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G.R. No.

135808 October 6, 2008

SECURITIES AND EXCHANGE COMMISSION, petitioner,


vs.
INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA, PELAGIO RICALDE,
ANTONIO REINA, FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO TANCHAN, JR., respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision,1 dated 20
August 1998, rendered by the Court of Appeals in C.A.-G.R. SP No. 37036, enjoining petitioner Securities and
Exchange Commission (SEC) from taking cognizance of or initiating any action against the respondent
corporation Interport Resources Corporation (IRC) and members of its board of directors, respondents Manuel S.
Recto, Rene S. Villarica, Pelagio Ricalde, Antonio Reina, Francisco Anonuevo, Joseph Sy and Santiago
Tanchan, Jr., with respect to Sections 8, 30 and 36 of the Revised Securities Act. In the same Decision of the
appellate court, all the proceedings taken against the respondents, including the assailed SEC Omnibus Orders of
25 January 1995 and 30 March 1995, were declared void.

The antecedent facts of the present case are as follows.

On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement with Ganda Holdings
Berhad (GHB). Under the Memorandum of Agreement, IRC acquired 100% or the entire capital stock of Ganda
Energy Holdings, Inc. (GEHI),2 which would own and operate a 102 megawatt (MW) gas turbine power-generating
barge. The agreement also stipulates that GEHI would assume a five-year power purchase contract with National
Power Corporation. At that time, GEHI's power-generating barge was 97% complete and would go on-line by mid-
September of 1994. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC amounting to
40.88 billion shares which had a total par value of P488.44 million.3

On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI). PRCI owns
25.724 hectares of real estate property in Makati. Under the Agreement, GHB, a member of the Westmont Group
of Companies in Malaysia, shall extend or arrange a loan required to pay for the proposed acquisition by IRC of
PRCI.4

IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent through
facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile machine of the SEC
could not receive it. Upon the advice of the SEC, the IRC sent the press release on the morning of 9 August
1994.5

The SEC averred that it received reports that IRC failed to make timely public disclosures of its negotiations with
GHB and that some of its directors, respondents herein, heavily traded IRC shares utilizing this material insider
information. On 16 August 1994, the SEC Chairman issued a directive requiring IRC to submit to the SEC a copy
of its aforesaid Memorandum of Agreement with GHB. The SEC Chairman further directed all principal officers of
IRC to appear at a hearing before the Brokers and Exchanges Department (BED) of the SEC to explain IRC's
failure to immediately disclose the information as required by the Rules on Disclosure of Material Facts. 6

In compliance with the SEC Chairman's directive, the IRC sent a letter dated 16 August 1994 to the SEC,
attaching thereto copies of the Memorandum of Agreement. Its directors, Manuel Recto, Rene Villarica and
Pelagio Ricalde, also appeared before the SEC on 22 August 1994 to explain IRC's alleged failure to immediately
disclose material information as required under the Rules on Disclosure of Material Facts. 7

On 19 September 1994, the SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure of
Material Facts, in connection with the Old Securities Act of 1936, when it failed to make timely disclosure of its
negotiations with GHB. In addition, the SEC pronounced that some of the officers and directors of IRC entered
into transactions involving IRC shares in violation of Section 30, in relation to Section 36, of the Revised
Securities Act.8

Respondents filed an Omnibus Motion, dated 21 September 1994, which was superseded by an Amended
Omnibus Motion, filed on 18 October 1994, alleging that the SEC had no authority to investigate the subject
matter, since under Section 8 of Presidential Decree No. 902-A,9 as amended by Presidential Decree No. 1758,
jurisdiction was conferred upon the Prosecution and Enforcement Department (PED) of the SEC. Respondents
also claimed that the SEC violated their right to due process when it ordered that the respondents appear before
the SEC and "show cause why no administrative, civil or criminal sanctions should be imposed on them," and,
thus, shifted the burden of proof to the respondents. Lastly, they sought to have their cases tried jointly given the
identical factual situations surrounding the alleged violation committed by the respondents. 10

Respondents also filed a Motion for Continuance of Proceedings on 24 October 1994, wherein they moved for
discontinuance of the investigations and the proceedings before the SEC until the undue publicity had abated and
the investigating officials had become reasonably free from prejudice and public pressure.11
No formal hearings were conducted in connection with the aforementioned motions, but on 25 January 1995, the
SEC issued an Omnibus Order which thus disposed of the same in this wise: 12

WHEREFORE, premised on the foregoing considerations, the Commission resolves and hereby rules:

1. To create a special investigating panel to hear and decide the instant case in accordance with the
Rules of Practice and Procedure Before the Prosecution and Enforcement Department (PED), Securities
and Exchange Commission, to be composed of Attys. James K. Abugan, Medardo Devera (Prosecution
and Enforcement Department), and Jose Aquino (Brokers and Exchanges Department), which is hereby
directed to expeditiously resolve the case by conducting continuous hearings, if possible.

2. To recall the show cause orders dated September 19, 1994 requiring the respondents to appear and
show cause why no administrative, civil or criminal sanctions should be imposed on them.

3. To deny the Motion for Continuance for lack of merit.

Respondents filed an Omnibus Motion for Partial Reconsideration,13 questioning the creation of the special
investigating panel to hear the case and the denial of the Motion for Continuance. The SEC denied
reconsideration in its Omnibus Order dated 30 March 1995. 14

The respondents filed a petition before the Court of Appeals docketed as C.A.-G.R. SP No. 37036, questioning
the Omnibus Orders dated 25 January 1995 and 30 March 1995. 15 During the proceedings before the Court of
Appeals, respondents filed a Supplemental Motion16 dated 16 May 1995, wherein they prayed for the issuance of
a writ of preliminary injunction enjoining the SEC and its agents from investigating and proceeding with the
hearing of the case against respondents herein. On 5 May 1995, the Court of Appeals granted their motion and
issued a writ of preliminary injunction, which effectively enjoined the SEC from filing any criminal, civil or
administrative case against the respondents herein.17

On 23 October 1995, the SEC filed a Motion for Leave to Quash SEC Omnibus Orders so that the case may be
investigated by the PED in accordance with the SEC Rules and Presidential Decree No. 902-A, and not by the
special body whose creation the SEC had earlier ordered.18

The Court of Appeals promulgated a Decision19 on 20 August 1998. It determined that there were no
implementing rules and regulations regarding disclosure, insider trading, or any of the provisions of the Revised
Securities Acts which the respondents allegedly violated. The Court of Appeals likewise noted that it found no
statutory authority for the SEC to initiate and file any suit for civil liability under Sections 8, 30 and 36 of the
Revised Securities Act. Thus, it ruled that no civil, criminal or administrative proceedings may possibly be held
against the respondents without violating their rights to due process and equal protection. It further resolved that
absent any implementing rules, the SEC cannot be allowed to quash the assailed Omnibus Orders for the sole
purpose of re-filing the same case against the respondents.20

The Court of Appeals further decided that the Rules of Practice and Procedure Before the PED, which took effect
on 14 April 1990, did not comply with the statutory requirements contained in the Administrative Code of 1997.
Section 8, Rule V of the Rules of Practice and Procedure Before the PED affords a party the right to be present
but without the right to cross-examine witnesses presented against him, in violation of Section 12(3), Chapter 3,
Book VII of the Administrative Code. 21

In the dispositive portion of its Decision, dated 20 August 1998, the Court of Appeals ruled that 22:

WHEREFORE, [herein petitioner SEC's] Motion for Leave to Quash SEC Omnibus Orders is
hereby DENIED. The petition for certiorari, prohibition and mandamus is GRANTED. Consequently, all
proceedings taken against [herein respondents] in this case, including the Omnibus Orders of January 25,
1995 and March 30, 1995 are declared null and void. The writ of preliminary injunction is hereby
made permanent and, accordingly, [SEC] is hereby prohibited from taking cognizance or initiating
any action, be they civil, criminal, or administrative against [respondents] with respect to Sections 8
(Procedure for Registration), 30 (Insider's duty to disclose when trading) and 36 (Directors, Officers and
Principal Stockholders) in relation to Sections 46 (Administrative sanctions) 56 (Penalties) 44 (Liabilities
of Controlling persons) and 45 (Investigations, injunctions and prosecution of offenses) of the Revised
Securities Act and Section 144 (Violations of the Code) of the Corporation Code. (Emphasis provided.)

The SEC filed a Motion for Reconsideration, which the Court of Appeals denied in a Resolution 23 issued on 30
September 1998.

Hence, the present petition, which relies on the following grounds 24:

THE COURT OF APPEALS ERRED WHEN IT DENIED PETITIONER'S MOTION FOR LEAVE TO
QUASH THE ASSAILED SEC OMNIBUS ORDERS DATED JANUARY 25 AND MARCH 30, 1995.

II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE IS NO STATUTORY AUTHORITY
WHATSOEVER FOR PETITIONER SEC TO INITIATE AND FILE ANY SUIT BE THEY CIVIL, CRIMINAL
OR ADMINISTRATIVE AGAINST RESPONDENT CORPORATION AND ITS DIRECTORS WITH
RESPECT TO SECTION 30 (INSIDER'S DUTY TO DISCOLSED [sic] WHEN TRADING) AND 36
(DIRECTORS OFFICERS AND PRINCIPAL STOCKHOLDERS) OF THE REVISED SECURITIES ACT;
AND

III

THE COURT OF APPEALS ERRED WHEN IT RULED THAT RULES OF PRACTICE AND
PROSECUTION BEFORE THE PED AND THE SICD RULES OF PROCEDURE ON ADMINISTRATIVE
ACTIONS/PROCEEDINGS25 ARE INVALID AS THEY FAIL TO COMPLY WITH THE STATUTORY
REQUIREMENTS CONTAINED IN THE ADMINISTRATIVE CODE OF 1987.

The petition is impressed with merit.

Before discussing the merits of this case, it should be noted that while this case was pending in this Court,
Republic Act No. 8799, otherwise known as the Securities Regulation Code, took effect on 8 August 2000.
Section 8 of Presidential Decree No. 902-A, as amended, which created the PED, was already repealed as
provided for in Section 76 of the Securities Regulation Code:

SEC. 76. Repealing Clause. - The Revised Securities Act (Batas Pambansa Blg. 178), as amended, in its
entirety, and Sections 2, 4 and 8 of Presidential Decree 902-A, as amended, are hereby repealed. All
other laws, orders, rules and regulations, or parts thereof, inconsistent with any provision of this Code are
hereby repealed or modified accordingly.

Thus, under the new law, the PED has been abolished, and the Securities Regulation Code has taken the place
of the Revised Securities Act.

The Court now proceeds with a discussion of the present case.

I. Sctions 8, 30 and 36 of the Revised Securities Act do not require the enactment of implementing rules to
make them binding and effective.

The Court of Appeals ruled that absent any implementing rules for Sections 8, 30 and 36 of the Revised
Securities Act, no civil, criminal or administrative actions can possibly be had against the respondents without
violating their right to due process and equal protection, citing as its basis the case Yick Wo v. Hopkins.26 This is
untenable.

In the absence of any constitutional or statutory infirmity, which may concern Sections 30 and 36 of the Revised
Securities Act, this Court upholds these provisions as legal and binding. It is well settled that every law has in its
favor the presumption of validity. Unless and until a specific provision of the law is declared invalid and
unconstitutional, the same is valid and binding for all intents and purposes.27 The mere absence of implementing
rules cannot effectively invalidate provisions of law, where a reasonable construction that will support the law may
be given. In People v. Rosenthal,28 this Court ruled that:

In this connection we cannot pretermit reference to the rule that "legislation should not be held invalid on
the ground of uncertainty if susceptible of any reasonable construction that will support and give it effect.
An Act will not be declared inoperative and ineffectual on the ground that it furnishes no adequate means
to secure the purpose for which it is passed, if men of common sense and reason can devise and provide
the means, and all the instrumentalities necessary for its execution are within the reach of those intrusted
therewith." (25 R.C.L., pp. 810, 811)

In Garcia v. Executive Secretary,29 the Court underlined the importance of the presumption of validity of laws and
the careful consideration with which the judiciary strikes down as invalid acts of the legislature:

The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the
political departments are valid in the absence of a clear and unmistakable showing to the contrary. To
doubt is to sustain. This presumption is based on the doctrine of separation of powers which enjoins upon
each department a becoming respect for the acts of the other departments. The theory is that as the joint
act of Congress and the President of the Philippines, a law has been carefully studied and determined to
be in accordance with the fundamental law before it was finally enacted.

The necessity for vesting administrative authorities with power to make rules and regulations is based on the
impracticability of lawmakers' providing general regulations for various and varying details of management. 30 To
rule that the absence of implementing rules can render ineffective an act of Congress, such as the Revised
Securities Act, would empower the administrative bodies to defeat the legislative will by delaying the
implementing rules. To assert that a law is less than a law, because it is made to depend on a future event or act,
is to rob the Legislature of the power to act wisely for the public welfare whenever a law is passed relating to a
state of affairs not yet developed, or to things future and impossible to fully know. 31 It is well established that
administrative authorities have the power to promulgate rules and regulations to implement a given statute and to
effectuate its policies, provided such rules and regulations conform to the terms and standards prescribed by the
statute as well as purport to carry into effect its general policies. Nevertheless, it is undisputable that the rules and
regulations cannot assert for themselves a more extensive prerogative or deviate from the mandate of the
statute.32 Moreover, where the statute contains sufficient standards and an unmistakable intent, as in the case of
Sections 30 and 36 of the Revised Securities Act, there should be no impediment to its implementation.

The reliance placed by the Court of Appeals in Yick Wo v. Hopkins33 shows a glaring error. In the cited case, this
Court found unconstitutional an ordinance which gave the board of supervisors authority to refuse permission to
carry on laundries located in buildings that were not made of brick and stone, because it violated the equal
protection clause and was highly discriminatory and hostile to Chinese residents and not because the standards
provided therein were vague or ambiguous.

This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the Revised Securities Act,
such that the acts proscribed and/or required would not be understood by a person of ordinary intelligence.

Section 30 of the Revised Securities Act

Section 30 of the Revised Securities Act reads:

Sec. 30. Insider's duty to disclose when trading. - (a) It shall be unlawful for an insider to sell or buy a
security of the issuer, if he knows a fact of special significance with respect to the issuer or the security
that is not generally available, unless (1) the insider proves that the fact is generally available or (2) if the
other party to the transaction (or his agent) is identified, (a) the insider proves that the other party knows
it, or (b) that other party in fact knows it from the insider or otherwise.

(b) "Insider" means (1) the issuer, (2) a director or officer of, or a person controlling, controlled by, or
under common control with, the issuer, (3) a person whose relationship or former relationship to the
issuer gives or gave him access to a fact of special significance about the issuer or the security that is not
generally available, or (4) a person who learns such a fact from any of the foregoing insiders as defined in
this subsection, with knowledge that the person from whom he learns the fact is such an insider.

(c) A fact is "of special significance" if (a) in addition to being material it would be likely, on being made
generally available, to affect the market price of a security to a significant extent, or (b) a reasonable
person would consider it especially important under the circumstances in determining his course of action
in the light of such factors as the degree of its specificity, the extent of its difference from information
generally available previously, and its nature and reliability.

(d) This section shall apply to an insider as defined in subsection (b) (3) hereof only to the extent that he
knows of a fact of special significance by virtue of his being an insider.

The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information is the
gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed when an
insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose
material information to the other party or abstain from trading the shares of his corporation. This duty to disclose
or abstain is based on two factors: first, the existence of a relationship giving access, directly or indirectly, to
information intended to be available only for a corporate purpose and not for the personal benefit of anyone; and
second, the inherent unfairness involved when a party takes advantage of such information knowing it is
unavailable to those with whom he is dealing. 34

In the United States (U.S.), the obligation to disclose or abstain has been traditionally imposed on corporate
"insiders," particularly officers, directors, or controlling stockholders, but that definition has since been
expanded.35The term "insiders" now includes persons whose relationship or former relationship to the issuer gives
or gave them access to a fact of special significance about the issuer or the security that is not generally
available, and one who learns such a fact from an insider knowing that the person from whom he learns the fact is
such an insider. Insiders have the duty to disclose material facts which are known to them by virtue of their
position but which are not known to persons with whom they deal and which, if known, would affect their
investment judgment. In some cases, however, there may be valid corporate reasons for the nondisclosure of
material information. Where such reasons exist, an issuer's decision not to make any public disclosures is not
ordinarily considered as a violation of insider trading. At the same time, the undisclosed information should not be
improperly used for non-corporate purposes, particularly to disadvantage other persons with whom an insider
might transact, and therefore the insider must abstain from entering into transactions involving such securities. 36

Respondents further aver that under Section 30 of the Revised Securities Act, the SEC still needed to define the
following terms: "material fact," "reasonable person," "nature and reliability" and "generally available." 37 In
determining whether or not these terms are vague, these terms must be evaluated in the context of Section 30 of
the Revised Securties Act. To fully understand how the terms were used in the aforementioned provision, a
discussion of what the law recognizes as a fact of special significance is required, since the duty to disclose such
fact or to abstain from any transaction is imposed on the insider only in connection with a fact of special
significance.

Under the law, what is required to be disclosed is a fact of "special significance" which may be (a) a material
fact which would be likely, on being made generally available, to affect the market price of a security to a
significant extent, or (b) one which a reasonable person would consider especially important in determining his
course of action with regard to the shares of stock.

(a) Material Fact - The concept of a "material fact" is not a new one. As early as 1973, the Rules Requiring
Disclosure of Material Facts by Corporations Whose Securities Are Listed In Any Stock Exchange or
Registered/Licensed Under the Securities Act, issued by the SEC on 29 January 1973, explained that "[a] fact is
material if it induces or tends to induce or otherwise affect the sale or purchase of its securities." Thus, Section 30
of the Revised Securities Act provides that if a fact affects the sale or purchase of securities, as well as its price,
then the insider would be required to disclose such information to the other party to the transaction involving the
securities. This is the first definition given to a "fact of special significance."

(b.1) Reasonable Person - The second definition given to a fact of special significance involves the judgment of
a "reasonable person." Contrary to the allegations of the respondents, a "reasonable person" is not a problematic
legal concept that needs to be clarified for the purpose of giving effect to a statute; rather, it is the standard on
which most of our legal doctrines stand. The doctrine on negligence uses the discretion of the "reasonable man"
as the standard.38 A purchaser in good faith must also take into account facts which put a "reasonable man" on
his guard.39 In addition, it is the belief of the reasonable and prudent man that an offense was committed that sets
the criteria for probable cause for a warrant of arrest.40 This Court, in such cases, differentiated the reasonable
and prudent man from "a person with training in the law such as a prosecutor or a judge," and identified him as
"the average man on the street," who weighs facts and circumstances without resorting to the calibrations of our
technical rules of evidence of which his knowledge is nil. Rather, he relies on the calculus of common sense of
which all reasonable men have in abundance.41 In the same vein, the U.S. Supreme Court similarly determined its
standards by the actual significance in the deliberations of a "reasonable investor," when it ruled in TSC
Industries, Inc. v. Northway, Inc.,42 that the determination of materiality "requires delicate assessments of the
inferences a reasonable shareholder' would draw from a given set of facts and the significance of those
inferences to him."

(b.2) Nature and Reliability - The factors affecting the second definition of a "fact of special significance," which
is of such importance that it is expected to affect the judgment of a reasonable man, were substantially lifted from
a test of materiality pronounced in the case In the Matter of Investors Management Co., Inc.43:

Among the factors to be considered in determining whether information is material under this test are the
degree of its specificity, the extent to which it differs from information previously publicly disseminated,
and its reliability in light of its nature and source and the circumstances under which it was received.

It can be deduced from the foregoing that the "nature and reliability" of a significant fact in determining the course
of action a reasonable person takes regarding securities must be clearly viewed in connection with the particular
circumstances of a case. To enumerate all circumstances that would render the "nature and reliability" of a fact to
be of special significance is close to impossible. Nevertheless, the proper adjudicative body would undoubtedly be
able to determine if facts of a certain "nature and reliability" can influence a reasonable person's decision to
retain, sell or buy securities, and thereafter explain and justify its factual findings in its decision.

(c) Materiality Concept - A discussion of the "materiality concept" would be relevant to both a material fact which
would affect the market price of a security to a significant extent and/or a fact which a reasonable person would
consider in determining his or her cause of action with regard to the shares of stock. Significantly, what is referred
to in our laws as a fact of special significance is referred to in the U.S. as the "materiality concept" and the latter is
similarly not provided with a precise definition. In Basic v. Levinson,44 the U.S. Supreme Court cautioned against
confining materiality to a rigid formula, stating thus:

A bright-line rule indeed is easier to follow than a standard that requires the exercise of judgment in the
light of all the circumstances. But ease of application alone is not an excuse for ignoring the purposes of
the Securities Act and Congress' policy decisions. Any approach that designates a single fact or
occurrence as always determinative of an inherently fact-specific finding such as materiality, must
necessarily be overinclusive or underinclusive.

Moreover, materiality "will depend at any given time upon a balancing of both the indicated probability that the
event will occur and the anticipated magnitude of the event in light of the totality of the company activity." 45 In
drafting the Securities Act of 1934, the U.S. Congress put emphasis on the limitations to the definition of
materiality:

Although the Committee believes that ideally it would be desirable to have absolute certainty in the
application of the materiality concept, it is its view that such a goal is illusory and unrealistic. The
materiality concept is judgmental in nature and it is not possible to translate this into a numerical
formula. The Committee's advice to the [SEC] is to avoid this quest for certainty and to continue
consideration of materiality on a case-by-case basis as disclosure problems are identified." House
Committee on Interstate and Foreign Commerce, Report of the Advisory Committee on Corporate
Disclosure to the Securities and Exchange Commission, 95th Cong., 1st Sess., 327 (Comm.Print 1977).
(Emphasis provided.)46

(d) Generally Available - Section 30 of the Revised Securities Act allows the insider the defense that in a
transaction of securities, where the insider is in possession of facts of special significance, such information is
"generally available" to the public. Whether information found in a newspaper, a specialized magazine, or any
cyberspace media be sufficient for the term "generally available" is a matter which may be adjudged given the
particular circumstances of the case. The standards cannot remain at a standstill. A medium, which is widely used
today was, at some previous point in time, inaccessible to most. Furthermore, it would be difficult to approximate
how the rules may be applied to the instant case, where investigation has not even been started. Respondents
failed to allege that the negotiations of their agreement with GHB were made known to the public through any
form of media for there to be a proper appreciation of the issue presented.

Section 36(a) of the Revised Securities Act

As regards Section 36(a) of the Revised Securities Act, respondents claim that the term "beneficial ownership" is
vague and that it requires implementing rules to give effect to the law. Section 36(a) of the Revised Securities Act
is a straightforward provision that imposes upon (1) a beneficial owner of more than ten percent of any class of
any equity security or (2) a director or any officer of the issuer of such security, the obligation to submit a
statement indicating his or her ownership of the issuer's securities and such changes in his or her ownership
thereof. The said provision reads:

Sec. 36. Directors, officers and principal stockholders. - (a) Every person who is directly or indirectly
the beneficial owner of more than ten per centum of any [class] of any equity security which is registered
pursuant to this Act, or who is [a] director or an officer of the issuer of such security, shall file, at the time
of the registration of such security on a securities exchange or by the effective date of a registration
statement or within ten days after he becomes such a beneficial owner, director or officer, a statement
with the Commission and, if such security is registered on a securities exchange, also with the exchange,
of the amount of all equity securities of such issuer of which he is the beneficial owner, and within ten
days after the close of each calendar month thereafter, if there has been a change in such ownership
during such month, shall file with the Commission, and if such security is registered on a securities
exchange, shall also file with the exchange, a statement indicating his ownership at the close of the
calendar month and such changes in his ownership as have occurred during such calendar month.
(Emphasis provided.)

Section 36(a) refers to the "beneficial owner." Beneficial owner has been defined in the following manner:

[F]irst, to indicate the interest of a beneficiary in trust property (also called "equitable ownership"); and
second, to refer to the power of a corporate shareholder to buy or sell the shares, though the shareholder
is not registered in the corporation's books as the owner. Usually, beneficial ownership is distinguished
from naked ownership, which is the enjoyment of all the benefits and privileges of ownership, as against
possession of the bare title to property.47

Even assuming that the term "beneficial ownership" was vague, it would not affect respondents' case, where the
respondents are directors and/or officers of the corporation, who are specifically required to comply with the
reportorial requirements under Section 36(a) of the Revised Securities Act. The validity of a statute may be
contested only by one who will sustain a direct injury as a result of its enforcement.48

Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure in the securities market
and prevent unscrupulous individuals, who by their positions obtain non-public information, from taking advantage
of an uninformed public. No individual would invest in a market which can be manipulated by a limited number of
corporate insiders. Such reaction would stifle, if not stunt, the growth of the securities market. To avert the
occurrence of such an event, Section 30 of the Revised Securities Act prevented the unfair use of non-public
information in securities transactions, while Section 36 allowed the SEC to monitor the transactions entered into
by corporate officers and directors as regards the securities of their companies.

In the case In the Matter of Investor's Management Co.,49 it was cautioned that "the broad language of the anti-
fraud provisions," which include the provisions on insider trading, should not be "circumscribed by fine distinctions
and rigid classifications." The ambit of anti-fraud provisions is necessarily broad so as to embrace the infinite
variety of deceptive conduct.50

In Tatad v. Secretary of Department of Energy,51 this Court brushed aside a contention, similar to that made by
the respondents in this case, that certain words or phrases used in a statute do not set determinate standards,
declaring that:

Petitioners contend that the words "as far as practicable," "declining" and "stable" should have been
defined in R.A. No. 8180 as they do not set determinate and determinable standards. This stubborn
submission deserves scant consideration. The dictionary meanings of these words are well settled and
cannot confuse men of reasonable intelligence. x x x. The fear of petitioners that these words will result in
the exercise of executive discretion that will run riot is thus groundless. To be sure, the Court has
sustained the validity of similar, if not more general standards in other cases.

Among the words or phrases that this Court upheld as valid standards were "simplicity and dignity," 52 "public
interest,"53 and "interests of law and order."54

The Revised Securities Act was approved on 23 February 1982. The fact that the Full Disclosure Rules were
promulgated by the SEC only on 24 July 1996 does not render ineffective in the meantime Section 36 of the
Revised Securities Act. It is already unequivocal that the Revised Securities Act requires full disclosure and the
Full Disclosure Rules were issued to make the enforcement of the law more consistent, efficient and effective. It is
equally reasonable to state that the disclosure forms later provided by the SEC, do not, in any way imply that no
compliance was required before the forms were provided. The effectivity of a statute which imposes reportorial
requirements cannot be suspended by the issuance of specified forms, especially where compliance therewith
may be made even without such forms. The forms merely made more efficient the processing of requirements
already identified by the statute.

For the same reason, the Court of Appeals made an evident mistake when it ruled that no civil, criminal or
administrative actions can possibly be had against the respondents in connection with Sections 8, 30 and 36 of
the Revised Securities Act due to the absence of implementing rules. These provisions are sufficiently clear and
complete by themselves. Their requirements are specifically set out, and the acts which are enjoined are
determinable. In particular, Section 855 of the Revised Securities Act is a straightforward enumeration of the
procedure for the registration of securities and the particular matters which need to be reported in the registration
statement thereof. The Decision, dated 20 August 1998, provides no valid reason to exempt the respondent IRC
from such requirements. The lack of implementing rules cannot suspend the effectivity of these provisions. Thus,
this Court cannot find any cogent reason to prevent the SEC from exercising its authority to investigate
respondents for violation of Section 8 of the Revised Securities Act.

II. The right to cross-examination is not absolute and cannot be demanded during investigative
proceedings before the PED.

In its assailed Decision dated 20 August 1998, the Court of Appeals pronounced that the PED Rules of Practice
and Procedure was invalid since Section 8, Rule V56 thereof failed to provide for the parties' right to cross-
examination, in violation of the Administrative Code of 1987 particularly Section 12(3), Chapter 3, Book VII
thereof. This ruling is incorrect.

Firstly, Section 4, Rule I of the PED Rules of Practice and Procedure, categorically stated that the proceedings
before the PED are summary in nature:

Section 4. Nature of Proceedings - Subject to the requirements of due process, proceedings before the
"PED" shall be summary in nature not necessarily adhering to or following the technical rules of evidence
obtaining in the courts of law. The Rules of Court may apply in said proceedings in suppletory character
whenever practicable.

Rule V of the PED Rules of Practice and Procedure further specified that:

Section 5. Submission of Documents - During the preliminary conference/hearing, or immediately


thereafter, the Hearing Officer may require the parties to simultaneously submit their respective verified
position papers accompanied by all supporting documents and the affidavits of their witnesses, if any
which shall take the place of their direct testimony. The parties shall furnish each other with copies of the
position papers together with the supporting affidavits and documents submitted by them.

Section 6. Determination of necessity of hearing. - Immediately after the submission by the parties of their
position papers and supporting documents, the Hearing Officer shall determine whether there is a need
for a formal hearing. At this stage, he may, in his discretion, and for the purpose of making such
determination, elicit pertinent facts or information, including documentary evidence, if any, from any party
or witness to complete, as far as possible, the facts of the case. Facts or information so elicited may serve
as basis for his clarification or simplifications of the issues in the case. Admissions and stipulation of facts
to abbreviate the proceedings shall be encouraged.

Section 7. Disposition of Case. If the Hearing Officer finds no necessity of further hearing after the parties
have submitted their position papers and supporting documents, he shall so inform the parties stating the
reasons therefor and shall ask them to acknowledge the fact that they were so informed by signing the
minutes of the hearing and the case shall be deemed submitted for resolution.

As such, the PED Rules provided that the Hearing Officer may require the parties to submit their respective
verified position papers, together with all supporting documents and affidavits of witnesses. A formal hearing was
not mandatory; it was within the discretion of the Hearing Officer to determine whether there was a need for a
formal hearing. Since, according to the foregoing rules, the holding of a hearing before the PED is discretionary,
then the right to cross-examination could not have been demanded by either party.

Secondly, it must be pointed out that Chapter 3, Book VII of the Administrative Code, entitled "Adjudication," does
not affect the investigatory functions of the agencies. The law creating the PED, Section 8 of Presidential Decree
No. 902-A, as amended, defines the authority granted to the PED, thus:

SEC. 8. The Prosecution and Enforcement Department shall have, subject to the Commission's control
and supervision, the exclusive authority to investigate, on complaint or motu proprio, any act or
omission of the Board of Directors/Trustees of corporations, or of partnerships, or of other associations, or
of their stockholders, officers or partners, including any fraudulent devices, schemes or representations,
in violation of any law or rules and regulations administered and enforced by the Commission; to file and
prosecute in accordance with law and rules and regulations issued by the Commission and in
appropriate cases, the corresponding criminal or civil case before the Commission or the proper court or
body upon prima facie finding of violation of any laws or rules and regulations administered and enforced
by the Commission; and to perform such other powers and functions as may be provided by law or duly
delegated to it by the Commission. (Emphasis provided.)

The law creating PED empowers it to investigate violations of the rules and regulations promulgated by the SEC
and to file and prosecute such cases. It fails to mention any adjudicatory functions insofar as the PED is
concerned. Thus, the PED Rules of Practice and Procedure need not comply with the provisions of the
Administrative Code on adjudication, particularly Section 12(3), Chapter 3, Book VII.

In Cario v. Commission on Human Rights,57 this Court sets out the distinction between investigative and
adjudicative functions, thus:

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

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

"Adjudicate," commonly or popularly understood, means to adjudge, arbitrate, judge, decide, determine,
resolve, rule on, settle. The dictionary defines the term as "to settle finally (the rights and duties of parties
to a court case) on the merits of issues raised: xx to pass judgment on: settle judicially: xx act as judge."
And "adjudge" means "to decide or rule upon as a judge or with judicial or quasi-judicial powers: xx to
award or grant judicially in a case of controversy x x x."

In a legal sense, "adjudicate" means: "To settle in the exercise of judicial authority. To determine finally.
Synonymous with adjudge in its strictest sense;" and "adjudge" means: "To pass on judicially, to decide, settle, or
decree, or to sentence or condemn. x x x Implies a judicial determination of a fact, and the entry of a judgment."

There is no merit to the respondent's averment that the sections under Chapter 3, Book VII of the Administrative
Code, do not distinguish between investigative and adjudicatory functions. Chapter 3, Book VII of the
Administrative Code, is unequivocally entitled "Adjudication."

Respondents insist that the PED performs adjudicative functions, as enumerated under Section 1(h) and (j), Rule
II; and Section 2(4), Rule VII of the PED Rules of Practice and Procedure:

Section 1. Authority of the Prosecution and Enforcement Department - Pursuant to Presidential Decree
No. 902-A, as amended by Presidential Decree No. 1758, the Prosecution and Enforcement Department
is primarily charged with the following:

xxxx

(h) Suspends or revokes, after proper notice and hearing in accordance with these Rules, the franchise or
certificate of registration of corporations, partnerships or associations, upon any of the following grounds:

1. Fraud in procuring its certificate of registration;

2. Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or
damage to the general public;

3. Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts
which would amount to a grave violation of its franchise;

xxxx

(j) Imposes charges, fines and fees, which by law, it is authorized to collect;

xxxx

Section 2. Powers of the Hearing Officer. The Hearing Officer shall have the following powers:

xxxx
4. To cite and/or declare any person in direct or indirect contempt in accordance with pertinent provisions
of the Rules of Court.

Even assuming that these are adjudicative functions, the PED, in the instant case, exercised its investigative
powers; thus, respondents do not have the requisite standing to assail the validity of the rules on adjudication. A
valid source of a statute or a rule can only be contested by one who will sustain a direct injury as a result of its
enforcement.58 In the instant case, respondents are only being investigated by the PED for their alleged failure to
disclose their negotiations with GHB and the transactions entered into by its directors involving IRC shares. The
respondents have not shown themselves to be under any imminent danger of sustaining any personal injury
attributable to the exercise of adjudicative functions by the SEC. They are not being or about to be subjected by
the PED to charges, fees or fines; to citations for contempt; or to the cancellation of their certificate of registration
under Section 1(h), Rule II of the PED Rules of Practice and Procedure.

To repeat, the only powers which the PED was likely to exercise over the respondents were investigative in
nature, to wit:

Section 1. Authority of the Prosecution and Enforcement Department - Pursuant to Presidential Decree
No. 902-A, as amended by Presidential Decree No. 1758, the Prosecution and Enforcement Department
is primarily charged with the following:

xxxx

b. Initiates proper investigation of corporations and partnerships or persons, their books, records and
other properties and assets, involving their business transactions, in coordination with the operating
department involved;

xxxx

e. Files and prosecutes civil or criminal cases before the Commission and other courts of justice involving
violations of laws and decrees enforced by the Commission and the rules and regulations promulgated
thereunder;

f. Prosecutes erring directors, officers and stockholders of corporations and partnerships, commercial
paper issuers or persons in accordance with the pertinent rules on procedures;

The authority granted to the PED under Section 1(b), (e), and (f), Rule II of the PED Rules of Practice and
Procedure, need not comply with Section 12, Chapter 3, Rule VII of the Administrative Code, which affects only
the adjudicatory functions of administrative bodies. Thus, the PED would still be able to investigate the
respondents under its rules for their alleged failure to disclose their negotiations with GHB and the transactions
entered into by its directors involving IRC shares.

This is not to say that administrative bodies performing adjudicative functions are required to strictly comply with
the requirements of Chapter 3, Rule VII of the Administrative Code, particularly, the right to cross-examination. It
should be noted that under Section 2.2 of Executive Order No. 26, issued on 7 October 1992, abbreviated
proceedings are prescribed in the disposition of administrative cases:

2. Abbreviation of Proceedings. All administrative agencies are hereby directed to adopt and include in
their respective Rules of Procedure the following provisions:

xxxx

2.2 Rules adopting, unless otherwise provided by special laws and without prejudice to Section 12,
Chapter 3, Book VII of the Administrative Code of 1987, the mandatory use of affidavits in lieu of direct
testimonies and the preferred use of depositions whenever practicable and convenient.

As a consequence, in proceedings before administrative or quasi-judicial bodies, such as the National Labor
Relations Commission and the Philippine Overseas Employment Agency, created under laws which authorize
summary proceedings, decisions may be reached on the basis of position papers or other documentary evidence
only. They are not bound by technical rules of procedure and evidence. 59 In fact, the hearings before such
agencies do not connote full adversarial proceedings.60 Thus, it is not necessary for the rules to require affiants to
appear and testify and to be cross-examined by the counsel of the adverse party. To require otherwise would
negate the summary nature of the administrative or quasi-judicial proceedings.61 In Atlas Consolidated Mining and
Development Corporation v. Factoran, Jr.,62 this Court stated that:

[I]t is sufficient that administrative findings of fact are supported by evidence, or negatively stated, it is
sufficient that findings of fact are not shown to be unsupported by evidence. Substantial evidence is all
that is needed to support an administrative finding of fact, and substantial evidence is "such relevant
evidence as a reasonable mind might accept as adequate to support a conclusion."
In order to comply with the requirements of due process, what is required, among other things, is that every
litigant be given reasonable opportunity to appear and defend his right and to introduce relevant evidence in his
favor.63

III. The Securities Regulations Code did not repeal Sections 8, 30 and 36 of the Revised Securities Act
since said provisions were reenacted in the new law.

The Securities Regulations Code absolutely repealed the Revised Securities Act. While the absolute repeal of a
law generally deprives a court of its authority to penalize the person charged with the violation of the old law prior
to its appeal, an exception to this rule comes about when the repealing law punishes the act previously penalized
under the old law. The Court, in Benedicto v. Court of Appeals, sets down the rules in such instances:64

As a rule, an absolute repeal of a penal law has the effect of depriving the court of its authority to punish a
person charged with violation of the old law prior to its repeal. This is because an unqualified repeal of a
penal law constitutes a legislative act of rendering legal what had been previously declared as illegal,
such that the offense no longer exists and it is as if the person who committed it never did so. There are,
however, exceptions to the rule. One is the inclusion of a saving clause in the repealing statute that
provides that the repeal shall have no effect on pending actions. Another exception is where the
repealing act reenacts the former statute and punishes the act previously penalized under the old law. In
such instance, the act committed before the reenactment continues to be an offense in the statute books
and pending cases are not affected, regardless of whether the new penalty to be imposed is more
favorable to the accused. (Emphasis provided.)

In the present case, a criminal case may still be filed against the respondents despite the repeal, since Sections
8,65 12,66 26,67 2768 and 2369 of the Securities Regulations Code impose duties that are substantially similar to
Sections 8, 30 and 36 of the repealed Revised Securities Act.

Section 8 of the Revised Securities Act, which previously provided for the registration of securities and the
information that needs to be included in the registration statements, was expanded under Section 12, in
connection with Section 8 of the Securities Regulations Code. Further details of the information required to be
disclosed by the registrant are explained in the Amended Implementing Rules and Regulations of the Securities
Regulations Code, issued on 30 December 2003, particularly Sections 8 and 12 thereof.

Section 30 of the Revised Securities Act has been reenacted as Section 27 of the Securities Regulations Code,
still penalizing an insider's misuse of material and non-public information about the issuer, for the purpose of
protecting public investors. Section 26 of the Securities Regulations Code even widens the coverage of
punishable acts, which intend to defraud public investors through various devices, misinformation and omissions.

Section 23 of the Securities Regulations Code was practically lifted from Section 36(a) of the Revised Securities
Act. Both provisions impose upon (1) a beneficial owner of more than ten percent of any class of any equity
security or (2) a director or any officer of the issuer of such security, the obligation to submit a statement
indicating his or her ownership of the issuer's securities and such changes in his or her ownership thereof.

Clearly, the legislature had not intended to deprive the courts of their authority to punish a person charged with
violation of the old law that was repealed; in this case, the Revised Securities Act.

IV. The SEC retained the jurisdiction to investigate violations of the Revised Securities Act, reenacted in
the Securities Regulations Code, despite the abolition of the PED.

Section 53 of the Securities Regulations Code clearly provides that criminal complaints for violations of rules and
regulations enforced or administered by the SEC shall be referred to the Department of Justice (DOJ) for
preliminary investigation, while the SEC nevertheless retains limited investigatory powers.70 Additionally, the SEC
may still impose the appropriate administrative sanctions under Section 54 of the aforementioned law. 71

In Morato v. Court of Appeals,72 the cases therein were still pending before the PED for investigation and the SEC
for resolution when the Securities Regulations Code was enacted. The case before the SEC involved an intra-
corporate dispute, while the subject matter of the other case investigated by the PED involved the schemes,
devices, and violations of pertinent rules and laws of the company's board of directors. The enactment of the
Securities Regulations Code did not result in the dismissal of the cases; rather, this Court ordered the transfer of
one case to the proper regional trial court and the SEC to continue with the investigation of the other case.

The case at bar is comparable to the aforecited case. In this case, the SEC already commenced the investigative
proceedings against respondents as early as 1994. Respondents were called to appear before the SEC and
explain their failure to disclose pertinent information on 14 August 1994. Thereafter, the SEC Chairman, having
already made initial findings that respondents failed to make timely disclosures of their negotiations with GHB,
ordered a special investigating panel to hear the case. The investigative proceedings were interrupted only by the
writ of preliminary injunction issued by the Court of Appeals, which became permanent by virtue of the Decision,
dated 20 August 1998, in C.A.-G.R. SP No. 37036. During the pendency of this case, the Securities Regulations
Code repealed the Revised Securities Act. As in Morato v. Court of Appeals, the repeal cannot deprive SEC of its
jurisdiction to continue investigating the case; or the regional trial court, to hear any case which may later be filed
against the respondents.
V. The instant case has not yet prescribed.

Respondents have taken the position that this case is moot and academic, since any criminal complaint that may
be filed against them resulting from the SEC's investigation of this case has already prescribed. 73 They point out
that the prescription period applicable to offenses punished under special laws, such as violations of the Revised
Securities Act, is twelve years under Section 1 of Act No. 3326, as amended by Act No. 3585 and Act No. 3763,
entitled "An Act to Establish Periods of Prescription for Violations Penalized by Special Acts and Municipal
Ordinances and to Provide When Prescription Shall Begin to Act."74 Since the offense was committed in 1994,
they reasoned that prescription set in as early as 2006 and rendered this case moot. Such position, however, is
incongruent with the factual circumstances of this case, as well as the applicable laws and jurisprudence.

It is an established doctrine that a preliminary investigation interrupts the prescription period.75 A preliminary
investigation is essentially a determination whether an offense has been committed, and whether there is
probable cause for the accused to have committed an offense:

A preliminary investigation is merely inquisitorial, and it is often the only means of discovering the persons
who may be reasonably charged with a crime, to enable the fiscal to prepare the complaint or information.
It is not a trial of the case on the merits and has no purpose except that of determining whether a crime
has been committed or whether there is probable cause to believe that the accused is guilty thereof. 76

Under Section 45 of the Revised Securities Act, which is entitled Investigations, Injunctions and Prosecution of
Offenses, the Securities Exchange Commission (SEC) has the authority to "make such investigations as it deems
necessary to determine whether any person has violated or is about to violate any provision of this Act XXX."
After a finding that a person has violated the Revised Securities Act, the SEC may refer the case to the DOJ for
preliminary investigation and prosecution.

While the SEC investigation serves the same purpose and entails substantially similar duties as the preliminary
investigation conducted by the DOJ, this process cannot simply be disregarded. In Baviera v. Paglinawan,77 this
Court enunciated that a criminal complaint is first filed with the SEC, which determines the existence of probable
cause, before a preliminary investigation can be commenced by the DOJ. In the aforecited case, the complaint
filed directly with the DOJ was dismissed on the ground that it should have been filed first with the SEC. Similarly,
the offense was a violation of the Securities Regulations Code, wherein the procedure for criminal prosecution
was reproduced from Section 45 of the Revised Securities Act. 78 This Court affirmed the dismissal, which it
explained thus:

The Court of Appeals held that under the above provision, a criminal complaint for violation of any law or
rule administered by the SEC must first be filed with the latter. If the Commission finds that there is
probable cause, then it should refer the case to the DOJ. Since petitioner failed to comply with the
foregoing procedural requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint
in I.S. No. 2004-229.

A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must
first be referred to an administrative agency of special competence, i.e., the SEC. Under the doctrine of
primary jurisdiction, courts will not determine a controversy involving a question within the jurisdiction of
the administrative tribunal, where the question demands the exercise of sound administrative discretion
requiring the specialized knowledge and expertise of said administrative tribunal to determine technical
and intricate matters of fact. The Securities Regulation Code is a special law. Its enforcement is
particularly vested in the SEC. Hence, all complaints for any violation of the Code and its implementing
rules and regulations should be filed with the SEC. Where the complaint is criminal in nature, the SEC
shall indorse the complaint to the DOJ for preliminary investigation and prosecution as provided in
Section 53.1 earlier quoted.

We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he filed
his criminal complaint directly with the DOJ. Verily, no grave abuse of discretion can be ascribed to the
DOJ in dismissing petitioner's complaint.

The said case puts in perspective the nature of the investigation undertaken by the SEC, which is a requisite
before a criminal case may be referred to the DOJ. The Court declared that it is imperative that the criminal
prosecution be initiated before the SEC, the administrative agency with the special competence.

It should be noted that the SEC started investigative proceedings against the respondents as early as 1994. This
investigation effectively interrupted the prescription period. However, said proceedings were disrupted by a
preliminary injunction issued by the Court of Appeals on 5 May 1995, which effectively enjoined the SEC from
filing any criminal, civil, or administrative case against the respondents herein. 79 Thereafter, on 20 August 1998,
the appellate court issued the assailed Decision in C.A. G.R. SP. No. 37036 ordering that the writ of injunction be
made permanent and prohibiting the SEC from taking cognizance of and initiating any action against herein
respondents. The SEC was bound to comply with the aforementioned writ of preliminary injunction and writ of
injunction issued by the Court of Appeals enjoining it from continuing with the investigation of respondents for 12
years. Any deviation by the SEC from the injunctive writs would be sufficient ground for contempt. Moreover, any
step the SEC takes in defiance of such orders will be considered void for having been taken against an order
issued by a court of competent jurisdiction.
An investigation of the case by any other administrative or judicial body would likewise be impossible pending the
injunctive writs issued by the Court of Appeals. Given the ruling of this Court in Baviera v. Paglinawan,80 the DOJ
itself could not have taken cognizance of the case and conducted its preliminary investigation without a prior
determination of probable cause by the SEC. Thus, even presuming that the DOJ was not enjoined by the Court
of Appeals from conducting a preliminary investigation, any preliminary investigation conducted by the DOJ would
have been a futile effort since the SEC had only started with its investigation when respondents themselves
applied for and were granted an injunction by the Court of Appeals.

Moreover, the DOJ could not have conducted a preliminary investigation or filed a criminal case against the
respondents during the time that issues on the effectivity of Sections 8, 30 and 36 of the Revised Securities Act
and the PED Rules of Practice and Procedure were still pending before the Court of Appeals. After the Court of
Appeals declared the aforementioned statutory and regulatory provisions invalid and, thus, no civil, criminal or
administrative case may be filed against the respondents for violations thereof, the DOJ would have been at a
loss, as there was no statutory provision which respondents could be accused of violating.

Accordingly, it is only after this Court corrects the erroneous ruling of the Court of Appeals in its Decision dated 20
August 1998 that either the SEC or DOJ may properly conduct any kind of investigation against the respondents
for violations of Sections 8, 30 and 36 of the Revised Securities Act. Until then, the prescription period is deemed
interrupted.

To reiterate, the SEC must first conduct its investigations and make a finding of probable cause in accordance
with the doctrine pronounced in Baviera v. Paglinawan.81 In this case, the DOJ was precluded from initiating a
preliminary investigation since the SEC was halted by the Court of Appeals from continuing with its investigation.
Such a situation leaves the prosecution of the case at a standstill, and neither the SEC nor the DOJ can conduct
any investigation against the respondents, who, in the first place, sought the injunction to prevent their
prosecution. All that the SEC could do in order to break the impasse was to have the Decision of the Court of
Appeals overturned, as it had done at the earliest opportunity in this case. Therefore, the period during which the
SEC was prevented from continuing with its investigation should not be counted against it. The law on the
prescription period was never intended to put the prosecuting bodies in an impossible bind in which the
prosecution of a case would be placed way beyond their control; for even if they avail themselves of the proper
remedy, they would still be barred from investigating and prosecuting the case.

Indubitably, the prescription period is interrupted by commencing the proceedings for the prosecution of the
accused. In criminal cases, this is accomplished by initiating the preliminary investigation. The prosecution of
offenses punishable under the Revised Securities Act and the Securities Regulations Code is initiated by the filing
of a complaint with the SEC or by an investigation conducted by the SEC motu proprio. Only after a finding of
probable cause is made by the SEC can the DOJ instigate a preliminary investigation. Thus, the investigation that
was commenced by the SEC in 1995, soon after it discovered the questionable acts of the respondents,
effectively interrupted the prescription period. Given the nature and purpose of the investigation conducted by the
SEC, which is equivalent to the preliminary investigation conducted by the DOJ in criminal cases, such
investigation would surely interrupt the prescription period.

VI. The Court of Appeals was justified in denying SEC's Motion for Leave to Quash SEC Omnibus Orders
dated 23 October 1995.

The SEC avers that the Court of Appeals erred when it denied its Motion for Leave to Quash SEC Omnibus
Orders, dated 23 October 1995, in the light of its admission that the PED had the sole authority to investigate the
present case. On this matter, this Court cannot agree with the SEC.

In the assailed decision, the Court of Appeals denied the SEC's Motion for Leave to Quash SEC Omnibus Orders,
since it found other issues that were more important than whether or not the PED was the proper body to
investigate the matter. Its refusal was premised on its earlier finding that no criminal, civil, or administrative case
may be filed against the respondents under Sections 8, 30 and 36 of the Revised Securities Act, due to the
absence of any implementing rules and regulations. Moreover, the validity of the PED Rules on Practice and
Procedure was also raised as an issue. The Court of Appeals, thus, reasoned that if the quashal of the orders
was granted, then it would be deprived of the opportunity to determine the validity of the aforementioned rules and
statutory provisions. In addition, the SEC would merely pursue the same case without the Court of Appeals
having determined whether or not it may do so in accordance with due process requirements. Absent a
determination of whether the SEC may file a case against the respondents based on the assailed provisions of
the Revised Securities Act, it would have been improper for the Court of Appeals to grant the SEC's Motion for
Leave to Quash SEC Omnibus Orders.

In all, this Court rules that no implementing rules were needed to render effective Sections 8, 30 and 36 of the
Revised Securities Act; nor was the PED Rules of Practice and Procedure invalid, prior to the enactment of the
Securities Regulations Code, for failure to provide parties with the right to cross-examine the witnesses presented
against them. Thus, the respondents may be investigated by the appropriate authority under the proper rules of
procedure of the Securities Regulations Code for violations of Sections 8, 30, and 36 of the Revised Securities
Act.82

IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This Court hereby REVERSES the assailed
Decision of the Court of Appeals promulgated on 20 August 1998 in CA-G.R. SP No. 37036 and LIFTS the
permanent injunction issued pursuant thereto. This Court further DECLARES that the investigation of the
respondents for violations of Sections 8, 30 and 36 of the Revised Securities Act may be undertaken by the
proper authorities in accordance with the Securities Regulations Code. No costs.

SO ORDERED.

G.R. No. 141949 October 14, 2002

CEFERINO PADUA, petitioner,


vs.
HON. SANTIAGO RANADA

-----------------------------

G.R. No. 151108 October 14, 2002

EDUARDO C. ZIALCITA, petitioner,


vs.
TOLL REGULATORY BOARD AND CITRA METRO MANILA TOLLWAYS CORPORATION, respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

The focal point upon which these two consolidated cases converge is whether Resolution No. 2001-89 issued by
the Toll Regulatory Board (TRB) is valid.

A brief narration of the factual backdrop is imperative, thus:

On November 9, 2001, the TRB issued Resolution No. 2001-89 authorizing provisional toll rate adjustments at the
Metro Manila Skyway, effective January 1, 2002,[1] thus:

"NOW THEREFORE, it is RESOLVED, as it is hereby RESOLVED:

1. That in view of urgent public interest, the Board hereby GRANTS to the Metro Manila Skyway Project,
Provisional Relief in accordance with Rule 10, Section 3 of the Rules of Practice and Procedure
Governing Hearing before the Toll Regulatory Board which states, among others "that the Board may
grant (provisional relief)in its own initiativewithout prejudice to the final decision after completion of
the hearing;"

2. That the Provisional Relief shall be in form of an interim toll rate adjustment in accordance with Section
7.04(3) of the Supplemental Toll Operation Agreement, dated November 27, 1995, referring to Interim
Adjustments in Toll Rates upon the occurrence of a significant currency devaluation:

"Be APPROVED, as it is hereby APPROVED.

"RESOLVED FURTHER, as it is hereby RESOLVED:

"That the ProvisionalToll Rates, which are not to exceed the following:

Toll Rates for Implementation


Unrounded
Section
Toll Rates
CLASS 1 CLASS 2 CLASS 3

Elevated Portion 75.00 75.00 150.00 225.00

At-Grade Portion

Magallanes to Bicutan 19.35 19.50 38.50 58.00

Bicutan to Sucat 11.21 11.00 22.50 34.00

Sucat to Alabang 10.99 11.00 21.00 32.50

* includes C5 entry/exit and Merville exit.

"For implementation starting January 1, 2002 after its publication once a week for three (3) consecutive weeks in
a newspaper of general circulation and that said Provisional Toll Rate Increase shall remain in effect until such
time that the TRB Board has determined otherwise:
"Be APPROVED as it is hereby APPROVED.

"RESOLVED FURTHERMORE, as it is hereby RESOLVED that the Provisional Toll Rates be implemented in two
(2) stages in accordance with the following schedule:

Toll Rates for Implementation For Class 1 as Reference


Unrounded Toll
Section Rates as Maximum
JANUARY 1, 2002 to JUNE 30, 2002 to
for One (1) Year
JULY 1, 2002 DECEMBER 31, 2002

Elevated Portion 75.00 65.00 75.00

At-Grade Portion

Magallanes to Bicutan 19.35 15.00 20.00

Bicutan to Sucat 11.21 9.00 11.00

Sucat to Alabang 10.99 9.00 11.00

"PROVIDED that the recovery of the sum from the interim rate adjustment shall be applied starting the year 2003.

"APPROVED as it is hereby APPROVED."

On December 17, 24 and 31, 2001, the above Resolution approving provisional toll rate adjustments was
published in the newspapers of general circulation.[2]

Tracing back the events that led to the issuance of the said Resolution, it appears that on February 27, 2001 the
Citra Metro Manila Tollways Corporation (CITRA) filed with the TRB an application for an interim adjustment of
the toll rates at the Metro Manila Skyway Project Stage 1.[3] CITRA moored its petition on the provisions of the
"Supplemental Toll Operation Agreement" (STOA),[4] authorizing it, as the investor, to apply for and if warranted,
to be granted an interim adjustment of toll rates in the event of a "significant currency devaluation." The relevant
portions of the STOA read:

a. The Investor and/or the Operator shall be entitled to apply for and if warranted, to be granted an interim
adjustment of Toll Rates upon the occurrence of any of the following events:

xxx xxx

(ii) a significant currency devaluation

xxx xxx

(i) A currency devaluation shall be deemed "significant" if it results in a depreciation of the value of the Philippine
peso relative to the US dollar by at least 10%. For purposes hereof the exchange rate between the Philippine
peso and the US dollar which shall be applicable shall be the exchange rate between the above mentioned
currencies in effect as of the date of approval of the prevailing preceding Toll Rate.

(ii) The Investors right to apply for an interim Toll Rate adjustment under section 7.04 (3) (a) (ii) shall be effective
only while any Financing is outstanding and have not yet been paid in full.

xxx xxx

(iv) An interim adjustment in Toll Rate shall be considered such amount as may be required to provide interim
relief to the Investor from a substantial increase in debt-service burden resulting from the devaluation."[5]

Claiming that the peso exchange rate to a U.S. dollar had devaluated from P26.1671 in 1995 to P48.00 in 2000,
CITRA alleged that there was a compelling need for the increase of the toll rates to meet the loan obligations of
the Project and the substantial increase in debt-service burden.

Due to heavy opposition, CITRAs petition remained unresolved. This prompted CITRA to file on October 9, 2001
an "Urgent Motion for Provisional Approval,"[6] this time, invoking Section 3, Rule 10 of the "Rules of Practice and
Procedure Governing Hearing Before the Toll Regulatory Board" (TRB Rules of Procedure) which provides:

"SECTION 3. Provisional Relief. Upon the filing of an application or petition for the approval of the initial toll rate
or toll rate adjustment, or at any stage, thereafter, the Board may grant on motion of the pleader or in its own
initiative, the relief prayed for without prejudice to a final decision after completion of the hearing should the Board
find that the pleading, together with the affidavits and supporting documents attached thereto and such additional
evidence as may have been requested and presented, substantially support the provisional order; Provided: That
the Board may, motu proprio, continue to issue orders or grant relief in the exercise of its powers of general
supervision under existing laws. Provided: Finally, that pending finality of the decision, the Board may require the
Petitioner to deposit in whole or in part in escrow the provisionally approved adjustment or initial toll rates."
(Emphasis supplied)

On October 30, 2001, CITRA moved to withdraw[7] its "Urgent Motion for Provisional Approval" without prejudice
to its right to seek or be granted provisional relief under the above-quoted provisions of the TRB Rules of
Procedure, obviously, referring to the power of the Board to act on its own initiative.

On November 7, 2001, CITRA wrote a letter[8] to TRB expressing its concern over the undue delay in the
proceeding, stressing that any further setback would bring the Projects financial condition, as well as the
Philippine banking system, to a total collapse. CITRA recounted that out of the US$354 million funding from
creditors, two-thirds (2/3) thereof came from the Philippine banks and financial institutions, such as the Landbank
of the Philippines and the Government Service Insurance Services. Thus, CITRA requested TRB to find a timely
solution to its predicament.

On November 9, 2001, TRB granted CITRAs motion to withdraw[9] the Urgent Motion for Provisional Approval
and, at the same time, issued Resolution No. 2001-89,[10] earlier quoted.

Hence, petitioners Ceferino Padua and Eduardo Zialcita assail before this Court the validity and legality of TRB
Resolution No. 2001-89.

Petitioner Ceferino Padua, as a toll payer, filed an "Urgent Motion for a Temporary Restraining Order to Stop
Arbitrary Toll Fee Increases"[11] in G.R. No. 141949,[12] a petition for mandamus earlier filed by him. In that
petition, Padua seeks to compel respondent Judge Santiago Ranada of the Regional Trial Court, Branch 137,
Makati City, to issue a writ of execution for the enforcement of the Court of Appeals Decision dated August 4,
1989 in CA-G.R. SP No. 13235. In its Decision, the Court of Appeals ordered the exclusion of certain portions of
the expressways (from Villamor Air Base to Alabang in the South, and from Balintawak to Tabang in the North)
from the franchise of the PNCC.

In his urgent motion, petitioner Padua claims that: (1) Resolution No. 2001-89 was issued without the required
publication and in violation of due process; (2) alone, TRB Executive Director Jaime S. Dumlao, Jr., could not
authorize the provisional toll rate adjustments because the TRB is a collegial body; and (3) CITRA has no
standing to apply for a toll fee increase since it is an "investor" and not a "franchisee-operator."

On January 4, 2002, petitioner Padua filed a "Supplemental Urgent Motion for a TRO against Toll Fee
Increases,"[13] arguing further that: (1) Resolution 2001-89 refers exclusively to the Metro Manila Skyway Project,
hence, there is no legal basis for the imposition of the increased rate at the at-grade portions; (2) Resolution No.
2001-89 was issued without basis considering that while it was signed by three (3) of the five members of the
TRB, none of them actually attended the hearing; and 3) the computation of the rate adjustment under the STOA
is inconsistent with the rate adjustment formula under Presidential Decree No. 1894.[14]

On January 10, 2002, the Office of the Solicitor General (OSG) filed, in behalf of public respondent TRB,
Philippine National Construction Corporation (PNCC), Department of Public Works and Highways (DPWH) and
Judge Ranada, a "Consolidated Comment"[15] contending that: (1) the TRB has the exclusive jurisdiction over all
matters relating to toll rates; (2) Resolution No. 2001-89 covers both the Skyway and the at-grade level of the
South Luzon Expressway as provided under the STOA; (3) that while Resolution No. 2001-89 does not mention
any factual basis to justify its issuance, however, it does not mean that TRB's finding of facts is not supported by
evidence; and (4) petitioner Padua cannot assail the validity of the STOA because he is not a party thereto.

Upon the other hand, on January 9, 2002, petitioner Eduardo Zialcita, as a taxpayer and as Congressman of
Paraaque City, filed the present petition for prohibition[16] with prayer for a temporary restraining order and/or
writ of preliminary injunction against TRB and CITRA, docketed as G.R. No. 151108, impugning the same
Resolution No. 2001-89.

Petitioner Zialcita asserts that the provisional toll rate adjustments are exorbitant and that the TRB violated its
own Charter, Presidential Decree No. 1112,[17] when it promulgated Resolution No. 2001-89 without the benefit
of any public hearing. He also maintains that the TRB violated the Constitution when it did not express clearly and
distinctly the facts and the law on which Resolution No. 2001-89 was based. And lastly, he claims that Section 3,
Rule 10 of the TRB Rules of Procedure is not sanctioned by P.D. No. 1112.

Private respondent CITRA, in its comment[18] on Congressman Zialcitas petition, counters that: (1) the TRB has
primary administrative jurisdiction over all matters relating to toll rates; (2) prohibition is an inappropriate remedy
because its function is to restrain acts about to be done and not acts already accomplished; (3) Resolution No.
2001-89 was issued in accordance with law; (4) Section 3, Rule 10 of the TRB Rules is constitutional; and (5)
private respondent and the Republic of the Philippines would suffer more irreparable damages than petitioner.

The TRB, through the OSG, filed a separate comment[19] reiterating the same arguments raised by private
respondent CITRA.

On January 11, 2002, this Court resolved to consolidate the instant petitions, G.R. No. 141949 and G.R. No.
151108.[20]
We rule for the respondents.

In assailing Resolution No. 2001-89, petitioners came to us via two unconventional remedies one is an urgent
motion for a TRO to stop arbitrary toll fee increases; and the other is a petition for prohibition. Unfortunately, both
are procedurally impermissible.

Petitioner Paduas motion is a leap to a legal contest of different dimension. As previously stated, G.R. No.
141949 is a petition for mandamus seeking to compel respondent Judge Ranada to issue a writ of execution for
the enforcement of the Court of Appeals Decision dated August 4, 1989 in CA-G.R. SP No. 13235. The issue
therein is whether the application for a writ of execution should be by a mere motion or by an action for revival of
judgment. Thus, for petitioner Padua to suddenly interject in the same petition the issue of whether Resolution No.
2001-89 is valid is to drag this Court to his web of legal convolution. Courts cannot, as a case progresses, resolve
the intrinsic merit of every issue that comes along its way, particularly those which bear no relevance to the
resolution of the case.

Certainly, petitioner Paduas recourse in challenging the validity of TRB Resolution No. 2001-89 should have
been to institute an action, separate and independent from G.R. No. 141949.

II

The remedy of prohibition initiated by petitioner Zialcita in G.R. No. 151108 also suffers several infirmities. Initially,
it violates the twin doctrine of primary administrative jurisdiction and non-exhaustion of administrative remedies.

P.D. No. 1112 explicitly provides that "the 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."[21] P.D. No. 1894
reiterates this instruction and further provides:

"SECTION 9. The GRANTEE shall have the right and authority to adjust any existing toll being charged the users
of the Expressways under the following guidelines:

xxx xxx

c) Any interested Expressways user shall have the right to file, within a period of ninety (90) days after the date of
publication of the adjusted toll rate (s), a petition with the Toll Regulatory Board for a review of the adjusted toll
rate (s); provided, however, that notwithstanding the filing of such petition and the pendency of the resolution
thereof, the adjusted toll shall be enforceable and collectible by the GRANTEE effective on the first day of
January in accordance with the immediately preceding paragraph.

xxx xxx

e) Decisions of the Toll Regulatory Board on petitions for review of adjusted toll shall be appealable to the Office
of the President within ten (10) days from the promulgation thereof."

These same provisions are incorporated in the TRB Rules of Procedure, particularly in Section 6, Rule 5 and
Section 1, Rule 12 thereof.[22]

Obviously, the laws and the TRB Rules of Procedure have provided the remedies of an interested Expressways
user.[23] The initial proper recourse is to file a petition for review of the adjusted toll rates with the TRB. The need
for a prior resort to this body is with reason. The TRB, as the agency assigned to supervise the collection of toll
fees and the operation of toll facilities, has the necessary expertise, training and skills to judiciously decide
matters of this kind. As may be gleaned from the petition, the main thrust of petitioner Zialcitas argument is that
the provisional toll rate adjustments are exorbitant, oppressive, onerous and unconscionable. This is obviously a
question of fact requiring knowledge of the formula used and the factors considered in determining the assailed
rates. Definitely, this task is within the province of the TRB.

