[G.R. No. 118295.

May 2, 1997]

WIGBERTO E. TAADA and ANNA DOMINIQUE COSETENG, as

members of the Philippine Senate and as taxpayers; GREGORIO
ANDOLANA and JOKER ARROYO as members of the House of
Representatives and as taxpayers; NICANOR P. PERLAS and
HORACIO R. MORALES, both as taxpayers; CIVIL LIBERTIES
UNION, NATIONAL ECONOMIC PROTECTIONISM ASSOCIATION,
CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES,
LIKAS-KAYANG KAUNLARAN FOUNDATION, INC., PHILIPPINE
RURAL RECONSTRUCTION MOVEMENT, DEMOKRATIKONG
KILUSAN NG MAGBUBUKID NG PILIPINAS, INC., and PHILIPPINE
PEASANT INSTITUTE, in representation of various taxpayers and
as non-governmental organizations, petitioners, vs. EDGARDO
ANGARA, ALBERTO ROMULO, LETICIA RAMOS-SHAHANI,
HEHERSON ALVAREZ, AGAPITO AQUINO, RODOLFO BIAZON,
NEPTALI GONZALES, ERNESTO HERRERA, JOSE LINA, GLORIA
MACAPAGAL-ARROYO, ORLANDO MERCADO, BLAS OPLE,
JOHN OSMEA, SANTANINA RASUL, RAMON REVILLA, RAUL
ROCO, FRANCISCO TATAD and FREDDIE WEBB, in their
respective capacities as members of the Philippine Senate who
concurred in the ratification by the President of the Philippines of
the Agreement Establishing the World Trade Organization;
SALVADOR ENRIQUEZ, in his capacity as Secretary of Budget
and Management; CARIDAD VALDEHUESA, in her capacity as
National Treasurer; RIZALINO NAVARRO, in his capacity as
Secretary of Trade and Industry; ROBERTO SEBASTIAN, in his
capacity as Secretary of Agriculture; ROBERTO DE OCAMPO, in
his capacity as Secretary of Finance; ROBERTO ROMULO, in his
capacity as Secretary of Foreign Affairs; and TEOFISTO T.
GUINGONA, in his capacity as Executive Secretary, respondents.

DECISION
PANGANIBAN, J.:
 The emergence on January 1, 1995 of the World Trade Organization,
abetted by the membership thereto of the vast majority of countries has
revolutionized international business and economic relations amongst states. It
has irreversibly propelled the world towards trade liberalization and economic
globalization. Liberalization, globalization, deregulation and privatization, the
third-millennium buzz words, are ushering in a new borderless world of
business by sweeping away as mere historical relics the heretofore traditional
modes of promoting and protecting national economies like tariffs, export
subsidies, import quotas, quantitative restrictions, tax exemptions and currency
controls. Finding market niches and becoming the best in specific industries in
a market-driven and export-oriented global scenario are replacing age-old
beggar-thy-neighbor policies that unilaterally protect weak and inefficient
domestic producers of goods and services. In the words of Peter Drucker, the
well-known management guru, Increased participation in the world economy
has become the key to domestic economic growth and prosperity.

Brief Historical Background

To hasten worldwide recovery from the devastation wrought by the Second

World War, plans for the establishment of three multilateral institutions --
inspired by that grand political body, the United Nations -- were discussed at
Dumbarton Oaks and Bretton Woods. The first was the World Bank (WB) which
was to address the rehabilitation and reconstruction of war-ravaged and later
developing countries; the second, the International Monetary Fund (IMF) which
was to deal with currency problems; and the third, the International Trade
Organization (ITO), which was to foster order and predictability in world trade
and to minimize unilateral protectionist policies that invite challenge, even
retaliation, from other states. However, for a variety of reasons, including its
non-ratification by the United States, the ITO, unlike the IMF and WB, never
took off. What remained was only GATT -- the General Agreement on Tariffs
and Trade. GATT was a collection of treaties governing access to the
economies of treaty adherents with no institutionalized body administering the
agreements or dependable system of dispute settlement.
After half a century and several dizzying rounds of negotiations, principally
the Kennedy Round, the Tokyo Round and the Uruguay Round, the world finally
gave birth to that administering body -- the World Trade Organization -- with the
signing of the Final Act in Marrakesh, Morocco and the ratification of the WTO
Agreement by its members. [1]
 Like many other developing countries, the Philippines joined WTO as a
founding member with the goal, as articulated by President Fidel V. Ramos in
two letters to the Senate (infra), of improving Philippine access to foreign
markets, especially its major trading partners, through the reduction of tariffs on
its exports, particularly agricultural and industrial products. The President also
saw in the WTO the opening of new opportunities for the services sector x x x,
(the reduction of) costs and uncertainty associated with exporting x x x, and (the
attraction of) more investments into the country. Although the Chief Executive
did not expressly mention it in his letter, the Philippines - - and this is of special
interest to the legal profession - - will benefit from the WTO system of dispute
settlement by judicial adjudication through the independent WTO settlement
bodies called (1) Dispute Settlement Panels and (2) Appellate
Tribunal.Heretofore, trade disputes were settled mainly through negotiations
where solutions were arrived at frequently on the basis of relative bargaining
strengths, and where naturally, weak and underdeveloped countries were at a
disadvantage.

The Petition in Brief

Arguing mainly (1) that the WTO requires the Philippines to place nationals
and products of member-countries on the same footing as Filipinos and local
products and (2) that the WTO intrudes, limits and/or impairs the constitutional
powers of both Congress and the Supreme Court, the instant petition before
this Court assails the WTO Agreement for violating the mandate of the 1987
Constitution to develop a self-reliant and independent national economy
effectively controlled by Filipinos x x x (to) give preference to qualified Filipinos
(and to) promote the preferential use of Filipino labor, domestic materials and
locally produced goods.
Simply stated, does the Philippine Constitution prohibit Philippine
participation in worldwide trade liberalization and economic globalization? Does
it prescribe Philippine integration into a global economy that is liberalized,
deregulated and privatized? These are the main questions raised in this petition
for certiorari, prohibition and mandamus under Rule 65 of the Rules of Court
praying (1) for the nullification, on constitutional grounds, of the concurrence of
the Philippine Senate in the ratification by the President of the Philippines of the
Agreement Establishing the World Trade Organization (WTO Agreement, for
brevity) and (2) for the prohibition of its implementation and enforcement
through the release and utilization of public funds, the assignment of public
officials and employees, as well as the use of government properties and
resources by respondent-heads of various executive offices concerned
therewith. This concurrence is embodied in Senate Resolution No. 97, dated
December 14, 1994.

The Facts

On April 15, 1994, Respondent Rizalino Navarro, then Secretary of

the Department of Trade and Industry (Secretary Navarro, for brevity),
representing the Government of the Republic of the Philippines, signed in
Marrakesh, Morocco, the Final Act Embodying the Results of the Uruguay
Round of Multilateral Negotiations (Final Act, for brevity).
By signing the Final Act, Secretary Navarro on behalf of the Republic of the
[2]

Philippines, agreed:

(a) to submit, as appropriate, the WTO Agreement for the consideration of their
respective competent authorities, with a view to seeking approval of the Agreement in
accordance with their procedures; and

(b) to adopt the Ministerial Declarations and Decisions.

On August 12, 1994, the members of the Philippine Senate received a letter
dated August 11, 1994 from the President of the Philippines, stating among
[3]

others that the Uruguay Round Final Act is hereby submitted to the Senate for
its concurrence pursuant to Section 21, Article VII of the Constitution.
On August 13, 1994, the members of the Philippine Senate received
another letter from the President of the Philippines likewise dated August 11,
[4]

1994, which stated among others that the Uruguay Round Final Act, the
Agreement Establishing the World Trade Organization, the Ministerial
Declarations and Decisions, and the Understanding on Commitments in
Financial Services are hereby submitted to the Senate for its concurrence
pursuant to Section 21, Article VII of the Constitution.
On December 9, 1994, the President of the Philippines certified the
necessity of the immediate adoption of P.S. 1083, a resolution entitled
Concurring in the Ratification of the Agreement Establishing the World Trade
Organization. [5]

On December 14, 1994, the Philippine Senate adopted Resolution No. 97

which Resolved, as it is hereby resolved, that the Senate concur, as it hereby
concurs, in the ratification by the President of the Philippines of the Agreement
Establishing the World Trade Organization. The text of the WTO Agreement is
[6]
written on pages 137 et seq. of Volume I of the 36-volume Uruguay Round of
Multilateral Trade Negotiations and includes various agreements and
associated legal instruments (identified in the said Agreement as Annexes 1, 2
and 3 thereto and collectively referred to as Multilateral Trade Agreements, for
brevity) as follows:

ANNEX 1

Annex 1A: Multilateral Agreement on Trade in Goods

General Agreement on Tariffs and Trade 1994

Agreement on Agriculture

Agreement on the Application of Sanitary and

Phytosanitary Measures

Agreement on Textiles and Clothing

Agreement on Technical Barriers to Trade

Agreement on Trade-Related Investment Measures

Agreement on Implementation of Article VI of the General

Agreement on Tariffs and Trade 1994

Agreement on Implementation of Article VII of the General on

Tariffs and Trade 1994

Agreement on Pre-Shipment Inspection

Agreement on Rules of Origin

Agreement on Imports Licensing Procedures

Agreement on Subsidies and Coordinating Measures

Agreement on Safeguards

Annex 1B: General Agreement on Trade in Services and Annexes

Annex 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights

 ANNEX 2

Understanding on Rules and Procedures Governing the Settlement

of Disputes

ANNEX 3

Trade Policy Review Mechanism

On December 16, 1994, the President of the Philippines signed the [7]

Instrument of Ratification, declaring:

NOW THEREFORE, be it known that I, FIDEL V. RAMOS, President of the

Republic of the Philippines, after having seen and considered the aforementioned
Agreement Establishing the World Trade Organization and the agreements and
associated legal instruments included in Annexes one (1), two (2) and three (3) of that
Agreement which are integral parts thereof, signed at Marrakesh, Morocco on 15
April 1994, do hereby ratify and confirm the same and every Article and Clause
thereof.

To emphasize, the WTO Agreement ratified by the President of the

Philippines is composed of the Agreement Proper and the associated legal
instruments included in Annexes one (1), two (2) and three (3) of that
Agreement which are integral parts thereof.
On the other hand, the Final Act signed by Secretary Navarro embodies not
only the WTO Agreement (and its integral annexes aforementioned) but also
(1) the Ministerial Declarations and Decisions and (2) the Understanding on
Commitments in Financial Services. In his Memorandum dated May 13,
1996, the Solicitor General describes these two latter documents as follows:
[8]

The Ministerial Decisions and Declarations are twenty-five declarations and decisions
on a wide range of matters, such as measures in favor of least developed countries,
notification procedures, relationship of WTO with the International Monetary Fund
(IMF), and agreements on technical barriers to trade and on dispute settlement.

The Understanding on Commitments in Financial Services dwell on, among other

things, standstill or limitations and qualifications of commitments to existing non-
conforming measures, market access, national treatment, and definitions of non-
resident supplier of financial services, commercial presence and new financial service.

On December 29, 1994, the present petition was filed. After careful
deliberation on respondents comment and petitioners reply thereto, the Court
resolved on December 12, 1995, to give due course to the petition, and the
parties thereafter filed their respective memoranda. The Court also requested
the Honorable Lilia R. Bautista, the Philippine Ambassador to the United
Nations stationed in Geneva, Switzerland, to submit a paper, hereafter referred
to as Bautista Paper, for brevity, (1) providing a historical background of and
[9]

(2) summarizing the said agreements.

During the Oral Argument held on August 27, 1996, the Court directed:

(a) the petitioners to submit the (1) Senate Committee Report on the matter in
controversy and (2) the transcript of proceedings/hearings in the Senate; and

(b) the Solicitor General, as counsel for respondents, to file (1) a list of Philippine
treaties signed prior to the Philippine adherence to the WTO Agreement, which
derogate from Philippine sovereignty and (2) copies of the multi-volume WTO
Agreement and other documents mentioned in the Final Act, as soon as possible.

After receipt of the foregoing documents, the Court said it would consider
the case submitted for resolution. In a Compliance dated September 16, 1996,
the Solicitor General submitted a printed copy of the 36-volume Uruguay Round
of Multilateral Trade Negotiations, and in another Compliance dated October
24, 1996, he listed the various bilateral or multilateral treaties or international
instruments involving derogation of Philippine sovereignty. Petitioners, on the
other hand, submitted their Compliance dated January 28, 1997, on January
30, 1997.

The Issues

In their Memorandum dated March 11, 1996, petitioners summarized the

issues as follows:

A. Whether the petition presents a political question or is otherwise not justiciable.

B. Whether the petitioner members of the Senate who participated in the

deliberations and voting leading to the concurrence are estopped from
impugning the validity of the Agreement Establishing the World Trade
Organization or of the validity of the concurrence.

C. Whether the provisions of the Agreement Establishing the World Trade

Organization contravene the provisions of Sec. 19, Article II, and Secs. 10 and
12, Article XII, all of the 1987 Philippine Constitution.
 D. Whether provisions of the Agreement Establishing the World Trade
Organization unduly limit, restrict and impair Philippine sovereignty
specifically the legislative power which, under Sec. 2, Article VI, 1987
Philippine Constitution is vested in the Congress of the Philippines;

E. Whether provisions of the Agreement Establishing the World Trade

Organization interfere with the exercise of judicial power.

F. Whether the respondent members of the Senate acted in grave abuse of

discretion amounting to lack or excess of jurisdiction when they voted for
concurrence in the ratification of the constitutionally-infirm Agreement
Establishing the World Trade Organization.

G. Whether the respondent members of the Senate acted in grave abuse of

discretion amounting to lack or excess of jurisdiction when they concurred
only in the ratification of the Agreement Establishing the World Trade
Organization, and not with the Presidential submission which included the
Final Act, Ministerial Declaration and Decisions, and the Understanding on
Commitments in Financial Services.

On the other hand, the Solicitor General as counsel for respondents

synthesized the several issues raised by petitioners into the following: [10]

1. Whether or not the provisions of the Agreement Establishing the World Trade
Organization and the Agreements and Associated Legal Instruments included in
Annexes one (1), two (2) and three (3) of that agreement cited by petitioners directly
contravene or undermine the letter, spirit and intent of Section 19, Article II and
Sections 10 and 12, Article XII of the 1987 Constitution.

2. Whether or not certain provisions of the Agreement unduly limit, restrict or impair
the exercise of legislative power by Congress.

3. Whether or not certain provisions of the Agreement impair the exercise of judicial
power by this Honorable Court in promulgating the rules of evidence.

4. Whether or not the concurrence of the Senate in the ratification by the President of
the Philippines of the Agreement establishing the World Trade Organization implied
rejection of the treaty embodied in the Final Act.

By raising and arguing only four issues against the seven presented by
petitioners, the Solicitor General has effectively ignored three, namely: (1)
whether the petition presents a political question or is otherwise not justiciable;
(2) whether petitioner-members of the Senate (Wigberto E. Taada and Anna
Dominique Coseteng) are estopped from joining this suit; and (3) whether the
respondent-members of the Senate acted in grave abuse of discretion when
they voted for concurrence in the ratification of the WTO Agreement. The
foregoing notwithstanding, this Court resolved to deal with these three issues
thus:

(1) The political question issue -- being very fundamental and vital, and being a
matter that probes into the very jurisdiction of this Court to hear and decide this case -
- was deliberated upon by the Court and will thus be ruled upon as the first issue;

(2) The matter of estoppel will not be taken up because this defense is waivable and
the respondents have effectively waived it by not pursuing it in any of their pleadings;
in any event, this issue, even if ruled in respondents favor, will not cause the petitions
dismissal as there are petitioners other than the two senators, who are not vulnerable
to the defense of estoppel; and

(3) The issue of alleged grave abuse of discretion on the part of the respondent
senators will be taken up as an integral part of the disposition of the four issues raised
by the Solicitor General.

During its deliberations on the case, the Court noted that the respondents
did not question the locus standi of petitioners. Hence, they are also deemed to
have waived the benefit of such issue. They probably realized that grave
constitutional issues, expenditures of public funds and serious international
commitments of the nation are involved here, and that transcendental public
interest requires that the substantive issues be met head on and decided on the
merits, rather than skirted or deflected by procedural matters. [11]

To recapitulate, the issues that will be ruled upon shortly are:

(1) DOES THE PETITION PRESENT A JUSTICIABLE CONTROVERSY? OTHERWISE
STATED, DOES THE PETITION INVOLVE A POLITICAL QUESTION OVER
WHICH THIS COURT HAS NO JURISDICTION?
(2) DO THE PROVISIONS OF THE WTO AGREEMENT AND ITS THREE ANNEXES
CONTRAVENE SEC. 19, ARTICLE II, AND SECS. 10 AND 12, ARTICLE XII, OF
THE PHILIPPINE CONSTITUTION?
(3) DO THE PROVISIONS OF SAID AGREEMENT AND ITS ANNEXES LIMIT,
RESTRICT, OR IMPAIR THE EXERCISE OF LEGISLATIVE POWER BY
CONGRESS?
(4) DO SAID PROVISIONS UNDULY IMPAIR OR INTERFERE WITH THE EXERCISE
OF JUDICIAL POWER BY THIS COURT IN PROMULGATING RULES ON
EVIDENCE?
 (5) WAS THE CONCURRENCE OF THE SENATE IN THE WTO AGREEMENT AND
ITS ANNEXES SUFFICIENT AND/OR VALID, CONSIDERING THAT IT DID NOT
INCLUDE THE FINAL ACT, MINISTERIAL DECLARATIONS AND DECISIONS,
AND THE UNDERSTANDING ON COMMITMENTS IN FINANCIAL SERVICES?

The First Issue: Does the Court Have Jurisdiction Over the Controversy?

In seeking to nullify an act of the Philippine Senate on the ground that it

contravenes the Constitution, the petition no doubt raises a justiciable
controversy. Where an action of the legislative branch 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. The question thus posed is judicial rather
than political. The duty (to adjudicate) remains to assure that the supremacy of
the Constitution is upheld. Once a controversy as to the application or
[12]

interpretation of a constitutional provision is raised before this Court (as in the

instant case), it becomes a legal issue which the Court is bound by
constitutional mandate to decide. [13]

The jurisdiction of this Court to adjudicate the matters raised in the petition
[14]

is clearly set out in the 1987 Constitution, as follows:

[15]

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.

The foregoing text emphasizes the judicial departments duty and power to
strike down grave abuse of discretion on the part of any branch or
instrumentality of government including Congress. It is an innovation in our
political law. As explained by former Chief Justice Roberto Concepcion, the
[16] [17]

judiciary is the final arbiter on the question of whether or not a branch of

government or any of its officials has acted without jurisdiction or in excess of
jurisdiction or so capriciously as to constitute an abuse of discretion amounting
to excess of jurisdiction. This is not only a judicial power but a duty to pass
judgment on matters of this nature.
As this Court has repeatedly and firmly emphasized in many cases, it will [18]

not shirk, digress from or abandon its sacred duty and authority to uphold the
Constitution in matters that involve grave abuse of discretion brought before it
in appropriate cases, committed by any officer, agency, instrumentality or
department of the government.
 As the petition alleges grave abuse of discretion and as there is no other
plain, speedy or adequate remedy in the ordinary course of law, we have no
hesitation at all in holding that this petition should be given due course and the
vital questions raised therein ruled upon under Rule 65 of the Rules of
Court. Indeed, certiorari, prohibition and mandamus are appropriate remedies
to raise constitutional issues and to review and/or prohibit/nullify, when proper,
acts of legislative and executive officials. On this, we have no equivocation.
We should stress that, in deciding to take jurisdiction over this petition, this
Court will not review the wisdom of the decision of the President and the Senate
in enlisting the country into the WTO, or pass upon the merits of trade
liberalization as a policy espoused by said international body. Neither will it rule
on the propriety of the governments economic policy of reducing/removing
tariffs, taxes, subsidies, quantitative restrictions, and other import/trade
barriers. Rather, it will only exercise its constitutional duty to determine whether
or not there had been a grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of the Senate in ratifying the WTO Agreement and its
three annexes.

Second Issue: The WTO Agreement and Economic Nationalism

This is the lis mota, the main issue, raised by the petition.
Petitioners vigorously argue that the letter, spirit and intent of the
Constitution mandating economic nationalism are violated by the so-called
parity provisions and national treatment clauses scattered in various parts not
only of the WTO Agreement and its annexes but also in the Ministerial
Decisions and Declarations and in the Understanding on Commitments in
Financial Services.
Specifically, the flagship constitutional provisions referred to are Sec. 19,
Article II, and Secs. 10 and 12, Article XII, of the Constitution, which are worded
as follows:

Article II

DECLARATION OF PRINCIPLES AND STATE POLICIES

xx xx xx xx

Sec. 19. The State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos.
 xx xx xx xx

Article XII

NATIONAL ECONOMY AND PATRIMONY

xx xx xx xx

Sec. 10. x x x. The Congress shall enact measures that will encourage the formation
and operation of enterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and
patrimony, the State shall give preference to qualified Filipinos.

xx xx xx xx

Sec. 12. The State shall promote the preferential use of Filipino labor, domestic
materials and locally produced goods, and adopt measures that help make them
competitive.

Petitioners aver that these sacred constitutional principles are desecrated

by the following WTO provisions quoted in their memorandum: [19]

a) In the area of investment measures related to trade in goods (TRIMS, for

brevity):

Article 2

National Treatment and Quantitative Restrictions.

1. Without prejudice to other rights and obligations under GATT 1994. no

Member shall apply any TRIM that is inconsistent with the provisions of
Article III or Article XI of GATT 1994.

2. An Illustrative list of TRIMS that are inconsistent with the obligations of

general elimination of quantitative restrictions provided for in paragraph I of
Article XI of GATT 1994 is contained in the Annex to this
Agreement. (Agreement on Trade-Related Investment Measures, Vol. 27,
Uruguay Round, Legal Instruments, p.22121, emphasis supplied).

The Annex referred to reads as follows:

ANNEX
 Illustrative List

1. TRIMS that are inconsistent with the obligation of national treatment

provided for in paragraph 4 of Article III of GATT 1994 include those
which are mandatory or enforceable under domestic law or under
administrative rulings, or compliance with which is necessary to obtain an
advantage, and which require:

(a) the purchase or use by an enterprise of products of domestic origin or from

any domestic source, whether specified in terms of particular products, in
terms of volume or value of products, or in terms of proportion of volume
or value of its local production; or

(b) that an enterprises purchases or use of imported products be limited to an

amount related to the volume or value of local products that it exports.

2. TRIMS that are inconsistent with the obligations of general elimination of

quantitative restrictions provided for in paragraph 1 of Article XI of GATT
1994 include those which are mandatory or enforceable under domestic laws or
under administrative rulings, or compliance with which is necessary to obtain
an advantage, and which restrict:

(a) the importation by an enterprise of products used in or related to the local

production that it exports;

(b) the importation by an enterprise of products used in or related to its local

production by restricting its access to foreign exchange inflows attributable
to the enterprise; or

(c) the exportation or sale for export specified in terms of particular products,
in terms of volume or value of products, or in terms of a preparation of
volume or value of its local production. (Annex to the Agreement on
Trade-Related Investment Measures, Vol. 27, Uruguay Round Legal
Documents, p.22125, emphasis supplied).

The paragraph 4 of Article III of GATT 1994 referred to is quoted as follows:

The products of the territory of any contracting party imported into the territory of any
other contracting party shall be accorded treatment no less favorable than that
accorded to like products of national origin in respect of laws, regulations and
requirements affecting their internal sale, offering for sale, purchase, transportation,
distribution or use. the provisions of this paragraph shall not prevent the application of
differential internal transportation charges which are based exclusively on the
economic operation of the means of transport and not on the nationality of the
product. (Article III, GATT 1947, as amended by the Protocol Modifying Part II, and
Article XXVI of GATT, 14 September 1948, 62 UMTS 82-84 in relation to paragraph
1(a) of the General Agreement on Tariffs and Trade 1994, Vol. 1, Uruguay Round,
Legal Instruments p.177, emphasis supplied).

b) In the area of trade related aspects of intellectual property rights (TRIPS, for
brevity):

Each Member shall accord to the nationals of other Members treatment no less
favourable than that it accords to its own nationals with regard to the protection of
intellectual property... (par. 1, Article 3, Agreement on Trade-Related Aspect of
Intellectual Property rights, Vol. 31, Uruguay Round, Legal Instruments, p.25432
(emphasis supplied)

(c) In the area of the General Agreement on Trade in Services:

National Treatment

1. In the sectors inscribed in its schedule, and subject to any conditions and
qualifications set out therein, each Member shall accord to services and
service suppliers of any other Member, in respect of all measures affecting
the supply of services, treatment no less favourable than it accords to its
own like services and service suppliers.

2. A Member may meet the requirement of paragraph I by according to

services and service suppliers of any other Member, either formally
identical treatment or formally different treatment to that it accords to its
own like services and service suppliers.

3. Formally identical or formally different treatment shall be considered to be

less favourable if it modifies the conditions of completion in favour of
services or service suppliers of the Member compared to like services or
service suppliers of any other Member. (Article XVII, General Agreement
on Trade in Services, Vol. 28, Uruguay Round Legal Instruments, p.22610
emphasis supplied).

It is petitioners position that the foregoing national treatment and parity

provisions of the WTO Agreement place nationals and products of member
countries on the same footing as Filipinos and local products, in contravention
of the Filipino First policy of the Constitution. They allegedly render
meaningless the phrase effectively controlled by Filipinos. The constitutional
conflict becomes more manifest when viewed in the context of the clear duty
imposed on the Philippines as a WTO member to ensure the conformity of its
laws, regulations and administrative procedures with its obligations as provided
in the annexed agreements. Petitioners further argue that these provisions
[20]

contravene constitutional limitations on the role exports play in national

development and negate the preferential treatment accorded to Filipino labor,
domestic materials and locally produced goods.
On the other hand, respondents through the Solicitor General counter (1)
that such Charter provisions are not self-executing and merely set out general
policies; (2) that these nationalistic portions of the Constitution invoked by
petitioners should not be read in isolation but should be related to other relevant
provisions of Art. XII, particularly Secs. 1 and 13 thereof; (3) that read properly,
the cited WTO clauses do not conflict with the Constitution; and (4) that the
WTO Agreement contains sufficient provisions to protect developing countries
like the Philippines from the harshness of sudden trade liberalization.
We shall now discuss and rule on these arguments.

Declaration of Principles Not Self-Executing

By its very title, Article II of the Constitution is a declaration of principles and

state policies. The counterpart of this article in the 1935 Constitution is called
[21]

the basic political creed of the nation by Dean Vicente Sinco. These principles
[22]

in Article II are not intended to be self-executing principles ready for

enforcement through the courts. They are used by the judiciary as aids or as
[23]

guides in the exercise of its power of judicial review, and by the legislature in its
enactment of laws. As held in the leading case of Kilosbayan, Incorporated vs.
Morato, the principles and state policies enumerated in Article II and some
[24]

sections of Article XII are not self-executing provisions, the disregard of which
can give rise to a cause of action in the courts.They do not embody judicially
enforceable constitutional rights but guidelines for legislation.
In the same light, we held in Basco vs. Pagcor that broad constitutional
[25]

principles need legislative enactments to implement them, thus:

On petitioners allegation that P.D. 1869 violates Sections 11 (Personal Dignity) 12

(Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article
XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution,
suffice it to state also that these are merely statements of principles and policies. As
such, they are basically not self-executing, meaning a law should be passed by
Congress to clearly define and effectuate such principles.

In general, therefore, the 1935 provisions were not intended to be self-executing

principles ready for enforcement through the courts. They were rather directives
addressed to the executive and to the legislature. If the executive and the legislature
failed to heed the directives of the article, the available remedy was not judicial but
political. The electorate could express their displeasure with the failure of the
executive and the legislature through the language of the ballot. (Bernas, Vol. II, p. 2).

The reasons for denying a cause of action to an alleged infringement of

broad constitutional principles are sourced from basic considerations of due
process and the lack of judicial authority to wade into the uncharted ocean of
social and economic policy making. Mr. Justice Florentino P. Feliciano in his
concurring opinion in Oposa vs. Factoran, Jr., explained these reasons as
[26]

follows:

My suggestion is simply that petitioners must, before the trial court, show a more
specific legal right -- a right cast in language of a significantly lower order of
generality than Article II (15) of the Constitution -- that is or may be violated by the
actions, or failures to act, imputed to the public respondent by petitioners so that the
trial court can validly render judgment granting all or part of the relief prayed for. To
my mind, the court should be understood as simply saying that such a more specific
legal right or rights may well exist in our corpus of law, considering the general policy
principles found in the Constitution and the existence of the Philippine Environment
Code, and that the trial court should have given petitioners an effective opportunity so
to demonstrate, instead of aborting the proceedings on a motion to dismiss.

It seems to me important that the legal right which is an essential component of a

cause of action be a specific, operable legal right, rather than a constitutional or
statutory policy, for at least two (2) reasons.One is that unless the legal right claimed
to have been violated or disregarded is given specification in operational terms,
defendants may well be unable to defend themselves intelligently and effectively; in
other words, there are due process dimensions to this matter.

The second is a broader-gauge consideration -- where a specific violation of law or

applicable regulation is not alleged or proved, petitioners can be expected to fall back
on the expanded conception of judicial power in the second paragraph of Section 1 of
Article VIII of the Constitution which reads:

Section 1. x x x
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. (Emphases supplied)

When substantive standards as general as the right to a balanced and healthy ecology
and the right to health are combined with remedial standards as broad ranging as a
grave abuse of discretion amounting to lack or excess of jurisdiction, the result will
be, it is respectfully submitted, to propel courts into the uncharted ocean of social and
economic policy making. At least in respect of the vast area of environmental
protection and management, our courts have no claim to special technical competence
and experience and professional qualification. Where no specific, operable norms and
standards are shown to exist, then the policy making departments -- the legislative and
executive departments -- must be given a real and effective opportunity to fashion and
promulgate those norms and standards, and to implement them before the courts
should intervene.

Economic Nationalism Should Be Read with Other Constitutional

Mandates to Attain Balanced Development of Economy

On the other hand, Secs. 10 and 12 of Article XII, apart from merely laying
down general principles relating to the national economy and patrimony, should
be read and understood in relation to the other sections in said article,
especially Secs. 1 and 13 thereof which read:

Section 1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.

The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. x x x
 xxxxxxxxx

Sec. 13. The State shall pursue a trade policy that serves the general welfare and
utilizes all forms and arrangements of exchange on the basis of equality and
reciprocity.

As pointed out by the Solicitor General, Sec. 1 lays down the basic goals of
national economic development, as follows:
1. A more equitable distribution of opportunities, income and wealth;
2. A sustained increase in the amount of goods and services provided by
the nation for the benefit of the people; and
3. An expanding productivity as the key to raising the quality of life for all
especially the underprivileged.
With these goals in context, the Constitution then ordains the ideals of
economic nationalism (1) by expressing preference in favor of qualified Filipinos
in the grant of rights, privileges and concessions covering the national economy
and patrimony and in the use of Filipino labor, domestic materials and locally-
[27]

produced goods; (2) by mandating the State to adopt measures that help make
them competitive; and (3) by requiring the State to develop a self-reliant and
[28]

independent national economy effectively controlled by Filipinos. In similar

[29]

language, the Constitution takes into account the realities of the outside world
as it requires the pursuit of a trade policy that serves the general welfare and
utilizes all forms and arrangements of exchange on the basis of equality and
reciprocity; and speaks of industries which are competitive in both domestic
[30]

and foreign markets as well as of the protection of Filipino enterprises against

unfair foreign competition and trade practices.
It is true that in the recent case of Manila Prince Hotel vs. Government
Service Insurance System, et al., this Court held that Sec. 10, second par.,
[31]

Art. XII of the 1987 Constitution is a mandatory, positive command which is

complete in itself and which needs no further guidelines or implementing laws
or rules for its enforcement. From its very words the provision does not require
any legislation to put it in operation. It is per se judicially enforceable. However,
as the constitutional provision itself states, it is enforceable only in regard to the
grants of rights, privileges and concessions covering national economy and
patrimony and not to every aspect of trade and commerce. It refers to
exceptions rather than the rule. The issue here is not whether this paragraph of
Sec. 10 of Art. XII is self-executing or not. Rather, the issue is whether, as a
rule, there are enough balancing provisions in the Constitution to allow the
Senate to ratify the Philippine concurrence in the WTO Agreement. And we hold
that there are.
All told, while the Constitution indeed mandates a bias in favor of Filipino
goods, services, labor and enterprises, at the same time, it recognizes the need
for business exchange with the rest of the world on the bases of equality and
reciprocity and limits protection of Filipino enterprises only against foreign
competition and trade practices that are unfair. In other words, the Constitution
[32]

did not intend to pursue an isolationist policy. It did not shut out foreign
investments, goods and services in the development of the Philippine
economy. While the Constitution does not encourage the unlimited entry of
foreign goods, services and investments into the country, it does not prohibit
them either. In fact, it allows an exchange on the basis of equality and
reciprocity, frowning only on foreign competition that is unfair.

WTO Recognizes Need to Protect Weak Economies

Upon the other hand, respondents maintain that the WTO itself has some
built-in advantages to protect weak and developing economies, which comprise
the vast majority of its members. Unlike in the UN where major states have
permanent seats and veto powers in the Security Council, in the WTO,
decisions are made on the basis of sovereign equality, with each members vote
equal in weight to that of any other. There is no WTO equivalent of the UN
Security Council.

WTO decides by consensus whenever possible, otherwise, decisions of the Ministerial

Conference and the General Council shall be taken by the majority of the votes cast,
except in cases of interpretation of the Agreement or waiver of the obligation of a
member which would require three fourths vote. Amendments would require two
thirds vote in general. Amendments to MFN provisions and the Amendments
provision will require assent of all members. Any member may withdraw from the
Agreement upon the expiration of six months from the date of notice of withdrawals.
[33]

Hence, poor countries can protect their common interests more effectively
through the WTO than through one-on-one negotiations with developed
countries. Within the WTO, developing countries can form powerful blocs to
push their economic agenda more decisively than outside the
Organization. This is not merely a matter of practical alliances but a negotiating
strategy rooted in law. Thus, the basic principles underlying the WTO
Agreement recognize the need of developing countries like the Philippines to
share in the growth in international trade commensurate with the needs of their
economic development. These basic principles are found in the preamble of [34]

the WTO Agreement as follows:

The Parties to this Agreement,

Recognizing that their relations in the field of trade and economic endeavour should
be conducted with a view to raising standards of living, ensuring full employment and
a large and steadily growing volume of real income and effective demand, and
expanding the production of and trade in goods and services, while allowing for the
optimal use of the worlds resources in accordance with the objective of sustainable
development, seeking both to protect and preserve the environment and to enhance the
means for doing so in a manner consistent with their respective needs and concerns at
different levels of economic development,

Recognizing further that there is need for positive efforts designed to ensure that
developing countries, and especially the least developed among them, secure a share
in the growth in international trade commensurate with the needs of their economic
development,

Being desirous of contributing to these objectives by entering into reciprocal and

mutually advantageous arrangements directed to the substantial reduction of tariffs
and other barriers to trade and to the elimination of discriminatory treatment in
international trade relations,

Resolved, therefore, to develop an integrated, more viable and durable multilateral

trading system encompassing the General Agreement on Tariffs and Trade, the results
of past trade liberalization efforts, and all of the results of the Uruguay Round of
Multilateral Trade Negotiations,

Determined to preserve the basic principles and to further the objectives underlying
this multilateral trading system, x x x. (underscoring supplied.)

Specific WTO Provisos Protect Developing Countries

So too, the Solicitor General points out that pursuant to and consistent with
the foregoing basic principles, the WTO Agreement grants developing countries
a more lenient treatment, giving their domestic industries some protection from
the rush of foreign competition. Thus, with respect to tariffs in general,
preferential treatment is given to developing countries in terms of the amount
of tariff reduction and the period within which the reduction is to be spread
out. Specifically, GATT requires an average tariff reduction rate of 36% for
developed countries to be effected within a period of six (6) years while
developing countries -- including the Philippines -- are required to effect an
average tariff reduction of only 24% within ten (10) years.
In respect to domestic subsidy, GATT requires developed countries to
reduce domestic support to agricultural products by 20% over six (6) years, as
compared to only 13% for developing countries to be effected within ten (10)
years.
In regard to export subsidy for agricultural products, GATT requires
developed countries to reduce their budgetary outlays for export subsidy by
36% and export volumes receiving export subsidy by 21% within a period of six
(6) years. For developing countries, however, the reduction rate is only two-
thirds of that prescribed for developed countries and a longer period of ten (10)
years within which to effect such reduction.
Moreover, GATT itself has provided built-in protection from unfair foreign
competition and trade practices including anti-dumping measures,
countervailing measures and safeguards against import surges. Where local
businesses are jeopardized by unfair foreign competition, the Philippines can
avail of these measures. There is hardly therefore any basis for the statement
that under the WTO, local industries and enterprises will all be wiped out and
that Filipinos will be deprived of control of the economy. Quite the contrary, the
weaker situations of developing nations like the Philippines have been taken
into account; thus, there would be no basis to say that in joining the WTO, the
respondents have gravely abused their discretion.True, they have made a bold
decision to steer the ship of state into the yet uncharted sea of economic
liberalization. But such decision cannot be set aside on the ground of grave
abuse of discretion, simply because we disagree with it or simply because we
believe only in other economic policies. As earlier stated, the Court in taking
jurisdiction of this case will not pass upon the advantages and disadvantages
of trade liberalization as an economic policy. It will only perform its constitutional
duty of determining whether the Senate committed grave abuse of discretion.

Constitution Does Not Rule Out Foreign Competition

Furthermore, the constitutional policy of a self-reliant and independent

national economy does not necessarily rule out the entry of foreign
[35]

investments, goods and services. It contemplates neither economic seclusion

nor mendicancy in the international community. As explained by Constitutional
Commissioner Bernardo Villegas, sponsor of this constitutional policy:
Economic self-reliance is a primary objective of a developing country that is keenly
aware of overdependence on external assistance for even its most basic needs. It does
not mean autarky or economic seclusion; rather, it means avoiding mendicancy in the
international community. Independence refers to the freedom from undue foreign
control of the national economy, especially in such strategic industries as in the
development of natural resources and public utilities.
[36]

The WTO reliance on most favored nation, national treatment, and trade
without discrimination cannot be struck down as unconstitutional as in fact they
are rules of equality and reciprocity that apply to all WTO members. Aside from
envisioning a trade policy based on equality and reciprocity, the fundamental
[37]

law encourages industries that are competitive in both domestic and foreign
markets, thereby demonstrating a clear policy against a sheltered domestic
trade environment, but one in favor of the gradual development of robust
industries that can compete with the best in the foreign markets. Indeed, Filipino
managers and Filipino enterprises have shown capability and tenacity to
compete internationally. And given a free trade environment, Filipino
entrepreneurs and managers in Hongkong have demonstrated the Filipino
capacity to grow and to prosper against the best offered under a policy
of laissez faire.

Constitution Favors Consumers, Not Industries or Enterprises

The Constitution has not really shown any unbalanced bias in favor of any
business or enterprise, nor does it contain any specific pronouncement that
Filipino companies should be pampered with a total
proscription of foreign competition. On the other hand, respondents claim that
WTO/GATT aims to make available to the Filipino consumer the best goods
and services obtainable anywhere in the world at the most reasonable
prices. Consequently, the question boils down to whether WTO/GATT will favor
the general welfare of the public at large.
Will adherence to the WTO treaty bring this ideal (of favoring the general
welfare) to reality?
Will WTO/GATT succeed in promoting the Filipinos general welfare
because it will -- as promised by its promoters -- expand the countrys exports
and generate more employment?
Will it bring more prosperity, employment, purchasing power and quality
products at the most reasonable rates to the Filipino public?
 The responses to these questions involve judgment calls by our policy
makers, for which they are answerable to our people during appropriate
electoral exercises. Such questions and the answers thereto are not subject to
judicial pronouncements based on grave abuse of discretion.

Constitution Designed to Meet Future Events and Contingencies

No doubt, the WTO Agreement was not yet in existence when the
Constitution was drafted and ratified in 1987. That does not mean however that
the Charter is necessarily flawed in the sense that its framers might not have
anticipated the advent of a borderless world of business. By the same
token, the United Nations was not yet in existence when the 1935 Constitution
became effective. Did that necessarily mean that the then Constitution might
not have contemplated a diminution of the absoluteness of sovereignty when
the Philippines signed the UN Charter, thereby effectively surrendering part of
its control over its foreign relations to the decisions of various UN organs like
the Security Council?
It is not difficult to answer this question. Constitutions are designed to meet
not only the vagaries of contemporary events. They should be interpreted to
cover even future and unknown circumstances. It is to the credit of its drafters
that a Constitution can withstand the assaults of bigots and infidels but at the
same time bend with the refreshing winds of change necessitated by unfolding
events. As one eminent political law writer and respected jurist explains:
[38]

The Constitution must be quintessential rather than superficial, the root and not the
blossom, the base and framework only of the edifice that is yet to rise. It is but the
core of the dream that must take shape, not in a twinkling by mandate of our
delegates, but slowly in the crucible of Filipino minds and hearts, where it will in time
develop its sinews and gradually gather its strength and finally achieve its
substance. In fine, the Constitution cannot, like the goddess Athena, rise full-grown
from the brow of the Constitutional Convention, nor can it conjure by mere fiat an
instant Utopia. It must grow with the society it seeks to re-structure and march apace
with the progress of the race, drawing from the vicissitudes of history the dynamism
and vitality that will keep it, far from becoming a petrified rule, a pulsing, living law
attuned to the heartbeat of the nation.

Third Issue: The WTO Agreement and Legislative Power

 The WTO Agreement provides that (e)ach Member shall ensure the
conformity of its laws, regulations and administrative procedures with its
obligations as provided in the annexed Agreements. Petitioners maintain that
[39]

this undertaking unduly limits, restricts and impairs Philippine sovereignty,

specifically the legislative power which under Sec. 2, Article VI of the 1987
Philippine Constitution is vested in the Congress of the Philippines. It is an
assault on the sovereign powers of the Philippines because this means that
Congress could not pass legislation that will be good for our national interest
and general welfare if such legislation will not conform with the WTO
Agreement, which not only relates to the trade in goods x x x but also to the
flow of investments and money x x x as well as to a whole slew of agreements
on socio-cultural matters x x x. [40]

More specifically, petitioners claim that said WTO proviso derogates from
the power to tax, which is lodged in the Congress. And while the Constitution
[41]

allows Congress to authorize the President to fix tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts, such authority
is subject to specified limits and x x x such limitations and restrictions as
Congress may provide, as in fact it did under Sec. 401 of the Tariff and
[42]

Customs Code.

Sovereignty Limited by International Law and Treaties

This Court notes and appreciates the ferocity and passion by which
petitioners stressed their arguments on this issue. However, while sovereignty
has traditionally been deemed absolute and all-encompassing on the domestic
level, it is however subject to restrictions and limitations voluntarily agreed to by
the Philippines, expressly or impliedly, as a member of the family of
nations. Unquestionably, the Constitution did not envision a hermit-type
isolation of the country from the rest of the world. In its Declaration of Principles
and State Policies, the Constitution adopts the generally accepted principles of
international law as part of the law of the land, and adheres to the policy of
peace, equality, justice, freedom, cooperation and amity, with all nations." By[43]

the doctrine of incorporation, the country is bound by generally accepted

principles of international law, which are considered to be automatically part of
our own laws. One of the oldest and most fundamental rules in international
[44]

law is pacta sunt servanda -- international agreements must be performed in

good faith. A treaty engagement is not a mere moral obligation but creates a
legally binding obligation on the parties x x x. A state which has contracted valid
international obligations is bound to make in its legislations such modifications
as may be necessary to ensure the fulfillment of the obligations undertaken. [45]
 By their inherent nature, treaties really limit or restrict the absoluteness of
sovereignty. By their voluntary act, nations may surrender some aspects of their
state power in exchange for greater benefits granted by or derived from a
convention or pact. After all, states, like individuals, live with coequals, and in
pursuit of mutually covenanted objectives and benefits, they also commonly
agree to limit the exercise of their otherwise absolute rights. Thus, treaties have
been used to record agreements between States concerning such widely
diverse matters as, for example, the lease of naval bases, the sale or cession
of territory, the termination of war, the regulation of conduct of hostilities, the
formation of alliances, the regulation of commercial relations, the settling of
claims, the laying down of rules governing conduct in peace and the
establishment of international organizations. The sovereignty of a state
[46]

therefore cannot in fact and in reality be considered absolute. Certain

restrictions enter into the picture: (1) limitations imposed by the very nature of
membership in the family of nations and (2) limitations imposed by treaty
stipulations. As aptly put by John F. Kennedy, Today, no nation can build its
destiny alone. The age of self-sufficient nationalism is over. The age of
interdependence is here. [47]

UN Charter and Other Treaties Limit Sovereignty

Thus, when the Philippines joined the United Nations as one of its 51 charter
members, it consented to restrict its sovereign rights under the concept of
sovereignty as auto-limitation.47-A Under Article 2 of the UN Charter, (a)ll
members shall give the United Nations every assistance in any action it takes
in accordance with the present Charter, and shall refrain from giving assistance
to any state against which the United Nations is taking preventive or
enforcement action. Such assistance includes payment of its corresponding
share not merely in administrative expenses but also in expenditures for the
peace-keeping operations of the organization. In its advisory opinion of July 20,
1961, the International Court of Justice held that money used by the United
Nations Emergency Force in the Middle East and in the Congo were expenses
of the United Nations under Article 17, paragraph 2, of the UN Charter. Hence,
all its members must bear their corresponding share in such expenses. In this
sense, the Philippine Congress is restricted in its power to appropriate. It is
compelled to appropriate funds whether it agrees with such peace-keeping
expenses or not. So too, under Article 105 of the said Charter, the UN and its
representatives enjoy diplomatic privileges and immunities, thereby limiting
again the exercise of sovereignty of members within their own territory. Another
example: although sovereign equality and domestic jurisdiction of all members
are set forth as underlying principles in the UN Charter, such provisos are
however subject to enforcement measures decided by the Security Council for
the maintenance of international peace and security under Chapter VII of the
Charter. A final example: under Article 103, (i)n the event of a conflict between
the obligations of the Members of the United Nations under the present Charter
and their obligations under any other international agreement, their obligation
under the present charter shall prevail, thus unquestionably denying the
Philippines -- as a member -- the sovereign power to make a choice as to which
of conflicting obligations, if any, to honor.
Apart from the UN Treaty, the Philippines has entered into many other
international pacts -- both bilateral and multilateral -- that involve limitations on
Philippine sovereignty. These are enumerated by the Solicitor General in his
Compliance dated October 24, 1996, as follows:

(a) Bilateral convention with the United States regarding taxes on income, where
the Philippines agreed, among others, to exempt from tax, income received in
the Philippines by, among others, the Federal Reserve Bank of the United
States, the Export/Import Bank of the United States, the Overseas Private
Investment Corporation of the United States. Likewise, in said convention,
wages, salaries and similar remunerations paid by the United States to its
citizens for labor and personal services performed by them as employees or
officials of the United States are exempt from income tax by the Philippines.

(b) Bilateral agreement with Belgium, providing, among others, for the avoidance
of double taxation with respect to taxes on income.

(c) Bilateral convention with the Kingdom of Sweden for the avoidance of double
taxation.

(d) Bilateral convention with the French Republic for the avoidance of double
taxation.

(e) Bilateral air transport agreement with Korea where the Philippines agreed to
exempt from all customs duties, inspection fees and other duties or taxes
aircrafts of South Korea and the regular equipment, spare parts and supplies
arriving with said aircrafts.

(f) Bilateral air service agreement with Japan, where the Philippines agreed to
exempt from customs duties, excise taxes, inspection fees and other similar
duties, taxes or charges fuel, lubricating oils, spare parts, regular equipment,
stores on board Japanese aircrafts while on Philippine soil.
 (g) Bilateral air service agreement with Belgium where the Philippines granted
Belgian air carriers the same privileges as those granted to Japanese and
Korean air carriers under separate air service agreements.

(h) Bilateral notes with Israel for the abolition of transit and visitor visas where
the Philippines exempted Israeli nationals from the requirement of obtaining
transit or visitor visas for a sojourn in the Philippines not exceeding 59 days.

(I) Bilateral agreement with France exempting French nationals from the
requirement of obtaining transit and visitor visa for a sojourn not exceeding 59
days.

(j) Multilateral Convention on Special Missions, where the Philippines agreed that
premises of Special Missions in the Philippines are inviolable and its agents
can not enter said premises without consent of the Head of Mission
concerned. Special Missions are also exempted from customs duties, taxes and
related charges.

(k) Multilateral Convention on the Law of Treaties. In this convention, the

Philippines agreed to be governed by the Vienna Convention on the Law of
Treaties.

(l) Declaration of the President of the Philippines accepting compulsory

jurisdiction of the International Court of Justice. The International Court of
Justice has jurisdiction in all legal disputes concerning the interpretation of a
treaty, any question of international law, the existence of any fact which, if
established, would constitute a breach of international obligation.

In the foregoing treaties, the Philippines has effectively agreed to limit the
exercise of its sovereign powers of taxation, eminent domain and police
power. The underlying consideration in this partial surrender of sovereignty is
the reciprocal commitment of the other contracting states in granting the same
privilege and immunities to the Philippines, its officials and its citizens. The
same reciprocity characterizes the Philippine commitments under WTO-GATT.

International treaties, whether relating to nuclear disarmament, human rights, the

environment, the law of the sea, or trade, constrain domestic political sovereignty
through the assumption of external obligations. But unless anarchy in international
relations is preferred as an alternative, in most cases we accept that the benefits of the
reciprocal obligations involved outweigh the costs associated with any loss of political
sovereignty. (T)rade treaties that structure relations by reference to durable, well-
defined substantive norms and objective dispute resolution procedures reduce the risks
of larger countries exploiting raw economic power to bully smaller countries, by
subjecting power relations to some form of legal ordering. In addition, smaller
countries typically stand to gain disproportionately from trade liberalization. This is
due to the simple fact that liberalization will provide access to a larger set of potential
new trading relationship than in case of the larger country gaining enhanced success
to the smaller countrys market. [48]

The point is that, as shown by the foregoing treaties, a portion of sovereignty

may be waived without violating the Constitution, based on the rationale that
the Philippines adopts the generally accepted principles of international law as
part of the law of the land and adheres to the policy of x x x cooperation and
amity with all nations.

Fourth Issue: The WTO Agreement and Judicial Power

Petitioners aver that paragraph 1, Article 34 of the General Provisions and

Basic Principles of the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) intrudes on the power of the Supreme Court to
[49]

promulgate rules concerning pleading, practice and procedures. [50]

To understand the scope and meaning of Article 34, TRIPS, it will be [51]

fruitful to restate its full text as follows:

Article 34

Process Patents: Burden of Proof

1. For the purposes of civil proceedings in respect of the infringement of the rights
of the owner referred to in paragraph 1(b) of Article 28, if the subject matter of a
patent is a process for obtaining a product, the judicial authorities shall have the
authority to order the defendant to prove that the process to obtain an identical
product is different from the patented process. Therefore, Members shall provide,
in at least one of the following circumstances, that any identical product when
produced without the consent of the patent owner shall, in the absence of proof to
the contrary, be deemed to have been obtained by the patented process:

(a) if the product obtained by the patented process is new;

(b) if there is a substantial likelihood that the identical product was made by
the process and the owner of the patent has been unable through
reasonable efforts to determine the process actually used.
 2. Any Member shall be free to provide that the burden of proof indicated in
paragraph 1 shall be on the alleged infringer only if the condition referred to in
subparagraph (a) is fulfilled or only if the condition referred to in subparagraph
(b) is fulfilled.

3. In the adduction of proof to the contrary, the legitimate interests of defendants

in protecting their manufacturing and business secrets shall be taken into account.

