q. AGUSTIN, respondents.
DECISION
PANGANIBAN, J.:
Administrative due process requires that, prior to imposing disciplinary sanctions,
the disciplining authority must make an independent assessment of the facts and the law.
On its face, a decision imposing administrative sanctions must show the bases for its
conclusions. While the investigation of a case may be delegated to and conducted by
another body or group of officials, the disciplining authority must nevertheless weigh the
evidence gathered and indicate the applicable law. In this manner, the respondents would
be informed of the bases for the sanctions and thus be able to prepare their appeal
intelligently. Such procedure is part of the sporting idea of fair play in a democracy.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing
the March 19, 2003 Decision[2] of the Court of Appeals (CA) in CA-GR SP No. 67720.
The challenged Decision disposed as follows:
WHEREFORE, based on the foregoing, the petition is GRANTED. The assailed
Resolutions of the CSC are hereby SET ASIDE.
The Department of Health is hereby ordered to:
1) Reinstate petitioners without loss of seniority rights but without
prejudice to an administrative investigation that may be undertaken
against them by the DOH should the evidence warrant; and
2) Pay petitioners their back salaries from the time their preventive
suspension expired. Mandatory leave credits shall not be charged
against their leave credits.[3]
The Facts
The facts are narrated by the CA as follows:
[Respondents] are former employees of the Department of HealthNational Capital Region

(hereinafter DOH-NCR). They held various positions as follows: [Respondent] Priscilla

B. Camposano (hereinafter Camposano) was the Finance and Management Officer II,
[Respondent] Imelda Q. Agusin (hereinafter Agustin) was an Accountant I, and
[Respondent] Enrique L. Perez (hereinafter Perez) was the Acting Supply Officer III.
On May 15, 1996, some concerned [DOH-NCR] employees filed a complaint before the
DOH Resident Ombudsman Rogelio A. Ringpis (hereinafter the Resident Ombudsman)
against Dir. IV Rosalinda U. Majarais, Acting Administrative Officer III Horacio Cabrera,
and [respondents], arising out of an alleged anomalous purchase by DOH-NCR of 1,500
bottles of Ferrous Sulfate 250 mg. with Vitamin B Complex and Folic Acid capsules
worth P330,000.00 from Lumar Pharmaceutical Laboratory on May 13, 1996.
On August 6, 1996, the Resident Ombudsman submitted an investigation report to the
Secretary of Health recommending the filing of a formal administrative charge of
Dishonesty and Grave Misconduct against [respondents] and their co-respondents.
On August 8, 1996, the Secretary of Health filed a formal charge against the
[respondents] and their co-respondents for Grave Misconduct, Dishonesty, and Violation
of RA 3019. On October 25, 1996, then Executive Secretary Ruben D. Torres issued
Administrative Order No. 298 (hereafter AO 298) creating an ad-hoc committee to
investigate the administrative case filed against the DOH-NCR employees. The said AO
was indorsed to the Presidential Commission Against Graft and Corruption (hereafter
PCAGC) on October 26, 1996. The same reads:
I have the honor to transmit herewith, for your information and guidance, a certified copy
of Administrative Order No. 298 dated October 25, 1996 entitled CREATING AN AD
HOC COMMITTEE TO INVESTIGATE THE ADMINISTRATIVE CASES FILED
AGAINST NCR HEALTH DIRECTOR ROSALINDA U. MAJARAIS AND OTHER
OFFICERS AND EMPLOYEES OF THE DEPARTMENT OF HEALTH, NATIONAL
CAPITAL REGION.
On December 2, 1996, the PCAGC took over the investigation from the DOH. After the
investigation, it issued a resolution on January 23, 1998 disposing [respondents] case as
follows:
WHEREFORE, premises considered, this Commission finds Respondents Rosalinda U.
Majarais, Priscilla G. Camposano, Financial Management Chief II, Horacio D. Cabrera,
Acting Administrative Officer V, Imelda Q. Agustin, Accountant I and Enrique L. Perez,
Acting Supply Officer III, all of the Department of Health National Capital Region
(DOH-NCR) guilty as charged and so recommends to his Excellency President Fidel V.
Ramos that the penalty of dismissal from the government service be imposed thereon.
SO ORDERED.
On April 20, 1998, President Ramos issued [Administrative Order No. 390 (hereinafter
AO 390)] that reads:
WHEREFORE, premises considered, respondent Dr. Rosalinda U. Majarais is hereby
found guilty as charged and, as recommended by the Presidential Commission Against
Graft and Corruption, is meted the Penalty of dismissal from the service. The records of
the case with respect to the other respondents are remanded to Secretary Carmencita N.
Reodica, Department of Health for appropriate action.
Thereafter, on May 8, 1998, the Secretary of Health issued an Order disposing of the case
against [respondents] and [Horacio Cabrera]. The dispositive portion reads:
WHEREFORE, pursuant to the Resolution rendered by the Presidential Commission

Against Graft and Corruption (PCAGC) dated 23 January 1998 on the above-captioned
case, respondents Priscilla G. Camposano, Financial Management Chief II, Horacio D.
Cabrera, Acting Administrative Officer V, Imelda Q. Agustin, Accountant I and Enrique
L. Perez, Acting Supply Officer III, all of the Department of Health NCR are hereby
DISMISSED from the service.
SO ORDERED.
On May 28, 1998 [respondents] filed a motion for reconsideration of the said Order. The
Secretary of Health denied the same on June 5, 1998. Thus, [respondents] filed a Notice
of Appeal on June 29, 1998.
On July 17, 1998, [respondents] filed their appeal with the CSC. The appeal was denied
by the CSC on May 21, 1999. Horacio Cabrera filed a separate appeal with the CSC
which was denied on August 17, 1999. [Respondents] motion for reconsideration was
denied on September 30, 1999. While Cabreras motion for reconsideration was denied on
January 27, 2000. [Respondents], however, received the resolution denying their motion
for reconsideration on November 2001. Thus, Horacio Cabrera was able to appeal to [the
CA] the CSCs resolutions ahead of [respondents]. The petition of Cabrera was granted
[by the CA] in a decision dated October 15, 2001 with a dispositive portion which reads:
WHEREFORE, the instant petition is GRANTED. The Assailed Resolutions of the Civil
Service Commission are hereby SET ASIDE.
Petitioner Horacio D. Cabrera is exonerated of the administrative charges against him.
The Civil Service Commission is hereby ORDERED[:]
(1) To reinstate petitioner immediately, without loss of seniority rights; and
(2) To pay petitioners back salaries from the time his preventive suspension expired.
Mandatory leave credits shall not be charged against his leave credits.
SO ORDERED.[4]
Not satisfied with the denial by the CSC (Civil Service Commission) of their appeal,
respondents brought the matter to the CA.
Ruling of the Court of Appeals
While the herein assailed Decision made no reference to the separate appeal of
Horacio Cabrera, the CA nonetheless used the same legal bases for annulling the CSCs
Resolution against respondents.[5]
The appellate court held that the PCAGCs jurisdiction over administrative
complaints pertained only to presidential appointees. Thus, the Commission had no
power to investigate the charges against respondents. [6] Moreover, in simply and
completely relying on the PCAGCs findings, the secretary of health failed to comply with
administrative due process.[7]
Hence, this Petition.[8]
The Issues

Petitioner raises the following grounds for our consideration:

I
The Court of Appeals erred in finding that the Presidential Commission Against Graft
and Corruption (PCAGC) did not have jurisdiction to investigate the anomalous
transaction involving respondents.
II
The Court of Appeals erred in concluding that the authority to investigate and decide was
relinquished by the Secretary of Health and that the Secretary of Health merely
performed a mechanical act when she ordered the dismissal of respondents from
government service.
III
The Court of Appeals erred in ignoring the fact that an exhaustive investigation was
already conducted by the Presidential Commission Against Graft and Corruption
(PCAGC) which resulted in the finding that the anomalous contract for the purchase of
medicines without the required public bidding is patently illegal.[9]
The second and the third grounds will be discussed together, as they are necessarily
intertwined.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Jurisdiction to Investigate
Executive Order (EO) No. 151[10] granted the PCAGC the jurisdiction to investigate
administrative complaints against presidential appointees allegedly involved in graft and
corruption. From a cursory reading of its provisions, it is evident that EO 151 authorizes
the PCAGC to investigate charges against presidential, not non-presidential, appointees.
In its Preamble, specifically in its Whereas clauses, the EO specifically tasked [the
PCAGC] to x x x investigate presidential appointees charged with graft and corruption x
x x. More pointedly, Section 3 states that the Commission shall have jurisdiction over all
administrative complaints involving graft and corruption filed in any form or manner
against presidential appointees x x x. We quote the pertinent provisions below:
Section 3. Jurisdiction. The Commission shall have jurisdiction over all administrative
complaints involving graft and corruption filed in any form or manner against
presidential appointees, including those in government-owned or controlled
corporations. (emphasis supplied)
Section 4. Powers, Functions and Duties. The Commission shall have the following

powers, functions and duties:

(a) Investigation The Commission shall have the power to investigate administrative
complaints against presidential appointees in the executive department of the
government, including those in government-owned or controlled corporations, charged
with graft and corruption. In the exercise thereof, the Commission is (1) authorized to
summon witnesses, administer oaths, or take testimony or evidence relevant to the
investigation by subpoena ad testificandum and subpoena duces tecum, and do such other
acts necessary and incidental to the discharge of its function and duty to investigate the
said administrative complaints; and (2) empowered to call upon and secure the assistance
of any department, bureau, office, agency, or instrumentality of the government,
including government-owned or controlled corporations.
The Commission shall confine itself to cases of graft and corruption involving one or a
combination of the following criteria:
1. Presidential appointees with the rank equivalent to or higher than an Assistant
Regional Director;
2. The amount involved is at least Ten Million Pesos (P10,000,000.00);
3. Those which threaten grievous harm or injury to the national interest; and
4. Those which may be assigned to it by the President.[11]
The Commission may refer to the Office of the Ombudsman, when warranted and
necessary, any case calling for the investigation and/or prosecution of the party or parties
concerned for violation of anti-graft and corruption laws.
Administrative investigation of complaints against presidential appointees currently
undertaken by various presidential committees or government agencies, including
government-owned or controlled corporations shall continue notwithstanding the creation
and organization of the Commission. This, however, shall be without prejudice to the
Commission, in its discretion, taking over the investigation if the matter under
investigation is within its jurisdiction.
(b) Coordination The Commission shall coordinate with different government agencies
for the purpose of eradicating opportunities and the climate favorable to the commission
of graft and corruption. x x x.[12] (emphasis supplied)
On the basis of the foregoing verba legis approach, respondents claim that the
PCAGC did not have jurisdiction over them, because they were not presidential
appointees.
The Court notes, however, that respondents were not investigated pursuant to EO
151. The investigation was authorized under Administrative Order No. 298 dated October
25, 1996, which had created an Ad Hoc Committee to look into the administrative
charges filed against Director Rosalinda U. Majarais, Priscilla G. Camposano, Horacio D.
Cabrera, Imelda Q. Agustin and Enrique L. Perez.
The Investigating Committee was composed of all the members of the PCAGC:
Chairman Eufemio C. Domingo, Commissioner Dario C. Rama and Commissioner Jaime
L. Guerrero. The Committee was directed by AO 298 to follow the procedure prescribed
under Section 38 to 40 of the Civil Service Law (PD 807), as amended. It was tasked to
forward to the Disciplining Authority the entire records of the case, together with its
findings and recommendations, as well as the draft decision for the approval of the
President.

The Chief Executives power to create the Ad Hoc Investigating Committee cannot be
doubted. Having been constitutionally granted full control of the Executive Department,
to which respondents belong, the President has the obligation to ensure that all executive
officials and employees faithfully comply with the law.[13] With AO 298 as mandate, the
legality of the investigation is sustained. Such validity is not affected by the fact that the
investigating team and the PCAGC had the same composition, or that the former used the
offices and facilities of the latter in conducting the inquiry.
Parenthetically, the perceived vacuum in EO 151 with regard to cases involving nonpresidential appointees was rectified in Executive Order No. 12, [14] which created the
Presidential Anti-Graft Commission (PAGC). Non-presidential appointees who may have
acted in conspiracy, or who may have been involved with a presidential appointee, may
now be investigated by the PAGC.[15]
Second and Third Issues:
Validity of Health Secretarys Decision
The Administrative Code of 1987 vests department secretaries with the authority to
investigate and decide matters involving disciplinary actions for officers and employees
under the formers jurisdiction.[16] Thus, the health secretary had disciplinary authority
over respondents.
Note that being a presidential appointee, Dr. Rosalinda Majarais was under the
jurisdiction of the President, in line with the principle that the power to remove is
inherent in the power to appoint.[17] While the Chief Executive directly dismissed her
from the service, he nonetheless recognized the health secretarys disciplinary authority
over respondents when he remanded the PCAGCs findings against them for the
secretarys appropriate action.[18]
As a matter of administrative procedure, a department secretary may utilize other
officials to investigate and report the facts from which a decision may be based. [19] In the
present case, the secretary effectively delegated the power to investigate to the PCAGC.
Neither the PCAGC under EO 151 nor the Ad Hoc Investigating Committee created
under AO 298 had the power to impose any administrative sanctions directly. Their
authority was limited to conducting investigations and preparing their findings and
recommendations. The power to impose sanctions belonged to the disciplining authority,
who had to observe due process prior to imposing penalties.
Due process in administrative proceedings requires compliance with the following
cardinal principles: (1) the respondents right to a hearing, which includes the right to
present ones case and submit supporting evidence, must be observed; (2) the tribunal
must consider the evidence presented; (3) the decision must have some basis to support
itself; (4) there must be substantial evidence; (5) the decision must be rendered on the
evidence presented at the hearing, or at least contained in the record and disclosed to the
parties affected; (6) in arriving at a decision, the tribunal must have acted on its own
consideration of the law and the facts of the controversy and must not have simply

accepted the views of a subordinate; and (7) the decision must be rendered in such
manner that respondents would know the reasons for it and the various issues involved.[20]
The CA correctly ruled that administrative due process had not been observed in the
present factual milieu. Noncompliance with the sixth requisite is equally evident from the
health secretarys Order dismissing the respondents thus:
ORDER
This refers to the Resolution of the Presidential Commission Against Graft and
Corruption (PCAG[C]) on the above captioned case dated January 23, 1998, the
dispositive portion of which reads:
WHEREFORE, premises considered, this Commission finds Respondents Rosalinda U.
Majarais, Priscilla G. Camposano, Financial Management Chief II, [Horacio] D. Cabrera,
Acting Supply Officer III, all of the Department of HealthNational Capital Region (DOHNCR) guilty as charged and so recommends to his Excellency President Fidel V. Ramos
that the penalty of dismissal from the government be imposed thereon.
Acting on the aforequoted resolution of the PCAGC[,] His Excellency President Fidel V.
Ramos issued Administrative Order No. 390 dated [A]pril 20, 1998, resolving thus:
WHEREFORE, premises considered, respondent Dr. Rosalinda U. Majarais is hereby
found guilty as charged and, as recommended by the Presidential Commission Against
Graft and Corruption, is meted the penalty of dismissal from the service. The records of
the case with respect to the other respondents are remanded to Secretary Carmencita N.
Reodica, Department of Health for appropriate action.
WHEREFORE, pursuant to the Resolution rendered by the Presidential Commission
Against Graft and Corruption (PCAGC) dated January 23, 1998 on the above captioned
case, respondents Priscilla G. Camposano, Financial Management Chief II; Horacio D.
Cabrera, Acting Administrative Officer V; Imelda Q. Agustin, Accountant I; and Enrique
G. Perez, Acting Supply Officer III; all of the Department of HealthNCR, are hereby
DISMISSED from the service.[21]
Concededly, the health secretary has the competence and the authority to decide what
action should be taken against officials and employees who have been administratively
charged and investigated. However, the actual exercise of the disciplining authoritys
prerogative requires a prior independent consideration of the law and the facts. Failure to
comply with this requirement results in an invalid decision. The disciplining authority
should not merely and solely rely on an investigators recommendation, but must
personally weigh and assess the evidence gathered. There can be no shortcuts, because at
stake are the honor, the reputation, and the livelihood of the person administratively
charged.
In the present case, the health secretarys two-page Order dismissing respondents
pales in comparison with the presidential action with regard to Dr. Majarais. Prior to the
issuance of his seven-page decision, President Fidel V. Ramos conducted a restudy of the
doctors case. He even noted a violation that had not been considered by the PCAGC. [22]
On the other hand, Health Secretary Carmencita N. Reodica simply and blindly relied on
the dispositive portion of the Commissions Resolution. She even misquoted it by
inadvertently omitting the recommendation with regard to Respondents Enrique L. Perez
and Imelda Q. Agustin.

The Order of Secretary Reodica denying respondents Motion for Reconsideration

also failed to correct the deficiency in the initial Order.[23] She improperly relied on the
Presidents findings in AO 390 which, however, pertained only to the administrative
charge against Dr. Majarais, not against respondents. To repeat, the Chief Executive
recognized that the disciplinary jurisdiction over respondents belonged to the health
secretary,[24] who should have followed the manner in which the President had rendered
his action on the recommendation.
The Presidents endorsement of the records of the case for the appropriate action of
the health secretary[25] did not constitute a directive for the immediate dismissal of
respondents. Like that of President Ramos, the decision of Secretary Reodica should have
contained a factual finding and a legal assessment of the controversy to enable
respondents to know the bases for their dismissal and thereafter prepare their appeal
intelligently, if they so desired.
To support its position, petitioner cites American Tobacco Co. v. Director of Patents.
However, this case merely authorized the delegation of the power to investigate, but
not the authority to impose sanctions. Verily, in requiring the disciplining authority to
exercise its own judgment and discretion in deciding a case, American Tobacco supports
the present respondents cause. In that case, the petitioners objected to the appointment of
hearing officers and sought the personal hearing of their case by the disciplining
authority.[27] The Court, however, sustained the right to delegate the power to investigate,
as long as the adjudication would be made by the deciding authority.
[26]

By the same token, the Constitution[28] grants the Supreme Court disciplinary
authority over all lower court justices and judges, as well as judicial employees and
lawyers. While the investigation of administrative complaints is delegated usually to the
Office of the Court Administrator (OCA) or the Integrated Bar of the Philippines (IBP), [29]
the Court nonetheless makes its own judgments of the cases when sanctions are imposed.
It does not merely adopt or solely rely on the recommendations of the OCA or the IBP.
Inasmuch as the health secretarys twin Orders were patently void for want of due
process, the CA did not err in refusing to discuss the merit of the PCAGCs (or the Ad Hoc
Committees) recommendations. Such a discussion should have been made by the health
secretary before it could be passed upon by the CA.
In representation of petitioner, the Office of the Solicitor General insists that
respondents are guilty of the charges and, like Dr. Majarais, deserve dismissal from the
service. Suffice it to stress that the issue in this case is not the guilt of respondents, but
solely due process.
In closing, the Court reiterates the oft-quoted aphorism that the end does not justify
the means. Guilt cannot be pronounced nor penalty imposed, unless due process is first
observed. This is the essence of fairness and the rule of law in a democracy.
WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision of the
Court of Appeals is MODIFIED in the sense that the authority of the Ad Hoc
Investigating Committee created under Administrative Order 298 is SUSTAINED. Being
violative of administrative due process, the May 8, 1998 and the June 5, 1998 Orders of
the health secretary are ANNULLEDand SET ASIDE. Let the records of this case be

REMANDED to the Department of Health, so that proper steps can be taken to correct the
due-process errors pointed out in this Decision.
No pronouncement as to costs.
SO ORDERED.

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.
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 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
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 counteraffidavits 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. 90775) 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:
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
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.
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.
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. 21This 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.
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;
(5) Establish a continuing program of research, education, and information to enhance
respect for the primacy of human rights;
(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;
(7) Monitor the Philippine Government's compliance with international treaty obligations
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 to investigate 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.
"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 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
"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
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.
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.
This cannot be done. It will not be permitted to be done.
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.

EN BANC
RODOLFO S. BELTRAN, doing G.R. No. 133640
business under the name and style, OUR LADY
OF FATIMA BLOOD BANK, FELY G.
MOSALE, doing business under the name and
style, MOTHER SEATON BLOOD BANK;
PEOPLES BLOOD BANK, INC.; MARIA
VICTORIA T. VITO, M.D., doing business
under the name and style, AVENUE BLOOD
BANK; JESUS M. GARCIA, M.D., doing
business under the name and style, HOLY
REDEEMER BLOOD BANK, ALBERT L.
LAPITAN, doing business under the name and
style, BLUE CROSS BLOOD TRANSFUSION
SERVICES; EDGARDO R. RODAS, M.D.,
doing business under the name and style,
RECORD BLOOD BANK, in their individual
capacities and for and in behalf of PHILIPPINE
ASSOCIATION OF BLOOD BANKS,
Petitioners,
-

versus

THE SECRETARY OF HEALTH,

Respondent.
x ------------------------------------------------ x
DOCTORS BLOOD CENTER, G.R. No. 133661
Petitioner,
- versus
DEPARTMENT OF HEALTH.
Respondent.
x --------------------------------------------- x
RODOLFO S. BELTRAN, doing G.R. No. 139147
business under the name and style, OUR LADY
OF FATIMA BLOOD
BANK, FELY G. MOSALE, doing Present:

business under the name and style,

MOTHER SEATON BLOOD BANK; DAVIDE, JR., C.J.,
PEOPLES BLOOD BANK, INC.; PUNO,
MARIA VICTORIA T. VITO, M.D., PANGANIBAN,
doing business under the name and QUISUMBING,
style, AVENUE BLOOD BANK; YNARES-SANTIAGO,
JESUS M. GARCIA, M.D., doing SANDOVAL-GUTIERREZ,
business under the name and style, CARPIO,
HOLY REDEEMER BLOOD BANK, AUSTRIA-MARTINEZ,
ALBERT L. LAPITAN, doing CORONA,
business under the name and style, CARPIO-MORALES,
BLUE CROSS BLOOD CALLEJO, SR.,
TRANSFUSION SERVICES; AZCUNA,
EDGARDO R. RODAS, M.D., doing TINGA,
business under the name and style, CHIZO-NAZARIO,* and
RECORD BLOOD BANK, in their GARCIA, JJ.
Individual capacities and for
and in behalf of PHILIPPINE Promulgated:
ASSOCIATION OF BLOOD BANKS,
Petitioners, November 25, 2005
versus
THE SECRETARY OF HEALTH,
Respondent.
x ---------------------------------------------------------------------------------------- x
DECISION
AZCUNA, J.:

Before this Court are petitions assailing primarily the constitutionality of Section 7 of
Republic Act No. 7719, otherwise known as the National Blood Services Act of 1994,
and the validity of Administrative Order (A.O.) No. 9, series of 1995 or the Rules and
Regulations Implementing Republic Act No. 7719.
G.R. No. 133640,[1] entitled Rodolfo S. Beltran, doing business under the name and style,
Our Lady of Fatima Blood Bank, et al., vs. The Secretary of Health and G.R. No. 133661,
[2]
entitled Doctors Blood Bank Center vs. Department of Health are petitions for
certiorari and mandamus, respectively, seeking the annulment of the following: (1)
Section 7 of Republic Act No. 7719; and, (2) Administrative Order (A.O.) No. 9, series of
1995. Both petitions likewise pray for the issuance of a writ of prohibitory injunction

enjoining the Secretary of Health from implementing and enforcing the aforementioned
law and its Implementing Rules and Regulations; and, for a mandatory injunction
ordering and commanding the Secretary of Health to grant, issue or renew petitioners
license to operate free standing blood banks (FSBB).
The above cases were consolidated in a resolution of the Court En Banc dated June 2,
1998.[3]
G.R. No. 139147,[4] entitled Rodolfo S. Beltran, doing business under the name and style,
Our Lady of Fatima Blood Bank, et al., vs. The Secretary of Health, on the other hand, is
a petition to show cause why respondent Secretary of Health should not be held in
contempt of court.
This case was originally assigned to the Third Division of this Court and later
consolidated with G.R. Nos. 133640 and 133661 in a resolution dated August 4, 1999.[5]
Petitioners comprise the majority of the Board of Directors of the Philippine
Association of Blood Banks, a duly registered non-stock and non-profit association
composed of free standing blood banks.
Public respondent Secretary of Health is being sued in his capacity as the public official
directly involved and charged with the enforcement and implementation of the law in
question.
The facts of the case are as follows:
Republic Act No. 7719 or the National Blood Services Act of 1994 was enacted into law
on April 2, 1994. The Act seeks to provide
an adequate supply of safe blood by promoting voluntary blood donation and by
regulating blood banks in the country. It was approved by then President Fidel V. Ramos
on May 15, 1994 and was subsequently published in the Official Gazette on August 18,
1994. The law took effect on August 23, 1994.
On April 28, 1995, Administrative Order No. 9, Series of 1995, constituting the

Implementing Rules and Regulations of said law was promulgated by respondent

Secretary of the Department of Health (DOH).[6]
Section 7 of R.A. 7719 [7] provides:
Section 7. Phase-out of Commercial Blood Banks - All commercial
blood banks shall be phased-out over a period of two (2) years after the
effectivity of this Act, extendable to a maximum period of two (2) years
by the Secretary.