We take cognizance of the wealth of jurisprudence on the doctrine of primary administrative jurisdiction and
exhaustion of administrative remedies. In this era of clogged court dockets, the need for specialized
administrative boards or commissions with the special knowledge, experience and capability to hear and
determine promptly disputes on technical matters or intricate questions of facts, subject to judicial review in case
of grave abuse of discretion, is indispensable. Between the power lodged in an administrative body and a court,
the unmistakable trend is to refer it to the former."[24] In Industrial Enterprises, Inc. vs. Court of Appeals,[25] we
ruled:

"x x x, if the case is such that its determination requires the expertise, specialized skills and knowledge of the
proper administrative bodies because technical matters or intricate questions of facts are involved, then relief
must first be obtained in an administrative proceeding before a remedy will be supplied by the courts even though
the matter is within the proper jurisdiction of a court."
Moreover, petitioner Zialcitas resort to prohibition is intrinsically inappropriate. It bears stressing that the office of
this remedy is not to correct errors of judgment but to prevent or restrain usurpation of jurisdiction or authority by
inferior tribunals and to compel them to observe the limitation of their jurisdictions. G.R. No. 151108, while
designated as a petition for prohibition, has for its object the setting aside of Resolution No. 2001-89 on the
ground that it was issued without prior notice, hearing and publication and that the provisional toll rate
adjustments are exorbitant. This is not the proper subject of prohibition because as long as the inferior court,
tribunal or board has jurisdiction over the person and subject matter of the controversy, the writ will not lie to
correct errors and irregularities in procedure, or to prevent an erroneous decision or an enforcement of an
erroneous judgment. And even in cases of encroachment, usurpation, and improper assumption of jurisdiction,
the writ will not issue where an adequate and applicable remedy by appeal, writ or error, certiorari, or other
prescribed methods of review are available.[26] In this case, petitioner Zialcita should have sought a review of the
assailed Resolution before the TRB.

III

Even granting that petitioners recourse to the instant remedies is in order, still, we cannot rule in their favor.

For one, it is not true that the provisional toll rate adjustments were not published prior to its implementation on
January 1, 2002. Records show that they were published on December 17, 24 and 31, 2001[27] in three
newspapers of general circulation, particularly the Philippine Star, Philippine Daily Inquirer and The Manila
Bulletin. Surely, such publications sufficiently complied with Section 5 of P.D. No. 1112 which mandates that "no
new rates shall be collected unless published in a newspaper of general publication at least once a week for three
consecutive weeks." At any rate, it must be pointed out that under Letter of Instruction No. 1334-A,[28] the TRB
may grant and issue ex-parte to any petitioner, without need of notice, publication or hearing, provisional authority
to collect, pending hearing and decision on the merits of the petition, the increase in rates prayed for or such
lesser amount as the TRB may in its discretion provisionally grant. That LOI No. 1334-A has the force and effect
of law finds support in a catena of cases decreeing that "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."[29] In Association of Small
Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform,[30] this Court held:

"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, as the petitioners do in G.R. No. 79744, 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." (Emphasis supplied)

For another, it is not true that it was TRB Executive Director Dumlao, Jr. alone who issued Resolution No. 2001-
89. The Resolution itself contains the signature of the four TRB Directors, namely, Simeon A. Datumanong,
Emmanuel P. Bonoan, Ruben S. Reinoso, Jr. and Mario K. Espinosa.[31] Petitioner Padua would argue that while
these Directors signed the Resolution, none of them personally attended the hearing. This argument is misplaced.
Under our jurisprudence, an administrative agency may employ other persons, such as a hearing officer,
examiner or investigator, to receive evidence, conduct hearing and make reports, on the basis of which the
agency shall render its decision. Such a procedure is a practical necessity.[32] Thus, in Mollaneda vs.
Umacob,[33] we ruled:

" x x x At any rate, it cannot be gainsaid that the term "administrative body or agency" includes the subordinate
officials upon whose hand the body or agency delegates a portion of its authority. Included therein are the hearing
officers through whose eyes and ears the administrative body or agency observes the demeanor, conduct and
attitude of the witnesses and listens to their testimonies.

"It must be emphasized that the appointment of competent officers to hear and receive evidence is commonly
resorted to by administrative bodies or agencies in the interest of an orderly and efficient disposition of
administrative cases. x x x

"x x x Corollarily, in a catena of cases, this Court laid down the cardinal requirements of due process in
administrative proceedings, one of which is that "the tribunal or body or any of its judges must act on its or his
own independent consideration of the law and facts of the controversy, and not simply accept the views of a
subordinate." Thus, it is logical to say that this mandate was rendered precisely to ensure that in cases where the
hearing or reception of evidence is assigned to a subordinate, the body or agency shall not merely rely on his
recommendation but instead shall personally weigh and assess the evidence which the said subordinate has
gathered."

Be that as it may, we must stress that the TRBs authority to grant provisional toll rate adjustments does not
require the conduct of a hearing. Pertinent laws and jurisprudence support this conclusion.

It may be recalled that Former President Ferdinand E. Marcos promulgated P.D. No. 1112 creating the TRB on
March 31, 1977. The end in view was to authorize the collection of toll fees for the use of certain public
improvements in order to attract private sector investment in the government infrastructure projects. The TRB was
tasked to supervise the collection of toll fees and the operation of toll facilities. One of its powers is to "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."[34]

To clarify the intent of P.D. No. 1112 as to the extent of the TRBs power,[35] Former President Marcos further
issued LOI No. 1334-A expressly allowing the TRB to grant ex-parte provisional or temporary increase in toll
rates, thus:

"NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Republic of the Philippines, by virtue of the
powers vested in me by the Constitution, do hereby direct, order and instruct the Toll Regulatory Board to grant
and issue ex-parte to any petitioner, without need of notice, publication or hearing, provisional authority to collect,
pending hearing of and decision on the merits of such petition, the increase in rates prayed for or such lesser
amount as the Board may in its discretion provisionally grant, upon (a) a finding that the said petition is sufficient
in form and substance, (b) the submission of an affidavit by the petitioner showing that the increase in rates
substantially conforms to the formula, if any stipulated in the franchise or toll operation agreement/certificate of
the petitioner and that failure to immediately impose and collect the increase in rates would result in outright delay
or stoppage of urgently needed improvements, expansion or repairs of toll facilities and/or in great irreparable
injury to the petitioner, and (c) the submission by the petitioner to the Board of a bond, in such amount and from
such surety or sureties and under such terms and conditions as the Board shall fix, to guarantee the refund of the
increase in rates to the affected toll payers in case it is finally determined, after notice and hearing, that the
petitioner is not entitled, in whole or in part, to the same. Any provisional toll rate increases shall be effective
immediately upon approval without need of publication."

Thereafter, the TRB promulgated as part of its Rules of Procedure, the following provision:

"RULE 5

PROCEDURE FOR APPROVAL OF TOLL RATE

"Section 2. Provisional Relief Upon initial findings of the Board that the Petition for the approval of initial toll rate
or the petition for toll rate adjustment is in accordance with Sections 1 and 2 of Rule 2, Section 2 of Rule 3 and
Section 1 of Rule 4 hereof, the Board within a reasonable time after the filing of the Petition, may in an en banc
decision provisionally approve the initial toll rate or toll rate adjustment, without the necessity of any notice and
hearing."

From the foregoing, it is clear that a hearing is not necessary for the grant of provisional toll rate adjustment. The
language of LOI No. 1334-A is not susceptible of equivocation. It "directs, orders and instructs" the TRB to issue
provisional toll rates adjustment ex-parte without the need of notice, hearing and publication. All that is necessary
is that it be issued upon (1) a finding that the main petition is sufficient in form and substance; (2) the submission
of an affidavit showing that the increase in rates substantially conforms to the formula, if any is stipulated in the
franchise or toll operation agreement, and that failure to immediately impose and collect the increase in rates
would result in great irreparable injury to the petitioner; and (3) the submission of a bond. Again, whether or not
CITRA complied with these requirements is an issue that must be addressed to the TRB.

The practice is not something peculiar. We have ruled in a number of cases that an administrative agency may be
empowered to approve provisionally, when demanded by urgent public need, rates of public utilities without a
hearing. The reason is easily discerned from the fact that provisional rates are by their nature temporary and
subject to adjustment in conformity with the definitive rates approved after final hearing.[36] In Maceda vs. Energy
Regulatory Board,[37] we ruled that while the ERB is not precluded from conducting a hearing on the grant of
provisional authority which is of course, the better procedure however, it can not be stigmatized if it failed to
conduct one. Citing Citizens Alliance for Consumer Protection vs. Energy Regulatory Board,[38] this Court held:

In the light of Section 8 quoted above, public respondent Board need not even have conducted formal hearings in
these cases prior to issuance of its Order of 14 August 1987 granting a provisional increase of prices. The Board,
upon its own discretion and on the basis of documents and evidence submitted by private respondents, could
have issued an order granting provisional relief immediately upon filing by private respondents of their respective
applications. In this respect, the Court considers the evidence presented by private respondents in support of their
applications -.i.e., evidence showing that importation costs of petroleum products had gone up; that the peso
had depreciated in value; and that the Oil Price Stabilization Fund (OPSF) had been depleted as substantial
and hence constitutive of at least prima facie basis for issuance by the Board of a provisional relief order granting
an increase in the prices of petroleum products.

Anent petitioner Paduas contention that CITRA has no standing to apply for a toll fee increase, suffice it to say
that CITRAs right stems from the STOA which was entered into by no less than the Republic of the Philippines
and by the PNCC. Section 7.04 of the STOA provides that the Investor, CITRA, and/or the Operator, PNCC, shall
be entitled to apply for and if warranted, to be granted an interim adjustment of toll rates in case of force majeure
and a significant currency valuation.[39] Now, unless set aside through proper action, the STOA has the force and
effect of law between the contracting parties, and is entitled to recognition by this Court. [40] On the same breath,
we cannot sustain Paduas contention that the term "Metro Manila Skyway" Project excludes the at-grade portions
of the South Luzon Expressway considering that under the same STOA the "Metro Manila Skyway" includes: "(a)
the South Metro Manila Skyway, coupled with the rehabilitated at-grade portion of the South Luzon Expressway,
from Alabang to Quirino Avenue; (b) the Central Metro Manila Skyway, from Quirino Avenue to A. Bonifacio
Avenue; x x x."[41]
Petitioner Zialcita faults the TRB for not stating the facts and the law on which Resolution No. 2001-89 is based.
Petitioner is wrong. Suffice it to state that while Section 14, Article VIII of the 1987 Constitution provides that "no
decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on
which it is based," this rule applies only to a decision of a court of justice, not TRB.[42]

At this point, let it be stressed that we are not passing upon the reasonableness of the provisional toll rate
adjustments. As we have earlier mentioned, this matter is best addressed to the TRB.

IV

In fine, as what we intimated in Philippine National Construction Corp. vs. Court of Appeals,[43] we commend
petitioners for devoting their time and effort on a matter so imbued with public interest as in this case. But we can
do no better than to brush aside their chief objections to the provisional toll rate adjustments, for a different
approach would lead this Court astray into the field of factual conflict where its pronouncements would not rest on
solid grounds. Time and again, we have impressed that this Court is not a trier of facts, more so, in the
consideration of an extraordinary remedy of prohibition where only questions of lack or excess of jurisdiction or
grave abuse of discretion is to be entertained.

And to accord the main petition for mandamus in G.R. No. 141949 the full deliberation it deserves, we deem it
appropriate to discuss its merit on another occasion. Anyway, G.R. No. 141949 was consolidated with G.R. No.
151108 only by reason of petitioner Paduas deviant motion assailing Resolution 2001-89. As we have previously
said, the main petition in G.R. No. 141949 presents an entirely different issue and is set on a different factual
landscape.

WHEREFORE, petitioner Paduas "Urgent Motion for Temporary Restraining Order to Stop Arbitrary Toll Fee
Increases" is DENIED and petitioner Zialcitas "Petition for Prohibition" is DISMISSED.

SO ORDERED.

G.R. No. 166910 October 19, 2010

ERNESTO B. FRANCISCO, JR. and JOSE MA. O. HIZON, Petitioners,


vs.
TOLL REGULATORY BOARD

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 usufruct4 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.
1993,8later 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.10The 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 C-5.11 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 STOA13 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 Completion16 with respect to PTR
1 (Alabang-Filinvest stretch) and PTR 2 (Alabang-Calamba 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. 169917 some 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 Decision19 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
translateinter 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
inAlbano 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 STOAs48 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,
1995,57thus:

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 Decision63 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 DPWH64 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 quasi-legislative 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. Ranada cited 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 17.4.185 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 17.4.196), 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 AGENT100 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 shareprovided 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."106As 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,117is 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 in North 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
portions137 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
7142 thereof. First off, the Court can take judicial notice that most commercial contracts, including finance-related
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 contract-making
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 now-repealed 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 statutorily-authorized
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 breach154 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 published156 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 acknowledged158 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 CONSTITUTIONAL the 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 and UNCONSTITUTIONAL 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. Notice of Approval dated May 16, 1995 by former President Fidel V. Ramos on the assignment of
PNCCs usufructuary rights;

2. 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.

G.R. No. 77663 April 12, 1988

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, petitioner,


vs.
HON. EMMANUEL G. PEA, as Presiding Judge, RTC, NCJR, Br. CLII, Pasig, Metropolitan Manila, and
YEUNG CHUN KAM, YEUNG CHUM HO and ARCHIE CHAN represented by YIM KAM SHING, respondents.

TEEHANKEE, C.J.:

This special civil action for certiorari, prohibition and mandamus with preliminary injunction and/or restraining
order seeks to set aside the orders, dated February 16 and March 5, 1987, rendered by respondent trial judge on
grounds of lack of jurisdiction and grave abuse of discretion. The main issue is whether regional trial courts have
jurisdiction over the petitioner Presidential Commission on Good Government (hereinafter referred to as the
Commission) and properties sequestered and placed in its custodia legis in the exercise of its powers under
Executive Orders Nos. 1, 2 and 14, as amended, and whether said regional trial courts may interfere with and
restrain or set aside the orders and actions of the Commission. The Court holds that regional trial courts do not
have such jurisdiction over the Commission and accordingly grants the petition. To eliminate all doubts, the Court
upholds the primacy of administrative jurisdiction as vested in the Commission and holds that jurisdiction over all
sequestration cases of ill-gotten wealth, assets and properties under the past discredited regime fall within the
exclusive and original jurisdiction of the Sandiganbayan, subject to review exclusively by this Court. *

The antecedent facts are:

On March 25, 1986, the Commission issued an order freezing the assets, effects, documents and records of two
export garment manufacturing firms denominated as American Inter-fashion Corporation and De Soleil Apparel
Manufacturing Corporation. Said firms had both been organized by joint venture agreement on July 2,1984 with
the approval of the Garments & Textile Export Board. Two-thirds or 67% of the stock of both corporations were
subscribed by so-called Local Investors represented by Renato Z. Francisco and Atty. Gregorio R. Castillo and
one-third or 33% thereof were subscribed by the so-called Hongkong Investors, namely respondents Yeung Chun
Kam and Yeung Chun Ho. The Commission appointed Ms. Noemi L. Saludo as Officer-in-Charge (OIC) of the
said corporations with full authority to manage and operate the same. On June 27, 1986, the Commission
designated the OIC, Saludo, and Mr.Yeung Chun Ho private respondent herein, as authorized signatories to
effect deposits and withdrawals of the funds of the two corporations. On September 4, 1986, the Commission
designated Mr. Yim Kam Shing as co-signatory, in the absence of Mr. Yeung Chun Ho and Mr. Marcelo de
Guzman, in the absence of Ms. Saludo. However, in a memorandum dated February 3, 1987, and addressed to
depository banks of the said two corporations, Ms. Saludo revoked the authorizations previously issued upon
finding that Mr. Yim Kam Shing was a Hongkong Chinese national staying in the country on a mere tourist visa,
and designated James Dy as her co-signatory and Enrico Reyes Santos as the other authorized signatory with
Teresita Yu as the latter's co-signatory. The said memorandum was approved by then Commissioner Mary
Concepcion Bautista of the Commission.

On February 11, 1987, the OIC withdrew the amount of P400,000.00, more or less, from the Metropolitan Bank
and Trust Company against the accounts of the said corporations for payment of the salaries of the staff,
employees and laborers of the same for the period from February 1 to 15 of 1987. On February 13, 1987,
respondents Yeung Chun Kam Yeung Chun Ho and Archie Chan who are all in Hongkong, instituted through Yim
Kam Shing an action for damages with prayer for a writ of preliminary injunction against the said bank, the
Commission, then Commissioner Mary Concepcion Bautista and the OIC, Saludo, docketed as Civil Case No.
54298 of Branch 152 of the Regional Trial Court at Pasig, Metro Manila, presided by respondent judge, and
questioning the aforesaid revocation of the authorization as signatory previously granted to Mr. Yim Kam Shing as
private respondents' representative. On February 16, 1987, respondent judge issued ex-parte the questioned
temporary restraining order enjoining the bank, its attorneys, agents or persons acting in their behalf "from
releasing any funds of American Inter-fashion Corporation without the signature of plaintiff Yim Kam Shing and to
desist from committing any other acts complained of ..." and the Commission "from enforcing the questioned
memorandum dated February 3, 1987" (Annex "J" Petition).

On February 20, 1987, the Commission filed a motion to dismiss with opposition to plaintiffs' (private respondents
herein) prayer for a writ of preliminary injunction on the ground that the trial court has no jurisdiction over the
Commission or over the subject of the case and that assuming arguendo its jurisdiction, it acted with grave abuse
of discretion since private respondents as 33% minority shareholders are not entitled to any restraining order or
preliminary injunction. On March 5, 1987, respondent judge issued the other assailed order denying the
Commission's motion to dismiss and granting private respondents prayer for a writ of preliminary injunction on a
P10,000 bond (Annex "L," Petition). On March 20, 1987, the Commission filed the petition at bar questioning the
jurisdiction of respondent judge's court over it and praying for (a) the nullification of the aforesaid February 16 and
March 5, 1987 orders and (b) the issuance of a writ of prohibition ordering the respondent judge to cease and
desist from proceeding with the said case.

On March 24, 1987, the Court issued a temporary restraining order, "ordering respondent judge to cease and
desist from enforcing his orders dated February 16 and March 5, 1987 and from proceeding with Civil Case No.
54298 ... subject to the condition that the amounts that the petitioner may withdraw from the accounts of (the
sequestered corporations) with the Metropolitan Bank and Trust Company, Inc., shall be limited to the 'necessary
operating expenses of the two companies and for the payment of the salaries, wages and allowances of the
companies" staff, employees and laborers" ... and that the proceeds and income received shall likewise in due
course be deposited with the said companies' accounts with the said Metropolitan Bank and Trust Company, Inc."

On the issue of jurisdiction squarely raised, as above indicated, the Court sustains petitioner's stand and holds
that regional trial courts and the Court of Appeals for that matter have no jurisdiction over the Presidential
Commission on Good Government in the exercise of its powers under the applicable Executive Orders and Article
XVIII, section 26 of the Constitution and therefore may not interfere with and restrain or set aside the orders and
actions of the Commission. Under section 2 of the President's Executive Order No. 14 issued on May 7, 1986, all
cases of the Commission regarding "the Funds, Moneys, Assets, and Properties Illegally Acquired or
Misappropriated by Former President Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their Close Relatives,
Subordinates, Business Associates, Dummies, Agents, or Nominees" 1 whether civil or criminal, are lodged within
the "exclusive and original jurisdiction of the Sandiganbayan" 2 and all incidents arising from, incidental to, or
related to, such cases necessarily fall likewise under the Sandiganbayan's exclusive and original jurisdiction,
subject to review on certiorari exclusively by the Supreme Court. 3

The Constitution and the applicable Executive Orders and established legal principles and jurisprudence fully
support the Court's ruling at bar.

1. The very first Executive Order issued by President Corazon C. Aquino after her assumption of office and the
ouster of deposed President Ferdinand E. Marcos on February 25, 1986 was Executive Order No. 1 issued on
February 28, 1986 creating the Presidential Commission on Good Government, charging it with the task of
assisting the President in regard to the "recovery of all ill-gotten wealth accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether located in the
Philippines or abroad, including the takeover or sequestration of all business enterprises and entities owned or
controlled by them, during his administration, directly or through nominees, by taking undue advantage of their
public office and/or using their powers, authority, influence, connections or relationship." 4

In the discharge of its vital task "to recover the tremendous wealth plundered from the people by the past regime
in the most execrable thievery perpetrated in all history," 5 or "organized pillage" (to borrow a phrase from the
articulate Mr. Blas Ople 6 ), the Commission was vested with the ample power and authority

(a) x x x

(b) to sequester or place or cause to be placed under its control or possession any building or
office wherein any ill-gotten wealth or properties may be found, and any records pertaining
thereto, in order to prevent their destruction, concealment or disappearance which would frustrate
or hamper the investigation or otherwise prevent the Commission from accomplishing its task.
(c) to provisionally takeover in the public interest or to prevent the disposal or dissipation of
business enterprises and properties taken over by the government of the Marcos Administration
or by entities or persons close to former President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the appropriate authorities.

(d) to enjoin or restrain any actual or threatened commission of acts by any person or entity that
may render moot and academic, or frustrate or otherwise make ineffectual the efforts of the
Commission to carry out its task under this Order. ... 7

As stressed in Baseco "So that it might ascertain the facts germane to its objectives, it [the Commission] was
granted power to conduct investigations; require submission of evidence by subpoena ad testificandum and
duces tecum; administer oaths; punish for contempt. It was given power also to promulgate such rules and
regulations as may be necessary to carry out the purposes of (its creation)." 8

2. These ample powers and authority vested in the Commission by the President in the exercise of legislative
power granted her in the Provisional (Freedom) Constitution 9 were confirmed in said Constitution and in the 1987
Constitution. Thus, the Freedom Constitution (Proc. No. 3) mandated that 'The President shall give priority to
measures to achieve the mandate of the people to: .. (d) recover ill-gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of the people through orders of sequestration or
freezing of assets or accounts. ..." 10 The Constitution overwhelmingly ratified by the people in the February 2,
1987 plebiscite likewise expressly confirmed that:

Sec. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated
March 25, 1986 in relation to the recovery of ill- gotten wealth shall remain operative for not more
than eighteen months after the ratification of this Constitution. However, in the national interest,
as certified by the President, the Congress may extend said period.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The
order and the list of the sequestered or frozen properties shall forthwith be registered with the
proper court. For orders issued before the ratification of this Constitution, the corresponding
judicial action or proceeding shall be filed within six months from its ratification. For those issued
after such ratification, the judicial action or proceeding shall be commenced within six months
from the issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding
is commenced as herein provided. 11

3. As can be readily seen from the foregoing discussion of the duties and functions and the power and authority of
the Commission, it exercises quasi-judicial functions. In the exercise of quasi-judicial functions, the Commission is
a co-equal body with regional trial courts and "co-equal bodies have no power to control the other." 12 The
Solicitor General correctly submits that the lack of jurisdiction of regional trial courts over quasi-judicial agencies is
recognized in section 9, paragraph 3 of Batas Pambansa Blg. 129 (the Judiciary Reorganization Act of 1980),
which otherwise vests exclusive appellate jurisdiction in the Court of Appeals over all final judgment, decisions,
resolutions, orders, or awards of regional trial courts and quasi judicial agencies, instrumentalities, boards or
commissions. But as already indicated hereinabove, the Court of Appeals is not vested with appellate or
supervisory jurisdiction over the Commission. Executive Order No. 14, which defines the jurisdiction over cases
involving the ill-gotten wealth of former President Marcos, his wife, Imelda, members of their immediate family,
close relatives, subordinates, close and/or business associates, dummies, agents and nominees, specifically
provides in section 2 that "The Presidential Commission on Good Government shall file all such cases, whether
civil or criminal, with the Sandiganbayan which shall have exclusive and original jurisdiction thereof." Necessarily,
those who wish to question or challenge the Commission's acts or orders in such cases must seek recourse in the
same court, the Sandiganbayan, which is vested with exclusive and original jurisdiction. The Sandiganbayan's
decisions and final orders are in turn subject to review on certiorari exclusively by this Court.

4. Having been charged with the herculean task of bailing the country-out of the financial bankruptcy and morass
of the previous regime and returning to the people what is rightfully theirs, the Commission could ill-afford to be
impeded or restrained in the performance of its functions by writs or injunctions emanating from tribunals co-equal
to it and inferior to this Court. Public policy dictates that the Commission be not embroiled in and swamped by
legal suits before inferior courts all over the land, since the loss of time and energy required to defend against
such suits would defeat the very purpose of its creation. Hence, section 4(a) of Executive Order No. 1 has
expressly accorded the Commission and its members immunity from suit for damages in that: "No civil action shall
lie against the Commission or any member thereof for anything done or omitted in the discharge of the task
contemplated by this order."

The law and the courts frown upon split jurisdiction and the resultant multiplicity of actions. To paraphrase the
leading case of Rheem of the Phil., Inc. vs. Ferrer, et al, 12-a to draw a tenuous jurisdiction line is to undermine
stability in litigations. A piecemeal resort to one court and another gives rise to multiplicity of suits, To force the
parties to shuttle from one court to another to secure full determination of their suit is a situation gravely
prejudicial to the administration of justice. The time lost, the effort wasted, the anxiety augmented, additional
expenses incurred, the irreparable injury to the public interest are considerations which weigh heavily against
split jurisdiction.
Civil Case No. 54298 pending before respondent judge is expressly denominated as one "for damages with
prayer for a writ of preliminary injunction" (Annex "I," petition) filed by private respondents against the Commission
and then Commissioner Mary Concepcion Bautista. The said case is clearly barred by the aforequoted immunity
provision of Executive Order No. 1, as buttressed by section 4(b) thereof which further provides that: "No member
or staff of the Commission shall be required to testify or produce evidence in any judicial, legislative or
administrative proceeding concerning matters within its official cognizance."

Executive Order No. 1 thus effectively withholds jurisdiction over cases against the Commission from all lower
courts, including the Court of Appeals, except the Sandiganbayan in whom is vested original and exclusive
jurisdiction and this Court. Early on, in special civil actions questioning challenged acts of the Commission, its
submittal that the cited Executive Order bars such actions in this Court was given short shrift because this Court,
as the third great department of government vested with the judicial power and as the guardian of the
Constitution, cannot be deprived of its certiorari jurisdiction to pass upon and determine alleged violations of the
citizens' constitutional and legal rights under the Rule of Law.

5. The rationale of the exclusivity of such jurisdiction is readily understood. Given the magnitude of the past
regime's "organized pillage" and the ingenuity of the plunderers and pillagers with the assistance of the experts
and best legal minds available in the market, it is a matter of sheer necessity to restrict access to the lower courts,
which would have tied into knots and made impossible the Commission's gigantic task of recovering the
plundered wealth of the nation, whom the past regime in the process had saddled and laid prostrate with a huge
$27 billion foreign debt that has since ballooned to $28.5 billion.

To cite an example as recorded in Baseco, "in the ongoing case filed by the government to recover from the
Marcoses valuable real estate holdings in New York and the Lindenmere estate in Long Island, former PCGG
chairman Jovito Salonga has revealed that their names do not appear on any title to the property. Every building
in New York is titled in the name of a Netherlands Antilles Corporation, which in turn is purportedly owned by
three Panamanian corporations, with bearer shares. This means that the shares of this corporation can change
hands any time, since they can be transferred, under the law of Panama, without previous registration on the
books of the corporation. One of the first documents that we discovered shortly after the February revolution was
a declaration of trust handwritten by Mr. Joseph Bernstein on April 4, 1982 on a Manila Peninsula Hotel stationery
stating that he would act as a trustee for the benefit of President Ferdinand Marcos and would act solely pursuant
to the instructions of Marcos with respect to the Crown Building; in New York." 13 Were it not for this stroke of
good fortune, it would have been impossible, legally and technically, to prove and recover this ill-gotten wealth
from the deposed President and his family, although their ownership of these fabulous real estate holdings were a
matter of public notoriety

Hence, the imperative need for the Government of the restored Republic as its first official act to create the
Commission as an administrative and quasi- judicial commission to recover the ill-gotten wealth "amassed from
vast resources of the government by the former President, his immediate family, relatives and close
associates." 14

This is the only possible and practical way to enable the Commision to begin to do its formidable job. Thus, in the
fifties in an analogous case, the Court taking cognizance of the trend to vest jurisdiction in administrative
commissions and boards the power to resolve specialized disputes ruled that Congress in requiring the Industrial
Court's intervention in the resolution of labor-management controversies likely to cause strikes or lockouts meant
such jurisdiction to be exclusive, although it did not so expressly state in the law. The court held that under the
sense-making and expeditious doctrine of primary jurisdiction ... the courts cannot or will not determine a
controversy involving a question which is within the jurisdiction of an administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring the special knowledge, experience, and
services of the administrative tribunal to determine technical and intricate matters of fact, and of the regulatory
statute administered. 15

In this era of clogged court dockets, the need for specialized administrative boards or commissions with the
special knowledge, experience and capability to hear and determine promptly disputes on technical matters or
essentially factual matters, subject to judicial review in case of grave abuse of discretion, has become well nigh
indispensable. For example, the Court in the case of Ebon vs. de Guzman 16 noted that the lawmaking authority,
in restoring to the labor arbiters and the NLRC their jurisdiction to award all kinds of damages in labor cases, as
against the previous P.D. amendment splitting their jurisdiction with the regular courts, "evidently..... had second
thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages in labor cases
because that setup would mean duplicity of suits, splitting the cause of action and possible conflicting findings and
conclusions by two tribunals on one and the same claim."

6. The Court recently had occasion to stress once more, in G.R. No. 82218, Reyes vs. Caneba March 17, 1988,
that "(T)he thrust of the related doctrines of primary administrative jurisdiction and exhaustion of administrative
remedies is that courts must allow administrative agencies to carry out their functions and discharge their
responsibilities within the specialized areas of their respective competence. Acts of an administrative agency must
not casually be overturned by a court, and a court should as a rule not substitute its judgment for that of the
administrative agency acting within the perimeters of its own competence." Applying these fundamental doctrines
to the case at bar, the questions and disputes raised by respondents seeking to controvert the Commission's
finding of prima facie basis for the issuance of its sequestration orders as well as the interjection of the claims of
the predecessor of American Inter-fashion and De Soleil Corporations, viz. Glorious Sun Phil., headed by
Nemesis Co are all questions that he within the primary administrative jurisdiction of the Commission that cannot
be prematurely brought up to clog the court dockets without first resorting to the exhaustion of the prescribed
administrative remedies. The administrative procedure and remedies for contesting orders of sequestration issued
by the Commission are provided for in its rules and regulations. Thus, the person against whom a writ of
sequestration is directed may request the lifting thereof, in writing; after due hearing or motu proprio for good
cause shown, the Commission may lift the writ unconditionally or subject to such conditions as it may deem
necessary, taking into consideration the evidence and the circumstances of the case. The resolution of the
Commission is appealable to the President of the Philippines. The Commission conducts a hearing, after due
notice to the parties concerned to ascertain whether any particular asset, property or enterprise constitutes ill-
gotten wealth. The Commission's order of sequestration is not final, at the proper time, the question of ownership
of the sequestered properties shall be exclusively determined in the Sandiganbayan, whose own decisions in turn
are subject to review exclusively by the Supreme Court.

It should be emphasized here, as again stressed by the Court in the recent case of Republic, et al. vs. De los
Angeles, et al., G.R. No. L-30240, March 25, 1988, that "it is well-recognized principle that purely administrative
and discretionary function may not be interfered with by the courts. In general, courts have no supervising power
over the proceedings and actions of the administrative departments of government. This is generally true with
respect to acts involving the exercise of judgment or discretion, and findings of fact. There should be no thought
of disregarding the traditional line separating judicial and administrative competence, the former being entrusted
with the determination of legal questions and the latter being limited as a result of its expertise to the
ascertainment of the decisive facts." This is specially true in sequestration cases affected by the Commission for
the recovery of the nation' s plundered wealth that may affect the nation's very survival, in the light of the
constitutional mandate that such sequestration or freeze orders "shall be issued only upon showing of a
prima facie case" 17 and the settled principle that findings by administrative or quasi-judicial agencies like the
Commission are entitled to the greatest respect and are practically binding and conclusive, like the factual
findings of the trial and appellate courts, save where they are patently arbitrary or capricious or are not supported
by substantial evidence.

7. The Solicitor General has herein picturesquely submitted its "more than prima facie evidence" for its
sequestration and provisional take-over of the subject assets and properties as follows:

... the subject sequestered assets are completely owned and/or completely utilized and/or
otherwise taken over by the Marcoses, with due 'compensation' to their co-participants in terms of
tacitly agreed upon 'mutual benefits,' for their personal benefits and selfish economic interests,
including particularly the salting, stashing and secreting of dollars abroad, cum loculo et pera as
witness the following, by way of summarizing PCGG's submission, ... as supported by more than
prima facie evidence:

The fun: Glorious Sun, Phils., headed by Nemesio G. Co and with private respondents herein
holding 40% of the shares of stock, soon after its incorporation on June 8, 1977, engaged in
dollar salting, among other business unlawful manipulations. This was unearthed by the
Garments and Textiles Export Board (GTEB) in January 1984. At that time, in the reign of
Marcos, it had been decreed that the matter of dollar salting was the exclusive domain of the so-
called 'Binondo Central Bank,' and any other person or en entity found engaging therein was
guilty of 'economic sabotage,' more so where the 'saboteurs' are aliens like the herein private
respondents who are otherwise known as the 'Hongkong investors.

The squeeze: GTEB, under the Ministry of Trade, under then .Minister Roberto V. Ongpin, on
April 27,1984 choked the lifeliness of Glorious Sun in terms of cancelling its export quotas, export
authorizations, and license to maintain bonded warehouses and of disqualifying its 'major
stockholders and officers from engaging in exports.' With protestations of innocence, Glorious
Sun on May 25, 1984 even had the temerity to file a Petition with the Supreme Court (G.R. No.
67180). How did Glorious Sun extricate itself from the tightening .screws let loose upon its neck
by the then reigning Ceasar with his apparently legal contretemps?

Easy: Give unto Ceasar what is Ceasar's. In July, 1984, herein private respondents came up with
two (2) joint venture agreements. and within the month, respondents themselves withdrew their
Petition in G.R. No. 67180. Pursuant to the two (2) joint venture agreements, American Inter-
Fashion Co. was incorporated on August 22, 1984 and De Soleil on September 3, 1984, in each
of which herein private respondents, the Hongkong investors, held 33% of the shares of stock
while the 'Filipino investors' held 67%.

The sting:

In August, 1984, the GTEB informed Glorious Sun, Phils., that the substantial
portion of the latter's cancelled export quotas had been awarded to American
Inter-Fashion and De Soleil. But while the Yeung brothers control only 33% of the
two corporations, they, however, operated and managed said corporation and
utilized 100% of their export quota allocations. The Yeung brothers paid
the nominees of the Filipino investors controlling 67%, the amount of $3.75 per
dozen as royalty for the utilization of the 67% export quotaof said two
corporations. It may also be stated that even before the export quota allocations
were awarded to American Inter-Fashion and De Soleil Glorious Sun, Phils.,
despite the GTEB decision, Annex A hereof, was allowed to ship out garments
worth US $1,261,794.00 under its [previously cancelled] quota from April 27 to
May 30,1984. And on petition of a foreign buyer, Generra Sports Company of
Seattle, Washington, Glorious Sun, Phils., was allowed to fin its 3rd and 4th
fashion-quarter orders of 186,080 pieces valued at about US $1,159,531.00. As
a result, Glorious Sun, Phils. continued to operate its bonded manufacturing
warehouse ordered closed by the GTEB (Please see GTEB Comment dated
June 4, 1984 in G.R. No. 67180.). (pp. 9-10, Consolidated Reply, May 15, 1987).

The end of the fun: All was fun that ended in fun for all the participants in the fun, the squeeze
and the sting, until of course the EDSA Revolution, when PCGG shortly sequestered the subject
assets and provisionally took over the conservation thereof pursuant to law (Secs. 2 & 3,
Executive Order No. 1 and related issuances) and pursuant to the very Baseco case cited
ironically in the Motion at bar. Again, with protestations of innocence, the herein private
respondents through their counsel and now Congressman Francisco Sumulong with the game
temerity have gone to the courts and other forum (Civil Case No. 54298 entitled Yeung Chun
Kam et al. vs. PCGG, et al., RTC, Branch 151, Pasig, Metro Manila: SEC Case No. 003144
entitled Yeung Chun Kam et al. vs. PCGG, et al., Securities and Exchange Commission) just as
Nemesio Co allegedly President and owner of Glorious Sun, through counsel Benjamin C.
Santos, has gone to the courts with the same protestations of innocence and equal temerity (Civil
Cases Nos. 86-37220 and 86-37221 before RTC, Branches 33 and 36, Manila; Civil Cases Nos.
761-87 and 762-87, Metropolitan Trial Court, Branch 56, Malabon; Civil Case No. 54911, RTC,
Branch 151 Pasig, Metro Manila) and with his own 'brand' of private army to boot, resorted to the
midnight plunder of the subject sequestered assets under a "midnight" writ (issued in Civil Case
No. 54911 by Judge Eutropio Migrio). Obviously, the herein private respondent as well as
Nemesio Co would like to continue their fun. 18

Such proliferation of suits filed against the Commission in the trial courts, and gross disregard of the
Commission's primacy of administrative jurisdiction has of course compelled the Commission to question in turn in
this Court and obtain restraining orders against the lower courts' usurpation of jurisdiction, in the following pending
cases:

1. G.R. No. 79901 (PCGG v. Hon. Eutropio Migrio Executive Judge, Regional Trial Court of
Pasig and Glorious Sun Fashion Manufacturing Co., Inc. and Nemesio Co )

2. G.R. No. 80072 (PCGG v. Emilio Opinion, Presiding Judge of the Metropolitan Trial Court,
Branch 56, Malabon, Metro Manila; Glorious Sun Fashion Manufacturing Co., Inc. and Nemesio
Co )

3. G.R. No. 80121 (PCGG v. Hon. Maximo M. Japzon as Presiding Judge of the Regional Trial
Court, Branch 36, Manila; Glorious Sun Fashion Garments Manufacturing Co., Inc. and Nemesio
Co.)

4. G.R. No. 80281 (PCGG v. Hon. Felix Barbers as Presiding Judge of the Regional Trial Court,
Branch 33, Manila, Deputy Sheriff Salvador A. Pueca and Glorious Sun Fashion Garments
Manufacturing Co., Inc. and Nemesio Co )

5. G.R. No. 80395 (PCGG v. Hon. Emiho C. Opinion as Presiding Judge of Branch 56 of the
Metropolitan Trial Court, Malabon, Metro Manila; Glorious Sun Garments Manufacturing Co., Inc.
and Nemesio Co)

Going back to the pre-EDSA squeeze and scam, it need only be added that everything at the time seemingly
ended to everybody's satisfaction. Nemesio Co's Glorious Sun, Phil. notwithstanding the GTEB's closure order,
continued to operate its bonded warehouse and to ship out millions of dollars of garments under its supposedly
cancelled export quotas and peremptorily withdrew on August 20, 1984 19 its petition in G.R. No. 67180 from this
Court . The two new substitute corporations American Inter-Fashion Co. and De Soleil cropped out of nowhere to
take over the factories and export quotas and it was of public notoriety, particularly in the trade, that the family
had taken over.

8. This is the thrust of the complaint filed on July 16, 1987 [well ahead of the Constitutional deadline of August 2,
1987]by the Solicitor General on behalf of the Commission representing Plaintiff Republic of the Philippines
docketed as Civil Case No. 0002, PCGG-3, with the Sandiganbayan, against therein defendants Ferdinand E.
Marcos, Imelda R. Marcos, Imelda (Imee) R. Marcos, Tomas Manotoc, Irene R. Marcos Araneta, Gregorio Ma.
Araneta III and Ferdinand R. Marcos, Jr., for reversion, reconveyance, restitution, accounting and damages,
involving, among others, the subject matter of the petition at bar, namely, American Inter-Fashion and De Soleil
Corporations, together with their assets, shares of stocks, effects, evidence and records, which the Commission
avers, based on documents in its possession, were "illegally acquired by said defendants in unlawful concert with
one another and with gross abuse of power and authority. ... 20 The Commission correctly submits that "questions
on whether or not the Plaintiff Republic of the Philippines is entitled to reversion, reconveyance, restitution,
accounting or damages in respect of the above-subject matter is for the Sandiganbayan to resolve" not in any
of the scattershot cases that respondents have filed in the various courts of the land.

The Court has so held in various cases, among them, Ofelia Trinidad vs. PCGG, et al., G.R. No. 77695, June 16,
1987, wherein We pointed out that "The Supreme Court is not a trier of facts: it cannot conceivably go over all
the minute evidence that may be presented by the PCGG. What is significant is that this Court believes that in the
instant case no abuse, much less a grave abuse of discretion has been exercised by the PCGG," and Agro-
Industrial Foundation Colleges of Southern Philippines, et al. vs. Regional XI Operating Team No. Five and/or the
PCGG, G.R. No. 78116, July 28, 1987, wherein We ruled that the parties affected "may raise their defenses at the
appropriate time and before the proper forum [the Sandiganbayan]. They will have their day in court."

9. What has not been appreciated by respondents and others similarly situated is that the provisional remedies
(including the encompassing and rarely availed of remedy of provisional takeover) granted to the Commission in
pursuing its life-and-death mission to recover from a well-entrenched plundering regime of twenty years, the ill-
gotten wealth which rightfully belongs to the Republic although pillaged and plundered in the name of dummy or
front companies, in several known instances carried out with the bold and mercenary, if not reckless, cooperation
and assistance of members of the bar as supposed nominees, the full extent of which has yet to be uncovered,
are rooted in the police power of the State, the most pervasive and the least limitable of the powers of
Government since it represents "the power of sovereignty, the power to govern men and things within the limits of
its domain." 21Police power has been defined as the power inherent in the State "to prescribe regulations to
promote the health, morals, education, good order or safety, and general welfare of the people." 22 Police power
rests upon public necessity and upon the right of the State and of the public to self-protection. 23 " Salus populi
suprema est lex" the welfare of the people is the supreme law. For this reason, it is coextensive with the
necessities of the case and the safeguards of public interest. Its scope expands and contracts with changing
needs. 24 "It may be said in a general way that the police power extends to all the great public needs. It may be
put forth in aid of what is sanctioned by usage, or held by the prevailing morality or strong and preponderant
opinion to be greatly and immediately necessary to the public welfare." 25

That the public interest and the general welfare are subserved by sequestering the purported ill-gotten assets and
properties and taking over stolen properties of the government channeled to dummy or front companies is stating
the obvious. The recovery of these ill-gotten assets and properties would greatly aid our financially crippled
government and hasten our national economic recovery, not to mention the fact that they rightfully belong to the
people. While as a measure of self-protection, if, in the interest of general welfare, police power, may be
exercised to protect citizens and their businesses in financial and economic matters, it may similarly be exercised
to protect the government itself against potential financial loss and the possible disruption of governmental
functions. Police power as the power of self-protection on the part of the community that the principle of self-
defense bears to the individual. 26 Truly, it may be said that even more than self-defense, the recovery of ill-gotten
wealth and of the government's own properties involves the material and moral survival of the nation, marked as
the past regime was by the obliteration of any line between private funds and the public treasury and abuse of
unlimited power and elimination of any accountability in public office, as is a matter of public record and
knowledge.

10 Despite all the complexities and difficulties, the original Commission created under Executive Order No. 1
headed by its first chairman, now Senate President Jovito R. Salonga, and composed of Hon. Ramon Diaz, the
incumbent chairman, now Associate Justice Pedro L. Yap of this Court, Hon. Raul Daza, now a ranking member
of the House of Representatives, and Hon.. Mary Concepcion Bautista, now chairman of the Human Rights
Commission, and the present Commission headed by Chairman Ramon Diaz have produced unprecedented
positive results for which they fully deserve the inadequately expressed ( at times ) appreciation and gratitude
of the nation. The report as of the end of 1987 of Chairman Ramon Diaz shows the great extent of the
Commission's accomplishments despite its limited resources, but fortunately bolstered by the spontaneous and
welcome assistance of friendly foreign governments and lawyers, in the brief period of less than two years since
its creation and which are regarded yet as the tip of the iceberg:

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT SUMMARY OF


ACCOMPLISHMENTS As of January 05, 1988

1. CASH & OTHER CASH ITEMS


Funds turned over to
the treasury Gen. Fund 592,350,799.00
Proceeds of Sale of
Princeton Property with
PNBNew York 20,500,000.00
Proceeds of New Jersey
Settlement 9,669,781.00
Proceeds of Auction Sale 17,231,429.00
Proceeds of Sale of
Paintings 8,879,500.00
SBTC (1st payment Seq. T/Ds) 250,000,000.00
UPCB Bal of Profit Sharing 77,678,854.00
Other Cash Items
(Certificate of Time
Deposits) 1,492,951.00
Contribution to CARP 140,000,000.00
Sub-Total P1,117,803,314.00

2. OTHER RECOVERED FUNDS


Government Funds in TRB/
National Treasury
(Casino Funds) 1,138,000,000.00
T-Bills delivered to the
office of the President 100,020,000.00
Funds from Filbakers 59,884,453.00
P1,297,904,453.00
3. RECEIVABLES
Projected Proceeds of Sale
of knick-knacks and
Furnitures from Hachensach
in Olympic Towers 20,720,000.00
Projected Proceeds of New York
Properties (Lindenmere,
Olympic Towers Apartments,
Makiki Properties) $9.0M 184,500,000.00
SBTC Certificates of Time
Deposits 731,407,842.00
Sub-total P936,627,842.00

4. FUNDS HELD IN TRUST


Funds with the Treasury 71,975,722.00
Funds with PNB-Ortigas 52,535,298.00
Sub-Total P124,511,020.00

GRAND TOTAL P3,476,846,629.00

5. JEWELRY

Estimated Value P250 M

6. COMPANIES WHICH WERE AFFECTED


BY SEQUESTRATION ORDER INCLUDING
RADION AND TV STATIONS
297 Companies were subject to
sequestration (including those
whose sequestrations was lifted and those surrendered companies
by J.Y. Campos and those holding
companies whose investments in
shares were affected by Writs of
Sequestration)

74 Companies have available


financial statements with
estimated total assets of P44B
223 Companies still without
financial statements
18 TV Stations were sequestered
38 Radio Stations were sequestered

7. REAL PROPERTIES (BUILDING AND


IMPROVEMENTS)

Coconut Palace
13 Houses and improvements
12 Condominium units
Offices of R.S. Benedicto, E. Garcia, etc.
2 National Art and Museum Centers
2 Fishponds

8. SEQUESTERED LANDS (INCLUDING


IMPROVEMENTS)

450 parcels of land (including


improvements) have been issued
with specific Writs of Sequestration
of which only 148 have an area of
19,276,970.76 sq. m.

23 Haciendas of which 13 haciendas


constituting RSB Farms, Inc. have
an area of 27,859,207.00 sq m.

9. SURRENDERED LANDS BY JOSE YAO CAMPOS


Total area in sq. m. of all surrendered
properties 19,684,435.45 sq. m.

Disposed to DAR (202 IRC titles) with


total area of 13,997,529 sq. m.

Remaining balance of 75 titles recommended for


disposal, with total area of 5,686,906.45 sq. m.

OTHER INFORMATION:

81 Sequestered Vehicles
29 Sequestered Aircrafts

13 Sequestered Vessels

11. A final word about the alleged misdeeds of the OIC which the Solicitor General has denounced as false and
unfounded. 27 Such alleged misdeeds, even if taken as true for the nonce, do not and cannot detract from the
Commission's accomplishments in the unselfish service of the nation, rendered with integrity and honor and
without the least taint of scandal and self-interest (in welcome contrast to the past regime's rape and plunder sub-
silentio of the nation!). In our free and democratic space now, with full restoration of a free press and the people's
liberties, it should be acknowledged with some sort of appreciation that any such misdeeds on the part of the
Commission's representative or agents have been subjected to full public exposure and the erring parties
dismissed and replaced.

ACCORDINGLY, the writs of certiorari and prohibition shall issue. The orders of respondent Judge dated
February 16, 1987 and March 5, 1987 are hereby set aside as null and void. Respondent Judge is ordered to
cease and desist from any further proceeding in Civil Case No. 54298 which is hereby ordered DISMISSED. This
decision is IMMEDIATELY EXECUTORY, **

G.R. No. 108338 April 17, 2001

CALIXTO SAADO, petitioner,


vs.
THE COURT OF APPEALS and SIMEON G. NEPOMUCENO, respondents.

MELO, J.:

This case is one of the older ones which was raffled to undersigned ponente pursuant to the Court's Resolution in
A.M. 00-9-03 dated February 27, 2001 and concerns a petition seeking the reversal of the decision of the Court of
Appeals dated September 11, 1992 and its resolution dated October 15, 1992 denying reconsideration. The Court
of Appeals modified the decision of Branch 18 of the Regional Trial Court of the Ninth Judicial Region stationed in
Pagadian City which was rendered in favor of herein petitioner. Disposed thus the Court of Appeals in its CA-G.R.
CV No. 23165 per Justice Montenegro, with Justices Paras and Ordoez-Benitez concurring:

WHEREFORE, premises considered, judgment is hereby rendered:

(a) affirming the judgment appealed from with modification as follows:

1. Ordering and sentencing defendant-appellant Simeon G. Nepomuceno to pay the share of plaintiff-
appellee in the amount of P168,000.00 covering the period of four (4) years from February 19, 1975 to
February 19, 1979, with only eight (8) hectares considered to be productive;

2. Ordering defendant-appellant Simeon G. Nepomuceno to pay reasonable rental of the fishpond area in
question from February 20, 1979 to March 20, 1980 in the amount of P25,000.00;

3. Ordering and sentencing defendant-appellant Simeon G. Nepomuceno and defendant Edgar J. Chu, to
jointly pay plaintiff-appellee the reasonable rentals of the fishpond area in question at the rate of
P25,000.00 per annum from March 21, 1980 to January 2, 1985;

4. Ordering and sentencing defendant-appellant Simeon G. Nepomuceno and defendant Edgar J. Chu, to
jointly and severally pay plaintiff-appellee the sum of P100,000.00 as attorney' fees;

5. Ordering and sentencing defendant-appellant Simeon G. Nepomuceno and Edgar J. Chu to pay the
costs; and

(b) reversing the decision appealed from insofar as it ordered "defendants jointly to restore possession
and control of the fishpond area in question to the plaintiff".
(pp. 37-38, Rollo.)

The generative facts are chronicled as follows:

The controversy began on October 28, 1969 when the defunct Philippine Fisheries Commission issued in favor of
petitioner Saado Ordinary Fishpond Permit No. F-5810-X covering an area of fifty hectares situated in Bo.
Monching, Siay, Zamboanga del Sur. As a consequence, petitioner on January 6, 1972 executed a deed of
quitclaim involving twenty hectares of the original area of fifty hectares in favor of his uncle and brother (Decision
of the Office of the President, p. 46, Rollo).

On July 16, 1973, petitioner as First Party and private respondent Nepomuceno as Second Party executed a
contract entitled "Contract of Fishpond Development and Financing", which pertinently provided:

That the FIRST PARTY is the possessor and holder of a piece of agricultural land with an area of
approximately FIFTY (50) HECTARES COVERED BY Ordinary Fishpond Permit No. F-5810-X situated at
Monching, Siay, Zamboanga del Sur;

That the SECOND PARTY agreed to undertake full expenses for the development of an area of THIRTY
(30) hectares, out of the approximately FIFTY (50) hectares, covered by Ordinary Fishpond Permit No. F-
5810-X of the FIRST PARTY and which parcel is described and bounded as follows:

xxx xxx xxx

That the development which shall be undertaken by the SECOND PARTY on the aforesaid area of
THIRTY (30) hectares, consists of:

a Construction of dumps; gates, buildings and other accessories pertinent to the full development
of the fishpond area;

b Construction of dikes and the purchase of Bangus Fry for the said fishpond;

That the whole amount invested by the SECOND PARTY for the development of the aforesaid area for
fishpond shall first be recovered out of the products of the fishpond area;

That after the full investment of the SECOND PARTY shall have been recovered, the sharing basis with
the FIRST PARTY shall immediately commence for a period of Four (4) years and the sharing basis shall
be in accordance with the following percentage:

THIRTY FIVE PERCENT (35%) of the Net per harvest FIRST PARTY;

SIXTY FIVE PERCENT (65%) of the Net per harvest SECOND PARTY;

That after the expiration of the Four (4) years of sharing basis on the Net harvest, this contract of sharing
basis shall be renewed at the option of the second party for a period of another Four (4) years;

(pp. 26-27, Rollo.)

On July 18, 1973, the contracting parties executed a handwritten agreement, modifying the earlier agreement by
excluding the area of ten hectares already cultivated and fully developed by petitioner and providing that "the
contract will be renewed for another four (4) years with another agreement beneficial to both parties." Simply
stated, instead of the renewal being at the option of private respondent, it shall be renewed on terms acceptable
to both petitioner and private respondent.

Based on the agreement as modified by the aforestated handwritten agreement, private respondent proceeded
with the development of the fishpond area, excluding the area of ten hectares already developed by petitioner.

On September 28, 1979, the Director of Fisheries and Aquatic Resources recommended to the then Ministry of
Natural Resources the conversion of Ordinary Fishpond Permit No. F-5810-X into a 25-year fishpond loan
agreement which covered a reduced area of 26.7450 hectares (p. 165, Rollo). Pursuant to said recommendation,
Fishpond Lease Agreement No. 3090 was issued to petitioner on October 8, 1979.

On March 20, 1980, private respondent waived his rights, interest, and participation over the fishpond area in
favor of one Edgar J. Chu.

On March 28, 1980, apparently to oppose the issuance of the 25-year fishpond lease agreement in favor of
petitioner, private respondent informed the Bureau of Fisheries and Aquatic Resources in writing of his
financing/development contract with petitioner and that the fishpond was almost fully developed at his expense
(Ibid.).
Parenthetically, sometime that year, private respondent submitted to petitioner an accounting of the income or
proceeds of the fishpond as well as his expenditures in the development thereof (tsn, July 5, 1983, pp. 10-14).
This document, marked as Exhibit "D" and dated February 19, 1975, showed earnings of the fishpond in the
amount of P98,106.35, expenses and advances in the sum of P87,405.25, and cash on hand of P10,701.10. The
original copy thereof was filed with the Bureau of Fisheries and Development as evidenced by the stamp of the
office thereon.

On July 17, 1981, petitioner filed a complaint against private respondent and Edgar J. Chu with the regional trial
court docketed as Civil Case No. 2085 for recovery of possession and damages, wherein he alleged that on
February 19, 1975, private respondent had already recovered his investment in full; that as of said date, the total
earnings had amounted to P98,106.35 leaving an excess of P10,701.10 to be divided between petitioner and
private respondent at 35-65 sharing; that the 4-year period during which petitioner and private respondent would
share the net harvest commenced on February 19, 1975 and expired on February 18, 1979; that after February
18, 1975, private respondent has not accounted for the income of the fishpond and has failed and refused, in
gross and evident bad faith despite renewed and repeated demands, to deliver petitioner's share of the net
harvest for four years which totaled P250,000.00 more or less.

Meanwhile, during the pendency of the aforesaid Civil Case No. 2085 with the trial court, an order was issued by
then Minister of Agriculture and Food Salvador H. Escudero III, on January 28, 1985 cancelling Fishpond Lease
Agreement No. 3090 and forfeiting the improvements thereon in favor of the government. Later, said order was
reconsidered to the extent that private respondent was given priority to apply for the area and that his
improvements thereon were not considered forfeited in favor of the government. Petitioner elevated the matter to
the Office of the President but his appeal was dismissed in a decision rendered on July 31, 1989.

On June 19, 1989, the trial court rendered its decision in Civil Case No. 2085, the dispositive portion of which
reads as follows:

WHEREFORE, IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of the plaintiff
and against the defendants:

1. Ordering defendants jointly to restore possession and control of the fishpond area in question to the
plaintiff;

2. Declaring the Waiver of All Rights, Interests and Participations Over a Fishpond Area (Part) (Exhibit
"E") executed by defendant Nepomuceno in favor of defendant Edgar Chu as null and void;

3. Ordering defendant Simeon Nepomuceno to pay the share of plaintiff in the amount of P168,000.00
covering the period of four years from February 19, 1975 to February 19, 1979, with only eight (8)
hectares considered to be productive;

4. Ordering defendants to jointly pay plaintiff the rentals of the fishpond area in question at the reasonable
rate of P25,000.00 per annum reckoned from February 19, 1979 up to the time the same fishpond area
shall have been duly restored to the possession of the plaintiff;

5. Ordering defendants jointly and severally pay plaintiff the sum of P100,000.00 as attorney's fees; and

6. To pay the costs.

IT IS SO ORDERED.;

(pp. 24-25, Rollo.)

Private respondent and Edgar J. Chu both appealed the trial court's decision. However, for failure to file brief,
Chu's appeal was dismissed.

For his part, private respondent maintained that: (a) the trial court erred in ruling that private respondent has fully
recovered his financial investment in the fishpond area in question as of February 19, 1975 (hence the sharing of
the net harvest should not commence on said date); (b) the trial court erred in ruling that private respondent
cannot waive his right to finance the development of the fishpond area; and (c) the trial court committed grave
error and injustice in not dismissing petitioner's complaint and in ordering respondent to pay petitioner the
amounts of P168,000.00 as petitioner's share covering the period beginning February 19, 1975 to February 19,
1979, P25,000.00 per annum constituting reasonable rentals from February 19, 1979 up to the time the fishpond
area shall have been restored to petitioner, as well as P100,000.00 as attorney's fees.

As mentioned earlier, the Court of Appeals affirmed the trial court's decision as regards petitioner's share in the
produce from February 19, 1975 to February 19, 1979 (P168,000.00), the reasonable rental of the fishpond area
(P25,000.00 per annum) from February 20, 1979 to March 20, 1980 and from March 21, 1980 to January 2, 1986,
as well as attorney's fees (P100,000.00), and costs.

The petition before us hinges on the argument that the Court of Appeals entertained evidence and/or other
matters not duly covered or taken up in the trial of Civil Case No. 2085. Petitioner posits that the appellate court
committed grave abuse of discretion in doing so and in applying said matters in its disposition of the case. Verily,
petitioner's grumble and protest is confined to that portion of the June 19, 1989 decision of the Court of Appeals
directing "defendants jointly to restore possession and control of the fishpond area to the plaintiff."

Petitioner points out that the July 31, 1989 decision rendered by the Office of the President through Deputy
Executive Secretary Magdangal B. Elma is a new matter which should not have been treated by the appellate
court with legal force and effect because "it was merely incidental to the propriety or impropriety of the issuance of
a writ of preliminary mandatory injunction respecting the earlier Writ of Execution granted by the trial court in favor
of Calixto Saado" (p. 19, Rollo).

In this light, petitioner mentions that on December 11, 1990, during the pendency of the appeal of Civil Case No.
2085, he filed with the appellate court a motion for execution pending appeal, stating that the appeal of Edgar J.
Chu (who was said to be the actual possessor of the area) had been dismissed. The appellate court denied the
same. On May 21, 1991, petitioner filed another motion for issuance of writ of execution, claiming that the Sheriff's
Return of Service dated June 6, 1991 stated that "the restoration to and/or placement of plaintiff Saado thereof
on said fishpond area in controversy . . . ., are hereby considered complied with." Thereafter private respondent
filed a petition for relief from judgment and or execution which resulted in an order dated June 7, 1991 restoring
possession of the fishpond area to him. Petitioner then proceeds to mention that on June 11, 1991, private
respondent filed with the appellate court an "Ex-Parte Urgent Motion for Issuance of Writ of Preliminary
Mandatory Injunction", alleging that the trial court has not yet issued the corresponding writ of preliminary
mandatory injunction to restore private respondent to the possession of the subject fishpond area. Petitioner
stresses that it was at this particular stage of the proceedings that the subject July 31, 1989 Malacaang decision
was initially mentioned by private respondent who thereby argued that the trial court failed to consider that prior to
the issuance of the writ of execution, the restoration of the subject fishpond to herein petitioner would in effect
destroy the essence of said Malacaang decision which affirmed the cancellation of the Fishpond Lease
Agreement No. 3050. In consequence thereof, the appellate court issued a resolution dated June 14, 1991
ordering that anyone who had anything to do with the enforcement of the writ of execution issued by the trial court
was restrained temporarily from enforcing said writ, such that private respondent, who was acknowledged to be in
possession of the subject property consisting of five ponds at the time of the issuance of the aforesaid writs;
should remain in the possession thereof until further notice by the court. Later, the trial court itself ordered the
immediate restoration of possession of the subject fishpond area to herein private respondent. An exchange of
pleadings followed where, as an attachment to his comment, private respondent presented a photostat copy of
the subject July 31, 1989 decision of the Office of the President.1wphi1.nt

Setting aside the factual ramifications of the instant case, we find that the only issue thereof refers to the legal
effect and evidentiary weight of the July 19, 1989 decision rendered by the Office of the President in relation to
Civil Case No. 2085 and CA-G.R. CV No. 23165.

Let us first examine the premise and basis of the aforesaid July 31, 1989 decision of the Office of the President. A
perusal thereof reveals that it resolved the appeal filed by petitioner and the Samahang Kabuhayan ng Barangay
Monching from the order of the then Minister of Agriculture and Food, dated January 28, 1985 which cancelled
the Fishpond Lease Agreement No. 3090 issued to petitioner and forfeited in favor of the government the
improvements thereof, including the bond, and ruled that the area with the improvements shall be disposed of in
accordance with Presidential Decree No. 704 (Revising and Consolidating All Laws and Decrees Affecting Fishing
and Fisheries) to any qualified applicant pursuant to applicable rules and regulations thereon. Said cancellation
was premised on the following factors: (1) violation by petitioner of the terms of the fishpond lease agreement and
of Fisheries Administrative Order (FAO) 125 (s. 1979) when he transferred/subleased his leasehold rights without
government approval; and (2) failure of petitioner to comply with the development requirements.

In the subject July 31, 1989 decision, the Office of the President, through then Deputy Executive Secretary
Magdangal B. Elma, upholding the January 28, 1985 Escudero Order, dismissed petitioner's appeal and affirmed
the cancellation of the subject Fishpond Lease Agreement No. 3090 on the following grounds: (1) Section 5(k) of
Fisheries Administrative Order (FAO) No. 125 prohibits the awardee of a fishpond lease agreement from
transferring or subletting the fishpond granted to him without the previous consent or approval of the ministry
concerned, and similarly, the lessee shall not sublet or enter into a sub-lease contract over the area or portion
covered by the fishpond lease agreement; (2) the Saado-Nepomuceno contract is not the only instance when
petitioner transferred/subleased his rights over the fishpond area without approval of the appropriate ministry
head since on January 6, 1972, he transferred 20 hectares of the original 50-hectare fishpond area to his brother
and uncle, and on September 12, 1982, he transferred his rights over the 26.7450 area to the Samahang
Kabuhayan ng Barangay Monching Association which later assigned its leasehold rights in favor of the
Development Bank of the Philippines in consideration of the amount of P653,153.46; and (3) petitioner's failure to
develop forty percent of the area within three years and to completely develop the remaining portions within five
years, both to commence from the date of the issuance of the lease agreement in accordance with the terms and
conditions of the lease agreement (out of the whole area occupied by petitioner, only four hectares more or less,
corresponding to 60% to 70% was developed). The appellate court thus held that all these violations are
recognized grounds for the termination and cancellation of a fishpond lease agreement under Section 9 of the
FAO No. 125, series of 1979. As a last note, the subject decision stated that it mainly deals with the validity of the
cancellation by the Ministry of Agriculture and Food of petitioner's Fishpond Lease Agreement No. 3090 for
violation of the terms thereof and/or fisheries rules, and that a decision in Civil Case No. 2085 which is a
possessory action has hardly any bearing in the resolution of the aforestated appeal.

True, the subject July 31, 1989 decision was rendered a few days after the trial court handed down its decision
ordering herein petitioner to be restored to the possession of the subject fishpond area. However, such fact is of
no moment considering that said decision of the trial court did not attain finality and was seasonably appealed. In
other words, the July 31, 1989 decision was rendered while Civil Case No. 2085 was pending appeal. It is thus
proper to consider the same a supervening event the existence of which cannot just be disregarded by the
appellate court.

What is the nature of the July 31, 1989 Malacaang decision and what is its effect on the resolution of Civil Case
No. 2085? The action of an administrative agency in granting or denying, or in suspending or revoking, a license,
permit, franchise, or certificate of public convenience and necessity is administrative or quasi-judicial. The act is
not purely administrative but quasi-judicial or adjudicatory since it is dependent upon the ascertainment of facts by
the administrative agency, upon which a decision is to be made and rights and liabilities determined (De Leon,
Administrative Law: Text and Cases, 1993 ed., pp. 143-144). As such, the July 31, 1989 decision of the Office of
the President is explicitly an official act of and an exercise of quasi-judicial power by the Executive Department
headed by the highest officer of the land. It thus squarely falls under matters relative to the executive department
which courts are mandatorily tasked to take judicial notice of under Section 1, Rule 129 of the Rules of Court.
Judicial notice must be taken of the organization of the Executive Department, its principal officers, elected or
appointed, such as the President, his powers and duties (Francisco, Evidence [Rules 128-134], 1996 ed., p. 24,
citing Canal Zone vs. Mena, 2 Canal Zone 170).