From the above, a WTO Member is required to provide a rule of disputable

(note the words in the absence of proof to the contrary) presumption that a
product shown to be identical to one produced with the use of a patented
process shall be deemed to have been obtained by the (illegal) use of the said
patented process, (1) where such product obtained by the patented product is
new, or (2) where there is substantial likelihood that the identical product was
made with the use of the said patented process but the owner of the patent
could not determine the exact process used in obtaining such identical
product. Hence, the burden of proof contemplated by Article 34 should actually
be understood as the duty of the alleged patent infringer to overthrow such
presumption. Such burden, properly understood, actually refers to the burden
of evidence (burden of going forward) placed on the producer of the identical
(or fake) product to show that his product was produced without the use of the
patented process.
The foregoing notwithstanding, the patent owner still has the burden of proof
since, regardless of the presumption provided under paragraph 1 of Article 34,
such owner still has to introduce evidence of the existence of the alleged
identical product, the fact that it is identical to the genuine one produced by the
patented process and the fact of newness of the genuine product or the fact of
substantial likelihood that the identical product was made by the patented
process.
The foregoing should really present no problem in changing the rules of
evidence as the present law on the subject, Republic Act No. 165, as amended,
otherwise known as the Patent Law, provides a similar presumption in cases of
infringement of patented design or utility model, thus:

SEC. 60. Infringement. - Infringement of a design patent or of a patent for utility

model shall consist in unauthorized copying of the patented design or utility model for
the purpose of trade or industry in the article or product and in the making, using or
selling of the article or product copying the patented design or utility model. Identity
or substantial identity with the patented design or utility model shall constitute
evidence of copying. (underscoring supplied)
 Moreover, it should be noted that the requirement of Article 34 to provide a
disputable presumption applies only if (1) the product obtained by the patented
process is NEW or (2) there is a substantial likelihood that the identical product
was made by the process and the process owner has not been able through
reasonable effort to determine the process used. Where either of these
two provisos does not obtain, members shall be free to determine the
appropriate method of implementing the provisions of TRIPS within their own
internal systems and processes.
By and large, the arguments adduced in connection with our disposition of
the third issue -- derogation of legislative power - will apply to this fourth issue
also. Suffice it to say that the reciprocity clause more than justifies such
intrusion, if any actually exists. Besides, Article 34 does not contain an
unreasonable burden, consistent as it is with due process and the concept of
adversarial dispute settlement inherent in our judicial system.
So too, since the Philippine is a signatory to most international conventions
on patents, trademarks and copyrights, the adjustment in legislation and rules
of procedure will not be substantial. [52]

Fifth Issue: Concurrence Only in the WTO Agreement and Not in Other
Documents Contained in the Final Act

Petitioners allege that the Senate concurrence in the WTO Agreement and
its annexes -- but not in the other documents referred to in the Final Act, namely
the Ministerial Declaration and Decisions and the Understanding on
Commitments in Financial Services -- is defective and insufficient and thus
constitutes abuse of discretion. They submit that such concurrence in the WTO
Agreement alone is flawed because it is in effect a rejection of the Final Act,
which in turn was the document signed by Secretary Navarro, in representation
of the Republic upon authority of the President. They contend that the second
letter of the President to the Senate which enumerated what constitutes the
[53]

Final Act should have been the subject of concurrence of the Senate.
A final act, sometimes called protocol de clture, is an instrument which
records the winding up of the proceedings of a diplomatic conference and
usually includes a reproduction of the texts of treaties, conventions,
recommendations and other acts agreed upon and signed by the
plenipotentiaries attending the conference. It is not the treaty itself. It is rather
[54]

a summary of the proceedings of a protracted conference which may have

taken place over several years. The text of the Final Act Embodying the Results
of the Uruguay Round of Multilateral Trade Negotiations is contained in just one
page in Vol. I of the 36-volume Uruguay Round of Multilateral Trade
[55]

Negotiations. By signing said Final Act, Secretary Navarro as representative of

the Republic of the Philippines undertook:

"(a) to submit, as appropriate, the WTO Agreement for the consideration of their
respective competent authorities with a view to seeking approval of the
Agreement in accordance with their procedures; and

(b) to adopt the Ministerial Declarations and Decisions."

The assailed Senate Resolution No. 97 expressed concurrence in exactly

what the Final Act required from its signatories, namely, concurrence of the
Senate in the WTO Agreement.
The Ministerial Declarations and Decisions were deemed adopted without
need for ratification. They were approved by the ministers by virtue of Article
XXV: 1 of GATT which provides that representatives of the members can meet
to give effect to those provisions of this Agreement which invoke joint action,
and generally with a view to facilitating the operation and furthering the
objectives of this Agreement. [56]

The Understanding on Commitments in Financial Services also approved in

Marrakesh does not apply to the Philippines. It applies only to those 27
Members which have indicated in their respective schedules of commitments
on standstill, elimination of monopoly, expansion of operation of existing
financial service suppliers, temporary entry of personnel, free transfer and
processing of information, and national treatment with respect to access to
payment, clearing systems and refinancing available in the normal course of
business. [57]

On the other hand, the WTO Agreement itself expresses what multilateral
agreements are deemed included as its integral parts, as follows:
[58]

Article II

Scope of the WTO

1. The WTO shall provide the common institutional framework for the conduct of
trade relations among its Members in matters to the agreements and associated
legal instruments included in the Annexes to this Agreement.

2. The Agreements and associated legal instruments included in Annexes 1, 2, and

3 (hereinafter referred to as Multilateral Agreements) are integral parts of this
Agreement, binding on all Members.
 3. The Agreements and associated legal instruments included in Annex 4
(hereinafter referred to as Plurilateral Trade Agreements) are also part of this
Agreement for those Members that have accepted them, and are binding on those
Members. The Plurilateral Trade Agreements do not create either obligation or
rights for Members that have not accepted them.

4. The General Agreement on Tariffs and Trade 1994 as specified in annex 1A

(hereinafter referred to as GATT 1994) is legally distinct from the General
Agreement on Tariffs and Trade, dated 30 October 1947, annexed to the Final Act
adopted at the conclusion of the Second Session of the Preparatory Committee of
the United Nations Conference on Trade and Employment, as subsequently
rectified, amended or modified (hereinafter referred to as GATT 1947).

It should be added that the Senate was well-aware of what it was concurring
in as shown by the members deliberation on August 25, 1994. After reading the
letter of President Ramos dated August 11, 1994, the senators of the Republic
[59]

minutely dissected what the Senate was concurring in, as follows: [60]

THE CHAIRMAN: Yes. Now, the question of the validity of the submission came up
in the first day hearing of this Committee yesterday. Was the observation made by
Senator Taada that what was submitted to the Senate was not the agreement on
establishing the World Trade Organization by the final act of the Uruguay Round
which is not the same as the agreement establishing the World Trade
Organization?And on that basis, Senator Tolentino raised a point of order which,
however, he agreed to withdraw upon understanding that his suggestion for an
alternative solution at that time was acceptable. That suggestion was to treat the
proceedings of the Committee as being in the nature of briefings for Senators until the
question of the submission could be clarified.

And so, Secretary Romulo, in effect, is the President submitting a new... is he making
a new submission which improves on the clarity of the first submission?

MR. ROMULO: Mr. Chairman, to make sure that it is clear cut and there should be no
misunderstanding, it was his intention to clarify all matters by giving this letter.

THE CHAIRMAN: Thank you.

Can this Committee hear from Senator Taada and later on Senator Tolentino since
they were the ones that raised this question yesterday?

Senator Taada, please.

SEN. TAADA: Thank you, Mr. Chairman.

Based on what Secretary Romulo has read, it would now clearly appear that what is
being submitted to the Senate for ratification is not the Final Act of the Uruguay
Round, but rather the Agreement on the World Trade Organization as well as the
Ministerial Declarations and Decisions, and the Understanding and Commitments in
Financial Services.

I am now satisfied with the wording of the new submission of President Ramos.

SEN. TAADA. . . . of President Ramos, Mr. Chairman.

THE CHAIRMAN. Thank you, Senator Taada. Can we hear from Senator
Tolentino? And after him Senator Neptali Gonzales and Senator Lina.

SEN TOLENTINO, Mr. Chairman, I have not seen the new submission actually
transmitted to us but I saw the draft of his earlier, and I think it now complies with the
provisions of the Constitution, and with the Final Act itself. The Constitution does not
require us to ratify the Final Act. It requires us to ratify the Agreement which is now
being submitted. The Final Act itself specifies what is going to be submitted to with
the governments of the participants.

In paragraph 2 of the Final Act, we read and I quote:

By signing the present Final Act, the representatives agree: (a) to submit as
appropriate the WTO Agreement for the consideration of the respective competent
authorities with a view to seeking approval of the Agreement in accordance with their
procedures.

In other words, it is not the Final Act that was agreed to be submitted to the
governments for ratification or acceptance as whatever their constitutional procedures
may provide but it is the World Trade Organization Agreement. And if that is the one
that is being submitted now, I think it satisfies both the Constitution and the Final Act
itself.

Thank you, Mr. Chairman.

THE CHAIRMAN. Thank you, Senator Tolentino, May I call on Senator Gonzales.

SEN. GONZALES. Mr. Chairman, my views on this matter are already a matter of
record. And they had been adequately reflected in the journal of yesterdays session
and I dont see any need for repeating the same.
Now, I would consider the new submission as an act ex abudante cautela.

THE CHAIRMAN. Thank you, Senator Gonzales. Senator Lina, do you want to make
any comment on this?

SEN. LINA. Mr. President, I agree with the observation just made by Senator
Gonzales out of the abundance of question. Then the new submission is, I believe,
stating the obvious and therefore I have no further comment to make.

Epilogue

In praying for the nullification of the Philippine ratification of the WTO

Agreement, petitioners are invoking this Courts constitutionally imposed duty to
determine whether or not there has been grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of the Senate in giving its
concurrence therein via Senate Resolution No. 97. Procedurally, a writ
of certiorari grounded on grave abuse of discretion may be issued by the Court
under Rule 65 of the Rules of Court when it is amply shown that petitioners
have no other plain, speedy and adequate remedy in the ordinary course of law.
By grave abuse of discretion is meant such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction. Mere abuse of
[61]

discretion is not enough. It must be grave abuse of discretion as when the

power is exercised in an arbitrary or despotic manner by reason of passion or
personal hostility, and must be so patent and so gross as to amount to an
evasion of a positive duty or to a virtual refusal to perform the duty enjoined or
to act at all in contemplation of law. Failure on the part of the petitioner to show
[62]

grave abuse of discretion will result in the dismissal of the petition. [63]

In rendering this Decision, this Court never forgets that the Senate, whose
act is under review, is one of two sovereign houses of Congress and is thus
entitled to great respect in its actions. It is itself a constitutional body
independent and coordinate, and thus its actions are presumed regular and
done in good faith. Unless convincing proof and persuasive arguments are
presented to overthrow such presumptions, this Court will resolve every doubt
in its favor. Using the foregoing well-accepted definition of grave abuse of
discretion and the presumption of regularity in the Senates processes, this
Court cannot find any cogent reason to impute grave abuse of discretion to the
Senates exercise of its power of concurrence in the WTO Agreement granted it
by Sec. 21 of Article VII of the Constitution.[64]
 It is true, as alleged by petitioners, that broad constitutional principles
require the State to develop an independent national economy effectively
controlled by Filipinos; and to protect and/or prefer Filipino labor, products,
domestic materials and locally produced goods. But it is equally true that such
principles -- while serving as judicial and legislative guides -- are not in
themselves sources of causes of action. Moreover, there are other equally
fundamental constitutional principles relied upon by the Senate which mandate
the pursuit of a trade policy that serves the general welfare and utilizes all forms
and arrangements of exchange on the basis of equality and reciprocity and the
promotion of industries which are competitive in both domestic and foreign
markets, thereby justifying its acceptance of said treaty. So too, the alleged
impairment of sovereignty in the exercise of legislative and judicial powers is
balanced by the adoption of the generally accepted principles of international
law as part of the law of the land and the adherence of the Constitution to the
policy of cooperation and amity with all nations.
That the Senate, after deliberation and voting, voluntarily and
overwhelmingly gave its consent to the WTO Agreement thereby making it a
part of the law of the land is a legitimate exercise of its sovereign duty and
power. We find no patent and gross arbitrariness or despotism by reason of
passion or personal hostility in such exercise. It is not impossible to surmise
that this Court, or at least some of its members, may even agree with petitioners
that it is more advantageous to the national interest to strike down Senate
Resolution No. 97. But that is not a legal reason to attribute grave abuse of
discretion to the Senate and to nullify its decision. To do so would constitute
grave abuse in the exercise of our own judicial power and duty.Ineludably, what
the Senate did was a valid exercise of its authority. As to whether such exercise
was wise, beneficial or viable is outside the realm of judicial inquiry and
review. That is a matter between the elected policy makers and the people. As
to whether the nation should join the worldwide march toward trade
liberalization and economic globalization is a matter that our people should
determine in electing their policy makers. After all, the WTO Agreement allows
withdrawal of membership, should this be the political desire of a member.
The eminent futurist John Naisbitt, author of the best seller Megatrends,
predicts an Asian Renaissance where the East will become the dominant
[65]

region of the world economically, politically and culturally in the next century. He
refers to the free market espoused by WTO as the catalyst in this coming Asian
ascendancy. There are at present about 31 countries including China, Russia
and Saudi Arabia negotiating for membership in the WTO. Notwithstanding
objections against possible limitations on national sovereignty, the WTO
remains as the only viable structure for multilateral trading and the veritable
forum for the development of international trade law. The alternative to WTO is
isolation, stagnation, if not economic self-destruction. Duly enriched with
original membership, keenly aware of the advantages and disadvantages of
globalization with its on-line experience, and endowed with a vision of the
future, the Philippines now straddles the crossroads of an international strategy
for economic prosperity and stability in the new millennium. Let the people,
through their duly authorized elected officers, make their free choice.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.

[G. R. No. 131512. January 20, 2000]

LAND TRANSPORTATION OFFICE [LTO], represented by Assistant

Secretary Manuel F. Bruan, LTO Regional Office, Region X represented by its
Regional Director, Timoteo A. Garcia; and LTO Butuan represented by Rosita
G. Sadiaga, its Registrar, petitioners, vs. CITY OF BUTUAN, represented in this
case by Democrito D. Plaza II, City Mayor, respondents.

DECISION

VITUG, J.:

The 1987 Constitution enunciates the policy that the territorial and political
subdivisions shall enjoy local autonomy. In obedience to that, mandate of the
[1]

fundamental law, Republic Act ("R.A.") No.7160, otherwise known as the Local
Government Code, expresses that the territorial and political subdivisions of the State
[2]

shall enjoy genuine and meaningful local autonomy in order to enable them to attain
their fullest development as self-reliant communities and make them more effective
partners in the attainment of national goals, and that it is a basic aim of the State to
provide for a more responsive and accountable local government structure instituted
through a system of decentralization whereby local government units shall be given
more powers, authority, responsibilities and resources.

While the Constitution seeks to strengthen local units and ensure their viability,
clearly, however, it has never been the intention of that organic law to create
an imperium in imperio and install an intra sovereign political subdivision
independent of a single sovereign state.

The Court is asked in this instance to resolve the issue of whether under the present
set up the power of the Land Registration Office ("LTO") to register, tricycles in
particular, as well as to issue licenses for the driving thereof, has likewise
devolved to local government units.

The Regional Trial Court (Branch 2) of Butuan City held: that the authority to
[3]

register tricycles, the grant of the corresponding franchise, the issuance of tricycle
drivers' license, and the collection of fees therefor had all been vested in the Local
Government Units ("LGUs"). Accordingly, it decreed the issuance of a permanent
writ of injunction against LTO, prohibiting and enjoining LTO, as well as its
employees and other persons acting in its behalf, from (a) registering tricycles and (b)
issuing licenses to drivers of tricycles. The Court of Appeals, on appeal to it, sustained
the trial court.

The adverse rulings of both the court a quo and the appellate court prompted the LTO
to file the instant petition for review on certiorari to annul and set aside the
decision, dated 17 November 1997, of the Court of Appeals affirming the permanent
[4]

injunctive writ order of the Regional Trial Court (Branch 2) of Butuan City.

Respondent City of Butuan asserts that one of the salient provisions introduced by the
Local Government Code is in the area of local taxation which allows LGUs to collect
registration fees or charges along with, in its view, the corresponding issuance of all
kinds of licenses or permits for the driving of tricycles.

The 1987 Constitution provides:

"Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees, and charges subject to such
guidelines and limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments." [5]

Section 129 and Section 133 of the Local Government Code read:

"SEC. 129. Power to Create Sources of Revenue. - Each local

government unit shall exercise its power to create its own sources of
revenue and to levy taxes, fees, and charges subject to the provisions
herein, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local government units."

"SEC. 133. Common Limitations on the Taxing Powers of Local

Government Units. - Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
 "xxx.......xxx.......xxx.

"(I) Taxes, fees or charges for the registration of motor vehicles and for
the issuance of all kinds of licenses or permits for the driving thereof,
except tricycles."

Relying on the foregoing provisions of the law, the Sangguniang Panglungsod ("SP")
of Butuan, on 16 August 1992, passed SP Ordinance No.916-92 entitled "An
Ordinance Regulating the Operation of Tricycles-for-Hire, providing mechanism for
the issuance of Franchise, Registration and Permit, and Imposing Penalties for
Violations thereof and for other Purposes." The ordinance provided for, among other
things, the payment of franchise fees for the grant of the franchise of tricycles-for-
hire, fees for the registration of the vehicle, and fees for the issuance of a permit for
the driving thereof.

Petitioner LTO explains that one of the functions of the national government that,
indeed, has been transferred to local government units is the franchising authority
over tricycles-for-hire of the Land Transportation Franchising and Regulatory Board
("LTFRB") but not, it asseverates, the authority of LTO to register all motor vehicles
and to issue to qualified persons of licenses to drive such vehicles.

In order to settle the variant positions of the parties, the City of Butuan, represented
by its City Mayor Democrito D. Plaza, filed on 28 June 1994 with the trial court a
petition for "prohibition, mandamus, injunction with a prayer for preliminary
restraining order ex-parte" seeking the declaration of the validity of SP Ordinance
No.962-93 and the prohibition of the registration of tricycles-for-hire and the issuance
of licenses for the driving thereof by the LTO.

LTO opposed the prayer in the petition.

On 20 March 1995, the trial court rendered a resolution; the dispositive portion read:

"In view of the foregoing, let a permanent injunctive writ be issued

against the respondent Land Transportation Office and the other
respondents, prohibiting and enjoining them, their employees, officers,
attorney's or other persons acting in their behalf from forcing or
compelling Tricycles to be registered with, and drivers to secure their
licenses from respondent LTO or secure franchise from LTFRB and
from collecting fees thereon. It should be understood that the
registration, franchise of tricycles and driver's license/permit granted or
issued by the City of Butuan are valid only within the territorial limits of
Butuan City.
 "No pronouncement as to costs." [6]

Petitioners timely moved for a reconsideration of the above resolution but it was to no
avail. Petitioners then appealed to the Court of Appeals. In its now assailed decision,
the appellate court, on 17 November 1997, sustained the trial court. It ruled:

"WHEREFORE, the petition is hereby DISMISSED and the questioned

permanent injunctive writ issued by the court a quo dated March 20,
1995 AFFIRMED." [7]

Coming up to this Court, petitioners raise this sole assignment of error, to

wit:

"The Court of Appeals [has] erred in sustaining the validity of the writ of
injunction issued by the trial court which enjoined LTO from (1)
registering tricycles-for-hire and (2) issuing licenses for the driving
thereof since the Local Government Code devolved only the franchising
authority of the LTFRB. Functions of the LTO were not devolved to the
LGU's." [8]

The petition is impressed with merit.

The Department of Transportation and Communications ("DOTC"), through the

[9]

LTO and the LTFRB, has since been tasked with implementing laws pertaining to
land transportation. The LTO is a line agency under the DOTC whose powers and
functions, pursuant to Article III, Section 4 (d) (1), of R.A. No.4136, otherwise
[10]

known as Land Transportation and Traffic Code, as amended, deal primarily with the
registration of all motor vehicles and the licensing of drivers thereof. The LTFRB,
upon the other hand, is the governing body tasked by E.O. No. 202, dated 19 June
1987, to regulate the operation of public utility or "for hire" vehicles and to grant
franchises or certificates of public convenience ("CPC"). Finely put, registration
[11]

and licensing functions are vested in the LTO

while franchising and regulatory responsibilities had been vested in the LTFRB.

Under the Local Government Code, certain functions of the DOTC were transferred to
the LGUs, thusly:

"SEC. 458. Powers, Duties, Functions and Compensation. -

"xxx.......xxx.......xxx
 "(3) Subject to the provisions of Book II of this Code, enact ordinances
granting franchises and authorizing the issuance of permits or licenses,
upon such conditions and for such purposes intended to promote the
general welfare of the inhabitants of the city and pursuant to this
legislative authority shall:

"xxx.......xxx.......xxx.

"(VI) Subject to the guidelines prescribed by the Department of

Transportation and Communications, regulate the operation of
tricycles and grant franchises for the operation thereof within the
territorial jurisdiction of the city." (Emphasis supplied)

LGUs indubitably now have the power to regulate the operation of tricycles-for-hire
and to grant franchises for the operation thereof. "To regulate" means to fix, establish,
or control; to adjust by rule, method, or established mode; to direct by rule or
restriction; or to subject to governing principles or laws. A franchise is defined to be
[12]

a special privilege to do certain things conferred by government on an individual or

corporation, and which does not belong to citizens generally of common right. On [13]

the other hand, "to register" means to record formally and exactly, to enroll, or to
enter precisely in a list or the like, and a "driver's license" is the certificate or license
[14]

issued by the government which authorizes a person to operate a motor vehicle. The [15]

devolution of the functions of the DOTC, performed by the LTFRB, to the LGUs, as
so aptly observed by the Solicitor General, is aimed at curbing the alarming increase
of accidents in national highways involving tricycles. It has been the perception that
local governments are in good position to achieve the end desired by the law-making
body because of their proximity to the situation that can enable them to address that
serious concern better than the national government.

It may not be amiss to state, nevertheless, that under Article 458 (a)[3-VI] of the
Local Government Code, the power of LGUs to regulate the operation of tricycles and
to grant franchises for the operation thereof is still subject to the guidelines prescribed
by the DOTC. In compliance therewith, the Department of Transportation and
Communications ("DOTC") issued "Guidelines to Implement the
Devolution of LTFRBs Franchising Authority over Tricycles-For-Hire to Local
Government units pursuant to the Local Government Code." Pertinent provisions of
the guidelines state:

"In lieu of the Land Transportation Franchising and Regulatory Board

(LTFRB) in the DOTC, the Sangguniang Bayan/Sangguniang
Panglungsod (SB/SP) shall perform the following:
"(a) Issue, amend, revise, renew, suspend, or cancel MTOP and prescribe
the appropriate terms and conditions therefor;

"xxx.......xxx.......xxx.

"Operating Conditions:

"1. For safety reasons, no tricycles should operate on national highways

utilized by 4 wheel vehicles greater than 4 tons and where normal speed
exceed 40 KPH. However, the SB/SP may provide exceptions if there is
no alternative routs.

"2. Zones must be within the boundaries of the municipality/city.

However, existing zones within more than one municipality/city shall be
maintained, provided that operators serving said zone shall secure
MTOP's from each of the municipalities/cities having jurisdiction over
the areas covered by the zone.

"3. A common color for tricycles-for-hire operating in the same zone

may be imposed. Each unit shall be assigned and bear an identification
number, aside from its LTO license plate number.

"4. An operator wishing to stop service completely, or to suspend service

for more than one month, should report in writing such termination or
suspension to the SB/SP which originally granted the MTOP prior
thereto. Transfer to another zone may be permitted upon application.

"5. The MTOP shall be valid for three (3) years, renewable for the same
period. Transfer to another zone, change of ownership of unit or transfer
of MTOP shall be construed as an amendment to an MTOP and shall
require appropriate approval of the SB/SP.

"6. Operators shall employ only drivers duly licensed by LTO for
tricycles-for-hire.

"7. No tricycle-for-hire shall be allowed to carry more passengers and/or

goods than it is designed for.

"8. A tricycle-for-hire shall be allowed to operate like a taxi service, i.e.,

service is rendered upon demand and without a fixed route within a
zone."[16]
Such as can be gleaned from the explicit language of the statute, as well as the
corresponding guidelines issued by DOTC, the newly delegated powers pertain to
the franchising and regulatory powers theretofore exercised by the LTFRB and
not to the functions of the LTO relative to the registration of motor vehicles and
issuance of licenses for the driving thereof. Clearly unaffected by the Local
Government Code are the powers of LTO under R.A. No.4136 requiring the
registration of all kinds of motor vehicles "used or operated on or upon any public
highway" in the country. Thus -

"SEC. 5. All motor vehicles and other vehicles must be registered. - (a)
No motor vehicle shall be used or operated on or upon any public
highway of the Philippines unless the same is properly registered for the
current year in accordance with the provisions of this Act (Article 1,
Chapter II, R.A. No. 4136).

The Commissioner of Land Transportation and his deputies are empowered at

anytime to examine and inspect such motor vehicles to determine whether said
vehicles are registered, or are unsightly, unsafe, improperly marked or equipped, or
otherwise unfit to be operated on because of possible excessive damage to highways,
bridges and other infrastructures. The LTO is additionally charged with being the
[17]

central repository and custodian of all records of all motor vehicles.

[18]

The Court shares the apprehension of the Solicitor General if the above functions
were to likewise devolve to local government units; he states:

"If the tricycle registration function of respondent LTO is decentralized,

the incidence of theft of tricycles will most certainly go up, and stolen
tricycles registered in one local government could be registered in
another with ease. The determination of ownership thereof will also
become very difficult.

"Fake driver's licenses will likewise proliferate. This likely scenario

unfolds where a tricycle driver, not qualified by petitioner LTO's testing,
could secure a license from one municipality, and when the same is
confiscated, could just go another municipality to secure another license.

"Devolution will entail the hiring of additional personnel charged with

inspecting tricycles for road worthiness, testing drivers, and
documentation. Revenues raised from tricycle registration may not be
enough to meet salaries of additional personnel and incidental costs for
tools and equipment." [19]
The reliance made by respondents on the broad taxing power of local government
units, specifically under Section 133 of the Local Government Code, is tangential.
Police power and taxation, along with eminent domain, are inherent powers of
sovereignty which the State might share with local government units by delegation
given under a constitutional or a statutory fiat. All these inherent powers are for a
public purpose and legislative in nature but the similarities just about end there. The
basic aim of police power is public good and welfare. Taxation, in its case, focuses on
the power of government to raise revenue in order to support its existence and carry
out its legitimate objectives. Although correlative to each other in many respects, the
grant of one does not necessarily carry with it the grant of the other. The two powers
are, by tradition and jurisprudence, separate and distinct powers, varying in their
respective concepts, character, scopes and limitations. To construe the tax provisions
of Section 133(1) indistinctively would result in the repeal to that extent of LTO's
regulatory power which evidently has not been intended. If it were otherwise, the law
could have just said so in Section 447 and 458 of Book III of the Local Government
Code in the same manner that the specific devolution of LTFRB's power on
franchising of tricycles has been provided. Repeal by implication is not favored. The
[20]

power over tricycles granted under Section 458(a)(3)(VI) of the Local Government
Code to LGUs is the power to regulate their operation and to grant franchises for the
operation thereof. The exclusionary clause contained in the tax provisions of Section
133(1) of the Local Government Code must not be held to have had the effect of
withdrawing the express power of LTO to cause the registration of all motor vehicles
and the issuance of licenses for the driving thereof. These functions of the LTO are
essentially regulatory in nature, exercised pursuant to the police power of the State,
whose basic objectives are to achieve road safety by insuring the road worthiness of
these motor vehicles and the competence of drivers prescribed by R. A. 4136. Not
insignificant is the rule that a statute must not be construed in isolation but must be
taken in harmony with the extant body of laws.
[21]

The Court cannot end this decision without expressing its own serious concern
over the seeming laxity in the grant of franchises for the operation of tricycles-
for-hire and in allowing the indiscriminate use by such vehicles on public
highways and principal thoroughfares. Senator Aquilino C. Pimentel, Jr., the
principal author, and sponsor of the bill that eventually has become to be known as the
Local Government Code, has aptly remarked:

"Tricycles are a popular means of transportation, specially in the

countryside. They are, unfortunately, being allowed to drive along
highways and principal thoroughfares where they pose hazards to
their passengers arising from potential collisions with buses, cars
and jeepneys.
 "The operation of tricycles within a municipality may be regulated
by the Sangguniang Bayan. In this connection,
the Sangguniang concerned would do well to consider prohibiting
the operation of tricycles along or across highways invite collisions
with faster and bigger vehicles and impede the flow of traffic." [22]

The need for ensuring public safety and convenience to commuters and pedestrians
alike is paramount. It might be well, indeed, for public officials concerned to pay heed
to a number of provisions in our laws that can warrant in appropriate cases an
incurrence of criminal and civil liabilities. Thus -

The Revised Penal Code -

"Art. 208. Prosecution of offenses; negligence and tolerance. - The

penalty of prision correccional in its minimum period and suspension
shall be imposed upon any public officer, or officer of the law, who, in
dereliction of the duties of his office, shall maliciously refrain from
instituting prosecution for the punishment of violators of the law, or shall
tolerate the commission of offenses."

The Civil Code -

"Art. 27. Any person suffering material or moral loss because a public
servant or employee refuses or neglects, without just cause, to perform
his official duty may file an action for damages and other relief against
the latter, without prejudice to any disciplinary administrative action that
may be taken."

"Art. 34. When a member of a city or municipal police force refuses or

fails to render aid or protection to any person in case of danger to life or
property, such peace officer shall be primarily liable for damages, and
the city or municipality shall be subsidiarily responsible therefor. The
civil action herein recognized shall be independent of any criminal,
proceedings, and a preponderance of evidence shall suffice to support
such action."

"Art. 2189. Provinces, cities and municipalities shall be liable for

damages for the death of, or injuries suffered by, any person by reason of
the defective condition of roads, streets, bridges, public buildings, and
other public works under their control or supervision."

The Local Government Code -

 "Sec. 24. Liability for Damages. - Local government units and their
officials are not exempt from liability for death or injury to persons or
damage to property."

WHEREFORE, the assailed decision which enjoins the Land Transportation Office
from requiring the due registration of tricycles and a license for the driving thereof is
REVERSED and SET ASIDE.

No pronouncements on costs.

Let copies of this decision be likewise furnished the Department of Interior and Local
Governments, the Department of Public Works and Highways and the Department of
Transportation and Communication.

SO ORDERED.
G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner,

vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as
COMMISSIONER OF INTERNAL REVENUE, respondents.

G.R. No. 109446 October 3, 1994

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG,

MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA,
JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in
his capacity as COMMISSIONER OF INTERNAL REVENUE, respondents.

Rufino R. Tan for and in his own behalf.

Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.

VITUG, J.:

These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the
constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income
Taxation Scheme ("SNIT"), amending certain provisions of the National Internal Revenue Code and,
in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public
respondents pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the continued implementation of the
amendatory legislation.

In G.R. No. 109289, it is asserted that the enactment of Republic Act

No. 7496 violates the following provisions of the Constitution:

Article VI, Section 26(1) Every bill passed by the Congress shall embrace only
one subject which shall be expressed in the title thereof.

Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.

Article III, Section 1 No person shall be deprived of . . . property without due

process of law, nor shall any person be denied the equal protection of the laws.

In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that
public respondents have exceeded their rule-making authority in applying SNIT to general
professional partnerships.

The Solicitor General espouses the position taken by public respondents.

The Court has given due course to both petitions. The parties, in compliance with the Court's
directive, have filed their respective memoranda.

G.R. No. 109289

Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a
misnomer or, at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme
for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).

The full text of the title actually reads:

An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed
and Professionals Engaged In The Practice of Their Profession, Amending Sections
21 and 29 of the National Internal Revenue Code, as Amended.

The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue
Code, as now amended, provide:

Sec. 21. Tax on citizens or residents.

xxx xxx xxx

(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in
the Practice of Profession. A tax is hereby imposed upon the taxable net income
as determined in Section 27 received during each taxable year from all sources,
other than income covered by paragraphs (b), (c), (d) and (e) of this section by every
individual whether
a citizen of the Philippines or an alien residing in the Philippines who is self-
 employed or practices his profession herein, determined in accordance with the
following schedule:

Not over P10,000 3%

Over P10,000 P300 + 9%

but not over P30,000 of excess over P10,000

Over P30,000 P2,100 + 15%

but not over P120,00 of excess over P30,000

Over P120,000 P15,600 + 20%

but not over P350,000 of excess over P120,000

Over P350,000 P61,600 + 30%

of excess over P350,000

Sec. 29. Deductions from gross income. In computing taxable income subject to
tax under Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as
deductions the items specified in paragraphs (a) to (i) of this
section: Provided, however, That in computing taxable income subject to tax under
Section 21 (f) in the case of individuals engaged in business or practice of
profession, only the following direct costs shall be allowed as deductions:

(a) Raw materials, supplies and direct labor;

(b) Salaries of employees directly engaged in activities in the course of or pursuant to

the business or practice of their profession;

(c) Telecommunications, electricity, fuel, light and water;

(d) Business rentals;

(e) Depreciation;

(f) Contributions made to the Government and accredited relief organizations for the
rehabilitation of calamity stricken areas declared by the President; and

(g) Interest paid or accrued within a taxable year on loans contracted from accredited
financial institutions which must be proven to have been incurred in connection with
the conduct of a taxpayer's profession, trade or business.

For individuals whose cost of goods sold and direct costs are difficult to determine, a
maximum of forty per cent (40%) of their gross receipts shall be allowed as
deductions to answer for business or professional expenses as the case may be.

On the basis of the above language of the law, it would be difficult to accept petitioner's view that the
amendatory law should be considered as having now adopted a gross income, instead of as having
still retained the net income, taxation scheme. The allowance for deductible items, it is true, may
have significantly been reduced by the questioned law in comparison with that which has prevailed
prior to the amendment; limiting, however, allowable deductions from gross income is neither
discordant with, nor opposed to, the net income tax concept. The fact of the matter is still that
various deductions, which are by no means inconsequential, continue to be well provided under the
new law.

Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling
legislation intended to unite the members of the legislature who favor any one of unrelated subjects
in support of the whole act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly
apprise the people, through such publications of its proceedings as are usually made, of the subjects
of legislation.1 The above objectives of the fundamental law appear to us to have been sufficiently
met. Anything else would be to require a virtual compendium of the law which could not have been
the intendment of the constitutional mandate.

Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that
taxation "shall be uniform and equitable" in that the law would now attempt to tax single
proprietorships and professionals differently from the manner it imposes the tax on corporations and
partnerships. The contention clearly forgets, however, that such a system of income taxation has
long been the prevailing rule even prior to Republic Act No. 7496.

Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects
or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities (Juan
Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as:
(1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is
germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both
present and future conditions, and (4) the classification applies equally well to all those belonging to
the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).

What may instead be perceived to be apparent from the amendatory law is the legislative intent to
increasingly shift the income tax system towards the schedular approach2 in the income taxation of
individual taxpayers and to maintain, by and large, the present global treatment3 on taxable
corporations. We certainly do not view this classification to be arbitrary and inappropriate.

Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process,
what he believes to be an imbalance between the tax liabilities of those covered by the amendatory
law and those who are not. With the legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court
cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative
judgment. Of course, where a tax measure becomes so unconscionable and unjust as to amount to
confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude, the
power to tax cannot override constitutional proscriptions. This stage, however, has not been
demonstrated to have been reached within any appreciable distance in this controversy before us.

Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for
being violative of due process must perforce fail. The due process clause may correctly be invoked
only when there is a clear contravention of inherent or constitutional limitations in the exercise of the
tax power. No such transgression is so evident to us.

G.R. No. 109446

The several propositions advanced by petitioners revolve around the question of whether or not
public respondents have exceeded their authority in promulgating Section 6, Revenue Regulations
No. 2-93, to carry out Republic Act No. 7496.
The questioned regulation reads:

Sec. 6. General Professional Partnership The general professional partnership

(GPP) and the partners comprising the GPP are covered by R. A. No. 7496. Thus, in
determining the net profit of the partnership, only the direct costs mentioned in said
law are to be deducted from partnership income. Also, the expenses paid or incurred
by partners in their individual capacities in the practice of their profession which are
not reimbursed or paid by the partnership but are not considered as direct cost, are
not deductible from his gross income.

The real objection of petitioners is focused on the administrative interpretation of public respondents
that would apply SNIT to partners in general professional partnerships. Petitioners cite the pertinent
deliberations in Congress during its enactment of Republic Act No. 7496, also quoted by the
Honorable Hernando B. Perez, minority floor leader of the House of Representatives, in the latter's
privilege speech by way of commenting on the questioned implementing regulation of public
respondents following the effectivity of the law, thusly:

MR. ALBANO, Now Mr. Speaker, I would like to get the correct
impression of this bill. Do we speak here of individuals who are
earning, I mean, who earn through business enterprises and
therefore, should file an income tax return?

MR. PEREZ. That is correct, Mr. Speaker. This does not apply to
corporations. It applies only to individuals.

(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours).

Other deliberations support this position, to wit:

MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from
Batangas say that this bill is intended to increase collections as far as
individuals are concerned and to make collection of taxes equitable?

MR. PEREZ. That is correct, Mr. Speaker.

(Id. at 6:40 P.M.; Emphasis ours).

In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate

version of the SNITS, it is categorically stated, thus:

This bill, Mr. President, is not applicable to business corporations or

to partnerships; it is only with respect to individuals and professionals.
(Emphasis ours)

The Court, first of all, should like to correct the apparent misconception that general professional
partnerships are subject to the payment of income tax or that there is a difference in the tax
treatment between individuals engaged in business or in the practice of their respective professions
and partners in general professional partnerships. The fact of the matter is that a general
professional partnership, unlike an ordinary business partnership (which is treated as a corporation
for income tax purposes and so subject to the corporate income tax), is not itself an income
taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but
on the partners themselves in their individual capacity computed on their distributive shares of
partnership profits. Section 23 of the Tax Code, which has not been amended at all by Republic Act
7496, is explicit:

Sec. 23. Tax liability of members of general professional partnerships. (a) Persons
exercising a common profession in general partnership shall be liable for income tax
only in their individual capacity, and the share in the net profits of the general
professional partnership to which any taxable partner would be entitled whether
distributed or otherwise, shall be returned for taxation and the tax paid in accordance
with the provisions of this Title.

(b) In determining his distributive share in the net income of the partnership, each
partner

(1) Shall take into account separately his distributive share of the
partnership's income, gain, loss, deduction, or credit to the extent
provided by the pertinent provisions of this Code, and

(2) Shall be deemed to have elected the itemized deductions, unless

he declares his distributive share of the gross income undiminished
by his share of the deductions.

There is, then and now, no distinction in income tax liability between a person who practices his
profession alone or individually and one who does it through partnership (whether registered or not)
with others in the exercise of a common profession. Indeed, outside of the gross compensation
income tax and the final tax on passive investment income, under the present income tax system all
individuals deriving income from any source whatsoever are treated in almost invariably the same
manner and under a common set of rules.

We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act
No. 7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view
can easily become myopic, however, when the law is understood, as it should be, as only forming
part of, and subject to, the whole income tax concept and precepts long obtaining under the National
Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term
used in the Tax Code, and it practically covers all persons who derive taxable income. The law, in
levying the tax, adopts the most comprehensive tax situs of nationality and residence of the taxpayer
(that renders citizens, regardless of residence, and resident aliens subject to income tax liability on
their income from all sources) and of the generally accepted and internationally recognized income
taxable base (that can subject non-resident aliens and foreign corporations to income tax on their
income from Philippine sources). In the process, the Code classifies taxpayers into four main
groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement and (4)
Irrevocable Trusts (irrevocable both as to corpus and as to income).

Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily,
partnerships, no matter how created or organized, are subject to income tax (and thus alluded to as
"taxable partnerships") which, for purposes of the above categorization, are by law assimilated to be
within the context of, and so legally contemplated as, corporations. Except for few variances, such
as in the application of the "constructive receipt rule" in the derivation of income, the income tax
approach is alike to both juridical persons. Obviously, SNIT is not intended or envisioned, as so
correctly pointed out in the discussions in Congress during its deliberations on Republic Act 7496,
aforequoted, to cover corporations and partnerships which are independently subject to the payment
of income tax.
"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even
considered as independent taxable entities for income tax purposes. A
general professional partnership is such an example.4 Here, the partners themselves, not the
partnership (although it is still obligated to file an income tax return [mainly for administration and
data]), are liable for the payment of income tax in their individual capacity computed on their
respective and distributive shares of profits. In the determination of the tax liability, a partner does so
as an individual, and there is no choice on the matter. In fine, under the Tax Code on income
taxation, the general professional partnership is deemed to be no more than a mere mechanism or a
flow-through entity in the generation of income by, and the ultimate distribution of such income to,
respectively, each of the individual partners.

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing
rule as now so modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable to all individual income
taxpayers on their non-compensation income. There is no evident intention of the law, either before
or after the amendatory legislation, to place in an unequal footing or in significant variance the
income tax treatment of professionals who practice their respective professions individually and of
those who do it through a general professional partnership.

WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.

SO ORDERED.

[G.R. No. 119252. August 18, 1997]

COMMISIONER OF INTERNAL REVENUE and COMMISIONER OF

CUSTOMS, petitioners, vs. HON. APOLINARIO B. SANTOS, in his
capacity as Presiding Judge of the Regional Trial Court, Branch
67, Pasig City; ANTONIO M. MARCO; JEWELRY BY MARCO &
CO., INC., and GUILD OF PHILIPPINE JEWELLERS,
INC., respondents.

DECISION
HERMOSISIMA, JR., J.:

Of grave concern to this Court is the judicial pronouncement of the court a

quo that certain provisions of the Tariff & Customs Code and the National
Internal Revenue Code are unconstitutional. This provokes the issue: Can the
Regional Trial Courts declare a law inoperative and without force and effect or
otherwise unconstitutional? If it can, under what circumstances?
In this petition, the Commissioner of Internal Revenue and the
Commissioner of Customs jointly seek the reversal of the Decision, dated [1]
February 16, 1995, of herein public respondent, Hon. Apolinario B. Santos,
Presiding Judge of Branch 67 of the Regional Trial Court of Pasig City.
The following facts, concisely related in the petition of the Office of the
[2]

Solicitor General, appear to be undisputed:

"1. Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino

jewelers engaged in the manufacture of jewelers (sic) and allied undertakings. Among
its members are Hans Brumann, Inc., Miladay Jewels Inc., Mercelles, Inc., Solid Gold
International Traders inc., Diagem Trading Corporation, and Private respondent
Jewelry by Marco & Co., Inc. Private respondent Antonio M. Marco is the President
of the Guild.

2. On August 5, 1988, Felicidad L. Viray, then Regional Director, Region No. 4-A of
the Bureau of Internal Revenue, acting for and in behalf of the Commissioner of
Internal Revenue, issued Regional Mission Order No. 109-88 to BIR officers, led by
Eliseo Corcega, to conduct surveillance, monitoring, and inventory of all imported
articles of Hans Brumann, Inc., and place the same under preventive embargo. The
duration of the mission was from August 8 to August 20, 1988 (Exhibit 1; Exhibit A).

3. On August 17, 1988, persuant to the aforementioned Mission Order, the BIR
officers proceeded to the establishment of Hans Brumann, Inc., served the Mission
Order, and informed the establishment that they were going to make an inventory of
the articles involved to see if the proper taxes thereon have been paid. They then made
an inventory of the articles displayed in the cabinets with the assistance of an
employee of the establishment. They listed down the articles, which list was signed by
the assistant employee. They also requested the presentation of proof of necessary
payments for excise tax and value-added tax on said articles (pp, 10-15, TSN April
12,1993, Exhibits 2, 2-A, 3, 3-a).

4. The BIR officers requested the establishment not to sell the articles until it can be
proven that the necessary taxes thereon have been paid. Accordingly, Mr. Hans
Brumann, the owner of the establishment, signed a receipt for Goods, Articles, and
Things Seized under Authority of the National Internal Revenue Code (dated August
17, 1988), acknowledging that the articles inventoried have been seized and left in his
possession, and promising not to dispose of the same without authority of the
Commissioner of Internal Revenue pending investigation. [3]

5. Subsequently, BIR officer Eliseo Corcega submitted to his superiors a report of the
inventory conducted and a computation of the value-added tax and ad valorem tax on
the articles for evaluation and disposition.
[4]
6. Mr. Hans Brumann, the owner of the establishment, never filed a protest with the
BIR on the preventive embargo of the articles. [5]

7. On October 17, 1988, Letter of Authority No. 0020596 was issued by Deputy
Commissioner Eufracio D. Santos to BIR officers to examine the books of accounts
and other accounting records of Hans Brumann, Inc., for stocktaking investigation for
excise tax purposes for the period January 1, 1988 to present (Exhibit C). In a latter
dated October 27, 1988, in connection with the physical count of the inventory (stocks
on hand) pursuant to said Letter of Authority, Hans Brumann, Inc. was requested to
prepare and make available to the BIR the documents indicated therein (Exhibit 'D').

8. Hans Brumann, inc., did not produce the documents requested by the BIR. [6]

9. Similar Letters of Authority were issued to BIR officers to examine the books of
accounts ans other accounting records of Miladay Jewels, Inc., Mercelles, Inc., Solid
Gold International Traders, Inc., (Exhibit E, G and N) and Diagem Trading
Corporation for stocktaking/investigation for excise tax pirpose for the period
[7]

January 1, 1988 to present.

10. In the case of Miladay Jewels, Inc. and Mercelles, Inc., there is no account of what
actually transpired in the implementation of the Letters of Authority.

11. In the case of Solid Gold International Traders Corporation, the BIR officers made
an inventory of the articles in the establishment. The same is true with respect to
[8]

Diagem Traders Corporation. [9]

12. On November 29, 1988, private respondents Antonio M. Marco and Jewelry By
Marco & Co., Inc. filed with the Regional Trial Court, National Capital Judicial
Region, Pasig City, Meto Manila, a petition for declaratory relief with writ of
preliminary injunction and/or temporary restraining order against herein petitioners
and Revenue Regional Director Felicidad L. Viray (docketed as Civil Case No.
56736) praying that Sections 126, 127(a) and (b) and 150 (a) of the National Internal
Revenue Code and Hdg. No 71.01, 71.02, 71.03 and 71.04, Chapter 71 of the Tariff
and Customs Code of the Philippines be declared unconstitutional and void, and that
the Commissioner of Internal Revenue and Customs be prevented or enjoined from
issuing mission orders and other orders of similar nature. x x x

13. On February 9, 1989, herein petitioners filed their answer to the petition. x x x

14. On October 16, 1989, private respondents filed a Motion with Leave to Amend
Petition by including as petitioner the Guild of Philippine Jewelers, Inc., which
motion was granted. x x x
15. The case, which was originally assigned to Branch 154, was later reassigned to
Branch 67.

16. On February 16, 1995, public respondent rendered a decision, the dispositive
portion of which reads:

'In view of the foregoing reflections, judgment is hereby rendered, as follows:

1. Declaring Section 104 of the Tariff and the Custom Code of the Philippines, Hdg,
71.01, 71.02, 71.03, and 71.04, Chapter 71 as amended by Executive Order No. 470,
imposing three to ten (3% to 10%) percent tariff and customs duty on natural and
cultured pearls and precious or semi-precious stones, and Section 150 par. (a)the
National Internal Revenue Code of 1977, as amended, renumbered and rearranged by
Executive Order 273, imposing twenty (20%) percent excise tax on jewelry, pearls
and other precious stones, as INOPERATIVE and WITHOUT FORCE and EFFECT
insofar as petitioners are concerned.

2. Enforcement of the same is hereby enjoined.

No cost.

SO ORDERED.

Section 150 (a) of Executive Order No. 273 reads:

SEC. 150. Non-essential goods. There shall be levied, assessed and collected a tax
equivalent to 20% based on the wholesale price or the value of importation used by
the Bureau of Customs in determining tariff and customs duties; net of the excise tax
and value-added tax, of the following goods:

(a) All goods commonly or commercially known as jewelry, whether real or imitation,
pearls, precious and semi-precious stones and imitations thereof; goods made of, or
ornamented, mounted and fitted with, precious metals or imitations thereof or ivory
(not including surgical and dental instruments, silver-plated wares, frames or
mountings for spectacles or eyeglasses, and dental gold or gold alloys and other
precious metals used in filling, mounting or fitting of the teeth); opera glasses and
lorgnettes. The term precious metals shall include platinum, gold, silver, and other
metals of similar or greater value.The term imitation thereof shall include platings and
alloys of such metals.
 Section 150 (a) of Executive Order No. 273, which took effect on January
1, 1988, amended the then Section 163 (a) of the Tax Code of 1986 which
provided that:

SEC. 163. Percentage tax on sales of non-essential articles. There shall be levied,
assessed and collected, once only on every original sale, barter, exchange or similar
transaction for nominal or valuable consideration intended to transfer ownership of, or
title to, the article herein below enumerated a tax equivalent to 50% of the gross value
in money of the articles so sold, bartered. Exchanged or transferred, such tax to be
paid by the manufacturer or producer:

(a) All articles commonly or commercially known as jewelry, whether real or

imitation, pearls, precious and semi-precious stones, and imitations thereof, articles
made of, or ornamented, mounted or fitted with, precious metals or imitations thereof
or ivory (not including surgical and dental instruments, silver-plated wares, frames or
mounting for spectacles or eyeglasses, and dental gold or gold alloys and other
precious metal used in filling, mounting or fitting of the teeth); opera glasses, and
lorgnettes. The term precious metals shall include platinum, gold, silver, and other
metals of similar or greater value. The term imitations thereof shall include platings
and alloys of such metals;

Section 163(a) of the 1986 Tax Code was formerly Section 194(a) of the
1977 Tax Code and Section 184(a) of the Tax code, as amended by
Presidential Decree No. 69, which took effect on January 1, 1974.
It will be noted that, while under the present law, jewelry is subject to a 20%
excise tax in addition to a 10% value-added tax under the old law, it was
subjected to 50% percentage tax. It was even subjected to a 70% percentage
tax under then Section 184(a) of the Tax Code, as amended by P.D. 69.
Section 104, Hdg, Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the
Tariff and Customs Code, as amended by Executive Order No. 470, dated July
20, 1991, imposes import duty on natural or cultured pearls and precious or
semi-precious stones at the rate of 3% to 10% to be applied in stages from 1991
to 1994 and 30% in 1995.
Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10%
to 50% when the petition was filed in the court a quo.
In support of their petition before the lower court, the private respondents
submitted a position paper purporting to be an exhaustive study of the tax rates
on jewelry prevailing in other Asian countries, in comparison to tax rates levied
on the same in the Philippines. [10]
 The following issues were thus raised therein:

"1. Whether or not the Honorable Court has jurisdiction over the subject matter of the
petition.

2. Whether the petition states a cuase of action or whether the petition alleges a
justiciable controversy between the parties.

3. Whether Section 150, par. (a) of the NIRC and Section 104, Hdg. 71.01, 71.02,
71.03 and 71.04 of the Tariff and Customs Code are unconstitutional.

4. Whether the issuance of the Mission Order and Letters of Authority is valid and
legal.

In the assailed decision, the public respondent held indeed that the Regional
Trial Court has jurisdiction to take cognizance of the petition since jurisdiction
over the nature of the suit is conferred by law and it is detemine[d] through the
allegations in the petition, and that the Court of Tax Appeals ha no jurisdiction
to declare a statute unconstitutional much less issue writs of certiorari and
prohibition in order to correct acts of respondents allegedly committed with
grave abuse of discretion amounting to lack of jurisdiction.
As to the second issue, the public respondent, made the holding that there
exist a justiciable controversy between the parties, agreeing with the statements
made in the position paper presented by the private respondents, and
considering these statements to be factual evidence, to wit:

Evidence for the petitioners indeed reveals that government taxation policy treats
jewelry, pearls, and other precious stones and metals as non-essential luxury items and
therefore, taxed heavily; that the atmospheric cost of taxation is killing the local
manufacturing jewelry industry because they cannot compete with the neighboring
and other countries where importation and manufacturing of jewelry is not taxed
heavily, if not at all; that while government incentives and subsidies exist, local
manufacturers cannot avail of the same because officially many of them are
unregistered and are unable to produce the required official documents because they
operate underground, outside the tariff and tax structure; that local jewelry
manufacturing is under threat of extinction, otherwise discouraged, while domestic
trading has become more attractive; and as a consequence, neighboring countries,
such as Hongkong, Singapore, Malaysia, Thailand, and other foreign competitors
supplying the Philippine market either through local channels or through the black
market for smuggled goods are the ones who are getting business and making money,
while members of the petitioner Guild of Philippine Jewelers, Inc. are constantly
subjected to bureaucratic harassment instead of being given by the government the
necessary support in order to survive and generate revenue for the government, and
most of all fight competitively not only in the domestic market but in the arena of
world market where the real contest is.