Section 23 of Administrative Order No. 9 provides:

Section 23. Process of Phasing Out. -- The Department shall effect the
phasing-out of all commercial blood banks over a period of two (2) years,
extendible for a maximum period of two (2) years after the effectivity of
R.A. 7719. The decision to extend shall be based on the result of a careful
study and review of the blood supply and demand and public safety.[8]

Blood banking and blood transfusion services in the country have been arranged in four
(4) categories: blood centers run by the Philippine National Red Cross (PNRC),
government-run blood services, private hospital blood banks, and commercial blood
services.
Years prior to the passage of the National Blood Services Act of 1994, petitioners
have already been operating commercial blood banks under Republic Act No. 1517,
entitled An Act Regulating the Collection, Processing and Sale of Human Blood, and the
Establishment and Operation of Blood Banks and Blood Processing Laboratories. The
law, which was enacted on June 16, 1956, allowed the establishment and operation by
licensed physicians of blood banks and blood processing laboratories. The Bureau of
Research and Laboratories (BRL) was created in 1958 and was given the power to
regulate clinical laboratories in 1966 under Republic Act No. 4688. In 1971, the
Licensure Section was created within the BRL. It was given the duty to enforce the
licensure requirements for blood banks as well as clinical laboratories. Due to this
development, Administrative Order No. 156, Series of 1971, was issued. The new rules
and regulations triggered a stricter enforcement of the Blood Banking Law, which was
characterized by frequent spot checks, immediate suspension and communication of such

suspensions to hospitals, a more systematic record-keeping and frequent communication

with blood banks through monthly information bulletins. Unfortunately, by the 1980s,
financial difficulties constrained the BRL to reduce the frequency of its supervisory visits
to the blood banks.[9]
Meanwhile, in the international scene, concern for the safety of blood and blood products
intensified when the dreaded disease Acute Immune Deficiency Syndrome (AIDS) was
first described in 1979. In 1980, the International Society of Blood Transfusion (ISBT)
formulated the Code of Ethics for Blood Donation and Transfusion. In 1982, the first case
of transfusion-associated AIDS was described in an infant. Hence, the ISBT drafted in
1984, a model for a national blood policy outlining certain principles that should be taken
into consideration. By 1985, the ISBT had disseminated guidelines requiring AIDS
testing of blood and blood products for transfusion.[10]
In 1989, another revision of the Blood Banking Guidelines was made. The DOH issued
Administrative Order No. 57, Series of 1989, which classified banks into primary,
secondary and tertiary depending on the services they provided. The standards were
adjusted according to this classification. For instance, floor area requirements varied
according to classification level. The new guidelines likewise required Hepatitis B and
HIV testing, and that the blood bank be headed by a pathologist or a hematologist.[11]
In 1992, the DOH issued Administrative Order No. 118-A institutionalizing the National
Blood Services Program (NBSP). The BRL was designated as the central office primarily
responsible for the NBSP. The program paved the way for the creation of a committee
that will implement the policies of the program and the formation of the Regional Blood
Councils.
In August 1992, Senate Bill No. 1011, entitled An Act Promoting Voluntary Blood
Donation, Providing for an Adequate Supply of Safe Blood, Regulating Blood Banks and
Providing Penalties for Violations Thereof, and for other Purposes was introduced in the
Senate.[12]
Meanwhile, in the House of Representatives, House Bills No. 384, 546, 780 and
1978 were being deliberated to address the issue of safety of the Philippine blood bank
system. Subsequently, the Senate and House Bills were referred to the appropriate

committees and subsequently consolidated.[13]

In January of 1994, the New Tropical Medicine Foundation, with the assistance of
the U.S. Agency for International Development (USAID) released its final report of a
study on the Philippine blood banking system entitled Project to Evaluate the Safety of
the Philippine Blood Banking System. It was revealed that of the blood units collected in
1992, 64.4 % were supplied by commercial blood banks, 14.5% by the PNRC, 13.7% by
government hospital-based blood banks, and 7.4% by private hospital-based blood banks.
During the time the study was made, there were only twenty-four (24) registered or
licensed free-standing or commercial blood banks in the country. Hence, with these
numbers in mind, the study deduced that each commercial blood bank produces five
times more blood than the Red Cross and fifteen times more than the government-run
blood banks. The study, therefore, showed that the Philippines heavily relied on
commercial sources of blood. The study likewise revealed that 99.6% of the donors of
commercial blood banks and 77.0% of the donors of private-hospital based blood banks
are paid donors. Paid donors are those who receive remuneration for donating their blood.
Blood donors of the PNRC and government-run hospitals, on the other hand, are mostly
voluntary.[14]
It was further found, among other things, that blood sold by persons to blood commercial
banks are three times more likely to have any of the four (4) tested infections or blood
transfusion transmissible diseases, namely, malaria, syphilis, Hepatitis B and Acquired
Immune Deficiency Syndrome (AIDS) than those donated to PNRC.[15]
Commercial blood banks give paid donors varying rates around P50 to P150, and
because of this arrangement, many of these donors are poor, and often they are students,
who need cash immediately. Since they need the money, these donors are not usually
honest about their medical or social history. Thus, blood from healthy, voluntary donors
who give their true medical and social history are about three times much safer than
blood from paid donors.[16]
What the study also found alarming is that many Filipino doctors are not yet fully trained
on the specific indications for blood component transfusion. They are not aware of the
lack of blood supply and do not feel the need to adjust their practices and use of blood
and blood products. It also does not matter to them where the blood comes from.[17]

On August 23, 1994, the National Blood Services Act providing for the phase out of
commercial blood banks took effect. On April 28, 1995, Administrative Order No. 9,
Series of 1995, constituting the Implementing Rules and Regulations of said law was
promulgated by DOH.
The phase-out period was extended for two years by the DOH pursuant to Section 7 of
Republic Act No. 7719 and Section 23 of its Implementing Rules and Regulations.
Pursuant to said Act, all commercial blood banks should have been phased out by May
28, 1998. Hence, petitioners were granted by the Secretary of Health their licenses to
open and operate a blood bank only until May 27, 1998.
On May 20, 1998, prior to the expiration of the licenses granted to petitioners,
they filed a petition for certiorari with application for the issuance of a writ of preliminary
injunction or temporary restraining order under Rule 65 of the Rules of Court assailing
the constitutionality and validity of the aforementioned Act and its Implementing Rules
and Regulations. The case was entitled Rodolfo S. Beltran, doing business under the
name and style, Our Lady of Fatima Blood Bank, docketed as G.R. No. 133640.
On June 1, 1998, petitioners filed an Amended Petition for Certiorari with Prayer
for Issuance of a Temporary Restraining Order, writ of preliminary mandatory injunction
and/or status quo ante order.[18]
In the aforementioned petition, petitioners assail the constitutionality of the
questioned legal provisions, namely, Section 7 of Republic Act No. 7719 and Section 23
of Administrative Order No. 9, Series of 1995, on the following grounds: [19]
1.

The questioned legal provisions of the National Blood Services Act

and its Implementing Rules violate the equal protection clause for
irrationally discriminating against free standing blood banks in a
manner which is not germane to the purpose of the law;

2.

The questioned provisions of the National Blood Services Act

and its Implementing Rules represent undue delegation if not
outright abdication of the police power of the state; and,

3.

The questioned provisions of the National Blood Services Act

and its Implementing Rules are unwarranted deprivation of
personal liberty.

On May 22, 1998, the Doctors Blood Center filed a similar petition for mandamus
with a prayer for the issuance of a temporary restraining order, preliminary prohibitory
and mandatory injunction before this Court entitled Doctors Blood Center vs. Department
of Health, docketed as G.R. No. 133661. [20] This was consolidated with G.R. No. 133640.
[21]

Similarly, the petition attacked the constitutionality of Republic Act No. 7719 and
its implementing rules and regulations, thus, praying for the issuance of a license to
operate commercial blood banks beyond May 27, 1998. Specifically, with regard to
Republic Act No. 7719, the petition submitted the following questions[22] for resolution:
1.

Was it passed in the exercise of police power,

and was it a valid exercise of such power?

2.

Does it not amount to deprivation of property

without due process?

3.

Does it not unlawfully impair the obligation of

contracts?

4. With the commercial blood banks being abolished and with no ready
machinery to deliver the same supply and services, does R.A. 7719
truly serve the public welfare?
On June 2, 1998, this Court issued a Resolution directing respondent DOH to file a
consolidated comment. In the same Resolution, the Court issued a temporary restraining
order (TRO) for respondent to cease and desist from implementing and enforcing Section
7 of Republic Act No. 7719 and its implementing rules and regulations until further
orders from the Court.[23]
On August 26, 1998, respondent Secretary of Health filed a Consolidated Comment on
the petitions for certiorari and mandamus in G.R. Nos. 133640 and 133661, with
opposition to the issuance of a temporary restraining order.[24]
In the Consolidated Comment, respondent Secretary of Health submitted that blood from
commercial blood banks is unsafe and therefore the State, in the exercise of its police

power, can close down commercial blood banks to protect the public. He cited the record
of deliberations on Senate Bill No. 1101 which later became Republic Act No. 7719, and
the sponsorship speech of Senator Orlando Mercado.
The rationale for the closure of these commercial blood banks can be found in the
deliberations of Senate Bill No. 1011, excerpts of which are quoted below:
Senator Mercado: I am providing over a period of two years to phase out
all commercial blood banks. So that in the end, the new section would
have a provision that states:
ALL COMMERCIAL BLOOD BANKS SHALL BE PHASED
OUT OVER A PERIOD OF TWO YEARS AFTER THE EFFECTIVITY
OF THIS ACT. BLOOD SHALL BE COLLECTED FROM
VOLUNTARY DONORS ONLY AND THE SERVICE FEE TO BE
CHARGED FOR EVERY BLOOD PRODUCT ISSUED SHALL BE
LIMITED TO THE NECESSARY EXPENSES ENTAILED IN
COLLECTING AND PROCESSING OF BLOOD. THE SERVICE FEE
SHALL BE MADE UNIFORM THROUGH GUIDELINES TO BE SET
BY THE DEPARTMENTOF HEALTH.
I am supporting Mr. President, the finding of a study called Project
to Evaluate the Safety of the Philippine Blood Banking System. This has
been taken note of. This is a study done with the assistance of the USAID
by doctors under the New Tropical Medicine Foundation in Alabang.
Part of the long-term measures proposed by this particular study is
to improve laws, outlaw buying and selling of blood and legally define
good manufacturing processes for blood. This goes to the very heart of my
amendment which seeks to put into law the principle that blood should not
be subject of commerce of man.
The Presiding Officer [Senator Aquino]: What does the sponsor say?
Senator Webb: Mr. President, just for clarity, I would like to find
out how the Gentleman defines a commercial blood bank. I am at a loss at
times what a commercial blood bank really is.
Senator Mercado: We have a definition, I believe, in the measure,
Mr. President.
The Presiding Officer [Senator Aquino]: It is a business where
profit is considered.

Senator Mercado: If the Chairman of the Committee would accept it, we

can put a provision on Section 3, a definition of a commercial blood bank,
which, as defined in this law, exists for profit and engages in the buying
and selling of blood or its components.
Senator Webb: That is a good description, Mr. President.
Senator Mercado: I refer, Mr. President, to a letter written by Dr.
Jaime Galvez-Tan, the Chief of Staff, Undersecretary of Health, to the
good Chairperson of the Committee on Health.
In recommendation No. 4, he says:
The need to phase out all commercial blood banks within a twoyear period will give the Department of Health enough time to build up
governments capability to provide an adequate supply of blood for the
needs of the nation...the use of blood for transfusion is a medical service
and not a sale of commodity.
Taking into consideration the experience of the National Kidney
Institute, which has succeeded in making the hospital 100 percent
dependent on voluntary blood donation, here is a success story of a
hospital that does not buy blood. All those who are operated on and need
blood have to convince their relatives or have to get volunteers who would
donate blood
If we give the responsibility of the testing of blood to those
commercial blood banks, they will cut corners because it will protect their
profit.
In the first place, the people who sell their blood are the people
who are normally in the high-risk category. So we should stop the system
of selling and buying blood so that we can go into a national voluntary
blood program.
It has been said here in this report, and I quote:
Why is buying and selling of blood not safe? This is not safe
because a donor who expects payment for his blood will not tell the truth
about his illnesses and will deny any risky social behavior such as sexual
promiscuity which increases the risk of having syphilis or AIDS or abuse
of intravenous addictive drugs. Laboratory tests are of limited value and
will not detect early infections. Laboratory tests are required only for four
diseases in the Philippines. There are other blood transmissible diseases
we do not yet screen for and there could be others where there are no tests

available yet.
A blood bank owner expecting to gain profit from selling blood
will also try his best to limit his expenses. Usually he tries to increase his
profit by buying cheaper reagents or test kits, hiring cheaper manpower or
skipping some tests altogether. He may also try to sell blood even though
these have infections in them. Because there is no existing system of
counterchecking these, the blood bank owner can usually get away with
many unethical practices.
The experience of Germany, Mr. President is illustrative of this
issue. The reason why contaminated blood was sold was that there were
corners cut by commercial blood banks in the testing process. They were
protecting their profits.[25]
The sponsorship speech of Senator Mercado further elucidated his stand on the issue:

Senator Mercado: Today, across the country, hundreds of povertystricken, sickly and weak Filipinos, who, unemployed, without hope and
without money to buy the next meal, will walk into a commercial blood
bank, extend their arms and plead that their blood be bought. They will lie
about their age, their medical history. They will lie about when they last
sold their blood. For doing this, they will receive close to a hundred pesos.
This may tide them over for the next few days. Of course, until the next
bloodletting.
This same blood will travel to the posh city hospitals and urbane medical
centers. This same blood will now be bought by the rich at a price over
500% of the value for which it was sold. Between this buying and selling,
obviously, someone has made a very fast buck.
Every doctor has handled at least one transfusion-related disease in an
otherwise normal patient. Patients come in for minor surgery of the hand
or whatever and they leave with hepatitis B. A patient comes in for an
appendectomy and he leaves with malaria. The worst nightmare: A patient
comes in for a Caesarian section and leaves with AIDS.
We do not expect good blood from donors who sell their blood because of
poverty. The humane dimension of blood transfusion is not in the act of
receiving blood, but in the act of giving it
For years, our people have been at the mercy of commercial blood banks
that lobby their interests among medical technologists, hospital

administrators and sometimes even physicians so that a proactive system

for collection of blood from healthy donors becomes difficult, tedious and
unrewarding.
The Department of Health has never institutionalized a comprehensive
national program for safe blood and for voluntary blood donation even if
this is a serious public health concern and has fallen for the linen of
commercial blood bankers, hook, line and sinker because it is more
convenient to tell the patient to buy blood.
Commercial blood banks hold us hostage to their threat that if we are to
close them down, there will be no blood supply. This is true if the
Government does not step in to ensure that safe supply of blood. We
cannot allow commercial interest groups to dictate policy on what is and
what should be a humanitarian effort. This cannot and will never work
because their interest in blood donation is merely monetary. We cannot
expect commercial blood banks to take the lead in voluntary blood
donation. Only the Government can do it, and the Government must do it.
[26]

On May 5, 1999, petitioners filed a Motion for Issuance of Expanded Temporary

Restraining Order for the Court to order respondent Secretary of Health to cease and
desist from announcing the closure of commercial blood banks, compelling the public to
source the needed blood from voluntary donors only, and committing similar acts that
will ultimately cause the shutdown of petitioners blood banks.[27]
On July 8, 1999, respondent Secretary filed his Comment and/or Opposition to the
above motion stating that he has not ordered the closure of commercial blood banks on
account of the Temporary Restraining Order (TRO) issued on June 2, 1998 by the Court.
In compliance with the TRO, DOH had likewise ceased to distribute the health advisory
leaflets, posters and flyers to the public which state that blood banks are closed or will be
closed. According to respondent Secretary, the same were printed and circulated in
anticipation of the closure of the commercial blood banks in accordance with R.A. No.
7719, and were printed and circulated prior to the issuance of the TRO.[28]
On July 15, 1999, petitioners in G.R. No. 133640 filed a Petition to Show Cause
Why Public Respondent Should Not be Held in Contempt of Court, docketed as G.R. No.
139147, citing public respondents willful disobedience of or resistance to the restraining
order issued by the Court in the said case. Petitioners alleged that respondents act
constitutes circumvention of the temporary restraining order and a mockery of the

authority of the Court and the orderly administration of justice. [29] Petitioners added that
despite the issuance of the temporary restraining order in G.R. No. 133640, respondent,
in his effort to strike down the existence of commercial blood banks, disseminated
misleading information under the guise of health advisories, press releases, leaflets,
brochures and flyers stating, among others, that this year [1998] all commercial blood
banks will be closed by 27 May. Those who need blood will have to rely on government
blood banks.[30] Petitioners further claimed that respondent Secretary of Health announced
in a press conference during the Blood Donors Week that commercial blood banks are
illegal and dangerous and that they are at the moment protected by a restraining order on
the basis that their commercial interest is more important than the lives of the people.
These were all posted in bulletin boards and other conspicuous places in all government
hospitals as well as other medical and health centers.[31]
In respondent Secretarys Comment to the Petition to Show Cause Why Public
Respondent Should Not Be Held in Contempt of Court, dated January 3, 2000, it was
explained that nothing was issued by the department ordering the closure of commercial
blood banks. The subject health advisory leaflets pertaining to said closure pursuant to
Republic Act No. 7719 were printed and circulated prior to the Courts issuance of a
temporary restraining order on June 21, 1998.[32]
Public respondent further claimed that the primary purpose of the information
campaign was to promote the importance and safety of voluntary blood donation and to
educate the public about the hazards of patronizing blood supplies from commercial
blood banks.[33] In doing so, he was merely performing his regular functions and duties as
the Secretary of Health to protect the health and welfare of the public. Moreover, the
DOH is the main proponent of the voluntary blood donation program espoused by
Republic Act No. 7719, particularly Section 4 thereof which provides that, in order to
ensure the adequate supply of human blood, voluntary blood donation shall be promoted
through public education, promotion in schools, professional education, establishment of
blood services network, and walking blood donors.
Hence, by authority of the law, respondent Secretary contends that he has the duty
to promote the program of voluntary blood donation. Certainly, his act of encouraging the
public to donate blood voluntarily and educating the people on the risks associated with
blood coming from a paid donor promotes general health and welfare and which should
be given more importance than the commercial businesses of petitioners.[34]

On July 29, 1999, interposing personal and substantial interest in the case as taxpayers
and citizens, a Petition-in-Intervention was filed interjecting the same arguments and
issues as laid down by petitioners in G.R. No. 133640 and 133661, namely, the
unconstitutionality of the Acts, and, the issuance of a writ of prohibitory injunction. The
intervenors are the immediate relatives of individuals who had died allegedly because of
shortage of blood supply at a critical time.[35]
The intervenors contended that Republic Act No. 7719 constitutes undue
delegation of legislative powers and unwarranted deprivation of personal liberty.[36]
In a resolution, dated September 7, 1999, and without giving due course to the
aforementioned petition, the Court granted the Motion for Intervention that was filed by
the above intervenors on August 9, 1999.
In his Comment to the petition-in-intervention, respondent Secretary of Health
stated that the sale of blood is contrary to the spirit and letter of the Act that blood
donation is a humanitarian act and blood transfusion is a professional medical service and
not a sale of commodity (Section 2[a] and [b] of Republic Act No. 7719). The act of
selling blood or charging fees other than those allowed by law is even penalized under
Section 12.[37]
Thus, in view of these, the Court is now tasked to pass upon the constitutionality of
Section 7 of Republic Act No. 7719 or the National Blood Services Act of 1994 and its
Implementing Rules and Regulations.
In resolving the controversy, this Court deems it necessary to address the issues
and/or questions raised by petitioners concerning the constitutionality of the aforesaid Act
in G.R. No. 133640 and 133661 as summarized hereunder:
I
WHETHER OR NOT SECTION 7 OF R.A. 7719 CONSTITUTES
UNDUE DELEGATION OF LEGISLATIVE POWER;
II
WHETHER OR NOT SECTION 7 OF R.A. 7719 AND ITS
IMPLEMENTING RULES AND REGULATIONS VIOLATE THE

EQUAL PROTECTION CLAUSE;

III
WHETHER OR NOT SECTION 7 OF R.A. 7719 AND ITS
IMPLEMENTING RULES AND REGULATIONS VIOLATE THE NONIMPAIRMENT CLAUSE;
IV
WHETHER OR NOT SECTION 7 OF R.A. 7719 AND ITS
IMPLEMENTING RULES AND REGULATIONS CONSTITUTE
DEPRIVATION OF PERSONAL LIBERTY AND PROPERTY;
V
WHETHER OR NOT R.A. 7719 IS A VALID EXERCISE OF
POLICE POWER; and,
VI
WHETHER OR NOT SECTION 7 OF R.A. 7719 AND ITS
IMPLEMENTING RULES AND REGULATIONS TRULY SERVE
PUBLIC WELFARE.

As to the first ground upon which the constitutionality of the Act is being challenged, it is
the contention of petitioners that the phase out of commercial or free standing blood
banks is unconstitutional because it is an improper and unwarranted delegation of
legislative power. According to petitioners, the Act was incomplete when it was passed by
the Legislature, and the latter failed to fix a standard to which the Secretary of Health
must conform in the performance of his functions. Petitioners also contend that the twoyear extension period that may be granted by the Secretary of Health for the phasing out
of commercial blood banks pursuant to Section 7 of the Act constrained the Secretary to
legislate, thus constituting undue delegation of legislative power.
In testing whether a statute constitutes 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 the
administrative body or any other appointee or delegate of the Legislature. [38] Except as to
matters of detail that may be left to be filled in by rules and regulations to be adopted or
promulgated by executive officers and administrative boards, an act of the Legislature, as
a general rule, is incomplete and hence invalid if it does not lay down any rule or definite
standard by which the administrative board may be guided in the exercise of the

discretionary powers delegated to it.[39]

Republic Act No. 7719 or the National Blood Services Act of 1994 is complete in
itself. It is clear from the provisions of the Act that the Legislature intended primarily to
safeguard the health of the people and has mandated several measures to attain this
objective. One of these is the phase out of commercial blood banks in the country. The
law has sufficiently provided a definite standard for the guidance of the Secretary of
Health in carrying out its provisions, that is, the promotion of public health by providing
a safe and adequate supply of blood through voluntary blood donation. By its provisions,
it has conferred the power and authority to the Secretary of Health as to its execution, to
be exercised under and in pursuance of the law.
Congress may validly delegate to administrative agencies the authority to
promulgate rules and regulations to implement a given legislation and effectuate its
policies.[40]The Secretary of Health has been given, under Republic Act No. 7719, broad
powers to execute the provisions of said Act. Section 11 of the Act states:
SEC. 11. Rules and Regulations. The implementation of the provisions of
the Act shall be in accordance with the rules and regulations to be
promulgated by the Secretary, within sixty (60) days from the approval
hereof
This is what respondent Secretary exactly did when DOH, by virtue of the
administrative bodys authority and expertise in the matter, came out with Administrative
Order No.9, series of 1995 or the Rules and Regulations Implementing Republic Act No.
7719. Administrative Order. No. 9 effectively filled in the details of the law for its proper
implementation.
Specifically, Section 23 of Administrative Order No. 9 provides that the phase-out
period for commercial blood banks shall be extended for another two years until May 28,
1998 based on the result of a careful study and review of the blood supply and demand
and public safety. This power to ascertain the existence of facts and conditions upon
which the Secretary may effect a period of extension for said phase-out can be delegated
by Congress. The true distinction between the power to make laws and discretion as to its
execution is illustrated by the fact that 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.[41]
In this regard, the Secretary did not go beyond the powers granted to him by the
Act when said phase-out period was extended in accordance with the Act as laid out in
Section 2 thereof:
SECTION 2. Declaration of Policy In order to promote public
health, it is hereby declared the policy of the state:
a)

to promote and encourage voluntary blood donation by

the citizenry and to instill public consciousness of the principle
that blood donation is a humanitarian act;

b)

to lay down the legal principle that the provision of blood

for transfusion is a medical service and not a sale of
commodity;
to provide for adequate, safe, affordable and equitable
distribution of blood supply and blood products;

c)
d)

to inform the public of the need for voluntary blood

donation to curb the hazards caused by the commercial sale of
blood;

e)

to teach the benefits and rationale of voluntary blood

donation in the existing health subjects of the formal education
system in all public and private schools as well as the nonformal system;

f)

to mobilize all sectors of the community to participate in

mechanisms for voluntary and non-profit collection of blood;

g)

to mandate the Department of Health to establish and

organize a National Blood Transfusion Service Network in
order to rationalize and improve the provision of adequate and
safe supply of blood;

h)

to provide for adequate assistance to institutions

promoting voluntary blood donation and providing non-profit
blood services, either through a system of reimbursement for
costs from patients who can afford to pay, or donations from
governmental and non-governmental entities;

i)

to require all blood collection units and blood

banks/centers to operate on a non-profit basis;

j)

to establish scientific and professional standards for the

operation of blood collection units and blood banks/centers in
the Philippines;

k)

to regulate and ensure the safety of all activities related to

the collection, storage and banking of blood; and,

l)

to require upgrading of blood banks/centers to include

preventive services and education to control spread of blood
transfusion transmissible diseases.

Petitioners also assert that the law and its implementing rules and regulations
violate the equal protection clause enshrined in the Constitution because it unduly
discriminates against commercial or free standing blood banks in a manner that is not
germane to the purpose of the law.[42]
What may be regarded as a denial of the equal protection of the laws is a question not
always easily determined. No rule that will cover every case can be formulated. Class
legislation, discriminating against some and favoring others is prohibited but
classification on a reasonable basis and not made arbitrarily or capriciously is permitted.
The classification, however, to be reasonable: (a) must be based on substantial
distinctions which make real differences; (b) must be germane to the purpose of the law;
(c) must not be limited to existing conditions only; and, (d) must apply equally to each
member of the class.[43]
Republic Act No. 7719 or The National Blood Services Act of 1994, was enacted
for the promotion of public health and welfare. In the aforementioned study conducted by
the New Tropical Medicine Foundation, it was revealed that the Philippine blood banking
system is disturbingly primitive and unsafe, and with its current condition, the spread of
infectious diseases such as malaria, AIDS, Hepatitis B and syphilis chiefly from blood
transfusion is unavoidable. The situation becomes more distressing as the study showed
that almost 70% of the blood supply in the country is sourced from paid blood donors
who are three times riskier than voluntary blood donors because they are unlikely to
disclose their medical or social history during the blood screening.[44]
The above study led to the passage of Republic Act No. 7719, to instill public
consciousness of the importance and benefits of voluntary blood donation, safe blood
supply and proper blood collection from healthy donors. To do this, the Legislature

decided to order the phase out of commercial blood banks to improve the Philippine
blood banking system, to regulate the supply and proper collection of safe blood, and so
as not to derail the implementation of the voluntary blood donation program of the
government. In lieu of commercial blood banks, non-profit blood banks or blood centers,
in strict adherence to professional and scientific standards to be established by the DOH,
shall be set in place.[45]
Based on the foregoing, the Legislature never intended for the law to create a
situation in which unjustifiable discrimination and inequality shall be allowed. To
effectuate its policy, a classification was made between nonprofit blood banks/centers and
commercial blood banks.
We deem the classification to be valid and reasonable for the following reasons:
One, it was based on substantial distinctions. The former operates for purely
humanitarian reasons and as a medical service while the latter is motivated by profit.
Also, while the former wholly encourages voluntary blood donation, the latter treats
blood as a sale of commodity.
Two, the classification, and the consequent phase out of commercial blood banks
is germane to the purpose of the law, that is, to provide the nation with an adequate
supply of safe blood by promoting voluntary blood donation and treating blood
transfusion as a humanitarian or medical service rather than a commodity. This
necessarily involves the phase out of commercial blood banks based on the fact that they
operate as a business enterprise, and they source their blood supply from paid blood
donors who are considered unsafe compared to voluntary blood donors as shown by the
USAID-sponsored study on the Philippine blood banking system.
Three, the Legislature intended for the general application of the law. Its
enactment was not solely to address the peculiar circumstances of the situation nor was it
intended to apply only to the existing conditions.
Lastly, the law applies equally to all commercial blood banks without exception.
Having said that, this Court comes to the inquiry as to whether or not Republic
Act No. 7719 constitutes a valid exercise of police power.

The promotion of public health is a fundamental obligation of the State. The health of the
people is a primordial governmental concern. Basically, the National Blood Services Act
was enacted in the exercise of the States police power in order to promote and preserve
public health and safety.
Police power of the state is validly exercised if (a) the interest of the public
generally, as distinguished from those of a particular class, requires the interference of the
State; and, (b) the means employed are reasonably necessary to the attainment of the
objective sought to be accomplished and not unduly oppressive upon individuals.[46]
In the earlier discussion, the Court has mentioned of the avowed policy of the law
for the protection of public health by ensuring an adequate supply of safe blood in the
country through voluntary blood donation. Attaining this objective requires the
interference of the State given the disturbing condition of the Philippine blood banking
system.
In serving the interest of the public, and to give meaning to the purpose of the law,
the Legislature deemed it necessary to phase out commercial blood banks. This action
may seriously affect the owners and operators, as well as the employees, of commercial
blood banks but their interests must give way to serve a higher end for the interest of the
public.
The Court finds that the National Blood Services Act is a valid exercise of the
States police power. Therefore, the Legislature, under the circumstances, adopted a
course of action that is both necessary and reasonable for the common good. Police
power is the State authority to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare.[47]
It is in this regard that the Court finds the related grounds and/or issues raised by
petitioners, namely, deprivation of personal liberty and property, and violation of the nonimpairment clause, to be unmeritorious.
Petitioners are of the opinion that the Act is unconstitutional and void because it
infringes on the freedom of choice of an individual in connection to what he wants to do
with his blood which should be outside the domain of State intervention. Additionally,

and in relation to the issue of classification, petitioners asseverate that, indeed, under the
Civil Code, the human body and its organs like the heart, the kidney and the liver are
outside the commerce of man but this cannot be made to apply to human blood because
the latter can be replenished by the body. To treat human blood equally as the human
organs would constitute invalid classification. [48]
Petitioners likewise claim that the phase out of the commercial blood banks will
be disadvantageous to them as it will affect their businesses and existing contracts with
hospitals and other health institutions, hence Section 7 of the Act should be struck down
because it violates the non-impairment clause provided by the Constitution.
As stated above, the State, in order to promote the general welfare, may interfere
with personal liberty, with property, and with business and occupations. Thus, persons
may be subjected to certain kinds of restraints and burdens in order to secure the general
welfare of the State and to this fundamental aim of government, the rights of the
individual may be subordinated.[49]
Moreover, in the case of Philippine Association of Service Exporters, Inc. v. Drilon, [50]
settled is the rule that the non-impairment clause of the Constitution must yield to the
loftier purposes targeted by the government. The right granted by this provision must
submit to the demands and necessities of the States power of regulation. While the Court
understands the grave implications of Section 7 of the law in question, the concern of the
Government in this case, however, is not necessarily to maintain profits of business firms.
In the ordinary sequence of events, it is profits that suffer as a result of government
regulation.
Furthermore, the freedom to contract is not absolute; all contracts and all rights
are subject to the police power of the State and not only may regulations which affect
them be established by the State, but all such regulations must be subject to change from
time to time, as the general well-being of the community may require, or as the
circumstances may change, or as experience may demonstrate the necessity.[51] This
doctrine was reiterated in the case of Vda. de Genuino v. Court of Agrarian Relations[52]
where the Court held that individual rights to contract and to property have to give way to
police power exercised for public welfare.