The rendition of the subject July 31, 1989 Malacaang decision is premised on the essential function of the
executive department which is to enforce the law. In this instance, what is being enforced is Presidential
Decree No. 704 which consolidated and revised all laws and decrees affecting fishing and fisheries. Such
enforcement must be true to the policy behind such laws which is "to accelerate and promote the integrated
development of the fishery industry and to keep the fishery resources of the country in optimum productive
condition through proper conservation and protection" (Section 2, P.D. No. 704).

Further, the issue of whether or not petitioner is still entitled to possession of the subject fishpond area is
underpinned by an ascertainment of facts. And such task belongs to the administrative body which has jurisdiction
over the matter the Ministry of Agriculture and Food. The policy of the courts as regards such factual findings is
not to interfere with actions of the executive branch on administrative matters addressed to the sound discretion
of government agencies. This policy is specially applicable in the grant of licenses, permits, and leases, or the
approval, rejection, or revocation of applications therefor (Manuel vs. Villena, 37 SCRA 745 [1971]). Such respect
is based on the time-honored doctrine of separation of powers and on the fact that these bodies are considered
co-equal and coordinate rank as courts. The only exception is when there is a clear showing of capricious and
whimsical exercise of judgment or grave abuse of discretion, which we find absent in the case at bar.

The reasons given by the Office of the President in dismissing petitioner's appeal are quite clear. Transferring or
subletting the fishpond granted to a licensee without the consent or approval of the administrative body
concerned, as well as the failure to develop the area required by the fisheries rules, are definitely solid and logical
grounds for the cancellation of one's license. Withal, if petitioner disagrees with the decision of the Office of the
President, he should have elevated the matter by petition for review before the Court of Appeals for the latter's
exercise of judicial review. Nowhere in the record do we find such action on petitioner's part.

Understandably, to restore petitioner to the possession of the fishpond area is to totally disregard the July 31,
1989 decision of the Office of the President which can hardly be described as an unrelated matter, considering its
patent implications in the result of both Civil Case No. 2085 and CA-G.R. CV No. 23165. For how could the
appellate court award possession to the very same party whose license has been cancelled by the executive or
administrative officer tasked to exercise licensing power as regards the development of fishpond areas, and which
cancellation has been sustained by the Office of the President? Petitioner must remember the essence of the
grant of a license. It is not a vested right given by the government but a privilege with corresponding obligations
and is subject to governmental regulation. Hence, to allow petitioner to possess the subject area is to run counter
to the execution and enforcement of the July 31, 1989 decision which would easily lose its "teeth" or force if
petitioner were restored in possession. In addition, as pointed out in the July 31, 1989 decision, petitioner is not
assailing the May 14, 1985 order of Minister Escudero which gave private respondent priority in applying for the
subject area and which considered respondent's improvements thereon as not forfeited in favor of the
government. In this regard, the July 31, 1989 decision stated:

The Escudero Order of May 14, 1985 stands unchallenged. As such, the herein appeal of Saado, et al.,
from the Escudero Order of January 25, 1985 remains the only obstacle, on the administrative level, to
the said May 14, 1985 Order being considered in force and effect.

(p. 50, Rollo.)

Accordingly, the Court of Appeals correctly held

. . . The issue (on waiver of rights and interests and participation by respondent) is rendered moot and
academic by the order of then MAF Minister Salvador H. Escudero III cancelling Fishpond Lease
Agreement No. 3090 of plaintiff-appellee which was affirmed on appeal by the Office of the President.
The lease agreement having been cancelled, possession of the fishpond area covered by the lease
agreement cannot be returned to plaintiff-appellee even if the waiver of rights, interests, and participation
is held null and void . . .

(p. 31, Rollo.)


In addition, petitioner considers the July 31, 1989 decision a foreign matter which was not raised in the court
below and hence should not have been treated by the Court of Appeals with legal force and effect. To reiterate,
petitioner also notes that the decision of the Office of the President is dated July 31, 1989, whereas the decision
of Civil Case No. 2085 was rendered June 19, 1989. Further, petitioner argues that the subject decision of the
Office of the President was merely incidental to the propriety or impropriety of the issuance of a writ of preliminary
mandatory injunction to restore private respondent to the possession of the fishpond area after a writ of execution
was issued by the trial court in favor of petitioner.

Rules of fair play, justice, and due process dictate that parties cannot raise for the first time on appeal issues
which they could have raised but never did during the trial (Reburiano vs. Court of Appeals, 301 SCRA 342
[1999]). Significantly, private respondent could have not been expected to present the July 31, 1989 decision
during the trial because it was obviously not yet extant during that time. But one thing is for sure, petitioner knew
that there was a pending administrative case (O.P. Case No. 2958) on the subject fishpond area. He knew about
the appeal since he was precisely the one who filed it, challenging the January 28, 1985 order of then Minister
Escudero which cancelled Fishpond Lease Agreement No. 3090. Hence, the presentation of the July 31, 1989
decision before the appellate court had caused no undue surprise upon petitioner who, we repeat, was the one
who filed the appeal.

Verily, the trial court's decision of July 19, 1989 did not attain finality. It was appealed within the reglementary
period. If the court could modify or alter a judgment even after the same has become executory whenever
circumstances transpire rendering its decision unjust and inequitable, as where certain facts and
circumstances justifying or requiring such modification or alteration transpired after the judgment has
become final and executory (David vs. Court of Appeals, 316 SCRA 710 [1999]) and when it becomes
imperative in the higher interest of justice or when supervening events warrant it (People vs. Gallo, 315
SCRA 461 [1999]), what more if the judgment has not yet attained finality?

It is thus plain in the case at bar that the July 31, 1989 decision of the Office of the President is a substantial
supervening event which drastically changed the circumstances of the parties to the subject fishpond lease
agreement. For to award possession to petitioner is futile since he has lost the fishpond license. In point is our
ruling in Baluyot vs. Guiao (315 SCRA 396 [1997]) where we held that judgment is not confined to what appears
on the face of the decision, but also covers those necessarily included therein or necessary thereto. For example,
where the ownership of a parcel of land is decreed in the judgment, the delivery of the possession of the land
should be considered included in the decision, it appearing that the defeated party's claim to the possession
thereof is based on his claim of ownership. By analogy, the July 31, 1989 decision, is not confined to the validity
of the cancellation by the Ministry of Agriculture and Food of petitioner's Fishpond Lease Agreement No. 3090 for
violation of the terms thereof and/or the fisheries rules. The right to possess the subject fishpond area is
necessarily included in the decision. The cancellation or revocation of petitioner's license necessarily eliminated
his right to possess the same since the new licensee would then be the one to enjoy this right.

WHEREFORE, the instant petition is hereby DENIED for lack of merit. The September 11, 1992 decision of the
Court of Appeals in CA-G.R. CV No. 23165 is hereby AFFIRMED.

SO ORDERED.

G.R. No. 135992 July 23, 2004

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. and TELECOMMUNICATIONS TECHNOLOGIES,


INC., petitioners,
vs.
INTERNATIONAL COMMUNICATION CORPORATION, respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

The role of the telecommunications industry in Philippine progress and development cannot be
understated. Time was when the industry was dominated by a few -- an oligarchy of sorts where the elite made
the decisions and serfdom had no choice but acquiesce. Sensing the need to abrogate their dominion, the
government formulated policies in order to create an environment conducive to the entry of new players. Thus, in
October 1990, the National Telecommunications Development Plan 1991-2010 (NTDP) was formulated and came
into being. Designed by the Department of Transportation and Communications (DOTC), the NTDP provides for
the framework of government policies, objectives and strategies that will guide the industry's development for the
next 20 years. As expected, with it came the increase in the demand for telecommunications services, especially
in the area of local exchange carrier service (LECS).1
Concomitantly, the DOTC issued guidelines for the rationalization of local exchange telecommunications
service. In particular, the DOTC issued on September 30, 1991, Department Circular No. 91-260, with the
purpose of minimizing or eliminating situations wherein multiple operators provide local exchange service in a
given area. Pursuant thereto, the National Telecommunications Commission (NTC) was tasked to define the
boundaries of local exchange areas and authorize only one franchised local exchange carrier to provide local
exchange service within such areas.

Thereafter, on July 12, 1993, then President Fidel V. Ramos issued Executive Order No. 109 entitled Local
Exchange Carrier Service. Section 2 thereof provides that all existing International Gateway Facility (IGF)
operators2 are required to provide local exchange carrier services in unserved and underserved areas, including
Metro Manila, thereby promoting universal access to basic telecommunications service.

The NTC promulgated Memorandum Circular No. 11-9-93 on September 17, 1993 implementing the objectives of
E.O. No. 109.3 Section 3 of the Circular mandates existing IGF operators to file a petition for the issuance of
Certificate of Public Convenience and Necessity (CPCN) to install, operate and maintain local exchange carrier
services within two years from effectivity thereof. Section 4 further requires IGF operators to provide a minimum
of 300 local exchange lines per one international switch termination and a minimum of 300,000 local exchange
lines within three years from grant of authority.

To cap the government's efforts, Republic Act No. 7925, otherwise known as the Public Telecommunications
Policy Act of the Philippines, was enacted on March 23, 1995. With regard to local exchange service, Section 10
thereof mandates an international carrier to comply with its obligation to provide local exchange service in
unserved or underserved areas within three years from the grant of authority as required by existing
regulations. On September 25, 1995, the NTC issued the Implementing Rules and Regulations for R.A. No. 7925
per its NTC MC No. 8-9-95.

Taking advantage of the opportunities brought about by the passage of these laws, several IGF operators applied
for CPCN to install, operate and maintain local exchange carrier services in certain areas. Respondent
International Communication Corporation, now known as Bayan Telecommunications Corporation or
Bayantel,4 applied for and was given by the NTC a Provisional Authority (PA) 5 on March 3, 1995, to install,
operate and provide local exchange service in Quezon City, Malabon and Valenzuela, Metro Manila, and the
entire Bicol region. Meanwhile, petitioner Telecommunications Technologies Philippines, Inc. (TTPI), as an
affiliate of petitioner Eastern Telecommunications Philippines, Inc. (ETPI), was granted by the NTC a PA on
September 25, 1996, to install, operate and maintain a local exchange service in the Provinces of Batanes,
Cagayan Valley, Isabela, Kalinga-Apayao, Nueva Vizcaya, Ifugao, Quirino, the cities of Manila and Caloocan, and
the Municipality of Navotas, Metro Manila.

It appears, however, that before TTPI was able to fully accomplish its rollout obligation, ICC applied for and was
given a PA by the NTC on November 10, 1997, to install, operate and maintain a local exchange service in Manila
and Navotas,6 two areas which were already covered by TTPI under its PA dated September 25, 1996.

Aggrieved, petitioners filed a petition for review with the Court of Appeals with application for a temporary
restraining order and a writ of preliminary injunction, docketed as CA-G.R. SP No. 46047, arguing that the NTC
committed grave abuse of discretion in granting a provisional authority to respondent ICC to operate in areas
already assigned to TTPI.

On April 30, 1998, the Court of Appeals dismissed7 the petition for review on the ground that the NTC did not
commit any grave abuse of discretion in granting the PA to TTPI. It sustained the NTC's finding that ICC is
"legally and financially competent and its network plan technically feasible." The Court of Appeals also ruled that
there was no violation of the equal protection clause because the PA granted to ICC and TTPI were given under
different situations and there is no point of comparison between the two.8

Hence, the present petition for review on certiorari, raising the following issues:

Whether or not the Honorable Court of Appeals committed a serious error of law in upholding the Order of
the NTC granting a PA to Respondent to operate LEC services in Manila and Navotas which are areas
already assigned to petitioner TTPI under a prior and subsisting PA.

II

Whether or not Petitioner is entitled to a Writ of Preliminary Injunction to restrain Respondent from
installing LEC services in the areas granted to it by the Order under review. 9

In support thereof, petitioners posit the following arguments:

(1) The assignment to ICC of areas already allocated to TTPI violates the Service Area Scheme
(SAS), which is the guidepost of the laws and issuances governing local exchange service;
(2) ICC did not make any showing that an existing operator, TTPI in this case, failed to comply with
the service performance and technical standards prescribed by the NTC, and that the area is
underserved, as required under Section 23 of MC No. 11-9-93;

(3) The facts and figures cited by the NTC, i.e., ICC's alleged remarkable performance in fulfilling its
rollout obligation and the growth rate in the installation of telephone lines in Manila and Navotas, do not
justify the grant of the PA in favor of ICC, nor are they supported by the evidence on record as these were
not presented during the proceedings before the NTC;

(4) ICC did not comply with the requirement of "prior consultation" with the NTC before it filed its
application, in violation of Sections 3 and 3.1 of MC 11-9-93;

(5) ICC did not comply with Section 27 of MC 11-9-93 requiring that an escrow deposit be made
equivalent to 20% and a performance bond equivalent to 10% of the investment required for the first two
years of the project;

(6) ICC is not financially and technically capable of undertaking the project;

(7) The grant of a PA in favor of ICC to operate in areas covered by TTPI will render it difficult for
the latter to cross-subsidize its operations in less profitable areas covered by it and will threaten its
viability to continue as a local exchange operator.10

After a review of the records of this case, the Court finds no grave abuse of discretion committed by the Court of
Appeals in sustaining the NTC's grant of provisional authority to ICC.

The power of the NTC to grant a provisional authority has long been settled. As the regulatory agency of the
national government with jurisdiction over all telecommunications entities, it is clothed with authority and given
ample discretion to grant a provisional permit or authority. 11 It also has the authority to issue Certificates of Public
Convenience and Necessity (CPCN) for the installation, operation, and maintenance of communications facilities
and services, radio communications systems, telephone and telegraph systems, including the authority to
determine the areas of operations of applicants for telecommunications services.12 In this regard, the NTC is
clothed with sufficient discretion to act on matters solely within its competence. 13

In granting ICC the PA to operate a local exchange carrier service in the Manila and Navotas areas, the NTC took
into consideration ICC's financial and technical resources and found them to be adequate. The NTC also noted
ICC's performance in complying with its rollout obligations under the previous PA granted to it, thus:

With the proven track record of herein applicant as one of the pacesetters in carrying out its landlines
commitment in its assigned areas, applicant can best respond to public demand for faster installation of
telephone lines in Manila and Navotas.

The grant of this application is, therefore, a fitting recognition that should be accorded to any deserving
applicant, such as herein applicant ICC whose remarkable performance in terms of public service as
mandated by Executive Order 109 and Republic Act No. 7925 has persuaded this Commission to affix the
stamp of its approval.14

The Court will not interfere with these findings of the NTC, as these are matters that are addressed to its sound
discretion, being the government agency entrusted with the regulation of activities coming under its special and
technical forte.15 Moreover, the exercise of administrative discretion is a policy decision and a matter that can best
be discharged by the government agency concerned, and not by the courts.16

Petitioner insists compliance with the service area scheme (SAS) mandated by DOTC Dept. Circular No. 91-260,
to wit:

1. The National Telecommunications Commission (NTC) shall define the boundaries of local
exchange areas, and shall henceforth authorize only one franchised Local Exchange Carrier (LEC) to
provide LEC service within such areas.

The Court is not persuaded. Said department circular was issued by the DOTC in 1991, before the advent of
E.O. No. 109 and R.A. No. 7925. When E.O. No. 109 was promulgated in 1993, and R.A. No. 7925 enacted in
1995, the service area scheme was noticeably omitted therefrom. Instead, E.O. No. 109 and R.A. No. 7925
adopted a policy of healthy competition among the local exchange carrier service providers.

The need to formulate new policies is dictated by evolving goals and demands in telecommunications
services. Thus, E.O. No. 109 acknowledges that there is a "need to promulgate new policy directives to meet the
targets of Government through the National Telecommunications Development Plan (NTDP) of the Department of
Transportation and Communications (DOTC), specifically: (1) to ensure the orderly development of the
telecommunications sector through the provision of service to all areas of the country; (2) to satisfy the unserviced
demand for telephones; and (3) to provide healthy competition among authorized service providers." Likewise,
one of the national policies and objectives of R.A. No. 7925 is to foster the improvement and expansion of
telecommunications services in the country through a healthy competitive environment, in which
telecommunications carriers are free to make business decisions and to interact with one another in providing
telecommunications services, with the end in view of encouraging their financial viability while maintaining
affordable rates.17

Recently, in Pilipino Telephone Corporation vs. NTC,18 the Court had occasion to rule on a case akin to the
present dispute, involving the same respondent ICC, and the Pilipino Telephone Corporation (Piltel). In
the Piltelcase, ICC applied for a provisional authority to operate a local exchange service in areas already
covered by Piltel, which includes Misamis Occidental, Zamboanga del Sur, Davao del Sur, South Cotabato and
Saranggani. Piltel opposed ICC's application but the NTC denied it, and granted ICC's application. The Court of
Appeals dismissed Piltel's petition for review, and on certiorari before this Court, we affirmed the dismissal. The
Court found that the NTC did not commit any grave abuse of discretion when it granted the ICC a provisional
authority to operate in areas covered by Piltel. We held:

We will not disturb the factual findings of the NTC on the technical and financial capability of the ICC to
undertake the proposed project. We generally accord great weight and even finality to factual findings of
administrative bodies such as the NTC, if substantial evidence supports the findings as in this case. The
exception to this rule is when the administrative agency arbitrarily disregarded evidence before it or
misapprehended evidence to such an extent as to compel a contrary conclusion had it properly
appreciated the evidence. PILTEL gravely failed to show that this exception applies to the instant
case. Moreover, the exercise of administrative discretion, such as the issuance of a PA, is a policy
decision and a matter that the NTC can best discharge, not the courts.

PILTEL contends that the NTC violated Section 23 of NTC Memorandum Circular No. 11-9-93, otherwise
known as the "Implementing Guidelines on the Provisions of EO 109" which states:

Section 23. No other company or entity shall be authorized to provide local exchange service in
areas where the LECs comply with the relevant provisions of MTC MC No. 10-17-90 and NTC
MC No. 10-16-90 and that the local exchange service area is not underserved. (Emphasis
supplied)

Section 23 of EO 109 does not categorically state that the issuance of a PA is exclusive to any
telecommunications company. Neither Congress nor the NTC can grant an exclusive "franchise,
certificate, or any other form of authorization" to operate a public utility. In Republic v. Express
Telecommunications Co., the Court held that "the Constitution is quite emphatic that the operation of a
public utility shall not be exclusive." Section 11, Article XII of the Constitution provides:

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. xxx (Emphasis supplied)

Thus, in Radio Communications of the Philippines, Inc. v. National Telecommunications


Commission, the Court ruled that the "Constitution mandates that a franchise cannot be exclusive in
nature."

...

Among the declared national policies in Republic Act No. 7925, otherwise known as the "Public
Telecommunications Policy Act of the Philippines," is the healthy competition among telecommunications
carriers, to wit:

Obviously, "the need for a healthy competitive environment in telecommunications is sufficient impetus for
the NTC to consider all those applicants, who are willing to offer competition, develop the market and
provide the environment necessary for greater public service."

Furthermore, "free competition in the industry may also provide the answer to a much-desired
improvement in the quality and delivery of this type of public utility, to improved technology, fast and
handy mobil[e] service, and reduced user dissatisfaction."

PILTEL's contention that the NTC Order amounts to a confiscation of property without due process of law
is untenable. "Confiscation" means the seizure of private property by the government without
compensation to the owner. A franchise to operate a public utility is not an exclusive private property of
the franchisee. Under the Constitution, no franchisee can demand or acquire exclusivity in the operation
of a public utility. Thus, a franchisee of a public utility cannot complain of seizure or taking of property
because of the issuance of another franchise to a competitor. Every franchise, certificate or authority to
operate a public utility is, by constitutional mandate, non-exclusive. PILTEL cannot complain of a taking
of an exclusive right that it does not own and which no franchisee can ever own.
Likewise, PILTEL's argument that the NTC Order violates PILTEL's rights as a prior operator has no
merit. The Court resolved a similar question in Republic v. Republic Telephone Company, Inc. In
striking down Retelco's claim that it had a right to be protected in its investment as a franchise-holder and
prior operator of a telephone service in Malolos, Bulacan, the Court held:

RETELCO's foremost argument is that "such operations and maintenance of the telephone
system and solicitation of subscribers by [petitioners] constituted an unfair and ruinous
competition to the detriment of [RETELCO which] is a grantee of both municipal and legislative
franchises for the purpose." In effect, RETELCO pleads for protection from the courts on the
assumption that its franchises vested in it an exclusive right as prior operator. There is no clear
showing by RETELCO, however, that its franchises are of an exclusive character. xxx At any
rate, it may very well be pointed out as well that neither did the franchise of PLDT at the time of
the controversy confer exclusive rights upon PLDT in the operation of a telephone system. In
fact, we have made it a matter of judicial notice that all legislative franchises for the operation of a
telephone system contain the following provision:

"It is expressly provided that in the even_t the Philippine Government should desire to
maintain and operate for itself the system and enterprise herein authorized, the grantee
shall surrender his franchise and will turn over to the Government said system and all
serviceable equipment therein, at cost, less reasonable depreciation."19

Similarly in this case, the grant of a PA to ICC to operate in areas covered by TTPI is not tainted with any grave
abuse of discretion as it was issued by the NTC after taking into account ICC's technical and financial capabilities,
and in keeping with the policy of healthy competition fostered by E.O. No. 109 and R.A. No. 7925.

In addition, Section 6 of R.A. No. 7925 specifically limits the DOTC from exercising any power that will tend to
influence or effect a review or a modification of the NTC's quasi-judicial functions, to wit:

Section 6. Responsibilities of and Limitations to Department Powers. -- The Department of Transportation


and Communications (Department) shall not exercise any power which will tend to influence or effect a
review or a modification of the Commission's quasi-judicial function.

The power of the NTC in granting or denying a provisional authority to operate a local exchange carrier service is
a quasi-judicial function,20 a sphere in which the DOTC cannot intrude upon. If at all, the service area scheme
provided in DOTC Dept. Circular No. 91-260 is only one of the factors, but should not in any way, tie down the
NTC in its determination of the propriety of a grant of a provisional authority to a qualified applicant for local
exchange service.

True, NTC MC No. 11-9-93 requires prior consultation with the NTC of the proposed service areas. As petitioners
themselves argue, prior consultation allows the NTC to assess the impact of the proposed application on the
viability of the local exchange operator in the area desired by the would-be applicant and on the viability of the
entire telecommunications industry as well as rationalize the plans to minimize any adverse impact.21 In this case,
prior consultation was substantially complied with and its purpose accomplished, when ICC filed its application
and the NTC was given the opportunity to assess ICC's viability to render local exchange service in the Manila
and Navotas areas, and its impact on the telecommunications industry.

It is also true that NTC MC No. 8-9-95 allows a duly enfranchised entity to maintain a local exchange network if it
is shown that an existing authorized local exchange operator fails to satisfy the demand for local exchange
service.22In this case, the NTC noted the increasing rate in the demand for local lines within the Manila and
Navotas areas, and in order for these areas to catch up with its neighboring cities, installation of lines must be
sped up.23 This, in fact, is tantamount to a finding that the existing local exchange operator failed to meet the
growing demand for local lines.

ICC's technical and financial capabilities, as well as the growth rate in the number of lines in particular areas, are
matters within NTC's competence and should be accorded respect. The NTC is given wide latitude in the
evaluation of evidence and in the exercise of its adjudicative functions, and this includes the authority to take
judicial notice of facts within its special competence.24

TTPI anticipates that allowing ICC to enter its service areas will make it difficult for it to cross-subsidize its
operations in the less profitable areas. Such argument, however, is futile. The cross-subsidy approach is
apparently the government's response to the foreseen situation wherein given its policy of universal access, a
local exchange provider will find itself operating in areas where the demand and the public's capacity to subscribe
will be lesser than in other areas, making these areas more of a liability than an asset. Thus, Section 4 of E.O.
No. 109 provides:

SEC. 4. Cross-Subsidy. Until universal access to basic telecommunications is achieved, and such
service is priced to reflect actual costs, local exchange service shall continue to be cross-subsidized by
other telecommunications services within the same company.

Meanwhile, NTC MC No. 8-9-95 provides:


ACCESS CHARGES

GENERAL

(a) Until the local exchange service is priced reflecting actual costs, the local exchange service shall
be cross-subsidized by other telecommunications services.

(c) The subsidy need by the LE service operator to earn a rate of return at parity with other
segments of telecommunications industry shall be charged against the international and domestic toll and
CMTS interconnect services.25

Both issuances allow a local exchange operator to cross-subsidize its operations from its other
telecommunications services, and not solely on the revenues derived from the operator's local exchange service.

Notably, R.A. No. 7617, as amended by R.A. No. 7674, grants TTPI the legislative franchise to install, operate
and maintain telecommunications systems throughout the Philippines but not limited to the operations of local
exchange service or public switched network, public-calling stations, inter-exchange carrier or national toll
transmission, value-added or enhanced services intelligent networks, mobile or personal communications
services, international gateway facility, and paging services, among others.<sup26< sup=""></sup26<> From
these services, TTPI has other sources of revenue from which it may cross-subsidize its local exchange
operations.

The Court, however, agrees with petitioners that the NTC erred when it failed to require ICC to make an escrow
deposit and a performance bond. Section 27 of NTC MC No. 11-9-93 specifically provides:

SEC. 27. Authorized public telecommunications carriers shall be required to deposit in escrow in a
reputable bank 20% of the investment required for the first two years of the implementation of
the proposed project.

In addition to escrow, the authorized public telecommunications carriers shall be required to post a
performance bond equivalent to 10% of the investment required for the first two years of the approved
project but not to exceed P500 Million. The performance bond shall be forfeited in favor of the
government in the event that the authorized PTC fail to comply with the terms and conditions of the
authority granted. (Emphases Ours)

The escrow deposit and the posting of a performance bond are required in each proposed and approved project
of a local exchange operator. Project refers to a planned undertaking.27 ICC's project for local exchange service
in the Manila and Navotas areas is separate and distinct from its projects in other areas; hence, the NTC should
have directed ICC to submit such requirements. Evidently, the escrow deposit is required to ensure that there is
available money on hand to defray ICC's expenditures for its project, while the performance bond will answer for
the faithful compliance and performance of ICC's rollout obligation and to compensate the government for any
damages incurred in case of ICC's default. Without these, the government will be left holding an "empty bag" in
the event ICC reneges in its rollout obligation.

Section 27 of NTC MC No. 11-9-93 is silent as to whether the posting of an escrow deposit and performance
bond is a condition sine qua non for the grant of a provisional authority. While the provision uses the term "shall,"
said directive pertains to the NTC, which shall require the public telecommunications carrier to make such deposit
and posting. In any event, records show that as of May 20, 2004, ICC has been granted an extension of its
provisional authority up to November 10, 2006.28 Records also show that ICC has already been providing local
exchange carrier service in the areas concerned, having installed 16,000 lines in the City of Manila, 12,000 of
which have already been subscribed, 624 lines in Caloocan City, all of which have been subscribed, while the roll-
out plan for facilities and provisioning in the City of Navotas is being finalized. 29 Hence, so as not to disrupt ICC's
rollout plan compliance, it would be more judicious for the Court to merely require ICC to comply with Section 27
of NTC MC No. 11-9-93, within such period to be determined by the NTC.

Furthermore, it is well to stress that petitioner TTPI cannot claim any exclusive right to render telecommunications
service in areas which the NTC considers to be in need of additional providers. R.A. No. 7925 is quite emphatic
on this score, viz.:

SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso
factobecome part of previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications franchises
concerning territory covered by the franchise, the life span of the franchise, or the type of service
authorized by the franchise. (Emphasis Ours)

More than anything else, public service should be the primordial objective of local exchange operators. The entry
of another provider in areas covered by TTPI should pose as a challenge for it to improve its quality of
service. Ultimately, it will be the public that will benefit. As pointed out in Republic of the Phils. vs. Rep.
Telephone Co, Inc.:30

Free competition in the industry may also provide the answer to a much-desired improvement in the
quality and delivery of this type of public utility, to improved technology, fast and handy mobil service, and
reduced user dissatisfaction. After all, neither PLDT nor any other public utility has a constitutional right
to a monopoly position in view of the Constitutional proscription that no franchise certificate or
authorization shall be exclusive in character or shall last longer than fifty (50) years (ibid., Section 11;
Article XIV, Section 5, 1973 Constitution; Article XIV, Section 8, 1935 Constitution).

WHEREFORE, the petition for review on certiorari is PARTIALLY GRANTED. The Order of the National
Telecommunications Commission dated November 10, 1997 in NTC Case No. 96-195 is AFFIRMED with the
following modifications:

Respondent International Communication Corporation, in accordance with Section 27 of NTC MC No. 11-9-93, is
required to:

(1) Deposit in escrow in a reputable bank 20% of the investment required for the first two years of
the implementation of the proposed project; and

(2) Post a performance bond equivalent to 10% of the investment required for the first two years of
the approved project but not to exceed P500 Million.

within such period to be determined by the National Telecommunications Commission.

No pronouncement as to costs.

SO ORDERED.

G. R. No. 174350 August 13, 2008

SPOUSES BERNYL BALANGAUAN & KATHERENE BALANGAUAN, petitioners,


vs.
THE HONORABLE COURT OF APPEALS, SPECIAL NINETEENTH (19TH) DIVISION, CEBU CITY & THE
HONGKONG AND SHANGHAI BANKING CORPORATION, LTD., respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Certiorari under Rule 65 of the Revised Rules of Court assailing the 28 April 2006
Decision1 and 29 June 2006 Resolution2 of the Court of Appeals in CA-G.R. CEB-SP No. 00068, which annulled
and set aside the 6 April 20043 and 30 August 20044 Resolutions of the Department of Justice (DOJ) in I.S. No.
02-9230-I, entitled "The Hongkong and Shanghai Banking Corporation v. Katherine Balangauan, et al." The twin
resolutions of the DOJ affirmed, in essence, theResolution of the Office of the City Prosecutor,5 Cebu City, which
dismissed for lack of probable cause the criminal complaint for Estafa and/or Qualified Estafa, filed against
petitioner-Spouses Bernyl Balangauan (Bernyl) and Katherene Balangauan (Katherene) by respondent Hong
Kong and Shanghai Banking Corporation, Ltd. (HSBC).

In this Petition for Certiorari, petitioners Bernyl and Katherene urge this Court to "reverse and set aside the
Decision of the Court of Appeals, Special nineteenth (sic) [19th] division (sic), Cebu City (sic) and accordingly,
dismiss the complaint against the [petitioners Bernyl and Katherene] in view of the absence of probable cause to
warrant the filing of an information before the Court and for utter lack of merit."6

As culled from the records, the antecedents of the present case are as follows:

Petitioner Katherene was a Premier Customer Services Representative (PCSR) of respondent bank, HSBC. As a
PCSR, she managed the accounts of HSBC depositors with Premier Status. One such client and/or depositor
handled by her was Roger Dwayne York (York).

York maintained several accounts with respondent HSBC. Sometime in April 2002, he went to respondent
HSBCs Cebu Branch to transact with petitioner Katherene respecting his Dollar and Peso Accounts. Petitioner
Katherene being on vacation at the time, York was attended to by another PCSR. While at the bank, York
inquired about the status of his time deposit in the amount ofP2,500,000.00. The PCSR representative who
attended to him, however, could not find any record of said placement in the banks data base.

York adamantly insisted, though, that through petitioner Katherene, he made a placement of the aforementioned
amount in a higher-earning time deposit. York further elaborated that petitioner Katherene explained to him that
the alleged higher-earning time deposit scheme was supposedly being offered to Premier clients only. Upon
further scrutiny and examination, respondent HSBCs bank personnel discovered that: (1) on 18 January 2002,
York pre-terminated a P1,000,000.00 time deposit; (2) there were cash movement tickets and withdrawal slips all
signed by York for the amount of P1,000,000.00; and (3) there were regular movements in Yorks accounts, i.e.,
beginning in the month of January 2002, monthly deposits in the amount of P12,500.00 and P8,333.33 were
made, which York denied ever making, but surmised were the regular interest earnings from the placement of
the P2,500,000.00.

It was likewise discovered that the above-mentioned deposits were transacted using petitioner Katherenes
computer and work station using the code or personal password "CEO8." The significance of code "CEO8,"
according to the bank personnel of respondent HSBC, is that, "[i]t is only Ms. Balangauan who can transact from
[the] computer in the work station CEO-8, as she is provided with a swipe card which she keeps sole custody of
and only she can use, and which she utilizes for purposes of performing bank transactions from that computer." 7

Bank personnel of respondent HSBC likewise recounted in their affidavits that prior to the filing of the complaint
for estafa and/or qualified estafa, they were in contact with petitioners Bernyl and Katherene. Petitioner Bernyl
supposedly met with them on two occasions. At first he disavowed any knowledge regarding the whereabouts of
Yorks money but later on admitted that he knew that his wife invested the funds with Shell Company. He likewise
admitted that he made the phone banking deposit to credit Yorks account with the P12,500.00 and the P8,333.33
using their landline telephone. With respect to petitioner Katherene, she allegedly spoke to the bank personnel
and York on several occasions and admitted that the funds were indeed invested with Shell Company but that
York knew about this.

So as not to ruin its name and goodwill among its clients, respondent HSBC reimbursed York theP2,500,000.00.

Based on the foregoing factual circumstances, respondent HSBC, through its personnel, filed a criminal complaint
for Estafa and/or Qualified Estafa before the Office of the City Prosecutor, Cebu City.

Petitioners Bernyl and Katherene submitted their joint counter-affidavit basically denying the allegations contained
in the affidavits of the aforenamed employees of respondent HSBC as well as that made by York. They argued
that the allegations in the Complaint-Affidavits were pure fabrications. Specifically, petitioner Katherene denied 1)
having spoken on the telephone with Dy and York; and 2) having admitted to the personnel of respondent HSBC
and York that she took theP2,500,000.00 of York and invested the same with Shell Corporation. Petitioner Bernyl
similarly denied 1) having met with Dy, Iigo, Cortes and Arcuri; and 2) having admitted to them that York knew
about petitioner Katherenes move of investing the formers money with Shell Corporation.

Respecting the P12,500.00 and P8,333.33 regular monthly deposits to Yorks account made using the code
"CEO8," petitioners Bernyl and Katherene, in their defense, argued that since it was a deposit, it was her duty to
accept the funds for deposit. As regards Yorks time deposit with respondent HSBC, petitioners Bernyl and
Katherene insisted that the funds therein were never entrusted to Katherene in the latters capacity as PCSR
Employee of the former because monies deposited "at any bank would not and will not be entrusted to specific
bank employee but to the bank as a whole."

Following the requisite preliminary investigation, Assistant City Prosecutor (ACP) Victor C. Laborte, Prosecutor II
of the OCP, Cebu City, in a Resolution8 dated 21 February 2003, found no probable cause to hold petitioners
Bernyl and Katherene liable to stand trial for the criminal complaint of estafa and/or qualified estafa, particularly
Article 315 of the Revised Penal Code. Accordingly, the ACP recommended the dismissal of respondent HSBCs
complaint.

The ACP explained his finding, viz:

As in any other cases, we may never know the ultimate truth of this controversy. But on balance, the
evidence on record tend to be supportive of respondents contention rather than that of complaint.

xxxx

First of all, it is well to dwell on what Mr. York said in his affidavit. Thus:

`18. For purposes of opening these two time deposits (sic) accounts, Ms. Balangauan asked me
to sign several Bank documents on several occasions, the nature of which I was unfamiliar with.

`20. I discovered later that these were withdrawal slips and cash movement tickets, with which
documents Ms. Balangauan apparently was able to withdraw the amount from my accounts, and
take the same from the premises of the Bank.

In determining the credibility of an evidence, it is well to consider the probability or improbability of ones
statements for it has been said that there is no test of the truth of human testimony except its conformity
to our knowledge, observation and experience.

Mr. York could not have been that unwary and unknowingly innocent to claim unfamiliarity with withdrawal
slips and cash movement tickets which Ms. Balangauan made him to sign on several occasions. He is a
premier client of HSBC maintaining an account in millions of pesos. A withdrawal slip and cash movement
tickets could not have had such intricate wordings or terminology so as to render them non-
understandable even to an ordinary account holder. Mr. York admittedly is a long-standing client of the
bank. Within the period of long-standing he certainly must have effected some withdrawals. It goes
without saying therefore that the occasions that Ms. Balangauan caused him to sign withdrawal slips are
not his first encounter with such kinds of documents.

The one ineluctable conclusion therefore that can be drawn from the premises is that Mr. York freely and
knowingly knew what was going on with his money, who has in possession of them and where it was
invested. These take out the elements of deceit, fraud, abuse of confidence and without the owners
consent in the crimes charged.

The other leg on which complainants cause of action stands rest on its claim for sum of money against
respondents allegedly after it reimbursed Mr. York for his missing account supposedly taken/withdrawn by
Ms. Balangauan. The banks action against respondents would be a civil suit against them which
apparently it already did after the bank steps into the shoes of Mr. York and becomes the creditor of Ms.
Balangauan.9

The ACP then concluded that:

By and large, the evidence on record do (sic) not engender enough bases to establish a probable cause
against respondents.10

On 1 July 2003, respondent HSBC appealed the above-quoted resolution and foregoing comment to the
Secretary of the DOJ by means of a Petition for Review.

In a Resolution dated 6 April 2004, the Chief State Prosecutor, Jovencito R. Zuo, for the Secretary of the DOJ,
dismissed the petition. In denying respondent HSBCs recourse, the Chief State Prosecutor held that:

Sec. 12 (c) of Department Circular No. 70 dated July 2, 2000 provides that the Secretary of Justice may,
motu proprio, dismiss outright the petition if there is no showing of any reversible error in the questioned
resolution.

We carefully examined the petition and its attachments and found no reversible error that would justify a
reversal of the assailed resolution which is in accord with the law and evidence on the matter.

Respondent HSBCs Motion for Reconsideration was likewise denied with finality by the DOJ in a lengthier
Resolution dated 30 August 2004.

The DOJ justified its ruling in this wise:

A perusal of the motion reveals no new matter or argument which was not taken into consideration in our
review of the case. Hence, we find no cogent reason to reconsider our resolution. Appellant failed to
present any iota of evidence directly showing that respondent Katherene Balangauan took the money and
invested it somewhere else. All it tried to establish was that Katherene unlawfully took the money and
fraudulently invested it somewhere else x x x, because after the withdrawals were made, the money
never reached Roger York as appellant adopted hook, line and sinker the latters declaration, despite
Yorks signatures on the withdrawal slips covering the total amount of P2,500,000.00 x x x. While
appellant has every reason to suspect Katherene for the loss of the P2,500,000.00 as per Yorks bank
statements, the cash deposits were identified by the numerals "CEO8" and it was only Katherene who
could transact from the computer in the work station CEO-8, plus alleged photographs showing
Katherene "leaving her office at 5:28 p.m. with a bulky plastic bag presumably containing cash" since
a portion of the funds was withdrawn, we do not, however, dwell on possibilities, suspicion and
speculation. We rule based on hard facts and solid evidence.

Moreover, an examination of the petition for review reveals that appellant failed to append thereto all
annexes to respondents urgent manifestations x x x together with supplementalaffidavits of Melanie de
Ocampo and Rex B. Balucan x x x, which are pertinent documents required under Section 5 of
Department Circular No. 70 dated July 3, 2000.11

Respondent HSBC then went to the Court of Appeals by means of a Petition for Certiorari under Rule 65 of the
Revised Rules of Court.

On 28 April 2006, the Court of Appeals promulgated its Decision granting respondent HSBCs petition, thereby
annulling and setting aside the twin resolutions of the DOJ.

The fallo of the assailed decision reads:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us GRANTING the
petition filed in this case. The assailed Resolutions dated April 6, 2004 and August 30, 2004 are
ANNULLED and SET ASIDE.

The City Prosecutor of Cebu City is hereby ORDERED to file the appropriate Information against the
private respondents.12
Petitioners Bernyl and Katherenes motion for reconsideration proved futile, as it was denied by the appellate
court in a Resolution dated 29 June 2006.

Hence, this petition for certiorari filed under Rule 65 of the Revised Rules of Court.

Petitioners Bernyl and Katherene filed the present petition on the argument that the Court of Appeals committed
grave abuse of discretion in reversing and setting aside the resolutions of the DOJ when: (1) "[i]t reversed the
resolution of the Secretary of Justice, Manila dated August 30, 2004 and correspondingly, gave due course to the
Petition for Certiorari filed by HSBC on April 28, 2006 despite want of probable cause to warrant the filing of an
information against the herein petitioners"13; (2) "[i]t appreciated the dubious evidence adduced by HSBC albeit
the absence of legal standing or personality of the latter"14; (3) "[i]t denied the motions for reconsideration on June
29, 2006 notwithstanding the glaring evidence proving the innocence of the petitioners"15; (4) "[i]t rebuffed the
evidence of the herein petitioners in spite of the fact that, examining such evidence alone would establish that the
money in question was already withdrawn by Mr. Roger Dwayne York" 16; and (5) "[i]t failed to dismiss outright the
petition by HSBC considering that the required affidavit of service was not made part or attached in the said
petition pursuant to Section 13, Rule 13 in relation to Section 3, Rule 46, and Section 2, Rule 56 of the Rules of
Court."17

Required to comment on the petition, respondent HSBC remarked that the filing of the present petition is improper
and should be dismissed. It argued that the correct remedy is an appeal bycertiorari under Rule 45 of the Revised
Rules of Court.

Petitioners Bernyl and Katherene, on the other hand, asserted in their Reply18 that the petition filed under Rule 65
was rightfully filed considering that not only questions of law were raised but questions of fact and error of
jurisdiction as well. They insist that the Court of Appeals "clearly usurped into the jurisdiction and authority of the
Public Prosecutor/Secretary of justice (sic) x x x."19

Given the foregoing arguments, there is need to address, first, the issue of the mode of appeal resorted to by
petitioners Bernyl and Katherene. The present petition is one for certiorari under Rule 65 of the Revised Rules of
Court. Notice that what is being assailed in this recourse is the decision and resolution of the Court of Appeals
dated 28 April 2006 and 29 June 2006, respectively. The Revised Rules of Court, particularly Rule 45 thereof,
specifically provides that an appeal by certiorarifrom the judgments or final orders or resolutions of the appellate
court is by verified petition for review on certiorari.20

In the present case, there is no question that the 28 April 2006 Decision and 29 June 2006 Resolutionof the Court
of Appeals granting the respondent HSBCs petition in CA-G.R. CEB. SP No. 00068 is already a disposition on
the merits. Therefore, both decision and resolution, issued by the Court of Appeals, are in the nature of a final
disposition of the case set before it, and which, under Rule 45, are appealable to this Court via a Petition for
Review on Certiorari, viz:

SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court
or other courts whenever authorized by law, may file with the Supreme Court a verified petition for review
on certiorari. The petition shall raise only questions of law which must be distinctly set forth. (Emphasis
supplied.)

It is elementary in remedial law that a writ of certiorari will not issue where the remedy of appeal is available to an
aggrieved party. A remedy is considered "plain, speedy and adequate" if it will promptly relieve the petitioners
from the injurious effects of the judgment and the acts of the lower court or agency. 21 In this case, appeal was not
only available but also a speedy and adequate remedy.22 And while it is true that in accordance with the liberal
spirit pervading the Rules of Court and in the interest of substantial justice, 23 this Court has, before,24 treated a
petition for certiorari as a petition for review on certiorari, particularly if the petition for certiorari was filed within the
reglementary period within which to file a petition for review on certiorari;25 this exception is not applicable to the
present factual milieu.

Pursuant to Sec. 2, Rule 45 of the Revised Rules of Court:

SEC. 2. Time for filing; extension. The petition shall be filed within fifteen (15) days from notice of the
judgment or final order or resolution appealed from, or of the denial of the petitioners motion for new trial
or reconsideration filed in due time after notice of the judgment. x x x.

a party litigant wishing to file a petition for review on certiorari must do so within 15 days from receipt of the
judgment, final order or resolution sought to be appealed. In this case, petitioners Bernyl and Katherenes motion
for reconsideration of the appellate courts Resolution was denied by the Court of Appeals in its Resolution dated
29 June 2006, a copy of which was received by petitioners on 4 July 2006. The present petition was filed on 1
September 2006; thus, at the time of the filing of said petition, 59 days had elapsed, way beyond the 15-day
period within which to file a petition for review under Rule 45, and even beyond an extended period of 30 days,
the maximum period for extension allowed by the rules had petitioners sought to move for such extra time. As the
facts stand, petitioners Bernyl and Katherene had lost the right to appeal via Rule 45.

Be that as it may, alternatively, if the decision of the appellate court is attended by grave abuse of discretion
amounting to lack or excess of jurisdiction, then such ruling is fatally defective on jurisdictional ground and may be
questioned even after the lapse of the period of appeal under Rule 4526 but still within the period for filing a
petition for certiorari under Rule 65.

We have previously ruled that grave abuse of discretion may arise when a lower court or tribunal violates and
contravenes the Constitution, the law or existing jurisprudence. By grave abuse of discretion is meant such
capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. The abuse of discretion
must be grave, as where the power is exercised in an arbitrary or despotic manner by reason of passion or
personal hostility and must be so patent and gross as to amount to an evasion of positive duty or to a virtual
refusal to perform the duty enjoined by or to act at all in contemplation of law. 27 The word "capricious," usually
used in tandem with the term "arbitrary," conveys the notion of willful and unreasoning action. Thus, when seeking
the corrective hand ofcertiorari, a clear showing of caprice and arbitrariness in the exercise of discretion is
imperative.28

In reversing and setting aside the resolutions of the DOJ, petitioners Bernyl and Katherene contend that the Court
of Appeals acted with grave abuse of discretion amounting to lack or excess of jurisdiction.

The Court of Appeals, when it resolved to grant the petition in CA-G.R. CEB. SP No. 00068, did so on two
grounds, i.e., 1) that "the public respondent (DOJ) gravely abused his discretion in finding that there was no
reversible error on the part of the Cebu City Prosecutor dismissing the case against the private respondent
without stating the facts and the law upon which this conclusion was made" 29; and 2) that "the public respondent
(DOJ) made reference to the facts and circumstances of the case leading to his finding that no probable cause
exists, x x x (the) very facts and circumstances (which) show that there exists a probable cause to believe that
indeed the private respondents committed the crimes x x x charged against them." 30

It explained that:

In refusing to file the appropriate information against the private respondents because he does not dwell
on possibilities, suspicion and speculation and that he rules based on hard facts and solid evidence,
(sic) the public respondent exceeded his authority and gravely abused his discretion. It must be
remembered that a finding of probable cause does not require an inquiry into whether there is sufficient
evidence to procure a conviction. It is enough that it is believed that the act or omission complained of
constitutes the offense charged. The term does not mean actual or positive cause; (sic) nor does it
import absolute certainty. It is merely based on opinion and reasonable belief. [Citation omitted.] A trial is
there precisely for the reception of evidence of the prosecution in support of the charge.

In this case, the petitioner had amply established that it has a prima facie case against the private
respondents. As observed by the public respondent in his second assailed resolution, petitioner was able
to present photographs of private respondent Ms. Balangauan leaving her office carrying a bulky plastic
bag. There was also the fact that the transactions in Mr. Yorks account used the code CEO8 which
presumably point to the private respondent Ms. Balangauan as the author thereof for she is the one
assigned to such work station.

Furthermore, petitioner was able to establish that it was Ms. Balangauan who handled Mr. Yorks account
and she was the one authorized to make the placement of the sum ofP2,500,000.00. Since said sum is
nowhere to be found in the records of the bank, then, apparently, Ms. Balangauan must be made to
account for the same.31

The appellate court then concluded that:

These facts engender a well-founded belief that that (sic) a crime has been committed and that the
private respondents are probably guilty thereof. In refusing to file the corresponding information against
the private respondents despite the presence of the circumstances making out a prima facie case against
them, the public respondent gravely abused his discretion amounting to an evasion of a positive duty or to
a virtual refusal either to perform the duty enjoined or to act at all in contemplation of law. 32

The Court of Appeals found fault in the DOJs failure to identify and discuss the issues raised by the respondent
HSBC in its Petition for Review filed therewith. And, in support thereof, respondent HSBC maintains that it is
incorrect to argue that "it was not necessary for the Secretary of Justice to have his resolution recite the facts and
the law on which it was based," because courts and quasi-judicial bodies should faithfully comply with Section 14,
Article VIII of the Constitution requiring that decisions rendered by them should state clearly and distinctly the
facts of the case and the law on which the decision is based. 33

Petitioners Bernyl and Katherene, joined by the Office of the Solicitor General, on the other hand, defends the
DOJ and assert that the questioned resolution was complete in that it stated the legal basis for denying
respondent HSBCs petition for review "that (after) an examination (of) the petition and its attachment [it] found
no reversible error that would justify a reversal of the assailed resolution which is in accord with the law and
evidence on the matter."

It must be remembered that a preliminary investigation is not a quasi-judicial proceeding, and that the DOJ is not
a quasi-judicial agency exercising a quasi-judicial function when it reviews the findings of a public prosecutor
regarding the presence of probable cause. In Bautista v. Court of Appeals,34 this Court held that a preliminary
investigation is not a quasi-judicial proceeding, thus:
[T]he prosecutor in a preliminary investigation does not determine the guilt or innocence of the accused.
He does not exercise adjudication nor rule-making functions. Preliminary investigation is merely
inquisitorial, and is often the only means of discovering the persons who may be reasonably charged with
a crime and to enable the fiscal to prepare his complaint or information. It is not a trial of the case on the
merits and has no purpose except that of determining whether a crime has been committed and whether
there is probable cause to believe that the accused is guilty thereof. While the fiscal makes that
determination, he cannot be said to be acting as a quasi-court, for it is the courts, ultimately, that pass
judgment on the accused, not the fiscal.

Though some cases35 describe the public prosecutors power to conduct a preliminary investigation as quasi-
judicial in nature, this is true only to the extent that, like quasi-judicial bodies, the prosecutor is an officer of the
executive department exercising powers akin to those of a court, and the similarity ends at this point. 36 A quasi-
judicial body is an organ of government other than a court and other than a legislature which affects the rights of
private parties through either adjudication or rule-making.37 A quasi-judicial agency performs adjudicatory
functions such that its awards, determine the rights of parties, and their decisions have the same effect as
judgments of a court. Such is not the case when a public prosecutor conducts a preliminary investigation to
determine probable cause to file an Information against a person charged with a criminal offense, or when the
Secretary of Justice is reviewing the formers order or resolutions. In this case, since the DOJ is not a quasi-
judicial body, Section 14, Article VIII of the Constitution finds no application. Be that as it may, the DOJ rectified
the shortness of its first resolution by issuing a lengthier one when it resolved respondent HSBCs motion for
reconsideration.

Anent the substantial merit of the case, whether or not the Court of Appeals decision and resolution are tainted
with grave abuse of discretion in finding probable cause, this Court finds the petition dismissible.

The Court of Appeals cannot be said to have acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in reversing and setting aside the resolutions of the DOJ. In the resolutions of the DOJ, it affirmed the
recommendation of ACP Laborte that no probable cause existed to warrant the filing in court of an Information for
estafa and/or qualified estafa against petitioners Bernyl and Katherene. It was the reasoning of the DOJ that
"[w]hile appellant has every reason to suspect Katherene for the loss of the P2,500,000.00 as per Yorks bank
statements, the cash deposits were identified by the numerals CEO8 and it was only Katherene who could
transact from the computer in the work station CEO-8, plus alleged photographs showing Katherene leaving her
office at 5:28 p.m. with a bulky plastic bag presumably containing cash since a portion of the funds was
withdrawn, we do not, however, dwell on possibilities, suspicion and speculation. We rule based on hard facts and
solid evidence."38

We do not agree.

Probable cause has been defined as the existence of such facts and circumstances as would excite belief in a
reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of
the crime for which he was prosecuted.39 A finding of probable cause merely binds over the suspect to stand trial.
It is not a pronouncement of guilt.40

The executive department of the government is accountable for the prosecution of crimes, its principal obligation
being the faithful execution of the laws of the land. A necessary component of the power to execute the laws is
the right to prosecute their violators,41 the responsibility for which is thrust upon the DOJ. Hence, the
determination of whether or not probable cause exists to warrant the prosecution in court of an accused is
consigned and entrusted to the DOJ. And by the nature of his office, a public prosecutor is under no compulsion
to file a particular criminal information where he is not convinced that he has evidence to prop up the averments
thereof, or that the evidence at hand points to a different conclusion.

But this is not to discount the possibility of the commission of abuses on the part of the prosecutor. It is entirely
possible that the investigating prosecutor has erroneously exercised the discretion lodged in him by law. This,
however, does not render his act amenable to correction and annulment by the extraordinary remedy of certiorari,
absent any showing of grave abuse of discretion amounting to excess of jurisdiction. 42

And while it is this Courts general policy not to interfere in the conduct of preliminary investigations, leaving the
investigating officers sufficient discretion to determine probable cause, 43 we have nonetheless made some
exceptions to the general rule, such as when the acts of the officer are without or in excess of
authority,44 resulting from a grave abuse of discretion. Although there is no general formula or fixed rule for the
determination of probable cause, since the same must be decided in the light of the conditions obtaining in given
situations and its existence depends to a large degree upon the finding or opinion of the judge conducting the
examination, such a finding should not disregard the facts before the judge (public prosecutor) or run counter to
the clear dictates of reason.45

Applying the foregoing disquisition to the present petition, the reasons of DOJ for affirming the dismissal of the
criminal complaints for estafa and/or qualified estafa are determinative of whether or not it committed grave abuse
of discretion amounting to lack or excess of jurisdiction. In requiring "hard facts and solid evidence" as the basis
for a finding of probable cause to hold petitioners Bernyl and Katherene liable to stand trial for the crime
complained of, the DOJ disregards the definition of probable cause that it is a reasonable ground of
presumption that a matter is, or may be, well-founded, such a state of facts in the mind of the prosecutor as would
lead a person of ordinary caution and prudence to believe, or entertain an honest or strong suspicion, that a thing
is so.46 The term does not mean "actual and positive cause" nor does it import absolute certainty. 47 It is merely
based on opinion and reasonable belief;48 that is, the belief that the act or omission complained of constitutes the
offense charged. While probable cause demands more than "bare suspicion," it requires "less than evidence
which would justify conviction." Herein, the DOJ reasoned as if no evidence was actually presented by respondent
HSBC when in fact the records of the case were teeming; or it discounted the value of such substantiation when
in fact the evidence presented was adequate to excite in a reasonable mind the probability that petitioners Bernyl
and Katherene committed the crime/s complained of. In so doing, the DOJ whimsically and capriciously exercised
its discretion, amounting to grave abuse of discretion, which rendered its resolutions amenable to correction and
annulment by the extraordinary remedy of certiorari.

From the records of the case, it is clear that a prima facie case for estafa/qualified estafa exists against petitioners
Bernyl and Katherene. A perusal of the records, i.e., the affidavits of respondent HSBCs witnesses, the
documentary evidence presented, as well as the analysis of the factual milieu of the case, leads this Court to
agree with the Court of Appeals that, taken together, they are enough to excite the belief, in a reasonable mind,
that the Spouses Bernyl Balangauan and Katherene Balangauan are guilty of the crime complained of. Whether
or not they will be convicted by a trial court based on the same evidence is not a consideration. It is enough that
acts or omissions complained of by respondent HSBC constitute the crime of estafa and/or qualified estafa.

Collectively, the photographs of petitioner Katherene leaving the premises of respondent HSBC carrying a bulky
plastic bag and the affidavits of respondent HSBCs witnesses sufficiently establish acts adequate to constitute
the crime of estafa and/or qualified estafa. What the affidavits bear out are the following: that York was a Premier
Client of respondent HSBC; that petitioner Katherene handled all the accounts of York; that not one of Yorks
accounts reflect the P2,500,000.00 allegedly deposited in a higher yielding account; that prior to the discovery of
her alleged acts and omissions, petitioner Katherene supposedly persuaded York to invest in a "new product" of
respondent HSBC,i.e., a higher interest yielding time deposit; that York made a total of P2,500,000.00 investment
in the "new product" by authorizing petitioner Balangauan to transfer said funds to it; that petitioner Katherene
supposedly asked York to sign several transaction documents in order to transfer the funds to the "new product";
that said documents turned out to be withdrawal slips and cash movement tickets; that at no time did York receive
the cash as a result of signing the documents that turned out to be withdrawal slips/cash movement tickets; that
Yorks account was regularly credited "loose change" in the amounts of P12,500.00 and P8,333.33 beginning in
the month after the alleged "transfer" of Yorks funds to the "new product"; that the regular deposits of loose
change were transacted with the use of petitioner Katherenes work terminal accessed by her password "CEO8";
that the "CEO8" password was keyed in with the use of a swipe card always in the possession of petitioner
Katherene; that one of the loose-change deposits was transacted via the phone banking feature of respondent
HSBC and that when traced, the phone number used was the landline number of the house of petitioners Bernyl
and Katherene; that respondent HSBCs bank personnel, as well as York, supposedly a) talked with petitioner
Katherene on the phone, and that she allegedly admitted that the missing funds were invested with Shell
Company, of which York approved, and that it was only for one year; and b) met with petitioner Bernyl, and that
the latter at first denied having knowledge of his wifes complicity, but later on admitted that he knew of the
investment with Shell Company, and that he supposedly made the loose-change deposit via phone banking; that
after 23 April 2002, York was told that respondent HSBC had no "new product" or that it was promoting
investment with Shell Company; that York denied having any knowledge that his money was invested outside of
respondent HSBC; and that petitioner Katherene would not have been able to facilitate the alleged acts or
omissions without taking advantage of her position or office, as a consequence of which, HSBC had to reimburse
York the missing P2,500,000.00.

From the above, the alleged circumstances of the case at bar make up the elements of abuse of confidence,
deceit or fraudulent means, and damage under Art. 315 of the Revised Penal Code on estafa and/or qualified
estafa. They give rise to the presumption or reasonable belief that the offense of estafa has been committed; and,
thus, the filing of an Information against petitioners Bernyl and Katherene is warranted. That respondent HSBC is
supposed to have no personality to file any criminal complaint against petitioners Bernyl and Katherene does
not ipso facto clear them of prima facie guilt. The same goes for their basic denial of the acts or omissions
complained of; or their attempt at shifting the doubt to the person of York; and their claim that witnesses of
respondent HSBC are guilty of fabricating the whole scenario. These are matters of defense; their validity needs
to be tested in the crucible of a full-blown trial. Lest it be forgotten, the presence or absence of the elements of the
crime is evidentiary in nature and is a matter of defense, the truth of which can best be passed upon after a full-
blown trial on the merits. Litigation will prove petitioners Bernyl and Katherenes innocence if their defense be
true.

In fine, the relaxation of procedural rules may be allowed only when there are exceptional circumstances to justify
the same. Try as we might, this Court cannot find grave abuse of discretion on the part of the Court of Appeals,
when it reversed and set aside the resolutions of the DOJ. There is no showing that the appellate court acted in
an arbitrary and despotic manner, so patent or gross as to amount to an evasion or unilateral refusal to perform
its legally mandated duty. On the contrary, we find the assailed decision and resolution of the Court of Appeals to
be more in accordance with the evidence on record and relevant laws and jurisprudence than the resolutions of
the DOJ.

Considering the allegations, issues and arguments adduced and our disquisition above, we hereby dismiss the
instant petition for being the wrong remedy under the Revised Rules of Court, as well as for petitioner Bernyl and
Katherenes failure to sufficiently show that the challenged Decision andResolution of the Court of Appeals were
rendered in grave abuse of discretion amounting to lack or excess of jurisdiction.
WHEREFORE, premises considered, the instant Petition for Certiorari is DISMISSED for lack of merit. The 28
April 2006 Decision and the 29 June 2006 Resolution of the Court of Appeals in CA-G.R. CEB- SP No. 00068, are
hereby AFFIRMED. With costs against petitioners -- Spouses Bernyl Balangauan and Katherene Balangauan.

SO ORDERED.

G.R. No. 134625 August 31, 1999

UNIVERSITY OF THE PHILIPPINES BOARD OF REGENTS, CHANCELLOR ROGER POSADAS, DR.


EMERLINDA ROMAN, DEAN CONSUELO PAZ, DR. ISAGANI MEDINA, DR. MARIA SERENA DIOKNO, DR.
OLIVIA CAOILI, DR. FRANCISCO NEMENZO II, DEAN PACIFICO AGABIN, CARMELITA GUNO, and
MARICHU LAMBINO, petitioners,
vs.
HON. COURT OF APPEALS and AROKIASWAMY WILLIAM MARGARET CELINE, respondents.

MENDOZA, J.:

For review before the Court is the decision of the Court of Appeals 1 in CA-G.R. SP No. 42788, dated December
16, 1997, which granted private respondent's application for a writ of mandatory injunction, and its resolution,
dated July 13, 1998, denying petitioners' motion for reconsideration.

The antecedent facts are as follows:

Private respondent Arokiaswamy William Margaret Celine is a citizen of India and holder of a Philippine visitor's
visa. Sometime in April 1988, she enrolled in the doctoral program in Anthropology of the University of the
Philippines College of Social Sciences and Philosophy (CSSP) in Diliman, Quezon City.

After completing the units of course work required in her doctoral program, private respondent went on a two-year
leave of absence to work as Tamil Programme Producer of the Vatican Radio in the Vatican and as General
Office Assistant at the International Right to Life Federation in Rome. She returned to the Philippines in July 1991
to work on her dissertation entitled, "Tamil Influences in Malaysia, Indonesia and the Philippines."

On December 22, 1992, Dr. Realidad S. Rolda, chairperson of the U.P. Department of Anthropology, wrote a
letter to Dr. Maria Serena Diokno, CSSP Associate Dean and Graduate Program Director, certifying that private
respondent had finished her dissertation and was ready for her oral defense. Dr. Rolda suggested that the oral
defense be held on January 6, 1993 but, in a letter, dated February 2, 1993, Dr. Serena Diokno rescheduled it on
February 5, 1993. Named as members of the dissertation panel were Drs. E. Arsenio Manuel, Serafin Quiason,
Sri Skandarajah, Noel Teodoro, and Isagani Medina, the last included as the dean's representative.1wphi1.nt

After going over private respondent's dissertation, Dr. Medina informed CSSP Dean Consuelo Joaquin-Paz that
there was a portion in private respondent's dissertation that was lifted, without proper acknowledgment, from
Balfour's Cyclopaedia of India and Eastern and Southern Asia (1967), volume I, pp. 392-401 (3 v., Edward Balfour
1885 reprint) and from John Edye's article entitled "Description of the Various Classes of Vessels Constructed
and Employed by the Natives of the Coasts of Coromandel, Malabar, and the Island of Ceylon for their Coasting
Navigation" in the Royal Asiatic Society of Great Britain and Ireland Journal, volume I, pp. 1-14 (1833).2

Nonetheless, private respondent was allowed to defend her dissertation on February 5, 1993. Four (4) out of the
five (5) panelists gave private respondent a passing mark for her oral defense by affixing their signatures on the
approval form. These were Drs. Manuel, Quiason, Skandarajah, and Teodoro. Dr. Quiason added the following
qualification to his signature:

Ms. Arokiaswamy must incorporate the suggestions I made during the successful defense of her P.D.
thesis.3

Dr. Medina did not sign the approval form but added the following comment:

Pipirmahan ko ang pagsang-ayon/di pagsang-ayon kapag nakita ko na ang mga revisions ng


dissertation.4

Dr. Teodoro added the following note to his signature:

Kailangang isagawa ang mga mahahalagang pagbabago at ipakita sa panel and bound copies. 5

In a letter, dated March 5, 1993 and addressed to her thesis adviser, Dr. Manuel, private respondent requested a
meeting with the panel members, especially Dr. Medina, to discuss the amendments suggested by the panel
members during the oral defense. The meeting was held at the dean's office with Dean Paz, private respondent,
and a majority of the defense panel present. 6 During the meeting, Dean Paz remarked that a majority vote of the
panel members was sufficient for a student to pass, notwithstanding the failure to obtain the consent of the Dean's
representative.
On March 24, 1993, the CSSP College Faculty Assembly approved private respondent's graduation pending
submission of final copies of her dissertation.

In April 1993, private respondent submitted copies of her supposedly revised dissertation to Drs. Manuel,
Skandarajah, and Quiason, who expressed their assent to the dissertation. Petitioners maintain, however, that
private respondent did not incorporate the revisions suggested by the panel members in the final copies of her
dissertation.

Private respondent left a copy of her dissertation in Dr. Teodoro's office April 15, 1993 and proceeded to submit
her dissertation to the CSSP without the approvals of Dr. Medina and Dr. Teodoro, relying on Dean Paz's March
5, 1993 statement.

Dr. Teodoro later indicated his disapproval, while Dr. Medina did not sign the approval form. 7

Dean Paz then accepted private respondent's dissertation in partial fulfillment of the course requirements for the
doctorate degree in Anthropology.

In a letter to Dean Paz, dated April 17, 1993, private respondent expressed concern over matters related to her
dissertation. She sought to explain why the signature of Dr. Medina was not affixed to the revision approval form.
Private respondent said that since she already had the approval of a majority of the panel members, she no
longer showed her dissertation to Dr. Medina nor tried to obtain the latter's signature on the revision approval
form. She likewise expressed her disappointment over the CSSP administration and charged Drs. Diokno and
Medina with maliciously working for the disapproval of her dissertation, and further warned Dean Paz against
encouraging perfidious acts against her.

On April 17, 1993, the University Council met to approve the list of candidates for graduation for the second
semester of school year 1992-1993. The list, which was endorsed to the Board of Regents for final approval,
included private respondent's name.