Considering the allegations of fact in the petition which were duly proven during the
trial, the Court holds that the petition states a cause of action and there exist a
justiciable controversy between the parties which would require determination of
constitutionality of laws imposing excise tax and customs duty on
jewelry. (emphasis ours)
[11]

The public respondent, in addressing the third issue, ruled that the laws in
question are confiscatory and oppressive. Again, virtually adopting verbatim the
reasons presented by the private respondents in their position paper, the lower
court stated:

The court finds that indeed government taxation policy trats(sic) hewelry(sic) as non-
essential luxury item and therefore, taxed heavily. Aside from the ten (10%) percent
value added tax (VAT), local jewelry manufacturers contend with the (manufacturing)
excise tax of twenty (20%) percent (to be applied in stages) customs duties on
imported raw materials, the highest in the Asia-Pacific region. In contrast, imported
gemstones and other precious metals are duty free in Hongkong, Thailand, Malaysia
and Singapore.

The court elaborates further on the experience of other countries in their treatment of
the jewelry sector.

MALAYSIA

Duties and taxes on imported gemstones and gold and the sales tax on jewelry were
abolished in Malaysia in 1984. They were removed to encouraged the development of
Malaysias jewelry manufacturing industry and to increase exports of jewelry.

THAILAND

Gems and jewelry are Thailands ninth most important export earner. In the past, the
industry was overlooked by successive administrations much to the dismay of those
involved in developing trade.Prohibitive import duties and sales tax on precious
gemstones restricted the growth (sic) of the industry, resulting in most of the business
being unofficial. It was indeed difficult for a government or businessman to promote
an industry which did not officially exist.
Despite these circumstances, Thailands Gem business kept growing up in (sic)
businessmen began to realize its potential. In 1978, the government quietly removed
the severe duties on precious stones, but imposed a sales tax of 3.5%. Little was said
or done at that time as the government wanted to see if a free trade in gemstones and
jewelry would increase local manufacturing and exports or if it would mean more
foreign made jewelry pouring into Thailand. However, as time progressed, there were
indications that local manufacturing was indeed being encouraged and the economy
was earning more from exports. The government soon removed the 3% sales tax too.
Putting Thailand at par with Hongkong and Singapore. In these countries, there are no
more import duties and sales tax on gems. (Cited in pages 6 and 7 of Exhibit M. The
Center for Research and Communication in cooperation with the Guild of Philippine
Jewelers, Inc., June 1986).

To illustrate, shown hereunder in the Philippine tariff and tax structure on jewelry and
other percious and semi-precious stones compared to other neighboring countries, to
wit:

Tariff on imported
Jewelry and (MANUFACTURING) Sales Tax 10% (VAT)
Precious stones Excise Tax

Philippines 3% to 10% to be 20% 10% VAT

applied in stages

Malaysia None None None

Thailand None None None

Singapore None None None

Hongkong None None None

In this connection, the present tariff and tax structure increases manufacturing costs
and renders the local jewelry manufacturers uncompetitive against other countries
even before they start manufacturing and trading. Because of the prohibitive cast(sic)
of taxation, most manufacturers source from black market for smuggled goods, and
that while manufacturers can avail of tax exemption and/or tax credits from the
(manufacturing) excise tax, they have no documents to present when filing this
exemption because, as pointed out earlier, most of them source their raw materials
from the black market, and since many of them do not legally exist or operate
onofficially(sic), or underground, again they have no records (receipts) to indicate
where and when they will utilize such tax credits. (Cited in Exhibit M Buencamino
Report).

Given these constraints, the local manufacturer has no recourse but to the back door
for smuggled goods if only to be able to compete even ineffectively, or cease
manufacturing activities and instead engage in the tradinf (sic) of smuggled finished
jewelry.

Worthy of not is the fact that indeed no evidence was adduced by respondents to
disprove the foregoing allegations of fact. Under the foregoing factual circumstances,
the Court finds the questioned statutory provisions confiscatory and destructive of the
proprietary right of the petitioners to engage in business in violation of Section 1,
Article III of the Constitution which states, as follows:

No person shall be deprived of the life, liberty, or property without due process of law
x x x.
[12]

Anent the fourth and last issue, the herein public respondent did not find it
necessary to rule thereon, since, in his opinion, the same has been rendered
moot and academic by the aforementioned pronouncement. [13]

The petitioners now assail the decision rendered by the public respondent,
contending that the latter has no authority to pass judgment upon the taxation
policy of the government. In addition, the petitioners impugn the decision in
question by asserting that there was no showing that the tax laws on jewelry
are confiscatory and desctructive of private respondents proprietary rights.
We rule in favor of the petitioners.
It is interesting to note that public respondent, in the dispositive portion of
his decision, perhaps keeping in mind his limitations under the law as a trial
judge, did not go so far as to declare the laws in question to be
unconstitutional. However, therein he declared the laws to be inoperative and
without force and effect insofar as the private respondents are concerned.But,
respondent judge, in the body of his decision, unequivocally but wrongly
declared the said provisions of law to be violative of Section 1, Article III of the
Constitution. In fact, in their Supplemental Comment on the Petition for
Review, the private respondents insist that Judge Santos, in his capacity as
[14]

judge of the Regional Trial Court, acted within his authority in passing upon the
issues, to wit:

A perusal of the appealed decision would undoubtedly disclose that public respondent
did not pass judgment on the soundness or wisdom of the governments tax policy on
jewelry. True, public respondent, in his questioned decision, observed, inter alia, that
indeed government tax policy treats jewelry as non-essential item, and therefore,
taxed heavily; that the present tariff and tax structure increase manufacturing cost and
renders the local jewelry manufacturers uncompetitive against other countries even
before they start manufacturing and trading; that many of the local manufacturers do
not legally exist or operate unofficially or underground; and that the manufacturers
have no recourse but to the back door for smuggled goods if only to be able to
compete even if ineffectively or cease manufacturing activities.

BUT, public respondent did not, in any manner, interfere with or encroach upon the
prerogative of the legislature to determine what should be the tax policy on
jewelry. On the other hand, the issue raised before, and passed upon by, the public
respondent was whether or not Section 150, paragraph (a) of the National Internal
Revenue Code (NIRC) and Section 104, Hdg, 71.01, 71.02, 71.03 and 71,04 of the
Tariff and Customs Code are unconstitutional, or differently stated, whether or not the
questioned statutory provisions affect the constitutional right of private respondents to
engage in business.

It is submitted that public respondent confined himself on this issue which is clearly a
judicial question.

We find it incongruous, in the face of the sweeping pronouncements made

by Judge Santos in his decision, that private respondents can still persist in their
argument that the former did not overreach the restrictions dictated upon him
by law. There is no doubt in the Courts mind, despite protestations to the
contrary, that respondent judge encroached upon matters properly falling within
the province of legislative functions. In citing as basis for his decision unproven
comparative data pertaining to differences between tax rates of various Asian
countries, and concluding that the jewelry industry in the Philippines suffers as
a result, the respondent judge took it upon himself to supplant legislative policy
regarding jewelry taxation. In advocating the abolition of local tax and duty on
jewelry simply because other countries have adopted such policies, the
respondent judge overlooked the fact that such matters are not for him to
decide.There are reasons why jewelry, a non-essential item, is taxed as it is in
this country, and these reasons, deliberate upon by our legislature, are beyond
the reach of judicial questioning. As held in Macasiano vs. National Housing
Authority:[15]

The policy of our 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. (emphasis ours)

What we see here is a debate on the WISDOM of the laws in question. This
is a matter on which the RTC is not competent to rule. As Cooley observed:
[16]

Debatable questions are for the legislature to decide. The courts do not sit to
resolve the merits of conflicting issues. In Angara vs. Electoral
[17]

Commission, Justice Laurel made it clear that the judiciary does not pass upon
[18]

question of wisdom, justice or expediency of legislation. And fittingly so, for in

the exercise of judicial power, we are allowed only to settle actual controversies
involving rights which are legally demandable and enfoceable, and may not
annul an act of the political departments simply because we feel it is unwise or
impractical. This is not to say that Regional Trial Courts have no power
[19]

whatsoever to declare a law unconstitutional. In J. M. Tuason and Co. v. Court

of Appeals we said that [p]lainly the Constitution contemplates that the inferior
[20]

courts should have jurisdiction in cases involving constitutionality of any treaty

or law, for it speaks of appellate review of final judgments of inferior courts in
cases where such constitutionality happens to be in issue. this authority of lower
courts to decide questions of constitutionality in the first instance was reaffirmed
in Ynos v. Intermediate Court of Appeals. But this authority does not extend to
[21]

deciding questions which pertain to legislative policy.

The trial court is not the proper forum for the ventilation of the issues raised
by the private respondents. The arguments they presented focus on the wisdom
of the provisions of law which they seek to nullify. Regional Trial Courts can
only look into the validity of a provision, that is, whether or not it has been
passed according to the procedures laid down by law, and thus cannot inquire
as to the reasons for its existence. Granting arguendo that the private
respondents may have provided convincing arguments why the jewelry industry
in the Philippines should not be taxed as it is, it is to the legislature that they
must resort to for relief, since with the legislature primarily lies the discretion to
determine the nature (kind), object (purpose), extent (rate), coverage (subjects)
and situs (place) of taxation. This Court cannot freely delve into those matters
which, by constitutional fiat, rightly rest on legislative judgment. [22]

As succinctly put in Lim vs. Pacquing: Where a controversy may be settled

[23]

an a platform other than one involving constitutional adjudication, the court

should exercise becoming modesty and avoid the constitutional question. As
judges, we can only interpret and apply the law and, despite our doubts about
its wisdom, cannot repeal or amend it. [24]
 The respondents presented an exhaustive study on the tax rates on jewelry
levied by different Asian countries. This is meant to convince us that compared
to other countries, the tax rates imposed on said industry in the Philippines is
oppressive and confiscatory. This Court, however, cannot subscribe to the
theory that the tax rates of other countries should be used as a yardstick in
determining what may be the proper subjects of taxation in our own country. It
should be pointed out that in imposing the aforementioned taxes and duties, the
State, acting through the legislative and executive branches, is exercising its
sovereign prerogative. It is inherent in the power to tax that the State be free to
select the subjects of taxation, and it has been repeatedly held that inequalities
which result from singling out of one particular class for taxation, or exemption,
infringe no constitutional limitation.
[25]

WHEREFORE, premises considered, the petition is hereby GRANTED, and

the DECISION in Civil Case No. 56736 is hereby REVERSED and SET
ASIDE. No costs.
SO ORDERED
[G.R. Nos. 95203-05 : December 18, 1990.]
192 SCRA 363
SENATOR ERNESTO MACEDA, Petitioner, vs. ENERGY REGULATORY BOARD (ERB);
MARCELO N. FERNANDO, ALEJANDRO B. AFURONG; REX V. TANTIONGCO; and
OSCAR E. ALA, in their collective official capacities as Chairman and Members of the
Board (ERB), respectively; CATALINO MACARAIG, in his quadruple official capacities
as Executive Secretary, Chairman of Philippine National Oil Company; Office of the
Energy Affairs, and with MANUEL ESTRELLA, in their respective official capacities as
Chairman and President of the Petron Corporation; PILIPINAS SHELL PETROLEUM
CORPORATION; with CESAR BUENAVENTURA and REY GAMBOA as chairman and
President, respectively; CALTEX PHILIPPINES with FRANCIS ABLAN, President and
Chief Executive Officer; and the Presidents of Philippine Petroleum Dealer's
Association, Caltex Dealer's Co., Petron Dealer's Asso., Shell Dealer's Asso. of the
Phil., Liquefied Petroleum Gas Institute of the Phils., any and all concerned gasoline
and petrol dealers or stations; and such other persons, officials, and parties, acting
for and on their behalf; or in representation of and/or under their authority,
Respondents.
[G.R. Nos. 95119-21 : December 18, 1990.]
192 SCRA 363
OLIVER O. LOZANO, Petitioner, vs. ENERGY REGULATORY BOARD (ERB), PILIPINAS
SHELL PETROLEUM CORPORATION, CALTEX (PHIL.), INC., and PETRON
CORPORATION, Respondents.

DECISION

SARMIENTO, J.:
The petitioners pray for injunctive relief, to stop the Energy Regulatory Board (Board
hereinafter) from implementing its Order, dated September 21, 1990, mandating a provisional
increase in the prices of petroleum and petroleum products, as follows:
PRODUCTS IN PESOS PER LITER
OPSF
Premium Gasoline 1.7700
Regular Gasoline 1.7700
Avturbo 1.8664
Kerosene 1.2400
Diesel Oil 1.2400
Fuel Oil 1.4900
Feedstock 1.4900
LPG 0.8487
Asphalts 2.7160
Thinners 1.7121 1
It appears that on September 10, 1990, Caltex (Philippines), Inc., Pilipinas Shell Petroleum
Corporation, and Petron Corporation proferred separate applications with the Board for
permission to increase the wholesale posted prices of petroleum products, as follows:
Caltex P3.2697 per liter
Shell 2.0338 per liter
Petron 2.00 per liter 2
and meanwhile, for provisional authority to increase temporarily such wholesale posted prices
pending further proceedings. :-cralaw

On September 21, 1990, the Board, in a joint (on three applications) Order granted provisional
relief as follows:
WHEREFORE, considering the foregoing, and pursuant to Section 8 of Executive Order No.
172, this Board hereby grants herein applicants' prayer for provisional relief and, accordingly,
authorizes said applicants a weighted average provisional increase of ONE PESO AND FORTY-
TWO CENTAVOS (P1.42) per liter in the wholesale posted prices of their various petroleum
products enumerated below, refined and/or marketed by them locally. 3
The petitioners submit that the above Order had been issued with grave abuse of discretion,
tantamount to lack of jurisdiction, and correctible by Certiorari.
The petitioner, Senator Ernesto Maceda, 4 also submits that the same was issued without
proper notice and hearing in violation of Section 3, paragraph (e), of Executive Order No.
172; that the Board, in decreeing an increase, had created a new source for the Oil Price
Stabilization Fund (OPSF), or otherwise that it had levied a tax, a power vested in the
legislature, and/or that it had "re-collected", by an act of taxation, ad valorem taxes on oil
which Republic Act No. 6965 had abolished.
The petitioner, Atty. Oliver Lozano, 5 likewise argues that the Board's Order was issued
without notice and hearing, and hence, without due process of law.
The intervenor, the Trade Union of the Philippines and Allied Services (TUPAS/FSM)-W.F.T.U.,
6 argues on the other hand, that the increase cannot be allowed since the respondents oil
companies had not exhausted their existing oil stock which they had bought at old prices and
that they cannot be allowed to charge new rates for stock purchased at such lower rates.
The Court set the cases (in G.R. Nos. 95203-05) for hearing on October 25, 1990, in which
Senator Maceda and his counsel, Atty. Alexander Padilla, argued. The Solicitor General, on
behalf of the Board, also presented his arguments, together with Board Commissioner Rex
Tantiangco. Attys. Federico Alikpala, Jr. and Joselia Poblador represented the oil firms (Petron
and Caltex, respectively).
The parties were thereafter required to submit their memorandums after which, the Court
considered the cases submitted for resolution.
On November 20, 1990, the Court ordered these cases consolidated.
On November 27, 1990, we gave due course to both petitions.
The Court finds no merit in these petitions.
Senator Maceda and Atty. Lozano, in questioning the lack of a hearing, have overlooked the
provisions of Section 8 of Executive Order No. 172, which we quote:
"SECTION 8. Authority to Grant Provisional Relief . The Board may, upon the filing of an
application, petition or complaint or at any stage thereafter and without prior hearing, on the
basis of supporting papers duly verified or authenticated, grant provisional relief on motion
of a party in the case or on its own initiative, without prejudice to a final decision after hearing,
should the Board find that the pleadings, together with such affidavits, documents and other
evidence which may be submitted in support of the motion, substantially support the
provisional order: Provided, That the Board shall immediately schedule and conduct a hearing
thereon within thirty (30) days thereafter, upon publication and notice to all affected parties.
nad
:

As the Order itself indicates, the authority for provisional increase falls within the above
provision.
There is no merit in the Senator's contention that the "applicable" provision is Section 3,
paragraph (e) of the Executive Order, which we quote:
(e) Whenever the Board has determined that there is a shortage of any petroleum product,
or when public interest so requires, it may take such steps as it may consider necessary,
including the temporary adjustment of the levels of prices of petroleum products and the
payment to the Oil Price Stabilization Fund created under Presidential Decree No. 1956 by
persons or entities engaged in the petroleum industry of such amounts as may be determined
by the Board, which will enable the importer to recover its cost of importation.
What must be stressed is that while under Executive Order No. 172, a hearing is
indispensable, it does not preclude the Board from ordering, ex parte, a provisional increase,
as it did here, subject to its final disposition of whether or not: (1) to make it permanent; (2)
to reduce or increase it further; or (3) to deny the application. Section 37 paragraph (e) is
akin to a temporary restraining order or a writ of preliminary attachment issued by the courts,
which are given ex parte, and which are subject to the resolution of the main case.
Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate
exclusively of the other, in that the Board may resort to one but not to both at the same time.
Section 3(e) outlines the jurisdiction of the Board and the grounds for which it may decree a
price adjustment, subject to the requirements of notice and hearing. Pending that, however,
it may order, under Section 8, an authority to increase provisionally, without need of a
hearing, subject to the final outcome of the proceeding. The Board, of course, is not prevented
from conducting a hearing on the grant of provisional authority which is of course, the
better procedure however, it cannot be stigmatized later if it failed to conduct one. As we
held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board. 7
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 by then 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. 8
We do not therefore find the challenged action of the Board to have been done in violation of
the due process clause. The petitioners may contest however, the applications at the hearings
proper.
Senator Maceda's attack on the Order in question on premises that it constitutes an act of
taxation or that it negates the effects of Republic Act No. 6965, cannot prosper. Republic Act
No. 6965 operated to lower taxes on petroleum and petroleum products by imposing specific
taxes rather than ad valorem taxes thereon; it is, not, however, an insurance against an "oil
hike", whenever warranted, or is it a price control mechanism on petroleum and petroleum
products. The statute had possibly forestalled a larger hike, but it operated no more. : nad

The Board Order authorizing the proceeds generated by the increase to be deposited to the
OPSF is not an act of taxation. It is authorized by Presidential Decree No. 1956, as amended
by Executive Order No. 137, as follows:
SECTION 8. There is hereby created a Trust Account in the books of accounts of the Ministry
of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing
frequent price changes brought about by exchange rate adjustments and/or changes in world
market prices of crude oil and imported petroleum products. The Oil Price Stabilization Fund
(OPSF) may be sourced from any of the following:
a) Any increase in the tax collection from ad valorem tax or customs duty imposed on
petroleum products subject to tax under this Decree arising from exchange rate adjustment,
as may be determined by the Minister of Finance in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax exemptions of government
corporations, as may be determined by the Minister of Finance in consultation with the Board
of Energy;
c) Any additional amount to be imposed on petroleum products to augment the resources of
the Fund through an appropriate Order that may be issued by the Board of Energy requiring
payment by persons or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in
the importation of crude oil and petroleum products is less than the peso costs computed
using the reference foreign exchange rates as fixed by the Board of Energy.
Anent claims that oil companies cannot charge new prices for oil purchased at old rates,
suffice it to say that the increase in question was not prompted alone by the increase in world
oil prices arising from tension in the Persian Gulf. What the Court gathers from the pleadings
as well as events of which it takes judicial notice, is that: (1) as of June 30, 1990, the OPSF
has incurred a deficit of P6.1 Billion; (2) the exchange rate has fallen to P28.00 to $1.00; (3)
the country's balance of payments is expected to reach $1 Billion; (4) our trade deficit is at
$2.855 Billion as of the first nine months of the year.
Evidently, authorities have been unable to collect enough taxes necessary to replenish the
OPSF as provided by Presidential Decree No. 1956, and hence, there was no available
alternative but to hike existing prices.
The OPSF, as the Court held in the aforecited CACP cases, must not be understood to be a
funding designed to guarantee oil firms' profits although as a subsidy, or a trust account, the
Court has no doubt that oil firms make money from it. As we held there, however, the OPSF
was established precisely to protect the consuming public from the erratic movement of oil
prices and to preclude oil companies from taking advantage of fluctuations occurring every so
often. As a buffer mechanism, it stabilizes domestic prices by bringing about a uniform rate
rather than leaving pricing to the caprices of the market.
In all likelihood, therefore, an oil hike would have probably been imminent, with or without
trouble in the Gulf, although trouble would have probably aggravated it. : nad

The Court is not to be understood as having prejudged the justness of an oil price increase
amid the above premises. What the Court is saying is that it thinks that based thereon, the
Government has made out a prima facie case to justify the provisional increase in question.
Let the Court therefore make clear that these findings are not final; the burden, however, is
on the petitioners' shoulders to demonstrate the fact that the present economic picture does
not warrant a permanent increase.
There is no doubt that the increase in oil prices in question (not to mention another one
impending, which the Court understands has been under consideration by policy-makers)
spells hard(er) times for the Filipino people. The Court can not, however, debate the wisdom
of policy or the logic behind it (unless it is otherwise arbitrary), not because the Court agrees
with policy, but because the Court is not the suitable forum for debate. It is a question best
judged by the political leadership which after all, determines policy, and ultimately, by the
electorate, that stands to be better for it or worse off, either in the short or long run.
At this point, the Court shares the indignation of the people over the conspiracy of events and
regrets its own powerlessness, if by this Decision it has been powerless. The constitutional
scheme of things has simply left it with no choice.
In fine, we find no grave abuse of discretion committed by the respondent Board in issuing
its questioned Order.
WHEREFORE, these petitions are DISMISSED. No costs.
SO ORDERED.

G.R. No. 96266 July 18, 1991

ERNESTO M. MACEDA, petitioner,

vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL PETROLEUM
CORPORATION AND PETRON CORPORATION, respondents.

G.R. No. 96349 July 18, 1991

EUGENIO O. ORIGINAL, IRENEO N. AARON, JR., RENE LEDESMA, ROLANDO VALLE,

ORLANDO MONTANO, STEVE ABITANG, NERI JINON, WILFREDO DELEONIO, RENATO
BORRO, RODRIGO DE VERA, ALVIN BAYUANG, JESUS MELENDEZ, NUMERIANO CAJILIG
JR., RUFINO DE LA CRUZ AND JOVELINO G. TIPON, petitioners,
vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL PETROLEUM
CORPORATION AND PETRON CORPORATION, respondents.

G.R. No. 96284 July 18,1991

CEFERINO S. PAREDES, JR., petitioner,

vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL, INC. AND
PETROPHIL CORPORATION, respondents.

RESOLUTION

MEDIALDEA, J.:

In G.R. No. 96266, petitioner Maceda seeks nullification of the Energy Regulatory Board (ERB)
Orders dated December 5 and 6, 1990 on the ground that the hearings conducted on the second
provisional increase in oil prices did not allow him substantial cross-examination, in effect, allegedly,
a denial of due process.

The facts of the case are as follows:

Upon the outbreak of the Persian Gulf conflict on August 2, 1990, private respondents oil companies
filed with the ERB their respective applications on oil price increases (docketed as ERB Case Nos.
90-106, 90-382 and 90-384, respectively).

On September 21, 1990, the ERB issued an order granting a provisional increase of P1.42 per liter.
Petitioner Maceda filed a petition for Prohibition on September 26, 1990 (E. Maceda v. ERB, et al.,
G.R. No. 95203), seeking to nullify the provisional increase. We dismissed the petition on December
18, 1990, reaffirming ERB's authority to grant provisional increase even without prior hearing,
pursuant to Sec. 8 of E.O. No. 172, clarifying as follows:

What must be stressed is that while under Executive Order No. 172, a hearing is
indispensable, it does not preclude the Board from ordering, ex-parte, a provisional increase,
as it did here, subject to its final disposition of whether or not: (1) to make it permanent; (2) to
reduce or increase it further; or (3) to deny the application. Section 3, paragraph (e) is akin to
a temporary restraining order or a writ of preliminary attachment issued by the courts, which
are given ex-parte and which are subject to the resolution of the main case.

Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate
exclusively of the other, in that the Board may resort to one but not to both at the same time.
Section 3(e) outlines the jurisdiction of the Board and the grounds for which it may decree a
price adjustment, subject to the requirements of notice and hearing. Pending that, however, it
may order, under Section 8, an authority to increase provisionally, without need of a hearing,
subject to the final outcome of the proceeding. The Board, of course, is not prevented from
conducting a hearing on the grant of provisional authority-which is of course, the better
procedure however, it cannot be stigmatized later if it failed to conduct one. (pp. 129-
130, Rollo) (Emphasis supplied)
In the same order of September 21, 1990, authorizing provisional increase, the ERB set the
applications for hearing with due notice to all interested parties on October 16, 1990. Petitioner
Maceda failed to appear at said hearing as well as on the second hearing on October 17, 1990.

To afford registered oppositors the opportunity to cross-examine the witnesses, the ERB set the
continuation of the hearing to October 24, 1990. This was postponed to November 5, 1990, on
written notice of petitioner Maceda.

On November 5, 1990, the three oil companies filed their respective motions for leave to file or admit
amended/supplemental applications to further increase the prices of petroleum products.

The ERB admitted the respective supplemental/amended petitions on November 6, 1990 at the
same time requiring applicants to publish the corresponding Notices of Public Hearing in two
newspapers of general circulation (p. 4, Rollo and Annexes "F" and "G," pp. 60 and 62, Rollo).

Hearing for the presentation of the evidence-in-chief commenced on November 21, 1990 with ERB
ruling that testimonies of witnesses were to be in the form of Affidavits (p. 6, Rollo). ERB
subsequently outlined the procedure to be observed in the reception of evidence, as follows:

CHAIRMAN FERNANDO:

Well, at the last hearing, applicant Caltex presented its evidence-in-chief and there is an
understanding or it is the Board's wish that for purposes of good order in the presentation of
the evidence considering that these are being heard together, we will defer the cross-
examination of applicant Caltex's witness and ask the other applicants to present their
evidence-in-chief so that the oppositors win have a better Idea of what an of these will lead
to because as I mentioned earlier, it has been traditional and it is the intention of the Board to
act on these applications on an industry-wide basis, whether to accept, reject, modify or
whatever, the Board win do it on an industry wide basis, so, the best way to have (sic) the
oppositors and the Board a clear picture of what the applicants are asking for is to have all
the evidence-in-chief to be placed on record first and then the examination will come later,
the cross-examination will come later. . . . (pp. 5-6, tsn., November 23, 1990, ERB Cases
Nos. 90-106, 90382 and 90-384). (p. 162, Rollo)

Petitioner Maceda maintains that this order of proof deprived him of his right to finish his cross-
examination of Petron's witnesses and denied him his right to cross-examine each of the witnesses
of Caltex and Shell. He points out that this relaxed procedure resulted in the denial of due process.

We disagree. The Solicitor General has pointed out:

. . . The order of testimony both with respect to the examination of the particular witness and
to the general course of the trial is within the discretion of the court and the exercise of this
discretion in permitting to be introduced out of the order prescribed by the rules is not
improper (88 C.J.S. 206-207).

Such a relaxed procedure is especially true in administrative bodies, such as the ERB
which in matters of rate or price fixing is considered as exercising a quasi-legislative, not
quasi-judicial, function As such administrative agency, it is not bound by the strict or
technical rules of evidence governing court proceedings (Sec. 29, Public Service Act;
Dickenson v. United States, 346, U.S. 389, 98 L. ed. 132, 74 S. St. 152). (Emphasis
supplied)
 In fact, Section 2, Rule I of the Rules of Practice and Procedure Governing Hearings Before
the ERB provides that

These Rules shall govern pleadings, practice and procedure before the Energy Regulatory
Board in all matters of inquiry, study, hearing, investigation and/or any other proceedings
within the jurisdiction of the Board. However, in the broader interest of justice, the Board
may, in any particular matter, except itself from these rules and apply such suitable
procedure as shall promote the objectives of the Order.

(pp. 163-164, Rollo)

Petitioner Maceda also claims that there is no substantial evidence on record to support the
provisional relief.

We have, in G.R. Nos. 95203-05, previously taken judicial notice of matters and events related to the
oil industry, as follows:

. . . (1) as of June 30, 1990, the OPSF has incurred a deficit of P6.1 Billion; (2) the exchange
rate has fallen to P28.00 to $1.00; (3) the country's balance of payments is expected to
reach $1 Billion; (4) our trade deficit is at P2.855 Billion as of the first nine months of the
year.

. . . (p. 150, Rollo)

The Solicitor General likewise commented:

Among the pieces of evidence considered by ERB in the grant of the contested provisional
relief were: (1) certified copies of bins of lading issued by crude oil suppliers to the private
respondents; (2) reports of the Bankers Association of the Philippines on the peso-dollar
exchange rate at the BAP oil pit; and (3) OPSF status reports of the Office of Energy Affairs.
The ERB was likewise guided in the determination of international crude oil prices by
traditional authoritative sources of information on crude oil and petroleum products, such as
Platt's Oilgram and Petroleum Intelligence Weekly. (p. 158, Rollo)

Thus, We concede ERB's authority to grant the provisional increase in oil price, as We note that the
Order of December 5, 1990 explicitly stated:

in the light, therefore, of the rise in crude oil importation costs, which as earlier mentioned,
reached an average of $30.3318 per barrel at $25.551/US $ in September-October 1990; the
huge OPSF deficit which, as reported by the Office of Energy Affairs, has amounted to P5.7
Billion (based on filed claims only and net of the P5 Billion OPSF) as of September 30, 1990,
and is estimated to further increase to over P10 Billion by end December 1990; the decision
of the government to discontinue subsidizing oil prices in view of inflationary pressures; the
apparent inadequacy of the proposed additional P5.1 Billion government appropriation for
the OPSF and the sharp drop in the value of the peso in relation to the US dollar to P28/US
$, this Board is left with no other recourse but to grant applicants oil companies further relief
by increasing the prices of petroleum products sold by them. (p. 161, Rollo)

Petitioner Maceda together with petitioner Original (G.R. No. 96349) also claim that the provisional
increase involved amounts over and above that sought by the petitioning oil companies.
The Solicitor General has pointed out that aside from the increase in crude oil prices, all the
applications of the respondent oil companies filed with the ERB covered claims from the OPSF.

We shall thus respect the ERB's Order of December 5, 1990 granting a provisional price increase on
petroleum products premised on the oil companies' OPSF claims, crude cost peso differentials, forex
risk for a subsidy on sale to NPC (p. 167, Rollo), since the oil companies are "entitled to as much
relief as the fact alleged constituting the course of action may warrant," (Javellana v. D.O. Plaza
Enterprises, Inc., G.R. No. L-28297, March 30, 1970, 32 SCRA 261 citing Rosales v. Reyes, 25 Phil.
495; Aguilar v. Rubiato, 40 Phil. 470) as follows:

Per Liter

Weighted

Petron Shell Caltex Average

Crude Cost P3.11 P3.6047 P2.9248 P3.1523

Peso Cost

Diffn'l 2.1747 1.5203 1.5669 1.8123

Forex Risk

Fee -0.1089 -0,0719 -0.0790 -0.0896

Subsidy on

Sales to NPC 0.1955 0.0685 0.0590 0.1203

Total Price

Increase

Applied for P59.3713 P5.1216 P4.4717 P4.9954

Less: September 21 Price

Relief

Actual Price Increase P1.42

Actual Tax Reduction:

Ad Valorem Tax

(per Sept. 1, 1990

price build-up) P1.3333

 Specific Tax (per

Oct. 5, 1990 price

build-up) .6264 .7069 2.1269

Net Price Increase

Applied for 2.8685

Nonetheless, it is relevant to point out that on December 10, 1990, the ERB, in response to the
President's appeal, brought back the increases in Premium and Regular gasoline to the levels
mandated by the December 5, 1990 Order (P6.9600 and P6.3900, respectively), as follows:

Product In Pesos Per Liter

OPSF

Premium Gasoline 6.9600

Regular Gasoline 6.3900

Avturbo 4.9950

Kerosene 1.4100

Diesel Oil 1.4100

Fuel Oil/Feedstock 0.2405

LPG 1.2200

Asphalt 2.5000

Thinner 2.5000

In G.R. No. 96349, petitioner Original additionally claims that if the price increase will be used to
augment the OPSF this will constitute illegal taxation. In the Maceda case, (G.R. Nos. 95203-
05, supra) this Court has already ruled that "the Board Order authorizing the proceeds generated by
the increase to be deposited to the OPSF is not an act of taxation but is authorized by Presidential
Decree No. 1956, as amended by Executive Order No. 137.

The petitions of E.O. Original et al. (G.R. No. 96349) and C.S. Povedas, Jr. (G.R. No. 96284),
insofar as they question the ERB's authority under Sec. 8 of E.O. 172, have become moot and
academic.

We lament Our helplessness over this second provisional increase in oil price. We have stated that
this "is a question best judged by the political leadership" (G.R. Nos. 95203-05, G.R. Nos. 95119-
21, supra). We wish to reiterate Our previous pronouncements therein that while the government is
able to justify a provisional increase, these findings "are not final, and it is up to petitioners to
demonstrate that the present economic picture does not warrant a permanent increase."

In this regard, We also note the Solicitor General's comments that "the ERB is not averse to the idea
of a presidential review of its decision," except that there is no law at present authorizing the same.
Perhaps, as pointed out by Justice Padilla, our lawmakers may see the wisdom of allowing
presidential review of the decisions of the ERB since, despite its being a quasi-judicial body, it is still
"an administrative body under the Office of the President whose decisions should be appealed to the
President under the established principle of exhaustion of administrative remedies," especially on a
matter as transcendental as oil price increases which affect the lives of almost an Filipinos.

ACCORDINGLY, the petitions are hereby DISMISSED.

SO ORDERED.

G.R. No. 88291 May 31, 1991

ERNESTO M. MACEDA, petitioner,

vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the
President; HON. VICENTE R. JAYME, in his capacity as Secretary of the Department of
Finance; HON. SALVADOR MISON, in his capacity as Commissioner, Bureau of Customs;
HON. JOSE U. ONG, in his capacity as Commissioner of Internal Revenue; NATIONAL
POWER CORPORATION; the FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.) Inc.;
Pilipinas Shell Petroleum Corporation; Philippine National Oil Corporation; and Petrophil
Corporation, respondents.

Villamor & Villamor Law Offices for petitioner.

Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.

GANCAYCO, J.:

This petition seeks to nullify certain decisions, orders, rulings, and resolutions of respondents
Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of
Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power
Corporation (NPC) from indirect tax and duties.

The relevant facts are not in dispute.

On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to
undertake the development of hydraulic power and the production of power from other sources.1

On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges under

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities.
On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein Congress
declared as a national policy the total electrification of the Philippines through the development of
power from all sources to meet the needs of industrial development and rural electrification which
should be pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions.2 The corporate existence of NPC was extended to
carry out this policy, specifically to undertake the development of hydro electric generation of power
and the production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis.3 Being a non-profit corporation, Section 13 of
the law provided in detail the exemption of the NPC from all taxes, duties, fees, imposts and other
charges by the government and its instrumentalities.

On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a) and (d) of
Republic Act No. 6395 by specifying, among others, the exemption of NPC from such taxes, duties,
fees, imposts and other charges imposed "directly or indirectly," on all petroleum products used by
NPC in its operation. Presidential Decree No. 938 dated May 27, 1976 further amended the
aforesaid provision by integrating the tax exemption in general terms under one paragraph.

On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in
favor of government-owned or controlled corporations including their subsidiaries.4 However, said
law empowered the President and/or the then Minister of Finance, upon recommendation of the
FIRB to restore, partially or totally, the exemption withdrawn, or otherwise revise the scope and
coverage of any applicable tax and duty.

Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring the tax
and duty exemption privileges of NPC from June 11, 1984 to June 30, 1985. On January 7, 1986,
the FIRB issued resolution No. 1-86 indefinitely restoring the NPC tax and duty exemption privileges
effective July 1, 1985.

However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty
incentives granted to government and private entities which had been restored under Presidential
Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise the scope and
prescribe the date of effectivity of such tax and/or duty exemptions.

On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption
privileges effective March 10, 1987. On October 5, 1987, the President, through respondent
Executive Secretary Macaraig, Jr., confirmed and approved FIRB Resolution No. 17-87.

As alleged in the petition, the following are the background facts:

The following are the facts relevant to NPC's questioned claim for refunds of taxes and
duties originally paid by respondents Caltex, Petrophil and Shell for specific and ad
valorem taxes to the BIR; and for Customs duties and ad valorem taxes paid by PNOC, Shell
and Caltex to the Bureau of Customs on its crude oil importation.

Many of the factual statements are reproduced from the Senate Committee on Accountability
of Public Officers and Investigations (Blue Ribbon) Report No. 474 dated January 12, 1989
and approved by the Senate on April 21, 1989 (copy attached hereto as Annex "A") and are
identified in quotation marks:

1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No.
1931 was promulgated abolishing the tax exemptions of all government-owned or-controlled
corporations, the oil firms never paid excise or specific and ad valorem taxes for petroleum
products sold and delivered to the NPC. This non-payment of taxes therefore spanned a
period of eight (8) years. (par. 23, p. 7, Annex "A")

During this period, the Bureau of Internal Revenue was not collecting specific taxes on the
purchases of NPC of petroleum products from the oil companies on the erroneous belief that
the National Power Corporation (NPC) was exempt from indirect taxes as reflected in the
letter of Deputy Commissioner of Internal Revenue (DCIR) Romulo Villa to the NPC dated
October 29, 1980 granting blanket authority to the NPC to purchase petroleum products from
the oil companies without payment of specific tax (copy of this letter is attached hereto as
petitioner's Annex "B").

2. The oil companies started to pay specific and ad valorem taxes on their sales of oil
products to NPC only after the promulgation of P.D. No. 1931 on June 11, 1984, withdrawing
all exemptions granted in favor of government-owned or-controlled corporations and
empowering the FIRB to recommend to the President or to the Minister of Finance the
restoration of the exemptions which were withdrawn. "Specifically, Caltex paid the total
amount of P58,020,110.79 in specific and ad valorem taxes for deliveries of petroleum
products to NPC covering the period from October 31, 1984 to April 27, 1985." (par. 23, p. 7,
Annex "A")

3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax
portion. Beginning June 11, 1984, when P.D. 1931 was promulgated abolishing NPC's tax
exemptions, Caltex's billings to NPC always included both duties and taxes. (Caturla, tsn,
Oct. 10, 1988, pp. 1-5) (par. 24, p, 7, Annex "A")

4. For the sales of petroleum products delivered to NPC during the period from October,
1984 to April, 1985, NPC was billed a total of P522,016,77.34 (sic) including both duties and
taxes, the specific tax component being valued at P58,020,110.79. (par. 25, p. 8, Annex "A").

5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985, certified
true copy of which is hereto attached as Annex "C", restored the tax exemption privileges of
NPC effective retroactively to June 11, 1984 up to June 30, 1985. The first paragraph of said
resolution reads as follows:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the
National Power Corporation under C.A. No. 120, as amended, are restored up to
June 30, 1985.

Because of this restoration (Annex "G") the NPC applied on September 11, 1985 with the
BIR for a "refund of Specific Taxes paid on petroleum products . . . in the total amount of
P58,020,110.79. (par. 26, pp. 8-9, Annex "A")

6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioner's
Annex "D"), Acting BIR Commissioner Ruben Ancheta declared:

FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase
petroleum products from the oil companies free of specific and ad valorem taxes,
during the period in question.

The "period in question" is June 1 1, 1 984 to June 30, 1 985.

7. On June 6, 1985The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata,
Chairman of the FIRB (Annex "E"), requesting "the FIRB to resolve conflicting rulings on the
tax exemption privileges of the National Power Corporation (NPC)." These rulings involve
FIRB Resolutions No. 1-84 and 10-85. (par. 40, p. 12, Annex "A")

8. In a letter to the President of NPC (Annex "F"), dated June 26, 1985, Minister Cesar Virata
confirmed the ruling of May 8, 1985 of Acting BIR Commissioner Ruben Ancheta, (par. 41, p.
12, Annex "A")

9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil
Development Co., Ltd., a Korean contractor of NPC for its infrastructure projects, certified
true copy of which is attached hereto as petitioner's Annex "E", BIR Acting Commissioner
Ruben Ancheta ruled:

In Reply please be informed that after a re-study of Section 13, R.A. 6395, as
amended by P.D. 938, this Office is of the opinion, and so holds, that the scope of
the tax exemption privilege enjoyed by NPC under said section covers only taxes for
which it is directly liable and not on taxes which are only shifted to it. (Phil. Acetylene
vs. C.I.R. et al., G.R. L-19707, Aug. 17, 1967) Since contractor's tax is directly
payable by the contractor, not by NPC, your request for exemption, based on the
stipulation in the aforesaid contract that NPC shall assume payment of your
contractor's tax liability, cannot be granted for lack of legal basis." (Annex "H")
(emphasis added)

Said BIR ruling clearly states that NPC's exemption privileges covers (sic) only taxes for
which it is directly liable and does not cover taxes which are only shifted to it or for indirect
taxes. The BIR, through Ancheta, reversed its previous position of May 8, 1985 adopted by
Ancheta himself favoring NPC's indirect tax exemption privilege.

10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30, 1986, "addressed to Caltex
(Annex "F"), the BIR Commissioner declared that PAL's tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on
petroleum products is a direct liability of the manufacturer or producer thereof". (par. 51, p.
15, Annex "A")

11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPC's tax
exemptions retroactively from July 1, 1985 to a indefinite period, certified true copy of which
is hereto attached as petitioner's Annex "H".

12. NPC's total refund claim was P468.58 million but only a portion thereof i.e. the
P58,020,110.79 (corresponding to Caltex) was approved and released by way of a Tax
Credit Memo (Annex "Q") dated July 7, 1986, certified true copy of which [is) attached hereto
as petitioner's Annex "F," which was assigned by NPC to Caltex. BIR Commissioner Tan
approved the Deed of Assignment on July 30, 1987, certified true copy of which is hereto
attached as petitioner's Annex "G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")

The Deed of Assignment stipulated among others that NPC is assigning the tax credit to
Caltex in partial settlement of its outstanding obligations to the latter while Caltex, in turn,
would apply the assigned tax credit against its specific tax payments for two (2) months. (per
memorandum dated July 28, 1986 of DCIR Villa, copy attached as petitioner Annex "G")
13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax
credit assigned to Caltex, the NPC reiterated its request for the release of the balance of its
pending refunds of taxes paid by respondents Petrophil, Shell and Caltex covering the period
from June 11, 1984 to early part of 1986 amounting to P410.58 million. (The claim of the first
two (2) oil companies covers the period from June 11, 1984 to early part of 1986; while that
of Caltex starts from July 1, 1985 to early 1986). This request was denied on August 18,
1986, under BIR Ruling 152-86 (certified true copy of which is attached hereto as petitioner's
Annex "I"). The BIR ruled that NPC's tax free privilege to buy petroleum products covered
only the period from June 11, 1984 up to June 30, 1985. It further declared that, despite
FIRB No. 1-86, NPC had already lost its tax and duty exemptions because it only enjoys
special privilege for taxes for which it is directly liable. This ruling, in effect, denied the P410
Million tax refund application of NPC (par. 28, p. 9, Annex "A")

14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has not
resolved the motion. (Benigna, II 3, Oct. 17, 1988, p. 2; Memorandum for the Complainant,
Oct. 26, 1988, p. 15)." (par. 29, p. 9, Annex "A")

15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr., BIR
Commissioner Tan, Jr. (certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "J"), reversed his previous position and states this time that all
deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery.

16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93,
entitled "Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding
the Powers of the Fiscal Incentives Review Board and Other Purposes."

17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPC's tax
exemption privilege and included in the exemption "those pertaining to its domestic
purchases of petroleum and petroleum products, and the restorations were made to retroact
effective March 10, 1987, a certified true copy of which is hereto attached and made a part
hereof as Annex "K".

18. On August 6, 1987, the Hon. Sedfrey A. Ordoez, Secretary of Justice, issued Opinion
No. 77, series of 1987, opining that "the power conferred upon Fiscal Incentives Review
Board by Section 2a (b), (c) and (d) of Executive order No. 93 constitute undue delegation of
legislative power and, therefore, [are] unconstitutional," a copy of which is hereto attached
and made a part hereof as Petitioner's Annex "L."

19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to

the Chairman of the FIRB a certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "M," confirmed and approved FIRB Res. No. 17-87 dated June
24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93.

20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig,
who by letter dated May 2, 1988 asked him to rule "on whether or not, as the law now
stands, the National Power Corporation is still exempt from taxes, duties . . . on its local
purchases of . . . petroleum products . . ." declared that "NPC under the provisions of its
Revised Charter retains its exemption from duties and taxes imposed on the petroleum
products purchased locally and used for the generation of electricity," a certified true copy of
which is attached hereto as petitioner's Annex "N." (par. 30, pp. 9-10, Annex "A")
21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June
1 5, 1988 but without the usual official form of "By the Authority of the President," a certified
true copy of which is hereto attached and made a part hereof as Petitioner's Annex "O".

22. The actions of respondents Finance Secretary and the Executive Secretary are based on
the RESOLUTION No. 17-87 of FIRB restoring the tax and duty exemption of the respondent
NPC pertaining to its domestic purchases of petroleum products (petitioner's Annex
K supra).

23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988
reported that the Office of the President and the Department of Finance had ordered the BIR
to refund the tax payments of the NPC amounting to Pl.58 Billion which includes the P410
Million Tax refund already rejected by BIR Commissioner Tan, Jr., in his BIR Ruling No. 152-
86. And in a letter dated July 28, 1988 of Undersecretary Marcelo B. Fernando to BIR
Commissioner Tan, Jr. the Pl.58 Billion tax refund was ordered released to NPC (par. 31, p.
1 0, Annex "A")

24. On August 8, 1988, petitioner "wrote both Undersecretary Fernando and Commissioner
Tan requesting them to hold in abeyance the release of the Pl.58 billion and await the
outcome of the investigation in regard to Senate Resolution No. 227," copies attached as
Petitioner's Annexes "P" and "P-1 " (par. 32, p. 10, Annex "A").

Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan of
the BIR dated August, 1988 requesting him to hold in abeyance the release of the tax
refunds to NPC until after the termination of the Blue Ribbon investigation.

25. In the Bureau of Customs, oil companies import crude oil and before removal thereof
from customs custody, the corresponding customs duties and ad valorem taxes are paid.
Bunker fuel oil is one of the petroleum products processed from the crude oil; and same is
sold to NPC. After the sale, NPC applies for tax credit covering the duties and ad valorem
exemption under its Charter. Such applications are processed by the Bureau of Customs and
the corresponding tax credit certificates are issued in favor of NPC which, in turn assigns it to
the oil firm that imported the crude oil. These certificates are eventually used by the
assignee-oil firms in payment of their other duty and tax liabilities with the Bureau of
Customs. (par. 70, p. 19, Annex "A")

A lesser amount totalling P740 million, covering the period from 1985 to the present, is being
sought by respondent NPC for refund from the Bureau of Customs for duties paid by the oil
companies on the importation of crude oil from which the processed products sold locally by
them to NPC was derived. However, based on figures submitted to the Blue Ribbon
Committee of the Philippine Senate which conducted an investigation on this matter as
mandated by Senate Resolution No. 227 of which the herein petitioner was the sponsor, a
much bigger figure was actually refunded to NPC representing duties and ad valorem taxes
paid to the Bureau of Customs by the oil companies on the importation of crude oil from 1979
to 1985.

26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227,
entitled:

Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To

conduct a Formal and Extensive Inquiry into the Reported Massive Tax
Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc.,
 Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the
Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes,
Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the
Department of Finance, Their Refusal to Pay Since 1976 Customs Duties Amounting
to Billions of Pesos on Imported Crude Oil Purportedly for the Use of the National
Power Corporation, the Non-Payment of Surtax on Windfall Profits from Increases in
the Price of Oil Products in August 1987 amounting Maybe to as Much as Pl.2 Billion
Surtax Paid by Them in 1984 and For Other Purposes.

27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a
lengthy formal inquiry on the matter, calling all parties interested to the witness stand
including representatives from the different oil companies, and in due time submitted its
Committee Report No. 474 . . . The Blue Ribbon Committee recommended the following
courses of action.

1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power
Corporation (NPC) and its approval of Tax Credit memo covering said amount
(Annex "P" hereto), dated July 7, 1986, and cancel its approval of the Deed of
Assignment (Annex "Q" hereto) by NPC to Caltex, dated July 28, 1986, and collect
from Caltex its tax liabilities which were erroneously treated as paid or settled with
the use of the tax credit certificate that NPC assigned to said firm.:

1.1. NPC did not have any indirect tax exemption since May 27, 1976 when
PD 938 was issued. Therefore, the grant of a tax refund to NPC in the
amount of P58 million was illegal, and therefore, null and void. Such refund
was a nullity right from the beginning. Hence, it never transferred any right in
favor of NPC.

2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil
companies on the same ground that the NPC, since May 27, 1976 up to June 17,
1987 was never granted any indirect tax exemption. So, the P1.58 billion represent
taxes legally and properly paid by the oil firms.

3. Start collection actions of specific or excise and ad valorem taxes due on

petroleum products sold to NPC from May 27, 1976 (promulgation of PD 938) to
June 17, 1987 (issuance of EO 195).

B. For the Bureau of Customs (BOC) to do the following:

1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases of
petroleum products by NPC and allegedly granted under the NPC charter covering the years
1978-1988 . . .

28. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance
to direct the Bureau of Internal Revenue and of Customs to proceed with the processing of
claims for tax credits/refunds of the NPC, respondent Executive Secretary rendered his
ruling, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly, unless
restrained by proper authorities, that department and/or its line-tax bureaus may now proceed with
the processing of the claims of the National Power Corporation for duty and tax free exemption
and/or tax credits/ refunds, if there be any, in accordance with the ruling of that Department dated
May 20,1988, as confirmed by this Office on June 15, 1988 . . .5

Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary
injunction and/or restraining order, praying among others that:

1. Upon filing of this petition, a temporary restraining order forthwith be issued against
respondent FIRB Executive Secretary Macaraig, and Secretary of Finance Jayme restraining
them and other persons acting for, under, and in their behalf from enforcing their resolution,
orders and ruling, to wit:

A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

B. Memorandum-Order of the Office of the President dated October 5, 1987

(petitioner's Annex "M");

C. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

D. Order of the Executive Secretary dated March 30, l989 (petitioner's Annex "Q");
and

E. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N").

2. Said temporary restraining order should also include respondent Commissioners of

Customs Mison and Internal Revenue Ong restraining them from processing and releasing
any pending claim or application by respondent NPC for tax and duty refunds.

3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary
injunction against above-named respondents and all persons acting for and in their behalf.

4. A decision be rendered in favor of the petitioner and against the respondents:

A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May
27, 1976 up to the present;

B. Nullifying the setting aside the following:

1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

2. Memorandum-Order of the Office of the President dated October 5, 1987

(petitioner's Annex "M");

3. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

4. Order of the Executive Secretary dated March 30, 1989 (petitioner's Annex "Q");

5. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N"

6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax
refund for P58,020,110.79 (petitioner's Annex "F");
 7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30,
1987 (petitioner's Annex "G");

8. Application of the assigned tax credit of Caltex in payment of its tax liabilities with
the Bureau of Internal Revenue and

9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC
by way of tax credit certificates from 1979 up to the present.

C. Declaring as illegal and null and void the pending claims for tax and duty refunds by
respondent NPC with the Bureau of Customs and the Bureau of Internal Revenue;

D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal

Revenue from enforcing the abovequestioned resolution, orders and ruling of respondents
Executive Secretary, Secretary of Finance, and FIRB by processing and releasing
respondent NPC's tax and duty refunds;

E. Ordering the respondent Commissioner of Customs to deny as being null and void the
pending claims for refund of respondent NPC with the Bureau of Customs covering the
period from 1985 to the present; to cancel and invalidate the illegal payment made by
respondents Caltex, Shell and PNOC by using the tax credit certificates assigned to them by
NPC and to recover from respondents Caltex, Shell and PNOC all the amounts appearing in
said tax credit certificates which were used to settle their duty and tax liabilities with the
Bureau of Customs.