As for determining whether or not the shutdown of commercial blood banks will truly
serve the general public considering the shortage of blood supply in the country as
proffered by petitioners, we maintain that the wisdom of the Legislature in the lawful
exercise of its power to enact laws cannot be inquired into by the Court. Doing so would
be in derogation of the principle of separation of powers.[53]
That, under the circumstances, proper regulation of all blood banks without distinction in
order to achieve the objective of the law as contended by petitioners is, of course,
possible; but, this would be arguing on what the law may be or should be and not what
the law is. Between is and ought there is a far cry. The wisdom and propriety of
legislation is not for this Court to pass upon.[54]
Finally, with regard to the petition for contempt in G.R. No. 139147, on the other hand,
the Court finds respondent Secretary of Healths explanation satisfactory. The statements
in the flyers and posters were not aimed at influencing or threatening the Court in
deciding in favor of the constitutionality of the law.
Contempt of court presupposes a contumacious attitude, a flouting or arrogant
belligerence in defiance of the court.[55] There is nothing contemptuous about the
statements and information contained in the health advisory that were distributed by
DOH before the TRO was issued by this Court ordering the former to cease and desist
from distributing the same.
In sum, the Court has been unable to find any constitutional infirmity in the
questioned provisions of the National Blood Services Act of 1994 and its Implementing
Rules and Regulations.
The fundamental criterion is that all reasonable doubts should be resolved in favor
of the constitutionality of a statute. Every law has in its favor the presumption of
constitutionality. For a law to be nullified, it must be shown that there is a clear and
unequivocal breach of the Constitution. The ground for nullity must be clear and beyond
reasonable doubt.[56] Those who petition this Court to declare a law, or parts thereof,
unconstitutional must clearly establish the basis therefor. Otherwise, the petition must
fail.

Based on the grounds raised by petitioners to challenge the constitutionality of the

National Blood Services Act of 1994 and its Implementing Rules and Regulations, the
Court finds that petitioners have failed to overcome the presumption of constitutionality
of the law. As to whether the Act constitutes a wise legislation, considering the issues
being raised by petitioners, is for Congress to determine.[57]
WHEREFORE, premises considered, the Court renders judgment as follows:
1.

In G.R. Nos. 133640 and 133661, the Court

UPHOLDS THE VALIDITY of Section 7 of Republic Act No. 7719,
otherwise known as the National Blood Services Act of 1994, and
Administrative Order No. 9, Series of 1995 or the Rules and Regulations
Implementing Republic Act No. 7719. The petitions are DISMISSED.
Consequently, the Temporary Restraining Order issued by this Court on
June 2, 1998, is LIFTED.

2.

In G.R. No. 139147, the petition seeking to cite the

Secretary of Health in contempt of court is DENIED for lack of merit.

No costs.
SO ORDERED.

BOY SCOUTS
PHILIPPINES,
Petitioner,

OF

THE

- versus -

G.R. No. 177131

Present:
CORONA, C.J.,
CARPIO,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,
LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO, JJ.
Promulgated:

COMMISSION ON AUDIT,
Respondent.

June 7, 2011

x--------------------------------------------------x
DECISION
LEONARDO-DE CASTRO, J.:

The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the
Philippines (BSP) is the subject matter of this controversy that reached us via petition for
prohibition[1] filed by the BSP under Rule 65 of the 1997 Rules of Court. In this
petition, the BSP seeks that the COA be prohibited from implementing its June 18, 2002
Decision,[2] its February 21, 2007 Resolution,[3] as well as all other issuances arising
therefrom, and that all of the foregoing be rendered null and void. [4]

Antecedent Facts and Background of the Case

This case arose when the COA issued Resolution No. 99-011[5] on August 19,
1999 (the COA Resolution), with the subject Defining the Commissions policy with
respect to the audit of the Boy Scouts of the Philippines. In its whereas clauses, the COA
Resolution stated that the BSP was created as a public corporation under Commonwealth
Act No. 111, as amended by Presidential Decree No. 460 and Republic Act No. 7278; that
in Boy Scouts of the Philippines v. National Labor Relations Commission,[6] the
Supreme Court ruled that the BSP, as constituted under its charter, was a governmentcontrolled corporation within the meaning of Article IX(B)(2)(1) of the Constitution; and
that the BSP is appropriately regarded as a government instrumentality under the 1987
Administrative Code.[7] The COA Resolution also cited its constitutional mandate
under Section 2(1), Article IX (D). Finally, the COA Resolution reads:
NOW THEREFORE, in consideration of the foregoing premises,
the COMMISSION PROPER HAS RESOLVED, AS IT DOES HEREBY
RESOLVE, to conduct an annual financial audit of the Boy Scouts of the
Philippines in accordance with generally accepted auditing standards, and
express an opinion on whether the financial statements which include the
Balance Sheet, the Income Statement and the Statement of Cash Flows
present fairly its financial position and results of operations.
xxxx
BE IT RESOLVED FURTHERMORE, that for purposes of audit
supervision, the Boy Scouts of the Philippines shall be classified among
the government corporations belonging to the Educational, Social,
Scientific, Civic and Research Sector under the Corporate Audit Office I,
to be audited, similar to the subsidiary corporations, by employing the
team audit approach.[8] (Emphases supplied.)

The BSP sought reconsideration of the COA Resolution in a letter[9] dated

November 26, 1999 signed by the BSP National President Jejomar C. Binay, who is now
the Vice President of the Republic, wherein he wrote:
It is the position of the BSP, with all due respect, that it is not subject to the
Commissions jurisdiction on the following grounds:
1.

We reckon that the ruling in the case of Boy Scouts of the Philippines

vs. National Labor Relations Commission, et al. (G.R. No. 80767)

classifying the BSP as a government-controlled corporation is anchored
on the substantial Government participation in the National Executive
Board of the BSP. It is to be noted that the case was decided when the
BSP Charter is defined by Commonwealth Act No. 111 as amended by
Presidential Decree 460.
However, may we humbly refer you to Republic Act No. 7278 which
amended the BSPs charter after the cited case was decided. The most
salient of all amendments in RA No. 7278 is the alteration of the
composition of the National Executive Board of the BSP.
The said RA virtually eliminated the substantial government participation
in the National Executive Board by removing: (i) the President of the
Philippines and executive secretaries, with the exception of the Secretary
of Education, as members thereof; and (ii) the appointment and
confirmation power of the President of the Philippines, as Chief Scout,
over the members of the said Board.
The BSP believes that the cited case has been superseded by RA 7278.
Thereby weakening the cases conclusion that the BSP is a governmentcontrolled corporation (sic). The 1987 Administrative Code itself, of
which the BSP vs. NLRC relied on for some terms, defines governmentowned and controlled corporations as agencies organized as stock or nonstock corporations which the BSP, under its present charter, is not.
Also, the Government, like in other GOCCs, does not have funds
invested in the BSP. What RA 7278 only provides is that the Government
or any of its subdivisions, branches, offices, agencies and
instrumentalities can from time to time donate and contribute funds to the
BSP.
xxxx
Also the BSP respectfully believes that the BSP is not appropriately
regarded as a government instrumentality under the 1987 Administrative
Code as stated in the COA resolution. As defined by Section 2(10) of the
said code, instrumentality refers to any agency of the National
Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter.
The BSP is not an entity administering special funds. It is not even
included in the DECS National Budget. x x x

It may be argued also that the BSP is not an agency of the Government.
The 1987 Administrative Code, merely referred the BSP as an attached
agency of the DECS as distinguished from an actual line agency of
departments that are included in the National Budget. The BSP believes
that an attached agency is different from an agency. Agency, as defined in
Section 2(4) of the Administrative Code, is defined as any of the various
units of the Government including a department, bureau, office,
instrumentality, government-owned or controlled corporation or local
government or distinct unit therein.
Under the above definition, the BSP is neither a unit of the Government;
a department which refers to an executive department as created by law
(Section 2[7] of the Administrative Code); nor a bureau which refers to
any principal subdivision or unit of any department (Section 2[8],
Administrative Code).[10]
Subsequently, requests for reconsideration of the COA Resolution were also made
separately by Robert P. Valdellon, Regional Scout Director, Western Visayas Region,
Iloilo City and Eugenio F. Capreso, Council Scout Executive of Calbayog City.[11]
In a letter[12] dated July 3, 2000, Director Crescencio S. Sunico, Corporate
Audit Officer (CAO) I of the COA, furnished the BSP with a copy of the
Memorandum[13] dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA General
Counsel. In said Memorandum, the COA General Counsel opined that Republic Act No.
7278 did not supersede the Courts ruling in Boy Scouts of the Philippines v. National
Labor Relations Commission, even though said law eliminated the substantial
government participation in the selection of members of the National Executive Board of
the BSP. The Memorandum further provides:
Analysis of the said case disclosed that the substantial government
participation is only one (1) of the three (3) grounds relied upon by the
Court in the resolution of the case. Other considerations include the
character of the BSPs purposes and functions which has a public aspect
and the statutory designation of the BSP as a public corporation. These
grounds have not been deleted by R.A. No. 7278. On the contrary, these
were strengthened as evidenced by the amendment made relative to BSPs
purposes stated in Section 3 of R.A. No. 7278.
On the argument that BSP is not appropriately regarded as a
government instrumentality and agency of the government, such has
already been answered and clarified. The Supreme Court has elucidated
this matter in the BSP case when it declared that BSP is regarded as, both

a government-controlled corporation with an original charter and as an

instrumentality of the Government. Likewise, it is not disputed that the
Administrative Code of 1987 designated the BSP as one of the attached
agencies of DECS. Being an attached agency, however, it does not change
its nature as a government-controlled corporation with original charter
and, necessarily, subject to COA audit jurisdiction. Besides, Section 2(1),
Article IX-D of the Constitution provides that COA shall have the power,
authority, and duty to examine, audit and settle all accounts pertaining to
the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or
any of its subdivisions, agencies or instrumentalities, including
government-owned or controlled corporations with original charters.[14]

Based on the Memorandum of the COA General Counsel, Director Sunico wrote:
In view of the points clarified by said Memorandum upholding
COA Resolution No. 99-011, we have to comply with the provisions of the
latter, among which is to conduct an annual financial audit of the Boy
Scouts of the Philippines.[15]

In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda,

CAO I, the COA informed the BSP that a preliminary survey of its organizational
structure, operations and accounting system/records shall be conducted on November 21
to 22, 2000.[16]
Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP then
filed a Petition for Review with Prayer for Preliminary Injunction and/or Temporary
Restraining Order before the COA. This was denied by the COA in its questioned
Decision, which held that the BSP is under its audit jurisdiction. The BSP moved for
reconsideration but this was likewise denied under its questioned Resolution.[17]
This led to the filing by the BSP of this petition for prohibition with preliminary
injunction and temporary restraining order against the COA.
The Issue
As stated earlier, the sole issue to be resolved in this case is whether the BSP falls
under the COAs audit jurisdiction.

The Parties Respective Arguments

The BSP contends that Boy Scouts of the Philippines v. National Labor Relations
Commission is inapplicable for purposes of determining the audit jurisdiction of the COA
as the issue therein was the jurisdiction of the National Labor Relations Commission over
a case for illegal dismissal and unfair labor practice filed by certain BSP employees.[18]
While the BSP concedes that its functions do relate to those that the government
might otherwise completely assume on its own, it avers that this alone was not
determinative of the COAs audit jurisdiction over it. The BSP further avers that the Court
in Boy Scouts of the Philippines v. National Labor Relations Commission simply stated x
x x that in respect of functions, the BSP is akin to a public corporation but this was not
synonymous to holding that the BSP is a government corporation or entity subject to
audit by the COA. [19]
The BSP contends that Republic Act No. 7278 introduced crucial amendments to
its charter; hence, the findings of the Court in Boy Scouts of the Philippines v. National
Labor Relations Commission are no longer valid as the government has ceased to play a
controlling influence in it. The BSP claims that the pronouncements of the Court therein
must be taken only within the context of that case; that the Court had categorically found
that its assets were acquired from the Boy Scouts of America and not from the Philippine
government, and that its operations are financed chiefly from membership dues of the
Boy Scouts themselves as well as from property rentals; and that the BSP may correctly
be characterized as non-governmental, and hence, beyond the audit jurisdiction of the
COA. It further claims that the designation by the Court of the BSP as a government
agency or instrumentality is mere obiter dictum.[20]
The BSP maintains that the provisions of Republic Act No. 7278 suggest that
governance of BSP has come to be overwhelmingly a private affair or nature, with
government participation restricted to the seat of the Secretary of Education, Culture and
Sports.[21] It cites Philippine Airlines Inc. v. Commission on Audit[22] wherein the

Court declared that, PAL, having ceased to be a government-owned or controlled

corporation is no longer under the audit jurisdiction of the COA.[23] Claiming that the
amendments introduced by Republic Act No. 7278 constituted a supervening event that
changed the BSPs corporate identity in the same way that the governments privatization
program changed PALs, the BSP makes the case that the government no longer has
control over it; thus, the COA cannot use the Boy Scouts of the Philippines v. National
Labor Relations Commission as its basis for the exercise of its jurisdiction and the
issuance of COA Resolution No. 99-011.[24] The BSP further claims as follows:
It is not far-fetched, in fact, to concede that BSPs funds and assets are
private in character. Unlike ordinary public corporations, such as provinces,
cities, and municipalities, or government-owned and controlled corporations,
such as Land Bank of the Philippines and the Development Bank of the
Philippines, the assets and funds of BSP are not derived from any government
grant. For its operations, BSP is not dependent in any way on any government
appropriation; as a matter of fact, it has not even been included in any
appropriations for the government. To be sure, COA has not alleged, in its
Resolution No. 99-011 or in the Memorandum of its General Counsel, that
BSP received, receives or continues to receive assets and funds from any
agency of the government. The foregoing simply point to the private nature of
the funds and assets of petitioner BSP.
xxxx
As stated in petitioners third argument, BSPs assets and funds were
never acquired from the government. Its operations are not in any way
financed by the government, as BSP has never been included in any
appropriations act for the government. Neither has the government invested
funds with BSP. BSP, has not been, at any time, a user of government
property or funds; nor have properties of the government been held in trust by
BSP. This is precisely the reason why, until this time, the COA has not
attempted to subject BSP to its audit jurisdiction. x x x.[25]

To summarize its other arguments, the BSP contends that it is not a governmentowned or controlled corporation; neither is it an instrumentality, agency, or subdivision of
the government.
In its Comment,[26] the COA argues as follows:
1.

The BSP is a public corporation created under Commonwealth Act

No. 111 dated October 31, 1936, and whose functions relate to the

fostering of public virtues of citizenship and patriotism and the general

improvement of the moral spirit and fiber of the youth. The manner of
creation and the purpose for which the BSP was created indubitably
prove that it is a government agency.
2.

Being a government agency, the funds and property owned or held

in trust by the BSP are subject to the audit authority of respondent
Commission on Audit pursuant to Section 2 (1), Article IX-D of the
1987 Constitution.

3.

Republic Act No. 7278 did not change the character of the BSP as a
government-owned or controlled corporation and government
instrumentality.[27]

The COA maintains that the functions of the BSP that include, among others, the
teaching to the youth of patriotism, courage, self-reliance, and kindred virtues, are
undeniably sovereign functions enshrined under the Constitution and discussed by the
Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The
COA contends that any attempt to classify the BSP as a private corporation would be
incomprehensible since no less than the law which created it had designated it as a public
corporation and its statutory mandate embraces performance of sovereign functions.[28]
The COA claims that the only reason why the BSP employees fell within the
scope of the Civil Service Commission even before the 1987 Constitution was the fact
that it was a government-owned or controlled corporation; that as an attached agency of
the Department of Education, Culture and Sports (DECS), the BSP is an agency of the
government; and that the BSP is a chartered institution under Section 1(12) of the
Revised Administrative Code of 1987, embraced under the term government
instrumentality.[29]
The COA concludes that being a government agency, the funds and property
owned or held by the BSP are subject to the audit authority of the COA pursuant to
Section 2(1), Article IX (D) of the 1987 Constitution.
In support of its arguments, the COA cites The Veterans Federation of the
Philippines (VFP) v. Reyes,[30] wherein the Court held that among the reasons why the
VFP is a public corporation is that its charter, Republic Act No. 2640, designates it as
one. Furthermore, the COA quotes the Court as saying in that case:

In several cases, we have dealt with the issue of whether certain specific
activities can be classified as sovereign functions. These cases, which deal
with activities not immediately apparent to be sovereign functions, upheld the
public sovereign nature of operations needed either to promote social justice
or to stimulate patriotic sentiments and love of country.
xxxx
Petitioner claims that its funds are not public funds because no
budgetary appropriations or government funds have been released to the VFP
directly or indirectly from the DBM, and because VFP funds come from
membership dues and lease rentals earned from administering government
lands reserved for the VFP.
The fact that no budgetary appropriations have been released to the VFP
does not prove that it is a private corporation. The DBM indeed did not see it
fit to propose budgetary appropriations to the VFP, having itself believed that
the VFP is a private corporation. If the DBM, however, is mistaken as to its
conclusion regarding the nature of VFP's incorporation, its previous assertions
will not prevent future budgetary appropriations to the VFP. The erroneous
application of the law by public officers does not bar a subsequent correct
application of the law.[31] (Citations omitted.)

The COA points out that the government is not precluded by law from extending
financial support to the BSP and adding to its funds, and that as a government
instrumentality which continues to perform a vital function imbued with public interest
and reflective of the governments policy to stimulate patriotic sentiments and love of
country, the BSPs funds from whatever source are public funds, and can be used solely
for public purpose in pursuance of the provisions of Republic Act No. [7278].[32]
The COA claims that the fact that it has not yet audited the BSPs funds may not
bar the subsequent exercise of its audit jurisdiction.
The BSP filed its Reply[33] on August 29, 2007 maintaining that its statutory
designation as a public corporation and the public character of its purpose and functions
are not determinative of the COAs audit jurisdiction; reiterating its stand that Boy Scouts
of the Philippines v. National Labor Relations Commission is not applicable anymore
because the aspect of government ownership and control has been removed by Republic
Act No. 7278; and concluding that the funds and property that it either owned or held in

trust are not public funds and are not subject to the COAs audit jurisdiction.
Thereafter, considering the BSPs claim that it is a private corporation, this Court,
in a Resolution[34] dated July 20, 2010, required the parties to file, within a period of
twenty (20) days from receipt of said Resolution, their respective comments on the issue
of whether Commonwealth Act No. 111, as amended by Republic Act No. 7278, is
constitutional.
In compliance with the Courts resolution, the parties filed their respective
Comments.
In its Comment[35]

dated October 22, 2010, the COA argues that the

constitutionality of Commonwealth Act No. 111, as amended, is not determinative of the

resolution of the present controversy on the COAs audit jurisdiction over petitioner, and
in fact, the controversy may be resolved on other grounds; thus, the requisites before a
judicial inquiry may be made, as set forth in Commissioner of Internal Revenue v. Court
of Tax Appeals,[36] have not been fully met.[37] Moreover, the COA maintains that
behind every law lies the presumption of constitutionality.[38] The COA likewise argues
that contrary to the BSPs position, repeal of a law by implication is not favored.[39]
Lastly, the COA claims that there was no violation of Section 16, Article XII of the 1987
Constitution with the creation or declaration of the BSP as a government corporation.
Citing Philippine Society for the Prevention of Cruelty to Animals v. Commission on
Audit,[40] the COA further alleges:
The true criterion, therefore, to determine whether a corporation is
public or private is found in the totality of the relation of the corporation to
the State. If the corporation is created by the State as the latters own agency
or instrumentality to help it in carrying out its governmental functions, then
that corporation is considered public; otherwise, it is private. x x x.[41]

For its part, in its Comment[42] filed on December 3, 2010, the BSP submits that
its charter, Commonwealth Act No. 111, as amended by Republic Act No. 7278, is
constitutional as it does not violate Section 16, Article XII of the Constitution. The BSP
alleges that while [it] is not a public corporation within the purview of COAs audit
jurisdiction, neither is it a private corporation created by special law falling within the
ambit of the constitutional prohibition x x x.[43] The BSP further alleges:

Petitioners purpose is embodied in Section 3 of C.A. No. 111, as

amended by Section 1 of R.A. No. 7278, thus:
xxxx
A reading of the foregoing provision shows that petitioner was created
to advance the interest of the youth, specifically of young boys, and to mold
them into becoming good citizens. Ultimately, the creation of petitioner
redounds to the benefit, not only of those boys, but of the public good or
welfare. Hence, it can be said that petitioners purpose and functions are more
of a public rather than a private character. Petitioner caters to all boys who
wish to join the organization without any distinction. It does not limit its
membership to a particular class of boys. Petitioners members are trained in
scoutcraft and taught patriotism, civic consciousness and responsibility,
courage, self-reliance, discipline and kindred virtues, and moral values,
preparing them to become model citizens and outstanding leaders of the
country.[44]
The BSP reiterates its stand that the public character of its purpose and functions
do not place it within the ambit of the audit jurisdiction of the COA as it lacks the
government ownership or control that the Constitution requires before an entity may be
subject of said jurisdiction.[45] It avers that it merely stated in its Reply that the
withdrawal of government control is akin to privatization, but it does not necessarily
mean that petitioner is a private corporation.[46] The BSP claims that it has a unique
characteristic which neither classifies it as a purely public nor a purely private
corporation;[47] that it is not a quasi-public corporation; and that it may belong to a
different class altogether.[48]
The BSP claims that assuming arguendo that it is a private corporation, its
creation is not contrary to the purpose of Section 16, Article XII of the Constitution; and
that the evil sought to be avoided by said provision is inexistent in the enactment of the
BSPs charter,[49] as, (i) it was not created for any pecuniary purpose; (ii) those who will
primarily benefit from its creation are not its officers but its entire membership consisting
of boys being trained in scoutcraft all over the country; (iii) it caters to all boys who wish
to join the organization without any distinction; and (iv) it does not limit its membership
to a particular class or group of boys. Thus, the enactment of its charter confers no special
privilege to particular individuals, families, or groups; nor does it bring about the danger
of granting undue favors to certain groups to the prejudice of others or of the interest of

the country, which are the evils sought to be prevented by the constitutional provision
involved.[50]
Finally, the BSP states that the presumption of constitutionality of a legislative
enactment prevails absent any clear showing of its repugnancy to the Constitution.[51]
The Ruling of the Court
After looking at the legislative history of its amended charter and carefully
studying the applicable laws and the arguments of both parties, we find that the BSP is a
public corporation and its funds are subject to the COAs audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936),
entitled An Act to Create a Public Corporation to be Known as the Boy Scouts of the
Philippines, and to Define its Powers and Purposes created the BSP as a public
corporation to serve the following public interest or purpose:
Sec. 3. The purpose of this corporation shall be to promote through
organization and cooperation with other agencies, the ability of boys to do
useful things for themselves and others, to train them in scoutcraft, and to
inculcate in them patriotism, civic consciousness and responsibility,
courage, self-reliance, discipline and kindred virtues, and moral values,
using the method which are in common use by boy scouts.

Presidential Decree No. 460, approved on May 17, 1974, amended

Commonwealth Act No. 111 and provided substantial changes in the BSP organizational
structure. Pertinent provisions are quoted below:
Section II. Section 5 of the said Act is also amended to read as
follows:
The governing body of the said corporation shall consist of a
National Executive Board composed of (a) the President of the Philippines
or his representative; (b) the charter and life members of the Boy Scouts of
the Philippines; (c) the Chairman of the Board of Trustees of the
Philippine Scouting Foundation; (d) the Regional Chairman of the Scout
Regions of the Philippines; (e) the Secretary of Education and Culture, the
Secretary of Social Welfare, the Secretary of National Defense, the

Secretary of Labor, the Secretary of Finance, the Secretary of Youth and

Sports, and the Secretary of Local Government and Community
Development; (f) an equal number of individuals from the private sector;
(g) the National President of the Girl Scouts of the Philippines; (h) one
Scout of Senior age from each Scout Region to represent the boy
membership; and (i) three representatives of the cultural minorities.
Except for the Regional Chairman who shall be elected by the Regional
Scout Councils during their annual meetings, and the Scouts of their
respective regions, all members of the National Executive Board shall be
either by appointment or cooption, subject to ratification and confirmation
by the Chief Scout, who shall be the Head of State. Vacancies in the
Executive Board shall be filled by a majority vote of the remaining
members, subject to ratification and confirmation by the Chief Scout. The
by-laws may prescribe the number of members of the National Executive
Board necessary to constitute a quorum of the board, which number may
be less than a majority of the whole number of the board. The National
Executive Board shall have power to make and to amend the by-laws, and,
by a two-thirds vote of the whole board at a meeting called for this
purpose, may authorize and cause to be executed mortgages and liens
upon the property of the corporation.

Subsequently, on March 24, 1992, Republic Act No. 7278 further amended
Commonwealth Act No. 111 by strengthening the volunteer and democratic character of
the BSP and reducing government representation in its governing body, as follows:
Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as
amended, is hereby amended to read as follows:
"Sec. 2. The said corporation shall have the powers of perpetual
succession, to sue and be sued; to enter into contracts; to acquire, own,
lease, convey and dispose of such real and personal estate, land grants,
rights and choses in action as shall be necessary for corporate purposes,
and to accept and receive funds, real and personal property by gift, devise,
bequest or other means, to conduct fund-raising activities; to adopt and use
a seal, and the same to alter and destroy; to have offices and conduct its
business and affairs in Metropolitan Manila and in the regions, provinces,
cities, municipalities, and barangays of the Philippines, to make and adopt
by-laws, rules and regulations not inconsistent with this Act and the laws
of the Philippines, and generally to do all such acts and things, including
the establishment of regulations for the election of associates and
successors, as may be necessary to carry into effect the provisions of this
Act and promote the purposes of said corporation: Provided, That said
corporation shall have no power to issue certificates of stock or to declare
or pay dividends, its objectives and purposes being solely of benevolent

character and not for pecuniary profit of its members.

"Sec. 3. The purpose of this corporation shall be to promote
through organization and cooperation with other agencies, the ability of
boys to do useful things for themselves and others, to train them in
scoutcraft, and to inculcate in them patriotism, civic consciousness and
responsibility, courage, self-reliance, discipline and kindred virtues, and
moral values, using the method which are in common use by boy scouts."
Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is
hereby repealed and in lieu thereof, Section 4 shall read as follows:
"Sec. 4. The President of the Philippines shall be the Chief Scout
of the Boy Scouts of the Philippines."
Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as
amended, are hereby amended to read as follows:
"Sec. 5. The governing body of the said corporation shall consist of
a National Executive Board, the members of which shall be Filipino
citizens of good moral character. The Board shall be composed of the
following:
"(a) One (1) charter member of the Boy Scouts of the Philippines
who shall be elected by the members of the National Council at its
meeting called for this purpose;
"(b) The regional chairmen of the scout regions who shall be
elected by the representatives of all the local scout councils of the region
during its meeting called for this purpose: Provided, That a candidate for
regional chairman need not be the chairman of a local scout council;
"(c) The Secretary of Education, Culture and Sports;
"(d) The National President of the Girl Scouts of the Philippines;
"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao
areas, to be elected by the senior scout delegates of the local scout
councils to the scout youth forums in their respective areas, in its meeting
called for this purpose, to represent the boy scout membership;
"(f) Twelve (12) regular members to be elected by the members of
the National Council in its meeting called for this purpose;
"(g) At least ten (10) but not more than fifteen (15) additional
members from the private sector who shall be elected by the members of

the National Executive Board referred to in the immediately preceding

paragraphs (a), (b), (c), (d), (e) and (f) at the organizational meeting of the
newly reconstituted National Executive Board which shall be held
immediately after the meeting of the National Council wherein the twelve
(12) regular members and the one (1) charter member were elected.
xxxx
"Sec. 8. Any donation or contribution which from time to time may
be made to the Boy Scouts of the Philippines by the Government or any of
its subdivisions, branches, offices, agencies or instrumentalities or by a
foreign government or by private, entities and individuals shall be
expended by the National Executive Board in pursuance of this Act.
The BSP as a Public Corporation under Par. 2, Art.
2 of the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code and
the BSP, as presently constituted under Republic Act No. 7278, falls under the second
classification. Article 44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest
or purpose created by law; their personality begins as soon as they have
been constituted according to law;
(3) Corporations, partnerships and associations for private interest
or purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member. (Emphases
supplied.)