On April 21, 1993, Dean Paz sent a letter to Dr. Milagros Ibe, Vice Chancellor for Academic Affairs, requesting the
exclusion of private respondent's name from the list of candidates for graduation, pending clarification of the
problems regarding her dissertation. Her letter reads:8

Abril 21, 1993

Dr. Milagros Ibe


Vice Chancellor for Academic Affairs
Unibersidad ng Pilipinas
Quezon Hall, Diliman, Q.C.

Mahal na Dr. Ibe,

Mahigpit ko pong hinihiling na huwag munang isama ang pangalan ni Ms. Arokiaswam[y] William Margaret Celine
sa listahan ng mga bibigyan ng degri na Ph.D. (Anthropology) ngayon[g] semester, dahil sa mga malubhang
bintang nya sa ilang myembro ng panel para sa oral defense ng disertasyon nya at sa mga akusasyon ng ilan sa
mga ito sa kanya.

Naniniwala po kami na dapat mailinaw muna ang ilang bagay bago makonfer ang degri kay Ms. Arokiaswam[y].
Kelangan po ito para mapangalagaan ang istandard ng pinakamataas na degree ng Unibersidad.

(Sgd.)

CONSUELO JOAQUIN-PAZ, Ph.D.


Dekano

Apparently, however, Dean Paz's letter did not reach the Board of Regents on time, because the next day, April
22, 1993, the Board approved the University Council's recommendation for the graduation of qualified students,
including private respondent. Two days later, April 24, 1993, private respondent graduated with the degree of
Doctor of Philosophy in Anthropology.

On the other hand, Dean Paz also wrote a letter to private respondent, dated April 21, 1993, that she would not
be granted an academic clearance unless she substantiated the accusations contained in her letter dated April
17, 1993.

In her letter, dated April 27, 1993, private respondent claimed that Dr. Medina's unfavorable attitude towards her
dissertation was a reaction to her failure to include him and Dr. Francisco in the list of panel members; that she
made the revisions proposed by Drs. Medina and Teodoro in the revised draft of her dissertation; and that Dr.
Diokno was guilty of harassment.

In a letter addressed to Dean Paz, dated May 1, 1993, Dr. Medina formally charged private respondent with
plagiarism and recommended that the doctorate granted to her be withdrawn.9
On May 13, 1993, Dean Paz formed an ad hoc committee, composed of faculty members from various disciplines
and chaired by Eva Duka-Ventura, to investigate the plagiarism charge against private respondent. Meanwhile,
she recommended to U.P. Diliman Chancellor, Dr. Emerlinda Roman, that the Ph.D. degree conferred on private
respondent be withdrawn.10

In a letter, dated June 7, 1993, Dean Paz informed private respondent of the charges against her. 11

On June 15, 1993, the Ventura Committee submitted a report to Dean Paz, finding at least ninety (90) instances
or portions in private respondent's thesis which were lifted from sources without proper or due acknowledgment.

On July 28, 1993, the CSSP College Assembly unanimously approved the recommendation to withdraw private
respondent's doctorate degree and forwarded its recommendation to the University Council. The University
Council, in turn, approved and endorsed the same recommendation to the Board of Regents on August 16, 1993.

On September 6, 1993, the Board of Regents deferred action on the recommendation to study the legal
implications of its approval.12

Meanwhile, in a letter, dated September 23, 1993, U.P. Diliman Chancellor Emerlinda Roman summoned private
respondent to a meeting on the same day and asked her to submit her written explanation to the charges against
her.

During the meeting, Chancellor Roman informed private respondent of the charges and provided her a copy of
the findings of the investigating committee.13 Private respondent, on the other hand, submitted her written
explanation in a letter dated September 25, 1993.

Another meeting was held on October 8, 1993 between Chancellor Roman and private respondent to discuss her
answer to the charges. A third meeting was scheduled on October 27, 1993 but private respondent did not attend
it, alleging that the Board of Regents had already decided her case before she could be fully heard.

On October 11, 1993, private respondent wrote to Dr. Emil Q. Javier, U.P. President, alleging that some members
of the U.P. administration were playing politics in her case.14 She sent another letter, dated December 14, 1993,
to Dr. Armand Fabella, Chairman of the Board of Regents, complaining that she had not been afforded due
process and claiming that U.P. could no longer withdraw her degree since her dissertation had already been
accepted by the CSSP.15

Meanwhile, the U.P. Office of Legal Services justified the position of the University Council in its report to the
Board of Regents. The Board of Regents, in its February 1, 1994 and March 24, 1994 meetings, further deferred
action thereon.

On July 11, 1994, private respondent sent a letter to the Board of Regents requesting a re-investigation of her
case. She stressed that under the Rules and Regulations on Student Conduct and Discipline, it was the student
disciplinary tribunal which had jurisdiction to decide cases of dishonesty and that the withdrawal of a degree
already conferred was not one of the authorized penalties which the student disciplinary tribunal could impose.

On July 28, 1994, the Board of Regents decided to release private respondent's transcript of grades without
annotation although it showed that private respondent passed her dissertation with 12 units of credit.

On August 17, 1994, Chancellor Roger Posadas issued Administrative Order No. 94-94 constituting a special
committee composed of senior faculty members from the U.P. units outside Diliman to review the University
Council's recommendation to withdraw private respondent's degree. With the approval of the Board of Regents
and the U.P. Diliman Executive Committee, Posadas created a five-man committee, chaired by Dr. Paulino B.
Zafaralla, with members selected from a list of nominees screened by Dr. Emerenciana Arcellana, then a member
of the Board of Regents. On August 13, 1994, the members of the Zafaralla committee and private respondent
met at U.P. Los Baos.

Meanwhile, on August 23, 1994, the U.P. Diliman Registrar released to private respondent a copy of her transcript
of grades and certificate of graduation.

In a letter to Chancellor Posadas, dated September 1, 1994, private respondent requested that the Zafaralla
committee be provided with copies of the U.P. Charter (Act No. 1870), the U.P. Rules and Regulations on Student
Conduct and Discipline, her letter-response to Chancellor Roman, dated September 25, 1993, as well as all her
other communications.

On September 19, 1994, Chancellor Posadas obtained the Zafaralla Committee's report, signed by its chairman,
recommending the withdrawal of private respondent's doctorate degree. The report stated: 16

After going through all the pertinent documents of the case and interviewing Ms. Arokiaswamy William, the
following facts were established:

1. There is overwhelming evidence of massive lifting from a published source word for word and, at times,
paragraph by paragraph without any acknowledgment of the source, even by a mere quotation mark. At
least 22 counts of such documented liftings were identified by the Committee. These form part of the
approximately ninety (90) instances found by the Committee created by the Dean of the College and
subsequently verified as correct by the Special Committee. These instances involved the following forms
of intellectual dishonesty: direct lifting/copying without acknowledgment, full/partial lifting with improper
documentation and substitution of terms or words (e.g., Tamil in place of Sanskrit, Tamilization in place of
Indianization) from an acknowledged source in support of her thesis (attached herewith is a copy of the
documents for reference); and

2. Ms. Arokiaswamy William herself admits of being guilty of the allegation of plagiarism. Fact is, she
informed the Special Committee that she had been admitting having lifted several portions in her
dissertation from various sources since the beginning.

In view of the overwhelming proof of massive lifting and also on the admission of Ms. Arokiaswamy William that
she indeed plagiarized, the Committee strongly supports the recommendation of the U.P. Diliman Council to
withdraw the doctoral degree of Ms. Margaret Celine Arokiaswamy William.

On the basis of the report, the University Council, on September 24, 1994, recommended to the Board of Regents
that private respondent be barred in the future from admission to the University either as a student or as an
employee.

On January 4, 1995, the secretary of the Board of Regents sent private respondent the following letter: 17

4 January 1995

Ms. Margaret Celine Arokiaswamy William


Department of Anthropology
College of Social Sciences and Philosophy
U.P. Diliman, Quezon City

Dear Ms. Arokiaswamy William:

This is to officially inform you about the action taken by the Board of Regents at its 1081st and 1082nd meetings
held last 17 November and 16 December 1994 regarding your case, the excerpts from the minutes of which are
attached herewith.

Please be informed that the members present at the 1081st BOR meeting on 17 November 1994 resolved, by a
majority decision, to withdraw your Ph.D. degree as recommended by the U.P. Diliman University Council and as
concurred with by the External Review Panel composed of senior faculty from U.P. Los Baos and U.P. Manila.
These faculty members were chosen by lot from names submitted by the University Councils of U.P. Los Baos
and U.P. Manila.

In reply to your 14 December 1994 letter requesting that you be given a good lawyer by the Board, the Board, at
its 1082nd meeting on 16 December 1994, suggested that you direct your request to the Office of Legal Aid,
College of Law, U.P. Diliman.

Sincerely yours,

(Sgd.)
VIVENCIO R. JOSE
Secretary of the University
and of the Board of Regents

On January 18, 1995, private respondent wrote a letter to Commissioner Sedfrey Ordoez, Chairman of the
Commission on Human Rights, asking the commission's intervention.18 In a letter, dated February 14, 1995, to
Secretary Ricardo Gloria, Chairman of the Board of Regents, she asked for a reinvestigation of her case. She
also sought an audience with the Board of Regents and/or the U.P. President, which request was denied by
President Javier, in a letter dated June 2, 1995.

On August 10, 1995, private respondent then filed a petition for mandamus with a prayer for a writ of preliminary
mandatory injunction and damages, which was docketed as Civil Case No. Q-95-24690 and assigned to Branch
81 of the Regional Trial Court of Quezon City.19 She alleged that petitioners had unlawfully withdrawn her degree
without justification and without affording her procedural due process. She prayed that petitioners be ordered to
restore her degree and to pay her P500,000.00 as moral and exemplary damages and P1,500,000.00 as
compensation for lost of earnings.

On August 6, 1996, the trial court, Branch 227, rendered a decision dismissing the petition for mandamus for lack
of merit.20 Private respondent appealed to the Court of Appeals, which on December 16, 1997, reversed the lower
court. The dispositive portion of the appellate court's decision reads: 21

WHEREFORE, the decision of the court a quo is hereby reversed and set aside. Respondents are
ordered to restore to petitioner her degree of Ph.D. in Anthropology.
No pronouncement as to costs.

SO ORDERED.

Hence, this petition. Petitioners contend:

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW IN GRANTING THE WRIT OFMANDAMUS AND
ORDERING PETITIONERS TO RESTORE RESPONDENT'S DOCTORAL DEGREE.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW IN HOLDING THAT THE DOCTORAL DEGREE
GIVEN RESPONDENT BY U.P. CANNOT BE RECALLED WITHOUT VIOLATING HER RIGHT TO ENJOYMENT
OF INTELLECTUAL PROPERTY AND TO JUSTICE AND EQUITY.

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW IN DEPRIVING PETITIONERS OF THEIR


RIGHT TO SUBSTANTIVE DUE PROCESS.22

Petitioners argue that private respondent failed to show that she had been unlawfully excluded from the use and
enjoyment of a right or office to which she is entitled so as to justify the issuance of the writ of mandamus. They
also contend that she failed to prove that the restoration of her degree is a ministerial duty of U.P. or that the
withdrawal of the degree violated her right to the enjoyment of intellectual property.

On the other hand, private respondent, unassisted by counsel, argue that petitioners acted arbitrarily and with
grave abuse of discretion in withdrawing her degree even prior to verifying the truth of the plagiarism charge
against her; and that as her answer to the charges had not been forwarded to the members of the investigating
committees, she was deprived of the opportunity to comment or refute their findings.

In addition, private respondent maintains that petitioners are estopped from, withdrawing her doctorate degree;
that petitioners acted contrary to 9 of the U.P. Charter and the U.P. Rules and Regulations of Student Conduct
and Discipline of the University, which according to her, does not authorize the withdrawal of a degree as a
penalty for erring students; and that only the college committee or the student disciplinary tribunal may decide
disciplinary cases, whose report must be signed by a majority of its members.

We find petitioners' contention to be meritorious.

Mandamus is a writ commanding a tribunal, corporation, board or person to do the act required to be done when it
or he unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from an
office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right or office to which
such other is entitled, there being no other plain, speedy, and adequate remedy in the ordinary course of
law.23 InUniversity of the Philippines Board of Regents v. Ligot-Telan,24 this Court ruled that the writ was not
available to restrain U.P. from the exercise of its academic freedom. In that case, a student who was found guilty
of dishonesty and ordered suspended for one year by the Board of Regents, filed a petition for mandamus and
obtained from the lower court a temporary restraining order stopping U.P. from carrying out the order of
suspension. In setting aside the TRO and ordering the lower court to dismiss the student's petition, this Court
said:

[T]he lower court gravely abused its discretion in issuing the writ of preliminary injunction of May 29,
1993. The issuance of the said writ was based on the lower court's finding that the implementation of the
disciplinary sanction of suspension on Nadal "would work injustice to the petitioner as it would delay him
in finishing his course, and consequently, in getting a decent and good paying job." Sadly, such a ruling
considers only the situation of Nadal without taking into account the circumstances, clearly of his own
making, which led him into such a predicament. More importantly, it has completely disregarded the
overriding issue of academic freedom which provides more than ample justification for the imposition of a
disciplinary sanction upon an erring student of an institution of higher learning.

From the foregoing arguments, it is clear that the lower court should have restrained itself from assuming
jurisdiction over the petition filed by Nadal. Mandamus is never issued in doubtful cases, a showing of a
clear and certain right on the part of the petitioner being required. It is of no avail against an official or
government agency whose duty requires the exercise of discretion or judgment. 25

In this case, the trial court dismissed private respondent's petition precisely on grounds of academic freedom but
the Court of Appeals reversed holding that private respondent was denied due process. It said:

It is worthy to note that during the proceedings taken by the College Assembly culminating in its
recommendation to the University Council for the withdrawal of petitioner's Ph.D. degree, petitioner was
not given the chance to be heard until after the withdrawal of the degree was consummated. Petitioner's
subsequent letters to the U.P. President proved unavailing.26

As the foregoing narration of facts in this case shows, however, various committees had been formed to
investigate the charge that private respondent had committed plagiarism and, in all the investigations held, she
was heard in her defense. Indeed, if any criticism may be made of the university proceedings before private
respondent was finally stripped of her degree, it is that there were too many committee and individual
investigations conducted, although all resulted in a finding that private respondent committed dishonesty in
submitting her doctoral dissertation on the basis of which she was conferred the Ph.D. degree.

Indeed, in administrative proceedings, the essence of due process is simply the opportunity to explain one's side
of a controversy or a chance seek reconsideration of the action or ruling complained of. 27 A party who has availed
of the opportunity to present his position cannot tenably claim to have been denied due process. 28

In this case, private respondent was informed in writing of the charges against her 29 and afforded opportunities to
refute them. She was asked to submit her written explanation, which she forwarded on September 25,
1993.30Private respondent then met with the U.P. chancellor and the members of the Zafaralla committee to
discuss her case. In addition, she sent several letters to the U.P. authorities explaining her position. 31

It is not tenable for private respondent to argue that she was entitled to have an audience before the Board of
Regents. Due process in an administrative context does not require trial-type proceedings similar to those in the
courts of justice.32 It is noteworthy that the U.P. Rules do not require the attendance of persons whose cases are
included as items on the agenda of the Board of Regents.33

Nor indeed was private respondent entitled to be furnished a copy of the report of the Zafaralla committee as part
of her right to due process. In Ateneo de Manila University v. Capulong,34 we held:

Respondent students may not use the argument that since they were not accorded the opportunity to see
and examine the written statements which became the basis of petitioners' February 14, 1991 order, they
were denied procedural due process. Granting that they were denied such opportunity, the same may not
be said to detract from the observance of due process, for disciplinary cases involving students need not
necessarily include the right to cross examination. An administrative proceeding conducted to investigate
students' participation in a hazing activity need not be clothed with the attributes of a judicial proceeding. .
.

In this case, in granting the writ of mandamus, the Court of Appeals held:

First. Petitioner graduated from the U.P. with a doctorate degree in Anthropology. After graduation, the
contact between U.P. and petitioner ceased. Petitioner is no longer within the ambit of the disciplinary
powers of the U.P. As a graduate, she is entitled to the right and enjoyment of the degree she has
earned. To recall the degree, after conferment, is not only arbitrary, unreasonable, and an act of abuse,
but a flagrant violation of petitioner's right of enjoyment to intellectual property.

Second. Respondents aver that petitioner's graduation was a mistake.

Unfortunately this "mistake" was arrived at after almost a year after graduation. Considering that the
members of the thesis panel, the College Faculty Assembly, and the U.P. Council are all men and women
of the highest intellectual acumen and integrity, as respondents themselves aver, suspicion is aroused
that the alleged "mistake" might not be the cause of withdrawal but some other hidden agenda which
respondents do not wish to reveal.

At any rate, We cannot countenance the plight the petitioner finds herself enmeshed in as a consequence
of the acts complained of. Justice and equity demand that this be rectified by restoring the degree
conferred to her after her compliance with the academic and other related requirements.

Art. XIV, 5 (2) of the Constitution provides that "[a]cademic freedom shall be enjoyed in all institutions of higher
learning." This is nothing new. The 1935 Constitution35 and the 1973 Constitution36 likewise provided for the
academic freedom or, more precisely, for the institutional autonomy of universities and institutions of higher
learning. As pointed out by this Court in Garcia vs. Faculty Admission Committee, Loyola School of Theology,37 it
is a freedom granted to "institutions of higher learning" which is thus given "a wide sphere of authority certainly
extending to the choice of the students." If such institution of higher learning can decide who can and who cannot
study in it, it certainly can also determine on whom it can confer the honor and distinction of being its graduates.

Where it is shown that the conferment of an honor or distinction was obtained through fraud, a university has the
right to revoke or withdraw the honor or distinction it has thus conferred. This freedom of a university does not
terminate upon the "graduation" of a student, as the Court of Appeals held. For it is precisely the "graduation" of
such a student that is in question. It is noteworthy that the investigation of private respondent's case began before
her graduation. If she was able to join the graduation ceremonies on April 24, 1993, it was because of too many
investigations conducted before the Board of Regents finally decided she should not have been allowed to
graduate.
Wide indeed is the sphere of autonomy granted to institutions of higher learning, for the constitutional grant of
academic freedom, to quote again from Garcia v. Faculty Admission Committee, Loyola School of Theology, "is
not to be construed in a niggardly manner or in a grudging fashion."

Under the U.P. Charter, the Board of Regents is the highest governing body of the University of the
Philippines.38 It has the power confer degrees upon the recommendation of the University Council. 39 If follows that
if the conferment of a degree is founded on error or fraud, the Board of Regents is also empowered, subject to the
observance of due process, to withdraw what it has granted without violating a student's rights. An institution of
higher learning cannot be powerless if it discovers that an academic degree it has conferred is not rightfully
deserved. Nothing can be more objectionable than bestowing a university's highest academic degree upon an
individual who has obtained the same through fraud or deceit. The pursuit of academic excellence is the
university's concern. It should be empowered, as an act of self-defense, to take measures to protect itself from
serious threats to its integrity.

While it is true that the students are entitled to the right to pursue their educaiton, the USC as an
educational institution is also entitled to pursue its academic freedom and in the process has the
concomitant right to see to it that this freedom is not jeopardized.40

In the case at bar, the Board of Regents determined, after due investigation conducted by a committee composed
of faculty members from different U.P. units, that private respondent committed no less than ninety (90) instances
of intellectual dishonesty in her dissertation. The Board of Regents' decision to withdraw private respondent's
doctorate was based on documents on record including her admission that she committed the offense.41

On the other hand, private respondent was afforded the opportunity to be heard and explain her side but failed to
refute the charges of plagiarism against her. Her only claim is that her responses to the charges against her were
not considered by the Board of Regents before it rendered its decision. However, this claim was not proven.
Accordingly, we must presume regularity in the performance of official duties in the absence of proof to the
contrary.42

Very much the opposite of the position of the Court of Appeals that, since private respondent was no longer a
student of the U.P., the latter was no longer within the "ambit of disciplinary powers of the U.P.," is private
respondent's contention that it is the Student Disciplinary Tribunal which had jurisdiction over her case because
the charge is dishonesty. Private respondent invoke 5 of the U.P. Rules and Regulations on Student Conduct
and Discipline which provides:

Jurisdiction. All cases involving discipline of students under these rules shall be subject to the
jurisdiction of the student disciplinary tribunal, except the following cases which shall fall under the
jurisdiction of the appropriate college or unit;

(a) Violation of college or unit rules and regulations by students of the college, or

(b) Misconduct committed by students of the college or unit within its classrooms or premises or
in the course of an official activity;

Provided, that regional units of the University shall have original jurisdiction over all cases involving
students of such units.

Private respondent argues that under 25 (a) of the said Rules and Regulations, dishonesty in relation to one's
studies (i.e., plagiarism) may be punished only with suspension for at least one (1) year.

As the above-quoted provision of 5 of the Rules and Regulations indicates, the jurisdiction of the student
disciplinary tribunal extend only to disciplinary actions. In this case, U.P. does not seek to discipline private
respondent. Indeed, as the appellate court observed, private respondent is no longer within "the ambit of
disciplinary powers of the U.P." Private respondent cannot even be punished since, as she claims, the penalty for
acts of dishonesty in administrative disciplinary proceedings is suspension from the University for at least one
year. What U.P., through the Board of Regents, seeks to do is to protect its academic integrity by withdrawing
from private respondent an academic degree she obtained through fraud.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the petition for mandamus is
hereby DISMISSED.1wphi1.nt

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 Order13 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 counter-affidavits within ten (10) days . . . (after which)
the Commission shall proceed to hear and resolve the case on the merits with or without respondents counter
affidavit."18 It held that the "striking teachers" "were denied due process of law; . . . they should not have been
replaced without a chance to reply to the administrative charges;" there had been a violation of their civil and
political rights which the Commission was empowered to investigate; and while expressing its "utmost respect to
the Supreme Court . . . the facts before . . . (it) are different from those in the case decided by the Supreme Court"
(the reference being unmistakably to this Court's joint Resolution of August 6, 1991 in G.R. Nos. 95445 and
95590, supra).

It is to invalidate and set aside this Order of December 28, 1990 that the Solicitor General, in behalf of petitioner
Cario, has commenced the present action of certiorari and prohibition.

The Commission on Human Rights has made clear its position that it does not feel bound by this Court's joint
Resolution in G.R. Nos. 95445 and 95590, supra. It has also made plain its intention "to hear and resolve the
case (i.e., Striking Teachers HRC Case No. 90-775) on the merits." It intends, in other words, to try and decide or
hear and determine, i.e., exercise jurisdiction over the following general issues:

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. 21 This function, to repeat, the Commission does not have. 22

The proposition is made clear by the constitutional provisions specifying the powers of the Commission on Human
Rights.

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
toinvestigate all forms of human rights violations involving civil and political rights. It can exercise that power on its
own initiative or on complaint of any person. It may exercise that power pursuant to such rules of procedure as it
may adopt and, in cases of violations of said rules, cite for contempt in accordance with the Rules of Court. In the
course of any investigation conducted by it or under its authority, it may grant immunity from prosecution to any
person whose testimony or whose possession of documents or other evidence is necessary or convenient to
determine the truth. It may also request the assistance of any department, bureau, office, or agency in the
performance of its functions, in the conduct of its investigation or in extending such remedy as may be required by
its findings. 26

But it cannot try and decide cases (or hear and determine causes) as courts of justice, or even quasi-judicial
bodies do. To investigate is not to adjudicate or adjudge. Whether in the popular or the technical sense, these
terms have well understood and quite distinct meanings.

"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.
G.R. No. 192935 December 7, 2010

LOUIS "BAROK" C. BIRAOGO, Petitioner,


vs.
THE PHILIPPINE TRUTH COMMISSION OF 2010, Respondent.

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

G.R. No. 193036

REP. EDCEL C. LAGMAN, REP. RODOLFO B. ALBANO, JR., REP. SIMEON A. DATUMANONG, and REP.
ORLANDO B. FUA, SR., Petitioners,
vs.
EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR. and DEPARTMENT OF BUDGET AND MANAGEMENT
SECRETARY FLORENCIO B. ABAD, Respondents.

DECISION

MENDOZA, J.:

When the judiciary mediates to allocate constitutional boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act of the legislature, but only asserts the solemn and
sacred obligation assigned to it by the Constitution to determine conflicting claims of authority under the
Constitution and to establish for the parties in an actual controversy the rights which that instrument secures and
guarantees to them.

--- Justice Jose P. Laurel1

The role of the Constitution cannot be overlooked. It is through the Constitution that the fundamental powers of
government are established, limited and defined, and by which these powers are distributed among the several
departments.2 The Constitution is the basic and paramount law to which all other laws must conform and to which
all persons, including the highest officials of the land, must defer.3 Constitutional doctrines must remain steadfast
no matter what may be the tides of time. It cannot be simply made to sway and accommodate the call of
situations and much more tailor itself to the whims and caprices of government and the people who run it. 4

For consideration before the Court are two consolidated cases5 both of which essentially assail the validity and
constitutionality of Executive Order No. 1, dated July 30, 2010, entitled "Creating the Philippine Truth Commission
of 2010."

The first case is G.R. No. 192935, a special civil action for prohibition instituted by petitioner Louis Biraogo
(Biraogo) in his capacity as a citizen and taxpayer. Biraogo assails Executive Order No. 1 for being violative of the
legislative power of Congress under Section 1, Article VI of the Constitution 6 as it usurps the constitutional
authority of the legislature to create a public office and to appropriate funds therefor. 7

The second case, G.R. No. 193036, is a special civil action for certiorari and prohibition filed by petitioners Edcel
C. Lagman, Rodolfo B. Albano Jr., Simeon A. Datumanong, and Orlando B. Fua, Sr. (petitioners-legislators) as
incumbent members of the House of Representatives.

The genesis of the foregoing cases can be traced to the events prior to the historic May 2010 elections, when
then Senator Benigno Simeon Aquino III declared his staunch condemnation of graft and corruption with his
slogan,"Kung walang corrupt, walang mahirap." The Filipino people, convinced of his sincerity and of his ability to
carry out this noble objective, catapulted the good senator to the presidency.

To transform his campaign slogan into reality, President Aquino found a need for a special body to investigate
reported cases of graft and corruption allegedly committed during the previous administration.

Thus, at the dawn of his administration, the President on July 30, 2010, signed Executive Order No. 1 establishing
the Philippine Truth Commission of 2010 (Truth Commission). Pertinent provisions of said executive order read:

EXECUTIVE ORDER NO. 1


CREATING THE PHILIPPINE TRUTH COMMISSION OF 2010
WHEREAS, Article XI, Section 1 of the 1987 Constitution of the Philippines solemnly enshrines the principle that
a public office is a public trust and mandates that public officers and employees, who are servants of the people,
must at all times be accountable to the latter, serve them with utmost responsibility, integrity, loyalty and
efficiency, act with patriotism and justice, and lead modest lives;
WHEREAS, corruption is among the most despicable acts of defiance of this principle and notorious violation of
this mandate;
WHEREAS, corruption is an evil and scourge which seriously affects the political, economic, and social life of a
nation; in a very special way it inflicts untold misfortune and misery on the poor, the marginalized and
underprivileged sector of society;
WHEREAS, corruption in the Philippines has reached very alarming levels, and undermined the peoples trust
and confidence in the Government and its institutions;
WHEREAS, there is an urgent call for the determination of the truth regarding certain reports of large scale graft
and corruption in the government and to put a closure to them by the filing of the appropriate cases against those
involved, if warranted, and to deter others from committing the evil, restore the peoples faith and confidence in
the Government and in their public servants;
WHEREAS, the Presidents battlecry during his campaign for the Presidency in the last elections "kung walang
corrupt, walang mahirap" expresses a solemn pledge that if elected, he would end corruption and the evil it
breeds;
WHEREAS, there is a need for a separate body dedicated solely to investigating and finding out the truth
concerning the reported cases of graft and corruption during the previous administration, and which will
recommend the prosecution of the offenders and secure justice for all;
WHEREAS, Book III, Chapter 10, Section 31 of Executive Order No. 292, otherwise known as the Revised
Administrative Code of the Philippines, gives the President the continuing authority to reorganize the Office of the
President.
NOW, THEREFORE, I, BENIGNO SIMEON AQUINO III, President of the Republic of the Philippines, by virtue of
the powers vested in me by law, do hereby order:
SECTION 1. Creation of a Commission. There is hereby created the PHILIPPINE TRUTH COMMISSION,
hereinafter referred to as the "COMMISSION," which shall primarily seek and find the truth on, and toward this
end, investigate reports of graft and corruption of such scale and magnitude that shock and offend the moral and
ethical sensibilities of the people, committed by public officers and employees, their co-principals, accomplices
and accessories from the private sector, if any, during the previous administration; and thereafter recommend the
appropriate action or measure to be taken thereon to ensure that the full measure of justice shall be served
without fear or favor.
The Commission shall be composed of a Chairman and four (4) members who will act as an independent collegial
body.
SECTION 2. Powers and Functions. The Commission, which shall have all the powers of an investigative
body under Section 37, Chapter 9, Book I of the Administrative Code of 1987, is primarily tasked to conduct a
thorough fact-finding investigation of reported cases of graft and corruption referred to in Section 1, involving third
level public officers and higher, their co-principals, accomplices and accessories from the private sector, if any,
during the previous administration and thereafter submit its finding and recommendations to the President,
Congress and the Ombudsman.
In particular, it shall:
a) Identify and determine the reported cases of such graft and corruption which it will investigate;
b) Collect, receive, review and evaluate evidence related to or regarding the cases of large scale
corruption which it has chosen to investigate, and to this end require any agency, official or
employee of the Executive Branch, including government-owned or controlled corporations, to
produce documents, books, records and other papers;
c) Upon proper request or representation, obtain information and documents from the Senate and
the House of Representatives records of investigations conducted by committees thereof relating
to matters or subjects being investigated by the Commission;
d) Upon proper request and representation, obtain information from the courts, including the
Sandiganbayan and the Office of the Court Administrator, information or documents in respect to
corruption cases filed with the Sandiganbayan or the regular courts, as the case may be;
e) Invite or subpoena witnesses and take their testimonies and for that purpose, administer oaths
or affirmations as the case may be;
f) Recommend, in cases where there is a need to utilize any person as a state witness to ensure
that the ends of justice be fully served, that such person who qualifies as a state witness under
the Revised Rules of Court of the Philippines be admitted for that purpose;
g) Turn over from time to time, for expeditious prosecution, to the appropriate prosecutorial
authorities, by means of a special or interim report and recommendation, all evidence on
corruption of public officers and employees and their private sector co-principals, accomplices or
accessories, if any, when in the course of its investigation the Commission finds that there is
reasonable ground to believe that they are liable for graft and corruption under pertinent
applicable laws;
h) Call upon any government investigative or prosecutorial agency such as the Department of
Justice or any of the agencies under it, and the Presidential Anti-Graft Commission, for such
assistance and cooperation as it may require in the discharge of its functions and duties;
i) Engage or contract the services of resource persons, professionals and other personnel
determined by it as necessary to carry out its mandate;
j) Promulgate its rules and regulations or rules of procedure it deems necessary to effectively and
efficiently carry out the objectives of this Executive Order and to ensure the orderly conduct of its
investigations, proceedings and hearings, including the presentation of evidence;
k) Exercise such other acts incident to or are appropriate and necessary in connection with the
objectives and purposes of this Order.
SECTION 3. Staffing Requirements. x x x.
SECTION 4. Detail of Employees. x x x.
SECTION 5. Engagement of Experts. x x x
SECTION 6. Conduct of Proceedings. x x x.
SECTION 7. Right to Counsel of Witnesses/Resource Persons. x x x.
SECTION 8. Protection of Witnesses/Resource Persons. x x x.
SECTION 9. Refusal to Obey Subpoena, Take Oath or Give Testimony. Any government official or
personnel who, without lawful excuse, fails to appear upon subpoena issued by the Commission or who,
appearing before the Commission refuses to take oath or affirmation, give testimony or produce documents for
inspection, when required, shall be subject to administrative disciplinary action. Any private person who does the
same may be dealt with in accordance with law.
SECTION 10. Duty to Extend Assistance to the Commission. x x x.
SECTION 11. Budget for the Commission. The Office of the President shall provide the necessary funds for
the Commission to ensure that it can exercise its powers, execute its functions, and perform its duties and
responsibilities as effectively, efficiently, and expeditiously as possible.
SECTION 12. Office. x x x.
SECTION 13. Furniture/Equipment. x x x.
SECTION 14. Term of the Commission. The Commission shall accomplish its mission on or before December
31, 2012.
SECTION 15. Publication of Final Report. x x x.
SECTION 16. Transfer of Records and Facilities of the Commission. x x x.
SECTION 17. Special Provision Concerning Mandate. If and when in the judgment of the President there is a
need to expand the mandate of the Commission as defined in Section 1 hereof to include the investigation of
cases and instances of graft and corruption during the prior administrations, such mandate may be so extended
accordingly by way of a supplemental Executive Order.
SECTION 18. Separability Clause. If any provision of this Order is declared unconstitutional, the same shall not
affect the validity and effectivity of the other provisions hereof.
SECTION 19. Effectivity. This Executive Order shall take effect immediately.
DONE in the City of Manila, Philippines, this 30th day of July 2010.
(SGD.) BENIGNO S. AQUINO III
By the President:
(SGD.) PAQUITO N. OCHOA, JR.
Executive Secretary

Nature of the Truth Commission

As can be gleaned from the above-quoted provisions, the Philippine Truth Commission (PTC) is a mere ad hoc
body formed under the Office of the President with the primary task to investigate reports of graft and corruption
committed by third-level public officers and employees, their co-principals, accomplices and accessories during
the previous administration, and thereafter to submit its finding and recommendations to the President, Congress
and the Ombudsman. Though it has been described as an "independent collegial body," it is essentially an entity
within the Office of the President Proper and subject to his control. Doubtless, it constitutes a public office, as an
ad hoc body is one.8

To accomplish its task, the PTC shall have all the powers of an investigative body under Section 37, Chapter 9,
Book I of the Administrative Code of 1987. It is not, however, a quasi-judicial body as it cannot adjudicate,
arbitrate, resolve, settle, or render awards in disputes between contending parties. All it can do is gather, collect
and assess evidence of graft and corruption and make recommendations. It may have subpoena powers but it
has no power to cite people in contempt, much less order their arrest. Although it is a fact-finding body, it cannot
determine from such facts if probable cause exists as to warrant the filing of an information in our courts of law.
Needless to state, it cannot impose criminal, civil or administrative penalties or sanctions.

The PTC is different from the truth commissions in other countries which have been created as official, transitory
and non-judicial fact-finding bodies "to establish the facts and context of serious violations of human rights or of
international humanitarian law in a countrys past."9 They are usually established by states emerging from periods
of internal unrest, civil strife or authoritarianism to serve as mechanisms for transitional justice.

Truth commissions have been described as bodies that share the following characteristics: (1) they examine only
past events; (2) they investigate patterns of abuse committed over a period of time, as opposed to a particular
event; (3) they are temporary bodies that finish their work with the submission of a report containing conclusions
and recommendations; and (4) they are officially sanctioned, authorized or empowered by the
State.10 "Commissions members are usually empowered to conduct research, support victims, and propose
policy recommendations to prevent recurrence of crimes. Through their investigations, the commissions may aim
to discover and learn more about past abuses, or formally acknowledge them. They may aim to prepare the way
for prosecutions and recommend institutional reforms."11

Thus, their main goals range from retribution to reconciliation. The Nuremburg and Tokyo war crime tribunals are
examples of a retributory or vindicatory body set up to try and punish those responsible for crimes against
humanity. A form of a reconciliatory tribunal is the Truth and Reconciliation Commission of South Africa, the
principal function of which was to heal the wounds of past violence and to prevent future conflict by providing a
cathartic experience for victims.

The PTC is a far cry from South Africas model. The latter placed more emphasis on reconciliation than on judicial
retribution, while the marching order of the PTC is the identification and punishment of perpetrators. As one
writer12puts it:

The order ruled out reconciliation. It translated the Draconian code spelled out by Aquino in his inaugural speech:
"To those who talk about reconciliation, if they mean that they would like us to simply forget about the wrongs that
they have committed in the past, we have this to say: There can be no reconciliation without justice. When we
allow crimes to go unpunished, we give consent to their occurring over and over again."

The Thrusts of the Petitions


Barely a month after the issuance of Executive Order No. 1, the petitioners asked the Court to declare it
unconstitutional and to enjoin the PTC from performing its functions. A perusal of the arguments of the petitioners
in both cases shows that they are essentially the same. The petitioners-legislators summarized them in the
following manner:

(a) E.O. No. 1 violates the separation of powers as it arrogates the power of the Congress to create a
public office and appropriate funds for its operation.

(b) The provision of Book III, Chapter 10, Section 31 of the Administrative Code of 1987 cannot legitimize
E.O. No. 1 because the delegated authority of the President to structurally reorganize the Office of the
President to achieve economy, simplicity and efficiency does not include the power to create an entirely
new public office which was hitherto inexistent like the "Truth Commission."

(c) E.O. No. 1 illegally amended the Constitution and pertinent statutes when it vested the "Truth
Commission" with quasi-judicial powers duplicating, if not superseding, those of the Office of the
Ombudsman created under the 1987 Constitution and the Department of Justice created under the
Administrative Code of 1987.

(d) E.O. No. 1 violates the equal protection clause as it selectively targets for investigation and
prosecution officials and personnel of the previous administration as if corruption is their peculiar species
even as it excludes those of the other administrations, past and present, who may be indictable.

(e) The creation of the "Philippine Truth Commission of 2010" violates the consistent and general
international practice of four decades wherein States constitute truth commissions to exclusively
investigate human rights violations, which customary practice forms part of the generally accepted
principles of international law which the Philippines is mandated to adhere to pursuant to the Declaration
of Principles enshrined in the Constitution.

(f) The creation of the "Truth Commission" is an exercise in futility, an adventure in partisan hostility, a
launching pad for trial/conviction by publicity and a mere populist propaganda to mistakenly impress the
people that widespread poverty will altogether vanish if corruption is eliminated without even addressing
the other major causes of poverty.

(g) The mere fact that previous commissions were not constitutionally challenged is of no moment
because neither laches nor estoppel can bar an eventual question on the constitutionality and validity of
an executive issuance or even a statute."13

In their Consolidated Comment,14 the respondents, through the Office of the Solicitor General (OSG), essentially
questioned the legal standing of petitioners and defended the assailed executive order with the following
arguments:

1] E.O. No. 1 does not arrogate the powers of Congress to create a public office because the Presidents
executive power and power of control necessarily include the inherent power to conduct investigations to
ensure that laws are faithfully executed and that, in any event, the Constitution, Revised Administrative
Code of 1987 (E.O. No. 292), 15 Presidential Decree (P.D.) No. 141616 (as amended by P.D. No. 1772),
R.A. No. 9970,17 and settled jurisprudence that authorize the President to create or form such bodies.

2] E.O. No. 1 does not usurp the power of Congress to appropriate funds because there is no
appropriation but a mere allocation of funds already appropriated by Congress.

3] The Truth Commission does not duplicate or supersede the functions of the Office of the Ombudsman
(Ombudsman) and the Department of Justice (DOJ), because it is a fact-finding body and not a quasi-
judicial body and its functions do not duplicate, supplant or erode the latters jurisdiction.

4] The Truth Commission does not violate the equal protection clause because it was validly created for
laudable purposes.

The OSG then points to the continued existence and validity of other executive orders and presidential issuances
creating similar bodies to justify the creation of the PTC such as Presidential Complaint and Action
Commission(PCAC) by President Ramon B. Magsaysay, Presidential Committee on Administrative Performance
Efficiency(PCAPE) by President Carlos P. Garcia and Presidential Agency on Reform and Government
Operations (PARGO)by President Ferdinand E. Marcos.18

From the petitions, pleadings, transcripts, and memoranda, the following are the principal issues to be resolved:

1. Whether or not the petitioners have the legal standing to file their respective petitions and question
Executive Order No. 1;

2. Whether or not Executive Order No. 1 violates the principle of separation of powers by usurping the
powers of Congress to create and to appropriate funds for public offices, agencies and commissions;
3. Whether or not Executive Order No. 1 supplants the powers of the Ombudsman and the DOJ;

4. Whether or not Executive Order No. 1 violates the equal protection clause; and

5. Whether or not petitioners are entitled to injunctive relief.

Essential requisites for judicial review

Before proceeding to resolve the issue of the constitutionality of Executive Order No. 1, the Court needs to
ascertain whether the requisites for a valid exercise of its power of judicial review are present.

Like almost all powers conferred by the Constitution, the power of judicial review is subject to limitations, to wit:
(1) there must be an actual case or controversy calling for the exercise of judicial power; (2) the person
challenging the act must have the standing to question the validity of the subject act or issuance; otherwise
stated, he must have a personal and substantial interest in the case such that he has sustained, or will sustain,
direct injury as a result of its enforcement; (3) the question of constitutionality must be raised at the earliest
opportunity; and (4) the issue of constitutionality must be the very lis mota of the case.19

Among all these limitations, only the legal standing of the petitioners has been put at issue.

Legal Standing of the Petitioners

The OSG attacks the legal personality of the petitioners-legislators to file their petition for failure to demonstrate
their personal stake in the outcome of the case. It argues that the petitioners have not shown that they have
sustained or are in danger of sustaining any personal injury attributable to the creation of the PTC. Not claiming to
be the subject of the commissions investigations, petitioners will not sustain injury in its creation or as a result of
its proceedings.20

The Court disagrees with the OSG in questioning the legal standing of the petitioners-legislators to assail
Executive Order No. 1. Evidently, their petition primarily invokes usurpation of the power of the Congress as a
body to which they belong as members. This certainly justifies their resolve to take the cudgels for Congress as
an institution and present the complaints on the usurpation of their power and rights as members of the legislature
before the Court. As held in Philippine Constitution Association v. Enriquez, 21

To the extent the powers of Congress are impaired, so is the power of each member thereof, since his office
confers a right to participate in the exercise of the powers of that institution.

An act of the Executive which injures the institution of Congress causes a derivative but nonetheless substantial
injury, which can be questioned by a member of Congress. In such a case, any member of Congress can have a
resort to the courts.

Indeed, legislators have a legal standing to see to it that the prerogative, powers and privileges vested by the
Constitution in their office remain inviolate. Thus, they are allowed to question the validity of any official action
which, to their mind, infringes on their prerogatives as legislators.22

With regard to Biraogo, the OSG argues that, as a taxpayer, he has no standing to question the creation of the
PTC and the budget for its operations.23 It emphasizes that the funds to be used for the creation and operation of
the commission are to be taken from those funds already appropriated by Congress. Thus, the allocation and
disbursement of funds for the commission will not entail congressional action but will simply be an exercise of the
Presidents power over contingent funds.

As correctly pointed out by the OSG, Biraogo has not shown that he sustained, or is in danger of sustaining, any
personal and direct injury attributable to the implementation of Executive Order No. 1. Nowhere in his petition is
an assertion of a clear right that may justify his clamor for the Court to exercise judicial power and to wield the axe
over presidential issuances in defense of the Constitution. The case of David v. Arroyo 24 explained the deep-
seated rules on locus standi. Thus:

Locus standi is defined as "a right of appearance in a court of justice on a given question." In private suits,
standing is governed by the "real-parties-in interest" rule as contained in Section 2, Rule 3 of the 1997 Rules of
Civil Procedure, as amended. It provides that "every action must be prosecuted or defended in the name of
the real party in interest." Accordingly, the "real-party-in interest" is "the party who stands to be benefited or
injured by the judgment in the suit or the party entitled to the avails of the suit." Succinctly put, the plaintiffs
standing is based on his own right to the relief sought.

The difficulty of determining locus standi arises in public suits. Here, the plaintiff who asserts a "public right" in
assailing an allegedly illegal official action, does so as a representative of the general public. He may be a person
who is affected no differently from any other person. He could be suing as a "stranger," or in the category of a
"citizen," or taxpayer." In either case, he has to adequately show that he is entitled to seek judicial protection. In
other words, he has to make out a sufficient interest in the vindication of the public order and the securing of relief
as a "citizen" or "taxpayer.
Case law in most jurisdictions now allows both "citizen" and "taxpayer" standing in public actions. The distinction
was first laid down in Beauchamp v. Silk, where it was held that the plaintiff in a taxpayers suit is in a different
category from the plaintiff in a citizens suit. In the former, the plaintiff is affected by the expenditure of public
funds, while in the latter, he is but the mere instrument of the public concern. As held by the New York Supreme
Court inPeople ex rel Case v. Collins: "In matter of mere public right, howeverthe people are the real partiesIt
is at least the right, if not the duty, of every citizen to interfere and see that a public offence be properly pursued
and punished, and that a public grievance be remedied." With respect to taxpayers suits, Terr v. Jordan held that
"the right of a citizen and a taxpayer to maintain an action in courts to restrain the unlawful use of public funds to
his injury cannot be denied."

However, to prevent just about any person from seeking judicial interference in any official policy or act with which
he disagreed with, and thus hinders the activities of governmental agencies engaged in public service, the United
State Supreme Court laid down the more stringent "direct injury" test in Ex Parte Levitt, later reaffirmed
in Tileston v. Ullman. The same Court ruled that for a private individual to invoke the judicial power to determine
the validity of an executive or legislative action, he must show that he has sustained a direct injury as a result
of that action, and it is not sufficient that he has a general interest common to all members of the public.

This Court adopted the "direct injury" test in our jurisdiction. In People v. Vera, it held that the person who
impugns the validity of a statute must have "a personal and substantial interest in the case such that he has
sustained, or will sustain direct injury as a result." The Vera doctrine was upheld in a litany of cases, such
as,Custodio v. President of the Senate, Manila Race Horse Trainers Association v. De la Fuente, Pascual v.
Secretary of Public Works and Anti-Chinese League of the Philippines v. Felix. [Emphases included. Citations
omitted]

Notwithstanding, the Court leans on the doctrine that "the rule on standing is a matter of procedure, hence, can be
relaxed for nontraditional plaintiffs like ordinary citizens, taxpayers, and legislators when the public interest so
requires, such as when the matter is of transcendental importance, of overreaching significance to society, or of
paramount public interest."25

Thus, in Coconut Oil Refiners Association, Inc. v. Torres,26 the Court held that in cases of paramount importance
where serious constitutional questions are involved, the standing requirements may be relaxed and a suit may be
allowed to prosper even where there is no direct injury to the party claiming the right of judicial review. In the first
Emergency Powers Cases,27 ordinary citizens and taxpayers were allowed to question the constitutionality of
several executive orders although they had only an indirect and general interest shared in common with the
public.

The OSG claims that the determinants of transcendental importance 28 laid down in CREBA v. ERC and
Meralco29are non-existent in this case. The Court, however, finds reason in Biraogos assertion that the petition
covers matters of transcendental importance to justify the exercise of jurisdiction by the Court. There are
constitutional issues in the petition which deserve the attention of this Court in view of their seriousness, novelty
and weight as precedents. Where the issues are of transcendental and paramount importance not only to the
public but also to the Bench and the Bar, they should be resolved for the guidance of all. 30 Undoubtedly, the
Filipino people are more than interested to know the status of the Presidents first effort to bring about a promised
change to the country. The Court takes cognizance of the petition not due to overwhelming political undertones
that clothe the issue in the eyes of the public, but because the Court stands firm in its oath to perform its
constitutional duty to settle legal controversies with overreaching significance to society.

Power of the President to Create the Truth Commission

In his memorandum in G.R. No. 192935, Biraogo asserts that the Truth Commission is a public office and not
merely an adjunct body of the Office of the President.31 Thus, in order that the President may create a public
office he must be empowered by the Constitution, a statute or an authorization vested in him by law. According to
petitioner, such power cannot be presumed32 since there is no provision in the Constitution or any specific law
that authorizes the President to create a truth commission.33 He adds that Section 31 of the Administrative Code
of 1987, granting the President the continuing authority to reorganize his office, cannot serve as basis for the
creation of a truth commission considering the aforesaid provision merely uses verbs such as "reorganize,"
"transfer," "consolidate," "merge," and "abolish."34 Insofar as it vests in the President the plenary power to
reorganize the Office of the President to the extent of creating a public office, Section 31 is inconsistent with the
principle of separation of powers enshrined in the Constitution and must be deemed repealed upon the effectivity
thereof.35

Similarly, in G.R. No. 193036, petitioners-legislators argue that the creation of a public office lies within the
province of Congress and not with the executive branch of government. They maintain that the delegated
authority of the President to reorganize under Section 31 of the Revised Administrative Code: 1) does not permit
the President to create a public office, much less a truth commission; 2) is limited to the reorganization of the
administrative structure of the Office of the President; 3) is limited to the restructuring of the internal organs of the
Office of the President Proper, transfer of functions and transfer of agencies; and 4) only to achieve simplicity,
economy and efficiency.36Such continuing authority of the President to reorganize his office is limited, and by
issuing Executive Order No. 1, the President overstepped the limits of this delegated authority.

The OSG counters that there is nothing exclusively legislative about the creation by the President of a fact-finding
body such as a truth commission. Pointing to numerous offices created by past presidents, it argues that the
authority of the President to create public offices within the Office of the President Proper has long been
recognized.37 According to the OSG, the Executive, just like the other two branches of government, possesses
the inherent authority to create fact-finding committees to assist it in the performance of its constitutionally
mandated functions and in the exercise of its administrative functions.38 This power, as the OSG explains it, is but
an adjunct of the plenary powers wielded by the President under Section 1 and his power of control under Section
17, both of Article VII of the Constitution. 39

It contends that the President is necessarily vested with the power to conduct fact-finding investigations, pursuant
to his duty to ensure that all laws are enforced by public officials and employees of his department and in the
exercise of his authority to assume directly the functions of the executive department, bureau and office, or
interfere with the discretion of his officials.40 The power of the President to investigate is not limited to the exercise
of his power of control over his subordinates in the executive branch, but extends further in the exercise of his
other powers, such as his power to discipline subordinates,41 his power for rule making, adjudication and licensing
purposes42 and in order to be informed on matters which he is entitled to know.43

The OSG also cites the recent case of Banda v. Ermita,44 where it was held that the President has the power to
reorganize the offices and agencies in the executive department in line with his constitutionally granted power of
control and by virtue of a valid delegation of the legislative power to reorganize executive offices under existing
statutes.

Thus, the OSG concludes that the power of control necessarily includes the power to create offices. For the OSG,
the President may create the PTC in order to, among others, put a closure to the reported large scale graft and
corruption in the government.45

The question, therefore, before the Court is this: Does the creation of the PTC fall within the ambit of the power to
reorganize as expressed in Section 31 of the Revised Administrative Code? Section 31 contemplates
"reorganization" as limited by the following functional and structural lines: (1) restructuring the internal
organization of the Office of the President Proper by abolishing, consolidating or merging units thereof or
transferring functions from one unit to another; (2) transferring any function under the Office of the President to
any other Department/Agency or vice versa; or (3) transferring any agency under the Office of the President to
any other Department/Agency or vice versa. Clearly, the provision refers to reduction of personnel, consolidation
of offices, or abolition thereof by reason of economy or redundancy of functions. These point to situations where a
body or an office is already existent but a modification or alteration thereof has to be effected. The creation of an
office is nowhere mentioned, much less envisioned in said provision. Accordingly, the answer to the question is in
the negative.

To say that the PTC is borne out of a restructuring of the Office of the President under Section 31 is a misplaced
supposition, even in the plainest meaning attributable to the term "restructure" an "alteration of an existing
structure." Evidently, the PTC was not part of the structure of the Office of the President prior to the enactment of
Executive Order No. 1. As held in Buklod ng Kawaning EIIB v. Hon. Executive Secretary, 46

But of course, the list of legal basis authorizing the President to reorganize any department or agency in the
executive branch does not have to end here. We must not lose sight of the very source of the power that which
constitutes an express grant of power. Under Section 31, Book III of Executive Order No. 292 (otherwise known
as the Administrative Code of 1987), "the President, subject to the policy in the Executive Office and in order to
achieve simplicity, economy and efficiency, shall have the continuing authority to reorganize the administrative
structure of the Office of the President." For this purpose, he may transfer the functions of other Departments or
Agencies to the Office of the President. In Canonizado v. Aguirre [323 SCRA 312 (2000)], we ruled that
reorganization "involves the reduction of personnel, consolidation of offices, or abolition thereof by reason of
economy or redundancy of functions." It takes place when there is an alteration of the existing structure of
government offices or units therein, including the lines of control, authority and responsibility between them. The
EIIB is a bureau attached to the Department of Finance. It falls under the Office of the President. Hence, it is
subject to the Presidents continuing authority to reorganize. [Emphasis Supplied]

In the same vein, the creation of the PTC is not justified by the Presidents power of control. Control is essentially
the power to alter or modify or nullify or set aside what a subordinate officer had done in the performance of his
duties and to substitute the judgment of the former with that of the latter.47 Clearly, the power of control is entirely
different from the power to create public offices. The former is inherent in the Executive, while the latter finds
basis from either a valid delegation from Congress, or his inherent duty to faithfully execute the laws.

The question is this, is there a valid delegation of power from Congress, empowering the President to create a
public office?

According to the OSG, the power to create a truth commission pursuant to the above provision finds statutory
basis under P.D. 1416, as amended by P.D. No. 1772.48 The said law granted the President the continuing
authority to reorganize the national government, including the power to group, consolidate bureaus and agencies,
to abolish offices, to transfer functions, to create and classify functions, services and activities, transfer
appropriations, and to standardize salaries and materials. This decree, in relation to Section 20, Title I, Book III of
E.O. 292 has been invoked in several cases such as Larin v. Executive Secretary. 49

The Court, however, declines to recognize P.D. No. 1416 as a justification for the President to create a public
office. Said decree is already stale, anachronistic and inoperable. P.D. No. 1416 was a delegation to then
President Marcos of the authority to reorganize the administrative structure of the national government including
the power to create offices and transfer appropriations pursuant to one of the purposes of the decree, embodied
in its last "Whereas" clause:

WHEREAS, the transition towards the parliamentary form of government will necessitate flexibility in the
organization of the national government.

Clearly, as it was only for the purpose of providing manageability and resiliency during the interim, P.D. No. 1416,
as amended by P.D. No. 1772, became functus oficio upon the convening of the First Congress, as expressly
provided in Section 6, Article XVIII of the 1987 Constitution. In fact, even the Solicitor General agrees with this
view. Thus:

ASSOCIATE JUSTICE CARPIO: Because P.D. 1416 was enacted was the last whereas clause of P.D. 1416 says
"it was enacted to prepare the transition from presidential to parliamentary. Now, in a parliamentary form of
government, the legislative and executive powers are fused, correct?

SOLICITOR GENERAL CADIZ: Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO: That is why, that P.D. 1416 was issued. Now would you agree with me that P.D.
1416 should not be considered effective anymore upon the promulgation, adoption, ratification of the 1987
Constitution.

SOLICITOR GENERAL CADIZ: Not the whole of P.D. [No.] 1416, Your Honor.

ASSOCIATE JUSTICE CARPIO: The power of the President to reorganize the entire National Government is
deemed repealed, at least, upon the adoption of the 1987 Constitution, correct.

SOLICITOR GENERAL CADIZ: Yes, Your Honor.50

While the power to create a truth commission cannot pass muster on the basis of P.D. No. 1416 as amended by
P.D. No. 1772, the creation of the PTC finds justification under Section 17, Article VII of the Constitution, imposing
upon the President the duty to ensure that the laws are faithfully executed. Section 17 reads:

Section 17. The President shall have control of all the executive departments, bureaus, and offices. He shall
ensure that the laws be faithfully executed. (Emphasis supplied).

As correctly pointed out by the respondents, the allocation of power in the three principal branches of government
is a grant of all powers inherent in them. The Presidents power to conduct investigations to aid him in ensuring
the faithful execution of laws in this case, fundamental laws on public accountability and transparency is
inherent in the Presidents powers as the Chief Executive. That the authority of the President to conduct
investigations and to create bodies to execute this power is not explicitly mentioned in the Constitution or in
statutes does not mean that he is bereft of such authority.51 As explained in the landmark case of Marcos v.
Manglapus:52

x x x. The 1987 Constitution, however, brought back the presidential system of government and restored the
separation of legislative, executive and judicial powers by their actual distribution among three distinct branches
of government with provision for checks and balances.

It would not be accurate, however, to state that "executive power" is the power to enforce the laws, for the
President is head of state as well as head of government and whatever powers inhere in such positions pertain to
the office unless the Constitution itself withholds it. Furthermore, the Constitution itself provides that the execution
of the laws is only one of the powers of the President. It also grants the President other powers that do not involve
the execution of any provision of law, e.g., his power over the country's foreign relations.

On these premises, we hold the view that although the 1987 Constitution imposes limitations on the exercise
ofspecific powers of the President, it maintains intact what is traditionally considered as within the scope of
"executive power." Corollarily, the powers of the President cannot be said to be limited only to the specific powers
enumerated in the Constitution. In other words, executive power is more than the sum of specific powers so
enumerated.

It has been advanced that whatever power inherent in the government that is neither legislative nor judicial has to
be executive. x x x.

Indeed, the Executive is given much leeway in ensuring that our laws are faithfully executed. As stated above, the
powers of the President are not limited to those specific powers under the Constitution. 53 One of the recognized
powers of the President granted pursuant to this constitutionally-mandated duty is the power to create ad hoc
committees. This flows from the obvious need to ascertain facts and determine if laws have been faithfully
executed. Thus, in Department of Health v. Camposano,54 the authority of the President to issue Administrative
Order No. 298, creating an investigative committee to look into the administrative charges filed against the
employees of the Department of Health for the anomalous purchase of medicines was upheld. In said case, it was
ruled:
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. 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. [Emphasis supplied]

It should be stressed that the purpose of allowing ad hoc investigating bodies to exist is to allow an inquiry into
matters which the President is entitled to know so that he can be properly advised and guided in the performance
of his duties relative to the execution and enforcement of the laws of the land. And if history is to be revisited, this
was also the objective of the investigative bodies created in the past like the PCAC, PCAPE, PARGO, the
Feliciano Commission, the Melo Commission and the Zenarosa Commission. There being no changes in the
government structure, the Court is not inclined to declare such executive power as non-existent just because the
direction of the political winds have changed.

On the charge that Executive Order No. 1 transgresses the power of Congress to appropriate funds for the
operation of a public office, suffice it to say that there will be no appropriation but only an allotment or allocations
of existing funds already appropriated. Accordingly, there is no usurpation on the part of the Executive of the
power of Congress to appropriate funds. Further, there is no need to specify the amount to be earmarked for the
operation of the commission because, in the words of the Solicitor General, "whatever funds the Congress has
provided for the Office of the President will be the very source of the funds for the commission."55 Moreover, since
the amount that would be allocated to the PTC shall be subject to existing auditing rules and regulations, there is
no impropriety in the funding.

Power of the Truth Commission to Investigate

The Presidents power to conduct investigations to ensure that laws are faithfully executed is well recognized. It
flows from the faithful-execution clause of the Constitution under Article VII, Section 17 thereof. 56 As the Chief
Executive, the president represents the government as a whole and sees to it that all laws are enforced by the
officials and employees of his department. He has the authority to directly assume the functions of the executive
department.57

Invoking this authority, the President constituted the PTC to primarily investigate reports of graft and corruption
and to recommend the appropriate action. As previously stated, no quasi-judicial powers have been vested in the
said body as it cannot adjudicate rights of persons who come before it. It has been said that "Quasi-judicial
powers involve the power to hear and determine questions of fact to which the legislative policy is to apply and to
decide in accordance with the standards laid down by law itself in enforcing and administering the same law." 58 In
simpler terms, judicial discretion is involved in the exercise of these quasi-judicial power, such that it is exclusively
vested in the judiciary and must be clearly authorized by the legislature in the case of administrative agencies.

The distinction between the power to investigate and the power to adjudicate was delineated by the Court in
Cario v. Commission on Human Rights.59 Thus:

"Investigate," commonly understood, means to examine, explore, inquire or delve or probe into, research on,
study. The dictionary definition of "investigate" is "to observe or study closely: inquire into systematically: "to
search or inquire into: x x to subject to an official probe x x: to conduct an official inquiry." 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;" "to inquire; to make an investigation,"
"investigation" being in turn described as "(a)n administrative function, the exercise of which ordinarily does not
require a hearing. 2 Am J2d Adm L Sec. 257; x x an inquiry, judicial or otherwise, for the discovery and collection
of facts concerning a certain matter or matters."

"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: x x to pass judgment on: settle judicially: x x act as judge." And "adjudge"
means "to decide or rule upon as a judge or with judicial or quasi-judicial powers: x x to award or grant judicially in
a case of controversy x x."

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. x x. Implies a judicial determination of a fact, and the entry of a judgment."
[Italics included. Citations Omitted]

Fact-finding is not adjudication and it cannot be likened to the judicial function of a court of justice, or even a
quasi-judicial agency or office. The function of receiving evidence and ascertaining therefrom the facts of a
controversy is not a judicial function. To be considered as such, the act of receiving evidence and arriving at
factual conclusions in a controversy must be accompanied by the authority of applying the law to the factual
conclusions to the end that the controversy may be decided or resolved authoritatively, finally and definitively,
subject to appeals or modes of review as may be provided by law. 60 Even respondents themselves admit that the
commission is bereft of any quasi-judicial power.61

Contrary to petitioners apprehension, the PTC will not supplant the Ombudsman or the DOJ or erode their
respective powers. If at all, the investigative function of the commission will complement those of the two offices.
As pointed out by the Solicitor General, the recommendation to prosecute is but a consequence of the overall task
of the commission to conduct a fact-finding investigation."62 The actual prosecution of suspected offenders, much
less adjudication on the merits of the charges against them,63 is certainly not a function given to the commission.
The phrase, "when in the course of its investigation," under Section 2(g), highlights this fact and gives credence to
a contrary interpretation from that of the petitioners. The function of determining probable cause for the filing of
the appropriate complaints before the courts remains to be with the DOJ and the Ombudsman. 64

At any rate, the Ombudsmans power to investigate under R.A. No. 6770 is not exclusive but is shared with other
similarly authorized government agencies. Thus, in the case of Ombudsman v. Galicia, 65 it was written:

This power of investigation granted to the Ombudsman by the 1987 Constitution and The Ombudsman Act is not
exclusive but is shared with other similarly authorized government agencies such as the PCGG and judges of
municipal trial courts and municipal circuit trial courts. The power to conduct preliminary investigation on charges
against public employees and officials is likewise concurrently shared with the Department of Justice. Despite the
passage of the Local Government Code in 1991, the Ombudsman retains concurrent jurisdiction with the Office of
the President and the local Sanggunians to investigate complaints against local elective officials. [Emphasis
supplied].

Also, Executive Order No. 1 cannot contravene the power of the Ombudsman to investigate criminal cases under
Section 15 (1) of R.A. No. 6770, which states:

(1) Investigate and prosecute on its own or on complaint by any person, any act or omission of any public officer
or employee, office or agency, when such act or omission appears to be illegal, unjust, improper or inefficient. It
has primary jurisdiction over cases cognizable by the Sandiganbayan and, in the exercise of its primary
jurisdiction, it may take over, at any stage, from any investigatory agency of government, the investigation of such
cases. [Emphases supplied]

The act of investigation by the Ombudsman as enunciated above contemplates the conduct of a preliminary
investigation or the determination of the existence of probable cause. This is categorically out of the PTCs sphere
of functions. Its power to investigate is limited to obtaining facts so that it can advise and guide the President in
the performance of his duties relative to the execution and enforcement of the laws of the land. In this regard, the
PTC commits no act of usurpation of the Ombudsmans primordial duties.

The same holds true with respect to the DOJ. Its authority under Section 3 (2), Chapter 1, Title III, Book IV in the
Revised Administrative Code is by no means exclusive and, thus, can be shared with a body likewise tasked to
investigate the commission of crimes.

Finally, nowhere in Executive Order No. 1 can it be inferred that the findings of the PTC are to be accorded
conclusiveness. Much like its predecessors, the Davide Commission, the Feliciano Commission and the Zenarosa
Commission, its findings would, at best, be recommendatory in nature. And being so, the Ombudsman and the
DOJ have a wider degree of latitude to decide whether or not to reject the recommendation. These offices,
therefore, are not deprived of their mandated duties but will instead be aided by the reports of the PTC for
possible indictments for violations of graft laws.