F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void
the pending claims for refund of respondent NPC with the Bureau of Internal Revenue
covering the period from June 11, 1984 to June 17, 1987.

PETITIONER prays for such other relief and remedy as may be just and equitable in the
premises.6

The issues raised in the petition are the following:

To determine whether respondent NPC is legally entitled to the questioned tax and duty
refunds, this Honorable Court must resolve the following issues:

Main issue

Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption
with the enactment of P.D. No. 938 on May 27, 1976 which amended P.D. No. 380, issued
on January 11, 1974.

Corollary issues

1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPC's
tax exemption privilege effective June 11, 1984 to June 30, 1985 and FIRB Resolution No. 1-
86 dated January 7, 1986 restoring NPC's tax exemption privilege effective July 1, 1985
included the restoration of indirect tax exemption to NPC and
 2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24,
1987 which restored NPC's tax exemption privilege effective March 10, 1987; and if said
Resolution was validly issued, the nature and extent of the tax exemption privilege restored
to NPC.7

In a resolution dated June 6, 1989, the Court, without giving due course to the petition, required
respondents to comment thereon, within ten (10) days from notice. The respondents having
submitted their comment, on October 10, 1989 the Court required petitioner to file a consolidated
reply to the same. After said reply was filed by petitioner on November 15, 1989 the Court gave due
course to the petition, considering the comments of respondents as their answer to the petition, and
requiring the parties to file simultaneously their respective memoranda within twenty (20) days from
notice. The parties having submitted their respective memoranda, the petition was deemed
submitted for resolution.

First the preliminary issues.

Public respondents allege that petitioner does not have the standing to challenge the questioned
orders and resolution.

In the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a
duly-elected Senator of the Philippines." Public respondent argues that petitioner must show he has
sustained direct injury as a result of the action and that it is not sufficient for him to have a mere
general interest common to all members of the public.8

The Court however agrees with the petitioner that as a taxpayer he may file the instant petition
following the ruling in Lozada when it involves illegal expenditure of public money. The petition
questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said
assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR
and Bureau of Customs.

Assuming petitioner has the personality to file the petition, public respondents also allege that the
proper remedy for petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No.
125 instead of this petition. However Section 11 of said law provides

Sec. 11. Who may appeal; effect of appealAny person, association or corporation
adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the
Collector of Customs (Commissioner of Customs) or any provincial or City Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after
receipt of such decision or ruling.

From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the
Commissioner of Internal Revenue, the Commissioner of Customs or any provincial or city Board of
Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does not fall under this
category.

Public respondents also contend that mandamus does not lie to compel the Commissioner of
Internal Revenue to impose a tax assessment not found by him to be proper. It would be tantamount
to a usurpation of executive functions.9

Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of
the Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with
arbitrariness and grave abuse as to go beyond statutory authority.10
Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an
unlawful exercise of jurisdiction11 or to prevent the oppressive exercise of legal authority.12 Precisely,
petitioner questions the lawfulness of the acts of public respondents in this case.

Now to the main issue.

It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an
indirect tax. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in. Examples are the custom duties and ad valorem taxes paid by the oil companies to the
Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes they pay
to the Bureau of Internal Revenue after converting the crude oil into petroleum products.

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else ."13 For example, the excise and ad valorem taxes that oil companies pay to the
Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to
its buyer, like the NPC, by adding them to the "cash" and/or "selling price."

The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential
Decree No. 938, the exemption of NPC from indirect taxation was revoked and repealed. While
petitioner concedes that NPC enjoyed broad exemption privileges from both direct and indirect taxes
on the petroleum products it used, under Section 13 of Republic Act No, 6395 and more so under
Presidential Decree No. 380, however, by the deletion of the phrases "directly or indirectly" and "on
all petroleum products used by the Corporation in the generation, transmission, utilization and sale
of electric power" he contends that the exemption from indirect taxes was withdrawn by P.D. No.
938.

Petitioner further states that the exemption of NPC provided in Section 13 of Presidential Decree No.
938 regarding the payments of "all forms of taxes, etc." cannot be interpreted to include indirect tax
exemption. He cites Philippine Aceytelene Co. Inc. vs. Commissioner of Internal
Revenue.14 Petitioner emphasizes the principle in taxation that the exception contained in the tax
statutes must be strictly construed against the one claiming the exemption, and that the rule that
a tax statute granting exemption must be strictly construed against the one claiming the exemption is
similar to the rule that a statute granting taxing power is to be construed strictly, with doubts resolved
against its existence.15 Petitioner cites rulings of the BIR that the phrase exemption from "all taxes,
etc." from "all forms of taxes" and "in lieu of all taxes" covers only taxes for which the taxpayer is
directly liable.16

On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under Presidential
Decree No. 1931, the relevant provision of which are to wit:

P.D. No. 1931 provides as follows:

Sec. 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes . . . heretofore granted in favor of government-
owned or controlled corporations are hereby withdrawn. (Emphasis supplied.)

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon
the recommendation of the Fiscal Incentives Review Board . . . is hereby empowered to
restore, partially or totally, the exemptions withdrawn by Section 1 above . . . (Emphasis
supplied.)

The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:
 Resolution. No. 10-85

BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power
Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.

2. Provided, That to restoration does not apply to the following:

a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-
84;

b. commercially-funded importations; and

c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing agreements, the
NPC is hereby required to furnish the FIRB on a periodic basis the particulars of items received or to
be received through such arrangements, for purposes of tax and duty exemptions privileges.17

Resolution No. 1-86

BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power
Corporation (NPC) under Commonwealth Act No. 120, as amended, are restored: Provided, That
importations of fuel oil (crude oil equivalent), and coal of the herein grantee shall be subject to the
basic and additional import duties; Provided, further, that the following shall remain fully taxable:

a. Commercially-funded importations; and

b. Interest income derived by said grantee from bank deposits and yield or any other
monetary benefits from deposit substitutes, trust funds and other similar
arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred to
another pursuant to the provisions of Sec. 10(a) of the Real Property Tax Code, as amended.18

Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85 and 1-86.
Indeed, they were issued in compliance with the requirement of Section 2, P.D. No. 1931, whereby
the FIRB should make the recommendation subject to the approval of "the President of the
Philippines and/or the Minister of Finance." While said Resolutions do not appear to have been
approved by the President, they were nevertheless approved by the Minister of Finance who is also
duly authorized to approve the same. In fact it was the Minister of Finance who signed and
promulgated said resolutions.19

The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution Nos. 10-85
and 1-86 which were promulgated by then Acting Minister of Finance Alfredo de Roda, Jr. and
Minister of Finance Cesar E.A Virata, as Chairman of FIRB respectively, should be separately
approved by said Minister of Finance as required by P.D. 1931 is, a superfluity. An examination of
the said resolutions which are reproduced in full in the dissenting opinion show that the said officials
signed said resolutions in the dual capacity of Chairman of FIRB and Minister of Finance.

Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of
Albay,20wherein the Court observed that under P.D. No. 776 the power of the FIRB was only
recommendatory and requires the approval of the President to be valid. Thus, in said case the Court
held that FIRB Resolutions Nos. 10-85 and 1-86 not having been approved by the President were
not valid and effective while the validity of FIRB 17-87 was upheld as it was duly approved by the
Office of the President on October 5, 1987.

However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced, which
amended P.D. No. 776, it is clearly provided for that such FIRB resolution, may be approved by the
"President of the Philippines and/or the Minister of Finance." To repeat, as FIRB Resolutions Nos.
10-85 and 1-86 were duly approved by the Minister of Finance, hence they are valid and effective.
To this extent, this decision modifies or supersedes the Court's earlier decision in Albay afore-
referred to.

Petitioner, however, argues that under both FIRB resolutions, only the tax and duty exemption
privileges enjoyed by the NPC under its charter, C.A. No. 120, as amended, are restored, that is,
only its direct tax exemption privilege; and that it cannot be interpreted to cover indirect taxes under
the principle that tax exemptions are construed stricissimi juris against the taxpayer and liberally in
favor of the taxing authority.

Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC by way
of a tax credit certificate21 which was assigned to respondent Caltex through a deed of assignment
approved by the BIR22 is patently illegal. He also contends that the pending claim of respondent NPC
in the amount of P410.58 million with respondent BIR for the sale and delivery to it of bunker fuel by
respondents Petrophil, Shell and Caltex from July 1, 1985 up to 1986, being illegal, should not be
released.

Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued on June
24, 1987. It was issued under authority of Executive Order No. 93 dated December 17, 1986 which
grants to the FIRB among others, the power to recommend the restoration of the tax and duty
exemptions/incentives withdrawn thereunder.

Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77 to the
effect that the powers conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of Executive
Order No. 93 "constitute undue delegation of legislative power and is, therefore, unconstitutional."
Petitioner observes that the FIRB did not merely recommend but categorically restored the tax and
duty exemption of the NPC so that the memorandum of the respondent Executive Secretary dated
October 5, 1987 approving the same is a surplusage.

Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the doctrine
in Philippine Aceytelene, petitioner avers that the restoration cannot cover indirect taxes and it
cannot create new indirect tax exemption not otherwise granted in the NPC charter as amended by
Presidential Decree No. 938.

The petition is devoid of merit.

The NPC is a non-profit public corporation created for the general good and welfare23 wholly owned
by the government of the Republic of the Philippines.24 From the very beginning of its corporate
existence, the NPC enjoyed preferential tax treatment25 to enable the Corporation to pay the
indebtedness and obligation and in furtherance and effective implementation of the policy
enunciated in Section one of "Republic Act No. 6395"26 which provides:

Sec. 1. Declaration of PolicyCongress hereby declares that (1) the comprehensive

development, utilization and conservation of Philippine water resources for all beneficial
uses, including power generation, and (2) the total electrification of the Philippines through
the development of power from all sources to meet the need of rural electrification are
primary objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government including its financial institutions.

From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment
is obvious.

Under Republic Act No. 358, its exemption is provided as follows:

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities."

Under Republic Act No. 6395:

Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by Government and Governmental Instrumentalities. The
Corporation shall be non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 380:

Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by the Government and Government Instrumentalities. The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
 its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is
hereby declared, exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other governmental agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operation and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum produced used by the Corporation in the
generation, transmission, utilization, and sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 938:

Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees,
Imposts and Other Charges by the Government and Government Instrumentalities.The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
the indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section One of this Act, the Corporation, including its subsidiaries
hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well
as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any
court or administrative proceedings. (Emphasis supplied.)

It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to
cover "all taxes, duties, fees, imposts, charges, etc. . . ." However, the amendment under Republic
Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.D. No. 380, made
even more specific the details of the exemption of NPC to cover, among others, both direct and
indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 amended
the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all
forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal
bonds, supersedeas bonds, in any court or administrative proceedings."

The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax
exemptions it has been enjoying before. The rationale for this exemption is that being non-profit the
NPC "shall devote all its returns from its capital investment as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay the indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section one of this Act, . . ."27

The preamble of P.D. No. 938 states

WHEREAS, in the application of the tax exemption provision of the Revised Charter, the
non-profit character of the NPC has not been fully utilized because of restrictive
 interpretations of the taxing agencies of the government on said provisions. . . . (Emphasis
supplied.)

It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No.
938 shall be construed strictly against NPC. On the contrary, the law mandates that it should be
interpreted liberally so as to enhance the tax exempt status of NPC.

Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of
statutes granting tax exemptions to NPC.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case
of exemptions in favor of a government political subdivision or instrumentality.28

The basis for applying the rule of strict construction to statutory provisions granting tax
exemptions or deductions, even more obvious than with reference to the affirmative or
levying provisions of tax statutes, is to minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely
to reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax liability of such agencies.29

In the case of property owned by the state or a city or other public corporations, the express
exemption should not be construed with the same degree of strictness that applies to exemptions
contrary to the policy of the state, since as to such property "exemption is the rule and taxation the
exception."30

The contention of petitioner that the exemption of NPC from indirect taxes under Section 13 of R.A.
No. 6395 and P.D. No. 380, is deemed repealed by P.D. No. 938 when the reference to it was
deleted is not well-taken.

Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are
presumed to be passed with deliberation and with knowledge of all existing ones on the subject, it is
logical to conclude that in passing a statute it is not intended to interfere with or abrogate a former
law relating to the same subject matter, unless the repugnancy between the two is not only
irreconcilable but also clear and convincing as a result of the language used, or unless the latter Act
fully embraces the subject matter of the earlier.31 The first effort of a court must always be to
reconcile or adjust the provisions of one statute with those of another so as to give sensible effect to
both provisions.32

The legislative intent must be ascertained from a consideration of the statute as a whole, and not of
an isolated part or a particular provision alone.33 When construing a statute, the reason for its
enactment should be kept in mind and the statute should be construed with reference to its intended
scope and purpose34 and the evil sought to be remedied.35

The NPC is a government instrumentality with the enormous task of undertaking development of
hydroelectric generation of power and production of electricity from other sources, as well as the
transmission of electric power on a nationwide basis, to improve the quality of life of the people
pursuant to the State policy embodied in Section E, Article II of the 1987 Constitution.
It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of
NPC from all forms of taxes including indirect taxes as provided for under R.A. No. 6895 and P.D.
No. 380 if it is to attain its goals.

Further, the construction of P.D. No. 938 by the Office charged with its implementation should be
given controlling weight.36

Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of
June 26, 1985 confirming said ruling, the letters of the BIR of August 18, 1986, and December 22,
1986, the letter of the Secretary of Finance of February 19, 1987, the Memorandum of the Executive
Secretary of October 9, 1987, by authority of the President, confirming and approving FIRB
Resolution No. 17-87, the letter of the Secretary of Finance of May 20, 1988 to the Executive
Secretary rendering his opinion as requested by the latter, and the latter's reply of June 15, 1988, it
was uniformly held that the grant of tax exemption to NPC under C.A. No. 120, as
amended, included exemption from payment of all taxes relative to NPC's petroleum purchases
including indirect taxes.37 Thus, then Secretary of Finance Vicente Jayme in his letter of May 20,
1988 to the Executive Secretary Macaraig aptly stated the justification for this tax exemption of NPC

The issue turns on the effect to the exemption of NPC from taxes of the deletion of the
phrase 'taxes imposed indirectly on oil products and its exemption from 'all forms of taxes.' It
is suggested that the change in language evidenced an intention to exempt NPC only from
taxes directly imposed on or payable by it; since taxes on fuel-oil purchased by it; since taxes
on fuel-oil purchased by NPC locally are levied on and paid by its oil suppliers, NPC thereby
lost its exemption from those taxes. The principal authority relied on is the 1967 case
of Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056.

First of all, tracing the changes made through the years in the Revised Charter, the
strengthening of NPC's preferential tax treatment was clearly the intention. To the extent that
the explanatory "whereas clauses" may disclose the intent of the law-maker, the changes
effected by P.D. 938 can only be read as being expansive rather than restrictive, including its
version of Section 13.

Our Tax Code does not recognize that there are taxes directly imposed and those imposed
indirectly. The textbook distinction between a direct and an indirect tax may be based on the
possibility of shifting the incidence of the tax. A direct tax is one which is demanded from the
very person intended to be the payor, although it may ultimately be shifted to another. An
example of a direct tax is the personal income tax. On the other hand, indirect taxes are
those which are demanded from one person in the expectation and intention that he shall
indemnify himself at the expense of another. An example of this type of tax is the sales tax
levied on sales of a commodity.

The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really of
no moment. What is more relevant is that when an "indirect tax" is paid by those upon whom
the tax ultimately falls, it is paid not as a tax but as an additional part of the cost or of the
market price of the commodity.

This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case,
when he analyzed the nature of the percentage (sales) tax to determine whether it is a tax on
the producer or on the purchaser of the commodity. Under out Tax Code, the sales tax falls
upon the manufacturer or producer. The phrase "pass on" the tax was criticized as being
inaccurate. Justice Castro says that the tax remains on the manufacturer alone. The
purchaser does not pay the tax; he pays an amount added to the price because of the tax.
Therefore, the tax is not "passed on" and does not for that reason become an "indirect tax"
on the purchaser. It is eminently possible that the law maker in enacting P.D. 938 in 1976
may have used lessons from the analysis of Chief Justice Castro in 1967 Philippine
Acetylene case.

When P.D. 938 which exempted NPC from "all forms of taxes" was issued in May 1976, the
so-called oil crunch had already drastically pushed up crude oil Prices from about $1.00 per
bbl in 1971 to about $10 and a peak (as it turned out) of about $34 per bbl in 1981. In 1974-
78, NPC was operating the Meralco thermal plants under a lease agreement. The power
generated by the leased plants was sold to Meralco for distribution to its customers. This
lease and sale arrangement was entered into for the benefit of the consuming public, by
reducing the burden on the swiftly rising world crude oil prices. This objective was achieved
by the use of NPC's "tax umbrella under its Revised Charterthe exemption from specific
taxes on locally purchased fuel oil. In this context, I can not interpret P.D. 938 to have
withdrawn the exemption from tax on fuel oil to which NPC was already entitled and which
exemption Government in fact was utilizing to soften the burden of high crude prices.

There is one other consideration which I consider pivotal. The taxes paid by oil companies
on oil products sold to NPC, whether paid to them by NPC or no never entered into the rates
charged by NPC to its customers not even during those periods of uncertainty engendered
by the issuance of P.D. 1931 and E. 0. 93 on NP/Cs tax status. No tax component on the
fuel have been charged or recovered by NPC through its rates.

There is an import duty on the crude oil imported by the local refineries. After the refining
process, specific and ad valorem taxes are levied on the finished products including fuel oil
or residue upon their withdrawal from the refinery. These taxes are paid by the oil companies
as the manufacturer thereof.

In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax
component. NPC pays the oil companies' invoices including the duty component but net of
the tax component. NPC then applies for drawback of customs duties paid and for a credit in
amount equivalent to the tax paid (by the oil companies) on the products purchased. The tax
credit is assigned to the oil companiesas payment, in effect, of the tax component shown
in the sales invoices. (NOTE: These procedures varied over timeThere were instances
when NPC paid the tax component that was shifted to it and then applied for tax credit.
There were also side issues raised because of P.D. 1931 and E.O. 93 which withdrew all
exemptions of government corporations. In these latter instances, the resolutions of the
Fiscal Incentives Review Board (FIRB) come into play. These incidents will not be touched
upon for purposes of this discussion).

NPC rates of electricity are structured such that changes in its cost of fuel are automatically
(without need of fresh approvals) reflected in the subsequent months billing rates.

This Fuel Cost Adjustment clause protects NPC's rate of return. If NPC should ever accept
liability to the tax and duty component on the oil products, such amount will go into its fuel
cost and be passed on to its customers through corresponding increases in rates. Since
1974, when NPC operated the oil-fired generating stations leased from Meralco (which
plants it bought in 1979), until the present time, no tax on fuel oil ever went into NPC's
electric rates.
 That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is impressed
upon me by yet another circumstance. It is conceded that NPC at the very least, is exempt
from taxes to which it is directly liable. NPC therefore could very well have imported its fuel
oil or crude residue for burning at its thermal plants. There would have been no question in
such a case as to its exemption from all duties and taxes, even under the strictest
interpretation that can be put forward. However, at the time P.D. 938 was issued in 1976,
there were already operating in the Philippines three oil refineries. The establishment of
these refineries in the Philippines involved heavy investments, were economically desirable
and enabled the country to import crude oil and process / refine the same into the various
petroleum products at a savings to the industry and the public. The refining process
produced as its largest output, in volume, fuel oil or residue, whose conventional economic
use was for burning in electric or steam generating plants. Had there been no use locally for
the residue, the oil refineries would have become largely unviable.

Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC
to by-pass the local oil refineries and import its fossil fuel requirements directly in order to
avail itself of its exemption from "direct taxes." The oil refineries had to keep operating both
for economic development and national security reasons. In fact, the restoration by the FIRB
of NPC's exemption after P.D. 1931 and E.O. 93 expressly excluded direct fuel oil
importations, so as not to prejudice the continued operations of the local oil refineries.

To answer your query therefore, it is the opinion of this Department that NPC under the
provisions of its Revised Charter retains its exemption from duties and taxes imposed on the
petroleum products purchased locally and used for the generation of electricity.

The Department in issuing this ruling does so pursuant to its power and function to supervise
and control the collection of government revenues by the application and implementation of
revenue laws. It is prepared to take the measures supplemental to this ruling necessary to
carry the same into full effect.

As presented rather extensively above, the NPC electric power rates did not carry the taxes
and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to
the government, no part thereof was recovered from the sale of electricity produced. As a
consequence, as of our most recent information, some P1.55 B in claims represent amounts
for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order
to the Bureaus concerned for the resumption of the processing of these claims."38

In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance,
the said opinion ruling of the latter was confirmed and its implementation was directed.39

The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the
Secretary of Finance as confirmed by the then Executive Secretary are well-taken. When the NPC
was exempted from all forms of taxes, duties, fees, imposts and other charges, under P.D. No. 938,
it means exactly what it says, i.e., all forms of taxes including those that were imposed directly or
indirectly on petroleum products used in its operation.

Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the
NPC extends only to taxes for which it is directly liable and not to taxes merely shifted to it. However,
these rulings are predicated on Philippine Acytelene.

The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case.
It involved the sales tax of products the plaintiff sold to NPC from June 2, 1953 to June 30,1958
when NPC was enjoying tax exemption from all taxes under Commonwealth Act No. 120, as
amended by Republic Act No. 358 issued on June 4, 1949 hereinabove reproduced.

In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so
plaintiff cannot claim exemptions simply because the NPC, the buyer, was exempt.

However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC
whereby Section 13 thereof was amended by emphasizing its non-profit character and expanding
the extent of its tax exemption.

As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345
spells out clearly the exemption of the NPC from indirect taxes. And as hereinabove stated, in P.D.
No. 380, the exemption of NPC from indirect taxes was emphasized when it was specified to include
those imposed "directly and indirectly."

Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining
the same in general terms to cover "all forms of taxes, duties, fees, imposts, etc." which, as
hereinabove discussed, logically includes exemption from indirect taxes on petroleum products used
in its operation.

This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on
the authority of which FIRB Resolution Nos. 10-85 and 1-86 were issued, and when Executive Order
No. 93 was promulgated, by which FIRB Resolution 17-87 was issued.

Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental
circumstances. As a matter of fact, the amendments of Section 13, under R.A. No. 6395, P.D. No,
380 and P.D. No. 838 appear to have been brought about by the earlier inconsistent rulings of the
tax agencies due to the doctrine in Philippine Acetylene, so as to leave no doubt as to the exemption
of the NPC from indirect taxes on petroleum products it uses in its operation. Effectively, said
amendments superseded if not abrogated the ruling in Philippine Acetylene that the tax exemption of
NPC should be limited to direct taxes only.

In the light of the foregoing discussion the first corollary issue must consequently be resolved in the
affirmative, that is, FIRB Resolution No. 10-85 dated February 7, 1985 and FIRB Resolution No. 1-
86 dated January 7, 1986 which restored NPC's tax exemption privileges included the restoration of
the indirect tax exemption of the NPC on petroleum products it used.

On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987
which restored NPC's tax exemption privilege effective March 10, 1987, the Court finds that the
same is valid and effective.

It provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption

privileges of the National Power Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers,
objectives and functions, and for other purposes), as amended, are restored effective March
10, 1987, subject to the following conditions:

1. The restoration of the tax and duty exemption privileges does not apply to the following:
 1.1. Importation of fuel oil (crude equivalent) and coal;

1.2. Commercially-funded importations (i.e., importations which include but are not
limited to those financed by the NPC's own internal funds, domestic borrowings from
any source whatsoever, borrowing from foreign-based private financial institutions,
etc.); and

1.3. Interest income derived from any source.

2. The NPC shall submit to the FIRB a report of its expansion program, including details of
disposition of relieved tax and duty payments for such expansion on an annual basis or as
often as the FIRB may require it to do so. This report shall be in addition to the usual FIRB
reporting requirements on incentive availment.40

Executive Order No. 93 provides as follows

Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax
and duty incentives granted " to government and private entities are hereby withdrawn,
except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective international agreements to which the Government of

the Republic of the Philippines is a signatory;

c) those enjoyed-by enterprises registered with:

(i) the Board of Investments pursuant to Presidential Decree No. 1789, as

amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential Decree

No. 66, as amended;

(iii) the Philippine Veterans Investment Development Corporation Industrial

Authority pursuant to Presidential Decree No. 538, as amended;

d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instruction No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

 f) those approved by the President upon the recommendation of the Fiscal Incentives
Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/of duty exemption that may be restored.

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date or period of effectivity of the restoration of tax and/or duty
exemption;

e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation, indicating
the source of funding therefor, eligible beneficiaries and the terms and conditions for
the grant thereof taking into consideration the international commitments of the
Philippines and the necessary precautions such that the grant of subsidies does not
become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall
take into account any or all of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged;

d) in general, the greater national interest to be served.

True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view
that the powers conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No.
93 constitute undue delegation of legislative power and is therefore unconstitutional. However, he
was overruled by the respondent Executive Secretary in a letter to the Secretary of Finance dated
March 30, 1989. The Executive Secretary, by authority of the President, has the power to modify,
alter or reverse the construction of a statute given by a department secretary.41

A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The
standards of the delegated power are also clearly provided for.

The required "standard" need not be expressed. In Edu vs. Ericta42 and in De la Llana vs. Alba43 this
Court held: "The standard may be either express or implied. If the former, the non-delegated
objection is easily met. The standard though does not have to be spelled out specifically. It could be
implied from the policy and purpose of the act considered as a whole."

In People vs. Rosenthal44 the broad standard of "public interest" was deemed sufficient. In Calalang
vs. Williams,45, it was "public welfare" and in Cervantes vs. Auditor General,46 it was the purpose of
promotion of "simplicity, economy and efficiency." And, implied from the purpose of the law as a
whole, "national security" was considered sufficient standard47 and so was "protection of fish fry or
fish eggs.48

The observation of petitioner that the approval of the President was not even required in said
Executive Order of the tax exemption privilege approved by the FIRB unlike in previous similar
issuances, is not well-taken. On the contrary, under Section l(f) of Executive Order No. 93,
aforestated, such tax and duty exemptions extended by the FIRB must be approved by the
President. In this case, FIRB Resolution No. 17-87 was approved by the respondent Executive
Secretary, by authority of the President, on October 15, 1987.49

Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated

The latest in our jurisprudence indicates that delegation of legislative power has become the
rule and its non-delegation the exception. The reason is the increasing complexity of modern
life and many technical fields of governmental functions as in matters pertaining to tax
exemptions. This is coupled by the growing inability of the legislature to cope directly with the
many problems demanding its attention. The growth of society has ramified its activities and
created peculiar and sophisticated problems that the legislature cannot be expected
reasonably to comprehend. Specialization even in legislation has become necessary. To
many of the problems attendant upon present day undertakings, the legislature may not have
the competence, let alone the interest and the time, to provide the required direct and
efficacious, not to say specific solutions.50

Thus, in the case of Tablarin vs. Gutierrez,51 this Court enunciated the rationale in favor of delegation
of legislative functions

One thing however, is apparent in the development of the principle of separation of powers
and that is that the maxim of delegatus non potest delegare or delegati potestas non potest
delegare, adopted this practice (Delegibus et Consuetudiniis Anglia edited by G.E. Woodline,
Yale University Press, 1922, Vol. 2, p. 167) but which is also recognized in principle in the
Roman Law d. 17.18.3) has been made to adapt itself to the complexities of modern
government, giving rise to the adoption, within certain limits, of the principle of subordinate
legislation, not only in the United States and England but in practically all modern
governments. (People vs. Rosenthal and Osmea, 68 Phil. 318, 1939). Accordingly, with the
growing complexities of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly
growing tendency toward the delegation of greater power by the legislative, and toward the
approval of the practice by the Courts. (Emphasis supplied.)

The legislative authority could not or is not expected to state all the detailed situations wherein the
tax exemption privileges of persons or entities would be restored. The task may be assigned to an
administrative body like the FIRB.

Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute.
Such presumption can be overturned if its invalidity is proved beyond reasonable doubt. Otherwise,
a liberal interpretation in favor of constitutionality of legislation should be adopted.52

E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB
And as above discussed, the tax exemption privilege that was restored to NPC by FIRB Resolution
No. 17-87 of June 1987 includes exemption from indirect taxes and duties on petroleum products
used in its operation.
Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been
upheld in Albay.53

In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by
President Marcos in 1984 are invalid as they were presumably promulgated under the infamous
Amendment No. 6 and that as they cover tax exemption, under Section 17(4), Article VIII of the 1973
Constitution, the same cannot be passed "without the concurrence of the majority of all the members
of the Batasan Pambansa." And, even conceding that the reservation of legislative power in the
President was valid, it is opined that it was not validly exercised as there is no showing that such
presidential encroachment was justified under the conditions then existing. Consequently, it is
concluded that Executive Order No. 93, which was intended to implement said decrees, is also
illegal. The authority of the President to sub-delegate to the FIRB powers delegated to him is also
questioned.

In Albay,54 as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter
decree withdrew tax exemptions of government-owned or controlled corporations including their
subsidiaries but authorized the FIRB to restore the same. Nevertheless, in Albay, as above-
discussed, this Court ruled that the tax exemptions under FIRB Resolution Nos. 10-85 and 1-86
cannot be enforced as said resolutions were only recommendatory and were not duly approved by
the President of the Philippines as required by P.D. No. 776.55 The Court also sustained in Albaythe
validity of Executive Order No. 93, and of the tax exemptions restored under FIRB Resolution No.
17-87 which was issued pursuant thereto, as it was duly approved by the President as required by
said executive order.

Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is
provided that:

All existing laws, decrees, executive orders, proclamation, letters of instructions, and other
executive issuances not inconsistent with this constitution shall remain operative until
amended, repealed or revoked.

Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent
with the Constitution.
1wphi1

Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and
are unconstitutional, the result would be the same, as then the latest applicable law would be P.D.
No. 938 which amended the NPC charter by granting exemption to NPC from all forms of taxes. As
above discussed, this exemption of NPC covers direct and indirect taxes on petroleum products
used in its operation. This is as it should be, if We are to hold as invalid and inoperative the
withdrawal of such tax exemptions under P.D. No. 1931 as well as under Executive Order No. 93
and the delegation of the power to restore these exemptions to the FIRB.

The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this
Court ruled that the NPC is liable for real estate taxes as of June 11, 1984 (the date of promulgation
of P.D. No. 1931) when NPC had ceased to enjoy tax exemption privileges since FIRB Resolution
Nos. 1085 and 1-86 were not validly issued. The real estate tax liability of NPC from June 11, 1984
to December 1, 1990 is estimated to amount to P7.49 billion plus another P4.76 billion in fuel import
duties the firm had earlier paid to the government which the NPC now proposed to pass on to the
consumers by another 33-centavo increase per kilowatt hour in power rates on top of the 17-centavo
increase per kilowatt hour that took effect just over a week ago.,56 Hence, another case has been
filed in this Court to stop this proposed increase without a hearing.
As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776
dated August 24, 1975 was already amended by P.D. No. 1931 ,57 wherein it is provided that such
FIRB resolutions may be approved not only by the President of the Philippines but also by the
Minister of Finance. Such resolutions were promulgated by the Minister of Finance in his own right
and also in his capacity as FIRB Chairman. Thus, a separate approval thereof by the Minister of
Finance or by the President is unnecessary.

As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and
consequently, Albaymust be considered superseded to this extent by this decision. This is because
P.D. No. 938 which is the latest amendment to the NPC charter granting the NPC exemption from all
forms of taxes certainly covers real estate taxes which are direct taxes.

This tax exemption is intended not only to insure that the NPC shall continue to generate electricity
for the country but more importantly, to assure cheaper rates to be paid by the consumers.

The allegation that this is in effect allowing tax evasion by oil companies is not quite correct. There
1a\^/phi 1

are various arrangements in the payment of crude oil purchased by NPC from oil companies.
Generally, the custom duties paid by the oil companies are added to the selling price paid by NPC.
As to the specific and ad valorem taxes, they are added a part of the seller's price, but NPC pays the
price net of tax, on condition that NPC would seek a tax refund to the oil companies. No tax
component on fuel had been charged or recovered by NPC from the consumers through its power
rates.58 Thus, this is not a case of tax evasion of the oil companies but of tax relief for the NPC. The
billions of pesos involved in these exemptions will certainly inure to the ultimate good and benefit of
the consumers who are thereby spared the additional burden of increased power rates to cover
these taxes paid or to be paid by the NPC if it is held liable for the same.

The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors
may claim the same privilege should be dispelled by the fact that (a) this decision particularly treats
of only the exemption of the NPC from all taxes, duties, fees, imposts and all other charges imposed
by the government on the petroleum products it used or uses for its operation; and (b) Section 13(d)
of R.A. No. 6395 and Section 13(d) of P.D. No. 380, both specifically exempt the NPC from all taxes,
duties, fees, imposts and all other charges imposed by the government on all petroleum products
used in its operation only, which is the very exemption which this Court deems to be carried over by
the passage of P.D. No. 938. As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that
the aforesaid exemption from taxes, etc. covers those "directly or indirectly" imposed by the
"Republic of the Philippines, its provincies, cities, municipalities and other government agencies and
instrumentalities" on said petroleum products. The exemption therefore from direct and indirect tax
on petroleum products used by NPC cannot benefit the suppliers, importers and contractors of NPC
of other products or services.

The Court realizes the laudable objective of petitioner to improve the revenue of the government.
The amount of revenue received or expected to be received by this tax exemption is, however, not
going to any of the oil companies. There would be no loss to the government. The said amount shall
accrue to the benefit of the NPC, a government corporation, so as to enable it to sustain its
tremendous task of providing electricity for the country and at the least cost to the consumers.
Denying this tax exemption would mean hampering if not paralyzing the operations of the NPC. The
resulting increased revenue in the government will also mean increased power rates to be
shouldered by the consumers if the NPC is to survive and continue to provide our power
requirements.59 The greater interest of the people must be paramount.

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.

G.R. No. 88291 June 8, 1993

ERNESTO M. MACEDA, petitioner,

vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the
President, HON. VICENTE JAYME, ETC., ET AL., respondents.

Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation.

Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:

Just like lightning which does strike the same place twice in some instances, this matter of indirect
tax exemption of the private respondent National Power Corporation (NPC) is brought to this Court a
second time. Unfazed by the Decision We promulgated on May 31, 19911 petitioner Ernesto Maceda
asks this Court to reconsider said Decision. Lest We be criticized for denying due process to the
petitioner. We have decided to take a second look at the issues. In the process, a hearing was held
on July 9, 1992 where all parties presented their respective arguments. Etched in this Court's mind
are the paradoxical claims by both petitioner and private respondents that their respective positions
are for the benefit of the Filipino people.

A Chronological review of the relevant NPC laws, specially with respect to its tax exemption
provisions, at the risk of being repetitious is, therefore, in order.

On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power
Corporation, a public corporation, mainly to develop hydraulic power from all water sources in the
Philippines.2 The sum of P250,000.00 was appropriated out of the funds in the Philippine Treasury
for the purpose of organizing the NPC and conducting its preliminary work.3 The main source of
funds for the NPC was the flotation of bonds in the capital markets4 and these bonds

. . . issued under the authority of this Act shall be exempt from the payment of all
taxes by the Commonwealth of the Philippines, or by any authority, branch, division
or political subdivision thereof and subject to the provisions of the Act of Congress,
approved March 24, 1934, otherwise known as the Tydings McDuffle Law, which
facts shall be stated upon the face of said bonds. . . . .5

On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the
initial operations of the NPC and reiterating the provision of the flotation of bonds as soon as the first
construction of any hydraulic power project was to be decided by the NPC Board.6 The provision on
tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted.

On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the
bond's principal and interest in "gold coins" but adding that payment could be made in United States
dollars.7 The provision on tax exemption in relation to the issuance of the NPC bonds was neither
amended nor deleted.

On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to
guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC
loans.8 He was also authorized to contract on behalf of the NPC with the International Bank for
Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate
objectives9 and for the reconstruction and development of the economy of the country. 10 It was
expressly stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges,
contributions and restrictions of the Republic of the Philippines, its provinces, cities
and municipalities. 11

On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to
incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. 12 As to the
pertinent tax exemption provision, the law stated as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be

exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic
of the Philippines, its provinces, cities and municipalities. 13

On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD,
the President of the Philippines was authorized to negotiate, contract and guarantee loans with the
Export-Import Bank of of Washigton, D.C., U.S.A., or any other international financial
institution. 14 The tax provision for repayment of these loans, as stated in R.A. No. 357, was not
amended.

On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real
estate taxes. As enacted, the law states as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be

exempt from all taxes, except real property tax, and from all duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines, its provinces, cities, and
municipalities.15

On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by
the increased indebtedness 16 should bear the National Economic Council's stamp of approval. The
tax exemption provision related to the payment of this total indebtedness was not amended nor
deleted.

On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was
authorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17 The
tax provision related to the repayment of these loans was not amended nor deleted.

On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31,
2000. 18 All laws or provisions of laws and executive orders contrary to said R.A. No. 2058 were
expressly repealed. 19

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a
stock corporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000 shares
having a par value of P100.00 each, with said capital stock wholly subscribed to by the
Government. 20 No tax exemption was incorporated in said Act.

On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital
stock to P250,000,000.00 with the increase to be wholly subscribed by the Government. 21 No tax
provision was incorporated in said Act.

On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to
P300,000,000.00, the increase to be wholly subscribed by the Government. No tax provision was
incorporated in said Act. 22

On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120,
as amended. Declared as primary objectives of the nation were:

Declaration of Policy. Congress hereby declares that (1) the comprehensive

development, utilization and conservation of Philippine water resources for all
beneficial uses, including power generation, and (2) the total electrification of the
Philippines through the development of power from all sources to meet the needs of
industrial development and dispersal and the needs of rural electrification are primary
objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government, including the financial
institutions. 23

Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority
to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans).

As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:

The bonds issued under the authority of this subsection shall be exempt from the
payment of all taxes by the Republic of the Philippines, or by any authority, branch,
division or political subdivision thereof which facts shall be stated upon the face of
said bonds. . . . 24

As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as
follows:

The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials and supplies by the Corporation, paid
from the proceeds of any loan, credit or indebtedeness incurred under this Act, shall
also be exempt from all taxes, fees, imposts, other charges and restrictions, including
import restrictions, by the Republic of the Philippines, or any of its agencies and
political subdivisions. 25

A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares
the non-profit character and tax exemptions of NPC as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital
investment, as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay its indebtedness and obligations and in furtherance and
 effective implementation of the policy enunciated in Section one of this Act, the
Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges costs and service
fees in any court or administrative proceedings in which it may be a party, restrictions
and duties to the Republic of the Philippines, its provinces, cities, and municipalities
and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and
wharfage fees on import of foreign goods required for its operations and projects;
and

(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities,
municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission, utilization, and
sale of electric power. 26

On November 7, 1972, Presidential Decree No. 40 was issued declaring that the
electrification of the entire country was one of the primary concerns of the country.
And in connection with this, it was specifically stated that:

The setting up of transmission line grids and the construction of associated

generation facilities in Luzon, Mindanao and major islands of the country, including
the Visayas, shall be the responsibility of the National Power Corporation (NPC) as
the authorized implementing agency of the State. 27

xxx xxx xxx

It is the ultimate objective of the State for the NPC to own and operate as a single
integrated system all generating facilities supplying electric power to the entire area
embraced by any grid set up by the NPC. 28

On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill
its role under aforesaid P.D. No. 40. Its authorized capital stock was raised to
P2,000,000,000.00, 29 its total domestic indebtedness was pegged at a maximum of
P3,000,000,000.00 at any one time, 30 and the NPC was authorized to borrow a total of
US$1,000,000,000.00 31 in foreign loans.

The relevant tax exemption provision for these foreign loans states as follows:

The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials, supplies and services, by the
Corporation, paid from the proceeds of any loan, credit or indebtedness incurred
under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts,
other charges and restrictions, including import restrictions previously and presently
 imposed, and to be imposed by the Republic of the Philippines, or any of its agencies
and political subdivisions. 32(Emphasis supplied)

Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:

(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to
the Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities including the taxes, duties, fees, imposts
and other charges provided for under the Tariff and Customs Code of the Philippines,
Republic Act Numbered Nineteen Hundred Thirty-Seven, as amended, and as further
amended by Presidential Decree No. 34 dated October 27, 1972, and Presidential
Decree No. 69, dated November 24, 1972, and costs and service fees in any court or
administrative proceedings in which it may be a party;

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or
indirectly by the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by
the Corporation in the generation, transmission, utilization and sale of electric
power. 33 (Emphasis supplied)

On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's sale of
electricity to its different customers. 34 No tax exemption provision was amended, deleted or added.

On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated
annually to cover the unpaid subscription of the Government in the NPC authorized capital stock,
which amount would be taken from taxes accruing to the General Funds of the Government,
proceeds from loans, issuance of bonds, treasury bills or notes to be issued by the Secretary of
Finance for this particular purpose. 35

On May 27, 1976 P.D. No. 938 was issued

(I)n view of the accelerated expansion programs for generation and transmission
facilities which includes nuclear power generation, the present capitalization of
National Power Corporation (NPC) and the ceilings for domestic and foreign
borrowings are deemed insufficient; 36

xxx xxx xxx

(I)n the application of the tax exemption provisions of the Revised Charter, the non-
profit character of NPC has not been fully utilized because of restrictive interpretation
of the taxing agencies of the government on said provisions; 37

xxx xxx xxx

(I)n order to effect the accelerated expansion program and attain the declared
objective of total electrification of the country, further amendments of certain sections
of Republic Act No. 6395, as amended by Presidential Decrees Nos. 380, 395 and
758, have become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic indebtedness ceiling
was increased to P12,000,000,000.00, 40 the total foreign loan ceiling was raised to
US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395, was amended to read as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital
investment as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay to its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation, including its subsidiaries, is hereby declared exempt from the payment
of all forms of taxes, duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. 42

II

On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177, 1931
and Executive Order No. 93 (S'86).

On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to
imports as follows:

WHEREAS, importations by certain government agencies, including government-

owned or controlled corporation, are exempt from the payment of customs duties and
compensating tax; and

WHEREAS, in order to reduce foreign exchange spending and to protect domestic

industries, it is necessary to restrict and regulate such tax-free importations.

NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by

virtue of the powers vested in me by the Constitution, and do hereby decree and
order the following:

Sec. 1. All importations of any government agency, including government-owned or

controlled corporations which are exempt from the payment of customs duties and
internal revenue taxes, shall be subject to the prior approval of an Inter-Agency
Committee which shall insure compliance with the following conditions:

(a) That no such article of local manufacture are available in sufficient quantity and
comparable quality at reasonable prices;

(b) That the articles to be imported are directly and actually needed and will be used
exclusively by the grantee of the exemption for its operations and projects or in the
conduct of its functions; and

(c) The shipping documents covering the importation are in the name of the grantee
to whom the goods shall be delivered directly by customs authorities.

xxx xxx xxx

Sec. 3. The Committee shall have the power to regulate and control the tax-free
importation of government agencies in accordance with the conditions set forth in
 Section 1 hereof and the regulations to be promulgated to implement the provisions
of this Decree. Provided, however, That any government agency or government-
owned or controlled corporation, or any local manufacturer or business firm
adversely affected by any decision or ruling of the Inter-Agency Committee may file
an appeal with the Office of the President within ten days from the date of notice
thereof. . . . .

xxx xxx xxx

Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar provisions of all
general and special laws and decrees are hereby amended accordingly.

xxx xxx xxx

On July 30, 1977, P.D. 1177 was issued as it was

. . . declared the policy of the State to formulate and implement a National Budget
that is an instrument of national development, reflective of national objectives,
strategies and plans. The budget shall be supportive of and consistent with the socio-
economic development plan and shall be oriented towards the achievement of
explicit objectives and expected results, to ensure that funds are utilized and
operations are conducted effectively, economically and efficiently. The national
budget shall be formulated within a context of a regionalized government structure
and of the totality of revenues and other receipts, expenditures and borrowings of all
levels of government-owned or controlled corporations. The budget shall likewise be
prepared within the context of the national long-term plan and of a long-term budget
program. 43

In line with such policy, the law decreed that

All units of government, including government-owned or controlled corporations, shall pay income
taxes, customs duties and other taxes and fees are imposed under revenues laws: provided, that
organizations otherwise exempted by law from the payment of such taxes/duties may ask for a
subsidy from the General Fund in the exact amount of taxes/duties due: provided, further, that a
procedure shall be established by the Secretary of Finance and the Commissioner of the Budget,
whereby such subsidies shall automatically be considered as both revenue and expenditure of the
General Fund. 44

The law also declared that

[A]ll laws, decrees, executive orders, rules and regulations or parts thereof which are
inconsistent with the provisions of the Decree are hereby repealed and/or modified
accordingly. 45

On July 11, 1984, most likely due to the economic morass the Government found itself in after the
Aquino assassination, P.D. No. 1931 was issued to reiterate that:

WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant
of tax privileges to any government-owned or controlled corporation and all other
units of government; 46
and since there was a

. . . need for government-owned or controlled corporations and all other units of

government enjoying tax privileges to share in the requirements of development,
fiscal or otherwise, by paying the duties, taxes and other charges due from them. 47

it was decreed that:

Sec. 1. The provisions of special on general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes, fees, imposts and other charges
heretofore granted in favor of government-owned or controlled corporations including
their subsidiaries, are hereby withdrawn.

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the
recommendation of the Fiscal Incentives Review Board created under Presidential
Decree No. 776, is hereby empowered to restore, partially or totally, the exemptions
withdrawn by Section 1 above, any applicable tax and duty, taking into account,
among others, any or all of the following:

1) The effect on the relative price levels;

2) The relative contribution of the corporation to the revenue generation effort;

3) The nature of the activity in which the corporation is engaged in; or

4) In general the greater national interest to be served.

xxx xxx xxx

Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws,
decrees, executive orders, administrative orders, rules, regulations or parts thereof
which are inconsistent with this Decree are hereby repealed, amended or modified
accordingly.

On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration
or grant of tax exemption to other government and private entities without benefit of review by the
Fiscal Incentives Review Board, to wit:

WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and
October 14, 1984, respectively, withdrew the tax and duty exemption privileges,
including the preferential tax treatment, of government and private entities with
certain exceptions, in order that the requirements of national economic development,
in terms of fiscals and other resources, may be met more adequately;

xxx xxx xxx

WHEREAS, in addition to those tax and duty exemption privileges were restored by
the Fiscal Incentives Review Board (FIRB), a number of affected entities,
government and private, had their tax and duty exemption privileges restored or
granted by Presidential action without benefit or review by the Fiscal Incentives
Review Board (FIRB);
 xxx xxx xxx

Since it was decided that:

[A]ssistance to government and private entities may be better provided where

necessary by explicit subsidy and budgetary support rather than tax and duty
exemption privileges if only to improve the fiscal monitoring aspects of government
operations.

It was thus ordered that:

Sec. 1. The Provisions of any general or special law to the contrary notwithstanding,
all tax and duty incentives granted to government and private entities are hereby
withdrawn, except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective internation agreement to which the Government of the

Republic of the Philippines is a signatory;

c) those enjoyed by enterprises registered with:

(i) the Board of Investment pursuant to Presidential Decree No. 1789,

as amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential

Decree No. 66 as amended;

(iii) the Philippine Veterans Investment Development Corporation

Industrial Authority pursuant to Presidential Decree No. 538, was
amended.

d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instructions No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the

Fiscal Incentives Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No.
776, as amended, is hereby authorized to:
 a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/or duty exemption that may be restored;

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date of period of effectivity of the restoration of tax and/or duty
exemption;

e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation, indicating
the source of funding therefor, eligible beneficiaries and the terms and conditions for
the grant thereof taking into consideration the international commitment of the
Philippines and the necessary precautions such that the grant of subsidies does not
become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review
Board shall take into account any or all of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged; and

d) in general, the greater national interest to be served.

xxx xxx xxx

Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent
with this Executive Order are hereby repealed or modified accordingly.

E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and regulations,
to be issued by the Ministry of Finance. 49 Said rules and regulations were promulgated and
published in the Official Gazette
on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official
Gasetter, 51 which 15th day was March 10, 1987.

III

Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn in
their TAXATION I course, which fro convenient reference, is as follows:

Classifications or kinds of Taxes:

According to Persons who pay or who bear the burden:

a. Direct Tax the where the person supposed to pay the tax really pays
it. WITHOUT transferring the burden to someone else.
 Examples: Individual income tax, corporate income tax, transfer taxes (estate tax,
donor's tax), residence tax, immigration tax

b. Indirect Tax that where the tax is imposed upon goods BEFORE reaching the
consumer who ultimately pays for it, not as a tax, but as a part of the purchase price.

Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT)
and the tariff and customs indirect taxes (import duties, special import tax and other
dues) 52

IV

To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced to
the following:

(1) What kind of tax exemption privileges did NPC have?

(2) For what periods in time were these privileges being enjoyed?

(3) If there are taxes to be paid, who shall pay for these taxes?

Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all
forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No.
380, does not expressly include "indirect taxes."

His point is not well-taken.

A chronological review of the NPC laws will show that it has been the lawmaker's intention that the
NPC was to be completely tax exempt from all forms of taxes direct and indirect.

NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations
upon its creation by virtue of C.A. No. 120.

When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained
were to be completely tax exempt.

After the NPC was authorized to borrow from other sources of funds aside issuance of bonds it
was again specifically exempted from all types of taxes "to facilitate payment of its indebtedness."
Even when the ceilings for domestic and foreign borrowings were periodically increased, the tax
exemption privileges of the NPC were maintained.

NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No.
987, as above stated. The exemption was, however, restored by R.A. No. 6395.

Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions
allowed NPC. Its section 13(d) is the starting point of this bone of contention among the parties. For
easy reference, it is reproduced as follows:
 [T]he Corporation is hereby declared exempt:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the Corporation in
the generation, transmission, utilization, and sale of electric power.

P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or
indirectly by the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by
the Corporation in the generation, transmission, utilization and sale of electric power.
(Emphasis supplied)

Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph
as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital
investment as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation, including its subsidiaries, is hereby declared exempt from the payment
of ALL FORMS OF taxes, duties, fees, imposts as well as costs and service fees
including filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. (Emphasis supplied)

Petitioner reminds Us that:

[I]t must be borne in mind that Presidential Decree Nos. 380

and 938 were issued by one man, acting as such the Executive and Legislative. 53

xxx xxx xxx

[S]ince both presidential decrees were made by the same person, it would have been
very easy for him to retain the same or similar language used in P.D. No. 380 P.D.
No. 938 if his intention were to preserve the indirect tax exemption of NPC. 54

Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his
fault were. It should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the
following items:

13(a) : court or administrative proceedings;

13(b) : income, franchise, realty taxes;

13(c) : import of foreign goods required for its operations and projects;
 13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,",
included 13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for tax
exemptions.

This is the only conclusion one can arrive at if he has read all the NPC laws in the order of
enactment or issuance as narrated above in part I hereof. President Marcos must have considered
all the NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and
P.D. No. 759, AND came up 55 with a very simple Section 13, R.A. No. 6395, as amended by P.D.
No. 938.

One common theme in all these laws is that the NPC must be enable to pay its
indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one
time, and U$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt
from all forms of taxes if this goal is to be achieved.

By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that to
pay the government share in its capital stock P.D. No. 758 was issued mandating that P200 Million
would be appropriated annually to cover the said unpaid subscription of the Government in NPC's
authorized capital stock. And significantly one of the sources of this annual appropriation of P200
million is TAX MONEY accruing to the General Fund of the Government. It does not stand to reason
then that former President Marcos would order P200 Million to be taken partially or totally from tax
money to be used to pay the Government subscription in the NPC, on one hand, and then order the
NPC to pay all its indirect taxes, on the other.

The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the
phrase "All FORMS OF" is supported by the fact that he did not do the same for the tax exemption
provision for the foreign loans to be incurred.