The BSP, which is a corporation created for a public interest or purpose, is subject
to the law creating it under Article 45 of the Civil Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the
preceding article are governed by the laws creating or recognizing them.
Private corporations are regulated by laws of general application
on the subject.
Partnerships and associations for private interest or purpose are
governed by the provisions of this Code concerning partnerships.
(Emphasis and underscoring supplied.)

The purpose of the BSP as stated in its amended charter shows that it was created
in order to implement a State policy declared in Article II, Section 13 of the Constitution,
which reads:
ARTICLE II - DECLARATION OF PRINCIPLES AND STATE
POLICIES
Section 13. The State recognizes the vital role of the youth in
nation-building and shall promote and protect their physical, moral,
spiritual, intellectual, and social well-being. It shall inculcate in the youth
patriotism and nationalism, and encourage their involvement in public and
civic affairs.

Evidently, the BSP, which was created by a special law to serve a public purpose
in pursuit of a constitutional mandate, comes within the class of public corporations
defined by paragraph 2, Article 44 of the Civil Code and governed by the law which
creates it, pursuant to Article 45 of the same Code.
The BSPs Classification Under the
Administrative Code of 1987
The public, rather than private, character of the BSP is recognized by the fact that,
along with the Girl Scouts of the Philippines, it is classified as an attached agency of the
DECS under Executive Order No. 292, or the Administrative Code of 1987, which states:
TITLE VI EDUCATION, CULTURE AND SPORTS
Chapter 8 Attached Agencies
SEC. 20. Attached Agencies. The following agencies are hereby
attached to the Department:
xxxx
(12) Boy Scouts of the Philippines;
(13) Girl Scouts of the Philippines.

The administrative relationship of an attached agency to the department is defined

in the Administrative Code of 1987 as follows:
BOOK IV
THE EXECUTIVE BRANCH
Chapter 7 ADMINISTRATIVE RELATIONSHIP
SEC. 38. Definition of Administrative Relationship. Unless
otherwise expressly stated in the Code or in other laws defining the special
relationships of particular agencies, administrative relationships shall be
categorized and defined as follows:
xxxx
(3) Attachment. (a) This refers to the lateral relationship between
the department or its equivalent and the attached agency or corporation for
purposes of policy and program coordination. The coordination may be
accomplished by having the department represented in the governing
board of the attached agency or corporation, either as chairman or as a
member, with or without voting rights, if this is permitted by the charter;
having the attached corporation or agency comply with a system of
periodic reporting which shall reflect the progress of programs and
projects; and having the department or its equivalent provide general
policies through its representative in the board, which shall serve as the
framework for the internal policies of the attached corporation or agency.
(Emphasis ours.)

As an attached agency, the BSP enjoys operational autonomy, as long as policy and
program coordination is achieved by having at least one representative of government in
its governing board, which in the case of the BSP is the DECS Secretary. In this sense,
the BSP is not under government control or supervision and control. Still this
characteristic does not make the attached chartered agency a private corporation covered
by the constitutional proscription in question.
Art. XII, Sec. 16 of the Constitution refers to private
corporations created by government for proprietary
or economic/business purposes

At the outset, it should be noted that the provision of Section 16 in issue is found

in Article XII of the Constitution, entitled National Economy and Patrimony. Section 1 of
Article XII is quoted as follows:
SECTION 1. The goals of the national economy are a more
equitable distribution of opportunities, income, and wealth; a sustained
increase in the amount of goods and services produced by the nation for
the benefit of the people; and an expanding productivity as the key to
raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment
based on sound agricultural development and agrarian reform, through
industries that make full and efficient use of human and natural resources,
and which are competitive in both domestic and foreign markets.
However, the State shall protect Filipino enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all
regions of the country shall be given optimum opportunity to develop.
Private enterprises, including corporations, cooperatives, and similar
collective organizations, shall be encouraged to broaden the base of their
ownership.

The scope and coverage of Section 16, Article XII of the Constitution can be seen
from the aforementioned declaration of state policies and goals which pertains to national
economy and patrimony and the interests of the people in economic development.
Section 16, Article XII deals with the formation, organization, or regulation of
private corporations,[52] which should be done through a general law enacted by
Congress, provides for an exception, that is: if the corporation is government owned or
controlled; its creation is in the interest of the common good; and it meets the test of
economic viability. The rationale behind Article XII, Section 16 of the 1987 Constitution
was explained in Feliciano v. Commission on Audit,[53] in the following manner:
The Constitution emphatically prohibits the creation of private
corporations except by a general law applicable to all citizens. The
purpose of this constitutional provision is to ban private corporations
created by special charters, which historically gave certain individuals,
families or groups special privileges denied to other citizens.[54]
(Emphasis added.)

It may be gleaned from the above discussion that Article XII, Section 16 bans the
creation of private corporations by special law. The said constitutional provision should
not be construed so as to prohibit the creation of public corporations or a corporate
agency or instrumentality of the government intended to serve a public interest or
purpose, which should not be measured on the basis of economic viability, but according
to the public interest or purpose it serves as envisioned by paragraph (2), of Article 44 of
the Civil Code and the pertinent provisions of the Administrative Code of 1987.
The BSP is a Public Corporation Not Subject to the
Test of Government Ownership or Control and
Economic Viability
The BSP is a public corporation or a government agency or instrumentality with
juridical personality, which does not fall within the constitutional prohibition in Article
XII, Section 16, notwithstanding the amendments to its charter. Not all corporations,
which are not government owned or controlled, are ipso facto to be considered private
corporations as there exists another distinct class of corporations or chartered institutions
which are otherwise known as public corporations. These corporations are treated by law
as agencies or instrumentalities of the government which are not subject to the tests of
ownership or control and economic viability but to different criteria relating to their
public purposes/interests or constitutional policies and objectives and their administrative
relationship to the government or any of its Departments or Offices.
Classification of Corporations Under Section 16,
Article XII of the Constitution on National
Economy and Patrimony

The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of cases,
insists that the Constitution recognizes only two classes of corporations: private
corporations under a general law, and government-owned or controlled corporations
created by special charters.
We strongly disagree. Section 16, Article XII should not be construed so as to
prohibit Congress from creating public corporations. In fact, Congress has enacted
numerous laws creating public corporations or government agencies or instrumentalities
vested with corporate powers. Moreover, Section 16, Article XII, which relates to

National Economy and Patrimony, could not have tied the hands of Congress in creating
public corporations to serve any of the constitutional policies or objectives.
In his dissent, Justice Carpio contends that this ponente introduces a totally
different species of corporation, which is neither a private corporation nor a government
owned or controlled corporation and, in so doing, is missing the fact that the BSP, which
was created as a non-stock, non-profit corporation, can only be either a private
corporation or a government owned or controlled corporation.
Note that in Boy Scouts of the Philippines v. National Labor Relations
Commission, the BSP, under its former charter, was regarded as both a government
owned or controlled corporation with original charter and a public corporation. The said
case pertinently stated:
While the BSP may be seen to be a mixed type of entity,
combining aspects of both public and private entities, we believe that
considering the character of its purposes and its functions, the statutory
designation of the BSP as "a public corporation" and the substantial
participation of the Government in the selection of members of the
National Executive Board of the BSP, the BSP, as presently constituted
under its charter, is a government-controlled corporation within the
meaning of Article IX (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that the
Administrative Code of 1987 designates the BSP as one of the attached
agencies of the Department of Education, Culture and Sports ("DECS").
An "agency of the Government" is defined as referring to any of the
various units of the Government including a department, bureau, office,
instrumentality, government-owned or -controlled corporation, or local
government or distinct unit therein. "Government instrumentality" is in
turn defined in the 1987 Administrative Code in the following manner:
Instrumentality - refers to any agency of the
National Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy usually through a charter. This term includes
regulatory agencies, chartered institutions and governmentowned or controlled corporations.
The same Code describes a "chartered institution" in the following

terms:
Chartered institution - refers to any agency
organized or operating under a special charter, and vested
by law with functions relating to specific constitutional
policies or objectives. This term includes the state
universities and colleges, and the monetary authority of the
State.
We believe that the BSP is appropriately regarded as "a
government instrumentality" under the 1987 Administrative Code.
It thus appears that the BSP may be regarded as both a
"government controlled corporation with an original charter" and as an
"instrumentality" of the Government within the meaning of Article IX (B)
(2) (1) of the Constitution. x x x.[55] (Emphases supplied.)

The existence of public or government corporate or juridical entities or chartered

institutions by legislative fiat distinct from private corporations and government owned
or controlled corporation is best exemplified by the 1987 Administrative Code cited
above, which we quote in part:
Sec. 2. General Terms Defined. Unless the specific words of the
text, or the context as a whole, or a particular statute, shall require a
different meaning:
xxxx
(10) "Instrumentality" refers to any agency of the National
Government, not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. This term includes regulatory
agencies, chartered institutions and government-owned or controlled
corporations.
xxxx
(12) "Chartered institution" refers to any agency organized or
operating under a special charter, and vested by law with functions relating
to specific constitutional policies or objectives. This term includes the
state universities and colleges and the monetary authority of the State.
(13) "Government-owned or controlled corporation" refers to any

agency organized as a stock or non-stock corporation, vested with

functions relating to public needs whether governmental or proprietary in
nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) per cent of its capital
stock: Provided, That government-owned or controlled corporations may
be further categorized by the Department of the Budget, the Civil Service
Commission, and the Commission on Audit for purposes of the exercise
and discharge of their respective powers, functions and responsibilities
with respect to such corporations.

Assuming for the sake of argument that the BSP ceases to be owned or controlled
by the government because of reduction of the number of representatives of the
government in the BSP Board, it does not follow that it also ceases to be a government
instrumentality as it still retains all the characteristics of the latter as an attached agency
of the DECS under the Administrative Code. Vesting corporate powers to an attached
agency or instrumentality of the government is not constitutionally prohibited and is
allowed by the above-mentioned provisions of the Civil Code and the 1987
Administrative Code.
Economic Viability and Ownership and Control
Tests Inapplicable to Public Corporations

As presently constituted, the BSP still remains an instrumentality of the national

government. It is a public corporation created by law for a public purpose, attached to the
DECS pursuant to its Charter and the Administrative Code of 1987. It is not a private
corporation which is required to be owned or controlled by the government and be
economically viable to justify its existence under a special law.

The dissent of Justice Carpio also submits that by recognizing a new class of
public corporation(s) created by special charter that will not be subject to the test of
economic viability, the constitutional provision will be circumvented.
However, a review of the Record of the 1986 Constitutional Convention reveals
the intent of the framers of the highest law of our land to distinguish between government
corporations performing governmental functions and corporations involved in business or

proprietary functions:
THE PRESIDENT. Commissioner Foz is recognized.
MR. FOZ. Madam President, I support the proposal to insert
ECONOMIC VIABILITY as one of the grounds for organizing
government corporations. x x x.
MR. OPLE. Madam President, the reason for this concern is really
that when the government creates a corporation, there is a sense in which
this corporation becomes exempt from the test of economic performance.
We know what happened in the past. If a government corporation loses,
then it makes its claim upon the taxpayers money through new equity
infusions from the government and what is always invoked is the common
good. x x x
Therefore, when we insert the phrase ECONOMIC VIABILITY
together with the common good, this becomes a restraint on future
enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. x x x.
xxxx
THE PRESIDENT. Commissioner Quesada is recognized.
MS. QUESADA. Madam President, may we be clarified by the
committee on what is meant by economic viability?
THE PRESIDENT. Please proceed.
MR. MONSOD. Economic viability normally is determined by
cost-benefit ratio that takes into consideration all benefits, including
economic external as well as internal benefits. These are what they call
externalities in economics, so that these are not strictly financial criteria.
Economic viability involves what we call economic returns or benefits of
the country that are not quantifiable in financial terms. x x x.
xxxx
MS. QUESADA. So, would this particular formulation now really
limit the entry of government corporations into activities engaged in by
corporations?
MR. MONSOD. Yes, because it is also consistent with the
economic philosophy that this Commission approved that there should be

minimum government participation and intervention in the economy.

MS. QUESDA. Sometimes this Commission would just refer to
Congress to provide the particular requirements when the government
would get into corporations. But this time around, we specifically
mentioned economic viability. x x x.
MR. VILLEGAS. Commissioner Ople will restate the reason for
his introducing that amendment.
MR. OPLE. I am obliged to repeat what I said earlier in moving for
this particular amendment jointly with Commissioner Foz. During the past
three decades, there had been a proliferation of government corporations,
very few of which have succeeded, and many of which are now earmarked
by the Presidential Reorganization Commission for liquidation because
they failed the economic test. x x x.
xxxx
MS. QUESADA. But would not the Commissioner say that the
reason why many of the government-owned or controlled corporations
failed to come up with the economic test is due to the management of
these corporations, and not the idea itself of government corporations? It is
a problem of efficiency and effectiveness of management of these
corporations which could be remedied, not by eliminating government
corporations or the idea of getting into state-owned corporations, but
improving management which our technocrats should be able to do, given
the training and the experience.
MR. OPLE. That is part of the economic viability, Madam
President.
MS. QUESADA. So, is the Commissioner saying then that the
Filipinos will benefit more if these government-controlled corporations
were given to private hands, and that there will be more goods and
services that will be affordable and within the reach of the ordinary
citizens?
MR. OPLE. Yes. There is nothing here, Madam President, that will
prevent the formation of a government corporation in accordance with a
special charter given by Congress. However, we are raising the standard a
little bit so that, in the future, corporations established by the government
will meet the test of the common good but within that framework we
should also build a certain standard of economic viability.
xxxx

THE PRESIDENT. Commissioner Padilla is recognized.

MR. PADILLA. This is an inquiry to the committee. With regard to
corporations created by a special charter for government-owned or
controlled corporations, will these be in the pioneer fields or in places
where the private enterprise does not or cannot enter? Or is this so general
that these government corporations can compete with private corporations
organized under a general law?
MR. MONSOD. Madam President, x x x. There are two types of
government corporations those that are involved in performing
governmental functions, like garbage disposal, Manila waterworks, and so
on; and those government corporations that are involved in business
functions. As we said earlier, there are two criteria that should be followed
for corporations that want to go into business. First is for government
corporations to first prove that they can be efficient in the areas of their
proper functions. This is one of the problems now because they go into all
kinds of activities but are not even efficient in their proper functions.
Secondly, they should not go into activities that the private sector can do
better.
MR. PADILLA. There is no question about corporations
performing governmental functions or functions that are impressed with
public interest. But the question is with regard to matters that are covered,
perhaps not exhaustively, by private enterprise. It seems that under this
provision the only qualification is economic viability and common good,
but shall government, through government-controlled corporations,
compete with private enterprise?
MR. MONSOD. No, Madam President. As we said, the
government should not engage in activities that private enterprise is
engaged in and can do better. x x x.[56] (Emphases supplied.)

Thus, the test of economic viability clearly does not apply to public corporations dealing
with governmental functions, to which category the BSP belongs. The discussion above
conveys the constitutional intent not to apply this constitutional ban on the creation of
public corporations where the economic viability test would be irrelevant. The said test
would only apply if the corporation is engaged in some economic activity or business
function for the government.
It is undisputed that the BSP performs functions that are impressed with public interest.
In fact, during the consideration of the Senate Bill that eventually became Republic Act

No. 7278, which amended the BSP Charter, one of the bills sponsors, Senator Joey Lina,
described the BSP as follows:
Senator Lina. Yes, I can only think of two organizations involving
the masses of our youth, Mr. President, that should be given this kind of a
privilege the Boy Scouts of the Philippines and the Girl Scouts of the
Philippines. Outside of these two groups, I do not think there are other
groups similarly situated.
The Boy Scouts of the Philippines has a long history of providing
value formation to our young, and considering how huge the population of
the young people is, at this point in time, and also considering the
importance of having an organization such as this that will inculcate moral
uprightness among the young people, and further considering that the
development of these young people at that tender age of seven to sixteen is
vital in the development of the country producing good citizens, I believe
that we can make an exception of the Boy Scouting movement of the
Philippines from this general prohibition against providing tax exemption
and privileges.[57]

Furthermore, this Court cannot agree with the dissenting opinion which equates the
changes introduced by Republic Act No. 7278 to the BSP Charter as clear manifestation
of the intent of Congress to return the BSP to the private sector. It was not the intent of
Congress in enacting Republic Act No. 7278 to give up all interests in this basic youth
organization, which has been its partner in forming responsible citizens for decades.
In fact, as may be seen in the deliberation of the House Bills that eventually resulted to
Republic Act No. 7278, Congress worked closely with the BSP to rejuvenate the
organization, to bring it back to its former glory reached under its original charter,
Commonwealth Act No. 111, and to correct the perceived ills introduced by the
amendments to its Charter under Presidential Decree No. 460. The BSP suffered from
low morale and decrease in number because the Secretaries of the different departments
in government who were too busy to attend the meetings of the BSPs National Executive
Board (the Board) sent representatives who, as it turned out, changed from meeting to
meeting. Thus, the Scouting Councils established in the provinces and cities were not in
touch with what was happening on the national level, but they were left to implement
what was decided by the Board.[58]
A portion of the legislators discussion is quoted below to clearly show their intent:

HON. DEL MAR. x x x I need not mention to you the value and
the tremendous good that the Boy Scout Movement has done not only for
the youth in particular but for the country in general. And that is why, if
we look around, our past and present national leaders, prominent men in
the various fields of endeavor, public servants in government offices, and
civic leaders in the communities all over the land, and not only in our
country but all over the world many if not most of them have at one time
or another been beneficiaries of the Scouting Movement. And so, it is
along this line, Mr. Chairman, that we would like to have the early
approval of this measure if only to pay back what we owe much to the
Scouting Movement. Now, going to the meat of the matter, Mr. Chairman,
if I may just the Scouting Movement was enacted into law in October 31,
1936 under Commonwealth Act No. 111. x x x [W]e were acknowledged
as the third biggest scouting organization in the world x x x. And to our
mind, Mr. Chairman, this erratic growth and this decrease in membership
[number] is because of the bad policy measures that were enunciated with
the enactment or promulgation by the President before of Presidential
Decree No. 460 which we feel is the culprit of the ills that is flagging the
Boy Scout Movement today. And so, this is specifically what we are
attacking, Mr. Chairman, the disenfranchisement of the National Council
in the election of the national board. x x x. And so, this is what we would
like to be appraised of by the officers of the Boy [Scouts] of the
Philippines whom we are also confident, have the best interest of the Boy
Scout Movement at heart and it is in this spirit, Mr. Chairman, that we see
no impediment towards working together, the Boy Scout of the Philippines
officers working together with the House of Representatives in coming out
with a measure that will put back the vigor and enthusiasm of the Boy
Scout Movement. x x x.[59] (Emphasis ours.)

The following is another excerpt from the discussion on the House version of the
bill, in the Committee on Government Enterprises:
HON. AQUINO: x x x Well, obviously, the two bills as well as the
previous laws that have created the Boy Scouts of the Philippines did not
provide for any direct government support by way of appropriation from
the national budget to support the activities of this organization. The point
here is, and at the same time they have been subjected to a governmental
intervention, which to their mind has been inimical to the objectives and to
the institution per se, that is why they are seeking legislative fiat to restore
back the original mandate that they had under Commonwealth Act 111.
Such having been the experience in the hands of government, meaning,
there has been negative interference on their part and inasmuch as their
mandate is coming from a legislative fiat, then shouldnt it be, this

rhetorical question, shouldnt it be better for this organization to seek a

mandate from, lets say, the government the Corporation Code of the
Philippines and register with the SEC as non-profit non-stock corporation
so that government intervention could be very very minimal. Maybe thats
a rhetorical question, they may or they may not answer, ano. I dont know
what would be the benefit of a charter or a mandate being provided for by
way of legislation versus a registration with the SEC under the
Corporation Code of the Philippines inasmuch as they dont get anything
from the government anyway insofar as direct funding. In fact, the only
thing that they got from government was intervention in their affairs.
Maybe we can solicit some commentary comments from the resource
persons. Incidentally, dont take that as an objection, Im not objecting. Im
all for the objectives of these two bills. It just occurred to me that since
you have had very bad experience in the hands of government and you
will always be open to such possible intervention even in the future as
long as you have a legislative mandate or your mandate or your charter
coming from legislative action.
xxxx
MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if
the Boy Scouts of the Philippines will be required to register with the
SEC. If we are registered with the SEC, there could be a danger of
proliferation of scout organization. Anybody can organize and then
register with the SEC. If there will be a proliferation of this, then the
organization will lose control of the entire organization. Another
disadvantage, Mr. Chairman, anybody can file a complaint in the SEC
against the Boy Scouts of the Philippines and the SEC may suspend the
operation or freeze the assets of the organization and hamper the operation
of the organization. I dont know, Mr. Chairman, how you look at it but
there could be a danger for anybody filing a complaint against the
organization in the SEC and the SEC might suspend the registration permit
of the organization and we will not be able to operate.
HON. AQUINO: Well, that I think would be a problem that will
not be exclusive to corporations registered with the SEC because even if
you are government corporation, court action may be taken against you in
other judicial bodies because the SEC is simply another quasi-judicial
body. But, I think, the first point would be very interesting, the first point
that you raised. In effect, what you are saying is that with the legislative
mandate creating your charter, in effect, you have been given some sort of
a franchise with this movement.
MR. ESCUDERO: Yes.
HON. AQUINO: Exclusive franchise of that movement?

MR. ESCUDERO: Yes.

HON. AQUINO: Well, thats very well taken so I will proceed with other
issues, Mr. Chairman. x x x.[60] (Emphases added.)

Therefore, even though the amended BSP charter did away with most of the
governmental presence in the BSP Board, this was done to more strongly promote the
BSPs objectives, which were not supported under Presidential Decree No. 460. The BSP
objectives, as pointed out earlier, are consistent with the public purpose of the promotion
of the well-being of the youth, the future leaders of the country. The amendments were
not done with the view of changing the character of the BSP into a privatized
corporation.The BSP remains an agency attached to a department of the government, the
DECS, and it was not at all stripped of its public character.
The ownership and control test is likewise irrelevant for a public corporation like the
BSP. To reiterate, the relationship of the BSP, an attached agency, to the government,
through the DECS, is defined in the Revised Administrative Code of 1987. The BSP
meets the minimum statutory requirement of an attached government agency as the
DECS Secretary sits at the BSP Board ex officio, thus facilitating the policy and program
coordination between the BSP and the DECS.
Requisites for Declaration of Unconstitutionality
Not Met in this Case
The dissenting opinion of Justice Carpio improperly raised the issue of
unconstitutionality of certain provisions of the BSP Charter. Even if the parties were
asked to Comment on the validity of the BSP charter by the Court, this alone does not
comply with the requisites for judicial review, which were clearly set forth in a recent
case:
When questions of constitutional significance are raised, the Court
can exercise its power of judicial review only if the following requisites
are present: (1) the existence of an actual and appropriate case; (2) the
existence of personal and substantial interest on the part of the party
raising the constitutional question; (3) recourse to judicial review is made
at the earliest opportunity; and (4) the constitutional question is the lis
mota of the case.[61] (Emphasis added.)

Thus, when it comes to the exercise of the power of judicial review, the constitutional
issue should be the very lis mota, or threshold issue, of the case, and that it should be
raised by either of the parties. These requirements would be ignored under the dissents
rather overreaching view of how this case should have been decided. True, it was the
Court that asked the parties to comment, but the Court cannot be the one to raise a
constitutional issue. Thus, the Court chooses to once more exhibit restraint in the exercise
of its power to pass upon the validity of a law.
Re: the COAs Jurisdiction
Regarding the COAs jurisdiction over the BSP, Section 8 of its amended charter
allows the BSP to receive contributions or donations from the government. Section 8
reads:
Section 8. Any donation or contribution which from time to time
may be made to the Boy Scouts of the Philippines by the Government or
any of its subdivisions, branches, offices, agencies or instrumentalities
shall be expended by the Executive Board in pursuance of this Act.

The sources of funds to maintain the BSP were identified before the House
Committee on Government Enterprises while the bill was being deliberated, and the
pertinent portion of the discussion is quoted below:
MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources
of funds of the organization. First, Mr. Chairman, the Boy Scouts of the
Philippines do not receive annual allotment from the government. The
organization has to raise its own funds through fund drives and fund
campaigns or fund raising activities. Aside from this, we have some
revenue producing projects in the organization that gives us funds to
support the operation. x x x From time to time, Mr. Chairman, when we
have special activities we request for assistance or financial assistance
from government agencies, from private business and corporations, but
this is only during special activities that the Boy Scouts of the Philippines
would conduct during the year. Otherwise, we have to raise our own funds
to support the organization.[62]

The nature of the funds of the BSP and the COAs audit jurisdiction were likewise

brought up in said congressional deliberations, to wit:

HON. AQUINO: x x x Insofar as this organization being a government
created organization, in fact, a government corporation classified as such,
are your funds or your finances subjected to the COA audit?
MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected.
We dont fall under the jurisdiction of the COA.
HON. AQUINO: All right, but before were you?
MR. ESCUDERO: No, Mr. Chairman.
MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111
was written by then Secretary Jorge Vargas and before and up to the
middle of the Martial Law years, the BSP was receiving a subsidy in the
form of an annual a one draw from the Sweepstakes. And, this was the
case also with the Girl Scouts at the Anti-TB, but then this was and the
Boy Scouts then because of this funding partly from government was
being subjected to audit in the contributions being made in the part of the
Sweepstakes. But this was removed later during the Martial Law years
with the creation of the Human Settlements Commission. So the situation
right now is that the Boy Scouts does not receive any funding from
government, but then in the case of the local councils and this legislative
charter, so to speak, enables the local councils even the national
headquarters in view of the provisions in the existing law to receive
donations from the government or any of its instrumentalities, which
would be difficult if the Boy Scouts is registered as a private corporation
with the Securities and Exchange Commission. Government bodies would
be estopped from making donations to the Boy Scouts, which at present is
not the case because there is the Boy Scouts charter, this Commonwealth
Act 111 as amended by PD 463.
xxxx
HON. AMATONG: Mr. Chairman, in connection with that.
THE CHAIRMAN: Yeah, Gentleman from Zamboanga.
HON. AMATONG: There is no auditing being made because theres no
money put in the organization, but how about donated funds to this
organization? What are the remedies of the donors of how will they know
how their money are being spent?
MR. ESCUDERO: May I answer, Mr. Chairman?

THE CHAIRMAN: Yes, gentleman.

MR. ESCUDERO: The Boy Scouts of the Philippines has an external
auditor and by the charter we are required to submit a financial report at
the end of each year to the National Executive Board. So all the funds
donated or otherwise is accounted for at the end of the year by our external
auditor. In this case the SGV.[63]

Historically, therefore, the BSP had been subjected to government audit in so far
as public funds had been infused thereto. However, this practice should not preclude the
exercise of the audit jurisdiction of COA, clearly set forth under the Constitution, which
pertinently provides:

Section 2. (1) The Commission on Audit shall have the power,

authority, and duty to examine, audit, and settle all accounts pertaining to
the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or
any of its subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with original charters, and
on a post-audit basis: (a) constitutional bodies, commissions and offices
that have been granted fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c) other government-owned
or controlled corporations with original charters and their subsidiaries; and
(d) such non-governmental entities receiving subsidy or equity, directly or
indirectly, from or through the Government, which are required by law of
the granting institution to submit to such audit as a condition of subsidy or
equity. x x x. [64]

Since the BSP, under its amended charter, continues to be a public corporation or
a government instrumentality, we come to the inevitable conclusion that it is subject to
the exercise by the COA of its audit jurisdiction in the manner consistent with the
provisions of the BSP Charter.
WHEREFORE, premises considered, the instant petition for prohibition is
DISMISSED.
SO ORDERED.