Violation of the Equal Protection Clause

Although the purpose of the Truth Commission falls within the investigative power of the President, the Court finds
difficulty in upholding the constitutionality of Executive Order No. 1 in view of its apparent transgression of the
equal protection clause enshrined in Section 1, Article III (Bill of Rights) of the 1987 Constitution. Section 1 reads:

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

The petitioners assail Executive Order No. 1 because it is violative of this constitutional safeguard. They contend
that it does not apply equally to all members of the same class such that the intent of singling out the "previous
administration" as its sole object makes the PTC an "adventure in partisan hostility."66 Thus, in order to be
accorded with validity, the commission must also cover reports of graft and corruption in virtually all
administrations previous to that of former President Arroyo.67

The petitioners argue that the search for truth behind the reported cases of graft and corruption must encompass
acts committed not only during the administration of former President Arroyo but also during prior administrations
where the "same magnitude of controversies and anomalies"68 were reported to have been committed against the
Filipino people. They assail the classification formulated by the respondents as it does not fall under the
recognized exceptions because first, "there is no substantial distinction between the group of officials targeted for
investigation by Executive Order No. 1 and other groups or persons who abused their public office for personal
gain; and second, the selective classification is not germane to the purpose of Executive Order No. 1 to end
corruption."69 In order to attain constitutional permission, the petitioners advocate that the commission should deal
with "graft and grafters prior and subsequent to the Arroyo administration with the strong arm of the law with equal
force."70

Position of respondents

According to respondents, while Executive Order No. 1 identifies the "previous administration" as the initial
subject of the investigation, following Section 17 thereof, the PTC will not confine itself to cases of large scale
graft and corruption solely during the said administration.71 Assuming arguendo that the commission would
confine its proceedings to officials of the previous administration, the petitioners argue that no offense is
committed against the equal protection clause for "the segregation of the transactions of public officers during the
previous administration as possible subjects of investigation is a valid classification based on substantial
distinctions and is germane to the evils which the Executive Order seeks to correct."72 To distinguish the Arroyo
administration from past administrations, it recited the following:

First. E.O. No. 1 was issued in view of widespread reports of large scale graft and corruption in the previous
administration which have eroded public confidence in public institutions. There is, therefore, an urgent call for the
determination of the truth regarding certain reports of large scale graft and corruption in the government and to
put a closure to them by the filing of the appropriate cases against those involved, if warranted, and to deter
others from committing the evil, restore the peoples faith and confidence in the Government and in their public
servants.

Second. The segregation of the preceding administration as the object of fact-finding is warranted by the reality
that unlike with administrations long gone, the current administration will most likely bear the immediate
consequence of the policies of the previous administration.

Third. The classification of the previous administration as a separate class for investigation lies in the reality that
theevidence of possible criminal activity, the evidence that could lead to recovery of public monies illegally
dissipated, the policy lessons to be learned to ensure that anti-corruption laws are faithfully executed, are more
easily established in the regime that immediately precede the current administration.

Fourth. Many administrations subject the transactions of their predecessors to investigations to provide closure to
issues that are pivotal to national life or even as a routine measure of due diligence and good housekeeping by a
nascent administration like the Presidential Commission on Good Government (PCGG), created by the late
President Corazon C. Aquino under Executive Order No. 1 to pursue the recovery of ill-gotten wealth of her
predecessor former President Ferdinand Marcos and his cronies, and the Saguisag Commission created by
former President Joseph Estrada under Administrative Order No, 53, to form an ad-hoc and independent citizens
committee to investigate all the facts and circumstances surrounding "Philippine Centennial projects" of his
predecessor, former President Fidel V. Ramos.73 [Emphases supplied]

Concept of the Equal Protection Clause

One of the basic principles on which this government was founded is that of the equality of right which is
embodied in Section 1, Article III of the 1987 Constitution. The equal protection of the laws is embraced in the
concept of due process, as every unfair discrimination offends the requirements of justice and fair play. It has
been embodied in a separate clause, however, to provide for a more specific guaranty against any form of undue
favoritism or hostility from the government. Arbitrariness in general may be challenged on the basis of the due
process clause. But if the particular act assailed partakes of an unwarranted partiality or prejudice, the sharper
weapon to cut it down is the equal protection clause.74

"According to a long line of decisions, equal protection simply requires that all persons or things similarly situated
should be treated alike, both as to rights conferred and responsibilities imposed." 75 It "requires public bodies and
institutions to treat similarly situated individuals in a similar manner."76 "The purpose of the equal protection
clause is to secure every person within a states jurisdiction against intentional and arbitrary discrimination,
whether occasioned by the express terms of a statue or by its improper execution through the states duly
constituted authorities."77 "In other words, the concept of equal justice under the law requires the state to govern
impartially, and it may not draw distinctions between individuals solely on differences that are irrelevant to a
legitimate governmental objective."78

The equal protection clause is aimed at all official state actions, not just those of the legislature.79 Its inhibitions
cover all the departments of the government including the political and executive departments, and extend to all
actions of a state denying equal protection of the laws, through whatever agency or whatever guise is taken. 80

It, however, does not require the universal application of the laws to all persons or things without distinction. What
it simply requires is equality among equals as determined according to a valid classification. Indeed, the equal
protection clause permits classification. Such classification, however, to be valid must pass the test
ofreasonableness. The test has four requisites: (1) The classification rests on substantial distinctions; (2) It is
germane to the purpose of the law; (3) It is not limited to existing conditions only; and

(4) It applies equally to all members of the same class.81 "Superficial differences do not make for a valid
classification."82
For a classification to meet the requirements of constitutionality, it must include or embrace all persons who
naturally belong to the class.83 "The classification will be regarded as invalid if all the members of the class are not
similarly treated, both as to rights conferred and obligations imposed. It is not necessary that the classification be
made with absolute symmetry, in the sense that the members of the class should possess the same
characteristics in equal degree. Substantial similarity will suffice; and as long as this is achieved, all those covered
by the classification are to be treated equally. The mere fact that an individual belonging to a class differs from the
other members, as long as that class is substantially distinguishable from all others, does not justify the non-
application of the law to him."84

The classification must not be based on existing circumstances only, or so constituted as to preclude addition to
the number included in the class. It must be of such a nature as to embrace all those who may thereafter be in
similar circumstances and conditions. It must not leave out or "underinclude" those that should otherwise fall into
a certain classification. As elucidated in Victoriano v. Elizalde Rope Workers' Union 85 and reiterated in a long line
of cases,86

The guaranty of equal protection of the laws is not a guaranty of equality in the application of the laws upon all
citizens of the state. It is not, therefore, a requirement, in order to avoid the constitutional prohibition against
inequality, that every man, woman and child should be affected alike by a statute. Equality of operation of statutes
does not mean indiscriminate operation on persons merely as such, but on persons according to the
circumstances surrounding them. It guarantees equality, not identity of rights. The Constitution does not require
that things which are different in fact be treated in law as though they were the same. The equal protection clause
does not forbid discrimination as to things that are different. It does not prohibit legislation which is limited either in
the object to which it is directed or by the territory within which it is to operate.

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

Applying these precepts to this case, Executive Order No. 1 should be struck down as violative of the equal
protection clause. The clear mandate of the envisioned truth commission is to investigate and find out the truth
"concerning the reported cases of graft and corruption during the previous administration" 87 only. The intent to
single out the previous administration is plain, patent and manifest. Mention of it has been made in at least three
portions of the questioned executive order. Specifically, these are:

WHEREAS, there is a need for a separate body dedicated solely to investigating and finding out the truth
concerning the reported cases of graft and corruption during the previous administration, and which will
recommend the prosecution of the offenders and secure justice for all;

SECTION 1. Creation of a Commission. There is hereby created the PHILIPPINE TRUTH COMMISSION,
hereinafter referred to as the "COMMISSION," which shall primarily seek and find the truth on, and toward this
end, investigate reports of graft and corruption of such scale and magnitude that shock and offend the moral and
ethical sensibilities of the people, committed by public officers and employees, their co-principals, accomplices
and accessories from the private sector, if any, during the previous administration; and thereafter recommend the
appropriate action or measure to be taken thereon to ensure that the full measure of justice shall be served
without fear or favor.

SECTION 2. Powers and Functions. The Commission, which shall have all the powers of an investigative
body under Section 37, Chapter 9, Book I of the Administrative Code of 1987, is primarily tasked to conduct a
thorough fact-finding investigation of reported cases of graft and corruption referred to in Section 1, involving third
level public officers and higher, their co-principals, accomplices and accessories from the private sector, if any,
during the previous administration and thereafter submit its finding and recommendations to the President,
Congress and the Ombudsman. [Emphases supplied]

In this regard, it must be borne in mind that the Arroyo administration is but just a member of a class, that is, a
class of past administrations. It is not a class of its own. Not to include past administrations similarly situated
constitutes arbitrariness which the equal protection clause cannot sanction. Such discriminating differentiation
clearly reverberates to label the commission as a vehicle for vindictiveness and selective retribution.

Though the OSG enumerates several differences between the Arroyo administration and other past
administrations, these distinctions are not substantial enough to merit the restriction of the investigation to the
"previous administration" only. The reports of widespread corruption in the Arroyo administration cannot be taken
as basis for distinguishing said administration from earlier administrations which were also blemished by similar
widespread reports of impropriety. They are not inherent in, and do not inure solely to, the Arroyo administration.
As Justice Isagani Cruz put it, "Superficial differences do not make for a valid classification."88
The public needs to be enlightened why Executive Order No. 1 chooses to limit the scope of the intended
investigation to the previous administration only. The OSG ventures to opine that "to include other past
administrations, at this point, may unnecessarily overburden the commission and lead it to lose its
effectiveness."89The reason given is specious. It is without doubt irrelevant to the legitimate and noble objective of
the PTC to stamp out or "end corruption and the evil it breeds."90

The probability that there would be difficulty in unearthing evidence or that the earlier reports involving the earlier
administrations were already inquired into is beside the point. Obviously, deceased presidents and cases which
have already prescribed can no longer be the subjects of inquiry by the PTC. Neither is the PTC expected to
conduct simultaneous investigations of previous administrations, given the bodys limited time and resources.
"The law does not require the impossible" (Lex non cogit ad impossibilia).91

Given the foregoing physical and legal impossibility, the Court logically recognizes the unfeasibility of investigating
almost a centurys worth of graft cases. However, the fact remains that Executive Order No. 1 suffers from
arbitrary classification. The PTC, to be true to its mandate of searching for the truth, must not exclude the other
past administrations. The PTC must, at least, have the authority to investigate all past administrations.
While reasonable prioritization is permitted, it should not be arbitrary lest it be struck down for being
unconstitutional. In the often quoted language of Yick Wo v. Hopkins,92

Though the law itself be fair on its face and impartial in appearance, yet, if applied and administered by public
authority with an evil eye and an unequal hand, so as practically to make unjust and illegal discriminations
between persons in similar circumstances, material to their rights, the denial of equal justice is still within the
prohibition of the constitution. [Emphasis supplied]

It could be argued that considering that the PTC is an ad hoc body, its scope is limited. The Court, however, is of
the considered view that although its focus is restricted, the constitutional guarantee of equal protection under the
laws should not in any way be circumvented. The Constitution is the fundamental and paramount law of the nation
to which all other laws must conform and in accordance with which all private rights determined and all public
authority administered.93 Laws that do not conform to the Constitution should be stricken down for being
unconstitutional.94While the thrust of the PTC is specific, that is, for investigation of acts of graft and corruption,
Executive Order No. 1, to survive, must be read together with the provisions of the Constitution. To exclude the
earlier administrations in the guise of "substantial distinctions" would only confirm the petitioners lament that the
subject executive order is only an "adventure in partisan hostility." In the case of US v. Cyprian,95 it was written: "A
rather limited number of such classifications have routinely been held or assumed to be arbitrary; those include:
race, national origin, gender,political activity or membership in a political party, union activity or membership in a
labor union, or more generally the exercise of first amendment rights."

To reiterate, in order for a classification to meet the requirements of constitutionality, it must include or embrace
all persons who naturally belong to the class.96 "Such a classification must not be based on existing
circumstances only, or so constituted as to preclude additions to the number included within a class, but must be
of such a nature as to embrace all those who may thereafter be in similar circumstances and conditions.
Furthermore, all who are in situations and circumstances which are relative to the discriminatory legislation and
which are indistinguishable from those of the members of the class must be brought under the influence of the law
and treated by it in the same way as are the members of the class."97

The Court is not unaware that "mere underinclusiveness is not fatal to the validity of a law under the equal
protection clause."98 "Legislation is not unconstitutional merely because it is not all-embracing and does not
include all the evils within its reach."99 It has been written that a regulation challenged under the equal protection
clause is not devoid of a rational predicate simply because it happens to be incomplete. 100 In several instances,
the underinclusiveness was not considered a valid reason to strike down a law or regulation where the purpose
can be attained in future legislations or regulations. These cases refer to the "step by step" process. 101 "With
regard to equal protection claims, a legislature does not run the risk of losing the entire remedial scheme simply
because it fails, through inadvertence or otherwise, to cover every evil that might conceivably have been
attacked."102

In Executive Order No. 1, however, there is no inadvertence. That the previous administration was picked out was
deliberate and intentional as can be gleaned from the fact that it was underscored at least three times in the
assailed executive order. It must be noted that Executive Order No. 1 does not even mention any particular act,
event or report to be focused on unlike the investigative commissions created in the past. "The equal protection
clause is violated by purposeful and intentional discrimination."103

To disprove petitioners contention that there is deliberate discrimination, the OSG clarifies that the commission
does not only confine itself to cases of large scale graft and corruption committed during the previous
administration.104 The OSG points to Section 17 of Executive Order No. 1, which provides:

SECTION 17. Special Provision Concerning Mandate. If and when in the judgment of the President there is a
need to expand the mandate of the Commission as defined in Section 1 hereof to include the investigation of
cases and instances of graft and corruption during the prior administrations, such mandate may be so extended
accordingly by way of a supplemental Executive Order.

The Court is not convinced. Although Section 17 allows the President the discretion to expand the scope of
investigations of the PTC so as to include the acts of graft and corruption committed in other past administrations,
it does not guarantee that they would be covered in the future. Such expanded mandate of the commission will
still depend on the whim and caprice of the President. If he would decide not to include them, the section would
then be meaningless. This will only fortify the fears of the petitioners that the Executive Order No. 1 was "crafted
to tailor-fit the prosecution of officials and personalities of the Arroyo administration." 105

The Court tried to seek guidance from the pronouncement in the case of Virata v. Sandiganbayan,106 that the
"PCGG Charter (composed of Executive Orders Nos. 1, 2 and 14) does not violate the equal protection clause."
The decision, however, was devoid of any discussion on how such conclusory statement was arrived at, the
principal issue in said case being only the sufficiency of a cause of action.

A final word

The issue that seems to take center stage at present is - whether or not the Supreme Court, in the exercise of its
constitutionally mandated power of Judicial Review with respect to recent initiatives of the legislature and the
executive department, is exercising undue interference. Is the Highest Tribunal, which is expected to be the
protector of the Constitution, itself guilty of violating fundamental tenets like the doctrine of separation of powers?
Time and again, this issue has been addressed by the Court, but it seems that the present political situation calls
for it to once again explain the legal basis of its action lest it continually be accused of being a hindrance to the
nations thrust to progress.

The Philippine Supreme Court, according to Article VIII, Section 1 of the 1987 Constitution, is vested with Judicial
Power that "includes the duty of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been a grave of abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
government."

Furthermore, in Section 4(2) thereof, it is vested with the power of judicial review which is the power to declare a
treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance,
or regulation unconstitutional. This power also includes the duty to rule on the constitutionality of the application,
or operation of presidential decrees, proclamations, orders, instructions, ordinances, and other regulations. These
provisions, however, have been fertile grounds of conflict between the Supreme Court, on one hand, and the two
co-equal bodies of government, on the other. Many times the Court has been accused of asserting superiority
over the other departments.

To answer this accusation, the words of Justice Laurel would be a good source of enlightenment, to wit: "And
when the judiciary mediates to allocate constitutional boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act of the legislature, but only asserts the solemn and
sacred obligation assigned to it by the Constitution to determine conflicting claims of authority under the
Constitution and to establish for the parties in an actual controversy the rights which that instrument secures and
guarantees to them."107

Thus, the Court, in exercising its power of judicial review, is not imposing its own will upon a co-equal body but
rather simply making sure that any act of government is done in consonance with the authorities and rights
allocated to it by the Constitution. And, if after said review, the Court finds no constitutional violations of any sort,
then, it has no more authority of proscribing the actions under review. Otherwise, the Court will not be deterred to
pronounce said act as void and unconstitutional.

It cannot be denied that most government actions are inspired with noble intentions, all geared towards the
betterment of the nation and its people. But then again, it is important to remember this ethical principle: "The end
does not justify the means." No matter how noble and worthy of admiration the purpose of an act, but if the means
to be employed in accomplishing it is simply irreconcilable with constitutional parameters, then it cannot still be
allowed.108 The Court cannot just turn a blind eye and simply let it pass. It will continue to uphold the Constitution
and its enshrined principles.

"The Constitution must ever remain supreme. All must bow to the mandate of this law. Expediency must not be
allowed to sap its strength nor greed for power debase its rectitude." 109

Lest it be misunderstood, this is not the death knell for a truth commission as nobly envisioned by the present
administration. Perhaps a revision of the executive issuance so as to include the earlier past administrations
would allow it to pass the test of reasonableness and not be an affront to the Constitution. Of all the branches of
the government, it is the judiciary which is the most interested in knowing the truth and so it will not allow itself to
be a hindrance or obstacle to its attainment. It must, however, be emphasized that the search for the truth must
be within constitutional bounds for "ours is still a government of laws and not of men." 110

WHEREFORE, the petitions are GRANTED. Executive Order No. 1 is hereby declared UNCONSTITUTIONAL
insofar as it is violative of the equal protection clause of the Constitution.

As also prayed for, the respondents are hereby ordered to cease and desist from carrying out the provisions of
Executive Order No. 1.

SO ORDERED.
[G.R. No. 139360. September 23, 2003]

HLC CONSTRUCTION AND DEVELOPMENT CORPORATION AND HENRY LOPEZ CHUA, petitioners, vs.
EMILY HOMES SUBDIVISION HOMEOWNERS ASSOCIATION (EHSHA)

DECISION
CORONA, J.:

Assailed in the instant petition for certiorari under Rule 65[1] of the Rules of Court is the March 15, 1999
order[2] of the Regional Trial Court of Davao del Sur, Branch 19, denying the motion to dismiss of petitioners HLC
Construction and Development Corporation and Henry Lopez Chua, on the ground of lack of jurisdiction and a
defective certification against non-forum shopping.
Respondents Emily Homes Subdivision Homeowners Association (EHSHA) and the 150 individual members
thereof filed on October 21, 1998 a civil action for breach of contract, damages and attorneys fees with the
Regional Trial Court of Davao del Sur, Branch 19, against petitioners, the developers of low-cost housing units
like Emily Homes Subdivision. Respondents alleged that petitioners used substandard materials in the
construction of their houses, like coco lumber and termite-infested door jambs. Petitioners furthermore allegedly
did not adhere to the house plan specifications because the ceiling lines were sagging and there were deviations
from the plumb line of the mullions, door jams (sic) and concrete columns.[3] Respondents asked petitioners to
repair their defective housing units but petitioners failed to do so. Respondents had to repair their defective
housing units using their own funds. Hence, they prayed for actual and moral damages arising from petitioners
breach of the contract plus exemplary damages and attorneys fees.
On December 11, 1998, petitioners filed a motion to dismiss the complaint, claiming that it was the Housing
and Land Use Regulatory Board (HLURB) and not the trial court which had jurisdiction over the case. They also
cited the defective certification on non-forum shopping which was signed only by the president of EHSHA and not
by all its members; such defect allegedly warranted the dismissal of the complaint. The trial court denied
petitioners motion to dismiss on the ground that the case fell within its jurisdiction, not with the HLURB, and that
respondents certificate of non-forum shopping substantially complied with Rule 7, Section 5 of the 1997 Rules of
Civil Procedure. It also denied petitioners motion for reconsideration.
Aggrieved, petitioners filed the instant petition for certiorari, alleging that the trial court committed grave
abuse of discretion amounting to lack or in excess of jurisdiction in holding (1) that the case between petitioners
and respondents fell within the jurisdiction of the civil courts and (2) that respondents had substantially complied
with the rules on forum shopping despite the fact that only one of the 150 respondents had signed the certificate
therefor.
Petitioners are correct that the case between them and respondents fell within the jurisdiction of the HLURB,
not the trial court. However, we cannot sustain petitioners contention that respondents certificate of non-forum
shopping was defective, thus allegedly warranting the outright dismissal thereof by the trial court.
The general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs in a case
and the signature of only one of them is insufficient. [4] However, the Court has also stressed that the rules on
forum shopping were designed to promote and facilitate the orderly administration of justice and thus should not
be interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective. [5] The strict
compliance with the provisions regarding the certificate of non-forum shopping merely underscores its mandatory
nature in that the certification cannot be altogether dispensed with or its requirements completely disregarded. It
does not thereby prohibit substantial compliance with its provisions under justifiable circumstances. [6]
Thus in the recent case of Cavile, et al. vs. Heirs of Clarita Cavile, et al.,[7] we ruled:

[T]he execution by Thomas George Cavile, Sr., in behalf of all the other petitioners of the certificate of non-forum shopping
constitute substantial compliance with the Rules. All the petitioners, being relatives and co-owners of the properties in
dispute, share a common interest thereon. They also share a common defense in the complaint for partition filed by
respondents. Thus, when they filed the instant petition, they filed it as a collective, raising only one argument to defend their
rights over the properties in question. There is sufficient basis, therefore, for Thomas George Cavile, Sr. to speak for and in
behalf of his co-petitioners that they have not filed any action or claim involving the same issues in another court or tribunal,
nor is there other pending action or claim in another court or tribunal involving the same issues. Moreover, it has been held
that the merits of the substantive aspects of the case may be deemed as special circumstances for the Court to take cognizance
of a petition for review although the certification against forum shopping was executed and signed by only one of the
petitioners.

The above ruling is squarely applicable to the present case. Respondents (who were plaintiffs in the trial
court) filed the complaint against petitioners as a group, represented by their homeowners association president
who was likewise one of the plaintiffs, Mr. Samaon M. Buat. Respondents raised one cause of action which was
the breach of contractual obligations and payment of damages. They shared a common interest in the subject
matter of the case, being the aggrieved residents of the poorly constructed and developed Emily Homes
Subdivision. Due to the collective nature of the case, there was no doubt that Mr. Samaon M. Buat could validly
sign the certificate of non-forum shopping in behalf of all his co-plaintiffs. In cases therefore where it is highly
impractical to require all the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order not to
defeat the ends of justice, for one of plaintiffs, acting as representative, to sign the certificate provided that, as
in Cavile et al., the plaintiffs share a common interest in the subject matter of the case or filed the case as a
collective, raising only one common cause of action or defense.
In any case, even if it was correct for the trial court to rule that respondents had substantially complied with
the rules on forum shopping and thus, their complaint before it should not be dismissed, we find that the trial court
should have nonetheless dismissed the complaint for a more important reason it had no jurisdiction over it. It is
the HLURB, not the trial court, which had jurisdiction over respondents complaint. The HLURB[8] is the
government agency empowered to regulate the real estate trade and business, having exclusive jurisdiction to
hear and decide cases involving:
(a) unsound real estate business practices;
(b) claims involving refunds and any other claims filed by subdivision lot or condominium
unit buyers against the project owner, developer, dealer, broker or salesman;
(c) and cases involving specific performance of contractual and statutory obligations filed
by buyers of subdivision lots or condominium units against the owner, developer, dealer,
broker or salesman.[9]
In this case, respondents complaint was for the reimbursement of expenses incurred in repairing their
defective housing units constructed by petitioners.Clearly, the HLURB had jurisdiction to hear it. In the case
of Arranza vs. B.F Homes, Inc.,[10] this Court ruled that:

xxx the HLURB has jurisdiction over complaints arising from contracts between the subdivision developer and the lot buyer
or those aimed at compelling the subdivision developer to comply with its contractual and statutory obligations to make the
subdivision a better place to live in.[11]

The fact that the subject matter of the complaint involved defective housing units did not remove the
complaint from the HLURBs jurisdiction. The delivery of habitable houses was petitioners responsibility under
their contract with respondents. The trial court should have granted the motion to dismiss filed by petitioners so
that the issues therein could be expeditiously heard and resolved by the HLURB.
WHEREFORE, the petition is hereby GRANTED. The March 15, 1999 order of the Regional Trial Court of
Davao del Sur, Branch 19, denying the petitioners motion to dismiss, is ANNULLED and Civil Case No. 3731
before it (trial court) is hereby DISMISSED for lack of jurisdiction. This is without prejudice to the re-filing of the
respondents complaint in the HLURB.
SO ORDERED.

G.R. No. 164250 September 30, 2005

OFFICE OF THE OMBUDSMAN and DENNIS M. VILLA-IGNACIO, in his capacity as Special Prosecutor,
Office of the Ombudsman, Petitioners,
vs.
ATTY. GIL A. VALERA and COURT OF APPEALS* (Special First Division), Respondent.

DECISION

CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari filed by the Office of the Ombudsman and Dennis M. Villa-
Ignacio, in his capacity as the Special Prosecutor, Office of the Ombudsman, seeking the reversal of

__________________

* No part.

the Decision1 dated June 25, 2004 of the Court of Appeals (CA) in CA-G.R. SP No. 83091. The assailed decision
set aside the Order dated March 17, 2004 issued by petitioner Special Prosecutor Villa-Ignacio in OMB-C-A-03-
0379-J placing respondent Atty. Gil A. Valera, Deputy Commissioner, Office of the Revenue Collection Monitoring
Group, Bureau of Customs, under preventive suspension for a period of six months without pay.

Factual and Procedural Antecedents

Respondent Valera was appointed Deputy Commissioner of the Bureau of Customs by President Gloria
Macapagal-Arroyo on July 13, 2001. He took his oath of office on August 3, 2001 and assumed his post on
August 7, 2001. He is in charge of the Revenue Collection Monitoring Group.

On August 20, 2003, the Office of the Ombudsman received the Sworn Complaint dated July 28, 2003 filed by
then Director Eduardo S. Matillano of the Philippine National Police Criminal Investigation and Detection Group
(PNP-CIDG). In the said sworn complaint, Director Matillano charged respondent Valera with criminal offenses
involving violation of various provisions of Republic Act (R.A.) No. 3019, 2 the Tariff and Customs Code of the
Philippines (TCCP), Executive Order No. 38,3 Executive Order No. 2984 and R.A. No. 67135 as well as
administrative offenses of Grave Misconduct and Serious Irregularity in the Performance of Duty. Likewise subject
of the same sworn complaint was respondent Valeras brother-in-law Ariel Manongdo for violation of Section 4 of
R.A. No. 3019.
The sworn complaint alleged that:

On January 30, 2002, while in the performance of his official functions, Atty. Gil A. Valera had compromised the
case against the Steel Asia Manufacturing Corporation in Civil Case No. 01-102504 before Branch 39, RTC,
Manila without proper authority from the Commissioner of the Bureau of Customs in violation of Section 2316
TCCP (Authority of Commission to make Compromise) and without the approval of the President, in violation of
Executive Order No. 156 and Executive Order No. 38. Such illegal acts of Atty. Gil A. Valera, indeed, caused
undue injury to the government by having deprived the government of its right to collect the legal interest,
surcharges, litigation expenses and damages and gave the Steel Asia unwarranted benefits in the
total uncollected amount ofFOURTEEN MILLION SEVEN HUNDRED SIXTY-TWO THOUSAND FOUR
HUNDRED SIXTY-SEVEN PESOS AND SEVENTY CENTAVOS (P14,762,467.70), which is violative of Sections
3(e) and (g) respectively of RA 3019.

Further investigation disclosed that Atty. Gil A. Valera while being a Bureau of Customs official directly and
indirectly had financial or pecuniary interest in the CACTUS CARGOES SYSTEMS a brokerage whose line of
business or transaction, in connection with which, he intervenes or takes part in his official capacity by way of
causing the employment of his brother-in-law, Ariel Manongdo, thus, violating Section 3(h) of RA 3019 and RA
6713 and Section 4, RA 3019 as against Ariel Manongdo.

Finally, investigation also disclosed that on April 21, 2002 Atty. Gil A. Valera traveled to Hongkong with his family
without proper authority from the Office of the President in violation of Executive Order No. 298 (foreign travel of
government personnel) dated May 19, 1995, thus, he committed an administrative offense of Grave Misconduct.6

The sworn complaint prayed that:

1) Appropriate preliminary investigation be conducted with the end-in-view of filing the necessary information
before the Sandiganbayan;

2) Pending investigation, Atty. Gil A. Valera be indefinitely suspended from public office in order to prevent him
from further committing acts of irregularity in public office;

3) This Group be furnished a copy of the Resolution of this (sic) cases.7

At about the same time as the filing of the complaint against respondent Valera, Director Matillano also filed
charges against other officials of the Department of Public Works and Highways (DPWH) and Bureau of Customs.
The Philippine Daily Inquirer featured a news article on them with the title "More govt execs flunk lifestyle check."8

Prior to Director Matillanos sworn complaint, criminal and administrative charges were also filed with the Office of
the Ombudsman by Atty. Adolfo Casareo against respondent Valera. The complaint of Atty. Casareo contained
similar allegations as those in the complaint of Director Matillano in that respondent Valera, without being duly
authorized by the Commissioner of Customs, entered into a compromise agreement with Steel Asia
Manufacturing Corp. in Civil Case No. 01-102504 to the prejudice of the government.

The cases against respondent Valera before the Ombudsman were docketed as follows:

OMB-C-C-02-0568-I (For: Violation of Sec. 3(e), R.A. 3019, as amended, and Section 3604 of the Tariff and
Customs Code) entitled Alfredo Casareo v. Gil A. Valera and Antonio M. Lorenzana

OMB-C-C-03-0547-J (For: Violation of Sec. 3(e), (g) and (h) of R.A. 3019, as amended) entitled PNP-CIDG v. Gil
A. Valera and Ariel N. Manongdo

OMB-C-A-0379-J (For: Grave Misconduct and Serious Irregularity in the Performance of Duty) entitled PNP-CIDG
v. Gil A. Valera

On November 12, 2003, Ombudsman Simeon V. Marcelo issued a Memorandum 9 inhibiting himself from the
foregoing criminal cases as well as the related administrative case and directing petitioner Special Prosecutor
Villa-Ignacio to act in his (the Ombudsmans) stead and place. The said memorandum reads:

MEMORANDUM

TO : HON. DENNIS M. VILLA-IGNACIO

Special Prosecutor

Office of the Special Prosecutor

SUBJECT : OMB-C-C-02-0568-I entitled "Alfredo Casareo

vs. Gil Valera, et al.," CPL No. C-03-1829 entitled


"PNP-CIDG vs. Atty. Gil Valera and Ariel Manongdo" and OMB-C-A-0379-J entitled "PNP-CIDG vs. Atty. Gil
Valera"

DATE : November 12, 2003

____________________________________________________________

The undersigned is inhibiting himself in the above-captioned cases. Please act in his stead and place.

(Sgd.) SIMEON V. MARCELO

Tanodbayan

(Ombudsman)

On March 17, 2004, pursuant to the above memorandum, petitioner Special Prosecutor Villa-Ignacio, in the
administrative case OMB-C-A-0379-J, issued the Order placing respondent Valera under preventive suspension
for six months without pay. In the said order, petitioner Special Prosecutor Villa-Ignacio found that respondent
Valera entered into the compromise agreement with Steel Asia Manufacturing Corp. in Civil Case No. 01-102504
without being duly authorized to do so by the Commissioner of Customs and without the approval of the Secretary
of Finance in violation of Section 231610 of the TCCP.

As earlier mentioned, Civil Case No. 01-102504 was a collection suit filed by the Republic of the Philippines
represented by the Bureau of Customs against Steel Asia Manufacturing Corp. for payment of duties and taxes
amounting to P37,195,859.00. The said amount was allegedly paid by Steel Asia Manufacturing Corp. with
spurious tax credit certificates. In addition to the principal amount, the government likewise demanded payment of
penalty charges (25% thereof), legal interest from date of demand, litigation expenses and exemplary damages.

Petitioner Special Prosecutor Villa-Ignacio made the finding that by entering into the said compromise agreement
whereby Steel Asia Manufacturing Corp. shall pay the overdue taxes and duties in thirty (30) monthly installments
ofP1,239,862 from January 2002 to June 2004, respondent Valera may have made concessions that may be
deemed highly prejudicial to the government, i.e., waiver of the legal interest from the amount demanded, penalty
charges imposed by law, litigation expenses and exemplary damages. Further, by the terms of the compromise
agreement, respondent Valera had virtually exonerated Steel Asia Manufacturing Corp. of its fraudulent acts of
using spurious tax credit certificates.

Petitioner Special Prosecutor Villa-Ignacio concluded the Order dated March 17, 2004 by stating that
"[c]onsidering the strong evidence of guilt of respondent Deputy Commissioner Valera and the fact that the
charges against him consist of Grave Misconduct and/or Dishonesty which may warrant his removal from the
service, it is hereby declared that the requirements under Section 24 of R.A. No. 6770, in relation to Sec. 9, Rule
III of Administrative Order No. 7, on the Rules of Procedure of the Office of the Ombudsman, as amended, are
present, and placing respondent Deputy Commissioner Valera under preventive suspension pending
administrative investigation on the matter for a period of six (6) months without pay is clearly justified." 11

The decretal portion of the March 17, 2004 Order reads:

WHEREFORE, pursuant to Sec. 24 of R.A. No. 6770, otherwise known as the Ombudsman Act of 1989, in
relation to Sec. 9, Rule III of Administrative Order No. 7, respondent ATTY. GIL A. VALERA, Deputy
Commissioner, Office of the Collection and Monitoring Group, Bureau of Customs, is hereby placed under
preventive suspension for SIX (6) MONTHS WITHOUT PAY.

Pursuant to Sec. 27(1) of R.A. No. 6770, this Order of Preventive Suspension is deemed immediately effective
and executory.

The Honorable Commissioner Antonio M. Bernard, Bureau of Customs, is hereby directed to implement the Order
immediately upon receipt hereof and to promptly inform this Office of compliance herewith.

Respondent Atty. Gil A. Valera, Deputy Commissioner, Office of the Collection and Monitoring Group, Bureau of
Customs, is hereby ordered to file his counter-affidavit and other controverting evidence to the complaint, copy of
which together with the annexes, is hereto attached, within ten (10) days from receipt hereof in three (3) legible
copies addressed to the Central Records Division, Office of the Ombudsman, Ombudsman Building, Agham
Road, Government Center, North Triangle, Diliman, Quezon City, furnishing the complainant with a copy of said
counter-affidavit.

Further, respondent is also ordered to submit proof of service of his counter-affidavit to the complaint, who may
file its reply thereto within a period of ten (10) days from receipt of the same.

Failure to comply as herein directed within the period prescribed by the rules shall be deemed as a waiver of the
right to submit the partys counter-affidavit or reply, nonetheless, despite said non-filing, the investigation shall
proceed pursuant to existing rules.
This Order is being issued by the undersigned in view of the inhibition of the Honorable Tanodbayan Simeon
Marcelo from his case as contained in a Memorandum dated 12 November 2003.

SO ORDERED.12

Respondent Valera sought reconsideration of the said Order claiming denial of due process. He averred that he
had already submitted his counter-affidavit refuting the charges leveled against him by the PNP-CIDG way back
on November 6, 2003. He pointed out that Director Matillanos sworn complaint was filed on August 20, 2003 and
it was only two months later or on October 22, 2003 that the Ombudsman found enough basis to proceed with the
administrative investigation of the case by requiring respondent Valera to file his counter-affidavit. He did so on
November 6, 2003. During the said period of two months, the Preliminary Investigation and Administrative
Adjudication Bureau-A (PIAB-A) of the Office of the Ombudsman did not find enough bases to preventively
suspend him. According to respondent Valera, he was at a loss as to why it was only then (March 17, 2004) that
he was being placed under preventive suspension.

Acting on respondent Valeras motion for reconsideration, petitioner Special Prosecutor Villa-Ignacio issued the
Order dated April 5, 2004 explaining that the delay in the issuance of the preventive suspension order was due to
the inhibition of the Ombudsman from the case and for which reason, he (petitioner Special Prosecutor Villa-
Ignacio), by virtue of the Memorandum dated November 12, 2003, had to act in his place and stead. Petitioner
Special Prosecutor Villa-Ignacio averred that contrary to respondent Valeras assertion, his counter-affidavit would
not justify the reversal of the March 17, 2004 Order since he failed to show that he had the requisite authority from
the Commissioner of Customs to enter into the said compromise agreement with respect to the Steel Asia
Manufacturing Corp. case. It was not shown under what authority and on what basis respondent Valera entered
into the said compromise agreement.

In light of the foregoing ratiocination, petitioner Special Prosecutor Villa-Ignacio denied respondent Valeras
motion for reconsideration. The decretal portion of his Order dated April 5, 2004 reads:

WHEREFORE, the undersigned finds no cogent reason to reconsider the suspension order previously issued
dated 17 March 2004 but considers the Counter-Affidavit received by the Office of the Ombudsman 06 November
2003 as sufficient compliance to the portion of the assailed Order directing him to file his counter-affidavit.
Consequently, the Order insofar as it requires him to file counter-affidavit contained in the 17 March 200[4] Order
is SET ASIDE.13

Even before his motion for reconsideration was acted upon, however, respondent Valera already filed with the
Court of Appeals a special civil
action for certiorari and prohibition as he sought to nullify the March 17, 2004 Order of preventive suspension
issued by petitioner Special Prosecutor Villa-Ignacio and to enjoin Commissioner of Customs Antonio M.
Bernardo from implementing the said Order.

On April 16, 2004, the appellate court heard the parties on oral arguments on the prayer for injunction. On even
date, it issued a temporary restraining order against the implementation of the preventive suspension order.

On June 25, 2004, the appellate court rendered the assailed Decision setting aside the March 17, 2004 Order of
preventive suspension and directing petitioner Special Prosecutor Villa-Ignacio to desist from taking any further
action in OMB-C-A-03-0379-J.

In so ruling, the CA held mainly that petitioner Special Prosecutor Villa-Ignacio is not authorized by law to sign
and issue preventive suspension orders. It cited Section 24 of R.A. No. 6770, otherwise known as "The
Ombudsman Act of 1989," which vests on the "Ombudsman and his Deputy" the power to preventively suspend
any government officer or employee under the Ombudsmans authority pending investigation subject to certain
conditions. In relation thereto, Section 5, Article XI of the Constitution was also cited as it states that the Office of
the Ombudsman is "composed of the Ombudsman to be known as the Tanodbayan, one overall Deputy, and at
least one Deputy each for Luzon, Visayas and Mindanao. A separate Deputy for the military establishment may
likewise be appointed."

Relying on these two provisions of law, the CA declared that petitioner Special Prosecutor Villa-Ignacio has no
authority to issue a preventive suspension order since he is neither the Ombudsman nor one of the Deputy
Ombudsmen.

The CA was not persuaded by petitioner Special Prosecutor Villa-Ignacios contention that his authority to issue
the March 17, 2004 Order of preventive suspension could be found in Section 11(4)(c) of R.A. No. 6770 which
provides that the Office of the Special Prosecutor shall, in addition to those powers expressly enumerated in the
said provision, "perform such other duties assigned to it by the Ombudsman." The CA held that the grant of such
power to the Office of the Special Prosecutor is subject to the condition that it shall be "under the supervision and
control and upon the authority of the Ombudsman."

However, according to the CA, by virtue of the Memorandum dated November 12, 2003 of Ombudsman Marcelo
where he stated that he was inhibiting himself and directing petitioner Special Prosecutor Villa-Ignacio to act in his
place and stead, the latter (petitioner Special Prosecutor) officially stepped into the position of the Ombudsman
insofar as the subject case is concerned. In effect, petitioner Special Prosecutor Villa-Ignacio would act as the
Ombudsman. The CA opined that this is not the kind of duties contemplated under Section 11(4)(c) of R.A. No.
6770.

Ombudsman Marcelos Memorandum dated November 12, 2003 was declared null and void by the appellate
court for the following reasons:

1. The issuance of that kind of a memorandum effectively stretched (or over-stretched) the limited powers of the
special prosecutor under R.A. No. 6770 and the Constitution;

2. The issuance of that kind of a memorandum has effectively placed the special prosecutor over and above all of
the five (5) deputies of the Ombudsman in terms of hierarchy with respect to administrative adjudication;

3. To put it lightly, the Ombudsman, in issuing that kind of a memorandum, has, wittingly or unwittingly, permitted
the Office of the Special Prosecutor to perform the administrative adjudicative powers of the Ombudsman not only
to issue preventive suspension but to perform, without qualification, any and all other administrative adjudicative
powers, duties functions and responsibilities pertaining to the former as provided under R.A. No. 6770 and the
Constitution.14

In addition, the CA refuted the finding of petitioner Special Prosecutor Villa-Ignacio that the evidence of guilt
against respondent Valera is strong to warrant his preventive suspension. The CA proffered the following
circumstances as negating the said finding of petitioner Special Prosecutor Villa-Ignacio: (1) Unlike the other four
government officials who were simultaneously charged with him, respondent Valera was not immediately placed
under preventive suspension; hence, indicating that there was no strong evidence against him; (2) Petitioner
Special Prosecutor Villa-Ignacios comment filed with the appellate court did not make any reference to
respondent Valeras supposed foreign travel violation which was alleged in the sworn complaint of Director
Matillano; and (3) The admission of petitioner Special Prosecutor Villa-Ignacios counsel during the oral
arguments on the preliminary injunction that the PIAB-A recommended against placing respondent Valera under
preventive suspension.

Finally, the CA strongly denounced petitioner Special Prosecutor Villa-Ignacio for issuing the preventive
suspension order without even considering respondent Valeras counter-affidavit and, worse, not knowing that he
had already filed it as early as November 5, 2003. The CA opined that had petitioner Special Prosecutor Villa-
Ignacio duly considered the said counter-affidavit, he would have reached a different conclusion, i.e., there is no
strong evidence against respondent Valera. Further, that the latter, in entering into the compromise agreement
with Steel Asia Manufacturing Corp., is authorized to do so under Section 2401 15 of the TCCP and Section 2316
thereof, cited by petitioner Special Prosecutor Villa-Ignacio, is inapplicable. The CA concluded that petitioner
Special Prosecutor Villa-Ignacio acted with grave abuse of discretion in issuing the March 17, 2004 placing
respondent Valera under preventive suspension for six months without pay in connection with the administrative
case OMB-C-A-03-0379-J.

The decretal portion of the decision of the appellate court reads:

WHEREFORE, the petition is hereby GRANTED, and the assailed order of March 17, 2004, issued by respondent
Dennis Villa-Ignacio in OMB-C-A-03-0379-J is SET ASIDE.

Respondent Special Prosecutor is DIRECTED to desist from taking any further action in OMB-C-A-03-0379-J.

SO ORDERED.16

Hence, the recourse to this Court by petitioners Special Prosecutor Villa-Ignacio and the Office of the
Ombudsman.

The Petitioners Case

They submit the following as grounds for the allowance of their petition:

IN ITS DECISION DATED 25 JUNE 2004, THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN
FINDING THAT THE PETITIONER SPECIAL PROSECUTOR COMMITTED GRAVE ABUSE OF DISCRETION,
AND IN SETTING ASIDE THE MARCH 17, 2004 ORDER OF PREVENTIVE SUSPENSION ISSUED BY THE
PETITIONER SPECIAL PROSECUTOR, CONSIDERING THAT:

[PETITIONER] SPECIAL PROSECUTOR ACTED WITH FULL AUTHORITY CONSIDERING THAT THE
OMBUDSMAN EXPRESSLY ASSIGNED TO [PETITIONER] SPECIAL PROSECUTOR THE SPECIFIC
FUNCTION OF ACTING IN HIS (OMBUDSMANS) PLACE AND STEAD IN OMB-C-A-030379-J, AND THIS
DELEGATION OF AUTHORITY SUFFERS FROM NO VICE OR DEFECT AND, ON THE CONTRARY, HAS THE
FULL MANDATE OF THE LAW.

II
NO GRAVE ABUSE OF DISCRETION HAS BEEN COMMITTED BY THE PETITIONERS IN FINDING, AT THAT
STAGE, THE EVIDENCE OF GUILT TO BE STRONG ON THE PART OF PRIVATE RESPONDENT, FOR
GRAVE MISCONDUCT AND/OR DISHONESTY.

III

PRIVATE RESPONDENTS PETITION FILED BEFORE THE COURT A QUO SHOULD HAVE BEEN
DISMISSED FOR VIOLATION OF THE RULE ON FORUM SHOPPING.17

The petitioners vigorously maintain that no grave abuse of discretion attended the issuance by petitioner Special
Prosecutor Villa-Ignacio of the March 17, 2004 Order placing respondent Valera under preventive
suspension because the Ombudsman, in directing petitioner Special Prosecutor Villa-Ignacio to act in his place
and stead insofar as OMB-C-A-03-0379-J was concerned, fully clothed the latter with delegated authority to act
thereon. Since under Section 24 of R.A. No. 6770, the Ombudsman may preventively suspend respondent Valera
in the subject administrative case, it follows that with the delegation of his authority to petitioner Special
Prosecutor Villa-Ignacio, he had full authority to preventively suspend respondent Valera. Petitioner Special
Prosecutor Villa-Ignacio, upon finding that all the elements for preventive suspension in Section 24 of R.A. No.
6770 are present, accordingly placed respondent Valera under preventive suspension for six months without pay
in connection with the subject administrative case.

The petitioners defend the validity of the Ombudsmans delegation of his authority to petitioner Special Prosecutor
Villa-Ignacio with respect to the administrative case OMB-C-A-03-0379-J contending that: "a) the authority to
preventively suspend is not insusceptible to delegation to an alter ego of the Ombudsman; b) the petitioner
Special Prosecutor possessed the necessary qualifications and competence to exercise the delegated functions;
c) no law or rule was violated with the said delegation."18

Nothing in Section 24 of R.A. No. 6770 allegedly prohibits the delegation by the Ombudsman of his authority to
preventively suspend to his alter ego. The petitioners point out that under R.A. No. 6770, the Special
Prosecutor, like the Deputy Ombudsmen, heads a major office in the Office of the Ombudsman;19 he is appointed
in the same manner as the Deputy Ombudsmen;20 he shares the same qualifications21 and enjoys the same rank
and privilege as the latter.22 As such, the Special Prosecutor, like any of the other Deputy Ombudsmen, has the
competence and capability to preventively suspend any officer or employee under the authority of the
Ombudsman.

The petitioners invoke, in particular, Section 11(4)(c) of R.A. No. 6770:

Sec. 11. Structural Organization.

(4) The Office of the Special Prosecutor shall, under the supervision and control and upon the authority of the
Ombudsman, have the following powers:

(c) To perform such other duties assigned to it by the Ombudsman.

By this provision, the Ombudsman may allegedly validly delegate to the Special Prosecutor such other functions
that he cannot, otherwise, perform by himself and that he (the Ombudsman) is not obliged to always make such
delegation to the Overall Deputy Ombudsman. In the exercise of quasi-judicial functions, there is no law which
mandates that the Ombudsman can only inhibit himself in favor of the Deputy Ombudsmen.

The petitioners assert that the evidence of respondent Valeras guilt for serious administrative infractions is
strong. According to them, the facts that have so far been established show that respondent Valera entered into
the compromise agreement with Steel Manufacturing Asia Corp. to unduly shield and promote its interests and to
the prejudice of the government. It is allegedly suspicious that he (respondent Valera) simply allowed the said
company to redeem the spurious tax credit certificates with a 30-month staggered payment when sufficient
properties of the said company had already been attached to satisfy not only the P37 million principal amount of
taxes owed by the said company but the penalty charges and damages as well. He further unjustifiably
exonerated the said companys officers of any criminal wrongdoing when they are conclusively liable for the
procurement of these spurious tax credit certificates. Further, respondent Valera was never authorized by the
Customs Commissioner to enter into such compromise agreement nor was it approved by the Secretary of
Finance as required by Section 2316 of the TCCP. Neither was it approved by the President of the Philippines as
further required by E.O. No. 38. Respondent Valera thus committed an act of misrepresentation when he signed
the compromise agreement under the clause "By authority of the Commissioner."

The petitioners posit that conclusively at the given stage respondent Valera appeared to have committed Grave
Misconduct and Dishonesty to warrant his preventive suspension. They also aver that the evidence strongly show
that respondent Valera obtained employment for his brother-in-law, Ariel Manongdo, with Cactus Cargo Systems,
Inc., a customs brokerage firm whose business principally involves dealing on a regular basis with the Bureau of
Customs, in contravention of R.A. No. 6713 and R.A. No. 3019.
To refute the appellate courts statement that there was inordinate delay in the issuance of the March 17, 2004
Order of preventive suspension, the petitioners explain that the same was due to, among others, the inhibition of
the Ombudsman from the case, the delay in the transmittal of the case records and the amount of time that it took
petitioner Special Prosecutor Villa-Ignacio to study the recommendation of the PIAB-A and the divergent
recommendation of the Assistant Ombudsman for Preliminary Investigation, Adjudication and Monitoring Office
(PAMO).

Moreover, even if the PIAB-A recommended against placing respondent Valera under preventive suspension,
petitioner Special Prosecutor Villa-Ignacio was not bound to adopt the same. With respect to respondent Valeras
counter-affidavit, the petitioners insist that the same failed to rebut the strong evidence against him; hence,
justifying his preventive suspension.

Finally, the petitioners fault the appellate court for not dismissing outright respondent Valeras petition for
certiorari. They charge him with violation of the rule on non-forum shopping as he filed his petition for certiorari
with the CA even when his motion for reconsideration had yet to be acted upon by petitioner Special Prosecutor
Villa-Ignacio.

The Respondents Counter-Arguments

Respondent Valera mainly argues that petitioner Special Prosecutor Villa-Ignacio has no authority to issue the
March 17, 2004 Order placing him under preventive suspension. While Section 11(4)(c) of R.A. No. 6770 grants
the Office of the Special Prosecutor the power to "perform such other duties assigned to it by the Ombudsman,"
the performance of such other duties should still be "under the supervision and control and upon the authority of
the Ombudsman." Respondent Valera echoes the ratiocination of the CA that the Memorandum dated November
12, 2003 issued by Ombudsman Marcelo directing petitioner Special Prosecutor Villa-Ignacio to act in his place
and stead in OMB-C-A-03-0379-J produced the effect of making him (petitioner Special Prosecutor) step into the
position of the Ombudsman. This is not the kind of assignment of duties contemplated by Section 11(4)(c) of R.A.
No. 6770 because, in such a case, the Ombudsmans power of supervision and control over the Special
Prosecutor is undermined.

Respondent Valera submits that the Ombudsmans memorandum designating petitioner Special Prosecutor Villa-
Ignacio to act in his place and stead has destroyed the hierarchy of command within the Office of the
Ombudsman because it put the Special Prosecutor over and above the Office of the Overall Deputy Ombudsman.
Such designation infringes on Section 11(2) of R.A. No. 6770 which provides that the Overall Deputy
Ombudsman "shall oversee and administer the operations of the different offices under the Office of the
Ombudsman." The Overall Deputy Ombudsman is next in line to the Ombudsman as shown by the fact that he
assumes as Acting Ombudsman in case of vacancy in the Office of the Ombudsman due to death, resignation,
removal or permanent disability of the incumbent Ombudsman.

Respondent Valera stresses that the power to preventively suspend any officer or employee under the authority of
the Ombudsman pending investigation is exclusively vested on the Ombudsman or his Deputy pursuant to
Section 24 of R.A. No. 6770. Since the Special Prosecutor is not named therein as vested with the said power,
then petitioner Special Prosecutor Villa-Ignacio has no authority to issue a preventive suspension.

In relation thereto, the Special Prosecutors powers is allegedly limited to the conduct of preliminary investigation
and prosecution of criminal cases within the jurisdiction of the Sandiganbayan. Respondent Valera cites the
enumeration of the Special Prosecutors powers in Section 11(4) of R.A. No. 6770:

Sec. 11. Structural Organization.

(4) The Office of the Special Prosecutor shall, under the supervision and control and upon the authority of the
Ombudsman, have the following powers:

(a) To conduct preliminary investigation and prosecute criminal cases within the jurisdiction of the
Sandiganbayan;

(b) To enter into plea bargaining agreement; and

(c) To perform such other duties assigned to it by the Ombudsman.

Applying the rule of ejusdem generis, respondent Valera theorizes that since the first two powers relate to criminal
complaints and criminal cases, then the last power "to perform such other duties assigned to it by the
Ombudsman" can only refer to other duties related to criminal complaints and criminal cases and not to
administrative complaints, investigation, adjudication and administrative preventive suspension. While he
concedes that the Ombudsman may inhibit himself in certain cases, respondent Valera is of the view that when
the Ombudsman does inhibit himself in an administrative investigation pending before the Office of the
Ombudsman, he may not designate the Special Prosecutor to act in his place and stead.
Respondent Valera also harps on petitioner Special Prosecutor Villa-Ignacios alleged failure to consider his
(respondent Valeras) counter-affidavit before issuing the preventive suspension order. This omission coupled
with the delay in issuing the same allegedly renders the March 17, 2004 Order null and void.

On the evidence against him, respondent Valera claims that the same is not strong. He cites the delay in placing
him under preventive suspension as he alleges that the first complaint involving the Steel Manufacturing Asia
Corp. case was filed against him by Atty. Casareo as early as August 26, 2002. However, it was only on March
17, 2004 that he was placed under preventive suspension by petitioner Special Prosecutor Villa-Ignacio. The
strength of the evidence against him is also belied by the fact that the PIAB-A recommended against placing him
under preventive suspension.

On the procedural point, respondent Valera states that he filed the petition for certiorari with the CA without
awaiting the resolution of his motion for reconsideration because, at the time, petitioner Special Prosecutor Villa-
Ignacio still had not resolved the same despite the lapse of the period provided by the Ombudsmans rules of
procedure.

Issue

The basic issue for the Courts resolution is whether petitioner Special Prosecutor Villa-Ignacio has the authority
to place respondent Valera under preventive suspension in connection with the administrative case OMB-C-A-03-
0379-J pending before the Office of the Ombudsman.

The Courts Ruling

The Court holds that the Special Prosecutor has no such authority.

Preliminarily, it is noted that petitioner Special Prosecutor Villa-Ignacio anchors his authority to conduct the
administrative investigation in OMB-C-A-03-0379-J on the Memorandum dated November 12, 2003 issued by
Ombudsman Marcelo inhibiting himself therefrom and directing petitioner Special Prosecutor Villa-Ignacio to act in
his place and stead.

Significantly, Ombudsman Marcelo did not state in the said memorandum the reason for his inhibition. On this
point, the rule on voluntary inhibition of judges finds application to the Ombudsman in the performance of his
functions particularly in administrative proceedings like OMB-C-A-03-0379-J. Like judges, the decision on whether
or not to inhibit is admittedly left to the Ombudsmans sound discretion and conscience.23 However, again similar
to judges, Ombudsman Marcelo has no unfettered discretion to inhibit himself. The inhibition must be for just and
valid causes.24 No such cause was proffered by Ombudsman Marcelo for his inhibition in OMB-C-A-03-0379-J.

The Court shall now proceed to resolve the basic issue of the case.

The Ombudsman, pursuant to his power of

supervision and control over the Special

Prosecutor, may authorize the latter to

conduct administrative investigation

The Office of the Ombudsman is vested by the Constitution with the following powers, functions and duties:

(1) Investigate on its own, or on complaint by any person, any act or omission of any public official, employee,
office or agency, when such act or omission appears to be illegal, unjust, improper, or inefficient;

(2) Direct, upon complaint or at its own instance, any public official or employee of the Government, or any
subdivision, agency or instrumentality thereof, as well as of any government-owned and controlled corporation
with original charter, to perform and expedite any act or duty required by law, or to stop, prevent and correct any
abuse or impropriety in the performance of duties;

(3) Direct the officer concerned to take appropriate action against a public official or employee at fault, and
recommend his removal, suspension, demotion, fine, censure, or prosecution, and ensure compliance therewith;

(4) Direct the officer concerned, in any appropriate case, and subject to such limitations as may be provided by
law to furnish it with copies of documents relating to contracts or transactions entered into by his office involving
the disbursement or use of public funds or properties, and report any irregularity to the Commission on Audit for
appropriate action;

(5) Request any government agency for assistance an information necessary in the discharge of its
responsibilities, and to examine, if necessary, pertinent and records and documents;

(6) Publicize matters covered by its investigation when circumstances so warrant and with due prudence;
(7) Determine the causes of inefficiency, red tape, mismanagement, fraud and corruption in the Government and
make recommendations for their elimination and the observance of high standards of ethics and efficiency; and

(8) Promulgate its rules of procedure and exercise such other powers or perform such functions or duties as may
be provided by law.25

R.A. No. 6770 was enacted to provide for the functional and structural organization of the Office of the
Ombudsman. It substantially reiterates the constitutional provisions relating to the Office of the Ombudsman. In
addition, R.A. No. 6770 granted to the Office of the Ombudsman prosecutorial functions 26 and made the Office of
the Special Prosecutor an organic component of the Office of the Ombudsman. 27 As such, R.A. No. 6770 vests on
the Office of the Special Prosecutor, under the supervision and control and upon the authority of the Ombudsman,
the following powers:

(a) To conduct preliminary investigation and prosecute criminal cases within the jurisdiction of the
Sandiganbayan;

(b) To enter into plea bargaining agreement; and

(c) To perform such other duties assigned to it by the Ombudsman. 28

Based on the pertinent provisions of the Constitution and R.A. No. 6770, the powers of the Ombudsman have
generally been categorized into the following: investigatory power; prosecutory power; public assistance
functions; authority to inquire and obtain information; and function to adopt, institute and implement preventive
measures.29The Ombudsmans investigatory and prosecutory power has been characterized as plenary and
unqualified:

The power to investigate and to prosecute granted by law to the Ombudsman is plenary and unqualified. It
pertains to any act or omission of any public officer or employee when such act or omission appears to be illegal,
unjust, improper or inefficient30

On the other hand, the authority of the Office of the Special Prosecutor has been characterized as limited:

Moreover, the jurisdiction of the Office of the Ombudsman should not be equated with the limited authority of the
Special Prosecutor under Section 11 of R.A. 6770. The Office of the Special Prosecutor is merely a component of
the Office of the Ombudsman and may act only under the supervision and control and upon the authority of the
Ombudsman. Its power to conduct preliminary investigation and prosecute is limited to criminal cases within the
jurisdiction of the Sandiganbayan. Certainly, the lawmakers did not intend to confine the investigatory and
prosecutory power of the Ombudsman to these types of cases. The Ombudsman is mandated by law to act on all
complaints against officers and employees of the government and to enforce their administrative, civil and
criminal liability in every case where the evidence warrants. To carry out this duty, the law allows him to utilize the
personnel in his office and/or designate any fiscal, state prosecutor or lawyer in the government service to act as
special investigator or prosecutor to assist in the investigation and prosecution of certain cases. Those designated
or deputized to assist him work under his supervision and control. The law likewise allows him to direct the
Special Prosecutor to prosecute cases outside the Sandiganbayans jurisdiction in accordance with Section
11(4c) of R.A. 6770.31

The Court has consistently held that the Office of the Special Prosecutor is merely a component of the Office of
the Ombudsman and may only act under the supervision and control and upon authority of the Ombudsman. 32

Section 38(1), Chapter 7, Book IV of the Administrative Code of 1987 defines "supervision and control" thus:

(1) Supervision and Control. Supervision and control shall include authority to act directly whenever a specific
function is entrusted by law or regulation to a subordinate; direct the performance of duty; restrain the commission
of acts; review, approve, reverse or modify acts and decisions of subordinate officials or units; determine priorities
in the execution of plans and programs; and prescribe standards, guidelines, plans and programs. Unless a
different meaning is explicitly provided in the specific law governing the relationship of particular agencies, the
word "control" shall encompass supervision and control as defined in this paragraph.

The power of supervision and control has been likewise explained as follows:

In administrative law, supervision means overseeing or the power or authority of an officer to see that subordinate
officers perform their duties. If the latter fail or neglect to fulfill them, the former may take such action or step as
prescribed by law to make them perform such duties. Control, on the other hand, means the power of an officer to
alter or modify or nullify or set aside what a subordinate officer had done in the performance of his duties and to
substitute the judgment of the former for that of the latter.33

Pursuant to its power of supervision and control, the Office of the Ombudsman is empowered under Section
15(10) of R.A. No. 6770 to:

(10) Delegate to the Deputies, or its investigators or representatives such authority or duty as shall ensure the
effective exercise or performance of the powers, functions, and duties herein or hereinafter provided;

Complementary thereto, Section 11(4)(c) thereof requires the latter to:

(c) [p]erform such other duties assigned to it by the Ombudsman.

Hence, under the foregoing provisions, the Ombudsman may delegate his investigatory function, including the
power to conduct administrative investigation, to the Special Prosecutor.

Section 24 of R.A. No 6770, however, grants

the power to preventively suspend only to the

Ombudsman and the Deputy Ombudsmen

Section 24 of R.A. No. 6770 reads:

Sec. 24. Preventive Suspension. The Ombudsman and his Deputy may preventively suspend any officer or
employee under his authority pending an investigation, if in his judgment the evidence of guilt is strong, and (a)
the charge against such officer or employee involves dishonesty, oppression or grave misconduct or neglect in
the performance of duty; (b) the charges would warrant removal from the service; or (c) the respondents
continued stay in office may prejudice the case filed against him.

The preventive suspension shall continue until the case is terminated by the Office of the Ombudsman but not
more than six months, without pay, except when the delay in the disposition of the case by the Office of the
Ombudsman is due to the fault, negligence or petition of the respondent, in which case the period of such delay
shall not be counted in computing the period of suspension herein provided.

It is observed that R.A. No. 6770 has invariably mentioned the Special Prosecutor alongside the Ombudsman
and/or the Deputy Ombudsmen with respect to the manner of appointment, 34 qualifications,35 term of office,36
grounds for removal from office,37 prohibitions and disqualifications38 and disclosure of relationship
requirement.39However, with respect to the grant of the power to preventively suspend, Section 24 of R.A. No
6770 makes no mention of the Special Prosecutor. The obvious import of this exclusion is to withhold from the
Special Prosecutor the power to preventively suspend. It is a basic precept of statutory construction that the
express mention of one person, thing, act or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius.40

The petitioners contention that since the Special Prosecutor is of the same rank as that of a Deputy Ombudsman,
then the former can rightfully perform all the functions of the latter, including the power to preventively suspend, is
not persuasive. Under civil service laws, rank classification determines the salary and status of government
officials and employees.41 Although there is substantial equality in the level of their respective functions, those
occupying the same rank do not necessarily have the same powers nor perform the same functions.

The Ombudsman and the Deputy Ombudsmen, as they are expressly named in Section 24 of R.A. No. 6770,
have been granted the power to preventively suspend as the same inheres in their mandate under the
Constitution:

Sec. 12. The Ombudsman and his Deputies, as protectors of the people, shall act promptly on complaints filed in
any form or manner against public officials or employees of the Government, or any subdivision, agency, or
instrumentality thereof, including government-owned or controlled corporations, and shall, in appropriate cases,
notify the complainants of the action taken and the result thereof.42

While R.A. No. 6770 accords the Special Prosecutor the same rank as that of the Deputy Ombudsmen, Section
24 thereof expressly grants only to the Ombudsman and the Deputy Ombudsmen the power to place under
preventive suspension government officials and employees under their authority pending an administrative
investigation.43

However, if the Ombudsman delegates his authority to conduct administrative investigation to the Special
Prosecutor and the latter finds that the preventive suspension of the public official or employee subject thereof is
warranted, the Special Prosecutor may recommend to the Ombudsman to place the said public officer or
employee under preventive suspension.

Pertinently, the investigation of OMB-C-A-03-0379-J was initially conducted by the PIAB-A, a panel composed of
two Special Prosecution Officers III44 and Graft Investigation and Prosecution Officers II.45 The said investigating
panel submitted to the Ombudsman the Memorandum dated November 5, 2003 which contained its initial findings
stating in part thus:

After a careful evaluation of the complaint, it appears that the evidence of guilt in the case under review, in the
context of Sec. 24, R.A. 6770, are not strong enough to warrant the imposition of preventive suspension of
respondent Atty. Gil A. Valera. The evidence on record fall short of the quantum of evidence necessary to
establish the necessary weight to preventively suspend him. However, the Investigating Panel finds enough basis
to proceed with the administrative investigation of this case.46

It appears in the signatory page of the said memorandum that the findings and recommendation therein were
reviewed by the Director47 of the PIAB-A. Further, the memorandum was, likewise, reviewed by the Assistant
Ombudsman,48 Preliminary Investigation, Adjudication and Monitoring Office (PAMO) with the notation
"recommending disapproval." This demonstrates that in the conduct of administrative investigation, the PIAB-A
exercises merely recommendatory powers particularly with respect to whether to place the public official or
employee subject thereof under preventive suspension.

Ombudsman Marcelo designated the Special Prosecutor to conduct the administrative investigation. In the course
thereof, petitioner Special Prosecutor Villa-Ignacio found that the preventive suspension of respondent Valera
was warranted under Section 24 of R.A. No. 6770. However, since under the said provision only the Ombudsman
or his Deputy may exercise the power of preventive suspension, petitioner Special Prosecutor Villa-
Ignacio could only recommend to the Ombudsman or, in this case because of the latters inhibition, to the
designated Deputy Ombudsman to place respondent Valera under preventive suspension.

Stated differently, with respect to the conduct of administrative investigation, the Special Prosecutors authority,
insofar as preventive suspension is concerned, is akin to that of the PIAB-A, i.e., recommendatory in nature. It
bears stressing that the power to place a public officer or employee under preventive suspension pending an
investigation is lodged only with the Ombudsman or the Deputy Ombudsmen.

Consequently, petitioner Special Prosecutor Villa-Ignacio had no authority to issue the March 17, 2004 Order
placing respondent Valera under preventive suspension for six months without pay in connection with the
administrative case OMB-C-A-03-0379-J. The appellate court thus correctly nullified and set aside the said
assailed order.