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:

The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials and supplies by the Corporation, paid
from the proceeds of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all taxes, fees, imposts, other charges and restrictions, including
import restrictions, by the Republic of the Philippines, or any of its agencies and
political subdivisions. 57

The same was amended by P.D. No. 380 as follows:

The loans, credits and indebtedness contracted this subsection and the payment of
the principal, interest and other charges thereon, as well as the importation of
machinery, equipment, materials, supplies and services, by the Corporation, paid
from the proceeds of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all direct and indirect taxes, fees, imposts, other charges and
restrictions, including import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies and political
subdivisions. 58(Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax exemption provision in Section 8 (b), R.A. No.
6395, as amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8
(b) had to do only with loans and machinery imported, paid for from the proceeds of these foreign
loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax
exemption stood as is with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to
"taxes, fees, imposts, other charges . . . to be imposed" in the future surely, an indication that the
lawmakers wanted the NPC to be exempt from ALL FORMS of taxes direct and indirect.

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and
indirect taxes under P.D. No. 938.

VI

Five (5) years on into the now discredited New Society, the Government decided to rationalize
government receipts and expenditures by formulating and implementing a National Budget. 60 The
NPC, being a government owned and controlled corporation had to be shed off its tax exemption
status privileges under P.D. No. 1177. It was, however, allowed to ask for a subsidy from the
General Fund in the exact amount of taxes/duties due.

Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It
allowed, however, NPC to appeal said repeal with the Office of the President and to avail of tax-free
importation privileges under its Section 1, subject to the prior approval of an Inter-Agency Committed
created by virtue of said P.D. No. 882. It is presumed that the NPC, being the special creation of the
State, was allowed to continue its tax-free importations.

This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of
NPC's tax exemption privileges by P.D. No. 1177 61 only in his Common Reply/Comment to private
Respondents' "Opposition" and "Comment" to Motion for Reconsideration, four (4) months AFTER
the motion for Reconsideration had been filed. During oral arguments heard on July 9, 1992, he
proceeded to discuss this tax exemption withdrawal as explained by then Secretary of Justice
Vicente Abad Santos in opinion No. 133 (S '77). 62 A careful perusal of petitioner's senate Blue
Ribbon Committee Report No. 474, the basis of the petition at bar, fails to yield any mention of said
P.D. No. 1177's effect on NPC's tax exemption privileges. 63 Applying by analogy Pulido vs.
Pablo, 64 the court declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption
privileges was not seasonably invoked 65 by the petitioner.

Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption
privileges as this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax
privileges of any government-owned or controlled corporation (GOCC). NPC included, was
reiterated in the fourth whereas clause of P.D. No. 1931's preamble. The subsidy provided for in
Section 23, P.D. No. 1177, being inconsistent with Section 2, P.D. No. 1931, was deemed repealed
as the Fiscal Incentives Revenue Board was tasked with recommending the partial or total
restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.

The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in
Section 23, P.D. No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had
to submit to the Office of the President its request for the P200 million mandated by P.D. No. 758 to
be appropriated annually by the Government to cover its unpaid subscription to the NPC authorized
capital stock and that under Section 22, of the same P.D. No. NPC had to likewise submit to the
Office of the President its internal operating budget for review due to capital inputs of the
government (P.D. No. 758) and to the national government's guarantee of the domestic and foreign
indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.

There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly
found themselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that
the Secretary of Finance and the Commissioner of the Budget had to establish the necessary
procedure to accomplish the tax payment/tax subsidy scheme of the Government. In effect, NPC,
did not put any cash to pay any tax as it got from the General Fund the amounts necessary to pay
different revenue collectors for the taxes it had to pay.

In his memorandum filed July 16, 1992, petitioner submits:

[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty
and tax exemptions, whether direct or indirect. And so there was nothing to be
withdrawn or to be restored under P.D. No. 1931, issued on June 11, 1984. This is
evident from sections 1 and 2 of said P.D. No. 1931, which reads:

"Section 1. The provisions of special or general law to the contrary

notwithstanding, all exemptions from the payment of duties, taxes,
fees, imports and other charges heretofore granted in favor of
government-owned or controlled corporations including their
subsidiaries are hereby withdrawn."

Sec. 2. The President of the Philippines and/or the Minister of

Finance, upon the recommendation of the Fiscal Incentives Review
Board created under P.D. No. 776, is hereby empowered to restore
partially or totally, the exemptions withdrawn by section 1 above. . . .

Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it
had already lost all its tax exemptions privilege with the issuance of P.D. No. 1177
seven (7) years earlier or on July 30, 1977, there were no tax exemptions to be
withdrawn by section 1 which could later be restored by the Minister of Finance upon
the recommendation of the FIRB under Section 2 of P.D. No. 1931. Consequently,
FIRB resolutions No. 10-85, and 1-86, were all illegally and validly issued since FIRB
acted beyond their statutory authority by creating and not merely restoring the tax
exempt status of NPC. The same is true for FIRB Res. No. 17-87 which restored
NPC's tax exemption under E.O. No. 93 which likewise abolished all duties and tax
exemptions but allowed the President upon recommendation of the FIRB to restore
those abolished.

The Court disagrees.

Applying by analogy the weight of authority that:

When a revised and consolidated act re-enacts in the same or substantially the same
terms the provisions of the act or acts so revised and consolidated, the revision and
consolidation shall be taken to be a continuation of the former act or acts, although
the former act or acts may be expressly repealed by the revised and consolidated
act; and all rights
and liabilities under the former act or acts are preserved and may be enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section
23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No.
1931 was deemed to be a continuation of the first half of Section 23, P.D. No. 1177, although the
second half of Section 23, P.D. No. 177, on the subsidy scheme for former tax exempt GOCCs had
been expressly repealed by Section 2 with its institution of the FIRB recommendation of partial/total
restoration of tax exemption privileges.

The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax
exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy
for the taxes it had to pay. It could, however, under P.D. No. 1931, ask for a total restoration of its
tax exemption privileges, which, it did, and the same were granted under FIRB Resolutions Nos. 10-
85 67 and 1-86 68 as approved by the Minister of Finance.

Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both
legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax
exemption status but merely restored it. 69

Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now
rather infamous Amendment No. 6 70 as there was no showing that President Marcos' encroachment
on legislative prerogatives was justified under the then prevailing condition that he could legislate
"only if the Batasang Pambansa 'failed or was unable to act inadequately on any matter that in his
judgment required immediate action' to meet the 'exigency'. 71

Actually under said Amendment No. 6, then President Marcos could issue decrees not only when
the Interim Batasang Pambansa failed or was unable to act adequately on any matter for any reason
that in his (Marcos') judgment required immediate action, but also when there existed a grave
emergency or a threat or thereof. It must be remembered that said Presidential Decree was issued
only around nine (9) months after the Philippines unilaterally declared a moratorium on its foreign
debt payments 72 as a result of the economic crisis triggered by loss of confidence in the government
brought about by the Aquino assassination. The Philippines was then trying to reschedule its debt
payments. 73 One of the big borrowers was the NPC 74 which had a US$ 2.1 billion white elephant of a
Bataan Nuclear Power Plant on its back. 75 From all indications, it must have been this grave
emergency of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his
Amendment 6 power. 76

The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be
passed without the concurrence of a majority of all the members of the Batasang Pambansa" 77 does
not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then
President Marcos under His Amendment No. 6 power.

P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6
authority.

Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President
Aquino. Its section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The
same was granted under FIRB Resolution No. 17-87 78 dated June 24, 1987 which restored NPC's
tax exemption privileges effective, starting March 10, 1987, the date of effectivity of E.O. No. 93
(S'86).

FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is no
indication, however, from the records of the case whether or not similar approvals were given by
then President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to
believe that a "travesty of justice" might have occurred when the Minister of Finance approved his
own recommendation as Chairman of the Fiscal Incentives Review Board as what happened
in Zambales Chromate vs. Court of Appeals 80 when the Secretary of Agriculture and Natural
Resources approved a decision earlier rendered by him when he was the Director of Mines, 81 and
in Anzaldo vs. Clave 82 where Presidential Executive Assistant Clave affirmed, on appeal to
Malacaang, his own decision as Chairman of the Civil Service Commission. 83

Upon deeper analysis, the question arises as to whether one can talk about "due process" being
violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance
when the same were recommended by him in his capacity as Chairman of the Fiscal Incentives
Review Board. 84

In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and
scientist-doctors, respectively. Thus, there was a need for procedural due process to be followed.

In the case of the tax exemption restoration of NPC, there is no other comparable entity not even
a single public or private corporation whose rights would be violated if NPC's tax exemption
privileges were to be restored. While there might have been a MERALCO before Martial Law, it is of
public knowledge that the MERALCO generating plants were sold to the NPC in line with the State
policy that NPC was to be the State implementing arm for the electrification of the entire country.
Besides, MERALCO was limited to Manila and its environs. And as of 1984, there was no more
MERALCO as a producer of electricity which could have objected to the restoration of NPC's
tax exemption privileges.

It should be noted that NPC was not asking to be granted tax exemption privileges for the first time.
It was just asking that its tax exemption privileges be restored. It is for these reasons that, at least in
NPC's case, the recommendation and approval of NPC's tax exemption privileges under FIRB
Resolution Nos. 10-85 and 1-86, done by the same person acting in his dual capacities as Chairman
of the Fiscal Incentives Review Board and Minister of Finance, respectively, do not violate
procedural due process.

While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on
October 5, 1987, the view has been expressed that President Aquino, at least with regard to E.O. 93
(S'86), had no authority to sub-delegate to the FIRB, which was allegedly not a delegate of the
legislature, the power delegated to her thereunder.

A misconception must be cleared up.

When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and
Legislative powers. Thus, there was no power delegated to her, rather it was she who was
delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a
delegate of the legislature. Clearly, she was not sub-delegating her power.

And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the policy to be
carried out 85 and it fixed the standard to which the delegate had to conform in the performance of his
functions, 86 both qualities having been enunciated by this Court in Pelaez vs. Auditor General. 87

Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from
June 11, 1984 up to the present.

VII
The next question that projects itself is who pays the tax?

The answer to the question could be gleamed from the manner by which the Commissaries of the
Armed Forces of the Philippines sell their goods.

By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants
but groceries and other goods free of all taxes and duties if bought from any AFP Commissaries.

In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad valorem and
other taxes on the goods earmarked for AFP Commissaries as an added cost of operation and
distribute it over the total units of goods sold as it would any other cost. Thus, even the ordinary
supermarket buyer probably pays for the specific, ad valorem and other taxes which theses
suppliers do not charge the AFP Commissaries. 89

IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to absorb
the taxes they add to the bunker fuel oil they sell to NPC.

It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice renders
an opinion, 90wherein he stated and We quote:

xxx xxx xxx

Republic Act No. 358 exempts the National Power Corporation from "all taxes,
duties, fees, imposts, charges, and restrictions of the Republic of the Philippines and
its provinces, cities, and municipalities." This exemption is broad enough to include
all taxes, whether direct or indirect, which the National Power Corporation may be
required to pay, such as the specific tax on petroleum products. That it is indirect or
is of no amount [should be of no moment], for it is the corporation that ultimately pays
it. The view which refuses to accord the exemption because the tax is first paid by
the seller disregards realities and gives more importance to form than to substance.
Equity and law always exalt substance over from.

xxx xxx xxx

Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as

knowledge that many impositions taxpayers have to pay are in the nature of indirect
taxes. To limit the exemption granted the National Power Corporation to direct taxes
notwithstanding the general and broad language of the statue will be to thwrat the
legislative intention in giving exemption from all forms of taxes and impositions
without distinguishing between those that are direct and those that are not.
(Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker
fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very
nature of indirect taxation, the economic burden of such taxation is expected to be passed on
through the channels of commerce to the user or consumer of the goods sold. Because, however,
the NPC has been exempted from both direct and indirect taxation, the NPC must beheld exempted
from absorbing the economic burden of indirect taxation. This means, on the one hand, that the oil
companies which wish to sell to NPC absorb all or part of the economic burden of the taxes
previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from indirect
taxes. This means also, on the other hand, that the NPC may refuse to pay the part of the "normal"
purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil
companies to BIR. If NPC nonetheless purchases such oil from the oil companies because to do
so may be more convenient and ultimately less costly for NPC than NPC itself importing and hauling
and storing the oil from overseas NPC is entitled to be reimbursed by the BIR for that part of the
buying price of NPC which verifiably represents the tax already paid by the oil company-vendor to
the BIR.

It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes
HAS BEEN RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of
which the ad valorem tax rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said
E.O. no. 195 reads as follows:

EXECUTIVE ORDER NO. 195

AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL

REVENUE CODE, AS AMENDED BY REVISING THE EXCISE TAX RATES OF
CERTAIN PETROLEUM PRODUCTS.

xxx xxx xxx

Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as
amended, is hereby amended to read as follows:

Par. (b) For products subject to ad valorem tax only:

PRODUCT AD VALOREM TAX RATE

1. . . .

2. . . .

3. . . .

4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or
less the same generating power 0%

xxx xxx xxx

Sec. 3. This Executive Order shall take effect immediately.

Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen
hundred and eighty-seven. (Emphasis supplied)

The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going
to bear the economic burden of the ad valorem taxes. What this Court will now dispose of are
petitioner's complaints that some indirect tax money has been illegally refunded by the Bureau of
Internal Revenue to the NPC and that more claims for refunds by the NPC are being processed for
payment by the BIR.

A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of the
NPC last July 7, 1986 for P58.020.110.79 which were for "erroneously paid specific and ad
valorem taxes during the period from October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to
declare this Tax Credit Memo illegal as the PNC did not have indirect tax exemptions with the
enactment of P.D. No. 938. As We have already ruled otherwise, the only questions left are whether
NPC Is entitled to a tax refund for the tax component of the price of the bunker fuel oil purchased
from Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly refunded the amount
to NPC.

After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs NPC included, it was only on May 8, 1985 when the BIR issues its
letter authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from the oil companies
pursuant to FIRB Resolution No. 10-85. 92 Since the tax exemption restoration was retroactive to
June 11, 1984 there was a need. therefore, to recover said amount as Caltex (PhiIs.) Inc. had
already paid the BIR the specific and ad valorem taxes on the bunker oil it sold NPC during the
period above indicated and had billed NPC correspondingly. 93 It should be noted that the NPC, in its
letter-claim dated September 11, 1985 to the Commissioner of the Bureau of Internal Revenue DID
NOT CATEGORICALLY AND UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part
of the bunker fuel oil price it purchased from Caltex (Phils) Inc. 94

The law governing recovery of erroneously or illegally, collected taxes is section 230 of the National
Internal Revenue Code of 1977, as amended which reads as follows:

Sec. 230. Recover 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 proceeding shall be 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.

xxx xxx xxx

Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95 the Commissioner
correctly issued the Tax Credit Memo in view of NPC's indirect tax exemption.

Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's claim for
P410.580,000.00 which represents specific and ad valorem taxes paid by the oil companies to the
BIR from June 11, 1984 to the early part of 1986. 96

A careful examination of petitioner's pleadings and annexes attached thereto does not reveal when
the alleged claim for a P410,580,000.00 tax refund was filed. It is only stated In paragraph No. 2 of
the Deed of Assignment 97executed by and between NPC and Caltex (Phils.) Inc., as follows:

That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of Internal
Revenue amounting to P442,887,716.16. P58.020,110.79 of which is due to
Assignor's oil purchases from the Assignee (Caltex [Phils.] Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot restrain the BIR
from refunding said amount because of Our ruling that NPC has both direct and indirect tax
exemption privileges. Neither can We order the BIR to refund said amount to NPC as there is no
pending petition for review on certiorari of a suit for its collection before Us. At any rate, at this point
in time, NPC can no longer file any suit to collect said amount EVEN IF lt has previously filed a claim
with the BIR because it is time-barred under Section 230 of the National Internal Revenue Code of
1977. as amended, which states:

In any case, no such suit or proceeding shall be 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. . . . (Emphasis supplied)

The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that payment by
NPC for the amount of P410,580,000.00 had been made on said date. it is clear that more than two
(2) years had already elapsed from said date. At the same time, We should note that there is no
legal obstacle to the BIR granting, even without a suit by NPC, the tax credit or refund claimed by
NPC, assuming that NPC's claim had been made seasonably, and assuming the amounts covered
had actually been paid previously by the oil companies to the BIR.

WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby
DENIED for lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby
AFFIRMED.

SO ORDERED.

G.R. No. 91649 May 14, 1991

ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND

LORENZO SANCHEZ,petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent.

H.B. Basco & Associates for petitioners.

Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.

PARAS, J.:

A TV ad proudly announces:

"The new PAGCOR responding through responsible gaming."

But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the
Philippine Amusement and Gaming Corporation (PAGCOR) Charter PD 1869, because it is
allegedly contrary to morals, public policy and order, and because
 A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law.
It waived the Manila City government's right to impose taxes and license fees, which is
recognized by law;

B. For the same reason stated in the immediately preceding paragraph, the law has intruded
into the local government's right to impose local taxes and license fees. This, in
contravention of the constitutionally enshrined principle of local autonomy;

C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR
conducted gambling, while most other forms of gambling are outlawed, together with
prostitution, drug trafficking and other vices;

D. It violates the avowed trend of the Cory government away from monopolistic and crony
economy, and toward free enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo)

In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared
national policy of the "new restored democracy" and the people's will as expressed in the 1987
Constitution. The decree is said to have a "gambling objective" and therefore is contrary to Sections
11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the present
Constitution (p. 3, Second Amended Petition; p. 21, Rollo).

The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco
being also the Chairman of the Committee on Laws of the City Council of Manila), can question and
seek the annulment of PD 1869 on the alleged grounds mentioned above.

The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D.
1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January
1, 1977 "to establish, operate and maintain gambling casinos on land or water within the territorial
jurisdiction of the Philippines." Its operation was originally conducted in the well known floating
casino "Philippine Tourist." The operation was considered a success for it proved to be a potential
source of revenue to fund infrastructure and socio-economic projects, thus, P.D. 1399 was passed
on June 2, 1978 for PAGCOR to fully attain this objective.

Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government
to regulate and centralize all games of chance authorized by existing franchise or permitted by law,
under the following declared policy

Sec. 1. Declaration of Policy. It is hereby declared to be the policy of the State to

centralize and integrate all games of chance not heretofore authorized by existing franchises
or permitted by law in order to attain the following objectives:

(a) To centralize and integrate the right and authority to operate and conduct games of
chance into one corporate entity to be controlled, administered and supervised by the
Government.

(b) To establish and operate clubs and casinos, for amusement and recreation, including
sports gaming pools, (basketball, football, lotteries, etc.) and such other forms of amusement
and recreation including games of chance, which may be allowed by law within the territorial
jurisdiction of the Philippines and which will: (1) generate sources of additional revenue to
fund infrastructure and socio-civic projects, such as flood control programs, beautification,
sewerage and sewage projects, Tulungan ng Bayan Centers, Nutritional Programs,
Population Control and such other essential public services; (2) create recreation and
 integrated facilities which will expand and improve the country's existing tourist attractions;
and (3) minimize, if not totally eradicate, all the evils, malpractices and corruptions that are
normally prevalent on the conduct and operation of gambling clubs and casinos without
direct government involvement. (Section 1, P.D. 1869)

To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its
Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent
therewith, are accordingly repealed, amended or modified.

It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of
Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and
directly remitted to the National Government a total of P2.5 Billion in form of franchise tax,
government's income share, the President's Social Fund and Host Cities' share. In addition,
PAGCOR sponsored other socio-cultural and charitable projects on its own or in cooperation with
various governmental agencies, and other private associations and organizations. In its 3 1/2 years
of operation under the present administration, PAGCOR remitted to the government a total of P6.2
Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9) casinos
nationwide, directly supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494)
families.

But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null
and void" for being "contrary to morals, public policy and public order," monopolistic and tends
toward "crony economy", and is violative of the equal protection clause and local autonomy as well
as for running counter to the state policies enunciated in Sections 11 (Personal Dignity and Human
Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and
Section 2 (Educational Values) of Article XIV of the 1987 Constitution.

This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate
consideration by the Court, involving as it does the exercise of what has been described as "the
highest and most delicate function which belongs to the judicial department of the government."
(State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA 323).

As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of
the government We need not be reminded of the time-honored principle, deeply ingrained in our
jurisprudence, that a statute is presumed to be valid. Every presumption must be indulged in favor of
its constitutionality. This is not to say that We approach Our task with diffidence or timidity. Where it
is clear that the legislature or the executive for that matter, has over-stepped the limits of its authority
under the constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must,
on the offending statute (Lozano v. Martinez, supra).

In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar
underscored the

. . . thoroughly established principle which must be followed in all cases where questions of
constitutionality as obtain in the instant cases are involved. All presumptions are indulged in
favor of constitutionality; one who attacks a statute alleging unconstitutionality must prove its
invalidity beyond a reasonable doubt; that a law may work hardship does not render it
unconstitutional; that if any reasonable basis may be conceived which supports the statute, it
will be upheld and the challenger must negate all possible basis; that the courts are not
concerned with the wisdom, justice, policy or expediency of a statute and that a liberal
interpretation of the constitution in favor of the constitutionality of legislation should be
adopted. (Danner v. Hass, 194 N.W. 2nd534, 539; Spurbeck v. Statton, 106 N.W. 2nd 660,
 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v.
Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA
220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection v. Energy Regulatory
Board, 162 SCRA 521, 540)

Of course, there is first, the procedural issue. The respondents are questioning the legal personality
of petitioners to file the instant petition.

Considering however the importance to the public of the case at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine whether or not the other branches of government
have kept themselves within the limits of the Constitution and the laws and that they have not
abused the discretion given to them, the Court has brushed aside technicalities of procedure and
has taken cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas
Inc. v. Tan, 163 SCRA 371)

With particular regard to the requirement of proper party as applied in the cases before us,
We hold that the same is satisfied by the petitioners and intervenors because each of them
has sustained or is in danger of sustaining an immediate injury as a result of the acts or
measures complained of. And even if, strictly speaking they are not covered by the definition,
it is still within the wide discretion of the Court to waive the requirement and so remove the
impediment to its addressing and resolving the serious constitutional questions raised.

In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to
question the constitutionality of several executive orders issued by President Quirino
although they were involving only an indirect and general interest shared in common with the
public. The Court dismissed the objection that they were not proper parties and ruled that
"the transcendental importance to the public of these cases demands that they be settled
promptly and definitely, brushing aside, if we must technicalities of procedure." We have
since then applied the exception in many other cases. (Association of Small Landowners in
the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).

Having disposed of the procedural issue, We will now discuss the substantive issues raised.

Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of
gambling does not mean that the Government cannot regulate it in the exercise of its police power.

The concept of police power is well-established in this jurisdiction. It has been defined as the "state
authority to enact legislation that may interfere with personal liberty or property in order to promote
the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or
restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact
definition but has been, purposely, veiled in general terms to underscore its all-comprehensive
embrace. (Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386).

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it
could be done, provides enough room for an efficient and flexible response to conditions and
circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra)

It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the
charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood
and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most
vital functions of governance. Marshall, to whom the expression has been credited, refers to it
succinctly as the plenary power of the state "to govern its citizens". (Tribe, American Constitutional
Law, 323, 1978). The police power of the State is a power co-extensive with self-protection and is
most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil.
660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell & Co. v. National,
40 Phil. 136) It is a dynamic force that enables the state to meet the agencies of the winds of
change.

What was the reason behind the enactment of P.D. 1869?

P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an
appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st
whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling
operations in one corporate entity the PAGCOR, was beneficial not just to the Government but to
society in general. It is a reliable source of much needed revenue for the cash strapped
Government. It provided funds for social impact projects and subjected gambling to "close scrutiny,
regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the
creation of PAGCOR and the direct intervention of the Government, the evil practices and
corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies
at the bottom of the enactment of PD 1896.

Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose
taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local
autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as
the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees,
charges or levies of whatever nature, whether National or Local."

(2) Income and other taxes. a) Franchise Holder: No tax of any kind or form, income or
otherwise as well as fees, charges or levies of whatever nature, whether National or Local,
shall be assessed and collected under this franchise from the Corporation; nor shall any form
or tax or charge attach in any way to the earnings of the Corporation, except a franchise tax
of five (5%) percent of the gross revenues or earnings derived by the Corporation from its
operations under this franchise. Such tax shall be due and payable quarterly to the National
Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind,
nature or description, levied, established or collected by any municipal, provincial or national
government authority (Section 13 [2]).

Their contention stated hereinabove is without merit for the following reasons:

(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes
(Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality
of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that
power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to
tax" therefore must always yield to a legislative act which is superior having been passed upon by
the state itself which has the "inherent power to tax" (Bernas, the Revised [1973] Philippine
Constitution, Vol. 1, 1983 ed. p. 445).

(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that
"municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January
18, 1957) which has the power to "create and abolish municipal corporations" due to its "general
legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541).
Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No.
9124, July 2, 1950). And if Congress can grant the City of Manila the power to tax certain matters, it
can also provide for exemptions or even take back the power.
(c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early
as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses
or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government,
thus:

Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities
and other local governments to issue license, permit or other form of franchise to operate,
maintain and establish horse and dog race tracks, jai-alai and other forms of gambling is
hereby revoked.

Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog
race tracks, jai-alai and other forms of gambling shall be issued by the national government
upon proper application and verification of the qualification of the applicant . . .

Therefore, only the National Government has the power to issue "licenses or permits" for the
operation of gambling. Necessarily, the power to demand or collect license fees which is a
consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila.

(d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR
is a government owned or controlled corporation with an original charter, PD 1869. All of its shares
of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II,
PD 1869) it also exercises regulatory powers thus:

Sec. 9. Regulatory Power. The Corporation shall maintain a Registry of the affiliated
entities, and shall exercise all the powers, authority and the responsibilities vested in the
Securities and Exchange Commission over such affiliating entities mentioned under the
preceding section, including, but not limited to amendments of Articles of Incorporation and
By-Laws, changes in corporate term, structure, capitalization and other matters concerning
the operation of the affiliated entities, the provisions of the Corporation Code of the
Philippines to the contrary notwithstanding, except only with respect to original incorporation.

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local
taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local
government.

The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Marland, 4 Wheat
316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the instrumentalities
of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to seriously burden it in the
accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis
supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool
for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which
has the inherent power to wield it.

(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D.
1869. This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides:

Sec. 5. Each local government unit shall have the power to create its own source of revenue
and to levy taxes, fees, and other charges subject to such guidelines and limitation as the
congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees
and charges shall accrue exclusively to the local government. (emphasis supplied)

The power of local government to "impose taxes and fees" is always subject to "limitations" which
Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed
or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to
the exercise of the power of local governments to impose taxes and fees. It cannot therefore be
violative but rather is consistent with the principle of local autonomy.

Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization"
(III Records of the 1987 Constitutional Commission, pp. 435-436, as cited in Bernas, The
Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local
governments sovereign within the state or an "imperium in imperio."

Local Government has been described as a political subdivision of a nation or state which is
constituted by law and has substantial control of local affairs. In a unitary system of
government, such as the government under the Philippine Constitution, local governments
can only be an intra sovereign subdivision of one sovereign nation, it cannot be
an imperium in imperio. Local government in such a system can only mean a measure of
decentralization of the function of government. (emphasis supplied)

As to what state powers should be "decentralized" and what may be delegated to local government
units remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens
Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 539).

What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State
concern and hence, it is the sole prerogative of the State to retain it or delegate it to local
governments.

As gambling is usually an offense against the State, legislative grant or express charter
power is generally necessary to empower the local corporation to deal with the subject. . . .
In the absence of express grant of power to enact, ordinance provisions on this subject
which are inconsistent with the state laws are void. (Ligan v. Gadsden, Ala App. 107 So. 733
Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC
974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 Ibid, p. 548, emphasis
supplied)
Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution,
because "it legalized PAGCOR conducted gambling, while most gambling are outlawed together
with prostitution, drug trafficking and other vices" (p. 82, Rollo).

We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the
well-accepted meaning of the clause "equal protection of the laws." The clause does not preclude
classification of individuals who may be accorded different treatment under the law as long as the
classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not
have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of
the Constitution (DECS v. San Diego, G.R. No. 89572, December 21, 1989).

The "equal protection clause" does not prohibit the Legislature from establishing classes of
individuals or objects upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The
Constitution does not require situations which are different in fact or opinion to be treated in law as
though they were the same (Gomez v. Palomar, 25 SCRA 827).

Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection
is not clearly explained in the petition. The mere fact that some gambling activities like cockfighting
(P.D 449) horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA
1169 as amended by B.P. 42) are legalized under certain conditions, while others are prohibited,
does not render the applicable laws, P.D. 1869 for one, unconstitutional.

If the law presumably hits the evil where it is most felt, it is not to be overthrown because
there are other instances to which it might have been applied. (Gomez v. Palomar, 25 SCRA
827)

The equal protection clause of the 14th Amendment does not mean that all occupations
called by the same name must be treated the same way; the state may do what it can to
prevent which is deemed as evil and stop short of those cases in which harm to the few
concerned is not less than the harm to the public that would insure if the rule laid down were
made mathematically exact. (Dominican Hotel v. Arizona, 249 US 2651).

Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away
from monopolies and crony economy and toward free enterprise and privatization" suffice it to state
that this is not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the
government's policies then it is for the Executive Department to recommend to Congress its repeal
or amendment.

The judiciary does not settle policy issues. The Court can only declare what the law is and
not what the law should be. Under our system of government, policy issues are within the
1w phi1

domain of the political branches of government and of the people themselves as the
repository of all state power. (Valmonte v. Belmonte, Jr., 170 SCRA 256).

On the issue of "monopoly," however, the Constitution provides that:

Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed. (Art. XII, National
Economy and Patrimony)

It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the
Constitution. The state must still decide whether public interest demands that monopolies be
regulated or prohibited. Again, this is a matter of policy for the Legislature to decide.
On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and
13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational
Values) of Article XIV of the 1987 Constitution, suffice it to state also that these are merely
statements of principles and, policies. As such, they are basically not self-executing, meaning a law
should be passed by Congress to clearly define and effectuate such principles.

In general, therefore, the 1935 provisions were not intended to be self-executing principles
ready for enforcement through the courts. They were rather directives addressed to the
executive and the legislature. If the executive and the legislature failed to heed the directives
of the articles the available remedy was not judicial or political. The electorate could express
their displeasure with the failure of the executive and the legislature through the language of
the ballot. (Bernas, Vol. II, p. 2)

Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387;
Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA
287). Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal
breach of the Constitution, not merely a doubtful and equivocal one. In other words, the grounds for
nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition
this Court to declare a law, or parts thereof, unconstitutional must clearly establish the basis for such
a declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners to
challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed to overcome
the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869
remains a wise legislation considering the issues of "morality, monopoly, trend to free enterprise,
privatization as well as the state principles on social justice, role of youth and educational values"
being raised, is up for Congress to determine.

As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162
SCRA 521

Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in
its favor the presumption of validity and constitutionality which petitioners Valmonte and the
KMU have not overturned. Petitioners have not undertaken to identify the provisions in the
Constitution which they claim to have been violated by that statute. This Court, however, is
not compelled to speculate and to imagine how the assailed legislation may possibly offend
some provision of the Constitution. The Court notes, further, in this respect that petitioners
have in the main put in question the wisdom, justice and expediency of the establishment of
the OPSF, issues which are not properly addressed to this Court and which this Court may
not constitutionally pass upon. Those issues should be addressed rather to the political
departments of government: the President and the Congress.

Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when
the gambling resorted to is excessive. This excessiveness necessarily depends not only on the
financial resources of the gambler and his family but also on his mental, social, and spiritual outlook
on life. However, the mere fact that some persons may have lost their material fortunes, mental
control, physical health, or even their lives does not necessarily mean that the same are directly
attributable to gambling. Gambling may have been the antecedent, but certainly not necessarily the
cause. For the same consequences could have been preceded by an overdose of food, drink,
exercise, work, and even sex.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.
G.R. No. L-59068 January 27, 1983
JOSE MARI EULALIO C. LOZADA and ROMEO B. IGOT, petitioners,
vs.
THE COMMISSION ON ELECTIONS, respondent.

DECISION
DE CASTRO, J.:
This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a
representative suit for and in behalf of those who wish to participate in the election irrespective
of party affiliation, to compel the respondent COMELEC to call a special election to fill up
existing vacancies numbering twelve (12) in the Interim Batasan Pambansa. The petition is
based on Section 5(2), Article VIII of the 1973 Constitution which reads:
(2) In case a vacancy arises in the Batasang Pambansa eighteen months or more before a
regular election, the Commission on Election shall call a special election to be held within
sixty (60) days after the vacancy occurs to elect the Member to serve the unexpired term.
Petitioner Lozada claims that he is a taxpayer and a bona fide elector of Cebu City and a
transient voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan
Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to
petition by mandamus the calling of a special election as mandated by the 1973 Constitution.
As reason for their petition, petitioners allege that they are deeply concerned about their
duties as citizens and desirous to uphold the constitutional mandate and rule of law ; that
they have filed the instant petition on their own and in behalf of all other Filipinos since the
subject matters are of profound and general interest.
The respondent COMELEC, represented by counsel, opposes the petition alleging,
substantially, that 1) petitioners lack standing to file the instant petition for they are not the
proper parties to institute the action; 2) this Court has no jurisdiction to entertain this petition;
and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan
Pambansa.
The petition must be dismiss.
I
As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that
tax money is being illegally spent. The act complained of is the inaction of the COMELEC to
call a special election, as is allegedly its ministerial duty under the constitutional provision
above cited, and therefore, involves no expenditure of public funds. It is only when an act
complained of, which may include a legislative enactment or statute, involves the illegal
expenditure of public money that the so-called taxpayer suit may be allowed. 1 What the case
at bar seeks is one that entails expenditure of public funds which may be illegal because it
would be spent for a purpose that of calling a special election which, as will be shown, has
no authority either in the Constitution or a statute.
As voters, neither have petitioners the requisite interest or personality to qualify them to
maintain and prosecute the present petition. The unchallenged rule is that the person who
impugns the validity of a statute must have a personal and substantial interest in the case
such that he has sustained, or will sustain, direct injury as a result of its enforcement. 2 In the
case before Us, the alleged inaction of the COMELEC to call a special election to fill-up the
existing vacancies in the Batasan Pambansa, standing alone, would adversely affect only the
generalized interest of all citizens. Petitioners standing to sue may not be predicated upon
an interest of the kind alleged here, which is held in common by all members of the public
because of the necessarily abstract nature of the injury supposedly shared by all citizens.
Concrete injury, whether actual or threatened, is that indispensable element of a dispute
which serves in part to cast it in a form traditionally capable of judicial resolution. 3 When the
asserted harm is a generalized grievance shared in substantially equal measure by all or a
large class of citizens, that harm alone normally does not warrant exercise of jurisdiction. 4 As
adverted to earlier, petitioners have not demonstrated any permissible personal stake, for
petitioner Lozadas interest as an alleged candidate and as a voter is not sufficient to confer
standing. Petitioner Lozada does not only fail to inform the Court of the region he wants to be
a candidate but makes indiscriminate demand that special election be called throughout the
country. Even his plea as a voter is predicated on an interest held in common by all members
of the public and does not demonstrate any injury specially directed to him in particular.
II
The Supreme Courts jurisdiction over the COMELEC is only to review by certiorari the latters
decision, orders or rulings. This is as clearly provided in Article XI IC Section 11 of the New
Constitution which reads:
Any decision, order, or ruling of the Commission may be brought to the Supreme Court on
certiorari by the aggrieved party within thirty days from his receipt of a copy thereof.
There is in this case no decision, order or ruling of the COMELEC which is sought to be
reviewed by this Court under its certiorari jurisdiction as provided for in the aforequoted
provision which is the only known provision conferring jurisdiction or authority on the Supreme
Court over the COMELEC. It is not alleged that the COMELEC was asked by petitioners to
perform its alleged duty under the Constitution to call a special election, and that COMELEC
has issued an order or resolution denying such petition.
Even from the standpoint of an action for mandamus, with the total absence of a showing that
COMELEC has unlawfully neglected the performance of a ministerial duty, or has refused on
being demanded, to discharge such a duty; and as demonstrated above, it is not shown, nor
can it ever be shown, that petitioners have a clear right to the holding of a special election.
which is equally the clear and ministerial duty of COMELEC to respect, mandamus will not
lie. 5 The writ will not issue in doubtful cases. 6
It is obvious that the holding of special elections in several regional districts where vacancies
exist, would entail huge expenditure of money. Only the Batasan Pambansa can make the
necessary appropriation for the purpose, and this power of the Batasan Pambansa may
neither be subject to mandamus by the courts much less may COMELEC compel the Batasan
to exercise its power of appropriation. From the role Batasan Pambansa has to play in the
holding of special elections, which is to appropriate the funds for the expenses thereof, it
would seem that the initiative on the matter must come from said body, not the COMELEC,
even when the vacancies would occur in the regular not interim Batasan Pambansa. The
power to appropriate is the sole and exclusive prerogative of the legislative body, the exercise
of which may not be compelled through a petition for mandamus. What is more, the provision
of Section 5(2), Article VIII of the Constitution was intended to apply to vacancies in the
regular National Assembly, now Batasan Pambansa, not to the Interim Batasan Pambansa,
as will presently be shown.
III
Perhaps the strongest reason why the aforecited provision of the Constitution is not intended
to apply to the Interim National Assembly as originally envisioned by the 1973 Constitution is
the fact that as passed by the Constitutional Convention, the Interim National Assembly was
to be composed by the delegates to the Constitutional Convention, as well as the then
incumbent President and Vice-President, and the members of the Senate and House of
Representatives of Congress under the 1935 Constitution. With such number of
representatives representing each congressional district, or a province, not to mention the
Senators, there was felt absolutely no need for filing vacancies occurring in the Interim
National Assembly, considering the uncertainty of the duration of its existence. What was in
the mind of the Constitutional Convention in providing for special elections to fill up vacancies
is the regular National Assembly, because a province or representative district would have
only one representative in the said National Assembly.
Even as presently constituted where the representation in the Interim Batasan Pambansa is
regional and sectoral, the need to fill up vacancies in the Body is neither imperative nor urgent.
No district or province would ever be left without representation at all, as to necessitate the
filling up of vacancies in the Interim Batasan Pambansa. There would always be adequate
representation for every province which only forms part of a certain region, especially
considering that the Body is only transitory in character.
The unmistakable intent of the Constitutional Convention as adverted to is even more
positively revealed by the fact that the provision of Section 5(2) of Article VIII of the New
Constitution is in the main body of the said Constitution, not in the transitory provisions in
which all matters relating to the Interim Batasan Pambansa are found. No provision outside
of Article VIII on the Transitory Provisions has reference or relevance to the Interim Batasan
Pambansa.
Also under the original provision of the Constitution (Section 1, Article XVII-Transitory
Provisions), the Interim National Assembly had only one single occasion on which to call for
an election, and that is for the election of members of the regular National Assembly. The
Constitution could not have at that time contemplated to fill up vacancies in the Interim
National Assembly the composition of which, as already demonstrated, would not raise any
imperious necessity of having to call special elections for that purpose, because the duration
of its existence was neither known or pre-determined. It could be for a period so brief that the
time prescriptions mentioned in Section 5(2), Article VIII of the Constitution cannot be
applicable.
The foregoing observations make it indubitably clear that the aforementioned provision for
calling special elections to fill up vacancies apply only to the regular Batasan Pambansa. This
is evident from the language thereof which speaks of a vacancy in the Batasan Pambansa,
which means the regular Batasan Pambansa as the same words Batasan Pambansa found
in all the many other sections of Article VIII, undoubtedly refer to the regular Batasan, not
the interim one. A word or phrase used in one part of a Constitution is to receive the same
interpretation when used in every other part, unless it clearly appears, from the context or
otherwise, that a different meaning should be applied. 7
WHEREFORE, the petition is hereby DISMISSED.
SO ORDERED.

[G.R. No. 130716. December 9, 1998]

FRANCISCO I. CHAVEZ, petitioner, vs. PRESIDENTIAL COMMISSION

ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL
GUNIGUNDO, (in his capacity as chairman of the PCGG), respondents.
GLORIA A. JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON,
and TERESA A. JOPSON, petitioners-in-intervention.

DECISION
PANGANIBAN, J:

Petitioner asks this Court to define the nature and the extent of the peoples constitutional
right to information on matters of public concern. Does this right include access to the terms of
government negotiations prior to their consummation or conclusion? May the government,
through the Presidential Commission on Good Government (PCGG), be required to reveal the
proposed terms of a compromise agreement with the Marcos heirs as regards their alleged ill-
gotten wealth? More specifically, are the General Agreement and Supplemental Agreement,
both dated December 28, 1993 and executed between the PCGG and the Marcos heirs, valid and
binding?

The Case

These are the main questions raised in this original action seeking (1) to prohibit and [e]njoin
respondents [PCGG and its chairman] from privately entering into, perfecting and/or executing
any agreement with the heirs of the late President Ferdinand E. Marcos x x x relating to and
concerning the properties and assets of Ferdinand Marcos located in the Philippines and/or abroad
-- including the so-called Marcos gold hoard; and (2) to [c]ompel respondent[s] to make
public all negotiations and agreement, be they ongoing or perfected, and all documents related to
or relating to such negotiations and agreement between the PCGG and the Marcos heirs.[1]

The Facts

Petitioner Francisco I. Chavez, as taxpayer, citizen and former government official who
initiated the prosecution of the Marcoses and their cronies who committed unmitigated plunder of
the public treasury and the systematic subjugation of the countrys economy, alleges that what
impelled him to bring this action were several news reports[2] bannered in a number of broadsheets
sometime in September 1997. These news items referred to (1) the alleged discovery of billions
of dollars of Marcos assets deposited in various coded accounts in Swiss banks; and (2) the
reported execution of a compromise, between the government (through PCGG) and the Marcos
heirs, on how to split or share these assets.
Petitioner, invoking his constitutional right to information[3] and the correlative duty of the
state to disclose publicly all its transactions involving the national interest,[4] demands that
respondents make public any and all negotiations and agreements pertaining to PCGGs task of
recovering the Marcoses ill-gotten wealth. He claims that any compromise on the alleged billions
of ill-gotten wealth involves an issue of paramount public interest, since it has a debilitating
effect on the countrys economy that would be greatly prejudicial to the national interest of the
Filipino people. Hence, the people in general have a right to know the transactions or deals being
contrived and effected by the government.
Respondents, on the other hand, do not deny forging a compromise agreement with the Marcos
heirs. They claim, though, that petitioners action is premature, because there is no showing that
he has asked the PCGG to disclose the negotiations and the Agreements. And even if he has,
PCGG may not yet be compelled to make any disclosure, since the proposed terms and conditions
of the Agreements have not become effective and binding.
Respondents further aver that the Marcos heirs have submitted the subject Agreements to the
Sandiganbayan for its approval in Civil Case No. 141, entitled Republic v. Heirs of Ferdinand E.
Marcos, and that the Republic opposed such move on the principal grounds that (1) said
Agreements have not been ratified by or even submitted to the President for approval, pursuant to
Item No. 8 of the General Agreement; and (2) the Marcos heirs have failed to comply with their
undertakings therein, particularly the collation and submission of an inventory of their assets. The
Republic also cited an April 11, 1995 Resolution in Civil Case No. 0165, in which the
Sandiganbayan dismissed a similar petition filed by the Marcoses attorney-in-fact.
Furthermore, then President Fidel V. Ramos, in his May 4, 1998 Memorandum[5] to then
PCGG Chairman Magtanggol Gunigundo, categorically stated:

This is to reiterate my previous position embodied in the Palace Press Release of 6

April 1995 that I have not authorized you to approve the Compromise Agreements of
December 28, 1993 or any agreement at all with the Marcoses, and would have
disapproved them had they been submitted to me.

The Full Powers of Attorney of March 1994 and July 4, 1994, did not authorize you
to approve said Agreements, which I reserve for myself as President of the Republic
of the Philippines.

The assailed principal Agreement[6] reads:

GENERAL AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement entered into this 28th day of December, 1993, by and between -
 The Republic of the Philippines, through the Presidential Commission on
Good Government (PCGG), a governmental agency vested with authority
defined under Executive Orders Nos. 1, 2 and 14, with offices at the
Philcomcen Building, Pasig, Metro Manila, represented by its Chairman
referred to as the FIRST PARTY,

-- and --

Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and

Ferdinand R. Marcos, Jr., all of legal age, and with address at c/o No. 154
Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda Romualdez
Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos
Araneta, hereinafter collectively referred to as the PRIVATE PARTY.

W I T N E S S E T H:

WHEREAS, the PRIVATE PARTY has been impelled by their sense of nationalism
and love of country and of the entire Filipino people, and their desire to set up a
foundation and finance impact projects like installation of power plants in selected
rural areas and initiation of other community projects for the empowerment of the
people;

WHEREAS, the FIRST PARTY has obtained a judgment from the Swiss Federal
Tribunal of December 21, 1990, that the $356 million belongs in principle to the
Republic of the Philippines provided certain conditionalities are met, but even after 7
years, the FIRST PARTY has not been able to procure a final judgment of conviction
against the PRIVATE PARTY;

WHEREAS, the FIRST PARTY is desirous of avoiding a long-drawn out litigation

which, as proven by the past 7 years, is consuming money, time and effort, and is
counter-productive and ties up assets which the FIRST PARTY could otherwise
utilize for its Comprehensive Agrarian Reform Program, and other urgent needs;

WHEREAS, His Excellency, President Fidel V. Ramos, has adopted a policy of unity
and reconciliation in order to bind the nations wounds and start the process of
rebuilding this nation as it goes on to the twenty-first century;

WHEREAS, this Agreement settles all claims and counterclaims which the parties
may have against one another, whether past, present, or future, matured or inchoate.

NOW, THEREFORE, for and in consideration of the mutual covenants set forth
herein, the parties agree as follows:
1. The parties will collate all assets presumed to be owned by, or held by other parties for the
benefit of, the PRIVATE PARTY for purposes of determining the totality of the assets covered
by the settlement. The subject assets shall be classified by the nature thereof, namely: (a) real
estate; (b) jewelry; (c) paintings and other works of art; (d) securities; (e) funds on deposit; (f)
precious metals, if any, and (g) miscellaneous assets or assets which could not appropriately
fall under any of the preceding classification. The list shall be based on the full disclosure of
the PRIVATE PARTY to insure its accuracy.
2. Based on the inventory, the FIRST PARTY shall determine which shall be ceded to the FIRST
PARTY, and which shall be assigned to/retained by the PRIVATE PARTY. The assets of the
PRIVATE PARTY shall be net of, and exempt from, any form of taxes due the Republic of
the Philippines. However, considering the unavailability of all pertinent and relevant
documents and information as to balances and ownership, the actual specification of assets to
be retained by the PRIVATE PARTY shall be covered by supplemental agreements which
shall form part of this Agreement.
3. Foreign assets which the PRIVATE PARTY shall fully disclose but which are held by trustees,
nominees, agents or foundations are hereby waived over by the PRIVATE PARTY in favor
of the FIRST PARTY. For this purpose, the parties shall cooperate in taking the appropriate
action, judicial and/or extrajudicial, to recover the same for the FIRST PARTY.
4. All disclosures of assets made by the PRIVATE PARTY shall not be used as evidence by the
FIRST PARTY in any criminal, civil, tax or administrative case, but shall be valid and binding
against said PARTY for use by the FIRST PARTY in withdrawing any account and/or
recovering any asset. The PRIVATE PARTY withdraws any objection to the withdrawal by
and/or release to the FIRST PARTY by the Swiss banks and/or Swiss authorities of the $356
million, its accrued interests, and/or any other account; over which the PRIVATE PARTY
waives any right, interest or participation in favor of the FIRST PARTY. However, any
withdrawal or release of any account aforementioned by the FIRST PARTY shall be made in
the presence of any authorized representative of the PRIVATE PARTY.
5. The trustees, custodians, safekeepers, depositaries, agents, nominees, administrators, lawyers,
or any other party acting in similar capacity in behalf of the PRIVATE PARTY are hereby
informed through this General Agreement to insure that it is fully implemented and this shall
serve as absolute authority from both parties for full disclosure to the FIRST PARTY of said
assets and for the FIRST PARTY to withdraw said account and/or assets and any other assets
which the FIRST PARTY on its own or through the help of the PRIVATE PARTY/their
trustees, etc., may discover.
6. Any asset which may be discovered in the future as belonging to the PRIVATE PARTY or is
being held by another for the benefit of the PRIVATE PARTY and which is not included in
the list per No. 1 for whatever reason shall automatically belong to the FIRST PARTY, and
the PRIVATE PARTY in accordance with No. 4 above, waives any right thereto.
7. This Agreement shall be binding on, and inure to the benefit of, the parties and their respective
legal representatives, successors and assigns and shall supersede any other prior agreement.
8. The PARTIES shall submit this and any other implementing Agreements to the President of
the Philippines for approval. In the same manner, the PRIVATE PARTY shall provide the
FIRST PARTY assistance by way of testimony or deposition on any information it may have
that could shed light on the cases being pursued by the FIRST PARTY against other
parties. The FIRST PARTY shall desist from instituting new suits already subject of this
Agreement against the PRIVATE PARTY and cause the dismissal of all other cases pending
in the Sandiganbayan and in other courts.
 9. In case of violation by the PRIVATE PARTY of any of the conditions herein contained, the
PARTIES shall be restored automatically to the status quo ante the signing of this Agreement.

For purposes of this Agreement, the PRIVATE PARTY shall be represented by Atty.
Simeon M. Mesina, Jr., as their only Attorney-in-Fact.

IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of
December, 1993, in Makati, Metro Manila.

PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT

By:

[Sgd.] MAGTANGGOL C. GUNIGUNDO

Chairman

ESTATE OF FERDINAND E. MARCOS, IMELDA R.

MARCOS, MA. IMELDA MARCOS-MANOTOC,
FERDINAND R. MARCOS, JR., & IRENE MARCOS-
ARANETA

By:

[Sgd.]IMELDA ROMUALDEZ-MARCOS

[Sgd.] MA. IMELDA MARCOS-MANOTOC

FERDINAND R. MARCOS, JR.[7]

[Sgd.] IRENE MARCOS-ARANETA

Assisted by:

[Sgd.] ATTY. SIMEON M. MESINA, JR.

Counsel & Attorney-in-Fact

Petitioner also denounces this supplement to the above Agreement: [8]

SUPPLEMENTAL AGREEMENT

This Agreement entered into this 28th day of December, 1993, by and between --
 The Republic of the Philippines, through the Presidential Commission on
Good Government (PCGG), a governmental agency vested with authority
defined under Executive Orders Nos. 1, 2 and 14, with offices at the
Philcomcen Building, Pasig, Metro Manila, represented by its Chairman
Magtanggol C. Gunigundo, hereinafter referred to as the FIRST PARTY,
-- and --
Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and
Ferdinand R. Marcos, Jr., all of legal age, and with address at c/o No. 154
Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda Romualdez
Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos
Araneta, hereinafter collectively referred to as the PRIVATE PARTY.
W I T N E S S E T H:
The parties in this case entered into a General Agreement dated Dec. 28,
1993;
The PRIVATE PARTY expressly reserve their right to pursue their interest
and/or sue over local assets located in the Philippines against parties other
than the FIRST PARTY.
The parties hereby agree that all expenses related to the recovery and/or
withdrawal of all assets including lawyers fees, agents fees, nominees
service fees, bank charges, traveling expenses and all other expenses related
thereto shall be for the account of the PRIVATE PARTY.

In consideration of the foregoing, the parties hereby agree that the PRIVATE PARTY
shall be entitled to the equivalent of 25% of the amount that may be eventually
withdrawn from said $356 million Swiss deposits.

IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of
December, 1993, in Makati, Metro Manila.

PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT

By:

[Sgd.] MAGTANGGOL C. GUNIGUNDO

Chairman
 ESTATE OF FERDINAND E. MARCOS, IMELDA R.
MARCOS, MA. IMELDA MARCOS-MANOTOC,
FERDINAND R. MARCOS, JR., & IRENE MARCOS-
ARANETA

By:

[Sgd.] IMELDA ROMUALDEZ-MARCOS

[Sgd.] MA. IMELDA MARCOS-MANOTOC

FERDINAND R. MARCOS, JR.[9]

[Sgd.] IRENE MARCOS-ARANETA

Assisted by:

[Sgd.] ATTY. SIMEON M. MESINA, JR.