ERNESTO B. FRANCISCO, JR.and JOSE

MA. O. HIZON,
Petitioners,
- versus TOLL REGULATORY BOARD,
PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION,
MANILA NORTH TOLLWAYS
CORPORATION, BENPRES HOLDINGS
CORPORATION, FIRST PHILIPPINE
INFRASTRUCTURE DEVELOPMENT
CORPORATION, TOLLWAY
MANAGEMENT CORPORATION, PNCC
SKYWAY CORPORATION, CITRA
METRO MANILA TOLLWAYS
CORPORATION and HOPEWELL
CROWN INFRASTRUCTURE, INC.,
Respondents.
x-------------------------------------------x
HON. IMEE R. MARCOS, RONALDO B.
ZAMORA, CONSUMERS UNION OF
THE PHILIPPINES, INC., QUIRINO A.
MARQUINEZ, HON. LUIS A. ASISTIO,
HON. ERICO BASILIO A. FABIAN, HON.
RENATO KA RENE B. MAGTUBO, HON.
RODOLFO G. PLAZA, HON. ANTONIO
M. SERAPIO, HON. EMMANUEL JOEL J.
VILLANUEVA, HON. ANIBAN NG MGA
MANGGAGAWA SA AGRIKULTURA
(AMA), INC., ANIBAN NG MGA
MAGSASAKA, MANGINGISDA AT
MANGGAGAWA SA AGRIKULTURAKATIPUNAN, INC., KAISAHAN NG
MGA MAGSASAKA SA AGRIKULTURA,
INC., KILUSAN NG MANGAGAWANG
MAKABAYAN,
Petitioners,
- versus The REPUBLIC OF THE PHILIPPINES,
acting by and through the TOLL

G.R. No. 166910

Present:
CORONA, CJ,
CARPIO,
CARPIO-MORALES,*
VELASCO, JR.,
NACHURA,
LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,*
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO, JJ.

G.R. No. 169917

REGULATORY BOARD, MANILA

NORTH TOLLWAYS CORPORATION,
PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION, and
FIRST PHILIPPINE INFRASTRUCTURE
DEVELOPMENT CORP.,
Respondents.
x-------------------------------------------x
GISING KABATAAN MOVEMENT, INC.,
BARANGAY COUNCIL OF SAN
ANTONIO,MUNICIPALITY OF
SANPEDRO, LAGUNA [as Represented by
COUNCILOR CARLON G. AMBAYEC],
and YOUNG PROFESSIONALS AND
ENTREPRENEURS OF SAN PEDRO,
LAGUNA
Petitioners,
- versus THE REPUBLIC OF THE PHILIPPINES,
acting through the TOLL REGULATORY
BOARD (TRB), PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION
(PNCC),
Respondents.
x-------------------------------------------x
THE REPUBLIC OF THE PHILIPPINES,
represented by the TOLL REGULATORY
BOARD,
Petitioner,

G.R. No. 173630

- versus YOUNG PROFESSIONALS AND

ENTREPRENEURS OF SAN PEDRO,
LAGUNA,
Respondent.

G.R. No. 183599

Promulgated:
October 19, 2010
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
Before us are four petitions; the first three are special civil actions under Rule 65,
assailing and seeking to nullify certain statutory provisions, presidential actions and
implementing orders, toll operation-related contracts and issuances on the construction,
maintenance and operation of the major tollway systems in Luzon. The petitions likewise
seek to restrain and permanently prohibit the implementation of the allegedly illegal toll
fee rate hikes for the use of the North Luzon Expressway (NLEX), South Luzon
Expressway (SLEX) and the South Metro Manila Skyway (SMMS). The fourth, a
petition for review under Rule 45, seeks to annul and set aside the decision dated June 23,
2008 of the Regional Trial Court (RTC) of Pasig, in SCA No. 3138-PSG, enjoining the
original toll operating franchisee from collecting toll fees in the SLEX.
By Resolution of March 20, 2007, the Court ordered the consolidation of the first
three petitions, docketed as G.R. Nos. 166910, 169917 and 173630, respectively. The
fourth petition, G.R. No. 183599, would later be ordered consolidated with the earlier
three petitions.
The Facts
The antecedent facts are as follows
On March 31, 1977, then President Ferdinand E. Marcos issued Presidential
Decree No. (P.D.) 1112, authorizing the establishment of toll facilities on public
improvements.[1] This issuance, in its preamble, explicitly acknowledged the huge
financial requirements and the necessity of tapping the resources of the private sector to
implement the governments infrastructure programs. In order to attract private sector
involvement, P.D. 1112 allowed the collection of toll fees for the use of certain public
improvements that would allow a reasonable rate of return on investments. The same
decree created the Toll Regulatory Board (TRB) and invested it under Section 3 (a) (d)
and (e) with the power to enter, for the Republic, into contracts for the construction,

maintenance and operation of tollways, grant authority to operate a toll facility, issue
therefor the necessary Toll Operation Certificate (TOC) and fix initial toll rates, and, from
time to time, adjust the same after due notice and hearing.
On the same date, P.D. 1113 was issued, granting to the Philippine National
Construction Corporation (PNCC), then known as the Construction and Development
Corporation of the Philippines (CDCP), for a period of thirty years from May 1977 or up
to May 2007 a franchise to construct, maintain and operate toll facilities in the North
Luzon and South Luzon Expressways, with the right to collect toll fees at such rates as
the TRB may fix and/or authorize. Particularly, Section 1 of P.D. 1113 delineates the
coverage of the expressways from Balintawak, Caloocan City to Carmen, Rosales,
Pangasinan and from Nichols, Pasay City to Lucena, Quezon. And because the franchise
is not self-executing, as it was in fact made subject, under Section 3 of P.D. 1113, to such
conditions as may be imposed by the Board in an appropriate contract to be executed for
such purpose, TRB and PNCC signed in October 1977, a Toll Operation Agreement
(TOA) on the North Luzon and South Luzon Tollways, providing for the detailed terms
and conditions for the construction, maintenance and operation of the expressway.[2]
On December 22, 1983, P.D. 1894 was issued therein further granting PNCC a
franchise over the Metro Manila Expressway (MMEX), and the expanded and delineated
NLEX and SLEX. Particularly, PNCC was granted the right, privilege and authority to
construct, maintain and operate any and all such extensions, linkages or stretches,
together with the toll facilities appurtenant thereto, from any part of the North Luzon
Expressway, South Luzon Expressway and/or Metro Manila Expressway and/or to divert
the original route and change the original end-points of the North Luzon Expressway
and/or South Luzon Expressway as may be approved by the [TRB].[3] Under Section 2
of P.D. 1894, the franchise granted the [MMEX] and all extensions, linkages, stretches
and diversions after the approval of the decree that may be constructed after the approval
of this decree [on December 22, 1983] shall likewise have a term of thirty (30) years,
commencing from the date of completion of the project.
As expressly set out in P.D. 1113 and reiterated in P.D. 1894, PNCC may sell or
assign its franchise thereunder granted or cede the usufruct[4] thereof upon the
Presidents approval.[5] This same provision on franchise transfer and cession of
usufruct is likewise found in P.D. 1112.[6]
Then came the 1987 Constitution with its franchise provision.[7]
In 1993, the Government Corporate Counsel (GCC), acting on PNCCs request,

issued Opinion No. 224, s. 1993,[8] later affirmed by the Secretary of Justice,[9]
holding that PNCC may, subject to certain clearance and approval requirements, enter
into a joint venture (JV) agreement (JVA) with private entities without going into public
bidding in the selection of its JV partners. PNCCs query was evidently prompted by the
need to seek out alternative sources of financing for expanding and improving existing
expressways, and to link them to economic zones in the north and to the CALABARZON
area in the south.
MOU for the construction, rehabilitation
and expansion of expressways
On February 8, 1994, the Department of Public Works and Highways (DPWH),
TRB, PNCC, Benpres Holdings Corporation (Benpres) and First Philippine Holdings
Corporation (FPHC), among other private and government entities/agencies, executed a
Memorandum of Understanding (MOU) envisaged to open the door for the entry of
private capital in the rehabilitation, expansion (to Subic and Clark) and extension, as
flagship projects, of the expressways north of Manila, over which PNCC has a franchise.
To carry out their undertakings under the MOU, Benpres and FPHC formed, as their
infrastructure holding arm, the First Philippine Infrastructure and Development
Corporation (FPIDC).
Consequent to the MOU execution, PNCC entered into financial and/or technical
JVAs with private entities/investors for the toll operation of its franchised areas following
what may be considered as a standard pattern, viz.: (a) after a JVA is concluded and the
usual government approval of the assignment by PNCC of the usufruct in the franchise
under P.D. 1113, as amended, secured, a new JV company is specifically formed to
undertake a defined toll road project; (b) the Republic of the Philippines, through the
TRB, as grantor, PNCC, as operator, and the new corporation, as investor/concessionaire,
with its lender, as the case may be, then execute a Supplemental Toll Operation
Agreement (STOA) to implement the TOA previously issued; and (c) once the requisite
STOA approval is given, project prosecution starts and upon the completion of the toll
road project or of a divisible phase thereof, the TRB fixes or approves the initial toll rate
after which, it passes a board resolution prescribing the periodic toll rate adjustment.
The STOA defines the scope of the road project coverage, the terminal date of the
concession, and includes provisions on initial toll rate and a built-in formula for

adjustment of toll rates, investment recovery clauses and contract termination in the event
of the concessionaires, PNCCs or TRBs default, as the case may be.
The following events or transactions, involving the personalities as indicated,
transpired with respect to the following projects:
The South Metro Manila Skyway (SMMS)
(Buendia Bicutan elevated stretch) Project
PNCC entered into a JV partnership arrangement with P.T. Citra, an Indonesian
company, and created, for the SMMS project, the Citra Metro Manila Tollways
Corporation (CMMTC).
On November 27, 1995, TRB, PNCC and CMMTC executed a STOA for the
SMMS project (CITRA STOA). And on April 7, 1996, then President Fidel V. Ramos
approved the CITRA STOA.
Phase I of the SMMS project the Bicutan to Buendia elevated expressway stretch
was completed in December 1998, and the consequent initial toll rates for its use
implemented a month after. On November 26, 2004, the TRB passed Resolution No.
2004-53, approving the periodic toll rate adjustment for the SMMS.
The NLEX Expansion Project (Rehabilitated and Widened NLEX, Subic Expressway,
Circumferential Road C-5)
In reply to the query of the then TRB Chairman, the Department of Justice (DOJ)
issued DOJ Opinion No. 79, s. of 1994, echoing an earlier opinion of the GCC, that the
TRB can implement the NLEX expansion project through a JV scheme with private
investors possessing the requisite technical and financial capabilities.
On May 16, 1995, then President Ramos approved the assignment of PNCCs
usufructuary rights as franchise holder to a JV company to be formed by PNCC and
FPIDC.PNCC and FPIDC would later ink a JVA for the rehabilitation and modernization
of the NLEX referred in certain pleadings as the North Luzon Tollway project.[10] The
Manila North Tollways Corporation (MNTC) was formed for the purpose.
On April 30, 1998, the Republic, through the TRB, PNCC and MNTC, executed a

STOA for the North Luzon Tollway project (MNTC STOA) in which MNTC was
authorized, inter alia, to subcontract the operation and maintenance of the project,
provided that the majority of the outstanding shares of the contractor shall be owned by
MNTC. The MNTC STOA covers three phases comprising of ten segments, including the
rehabilitated and widened NLEX, the Subic Expressway and the circumferential Road C5.[11] The STOA is to be effective for thirty years, reckoned from the issuance of the
toll operation permit for the last completed phase or until December 31, 2030, whichever
is earlier. The Office of the President (OP) approved the STOA on June 15, 1998.
On August 2, 2000, pursuant to the MNTC STOA, the Tollways Management
Corporation (TMC)formerly known as the Manila North Tollways Operation and
Maintenance Corporationwas created to undertake the operation and maintenance of the
NLEX tollway facilities, interchanges and related works.
On January 27, 2005, the TRB issued Resolution No. 2005-04 approving the
initial authorized toll rates for the closed and flat toll systems applicable to the new
NLEX.
The South Luzon Expressway Project (Nichols to Lucena City)
For the SLEX expansion project, PNCC and Hopewell Holdings Limited (HHL),
as JV partners, executed a Memorandum of Agreement (MOA),[12] which eventually
led to the formation of a JV company Hopewell Crown Infrastructure, Inc. (HCII), now
MTD Manila Expressways, Inc., (MTDME). And pursuant to the PNCC-MTDME JVA,
the South Luzon Tollway Corporation (SLTC) and the Manila Toll Expressway Systems,
Inc. (MATES) were incorporated to undertake the financing, construction, operation and
maintenance of the resulting Project Toll Roads forming part of the SLEX. The toll road
projects are divisible toll sections or segments, each segment defined as to its starting and
end points and each with the corresponding distance coverage. The proposed JVA, as
later amended, between PNCC and MTDME was approved by the OP on June 30, 2000.
Eventually, or on February 1, 2006, a STOA[13] for the financing, design,
construction, lane expansion and maintenance of the Project Toll Roads (PTR) of the
rehabilitated and improved SLEX was executed by and among the Republic, PNCC,
SLTC, as investor, and MATES, as operator. To be precise, the PTRs, under the STOA,
comprise and contemplated the full rehabilitation and/or roadway widening of the

following existing toll roads or facilities: PTR 1 that portion of the tollway commencing
at the end of South MM Skyway to the Filinvest exit at Alabang (1-242 km); PTR 2 the
tollway from Alabang to Calamba, Laguna (27.28 km); PTR 3 the tollway from Calamba
to Sto. Tomas, Batangas (7.6 km) and PTR 4 the tollway from Sto. Tomas to Lucena City
(54.27 km).[14]
Under Clause 6.03 of the STOA, the Operator, after substantially completing a
TPR, shall file an application for a Toll Operation Permit over the relevant completed
TPR or segment, which shall include a request for a review and approval by the TRB of
the calculation of the new current authorized toll rate.
G.R. No. 166910
Petitioners Francisco and Hizon, as taxpayers and expressway users, seek to
nullify the various STOAs adverted to above and the corresponding TRB resolutions, i.e.
Res. Nos. 2004-53 and 2005-04, fixing initial rates and/or approving periodic toll rate
adjustments therefor. To the petitioners, the STOAs and the toll rate-fixing resolutions
violate the Constitution in that they veritably impose on the public the burden of
financing tollways by way of exorbitant fees and thus depriving the public of property
without due process.These STOAs are also alleged to be infirm as they effectively
awarded purported build-operate-transfer (BOT) projects without public bidding in
violation of the BOT Law (R.A. 6957, as amended by R.A. 7718).
Petitioners likewise assail the constitutionality of Sections 3 (a) and (d) of P.D.
1112 in relation to Section 8 (b) of P.D. 1894 insofar as they vested the TRB, on one
hand, toll operation awarding power while, on the other hand, granting it also the power
to issue, modify and promulgate toll rate charges. The TRB, so petitioners bemoan,
cannot be an awarding party of a TOA and, at the same time, be the regulator of the
tollway industry and an adjudicator of rate exactions disputes.
Additionally, petitioners also seek to nullify certain provisions of P.D. 1113 and
P.D. 1894, which uniformly grant the President the power to approve the transfer or
assignment of usufruct or the rights and privileges thereunder by the tollway operator to
third parties, particularly the transfer effected by PNCC to MNTC. As argued, the
authority to approve partakes of an exercise of legislative power under Article VI, Section

1 of the Constitution.[15]
In the meantime, or on April 8, 2010, the TRB issued a Certificate of Substantial
Completion[16] with respect to PTR 1 (Alabang-Filinvest stretch) and PTR 2 (AlabangCalamba segments) of SLEX, signifying the completion of the full
rehabilitation/expansion of both segments and the linkages/interchanges in between
pursuant to the requirements of the corresponding STOA. TRB on even date issued a Toll
Operation Permit in favor of MATES over said PTRs 1 and 2.[17] Accordingly, upon
due application, the TRB approved the publication of the toll rate matrix for PTRs 1 and
2, the rate to take effect on June 30, 2010.[18] The implementation of the published rate
would, however, be postponed to August 2010.
On July 5, 2010, petitioner Francisco filed a Supplemental Petition with prayer for
the issuance of a temporary restraining order (TRO) and/or status quo order focused on
the impending collection of what was perceived to be toll rate increases in the SLEX. The
assailed adjustments were made public in a TRB notice of toll rate increases for the
SLEX from Alabang to Calamba on June 6, 2010, and were supposed to have been
implemented on June 30, 2010. On August 13, 2010, the Court granted the desired TRO,
enjoining the respondents in the consolidated cases from implementing the toll rate
increases in the SLEX.
In their Consolidated Comment/Opposition to the Supplemental Petition,
respondents SLTC et al., aver that the disputed rates are actually initial and opening rates,
not an increase or adjustment of the prevailing rate, for the new expanded and
rehabilitated SLEX. In fine, the new toll rates are, per SLTC, for a new and upgraded
facility, i.e. the aforementioned Project Toll Roads 1 and 2 put up pursuant to the 2006
Republic-PNCC-SLTC-MATES STOA adverted to.
G.R. No. 169917
While they raise, for the most part, the same issues articulated in G.R. No.
166910, such as the public bidding requirement, the power of the President to approve the
assignment of PNCCs usufructuary rights to cover (as petitioners Imee R. Marcos, et al.,
would stress) even the assignment of the expressway from Balintawak to Tabang, the
virtual amendment and extension of a statutory franchise by way of administrative action
(e.g., the execution of a STOA or issuance of a TOC), petitioners in G.R. No.
169917some of them then and still are members of the House of Representatives have, as
their main focus, the North Luzon Tollway project and the agreements and devices
entered in relation therewith.

Petitioners also assail the MNTC STOA on the ground that it granted the lenders
(Asian Development Bank/World Bank) of MNTC, as project concessionaire, the
unrestricted rights to appoint a substitute entity to replace MNTC in case of an MNTC
Default before prepayment of the loans, while also granting said lenders, in appropriate
cases, the option to extend the concession or franchise for a period not exceeding fifty
years coinciding with the full payment of the loans.
G.R. No. 173630
Apart from those taken up in the other petitions for certiorari and prohibition,
petitioners, in G.R. No. 173630, whose members and constituents allegedly traverse
SLEX daily, aver that TRB ought to have applied the provisions of R.A. 6957 [BOT Law]
and R.A. 9184 [Government Procurement Reform Act], which require public bidding for
the prosecution of the SLEX project.
G.R. No. 183599
Civil Case SCA No. 3138-PSG before the RTC
On September 14, 2007, the Young Professionals and Entrepreneurs of San Pedro,
Laguna (YPES), one of the petitioners in G.R. No. 173630, filed before the RTC, Branch
155, in Pasig City, a special civil action for certiorari, etc., against the TRB, docketed as
SCA No. 3138-PSG, containing practically identical issues raised in G.R. No.
173630.Like its petition in G.R. No. 173630, YPES, before the RTC, assailed and sought
to nullify the April 27, 2007 TOC, which TRB issued to PNCC inasmuch as the TOC
worked to extend PNCCs tollway operation franchise for the SLEX. As YPES argued,
only the Congress can extend the term of PNCCs franchise which expired on May 1,
2007.
Ruling of the RTC in SCA No. 3138-PSG
By Decision[19] dated June 23, 2008, the RTC, for the main stated reason that
the authority to grant or renew franchises belongs only to Congress, granted YPES
petition, disposing as follows:
ACCORDINGLY, the instant Petition for Certiorari, Prohibition

and Mandamus is hereby GRANTED and the questioned Toll Operation

Certificate (TOC) covering the [SLEX] issued by respondent TRB in
April, 2007, is hereby ordered ANNULLED and SET ASIDE.
FURTHER, respondent PNCC is hereby immediately
PROHIBITED from collecting toll fess along the SLEX facilities as it no
longer has the power and authority to do so.
FINALLY, as mandated under Section 9 of PD No. 1113,
respondent PNCC is hereby COMMANDED to turn over without further
delay the physical assets and facilities of the SLEX including
improvements thereon, together with the equipment and appurtenances
directly related to their operations, without any cost, to the Government
through the Toll Regulatory Board x x x.[20]
Thus, the instant petition for review on certiorari under Rule 45, filed by the TRB
on pure questions of law, docketed as G.R. No. 183599.
In their separate comments, public and private respondents uniformly seek the
dismissal of the three special civil actions on the threshold issue of the absence of a
justiciable case and lack of locus standi on the part of the petitioners therein. Other
grounds raised range from the impropriety of certiorari to nullify toll operation
agreements; the inapplicability of the public bidding rules in the selection by PNCC of its
JV partners and the authority of the President to approve TOAs and the transfer of
usufructuary rights. PNCC argues, in esse, that its continuous toll operations did not
constitute an extension of its franchise, its authority to operate after the expiry date
thereof in May 2007 being based on the valid authority of TRB to issue TOC.
The Issues
The principal consolidated but interrelated issues tendered before the Court, most
of which with constitutional undertones, may be reduced into six (6) and formulated in
the following wise: first, whether or not an actual case or controversy exists and,
relevantly, whether petitioners in the first three petitions have locus standi; second,
whether the TRB is vested with the power and authority to grant what amounts to a
franchise over tollway facilities; third, corollary to the second, whether the TRB can enter
into TOAs and, at the same time, promulgate toll rates and rule on petitions for toll rate
adjustments; fourth, whether the President is duly authorized to approve contracts,
inclusive of assignment of contracts, entered into by the TRB relative to tollway

operations; fifth, whether the subject STOAs covering the NLEX, SLEX and SMMS and
their respective extensions, linkages, etc. are valid; sixth, whether a public bidding is
required or mandatory for these tollway projects.
Expressly prayed, if not subsumed, in the first three petitions, is to prohibit TRB
and its concessionaires from collecting toll fees along the Skyway and Luzon Tollways.
Preliminary Issues
Existence of an Actual Controversy, its Ripeness and
the Locus Standi to Sue
The power of judicial review can only be exercised in connection with a bona fide
controversy involving a statute, its implementation or a government action.[21] Withal,
courts will decline to pass upon constitutional issues through advisory opinions, bereft as
they are of authority to resolve hypothetical or moot questions.[22] The limitation on the
power of judicial review to actual cases and controversies defines the role assigned to the
judiciary in a tripartite allocation of power, to assure that the courts will not intrude into
areas committed to the other branches of government.[23]
In The Province of North Cotabato v. The Government of the Republic of the
Philippines Peace Panel on Ancestral Domain (GRP), the Court has expounded anew on
the concept of actual case or controversy and the requirement of ripeness for judicial
review, thus:
An actual case or controversy involves a conflict of legal rights, an
assertion of opposite legal claims, susceptible of judicial resolution as
distinguished from a hypothetical or abstract difference or dispute. There
must be a contrariety of legal rights x x x. The Court can decide the
constitutionality of an act x x x only when a proper case between opposing
parties is submitted for judicial determination.
Related to the requirement of an actual case or controversy is the
requirement of ripeness. A question is ripe for adjudication when the act
being challenged has had a direct adverse effect on the individual
challenging it. x x x [I]t is a prerequisite that something had then been
accomplished or performed by either branch before a court may come into
the picture, and the petitioner must allege the existence of an immediate or
threatened injury to itself as a result of the challenged action. He must
show that he has sustained or is immediately in danger of sustaining some
direct injury as a result of the act complained of.[24]

But even with the presence of an actual case or controversy, the Court may refuse
judicial review unless the constitutional question or the assailed illegal government act is
brought before it by a party who possesses what in Latin is technically called locus standi
or the standing to challenge it.[25] To have standing, one must establish that he has a
personal and substantial interest in the case such that he has sustained, or will sustain,
direct injury as a result of its enforcement.[26] Particularly, he must show that (1) he has
suffered some actual or threatened injury as a result of the allegedly illegal conduct of the
government; (2) the injury is fairly traceable to the challenged action; and (3) the injury is
likely to be redressed by a favorable action.[27]
Petitions for certiorari and prohibition are, as here, appropriate remedies to raise
constitutional issues and to review and/or prohibit or nullify, when proper, acts of
legislative and executive officials.[28] The present petitions allege that then President
Ramos had exercised vis--vis an assignment of franchise, a function legislative in
character. As alleged, too, the TRB, in the guise of entering into contracts or agreements
with PNCC and other juridical entities, virtually enlarged, modified to the core and/or
extended the statutory franchise of PNCC, thereby usurping a legislative prerogative. The
usurpation came in the form of executing the assailed STOAs and the issuance of TOCs.
Grave abuse of discretion is also laid on the doorstep of the TRB for its act of entering
into these same contracts or agreements without the required public bidding mandated by
law, specifically the BOT Law (R.A. 6957, as amended) and the Government
Procurement Reform Act (R.A. 9184).
In fine, the certiorari petitions impute on then President Ramos and the TRB, the
commission of acts that translate inter alia into usurpation of the congressional authority
to grant franchises and violation of extant statutes. The petitions make a prima facie case
for certiorari and prohibition; an actual case or controversy ripe for judicial review exists.
Verily, when an act of a branch of government is seriously alleged to have infringed the
Constitution, it becomes not only the right but in fact the duty of the judiciary to settle the
dispute. In doing so, the judiciary merely defends the sanctity of its duties and powers
under the Constitution.[29]
In any case, the rule on standing is a matter of procedural technicality, which may
be relaxed when the subject in issue or the legal question to be resolved is of
transcendental importance to the public.[30] Hence, even absent any direct injury to the
suitor, the Court can relax the application of legal standing or altogether set it aside for
non-traditional plaintiffs, like ordinary citizens, when the public interest so requires.[31]
There is no doubt that individual petitioners, Marcos, et al., in G.R. No. 169917, as then

members of the House of Representatives, possess the requisite legal standing since they
assail acts of the executive they perceive to injure the institution of Congress. On the
other hand, petitioners Francisco, Hizon, and the other petitioning associations, as
taxpayers and/or mere users of the tollways or representatives of such users, would
ordinarily not be clothed with the requisite standing. While this is so, the Court is wont to
presently relax the rule on locus standi owing primarily to the transcendental importance
and the paramount public interest involved in the implementation of the laws on the
Luzon tollways, a roadway complex used daily by hundreds of thousands of motorists.
What we said a century ago in Severino v. Governor General is just as apropos today:
When the relief is sought merely for the protection of private
rights, x x x [the relators] right must clearly appear. On the other hand,
when the question is one of public right and the object of the mandamus is
to procure the enforcement of a public duty, the people are regarded as the
real party in interest, and the relator at whose instigation the proceedings
are instituted need not show that he has any legal or special interest in the
result, it being sufficient to show that he is a citizen and as such interested
in the execution of the laws.[32] (Words in bracket and emphasis added.)
Accordingly, We take cognizance of the present case on account of its
transcendental importance to the public.
Second Issue: TRB Empowered to Grant Authority to Operate
Toll Facility /System
It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation to Section
4 of P.D. 1894 have invested the TRB with sufficient power to grant a qualified person or
entity with authority to construct, maintain, and operate a toll facility and to issue the
corresponding toll operating permit or TOC.
Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply provide the
power to grant authority to operate toll facilities:
Section 3. Powers and Duties of the Board. The Board shall have in
addition to its general powers of administration the following powers and
duties:
(a) Subject to the approval of the President of the Philippines, to enter into
contracts in behalf of the Republic of the Philippines with persons, natural
or juridical, for the construction, operation and maintenance of toll
facilities such as but not limited to national highways, roads, bridges, and

public thoroughfares. Said contract shall be open to citizens of the

Philippines and/or to corporations or associations qualified under the
Constitution and authorized by law to engage in toll operations;
xxxx
(e) To grant authority to operate a toll facility and to issue therefore the
necessary Toll Operation Certificate subject to such conditions as shall be
imposed by the Board including inter alia the following:
(1)

That the Operator shall desist from collecting toll upon the
expiration of the Toll Operation Certificate.

(2)

That the entire facility operated as a toll system including all

operation and maintenance equipment directly related thereto shall
be turned over to the government immediately upon the expiration
of the Toll Operation Certificate.

(3) That the toll operator shall not lease, transfer, grant the usufruct
of, sell or assign the rights or privileges acquired under the Toll
Operation Certificate to any person, firm, company, corporation or
other commercial or legal entity, nor merge with any other
company or corporation organized for the same purpose, without
the prior approval of the President of the Philippines. In the event
of any valid transfer of the Toll Operation Certificate, the
Transferee shall be subject to all the conditions, terms, restrictions
and limitations of this Decree as fully and completely and to the
same extent as if the Toll Operation Certificate has been granted to
the same person, firm, company, corporation or other commercial
or legal entity.
(4) That in time of war, rebellion, public peril, emergency, calamity,
disaster or disturbance of peace and order, the President of the
Philippines may cause the total or partial closing of the toll facility
or order to take over thereof by the Government without prejudice
to the payment of just compensation.
(5)

That no guarantee, Certificate of Indebtedness, collateral,

securities, or bonds shall be issued by any government agency or
government-owned or controlled corporation on any financing
program of the toll operator in connection with his undertaking
under the Toll Operation Certificate.