Considering the finding that petitioner Special Prosecutor Villa-Ignacio had no authority to issue the March 17,
2004 preventive suspension order, the resolution of the issue of whether or not the evidence of respondent
Valeras guilt is strong to warrant his preventive suspension need not be passed upon at this point. Anent
respondent Valeras alleged non-compliance with the rule on non-forum shopping when he filed the petition for
certiorari with the appellate court, suffice it to state that the appellate court correctly overlooked this procedural
lapse. The merits of respondent Valeras case are special circumstances or compelling reasons which justified the
appellate courts relaxing the rule requiring certification on non-forum shopping.49

It is well to mention, at this point, that after the appellate court rendered its decision nullifying the March 17, 2004
Order of petitioner Special Prosecutor Villa-Ignacio and directing him to desist from taking any further action in
OMB-C-A-03-0379-J, the said case was next assigned to the Office of the Deputy Ombudsman for the Military
and Other Law Enforcement Offices (MOLEO), headed by Mr. Orlando C. Casimiro. 50 The hearings in OMB-C-A-
03-0379-J were, thus, continued by the Deputy Ombudsman for MOLEO. On August 30, 2004, a Decision was
rendered in the said administrative case finding petitioner Valera guilty of grave misconduct and decreeing his
dismissal from the service. On appeal, the Court of Appeals affirmed the decision of the Deputy Ombudsman for
MOLEO. Petitioner Valera subsequently filed a petition for review with this Court assailing the said decision of the
appellate court. The said petition, docketed as G.R. No. 167278, is now pending with the Court.

WHEREFORE, the petition is DENIED. The Decision dated June 25, 2004 of the Court of Appeals in CA-G.R. SP
No. 83091, insofar as it set aside the March 17, 2004 Order issued by petitioner Special Prosecutor Villa-Ignacio
in OMB-C-A-03-0379-J, is AFFIRMED.

SO ORDERED.

G.R. No. 149335 July 1, 2003

EDILLO C. MONTEMAYOR, petitioner,


vs.
LUIS BUNDALIAN, RONALDO B. ZAMORA, Executive Secretary, Office of the President, AND GREGORIO
R. VIGILAR, Secretary, Department of Public Works and Highways (DPWH), respondents.

PUNO, J.:

In this petition for review on certiorari, petitioner EDILLO C. MONTEMAYOR assails the Decision of the Court of
Appeals, dated April 18, 2001, affirming the decision of the Office of the President in Administrative Order No. 12
ordering petitioners dismissal as Regional Director of the Department of Public Works and Highways (DPWH) for
unexplained wealth.

Petitioners dismissal originated from an unverified letter-complaint, dated July 15, 1995, addressed by private
respondent LUIS BUNDALIAN to the Philippine Consulate General in San Francisco, California, U.S.A. Private
respondent accused petitioner, then OIC-Regional Director, Region III, of the DPWH, of accumulating
unexplained wealth, in violation of Section 8 of Republic Act No. 3019. Private respondent charged that in 1993,
petitioner and his wife purchased a house and lot at 907 North Bel Aire Drive, Burbank, Los Angeles, California,
making a down payment of US$100,000.00. He further alleged that petitioners in-laws who were living in
California had a poor credit standing due to a number of debts and they could not have purchased such an
expensive property for petitioner and his wife. Private respondent accused petitioner of amassing wealth
from lahar funds and other public works projects.

Private respondent attached to his letter-complaint the following documents:

a) a copy of a Grant Deed, dated May 27, 1993, where spouses David and Judith Tedesco granted the
subject property to petitioner and his wife;

b) a copy of the Special Power of Attorney (SPA) executed by petitioner and his wife in California
appointing petitioners sister-in-law Estela D. Fajardo as their attorney-in-fact, to negotiate and execute all
documents and requirements to complete the purchase of the subject property; and,

c) an excerpt from the newspaper column of Lito A. Catapusan in the Manila Bulletin, entitled
"Beatwatch," where it was reported that a low-ranking, multimillionaire DPWH employee, traveled to
Europe and the U.S. with his family, purchased an expensive house in California, appointed a woman
through an SPA to manage the subject property and had hidden and unexplained wealth in the
Philippines and in the U.S.

Accordingly, the letter-complaint and its attached documents were indorsed by the Philippine Consulate General
of San Francisco, California, to the Philippine Commission Against Graft and Corruption (PCAGC) 1 for
investigation. Petitioner, represented by counsel, submitted his counter-affidavit before the PCAGC alleging that
the real owner of the subject property was his sister-in-law Estela Fajardo. Petitioner explained that in view of the
unstable condition of government service in 1991, his wife inquired from her family in the U.S. about their possible
emigration to the States. They were advised by an immigration lawyer that it would be an advantage if they had
real property in the U.S. Fajardo intimated to them that she was interested in buying a house and lot in Burbank,
California, but could not do so at that time as there was a provision in her mortgage contract prohibiting her to
purchase another property pending full payment of a real estate she earlier acquired in Palmdale, Los Angeles.
Fajardo offered to buy the Burbank property and put the title in the names of petitioner and his wife to support
their emigration plans and to enable her at the same time to circumvent the prohibition in her mortgage contract.

Petitioner likewise pointed out that the charge against him was the subject of similar cases filed before the
Ombudsman.2 He attached to his counter-affidavit the Consolidated Investigation Report3 of the Ombudsman
dismissing similar charges for insufficiency of evidence.

From May 29, 1996 until March 13, 1997, the PCAGC conducted its own investigation of the complaint. While
petitioner participated in the proceedings and submitted various pleadings and documents through his counsel,
private respondent-complainant could not be located as his Philippine address could not be ascertained. In the
course of the investigation, the PCAGC repeatedly required petitioner to submit his Statement of Assets,
Liabilities and Net Worth (SALN), Income Tax Returns (ITRs) and Personal Data Sheet. Petitioner ignored these
directives and submitted only his Service Record. He likewise adduced in evidence the checks allegedly issued
by his sister-in-law to pay for the house and lot in Burbank, California. When the PCAGC requested the Deputy
Ombudsman for Luzon to furnish it with copies of petitioners SALN from 1992-1994, it was informed that
petitioner failed to file his SALN for those years.

After the investigation, the PCAGC, in its Report to the Office of the President, made the following findings:
Petitioner purchased a house and lot in Burbank, California, for US$195,000.00 (or P3.9M at the exchange rate
prevailing in 1993). The sale was evidenced by a Grant Deed. The PCAGC concluded that the petitioner could not
have been able to afford to buy the property on his annual income of P168,648.00 in 1993 as appearing on his
Service Record. It likewise found petitioners explanation as unusual, largely unsubstantiated, unbelievable and
self-serving. The PCAGC noted that instead of adducing evidence, petitioners counsel exerted more effort in
filing pleadings and motion to dismiss on the ground of forum shopping. It also took against petitioner his refusal
to submit his SALN and ITR despite the undertaking made by his counsel which raised the presumption that
evidence willfully suppressed would be adverse if produced. The PCAGC concluded that as petitioners
acquisition of the subject property was manifestly out of proportion to his salary, it has been unlawfully acquired.
Thus, it recommended petitioners dismissal from service pursuant to Section 8 of R.A. No. 3019.

On August 24, 1998, the Office of the President, concurring with the findings and adopting the recommendation of
the PCAGC, issued Administrative Order No. 12,4 ordering petitioners dismissal from service with forfeiture of all
government benefits.

Petitioners Motion for Reconsideration was denied. His appeal to the Court of Appeals was likewise dismissed.5

Hence, this petition for review where petitioner raises the following issues for resolution: first, whether he was
denied due process in the investigation before the PCAGC; second, whether his guilt was proved by substantial
evidence; and, third, whether the earlier dismissal of similar cases before the Ombudsman rendered the
administrative case before the PCAGC moot and academic.

On the issue of due process, petitioner submits that the PCAGC committed infractions of the cardinal rules of
administrative due process when it relied on Bundalians unverified letter-complaint. He gripes that his counter-
affidavit should have been given more weight as the unverified complaint constitutes hearsay evidence.
Moreover, petitioner insists that in ruling against him, the PCAGC failed to respect his right to confront and cross-
examine the complainant as the latter never appeared in any of the hearings before the PCAGC nor did he send a
representative therein.

We find no merit in his contentions. The essence of due process in administrative proceedings is the opportunity
to explain ones side or seek a reconsideration of the action or ruling complained of. As long as the parties are
given the opportunity to be heard before judgment is rendered, the demands of due process are sufficiently
met.6 In the case at bar, the PCAGC exerted efforts to notify the complainant of the proceedings but his Philippine
residence could not be located.7 Be that as it may, petitioner cannot argue that he was deprived of due process
because he failed to confront and cross-examine the complainant. Petitioner voluntarily submitted to the
jurisdiction of the PCAGC by participating in the proceedings before it. He was duly represented by counsel. He
filed his counter-affidavit, submitted documentary evidence, attended the hearings, moved for a reconsideration of
Administrative Order No. 12 issued by the President and eventually filed his appeal before the Court of Appeals.
His active participation in every step of the investigation effectively removed any badge of procedural deficiency, if
there was any, and satisfied the due process requirement. He cannot now be allowed to challenge the procedure
adopted by the PCAGC in the investigation.8

Neither can we sustain petitioners contention that the charge against him was unsupported by substantial
evidence as it was contained in an unverified complaint. The lack of verification of the administrative complaint
and the non-appearance of the complainant at the investigation did not divest the PCAGC of its authority to
investigate the charge of unexplained wealth. Under Section 3 of Executive Order No. 151 creating the PCAGC,
complaints involving graft and corruption may be filed before it in any form or manner against presidential
appointees in the executive department. Indeed, it is not totally uncommon that a government agency is given a
wide latitude in the scope and exercise of its investigative powers. The Ombudsman, under the Constitution, is
directed to act on any complaint likewise filed in any form and manner concerning official acts or omissions. The
Court Administrator of this Court investigates and takes cognizance of, not only unverified, but even anonymous
complaints filed against court employees or officials for violation of the Code of Ethical Conduct. This policy has
been adopted in line with the serious effort of the government to minimize, if not eradicate, graft and corruption in
the service.

It is well to remember that in administrative proceedings, technical rules of procedure and evidence are not strictly
applied. Administrative due process cannot be fully equated with due process in its strict judicial sense for it is
enough that the party is given the chance to be heard before the case against him is decided.9 This was afforded
to the petitioner in the case at bar.

On the second issue, there is a need to lay down the basic principles in administrative investigations. First, the
burden is on the complainant to prove by substantial evidence the allegations in his complaint.10 Substantial
evidence is more than a mere scintilla of evidence. It means such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion, even if other minds equally reasonable might conceivably opine
otherwise.11 Second, in reviewing administrative decisions of the executive branch of the government, the findings
of facts made therein are to be respected so long as they are supported by substantial evidence. Hence, it is not
for the reviewing court to weigh the conflicting evidence, determine the credibility of witnesses, or otherwise
substitute its judgment for that of the administrative agency with respect to the sufficiency of evidence. Third,
administrative decisions in matters within the executive jurisdiction can only be set aside on proof of gross abuse
of discretion, fraud, or error of law. These principles negate the power of the reviewing court to re-examine the
sufficiency of the evidence in an administrative case as if originally instituted therein, and do not authorize the
court to receive additional evidence that was not submitted to the administrative agency concerned. 12

In the case at bar, petitioner admitted that the subject property was in his name. However, he insisted that it was
his sister-in-law Estela Fajardo who paid for the property in installments. He submitted as proof thereof the checks
issued by Fajardo as payment for the amortizations of the property. His evidence, however, likewise fail to
convince us. First, the record is bereft of evidence to prove the alleged internal arrangement petitioner entered
into with Fajardo. He did not submit her affidavit to the investigating body nor did she testify before it regarding
her ownership of the Burbank property. Second, the checks allegedly issued by Fajardo to pay for the monthly
amortizations on the property have no evidentiary weight as Fajardos mere issuance thereof cannot prove
petitioners non-ownership of the property. Fajardo would naturally issue the checks as she was appointed by
petitioner as attorney-in-fact and the latter would naturally course through her the payments for the Burbank
property. Third, petitioners own evidence contradict his position. We cannot reconcile petitioners denial of
ownership of the property with the loan statement13 he adduced showing that he obtained a loan from the World
Savings and Loan Association for $195,000.00 on June 23, 1993 to finance the acquisition of the property. Then,
three (3) years later, on May 30, 1996, petitioner and his wife executed a Quitclaim Deed14 donating the Burbank
property to his sisters-in-law Estela and Rose Fajardo allegedly to prove his non-ownership of the property. It is
obvious that the Quitclaim Deed is a mere afterthought, having been executed only after a complaint for
unexplained wealth was lodged against petitioner. Why the Quitclaim Deed included Rose Fajardo when it was
only Estela Fajardo who allegedly owned the property was not explained on the record. Petitioners evidence
failed to clarify the issue as it produced, rather than settled, more questions.

Petitioner admitted that the Grant Deed over the property was in his name. He never denied the existence and
due execution of the Grant Deed and the Special Power of Attorney he conferred to Estela Fajardo with respect to
the acquisition of the Burbank property. With these admissions, the burden of proof was shifted to petitioner to
prove non-ownership of the property. He cannot now ask this Court to remand the case to the PCAGC for
reception of additional evidence as, in the absence of any errors of law, it is not within the Courts power to do so.
He had every opportunity to adduce his evidence before the PCAGC.
Lastly, we cannot sustain petitioners stance that the dismissal of similar charges against him before the
Ombudsman rendered the administrative case against him before the PCAGC moot and academic. To be sure,
the decision of the Ombudsman does not operate as res judicata in the PCAGC case subject of this review. The
doctrine of res judicata applies only to judicial or quasi-judicial proceedings, not to the exercise of administrative
powers.15 Petitioner was investigated by the Ombudsman for his possible criminal liability for the acquisition of the
Burbank property in violation of the Anti-Graft and Corrupt Practices Act and the Revised Penal Code. For the
same alleged misconduct, petitioner, as a presidential appointee, was investigated by the PCAGC by virtue of the
administrative power and control of the President over him. As the PCAGCs investigation of petitioner was
administrative in nature, the doctrine of res judicata finds no application in the case at bar.

Thus, we find that the Court of Appeals correctly sustained petitioners dismissal from service as the complaint
and its supporting documents established that he acquired a property whose value is disproportionate to his
income in the government service, unless he has other sources of income which he failed to reveal. His liability
was proved by substantial evidence.

IN VIEW WHEREOF, the petition is DISMISSED. No costs.

SO ORDERED.

A.C. No. 4634 September 24, 1997

JESUS CABARRUS, JR., complainant,


vs.
JOSE ANTONIO S. BERNAS, respondent.

TORRES, JR., J.:

On August 30, 1996, Mr. Jesus Cabarrus, Jr. filed an administrative complaint for disbarment against Atty. Jose
Antonio Bernas for alleged violations of Article 172 of the Revised Penal Code and Code of Professional
Responsibility. In his complaint-affidavit 1 dated August 12, 1996, complainant alleged as follows:

A. That on April 16, 1996, respondent Ramon B. Pascual, Jr., subscribed under oath before Marie
Lourdes T. Sia Bernas, a notary public in Makati City, wife of lawyer Jose Antonio Bernas, a
verification and certification of non-forum shopping which was appended to a complaint for
reconveyance of property and damages, denominated as Civil Case No. 65646, filed before the
Regional Trial Court in National Capital Region, RTC, which case was raffled to RTC Branch 159
in Pasig City. A photocopy of said complaint is hereto attached and marked as Annexex (sic) A,
A-1, A-3, A-4, A-5 and A-6;

B. That as basis for the instant complaint for falsification of public document, I am hereto quoting
verbatim, the test (sic) of Annex A-6, the verification and certification of non-forum shopping
which states:

Ramon B. Pascual, Jr., under oath, depose and states:

He is the plaintiff in this case, and certify that he cause the preparation of the foregoing pleading,
the content of which are true to his personal knowledge and that he has not commenced any
other action or proceeding involving the same issues in any court, including the Supreme Court,
the Court of Appeals, or any other tribunal or agency. If he should learn that a similar action of
(sic) proceeding has been filed or is pending before the Supreme Court or any other Tribunal
agency, he undertake to report to (sic) that fact within Five (5) days from notice to this notice (sic)
to this Honorable Court. Emphasis supplied.

C. That the cause of action relied upon by the respondent in Civil Case No. 65646 is fraud,
facilitated by forgery as gleaned from paragraphs 15, 16, and 22;

D. That contrary to the tenor, import and meanoing (sic) of the allegation under 1-B of the instant
complaint, respondent and his counsel Jose Antonio Bernas caused the preparation and filing of
a criminal complaint for falsification of a public document on April 11, 1996, (three days before the
filing of the aforecited Civil Case) at the AOED of the National Bureau of Investigation if (sic) Taff
(sic) Ave., a xerox copy of said complaint is hereto attached and marked as Annex "B".

D-1. That as stated in Annex "B", the gravaman of the affidavit complaint of the respondent is
forgery, the same legal issue in Civil Case No. 65646;

D-2. That as early as August 14, 1995, respondent counsel, Jose Antonio Bernas filed a written
complaint at the NBI for the same cause of action which was reiterated in another letter
submitting to the NBI standard specimen signatures dated October 1995, copies of said letter
complaint are hereto attached and marked as Annexes (sic) "C".
E. That respondent Ramon B. Pascual, Jr., on the basis of Annexes A, B, C, D, inclusive of
submarkings knowingly subverted and perverted the truth when he falsify certified (sic) and
verified under oath in the verification and certification of non-forum shopping, that:

He has not commenced any other action or proceeding involving the same
issues in any court, including the Supreme Court, the Court of Appeals, or any
other Tribunal or agency." Where verification-certification was placed under oath
and was conveniently notarized by the wife of the counsel of respondent in both
cases at Branch 159 of the RTC in Pasig and at the NBI, an agency within the
ambis (sic) and purview of the circulus (sic) of the Supreme Court prohibiting
forum shopping.

F. That Jose Antonio Bernas, the counsel on record of the respondents in Civil Case No. 65646 is
the same lawyer who instigated a criminal complaint at the NBI for forgery and respondents
themselves conspired and confabulated with each other in facilitating and insuring the open,
blatant and deliberate violation of Art. 172 of the Revised Penal Code which states:

Art. 172. Falsification by private individual and use of falsified documents. The
penalty of prision correccional in its medium and maximum periods and a fine of
not more than P5,000 pesos shall be imposed upon:

1. Any private individual who shall commit any of the falsifications enumerated in
the next preceding article in any public or official document or letter of exchanged
(sic) or any other kind of commercial document; and

2. Any person who, to the damage of a third party, or with the intent to cause
such damage, shall in any private document commit any of the acts of
falsification enumerated in the next preceding article.

Any person who shall knowingly introduce in evidence in any judicial proceeding
or to the damage of another or who, with the intent to cause such damage, shall
use any of the false documents embraced in the next preceding article, or in any
of the foregoing subdivisions of this article, shall be punished by the penalty next
lower in degree.

G. That Atty. Jose Antonio Bernas should be disbarred for having instigated, abetted and
facilitated the perversion and subversion of truth in the said verification and certification of non-
forum shopping. Contrary to Canon 1, Rule 1.01, 1.02, Canon 3, 3.01, Canon 10 of the Code of
Professional Responsibility for Lawyers, the pertinent provisions of which are herein below
quoted and a copy of said code is hereto attached and marked as Annex "E";

CANON 1. A. LAWYER SHALL UPHOLD THE CONSTITUTION, OBEY THE


LAWS OF THE LAND PROMOTE RESPECT FOR LAW AND LEGAL
PROCESSES.

Rule 1.01 A lawyer shall not engage in unlawful, dishonest,


immoral or decietful (sic) conduct.

Rule 1.02 A lawyer shall not counsel or abet activities simed


(sic) at defiance of the law or at lessening confidence in the legal
system.

CANON 3. A. LAWYER IN MAKING KNOWN HIS LEGAL SERVICES SHALL


USE ONLY TRUE, HONEST, FAIR, DIGNIFIED AND OBJECTIVE
INFORMATION OF (sic) STATEMENT OF FACTS.

Rule 3.01 A lawyer shall not use or permit the use of any
false, fraudulent, misleading, deceptive, undignified, self-
laudatory or unfair statement or claim regarding his qualified (sic)
or legal services.

CANON 10. A LAWYER OWES CANDOR, FAIRNESS AND GOOD FAITH TO


THE COURT.

In his Comment, 2 respondent Jose Antonio Bernas avers that he has not committed forum shopping because the
criminal action is not an action that involves the same issue as those in a civil action and both suits can exist
without constituting forum shopping so long as the civil aspect has not been prosecuted in the criminal case. He
emphasized that forum shopping only exists when identical reliefs are issued by the same parties in multiple fora.

In his Supplemental Comment, 3 respondent further contends that neither he or his client Pascual has
commenced any criminal action. Pascual merely requested the NBI to assist in the investigation or prosecution,
and left it to the NBI to determine whether the filing of an endorsement to the prosecutor, who would determine
probable cause, would be appropriate. It was only upon request of the NBI that he assisted Ramon Pascual in
drafting an affidavit-complaint for falsification of public documents against complainant. Likewise, respondent by
counsel reiterates that the letter transmitted to the NBI cannot constitute an action or proceeding because the
NBI's functions are merely investigatory and informational in nature. NBI has no prosecutorial functions or quasi-
judical powers and is incapable of granting relief or remedy. The NBI cannot be an agency contemplated by the
circular.

The core issue to be resolved here is whether respondent Atty. Bernas transgressed Circular No. 28-91, Revised
Circular No. 28-91, and Administrative Circular No. 04 - 94 on forum shopping.

After a careful scrutiny of the records, we find the administrative complaint bereft of merit and should be
dismissed.

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable
opinion (other than by appeal or certiorari) in another. Therefore, a party to a case resorts to forum shopping
because "by filing another petition involving the same essential facts and circumstances, . . . , respondents
approached two different fora in order to increase their chances of obtaining a favorable decision or action. 4 In
this case, there is no forum shopping to speak of. Atty. Bernas, as counsel of Mr. Pascual, Jr., merely requested
the assistance of the NBI to investigate the alleged fraud and forgery committed by Mr. Jesus Cabarrus. 5 The
filing of a civil case for reconveyance and damages before the Regional Trial Court of Pasig City does not
preclude respondent to institute a criminal action. The rule allows the filing of a civil case independently with the
criminal case without violating the circulars on forum shopping. It is scarcely necessary to add that Circular No.
28-91 must be so interpreted and applied as to achieve the purposes projected by the Supreme Court when it
promulgated that Circular. Circular No. 28-91 was designed to serve as an instrument to promote and facilitate
the orderly administration of justice and should not be interpreted with such absolute literalness as to subvert its
own ultimate and legitimate objective or the goal of all rules of procedure which is to achieve substantial justice
as expeditiously as possible. 6

Adjunct to this, Act No. 157 7, specifically section 1 hereof provides, viz:

Sec. 1. There is hereby created a Bureau of Investigation under the Department of Justice which
shall have the following functions:

(a) To undertake investigation of crimes and other offenses against the laws of the Philippines,
upon its initiative and as public interest may require;

(b) To render assistance, whenever properly requested in the investigation or detection of crimes
and other offenses;

(c) To act as a national clearing house of criminal and other informations for the benefit and use
of all prosecuting and law-enforcement entities of the Philippines, identification records of all
persons without criminal convictions, records of identifying marks, characteristics, and ownership
or possession of all firearms as well as of test bullets fired therefrom;

(d) To give technical aid to all prosecuting and law-enforcement officers and entities of the
Government as well as the courts that may request its services;

(e) To extend its services, whenever properly requested in the investigation of cases of
administrative or civil nature in which the Government is interested;

(f) To undertake the instruction and training of representative number of city and municipal peace
officers at the request of their respective superiors along effective methods of crime investigation
and detection in order to insure greater efficiency in the discharge of their duties;

(g) To establish and maintain an up-to-date scientific crime laboratory and to conduct researches
in furtherance of scientific knowledge in criminal investigation;

(h) To perform such other related functions as the Secretary of Justice may assign from time to
time.

Explicitly, the functions of the National Bureau of Investigations are merely investigatory and informational in
nature. It has no judicial or quasi-judicial powers and is incapable of granting any relief to a party. It cannot even
determine probable cause. It is an investigative agency whose findings are merely recommendatory. It undertakes
investigation of crimes upon its own initiative and as public welfare may require. It renders assistance when
requested in the investigation or detection of crimes which precisely what Atty. Bernas sought in order to
prosecute those persons responsible for defrauding his client.

The courts, tribunals and agencies referred to under Circular No. 28-91, Revised Circular No. 28-91 and
Administrative Circular No. 04-94 are those vested with judicial powers or quasi-judicial powers and those who
not only hear and determine controversies between adverse parties, but to make binding orders or judgments. As
succinctly put it by R.A. 157, the NBI is not performing judicial or quasi-judicial functions. The NBI cannot
therefore be among those forums contemplated by the Circular that can entertain an action or proceeding, or
even grant any relief, declaratory or otherwise.

WHEREFORE, premises considered, the instant complaint is hereby DISMISSED.

SO ORDERED.

G.R. No. 150732 August 31, 2004

TOMAS G. VELASQUEZ, Officer-In-Charge, Office of the School Superintendent, DECS Division of Abra;
MARIETTA BERSALONA, Chairperson, DECS Fact Finding Committee; EDUARDO RUPERTO, JOAQUIN
PILIEN and LUZ CURBI, Members, DECS Fact Finding Committee, petitioners
vs.
HELEN B. HERNANDEZ, respondent.

G.R. No. 151095 August 31, 2004

CIVIL SERVICE COMMISSION, petitioner,


vs.
HELEN B. HERNANDEZ, respondent.

DECISION

TINGA, J.:

Subject of the consolidated petitions is the Decision of the Court of Appeals in CA-G.R. SP No. 61081,
entitledHelen B. Hernandez v. Tomas G. Velasquez, promulgated on 07 November 2001.1 The
assailed Decision annulled and set aside the twin resolutions issued by the Civil Service Commission (CSC for
brevity), in Administrative Case No. 97-45 filed against respondent Hernandez. The CSC, in its Resolution No. 00-
1375 dated 13 June 2000, found respondent Hernandez guilty of dishonesty and grave misconduct and ordered
her dismissal from the service, with all the accessory penalties including her perpetual disqualification from
holding public office. In Resolution No. 00-2064 dated 07 September 2000, the CSC denied respondent's motion
for reconsideration of Resolution No. 00-1375.

Stripped of non-essentials, the following are the factual antecedents:

In a letter dated 25 September 1996, the Assistant Schools Division Superintendent of the DECS-CAR,
(Cordillera Administrative Region) sent a letter to petitioner (in G.R. No. 150732) Tomas G. Velasquez, informing
him of the alleged infractions committed by respondent, Helen B. Hernandez, such as soliciting, accepting, and
receiving sums of money, in exchange for transfer or promotion of complainant teachers. Acting on the letter,
petitioner Velasquez convened a fact-finding committee to determine the veracity of the alleged violations of
respondent and to render a formal report and recommendation.

On 26 September 1996, the Committee composed of members assigned at the DECS-Division of Abra,
summoned to a meeting the teachers who have grievances against respondent. Based on the sworn statements
of the teachers, namely: Elena Princena, Myrna Bayabos, Mildred Millare, Ofrina Benabese, Emilia Beralde, Ruby
Bringas, Regina Potolin, spouses Ernesto Callena, Jr. and Ma. Louisa Callena, Irene Bermudez, Francisco
Castillo, Elizabeth Castillo, Maribel Medrano, Benigna Bulda, Irenea Viado, Cecilia Turqueza, Catherine Badere,
Rosalinda Bilgera, Nardita Tuscano, Henry Bisquera, Melba Linggayo, and Maritess Navarro, it appears that
respondent demanded and/or received money in various amounts from the teachers in consideration of their
appointment, promotion, and transfer from one school to another.

On 15 November 1996, the Committee issued an Investigation Report recommending the filing of administrative
and criminal complaints against respondent. On 14 March 1997, a formal charge for Grave Misconduct, Conduct
Grossly Prejudicial to the Best Interest of the Service, Abuse of Authority, and Violation of Section 22 (k) Omnibus
Rules Implementing Book V of E.O. 292 and other related laws was filed against respondent.

On 24 March 1997, respondent filed her Answer to the charges. In the main, she contended that the charges are
brazen fabrications and falsehoods made by parties with ulterior motives which are designed to harass her in a
systematic campaign to discredit her. Respondent likewise alleged that the preparation and taking of the
statements of the supposed 23 counts of irregularity leveled against her were attended by coercion and fraud.

Meanwhile, the Office of the Provincial Prosecutor of Abra issued a Resolution in I.S. No. 97-003 entitled, "People
of the Philippines v. Helen Hernandez, et.al." This Resolution, which arose from the sworn complaints filed by the
complaining teachers, indicted respondent and a certain Luzviminda de la Cruz for violation of Section 3(b),
Republic Act No. 3019 otherwise known as the Anti-Graft and Corrupt Practices Act. The Resolution of the
Provincial Prosecutor was affirmed with modification by the Office of the Deputy Ombudsman for Luzon in
itsReview Action dated 6 November 1997. Under the modified indictment, respondent and dela Cruz were
charged with direct bribery. However, upon motion filed by respondent and her co-accused, the Office of the
Deputy Ombudsman in its Order dated 24 February 1998, reconsidered and set aside its Review Action dated 6
November 1997, and ordered the withdrawal of Informations for direct bribery filed against respondent and de la
Cruz.

After due proceedings, the CSC issued Resolution No. 00-1375, dated 13 June 2000, finding respondent guilty of
the charges against her and ordering her dismissal from the service. The motion for reconsideration filed by
respondent was denied by the CSC in its Resolution No. 00-2064 dated 7 September 2000.

Respondent appealed to the Court of Appeals raising the following issues:

1) Whether or not the CSC erred in assuming jurisdiction and/or in rendering judgment adverse to her;

2) Whether or not the CSC erred in rendering judgment against her in violation of her right to due process
in administrative proceedings;

3) Whether or not the CSC erred in its appreciation of the evidence on record and;

4) Whether or not the CSC erred in imposing the penalty of dismissal.2

The appellate court, in its now assailed Decision, reversed the resolutions of the CSC. It opined that when
petitioners filed a formal charge against respondent, it was incumbent upon them to inform the Civil Service
Commission that another case was filed before the Office of the Deputy Ombudsman for Luzon considering that
the facts and circumstances from which both complaints stem are the same. Citing Section 13 (1) of Article XI of
the 1987 Constitution, and Section 19 and 21 of Republic Act No. 6770, the appellate court added that the CSC
and the Office of the Ombudsman have concurrent original jurisdiction over administrative cases filed against any
government employee. Thus, it ruled that the effects of res judicata or litis pendentia may not be avoided by
varying the designation of the parties, changing the form of the action, or adopting a different mode of presenting
one's case.

Anent the issue of violation of respondent's right to due process, the appellate court stressed that it is not enough
that the twin requisites of notice and hearing be present. It is important that the tribunal hearing the case must be
unbiased; indeed, if the government official or employee under investigation is not afforded the opportunity to
present his case before a fair, independent, and impartial tribunal, the hearing would be futile. Considering that
the composition of the fact-finding Committee is in question, the appellate court concluded that it cannot properly
be said that there was a fair and impartial hearing of the petitioner's case.

The appellate court also ruled that petitioner failed to discharge the burden of proving by substantial evidence the
averments of the complaint because it appears that some affiants who executed sworn statements to support the
charges against respondent later retracted their statements and executed new statements, alleging that they were
merely induced to testify against respondent. It also noted that some of the complaining teachers even failed to
appear in the investigation to confirm their respective sworn statements. The appellate court, therefore, annulled
and set aside the Resolutions of the CSC and ordered the payment of backwages to respondent.

Separate appeals via petition for review were filed before this Court by petitioner Velasquez, in his capacity as
Officer-in Charge, Office of the School Superintendent, DECS-Division of Abra (G.R. No.150732) and the Civil
Service Commission (G.R. No. 151095), assailing the decision of the appellate court. The two petitions were
ordered consolidated in a Resolution of this Court dated 25 June 2002. G.R. No. 150732, assigned to the Third
Division of this Court, was ordered consolidated with G.R. No. 151095, an En Banc case even if the first
mentioned petition has a lower docket number considering that both cases involve resolutions of the Civil Service
Commission.

The issues in both petitions are substantially the same.

In G.R. No. 150732, petitioner raised the following issues:

I.

THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE FORMAL CHARGE WHICH
WAS FILED BY THE CSC AGAINST THE RESPONDENT SHOULD CONTAIN A CERTIFICATION OF
NON-FORUM SHOPPING.

II.

THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT RESPONDENT'S RIGHT TO


ADMINISTRATIVE DUE PROCESS WAS VIOLATED.
III.

THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE EVIDENCE AGAINST THE
RESPONDENT WAS INSUFFICIENT.

IV.

THE COURT OF APPEALS GRAVELY ERRED IN ORDERING THE REINSTATEMENT OF THE


RESPONDENT AND THE PAYMENT OF HER BACKWAGES.3

On the other hand, the following issues were raised by the CSC in G.R. No. 151095:

I.

WHETHER OR NOT THE FORMAL CHARGE SHOULD CONTAIN A CERTIFICATE AGAINST FORUM
SHOPPING;

II.

WHETHER OR NOT THE CSC ERRED IN RENDERING JUDGMENT AGAINST RESPONDENT IN


VIOLATION OF THE LATTER'S RIGHT TO DUE PROCESS IN ADMINISTRATIVE PROCEEDINGS;

III.

WHETHER OR NOT THE CSC ERRED IN ITS APPRECIATION OF THE EVIDENCE ON RECORD AND
FINDING RESPONDENT GUILTY OF THE OFFENSES CHARGED.4

In both cases, petitioners asseverate that under Section 21 of the Uniform Rules of Procedure in the Conduct of
Administrative Investigations (CSC Resolution No. 99-1936, dated 31 August 1999), it is the complaint and the
not the formal charge which should contain a certification of non-forum shopping. The Office of the Solicitor
General strongly argues that the formal charge was filed, not by the complaining teachers or the DECS Fact-
Finding Committee, but by the CSC-CAR and it would thus be unnecessary to require a certification of non-forum
shopping considering that the CSC is the sole arbiter of all contests relating to the Civil Service and it would be
absurd for the CSC-CAR to file the same administrative case against respondent in another forum. The OSG
adds that there was no need for the CSC-CAR to inform the CSC about the criminal action for Direct Bribery in
OMB-1-96-2757 because the said action was not filed by the CSC-CAR.

The CSC on the other hand, argues that what was filed with the Office of the Ombudsman is a criminal case and
while the facts therein may be similar to the pending administrative case, the Office of the Ombudsman and the
CSC will not rule on the same cause of action or grant the same relief. According to the CSC, there is no
possibility of having conflicting decisions as the two cases are distinct from each other.

Petitioners dispute the Court of Appeals' finding that respondent's right to administrative due process was
violated. Respondent can hardly be said to have been deprived of due process as she was given the chance to
answer the charges, to submit countervailing evidence, and to cross-examine the witnesses against her. The
mere fact that respondent questioned the impartiality of the fact finding committee will not automatically result in a
denial of due process because what matters is that respondent had actively participated in the proceedings
against her. Petitioners add that respondent's culpability was not based solely on the report of the fact-finding
committee, but also on the evidence submitted by the respondent which, unfortunately, was found wanting.

Succinctly, petitioners argue that the appellate court erred in holding that the evidence they presented to establish
the culpability of the respondent is insufficient. The finding is based merely on the retraction of the sworn
statements of some three teachers and the failure of three others to appear during the formal investigation.
Petitioners stress that a majority of the complainant teachers remained consistent in their claim that respondent
actually and directly received from them various amounts of money in exchange for their appointment, promotion,
or transfer. They add that the dismissal of the criminal action against respondent in OMB-1-96-2757 cannot be
treated as a bar to the administrative case primarily because administrative liability is distinct from penal liability.
In conclusion, petitioners fault the appellate court for reversing the factual findings of the CSC, ordering the
reinstatement of respondent, and awarding backwages in her favor.

Upon the other hand, respondent would have the Court sustain the Decision of the appellate court exonerating
her of all the charges in the administrative case. Citing CSC Resolution No. 95-3099, respondent argues that
even on the assumption that a certificate of non-forum shopping is not necessary in the formal charge, petitioners
nevertheless failed to show that the complaint filed by the teachers contained the required certification of non-
forum shopping. She theorizes that since it is the CSC-CAR which filed the formal charge against her, it would be
difficult to imagine that the CSC will make a turn around and take a position contrary to its earlier findings that
a prima faciecase against her exists. Respondent insists that to allow the CSC to exercise jurisdiction over the
case would be similar to allowing one person to act as prosecutor and judge at the same time.

In support of the appellate court's Decision, respondent maintains that it correctly ruled that there was no fair and
impartial hearing of her case before the fact-finding committee. She contends that the integrity of the fact-finding
committee is questionable considering that the chairperson of the committee is a relative of one of the
complainant teachers, Ms. Immaculada Bringas, who incidentally would be the next in rank if she is ousted from
her position. Finally, she adds that petitioners are urging this Court to review the factual findings of the appellate
court which cannot be done in the instant petition which must raise only questions of law.

The Court rules for the petitioners.

CSC Resolution No. 95-3099 dated 9 May 1995 (Further Amended by CSC Resolution No. 99-1936, dated 31
August 1999), amending Section 4 of CSC Resolution No. 94-0521, Series of 1994, provides:

"Section 4. Complaint in Writing and Under Oath - No complaint against a civil servant shall be given due
course, unless the same is in writing and under oath.

The complaint should be written in a clear, simple and concise language and in a systematic manner as
to apprise the civil servant concerned of the nature and cause of the accusation against him and to
enable him to intelligently prepare his defense or answer.

The complaint shall also contain the following:

(a) xxx xxx xxx xxx

(b) xxx xxx xxx xxx

(c) xxx xxx xxx xxx

(d) a statement that no other administrative action or complaint against the same party involving
the same acts or omissions and issues, has been filed before another agency or administrative
tribunal. In the absence of any one of the requirements therein stated, the complaint shall be
dismissed. (Underscoring supplied)

The appellate court placed much reliance on the above-quoted provision of CSC Resolution No. 95-3099 in
relation to Section 5, Rule 7 of the 1997 Rules of Civil Procedure, when it ruled that it was incumbent upon
petitioner (in G.R. No. 150732) to inform that another case was filed before the Office of the Deputy Ombudsman
for Luzon. Strikingly, the appellate court failed to state in its Decision the person or entity which petitioner must
notify of the pending case with the Ombudsman. The appellate court then cited a litany of cases on forum
shopping and concluded that petitioner's failure to state in the formal charge that there is no other action or
complaint pending against herein respondent constitutes a violation of the rule against forum shopping that
merited the dismissal of the complaint. It ratiocinated that since the facts and circumstances from which both
complaints stem from are the same, petitioners should have attached in their complaint the certificate of non-
forum shopping. Inconsistently, however, the appellate court was quick to add that the cause of action in the CSC
and the Office of the Deputy Ombudsman are distinct; nevertheless, it said that in order to obviate the risk of
violating the rule, petitioners should have attached the certification against non-forum shopping.

The Court finds the above disquisition unsound.

Forum shopping consists of filing of multiple suits involving the same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a favorable judgment. 5 It may also consist in a party
against whom an adverse judgment has been rendered in one forum, seeking another and possibly favorable
opinion in another forum other than by appeal or special civil action of certiorari. 6

The most important factor in determining the existence of forum shopping is the vexation caused the courts and
parties-litigants by a party who asks different courts to rule on the same or related causes or grant the same or
substantially the same reliefs. A party, however, cannot be said to have sought to improve his chances of
obtaining a favorable decision or action where no unfavorable decision has ever been rendered against him in
any of the cases he has brought before the courts.7

In not a few cases, this Court has laid down the yardstick to determine whether a party violated the rule against
forum shopping as where the elements of litis pendentia are present or where a final judgment in one case will
amount to res judicata in the other.8 Stated differently, there must be between the two cases (a) identity of parties;
(b) identity of rights asserted and reliefs prayed for, the relief being founded on the same facts; and (c) that the
identity of the two preceding particulars is such that any judgment rendered in the other action will, regardless of
which party is successful, amount to res judicata in the action under consideration.9

It is significant to note that the action filed before the CSC-CAR is administrative in nature, dealing as it does with
the proper administrative liability, if any, which may have been incurred by respondent for the commission of the
acts complained of. In stark contrast, the case filed before the Office of the Deputy Ombudsman for Luzon, which
incidentally was not initiated by herein petitioners but by the complainant teachers, deals with the criminal
accountability of the respondent for violation of the Anti-Graft and Corrupt Practices Act. Unmistakably, the rule on
forum shopping would find no proper application since the two cases although based on the same essential facts
and circumstances do not raise identical causes of action and issues. 10 It would, therefore, be absurd to require
the certification of forum shopping to be attached to the formal charge filed before the CSC, for the evil sought to
be curbed by the proscription against forum shopping is simply not extant in the instant case.

On the issue of her having been denied administrative due process, the Court likewise finds respondent's claim
untenable.

The essence of due process is that a party be afforded a reasonable opportunity to be heard and to present any
evidence he may have in support of his defense or simply an opportunity to be heard;11 or as applied to
administrative proceedings, an opportunity to seek a reconsideration of the action of ruling complained of. 12 One
may be heard, not solely by verbal presentation but also, and perhaps even many times more creditably than oral
argument, through pleadings. Technical rules of procedure and evidence are not even strictly applied to
administrative proceedings, and administrative due process cannot be fully equated to due process in its strict
judicial sense.13

In fact in Pefianco v. Moral,14 the Court had the occasion to rule that a respondent in an administrative case is not
entitled to be informed of the findings and recommendations of any investigating committee created to inquire into
charges filed against him he is entitled only to the administrative decision based on substantial evidence made
of record, and a reasonable opportunity to meet the charges and the evidence presented against him during the
hearing of the investigation committee. It is the administrative resolution, not the investigation report, which should
be the basis of any further remedies that the losing party in an administrative case might wish to pursue.

Respondent had been amply accorded the opportunity to be heard. She was required to answer the formal
charge against her and given the chance to present evidence in her behalf. She actively participated in the
proceedings and even cross-examined the witnesses against her. Clearly, based on the above jurisprudential
pronouncements the appellate court's finding that respondent was denied due process is utterly without basis.

Administrative proceedings are governed by the "substantial evidence rule."15 A finding of guilt in an
administrative case would have to be sustained for as long as it is supported by substantial evidence that the
respondent has committed the acts stated in the complaint or formal charge. As defined, substantial evidence is
such relevant evidence as a reasonable mind may accept as adequate to support a conclusion. 16 This is different
from the quantum of proof required in criminal proceedings which necessitates a finding of guilt of the accused
beyond reasonable doubt. The Ombudsman, in ordering the withdrawal of the criminal complaints against
respondent was simply saying that there is no evidence sufficient to establish her guilt beyond reasonable doubt
which is a conditionsine qua non for conviction. Ergo, the dismissal of the criminal case will not foreclose
administrative action against respondent.

In the instant case, this Court is of the view that the sworn complaints of the twenty remaining complainants
coupled with their positive testimonies in the proceedings below, more than adequately complies with the
standard of proof required in administrative cases. The desistance executed by three (3) out of the twenty-
three(23) original complainants is of no moment since administrative actions cannot be made to depend upon the
will of every complainant who may, for one reason or another, condone a detestable act. 17

All told, the Court holds that respondent's guilt in the administrative case has been sufficiently established and
pursuant to existing Civil Service Rules and Regulations,18 her dismissal from the service is warranted.

WHEREFORE, the instant consolidated petitions are hereby GRANTED. The assailed Decision of the Court of
Appeals is hereby REVERSED and SET ASIDE. Costs against the respondent.

SO ORDERED.

G.R. No. 172700 July 23, 2010

OFFICE OF THE OMBUDSMAN, Petitioner,


vs.
ROLSON RODRIGUEZ, Respondent.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the 8 May 2006 Decision2 of the Court of Appeals in CA-G.R. SP No. 00528 setting
aside for lack of jurisdiction the 21 September 2004 Decision 3 of the Ombudsman (Visayas) in OMB-V-A-03-0511-
H.

The Antecedent Facts

On 26 August 2003, the Ombudsman in Visayas received a complaint 4 for abuse of authority, dishonesty,
oppression, misconduct in office, and neglect of duty against Rolson Rodriguez, punong barangay in Brgy. Sto.
Rosario, Binalbagan, Negros Occidental. On 1 September 2003, the sangguniang bayan of Binalbagan, Negros
Occidental, through vice-mayor Jose G. Yulo, received a similar complaint5 against Rodriguez for abuse of
authority, dishonesty, oppression, misconduct in office, and neglect of duty.

In its 8 September 2003 notice,6 the municipal vice-mayor required Rodriguez to submit his answer within 15 days
from receipt of the notice. On 23 September 2003, Rodriguez filed a motion to dismiss 7 the case filed in
thesangguniang bayan on the ground that the allegations in the complaint were without factual basis and did not
constitute any violation of law. In a compliance8 dated 22 October 2003, Rodriguez alleged complainants violated
the rule against forum shopping.

Meanwhile, in its 10 September 2003 order,9 the Ombudsman required Rodriguez to file his answer. Rodriguez
filed on 24 October 2003 a motion to dismiss10 the case filed in the Ombudsman on the grounds of litis
pendentia and forum shopping. He alleged that the sangguniang bayan had already acquired jurisdiction over his
person as early as 8 September 2003.

The municipal vice-mayor set the case for hearing on 3 October 2003.11 Since complainants had no counsel, the
hearing was reset to a later date. When the case was called again for hearing, complainants counsel manifested
that complainants would like to withdraw the administrative complaint filed in the sangguniang bayan. On 29
October 2003, complainants filed a motion12 to withdraw the complaint lodged in the sangguniang bayan on
theground that they wanted to prioritize the complaint filed in the Ombudsman. Rodriguez filed a
comment13 praying that the complaint be dismissed on the ground of forum shopping, not on the ground
complainants stated. In their opposition,14 complainants admitted they violated the rule against forum shopping
and claimed they filed the complaint in the sangguniang bayan without the assistance of counsel. In his 4
November 2003 Resolution,15 the municipal vice-mayor dismissed the case filed in the sangguniang bayan.

In its 29 January 2004 order,16 the Ombudsman directed both parties to file their respective verified position
papers. Rodriguez moved for reconsideration of the order citing the pendency of his motion to dismiss.17 In its 11
March 2004 order,18 the Ombudsman stated that a motion to dismiss was a prohibited pleading under Section 5
(g) Rule III of Administrative Order No. 17. The Ombudsman reiterated its order for Rodriguez to file his position
paper.

In his position paper, Rodriguez insisted that the sangguniang bayan still continued to exercise jurisdiction over
the complaint filed against him. He claimed he had not received any resolution or decision dismissing the
complaint filed in the sangguniang bayan. In reply,19 complainants maintained there was no more complaint
pending in thesangguniang bayan since the latter had granted their motion to withdraw the complaint. In a
rejoinder,20 Rodriguez averred that the sangguniang bayan resolution dismissing the case filed against him was
not valid because only the vice-mayor signed it.

The Ruling of the Ombudsman

In its 21 September 2004 Decision,21 the Ombudsman found Rodriguez guilty of dishonesty and oppression. It
imposed on Rodriguez the penalty of dismissal from the service with forfeiture of all benefits, disqualification to
hold public office, and forfeiture of civil service eligibilities. Rodriguez filed a motion for reconsideration. 22 In its 12
January 2005 Order,23 the Ombudsman denied the motion for reconsideration. In its 8 March 2005 Order, 24 the
Ombudsman directed the mayor of Binalbagan, Negros Occidental to implement the penalty of dismissal against
Rodriguez.

Rodriguez filed in the Court of Appeals a petition for review with prayer for the issuance of a temporary restraining
order.

The Ruling of the Court of Appeals

In its 8 May 2006 Decision,25 the Court of Appeals set aside for lack of jurisdiction the Decision of the
Ombudsman and directed the sangguniang bayan to proceed with the hearing on the administrative case. The
appellate court reasoned that the sangguniang bayan had acquired primary jurisdiction over the person of
Rodriguez to the exclusion of the Ombudsman. The Court of Appeals relied on Section 4, Rule 46 of the Rules of
Court, to wit:

Sec. 4. Jurisdiction over person of respondent, how acquired. The court shall acquire jurisdiction over the
person of the respondent by the service on him of its order or resolution indicating its initial action on the petition
or by his voluntary submission to such jurisdiction.

The appellate court noted that the sangguniang bayan served on Rodriguez a notice, requiring the latter to file an
answer, on 8 September 2003 while the Ombudsman did so two days later or on 10 September 2003.

Petitioner Ombudsman contends that upon the filing of a complaint before a body vested with jurisdiction, that
body has taken cognizance of the complaint. Petitioner cites Blacks Law Dictionary in defining what "to take
cognizance" means to wit, "to acknowledge or exercise jurisdiction." Petitioner points out it had taken cognizance
of the complaint against Rodriguez before a similar complaint was filed in the sangguniang bayan against the
same respondent. Petitioner maintains summons or notices do not operate to vest in the disciplining body
jurisdiction over the person of the respondent in an administrative case. Petitioner concludes that consistent with
the rule on concurrent jurisdiction, the Ombudsmans exercise of jurisdiction should be to the exclusion of
the sangguniang bayan.
Private respondent Rolson Rodriguez counters that when a competent body has acquired jurisdiction over a
complaint and the person of the respondent, other bodies are excluded from exercising jurisdiction over the same
complaint. He cites Article 124 of the Implementing Rules and Regulations of Republic Act No. 7160, 26 which
provides that an elective official may be removed from office by order of the proper court or the disciplining
authority whichever first acquires jurisdiction to the exclusion of the other. Private respondent insists
the sangguniang bayanfirst acquired jurisdiction over the complaint and his person. He argues jurisdiction over
the person of a respondent in an administrative complaint is acquired by the service of summons or other
compulsory processes. Private respondent stresses complainants violated the rule against forum shopping when
they filed identical complaints in two disciplining authorities exercising concurrent jurisdiction.

The Issues

The issues submitted for resolution are (1) whether complainants violated the rule against forum shopping when
they filed in the Ombudsman and the sangguniang bayan identical complaints against Rodriguez; and (2) whether
it was the sangguniang bayan or the Ombudsman that first acquired jurisdiction.

The Courts Ruling

The petition has merit.

Paragraph 1, Section 13 of Article XI of the Constitution provides:

Sec. 13. The Ombudsman shall have the following powers, functions, and duties:

(1) Investigate on its own, or on complaint by any person, any act or omission of any public official, employee,
office, or agency, when such act or omission appears to be illegal, unjust, improper, or inefficient.

Section 15 of Republic Act No. 6770, otherwise known as the Ombudsman Act of 1989, states:

Sec. 15. Powers, Functions, and Duties. The Ombudsman shall have the following powers, functions, and
duties:

(1) Investigate and prosecute on its own or on complaint by any person, any act or omission of any public officer
or employee, office or agency, when such act or omission appears to be illegal, unjust, improper, or inefficient. It
has primary jurisdiction over cases cognizable by the Sandiganbayan and, in the exercise of this primary
jurisdiction, it may take over, at any stage, from any investigatory agency of Government, the investigations of
such cases.

The primary jurisdiction of the Ombudsman to investigate any act or omission of a public officer or employee
applies only in cases cognizable by the Sandiganbayan. In cases cognizable by regular courts, the Ombudsman
has concurrent jurisdiction with other investigative agencies of government. 27 Republic Act No. 8249, otherwise
known as An Act Further Defining the Jurisdiction of the Sandiganbayan, limits the cases that are cognizable by
theSandiganbayan to public officials occupying positions corresponding to salary grade 27 and higher.
TheSandiganbayan has no jurisdiction over private respondent who, as punong barangay, is occupying a position
corresponding to salary grade 14 under Republic Act No. 6758, otherwise known as the Compensation and
Position Classification Act of 1989.28

Under Republic Act No. 7160, otherwise known as the Local Government Code, the sangguniang
panlungsod orsangguniang bayan has disciplinary authority over any elective barangay official, to wit:

SEC. 61. Form and Filing of Administrative Complaints. A verified complaint against any erring elective official
shall be prepared as follows:

xxxx

(c) A complaint against any elective barangay official shall be filed before the sangguniang
panlungsod orsangguniang bayan concerned whose decision shall be final and executory.

Clearly, the Ombudsman has concurrent jurisdiction with the sangguniang bayan over administrative cases
against elective barangay officials occupying positions below salary grade 27, such as private respondent in this
case.

The facts in the present case are analogous to those in Laxina, Sr. v. Ombudsman,29 which likewise involved
identical administrative complaints filed in both the Ombudsman and the sangguniang panlungsod against
a punong barangay for grave misconduct. The Court held therein that the rule against forum shopping applied
only to judicial cases or proceedings, not to administrative cases. 30 Thus, even if complainants filed in the
Ombudsman and thesangguniang bayan identical complaints against private respondent, they did not violate the
rule against forum shopping because their complaint was in the nature of an administrative case.1avvphi1

In administrative cases involving the concurrent jurisdiction of two or more disciplining authorities, the body in
which the complaint is filed first, and which opts to take cognizance of the case, acquires jurisdiction to the
exclusion of other tribunals exercising concurrent jurisdiction.31 In this case, since the complaint was filed first in
the Ombudsman, and the Ombudsman opted to assume jurisdiction over the complaint, the Ombudsmans
exercise of jurisdiction is to the exclusion of the sangguniang bayan exercising concurrent jurisdiction.

It is a hornbook rule that jurisdiction is a matter of law. Jurisdiction, once acquired, is not lost upon the instance of
the parties but continues until the case is terminated.32 When herein complainants first filed the complaint in the
Ombudsman, jurisdiction was already vested on the latter. Jurisdiction could no longer be transferred to
thesangguniang bayan by virtue of a subsequent complaint filed by the same complainants.

As a final note, under Section 60 of the Local Government Code, the sangguniang bayan has no power to remove
an elective barangay official. Apart from the Ombudsman, only a proper court may do so.33 Unlike
the sangguniang bayan, the powers of the Ombudsman are not merely recommendatory. The Ombudsman is
clothed with authority to directly remove34 an erring public official other than members of Congress and the
Judiciary who may be removed only by impeachment.35

WHEREFORE, we GRANT the petition. We SET ASIDE the 8 May 2006 Decision of the Court of Appeals in CA-
G.R. SP No. 00528. We AFFIRM the 21 September 2004 Decision of the Ombudsman (Visayas) in OMB-V-A-03-
0511-H.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 112024 January 28, 1999

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF
APPEALS,respondent.

QUISUMBING, J.:

This petition for review assails the Resolution 1 of the Court of Appeals dated September 22, 1993 affirming the
Decision2 and a Resolution 3 of the Court Of Tax Appeals which denied the claims of the petitioner for tax refund
and tax credits, anddisposing as follows:

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

SO ORDERED. 4

The Court of Tax Appeals earlier ruled as follows:

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

SO ORDERED. 5

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

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

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-
ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no
tax payable for the year.

But during these two years, PBCom earned rental income from leased properties. The lessees withheld and
remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of
P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.

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

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

The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for 1985 and
1986, filed before the Court of Tax Appeals, are as follows:

1985 1986

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)

Tax Due NIL NIL

Quarterly tax.

Payments Made 5,016,954.00

Tax Withheld at Source 282,795.50 234,077.69

Excess Tax Payments P5,299,749.50* P234,077.69

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

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

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

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

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

The issues raised by the petitioner are:

I. Whether taxpayer PBCom which relied in good faith on the formal


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

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

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

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

REVENUE MEMORANDUM CIRCULAR NO. 7-85

SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF


EXCESS CORPORATE INCOME TAX RESULTING FROM THE
FILING OF THE FINAL ADJUSTMENT RETURN.

TO: All Internal Revenue Officers and Others Concerned.

Sec. 85 And 86 Of the National Internal Revenue Code provide:

xxx xxx xxx

The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77
which provide;

xxx xxx xxx

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

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

In the above provision of the Regulations the corporation may request for the refund of the
overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate
annual income tax returns showing refundable amounts arising from overpaid quarterly income
taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976,
containing the procedure in processing said returns. Under these procedures, the returns are
merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the
return. After which, the refund or tax credit is granted, and, this procedure was adopted to
facilitate immediate action on cases like this.

In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in
order to preserve the right to claim refund or tax credit the two year period. As already stated,
actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax
returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income
tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of
payment considering that it is an obligation created by law (Article 1144 of the Civil
Code). 9 (Emphasis supplied.)

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

Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rules as
follows:

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

a). where the taxpayer deliberately misstates or omits material


facts from his return or in any document required of him by the
Bureau of Internal Revenue;

b). where the facts subsequently gathered by the Bureau of


Internal Revenue are materially different from the facts on which
the ruling is based;
c). where the taxpayer acted in bad faith.

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

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

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

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

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

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

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

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

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

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

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

It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of
more specific and less general interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous. 20 Thus, courts will not
countenance administrative issuances that override, instead of remaining consistent and in harmony with the law
they seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and regulations issued by administrative officials to
implement a law cannot go beyond the terms and provisions of the latter.

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

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

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

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

On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTA's decision
denying its claim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation, without proof, that
PBCom availed of the automatic tax credit in 1987.

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

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

As stated by respondent Court of Appeals:

Finally, as to the claimed refund of income tax over-paid in 1986 the Court of Tax Appeals,
after examining the adjusted final corporate annual income tax return for taxable year 1986, found
out that petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the
fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by
the CTA in concluding that petitioner had indeed availed of and applied the automatic tax credit to
the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund
and tax credit are alternative. 30
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in
its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987 annual
corporate tax return of the petitioner was not offered as evidence to contovert said fact. Thus, we are bound by
the findings of fact by respondent courts, there being no showing of gross error or abuse on their part to disturb
our reliance thereon. 31

WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals appealed from is
AFFIRMED, with COSTS against the petitioner.1wphi1.nt

SO ORDERED.

G.R. No. 127685 July 23, 1998

BLAS F. OPLE, petitioner,

vs.

RUBEN D. TORRES, ALEXANDER AGUIRRE, HECTOR VILLANUEVA, CIELITO HABITO, ROBERT


BARBERS, CARMENCITA REODICA, CESAR SARINO, RENATO VALENCIA, TOMAS P. AFRICA, HEAD OF
THE NATIONAL COMPUTER CENTER and CHAIRMAN OF THE COMMISSION ON AUDIT, respondents.

PUNO, J.:

The petition at bar is a commendable effort on the part of Senator Blas F. Ople to prevent the shrinking of the
right to privacy, which the revered Mr. Justice Brandeis considered as "the most comprehensive of rights and the
right most valued by civilized men." 1 Petitioner Ople prays that we invalidate Administrative Order No. 308
entitled "Adoption of a National Computerized Identification Reference System" on two important constitutional
grounds, viz: one, it is a usurpation of the power of Congress to legislate, and two, it impermissibly intrudes on our
citizenry's protected zone of privacy. We grant the petition for the rights sought to be vindicated by the petitioner
need stronger barriers against further erosion.

A.O. No. 308 was issued by President Fidel V. Ramos On December 12, 1996 and reads as follows:

ADOPTION OF A NATIONAL COMPUTERIZED

IDENTIFICATION REFERENCE SYSTEM

WHEREAS, there is a need to provide Filipino citizens and foreign residents with the facility to
conveniently transact business with basic service and social security providers and other
government instrumentalities;

WHEREAS, this will require a computerized system to properly and efficiently identify persons
seeking basic services on social security and reduce, if not totally eradicate fraudulent
transactions and misrepresentations;

WHEREAS, a concerted and collaborative effort among the various basic services and social
security providing agencies and other government intrumentalities is required to achieve such a
system;

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue
of the powers vested in me by law, do hereby direct the following:

Sec. 1. Establishment of a National Compoterized Identification Reference System. A


decentralized Identification Reference System among the key basic services and social security
providers is hereby established.

Sec. 2. Inter-Agency Coordinating Committee. An Inter-Agency Coordinating Committee (IACC)


to draw-up the implementing guidelines and oversee the implementation of the System is hereby
created, chaired by the Executive Secretary, with the following as members:

Head, Presidential Management Staff

Secretary, National Economic Development Authority

Secretary, Department of the Interior and Local Government

Secretary, Department of Health


Administrator, Government Service Insurance System,

Administrator, Social Security System,

Administrator, National Statistics Office

Managing Director, National Computer Center.

Sec. 3. Secretariat. The National Computer Center (NCC) is hereby designated as secretariat to
the IACC and as such shall provide administrative and technical support to the IACC.

Sec. 4. Linkage Among Agencies. The Population Reference Number (PRN) generated by the
NSO shall serve as the common reference number to establish a linkage among concerned
agencies. The IACC Secretariat shall coordinate with the different Social Security and Services
Agencies to establish the standards in the use of Biometrics Technology and in computer
application designs of their respective systems.

Sec. 5. Conduct of Information Dissemination Campaign. The Office of the Press Secretary, in
coordination with the National Statistics Office, the GSIS and SSS as lead agencies and other
concerned agencies shall undertake a massive tri-media information dissemination campaign to
educate and raise public awareness on the importance and use of the PRN and the Social
Security Identification Reference.

Sec. 6. Funding. The funds necessary for the implementation of the system shall be sourced from
the respective budgets of the concerned agencies.

Sec. 7. Submission of Regular Reports. The NSO, GSIS and SSS shall submit regular reports to
the Office of the President through the IACC, on the status of implementation of this undertaking.

Sec. 8. Effectivity. This Administrative Order shall take effect immediately.

DONE in the City of Manila, this 12th day of December in the year of Our Lord, Nineteen Hundred
and Ninety-Six.

(SGD.) FIDEL V. RAMOS

A.O. No. 308 was published in four newspapers of general circulation on January 22, 1997 and January 23, 1997.
On January 24, 1997, petitioner filed the instant petition against respondents, then Executive Secretary Ruben
Torres and the heads of the government agencies, who as members of the Inter-Agency Coordinating Committee,
are charged with the implementation of A.O. No. 308. On April 8, 1997, we issued a temporary restraining order
enjoining its implementation.

Petitioner contends:

A. THE ESTABLISNMENT OF A NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE


SYSTEM REQUIRES A LEGISLATIVE ACT. THE ISSUANCE OF A.O. NO. 308 BY THE
PRESIDENT OF THE REPUBLIC OF THE PHILIPPINES IS, THEREFORE, AN
UNCONSTITUTIONAL USURPATION OF THE LEGISLATIVE POWERS OF THE CONGRESS
OF THE REPUBLIC OF THE PHILIPPINES.

B. THE APPROPRIATION OF PUBLIC FUNDS BY THE PRESIDENT FOR THE


IMPLEMENTATION OF A.O. NO. 308 IS AN UNCONSTITUTIONAL USURPATION OF THE
EXCLUSIVE RIGHT OF CONGRESS TO APPROPRIATE PUBLIC FUNDS FOR
EXPENDITURE.

C. THE IMPLEMENTATION OF A.O. NO. 308 INSIDIOUSLY LAYS THE GROUNDWORK FOR
A SYSTEM WHICH WILL VIOLATE THE BILL OF RIGHTS ENSHRINED IN THE
CONSTITUTION. 2

Respondents counter-argue:

A. THE INSTANT PETITION IS NOT A JUSTICIABLE CASE AS WOULD WARRANT A


JUDICIAL REVIEW;

B. A.O. NO. 308 [1996] WAS ISSUED WITHIN THE EXECUTIVE AND ADMINISTRATIVE
POWERS OF THE PRESIDENT WITHOUT ENCROACHING ON THE LEGISLATIVE POWERS
OF CONGRESS;
C. THE FUNDS NECESSARY FOR THE IMPLEMENTATION OF THE IDENTIFICATION
REFERENCE SYSTEM MAY BE SOURCED FROM THE BUDGETS OF THE CONCERNED
AGENCIES;

3
D. A.O. NO. 308 [1996] PROTECTS AN INDIVIDUAL'S INTEREST IN PRIVACY.

We now resolve.

As is usual in constitutional litigation, respondents raise the threshold issues relating to the standing to sue of the
petitioner and the justiciability of the case at bar. More specifically, respondents aver that petitioner has no legal
interest to uphold and that the implementing rules of A.O. No. 308 have yet to be promulgated.

These submissions do not deserve our sympathetic ear. Petitioner Ople is a distinguished member of our Senate.
As a Senator, petitioner is possessed of the requisite standing to bring suit raising the issue that the issuance of
A.O. No. 308 is a usurpation of legislative power. 4 As taxpayer and member of the Government Service
Insurance System (GSIS), petitioner can also impugn the legality of the misalignment of public funds and the
misuse of GSIS funds to implement A.O. No. 308. 5

The ripeness for adjudication of the Petition at bar is not affected by the fact that the implementing rules of A.O.
No. 308 have yet to be promulgated. Petitioner Ople assails A.O. No. 308 as invalid per se and as infirmed on its
face. His action is not premature for the rules yet to be promulgated cannot cure its fatal defects. Moreover, the
respondents themselves have started the implementation of A.O. No. 308 without waiting for the rules. As early
as January 19, 1997, respondent Social Security System (SSS) caused the publication of a notice to bid for the
manufacture of the National Identification (ID) card. 6 Respondent Executive Secretary Torres has publicly
announced that representatives from the GSIS and the SSS have completed the guidelines for the national
identification system. 7 All signals from the respondents show their unswerving will to implement A.O. No. 308 and
we need not wait for the formality of the rules to pass judgment on its constitutionality. In this light, the dissenters
insistence that we tighten the rule on standing is not a commendable stance as its result would be to throttle an
important constitutional principle and a fundamental right.