Counsel & Attorney-in-Fact

Acting on a motion of petitioner, the Court issued a Temporary Restraining Order [10] dated
March 23, 1998, enjoining respondents, their agents and/or representatives from entering into, or
perfecting and/or executing any agreement with the heirs of the late President Ferdinand E. Marcos
relating to and concerning their ill-gotten wealth.

Issues

The Oral Argument, held on March 16, 1998, focused on the following issues:

(a) Procedural:

(1) Whether or not the petitioner has the personality or legal standing to file the
instant petition; and

(2) Whether or not this Court is the proper court before which this action may be
filed.

(b) Substantive:

(1) Whether or not this Court could require the PCGG to disclose to the public the
details of any agreement, perfected or not, with the Marcoses; and
(2) Whether or not there exist any legal restraints against a compromise agreement between the
Marcoses and the PCGG relative to the Marcoses ill-gotten wealth.[11]

After their oral presentations, the parties filed their respective memoranda.
On August 19, 1998, Gloria, Celnan, Scarlet and Teresa, all surnamed Jopson, filed before the
Court a Motion for Intervention, attaching thereto their Petition in Intervention. They aver that
they are among the 10,000 claimants whose right to claim from the Marcos Family and/or the
Marcos Estate is recognized by the decision in In re Estate of Ferdinand Marcos, Human Rights
Litigation, Maximo Hilao, et al., Class Plaintiffs No. 92-15526, U.S. Court of Appeals for the 9th
Circuit US App. Lexis 14796, June 16, 1994 and the Decision of the Swiss Supreme Court of
December 10, 1997. As such, they claim to have personal and direct interest in the subject matter
of the instant case, since a distribution or disposition of the Marcos properties may adversely affect
their legitimate claims. In a minute Resolution issued on August 24, 1998, the Court granted their
motion to intervene and required the respondents to comment thereon. The September 25, 1998
Comment[12] of the solicitor general on said motion merely reiterated his aforecited arguments
against the main petition.[13]

The Courts Ruling

The petition is imbued with merit.

First Procedural Issue: Petitioners Standing

Petitioner, on the one hand, explains that as a taxpayer and citizen, he has the legal personality
to file the instant petition. He submits that since ill-gotten wealth belongs to the Filipino people
and [is], in truth and in fact, part of the public treasury, any compromise in relation to it would
constitute a diminution of the public funds, which can be enjoined by a taxpayer whose interest is
for a full, if not substantial, recovery of such assets.
Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the Marcoses
is an issue of transcendental importance to the public. He asserts that ordinary taxpayers have a
right to initiate and prosecute actions questioning the validity of acts or orders of government
agencies or instrumentalities, if the issues raised are of paramount public interest; and if they
immeasurably affect the social, economic, and moral well-being of the people.
Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest, when
the proceeding involves the assertion of a public right,[14] such as in this case. He invokes several
decisions[15] of this Court which have set aside the procedural matter of locus standi, when the
subject of the case involved public interest.
On the other hand, the solicitor general, on behalf of respondents, contends that petitioner has
no standing to institute the present action, because no expenditure of public funds is involved and
said petitioner has no actual interest in the alleged agreement. Respondents further insist that the
instant petition is premature, since there is no showing that petitioner has requested PCGG to
disclose any such negotiations and agreements; or that, if he has, the Commission has refused to
do so.
Indeed, the arguments cited by petitioner constitute the controlling decisional rule as regards
his legal standing to institute the instant petition. Access to public documents and records is a
public right, and the real parties in interest are the people themselves.[16]
In Taada v. Tuvera,[17] the Court asserted that when the issue concerns a public right and the
object of mandamus is to obtain the enforcement of a public duty, the people are regarded as the
real parties in interest; and because it is sufficient that petitioner is a citizen and as such is interested
in the execution of the laws, he need not show that he has any legal or special interest in the result
of the action.[18] In the aforesaid case, the petitioners sought to enforce their right to be informed
on matters of public concern, a right then recognized in Section 6, Article IV of the 1973
Constitution,[19] in connection with the rule that laws in order to be valid and enforceable must be
published in the Official Gazette or otherwise effectively promulgated. In ruling for the
petitioners legal standing, the Court declared that the right they sought to be enforced is a public
right recognized by no less than the fundamental law of the land.
Legaspi v. Civil Service Commission,[20] while reiterating Taada, further declared that when
a mandamus proceeding involves the assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general
public which possesses the right.[21]
Further, in Albano v. Reyes,[22] we said that while expenditure of public funds may not have
been involved under the questioned contract for the development, the management and the
operation of the Manila International Container Terminal, public interest [was] definitely
involved considering the important role [of the subject contract] x x x in the economic
development of the country and the magnitude of the financial consideration involved. We
concluded that, as a consequence, the disclosure provision in the Constitution would constitute
sufficient authority for upholding the petitioners standing.
Similarly, the instant petition is anchored on the right of the people to information and access
to official records, documents and papers -- a right guaranteed under Section 7, Article III of the
1987 Constitution. Petitioner, a former solicitor general, is a Filipino citizen. Because of the
satisfaction of the two basic requisites laid down by decisional law to sustain petitioners legal
standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino citizen, we rule that
the petition at bar should be allowed.
In any event, the question on the standing of Petitioner Chavez is rendered moot by the
intervention of the Jopsons, who are among the legitimate claimants to the Marcos wealth. The
standing of the Jopsons is not seriously contested by the solicitor general. Indeed, said petitioners-
intervenors have a legal interest in the subject matter of the instant case, since a distribution or
disposition of the Marcoses ill-gotten properties may adversely affect the satisfaction of their
claims.

Second Procedural Issue:The Courts Jurisdiction

 Petitioner asserts that because this petition is an original action for mandamus and one that is
not intended to delay any proceeding in the Sandiganbayan, its having been filed before this Court
was proper. He invokes Section 5, Article VIII of the Constitution, which confers upon the
Supreme Court original jurisdiction over petitions for prohibition and mandamus.
The solicitor general, on the other hand, argues that the petition has been erroneously brought
before this Court, since there is neither a justiciable controversy nor a violation of petitioners
rights by the PCGG. He alleges that the assailed agreements are already the very lis mota in
Sandiganbayan Civil Case No. 0141, which has yet to dispose of the issue; thus, this petition is
premature. Furthermore, respondents themselves have opposed the Marcos heirs motion, filed in
the graft court, for the approval of the subject Agreements. Such opposition belies petitioners
claim that the government, through respondents, has concluded a settlement with the Marcoses as
regards their alleged ill-gotten assets.
In Taada and Legaspi, we upheld therein petitioners resort to a mandamus proceeding,
seeking to enforce a public right as well as to compel performance of a public duty mandated by
no less than the fundamental law.[23] Further, Section 5, Article VIII of the Constitution, expressly
confers upon the Supreme Court original jurisdiction over petitions
for certiorari, prohibition, mandamus, quo warranto and habeas corpus.
Respondents argue that petitioner should have properly sought relief before the
Sandiganbayan, particularly in Civil Case No. 0141, in which the enforcement of the compromise
Agreements is pending resolution. There may seem to be some merit in such argument, if
petitioner is merely seeking to enjoin the enforcement of the compromise and/or to compel the
PCGG to disclose to the public the terms contained in said Agreements. However, petitioner is
here seeking the public disclosure of all negotiations and agreement, be they ongoing or perfected,
and documents related to or relating to such negotiations and agreement between the PCGG and
the Marcos heirs.
In other words, this petition is not confined to the Agreements that have already been drawn,
but likewise to any other ongoing or future undertaking towards any settlement on the alleged
Marcos loot. Ineluctably, the core issue boils down to the precise interpretation, in terms of scope,
of the twin constitutional provisions on public transactions. This broad and prospective relief
sought by the instant petition brings it out of the realm of Civil Case No. 0141.

First Substantive Issue:

Public Disclosure of Terms of Any Agreement, Perfected or Not

In seeking the public disclosure of negotiations and agreements pertaining to a compromise

settlement with the Marcoses as regards their alleged ill-gotten wealth, petitioner invokes the
following provisions of the Constitution:

Sec. 7 [Article III]. The right of the people to information on matters of public
concern shall be recognized. Access to official records, and to documents, and papers
pertaining to official acts, transactions, or decisions, as well as to government research
data used as basis for policy development, shall be afforded the citizen, subject to
such limitations as may be provided by law.

Sec. 28 [Article II]. Subject to reasonable conditions prescribed by law, the State
adopts and implements a policy of full public disclosure of all its transactions
involving public interest.

Respondents opposite view is that the above constitutional provisions refer to completed and
operative official acts, not to those still being considered. As regards the assailed Agreements
entered into by the PCGG with the Marcoses, there is yet no right of action that has accrued,
because said Agreements have not been approved by the President, and the Marcos heirs have
failed to fulfill their express undertaking therein. Thus, the Agreements have not become
effective. Respondents add that they are not aware of any ongoing negotiation for another
compromise with the Marcoses regarding their alleged ill-gotten assets.
The information and the transactions referred to in the subject provisions of the
Constitution have as yet no defined scope and extent. There are no specific laws prescribing the
exact limitations within which the right may be exercised or the correlative state duty may be
obliged. However, the following are some of the recognized restrictions: (1) national security
matters and intelligence information, (2) trade secrets and banking transactions, (3) criminal
matters, and (4) other confidential information.

Limitations to the Right: (1) National Security Matters

At the very least, this jurisdiction recognizes the common law holding that there is a
governmental privilege against public disclosure with respect to state secrets regarding military,
diplomatic and other national security matters.[24] But where there is no need to protect such state
secrets, the privilege may not be invoked to withhold documents and other
information,[25] provided that they are examined in strict confidence and given scrupulous
protection.
Likewise, information on inter-government exchanges prior to the conclusion of treaties and
executive agreements may be subject to reasonable safeguards for the sake of national interest.[26]

(2) Trade Secrets and Banking Transactions

The drafters of the Constitution also unequivocally affirmed that, aside from national security
matters and intelligence information, trade or industrial secrets (pursuant to the Intellectual
Property Code[27]and other related laws) as well as banking transactions (pursuant to the Secrecy
of Bank Deposits Act[28]) are also exempted from compulsory disclosure.[29]

(3) Criminal Matters

 Also excluded are classified law enforcement matters, such as those relating to the
apprehension, the prosecution and the detention of criminals,[30] which courts may not inquire
into prior to such arrest, detention and prosecution. Efforts at effective law enforcement would be
seriously jeopardized by free public access to, for example, police information regarding rescue
operations, the whereabouts of fugitives, or leads on covert criminal activities.

(4) Other Confidential Information

The Ethical Standards Act[31] further prohibits public officials and employees from using or
divulging confidential or classified information officially known to them by reason of their office
and not made available to the public.[32]
Other acknowledged limitations to information access include diplomatic correspondence,
closed door Cabinet meetings and executive sessions of either house of Congress, as well as the
internal deliberations of the Supreme Court.[33]

Scope: Matters of Public Concern and Transactions Involving Public Interest

In Valmonte v. Belmonte Jr.,[34] the Court emphasized that the information sought must be
matters of public concern, access to which may be limited by law. Similarly, the state policy of
full public disclosure extends only to transactions involving public interest and may also be
subject to reasonable conditions prescribed by law. As to the meanings of the terms public
interest and public concern, the Court, in Legaspi v. Civil Service Commission,[35] elucidated:

In determining whether or not a particular information is of public concern there is

no rigid test which can be applied. Public concern like public interest is a term
that eludes exact definition. Both terms embrace a broad spectrum of subjects which
the public may want to know, either because these directly affect their lives, or simply
because such matters naturally arouse the interest of an ordinary citizen. In the final
analysis, it is for the courts to determine on a case by case basis whether the matter at
issue is of interest or importance, as it relates to or affects the public.

Considered a public concern in the above-mentioned case was the legitimate concern of
citizens to ensure that government positions requiring civil service eligibility are occupied only by
persons who are eligibles. So was the need to give the general public adequate notification of
various laws that regulate and affect the actions and conduct of citizens, as held
in Taada. Likewise did the public nature of the loanable funds of the GSIS and the public office
held by the alleged borrowers (members of the defunct Batasang Pambansa) qualify the
information sought in Valmonte as matters of public interest and concern. In Aquino-Sarmiento v.
Morato,[36] the Court also held that official acts of public officers done in pursuit of their official
functions are public in character; hence, the records pertaining to such official acts and decisions
are within the ambit of the constitutional right of access to public records.
 Under Republic Act No. 6713, public officials and employees are mandated to provide
information on their policies and procedures in clear and understandable language, [and] ensure
openness of information, public consultations and hearings whenever appropriate x x x, except
when otherwise provided by law or when required by the public interest. In particular, the law
mandates free public access, at reasonable hours, to the annual performance reports of offices and
agencies of government and government-owned or controlled corporations; and the statements of
assets, liabilities and financial disclosures of all public officials and employees.[37]
In general, writings coming into the hands of public officers in connection with their official
functions must be accessible to the public, consistent with the policy of transparency of
governmental affairs. This principle is aimed at affording the people an opportunity to determine
whether those to whom they have entrusted the affairs of the government are honestly, faithfully
and competently performing their functions as public servants.[38] Undeniably, the essence of
democracy lies in the free flow of thought;[39] but thoughts and ideas must be well-informed so that
the public would gain a better perspective of vital issues confronting them and, thus, be able to
criticize as well as participate in the affairs of the government in a responsible, reasonable and
effective manner. Certainly, it is by ensuring an unfettered and uninhibited exchange of ideas
among a well-informed public that a government remains responsive to the changes desired by the
people.[40]

The Nature of the Marcoses Alleged Ill-Gotten Wealth

We now come to the immediate matter under consideration.

Upon the departure from the country of the Marcos family and their cronies in February 1986,
the new government headed by President Corazon C. Aquino was specifically mandated to
[r]ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and
[to] protect the interest of the people through orders of sequestration or freezing of assets or
accounts.[41] Thus, President Aquinos very first executive orders (which partook of the nature of
legislative enactments) dealt with the recovery of these alleged ill-gotten properties.
Executive Order No. 1, promulgated on February 28, 1986, only two (2) days after the
Marcoses fled the country, created the PCGG which was primarily tasked to assist the President
in the recovery of vast government resources allegedly amassed by former President Marcos, his
immediate family, relatives and close associates both here and abroad.
Under Executive Order No. 2, issued twelve (12) days later, all persons and entities who had
knowledge or possession of ill-gotten assets and properties were warned and, under pain of
penalties prescribed by law, prohibited from concealing, transferring or dissipating them or from
otherwise frustrating or obstructing the recovery efforts of the government.
On May 7, 1986, another directive (EO No. 14) was issued giving additional powers to the
PCGG which, taking into account the overriding considerations of national interest and national
survival, required it to achieve expeditiously and effectively its vital task of recovering ill-gotten
wealth.
With such pronouncements of our government, whose authority emanates from the people,
there is no doubt that the recovery of the Marcoses alleged ill-gotten wealth is a matter of public
concern and imbued with public interest.[42] We may also add that ill-gotten wealth, by its very
nature, assumes a public character. Based on the aforementioned Executive Orders, ill-gotten
wealth refers to assets and properties purportedly acquired, directly or indirectly, by former
President Marcos, his immediate family, relatives and close associates through or as a result of
their improper or illegal use of government funds or properties; or their having taken undue
advantage of their public office; or their use of powers, influences or relationships, resulting in
their unjust enrichment and causing grave damage and prejudice to the Filipino people and the
Republic of the Philippines. Clearly, the assets and properties referred to supposedly originated
from the government itself. To all intents and purposes, therefore, they belong to the people. As
such, upon reconveyance they will be returned to the public treasury, subject only to the
satisfaction of positive claims of certain persons as may be adjudged by competent
courts. Another declared overriding consideration for the expeditious recovery of ill-gotten
wealth is that it may be used for national economic recovery.
We believe the foregoing disquisition settles the question of whether petitioner has a right to
respondents disclosure of any agreement that may be arrived at concerning the Marcoses
purported ill-gotten wealth.

Access to Information on Negotiating Terms

But does the constitutional provision likewise guarantee access to information

regarding ongoing negotiations or proposals prior to the final agreement? This same clarification
was sought and clearly addressed by the constitutional commissioners during their deliberations,
which we quote hereunder:[43]

MR. SUAREZ. And when we say transactions which should be distinguished from
contracts, agreements, or treaties or whatever, does the Gentleman refer to the steps
leading to the consummation of the contract, or does he refer to the contract itself?

MR. OPLE. The transactions used here, I suppose, is generic and, therefore, it can
cover both steps leading to a contract, and already a consummated contract, Mr.
Presiding Officer.

MR. SUAREZ. This contemplates inclusion of negotiations leading to the

consummation of the transaction?

MR. OPLE. Yes, subject to reasonable safeguards on the national interest.

Considering the intent of the framers of the Constitution, we believe that it is incumbent
upon the PCGG and its officers, as well as other government representatives, to disclose
sufficient public information on any proposed settlement they have decided to take up with
the ostensible owners and holders of ill-gotten wealth. Such information, though, must pertain
to definite propositions of the government, not necessarily to intra-agency or inter-agency
recommendations or communications[44] during the stage when common assertions are still in the
process of being formulated or are in the exploratory stage. There is a need, of course, to observe
the same restrictions on disclosure of information in general, as discussed earlier -- such as on
matters involving national security, diplomatic or foreign relations, intelligence and other
classified information.

Second Substantive Issue: Legal Restraints on a Marcos-PCGG Compromise

Petitioner lastly contends that any compromise agreement between the government and the
Marcoses will be a virtual condonation of all the alleged wrongs done by them, as well as an
unwarranted permission to commit graft and corruption.
Respondents, for their part, assert that there is no legal restraint on entering into a compromise
with the Marcos heirs, provided the agreement does not violate any law.

Prohibited Compromises

In general, the law encourages compromises in civil cases, except with regard to the following
matters: (1) the civil status of persons, (2) the validity of a marriage or a legal separation, (3) any
ground for legal separation, (4) future support, (5) the jurisdiction of courts, and (6) future
legitime.[45] And like any other contract, the terms and conditions of a compromise must not be
contrary to law, morals, good customs, public policy or public order.[46] A compromise is binding
and has the force of law between the parties,[47] unless the consent of a party is vitiated -- such as
by mistake, fraud, violence, intimidation or undue influence -- or when there is forgery, or if the
terms of the settlement are so palpably unconscionable. In the latter instances, the agreement may
be invalidated by the courts.[48]

Effect of Compromise on Civil Actions

One of the consequences of a compromise, and usually its primary object, is to avoid or to
end a litigation.[49] In fact, the law urges courts to persuade the parties in a civil case to agree to a
fair settlement.[50] As an incentive, a court may mitigate damages to be paid by a losing party who
shows a sincere desire to compromise.[51]
In Republic & Campos Jr. v. Sandiganbayan,[52] which affirmed the grant by the PCGG of
civil and criminal immunity to Jose Y. Campos and family, the Court held that in the absence of
an express prohibition, the rule on compromises in civil actions under the Civil Code is applicable
to PCGG cases. Such principle is pursuant to the objectives of EO No. 14, particularly the just
and expeditious recovery of ill-gotten wealth, so that it may be used to hasten economic
recovery. The same principle was upheld in Benedicto v. Board of Administrators of Television
Stations RPN, BBC and IBC[53] and Republic v. Benedicto,[54] which ruled in favor of the validity
of the PCGG compromise agreement with Roberto S. Benedicto.
Immunity from Criminal Prosecution

However, any compromise relating to the civil liability arising from an

offense does not automatically terminate the criminal proceeding against or extinguish the
criminal liability of the malefactor.[55] While a compromise in civil suits is expressly authorized
by law, there is no similar general sanction as regards criminal liability. The authority must be
specifically conferred. In the present case, the power to grant criminal immunity was conferred
on PCGG by Section 5 of EO No. 14, as amended by EO No. 14-A, which provides:

SECTION 5. The Presidential Commission on Good Government is authorized to

grant immunity from criminal prosecution to any person who provides information or
testifies in any investigation conducted by such Commission to establish the unlawful
manner in which any respondent, defendant or accused has acquired or accumulated
the property or properties in question in any case where such information or testimony
is necessary to ascertain or prove the latters guilt or his civil liability. The immunity
thereby granted shall be continued to protect the witness who repeats such testimony
before the Sandiganbayan when required to do so by the latter or by the Commission.

The above provision specifies that the PCGG may exercise such authority under these
conditions: (1) the person to whom criminal immunity is granted provides information or
testifies in an investigation conducted by the Commission; (2) the information or testimony
pertains to the unlawful manner in which the respondent, defendant or accused acquired or
accumulated ill-gotten property; and (3) such information or testimony is necessary to ascertain or
prove guilt or civil liability of such individual. From the wording of the law, it can be easily
deduced that the person referred to is a witness in the proceeding, not the principal respondent,
defendant or accused.
Thus, in the case of Jose Y. Campos, the grant of both civil and criminal immunity to him and
his family was [i]n consideration of the full cooperation of Mr. Jose Y. Campos [with] this
Commission, his voluntary surrender of the properties and assets [--] disclosed and declared by
him to belong to deposed President Ferdinand E. Marcos [--] to the Government of the Republic
of the Philippines[;] his full, complete and truthful disclosures[;] and his commitment to pay a sum
of money as determined by the Philippine Government.[56] Moreover, the grant of criminal
immunity to the Camposes and the Benedictos was limited to acts and omissions prior to February
25, 1996. At the time such immunity was granted, no criminal cases have yet been filed against
them before the competent courts.

Validity of the PCGG-Marcos Compromise Agreements

Going now to the subject General and Supplemental Agreements between the PCGG and the
Marcos heirs, a cursory perusal thereof reveals serious legal flaws. First, the Agreements do not
conform to the above requirements of EO Nos. 14 and 14-A. We believe that criminal immunity
under Section 5 cannot be granted to the Marcoses, who are the principal defendants in the
spate of ill-gotten wealth cases now pending before the Sandiganbayan. As stated earlier, the
provision is applicable mainly to witnesses who provide information or testify against a
respondent, defendant or accused in an ill-gotten wealth case.
While the General Agreement states that the Marcoses shall provide the [government]
assistance by way of testimony or deposition on any information [they] may have that could shed
light on the cases being pursued by the [government] against other parties,[57] the clause does not
fully comply with the law. Its inclusion in the Agreement may have been only an afterthought,
conceived in pro forma compliance with Section 5 of EO No. 14, as amended. There is no
indication whatsoever that any of the Marcos heirs has indeed provided vital information against
any respondent or defendant as to the manner in which the latter may have unlawfully acquired
public property.
Second, under Item No. 2 of the General Agreement, the PCGG commits to exempt from all
forms of taxes the properties to be retained by the Marcos heirs. This is a clear violation of the
Constitution. The power to tax and to grant tax exemptions is vested in the Congress and, to a
certain extent, in the local legislative bodies.[58] Section 28 (4), Article VI of the Constitution,
specifically provides: No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress. The PCGG has absolutely no
power to grant tax exemptions, even under the cover of its authority to compromise ill-gotten
wealth cases.
Even granting that Congress enacts a law exempting the Marcoses from paying taxes on their
properties, such law will definitely not pass the test of the equal protection clause under the Bill
of Rights. Any special grant of tax exemption in favor only of the Marcos heirs will constitute
class legislation. It will also violate the constitutional rule that taxation shall be uniform and
equitable.[59]
Neither can the stipulation be construed to fall within the power of the commissioner of
internal revenue to compromise taxes. Such authority may be exercised only when (1) there
is reasonable doubt as to the validity of the claim against the taxpayer, and (2) the taxpayers
financial position demonstrates a clear inability to pay.[60] Definitely, neither requisite is present in
the case of the Marcoses, because under the Agreement they are effectively conceding the validity
of the claims against their properties, part of which they will be allowed to retain. Nor can the
PCGG grant of tax exemption fall within the power of the commissioner to abate or cancel a tax
liability. This power can be exercised only when (1) the tax appears to be unjustly or excessively
assessed, or (2) the administration and collection costs involved do not justify the collection of the
tax due.[61] In this instance, the cancellation of tax liability is done even before the determination
of the amount due. In any event, criminal violations of the Tax Code, for which legal actions have
been filed in court or in which fraud is involved, cannot be compromised.[62]
Third, the government binds itself to cause the dismissal of all cases against the Marcos heirs,
pending before the Sandiganbayan and other courts.[63] This is a direct encroachment on judicial
powers, particularly in regard to criminal jurisdiction. Well-settled is the doctrine that once a case
has been filed before a court of competent jurisdiction, the matter of its dismissal or pursuance lies
within the full discretion and control of the judge. In a criminal case, the manner in which the
prosecution is handled, including the matter of whom to present as witnesses, may lie within the
sound discretion of the government prosecutor;[64] but the court decides, based on the evidence
proffered, in what manner it will dispose of the case. Jurisdiction, once acquired by the trial court,
is not lost despite a resolution, even by the justice secretary, to withdraw the information or to
dismiss the complaint.[65] The prosecutions motion to withdraw or to dismiss is not the least
binding upon the court. On the contrary, decisional rules require the trial court to make its own
evaluation of the merits of the case, because granting such motion is equivalent to effecting a
disposition of the case itself.[66]
Thus, the PCGG, as the government prosecutor of ill-gotten wealth cases, cannot
guarantee the dismissal of all such criminal cases against the Marcoses pending in the courts,
for said dismissal is not within its sole power and discretion.
Fourth, the government also waives all claims and counterclaims, whether past, present, or
future, matured or inchoate, against the Marcoses.[67] Again, this all-encompassing stipulation is
contrary to law. Under the Civil Code, an action for future fraud may not be waived.[68] The
stipulation in the Agreement does not specify the exact scope of future claims against the Marcoses
that the government thereby relinquishes. Such vague and broad statement may well be
interpreted to include all future illegal acts of any of the Marcos heirs, practically giving them a
license to perpetrate fraud against the government without any liability at all. This is a palpable
violation of the due process and equal protection guarantees of the Constitution. It effectively
ensconces the Marcoses beyond the reach of the law. It also sets a dangerous precedent for public
accountability. It is a virtual warrant for public officials to amass public funds illegally, since
there is an open option to compromise their liability in exchange for only a portion of their
ill-gotten wealth.
Fifth, the Agreements do not provide for a definite or determinable period within which the
parties shall fulfill their respective prestations. It may take a lifetime before the Marcoses submit
an inventory of their total assets.
Sixth, the Agreements do not state with specificity the standards for determining which assets
shall be forfeited by the government and which shall be retained by the Marcoses. While the
Supplemental Agreement provides that the Marcoses shall be entitled to 25 per cent of the $356
million Swiss deposits (less government recovery expenses), such sharing arrangement pertains
only to the said deposits. No similar splitting scheme is defined with respect to the other
properties. Neither is there, anywhere in the Agreements, a statement of the basis for the 25-75
percent sharing ratio. Public officers entering into an arrangement appearing to be manifestly and
grossly disadvantageous to the government, in violation of the Anti-Graft and Corrupt Practices
Act,[69] invite their indictment for corruption under the said law.
Finally, the absence of then President Ramos approval of the principal Agreement, an express
condition therein, renders the compromise incomplete and unenforceable. Nevertheless, as
detailed above, even if such approval were obtained, the Agreements would still not be valid.
From the foregoing disquisition, it is crystal clear to the Court that the General and
Supplemental Agreements, both dated December 28, 1993, which the PCGG entered into
with the Marcos heirs, are violative of the Constitution and the laws aforementioned.
WHEREFORE, the petition is GRANTED. The General and Supplemental Agreements
dated December 28, 1993, which PCGG and the Marcos heirs entered into are hereby
declared NULL AND VOIDfor being contrary to law and the Constitution. Respondent PCGG, its
officers and all government functionaries and officials who are or may be
directly or indirectly involved in the recovery of the alleged ill-gotten wealth of the
Marcoses and their associates are DIRECTED to disclose to the public the terms of any proposed
compromise settlement, as well as the final agreement, relating to such alleged ill-gotten wealth,
in accordance with the discussions embodied in this Decision. No pronouncement as to costs.
SO ORDERED.

[G. R. No. 140835. August 14, 2000]

RAMON A. GONZALES, petitioner, vs. HON. ANDRES R. NARVASA, as

Chairman, PREPARATORY COMMISSION ON CONSTITUTIONAL
REFORMS; HON. RONALDO B. ZAMORA, as Executive Secretary;
COMMISSION ON AUDIT; ROBERTO AVENTAJADO, as
Presidential Consultant on Council of Economic
Advisers/Economic Affairs; ANGELITO C. BANAYO, as
Presidential Adviser for/on Political Affairs; VERONICA IGNACIO-
JONES, as Presidential Assistant/ Appointment Secretary (In
charge of appointments), respondents.

DECISION
GONZAGA-REYES, J.:

In this petition for prohibition and mandamus filed on December 9, 1999, petitioner
Ramon A. Gonzales, in his capacity as a citizen and taxpayer, assails the constitutionality
of the creation of the Preparatory Commission on Constitutional Reform (PCCR) and of
the positions of presidential consultants, advisers and assistants. Petitioner asks this
Court to enjoin the PCCR and the presidential consultants, advisers and assistants from
acting as such, and to enjoin Executive Secretary Ronaldo B. Zamora from enforcing their
advice and recommendations. In addition, petitioner seeks to enjoin the Commission on
Audit from passing in audit expenditures for the PCCR and the presidential consultants,
advisers and assistants. Finally, petitioner prays for an order compelling respondent
Zamora to furnish petitioner with information on certain matters.
On January 28, 2000, respondent Hon. Andres R. Narvasa, impleaded in his capacity
as Chairman of the PCCR, filed his Comment to the Petition. The rest of the respondents,
who are being represented in this case by the Solicitor General, filed their Comment with
this Court on March 7, 2000. Petitioner then filed a Consolidated Reply on April 24, 2000,
whereupon this case was considered submitted for decision.
I. Preparatory Commission on Constitutional Reform
The Preparatory Commission on Constitutional Reform (PCCR) was created by
President Estrada on November 26, 1998 by virtue of Executive Order No. 43 (E.O. No.
43) in order to study and recommend proposed amendments and/or revisions to the 1987
Constitution, and the manner of implementing the same.[1] Petitioner disputes the
constitutionality of the PCCR on two grounds. First, he contends that it is a public office
which only the legislature can create by way of a law.[2] Secondly, petitioner asserts that
by creating such a body the President is intervening in a process from which he is totally
excluded by the Constitution the amendment of the fundamental charter. [3]
It is alleged by respondents that, with respect to the PCCR, this case has become
moot and academic. We agree.
An action is considered moot when it no longer presents a justiciable controversy
because the issues involved have become academic or dead.[4] Under E.O. No. 43, the
PCCR was instructed to complete its task on or before June 30, 1999. [5] However, on
February 19, 1999, the President issued Executive Order No. 70 (E.O. No. 70), which
extended the time frame for the completion of the commissions work, viz

SECTION 6. Section 8 is hereby amended to read as follows:

Time Frame. The Commission shall commence its work on 01 January

1999 and complete the same on or before 31 December 1999. The
Commission shall submit its report and recommendations to the President
within fifteen (15) working days from 31 December 1999.

The PCCR submitted its recommendations to the President on December 20, 1999 and
was dissolved by the President on the same day. It had likewise spent the funds allotted
to it.[6]Thus, the PCCR has ceased to exist, having lost its raison detre. Subsequent events
have overtaken the petition and the Court has nothing left to resolve.
The staleness of the issue before us is made more manifest by the impossibility of
granting the relief prayed for by petitioner. Basically, petitioner asks this Court to enjoin
the PCCR from acting as such.[7] Clearly, prohibition is an inappropriate remedy since the
body sought to be enjoined no longer exists. It is well established that prohibition is a
preventive remedy and does not lie to restrain an act that is already fait accompli.[8] At this
point, any ruling regarding the PCCR would simply be in the nature of an advisory opinion,
which is definitely beyond the permissible scope of judicial power.
In addition to the mootness of the issue, petitioners lack of standing constitutes
another obstacle to the successful invocation of judicial power insofar as the PCCR is
concerned.
The question in standing is whether a party has alleged such a personal stake in the
outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court so largely depends for illumination of difficult
constitutional questions.[9] In assailing the constitutionality of E.O. Nos. 43 and 70,
petitioner asserts his interest as a citizen and taxpayer.[10] A citizen acquires standing only
if he can establish that he has suffered some actual or threatened injury as a result of the
allegedly illegal conduct of the government; the injury is fairly traceable to the challenged
action; and the injury is likely to be redressed by a favorable action. [11] In Kilosbayan,
Incorporated v. Morato,[12]we denied standing to petitioners who were assailing a lease
agreement between the Philippine Charity Sweepstakes Office and the Philippine Gaming
Management Corporation, stating that,

in Valmonte v. Philippine Charity Sweepstakes Office, G.R. No. 78716, Sept.

22, 1987, standing was denied to a petitioner who sought to declare a form of
lottery known as Instant Sweepstakes invalid because, as the Court held,

Valmonte brings the suit as a citizen, lawyer, taxpayer and father of three (3)
minor children. But nowhere in his petition does petitioner claim that his rights
and privileges as a lawyer or citizen have been directly and personally injured
by the operation of the Instant Sweepstakes. The interest of the person
assailing the constitutionality of a statute must be direct and personal. He
must be able to show, not only that the law is invalid, but also that he has
sustained or in immediate danger of sustaining some direct injury as a result
of its enforcement, and not merely that he suffers thereby in some indefinite
way. It must appear that the person complaining has been or is about to be
denied some right or privilege to which he is lawfully entitled or that he is
about to be subjected to some burdens or penalties by reason of the statute
complained of.

We apprehend no difference between the petitioner in Valmonte and the

present petitioners. Petitioners do not in fact show what particularized interest
they have for bringing this suit. It does not detract from the high regard for
petitioners as civic leaders to say that their interest falls short of that required
to maintain an action under Rule 3, d 2.

Coming now to the instant case, petitioner has not shown that he has sustained or is
in danger of sustaining any personal injury attributable to the creation of the PCCR. If at
all, it is only Congress, not petitioner, which can claim any injury in this case since,
according to petitioner, the President has encroached upon the legislatures powers to
create a public office and to propose amendments to the Charter by forming the
PCCR. Petitioner has sustained no direct, or even any indirect, injury. Neither does he
claim that his rights or privileges have been or are in danger of being violated, nor that he
shall be subjected to any penalties or burdens as a result of the PCCRs activities. Clearly,
petitioner has failed to establish his locus standi so as to enable him to seek judicial
redress as a citizen.
A taxpayer is deemed to have the standing to raise a constitutional issue when it is
established that public funds have been disbursed in alleged contravention of the law or
the Constitution.[13], Thus payers action is properly brought only when there is an exercise
by Congress of its taxing or spending power.[14] This was our ruling in a recent case
wherein petitioners Telecommunications and Broadcast Attorneys of the Philippines
(TELEBAP) and GMA Network, Inc. questioned the validity of section 92 of B.P. No. 881
(otherwise knows as the Omnibus Election Code) requiring radio and television stations
to give free air time to the Commission on Elections during the campaign period. [15] The
Court held that petitioner TELEBAP did not have any interest as a taxpayer since the
assailed law did not involve the taxing or spending power of Congress.[16]
Many other rulings have premised the grant or denial of standing to taxpayers upon
whether or not the case involved a disbursement of public funds by the
legislature. In Sanidad v. Commission on Elections,[17] the petitioners therein were
allowed to bring a taxpayers suit to question several presidential decrees promulgated by
then President Marcos in his legislative capacity calling for a national referendum, with
the Court explaining that

...[i]t is now an ancient rule that the valid source of a statute Presidential
Decrees are of such nature may be contested by one who will sustain a direct
injury as a result of its enforcement.At the instance of taxpayers, laws
providing for the disbursement of public funds may be enjoined, upon the
theory that the expenditure of public funds by an officer of the State for the
purpose of executing an unconstitutional act constitutes a misapplication of
such funds. The breadth of Presidential Decree No. 991 carries an
appropriation of Five Million Pesos for the effective implementation of its
purposes. Presidential Decree No. 1031 appropriates the sum of Eight Million
Pesos to carry out its provisions. The interest of the aforenamed petitioners as
taxpayers in the lawful expenditure of these amounts of public money
sufficiently clothes them with that personality to litigate the validity of the
Decrees appropriating said funds.

In still another case, the Court held that petitioners the Philippine Constitution Association,
Inc., a non-profit civic organization - had standing as taxpayers to question the
constitutionality of Republic Act No. 3836 insofar as it provides for retirement gratuity and
commutation of vacation and sick leaves to Senators and Representatives and to the
elective officials of both houses of Congress.[18] And in Pascual v. Secretary of Public
Works,[19] the Court allowed petitioner to maintain a taxpayers suit assailing the
constitutional soundness of Republic Act No. 920 appropriating P85,000 for the
construction, repair and improvement of feeder roads within private property. All these
cases involved the disbursement of public funds by means of a law.
Meanwhile, in Bugnay Construction and Development Corporation v. Laron,[20] the
Court declared that the trial court was wrong in allowing respondent Ravanzo to bring an
action for injunction in his capacity as a taxpayer in order to question the legality of the
contract of lease covering the public market entered into between the City of Dagupan
and petitioner. The Court declared that Ravanzo did not possess the requisite standing
to bring such taxpayers suit since [o]n its face, and there is no evidence to the contrary,
the lease contract entered into between petitioner and the City shows that no public funds
have been or will be used in the construction of the market building.
Coming now to the instant case, it is readily apparent that there is no exercise by
Congress of its taxing or spending power. The PCCR was created by the President by
virtue of E.O. No. 43, as amended by E.O. No. 70. Under section 7 of E.O. No. 43, the
amount of P3 million is appropriated for its operational expenses to be sourced from the
funds of the Office of the President. The relevant provision states -

Appropriations. The initial amount of Three Million Pesos (P3,000,000.00)

is hereby appropriated for the operational expenses of the Commission to
be sourced from funds of the Office of the President, subject to the usual
accounting and auditing rules and regulations. Additional amounts shall be
released to the Commission upon submission of requirements for
expenditures.

The appropriations for the PCCR were authorized by the President, not by Congress. In
fact, there was no an appropriation at all. In a strict sense, appropriation has been defined
as nothing more than the legislative authorization prescribed by the Constitution that
money may be paid out of the Treasury, while appropriation made by law refers to the act
of the legislature setting apart or assigning to a particular use a certain sum to be used in
the payment of debt or dues from the State to its creditors. [21] The funds used for the
PCCR were taken from funds intended for the Office of the President, in the exercise of
the Chief Executives power to transfer funds pursuant to section 25 (5) of article VI of the
Constitution.
In the final analysis, it must be stressed that the Court retains the power to decide
whether or not it will entertain a taxpayers suit. [22] In the case at bar, there being no
exercise by Congress of its taxing or spending power, petitioner cannot be allowed to
question the creation of the PCCR in his capacity as a taxpayer, but rather, he must
establish that he has a personal and substantial interest in the case and that he has
sustained or will sustain direct injury as a result of its enforcement. [23] In other words,
petitioner must show that he is a real party in interest - that he will stand to be benefited
or injured by the judgment or that he will be entitled to the avails of the suit. [24] Nowhere
in his pleadings does petitioner presume to make such a representation.
II. Presidential Consultants, Advisers, Assistants
The second issue raised by petitioner concerns the presidential consultants.
Petitioner alleges that in 1995 and 1996, the President created seventy (70) positions in
the Office of the President and appointed to said positions twenty (20) presidential
consultants, twenty-two (22) presidential advisers, and twenty-eight (28) presidential
assistants.[25] Petitioner asserts that, as in the case of the PCCR, the President does not
have the power to create these positions.[26]
Consistent with the abovementioned discussion on standing, petitioner does not have
the personality to raise this issue before the Court. First of all, he has not proven that he
has sustained or is in danger of sustaining any injury as a result of the appointment of
such presidential advisers. Secondly, petitioner has not alleged the necessary facts so as
to enable the Court to determine if he possesses a taxpayers interest in this particular
issue. Unlike the PCCR which was created by virtue of an executive order, petitioner does
not allege by what official act, whether it be by means of an executive order, administrative
order, memorandum order, or otherwise, the President attempted to create the positions
of presidential advisers, consultants and assistants. Thus, it is unclear what act of the
President petitioner is assailing. In support of his allegation, petitioner merely annexed a
copy of the Philippine Government Directory (Annex C) listing the names and positions
of such presidential consultants, advisers and assistants to his petition. However,
appointment is obviously not synonymous with creation. It would be improvident for this
Court to entertain this issue given the insufficient nature of the allegations in the Petition.
III. Right to Information
Finally, petitioner asks us to issue a writ of mandamus ordering Executive Secretary
Ronaldo B. Zamora to answer his letter (Annex D) dated October 4, 1999 requesting for
the names of executive officials holding multiple positions in government, copies of their
appointments, and a list of the recipients of luxury vehicles seized by the Bureau of
Customs and turned over to Malacanang.[27]
The right to information is enshrined in Section 7 of the Bill of Rights which provides
that

The right of the people to information on matters of public concern shall be

recognized. Access to official records, and to documents, and papers
pertaining to official acts, transactions, or decisions, as well as to government
research data used as basis for policy development, shall be afforded the
citizen, subject to such limitations as may be provided by law.

Under both the 1973[28] and 1987 Constitution, this is a self-executory provision which
can be invoked by any citizen before the courts. This was our ruling in Legaspi v. Civil
Service Commission,[29] wherein the Court classified the right to information as a public
right and when a [m]andamus proceeding involves the assertion of a public right, the
requirement of personal interest is satisfied by the mere fact that the petitioner is a citizen,
and therefore, part of the general public which possesses the right. However, Congress
may provide for reasonable conditions upon the access to information. Such limitations
were embodied in Republic Act No. 6713, otherwise knows as the Code of Conduct and
Ethical Standards for Public Officials and Employees, which took effect on March 25,
1989. This law provides that, in the performance of their duties, all public officials and
employees are obliged to respond to letters sent by the public within fifteen (15) working
days from receipt thereof and to ensure the accessibility of all public documents for
inspection by the public within reasonable working hours, subject to the reasonable claims
of confidentiality.[30]
Elaborating on the significance of the right to information, the Court said in Baldoza
v. Dimaano[31] that [t]he incorporation of this right in the Constitution is a recognition of the
fundamental role of free exchange of information in a democracy. There can be no
realistic perception by the public of the nations problems, nor a meaningful democratic
decisionmaking if they are denied access to information of general interest. Information
is needed to enable the members of society to cope with the exigencies of the times. The
information to which the public is entitled to are those concerning matters of public
concern, a term which embrace[s] a broad spectrum of subjects which the public may
want to know, either because these directly affect their lives, or simply because such
matters naturally arouse the interest of an ordinary citizen. In the final analysis, it is for
the courts to determine in a case by case basis whether the matter at issue is of interest
or importance, as it relates to or affects the public.[32]
Thus, we agree with petitioner that respondent Zamora, in his official capacity as
Executive Secretary, has a constitutional and statutory duty to answer petitioners letter
dealing with matters which are unquestionably of public concern that is, appointments
made to public offices and the utilization of public property. With regard to petitioners
request for copies of the appointment papers of certain officials, respondent Zamora is
obliged to allow the inspection and copying of the same subject to the reasonable
limitations required for the orderly conduct of official business.[33]
WHEREFORE, the petition is dismissed, with the exception that respondent Zamora
is ordered to furnish petitioner with the information requested.
SO ORDERED.

[G.R. No. 138570. October 10, 2000]

BAYAN (Bagong Alyansang Makabayan), a JUNK VFA MOVEMENT,

BISHOP TOMAS MILLAMENA (Iglesia Filipina Independiente),
BISHOP ELMER BOLOCAN (United Church of Christ of the Phil.),
DR. REYNALDO LEGASCA, MD, KILUSANG MAMBUBUKID NG
PILIPINAS, KILUSANG MAYO UNO, GABRIELA, PROLABOR, and
the PUBLIC INTEREST LAW CENTER, petitioners,
vs. EXECUTIVE SECRETARY RONALDO ZAMORA, FOREIGN
AFFAIRS SECRETARY DOMINGO SIAZON, DEFENSE
SECRETARY ORLANDO MERCADO, BRIG. GEN. ALEXANDER
AGUIRRE, SENATE PRESIDENT MARCELO FERNAN, SENATOR
FRANKLIN DRILON, SENATOR BLAS OPLE, SENATOR
RODOLFO BIAZON, and SENATOR FRANCISCO TATAD,
respondents.

[G.R. No. 138572. October 10, 2000]

PHILIPPINE CONSTITUTION ASSOCIATION, INC.(PHILCONSA),

EXEQUIEL B. GARCIA, AMADOGAT INCIONG, CAMILO L. SABIO,
AND RAMON A. GONZALES, petitioners, vs. HON. RONALDO B.
ZAMORA, as Executive Secretary, HON. ORLANDO MERCADO, as
 Secretary of National Defense, and HON. DOMINGO L. SIAZON,
JR., as Secretary of Foreign Affairs, respondents.

[G.R. No. 138587. October 10, 2000]

TEOFISTO T. GUINGONA, JR., RAUL S. ROCO, and SERGIO R. OSMEA

III, petitioners, vs. JOSEPH E. ESTRADA, RONALDO B. ZAMORA,
DOMINGO L. SIAZON, JR., ORLANDO B. MERCADO, MARCELO
B. FERNAN, FRANKLIN M. DRILON, BLAS F. OPLE and RODOLFO
G. BIAZON, respondents.

[G.R. No. 138680. October 10, 2000]

INTEGRATED BAR OF THE PHILIPPINES, Represented by its National

President, Jose Aguila Grapilon, petitioners, vs. JOSEPH
EJERCITO ESTRADA, in his capacity as President, Republic of
the Philippines, and HON. DOMINGO SIAZON, in his capacity as
Secretary of Foreign Affairs, respondents.

[G.R. No. 138698. October 10, 2000]

JOVITO R. SALONGA, WIGBERTO TAADA, ZENAIDA QUEZON-

AVENCEA, ROLANDO SIMBULAN, PABLITO V. SANIDAD, MA.
SOCORRO I. DIOKNO, AGAPITO A. AQUINO, JOKER P. ARROYO,
FRANCISCO C. RIVERA JR., RENE A.V. SAGUISAG,
KILOSBAYAN, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
(MABINI), petitioners, vs. THE EXECUTIVE SECRETARY, THE
SECRETARY OF FOREIGN AFFAIRS, THE SECRETARY OF
NATIONAL DEFENSE, SENATE PRESIDENT MARCELO B.
FERNAN, SENATOR BLAS F. OPLE, SENATOR RODOLFO G.
BIAZON, AND ALL OTHER PERSONS ACTING THEIR CONTROL,
 SUPERVISION, DIRECTION, AND INSTRUCTION IN RELATION TO
THE VISITING FORCES AGREEMENT (VFA), respondents.

DECISION
BUENA, J.:

Confronting the Court for resolution in the instant consolidated petitions for certiorari
and prohibition are issues relating to, and borne by, an agreement forged in the turn of
the last century between the Republic of the Philippines and the United States of America
-the Visiting Forces Agreement.
The antecedents unfold.
On March 14, 1947, the Philippines and the United States of America forged a Military
Bases Agreement which formalized, among others, the use of installations in the
Philippine territory by United States military personnel. To further strengthen their defense
and security relationship, the Philippines and the United States entered into a Mutual
Defense Treaty on August 30, 1951. Under the treaty, the parties agreed to respond to
any external armed attack on their territory, armed forces, public vessels, and aircraft. [1]
In view of the impending expiration of the RP-US Military Bases Agreement in 1991,
the Philippines and the United States negotiated for a possible extension of the military
bases agreement. On September 16, 1991, the Philippine Senate rejected the proposed
RP-US Treaty of Friendship, Cooperation and Security which, in effect, would have
extended the presence of US military bases in the Philippines.[2] With the expiration of the
RP-US Military Bases Agreement, the periodic military exercises conducted between the
two countries were held in abeyance. Notwithstanding, the defense and security
relationship between the Philippines and the United States of America continued pursuant
to the Mutual Defense Treaty.
On July 18, 1997, the United States panel, headed by US Defense Deputy Assistant
Secretary for Asia Pacific Kurt Campbell, met with the Philippine panel, headed by
Foreign Affairs Undersecretary Rodolfo Severino Jr., to exchange notes on the
complementing strategic interests of the United States and the Philippines in the Asia-
Pacific region. Both sides discussed, among other things, the possible elements of the
Visiting Forces Agreement (VFA for brevity). Negotiations by both panels on the VFA led
to a consolidated draft text, which in turn resulted to a final series of conferences and
negotiations[3] that culminated in Manila on January 12 and 13, 1998. Thereafter, then
President Fidel V. Ramos approved the VFA, which was respectively signed by public
respondent Secretary Siazon and Unites States Ambassador Thomas Hubbard on
February 10, 1998.
On October 5, 1998, President Joseph E. Estrada, through respondent Secretary of
Foreign Affairs, ratified the VFA.[4]
On October 6, 1998, the President, acting through respondent Executive Secretary
Ronaldo Zamora, officially transmitted to the Senate of the Philippines,[5] the Instrument
of Ratification, the letter of the President[6] and the VFA, for concurrence pursuant to
Section 21, Article VII of the 1987 Constitution. The Senate, in turn, referred the VFA to
its Committee on Foreign Relations, chaired by Senator Blas F. Ople, and its Committee
on National Defense and Security, chaired by Senator Rodolfo G. Biazon, for their joint
consideration and recommendation. Thereafter, joint public hearings were held by the two
Committees.[7]
On May 3, 1999, the Committees submitted Proposed Senate Resolution No.
443 recommending the concurrence of the Senate to the VFA and the creation of a
[8]

Legislative Oversight Committee to oversee its implementation. Debates then ensued.

On May 27, 1999, Proposed Senate Resolution No. 443 was approved by the Senate,
by a two-thirds (2/3) vote[9] of its members. Senate Resolution No. 443 was then re-
numbered as Senate Resolution No. 18.[10]
On June 1, 1999, the VFA officially entered into force after an Exchange of Notes
between respondent Secretary Siazon and United States Ambassador Hubbard.
The VFA, which consists of a Preamble and nine (9) Articles, provides for the
mechanism for regulating the circumstances and conditions under which US Armed
Forces and defense personnel may be present in the Philippines, and is quoted in its full
text, hereunder:

Article I
Definitions

As used in this Agreement, United States personnel means United States military
and civilian personnel temporarily in the Philippines in connection with activities
approved by the Philippine Government.

Within this definition:

1. The term military personnel refers to military members of the United States Army,
Navy, Marine Corps, Air Force, and Coast Guard.
2. The term civilian personnel refers to individuals who are neither nationals of, nor
ordinary residents in the Philippines and who are employed by the United States
armed forces or who are accompanying the United States armed forces, such as
employees of the American Red Cross and the United Services Organization.

Article II
Respect for Law

It is the duty of the United States personnel to respect the laws of the Republic of
the Philippines and to abstain from any activity inconsistent with the spirit of this
agreement, and, in particular, from any political activity in the Philippines. The
Government of the United States shall take all measures within its authority to
ensure that this is done.
 Article III
Entry and Departure

1. The Government of the Philippines shall facilitate the admission of United

States personnel and their departure from the Philippines in connection with
activities covered by this agreement.

2. United States military personnel shall be exempt from passport and visa
regulations upon entering and departing the Philippines.

3. The following documents only, which shall be presented on demand, shall be

required in respect of United States military personnel who enter the
Philippines:

(a) personal identity card issued by the appropriate United States authority
showing full name, date of birth, rank or grade and service number (if
any), branch of service and photograph;

(b) individual or collective document issued by the appropriate United States

authority, authorizing the travel or visit and identifying the individual or
group as United States military personnel; and

(c) the commanding officer of a military aircraft or vessel shall present a

declaration of health, and when required by the cognizant representative of
the Government of the Philippines, shall conduct a quarantine inspection
and will certify that the aircraft or vessel is free from quarantinable
diseases. Any quarantine inspection of United States aircraft or United
States vessels or cargoes thereon shall be conducted by the United States
commanding officer in accordance with the international health
regulations as promulgated by the World Health Organization, and
mutually agreed procedures.

4. United States civilian personnel shall be exempt from visa requirements but
shall present, upon demand, valid passports upon entry and departure of the
Philippines.

5. If the Government of the Philippines has requested the removal of any United
States personnel from its territory, the United States authorities shall be
responsible for receiving the person concerned within its own territory or
otherwise disposing of said person outside of the Philippines.