(6)

The Toll Operation Certificate may be amended, modified or

revoked whenever the public interest so requires.

(a)

The Board shall promulgate rules and regulations governing

the procedures for the grant of Toll Certificates. The rights and
privileges of a grantee under a Toll Operation Certificate shall
be defined by the Board.

(b) To issue rules and regulations to carry out the purposes of this
Decree.
SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and
supervision over the GRANTEE with respect to the Expressways, the toll
facilities necessarily appurtenant thereto and, subject to the provisions of
Section 8 and 9 hereof, the toll that the GRANTEE will charge the users
thereof.
By explicit provision of law, the TRB was given the power to grant administrative
franchise for toll facility projects.
The concerned petitioners would argue, however, that PNCCs [then CDCPs]
franchise, as toll operator, was granted via P.D. 1113, on the same day P.D. 1112, creating
the TRB, was issued. It is thus pointed out that P.D. 1112 could not have plausibly
granted the TRB with the power and jurisdiction to issue a similar franchise. Pushing the
point, they maintain that only Congress has, under the 1987 Constitution, the exclusive
prerogative to grant franchise to operate public utilities.
We are unable to agree with petitioners stance and their undue reliance on Article
XII, Section 11 of the Constitution, which states that:
SEC. 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires x x x.

The limiting thrust of the foregoing constitutional provision on the grant of

franchise or other forms of authorization to operate public utilities may, in context, be
stated as follows: (a) the grant shall be made only in favor of qualified Filipino citizens or

corporations; (b) Congress can impair the obligation of franchises, as contracts; and (c)
no such authorization shall be exclusive or exceed fifty years.
A franchise is basically a legislative grant of a special privilege to a person.[33]
Particularly, the term, franchise, includes not only authorizations issuing directly from
Congress in the form of statute, but also those granted by administrative agencies to
which the power to grant franchise has been delegated by Congress.[34] The power to
authorize and control a public utility is admittedly a prerogative that stems from the
Legislature. Any suggestion, however, that only Congress has the authority to grant a
public utility franchise is less than accurate. As stressed in Albano v. Reyesa case decided
under the aegis of the 1987 Constitutionthere is nothing in the Constitution remotely
indicating the necessity of a congressional franchise before each and every public utility
may operate, thus:
That the Constitution provides x x x that the issuance of a
franchise, certificate or other form of authorization for the operation of a
public utility shall be subject to amendment, alteration or repeal by
Congress does not necessarily imply x x x that only Congress has the
power to grant such authorization. Our statute books are replete with laws
granting specified agencies in the Executive Branch the power to issue
such authorization for certain classes of public utilities.[35] (Emphasis
ours.)
In such a case, therefore, a special franchise directly emanating from Congress is
not necessary if the law already specifically authorizes an administrative body to grant a
franchise or to award a contract.[36] This is the same view espoused by the Secretary of
Justice in his opinion dated January 9, 2006, when he stated:
That the administrative agencies may be vested with the authority
to grant administrative franchises or concessions over the operation of
public utilities under their respective jurisdiction and regulation, without
need of the grant of a separate legislative franchise, has been upheld by the
Supreme Court x x x.[37]
Under the 1987 Constitution, Congress has an explicit authority to grant a public
utility franchise. However, it may validly delegate its legislative authority, under the
power of subordinate legislation,[38] to issue franchises of certain public utilities to
some administrative agencies. In Kilusang Mayo Uno Labor Center v. Garcia, Jr., We
explained the reason for the validity of subordinate legislation, thus:
Such delegation of legislative power to an administrative agency is

permitted in order to adapt to the increasing complexity of modern life. As

subjects for governmental regulation multiply, so does the difficulty of
administering the laws. Hence, specialization even in legislation has
become necessary.[39] (Emphasis ours.)

As aptly pointed out by the TRB and other private respondents, the Land
Transportation Franchising and Regulatory Board (LTFRB), the Civil Aeronautics Board
(CAB), the National Telecommunications Commission (NTC), and the Philippine Ports
Authority (PPA), to name a few, have been such delegates. The TRB may very well be
added to the growing list, having been statutorily endowed, as earlier indicated, the power
to grant to qualified persons, authority to construct road projects and operate thereon toll
facilities. Such grant, as evidenced by the corresponding TOC or set out in a TOA, may
be amended, modified, or revoked [by the TRB] whenever the public interest so requires.
[40]
In Philippine Airlines, Inc. v. Civil Aeronautics Board,[41] the Court reiterated
its holding in Albano that the CAB, like the PPA, has sufficient statutory powers under
R.A. 776 to issue a Certificate of Public Convenience and Necessity, or Temporary
Operating Permit to a domestic air transport operator who, although not possessing a
legislative franchise, meets all the other requirements prescribed by law. We held therein
that there is nothing in the law nor in the Constitution which indicates that a legislative
franchise is an indispensable requirement for an entity to operate as a domestic air
transport operator.[42] We further explicated:
Congress has granted certain administrative agencies the power to
grant licenses for, or to authorize the operation of certain public utilities.
With the growing complexity of modern life, the multiplication of the
subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency towards the
delegation of greater powers by the legislature, and towards the approval
of the practice by the courts. It is generally recognized that a franchise
may be derived indirectly from the state through a duly designated agency,
and to this extent, even the power to grant franchises has frequently been
delegated, even to agencies other than those of a legislative nature. In
pursuance of this, it has been held that privileges conferred by grant by
local authorities as agents for the state constitute as much a legislative
franchise as though the grant had been made by an act of the Legislature.
[43] (Emphasis ours.)
The validity of the delegation by Congress of its franchising prerogative is beyond

cavil. So it was that in Tatad v. Secretary of the Department of Energy,[44] We again

ruled that the delegation of legislative power to administrative agencies is valid. In the
instant case, the certiorari petitioners assume and harp on the lack of authority of PNCC
to continue with its NLEX, SLEX, MMEX operations, in joint venture with private
investors, after the lapse of its P.D. 1113 franchise. None of these petitioners seemed to
have taken due stock of and appreciated the valid delegation of the appropriate power to
TRB under P.D. 1112, as enlarged in P.D. 1894. To be sure, a franchise may be derived
indirectly from the state through a duly designated agency, and to this extent, the power
to grant franchises has frequently been delegated, even to agencies other than those of a
legislative nature.[45] Consequently, it has been held that privileges conferred by grant
by administrative agencies as agents for the state constitute as much a legislative
franchise as though the grant had been made by an act of the Legislature.[46]

While it may be, as held in Strategic Alliance Development Corporation v.

Radstock Securities Limited,[47] that PNCCs P.D. 1113 franchise had already expired
effective May 1, 2007, this fact of expiration did not, however, carry with it the
cancellation of PNCCs authority and that of its JV partners granted under P.D. 1112 in
relation to Section 1 of P.D. 1894 to construct, operate and maintain any and all such
extensions, linkages or stretches, together with the toll facilities appurtenant thereto, from
any part of the North Luzon Expressway, South Luzon Expressway and/or Metro Manila
Expressway and/or to divert the original route and change the original end-points of the
[NLEX]and/or [SLEX] as may be approved by the [TRB]. And to highlight the point, the
succeeding Section 2 of P.D. 1894 specifically provides that the franchise for the
extension and toll road projects constructed after the approval of P.D. 1894 shall be thirty
years, counted from project completion. Indeed, prior to the expiration of PNCCs original
franchise in May 2007, the TRB, in the exercise of its special powers under P.D. 1112,
signed supplemental TOAs with PNCC and its JV partners. These STOAs covered the
expansion and rehabilitation of NLEX and SLEX, as the case may be, and/or the
construction, operation and maintenance of toll road projects contemplated in P.D.1894.
And there can be no denying that the corresponding toll operation permits have been
issued.
In fine, the STOAs[48] TRB entered with PNCC and its JV partners had the
effect of granting authorities to construct, operate and maintain toll facilities, but with the
injection of additional private sector investments consistent with the intent of P.D. Nos.
1112, 1113 and 1894.[49] The execution of these STOAs came in 1995, 1998 and 2006,
or before the expiration of PNCCs original franchise on May 1, 2007. In accordance with
applicable laws, these transactions have actually been authorized and approved by the

President of the Philippines.[50] And as a measure to ensure the legality of the said
transactions and in line with due diligence requirements, a review thereof was secured
from the GCC and the DOJ, prior to their execution.
Inasmuch as its charter empowered the TRB to authorize the PNCC and like
entities to maintain and operate toll facilities, it may be stated as a corollary that the TRB,
subject to certain qualifications, infra, can alter the conditions of such authorization. Well
settled is the rule that a legislative franchise cannot be modified or amended by an
administrative body with general delegated powers to grant authorities or franchises.
However, in the instant case, the law granting a direct franchise to PNCC[51] evidently
and specifically conferred upon the TRB the power to impose conditions in an
appropriate contract.[52] And to reiterate, Section 3 of P.D. 1113 provides that [t]his
[PNCC] franchise is granted subject to such conditions as may be imposed by the [TRB]
in an appropriate contract to be executed for this purpose, and with the understanding and
upon the condition that it shall be subject to amendment, alteration or repeal when public
interest so requires.[53] A similarly worded proviso is found in Section 6 of P.D. 1894.
It is in this light that the TRB entered into the subject STOAs in order to allow the
infusion of additional investments in the subject infrastructure projects. Prior to the
expiration of PNCCs franchise on May 1, 2007, the STOAs merely imposed additional
conditionalities, or as aptly pointed out by SLTC et al., obviously having in mind par.
16.06 of its STOA with TRB,[54] served as supplement, to the existing TOA of PNCC
with TRB. We have carefully gone over the different STOAs and discovered that the
tollway projects covered thereby were all undertaken under the P.D. 1113 franchise of
PNCC. And it cannot be over-emphasized that the respective STOAs of MNTC and
SLTC each contain provisions addressing the eventual expiration of PNCCs P.D. 1113
franchise and authorizing, thru the issuance by the TRB of a TOC, the implementation of
a given toll project even after May 1, 2007. Thus:
MNTC STOA
2.6 CONCESSION PERIOD. In order to sustain the financial
viability and integrity of the Project, GRANTOR [TRB] hereby grants
MNTC the CONCESSION for the PROJECT ROADS for a period
commencing upon the date that this [STOA] comes into effect under
Clause 4.1 until 31 December 2030 or thirty years after the issuance of the
corresponding TOLL OPERATION PERMIT for the last completed phase.
Accordingly, unless the PNCC FRANCHISE is further extended beyond
its expiry on 01 May 2007, GRANTOR undertakes to issue the necessary
[TOC] for the rehabilitated and refurbished [NLEX] six months prior to

the expiry of the PNCC FRANCHISE on 01 May 2007.

SLTC STOA
2.03 Authority of Investor and Operator to Undertake the Project
(1)

The GRANTOR [TRB] has determined that the Project Toll

Roads are within the existing SLEX and are thus covered by the
PNCC Franchise that is due to expire on May 1, 2007. PNCC has
committed to exert its best efforts to obtain an extension x x x It is
understood and agreed that in the event the PNCC Franchise is not
renewed beyond the said expiry date, this [STOA] and the
Concession granted x x x will stand in place of the PNCC
Franchise and serve as a new concession, or authority, pursuant to
Section 3 (a) of the TRB Charter, for the Investor to undertake the
Project and for the Operator to Operate and Maintain the Project
Toll Roads immediately upon the expiration of the PNCC
Franchise, without need of the execution x x x of any other
document to effect the same.

(2) x x x in the event it is subsequently decreed by competent authority

that the issuance by the Grantor of a [TOC] is necessary x x x the
Grantor shall x x x cause the TRB x x x to issue such [TOC] in
favor of the Operator, embodying the terms and conditions of this
Agreement.

The foregoing notwithstanding, there are to be sure certain aspects in PNCCs

legislative franchise beyond the altering reach of TRB. We refer to the coverage area of
the tollways and the expiry date of PNCCs original franchise, which is May 1, 2007, as
expressly stated under Sections 1 and 2 of P.D. 1894, respectively. The fact that these two
items were specifically and expressly defined by law, i.e. P.D. 1113, indicates an intention
that any alteration, modification or repeal thereof should only be done through the same
medium. We said as much in Radstock, thus: [T]he term of the x x x franchise, which is
30 years from 1 May 1977, shall remain the same, as expressly provided in the first
sentence of x x x Section 2 of P.D. 1894.[55] It is likewise worth noting what We further
held in that case:
The TRB does not have the power to give back to PNCC the toll
assets and facilities which were automatically turned over to the
Government, by operation of law, upon the expiration of the franchise of
the PNCC on 1 May 2007. Whatever power the TRB may have to grant
authority to operate a toll facility or to issue a [TOC], such power does not

obviously include the authority to transfer back to PNCC ownership of

National Government assets, like the toll assets and facilities, which have
become National Government property upon the expiry of PNCCs
franchise x x x.[56] (Emphasis in the original.)
Verily, upon the expiration of PNCCs legislative franchise on May 1, 2007, the
new authorities to construct, maintain and operate the subject tollways and toll facilities
granted by the TRB pursuant to the validly executed STOAs and TOCs, shall begin to
operate and be treated as administrative franchises or authorities. Pursuant to Section 3
(e) P.D. 1112, TRB possesses the power and duty, inter alia to:
x x x grant authority to operate a toll facility and to issue therefore the
necessary Toll Operation Certificate subject to such conditions as shall be
imposed by the [TRB] including inter alia x x x.
This is likewise consistent with the position of the Secretary of Justice in Opinion
No. 122 on November 24, 1995,[57] thus:
TRB has no authority to extend the legislative franchise of PNCC over the
existing NSLE (North and South Luzon Expressways). However, TRB is
not precluded under Section 3 (e) of P.D. No. 1112 (TRB Charter) to grant
PNCC and its joint venture partner the authority to operate the existing toll
facility of the NSLE and to issue therefore the necessary Toll Operation
Certificate x x x.
It should be noted that the existing franchise of PNCC over the NSLE,
which will expire on May 1, 2007, gives it the right, privilege and
authority to construct, maintain and operate the NSLE.The Toll Operation
Certificate which TRB may issue to the PNCC and its joint venture partner
after the expiration of its franchise on May 1, 2007 is an entirely new
authorization, this time for the operation and maintenance of the NSLE x x
x. In other words, the right of PNCC and its joint venture partner, after
May 7, 2007 [sic] to operate and maintain the existing NSLE will no
longer be founded on its legislative franchise which is not thereby
extended, but on the new authorization to be granted by the TRB pursuant
to Section 3 (e), above quoted, of P.D. No. 1112. (Emphasis ours.)

The same opinion was thereafter made by the Secretary of Justice on January 9,
2006, in Opinion No. 1,[58] stating that:
The existing franchise of PNCC over the NSLE, which will expire
on May 1, 2007, gives it the right, privilege and authority to construct,

maintain and operate the NSLE. The Toll Operation Certificate which the
TRB may issue to the PNCC and its joint venture partner after the
expiration of its franchise on May 1, 2007 is an entirely new authorization,
this time for the operation and maintenance of the NSLE. [T]he right of
PNCC and its joint venture partner, after May 1, 2007, to operate and
maintain the existing NSLE will no longer be founded on its legislative
franchise which is not thereby extended, but on the new authorization to
be granted by the TRB pursuant to Section 3 (e) of PD No. 1112.
It appears therefore, that the effect of the STOA is not to extend the
Franchise of PNCC, but rather, to grant a new Concession over the SLEX
Project and the OMCo., entities which are separate and distinct from
PNCC. While initially, the authority of SLTC and OMCo. to enter into the
STOA with the TRB and thereby become grantees of the Concession, will
stem from and be based on the JVA and the assignment by PNCC to the
OMCo. of the Usufruct in the Franchise, we submit that upon the
execution by SLTC and the TRB of the STOA, the right to the Concession
will emanate from the STOA itself and from the authority of the TRB
under Section 3 (a) of the TRB Charter. Such being the case, the expiration
of the Franchise on 1 May 2007, since such Concession is an entirely new
and distinct concession from the Franchise and is, as stated, granted to
entities other than PNCC.
Finally, with regards (sic) the authority of the TRB this Office in
Secretary of Justice Opinion No. 92, s. 2000, stated that:
Suffice it to say that official acts of the President
enjoy full faith and confidence of the Government of the
Republic of the Philippines which he represents.
Furthermore, considering that the queries raised herein
relates to the exercise by the TRB of its regulatory powers
over toll road project, the same falls squarely within the
exclusive jurisdiction of TRB pursuant to P.D. No. 1112.
Consequently, it is, therefore, solely within TRBs
prerogative and determination as to what rule shall govern
and is made applicable to a specific toll road project
proposal.
The STOA is an explicit grant of the Concession by
the Republic of the Philippines, through the TRB pursuant
to P.D. (No.) 1112 and as approved by the President xxx.
The foregoing grant is in full accord with the provisions of
P.D. (No.) 1112 which authorizes TRB to enter into
contracts on behalf of the Republic of the Philippines for
the construction, operation and maintenance of toll
facilities. Such being the case, we opine that no other legal

requirement is necessary to make the STOA effective of to

confirm MNTCs (In this case, SLTC and the OMCO) rights
and privileges granted therein. (Emphasis in the original.)
Considering, however, that all toll assets and facilities pertaining to PNCC
pursuant to its P.D. 1113 franchise are deemed to have already been turned over to the
National Government on May 1, 2007,[59] whatever participation that PNCC may have
in the new authorities to construct, maintain and operate the subject tollways, shall be
limited to doing the same in trust for the National Government. In Radstock, the Court
held that [w]ith the expiration of PNCCs franchise, [its] assets and facilities were
automatically turned over, by operation of law, to the government at no cost.[60] The
Court went on further to state that the Governments ownership of PNCCs toll assets
inevitably resulted in its owning too of the toll fees and the net income derived, after May
1, 2007, from the toll assets and facilities.[61] But as We have earlier discussed, the
tollways and toll facilities should remain functioning in accordance with the validly
executed STOAs and TOCs. However, PNCCs assets and facilities, or, in short, its very
share/participation in the JVAs and the STOAs, inclusive of its percentage share in the
toll fees collected by the JV companies currently operating the tollways shall likewise
automatically accrue to the Government.
In fine, petitioners claim about PNCCs franchise being amenable to an
amendment only by an act of Congress, or, what practically amounts to the same thing,
that the TRB is without authority at all to modify the terms and conditions of PNCCs
franchise, i.e. by amending its TOA/TOC, has to be rejected. Their lament then that the
TRB, through the instrumentality of mere contracts and an administrative operating
certificate, or STOAs and TOC, to be precise, effectively, but invalidly amended PNCC
legislative franchise, are untenable. For, the bottom line is, the TRB has, through the
interplay of the pertinent provisions of P.D. Nos. 1112, 1113 and 1894, the power to grant
the authority to construct and operate toll road projects and toll facilities by way of a
TOA and the corresponding TOC. What is otherwise a legislative power to grant or renew
a franchise is not usurped by the issuance by the TRB of a TOC. But to emphasize, the
case of the TRB is quite peculiarly unique as the special law conferring the legislative
franchise likewise vested the TRB with the power to impose conditions on the franchise,
albeit in a limited sense, by excluding from the investiture the power to amend or modify
the stated lifetime of the franchise, its coverage and the ownership arrangement of the toll
assets following the expiration of the legislative franchise.[62]

At this juncture, the Court wishes to express the observation that P.D. Nos. 1112,
1113 and 1894, as couched and considered as a package, very well endowed the TRB
with extraordinary powers. For, subject to well-defined limitations and approval
requirements, the TRB can, by way of STOAs, allow and authorize, as it has allowed and
authorized, a legislative franchisee, PNCC, to share its concession with another entity or
JV partners, the authorization effectively covering periods beyond May 2007. However,
this unpalatable reality, a leftover of the martial law regime, presents issues on the merits
and the wisdom of the economic programs, which properly belong to the legislature or
the executive to address. The TRB is not precluded from granting PNCC and its joint
venture partners authority, through a TOC for a period following the term of the proposed
SMMS, with the said TOC serving as an entirely new authorization upon the expiration
of PNCCs franchise on May 1, 2007. In short, after May 1, 2007, the operation and
maintenance of the NLEX and the other subject tollways will no longer be founded on
P.D. 1113 or portions of P.D. 1894 (PNCCs original franchise) but on an entirely new
authorization, i.e. a TOC, granted by the TRB pursuant to its statutory authority under
Sections 3 (a) and (e) of P.D. 1112.
Likewise needing no extended belaboring, in the light of the foregoing
dispositions, is the untenable holding of the RTC in SCA No. 3138-PSG that the TRB is
without power to issue a TOC to PNCC, amend or renew its authority over the SLEX
tollways without separate legislative enactment. And lest it be overlooked, the TRB may
validly issue an entirely new authorization to a JV company after the lapse of PNCCs
franchise under P.D. 1113. Its thirty-year concession under P.D. 1894, however, does not
have the quality of definiteness as to its start, as by the terms of the issuance, it
commences and is to be counted from the date of approval of the project, the term project
obviously referring to Metro Manila Expressways and all extensions, linkages, stretches
and diversions refurbishing and rehabilitation of the existing NLEX and SLEX
constructed after the approval of the decree in December 1983. The suggestion, therefore,
of the petitioners in G.R. No. 169917, citing a 1989 Court of Appeals (CA) decision in
CA-G.R. 13235 (Republic v. Guerrero, et al.), that the Balintawak to Tabang portion of
the expressway no longer forms part of PNCCs franchise and, therefore, PNCC is without
any right to assign the same to MNTC via a JVA, is specious. Firstly, in its Decision[63]
in G.R. No. 89557, a certiorari proceeding commenced by PNCC to nullify the CA
decision adverted to, the Court approved a compromise agreement, which referred to (1)

the PNCCs authority to collect toll and maintenance fees; and (2) the supervision,
approval and control by the DPWH[64] of the construction of additional facilities, on
the questioned portion of the NLEX.[65] And still in another Decision,[66] the Court
ruled that the Balintawak to Tabang stretch was recognized as part of the franchise of, or
otherwise restored as toll facilities to be operated by x x x PNCC.[67] Once stamped
with judicial imprimatur, and unless amended, modified or revoked by the parties, a
compromise agreement becomes more than a mere binding contract; as thus sanctioned,
the agreement constitutes the courts determination of the controversy, enjoining the
parties to faithfully comply thereto.[68] Verily, like any other judgment, it has the effect
and authority of res judicata.[69]
At any rate, the PNCC was likewise granted temporary or interim authority by the
TRB to operate the SLEX,[70] to ensure the continued development, operations and
progress of the projects. We have ruled in Oroport Cargohandling Services, Inc. v.
Phividec Industrial Authority that an administrative agency vested by law with the power
to grant franchises or authority to operate can validly grant the same in the interim when
it is necessary, temporary and beneficial to the public.[71] The grant by the TRB to
PNCC as interim operator of the SLEX was certainly intended to guarantee the continued
operation of the said tollway facility, and to ensure the want of any delay and
inconvenience to the motoring public.
All given, the cited CA holding is not a binding precedent. The time limitation on
PNCCs franchise under either P.D. 1113 or P.D. 1894 does not detract from or diminish
the TRBs delegated authority under P.D. 1112 to enter into separate toll concessions apart
and distinct from PNCCs original legislative franchise.
Third Issue: TRBs Power to Enter into Contracts; Issue,
Modify And Promulgate Toll Rates; and to Rule on Petitions
Relative to Toll Rates Level and Increases Valid
The petitioners in the special civil actions cases would have the Court declare as
invalid (a) Section 3 (a) and (d) of P.D. 1112 (which accord the TRB, on one hand, the
power to enter into contracts for the construction, and operation of toll facilities, while,
on the other hand, granting it the power to issue and promulgate toll rates) and (b) Section
8 (b) of P.D. 1894 (granting TRB adjudicatory jurisdiction over matters involving toll rate
movements). As submitted, granting the TRB the power to award toll contracts is

inconsistent with its quasi-judicial function of adjudicating petitions for initial toll and
periodic toll rate adjustments. There cannot, so petitioners would postulate, be
impartiality in such a situation.
The assailed provisions of P.D. 1112 and P.D. 1894 read:
P.D. 1112
Section 3. Powers and Duties of the Board. The Board shall have in
addition to its general powers of administration the following powers and
duties:
(a) Subject to the approval of the President of the Philippines, to enter into
contracts in behalf of the Republic of the Philippines with persons, natural
or juridical, for the construction, operation and maintenance of toll
facilities such as but not limited to national highways, roads, bridges, and
public thoroughfares. Said contract shall be open to citizens of the
Philippines and/or to corporations or associations qualified under the
Constitution and authorized by law to engage in toll operations;
(d) Issue, modify and promulgate from time to time the rates of toll that
will be charged the direct users of toll facilities and upon notice and
hearing, to approve or disapprove petitions for the increase thereof.
Decisions of the Board on petitions for the increase of toll rate shall be
appealable to the Office of the President within ten (10) days from the
promulgation thereof. Such appeal shall not suspend the imposition of the
new rates, provided however, that pending the resolution of the appeal, the
petitioner for increased rates in such case shall deposit in a trust fund such
amounts as may be necessary to reimburse toll payers affected in case a
reversal of the decision. (Emphasis ours.)
P.D. 1894
SECTION 8. x x x
(b) For the Metro Manila Expressway and such extensions,
linkages, stretches and diversions of the Expressways which may
henceforth be constructed, maintained and operated by the GRANTEE, the
GRANTEE shall collect toll at such rates as shall initially be approved by
the Toll Regulatory Board. The Toll Regulatory Board shall have the
authority to approve such initial toll rates without the necessity of any
notice and hearing, except as provided in the immediately succeeding
paragraph of this Section. For such purpose, the GRANTEE shall submit
for the approval of the Toll Regulatory Board the toll proposed to be
charged the users. After approval of the toll rate(s) by the Toll Regulatory

Board and publication thereof by the GRANTEE once in a newspaper of

general circulation, the toll shall immediately be enforceable and
collectible upon opening of the expressway to traffic use.
Any interested Expressways users shall have the right to file,
within a period of ninety (90) days after the date of publication of the
initial toll rate, a petition with the Toll Regulatory Board for a review of
the initial toll rate; provided, however, that the filing of such petition and
the pendency of the resolution thereof shall not suspend the enforceability
and collection of the toll in question. The Toll Regulatory Board, at a
public hearing called for the purpose after due notice, shall then conduct a
review of the initial toll shall be appealable (sic) to the Office of the
President within ten (10) days from the promulgation thereof. The
GRANTEE may be required to post a bond in such amount and from such
surety or sureties and under such terms and conditions as the Toll
Regulatory Board shall fix in case of any petition for review of, or appeal
from, decisions of the Toll Regulatory Board.
In case it is finally determined, after a review by the Toll
Regulatory Board or appeal therefrom, that the GRANTEE is not entitled,
in whole or in part, to the initial toll, the GRANTEE shall deposit in the
escrow account the amount collected under the approved initial toll fee
and such amount shall be refunded to Expressways users who had paid
said toll in accordance with the procedure as may be prescribed or
promulgated by the Toll Regulatory Board. (Emphasis ours.)
The petitioners are indulging in gratuitous, if not unfair, conclusion as to the
capacity of the TRB to act as a fair and objective tribunal on matters of toll fee fixing.
Administrative bodies have expertise in specific matters within the purview of
their respective jurisdictions. Accordingly, the law concedes to them the power to
promulgate implementing rules and regulations (IRR) to carry out declared statutory
policies provided that the IRR conforms to the terms and standards prescribed by that
statute.[72]
The Court does not perceive an irreconcilable clash in the enumerated TRBs
statutory powers, such that the exercise of one negates another. The ascription of
impartiality on the part of the TRB cannot, under the premises, be accorded cogency.
Petitioners have not shown that the TRB lacks the expertise, competence and capacity to
implement its mandate of balancing the interests of the toll-paying motoring public and
the imperative of allowing the concessionaires to recoup their investment with reasonable

profits. As it were, Section 9 of P.D. 1894 provides a parametric formula for adjustment
of toll rates that takes into account the Peso-US Dollar exchange rate, interest rate and
construction materials price index, among other verifiable and quantifiable variables.
While not determinative of the issue immediately at hand, the grant to and the
exercise by an administrative agency of regulating and allowing the operation of public
utilities and, at the same time, fixing the fees that they may charge their customers is now
commonplace. It must be presumed that the Congress, in creating said agencies and
clothing them with both adjudicative powers and contract-making prerogatives, must
have carefully studied such dual authority and found the same not breaching any
constitutional principle or concept.[73] So must it be for P.D. Nos. 1112 and 1894.
The Court can take judicial cognizance of the exercise by the LTFRB and NTC
both spin-off agencies of the now defunct Public Service Commission of similar
concurrent powers. The LTFRB, under Executive Order No. (E.O.) 202,[74] series of
1987, is empowered,[75] among others, to regulate the operation of public utilities or for
hire vehicles and to grant franchises or certificates of public convenience (CPC); and to
fix rates or fares, to approve petitions for fare rate increases and to resolve oppositions to
such petitions.
The NTC, on the other hand, has been granted similar powers of granting
franchises, allocating areas of operations, rate-fixing and to rule on petitions for rate
increases under E.O. 546,[76] s. of 1979.
The Energy Regulatory Commission (ERC) likewise enjoys on the one hand, the power
(a) to grant, modify or revoke an authority to operate facilities used in the generation of
electricity, and on the other, (b) to determine, fix and approve rates and tariffs of
transmission, and distribution retail wheeling charges and tariffs of franchise electric
utilities and all electric power rates including that which is charged to end-users.[77] In
Chamber of Real Estate and Builders Association, Inc. v. ERC, We even categorically
stated that the ERC is a quasi-judicial and quasi-legislative regulatory body created under
Section 38 of the EPIRA, [and] x x x an administrative agency vested with broad
regulatory and monitoring functions over the Philippine electric industry to ensure its
successful restructuring and modernization x x x.[78]
To summarize, the fact that an administrative agency is exercising its
administrative or executive functions (such as the granting of franchises or awarding of
contracts) and at the same time exercising its quasi-legislative (e.g. rule-making) and/or
quasi-judicial functions (e.g. rate-fixing), does not support a finding of a violation of due
process or the Constitution. In C.T. Torres Enterprises, Inc. v. Hibionada,[79] We

explained the rationale, thus:

It is by now commonplace learning that many administrative agencies
exercise and perform adjudicatory powers and functions, though to a
limited extent only. Limited delegation of judicial or quasi-judicial
authority to administrative agencies (e.g. the Securities and Exchange
Commission and the National Labor Relations Commission) is well
recognized in our jurisdiction, basically because the need for special
competence and experience has been recognized as essential in the
resolution of questions of complex or specialized character and because of
a companion recognition that the dockets of our regular courts have
remained crowded and clogged.
xxxx
As a result of the growing complexity of the modern society, it has become
necessary to create more and more administrative bodies to help in the
regulation of its ramified activities. Specialized in the particular fields
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. This is the reason for the increasing vesture of quasilegislative and quasi-judicial powers in what is now not unquestionably
called the fourth department of the government.
xxxx
There is no question that a statute may vest exclusive original jurisdiction
in an administrative agency over certain disputes and controversies falling
within the agency's special expertise. The very definition of an
administrative agency includes its being vested with quasi-judicial powers.
The ever increasing variety of powers and functions given to
administrative agencies recognizes the need for the active intervention of
administrative agencies in matters calling for technical knowledge and
speed in countless controversies which cannot possibly be handled by
regular courts. (Emphasis ours.)
Fourth Issue: President Amply Vested With Statutory
Power To Approve TRB Contracts
Just like their parallel stance on the grant to TRB of the power to enter into toll
agreements, e.g., TOAs or STOAs, the petitioners in the first three petitions would assert
that the grant to the President of the power to peremptorily authorize the assignment by
PNCC, as franchise holder, of its franchise or the usufruct in its franchise is

unconstitutional. It is unconstitutional, so petitioners would claim, for being an

encroachment of legislative power.
As earlier indicated, Section 3 (a) of P.D. 1112 requires approval by the President
of any contract TRB may have entered into or effected for the construction and operation
of toll facilities. Complementing Section 3 (a) is 3 (e) (3) of P.D. 1112 enjoining the
transfer of the usufruct of PNCCs franchise without the Presidents prior approval. For
perspective, Section 3 (e) (3) of P.D. 1112 provides:
That the toll operator shall not lease, transfer, grant the usufruct of,
sell or assign the rights or privileges acquired under the [TOC] to any
person x x x or legal entity nor merge with any other company or
corporation organized for the same purpose without the prior approval of
the President of the Philippines. In the event of any valid transfer of the
TOC, the Transferee shall be subject to all the conditions, terms,
restrictions and limitations of this Decree x x x.[80]

The Presidents approving authority is of statutory origin. To us, there is nothing

illegal, let alone unconstitutional, with the delegation to the President of the authority to
approve the assignment by PNCC of its rights and interest in its franchise, the assignment
and delegation being circumscribed by restrictions in the delegating law itself. As the
Court stressed in Kilosbayan v. Guingona, Jr.,[81] the rights and privileges conferred
under a franchise may be assigned if authorized by a statute, subject to such restrictions
as may be provided by law, such as the prior approval of the grantor or a government
agency.[82]
There can, therefore, be no serious challenge to this presidential- approving
prerogative. Should grave abuse of discretion in some way infect the exercise of the
prerogative, then the approval action may be nullified for that reason, but not on the
ground that the underlying authority is constitutionally doubtful. If the TRB may validly
be empowered to grant private entities the authority to operate toll facilities, would a
delegation of a lesser authority to approve the grant to the head of the administrative
machinery of the government be objectionable?
The fact that P.D. 1112 partakes of a martial law issuance does not per se provide
an objectionable feature to the decree, albeit it may be argued with some plausibility that
then President Marcos intended to have the final say as to who shall act as the toll

operators of the Luzon expressways. Be that as it may, all proclamations, orders, decrees,
instructions, and acts promulgated, issued, or done by the former President (Ferdinand E.
Marcos) are part of the law of the land, and shall remain valid, legal, binding, and
effective, unless modified, revoked or superseded by subsequent proclamations, orders,
decrees, instructions, or other acts of the President.[83] To emphasize, Padua v.
Ranadacited Association of Small Landowners in the Philippines, Inc. v. Secretary of
Agrarian Reform, quoting that:
The Court wryly observes that during the past dictatorship, every
presidential issuance, by whatever name it was called, had the force and
effect of law because it came from President Marcos. Such are the ways of
despots. Hence, it is futile to argue that LOI 474 could not have repealed
P.D. No. 27 because the former was only a letter of instruction. The
important thing is that it was issued by President Marcos, whose word was
law during that time.[84]
Fifth Issue: Assailed STOAs Validly Entered
This brings us to the issue of the validity of certain provisions of the STOAs and
related agreements entered into by the TRB, as duly approved by the President.
Relying on Clause 17.4.1[85] of the MNTC STOA that the lenders have the
unrestricted right to appoint a substitute entity in case of default of MNTC or of the
occurrence of an event of default in respect of the loans, petitioners argue that since
MNTC is the assignee or transferee of PNCCs franchise, then it steps into the shoes of
PNCC. They contend that the act of replacing MNTC as grantee is tantamount to an
amendment or alteration of the PNCCs original franchise and hence unconstitutional,
considering that the constitutional power to appoint a new franchise holder is reserved to
Congress.[86]
This contention is bereft of merit.
Petitioners presupposition that only Congress has the power to directly grant
franchises is misplaced. Time and again, We have held that administrative agencies may
be empowered by the Legislature by means of a law to grant franchises or similar
authorizations.[87] And this, We have sufficiently addressed in the present case.[88] To
reiterate, We discussed in Albano that our statute books are replete with laws granting

administrative agencies the power to issue authorizations.[89] This delegation of

legislative power to administrative agencies is allowed in order to adapt to the increasing
complexity of modern life.[90] Consequently, We have held that the privileges conferred
by grant by local authorities as agents for the state constitute as much a legislative
franchise as though the grant had been made by an act of the Legislature.[91]
In this case, the TRBs charter itself, or Section 3 (e) of P.D. 1112, specifically
empowers it to grant authority to operate a toll facility and to issue therefore the
necessary Toll Operation Certificate subject to such conditions as shall be imposed by the
[TRB]x x x.[92] Section 3 (a) of the same law permits the TRB to enter into contracts
for the construction, operation and maintenance of toll facilities. Clearly, there is no
question that the TRB is vested by the Legislature, through P.D. 1112, with the power not
only to grant an authority to operate a toll facility, but also to enter into contracts for the
construction, operation and maintenance thereof.
Petitioners also contend that substituting MNTC as the grantee in case of its
default with respect to its loans is tantamount to an amendment of PNCCs original
franchise and is hence, unconstitutional. We also find this assertion to be without merit.
Besides holding that the Legislature may properly empower administrative agencies to
grant franchises pursuant to a law, We have also earlier explained in this case that P.D.
1113 and the amendatory P.D. 1894 both vested the TRB with the power to impose
conditions on PNCCs franchise in an appropriate contract and may therefore amend or
alter the same when public interest so requires;[93] save for the conditions stated in
Sections 1 and 2 of P.D. 1894, which relates to the coverage area of the tollways and the
expiration of PNCCs original franchise.[94] P.D. 1112 provided further that the TRB has
the power to amend or modify a Toll Operation Certificate that it issued when public
interest so requires.[95] Accordingly, to Our mind, there is nothing infirm much less
questionable about the provision in the STOA, allowing the substitution of MNTC in case
it defaults in its loans.
Furthermore, in the subject provision (Clause 17.4.1[96]), the unrestricted right
of the lender to appoint a substituted entity is never intended to afford such lender a
plenary power to do so. The subject clause states:
17.4.1 The PARTIES acknowledge that following a Notice of Substitution
under clauses 17.2 or 17.3 the LENDERS have, subject to the provisions

of Clause 17.4.3, the unrestricted right to appoint a SUBSTITUTED

ENTITY in place of MNTC following the declaration of the occurrence of
a MNTC DEFAULT prior to full repayment of the LOANS or of an event
of default in respect of the LOANS. GRANTOR shall extend all
reasonable assistance to the AGENT to put in place a SUBSTITUTED
ENTITY. MNTC shall make available all necessary information to
potential SUBSTITUTED ENTITY to enable such entity to evaluate the
Project. (Emphasis ours.)
It is clear from the above-quoted provision that Clause 17.4.1 should always be
construed and read in conjunction with Clauses 17.2, 17.3, 17.4.2, 17.4.3 and
20.12.Clauses 17.2 and 17.3 discuss the procedures that must be followed and undertaken
in case of MNTCs default prior to the full repayment of the loans, and before the
substitution under Clause 17.4.1 could take place. These clauses provide the following
process:
Prior to Full Repayment of the LOANS:
17.2 Upon occurrence of an MNTC DEFAULT under Clause 17.1(a) and
(e) prior to full repayment of the LOANS, GRANTOR shall serve a
written Notice of Default to MNTC with copy to the AGENT giving a
reasonable period of time to cure the MNTC DEFAULT, such period being
three (3) months from receipt of the notice or such longer period as may be
approved by GRANTOR, taking due consideration of the nature of the
default and of the repair works required. If MNTC fails to remedy such
default during such three (3) month or [sic] curing period, GRANTOR
may issue a Notice of Substitution on MNTC, copy furnished to the
AGENT, which shall take effect upon the assumption and take over by the
SUBSTITUTED ENTITY pursuant to the provisions of Clause 17.4
hereof; Provided, However, that prior to such assumption and take over by
the SUBSTITUTED ENTITY, MNTC shall continue to OPERATE AND
MAINTAIN the PROJECT ROADS and shall place in an escrow account
the TOLL revenues, save such amounts as may be needed to primarily
cover the OPERATING COSTS and as may be owing and due to the
lenders under the LOANS and, secondarily, to cover the PNCC Gross Toll
Revenue Share, Provided, Further, that upon the assumption and take over
by the SUBSTITUTED ENTITY, such assumption and take over shall
have the effect of revoking the rights, privileges and obligations of MNTC
under this AGREEMENT in favor of the SUBSTITUTED ENTITY and
MNTC shall cease to be a PARTY to this AGREEMENT.
17.3 If prior to full repayment of the LOANS MNTC fails to remedy
MNTC DEFAULT under Clause 17.1 (b) or an MNTC DEFAULT occurs
under Clause 17.1 (c), (d) or (f) prior to full repayment of the LOANS,

GRANTOR shall serve a Notice of Substitution on MNTC, copy furnished

to the AGENT, as provided under Clause 17.4.[97] (Emphasis ours)
It is apparent from the above-quoted provision that it is the TRB representing the
Republic of the Philippines as Grantor which has control over the situation before Clause
17.4.1 could come into place. To stress, following the condition under Clause 17.4.1, it is
only when Clauses 17.2 and 17.3 have been complied with that the entire Clause 17.4
could begin to materialize.
Clauses 17.4.2 and 17.4.3 also provide for certain parameters as to when a
substituted entity could be considered acceptable, and enumerate the conditions that
should be undertaken and complied with.[98] Particularly, the subject provisions state:
17.4.2 The SUBSTITUTED ENTITY shall be required to provide
evidence to GRANTOR that at the time of substitution:
(i)

it is legally and validly nominated by the AGENT as MNTCs

substitute to continue the implementation of the PROJECT.

(ii)

it is legally and validly constituted and has the capability to

enter into such agreement as may be required to give effect to
the substitution;

17.4.3 The AGENT shall have one (1) year to effect a substitution under
Clause 17.4; Provided, However, that during this time the AGENT
shall not take any action which may jeopardize the continuity of
the service and shall take the necessary action to ensure its
continuation. To effect such substitution, the AGENT shall notify
its intention to GRANTOR and shall, at the same time, give all
necessary information to GRANTOR. GRANTOR shall, within
one (1) month following such notification, inform the AGENT of
its acceptance of the substitution, if the conditions set forth in
Clause 17.4.2 have been satisfied. The SUBSTITUTED ENTITY
shall be permitted a reasonable period to cure any MNTC
DEFAULT under Clause 17.1 (a), (b) or (e).

From the foregoing, it is clear that the lenders do not actually have an absolute or
unrestricted right to appoint the SUBSTITUTED ENTITY in view of TRBs right to
accept or reject the substitution within one (1) month from notice and such right to
appoint comes into force only if and when the TRB decides to effectuate the substitution

of MNTC as allowed in Clause 17.2 of the MNTC STOA.

At the same time, Clause 17.4.4 particularizes the conditions upon which the
substitution shall become effective, to wit:
17.4.4 The Substitution shall be effective upon:
(a)

the appointment of a SUBSTITUTED ENTITY in accordance

with the provisions of this Clause 17.4; and,

(b)

assumption by the SUBSTITUTED ENTITY of all of the

rights and obligations of MNTC under this AGREEMENT,
including the payment of PNCCs Gross Toll Revenue Share
under the JOINT VENTURE AGREEMENT dated 29 August
1995 and all other agreements in connection with this
agreement signed and executed by and between PNCC and
MNTC.

The afore-quoted Section (a) of Clause 17.4.4 reiterates the necessity of

compliance by the substituted entity with all the conditions provided under Clause
17.4.Furthermore, following the above-quoted conditions veritably protects the interests
of the Government. As previously discussed supra, PNCCs assets with respect to its
legislative franchise under P.D. 1113, as amended, has already been automatically turned
over to the Government. And whatever share PNCC has in relation to the currently
implemented administrative authority granted by the TRB is merely being held in trust by
it in favor of the Government. Accordingly, the fact that Section b of Clause 17.4.4
ensures that the obligation to pay PNCCs Gross Toll Revenue Share is assumed by the
substituted entity, necessarily means that the Governments Gross Toll Revenue Share is
safeguarded and kept intact.
The MNTC STOA also states that only in case no substituted entity is established
in accordance with Clause 17.4 that Clause 17.5 shall be applied. Clause 17.5 grants the
lenders the power to extend the concession in case the Grantor (Republic of the
Philippines) takes over the same, for a period not exceeding fifty years, until full payment
of the loans.[99] Petitioners contend that the option to extend the concession for that
stated period is, however, unconstitutional.

This assertion is impressed with merit. At the outset, Clause 17.5 does not actually
grant the lenders of the defaulting concessionaire, the power to unilaterally extend the
concession for a period not exceeding fifty years. For reference, the pertinent provision
states:
17.5 Only if no SUBSTITUTE ENTITY is established shall the
GRANTOR [TRB] be entitled to take-over the CONCESSION with no
commitment on the LOANS in which case the OPERATION AND
MAINTENANCE CONTRACT shall be assigned to any entity that the
AGENT[100] may designate provided such entity has a sufficient legal
and technical capacity to perform and assume the obligations of the
OPERATION AND MAINTENANCE CONTRACT under this
AGREEMENT. The LENDERS shall receive all TOLL, excepting PNCCs
revenue share provided for under the JOINT INVESTMENT PROPOSAL
(vide: Annex C hereof), for as long as required until full repayment of the
LOANS including if necessary an extension of the CONCESSION
PERIOD which in no case shall exceed fifty (50) years; Provided that the
LENDERS support all amounts payable under the OPERATION AND
MAINTENANCE CONTRACT. For avoidance of doubt, the GRANTOR
will have no obligation in relation to liabilities incurred by MNTC prior to
such take-over.[101] (Emphasis supplied)
The afore-quoted provision should be read in conjunction with Clause 20.12,
which expressly provides that the MNTC STOA is made under and shall be governed by
and construed in accordance with the laws of the Philippines, and particularly, by the
provisions of P.D. Nos. 1112, 1113 and 1894. Under the applicable laws, the TRB may
very well amend, modify, alter or revoke the authority/franchise whenever the public
interest so requires.[102] In a word, the power to determine whether or not to continue
or extend the authority granted to a concessionaire to operate and maintain a tollway is
vested to the TRB by the applicable laws. The necessity of whether or not to extend the
concession or the authority to construct, operate and maintain a tollway rests, by
operation of law, with the TRB. As such, the lenders cannot unilaterally extend the
concession period, or, with like effect, impose upon or demand that the TRB agree to
extend such concession.
Be that as it may, it must be noted, however, that while the TRB is vested by law
with the power to extend the administrative franchise or authority that it granted,
nevertheless, it cannot do so for an accumulated period exceeding fifty years. Otherwise,
it would violate the proscription under Article XII, Section 11 of the 1987 Constitution,

which states that:[103]

Sec. 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration or repeal by the
Congress when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital,
and all the executive and managing officers of such corporation or
associations must be citizens of the Philippines. (Emphasis Ours)
In this case, the MNTC STOA already has an original stipulated period of thirty
years.[104] Clause 17.5 allows the extension of this period if necessary to fully repay
the loans made by MNTC to the lenders, thus:
x x x The LENDERS shall receive all TOLL, excepting PNCCs
revenue share provided for under the JOINT INVESTMENT PROPOSAL
(vide: Annex C hereof), for as long as required until full repayment of the
LOANS including if necessary an extension of the CONCESSION
PERIOD which in no case shall exceed a maximum period of fifty (50)
years; x x x (Emphasis ours.)
If the maximum extension as provided for in Clause 17.5, i.e. fifty years, shall be
utilized, the accumulated concession period that would be granted in this case would
effectively be eighty years. To Us, this is a clear violation of the fifty-year franchise
threshold set by the Constitution. It is in this regard that we strike down the above-quoted
clause, including if necessary an extension of the CONCESSION PERIOD which in no
case shall exceed a maximum period of fifty (50) years in Clause 17.5 as void for being
violative of the Constitution.[105] It must be made abundantly clear, however, that the
nullity shall be limited to such extension beyond the 50-year constitutional limit.
All told, petitioners allegations that the TRB acted with grave abuse of discretion
and with gross disadvantage to the Government with respect to Clauses 17.4.1 and 17.5
of the MNTC STOA are unfounded and speculative.

Petitioners also allege that the MNTC STOA is grossly disadvantageous to the
Government since under Clause 11.7 thereof, the Government, through the TRB,
guarantees the viability of the financing program of a toll operator. Under Clause 11.7 of
the MNTC STOA, the TRB agreed to pay monthly, the difference in the toll fees actually
collected by MNTC and that which it could have realized under the STOA. The pertinent
provisions states:
11.7 To insure the viability and integrity of the Project, the Parties
recognize the necessity for adjustments of the AUTHORIZED TOLL
RATE . In the event that said adjustment are not effected as provided
under this Agreement for reasons not attributable to MNTC, the
GRANTOR [TRB] warrants and so undertakes to compensate, on a
monthly basis, the resulting loss of revenue due to the difference between
the AUTHORIZED TOLL RATE actually collected and the
AUTHORIZED TOLL RATE which MNTC would have been able to
collect had the adjustments been implemented. (Emphasis ours)
As set out in the preamble of P.D. 1112, the need to encourage the infusion of
private capital in tollway projects is the underlying rationale behind the enactment of said
decree. Owing to the scarce capital available to bankroll a huge capital-intensive project,
such as the North Luzon Tollway project, it is well-nigh inevitable that the financing of
these types of projects is sourced from private investors. Quite naturally, the investors
expect the regularity of the cash flow. It is perhaps in this broad context that the
obligation of the Grantor under Clause 11.7 of the MNTC STOA was included in the
STOA. To Us, Clause 11.7 is not only grossly disadvantageous to the Government but a
manifest violation of the Constitution.
Section 3 (e) (5) of P.D. 1112 explicitly states:
[t]hat no guarantee, Certificate of Indebtedness, collateral
securities, or bonds shall be issued by any government agency or
government-owned or controlled corporation on any financing program of
the toll operator in connection with his undertaking under the Toll
Operation Certificate.

What the law seeks to prevent in this situation is the eventuality that the
Government, through any of its agencies, could be obligated to pay or secure, whether

directly or indirectly, the financing by the private investor of the project. In this case,
under Clause 11.7 of the MNTC STOA, the Republic of the Philippines (through the
TRB) guaranteed the security of the project against revenue losses that could result, in
case the TRB, based on its determination of a just and reasonable toll fee, decides not to
effect a toll fee adjustment under the STOAs periodic/interim adjustment formula. The
OSG, in its Comment, admitted that the amounts the government undertook to pay in
case of Clause 11.7 violation is an undertaking to pay compensatory damage for
something akin to a breach of contract.[106] As P.D. 1112 itself expressly prohibits the
guarantee of a security in the financing of the toll operator pursuant to its tollway project,
Clause 11.7 cannot be a valid stipulation in the STOA.
This is more so for being in violation of the Constitution. Article VI, Section 29
(1) of the Constitution mandates that [n]o money shall be paid out of the Treasury except
in pursuance of an appropriation made by law.[107] We have held in Radstock that
government funds or property shall be spent or used solely for public purposes, as
expressly mandated by Section 4 (2) of PD 1445 or the Government Auditing Code.[108]
Particularly, We held in Radstock case that:
[t]he power to appropriate money from the General Funds of the
Government belongs exclusively to the Legislature. Any act in violation of
this iron-clad rule is unconstitutional.
Reinforcing this Constitutional mandate, Sections 84 and 85 of PD
1445 require that before a government agency can enter into a contract
involving the expenditure of government funds, there must be an
appropriation law for such expenditure, thus:
Section 84. Disbursement of government funds.
1. Revenue funds shall not be paid out of any public treasury or
depository except in pursuance of an appropriation law or other specific
statutory authority.
xxxx
Section 85. Appropriation before entering into contract.
No contract involving the expenditure of public funds shall be
entered into unless there is an appropriation therefor, the unexpended
balance of which, free of other obligations, is sufficient to cover the
proposed expenditure.

xxxx
Section 86 of PD 1445, on the other hand, requires that the proper
accounting official must certify that funds have been appropriated for the
purpose. Section 87 of PD 1445 provides that any contract entered into
contrary to the requirements of Sections 85 and 86 shall be void.[109]
(Emphasis ours.)
In the instant case, the TRB, by warranting to compensate MNTC with the loss of
revenue resulting from the non-implementation of the periodic and interim toll fee
adjustments, violates the very constitutionally guaranteed power of the Legislature, to
exclusively appropriate money for public purpose from the General Funds of the
Government. The TRB veritably accorded unto itself the exclusive authority granted to
Congress to appropriate money that comes from the General Funds, by making a
warranty to compensate a revenue loss under Clause 11.7 of the MNTC STOA. There is
not even a badge of indication that the aforementioned requisites under the Constitution
and P.D. 1445 in respect of appropriation of money from the General Funds of the
Government have been properly complied with. Worse, P.D. 1112 expressly prohibits the
guarantee of security of the financing of a toll operator in connection with his
undertaking under the Toll Operation Certificate. Accordingly, Clause 11.7 of the MNTC
STOA, under which the TRB warrants and undertakes to compensate MNTCs loss of
revenue resulting from the non-implementation of the periodic and interim toll fee
adjustments, is illegal, unconstitutional and hence void.
Parenthetically, We also find a similar provision in the SLTC STOA under Clause
8.08 thereof, which states that:[110]
(2) In the event the Authorized Toll Rate and adjustments thereto are not
implemented or made effective in accordance with the provisions of
this Agreement, for reasons not attributable to the fault of the Investor
and/or the Operator, including the reversal by the TRB or by any
competent court or authority of any such adjustment in the Authorized
Toll Rate previously approved by the TRB, except where such reversal
is by reason of a determination of the misapplication of the Authorized
Toll Rates, the Grantor shall compensate the Operator, on a monthly
basis and within thirty (30) days of submission by the Operator of a
notice thereof, without interest, for the resulting loss of revenue
computed as the difference between:
(a)

the actual traffic volume for the month in question multiplied by

the Current Authorized Toll Rate as escalated and/or adjusted, that
should be in effect; and

(b) the Gross Toll Revenue for the month in question.

(3)

The obligation of the Grantor to compensate the Operator shall

continue until the applicable Current Authorized Toll Rate is
implemented.