II

We now come to the core issues. Petitioner claims that A.O. No. 308 is not a mere administrative order but a law
and hence, beyond the power of the President to issue. He alleges that A.O. No. 308 establishes a system of
identification that is all-encompassing in scope, affects the life and liberty of every Filipino citizen and foreign
resident, and more particularly, violates their right to privacy.

Petitioner's sedulous concern for the Executive not to trespass on the lawmaking domain of Congress is
understandable. The blurring of the demarcation line between the power of the Legislature to make laws and the
power of the Executive to execute laws will disturb their delicate balance of power and cannot be allowed. Hence,
the exercise by one branch of government of power belonging to another will be given a stricter scrutiny by this
Court.

The line that delineates Legislative and Executive power is not indistinct. Legislative power is "the authority, under
the Constitution, to make laws, and to alter and repeal them." 8 The Constitution, as the will of the people in their
original, sovereign and unlimited capacity, has vested this power in the Congress of the Philippines. 9 The grant of
legislative power to Congress is broad, general and comprehensive. 10 The legislative body possesses plenary
power for all purposes of civil government. 11 Any power, deemed to be legislative by usage and tradition, is
necessarily possessed by Congress, unless the Constitution has lodged it elsewhere. 12 In fine, except as limited
by the Constitution, either expressly or impliedly, legislative power embraces all subjects and extends to matters
of general concern or common interest. 13

While Congress is vested with the power to enact laws, the President executes the laws. 14 The executive power
is vested in the Presidents. 15 It is generally defined as the power to enforce and administer the laws. 16 It is the
power of carrying the laws into practical operation and enforcing their due observance. 17

As head of the Executive Department, the President is the Chief Executive. He represents the government as a
whole and sees to it that all laws are enforced by the officials and employees of his department. 18 He has control
over the executive department, bureaus and offices. This means that he has the authority to assume directly the
functions of the executive department, bureau and office or interfere with the discretion of its officials. 19 Corollary
to the power of control, the President also has the duty of supervising the enforcement of laws for the
maintenance of general peace and public order. Thus, he is granted administrative power over bureaus and
offices under his control to enable him to discharge his duties effectively. 20

Administrative power is concerned with the work of applying policies and enforcing orders as determined by
proper governmental organs. 21 It enables the President to fix a uniform standard of administrative efficiency and
check the official conduct of his agents. 22 To this end, he can issue administrative orders, rules and regulations.

Prescinding from these precepts, we hold that A.O. No. 308 involves a subject that is not appropriate to be
covered by an administrative order. An administrative order is:
Sec. 3. Administrative Orders. Acts of the President which relate to particular aspects of
governmental operation in pursuance of his duties as administrative head shall be promulgated in
administrative orders. 23

An administrative order is an ordinance issued by the President which relates to specific aspects in the
administrative operation of government. It must be in harmony with the law and should be for the sole
purpose of implementing the law and carrying out the legislative policy. 24 We reject the argument that
A.O. No. 308 implements the legislative policy of the Administrative Code of 1987. The Code is a general
law and "incorporates in a unified document the major structural, functional and procedural principles of
governance." 25 and "embodies changes in administrative structure and procedures designed to serve the
people." 26 The Code is divided into seven (7) Books: Book I deals with Sovereignty and General
Administration, Book II with the Distribution of Powers of the three branches of Government, Book III on
the Office of the President, Book IV on the Executive Branch, Book V on Constitutional Commissions,
Book VI on National Government Budgeting, and Book VII on Administrative Procedure. These Books
contain provisions on the organization, powers and general administration of the executive, legislative
and judicial branches of government, the organization and administration of departments, bureaus and
offices under the executive branch, the organization and functions of the Constitutional Commissions and
other constitutional bodies, the rules on the national government budget, as well as guideline for the
exercise by administrative agencies of quasi-legislative and quasi-judicial powers. The Code covers both
the internal administration of government, i.e, internal organization, personnel and recruitment,
supervision and discipline, and the effects of the functions performed by administrative officials on private
individuals or parties outside government. 27

It cannot be simplistically argued that A.O. No. 308 merely implements the Administrative Code of 1987. It
establishes for the first time a National Computerized Identification Reference System. Such a System requires a
delicate adjustment of various contending state policies the primacy of national security, the extent of privacy
interest against dossier-gathering by government, the choice of policies, etc. Indeed, the dissent of Mr. Justice
Mendoza states that the A.O. No. 308 involves the all-important freedom of thought. As said administrative order
redefines the parameters of some basic rights of our citizenry vis-a-vis the State as well as the line that separates
the administrative power of the President to make rules and the legislative power of Congress, it ought to be
evident that it deals with a subject that should be covered by law.

Nor is it correct to argue as the dissenters do that A.D. No. 308 is not a law because it confers no right, imposes
no duty, affords no proctection, and creates no office. Under A.O. No. 308, a citizen cannot transact business with
government agencies delivering basic services to the people without the contemplated identification card. No
citizen will refuse to get this identification card for no one can avoid dealing with government. It is thus clear as
daylight that without the ID, a citizen will have difficulty exercising his rights and enjoying his privileges. Given this
reality, the contention that A.O. No. 308 gives no right and imposes no duty cannot stand.

Again, with due respect, the dissenting opinions unduly expand the limits of administrative legislation and
consequently erodes the plenary power of Congress to make laws. This is contrary to the established approach
defining the traditional limits of administrative legislation. As well stated by Fisher: ". . . Many regulations however,
bear directly on the public. It is here that administrative legislation must he restricted in its scope and application.
Regulations are not supposed to be a substitute for the general policy-making that Congress enacts in the form of
a public law. Although administrative regulations are entitled to respect, the authority to prescribe rules and
regulations is not an independent source of power to make laws." 28

III

Assuming, arguendo, that A.O. No. 308 need not be the subject of a law, still it cannot pass constitutional muster
as an administrative legislation because facially it violates the right to privacy. The essence of privacy is the "right
to be let alone." 29 In the 1965 case of Griswold v. Connecticut, 30 the United States Supreme Court gave more
substance to the right of privacy when it ruled that the right has a constitutional foundation. It held that there is a
right of privacy which can be found within the penumbras of the First, Third, Fourth, Fifth and Ninth
Amendments, 31 viz:

Specific guarantees in the Bill of Rights have penumbras formed by emanations from these
guarantees that help give them life and substance . . . various guarantees create zones of
privacy. The right of association contained in the penumbra of the First Amendment is one, as we
have seen. The Third Amendment in its prohibition against the quartering of soldiers "in any
house" in time of peace without the consent of the owner is another facet of that privacy. The
Fourth Amendment explicitly affirms the ''right of the people to be secure in their persons, houses
and effects, against unreasonable searches and seizures." The Fifth Amendment in its Self-
Incrimination Clause enables the citizen to create a zone of privacy which government may not
force him to surrender to his detriment. The Ninth Amendment provides: "The enumeration in the
Constitution, of certain rights, shall not be construed to deny or disparage others retained by the
people."

In the 1968 case of Morfe v. Mutuc, 32 we adopted the Griswold ruling that there is a constitutional right to
privacy. Speaking thru Mr. Justice, later Chief Justice, Enrique Fernando, we held:

xxx xxx xxx


The Griswold case invalidated a Connecticut statute which made the use of contraceptives a
criminal offence on the ground of its amounting to an unconstitutional invasion of the right of
privacy of married persons; rightfully it stressed "a relationship lying within the zone of privacy
created by several fundamental constitutional guarantees." It has wider implications though. The
constitutional right to privacy has come into its own.

So it is likewise in our jurisdiction. The right to privacy as such is accorded recognition


independently of its identification with liberty; in itself, it is fully deserving of constitutional
protection. The language of Prof. Emerson is particularly apt: "The concept of limited government
has always included the idea that governmental powers stop short of certain intrusions into the
personal life of the citizen. This is indeed one of the basic distinctions between absolute and
limited government. Ultimate and pervasive control of the individual, in all aspects of his life, is the
hallmark of the absolute state. In contrast, a system of limited government safeguards a private
sector, which belongs to the individual, firmly distinguishing it from the public sector, which the
state can control. Protection of this private sector protection, in other words, of the dignity and
integrity of the individual has become increasingly important as modern society has developed.
All the forces of a technological age industrialization, urbanization, and organization operate
to narrow the area of privacy and facilitate intrusion into it. In modern terms, the capacity to
maintain and support this enclave of private life marks the difference between a democratic and a
totalitarian society."

Indeed, if we extend our judicial gaze we will find that the right of privacy is recognized and enshrined in several
provisions of our Constitution. 33 It is expressly recognized in section 3 (1) of the Bill of Rights:

Sec. 3. (1) The privacy of communication and correspondence shall be inviolable except upon
lawful order of the court, or when public safety or order requires otherwise as prescribed by law.

Other facets of the right to privacy are protectad in various provisions of the Bill of Rights, viz: 34

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

Sec. 2. The right of the people to be secure in their persons, houses papers, and effects against
unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable,
and no search warrant or warrant of arrest shall issue except upon probable cause to be
determined personally by the judge after examination under oath or affirmation of the complainant
and the witnesses he may produce, and particularly describing the place to be searched and the
persons or things to be seized.

xxx xxx xxx

Sec. 6. The liberty of abode and of changing the same within the limits prescribed by law shall not
be impaired except upon lawful order of the court. Neither shall the right to travel be impaired
except in the interest of national security, public safety, or public health as may be provided by
law.

xxx xxx xxx

Sec. 8. The right of the people, including those employed in the public and private sectors, to
form unions, associations, or societies for purposes not contrary to law shall not be abridged.

Sec. 17. No person shall be compelled to be a witness against himself.

Zones of privacy are likewise recognized and protected in our laws. The Civil Code provides that "[e]very person
shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons" and punishes
as actionable torts several acts by a person of meddling and prying into the privacy of another. 35 It also holds a
public officer or employee or any private individual liable for damages for any violation of the rights and liberties of
another person, 36 and recognizes the privacy of letters and other private communications. 37 The Revised Penal
Code makes a crime the violation of secrets by an officer, 38 the revelation of trade and industrial secrets, 39 and
trespass to dwelling. 40Invasion of privacy is an offense in special laws like the Anti-Wiretapping Law, 41 the
Secrecy of Bank Deposits Act 42 and the Intellectual Property Code. 43 The Rules of Court on privileged
communication likewise recognize the privacy of certain information. 44

Unlike the dissenters, we prescind from the premise that the right to privacy is a fundamental right guaranteed by
the Constitution, hence, it is the burden of government to show that A.O. No. 308 is justified by some compelling
state interest and that it is narrowly drawn. A.O. No. 308 is predicated on two considerations: (1) the need to
provides our citizens and foreigners with the facility to conveniently transact business with basic service and
social security providers and other government instrumentalities and (2) the need to reduce, if not totally
eradicate, fraudulent transactions and misrepresentations by persons seeking basic services. It is debatable
whether these interests are compelling enough to warrant the issuance of A.O. No. 308. But what is not arguable
is the broadness, the vagueness, the overbreadth of A.O. No. 308 which if implemented will put our people's right
to privacy in clear and present danger.
The heart of A.O. No. 308 lies in its Section 4 which provides for a Population Reference Number (PRN) as a
"common reference number to establish a linkage among concerned agencies" through the use of "Biometrics
Technology" and "computer application designs."

Biometry or biometrics is "the science of the applicatin of statistical methods to biological facts; a mathematical
analysis of biological data." 45 The term "biometrics" has evolved into a broad category of technologies which
provide precise confirmation of an individual's identity through the use of the individual's own physiological and
behavioral characteristics. 46 A physiological characteristic is a relatively stable physical characteristic such as a
fingerprint, retinal scan, hand geometry or facial features. A behavioral characteristic is influenced by the
individual's personality and includes voice print, signature and keystroke. 47 Most biometric idenfication systems
use a card or personal identificatin number (PIN) for initial identification. The biometric measurement is used to
verify that the individual holding the card or entering the PIN is the legitimate owner of the card or PIN. 48

A most common form of biological encoding is finger-scanning where technology scans a fingertip and turns the
unique pattern therein into an individual number which is called a biocrypt. The biocrypt is stored in computer data
banks 49 and becomes a means of identifying an individual using a service. This technology requires one's
fingertip to be scanned every time service or access is provided. 50 Another method is the retinal scan. Retinal
scan technology employs optical technology to map the capillary pattern of the retina of the eye. This technology
produces a unique print similar to a finger print. 51 Another biometric method is known as the "artificial nose." This
device chemically analyzes the unique combination of substances excreted from the skin of people. 52 The latest
on the list of biometric achievements is the thermogram. Scientists have found that by taking pictures of a face
using infra-red cameras, a unique heat distribution pattern is seen. The different densities of bone, skin, fat and
blood vessels all contribute to the individual's personal "heat signature." 53

In the last few decades, technology has progressed at a galloping rate. Some science fictions are now science
facts. Today, biometrics is no longer limited to the use of fingerprint to identify an individual. It is a new science
that uses various technologies in encoding any and all biological characteristics of an individual for identification.
It is noteworthy that A.O. No. 308 does not state what specific biological characteristics and what particular
biometrics technology shall be used to identify people who will seek its coverage. Considering the banquest of
options available to the implementors of A.O. No. 308, the fear that it threatens the right to privacy of our people is
not groundless.

A.O. No. 308 should also raise our antennas for a further look will show that it does not state whether encoding of
data is limited to biological information alone for identification purposes. In fact, the Solicitor General claims that
the adoption of the Identification Reference System will contribute to the "generation of population data for
development planning." 54 This is an admission that the PRN will not be used solely for identification but the
generation of other data with remote relation to the avowed purposes of A.O. No. 308. Clearly, the indefiniteness
of A.O. No. 308 can give the government the roving authority to store and retrieve information for a purpose other
than the identification of the individual through his PRN.

The potential for misuse of the data to be gathered under A.O. No. 308 cannot be undarplayed as the dissenters
do. Pursuant to said administrative order, an individual must present his PRN everytime he deals with a
government agency to avail of basic services and security. His transactions with the government agency will
necessarily be recorded whether it be in the computer or in the documentary file of the agency. The individual's
file may include his transactions for loan availments, income tax returns, statement of assets and liabilities,
reimbursements for medication, hospitalization, etc. The more frequent the use of the PRN, the better the chance
of building a huge formidable informatin base through the electronic linkage of the files. 55 The data may be
gathered for gainful and useful government purposes; but the existence of this vast reservoir of personal
information constitutes a covert invitation to misuse, a temptation that may be too great for some of our authorities
to resist. 56

We can even grant, arguendo, that the computer data file will be limited to the name, address and other basic
personal infomation about the individual. 57 Even that hospitable assumption will not save A.O. No. 308 from
constitutional infirmity for again said order does not tell us in clear and categorical terms how these information
gathered shall he handled. It does not provide who shall control and access the data, under what circumstances
and for what purpose. These factors are essential to safeguard the privacy and guaranty the integrity of the
information. 58 Well to note, the computer linkage gives other government agencies access to the information. Yet,
there are no controls to guard against leakage of information. When the access code of the control programs of
the particular computer system is broken, an intruder, without fear of sanction or penalty, can make use of the
data for whatever purpose, or worse, manipulate the data stored within the system. 59

It is plain and we hold that A.O. No. 308 falls short of assuring that personal information which will be gathered
about our people will only be processed for unequivocally specified purposes. 60 The lack of proper safeguards in
this regard of A.O. No. 308 may interfere with the individual's liberty of abode and travel by enabling authorities to
track down his movement; it may also enable unscrupulous persons to access confidential information and
circumvent the right against self-incrimination; it may pave the way for "fishing expeditions" by government
authorities and evade the right against unreasonable searches and seizures. 61 The possibilities of abuse and
misuse of the PRN, biometrics and computer technology are accentuated when we consider that the individual
lacks control over what can be read or placed on his ID, much less verify the correctness of the data
encoded. 62 They threaten the very abuses that the Bill of Rights seeks to prevent. 63

The ability of sophisticated data center to generate a comprehensive cradle-to-grave dossier on an individual and
transmit it over a national network is one of the most graphic threats of the computer revolution. 64 The computer
is capable of producing a comprehensive dossier on individuals out of information given at different times and for
varied purposes. 65 It can continue adding to the stored data and keeping the information up to date. Retrieval of
stored date is simple. When information of a privileged character finds its way into the computer, it can be
extracted together with other data on the subject. 66 Once extracted, the information is putty in the hands of any
person. The end of privacy begins.

Though A.O. No. 308 is undoubtedly not narrowly drawn, the dissenting opinions would dismiss its danger to the
right to privacy as speculative and hypothetical. Again, we cannot countenance such a laidback posture. The
Court will not be true to its role as the ultimate guardian of the people's liberty if it would not immediately smother
the sparks that endanger their rights but would rather wait for the fire that could consume them.

We reject the argument of the Solicitor General that an individual has a reasonable expectation of privacy with
regard to the Natioal ID and the use of biometrics technology as it stands on quicksand. The reasonableness of a
person's expectation of privacy depends on a two-part test: (1) whether by his conduct, the individual has
exhibited an expectation of privacy; and (2) whether this expectation is one that society recognizes as
reasonable. 67 The factual circumstances of the case determines the reasonableness of the
expectation. 68 However, other factors, such as customs, physical surroundings and practices of a particular
activity, may serve to create or diminish this expectation. 69 The use of biometrics and computer technology in
A.O. No. 308 does not assure the individual of a reasonable expectation of privacy. 70 As technology advances,
the level of reasonably expected privacy decreases. 71 The measure of protection granted by the reasonable
expectation diminishes as relevant technology becomes more widely accepted. 72 The security of the computer
data file depends not only on the physical inaccessibility of the file but also on the advances in hardware and
software computer technology. A.O. No. 308 is so widely drawn that a minimum standard for a reasonable
expectation of privacy, regardless of technology used, cannot be inferred from its provisions.

The rules and regulations to be by the IACC cannot remedy this fatal defect. Rules and regulations merely
implement the policy of the law or order. On its face, A.O. No. gives the IACC virtually infettered discretion to
determine the metes and bounds of the ID System.

Nor do your present laws prvide adequate safeguards for a reasonable expectation of privacy. Commonwealth
Act. No. 591 penalizes the disclosure by any person of data furnished by the individual to the NSO with
imprisonment and fine. 73 Republic Act. No. 1161 prohibits public disclosure of SSS employment records and
reports. 74 These laws, however, apply to records and data with the NSO and the SSS. It is not clear whether they
may be applied to data with the other government agencies forming part of the National ID System. The need to
clarify the penal aspect of A.O. No. 308 is another reason why its enactment should be given to Congress.

Next, the Solicitor General urges us to validate A.O. No. 308's abridgment of the right of privacy by using the
rational relationship test. 75 He stressed that the purposes of A.O. No. 308 are: (1) to streamline and speed up the
implementation of basic government services, (2) eradicate fraud by avoiding duplication of services, and (3)
generate population data for development planning. He cocludes that these purposes justify the incursions into
the right to privacy for the means are rationally related to the end. 76

We are not impressed by the argument. In Morfe v. Mutuc, 77 we upheld the constitutionality of R.A. 3019, the
Anti-Graft and Corrupt Practices Act, as a valid police power measure. We declared that the law, in compelling a
public officer to make an annual report disclosing his assets and liabilities, his sources of income and expenses,
did not infringe on the individual's right to privacy. The law was enacted to promote morality in public
administration by curtailing and minimizing the opportunities for official corruption and maintaining a standard of
honesty in the public service. 78

The same circumstances do not obtain in the case at bar. For one, R.A. 3019 is a statute, not an administrative
order. Secondly, R.A. 3019 itself is sufficiently detailed. The law is clear on what practices were prohibited and
penalized, and it was narrowly drawn to avoid abuses. IN the case at bar, A.O. No. 308 may have been impelled
by a worthy purpose, but, it cannot pass constitutional scrutiny for it is not narrowly drawn. And we now hod that
when the integrity of a fundamental right is at stake, this court will give the challenged law, administrative order,
rule or regulation a stricter scrutiny. It will not do for the authorities to invoke the presumption of regularity in the
performance of official duties. Nor is it enough for the authorities to prove that their act is not irrational for a basic
right can be diminished, if not defeated, even when the government does not act irrationally. They must
satisfactorily show the presence of compelling state interests and that the law, rule or regulation is narrowly drawn
to preclude abuses. This approach is demanded by the 1987 Constitution whose entire matrix is designed to
protect human rights and to prevent authoritarianism. In case of doubt, the least we can do is to lean towards the
stance that will not put in danger the rights protected by the Constitutions.

The case of Whalen v. Roe 79 cited by the Solicitor General is also off-line. In Whalen, the United States Supreme
Court was presented with the question of whether the State of New York could keep a centralized computer
record of the names and addresses of all persons who obtained certain drugs pursuant to a doctor's prescription.
The New York State Controlled Substance Act of 1972 required physicians to identify parties obtaining
prescription drugs enumerated in the statute, i.e., drugs with a recognized medical use but with a potential for
abuse, so that the names and addresses of the patients can be recorded in a centralized computer file of the
State Department of Health. The plaintiffs, who were patients and doctors, claimed that some people might
decline necessary medication because of their fear that the computerized data may be readily available and open
to public disclosure; and that once disclosed, it may stigmatize them as drug addicts. 80 The plaintiffs alleged that
the statute invaded a constitutionally protected zone of privacy, i.e., the individual interest in avoiding disclosure of
personal matters, and the interest in independence in making certain kinds of important decisions. The U.S.
Supreme Court held that while an individual's interest in avoiding disclosuer of personal matter is an aspect of the
right to privacy, the statute did not pose a grievous threat to establish a constitutional violation. The Court found
that the statute was necessary to aid in the enforcement of laws designed to minimize the misuse of dangerous
drugs. The patient-identification requirement was a product of an orderly and rational legislative decision made
upon recommmendation by a specially appointed commission which held extensive hearings on the matter.
Moreover, the statute was narrowly drawn and contained numerous safeguards against indiscriminate disclosure.
The statute laid down the procedure and requirements for the gathering, storage and retrieval of the informatin. It
ebumerated who were authorized to access the data. It also prohibited public disclosure of the data by imposing
penalties for its violation. In view of these safeguards, the infringement of the patients' right to privacy was justified
by a valid exercise of police power. As we discussed above, A.O. No. 308 lacks these vital safeguards.

Even while we strike down A.O. No. 308, we spell out in neon that the Court is not per se agains the use of
computers to accumulate, store, process, retvieve and transmit data to improve our bureaucracy. Computers work
wonders to achieve the efficiency which both government and private industry seek. Many information system in
different countries make use of the computer to facilitate important social objective, such as better law
enforcement, faster delivery of public services, more efficient management of credit and insurance programs,
improvement of telecommunications and streamlining of financial activities. 81 Used wisely, data stored in the
computer could help good administration by making accurate and comprehensive information for those who have
to frame policy and make key decisions. 82 The benefits of the computer has revolutionized information
technology. It developed the internet, 83 introduced the concept of cyberspace 84 and the information
superhighway where the individual, armed only with his personal computer, may surf and search all kinds and
classes of information from libraries and databases connected to the net.

In no uncertain terms, we also underscore that the right to privacy does not bar all incursions into individual
privacy. The right is not intended to stifle scientific and technological advancements that enhance public service
and the common good. It merely requires that the law be narrowly focused 85 and a compelling interest justify
such intrusions.86 Intrusions into the right must be accompanied by proper safeguards and well-defined standards
to prevent unconstitutional invasions. We reiterate that any law or order that invades individual privacy will be
subjected by this Court to strict scrutiny. The reason for this stance was laid down in Morfe v. Mutuc, to wit:

The concept of limited government has always included the idea that governmental powers stop
short of certain intrusions into the personal life of the citizen. This is indeed one of the basic
disctinctions between absolute and limited government. Ultimate and pervasive control of the
individual, in all aspects of his life, is the hallmark of the absolute state. In contrast, a system of
limited government safeguards a private sector, which belongs to the individual, firmly
distinguishing it from the public sector, which the state can control. Protection of this private
sector protection, in other words, of the dignity and integrity of the individual has become
increasingly important as modern society has developed. All the forces of a technological age
industrialization, urbanization, and organization operate to narrow the area of privacy and
facilitate intrusion into it. In modern terms, the capacity to maintain and support this enclave of
private life marks the difference between a democratic and a totalitarian society. 87

IV

The right to privacy is one of the most threatened rights of man living in a mass society. The threats emanate from
various sources governments, journalists, employers, social scientists, etc. 88 In th case at bar, the threat
comes from the executive branch of government which by issuing A.O. No. 308 pressures the people to surrender
their privacy by giving information about themselves on the pretext that it will facilitate delivery of basic services.
Given the record-keeping power of the computer, only the indifferent fail to perceive the danger that A.O. No. 308
gives the government the power to compile a devastating dossier against unsuspecting citizens. It is timely to take
note of the well-worded warning of Kalvin, Jr., "the disturbing result could be that everyone will live burdened by
an unerasable record of his past and his limitations. In a way, the threat is that because of its record-keeping, the
society will have lost its benign capacity to forget." 89 Oblivious to this counsel, the dissents still say we should not
be too quick in labelling the right to privacy as a fundamental right. We close with the statement that the right to
privacy was not engraved in our Constitution for flattery.

IN VIEW WHEREOF, the petition is granted and Adminisrative Order No. 308 entitled "Adoption of a National
Computerized Identification Reference System" declared null and void for being unconstitutional.

SO ORDERED.

G.R. No. 125350 December 3, 2002

HON. RTC JUDGES MERCEDES G. DADOLE (Executive Judge, Branch 28),


ULRIC R. CAETE (Presiding Judge, Branch 25),
AGUSTINE R. VESTIL (Presiding Judge, Branch 56),
HON. MTC JUDGES TEMISTOCLES M. BOHOLST (Presiding Judge, Branch 1),
VICENTE C. FANILAG (Judge Designate, Branch 2),
and WILFREDO A. DAGATAN (Presiding Judge, Branch 3), all of Mandaue City, petitioners,
vs.
COMMISSION ON AUDIT, respondent.
DECISION

CORONA, J.:

Before us is a petition for certiorari under Rule 64 to annul the decision1 and resolution2, dated September 21,
1995 and May 28, 1996, respectively, of the respondent Commission on Audit (COA) affirming the notices of the
Mandaue City Auditor which diminished the monthly additional allowances received by the petitioner judges of the
Regional Trial Court (RTC) and Municipal Trial Court (MTC) stationed in Mandaue City.

The undisputed facts are as follows:

In 1986, the RTC and MTC judges of Mandaue City started receiving monthly allowances of P1,260 each through
the yearly appropriation ordinance enacted by the Sangguniang Panlungsod of the said city. In 1991, Mandaue
City increased the amount to P1,500 for each judge.

On March 15, 1994, the Department of Budget and Management (DBM) issued the disputed Local Budget
Circular No. 55 (LBC 55) which provided that:

"x x x xxx xxx

2.3.2. In the light of the authority granted to the local government units under the Local Government Code
to provide for additional allowances and other benefits to national government officials and employees
assigned in their locality, such additional allowances in the form of honorarium at rates not exceeding
P1,000.00 in provinces and cities and P700.00 in municipalities may be granted subject to the following
conditions:

a) That the grant is not mandatory on the part of the LGUs;

b) That all contractual and statutory obligations of the LGU including the implementation of R.A. 6758
shall have been fully provided in the budget;

c) That the budgetary requirements/limitations under Section 324 and 325 of R.A. 7160 should be
satisfied and/or complied with; and

d) That the LGU has fully implemented the devolution of functions/personnel in accordance with R.A.
7160.3" (italics supplied)

xxx xxx xxx

The said circular likewise provided for its immediate effectivity without need of publication:

"5.0 EFFECTIVITY

This Circular shall take effect immediately."

Acting on the DBM directive, the Mandaue City Auditor issued notices of disallowance to herein petitioners,
namely, Honorable RTC Judges Mercedes G. Dadole, Ulric R. Caete, Agustin R. Vestil, Honorable MTC Judges
Temistocles M. Boholst, Vicente C. Fanilag and Wilfredo A. Dagatan, in excess of the amount authorized by LBC
55. Beginning October, 1994, the additional monthly allowances of the petitioner judges were reduced to P1,000
each. They were also asked to reimburse the amount they received in excess of P1,000 from April to September,
1994.

The petitioner judges filed with the Office of the City Auditor a protest against the notices of disallowance. But the
City Auditor treated the protest as a motion for reconsideration and indorsed the same to the COA Regional Office
No. 7. In turn, the COA Regional Office referred the motion to the head office with a recommendation that the
same be denied.

On September 21, 1995, respondent COA rendered a decision denying petitioners' motion for reconsideration.
The COA held that:

The issue to be resolved in the instant appeal is whether or not the City Ordinance of Mandaue which provides a
higher rate of allowances to the appellant judges may prevail over that fixed by the DBM under Local Budget
Circular No. 55 dated March 15, 1994.

xxx xxx xxx

Applying the foregoing doctrine, appropriation ordinance of local government units is subject to the organizational,
budgetary and compensation policies of budgetary authorities (COA 5th Ind., dated March 17, 1994 re: Province
of Antique; COA letter dated May 17, 1994 re: Request of Hon. Renato Leviste, Cong. 1st Dist. Oriental Mindoro).
In this regard, attention is invited to Administrative Order No. 42 issued on March 3, 1993 by the President of the
Philippines clarifying the role of DBM in the compensation and classification of local government positions under
RA No. 7160 vis-avis the provisions of RA No. 6758 in view of the abolition of the JCLGPA. Section 1 of said
Administrative Order provides that:

"Section 1. The Department of Budget and Management as the lead administrator of RA No. 6758 shall,
through its Compensation and Position Classification Bureau, continue to have the following
responsibilities in connection with the implementation of the Local Government Code of 1991:

a) Provide guidelines on the classification of local government positions and on the specific rates
of pay therefore;

b) Provide criteria and guidelines for the grant of all allowances and additional forms of
compensation to local government employees; xxx." (underscoring supplied)

To operationalize the aforecited presidential directive, DBM issued LBC No. 55, dated March 15, 1994, whose
effectivity clause provides that:

xxx xxx xxx

"5.0 EFFECTIVITY

This Circular shall take effect immediately."

It is a well-settled rule that implementing rules and regulations promulgated by administrative or executive officer
in accordance with, and as authorized by law, has the force and effect of law or partake the nature of a statute
(Victorias Milling Co., Inc., vs. Social Security Commission, 114 Phil. 555, cited in Agpalo's Statutory
Construction, 2nd Ed. P. 16; Justice Cruz's Phil. Political Law, 1984 Ed., p. 103; Espanol vs. Phil Veterans
Administration, 137 SCRA 314; Antique Sawmills Inc. vs. Tayco, 17 SCRA 316).

xxx xxx xxx

There being no statutory basis to grant additional allowance to judges in excess of P1,000.00 chargeable against
the local government units where they are stationed, this Commission finds no substantial grounds or cogent
reason to disturb the decision of the City Auditor, Mandaue City, disallowing in audit the allowances in question.
Accordingly, the above-captioned appeal of the MTC and RTC Judges of Mandaue City, insofar as the same is
not covered by Circular Letter No. 91-7, is hereby dismissed for lack of merit.

xxx xxx x x x4

On November 27, 1995, Executive Judge Mercedes Gozo-Dadole, for and in behalf of the petitioner judges, filed
a motion for reconsideration of the decision of the COA. In a resolution dated May 28, 1996, the COA denied the
motion.

Hence, this petition for certiorari by the petitioner judges, submitting the following questions for resolution:

HAS THE CITY OF MANDAUE STATUTORY AND CONSTITUTIONAL BASIS TO PROVIDE ADDITIONAL
ALLOWANCES AND OTHER BENEFITS TO JUDGES STATIONED IN AND ASSIGNED TO THE CITY?

II

CAN AN ADMINISTRATIVE CIRCULAR OR GUIDELINE SUCH AS LOCAL BUDGET CIRCULAR NO. 55


RENDER INOPERATIVE THE POWER OF THE LEGISLATIVE BODY OF A CITY BY SETTING A LIMIT TO THE
EXTENT OF THE EXERCISE OF SUCH POWER?

III

HAS THE COMMISSION ON AUDIT CORRECTLY INTERPRETED LOCAL BUDGET CIRCULAR NO. 55 TO
INCLUDE MEMBERS OF THE JUDICIARY IN FIXING THE CEILING OF ADDITIONAL ALLOWANCES AND
BENEFITS TO BE PROVIDED TO JUDGES STATIONED IN AND ASSIGNED TO MANDAUE CITY BY THE
CITY GOVERNMENT AT P1,000.00 PER MONTH NOTWITHSTANDING THAT THEY HAVE BEEN RECEIVING
ALLOWANCES OF P1,500.00 MONTHLY FOR THE PAST FIVE YEARS?

IV

IS LOCAL BUDGET CIRCULAR NO. 55 DATED MARCH 15, 1994 ISSUED BY THE DEPARTMENT OF
BUDGET AND MANAGEMENT VALID AND ENFORCEABLE CONSIDERING THAT IT WAS NOT DULY
PUBLISHED IN ACCODANCE WITH LAW?5
Petitioner judges argue that LBC 55 is void for infringing on the local autonomy of Mandaue City by dictating a
uniform amount that a local government unit can disburse as additional allowances to judges stationed therein.
They maintain that said circular is not supported by any law and therefore goes beyond the supervisory powers of
the President. They further allege that said circular is void for lack of publication.

On the other hand, the yearly appropriation ordinance providing for additional allowances to judges is allowed by
Section 458, par. (a)(1)[xi], of RA 7160, otherwise known as the Local Government Code of 1991, which provides
that:

Sec. 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod, as the legislative
body of the city, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the
city and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of
the city as provided for under Section 22 of this Code, and shall:

(1) Approve ordinances and pass resolutions necessary for an efficient and effective city government, and in this
connection, shall:

xxx xxx xxx

(xi) When the finances of the city government allow, provide for additional allowances and other benefits to
judges, prosecutors, public elementary and high school teachers, and other national government officials
stationed in or assigned to the city; (italics supplied)

Instead of filing a comment on behalf of respondent COA, the Solicitor General filed a manifestation supporting
the position of the petitioner judges. The Solicitor General argues that (1) DBM only enjoys the power to review
and determine whether the disbursements of funds were made in accordance with the ordinance passed by a
local government unit while (2) the COA has no more than auditorial visitation powers over local government units
pursuant to Section 348 of RA 7160 which provides for the power to inspect at any time the financial accounts of
local government units.

Moreover, the Solicitor General opines that "the DBM and the respondent are only authorized under RA 7160 to
promulgate a Budget Operations Manual for local government units, to improve and systematize methods,
techniques and procedures employed in budget preparation, authorization, execution and accountability" pursuant
to Section 354 of RA 7160. The Solicitor General points out that LBC 55 was not exercised under any of the
aforementioned provisions.

Respondent COA, on the other hand, insists that the constitutional and statutory authority of a city government to
provide allowances to judges stationed therein is not absolute. Congress may set limitations on the exercise of
autonomy. It is for the President, through the DBM, to check whether these legislative limitations are being
followed by the local government units.

One such law imposing a limitation on a local government unit's autonomy is Section 458, par. (a) (1) [xi], of RA
7160, which authorizes the disbursement of additional allowances and other benefits to judges subject to the
condition that the finances of the city government should allow the same. Thus, DBM is merely enforcing the
condition of the law when it sets a uniform maximum amount for the additional allowances that a city government
can release to judges stationed therein.

Assuming arguendo that LBC 55 is void, respondent COA maintains that the provisions of the yearly approved
ordinance granting additional allowances to judges are still prohibited by the appropriation laws passed by
Congress every year. COA argues that Mandaue City gets the funds for the said additional allowances of judges
from the Internal Revenue Allotment (IRA). But the General Appropriations Acts of 1994 and 1995 do not mention
the disbursement of additional allowances to judges as one of the allowable uses of the IRA. Hence, the
provisions of said ordinance granting additional allowances, taken from the IRA, to herein petitioner judges are
void for being contrary to law.

To resolve the instant petition, there are two issues that we must address: (1) whether LBC 55 of the DBM is void
for going beyond the supervisory powers of the President and for not having been published and (2) whether the
yearly appropriation ordinance enacted by the City of Mandaue that provides for additional allowances to judges
contravenes the annual appropriation laws enacted by Congress.

We rule in favor of the petitioner judges.

On the first issue, we declare LBC 55 to be null and void.

We recognize that, although our Constitution6 guarantees autonomy to local government units, the exercise of
local autonomy remains subject to the power of control by Congress and the power of supervision by the
President. Section 4 of Article X of the 1987 Philippine Constitution provides that:

Sec. 4. The President of the Philippines shall exercise general supervision over local governments. x x x
In Pimentel vs. Aguirre7, we defined the supervisory power of the President and distinguished it from the power of
control exercised by Congress. Thus:

This provision (Section 4 of Article X of the 1987 Philippine Constitution) has been interpreted to exclude the
power of control. In Mondano v. Silvosa,i 5 the Court contrasted the President's power of supervision over local
government officials with that of his power of control over executive officials of the national government. It was
emphasized that the two terms -- supervision and control -- differed in meaning and extent. The Court
distinguished them as follows:

"x x x In administrative law, supervision means overseeing or the power or authority of an officer to see that
subordinate officers perform their duties. If the latter fail or neglect to fulfill them, the former may take such action
or step as prescribed by law to make them perform their duties. Control, on the other hand, means the power of
an officer to alter or modify or nullify or set aside what a subordinate officer ha[s] done in the performance of his
duties and to substitute the judgment of the former for that of the latter."ii 6

In Taule v. Santos,iii 7 we further stated that the Chief Executive wielded no more authority than that of checking
whether local governments or their officials were performing their duties as provided by the fundamental law and
by statutes. He cannot interfere with local governments, so long as they act within the scope of their authority.
"Supervisory power, when contrasted with control, is the power of mere oversight over an inferior body; it does not
include any restraining authority over such body,"iv 8 we said.

In a more recent case, Drilon v. Lim,v 9 the difference between control and supervision was further delineated.
Officers in control lay down the rules in the performance or accomplishment of an act. If these rules are not
followed, they may, in their discretion, order the act undone or redone by their subordinates or even decide to do
it themselves. On the other hand, supervision does not cover such authority. Supervising officials merely see to it
that the rules are followed, but they themselves do not lay down such rules, nor do they have the discretion to
modify or replace them. If the rules are not observed, they may order the work done or redone, but only to
conform to such rules. They may not prescribe their own manner of execution of the act. They have no discretion
on this matter except to see to it that the rules are followed.

Under our present system of government, executive power is vested in the President. vi10 The members of the
Cabinet and other executive officials are merely alter egos. As such, they are subject to the power of control of
the President, at whose will and behest they can be removed from office; or their actions and decisions changed,
suspended or reversed.vii 11 In contrast, the heads of political subdivisions are elected by the people. Their
sovereign powers emanate from the electorate, to whom they are directly accountable. By constitutional fiat, they
are subject to the President's supervision only, not control, so long as their acts are exercised within the sphere of
their legitimate powers. By the same token, the President may not withhold or alter any authority or power given
them by the Constitution and the law.

Clearly then, the President can only interfere in the affairs and activities of a local government unit if he or she
finds that the latter has acted contrary to law. This is the scope of the President's supervisory powers over local
government units. Hence, the President or any of his or her alter egos cannot interfere in local affairs as long as
the concerned local government unit acts within the parameters of the law and the Constitution. Any directive
therefore by the President or any of his or her alter egos seeking to alter the wisdom of a law-conforming
judgment on local affairs of a local government unit is a patent nullity because it violates the principle of local
autonomy and separation of powers of the executive and legislative departments in governing municipal
corporations.

Does LBC 55 go beyond the law it seeks to implement? Yes.

LBC 55 provides that the additional monthly allowances to be given by a local government unit should not
exceedP1,000 in provinces and cities and P700 in municipalities. Section 458, par. (a)(1)(xi), of RA 7160, the law
that supposedly serves as the legal basis of LBC 55, allows the grant of additional allowances to judges "when
the finances of the city government allow." The said provision does not authorize setting a definite maximum limit
to the additional allowances granted to judges. Thus, we need not belabor the point that the finances of a city
government may allow the grant of additional allowances higher than P1,000 if the revenues of the said city
government exceed its annual expenditures. Thus, to illustrate, a city government with locally generated annual
revenues of P40 million and expenditures of P35 million can afford to grant additional allowances of more
than P1,000 each to, say, ten judges inasmuch as the finances of the city can afford it.

Setting a uniform amount for the grant of additional allowances is an inappropriate way of enforcing the criterion
found in Section 458, par. (a)(1)(xi), of RA 7160. The DBM over-stepped its power of supervision over local
government units by imposing a prohibition that did not correspond with the law it sought to implement. In other
words, the prohibitory nature of the circular had no legal basis.

Furthermore, LBC 55 is void on account of its lack of publication, in violation of our ruling in Taada vs.
Tuvera8where we held that:

xxx. Administrative rules and regulations must also be published if their purpose is to enforce or implement
existing law pursuant to a valid delegation.
Interpretative regulations and those merely internal in nature, that is, regulating only the personnel of an
administrative agency and the public, need not be published. Neither is publication required of the so-called
letters of instruction issued by administrative superiors concerning the rules or guidelines to be followed by their
subordinates in the performance of their duties.

Respondent COA claims that publication is not required for LBC 55 inasmuch as it is merely an interpretative
regulation applicable to the personnel of an LGU. We disagree. In De Jesus vs. Commission on Audit9 where we
dealt with the same issue, this Court declared void, for lack of publication, a DBM circular that disallowed payment
of allowances and other additional compensation to government officials and employees. In refuting respondent
COA's argument that said circular was merely an internal regulation, we ruled that:

On the need for publication of subject DBM-CCC No. 10, we rule in the affirmative. Following the doctrine
enunciated in Taada v. Tuvera, publication in the Official Gazette or in a newspaper of general circulation in the
Philippines is required since DBM-CCC No. 10 is in the nature of an administrative circular the purpose of
which is to enforce or implement an existing law. Stated differently, to be effective and enforceable, DBM-
CCC No. 10 must go through the requisite publication in the Official Gazette or in a newspaper of general
circulation in the Philippines.

In the present case under scrutiny, it is decisively clear that DBM-CCC No. 10, which completely disallows
payment of allowances and other additional compensation to government officials and employees, starting
November 1, 1989, is not a mere interpretative or internal regulation. It is something more than that. And why not,
when it tends to deprive government workers of their allowance and additional compensation sorely needed to
keep body and soul together. At the very least, before the said circular under attack may be permitted to
substantially reduce their income, the government officials and employees concerned should be apprised
and alerted by the publication of subject circular in the Official Gazette or in a newspaper of general
circulation in the Philippines to the end that they be given amplest opportunity to voice out whatever
opposition they may have, and to ventilate their stance on the matter. This approach is more in keeping
with democratic precepts and rudiments of fairness and transparency. (emphasis supplied)

In Philippine International Trading Corporation vs. Commission on Audit 10, we again declared the same circular as
void, for lack of publication, despite the fact that it was re-issued and then submitted for publication. Emphasizing
the importance of publication to the effectivity of a regulation, we therein held that:

It has come to our knowledge that DBM-CCC No. 10 has been re-issued in its entirety and submitted for
publication in the Official Gazette per letter to the National Printing Office dated March 9, 1999. Would the
subsequent publication thereof cure the defect and retroact to the time that the above-mentioned items were
disallowed in audit?

The answer is in the negative, precisely for the reason that publication is required as a condition precedent to the
effectivity of a law to inform the public of the contents of the law or rules and regulations before their rights and
interests are affected by the same. From the time the COA disallowed the expenses in audit up to the filing of
herein petition the subject circular remained in legal limbo due to its non-publication. As was stated in Taada v.
Tuvera, "prior publication of laws before they become effective cannot be dispensed with, for the reason that it
would deny the public knowledge of the laws that are supposed to govern it." 11

We now resolve the second issue of whether the yearly appropriation ordinance enacted by Mandaue City
providing for fixed allowances for judges contravenes any law and should therefore be struck down as null and
void.

According to respondent COA, even if LBC 55 were void, the ordinances enacted by Mandaue City granting
additional allowances to the petitioner judges would "still (be) bereft of legal basis for want of a lawful source of
funds considering that the IRA cannot be used for such purposes." Respondent COA showed that Mandaue City's
funds consisted of locally generated revenues and the IRA. From 1989 to 1995, Mandaue City's yearly
expenditures exceeded its locally generated revenues, thus resulting in a deficit. During all those years, it was the
IRA that enabled Mandaue City to incur a surplus. Respondent avers that Mandaue City used its IRA to pay for
said additional allowances and this violated paragraph 2 of the Special Provisions, page 1060, of RA 7845 (The
General Appropriations Act of 1995)12 and paragraph 3 of the Special Provision, page 1225, of RA 7663 (The
General Appropriations Act of 1994)13 which specifically identified the objects of expenditure of the IRA. Nowhere
in said provisions of the two budgetary laws does it say that the IRA can be used for additional allowances of
judges. Respondent COA thus argues that the provisions in the ordinance providing for such disbursement are
against the law, considering that the grant of the subject allowances is not within the specified use allowed by the
aforesaid yearly appropriations acts.

We disagree.

Respondent COA failed to prove that Mandaue City used the IRA to spend for the additional allowances of the
judges. There was no evidence submitted by COA showing the breakdown of the expenses of the city
government and the funds used for said expenses. All the COA presented were the amounts expended, the
locally generated revenues, the deficit, the surplus and the IRA received each year. Aside from these items, no
data or figures were presented to show that Mandaue City deducted the subject allowances from the IRA. In other
words, just because Mandaue City's locally generated revenues were not enough to cover its expenditures, this
did not mean that the additional allowances of petitioner judges were taken from the IRA and not from the city's
own revenues.

Moreover, the DBM neither conducted a formal review nor ordered a disapproval of Mandaue City's appropriation
ordinances, in accordance with the procedure outlined by Sections 326 and 327 of RA 7160 which provide that:

Section 326. Review of Appropriation Ordinances of Provinces, Highly Urbanized Cities, Independent Component
Cities, and Municipalities within the Metropolitan Manila Area. The Department of Budget and Management shall
review ordinances authorizing the annual or supplemental appropriations of provinces, highly-urbanized cities,
independent component cities, and municipalities within the Metropolitan Manila Area in accordance with the
immediately succeeding Section.

Section 327. Review of Appropriation Ordinances of Component Cities and Municipalities.- The sangguninang
panlalawigan shall review the ordinance authorizing annual or supplemental appropriations of component cities
and municipalities in the same manner and within the same period prescribed for the review of other ordinances.

If within ninety (90) days from receipt of copies of such ordinance, the sangguniang panlalawigan takes
no action thereon, the same shall be deemed to have been reviewed in accordance with law and shall
continue to be in full force and effect. (emphasis supplied)

Within 90 days from receipt of the copies of the appropriation ordinance, the DBM should have taken positive
action. Otherwise, such ordinance was deemed to have been properly reviewed and deemed to have taken effect.
Inasmuch as, in the instant case, the DBM did not follow the appropriate procedure for reviewing the subject
ordinance of Mandaue City and allowed the 90-day period to lapse, it can no longer question the legality of the
provisions in the said ordinance granting additional allowances to judges stationed in the said city.

WHEREFORE, the petition is hereby GRANTED, and the assailed decision and resolution, dated September 21,
1995 and May 28, 1996, respectively, of the Commission on Audit are hereby set aside.

No costs.

SO ORDERED.

G.R. No. 77372 April 29, 1988

LUPO L. LUPANGCO, RAYMOND S. MANGKAL, NORMAN A. MESINA, ALEXANDER R. REGUYAL,


JOCELYN P. CATAPANG, ENRICO V. REGALADO, JEROME O. ARCEGA, ERNESTOC. BLAS, JR.,
ELPEDIO M. ALMAZAN, KARL CAESAR R. RIMANDO, petitioner,
vs.
COURT OF APPEALS and PROFESSIONAL REGULATION COMMISSION, respondent.

Balgos & Perez Law Offices for petitioners.

The Solicitor General for respondents.

GANCAYCO, J.:

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

The records shows the following undisputed facts:

On or about October 6, 1986, herein respondent Professional Regulation Commission (PRC) issued Resolution
No. 105 as parts of its "Additional Instructions to Examiness," to all those applying for admission to take the
licensure examinations in accountancy. The resolution embodied the following pertinent provisions:

No examinee shall attend any review class, briefing, conference or the like conducted by, or shall
receive any hand-out, review material, or any tip from any school, college or university, or any
review center or the like or any reviewer, lecturer, instructor official or employee of any of the
aforementioned or similars institutions during the three days immediately proceeding every
examination day including examination day.

Any examinee violating this instruction shall be subject to the sanctions prescribed by Sec. 8, Art.
III of the Rules and Regulations of the Commission. 1
On October 16, 1986, herein petitioners, all reviewees preparing to take the licensure examinations in
accountancy schedule on October 25 and November 2 of the same year, filed on their own behalf of all others
similarly situated like them, with the Regional Trial Court of Manila, Branch XXXII, a complaint for injuction with a
prayer with the issuance of a writ of a preliminary injunction against respondent PRC to restrain the latter from
enforcing the above-mentioned resolution and to declare the same unconstitution.

Respondent PRC filed a motion to dismiss on October 21, 1987 on the ground that the lower court had no
jurisdiction to review and to enjoin the enforcement of its resolution. In an Order of October 21, 1987, the lower
court declared that it had jurisdiction to try the case and enjoined the respondent commission from enforcing and
giving effect to Resolution No. 105 which it found to be unconstitutional.

Not satisfied therewith, respondent PRC, on November 10, 1986, filed with the Court of Appeals a petition for the
nullification of the above Order of the lower court. Said petiton was granted in the Decision of the Court of
Appeals promulagated on January 13, 1987, to wit:

WHEREFORE, finding the petition meritorious the same is hereby GRANTED and the other
dated October 21, 1986 issued by respondent court is declared null and void. The respondent
court is further directed to dismiss with prejudice Civil Case No. 86-37950 for want of jurisdiction
over the subject matter thereof. No cost in this instance.

SO ORDERED. 2

Hence, this petition.

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

That the petitioner Professional Regulatory Commission is at least a co-equal body with the
Regional Trial Court is beyond question, and co-equal bodies have no power to control each
other or interfere with each other's acts. 3

To strenghten its position, the Court of Appeals relied heavily on National Electrification Administration vs.
Mendoza,4 which cites Pineda vs. Lantin 5 and Philippine Pacific Fishing, Inc. vs. Luna, 6 where this Court held
that a Court of First Instance cannot interfere with the orders of the Securities and Exchange Commission, the two
being co-equal bodies.

After a close scrutiny of the facts and the record of this case,

We rule in favor of the petitioner.

The cases cited by respondent court are not in point. It is glaringly apparent that the reason why this Court ruled
that the Court of First Instance could not interfere with the orders of the Securities and Exchange Commission
was that this was so provided for by the law. In Pineda vs. Lantin, We explained that whenever a party is
aggrieved by or disagree with an order or ruling of the Securities and Exchange Commission, he cannot seek
relief from courts of general jurisdiction since under the Rules of Court and Commonwealth Act No. 83, as
amended by Republic Act No. 635, creating and setting forth the powers and functions of the old Securities and
Exchange Commission, his remedy is to go the Supreme Court on a petition for review. Likewise, in Philippine
Pacific Fishing Co., Inc. vs. Luna,it was stressed that if an order of the Securities and Exchange Commission is
erroneous, the appropriate remedy take is first, within the Commission itself, then, to the Supreme Court as
mandated in Presidential Decree No. 902-A, the law creating the new Securities and Exchange Commission.
Nowhere in the said cases was it held that a Court of First Instance has no jurisdiction over all other government
agencies. On the contrary, the ruling was specifically limited to the Securities and Exchange Commission.

The respondent court erred when it place the Securities and Exchange Commission and the Professional
Regulation Commsision in the same category. As alraedy mentioned, with respect to the Securities and Exchange
Commission, the laws cited explicitly provide with the procedure that need be taken when one is aggrieved by its
order or ruling. Upon the other hand, there is no law providing for the next course of action for a party who wants
to question a ruling or order of the Professional Regulation Commission. Unlike Commonwealth Act No. 83 and
Presidential Decree No. 902-A, there is no provision in Presidential Decree No. 223, creating the Professional
Regulation Commission, that orders or resolutions of the Commission are appealable either to the Court of
Appeals or to theSupreme Court. Consequently, Civil Case No. 86-37950, which was filed in order to enjoin the
enforcement of a resolution of the respondent Professional Regulation Commission alleged to be unconstitutional,
should fall within the general jurisdiction of the Court of First Instance, now the Regional Trial Court. 7

What is clear from Presidential Decree No. 223 is that the Professional Regulation Commission is attached to the
Office of the President for general direction and coordination. 8 Well settled in our jurisprudence is the view that
even acts of the Office of the President may be reviewed by the Court of First Instance (now the Regional Trial
Court). In Medalla vs. Sayo, 9 this rule was thoroughly propounded on, to wit:

In so far as jurisdiction of the Court below to review by certiorari decisions and/or resolutions of
the Civil Service Commission and of the residential Executive Asssistant is concerned, there
should be no question but that the power of judicial review should be upheld. The following
rulings buttress this conclusion:

The objection to a judicial review of a Presidential act arises from a failure to


recognize the most important principle in our system of government, i.e., the
separation of powers into three co-equal departments, the executives, the
legislative and the judicial, each supreme within its own assigned powers and
duties. When a presidential act is challenged before the courts of justice, it is not
to be implied therefrom that the Executive is being made subject and subordinate
to the courts. The legality of his acts are under judicial review, not because the
Executive is inferior to the courts, but because the law is above the Chief
Executive himself, and the courts seek only to interpret, apply or implement it
(the law). A judicial review of the President's decision on a case of an employee
decided by the Civil Service Board of Appeals should be viewed in this light and
the bringing of the case to the Courts should be governed by the same principles
as govern the jucucial review of all administrative acts of all administrative
officers. 10

Republic vs. Presiding Judge, CFI of Lanao del Norte, Br. II, 11 is another case in point. Here, "the Executive
Office"' of the Department of Education and Culture issued Memorandum Order No. 93 under the authority of then
Secretary of Education Juan Manuel. As in this case, a complaint for injunction was filed with the Court of First
Instance of Lanao del Norte because, allegedly, the enforcement of the circular would impair some contracts
already entered into by public school teachers. It was the contention of petitioner therein that "the Court of First
Instance is not empowered to amend, reverse and modify what is otherwise the clear and explicit provision of the
memorandum circular issued by the Executive Office which has the force and effect of law." In resolving the issue,
We held:

... We definitely state that respondent Court lawfully acquired jurisdiction in Civil Case No. II-240
(8) because the plaintiff therein asked the lower court for relief, in the form of injunction, in
defense of a legal right (freedom to enter into contracts) . . . . .

Hence there is a clear infringement of private respondent's constitutional right to enter into
agreements not contrary to law, which might run the risk of being violated by the threatened
implementation of Executive Office Memorandum Circular No. 93, dated February 5, 1968, which
prohibits, with certain exceptions, cashiers and disbursing officers from honoring special powers
of attorney executed by the payee employees. The respondent Court is not only right but duty
bound to take cognizance of cases of this nature wherein a constitutional and statutory right is
allegedly infringed by the administrative action of a government office. Courts of first Instance
have original jurisdiction over all civil actions in which the subject of the litigation is not capable of
pecuniary estimation (Sec. 44, Republic Act 296, as amended). 12 (Emphasis supplied.)

In San Miguel Corporation vs. Avelino, 13 We ruled that a judge of the Court of First Instance has the authority to
decide on the validity of a city tax ordinance even after its validity had been contested before the Secretary of
Justice and an opinion thereon had been rendered.

In view of the foregoing, We find no cogent reason why Resolution No. 105, issued by the respondent
Professional Regulation Commission, should be exempted from the general jurisdiction of the Regional Trial
Court.

Respondent PRC, on the other hand, contends that under Section 9, paragraph 3 of B.P. Blg. 129, it is the Court
of Appeals which has jurisdiction over the case. The said law provides:

SEC. 9. Jurisdiction. The Intermediate Appellate Court shall exercise:

xxx xxx xxx

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders, or
awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or
commissions, except those falling within the appellate jurisdiction of the Supreme Court in
accordance with the Constitution, the provisions of this Act, and of subparagraph (1) of the third
paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of
1948.

The contention is devoid of merit.

In order to invoke the exclusive appellate jurisdiction of the Court of Appeals as provided for in Section 9,
paragraph 3 of B.P. Blg. 129, there has to be a final order or ruling which resulted from proceedings wherein the
administrative body involved exercised its quasi-judicial functions. In Black's Law Dictionary, quasi-judicial is
defined as a term applied to the action, discretion, etc., of public administrative officers or bodies required to
investigate facts, or ascertain the existence of facts, hold hearings, and draw conclusions from them, as a basis
for their official action, and to exercise discretion of a judicial nature. To expound thereon, quasi-
judicial adjudication would mean a determination of rights, privileges and duties resulting in a decision or order
which applies to a specific situation . 14This does not cover rules and regulations of general applicability issued by
the administrative body to implement its purely administrative policies and functions like Resolution No. 105 which
was adopted by the respondent PRC as a measure to preserve the integrity of licensure examinations.

The above rule was adhered to in Filipinas Engineering and Machine Shop vs. Ferrer. 15 In this case, the issue
presented was whether or not the Court of First Instance had jurisdiction over a case involving an order of the
Commission on Elections awarding a contract to a private party which originated from an invitation to bid. The
said issue came about because under the laws then in force, final awards, judgments, decisions or orders of the
Commission on Elections fall within the exclusive jurisdiction of the Supreme Court by way of certiorari. Hence, it
has been consistently held that "it is the Supreme Court, not the Court of First Instance, which has exclusive
jurisdiction to review on certiorari final decisions, orders, or rulings of the Commission on Elections relative to the
conduct of elections and the enforcement of election laws." 16

As to whether or not the Court of First Instance had jurisdiction in saidcase, We said:

We are however, far from convinced that an order of the COMELEC awarding a contract to a
private party, as a result of its choice among various proposals submitted in response to its
invitation to bid comes within the purview of a "final order" which is exclusively and directly
appealable to this court on certiorari. What is contemplated by the term "final orders, rulings and
decisions, of the COMELEC reviewable by certiorari by the Supreme Court as provided by law
are those rendered in actions or proceedings before the COMELEC and taken cognizance of by
the said body in the exercise of its adjudicatory or quasi-judicial powers. (Emphasis supplied.)

xxx xxx xxx

We agree with petitioner's contention that the order of the Commission granting the award to a
bidder is not an order rendered in a legal controversy before it wherein the parties filed their
respective pleadings and presented evidence after which the questioned order was issued; and
that this order of the commission was issued pursuant to its authority to enter into contracts in
relation to election purposes. In short, the COMELEC resolution awarding the contract in favor of
Acme was not issued pursuant to its quasi-judicial functions but merely as an incident of its
inherent administrative functions over the conduct of elections, and hence, the said resolution
may not be deemed as a "final order reviewable by certiorari by the Supreme Court. Being non-
judicial in character, no contempt order may be imposed by the COMELEC from said order, and
no direct and exclusive appeal by certiorari to this Tribunal lie from such order. Any question
arising from said order may be well taken in an ordinary civil action before the trial courts.
(Emphasis supplied.) 17

One other case that should be mentioned in this regard is Salud vs. Central Bank of the Philippines. 18 Here,
petitioner Central Bank, like respondent in this case, argued that under Section 9, paragraph 3 of B.P. Blg. 129,
orders of the Monetary Board are appealable only to the Intermediate Appellate Court. Thus:

The Central Bank and its Liquidator also postulate, for the very first time, that the Monetary Board
is among the "quasi-judicial ... boards" whose judgments are within the exclusive appellate
jurisdiction of the IAC; hence, it is only said Court, "to the exclusion of the Regional Trial Courts,"
that may review the Monetary Board's resolutions. 19

Anent the posture of the Central Bank, We made the following pronouncement:

The contention is utterly devoid of merit. The IAC has no appellate jurisdiction over resolution or
orders of the Monetary Board. No law prescribes any mode of appeal from the Monetary Board to
the IAC. 20

In view of the foregoing, We hold that the Regional Trial Court has jurisdiction to entertain Civil Case No. 86-
37950 and enjoin the respondent PRC from enforcing its resolution.

Although We have finally settled the issue of jurisdiction, We find it imperative to decide once and for all the
validity of Resolution No. 105 so as to provide the much awaited relief to those who are and will be affected by it.

Of course, We realize that the questioned resolution was adopted for a commendable purpose which is "to
preserve the integrity and purity of the licensure examinations." However, its good aim cannot be a cloak to
conceal its constitutional infirmities. On its face, it can be readily seen that it is unreasonable in that an examinee
cannot evenattend any review class, briefing, conference or the like, or receive any hand-out, review material, or
any tip from any school, collge or university, or any review center or the like or any reviewer, lecturer, instructor,
official or employee of any of the aforementioned or similar institutions . ... 21

The unreasonableness is more obvious in that one who is caught committing the prohibited acts even without any
ill motives will be barred from taking future examinations conducted by the respondent PRC. Furthermore, it is
inconceivable how the Commission can manage to have a watchful eye on each and every examinee during the
three days before the examination period.
It is an aixiom in administrative law that administrative authorities should not act arbitrarily and capriciously in the
issuance of rules and regulations. To be valid, such rules and regulations must be reasonable and fairly adapted
to the end in view. If shown to bear no reasonable relation to the purposes for which they are authorized to be
issued, then they must be held to be invalid. 22

Resolution No. 105 is not only unreasonable and arbitrary, it also infringes on the examinees' right to liberty
guaranteed by the Constitution. Respondent PRC has no authority to dictate on the reviewees as to how they
should prepare themselves for the licensure examinations. They cannot be restrained from taking all the lawful
steps needed to assure the fulfillment of their ambition to become public accountants. They have every right to
make use of their faculties in attaining success in their endeavors. They should be allowed to enjoy their freedom
to acquire useful knowledge that will promote their personal growth. As defined in a decision of the United States
Supreme Court:

The term "liberty" means more than mere freedom from physical restraint or the bounds of a
prison. It means freedom to go where one may choose and to act in such a manner not
inconsistent with the equal rights of others, as his judgment may dictate for the promotion of his
happiness, to pursue such callings and vocations as may be most suitable to develop his
capacities, and giv to them their highest enjoyment. 23

Another evident objection to Resolution No. 105 is that it violates the academic freedom of the schools
concerned. Respondent PRC cannot interfere with the conduct of review that review schools and centers believe
would best enable their enrolees to meet the standards required before becoming a full fledged public accountant.
Unless the means or methods of instruction are clearly found to be inefficient, impractical, or riddled with
corruption, review schools and centers may not be stopped from helping out their students. At this juncture, We
call attention to Our pronouncement in Garcia vs. The Faculty Admission Committee, Loyola School of
Theology, 24 regarding academic freedom to wit:

... It would follow then that the school or college itself is possessed of such a right. It decides for
itself its aims and objectives and how best to attain them. It is free from outside coercion or
interference save possibly when the overriding public welfare calls for some restraint. It has a
wide sphere of autonomy certainly extending to the choice of students. This constitutional
provision is not to be construed in a niggardly manner or in a grudging fashion.

Needless to say, the enforcement of Resolution No. 105 is not a guarantee that the alleged leakages in the
licensure examinations will be eradicated or at least minimized. Making the examinees suffer by depriving them of
legitimate means of review or preparation on those last three precious days-when they should be refreshing
themselves with all that they have learned in the review classes and preparing their mental and psychological
make-up for the examination day itself-would be like uprooting the tree to get ride of a rotten branch. What is
needed to be done by the respondent is to find out the source of such leakages and stop it right there. If corrupt
officials or personnel should be terminated from their loss, then so be it. Fixers or swindlers should be flushed out.
Strict guidelines to be observed by examiners should be set up and if violations are committed, then licenses
should be suspended or revoked. These are all within the powers of the respondent commission as provided for
in Presidential Decree No. 223. But by all means the right and freedom of the examinees to avail of all legitimate
means to prepare for the examinations should not be curtailed.

In the light of the above, We hereby REVERSE and SET ASIDE, the decision of the Court of Appeals in CA-G.R.
SP No. 10591 and another judgment is hereby rendered declaring Resolution No. 105 null and void and of no
force and effect for being unconstitutional. This decision is immediately executory. No costs.

SO ORDERED.

G.R. No. L-30918 July 18, 1974

ANNIE SAND, LYDIA VALDES, LUZ SABAS, JOSEFINA A. MENDOZA and ROSARIO A. ORDIZ, in their
capacity as Chairman and Members of the Board of Examiners for Nurses, petitioners,
vs.
ABAD SANTOS EDUCATIONAL INSTITUTION, SCHOOL OF NURSING and HON. WALFRIDO DE LOS
ANGELES, Judge of the Court of First Instance of Rizal, Branch IV, Quezon City, respondents.

Office of the Solicitor Felix V. Makasiar, Assistant Solicitor General Conrado T. Limcaoco and Solicitor Pedro A.
Ramirez for petitioners.