Article IV
 Driving and Vehicle Registration

1. Philippine authorities shall accept as valid, without test or fee, a driving permit
or license issued by the appropriate United States authority to United States
personnel for the operation of military or official vehicles.

2. Vehicles owned by the Government of the United States need not be registered,
but shall have appropriate markings.

Article V
Criminal Jurisdiction

1. Subject to the provisions of this article:

(a) Philippine authorities shall have jurisdiction over United States personnel with
respect to offenses committed within the Philippines and punishable under the law
of the Philippines.
(b) United States military authorities shall have the right to exercise within the
Philippines all criminal and disciplinary jurisdiction conferred on them by the
military law of the United States over United States personnel in the Philippines.
2. (a) Philippine authorities exercise exclusive jurisdiction over United States
personnel with respect to offenses, including offenses relating to the security
of the Philippines, punishable under the laws of the Philippines, but not under
the laws of the United States.
(b) United States authorities exercise exclusive jurisdiction over United States
personnel with respect to offenses, including offenses relating to the security
of the United States, punishable under the laws of the United States, but not
under the laws of the Philippines.
(c) For the purposes of this paragraph and paragraph 3 of this article, an offense
relating to security means:

(1) treason;

(2) sabotage, espionage or violation of any law relating to national

defense.

3. In cases where the right to exercise jurisdiction is concurrent, the following rules shall
apply:
(a) Philippine authorities shall have the primary right to exercise jurisdiction over all
offenses committed by United States personnel, except in cases provided for in
paragraphs 1(b), 2 (b), and 3 (b) of this Article.
(b) United States military authorities shall have the primary right to exercise
jurisdiction over United States personnel subject to the military law of the United
States in relation to.
 (1) offenses solely against the property or security of the United States or offenses
solely against the property or person of United States personnel; and
(2) offenses arising out of any act or omission done in performance of official duty.
(c) The authorities of either government may request the authorities of the other
government to waive their primary right to exercise jurisdiction in a particular case.
(d) Recognizing the responsibility of the United States military authorities to maintain
good order and discipline among their forces, Philippine authorities will, upon
request by the United States, waive their primary right to exercise jurisdiction
except in cases of particular importance to the Philippines. If the Government of
the Philippines determines that the case is of particular importance, it shall
communicate such determination to the United States authorities within twenty (20)
days after the Philippine authorities receive the United States request.
(e) When the United States military commander determines that an offense charged
by authorities of the Philippines against United states personnel arises out of an
act or omission done in the performance of official duty, the commander will issue
a certificate setting forth such determination. This certificate will be transmitted to
the appropriate authorities of the Philippines and will constitute sufficient proof of
performance of official duty for the purposes of paragraph 3(b)(2) of this Article. In
those cases where the Government of the Philippines believes the circumstances
of the case require a review of the duty certificate, United States military authorities
and Philippine authorities shall consult immediately. Philippine authorities at the
highest levels may also present any information bearing on its validity. United
States military authorities shall take full account of the Philippine position. Where
appropriate, United States military authorities will take disciplinary or other action
against offenders in official duty cases, and notify the Government of the
Philippines of the actions taken.
(f) If the government having the primary right does not exercise jurisdiction, it shall
notify the authorities of the other government as soon as possible.
(g) The authorities of the Philippines and the United States shall notify each other of
the disposition of all cases in which both the authorities of the Philippines and the
United States have the right to exercise jurisdiction.
4. Within the scope of their legal competence, the authorities of the Philippines and
United States shall assist each other in the arrest of United States personnel in the
Philippines and in handling them over to authorities who are to exercise jurisdiction in
accordance with the provisions of this article.
5. United States military authorities shall promptly notify Philippine authorities of the
arrest or detention of United States personnel who are subject of Philippine primary
or exclusive jurisdiction. Philippine authorities shall promptly notify United States
military authorities of the arrest or detention of any United States personnel.
6. The custody of any United States personnel over whom the Philippines is to exercise
jurisdiction shall immediately reside with United States military authorities, if they so
request, from the commission of the offense until completion of all judicial
proceedings. United States military authorities shall, upon formal notification by the
Philippine authorities and without delay, make such personnel available to those
authorities in time for any investigative or judicial proceedings relating to the offense
with which the person has been charged in extraordinary cases, the Philippine
 Government shall present its position to the United States Government regarding
custody, which the United States Government shall take into full account. In the event
Philippine judicial proceedings are not completed within one year, the United States
shall be relieved of any obligations under this paragraph. The one-year period will not
include the time necessary to appeal. Also, the one-year period will not include any
time during which scheduled trial procedures are delayed because United States
authorities, after timely notification by Philippine authorities to arrange for the
presence of the accused, fail to do so.
7. Within the scope of their legal authority, United States and Philippine authorities shall
assist each other in the carrying out of all necessary investigation into offenses and
shall cooperate in providing for the attendance of witnesses and in the collection and
production of evidence, including seizure and, in proper cases, the delivery of objects
connected with an offense.
8. When United States personnel have been tried in accordance with the provisions of
this Article and have been acquitted or have been convicted and are serving, or have
served their sentence, or have had their sentence remitted or suspended, or have
been pardoned, they may not be tried again for the same offense in the Philippines.
Nothing in this paragraph, however, shall prevent United States military authorities
from trying United States personnel for any violation of rules of discipline arising from
the act or omission which constituted an offense for which they were tried by
Philippine authorities.
9. When United States personnel are detained, taken into custody, or prosecuted by
Philippine authorities, they shall be accorded all procedural safeguards established
by the law of the Philippines. At the minimum, United States personnel shall be
entitled:
(a) To a prompt and speedy trial;
(b) To be informed in advance of trial of the specific charge or charges made against
them and to have reasonable time to prepare a defense;
(c) To be confronted with witnesses against them and to cross examine such
witnesses;
(d) To present evidence in their defense and to have compulsory process for obtaining
witnesses;
(e) To have free and assisted legal representation of their own choice on the same
basis as nationals of the Philippines;
(f) To have the service of a competent interpreter; and
(g) To communicate promptly with and to be visited regularly by United States
authorities, and to have such authorities present at all judicial proceedings. These
proceedings shall be public unless the court, in accordance with Philippine laws,
excludes persons who have no role in the proceedings.
10. The confinement or detention by Philippine authorities of United States personnel
shall be carried out in facilities agreed on by appropriate Philippine and United States
authorities. United States Personnel serving sentences in the Philippines shall have
the right to visits and material assistance.
11. United States personnel shall be subject to trial only in Philippine courts of ordinary
jurisdiction, and shall not be subject to the jurisdiction of Philippine military or religious
courts.

Article VI
Claims

1. Except for contractual arrangements, including United States foreign military sales
letters of offer and acceptance and leases of military equipment, both governments
waive any and all claims against each other for damage, loss or destruction to
property of each others armed forces or for death or injury to their military and civilian
personnel arising from activities to which this agreement applies.
2. For claims against the United States, other than contractual claims and those to which
paragraph 1 applies, the United States Government, in accordance with United States
law regarding foreign claims, will pay just and reasonable compensation in settlement
of meritorious claims for damage, loss, personal injury or death, caused by acts or
omissions of United States personnel, or otherwise incident to the non-combat
activities of the United States forces.

Article VII
Importation and Exportation

1. United States Government equipment, materials, supplies, and other property

imported into or acquired in the Philippines by or on behalf of the United States armed
forces in connection with activities to which this agreement applies, shall be free of all
Philippine duties, taxes and other similar charges. Title to such property shall remain
with the United States, which may remove such property from the Philippines at any
time, free from export duties, taxes, and other similar charges. The exemptions
provided in this paragraph shall also extend to any duty, tax, or other similar charges
which would otherwise be assessed upon such property after importation into, or
acquisition within, the Philippines. Such property may be removed from the
Philippines, or disposed of therein, provided that disposition of such property in the
Philippines to persons or entities not entitled to exemption from applicable taxes and
duties shall be subject to payment of such taxes, and duties and prior approval of the
Philippine Government.
2. Reasonable quantities of personal baggage, personal effects, and other property for
the personal use of United States personnel may be imported into and used in the
Philippines free of all duties, taxes and other similar charges during the period of their
temporary stay in the Philippines. Transfers to persons or entities in the Philippines
not entitled to import privileges may only be made upon prior approval of the
appropriate Philippine authorities including payment by the recipient of applicable
duties and taxes imposed in accordance with the laws of the Philippines. The
exportation of such property and of property acquired in the Philippines by United
States personnel shall be free of all Philippine duties, taxes, and other similar charges.

Article VIII
Movement of Vessels and Aircraft
 1. Aircraft operated by or for the United States armed forces may enter the Philippines
upon approval of the Government of the Philippines in accordance with procedures
stipulated in implementing arrangements.
2. Vessels operated by or for the United States armed forces may enter the Philippines
upon approval of the Government of the Philippines. The movement of vessels shall
be in accordance with international custom and practice governing such vessels, and
such agreed implementing arrangements as necessary.
3. Vehicles, vessels, and aircraft operated by or for the United States armed forces shall
not be subject to the payment of landing or port fees, navigation or over flight charges,
or tolls or other use charges, including light and harbor dues, while in the Philippines.
Aircraft operated by or for the United States armed forces shall observe local air traffic
control regulations while in the Philippines. Vessels owned or operated by the United
States solely on United States Government non-commercial service shall not be
subject to compulsory pilotage at Philippine ports.

Article IX
Duration and Termination

This agreement shall enter into force on the date on which the parties have
notified each other in writing through the diplomatic channel that they have
completed their constitutional requirements for entry into force. This agreement
shall remain in force until the expiration of 180 days from the date on which
either party gives the other party notice in writing that it desires to terminate the
agreement.

Via these consolidated[11] petitions for certiorari and prohibition, petitioners - as

legislators, non-governmental organizations, citizens and taxpayers - assail the
constitutionality of the VFA and impute to herein respondents grave abuse of discretion
in ratifying the agreement.
We have simplified the issues raised by the petitioners into the following:
I

Do petitioners have legal standing as concerned citizens, taxpayers, or legislators

to question the constitutionality of the VFA?
II

Is the VFA governed by the provisions of Section 21, Article VII or of Section 25,
Article XVIII of the Constitution?
III

Does the VFA constitute an abdication of Philippine sovereignty?

 a. Are Philippine courts deprived of their jurisdiction to hear and try offenses committed
by US military personnel?
b. Is the Supreme Court deprived of its jurisdiction over offenses punishable by reclusion
perpetua or higher?
IV

Does the VFA violate:

a. the equal protection clause under Section 1, Article III of the Constitution?
b. the Prohibition against nuclear weapons under Article II, Section 8?
c. Section 28 (4), Article VI of the Constitution granting the exemption from taxes and
duties for the equipment, materials supplies and other properties imported into or
acquired in the Philippines by, or on behalf, of the US Armed Forces?

LOCUS STANDI

At the outset, respondents challenge petitioners standing to sue, on the ground that
the latter have not shown any interest in the case, and that petitioners failed to
substantiate that they have sustained, or will sustain direct injury as a result of the
operation of the VFA.[12] Petitioners, on the other hand, counter that the validity or invalidity
of the VFA is a matter of transcendental importance which justifies their standing.[13]
A party bringing a suit challenging the constitutionality of a law, act, or statute must
show not only that the law is invalid, but also that he has sustained or in is in immediate,
or imminent danger of sustaining some direct injury as a result of its enforcement, and
not merely that he suffers thereby in some indefinite way. He must show that he has been,
or is about to be, denied some right or privilege to which he is lawfully entitled, or that he
is about to be subjected to some burdens or penalties by reason of the statute complained
of.[14]
In the case before us, petitioners failed to show, to the satisfaction of this Court, that
they have sustained, or are in danger of sustaining any direct injury as a result of the
enforcement of the VFA. As taxpayers, petitioners have not established that the VFA
involves the exercise by Congress of its taxing or spending powers.[15] On this point, it
bears stressing that a taxpayers suit refers to a case where the act complained of directly
involves the illegal disbursement of public funds derived from taxation. [16] Thus,
in Bugnay Const. & Development Corp. vs. Laron[17], we held:

x x x it is exigent that the taxpayer-plaintiff sufficiently show that he would be

benefited or injured by the judgment or entitled to the avails of the suit as a real party
in interest. Before he can invoke the power of judicial review, he must specifically
prove that he has sufficient interest in preventing the illegal expenditure of money
raised by taxation and that he will sustain a direct injury as a result of the enforcement
of the questioned statute or contract. It is not sufficient that he has merely a general
interest common to all members of the public.

Clearly, inasmuch as no public funds raised by taxation are involved in this case, and
in the absence of any allegation by petitioners that public funds are being misspent or
illegally expended, petitioners, as taxpayers, have no legal standing to assail the legality
of the VFA.
Similarly, Representatives Wigberto Taada, Agapito Aquino and Joker Arroyo, as
petitioners-legislators, do not possess the requisite locus standi to maintain the present
suit. While this Court, in Phil. Constitution Association vs. Hon. Salvador
Enriquez,[18] sustained the legal standing of a member of the Senate and the House of
Representatives to question the validity of a presidential veto or a condition imposed on
an item in an appropriation bull, we cannot, at this instance, similarly uphold petitioners
standing as members of Congress, in the absence of a clear showing of any direct injury
to their person or to the institution to which they belong.
Beyond this, the allegations of impairment of legislative power, such as the delegation
of the power of Congress to grant tax exemptions, are more apparent than real. While it
may be true that petitioners pointed to provisions of the VFA which allegedly impair their
legislative powers, petitioners failed however to sufficiently show that they have in fact
suffered direct injury.
In the same vein, petitioner Integrated Bar of the Philippines (IBP) is stripped of
standing in these cases. As aptly observed by the Solicitor General, the IBP lacks the
legal capacity to bring this suit in the absence of a board resolution from its Board of
Governors authorizing its National President to commence the present action.[19]
Notwithstanding, in view of the paramount importance and the constitutional
significance of the issues raised in the petitions, this Court, in the exercise of its sound
discretion, brushes aside the procedural barrier and takes cognizance of the petitions, as
we have done in the early Emergency Powers Cases,[20] where we had occasion to rule:

x x x ordinary citizens and taxpayers were allowed to question the constitutionality of

several executive orders issued by President Quirino although they were involving
only an indirect and general interest shared in common with the public. The Court
dismissed the objection that they were not proper parties and ruled
that transcendental importance to the public of these cases demands that they be
settled promptly and definitely, brushing aside, if we must, technicalities of
procedure. We have since then applied the exception in many other
cases. (Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian
Reform, 175 SCRA 343). (Underscoring Supplied)

This principle was reiterated in the subsequent cases of Gonzales vs.

COMELEC,[21] Daza vs. Singson,[22] and Basco vs. Phil. Amusement and Gaming
Corporation,[23] where we emphatically held:
Considering however the importance to the public of the case at bar, and in keeping
with the Courts duty, under the 1987 Constitution, to determine whether or not the
other branches of the government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the discretion given to them,
the Court has brushed aside technicalities of procedure and has taken cognizance of
this petition. x x x

Again, in the more recent case of Kilosbayan vs. Guingona, Jr.,[24] thisCourt ruled
that in cases of transcendental importance, the Court may relax the standing
requirements and allow a suit to prosper even where there is no direct injury to the
party claiming the right of judicial review.
Although courts generally avoid having to decide a constitutional question based on
the doctrine of separation of powers, which enjoins upon the departments of the
government a becoming respect for each others acts,[25] this Court nevertheless resolves
to take cognizance of the instant petitions.

APPLICABLE CONSTITUTIONAL PROVISION

One focal point of inquiry in this controversy is the determination of which provision
of the Constitution applies, with regard to the exercise by the senate of its constitutional
power to concur with the VFA. Petitioners argue that Section 25, Article XVIII is applicable
considering that the VFA has for its subject the presence of foreign military troops in the
Philippines.Respondents, on the contrary, maintain that Section 21, Article VII should
apply inasmuch as the VFA is not a basing arrangement but an agreement which involves
merely the temporary visits of United States personnel engaged in joint military exercises.
The 1987 Philippine Constitution contains two provisions requiring the concurrence
of the Senate on treaties or international agreements. Section 21, Article VII, which herein
respondents invoke, reads:

No treaty or international agreement shall be valid and effective unless concurred in

by at least two-thirds of all the Members of the Senate.

Section 25, Article XVIII, provides:

After the expiration in 1991 of the Agreement between the Republic of the Philippines
and the United States of America concerning Military Bases, foreign military bases,
troops, or facilities shall not be allowed in the Philippines except under a treaty duly
concurred in by the senate and, when the Congress so requires, ratified by a majority
of the votes cast by the people in a national referendum held for that purpose, and
recognized as a treaty by the other contracting State.
 Section 21, Article VII deals with treatise or international agreements in general, in
which case, the concurrence of at least two-thirds (2/3) of all the Members of the Senate
is required to make the subject treaty, or international agreement, valid and binding on
the part of the Philippines. This provision lays down the general rule on treatise or
international agreements and applies to any form of treaty with a wide variety of subject
matter, such as, but not limited to, extradition or tax treatise or those economic in
nature. All treaties or international agreements entered into by the Philippines, regardless
of subject matter, coverage, or particular designation or appellation, requires the
concurrence of the Senate to be valid and effective.
In contrast, Section 25, Article XVIII is a special provision that applies to treaties which
involve the presence of foreign military bases, troops or facilities in the Philippines. Under
this provision, the concurrence of the Senate is only one of the requisites to render
compliance with the constitutional requirements and to consider the agreement binding
on the Philippines.Section 25, Article XVIII further requires that foreign military bases,
troops, or facilities may be allowed in the Philippines only by virtue of a treaty duly
concurred in by the Senate, ratified by a majority of the votes cast in a national referendum
held for that purpose if so required by Congress, and recognized as such by the other
contracting state.
It is our considered view that both constitutional provisions, far from contradicting
each other, actually share some common ground. These constitutional provisions both
embody phrases in the negative and thus, are deemed prohibitory in mandate and
character. In particular, Section 21 opens with the clause No treaty x x x, and Section 25
contains the phrase shall not be allowed. Additionally, in both instances, the concurrence
of the Senate is indispensable to render the treaty or international agreement valid and
effective.
To our mind, the fact that the President referred the VFA to the Senate under Section
21, Article VII, and that the Senate extended its concurrence under the same provision,
is immaterial. For in either case, whether under Section 21, Article VII or Section 25,
Article XVIII, the fundamental law is crystalline that the concurrence of the Senate is
mandatory to comply with the strict constitutional requirements.
On the whole, the VFA is an agreement which defines the treatment of United States
troops and personnel visiting the Philippines. It provides for the guidelines to govern such
visits of military personnel, and further defines the rights of the United States and the
Philippine government in the matter of criminal jurisdiction, movement of vessel and
aircraft, importation and exportation of equipment, materials and supplies.
Undoubtedly, Section 25, Article XVIII, which specifically deals with treaties involving
foreign military bases, troops, or facilities, should apply in the instant case. To a certain
extent and in a limited sense, however, the provisions of section 21, Article VII will find
applicability with regard to the issue and for the sole purpose of determining the number
of votes required to obtain the valid concurrence of the Senate, as will be further
discussed hereunder.
It is a finely-imbedded principle in statutory construction that a special provision or
law prevails over a general one. Lex specialis derogat generali. Thus, where there is in
the same statute a particular enactment and also a general one which, in its most
comprehensive sense, would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only
such cases within its general language which are not within the provision of the particular
enactment.[26]
In Leveriza vs. Intermediate Appellate Court,[27] we enunciated:

x x x that another basic principle of statutory construction mandates that general

legislation must give way to a special legislation on the same subject, and generally be
so interpreted as to embrace only cases in which the special provisions are not
applicable (Sto. Domingo vs. de los Angeles, 96 SCRA 139), that a specific statute
prevails over a general statute (De Jesus vs. People, 120 SCRA 760) and that where
two statutes are of equal theoretical application to a particular case, the one designed
therefor specially should prevail (Wil Wilhensen Inc. vs. Baluyot, 83 SCRA 38).

Moreover, it is specious to argue that Section 25, Article XVIII is inapplicable to mere
transient agreements for the reason that there is no permanent placing of structure for
the establishment of a military base. On this score, the Constitution makes no distinction
between transient and permanent. Certainly, we find nothing in Section 25, Article XVIII
that requires foreign troops or facilities to be stationed or placed permanently in the
Philippines.
It is a rudiment in legal hermenuetics that when no distinction is made by law, the
Court should not distinguish- Ubi lex non distinguit nec nos distinguire debemos.
In like manner, we do not subscribe to the argument that Section 25, Article XVIII is
not controlling since no foreign military bases, but merely foreign troops and facilities, are
involved in the VFA. Notably, a perusal of said constitutional provision reveals that the
proscription covers foreign military bases, troops, or facilities. Stated differently, this
prohibition is not limited to the entry of troops and facilities without any foreign bases
being established. The clause does not refer to foreign military bases,
troops, or facilities collectively but treats them as separate and independent
subjects. The use of comma and the disjunctive word or clearly signifies disassociation
and independence of one thing from the others included in the enumeration, [28]such that,
the provision contemplates three different situations - a military treaty the subject of which
could be either (a) foreign bases, (b) foreign troops, or (c) foreign facilities - any of the
three standing alone places it under the coverage of Section 25, Article XVIII.
To this end, the intention of the framers of the Charter, as manifested during the
deliberations of the 1986 Constitutional Commission, is consistent with this interpretation:
MR. MAAMBONG. I just want to address a question or two to Commissioner Bernas.
This formulation speaks of three things: foreign military bases, troops or facilities. My first
question is: If the country does enter into such kind of a treaty, must it cover the
three-bases, troops or facilities-or could the treaty entered into cover only one or
two?
 FR. BERNAS. Definitely, it can cover only one. Whether it covers only one or it covers
three, the requirement will be the same.
MR. MAAMBONG. In other words, the Philippine government can enter into a treaty
covering not bases but merely troops?
FR. BERNAS. Yes.
MR. MAAMBONG. I cannot find any reason why the government can enter into a treaty
covering only troops.
FR. BERNAS. Why not? Probably if we stretch our imagination a little bit more, we will find
some. We just want to cover everything.[29] (Underscoring Supplied)
Moreover, military bases established within the territory of another state is no longer
viable because of the alternatives offered by new means and weapons of warfare such
as nuclear weapons, guided missiles as well as huge sea vessels that can stay afloat in
the sea even for months and years without returning to their home country. These military
warships are actually used as substitutes for a land-home base not only of military aircraft
but also of military personnel and facilities. Besides, vessels are mobile as compared to
a land-based military headquarters.
At this juncture, we shall then resolve the issue of whether or not the requirements of
Section 25 were complied with when the Senate gave its concurrence to the VFA.
Section 25, Article XVIII disallows foreign military bases, troops, or facilities in the
country, unless the following conditions are sufficiently met, viz: (a) it must be under
a treaty; (b) the treaty must be duly concurred in by the Senate and, when so required
by congress, ratified by a majority of the votes cast by the people in a national referendum;
and (c) recognized as a treaty by the other contracting state.
There is no dispute as to the presence of the first two requisites in the case of the
VFA. The concurrence handed by the Senate through Resolution No. 18 is in accordance
with the provisions of the Constitution, whether under the general requirement in Section
21, Article VII, or the specific mandate mentioned in Section 25, Article XVIII, the provision
in the latter article requiring ratification by a majority of the votes cast in a national
referendum being unnecessary since Congress has not required it.
As to the matter of voting, Section 21, Article VII particularly requires that a treaty or
international agreement, to be valid and effective, must be concurred in by at least two-
thirds of all the members of the Senate. On the other hand, Section 25, Article XVIII
simply provides that the treaty be duly concurred in by the Senate.
Applying the foregoing constitutional provisions, a two-thirds vote of all the members
of the Senate is clearly required so that the concurrence contemplated by law may be
validly obtained and deemed present. While it is true that Section 25, Article XVIII
requires, among other things, that the treaty-the VFA, in the instant case-be duly
concurred in by the Senate, it is very true however that said provision must be related
and viewed in light of the clear mandate embodied in Section 21, Article VII, which in
more specific terms, requires that the concurrence of a treaty, or international agreement,
be made by a two -thirds vote of all the members of the Senate. Indeed, Section 25,
Article XVIII must not be treated in isolation to section 21, Article, VII.
 As noted, the concurrence requirement under Section 25, Article XVIII must be
construed in relation to the provisions of Section 21, Article VII. In a more particular
language, the concurrence of the Senate contemplated under Section 25, Article XVIII
means that at least two-thirds of all the members of the Senate favorably vote to concur
with the treaty-the VFA in the instant case.
Under these circumstances, the charter provides that the Senate shall be composed
of twenty-four (24) Senators.[30] Without a tinge of doubt, two-thirds (2/3) of this figure, or
not less than sixteen (16) members, favorably acting on the proposal is an unquestionable
compliance with the requisite number of votes mentioned in Section 21 of Article VII. The
fact that there were actually twenty-three (23) incumbent Senators at the time the voting
was made,[31] will not alter in any significant way the circumstance that more than two-
thirds of the members of the Senate concurred with the proposed VFA, even if the two-
thirds vote requirement is based on this figure of actual members (23). In this regard, the
fundamental law is clear that two-thirds of the 24 Senators, or at least 16 favorable votes,
suffice so as to render compliance with the strict constitutional mandate of giving
concurrence to the subject treaty.
Having resolved that the first two requisites prescribed in Section 25, Article XVIII are
present, we shall now pass upon and delve on the requirement that the VFA should be
recognized as a treaty by the United States of America.
Petitioners content that the phrase recognized as a treaty, embodied in section 25,
Article XVIII, means that the VFA should have the advice and consent of the United States
Senate pursuant to its own constitutional process, and that it should not be considered
merely an executive agreement by the United States.
In opposition, respondents argue that the letter of United States Ambassador
Hubbard stating that the VFA is binding on the United States Government is conclusive,
on the point that the VFA is recognized as a treaty by the United States of
America. According to respondents, the VFA, to be binding, must only be accepted as a
treaty by the United States.
This Court is of the firm view that the phrase recognized as a treaty means that the
other contracting party accepts or acknowledges the agreement as a treaty.[32] To
require the other contracting state, the United States of America in this case, to submit the
VFA to the United States Senate for concurrence pursuant to its Constitution, [33] is to
accord strict meaning to the phrase.
Well-entrenched is the principle that the words used in the Constitution are to be given
their ordinary meaning except where technical terms are employed, in which case the
significance thus attached to them prevails. Its language should be understood in the
sense they have in common use.[34]
Moreover, it is inconsequential whether the United States treats the VFA only as an
executive agreement because, under international law, an executive agreement is as
binding as a treaty.[35] To be sure, as long as the VFA possesses the elements of an
agreement under international law, the said agreement is to be taken equally as a treaty.
 A treaty, as defined by the Vienna Convention on the Law of Treaties, is an
international instrument concluded between States in written form and governed by
international law, whether embodied in a single instrument or in two or more related
instruments, and whatever its particular designation.[36] There are many other terms used
for a treaty or international agreement, some of which are: act, protocol,
agreement, compromis d arbitrage, concordat, convention, declaration, exchange of notes,
pact, statute, charter and modus vivendi. All writers, from Hugo Grotius onward, have
pointed out that the names or titles of international agreements included under the general
term treaty have little or no legal significance. Certain terms are useful, but they furnish
little more than mere description.[37]
Article 2(2) of the Vienna Convention provides that the provisions of paragraph 1
regarding the use of terms in the present Convention are without prejudice to the use of
those terms, or to the meanings which may be given to them in the internal law of the
State.
Thus, in international law, there is no difference between treaties and executive
agreements in their binding effect upon states concerned, as long as the negotiating
functionaries have remained within their powers.[38] International law continues to make
no distinction between treaties and executive agreements: they are equally binding
obligations upon nations.[39]
In our jurisdiction, we have recognized the binding effect of executive agreements
even without the concurrence of the Senate or Congress. In Commissioner of Customs
vs. Eastern Sea Trading,[40] we had occasion to pronounce:

x x x the right of the Executive to enter into binding agreements without the necessity
of subsequent congressional approval has been confirmed by long usage. From the
earliest days of our history we have entered into executive agreements covering such
subjects as commercial and consular relations, most-favored-nation rights, patent
rights, trademark and copyright protection, postal and navigation arrangements and
the settlement of claims. The validity of these has never been seriously questioned by
our courts.

xxxxxxxxx

Furthermore, the United States Supreme Court has expressly recognized the validity
and constitutionality of executive agreements entered into without Senate
approval. (39 Columbia Law Review, pp. 753-754) (See, also, U.S. vs. Curtis
Wright Export Corporation, 299 U.S. 304, 81 L. ed. 255; U.S. vs. Belmont, 301
U.S. 324, 81 L. ed. 1134; U.S. vs. Pink, 315 U.S. 203, 86 L. ed. 796; Ozanic vs. U.S.
188 F. 2d. 288; Yale Law Journal, Vol. 15 pp. 1905-1906; California Law Review,
Vol. 25, pp. 670-675; Hyde on International Law [revised Edition], Vol. 2, pp.
1405, 1416-1418; willoughby on the U.S. Constitution Law, Vol. I [2d ed.], pp.
537-540; Moore, International Law Digest, Vol. V, pp. 210-218; Hackworth,
International Law Digest, Vol. V, pp. 390-407). (Italics Supplied) (Emphasis Ours)
 The deliberations of the Constitutional Commission which drafted the 1987
Constitution is enlightening and highly-instructive:
MR. MAAMBONG. Of course it goes without saying that as far as ratification of the other state
is concerned, that is entirely their concern under their own laws.
FR. BERNAS. Yes, but we will accept whatever they say. If they say that we have done
everything to make it a treaty, then as far as we are concerned, we will accept it as a
treaty.[41]
The records reveal that the United States Government, through Ambassador Thomas
C. Hubbard, has stated that the United States government has fully committed to living
up to the terms of the VFA.[42] For as long as the united States of America accepts or
acknowledges the VFA as a treaty, and binds itself further to comply with its obligations
under the treaty, there is indeed marked compliance with the mandate of the Constitution.
Worth stressing too, is that the ratification, by the President, of the VFA and the
concurrence of the Senate should be taken as a clear an unequivocal expression of our
nations consent to be bound by said treaty, with the concomitant duty to uphold the
obligations and responsibilities embodied thereunder.
Ratification is generally held to be an executive act, undertaken by the head of the
state or of the government, as the case may be, through which the formal acceptance of
the treaty is proclaimed.[43] A State may provide in its domestic legislation the process of
ratification of a treaty. The consent of the State to be bound by a treaty is expressed by
ratification when: (a) the treaty provides for such ratification, (b) it is otherwise established
that the negotiating States agreed that ratification should be required, (c) the
representative of the State has signed the treaty subject to ratification, or (d) the intention
of the State to sign the treaty subject to ratification appears from the full powers of its
representative, or was expressed during the negotiation.[44]
In our jurisdiction, the power to ratify is vested in the President and not, as commonly
believed, in the legislature. The role of the Senate is limited only to giving or withholding
its consent, or concurrence, to the ratification.[45]
With the ratification of the VFA, which is equivalent to final acceptance, and with the
exchange of notes between the Philippines and the United States of America, it now
becomes obligatory and incumbent on our part, under the principles of international law,
to be bound by the terms of the agreement. Thus, no less than Section 2, Article II of the
Constitution,[46]declares that the Philippines adopts the generally accepted principles of
international law as part of the law of the land and adheres to the policy of peace, equality,
justice, freedom, cooperation and amity with all nations.
As a member of the family of nations, the Philippines agrees to be bound by generally
accepted rules for the conduct of its international relations. While the international
obligation devolves upon the state and not upon any particular branch, institution, or
individual member of its government, the Philippines is nonetheless responsible for
violations committed by any branch or subdivision of its government or any official
thereof. As an integral part of the community of nations, we are responsible to assure that
our government, Constitution and laws will carry out our international obligation. [47] Hence,
we cannot readily plead the Constitution as a convenient excuse for non-compliance with
our obligations, duties and responsibilities under international law.
Beyond this, Article 13 of the Declaration of Rights and Duties of States adopted by
the International Law Commission in 1949 provides: Every State has the duty to carry out
in good faith its obligations arising from treaties and other sources of international law,
and it may not invoke provisions in its constitution or its laws as an excuse for failure to
perform this duty.[48]
Equally important is Article 26 of the convention which provides that Every treaty in
force is binding upon the parties to it and must be performed by them in good faith. This
is known as the principle of pacta sunt servanda which preserves the sanctity of treaties
and have been one of the most fundamental principles of positive international law,
supported by the jurisprudence of international tribunals.[49]

NO GRAVE ABUSE OF DISCRETION

In the instant controversy, the President, in effect, is heavily faulted for exercising a
power and performing a task conferred upon him by the Constitution-the power to enter
into and ratify treaties. Through the expediency of Rule 65 of the Rules of Court,
petitioners in these consolidated cases impute grave abuse of discretion on the part of
the chief Executive in ratifying the VFA, and referring the same to the Senate pursuant to
the provisions of Section 21, Article VII of the Constitution.
On this particular matter, grave abuse of discretion implies such capricious and
whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, when the power
is exercised in an arbitrary or despotic manner by reason of passion or personal hostility,
and it must be so patent and gross as to amount to an evasion of positive duty enjoined
or to act at all in contemplation of law.[50]
By constitutional fiat and by the intrinsic nature of his office, the President, as head
of State, is the sole organ and authority in the external affairs of the country. In many
ways, the President is the chief architect of the nations foreign policy; his dominance in
the field of foreign relations is (then) conceded.[51] Wielding vast powers an influence, his
conduct in the external affairs of the nation, as Jefferson describes, is executive
altogether."[52]

As regards the power to enter into treaties or international agreements, the

Constitution vests the same in the President, subject only to the concurrence of at least
two-thirds vote of all the members of the Senate. In this light, the negotiation of the VFA
and the subsequent ratification of the agreement are exclusive acts which pertain solely
to the President, in the lawful exercise of his vast executive and diplomatic powers
granted him no less than by the fundamental law itself. Into the field of negotiation the
Senate cannot intrude, and Congress itself is powerless to invade it.[53] Consequently, the
acts or judgment calls of the President involving the VFA-specifically the acts of
ratification and entering into a treaty and those necessary or incidental to the exercise of
such principal acts - squarely fall within the sphere of his constitutional powers and thus,
may not be validly struck down, much less calibrated by this Court, in the absence of clear
showing of grave abuse of power or discretion.
It is the Courts considered view that the President, in ratifying the VFA and in
submitting the same to the Senate for concurrence, acted within the confines and limits
of the powers vested in him by the Constitution. It is of no moment that the President, in
the exercise of his wide latitude of discretion and in the honest belief that the VFA falls
within the ambit of Section 21, Article VII of the Constitution, referred the VFA to the
Senate for concurrence under the aforementioned provision. Certainly, no abuse of
discretion, much less a grave, patent and whimsical abuse of judgment, may be imputed
to the President in his act of ratifying the VFA and referring the same to the Senate for
the purpose of complying with the concurrence requirement embodied in the fundamental
law. In doing so, the President merely performed a constitutional task and exercised a
prerogative that chiefly pertains to the functions of his office. Even if he erred in submitting
the VFA to the Senate for concurrence under the provisions of Section 21 of Article VII,
instead of Section 25 of Article XVIII of the Constitution, still, the President may not be
faulted or scarred, much less be adjudged guilty of committing an abuse of discretion in
some patent, gross, and capricious manner.
For while it is conceded that Article VIII, Section 1, of the Constitution has broadened
the scope of judicial inquiry into areas normally left to the political departments to decide,
such as those relating to national security, it has not altogether done away with political
questions such as those which arise in the field of foreign relations.[54] The High Tribunals
function, as sanctioned by Article VIII, Section 1, is merely (to) check whether or not the
governmental branch or agency has gone beyond the constitutional limits of its
jurisdiction, not that it erred or has a different view. In the absence of a showing (of) grave
abuse of discretion amounting to lack of jurisdiction, there is no occasion for the Court to
exercise its corrective powerIt has no power to look into what it thinks is apparent error.[55]
As to the power to concur with treaties, the constitution lodges the same with the
Senate alone. Thus, once the Senate[56] performs that power, or exercises its prerogative
within the boundaries prescribed by the Constitution, the concurrence cannot, in like
manner, be viewed to constitute an abuse of power, much less grave abuse
thereof. Corollarily, the Senate, in the exercise of its discretion and acting within the limits
of such power, may not be similarly faulted for having simply performed a task conferred
and sanctioned by no less than the fundamental law.
For the role of the Senate in relation to treaties is essentially legislative in
character;[57] the Senate, as an independent body possessed of its own erudite mind, has
the prerogative to either accept or reject the proposed agreement, and whatever action it
takes in the exercise of its wide latitude of discretion, pertains to the wisdom rather than
the legality of the act. In this sense, the Senate partakes a principal, yet delicate, role in
keeping the principles of separation of powers and of checks and balances alive and vigilantly
ensures that these cherished rudiments remain true to their form in a democratic
government such as ours. The Constitution thus animates, through this treaty-concurring
power of the Senate, a healthy system of checks and balances indispensable toward our
nations pursuit of political maturity and growth. True enough, rudimentary is the principle
that matters pertaining to the wisdom of a legislative act are beyond the ambit and
province of the courts to inquire.
In fine, absent any clear showing of grave abuse of discretion on the part of
respondents, this Court- as the final arbiter of legal controversies and staunch sentinel of
the rights of the people - is then without power to conduct an incursion and meddle with
such affairs purely executive and legislative in character and nature. For the Constitution
no less, maps out the distinct boundaries and limits the metes and bounds within which
each of the three political branches of government may exercise the powers exclusively
and essentially conferred to it by law.
WHEREFORE, in light of the foregoing disquisitions, the instant petitions are hereby
DISMISSED.
SO ORDERED.

[G.R. No. 138298. November 29, 2000]

RAOUL B. DEL MAR, petitioner, vs. PHILIPPINE AMUSEMENT AND

GAMING CORPORATION, BELLE JAI-ALAI CORPORATION,
FILIPINAS GAMING ENTERTAINMENT TOTALIZATOR
CORPORATION, respondents.

[G.R. No. 138982. November 29, 2000]

FEDERICO S. SANDOVAL II and MICHAEL T. DEFENSOR, petitioners,

vs. PHILIPPINE AMUSEMENT AND GAMING
CORPORATION, respondent.
JUAN MIGUEL ZUBIRI, intervenor.

DECISION
PUNO, J.:

These two consolidated petitions concern the issue of whether the franchise granted
to the Philippine Amusement and Gaming Corporation (PAGCOR) includes the right to
manage and operate jai-alai.
First, we scour the significant facts. The Philippine Amusement and Gaming
Corporation is a government-owned and controlled corporation organized and existing
under Presidential Decree No. 1869 which was enacted on July 11, 1983. Pursuant to
Sections 1 and 10 of P.D. No. 1869, respondent PAGCOR requested for legal advice
from the Secretary of Justice as to whether or not it is authorized by its Charter to operate
and manage jai-alai frontons in the country. In its Opinion No. 67, Series of 1996 dated
July 15, 1996, the Secretary of Justice opined that the authority of PAGCOR to operate
and maintain games of chance or gambling extends to jai-alai which is a form of sport
or game played for bets and that the Charter of PAGCOR amounts to a legislative
franchise for the purpose.[1] Similar favorable opinions were received by PAGCOR from
the Office of the Solicitor General per its letter dated June 3, 1996 and the Office of
the Government Corporate Counsel under its Opinion No. 150 dated June 14,
1996.[2] Thus, PAGCOR started the operation of jai-alai frontons.
On May 6, 1999, petitioner Raoul B. del Mar initially filed in G.R. No. 138298
a Petition for Prohibition to prevent respondent PAGCOR from managing and/or
operating the jai-alai or Basque pelota games, by itself or in agreement with Belle
Corporation, on the ground that the controverted act is patently illegal and devoid of any
basis either from the Constitution or PAGCORs own Charter.
However, on June 17, 1999, respondent PAGCOR entered into an Agreement with
private respondents Belle Jai Alai Corporation (BELLE) and Filipinas Gaming
Entertainment Totalizator Corporation (FILGAME) wherein it was agreed that BELLE will
make available to PAGCOR the required infrastructure facilities including the main
fronton, as well as provide the needed funding for jai-alai operations with no financial
outlay from PAGCOR, while PAGCOR handles the actual management and operation of
jai-alai.[3]
Thus, on August 10, 1999, petitioner Del Mar filed a Supplemental Petition for
Certiorari questioning the validity of said Agreement on the ground that PAGCOR is
without jurisdiction, legislative franchise, authority or power to enter into such Agreement
for the opening, establishment, operation, control and management of jai-alai games.
A little earlier, or on July 1, 1999, petitioners Federico S. Sandoval II and Michael T.
Defensor filed a Petition for Injunction, docketed as G.R. No. 138982, which seeks to
enjoin respondent PAGCOR from operating or otherwise managing the jai-alai or Basque
pelota games by itself or in joint venture with Belle Corporation, for being patently illegal,
having no basis in the law or the Constitution, and in usurpation of the authority that
properly pertains to the legislative branch of the government. In this case, a Petition in
Intervention was filed by Juan Miguel Zubiri alleging that the operation by PAGCOR of
jai-alai is illegal because it is not included in the scope of PAGCORs franchise which
covers only games of chance.
Petitioners Raoul B. del Mar, Federico S. Sandoval II, Michael T. Defensor, and
intervenor Juan Miguel Zubiri, are suing as taxpayers and in their capacity as
members of the House of Representatives representing the First District of Cebu City,
the Lone Congressional District of Malabon-Navotas, the Third Congressional District of
Quezon City, and the Third Congressional District of Bukidnon, respectively.
The bedrock issues spawned by the petitions at bar are:
G.R. No. 138298
Petitioner Del Mar raises the following issues:
I. The respondent PAGCOR has no jurisdiction or legislative franchise or acted with
grave abuse of discretion, tantamount to lack or excess of jurisdiction, in arrogating
unto itself the authority or power to open, pursue, conduct, operate, control and
manage jai-alai game operations in the country.
II. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x in executing
its agreement with co-respondents Belle and Filgame for the conduct and
management of jai-alai game operations, upon undue reliance on an opinion of the
Secretary of Justice.
III. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x in entering
into a partnership, joint venture or business arrangement with its co-respondents
Belle and Filgame, through their agreement x x x. The Agreement was entered into
through manifest partiality and evident bad faith (Sec. 3 (e), RA 3019), thus manifestly
and grossly disadvantageous to the government [Anti-Graft and Corrupt Practices
Act, RA 3019, Sec. 3 (g)].
IV. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x to award to
its co-respondents Belle and Filgame the right to avail of the tax benefits which, by
law, inures solely and exclusively to PAGCOR itself.
V. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x to cause the
disbursement of funds for the illegal establishment, management and operation of jai-
alai game operations.
VI. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x to award or
grant authority for the establishment, management and operation of off-fronton betting
stations or bookies.
VII. The respondent PAGCOR has no jurisdiction or authority x x x in awarding unto its
co-respondents Belle and Filgame, without public bidding, the subject agreement.
In defense, private respondents BELLE and FILGAME assert:
1. The petition states no cause of action and must be dismissed outright;
2. The petitioner has no cause of action against the respondents, he not being a real
party in interest;
3. The instant petition cannot be maintained as a taxpayer suit, there being no illegal
disbursement of public funds involved;
4. The instant petition is essentially an action for quo warranto and may only be
commenced by the Solicitor General;
5. The operation of jai-alai is well within PAGCORs authority to operate and
maintain. PAGCORs franchise is intended to be wide in its coverage, the underlying
considerations being, that: (1) the franchise must be used to integrate all gambling
operations in one corporate entity (i.e. PAGCOR); and (2) it must be used to generate
funds for the government to support its social impact projects;
6. The agreement executed by, between and among PAGCOR, BJAC and FILGAME is
outside the coverage of existing laws requiring public bidding.
 Substantially the same defenses were raised by respondent PAGCOR in its
Comment.
G.R. No. 138982
Petitioners contend that:
I. The operation of jai-alai games by PAGCOR is illegal in that:
1) the franchise of PAGCOR does not include the operation of jai-alai since jai-alai is
a prohibited activity under the Revised Penal Code, as amended by P.D. No. 1602
which is otherwise known as the Anti-Gambling Law;
2) jai-alai is not a game of chance and therefore cannot be the subject of a PAGCOR
franchise.
II. A franchise is a special privilege that should be construed strictly against the grantee.
III. To allow PAGCOR to operate jai-alai under its charter is tantamount to a license to
PAGCOR to legalize and operate any gambling activity.
In its Comment, respondent PAGCOR avers that:
1. An action for injunction is not among the cases or proceedings originally cognizable
by the Honorable Supreme Court, pursuant to Section 1, Rule 56 of the 1997 Rules
of Civil Procedure.
2. Assuming, arguendo, the Honorable Supreme Court has jurisdiction over the petition,
the petition should be dismissed for failure of petitioners to observe the doctrine on
hierarchy of courts.
3. x x x Petitioners have no legal standing to file a taxpayers suit based on their cause
of action nor are they the real parties-in-interest entitled to the avails of the suit.
4. Respondents franchise definitely includes the operation of jai-alai.
5. Petitioners have no right in esse to be entitled to a temporary restraining order and/or
to be protected by a writ of preliminary injunction.
The Solicitor General claims that the petition, which is actually an action for quo
warranto under Rule 66 of the Rules of Court, against an alleged usurpation by PAGCOR
of a franchise to operate jai alai, should be dismissed outright because only the Solicitor
General or public prosecutor can file the same; that P.D. No. 1869, the Charter of
PAGCOR, authorizes PAGCOR to regulate and operate games of chance and skill which
include jai-alai; and that P.D. No. 1602 did not outlaw jai-alai but merely provided for stiffer
penalties to illegal or unauthorized activities related to jai-alai and other forms of
gambling.
We shall first rule on the important procedural issues raised by the respondents.
Respondents in G.R. No. 138982 contend that the Court has no jurisdiction to take
original cognizance of a petition for injunction because it is not one of those actions
specifically mentioned in Section 1 of Rule 56 of the 1997 Rules of Civil
Procedure. Moreover, they urge that the petition should be dismissed for failure of
petitioners to observe the doctrine on hierarchy of courts.
 It is axiomatic that what determines the nature of an action and hence, the jurisdiction
of the court, are the allegations of the pleading and the character of the relief sought.[4] A
cursory perusal of the petition filed in G.R. No. 138982 will show that it is actually one for
Prohibition under Section 2 of Rule 65 for it seeks to prevent PAGCOR from managing,
maintaining and operating jai-alai games. Even assuming, arguendo, that it is an action for
injunction, this Court has the discretionary power to take cognizance of the petition at bar
if compelling reasons, or the nature and importance of the issues raised, warrant the
immediate exercise of its jurisdiction.[5] It cannot be gainsaid that the issues raised in the
present petitions have generated an oasis of concern, even days of disquiet in view of the
public interest at stake. In Tano, et al. vs. Socrates, et al.,[6] this Court did not hesitate to
treat a petition for certiorari and injunction as a special civil action for certiorari and
prohibition to resolve an issue of far-reaching impact to our people. This is in consonance
with our case law now accorded near religious reverence that rules of procedure are but
tools designed to facilitate the attainment of justice such that when its rigid application
tends to frustrate rather than promote substantial justice, this Court has the duty to
suspend their operation.[7]
Respondents also assail the locus standi or the standing of petitioners to file the
petitions at bar as taxpayers and as legislators. First, they allege that petitioners have no
legal standing to file a taxpayers suit because the operation of jai-alai does not involve
the disbursement of public funds.
Respondents' stance is not without oven ready legal support. A party suing as a
taxpayer must specifically prove that he has sufficient interest in preventing the illegal
expenditure of money raised by taxation.[8] In essence, taxpayers are allowed to sue
where there is a claim of illegal disbursement of public funds, [9] or that public money is
being deflected to any improper purpose,[10] or where petitioners seek to restrain
respondent from wasting public funds through the enforcement of an invalid or
unconstitutional law.[11]
In the petitions at bar, the Agreement entered into between PAGCOR and private
respondents BELLE and FILGAME will show that all financial outlay or capital expenditure
for the operation of jai-alai games shall be provided for by the latter. Thus, the Agreement
provides, among others, that: PAGCOR shall manage, operate and control the jai-alai
operation at no cost or financial risk to it (Sec. 1[A][1]); BELLE shall provide funds, at no
cost to PAGCOR, for all capital expenditures (Sec. 1[B][1]); BELLE shall make available
to PAGCOR, at no cost to PAGCOR, the use of the integrated nationwide network of on-
line computerized systems (Sec. 1[B][2]); FILGAME shall make available for use of
PAGCOR on a rent-free basis the jai-alai fronton facilities (Sec. 1 [C][1]); BELLE &
FILGAME jointly undertake to provide funds, at no cost to PAGCOR, for pre-operating
expenses and working capital (Sec. 1 [D][1]); and that BELLE & FILGAME will provide
PAGCOR with goodwill money in the amount of P 200 million (Sec. 1 [D][2]). In fine, the
record is barren of evidence that the operation and management of jai-alai by the
PAGCOR involves expenditure of public money.
Be that as it may, in line with the liberal policy of this Court on locus standi when a
case involves an issue of overarching significance to our society, [12] we find and so hold
that as members of the House of Representatives, petitioners have legal standing to file
the petitions at bar. In the instant cases, petitioners complain that the operation of jai-alai
constitutes an infringement by PAGCOR of the legislatures exclusive power to grant
franchise. 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, so petitioners contend. The contention commands our concurrence for
it is now settled that a member of the House of Representatives has standing to maintain
inviolate the prerogatives, powers and privileges vested by the Constitution in his
office.[13] As presciently stressed in the case of Kilosbayan, Inc., viz:

We find the instant petition to be of transcendental importance to the

public. The issues it raised are of paramount public interest and of a category
even higher than those involved in many of the aforecited cases. The
ramifications of such issues immeasurably affect the social, economic, and
moral well-being of the people even in the remotest barangays of the country
and the counter-productive and retrogressive effects of the envisioned on-line
lottery system are as staggering as the billions in pesos it is expected to
raise. The legal standing then of the petitioners deserves recognition x x x.

After hurdling the threshold procedural issues, we now come to the decisive
substantive issue of whether PAGCOR's legislative franchise includes the right to
manage and operate jai-alai.[14] The issue is of supreme significance for its incorrect
resolution can dangerously diminish the plenary legislative power of Congress, more
especially its exercise of police power to protect the morality of our people. After a
circumspect consideration of the clashing positions of the parties, we hold that the charter
of PAGCOR does not give it any franchise to operate and manage jai-alai.
FIRST. A franchise is a special privilege conferred upon a corporation or individual
by a government duly empowered legally to grant it.[15] It is a privilege of public
concern which cannot be exercised at will and pleasure, but should be reserved for
public control and administration, either by the government directly, or by public agents,
under such conditions and regulations as the government may impose on them in the
interest of the public.[16] A franchise thus emanates from a sovereign power[17] and the
grant is inherently a legislative power.It may, however, be derived indirectly from the
state through an agency to which the power has been clearly and validly delegated.[18] In
such cases, Congress prescribes the conditions on which the grant of a franchise may
be made.[19] Thus, the manner of granting the franchise, to whom it may be granted,
the mode of conducting the business, the character and quality of the service to be
rendered and the duty of the grantee to the public in exercising the franchise are
almost always defined in clear and unequivocal language. In the absence of these
defining terms, any claim to a legislative franchise to operate a game played for
bets and denounced as a menace to morality ought to be rejected.
SECOND. A historical study of the creation, growth and development of PAGCOR
will readily show that it was never given a legislative franchise to operate jai-alai.
(2.a) Before the creation of PAGCOR, a 25-year right to operate jai-alai in Manila
was given by President Marcos to the Philippine Jai-Alai and Amusement Corporation
then controlled by his in-laws, the Romualdez family. The franchise was granted on
October 16, 1975 thru P.D. No. 810 issued by President Marcos in the exercise of his
martial law powers. On that very date, the 25-year franchise of the prior grantee expired
and was not renewed. A few months before, President Marcos had issued P.D. No.
771 dated August 20, 1975, revoking the authority of local government units to issue jai-
alai franchises. By these acts, the former President exercised complete control of the
sovereign power to grant franchises.
(2.b) Almost one year and a half after granting the Philippine Jai-Alai and
Amusement Corporation a 25-year franchise to operate jai-alai in Manila, President
Marcos created PAGCOR on January 1, 1977 by issuing P.D. No. 1067-A. The decree
is entitled Creating the Philippine Amusements and Gaming Corporation, Defining Its
Powers and Functions, Providing Funds therefor and for Other Purposes. Its Declaration
of Policy[20] trumpeted the intent that PAGCOR was created to implement the policy of the
State to centralize and integrate all games of chance not heretofore authorized by
existing franchises or permitted by law x x x. One of its whereas clauses referred to
the need to prevent the proliferation ofillegal casinos or clubs conducting games of
chance x x x.[21] To achieve this objective, PAGCOR was empowered to establish and
maintain clubs, casinos, branches, agencies or subsidiaries, or other units anywhere in
the Philippines x x x.[22]
(2.c) On the same day after creating PAGCOR, President Marcos issued P.D. No.
1067-B granting PAGCOR x x x a Franchise to Establish, Operate, and
Maintain Gambling Casinoson Land or Water Within the Territorial Jurisdiction of the
Republic of the Philippines. Obviously, P.D. No. 1067-A which created the PAGCOR is
not a grant of franchise to operate the game of jai-alai. On the other hand, Section 1 of
P.D. No. 1067-B provides the nature and term of PAGCORS franchise to maintain
gambling casinos (not a franchise to operate jai-alai), viz:

SECTION 1. NATURE AND TERM OF FRANCHISE. Subject to the terms and

conditions established in this Decree, the Philippine Amusements and Gaming
Corporation is hereby granted for a period of twenty-five (25) years,
renewable for another 25 years, the right, privilege, and authority to operate
and maintain gambling casinos, clubs and other recreation or amusement
places, sports, gaming pools, i.e., basketball, football, etc., whether on land or
sea, within the territorial jurisdiction of the Republic of the Philippines.