Akin to what is contemplated in Clause 11.7 of the MNTC STOA, Clauses 8.08
(2) and (3) of the SLTC STOA, under which the TRB warrants or is obligated to
compensate the Operator for its loss of revenue resulting from the non-implementation of
the calculation/formula of authorized toll price and toll rate adjustments found in Clause
8 thereof, are illegal, unconstitutional and, hence, void. This ruling is consistent with the
TRBs power to determine, without any influence or compulsion direct or indirect as to
whether a change in the toll fee rates is warranted. We will discuss the same below.
Petitioners argue that the CITRA, SLTC and MNTC STOAs tie the hands of the
TRB as it is bound by the stipulated periodic and interim toll rate adjustments provided
therein. Petitioners contend that the SMMS (CITRA STOA), the SLTC and the MNTC
STOAs provisions on initial toll rates and periodic/interim toll rate adjustments, by using
a built-in automatic toll rate adjustment formula,[111] allegedly guaranteed fixed returns
for the investors and negated the public hearing requirement.
This contention is erroneous. The requisite public hearings under Section 3 (d) of
P.D. 1112 and Section 8 (b) of P.D. 1894 are not negated by the fixing of the initial toll
rates and the periodic adjustments under the STOA.
Prefatorily, a clear distinction must be made between the statutory prescription on
the fixing of initial toll rates, on the one hand, and of periodic/interim or subsequent toll
rates, on the other. First, the hearing required under the said provisos refers to notice and
hearing for the approval or denial of petitions for toll rate adjustments or the subsequent
toll rates, not to the fixing of initial toll rates. By express legal provision, the TRB is
authorized to approve the initial toll rates without the necessity of a hearing. It is only
when a challenge on the initial toll rates fixed ensues that public hearings are required.
Section 8 of P.D. 1894 says so:
x x x the GRANTEE shall collect toll at such rates as shall initially be
approved by the [TRB]. The [TRB] shall have the authority to approve
such initial toll rates without the necessity of any notice and hearing,
except as provided in the immediately succeeding paragraph of this
Section. For such purpose, the GRANTEE shall submit for the approval of
the [TRB] the toll proposed to be charged the users. After approval of the
toll rate(s) by the [TRB] and publication thereof by the GRANTEE once

in a newspaper of general circulation, the toll shall immediately be

enforceable and collectible upon opening of the expressway to traffic use.
Any interested Expressways users shall have the right to file,
within x x x (90) days after the date of publication of the initial toll rate, a
petition with the [TRB] for a review of the initial toll rate; provided,
however, that the filing of such petition and the pendency of the resolution
thereof shall not suspend the enforceability and collection of the toll in
question. The [TRB], at a public hearing called for the purpose shall then
conduct a review of the initial toll (sic) shall be appealable to the [OP]
within ten (10) days from the promulgation thereof.(Emphasis ours.)
Of the same tenor is Section 3 (d) of P.D. 1112 stating that the TRB has the power
and duty to:
[i]ssue, modify and promulgate from time to time the rates of toll
that will be charged the direct users of toll facilities and upon notice and
hearing, to approve or disapprove petitions for the increase thereof.
Decisions of the [TRB] on petitions for the increase of toll rate shall be
appealable to the [OP] within ten (10) days from the promulgation thereof.
Such appeal shall not suspend the imposition of the new rates, provided
however, that pending the resolution of the appeal, the petitioner for
increased rates in such case shall deposit in a trust fund such amounts as
may be necessary to reimburse toll payers affected in case a (sic) reversal
of the decision.[112] (Emphasis Ours.)
Similarly in Padua v. Ranada, the fixing of provisional toll rates by the TRB
without a public hearing was held to be valid, such procedure being expressly provided
by law.[113] To be very clear, it is only the fixing of the initial and the provisional toll
rates where a public hearing is not a vitiating requirement. Accordingly, subsequent toll
rate adjustments are mandated by law to undergo both the requirements of public hearing
and publication.
In Manila International Airport Authority (MIAA) v. Blancaflor, the Court
expounded on the necessity of a public hearing in rate fixing/increases scenario. There,
the Court ruled that the MIAA, being an agency attached to the Department of
Transportation and Communications (DOTC), is governed by Administrative Code of
1987,[114] Book VII, Section 9 of which specifically mandates the conduct of a public
hearing.[115] Accordingly, the MIAAs resolutions, which increased the rates and
charges for the use of its facilities without the required hearing, were struck down as

void.[116] Similarly, as We do concede, the TRB, being likewise an agency attached to

the DOTC,[117] is governed by the same Code and consequently requires public
hearing in appropriate cases. It is, therefore, imperative that in implementing and
imposing new, i.e. subsequent toll rates arrived at using the toll rate adjustment formula,
the subject tollway operators and the TRB must necessarily comply not only with the
requirement of publication but also with the equally important public hearing.
Accordingly, any fixing of the toll rate, which did not or does not comply with the twin
requirements of public hearing and publication, must therefore be struck down as void. In
such case, the previously valid toll rate shall consequently apply, pending compliance
with the twin requirements for the new toll rate.
In the instant consolidated cases, the fixing of the initial toll rates may have
indeed come to pass without any public hearing.[118] Unfortunately for petitioners, and
notwithstanding its presumptive validity, they did not assail the initial toll rates within the
timeframe provided in P.D. 1112 and P.D. 1894.[119] Besides, as earlier explicated, the
STOA provisions on periodic rate adjustments are not a bar to a public hearing as the
formula set forth therein remains constant, serving only as a guide in the determination of
the level of toll rates that may be allowed.
It is apropos to state at this juncture that, in determining the reasonableness of the
subsequent toll rate increases, it behooves the TRB to seek out the Commission on Audit
(COA) for assistance in examining and auditing the financial books of the public utilities
concerned. Section 22, Chapter 4, Subtitle B, Title 1, Book V of the Administrative Code
of 1987 expressly authorizes the COA to examine the aforementioned documents in
connection with the fixing of rates of every nature, including as in this case, the fixing of
toll fees.[120] We have on certain occasions applied this provision. Manila Electric
Company, Inc. v. Lualhati easily comes to mind where this Court tasked the Energy
Regulatory Commission to seek the assistance of the COA in determining the
reasonableness of the rate increases that MERALCO intended to implement.[121] We
have consistently held that the law is deemed written into every contract.[122] Being a
provision of law, this authority of the COA under the Administrative Code should
therefore be deemed written in the subject contracts i.e. the STOAs.
In this regard, during the examination and audit, the public utilities concerned are
mandated to produce all the reports, records, books of accounts and such other papers as

may be required, and the COA is empowered to examine under oath any official or
employee of the said public utilit[ies].[123] Any public utility unreasonably denying
COA access to the aforementioned documents, unnecessarily obstructs the examination
and audit and may be adjudged liable of concealing any material information concerning
its financial status, shall be subject to the penalties provided by law.[124] Finally, the
TRB is further obliged to take the appropriate action on the COA Report with respect to
its finding of reasonableness of the proposed rate increases.[125]
Furthermore, while the periodic, interim and other toll rate adjustment formulas
are indicated in the STOAs,[126] it does not necessarily mean that the TRB should
accept a rate adjustment predicated on the economic data, references or assumptions
adopted by the toll operator. At the end of the day, the final figures should be those of the
TRB based on its appreciation of the relevant rate-influencing data. In fine, the TRB
should exercise its rate-fixing powers vested to it by law within the context of the agreed
formula, but always having in mind that the rates should be just and reasonable.
Conversely, it is very well within the power of the TRB under the law to approve the
change in the current toll fees.[127] Section 3 (d) of P.D. 1112 grants the TRB the power
to [i]ssue, modify and promulgate from time to time the rates of toll that will be charged
the direct users of toll facilities. But the reasonableness of a possible increase in the fees
must first be clearly and convincingly established by the petitioning entities, i.e. the toll
operators.Otherwise, the same should not be granted by the approving authority
concerned. In Philippine Communications Satellite Corporation v. Alcuaz,[128] the
Court had the opportunity to explain what is meant by a just and reasonable fixing of
rates, thus:
Hence, the inherent power and authority of the State, or its authorized
agent, to regulate the rates charged by public utilities should be subject
always to the requirement that the rates so fixed shall be reasonable and
just. A commission has no power to fix rates which are unreasonable or to
regulate them arbitrarily. This basic requirement of reasonableness
comprehends such rates which must not be so low as to be confiscatory, or
too high as to be oppressive.
What is a just and reasonable rate is not a question of formula but of sound
business judgment based upon the evidence it is a question of fact calling
for the exercise of discretion, good sense, and a fair, enlightened and
independent judgment. In determining whether a rate is confiscatory, it is
essential also to consider the given situation, requirements and
opportunities of the utility. A method often employed in determining

reasonableness is the fair return upon the value of the property to the
public utility x x x. (Emphasis ours.)
If in case the TRB finds the change in the rates to be reasonable and therefore
merited, the increase shall then be implemented after the formalities of public hearing and
publication are complied with. In this case, it is clear that the change in the toll fees is
immediately effective and implementable. This is notwithstanding that, in case of an
increase in the toll fees, an appeal thereon is filed. The law is clear. Thus:
x x x Decisions of the [TRB] on petitions for the increase of toll rate shall
be appealable to the Office of the President within ten (10) days from the
promulgation thereof. Such appeal shall not suspend the imposition of the
new rates, provided however, that pending the resolution of the appeal, the
petitioner for increased rates in such case shall deposit in a trust fund such
amounts as may be necessary to reimburse toll payers affected in case a
reversal of the decision.[129] (Emphasis ours.)
Besides the settled rule under Section 3 (d) of P.D. 1112 that the power to issue,
modify and promulgate toll fees rests with the TRB, it must also be underscored that the
periodic and the interim adjustments found in Clauses 11.4 to 11.6 of the MNTC STOA
do not necessarily guarantee an increase in the toll fees. To stress, the formula is based on
many variable factors that could mean either an increase or a decrease in the toll fees,
depending, inter alia, on how well certain economies are doing; and on the projections
and figures published by the Bangko Sentral ng Pilipinas (BSP).[130] It is therefore
arduous to contemplate a grossness in a disadvantage that could only possibly arise in
case of a non-implementation of a change particularly, an increase in the toll rates.
Petitioners have not incidentally shown that it is the traveling public, the users of
the expressways, who shouldered or will shoulder the completion of the projects by way
of exorbitant fees payment, with the investors ending up with a killing therefrom. This
conclusion, for all its factual dimension, is too simplistic for acceptance. And it does not
consider the reality that the Court is not a trier of facts. Neither does it take stock of the
nature and function of toll roads and toll fees paid by motorists, as aptly elucidated
inNorth Negros Sugar Co., Inc. v. Hidalgo,[131] thus:
Toll is the price of the privilege to travel over that particular
highway, and it is a quid pro quo. It rests on the principle that he who,
receives the toll does or has done something as an equivalent to him who

pays it. Every traveler has the right to use the turnpike as any other
highway, but he must pay the toll.[132]
A toll road is a public highway, differing from the ordinary public
highways chiefly in this: that the cost of its construction in the first
instance is borne by individuals, or by a corporation, having authority
from the state to build it, and, further, in the right of the public to use the
road after completion, subject only to the payment of toll.[133]
Toll roads are in a limited sense public roads, and are highways for
travel, but we do not regard them as public roads in a just sense, since
there is in them a private proprietary right x x x.[134] (Emphasis ours.)

Parenthetically, our review of Section 7 of the SMMS STOA readily yields the
information that the level of the initial toll rates hinges on a mix of factors. Tax holidays
that may be granted and the tax treatment of dividends may be mentioned. On the other
hand, the subsequent periodic adjustments are provided to address factors that usually
weigh on the financial condition of any business endeavor, such as currency devaluation,
inflation and the usual increases in maintenance and operational costs incorporated into
the formula provided therefor. Even with the existence of an automatic toll rate
adjustment formula, compliance by the TRB and the other respondents with the twin
requirements of public hearing and publication is still mandatory. To reiterate, laws
always occupy a plane higher than mere contract provisions. In case the minimum
statutory requirements are stiffer than that of a contract, or when the contract does not
expressly stipulate the minimum requirements of the law, then We rule that compliance
with such minimum legal requirements should be done. To summarize, any toll fee
increase should comply with the legal twin requirements of publication and public
hearing, the absence of which will nullify the imposition and collection of the new toll
fees.
In all, the initial toll rates and periodic adjustments appear to Us as simply
predicated on the basic rationale for investing in a toll project, which to repeat is: a
reasonable rate of return for the investment. Section 2 (o) of the BOT Law, as amended,
provides for a definition for a reasonable rate of return on investments and operating and
maintenance cost.[135] Running through the gamut of our statutes providing for and
encouraging partnership of the public and private sector is the paramount common good
for infrastructure projects and the equally important factor of giving a reasonable rate of

return to private sectors investments. The viability of any infrastructure project depends
on the returns which should be reasonable of the investment coming from the private
sector.
While the interests of the public are ideally to be accorded primacy in considering
government contracts, the reality on the ground is that the tollway projects may not at all
be possible or would be difficult to realize without the involvement of the investing
private sector, which expects its usual share of profit. Thus, the Court is at a loss to
understand how the level of the initial toll rates, which depended on several factors
indicated above, and the subsequent adjustments resulted in the charging of exorbitant
toll fees that, to petitioners, enabled the investors to shift the burden of financing the
completion of the projects on the motoring public.
Neither does the alleged drasticif we may characterize it as suchsteep increase in
the level of toll rates for NLEX constitute a killing for PNCC and its partner
MNTC.Petitioners make much of the amount of the toll fees vis--vis the then prevailing
minimum wage. These plays of figures detract from the essential concern on the propriety
of the level of the toll rates vis--vis the investments sunk in the NLEX project with a
view, on the part of private investors, to a reasonable return on their investment. Where
no substantial figures were provided on the investments, the projected operating and
maintenance costs vis--vis the projected revenue from the toll fees, no substantial
conclusions may reasonably be deduced therefrom. Besides, to be taken into account in
relation to the costs of the construction and rehabilitation of the NLEX is the length of the
tollway and for which motorists have to pay the corresponding toll. Certainly, the
allegations and conclusions of petitioners as to the unreasonable increase of the toll rates
are without adequate factual mooring.
The use of a tollway is a privilege that comes at a cost. The toll is a price paid for
the use of a privilege. There are to be sure alternative roads and routes, which motorists
may fall back on if they are unwilling to pay the toll. The toll, as might be expected, is
pegged at a level that makes the developmental projects and their maintenance viable;
otherwise, no investment can be expected for the furtherance of the projects.
Petitioners Francisco and Hizon alleged that, per the minutes of the TRB
meetings, the Board deliberately refrained, particularly with respect to the Skyway

project, from conducting public hearings for the grant of the initial toll rates and on the
rate adjustment formula to be used in order to accelerate the implementation of the
projects. The allegation is far from correct. A perusal of the pertinent minutes of the TRB
meetings, particularly that held on August 17, 1995,[136] in fact would disclose a
picture different from that depicted by said petitioners. Nothing in the minutes of said
meeting tends to indicate that the TRB resolved to dispense with public hearings. We,
therefore, find petitioners Francisco and Hizons attempt to mislead the Court by falsely
citing supposed portions[137] of the August 17, 1995 TRB meeting very unfortunate.
They quoted a correction on the minutes of the Special Board Meeting No. 95-05 held on
July 26, 1995, which was taken up in the August 17, 1995 meeting for the approval of the
minutes of the previous meeting. In said special meeting of July 26, 1995,[138] the
Board deliberated on the recommendation of ADG Santos for the conduct of a public
hearing or soliciting the endorsement of the Metro Manila Development Authority
(MMDA).[139] But the TRB did not resolve to omit a public hearing with respect to the
toll rates. In fact, the deliberations used the words in the event the Board decides and if
the Board conducts, clearly conveying the notion that the TRB had not decided or
resolved the issue of public hearings. Be that as it may, We rule that the TRB is mandated
to comply with the twin requirements of public hearing and publication.
Petitioners Francisco and Hizons lament about the TRB merely relying on, if not
yielding to, the recommendation and findings of the Technical Working Group (TWG) of
the DPWH on matters relative to STOA stipulations and toll-rate fixing cannot be
accorded cogency. In the area involving big finance and complex project planning,
banking on the data supplied by technicians and experts is at once practical as it is
inevitable. The Court cannot see its way clear to understand why petitioners would
begrudge the TRB for tapping the technical know-how of others. And it cannot be
overemphasized that a recommendation is no more than an exhortation or an urging as to
what is advisable or expedient, not binding on the person to which it is being made.[140]
To recommend involves the idea that another has the final decision.[141] The ultimate
decision still rests with the TRB whether or not to accept the findings of the TWG. The
minutes of the TRB meetings show that its members went through the tedious process of
deliberating on the formula to be used in computing the toll rates. The fact that the TRB
might have adopted the TWGs recommendation would not, on that ground alone, vitiate
the bona fides of the formers decision nor stain the proceedings leading to such decision.
In any case, as earlier held, the toll rate adjustment formula does not and cannot

contravene the legal twin requirements of public hearing and publication.

In another bid to nullify the STOAs in question, petitioners would foist on the
Court the arguments that, firstly, President Ramos twisted the arms of the TRB towards
entering into the agreements in question and, secondly, that the CITRA STOA contained
restrictive confidentiality provisions barring the public from knowing their contents and
the details of the negotiations related thereto.
We are not persuaded by the first ground, not necessarily because the pressure
brought to bear on TRB rendered the STOAs infirm, but because the allegations on
pressure-tactics allegedly employed by President Ramos are too speculative for
acceptance.
On the second ground, We fail to see how the insertion of the alleged
confidentiality clause in the CITRA STOA translates into grave abuse of discretion or a
violation of the Constitution, particularly Article III, Section 7[142] thereof. First off,
the Court can take judicial notice that most commercial contracts, including financerelated project agreements carry the standard confidentiality clause to protect proprietary
data and/or intellectual property rights. This protection angle appears to be the intent of
Clause 14.04(l)[143] of the CITRA STOA. And as may be noted, the succeeding Clause
14.04 (2)[144] removes from the ambit of the confidentiality restriction the following:
disclosure of any information: (a) not otherwise done by the parties; (b) which is required
by law to be disclosed to any person who is authorized by law to receive the same; (c) to
a tribunal hearing pertinent proceedings relative to the contract or agreement; and (d) to
confidential entities and persons relative to the disclosing party like its banks,
consultants, financiers and advisors. The second (item b) exception provides a reasonable
dimension to the assailed confidentiality clause.
Needless to stress, the obligation of the government to make information available
cannot be exaggerated.[145] The constitutional right to information does not mean that
every day and every hour is open house in government offices having custody of the
desired documents.[146] Petitioners have not sufficiently shown, thus cannot really be
heard to complain, that they had been unreasonably denied access to information with
regard to the MNTC or SMMS STOA. Besides, the remedy for unreasonable denial of
information that is a matter of public concern is by way of mandamus.[147]

Finally, as to petitioners catch-all claim that the STOAs are disadvantageous to

the government, as therein represented by the TRB, suffice it to state for the nonce that
behind these agreements are the Boards expertise and policy determination on technical,
financial and operational matters involving expressways and tollways. It is not for courts
to look into the wisdom and practicalities behind the exercise by the TRB of its contractmaking prerogatives under P.D. Nos. 1112, 1113 and 1894, absent proof of grave abuse of
discretion which would justify judicial review. In this regard, the Court recalls what it
wrote in G & S Transport Corporation v. Court of Appeals,[148] to wit:
x x x courts, as a rule, refuse to interfere with proceedings
undertaken by administrative bodies or officials in the exercise of
administrative functions. This is 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 decision.

Sixth Issue: Public Bidding Not Required

Private petitioners would finally maintain that public bidding is required for the
SMMS and the North Luzon/South Luzon Tollways, partaking as these projects allegedly
do of the nature of a BOT infrastructure undertaking under the BOT Law. Prescinding
from this premise, they would conclude that the STOAs in question and related
preliminary and post-STOA agreements are null and void for want of the necessary public
bidding required for government infrastructure projects.
The contention is patently flawed.
The BOT Law does not squarely apply to the peculiar case of PNCC, which
exercised its prerogatives and obligations under its franchise to pursue the construction,
rehabilitation and expansion of the tollways with chosen partners. The tollway projects
may very well qualify as a build-operate-transfer undertaking. However, given that the
projects in the instant case have been undertaken by PNCC in the exercise of its franchise
under P.D. Nos. 1113 and 1894, in joint partnership with its chosen partners at the time
when it was held valid to do so by the OGCC and the DOJ, the public bidding provisions
under the BOT Law do not strictly apply. For, as aptly noted by the OSG, the subject

STOAs are not ordinary contracts for the construction of government infrastructure
projects, which requires under the Government Procurement Reform Act or the nowrepealed P.D. 1594,[149] public bidding as the preferred mode of contract award.
Neither are they contracts where financing or financial guarantees for the project are
obtained from the government. Rather, the STOAs actually constitute a statutorilyauthorized transfer or assignment of usufruct of PNCCs existing franchise to construct,
maintain and operate expressways.[150]
The conclusion would perhaps be different if the tollway projects were to be
prosecuted by an outfit completely different from, and not related to, PNCC. In such a
scenario, the entity awarded the winning bid in a BOT-scheme infrastructure project will
have to construct, operate and maintain the tollways through an automatic grant of a
franchise or TOC, in which case, public bidding is required under the law.
Where, in the instant case, a franchisee undertakes the tollway projects of
construction, rehabilitation and expansion of the tollways under its franchise, there is no
need for a public bidding. In pursuing the projects with the vast resource requirements,
the franchisee can partner with other investors, which it may choose in the exercise of its
management prerogatives. In this case, no public bidding is required upon the franchisee
in choosing its partners as such process was done in the exercise of management
prerogatives and in pursuit of its right of delectus personae.[151] Thus, the subject
tollway projects were undertaken by companies, which are the product of the joint
ventures between PNCC and its chosen partners.
Petitioners Francisco and Hizons assertions about the TRB awarding the tollway
projects to favored companies, unsubstantiated as they are, need no belaboring. Suffice it
to state that the discretion to choose who shall stand as critical JV partners remained all
along with PNCC, at least theoretically. Needless to say, the records do not show that the
TRB committed an oversight as an administrative body over any aspect of tollway
operations with regard to PNCCs selection of partners.
The foregoing disquisitions considered, there is no more point in passing upon the
propriety of prohibiting or enjoining, on the ground of unconstitutionality or grave abuse
of discretion, the implementation of the initial toll rates and/or the adjusted toll rates for
the SMSS, expanded NLEX and SLEX, as authorized by the separate TRB resolutions,

subject of and originally challenged in these proceedings.

These TRB resolutions and the STOAs upon which they are predicated have long
been in effect. The parties have acted on these issuances and contracts whose existence,
as an operative fact, cannot be ignored, let alone erased, even if the charge of
unconstitutionality is given currency.
While not exactly of governing applicability in this case, what the Court wrote in
De Agbayani v. Philippine National Bank,[152] on the operative fact doctrine is
apropos:
x x x When the courts declare a law to be inconsistent with the
Constitution, the former shall be void and the latter shall govern.
Administrative or executive acts, orders and regulations shall be valid only
when they are not contrary to the laws of the Constitution. .
Such a view has support in logic and possesses the merit of
simplicity. It may not however be sufficiently realistic. It does not admit of
doubt that prior to the declaration of nullity such challenged legislative or
executive act must have been in force and had to be complied with. This is
so as until after the judiciary, in an appropriate case, declares its invalidity,
it is entitled to obedience and respect. Parties may have acted under it and
may have changed their positions. What could be more fitting than that in
a subsequent litigation regard be had to what has been done while such
legislative or executive act was in operation and presumed to be valid in
all respects. It is now accepted as a doctrine that prior to its being
nullified, its existence as a fact must be reckoned with. This is merely to
reflect awareness that precisely because the judiciary is the governmental
organ which has the final say on whether or not a legislative or executive
measure is valid, a period of time may have elapsed before it can exercise
the power of judicial review that may lead to a declaration of nullity. It
would be to deprive the law of its quality of fairness and justice then, if
there be no recognition of what had transpired prior to such adjudication.
In the language of an American Supreme Court decision: The
actual existence of a statute, prior to such a determination [of
constitutionality], is an operative fact and may have consequences which
cannot justly be ignored. The past cannot always be erased by a new
judicial declaration x x x. (Emphasis in the original.)
The petitioners in the first three (3) petitions and the respondent in the fourth have
not so said explicitly, but their brief is against the issuance of P.D. Nos. 1112, 1113 and
1894, which conferred a package of express and implied powers and discretion to the

TRB and the President resulting in the execution of what is perceived to be offending
STOAs and the runaway collection of illegal toll fees. And they have come to the Court
to strike down all these issuances, agreements and exactions. While the Court is not
insensitive to their concerns, the rule is that all reasonable doubts should be resolved in
favor of the constitutionality of a statute,[153] and the validity of the acts taken in
pursuant thereof. It follows, therefore, that the Court will not set aside a law as violative
of the Constitution except in a clear case of breach[154] and only as a last resort.[155]
And as the theory of separation of powers prescribes, the Court does not pass upon
questions of wisdom, expediency and justice of legislation. To Us, petitioners and
respondent YPES in the fourth petition have not discharged the heavy burden of
demonstrating in a clear and convincing manner the unconstitutionality of the decrees
challenged or the invalidity of assailed acts of the President and the TRB. Because they
failed to do so, the Court must uphold the presumptive constitutionality and validity of
the provisions of the three decrees in question, and the subject contracts and TOCs.
Regarding petitioner Franciscos Supplemental Petition, the toll rates, the collection of
which in the amount based on the formula and assumptions set forth in the law, and the
adverted STOA dated February 1, 2006 and subject of the TRO issued on August 13,
2010, has been duly published[156] and approved by the TRB, as required by Section 5
of P.D. 1112.[157] And the party-concessionaires have adequately demonstrated, and the
TRB has virtually acknowledged[158] that the said rates subject of the TRO partake of
the nature of opening or initial toll rates, which have not yet been implemented since the
time the SLTC STOA took effect.[159] To note, the toll rates subject of the TRO were
approved and are to be implemented in connection with the new facility, such as Project
Toll Roads 1 and 2 pursuant to the new SLTC STOA and the expanded and rehabilitated
SLEX.[160] As earlier discussed, public hearing is not required in the fixing and
implementation of initial toll rates. But an interested party aggrieved by the initial rates
imposed is not without any resource as he may, within the time frame provided by
Section 8 (b) of P.D. 1894, repair to the TRB for review and thereafter to the OP.[161]
As expressly provided in the same section, however, the pendency of the petition for
review, if there be any, shall not suspend the enforceability and collection of the toll in
question. In net effect, the challenge before the Court of the SLEX toll rate imposition is
premature. However, the Court treats this Supplemental Petition assailing the toll rates
covered by the TRB Notice of Toll Rates published on June 6, 2010 as a petition for
review filed under P.D. 1894, and hereby remands the same to the TRB for a review of
the questioned rates to determine the propriety thereof.
WHEREFORE, the petitions in G.R. Nos. 166910 and 173630 are hereby
DENIED for lack of merit. Accordingly, We declare as VALID AND
CONSTITUTIONALthe following:

1.

the Supplemental Toll Operation Agreement dated April 30, 1998

covering the North Luzon Tollway Project and the TRB Board Resolution
No. 2005-4 issued pursuant thereto;

2.

the Supplemental Toll Operation Agreement dated November 27,

1995 covering the South Metro Manila Skyway and the TRB Board
Resolution No. 2004-53 and previous TRB resolutions issued pursuant
thereto;

3.

the Supplemental Toll Operation Agreement covering the South

Luzon Tollway Project or South Luzon Expressway and the TRB Board
resolutions issued pursuant to the said agreement, particularly the TRB
Board resolutions allowing the toll rate increases that are supposed to have
been implemented on June 30, 2010;

4.

Section 3, paragraph (a) of Presidential Decree No. 1112, otherwise

known as the Toll Operation Decree, in relation to Section 3, paragraph (d)
thereof and Section 8, paragraph (b) of Presidential Decree No. 1894; and

5.

Section 3, paragraph (e) 3 of P.D. No. 1112 and Section 13 of P.D. No.
1894.

We however declare Clause 11.7 of the Supplemental Toll Operation Agreement

between the Republic of the Philippines, represented by respondent TRB, as grantor, the
Philippine National Construction Corporation, as franchisee, and the Manila North
Tollways Corporation (MNTC) dated April 30, 1998; and the clause including if
necessary an extension of the CONCESSION PERIOD which in no case shall exceed a
maximum period of fifty (50) years in Clause 17.5 of the same STOA, as VOID
andUNCONSTITUTIONAL for being contrary to Section 2, Article XII of the 1987
Constitution. We likewise declare Clauses 8.08 (2) & (3) of the Supplemental Toll
Operation Agreement between the Republic of the Philippines, represented by respondent
TRB, as grantor, the Philippine National Construction Corporation as franchisee, the
South Luzon Tollway Corporation as investor, and the Manila Toll Expressway Systems,
Inc. as operator, dated February 1, 2006, as VOID and UNCONSTITUTIONAL.
The petition in G.R. No. 169917 is likewise hereby DENIED for lack of merit. We
declare as VALID and CONSTITUTIONAL the following:
1.

2.

Notice of Approval dated May 16, 1995 by former President Fidel V.

Ramos on the assignment of PNCCs usufructuary rights;
the Joint Venture Agreement dated August 29, 1995;

3.

the Joint Investment Proposal, etc. dated June 16, 1996;

4.

the Supplemental Toll Operation Agreement (STOA) dated April 30,

1998 and the Notice of Approval of said STOA dated June 15, 1998 by
former President Fidel V. Ramos; and

5.

the provisional toll rate increases published February 9, 2005, granted

by the TRB.

The petition in G.R. No. 183599 is GRANTED. Accordingly, the Decision dated
June 23, 2008 of the Regional Trial Court, Branch 155 in Pasig City, docketed as SCA
No. 3138-PSG, annulling the TOC covering the SLEX, enjoining the original toll
operating franchisee from collecting toll fees in the SLEX, and ordering the turnover of
related assets to the Government, is hereby REVERSED and SET ASIDE, and the
petition filed therein by the Young Professionals and Entrepreneurs of San Pedro, Laguna
with the RTC of Pasig is DISMISSED for lack of merit.
In view of the foregoing dispositions in the petitions at bar, the TRO issued by the
Court on August 13, 2010 is hereby ordered LIFTED, with respect to the petitions in G.R.
Nos. 166910, 169917, 173630 and 183599.
The challenge contained in the Supplemental Petition in G.R. No. 166910 against
the toll rates subject of the TRB Notice of Toll Rates published on June 6, 2010, for the
SLEX projects, Toll Road Projects 1 and 2 of the new SLTC STOA, and the expanded
and rehabilitated SLEX, is REMANDED to the TRB for a review of the assailed toll rates
to determine whether SLTC and MATES are entitled to the toll fees.
No Cost.
SO ORDERED.