Tolentino, Garcia, Cruz & Reyes for respondents.

TEEHANKEE, J.:p

The Court reverses respondent court's judgment in declaratory relief declaring "void, illegal and of no effect"
against respondent nursing School and its graduates the challenged regulation of petitioner board providing for
periodic inspection of nursing schools and barring from admission to the nurses' examination the graduates of
schools that are duly found to be sub-standard during the period of the deficiency, and in lieu thereof renders
judgment declaring the said regulation valid and applicable to all existing schools of nursing.

In an action for declaratory relief filed on September 18, 1968 by respondent Abad Santos School of Nursing
against petitioners chairman and members of the Board of Examiners for Nurses seeking a declaration that
"Article VIII, Rule 69, section 5 of the rules and regulations [of petitioner board] adopted on July 27, 1967 (is) void,
illegal and ineffective and without force of law and that [respondent school] is not required to comply with the
terms and provisions thereof" respondent court after hearing rendered its decision of June 24, 1969 holding that
while petitioner board has "the full authority under section 9, Republic Act No. 877, as amended to promulgate
said rules and regulations," particularly the cited regulation providing for periodic inspection of nursing schools,
the board "may apply only the same to new schools or colleges established or opened after the promulgation of
said rules and regulations" and "conversely" may not be given "retroactive effect" and "cannot be enforced on
schools and colleges already duly accredited by the Bureau of Private Schools" prior to the promulgation by the
board of the 1967 rules and regulations.

Respondent court thus rendered judgment declaring that "paragraph 5, Rule 69, Art. VIII of the Rules and
Regulations promulgated by the respondents members of the Board of Examiners for Nurses is void, illegal and of
no effect against herein petitioner and its graduates."

Hence, the present petition seeking a reversal of respondent court's judgment and for a declaration of validity of
the disputed rule.

The petition is meritorious and should be granted.

1. The disputed regulation provides for periodic inspection of nursing schools and bars graduates of such schools
that do not comply "with the minimum requirements and standards" from admission to the nurses' examination or
registration as a registered nurse, as follows:

(5) Periodic inspection. Colleges, institutes or schools of nursing shall be inspected


periodically. Whenever a college institute or school of nursing is not, being conducted in
accordance with the minimum requirements and standards contemplated in these regulations, no
graduate of such college, institute or school attending courses therein during the period of the
deficiency shall be eligible foradmission to the nurses' examination or be entitled to a certificate
of registration as a registered nurse. Findings of such inspection will be sent to the authorities of
the school and the suggestions therein regarding required improvements should be carried out
within one year." 1

Respondent school's challenge against the authority of petitioner board to promulgate the disputed regulation for
periodic inspection by the board and for non-admission to the nurses' examination conducted by the board of
graduates of sub-standard nursing Schools is manifestly untenable.

The Philippine Nursing Act, 2 Republic Act No. 877 as amended by Republic Act No. 4704 (approved June 18,
1966) 3expressly empowers in section 9 thereof the petitioner board "subject to the approval of the President of
the Philippines [to] promulgate such rules and regularly as may be necessary to carry out the provisions of this
Act."

Section 3 of the cited Act specifically empowers petitioner board to inspect nursing colleges and schools and
vests it with authority 4 "to issue, suspend, revoke, or reissue certificates of registration for practice of nursing. The
Board shall study the conditions affecting nursing education and the practice of the nursing profession in the
Philippines, and shall exercise the powers conferred upon it by this Act with a view to the maintenance of
an efficient ethical, technical, moral and professional standard in the practice of nursing. The Board shall likewise
study and examine the facilities of hospitals or universities seeking permission to open new schools or colleges of
nursing or departments of nursing education so as to see if the essential requirements therefor including qualified
faculty and adequate budget are properly complied with. The authorization to open schools or college of nursing
shall be based upon the written recommendation of the Board and the representative of the Government entity
concerned with the granting of school permits or authorization." It further provides that "(T)he Board shall have the
power to investigate violations of this Act ... The Board shall from time to time look into the conditions affecting the
practice of nursing in the Philippines and whenever necessary, recommend or adopt such measures as may be
deemed proper for the advancement of the profession and for the vigorous enforcement of this Act."

As regards the petitioner board's power to deny admission to the nurses' examination and registration as
registered nurses to the graduates of schools that are found to be sub-standard, i.e. "not being conducted in
accordance with the minimum requirements and standards contemplated in (the) regulations," section 20 of the
Act expressly provides that "'In order to be admitted to the nurse examination, an applicant must, at the time of
filing his or her application therefor, establish to the satisfaction of the, Board that' he has all the requisite
qualification provided for by law." Sections 11 to 15 of the same Act ordain in connection therewith inter alia that
schools and colleges of nursing should be established for the preparation of qualified applicants for the profession
of nursing and should be operated as educational institutions (Section 11); that adequate budget for the operation
of said schools or colleges and their libraries, classrooms, teaching equipment and supplies should be provided
(section 12); that clinical and public health nursing facilities should be established by said colleges or schools and
provisions for required experience of students be made (section 13); and that the prescribed qualification for
family and instructors in nursing be observed by all colleges, schools or institutes of nursing (section 14) and
the general entrance requirements of students to said colleges or schools be followed (section 15). 5

2. Since statutory authority plainly exists for petitioner board to conduct periodic inspections of nursing schools in
order to discharge its supervisory and regulatory functions vested in it under the Philippine Nursing Act, it next
remains to be determined whether there was arbitrariness or oppression in the board's exercise of its powers as
to amount to denial of substantive due process.

Respondents' petition with the lower court alleging that periodic inspection of duly accredited nursing school "is
under the responsibility and authority of the Bureau of Private Education," that it has "invested a considerable
amount of money in facilities and is duty bound to its students to continue giving them proper nursing education"
and that petitioner board's "threat to enforce" the periodic inspection rule will cause "irreparable injury and loss" to
respondent school and its students-prospective graduates alleges bare conclusions that are untenable in law and
are purely speculative and conjectural in fact.

Respondent's contention is untenable in law in that its argument that "to contend that the Board of Examiners for
Nurses has the same visitorial power over already existing schools of nursing as that conferred by law on the
Bureau of Private Education 6 might result in the highly anomalous situation that said Board and the Bureau of
Private Education might have different and conflicting findings on the conditions and standards of these Schools,
and a resultant power, struggle between these two agencies of the government, to the prejudice of the schools
concerned and their students and graduates," 7 manifestly addresses itself to the wisdom of the provisions of the
Act granting similar visitorial powers to the petitioner board as a specialized board composed of highly competent
technical persons, viz, "registered nurses of recognized standing in the Philippines" 8 whom the Congress deemed
could be relied upon to maintain high standards for nursing education and the nursing profession. It is well settled
that it is beyond the domain of the courts to inquire into the wisdom of the Act 9 vesting the petitioner board with
similar powers to that likewise entrusted to the Bureau of Private Education.

Respondent's speculation that petitioner board and the Bureau of Private Education might have "conflicting
findings on the conditions and standards of these schools (with) a resultant power struggle between these two
agencies" is of course pure speculation. While nursing schools were placed under the general supervision of the
Secretary of Education, the Congress likewise realized in line with progressive trends that a specialized agency
such as petitioner board of examiners for nurses should likewise exercise close supervision directly over nursing
schools since "the maintenance of an efficient ethical, technical, moral and professional standard in the practice of
nursing"10 has to begin in the school where the nursing education is given. Respondent does not claim and indeed
nothing in the record indications that the two agencies will not act responsibly and coordinate their efforts for the
maintenance of high standards for nursing schools and in the remote event of any serious disagreement, clear the
same through the office of the President under whose control and supervision they pertain.

3. There exists no justification in law and in fact, therefore, for respondent court's judgment declaring the cited
regulation for periodic inspection "void, illegal and of no effect" against respondent school and its graduates.
Respondent court's view that petitioner board's power of periodic inspection would apply only to new nursing
schools opened after the promulgation of the rule and not to existing schools already accredited by the Bureau of
Private Schools would lead to the absurd result whereby petitioner board would be utterly helpless with reference
to existing schools (which would constitute a special class) and powerless to require them
to maintain the minimum standards under pain of disqualifying their deficient graduates from the nurses'
examination.

Prescinding from the fact asserted by the Solicitor General (and un refuted by respondent) that the Cited rule
(Rule 69, section 5, Article VIII of the rules and regulations promulgated on July 27, 1967 by petitioner board) is
the same provision found in Rule 70, section 5, Article VIII of the original rules and regulations promulgated on
June 1, 1954 (thirteen years earlier) by the same board and which was never challenged by respondent school
nor has it been the object of any complaint from any of the other nursing schools, it cannot be gainsaid that the
cited regulation is one of the many of a proper exercise of police power by the State which is called to upon to it
and assure in the interest of public health and welfare that colleges and schools of nursing are properly conducted
and maintained in accordance with the standards fixed; that they do not become sub-standard or fall below the
standards; and that only qualified graduates are allowed to take the State examination and thereafter license to
practice the noble profession of nursing.

The Court has taken note of respondent court's rationale that "if the respondents will be allowed to enforce
paragraph 5, Rule 69 of the Rules and Regulations on the school of the herein petitioner, it will prejudice the
graduates of the school and the hundreds of students who have started their study of nursing long before the
promulgation of these Rules and Regulations in question and those who are scheduled to graduate from the said
school before the petitioner could comply with the inspection and other requirements of the said new Rules and
Regulations. It is but reasonable, therefore, that those students who have commenced schooling or their studies
of nursing under the old curriculum which has been approved by the Bureau of Private Schools, and which
petitioner has been following up to the present time be allowed to graduate and to take the examinations." While
the Court has held in Marquez vs. Board of Medical Examiners 11 that "no one who has commenced preparation
in a particular institution has any inchoate right on account of that fact. If the law were otherwise upon this point, it
would be impossible for the Board of Medical Examiners to give effect to the knowledge which they from time to
time acquire as to the standing of medical schools; and an intending physician, upon matriculating in a particular
college, takes upon himself the risk of changes that may be made in the standing of the institution by the board,"
nothing exists in the record to remotely indicate that petitioner board was poised in the discharge of its periodic
inspection in 1967 to impose new requirements and changes in the curriculum that would be enforced upon the
current graduates and prevent them from taking the examination that year.

In this regard, the presumption is that petitioner board would discharge its task justly and reasonably in
accordance with established norms. Where it would impose new substantive requirements in the curricula or the
facilities to upgrade the standards beyond the minimum requirements, such requirements would
be prospectively imposed in the same manner cited by respondent court that this Court in requiring a four-year's
bachelor's degree (in lieu of the previous 2-year pre-law course) for admission to the study of law applied the new
requirement prospectively and allowed those already admitted to the study of law (from 1st to 4th year with a 2-
year pre-law course) to continue with their studies and upon graduation to take the bar examination.

But where the board finds in the course of its periodic inspection that a nursing school does not meet the standing
minimum requirements and standards then it is the board's duty, as provided in the rule, to require
the deficientschool to make the required improvements as would enable it to meet the minimum standards which
must be carried out within one year and meanwhile to bar the would-be graduates of such deficient school from
the nurses' examination until its deficiency and that of its would-be graduates shall have been removed.

ACCORDINGLY, the judgment under review of respondent court is hereby reversed and set aside, and in lieu
thereof judgment is hereby rendered declaring the validity of Article VIII, Rule 69, section 5 of the Rules and
Regulations adopted by petitioner board on July 27, 1967 and its applicability to all existing colleges, institutes or
schools of nursing.

G.R. No. 163583 August 20, 2008

BRITISH AMERICAN TOBACCO, petitioner,


vs.
JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Department of Finance and GUILLERMO
L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal Revenue, respondents.
Philip Morris Philippines Manufacturing, Inc., fortune tobacco, corp., MIGHTY CORPORATION, and JT
InTERNATIONAL, S.A., respondents-in-intervention.

DECISION

YNARES-SANTIAGO, J.:

This petition for review assails the validity of: (1) Section 145 of the National Internal Revenue Code (NIRC), as
recodified by Republic Act (RA) 8424; (2) RA 9334, which further amended Section 145 of the NIRC on January
1, 2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue Memorandum Order No. 6-
2003. Petitioner argues that the said provisions are violative of the equal protection and uniformity clauses of the
Constitution.

RA 8240, entitled "An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and For Other
Purposes," took effect on January 1, 1997. In the same year, Congress passed RA 8424 or The Tax Reform Act
of 1997, re-codifying the NIRC. Section 142 was renumbered as Section 145 of the NIRC.

Paragraph (c) of Section 145 provides for four tiers of tax rates based on the net retail price per pack of
cigarettes. To determine the applicable tax rates of existing cigarette brands, a survey of the net retail prices per
pack of cigarettes was conducted as of October 1, 1996, the results of which were embodied in Annex "D" of the
NIRC as the duly registered, existing or active brands of cigarettes.

Paragraph (c) of Section 145, 1 states

SEC. 145. Cigars and cigarettes.

xxxx

(c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes packed
by machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be Thirteen pesos and forty-four centavos (P13.44) per pack;

(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos
and fifty centavos (P6.50) but does not exceed Ten pesos (10.00) per pack, the tax shall be Eight
pesos and ninety-six centavos (P8.96) per pack;

(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00)
but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos
and sixty centavos (P5.60) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be One peso and twelve centavos (P1.12) per pack.

Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity
of this Act shall be taxed under the highest classification of any variant of that brand.

xxxx

New brands shall be classified according to their current net retail price.

For the above purpose, net retail price shall mean the price at which the cigarette is sold on retail in 20
major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount
intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only
outside Metro Manila, the net retail price shall mean the price at which the cigarette is sold in five major
supermarkets in the region excluding the amount intended to cover the applicable excise tax and the
value-added tax.

The classification of each brand of cigarettes based on its average net retail price as of October 1,
1996, as set forth in Annex "D" of this Act, shall remain in force until revised by Congress.
(Emphasis supplied)

As such, new brands of cigarettes shall be taxed according to their current net retail price while existing or "old"
brands shall be taxed based on their net retail price as of October 1, 1996.

To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97,2 which
classified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New
brands, or those registered after January 1, 1997, shall be initially assessed at their suggested retail price until
such time that the appropriate survey to determine their current net retail price is conducted. Pertinent portion of
the regulations reads

SECTION 2. Definition of Terms.

xxxx

3. Duly registered or existing brand of cigarettes shall include duly registered, existing or active brands
of cigarettes, prior to January 1, 1997.

xxxx

6. New Brands shall mean brands duly registered after January 1, 1997 and shall include duly
registered, inactive brands of cigarette not sold in commercial quantity before January 1, 1997.

Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of Existing
Brands.

xxxx

B. New Brand

New brands shall be classified according to their current net retail price. In the meantime that the current
net retail price has not yet been established, the suggested net retail price shall be used to determine the
specific tax classification. Thereafter, a survey shall be conducted in 20 major supermarkets or retail
outlets in Metro Manila (for brands of cigarette marketed nationally) or in five (5) major supermarkets or
retail outlets in the region (for brands which are marketed only outside Metro Manila) at which the
cigarette is sold on retail in reams/cartons, three (3) months after the initial removal of the new brand to
determine the actual net retail price excluding the excise tax and value added tax which shall then be the
basis in determining the specific tax classification. In case the current net retail price is higher than the
suggested net retail price, the former shall prevail. Any difference in specific tax due shall be assessed
and collected inclusive of increments as provided for by the National Internal Revenue Code, as
amended.

In June 2001, petitioner British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike
Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack. 3 Pursuant to
Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack.

On February 17, 2003, Revenue Regulations No. 9-2003,4 amended Revenue Regulations No. 1-97 by
providing, among others, a periodic review every two years or earlier of the current net retail price of new brands
and variants thereof for the purpose of establishing and updating their tax classification, thus:

For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof,
their current net retail price shall be reviewed periodically through the conduct of survey or any other
appropriate activity, as mentioned above, every two (2) years unless earlier ordered by the
Commissioner. However, notwithstanding any increase in the current net retail price, the tax classification
of such new brands shall remain in force until the same is altered or changed through the issuance of an
appropriate Revenue Regulations.

Pursuant thereto, Revenue Memorandum Order No. 6-20035 was issued on March 11, 2003, prescribing the
guidelines and procedures in establishing current net retail prices of new brands of cigarettes and alcohol
products.

Subsequently, Revenue Regulations No. 22-20036 was issued on August 8, 2003 to implement the revised tax
classification of certain new brands introduced in the market after January 1, 1997, based on the survey of their
current net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol
Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23, per pack, respectively. 7 Respondent
Commissioner of the Bureau of Internal Revenue thus recommended the applicable tax rate of P13.44 per pack
inasmuch as Lucky Strikes average net retail price is above P10.00 per pack.

Thus, on September 1, 2003, petitioner filed before the Regional Trial Court (RTC) of Makati, Branch 61, a
petition for injunction with prayer for the issuance of a temporary restraining order (TRO) and/or writ of preliminary
injunction, docketed as Civil Case No. 03-1032. Said petition sought to enjoin the implementation of Section 145
of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on
the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and
uniformity provisions of the Constitution.

Respondent Commissioner of Internal Revenue filed an Opposition8 to the application for the issuance of a TRO.
On September 4, 2003, the trial court denied the application for TRO, holding that the courts have no authority to
restrain the collection of taxes.9 Meanwhile, respondent Secretary of Finance filed a Motion to
Dismiss,10 contending that the petition is premature for lack of an actual controversy or urgent necessity to justify
judicial intervention.

In an Order dated March 4, 2004, the trial court denied the motion to dismiss and issued a writ of preliminary
injunction to enjoin the implementation of Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue
Memorandum Order No. 6-2003.11 Respondents filed a Motion for Reconsideration12 and Supplemental Motion for
Reconsideration.13 At the hearing on the said motions, petitioner and respondent Commissioner of Internal
Revenue stipulated that the only issue in this case is the constitutionality of the assailed law, order, and
regulations.14

On May 12, 2004, the trial court rendered a decision15 upholding the constitutionality of Section 145 of the NIRC,
Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003. The trial court
also lifted the writ of preliminary injunction. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the instant Petition is hereby DISMISSED for lack of merit. The Writ
of Preliminary Injunction previously issued is hereby lifted and dissolved.

SO ORDERED.16

Petitioner brought the instant petition for review directly with this Court on a pure question of law.

While the petition was pending, RA 9334 (An Act Increasing The Excise Tax Rates Imposed on Alcohol And
Tobacco Products, Amending For The Purpose Sections 131, 141, 143, 144, 145 and 288 of the NIRC of 1997,
As Amended), took effect on January 1, 2005. The statute, among others,

(1) increased the excise tax rates provided in paragraph (c) of Section 145;

(2) mandated that new brands of cigarettes shall initially be classified according to their suggested net retail price,
until such time that their correct tax bracket is finally determined under a specified period and, after which, their
classification shall remain in force until revised by Congress;

(3) retained Annex "D" as tax base of those surveyed as of October 1, 1996 including the classification of brands
for the same products which, although not set forth in said Annex "D," were registered on or before January 1,
1997 and were being commercially produced and marketed on or after October 1, 1996, and which continue to be
commercially produced and marketed after the effectivity of this Act. Said classification shall remain in force until
revised by Congress; and

(4) provided a legislative freeze on brands of cigarettes introduced between the period January 2, 1997 17 to
December 31, 2003, such that said cigarettes shall remain in the classification under which the BIR has
determined them to belong as of December 31, 2003, until revised by Congress.

Pertinent portions, of RA 9334, provides:

SEC. 145. Cigars and Cigarettes.


xxxx

(C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on cigarettes packed
by machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00)
per pack, the tax shall be:

Effective on January 1, 2005, Two pesos (P2.00) per pack;

Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;

Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and

Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.

(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does
not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be:

Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;

Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;

Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and

Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.

(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty
centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be:

Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;

Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;

Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and

Effective on January 1, 2011, Twelve pesos (P12.00) per pack.

(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00)
per pack, the tax shall be:

Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;

Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;

Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and

Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.

xxxx

New brands, as defined in the immediately following paragraph, shall initially be classified according to
their suggested net retail price.

New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.

Suggested net retail price shall mean the net retail price at which new brands, as defined above, of
locally manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on
retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other
regions, for those with regional markets. At the end of three (3) months from the product launch, the
Bureau of Internal Revenue shall validate the suggested net retail price of the new brand against the net
retail price as defined herein and determine the correct tax bracket under which a particular new brand of
cigarette, as defined above, shall be classified. After the end of eighteen (18) months from such
validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the
net retail price as of the time of revalidation in order to finally determine the correct tax bracket under
which a particular new brand of cigarettes shall be classified; Provided however, That brands of
cigarettes introduced in the domestic market between January 1, 1997 [should be January 2,
1997] and December 31, 2003 shall remain in the classification under which the Bureau of Internal
Revenue has determined them to belong as of December 31, 2003. Such classification of new
brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be
revised except by an act of Congress.

Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be conducted
by the Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose
by the Bureau of Internal Revenue, shall mean the price at which the cigarette is sold in retail in at least
twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding
the amount intended to cover the applicable excise tax and the value-added tax. For brands which are
marketed only outside Metro Manila, the "net retail price" shall mean the price at which the cigarette is
sold in at least five (5) major supermarkets in the region excluding the amount intended to cover the
applicable excise tax and value-added tax.

The classification of each brand of cigarettes based on its average net retail price as of October 1,
1996, as set forth in Annex "D", including the classification of brands for the same products
which, although not set forth in said Annex "D", were registered and were being commercially
produced and marketed on or after October 1, 1996, and which continue to be commercially
produced and marketed after the effectivity of this Act, shall remain in force until revised by
Congress. (Emphasis added)

Under RA 9334, the excise tax due on petitioners products was increased to P25.00 per pack. In the
implementation thereof, respondent Commissioner assessed petitioners importation of 911,000 packs of Lucky
Strike cigarettes at the increased tax rate of P25.00 per pack, rendering it liable for taxes in the total sum of
P22,775,000.00.18

Hence, petitioner filed a Motion to Admit Attached Supplement19 and a Supplement20 to the petition for review,
assailing the constitutionality of RA 9334 insofar as it retained Annex "D" and praying for a downward
classification of Lucky Strike products at the bracket taxable at P8.96 per pack. Petitioner contended that the
continued use of Annex "D" as the tax base of existing brands of cigarettes gives undue protection to said brands
which are still taxed based on their price as of October 1996 notwithstanding that they are now sold at the same
or even at a higher price than new brands like Lucky Strike. Thus, old brands of cigarettes such as Marlboro and
Philip Morris which, like Lucky Strike, are sold at or more than P22.00 per pack, are taxed at the rate of P10.88
per pack, while Lucky Strike products are taxed at P26.06 per pack.

In its Comment to the supplemental petition, respondents, through the Office of the Solicitor General (OSG),
argued that the passage of RA 9334, specifically the provision imposing a legislative freeze on the classification of
cigarettes introduced into the market between January 2, 1997 and December 31, 2003, rendered the instant
petition academic. The OSG claims that the provision in Section 145, as amended by RA 9334, prohibiting the
reclassification of cigarettes introduced during said period, "cured the perceived defect of Section 145
considering that, like the cigarettes under Annex "D," petitioners brands and other brands introduced between
January 2, 1997 and December 31, 2003, shall remain in the classification under which the BIR has placed them
and only Congress has the power to reclassify them.

On March 20, 2006, Philip Morris Philippines Manufacturing Incorporated filed a Motion for Leave to Intervene
with attached Comment-in-Intervention.21 This was followed by the Motions for Leave to Intervene of Fortune
Tobacco Corporation,22 Mighty Corporation, 23 and JT International, S.A., with their respective Comments-in-
Intervention. The Intervenors claim that they are parties-in-interest who stand to be affected by the ruling of the
Court on the constitutionality of Section 145 of the NIRC and its Annex "D" because they are manufacturers of
cigarette brands which are included in the said Annex. Hence, their intervention is proper since the protection of
their interest cannot be addressed in a separate proceeding.

According to the Intervenors, no inequality exists because cigarettes classified by the BIR based on their net retail
price as of December 31, 2003 now enjoy the same status quo provision that prevents the BIR from reclassifying
cigarettes included in Annex "D." It added that the Court has no power to pass upon the wisdom of the legislature
in retaining Annex "D" in RA 9334; and that the nullification of said Annex would bring about tremendous loss of
revenue to the government, chaos in the collection of taxes, illicit trade of cigarettes, and cause decline in
cigarette demand to the detriment of the farmers who depend on the tobacco industry.

Intervenor Fortune Tobacco further contends that petitioner is estopped from questioning the constitutionality of
Section 145 and its implementing rules and regulations because it entered into the cigarette industry fully aware
of the existing tax system and its consequences. Petitioner imported cigarettes into the country knowing that its
suggested retail price, which will be the initial basis of its tax classification, will be confirmed and validated through
a survey by the BIR to determine the correct tax that would be levied on its cigarettes.

Moreover, Fortune Tobacco claims that the challenge to the validity of the BIR issuances should have been
brought by petitioner before the Court of Tax Appeals (CTA) and not the RTC because it is the CTA which has
exclusive appellate jurisdiction over decisions of the BIR in tax disputes.

On August 7, 2006, the OSG manifested that it interposes no objection to the motions for
intervention.24 Therefore, considering the substantial interest of the intervenors, and in the higher interest of
justice, the Court admits their intervention.
Before going into the substantive issues of this case, we must first address the matter of jurisdiction, in light of
Fortune Tobaccos contention that petitioner should have brought its petition before the Court of Tax Appeals
rather than the regional trial court.

The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act No.
9282. Section 7 thereof states, in pertinent part:

Sec. 7. Jurisdiction. The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where
the National Internal Revenue Code provides a specific period of action, in which case the inaction shall
be deemed a denial; xxx.25

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

In Drilon v. Lim,27 it was held:

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

The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section
145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. In fact, the RTC
limited the resolution of the subject case to the issue of the constitutionality of the assailed provisions. The
determination of whether the assailed law and its implementing rules and regulations contravene the Constitution
is within the jurisdiction of regular courts. The Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or
regulation in the courts, including the regional trial courts.28 Petitioner, therefore, properly filed the subject case
before the RTC.

We come now to the issue of whether petitioner is estopped from assailing the authority of the Commissioner of
Internal Revenue. Fortune Tobacco raises this objection by pointing out that when petitioner requested the
Commissioner for a ruling that its Lucky Strike Soft Pack cigarettes was a "new brand" rather than a variant of an
existing brand, and thus subject to a lower specific tax rate, petitioner executed an undertaking to comply with the
procedures under existing regulations for the assessment of deficiency internal revenue taxes.

Fortune Tobacco argues that petitioner, after invoking the authority of the Commissioner of Internal Revenue,
cannot later on turn around when the ruling is adverse to it.

Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on their own acts and
representations, to the prejudice of others who have relied on them. 29 The principle is codified in Article 1431 of
the Civil Code, which provides:
Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot
be denied or disproved as against the person relying thereon.

Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz:

Sec. 2. Conclusive presumptions. The following are instances of conclusive presumptions:

(a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising
out of such declaration, act or omission be permitted to falsify it.

The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of the true
facts, communicates something to another in a misleading way, either by words, conduct or silence; second, the
other in fact relies, and relies reasonably or justifiably, upon that communication;third, the other would be harmed
materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the
actor knows, expects or foresees that the other would act upon the information given or that a reasonable person
in the actor's position would expect or foresee such action.30

In the early case of Kalalo v. Luz,31 the elements of estoppel, as related to the party to be estopped, are: (1)
conduct amounting to false representation or concealment of material facts; or at least calculated to convey the
impression that the facts are other than, and inconsistent with, those which the party subsequently attempts to
assert; (2) intent, or at least expectation that this conduct shall be acted upon by, or at least influence, the other
party; and (3) knowledge, actual or constructive, of the real facts.

We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with all issuances of
the BIR, which at that time it considered as valid, petitioner did not commit any false misrepresentation or
misleading act. Indeed, petitioner cannot be faulted for initially undertaking to comply with, and subjecting itself to
the operation of Section 145(C), and only later on filing the subject case praying for the declaration of its
unconstitutionality when the circumstances change and the law results in what it perceives to be unlawful
discrimination. The mere fact that a law has been relied upon in the past and all that time has not been attacked
as unconstitutional is not a ground for considering petitioner estopped from assailing its validity. For courts will
pass upon a constitutional question only when presented before it in bona fide cases for determination, and the
fact that the question has not been raised before is not a valid reason for refusing to allow it to be raised later. 32

Now to the substantive issues.

To place this case in its proper context, we deem it necessary to first discuss how the assailed law operates in
order to identify, with precision, the specific provisions which, according to petitioner, have created a grossly
discriminatory classification scheme between old and new brands. The pertinent portions of RA 8240, as
amended by RA 9334, are reproduced below for ready reference:

SEC. 145. Cigars and Cigarettes.

xxxx

(C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on cigarettes packed
by machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00)
per pack, the tax shall be:

Effective on January 1, 2005, Two pesos (P2.00) per pack;

Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;

Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and

Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.

(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does
not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be:

Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;

Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;

Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and

Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty
centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be:

Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;

Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;

Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and

Effective on January 1, 2011, Twelve pesos (P12.00) per pack.

(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00)
per pack, the tax shall be:

Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;

Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;

Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and

Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.

xxxx

New brands, as defined in the immediately following paragraph, shall initially be classified according to
their suggested net retail price.

New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.

Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally
manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in
major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions,
for those with regional markets. At the end of three (3) months from the product launch, the Bureau of
Internal Revenue shall validate the suggested net retail price of the new brand against the net retail price
as defined herein and determine the correct tax bracket under which a particular new brand of cigarette,
as defined above, shall be classified. After the end of eighteen (18) months from such validation, the
Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price
as of the time of revalidation in order to finally determine the correct tax bracket under which a particular
new brand of cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the
domestic market between January 1, 1997 [should be January 2, 1997] and December 31, 2003 shall
remain in the classification under which the Bureau of Internal Revenue has determined them to belong
as of December 31, 2003. Such classification of new brands and brands introduced between January 1,
1997 and December 31, 2003 shall not be revised except by an act of Congress.

Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be conducted
by the Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose
by the Bureau of Internal Revenue, shall mean the price at which the cigarette is sold in retail in at least
twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding
the amount intended to cover the applicable excise tax and the value-added tax. For brands which are
marketed only outside Metro Manila, the "net retail price" shall mean the price at which the cigarette is
sold in at least five (5) major supermarkets in the region excluding the amount intended to cover the
applicable excise tax and value-added tax.

The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996,
as set forth in Annex "D", including the classification of brands for the same products which, although not
set forth in said Annex "D", were registered and were being commercially produced and marketed on or
after October 1, 1996, and which continue to be commercially produced and marketed after the effectivity
of this Act, shall remain in force until revised by Congress.

As can be seen, the law creates a four-tiered system which we may refer to as the low-priced,33medium-
priced,34 high-priced,35 and premium-priced36 tax brackets. When a brand is introduced in the market, the current
net retail price is determined through the aforequoted specified procedure. The current net retail price is then
used to classify under which tax bracket the brand belongs in order to finally determine the corresponding excise
tax rate on a per pack basis. The assailed feature of this law pertains to the mechanism where, after a brand is
classified based on its current net retail price, the classification is frozen and only Congress can thereafter
reclassify the same. From a practical point of view, Annex "D" is merely a by-product of the whole mechanism and
philosophy of the assailed law. That is, the brands under Annex "D" were also classified based on their current
net retail price, the only difference being that they were the first ones so classified since they were the only brands
surveyed as of October 1, 1996, or prior to the effectivity of RA 8240 on January 1, 1997. 37
Due to this legislative classification scheme, it is possible that over time the net retail price of a previously
classified brand, whether it be a brand under Annex "D" or a new brand classified after the effectivity of RA 8240
on January 1, 1997, would increase (due to inflation, increase of production costs, manufacturers decision to
increase its prices, etc.) to a point that its net retail price pierces the tax bracket to which it was previously
classified.38 Consequently, even if its present day net retail price would make it fall under a higher tax bracket, the
previously classified brand would continue to be subject to the excise tax rate under the lower tax bracket by
virtue of the legislative classification freeze.

Petitioner claims that this is what happened in 2004 to the Marlboro and Philip Morris brands, which were
permanently classified under Annex "D." As of October 1, 1996, Marlboro had net retail prices ranging from P6.78
to P6.84 while Philip Morris had net retail prices ranging from P7.39 to P7.48. Thus, pursuant to RA
8240,39 Marlboro and Philip Morris were classified under the high-priced tax bracket and subjected to an excise
tax rate of P8.96 per pack. Petitioner then presented evidence showing that after the lapse of about seven years
or sometime in 2004, Marlboros and Philip Morris net retail prices per pack both increased to about
P15.59.40 This meant that they would fall under the premium-priced tax bracket, with a higher excise tax rate of
P13.44 per pack,41 had they been classified based on their 2004 net retail prices. However, due to the legislative
classification freeze, they continued to be classified under the high-priced tax bracket with a lower excise tax rate.
Petitioner thereafter deplores the fact that its Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol
Lights cigarettes, introduced in the market sometime in 2001 and validated by a BIR survey in 2003, were found
to have net retail prices of P11.53, P11.59 and P10.34,42 respectively, which are lower than those of Marlboro and
Philip Morris. However, since petitioners cigarettes were newly introduced brands in the market, they were taxed
based on their current net retail prices and, thus, fall under the premium-priced tax bracket with a higher excise
tax rate of P13.44 per pack. This unequal tax treatment between Marlboro and Philip Morris, on the one hand,
and Lucky Strike, on the other, is the crux of petitioners contention that the legislative classification freeze
violates the equal protection and uniformity of taxation clauses of the Constitution.

It is apparent that, contrary to its assertions, petitioner is not only questioning the undue favoritism accorded to
brands under Annex "D," but the entire mechanism and philosophy of the law which freezes the tax classification
of a cigarette brand based on its current net retail price. Stated differently, the alleged discrimination arising from
the legislative classification freeze between the brands under Annex "D" and petitioners newly introduced brands
arose only because the former were classified based on their "current" net retail price as of October 1,
1996 and petitioners newly introduced brands were classified based on their "current" net retail price as of 2003.
Without this corresponding freezing of the classification of petitioners newly introduced brands based on their
current net retail price, it would be impossible to establish that a disparate tax treatment occurred between the
Annex "D" brands and petitioners newly introduced brands.

This clarification is significant because, under these circumstances, a declaration of unconstitutionality would
necessarily entail nullifying the whole mechanism of the law and not just Annex "D." Consequently, if the assailed
law is declared unconstitutional on equal protection grounds, the entire method by which a brand of cigarette is
classified would have to be invalidated. As a result, no method to classify brands under Annex "D" as well as new
brands would be left behind and the whole Section 145 of the NIRC, as amended, would become inoperative.43

To simplify the succeeding discussions, we shall refer to the whole mechanism and philosophy of the assailed law
which freezes the tax classification of a cigarette brand based on its current net retail price and which, thus,
produced different classes of brands based on the time of their introduction in the market (starting with the brands
in Annex "D" since they were the first brands so classified as of October 1, 1996) as the classification freeze
provision.44

As thus formulated, the central issue is whether or not the classification freeze provision violates the equal
protection and uniformity of taxation clauses of the Constitution.

In Sison, Jr. v. Ancheta,45 this Court, through Chief Justice Fernando, explained the applicable standard in
deciding equal protection and uniformity of taxation challenges:

Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the police power or the power of
eminent domain is to demonstrate "that the governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination
that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection and security shall be given to
every person under circumstances, which if not identical are analogous. If law be looks upon in terms of
burden or charges, those that fall within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest." That same formulation applies as well
to taxation measures. The equal protection clause is, of course, inspired by the noble concept of
approximating the ideal of the laws's benefits being available to all and the affairs of men being governed
by that serene and impartial uniformity, which is of the very essence of the idea of law. There is, however,
wisdom, as well as realism, in these words of Justice Frankfurter: "The equality at which the 'equal
protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal
protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B
and C, but are expressions of policy arising out of specific difficulties, addressed to the attainment of
specific ends by the use of specific remedies. The Constitution does not require things which are different
in fact or opinion to be treated in law as though they were the same." Hence the constant reiteration of
the view that classification if rational in character is allowable. As a matter of fact, in a leading case
of Lutz v. Araneta, this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is
inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation.'"

Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of
taxation shall be uniform and equitable." This requirement is met according to Justice Laurel in Philippine
Trust Company v. Yatco, decided in 1940, when the tax "operates with the same force and effect in every
place where the subject may be found." He likewise added: "The rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly attainable." The problem of classification did
not present itself in that case. It did not arise until nine years later, when the Supreme Court held:
"Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation, . . . As clarified by Justice Tuason, where "the differentiation"
complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the
meaning of this clause and is therefore uniform." There is quite a similarity then to the standard of equal
protection for all that is required is that the tax "applies equally to all persons, firms and corporations
placed in similar situation."46 (Emphasis supplied)

In consonance thereto, we have held that "in our jurisdiction, the standard and analysis of equal protection
challenges in the main have followed the rational basis test, coupled with a deferential attitude to legislative
classifications and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of
the Constitution."47 Within the present context of tax legislation on sin products which neither contains a suspect
classification nor impinges on a fundamental right, the rational-basis test thus finds application. Under this test, a
legislative classification, to survive an equal protection challenge, must be shown to rationally further a legitimate
state interest.48 The classifications must be reasonable and rest upon some ground of difference having a fair and
substantial relation to the object of the legislation.49 Since every law has in its favor the presumption of
constitutionality, the burden of proof is on the one attacking the constitutionality of the law to prove beyond
reasonable doubt that the legislative classification is without rational basis. 50 The presumption of constitutionality
can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive
discrimination against particular persons and classes, and that there is no conceivable basis which might support
it.51

A legislative classification that is reasonable does not offend the constitutional guaranty of the equal protection of
the laws. The classification is considered valid and reasonable provided that: (1) it rests on substantial
distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to both present and
future conditions; and (4) it applies equally to all those belonging to the same class. 52

The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in the law for
reasons of practicality and expediency. That is, since a new brand was not yet in existence at the time of the
passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a new brand. The
current net retail price, similar to what was used to classify the brands under Annex "D" as of October 1, 1996,
was thus the logical and practical choice. Further, with the amendments introduced by RA 9334, the freezing of
the tax classifications now expressly applies not just to Annex "D" brands but to newer brands introduced after the
effectivity of RA 8240 on January 1, 1997 and any new brand that will be introduced in the future. 53 (However, as
will be discussed later, the intent to apply the freezing mechanism to newer brands was already in place even
prior to the amendments introduced by RA 9334 to RA 8240.) This does not explain, however, why the
classification is "frozen" after its determination based on current net retail price and how this is germane to the
purpose of the assailed law. An examination of the legislative history of RA 8240 provides interesting answers to
this question.

RA 8240 was the first of three parts in the Comprehensive Tax Reform Package then being pushed by the Ramos
Administration. It was enacted with the following objectives stated in the Sponsorship Speech of Senator Juan
Ponce Enrile (Senator Enrile), viz:

First, to evolve a tax structure which will promote fair competition among the players in the industries
concerned and generate buoyant and stable revenue for the government.

Second, to ensure that the tax burden is equitably distributed not only amongst the industries affected but
equally amongst the various levels of our society that are involved in various markets that are going to be
affected by the excise tax on distilled spirits, fermented liquor, cigars and cigarettes.

In the case of firms engaged in the industries producing the products that we are about to tax, this means
relating the tax burden to their market share, not only in terms of quantity, Mr. President, but in terms of
value.

In case of consumers, this will mean evolving a multi-tiered rate structure so that low-priced products are
subject to lower tax rates and higher-priced products are subject to higher tax rates.
Third, to simplify the tax administration and compliance with the tax laws that are about to unfold in order
to minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax evasion. 54

In the initial stages of the crafting of the assailed law, the Department of Finance (DOF) recommended to
Congress a shift from the then existing ad valorem taxation system to a specific taxation system with respect to
sin products, including cigarettes. The DOF noted that the ad valoremtaxation system was a source of massive
tax leakages because the taxpayer was able to evade paying the correct amount of taxes through the
undervaluation of the price of cigarettes using various marketing arms and dummy corporations. In order to
address this problem, the DOF proposed a specific taxation system where the cigarettes would be taxed based
on volume or on a per pack basis which was believed to be less susceptible to price manipulation. The reason
was that the BIR would only need to monitor the sales volume of cigarettes, from which it could easily compute
the corresponding tax liability of cigarette manufacturers. Thus, the DOF suggested the use of a three-tiered
system which operates in substantially the same manner as the four-tiered system under RA 8240 as earlier
discussed. The proposal of the DOF was embodied in House Bill (H.B.) No. 6060, the pertinent portions of which
states

SEC. 142. Cigars and cigarettes.

(c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes packed
by machine a tax at the rates prescribed below:

(1) If the manufacturers or importers wholesale price (net of excise tax and value-added tax) per pack
exceeds four pesos and twenty centavos (P4.20), the tax shall be seven pesos and fifty centavos (P7.50);

(2) If the manufacturers or importers wholesale price (net of excise tax and value-added tax) per pack
exceeds three pesos and ninety centavos (P3.90) but does not exceed four pesos and twenty centavos
(P4.20), the tax shall be five pesos and fifty centavos (P5.50): provided, that after two (2) years from the
effectivity of this Act, cigarettes otherwise subject to tax under this subparagraph shall be taxed under
subparagraph (1) above.

(3) If the manufacturers or importers wholesale price (net of excise tax and value-added tax) per pack
does not exceeds three pesos and ninety centavos (P3.90), the tax rate shall be one peso (P1.00).

Variants of existing brands and new brands of cigarettes packed by machine to be introduced in the
domestic market after the effectivity of this Act, shall be taxed under paragraph (c)(1) hereof.

The rates of specific tax on cigars and cigarettes under paragraphs (a), (b), and (c) hereof,
including the price levels for purposes of classifying cigarettes packed by machine, shall be
revised upward two (2) years after the effectivity of this Act and every two years thereafter by the
Commissioner of Internal Revenue, subject to the approval of the Secretary of Finance, taking into
account the movement of the consumer price index for cigars and cigarettes as established by the
National Statistics Office: provided, that the increase in taxes and/or price levels shall be equal to
the present change in such consumer price index for the two-year period: provided, further, that
the President, upon the recommendation of the Secretary of Finance, may suspend or defer the
adjustment in price levels and tax rates when the interest of the national economy and general
welfare so require, such as the need to obviate unemployment, and economic and social
dislocation: provided, finally, that the revised price levels and tax rates authorized herein shall in
all cases be rounded off to the nearest centavo and shall be in force and effect on the date of
publication thereof in a newspaper of general circulation. x x x (Emphasis supplied)

What is of particular interest with respect to the proposal of the DOF is that it contained a provision for the
periodic adjustment of the excise tax rates and tax brackets, and a corresponding periodic resurvey and
reclassification of cigarette brands based on the increase in the consumer price index as determined by the
Commissioner of Internal Revenue subject to certain guidelines. The evident intent was to prevent inflation from
eroding the value of the excise taxes that would be collected from cigarettes over time by adjusting the tax rate
and tax brackets based on the increase in the consumer price index. Further, under this proposal, old brands as
well as new brands introduced thereafter would be subjected to a resurvey and reclassification based on their
respective values at the end of every two years in order to align them with the adjustment of the excise tax rate
and tax brackets due to the movement in the consumer price index.55

Of course, we now know that the DOF proposal, insofar as the periodic adjustment of tax rates and tax brackets,
and the periodic resurvey and reclassification of cigarette brands are concerned, did not gain approval from
Congress. The House and Senate pushed through with their own versions of the excise tax system on beers and
cigarettes both denominated as H.B. No. 7198. For convenience, we shall refer to the bill deliberated upon by the
House as the House Version and that of the Senate as the Senate Version.

The Houses Committee on Ways and Means, then chaired by Congressman Exequiel B. Javier (Congressman
Javier), roundly rejected the DOF proposal. Instead, in its Committee Report submitted to the plenary, it proposed
a different excise tax system which used a specific tax as a basic tax with an ad valorem comparator. Further, it
deleted the proposal to have a periodic adjustment of tax rates and the tax brackets as well as periodic resurvey
and reclassification of cigarette brands, to wit:
The rigidity of the specific tax system calls for the need for frequent congressional intervention to adjust
the tax rates to inflation and to keep pace with the expanding needs of government for more revenues.
The DOF admits this flaw inherent in the tax system it proposed. Hence, to obviate the need for remedial
legislation, the DOF is asking Congress to grant to the Commissioner the power to revise, one, the
specific tax rates: and two, the price levels of beer and cigarettes. What the DOF is asking, Mr. Speaker,
is for Congress to delegate to the Commissioner of Internal Revenue the power to fix the tax rates and
classify the subjects of taxation based on their price levels for purposes of fixing the tax rates. While we
sympathize with the predicament of the DOF, it is not for Congress to abdicate such power. The power
sought to be delegated to be exercised by the Commissioner of Internal Revenue is a legislative power
vested by the Constitution in Congress pursuant to Section 1, Article VI of the Constitution. Where the
power is vested, there it must remain in Congress, a body of representatives elected by the people.
Congress may not delegate such power, much less abdicate it.

xxxx

Moreover, the grant of such power, if at all constitutionally permissible, to the Commissioner of Internal
Revenue is fraught with ethical implications. The debates on how much revenue will be raised, how much
money will be taken from the pockets of taxpayers, will inexorably shift from the democratic Halls of
Congress to the secret and non-transparent corridors of unelected agencies of government, the
Department of Finance and the Bureau of Internal Revenue, which are not accountable to our people. We
cannot countenance the shift for ethical reasons, lest we be accused of betraying the trust reposed on
this Chamber by the people. x x x

A final point on this proposal, Mr. Speaker, is the exercise of the taxing power of the Commissioner of
Internal Revenue which will be triggered by inflation rates based on the consumer price index. Simply
stated, Mr. Speaker, the specific tax rates will be fixed by the Commissioner depending on the price
levels of beers and cigarettes as determined by the consumers price index. This is a novel idea, if not
necessarily weird in the field of taxation. What if the brewer or the cigarette manufacturer sells at a price
below the consumers price index? Will it be taxed on the basis of the consumers price index which is
over and above its wholesale or retail price as the case may be? This is a weird form of exaction where
the tax is based not on what the brewer or manufacturer actually realized but on an imaginary wholesale
or retail price. This amounts to a taxation based on presumptive price levels and renders the specific tax
a presumptive tax. We hope, the DOF and the BIR will also honor a presumptive tax payment.

Moreover, specific tax rates based on price levels tied to consumers price index as proposed by the DOF
engenders anti-trust concerns. The proposal if enacted into law will serve as a barrier to the entry of new
players in the beer and cigarette industries which are presently dominated by shared monopolies. A new
player in these industries will be denied business flexibility to fix its price levels to promote its product and
penetrate the market as the price levels are dictated by the consumer price index. The proposed tax
regime, Mr. Speaker, will merely enhance the stranglehold of the oligopolies in the beer and cigarette
industries, thus, reversing the governments policy of dismantling monopolies and combinations in
restraint of trade.56

For its part, the Senates Committee on Ways and Means, then chaired by Senator Juan Ponce Enrile (Senator
Enrile), developed its own version of the excise tax system on cigarettes. The Senate Version consisted of a four-
tiered system and, interestingly enough, contained a periodic excise tax rate and tax bracket adjustment as well
as a periodic resurvey and reclassification of brands provision ("periodic adjustment and reclassification
provision," for brevity) to be conducted by the DOF in coordination with the BIR and the National Statistics Office
based on the increase in the consumer price index similar to the one proposed by the DOF, viz:

SEC. 4 Section 142 of the National Internal Revenue Code, as amended, is hereby further amended to
read as follows:

"SEC. 142. Cigars and cigarettes.

xxxx

(c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes packed
by machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00)
per pack, the tax shall be Twelve pesos (P12.00) per pack;

(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty
centavos (P6.50) per pack, the tax shall be Eight pesos (P8.00) per pack;

(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) up to Six
pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;

(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00)
per pack, the tax shall be One peso (P1.00) per pack.
Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity
of this Act shall be taxed under the highest classification of any variant of that brand.

xxx

The rates of specific tax on cigars and cigarettes under subparagraph (a), (b) and (c) hereof,
including the net retail prices for purposes of classification, shall be adjusted on the sixth of
January three years after the effectivity of this Act and every three years thereafter. The
adjustment shall be in accordance with the inflation rate measured by the average increase in the
consumer price index over the three-year period. The adjusted tax rates and net price levels shall
be in force on the eighth of January.

Within the period hereinabove mentioned, the Secretary of Finance shall direct the conduct of a
survey of retail prices of each brand of cigarettes in coordination with the Bureau of Internal
Revenue and the National Statistics Office.

For purposes of this Section, net retail price shall mean the price at which the cigarette is sold on retail in
20 major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the
amount intended to cover the applicable excise tax and the value-added tax. For brands which are
marketed only outside Metro Manila, the net retail price shall mean the price at which the cigarette is sold
in five major supermarkets in the region excluding the amount intended to cover the applicable excise tax
and the value-added tax.

The classification of each brand of cigarettes in the initial year of implementation of this Act shall
be based on its average net retail price as of October 1, 1996. The said classification by brand
shall remain in force until January 7, 2000.

New brands shall be classified according to their current net retail price. 57 (Emphasis supplied)

During the period of interpellations, the late Senator Raul S. Roco (Senator Roco) expressed doubts as to the
legality and wisdom of putting a periodic adjustment and reclassification provision:

Senator Enrile: This will be the first time that a tax burden will be allowed to be automatically adjusted
upwards based on a system of indexing tied up with the Consumers Price Index (CPI). Although I must
add that we have adopted a similar system in adjusting the personal tax exemption from income tax of
our individual taxpayers.

Senator Roco: They are not exactly the same, Mr. President. But even then, we do note that this the first
time we are trying to put an automatic adjustment. My concern is, why do we propose now this automatic
adjustment? What is the reason that impels the committee? Maybe we can be enlightened and maybe we
shall embrace it forthwith. But what is the reason?

Senator Enrile: Mr. President, we will recall that in the House of Representatives, it has adopted a tax
proposal on these products based on a specific tax as a basic tax with an ad valoremcomparator. The
Committee on Ways and Means of the Senate has not seen it fit to adopt this system, but it recognized
the possibility that there may be an occasion where the price movement in the country might
unwarrantedly move upwards, in which case, if we peg the government to a specific tax rate of P6.30,
P9.30 and P12.30 for beer, since we are talking of beer, 58 the government might lose in the process.

In order to consider the interest of the government in this, Mr. President, and in order to obviate the
possibility that some of these products categorized under the different tiers with different specific tax rates
from moving upwards and piercing their own tiers and thereby expose themselves to an incremental tax
of higher magnitude, it was felt that we should adopt a system where, in spite of any escalation in the
price of these products in the future, the tax rates could be adjusted upwards so that none of these
products would leave their own tier. That was the basic principle under which we crafted this portion of
the tax proposal.

Senator Roco: Mr. President, we certainly share the judgment of the distinguished gentleman as regards
the comparator provision in the House of Representatives and we appreciate the reasons given. But we
are under the impression that the House also, aside from the comparator, has an adjustment clause that
is fixed. It has fixed rates for the adjustment. So that one of the basic differences between the Senate
proposed version now and the House version is that, the House of Representatives has manifested its will
and judgment as regards the tax to which we will adjust, whereas the Senate version relegates
fundamentally that judgment to the Department of Finance.

Senator Enrile: That is correct, Mr. President, because we felt that in imposing a fixed adjustment, we
might be fixing an amount that is either too high or too low. We cannot foresee the economic trends in this
country over a period of two years, three years, let alone ten years. So we felt that a mechanism ought to
be adopted in order to serve the interest of the government, the interest of the producers, and the interest
of the consuming public.
Senator Roco: This is where, Mr. President, my policy difficulties start. Under the Constitution I think it
is Article VI, Section 24, and it was the distinguished chairman of the Committee on Ways and Means
who made this Chamber very conscious of this provision revenue measures and tariff measures shall
originate exclusively from the House of Representatives.

The reason for this, Mr. President, is, there is a long history why the House of Representatives must
originate judgments on tax. The House members represent specific districts. They represent specific
constituencies, and the whole history of parliamentarism, the whole history of Congress as an institution
is founded on the proposition that the direct representatives of the people must speak about taxes.

Mr. President, while the Senate can concur and can introduce amendments, the proposed change here is
radical. This is the policy difficulty that I wish to clarify with the gentleman because the judgment call now
on the amount of tax to be imposed is not coming from Congress. It is shifted to the Department of
Finance. True, the Secretary of Finance may have been the best finance officer two years ago and now
the best finance officer in Asia, but that does not make him qualified to replace the judgment call of the
House of Representatives. That is my first difficulty.

Senator Enrile: Mr. President, precisely the law, in effect, authorizes this rate beforehand. The
computation of the rate is the only thing that was left to the Department of Finance as a tax implementor
of Congress. This is not unusual because we have already, as I said, adopted a system similar to this. If
we adjust the personal exemption of an individual taxpayer, we are in effect adjusting the applicable tax
rate to him.

Senator Roco: But the point I was trying to demonstrate, Mr. President, is that we depart precisely from
the mandate of the Constitution that judgment on revenue must emanate from Congress. Here, it is
shifted to the Department of Finance for no visible or patent reason insofar as I could understand. The
only difference is, who will make the judgment? Should it be Congress?

Senator Enrile: Mr. President, forgive me for answering sooner than I should. My understanding of the
Constitution is that all revenue measures must emanate from the House. That is all the Constitution says.

Now, it does not say that the judgment call must belong to the House. The judgment call can belong both
to the House and to the Senate. We can change whatever proposal the House did. Precisely, we are now
crafting a measure, and we are saying that this is the rate subject to an adjustment which we also
provide. We are not giving any unusual power to the Secretary of Finance because we tell him, "This is
the formula that you must adopt in arriving at the adjustment so that you do not have to come back to
us."59

Apart from his doubts as to the legality of the delegation of taxing power to the DOF and BIR, Senator Roco also
voiced out his concern about the possible abuse and corruption that will arise from the periodic adjustment and
reclassification provision. Continuing

Senator Roco: Mr. President, if that is the argument, that the distinguished gentleman has a different legal
interpretation, we will then now examine the choice. Because his legal interpretation is different from
mine, then the issues becomes: Is it more advantageous that this judgment be exercised by the
House? Should we not concur or modify in terms of the exercise by the House of its power or are
we better off giving this judgment call to the Department of Finance?

Let me now submit, Mr. President, that in so doing, it is more advantageous to fix the rate so that
even if we modify the rates identified by Congress, it is better and less susceptible to abuse.

For instance, Mr. President, would the gentlemen wish to demonstrate to us how this will be done? On
page 8, lines 5 to 9, there is a provision here as to when the Secretary of Finance shall direct the conduct
of survey of retail prices of each brand of fermented liquor in coordination with the Bureau of Internal
Revenue and the National Statistics Office.

These offices are not exactly noted, Mr. President, for having been sanctified by the Holy Spirit in their
noble intentions. x x x60 (Emphasis supplied)

Pressing this point, Senator Roco continued his query:

Senator Roco: x x x [On page 8, lines 5 to 9] it says that during the two-year period, the Secretary of
Finance shall direct the conduct of the survey. How? When? Which retail prices and what brand shall he
consider? When he coordinates with the Bureau of Internal Revenue, what is the Bureau of Internal
Revenue supposed to be doing? What is the National Statistics Office supposed to be doing, and under
what guides and standards?

May the gentleman wish to demonstrate how this will be done? My point, Mr. President, is, by giving
the Secretary of Finance, the BIR and the National Statistics Office discretion over a two-year
period will invite corruption and arbitrariness, which is more dangerous than letting the House of
Representatives and this Chamber set the adjustment rate. Why not set the adjustment rate? Why
should Congress not exercise that judgment now? x x x
Senator Enrile: x x x

Senator Roco: x x x We respectfully submit that the Chairman consider choosing the judgment of this
Chamber and the House of Representatives over a delegated judgment of the Department of Finance.

Again, it is not to say that I do not trust the Department of Finance. It has won awards, and I also trust the
undersecretary. But that is beside the point. Tomorrow, they may not be there. 61(Emphasis supplied)

This point was further dissected by the two senators. There was a genuine difference of opinion as to which
system one with a fixed excise tax rate and classification or the other with a periodic adjustment of excise tax
rate and reclassification was less susceptible to abuse, as the following exchanges show:

Senator Enrile: Mr. President, considering the sensitivity of these products from the viewpoint of exerted
pressures because of the understandable impact of this measure on the pockets of the major players
producing these products, the committee felt that perhaps to lessen such pressures, it is best that we now
establish a norm where the tax will be adjusted without incurring too much political controversy as has
happened in the case of this proposal.

Senator Roco: But that is exactly the same reason we say we must rely upon Congress because
Congress, if it is subjected to pressure, at least balances off because of political factors.

When the Secretary of Finance is now subjected to pressure, are we saying that the Secretary of Finance
and the Department of Finance is better-suited to withstand the pressure? Or are we saying "Let the
Finance Secretary decide whom to yield"?

I am saying that the temptation and the pressure on the Secretary of Finance is more dangerous and
more corruption-friendly than ascertaining for ourselves now a fixed rate of increase for a fixed period.

Senator Enrile: Mr. President, perhaps the gentleman may not agree with this representation, but in my
humble opinion, this formulation is less susceptible to pressure because there is a definite point of
reference which is the consumer price index, and that consumer price index is not going to be used only
for this purpose. The CPI is used for a national purpose, and there is less possibility of tinkering with it.62

Further, Senator Roco, like Congressman Javier, expressed the view that the periodic adjustment and
reclassification provision would create an anti-competitive atmosphere. Again, Senators Roco and Enrile had
genuine divergence of opinions on this matter, to wit:

Senator Roco: x x x On the marketing level, an adjustment clause may, in fact, be disadvantageous to
both companies, whether it is the Lucio Tan companies or the San Miguel companies. If we have to
adjust our marketing position every two years based on the adjustment clause, the established company
may survive, but the new ones will have tremendous difficulty. Therefore, this provision tends to indicate
an anticompetitive bias.

It is good for San Miguel and the Lucio Tan companies, but the new companies assuming there may be
new companies and we want to encourage them because of the old point of liberalization will be at a
disadvantage under this situation. If this observation will find receptivity in the policy consideration of the
distinguished Gentleman, maybe we can also further, later on, seek amendments to this automatic
adjustment clause in some manner.

Senator Enrile: Mr. President, I cannot foresee any anti-competitiveness of this provision with respect to a
new entrant, because a new entrant will not just come in without studying the market. He is a lousy
businessman if he will just come in without studying the market. If he comes in, he will determine at what
retail price level he will market his product, and he will be coming under any of the tiers depending upon
his net retail price. Therefore, I do not see how this particular provision will affect a new entrant.

Senator Roco: Be that as it may, Mr. President, we obviously will not resort to debate until this evening,
and we will have to look for other ways of resolving the policy options.

Let me just close that particular area of my interpellation, by summarizing the points we were hoping
could be clarified.

1. That the automatic adjustment clause is at best questionable in law.

2. It is corruption-friendly in the sense that it shifts the discretion from the House of
Representatives and this Chamber to the Secretary of Finance, no matter how saintly he may be.

3. There is, although the judgment call of the gentleman disagrees to our view, an
anticompetitive situation that is geared at 63
After these lengthy exchanges, it appears that the views of Senator Enrile were sustained by the Senate Body
because the Senate Version was passed on Third Reading without substantially altering the periodic adjustment
and reclassification provision.

It was actually at the Bicameral Conference Committee level where the Senate Version underwent major
changes. The Senate Panel prevailed upon the House Panel to abandon the basic excise tax rate and ad
valorem comparator as the means to determine the applicable excise tax rate. Thus, the Senates four-tiered
system was retained with minor adjustments as to the excise tax rate per tier. However, the House Panel
prevailed upon the Senate Panel to delete the power of the DOF and BIR to periodically adjust the excise tax rate
and tax brackets, and periodically resurvey and reclassify the cigarette brands based on the increase in the
consumer price index.

In lieu thereof, the classification of existing brands based on their average net retail price as of October 1, 1996
was "frozen" and a fixed across-the-board 12% increase in the excise tax rate of each tier after three years from
the effectivity of the Act was put in place. There is a dearth of discussion in the deliberations as to the applicability
of the freezing mechanism to new brands after their classification is determined based on their current net retail
price. But a plain reading of the text of RA 8240, even before its amendment by RA 9334, as well as the
previously discussed deliberations would readily lead to the conclusion that the intent of Congress was to likewise
apply the freezing mechanism to new brands. Precisely, Congress rejected the proposal to allow the DOF and
BIR to periodically adjust the excise tax rate and tax brackets as well as to periodically resurvey and reclassify
cigarettes brands which would have encompassed old and new brands alike. Thus, it would be absurd for us to
conclude that Congress intended to allow the periodic reclassification of new brands by the BIR after their
classification is determined based on their current net retail price. We shall return to this point when we tackle the
second issue.

In explaining the changes made at the Bicameral Conference Committee level, Senator Enrile, in his report to the
Senate plenary, noted that the fixing of the excise tax rates was done to avoid confusion. 64 Congressman Javier,
for his part, reported to the House plenary the reasons for fixing the excise tax rate and freezing the classification,
thus:

Finally, this twin feature, Mr. Speaker, fixed specific tax rates and frozen classification, rejects the Senate
version which seeks to abdicate the power of Congress to tax by pegging the rates as well as the
classification of sin products to consumer price index which practically vests in the Secretary of
Finance the power to fix the rates and to classify the products for tax purposes.65 (Emphasis
supplied)

Congressman Javier later added that the frozen classification was intended to give stability to the industry as the
BIR would be prevented from tinkering with the classification since it would remain unchanged despite the
increase in the net retail prices of the previously classified brands. 66 This would also assure the industry players
that there would be no new impositions as long as the law is unchanged. 67

From the foregoing, it is quite evident that the classification freeze provision could hardly be considered arbitrary,
or motivated by a hostile or oppressive attitude to unduly favor older brands over newer brands. Congress was
unequivocal in its unwillingness to delegate the power to periodically adjust the excise tax rate and tax brackets
as well as to periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price
index to the DOF and the BIR. Congress doubted the constitutionality of such delegation of power, and likewise,
considered the ethical implications thereof. Curiously, the classification freeze provision was put in place of the
periodic adjustment and reclassification provision because of the belief that the latter would foster an anti-
competitive atmosphere in the market. Yet, as it is, this same criticism is being foisted by petitioner upon
the classification freeze provision.

To our mind, the classification freeze provision was in the main the result of Congresss earnest efforts to improve
the efficiency and effectivity of the tax administration over sin products while trying to balance the same with other
state interests. In particular, the questioned provision addressed Congresss administrative concerns regarding
delegating too much authority to the DOF and BIR as this will open the tax system to potential areas for abuse
and corruption. Congress may have reasonably conceived that a tax system which would give the least amount of
discretion to the tax implementers would address the problems of tax avoidance and tax evasion.

To elaborate a little, Congress could have reasonably foreseen that, under the DOF proposal and the Senate
Version, the periodic reclassification of brands would tempt the cigarette manufacturers to manipulate their price
levels or bribe the tax implementers in order to allow their brands to be classified at a lower tax bracket even if
their net retail prices have already migrated to a higher tax bracket after the adjustment of the tax brackets to the
increase in the consumer price index. Presumably, this could be done when a resurvey and reclassification is
forthcoming. As briefly touched upon in the Congressional deliberations, the difference of the excise tax rate
between the medium-priced and the high-priced tax brackets under RA 8240, prior to its amendment, was P3.36.
For a moderately popular brand which sells around 100 million packs per year, this easily translates to
P336,000,000.68 The incentive for tax avoidance, if not outright tax evasion, would clearly be present. Then again,
the tax implementers may use the power to periodically adjust the tax rate and reclassify the brands as a tool to
unduly oppress the taxpayer in order for the government to achieve its revenue targets for a given year.

Thus, Congress sought to, among others, simplify the whole tax system for sin products to remove these potential
areas of abuse and corruption from both the side of the taxpayer and the government. Without doubt,
the classification freeze provision was an integral part of this overall plan. This is in line with one of the avowed
objectives of the assailed law "to simplify the tax administration and compliance with the tax laws that are about to
unfold in order to minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax
evasion."69 RA 9334 did not alter thisclassification freeze provision of RA 8240. On the contrary, Congress
affirmed this freezing mechanism by clarifying the wording of the law. We can thus reasonably conclude, as the
deliberations on RA 9334 readily show, that the administrative concerns in tax administration, which moved
Congress to enact the classification freeze provision in RA 8240, were merely continued by RA 9334. Indeed,
administrative concerns may provide a legitimate, rational basis for legislative classification. 70 In the case at bar,
these administrative concerns in the measurement and collection of excise taxes on sin products are readily
apparent as afore-discussed.

Aside from the major concern regarding the elimination of potential areas for abuse and corruption from the tax
administration of sin products, the legislative deliberations also show that theclassification freeze provision was
intended to generate buoyant and stable revenues for government. With the frozen tax classifications, the
revenue inflow would remain stable and the government would be able to predict with a greater degree of
certainty the amount of taxes that a cigarette manufacturer would pay given the trend in its sales volume over
time. The reason for this is that the previously classified cigarette brands would be prevented from moving either
upward or downward their tax brackets despite the changes in their net retail prices in the future and, as a result,
the amount of taxes due from them would remain predictable. The classification freeze provisi