Section 2 of the same decree spells out the scope of the PAGCOR franchise to
maintain gambling casinos (not a franchise to operate jai-alai), viz:

SEC. 2. SCOPE OF FRANCHISE. In addition to the right and privileges

granted it under Sec. 1, this Franchise shall entitle the franchise holder to do
and undertake the following:

(1) Enter into operators and/or management contracts with duly registered
and accredited company possessing the knowledge, skill, expertise and
facilities to insure the efficient operation of gambling casinos; Provided, That
the service fees of such management and/or operator companies whose
services may be retained by the franchise holder of this Franchise shall not in
the aggregate exceed ten (10%) percent of the gross income.

(2) Purchase foreign exchange that may be required for the importation of
equipment, facilities and other gambling paraphernalia indispensably needed
or useful to insure the successful operation of gambling casinos.

(3) Acquire the right of way, access to or thru public lands, public waters or
harbors, including the Manila Bay Area; such right to include, but not limited
to, the right to lease and/or purchase public lands, government reclaimed
lands, as well as land of private ownership or those leased from the
government. This right shall carry with it the privilege of the franchise holder to
utilize piers, quays, boat landings, and such other pertinent and related
facilities within these specified areas for use as landing, anchoring, or berthing
sites in connection with its authorized casino operations.

(4) Build or construct structures, buildings, coastways, piers, docks, as well as

any other form of land and berthing facilities for its floating casinos.

(5) To do and perform such other acts directly related to the efficient and
successful operation and conduct of games of chance in accordance with
existing laws and decrees.

(2.d) Still on the day after creating PAGCOR, President Marcos issued P.D. No.
1067-C amending P.D. Nos. 1067-A and B. The amendment provides that PAGCORs
franchise to maintain gambling casinos x x x shall become exclusive in character,
subject only to the exception of existing franchises and games of chance heretofore
permitted by law, upon the generation by the franchise holder of gross revenues
amounting to P1.2 billion and its contribution therefrom of the amount of P720 million as
the governments share.
(2.e) On June 2, 1978, President Marcos issued P.D. No. 1399 amending P.D. Nos.
1067-A and 1067-B. The amendments did not change the nature and scope of the
PAGCOR franchise to maintain gambling casinos. Rather, they referred to the
Composition of the Board of Directors,[23] Special Condition of
Franchise, Exemptions, and Other Conditions.[26]
[24]` [25]

(2.f) On August 13, 1979, President Marcos issued P.D. No. 1632. Again, the
amendments did not change a comma on the nature and scope of PAGCORs
franchise to maintain gambling casinos. They related to the allocation of the 60%
share of the government where the host area is a city or municipality other than Metro
Manila,[27] and the manner of payment of franchise tax of PAGCOR.[28]
 (2.g) On July 11, 1983, President Marcos issued P.D. No.
1869 entitled Consolidating and Amending P.D. Nos. 1067-A, 1067-B, 1067-C, 1399
and 1632 Relative to the Franchise and Power of the PAGCOR. As a consolidated
decree, it reiterated the nature and scope of PAGCORs existing franchise to
maintain gambling casinos (not a franchise to operate jai-alai), thus:

SEC. 10. Nature and term of franchise. Subject to the terms and conditions
established in this Decree, the Corporation is hereby granted for a period of
twenty-five (25) years, renewable for another twenty-five (25) years, the rights,
privilege and authority to operate and maintain gambling casinos, clubs, and
other recreation or amusement places, sports, gaming pools, i.e. basketball,
football, lotteries, etc., whether on land or sea, within the territorial jurisdiction
of the Republic of the Philippines.

SEC. 11. Scope of Franchise. In addition to the rights and privileges granted
it under the preceding Section, this Franchise shall entitle the corporation to
do and undertake the following:

(1) Enter into operating and/or management contracts with any registered and
accredited company possessing the knowledge, skill, expertise and facilities
to insure the efficient operation of gambling casinos; provided, that the
service fees of such management and/or operator companies whose services
may be retained by the Corporation shall not in the aggregate exceed ten
(10%) percent of the gross income;

(2) Purchase foreign exchange that may be required for the importation of
equipment, facilities and other gambling paraphernalia indispensably needed
or useful to insure the successful operation of gambling casinos;

(3) Acquire the right of way or access to or thru public land, public waters or
harbors, including the Manila Bay Area; such right shall include, but not be
limited to, the right to lease and/or purchase public lands, government
reclaimed lands, as well as lands of private ownership or those leased from
the Government. This right shall carry with it the privilege of the Corporation to
utilize piers, quays, boat landings, and such other pertinent and related
facilities within these specified areas for use as landing, anchoring or berthing
sites in connection with its authorized casino operations;

(4) Build or construct structures, buildings, castways, piers, decks, as well as

any other form of landing and boarding facilities for its floating casinos; and
(5) To do and perform such other acts directly related to the efficient and
successful operation and conduct of games of chance in accordance with
existing laws and decrees.

(2.h) Then came the 1986 EDSA revolution and the end of the Marcos regime. On
May 8, 1987, President Corazon Aquino issued Executive Order No. 169 repealing
P.D. Nos. 810, 1124 and 1966 thus revoking the franchise of the Philippine Jai-Alai
and Amusement Corporation controlled by the Romualdezes to operate jai-alai in
Manila. PAGCORs franchise to operate gambling casinos was not revoked. Neither
was it given a franchise to operate jai-alai.
THIRD. In light of its legal history, we hold that PAGCOR cannot maintain that
section 10 of P.D. No. 1869 grants it a franchise to operate jai-alai. Section 10
provides:

SEC. 10 Nature and term of franchise. Subject to the terms and conditions
established in this Decree, the Corporation is hereby granted for a period of
twenty-five (25) years, renewable for another twenty-five (25) years, the rights,
privilege and authority to operate and maintain gambling casinos, clubs, and
other recreation or amusement places, sports, gaming pools, i.e., basketball,
football, lotteries, etc., whether on land or sea, within the territorial jurisdiction
of the Republic of the Philippines.

(3.a) P.D. No. 1869 is a mere consolidation of previous decrees dealing with
PAGCOR. PAGCOR cannot seek comfort in section 10 as it is not a new provision in
P.D. No. 1869 and, from the beginning of its history, was never meant to confer it with a
franchise to operate jai-alai. It is a reiteration of section 1 of P.D. No. 1067-B which
provides:

SECTION 1. Nature and Term of Franchise. Subject to the terms and

conditions established in this Decree, the Philippine Amusements and Gaming
Corporation is hereby granted for a period of twenty-five (25) years,
renewable for another 25 years, the right, privilege, and authority to operate
and maintain gambling casinos, clubs and other recreation or amusement
places, sports gaming pools, i.e., basketball, football, etc., whether on land or
sea, within the territorial jurisdiction of the Republic of the Philippines.

(3.b) Plainly, section 1 of P.D. No. 1067-B which was reenacted as section 10 of P.D.
No. 1869 is not a grant of legislative franchise to operate jai-alai. P.D. No. 1067-B is a
franchise to maintain gambling casinos alone. The two franchises are as different as day
and night and no alchemy of logic will efface their difference.
(3.c) PAGCOR's stance becomes more sterile when we consider the law's intent. It
cannot be the intent of President Marcos to grant PAGCOR a franchise to operate
jai-alaibecause a year and a half before it was chartered, he issued P.D. No. 810 granting
Philippine Jai-Alai and Amusement Corporation a 25-year franchise to operate jai-alai in
Manila. This corporation is controlled by his in-laws, the Romualdezes.[29] To assure that
this Romualdez corporation would have no competition, President Marcos earlier revoked
the power of local governments to grant jai-alai franchises. Thus, PAGCORs stance that
P.D. No. 1067-B is its franchise to operate jai-alai, which would have competed with
the Romualdezes franchise, extends credulity to the limit. Indeed, P.D. No. 1067-A
which created PAGCOR made it crystal clear that it was to implement "the policy of the
State to centralize and integrate all games of chance not heretofore authorized by
existing franchises or permitted by law," which included the Philippine Jai-Alai and
Amusement Corporation.
(3.d) There can be no sliver of doubt that under P.D. No. 1869, PAGCORs franchise
is only to operate gambling casinos and not jai-alai. This conclusion is compelled by
a plain reading of its various provisions, viz:

"SECTION 1. Declaration of Policy. - It is hereby declared to be the policy of

the State to centralize and integrate all games of chance not heretofore
authorized by existing franchises or permitted by law in order to attain the
following objectives:

xxxxxx
(b) To establish and operate clubs and casinos, for amusement and recreation,
including sports, gaming pools (basketball, football, lotteries, etc.) and such other forms
of amusement and recreation including games of chance, which may be allowed by law
within the territorial jurisdiction of the Philippines and which will: x x x (3) minimize, if not
totally eradicate, the evils, malpractices and corruptions that are normally
prevalent in the conduct and operation of gambling clubs and casinos without
direct government involvement.
xxxxxx

TITLE IV GRANT OF FRANCHISE

SEC. 10. Nature and term of franchise. Subject to the terms and conditions
established in this Decree, the Corporation is hereby granted for a period of
twenty-five (25) years, renewable for another twenty-five (25) years,
the rights, privileges and authority to operate and maintain gambling
casinos, clubs, and other recreation or amusement places, sports, gaming
pools, i.e. basketball, football, lotteries, etc. whether on land or sea, within the
territorial jurisdiction of the Republic of the Philippines.

SEC. 11. Scope of Franchise. In addition to the rights and privileges granted it
under the preceding Section, this Franchise shall entitle the Corporation to do
and undertake the following:
(1) Enter into operating and/or management contracts with any registered and
accredited company possessing the knowledge, skill, expertise and
facilities to insure the efficient operation of gambling casinos; provided,
that the service fees of such management and/or operator companies whose
services may be retained by the Corporation shall not in the aggregate exceed
ten (10%) percent of the gross income;

(2) Purchase foreign exchange that may be required for the importation of
equipment, facilities and other gambling paraphernalia indispensably needed
or useful to insure the successful operation of gambling casinos;

(3) Acquire the right of way or access to or thru public land, public waters or
harbors x x x. This right shall carry with it the privilege of the Corporation to
utilize x x x such other pertinent and related facilities within these specified
areas x x x in connection with its authorized casino operations;

(4) Build or construct structures, building castways, piers, decks, as well as

any other form of landing and boarding facilities for its floating casinos;

xxxxxx
SEC. 13. Exemptions.

(1) Customs duties, taxes and other imposts on importations. All importations
of equipment, vehicles, automobiles, boats, ships, barges, aircraft and such
other gambling paraphernalia, including accessories or related facilities, for
the sole and exclusive use of the casinos, the proper and efficient
management and administration thereof, and such other clubs.Recreation or
amusement places to be established under and by virtue of this Franchise
shall be exempt from the payment of all kinds of customs duties, taxes and
other imposts, including all kinds of fees, levies, or charges of any kind or
nature, whether National or Local.

Vessels and/or accessory ferry boats imported or to be imported by any

corporation having existing contractual arrangements with the Corporation, for
the sole and exclusive use of the casino or to be used to service the
operations and requirements of the casino, shall likewise be totally exempt
from the payment of all customs duties, x x x.

(2) Income and other taxes. (a) x x x

(b) Others: The exemption herein granted for earnings derived from the
operations conducted under the franchise x x x shall inure to the benefit of
and extend to corporation(s) x x x with whom the Corporation or operator
has any contractual relationship in connection with the operations of the
casino(s) authorized to be conducted under this Franchise x x x.

(3) Dividend Income. x x x The dividend income shall not in such case be
considered as part of beneficiaries taxable income; provided, however, that
such dividend income shall be totally exempted from income or other forms of
taxes if invested within six (6) months from date the dividend income is
received, in the following:

(a) operation of the casino(s) or investments in any affiliate activity that will
ultimately redound to the benefit of the Corporation or any other corporation
with whom the Corporation has any existing arrangements in connection
with or related to the operations of the casino(s);

xxxxxx

(4) Utilization of Foreign Currencies. The Corporation shall have the right and
authority, solely and exclusively in connection with the operations of the
casino(s), to purchase, receive, exchange and disburse foreign exchange,
subject to the following terms and conditions:

(a) A specific area in the casino(s) or gaming pit shall be put up solely and
exclusively for players and patrons utilizing foreign currencies;

(b) The Corporation shall appoint and designate a duly accredited commercial
bank agent of the Central Bank, to handle, administer and manage the use of
foreign currencies in the casino(s);

(c) The Corporation shall provide an office at casino(s) for the employees of
the designated bank, agent of the Central Bank, where the Corporation will
maintain a dollar account which will be utilized exclusively for the above
purpose and the casino dollar treasury employees;

xxxxxx

(f) The disbursement, administration, management and recording of foreign

exchange currencies used in the casino(s) shall be carried out in
accordance with existing foreign exchange regulations x x x.

SEC. 14. Other Conditions.

(1) Place. The Corporation shall conduct the gambling activities or games of
chance on land or water within the territorial jurisdiction of the Republic of the
Philippines. When conducted on water, the Corporation shall have the right to
dock the floating casino(s) in any part of the Philippines where vessels/boats
are authorized to dock under the Customs and Maritime Laws.

(2) Time. Gambling activities may be held and conducted at anytime of the
day or night; provided, however, that in places where curfew hours are
observed, all players and personnel of gambling casinos shall remain
within the premises of the casinos.

(3) Persons allowed to play. x x x

(4) Persons not allowed to play. -

xxxxxx

From these are excepted the personnel employed by the casinos, special
guests, or those who at the discretion of the Management may be allowed to
stay in the premises.

TITLE VI EXEMPTION FROM CIVIL SERVICE LAW

SEC. 16. Exemption. All position in the Corporation, whether technical,

administrative, professional or managerial are exempt from the provisions of
the Civil Service Law, rules and regulations, and shall be governed only by the
personnel management policies set by the Board of Directors. All employees
of the casinos and related services shall be classified as Confidential
appointees.

TITLE VII TRANSITORY PROVISIONS

SEC. 17. Transitory Provisions. x x x

SEC. 18. Exemption from Labor Laws. No union or any form of association
shall be formed by all those working as employees of the casino or related
services whether directly or indirectly. For such purpose, all employees of
the casinos or related services shall be classified as confidential appointees
and their employment thereof, whether by the franchise holder, or the
operators, or the managers, shall be exempt from the provisions of the Labor
Code or any implementing rules and regulations thereof.
 From its creation in 1977 and until 1999, PAGCOR never alleged that it has a
franchise to operate jai-alai. Twenty-two years is a long stretch of silence. It is
inexplicable why it never claimed its alleged franchise for so long a time which
could have allowed it to earn billions of pesos as additional income.
(3.e) To be sure, we need not resort to intellectual jujitsu to determine whether
PAGCOR has a franchise to operate jai-alai. It is easy to tell whether there is a legislative
grant or not.Known as the game of a thousand thrills, jai-alai is a different game, hence,
the terms and conditions imposed on a franchisee are spelled out in standard
form. A review of some laws and executive orders granting a franchise to operate jai-alai
will demonstrate these standard terms and conditions, viz:
(3.e.1) Commonwealth Act No. 485 (An Act to Permit Bets in the Game of Basque
Pelota) June 18, 1939

Be it enacted by the National Assembly of the Philippines:

SECTION 1. Any provision of existing law to the contrary notwithstanding, it

shall be permissible in the game of Basque pelota, a game of skill (including
the games of pala, raqueta, cestapunta, remonte and mano), in which
professional players participate, to make either direct bets or bets by means of
a totalizer; Provided, That no operator or maintainer of a Basque pelota court
shall collect as commission a fee in excess of twelve per centum on such
bets, or twelve per centum of the receipts of the totalizer, and of such per
centum three shall be paid to the Government of the Philippines, for
distribution in equal shares between the General Hospital and the Philippine
Anti-tuberculosis Society.

SEC. 2. Any person, company or corporation, that shall build a court for
Basque pelota games with bets within eighteen months from the date of the
approval of this Act, shall thereunder have the privilege to maintain and
operate the said court for a term of twenty-five years from the date in which
the first game with bets shall have taken place. At the expiration of the said
term of twenty-five years, the buildings and the land on which the court and
the stadium shall be established, shall become the property of the
Government of the Philippines, without payment.

SEC. 3. The location and design of the buildings that shall be used for the
same games of Basque pelota, shall have prior approval of the Bureau of
Public Works and the operator shall pay a license fee of five hundred pesos a
year to the city or municipality in which the establishment shall be situated, in
addition to the real-estate tax due on such real property.

SEC. 4. This Act shall take effect upon its approval.

ENACTED, without Executive approval, June 18, 1939.

(3.e.2) Executive Order No. 135 (Regulating the Establishment, Maintenance and
Operation of Frontons and Basque Pelota Games [Jai Alai]) May 4, 1948

By virtue of the powers vested in me by Commonwealth Act No. 601, entitled

An Act to regulate the establishment, maintenance and operation of places of
amusements in chartered cities, municipalities and municipal districts, the
following rules and regulations governing frontons and basque pelota games
are hereby promulgated:

SECTION 1. Definitions. Whenever used in this Order and unless the context
indicates a different meaning, the following terms shall bear the meaning
indicated herein:

(a) Basque pelota game shall include the pelota game with the use of pala,
raqueta, cesta punta, remonte and mano, in which professional players
participate.

(b) Fronton comprises the court where basque pelota games are played,
inlcuding the adjoining structures used in connection with such games, such
as the betting booths and galleries, totalizator equipment, and the
grandstands where the public is admitted in connection with such games.

(c) Pelotari is a professional player engaged in playing basque pelota.

(d) Professional player is one who plays for compensation.

SEC. 2. Supervision over the establishment and operation of frontons and

basque pelota games. Subject to the administrative control and supervision of
the Secretary of the Interior, city or municipal mayors shall exercise
supervision over the establishment, maintenance and operation of frontons
and basque pelota games within their respective territorial jurisdiction, as well
as over the officials and employees of such frontons and shall see to it that all
laws, orders and regulations relating to such establishments are duly
enforced. Subject to similar approval, they shall appoint such personnel as
may be needed in the discharge of their duties and fix their compensation
which shall be paid out of the allotment of one-half per centum (1/2%) out of
the total bets or wager funds set aside and made available for the purpose in
accordance with Section 19 hereof. The Secretary of the Interior shall have
the power to prohibit or allow the operation of such frontons on any day or
days, or modify their hour of operation and to prescribe additional rules and
regulations governing the same.

SEC. 3. Particular duties of city or municipal mayors regarding operation of

basque pelota games and frontons. In connection with their duty to enforce
the laws, orders, rules and regulations relating to frontons and basque pelota
games, the city or municipal mayor shall require that such frontons shall be
properly constructed and maintained in accordance with the provisions of
Commonwealth Act No. 485; shall see that the proper sanitary
accommodations are provided in the grandstands and other structures
comprising such frontons; and shall require that such frontons be provided
with a properly equipped clinic for the treatment of injuries to the pelotaris.

SEC. 4. Permits. In the absence of a legislative franchise, it shall be unlawful

for any person or entity to establish and/or operate frontons and conduct
basque pelota games without a permit issued by the corresponding city or
municipal mayor, with the approval of the provincial governor in the latter
case. Any permit issued hereunder shall be reported by the provincial
governor or city mayor, as the case may be, to the Secretary of the Interior.

SEC. 5. License fees. The following license fees shall be paid:

(a) For each basque pelota fronton, five hundred pesos (P500) annually, or
one hundred and twenty-five pesos (P125) quarterly.

(b) For pelotaris, judges or referees and superintendents (intendentes) of

basque pelota games, eighteen pesos (P18) each annually.

The above license fees shall accrue to the funds of the city or municipality
where the fronton is operated.

SEC. 6. Location. Except in the case of any basque pelota fronton licensed as
of December 8, 1941, no basque pelota fronton shall be maintained or
operated within a radius of 200 lineal meters from any city hall or municipal
building, provincial capitol building, national capitol building, public playa or
park, public school, church, hospital, athletic stadium, or any institution of
learning or charity.

SEC. 7. Buildings, sanitary and parking requirements. No permit or license for

the construction or operation of a basque pelota fronton shall be issued
without proper certificate of the provincial or city engineer and architect
certifying to the suitability and safety of the building and of the district or city
health officer certifying to the sanitary condition of said building. The city or
municipal mayor may, in his discretion and as circumstances may warrant,
require that the fronton be provided with sufficient space for parking so that
the public roads and highways be not used for such purposes.

SEC. 8. Protest and complaint. Any person who believes that any basque
pelota fronton is located or established in any place not authorized herein or is
being operated in violation of any provision of this order may file a protest or
complaint with the city or municipal mayor concerned, and after proper
investigation of such complaint the city or municipal mayor may take such
action as he may consider necessary in accordance with the provisions of
section 10 hereof. Any decision rendered on the matter by the city or
municipal mayor shall be appealable to the Secretary of the Interior.

SEC. 9. Persons prohibited admission. Persons under 16 years of age,

persons carrying firearms or deadly weapons of any description, except
government officials actually performing their official duties therein, intoxicated
persons, and persons of disorderly nature and conduct who are apt to disturb
peace and order, shall not be admitted or allowed in any basque pelota
fronton: Provided, That persons under 16 years of age may, when
accompanied by their parents or guardians, be admitted therein but in no case
shall such minors be allowed to bet.

SEC. 10. Gambling prohibited. No card games or any of the prohibited games
shall be permitted within the premises of any basque pelota fronton; and upon
satisfactory evidence that the operator or entity conducting the game has
tolerated the existence of any prohibited game within its premises, the city or
municipal mayor may take the necessary action in accordance with the
provisions of section 11 hereof.

SEC. 11. Revocation or suspension of permits and licenses. The city or

municipal mayor, subject to the approval of the Secretary of the Interior, may
suspend or revoke any license granted under this Order to any basque pelota
fronton or to any official or employee thereof, for violation of any of the rules
and regulations provided in this Order or those which said city or municipal
mayor may prescribe, or for any just cause. Such suspension or revocation
shall operate to forfeit to the city or municipality concerned all sums paid
therefor.

SEC. 12. Appeals. Any action taken by the city or municipal mayor under the
provisions of this Order shall stand, unless modified or revoked by the
Secretary of the Interior.
SEC. 13. Books, records and accounts. The city or municipal mayor, or his
duly authorized representative, shall have the power to inspect at all times the
books, records, and accounts of any basque pelota fronton. He may, in his
discretion and as the circumstances may warrant, require that the books and
financial or other statements of the person or entity operating the game be
kept in such manner as he may prescribe.

SEC. 14. Days and hours of operation. Except as may otherwise be provided
herein, basque pelota games with betting shall be allowed every day,
excepting Sundays, from 2 oclock p.m. to not later than 11 oclock p.m.

SEC. 15. Pelotaris, judges, referees, etc. shall be licensed. No person or

entity operating a basque pelota fronton, wherein games are played with
betting, shall employ any pelotari, judge or referee, superintendent of games
(intendente), or any other official whose duties are connected with the
operation or supervision of the games, unless such person has been duly
licensed by the city or municipal mayor concerned. Such license shall be
granted upon satisfactory proof that the applicant is in good health, know the
rules and usages of the game, and is a person of good moral character and of
undoubted honesty. In the case of pelotaris, such license shall be granted
only upon the further condition that they are able to play the game with
reasonable skill and with safety to themselves and to their opponents. The city
or municipal mayor may further require other reasonable qualifications for
applicants to a license, not otherwise provided herein. Such license shall be
obtained yearly.

SEC. 16. Installation of automatic electric totalizator. Any person or entity

operating a fronton wherein betting in any form is allowed shall install in its
premises within the period of one year from the date this Order takes effect,
an automatic electrically operated indicator system and ticket selling machine,
commonly known as totalizator, which shall clearly record each ticket
purchased on every player in any game, the total number of tickets sold on
each event, as well as the dividends that correspond to holders of winning
numbers. This requirement shall, however, not apply to double events or
forecast pools or to any betting made on the basis of a combination or
grouping of players until a totalizator that can register such bets has been
invented and placed on the market.

SEC. 17. Supervision over sale of betting tickets and payment of dividends.
For the purpose of verifying the accuracy of reports in connection with the sale
of betting tickets and the computation of dividends awarded to winners on
each event, as well as other statements with reference to the betting in the
games played, the city or municipal mayor shall assign such number of
auditing officers and checkers as may be necessary for the purpose. These
auditing officers and checkers shall be placed in the ticket selling booths,
dividend computation booths and such other parts of the fronton, where
betting tickets are sold and dividends computed. It shall be their duty to check
up and correct any irregularity or any erroneous report or computation that
may be made by officials of the fronton, in connection with the sale of tickets
and the payment of dividends.

SEC. 18. Wager tickets and dividends. The face value of the wager tickets for
any event shall not exceed P5 whether for win or place, or for any
combination or grouping of winning numbers. The face value of said tickets,
as the case may be, shall be the basis for the computation of the dividends
and such dividends shall be paid after eliminating fractions of ten centavos
(P0.10); for example: if the resulting dividend is P10.43, the dividend that shall
be paid will be only P10.40.

SEC. 19. Distribution of wager funds. The total wager funds or gross receipts
from the sale of the betting tickets shall be apportioned as follows: a
commission not exceeding ten and one-half per centum (10 %) on the total
bets on each game or event shall be set aside for the person or entity
operating the fronton and four and one-half per centum (4 %) of such bets
shall be covered into the National Treasury for disposition as may be
authorized by law or executive order; and the balance or eighty-five per
centum (85%) of the total bets shall be distributed in the form of dividends
among holders of win or place numbers or holders of the winning combination
or grouping of numbers, as the case may be: Provided, however, That of the
ten and one-half per centum (10 %) representing the commission of the
person or entity operating the fronton, an amount equivalent to one-half per
centum (1/2%) of the total bets or wager funds shall be set aside and made
available to cover the expenses of the personnel assigned to supervise the
operation of basque pelota games and frontons, including payment of salaries
of such personnel, purchase of necessary equipment and other sundry
expenses as may be authorized by competent authority.

SEC. 20. Supervision over the conduct of games; enforcement of rules and
regulations. The city or municipal mayor is authorized to place within the
premises of the fronton such number of inspectors and agents as may be
deemed necessary to supervise the conduct of the games to see that the
rules of the games are strictly enforced, and to carry out the provisions of this
Order as well as such other regulations as may hereafter be prescribed.
SEC. 21. Rules governing the games and personnel of the fronton. The rules
and regulations that have been adopted by any fronton to govern the
operation of its games and the behavior, duties and performance of the
officials and personnel connected therewith, such as pelotaris, judges,
referees or superintendents of games (intendentes) and others, shall be the
recognized rules and regulations of such fronton until the same are altered or
repealed by the Secretary of the Interior; and any fronton may introduce any
type or form of games or events, provided they are not contrary to the
provisions of this Order or any rule or regulation hereafter issued by the
Secretary of the Interior.

SEC. 22. Regulations governing pelotaris. Any rule or regulation adopted by

any established fronton governing the conduct or performance of pelotaris to
the contrary notwithstanding, the following regulations shall be observed:

(a) The pelotaris who are participating in the games shall not be allowed to
communicate, talk or make signs with any one in the public or with any official
or employee of the fronton during the games, except with the judges or
referees or the superintendent (intendente) in charge of the games;

(b) The program of games or events, as well as the line-up or order of playing
of the pelotaris in each event shall be determined by the superintendent of the
games (intendente), subject to the approval of the city or municipal mayor, or
his authorized representatives;

(c) Pelotaris shall be in good physical condition before participating in any

game and shall be laid off from playing at least two days in a week. Every
pelotari shall once a month secure a medical certificate from a government
physician to be designated by the city or municipal mayor concerned certifying
to his physical fitness to engage in the games; and

(d) The amount of dividends computed for any event shall not be posted
within the view of the pelotaris participating in the event until after the
termination of said event.

(3.e.3) Presidential Decree No. 810 (An Act Granting the Philippine Jai-Alai and
Amusement Corporation a Franchise to Operate, Construct and Maintain a Fronton for
Basque Pelota and Similar Games of Skill in the Greater Manila Area) October 16, 1975

WHEREAS, by virtue of the provisions of Commonwealth Act Numbered 485

the franchise to operate and maintain a fronton for the Basque pelota and
similar games of skill in the City of Manila, shall expire on October, 1975
whereupon the ownership of the land, buildings and improvements used in the
said game will be transferred without payment to the government by operation
of law;

WHEREAS, there is a pressing need not only to further develop the game as
a sport and amusement for the general public but also to exploit its full
potential in support of the governments objectives and development
programs;

WHEREAS, Basque pelota is a game of international renown, the

maintenance and promotion of which will surely assist the tourism industry of
the country;

WHEREAS, the tourism appeal of the game will be enhanced only with the
governments support and inducement in developing the sport to a level at par
with international standards;

WHEREAS, once such tourism appeal is developed, the same will serve as a
stable and expanding base for revenue generation for the governments
development projects.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers vested in me by the Constitution, hereby
decree as follows:

SECTION 1. Any provision of law to the contrary notwithstanding, there is

hereby granted to the Philippine Jai-Alai and Amusement Corporation, a
corporation duly organized and registered under the laws of the Philippines,
hereinafter called the grantee or its successors, for a period of twenty-five
years from the approval of this Act, extendable for another twenty-five years
without the necessity of another franchise, the right, privilege and authority to
construct, operate and maintain a court for Basque Pelota (including the
games of pala, raqueta, cestapunta, remonte and mano) within the Greater
Manila Area, establish branches thereof for booking purposes and hold or
conduct Basque pelota games therein with bettings either directly or by means
of electric and/or computerized totalizator.

The games to be conducted by the grantee shall be under the supervision of

the Games and Amusements Board, hereinafter referred to as the Board,
which shall enforce the laws, rules and regulations governing Basque pelota
as provided in Commonwealth Act numbered four hundred and eighty-five, as
amended, and all the officials of the game and pelotaris therein shall be duly
licensed as such by the Board.

SEC. 2. The grantee or its duly authorized agent may offer, take or arrange
bets within or outside the place, enclosure or court where the Basque pelota
games are held: Provided, That bets offered, taken or arranged outside the
place, enclosure or court where the games are held, shall be offered, taken or
arranged only in places duly licensed by the corporation; Provided, however,
That the same shall be subject to the supervision of the Board. No person
other than the grantee or its duly authorized agents shall take or arrange bets
on any pelotari or on the game, or maintain or use a totalizator or other
device, method or system to bet on any pelotari or on the game within or
without the place, enclosure or court where the games are held by the
grantee. Any violation of this section shall be punished by a fine of not more
than two thousand pesos or by imprisonment of not more than six months, or
both in the discretion of the Court. If the offender is a partnership, corporation,
or association, the criminal liability shall devolve upon its president, directors
or any other officials responsible for the violation.

SEC. 3. The grantee shall provide mechanical and/or computerized devices,

namely: a) electric totalizator; b) machine directly connected to a computer in
a display board, for the sale of tickets, including, those sold from the off-court
stations; c) modern sound system and loud speakers; d) facilities that bring
safety, security, comfort and convenience to the public; e) modern
intercommunication devices; and f) such other facilities, devices and
instruments for clean, honest and orderly Basque pelota games, within three
years from the approval of this Act.

The Board shall assign its auditors and/or inspectors to supervise and
regulate the placing of bets, proper computation of dividends and the
distribution of wager funds.

SEC. 4. The total wager fund or gross receipts from the sale of betting tickets
will be apportioned as follows: eighty-five per centum (85%) shall be
distributed in the form of dividends among the holders of win or place
numbers or holders of the winning combination or grouping of numbers as the
case may be. The remaining balance of fifteen per centum (15%) shall be
distributed as follows: eleven and one-half per centum (11 %) shall be set
aside as the commission fee of the grantee, and three and one-half per
centum (3 %) thereof shall be set aside and alloted to any special health,
educational, civic, cultural, charitable, social welfare, sports, and other similar
projects as may be directed by the President. The receipts from betting
corresponding to the fraction of ten centavos eliminated from the dividends
paid to the winning tickets, commonly known as breakage, shall also be set
aside for the above-named special projects.

SEC. 5. The provision of any existing law to the contrary notwithstanding, the
grantee is hereby authorized to hold Basque pelota games (including the
games of pala, raqueta, cestapunta, remonte and mano) on all days of the
week except Sundays and official holidays.

SEC. 6. The provisions of Commonwealth Act numbered four hundred and

eighty-five as amended, shall be deemed incorporated herein, provided that
the provisions of this Act shall take precedence over the provisions thereof
and all other laws, executive orders and regulations which are inconsistent
herewith.

SEC. 7. The grantee shall not lease, transfer, grant the usufruct of, sell or
assign this franchise permit, or the rights or privileges acquired thereunder to
any person, firm, company, corporation or other commercial or legal entity,
nor merge with any other person, company or corporation organized for the
same purpose, without the previous approval of the President of the
Philippines.

SEC. 8. For purposes of this franchise, the grantee is herein authorized to

make use of the existing fronton, stadium and facilities located along Taft
Avenue, City of Manila, belonging to the government by virtue of the
provisions of Commonwealth Act numbered four hundred and eighty-five.

It is abundantly clear from the aforequoted laws, executive orders and decrees
that the legislative practice is that a franchise to operate jai-alai is granted solely
for that purpose and the terms and conditions of the grant are unequivocably
defined by the grantor. Such express grant and its conditionalities protective of the
public interest are evidently wanting in P.D. No. 1869, the present Charter of
PAGCOR. Thus, while E.O. 135 and P.D. No. 810 provided for the apportionment of the
wager funds or gross receipts from the sale of betting tickets, as well as the distribution
of dividends among holders of win or place numbers or holders of the winning combination
or grouping of numbers, no such provisions can be found in P.D. No. 1869. Likewise,
while P.D. No. 810 describes where and how the games are to be conducted and bettings
to be made, and imposes a penalty in case of a violation thereof, such provisions are
absent in P.D. No. 1869.
In fine, P.D. No. 1869 does not have the standard marks of a law granting a
franchise to operate jai-alai as those found under P.D. No. 810 or E.O. 135. We
cannot blink away from the stubborn reality that P.D. No. 1869 deals with details
pertinent alone to the operation of gambling casinos. It prescribes the rules and
regulations concerning the operation of gambling casinos such as the place, time,
persons who are and are not entitled to play, tax exemptions, use of foreign exchange,
and the exemption of casino employees from the coverage of the Civil Service Law and
the Labor Code. The short point is that P.D. No. 1869 does not have the
usual provisions with regards to jai-alai. The logical inference is that PAGCOR was
not given a franchise to operate jai-alai frontons. There is no reason to resist the beguiling
rule that acts of incorporation, and statutes granting other franchises or special benefits
or privileges to corporations, are to be construed strictly against the corporations; and
whatever is not given in unequivocal terms is understood to be withheld. [30]
FOURTH. The tax treatment between jai-alai operations and gambling casinos are
distinct from each other. Letters of Instruction No. 1439 issued on November 2, 1984
directed the suspension of the imposition of the increased tax on winnings in horse races
and jai-alai under the old revenue code, to wit:

WHEREAS, the increased tax on winnings on horse races and jai-alai under
Presidential Decree 1959 has already affected the holding of horse races and
jai-alai games, resulting in government revenue loss and affecting the
livelihood of those dependent thereon;

WHEREAS, the manner of taxation applicable thereto is unique and its effects
and incidence are in no way similar to the taxes on casino operation or to any
shiftable tax;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers vested in me by the Constitution, do
hereby order and instruct the Minister of Finance, the Commissioner of the
Bureau of Internal Revenue, and the Chairman, Games & Amusements
Board, to suspend the implementation of the increased rate of tax winnings in
horse races and jai-alai games and collect instead the rate applicable prior to
the effectivity of PD 1959.

Similarly, under Republic Act No. 8424, or the Tax Reform Act of 1997, there is an
amusement tax imposed on operators of jai-alai (Section 125) and a stamp tax on jai-alai
tickets (Section 190). There is no corresponding imposition on gambling casinos. Well to
note, section 13 of P.D. No. 1869 grants to the franchise holder and casino operators tax
exemptions from the payment of customs duties and income tax, except a franchise tax
of five (5%) percent which shall be in lieu of all kinds of taxes, levies, fees or assessments
of any kind, nature or description, levied, established or collected by any municipal,
provincial, or national government authority. No similar exemptions have been extended
to operators of jai-alai frontons.
FIFTH. P.D. No. 1869, the present Charter of PAGCOR, is a consolidation of P.D.
Nos. 1067-A, 1067-B and 1067-C all issued on January 1, 1977. P.D. No. 1067-A created
the PAGCOR and defined its powers and functions; P.D. No. 1067-B granted to PAGCOR
a franchise to establish, operate, and maintain gambling casinos on land or water
within the territorial jurisdiction of the Republic of the Philippines; and P.D. No. 1067-C
granted PAGCOR the exclusive right, privilege and authority to operate and maintain
gambling casinos, subject only to the exception of existing franchises and games of
chance permitted by law.
Beyond debate, P.D. No. 1869 adopted substantially the provisions of said prior
decrees, with some additions which, however, have no bearing on the franchise
granted to PAGCOR to operate gambling casinos alone, such as the Affiliation
Provisions under Title III and the Transitory Provisions under Title VII. It also added the
term lotteries under Section 1 (b) on Declaration of Policy and Section 10 on the Nature
and Term of Franchise. It ought to follow that P.D. No. 1869 carries with it the same
legislative intent that infused P.D. Nos. 1067-A, 1067-B and 1067-C. To be sure, both
P.D. No. 1067-A and P.D. No. 1869 seek to enforce the same avowed policy of the State
to minimize, if not totally eradicate, the evils, malpractices and corruptions that normally
are found prevalent in the conduct and operation of gambling clubs and casinos without
direct government involvement. It did not address the moral malevolence of jai-alai
games and the need to contain it thru PAGCOR. We cannot deface this legislative
intent by holding that the grant to PAGCOR under P.D. Nos. 1067-A and 1067-B to
establish, operate, and maintain gambling casinos, has been enlarged, broadened or
expanded by P.D. No. 1869 so as to include a grant to operate jai-alai frontons. Then and
now, the intention was merely to grant PAGCOR a franchise to operate gambling casinos,
no more, no less.
SIXTH. Lest the idea gets lost in the shoals of our subconsciousness, let us not forget
that PAGCOR is engaged in business affected with public interest. The phrase affected
with public interest means that an industry is subject to control for the public good;[31] it has
been considered as the equivalent of subject to the exercise of the police
power.[32] Perforce, a legislative franchise to operate jai-alai is imbued with public
interest and involves an exercise of police power. The familiar rule is that laws
which grant the right to exercise a part of the police power of the state are to be
construed strictly and any doubt must be resolved against the grant. [33] The
legislature is regarded as the guardian of society, and therefore is not presumed
to disable itself or abandon the discharge of its duty. Thus, courts do not assume
that the legislature intended to part away with its power to regulate public
morals.[34] The presumption is influenced by constitutional considerations. Constitutions
are widely understood to withhold from legislatures any authority to bargain away their
police power[35] for the power to protect the public interest is beyond abnegation.
It is stressed that the case at bar does not involve a franchise to operate a public
utility (such as water, transportation, communication or electricity) the operation of which
undoubtedly redounds to the benefit of the general public. What is claimed is an alleged
legislative grant of a gambling franchise a franchise to operate jai-alai. A statute which
legalizes a gambling activity or business should be strictly construed and every
reasonable doubt must be resolved to limit the powers and rights claimed under its
authority.[36]
 The dissent would like to make capital of the fact that the cases of Stone vs.
Mississippi and Aicardi vs. Alabama are not on all fours to the cases at bar and, hence,
the rulings therein do not apply. The perceived incongruity is more apparent than real.
Stone[37] involves a contract entered into by the State of Mississippi with the plaintiffs
which allowed the latter to sell and dispose of certificates of subscription which would
entitle the holders thereof to such prizes as may be awarded to them, by the casting of
lots or by lot, chance or otherwise. The contract was entered into by plaintiffs pursuant to
their charter entitled An Act Incorporating the Mississippi Agricultural, Educational and
Manufacturing Aid Society which purportedly granted them the franchise to issue and sell
lottery tickets. However, the state constitution expressly prohibits the legislature from
authorizing any lottery or allowing the sale of lottery tickets. Mississippi law makes it
unlawful to conduct a lottery.
The question raised in Stone concerned the authority of the plaintiffs to exercise the
franchise or privilege of issuing and selling lottery tickets. This is essentially the issue
involved in the cases at bar, that is, whether PAGCORs charter includes the franchise to
operate jai-alai frontons. Moreover, even assuming arguendo that the facts in the cases
at bar are not identical, the principles of law laid down in Stone are illuminating. For one,
it was held in Stone that:

Experience has shown that the common forms of gambling are comparatively
innocuous when placed in contrast with the wide-spread pestilence of
lotteries. The former are confined to a few persons and places, but the latter
infests the whole community; it enters every dwelling; it reaches every class; it
preys upon the hard earnings of the poor; and it plunders the ignorant and
simple. x x x [38]

The verity that all species of gambling are pernicious prompted the Mississippi Court to
rule that the legislature cannot bargain away public health or public morals. We can take
judicial notice of the fact that jai-alai frontons have mushroomed in every nook and corner
of the country. They are accessible to everyone and they specially mangle the morals of
the marginalized sector of society. It cannot be gainsaid that there is but a miniscule of a
difference between jai-alai and lottery with respect to the evils sought to be prevented.
In the case of Aicardi vs. Alabama, Moses & Co. was granted a legislative franchise
to carry on gaming in the form specified therein, and its agent, Antonio Aicardi, was
indicted for keeping a gaming table. In ascertaining whether the scope of the companys
franchise included the right to keep a gaming table, the Court there held that such an Act
should be construed strictly. Every reasonable doubt should be so resolved as to limit the
powers and rights claimed under its authority. Implications and intendments should have
no place except as they are inevitable from the language or the context.
The view expressed in the dissent that the aforequoted ruling was taken out of context
is perched on the premise that PAGCORs franchise is couched in a language that is
broad enough to cover the operations of jai-alai. This view begs the question for as shown
in our disquisition, PAGCOR's franchise is restricted only to the operation of gambling
casinos. Aicardisupports the thesis that a gambling franchise should be strictly construed
due to its ill-effects on public order and morals.
SEVENTH. The dissent also insists that the legislative intent must be sought first of
all in the language of the statute itself. In applying a literal interpretation of the provision
under Section 11 of P.D. 1869 that x x x the Corporation is hereby granted x x x the rights,
privileges, and authority to operate and maintain gambling casinos, clubs, and other
recreation or amusement places, sports, gaming pools, i.e., basketball, football, lotteries,
etc. x x x, it contends that the extent and nature of PAGCORs franchise is so broad that
literally all kinds of sports and gaming pools, including jai-alai, are covered therein. It
concluded that since under Section 11 of P.D. No. 1869, games of skill like basketball
and football have been lumped together with the word lotteries just before the word etc.
and after the words gaming pools, it may be deduced from the wording of the law that
when bets or stakes are made in connection with the games of skill, they may be classified
as games of chance under the coverage of PAGCORs franchise.
We reject this simplistic reading of the law considering the social, moral and public
policy implications embedded in the cases at bar. The plain meaning rule used in the
dissent rests on the assumption that there is no ambiguity or obscurity in the language of
the law. The fact, however, that the statute admits of different interpretations is the best
evidence that the statute is vague and ambiguous. [39] It is widely acknowledged that a
statute is ambiguous when it is capable of being understood by reasonably well-informed
persons in either of two or more senses.[40] In the cases at bar, it is difficult to see how a
literal reading of the statutory text would unerringly reveal the legislative intent. To be
sure, the term jai-alai was never used and is nowhere to be found in the law. The
conclusion that it is included in the franchise granted to PAGCOR cannot be based on a
mere cursory perusal of and a blind reliance on the ordinary and plain meaning of the
statutory terms used such as gaming pools and lotteries. Sutherland tells us that a statute
is ambiguous, and so open to explanation by extrinsic aids, not only when its abstract
meaning or the connotation of its terms is uncertain, but also when it is uncertain in its
application to, or effect upon, the fact-situation of the case at bar.[41]
Similarly, the contention in the dissent that :

x x x Even if the Court is fully persuaded that the legislature really meant and
intended something different from what it enacted, and that the failure to
convey the real meaning was due to inadvertence or mistake in the use of the
language, yet, if the words chosen by the legislature are not obscure or
ambiguous, but convey a precise and sensible meaning (excluding the case of
obvious clerical errors or elliptical forms of expression), then the Court must
take the law as it finds it, and give it its literal interpretation, without being
influenced by the probable legislative meaning lying at the back of the
words. In that event, the presumption that the legislature meant what it said,
though it be contrary to the fact, is conclusive.
cannot apply in the cases at bar considering that it has not been shown that the failure to
convey the true intention of the legislature is attributable to inadvertence or a mistake in
the language used.
EIGHTH. Finally, there is another reason why PAGCOR's claim to a legislative grant
of a franchise to operate jai-alai should be subjected to stricter scrutiny. The so-called
legislative grant to PAGCOR did not come from a real Congress. It came from
President Marcos who assumed legislative powers under martial law. The grant is not the
result of deliberations of the duly elected representatives of our people.
This is not to assail President Marcos legislative powers granted by Amendment No.
6 of the 1973 Constitution, as the dissent would put it. It is given that in the exercise of
his legislative power, President Marcos legally granted PAGCOR's franchise to operate
gambling casinos. The validity of this franchise to operate gambling casinos is not,
however, the issue in the cases at bar. The issue is whether this franchise to operate
gambling casinos includes the privilege to operate jai-alai. PAGCOR says it does. We
hold that it does not. PAGCOR's overarching claim should be given the strictest scrutiny
because it was granted by one man who governed when the country was under martial
law and whose governance was repudiated by our people in EDSA 1986. The reason for
this submission is rooted in the truth that PAGCOR's franchise was not granted by a real
Congress where the passage of a law requires a more rigorous process in terms of floor
deliberations and voting by members of both the House and the Senate. It is self-evident
that there is a need to be extra cautious in treating this alleged grant of a franchise
as a grant by the legislature, as a grant by the representatives of our people, for
plainly it is not. We now have a real Congress and it is best to let Congress resolve this
issue considering its policy ramifications on public order and morals.
In view of this ruling, we need not resolve the other issues raised by petitioners.
WHEREFORE, the petitions are GRANTED. Respondents PAGCOR, Belle Jai Alai
Corporation and Filipinas Gaming Entertainment Totalizator Corporation are ENJOINED
from managing, maintaining and operating jai-alai games, and from enforcing the
agreement entered into by them for that purpose.
SO ORDERED.

[G.R. No. 143540. April 11, 2003]

JOEL G. MIRANDA, petitioner, vs. ANTONIO C. CARREON, MILAGROS

B. CASCO, ELSIE S. ESTARES, JULIUS N. MALLARI, ELINORA A.
DANAO, JOVELYN G. RETAMAL, MARIFE S. ALMAZAN, JONALD
R. DALMACIO, JENNIFER C. PLAZA, RIZALDY B. AGGABAO,
VILMA T. VENTURA, BENEDICT B. PANGANIBAN, JOSE L.
GOMBIO, MELCHOR E. SORIANO, ZARINA C. PANGANIBAN,
 EMELITA D. TAUYA, EVANGELINE A. SICAM, MATABAI
AQUARIOUS Q. CULANG, MELVIN L. GARCIA, JOHNNY N. YU,
JR., LOIDA J. PURUGGANAN, EDUARDO S. VALENCIA, EDITHA
A. REGLOS, HENRY P. MAPALAD, RAMIL C. GALANG, JUSTINA
M. MACASO, MARTHA B. ALLAM, and ARSENIA A.
CATAINA, respondents.

DECISION
SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari assailing the Decision dated

[1] [2]

May 21, 1999 and the Resolution dated June 5, 2000 of the Court of Appeals
in CA-G.R. SP No. 36997.
In the early part of 1988, Vice Mayor Amelita Navarro, while serving as
Acting Mayor of the City of Santiago because of the suspension of Mayor Jose
Miranda, appointed the above-named respondents to various positions in the
city government. Their appointments were with permanent status and based on
the evaluation made by the City Personnel Selection and Promotion Board
(PSPB) created pursuant to Republic Act No. 7160. The Civil Service
[3]

Commission (CSC) approved the appointments.

When Mayor Jose Miranda reassumed his post on March 5, 1998 after his
suspension, he considered the composition of the PSPB irregular since the
majority party, to which he belongs, was not properly represented. He then
[4]

formed a three-man special performance audit team composed of Roberto C.

Bayaua, Antonio AL. Martinez and Antonio L. Santos, to conduct a personnel
evaluation audit of those who were previously screened by the PSPB and those
on probation. After conducting the evaluation, the audit team submitted to him
a report dated June 8, 1998 stating that the respondents were found wanting in
(their) performance.
On June 10, 1998, or three months after Mayor Miranda reassumed his
post, he issued an order terminating respondents services effective June 15,
1998 because they performed poorly during the probationary period.
Respondents appealed to the CSC, contending that being employees on
probation, they can be dismissed from the service on the ground of poor
[5]

performance only after their probationary period of six months, not after
three (3) months. They also denied that an evaluation on their performance was
conducted, hence, their dismissal from the service violated their right to due
process.
 On October 19, 1998, the CSC issued Resolution No. 982717 reversing the
order of Mayor Miranda and ordering that respondents be reinstated to their
former positions with payment of backwages, thus:
xxx

Granting that the complainant-employees (now respondents) indeed rated poorly, the
question that remains is whether they can be terminated from the service on that
ground.

xxx

x x x, at the time of their termination the complainants have not finished the six (6)
months probationary period. x x x, they may be terminated even before the expiration
of the probationary period pursuant to Section 26, par. 1, Chapter 5, Book V, Title I-A
of the Revised Administrative Code of 1987. Said Section provides:

All such persons (appointees who meet all the requirements of the position) must
serve a probationary period of six months following their original appointment and
shall undergo a thorough character investigation in order to acquire a permanent civil
service status. A probationer may be dropped from the service for unsatisfactory
conduct or for want of capacity anytime before the expiration of the
probationary period: Provided, that such action is appealable to the
Commission.

It is, however, clear from the foregoing quoted provision that an employee on
probation status may be terminated only for unsatisfactory conduct or want of
capacity. In this case, the services of the complainants were terminated on the
ground of poor performance x x x. Although poor performance may come near
the concept of want of capacity, the latter, as held by this Commission, implies
opportunity on the part of the head of office to observe the performance and
demeanor of the employee concerned (Charito Pandes, CSC Resolution No.
965592). At this point, considering that Mayor Jose Miranda reassumed his post
only on March 5, 1998 after serving his suspension, it is quite improbable that he
can already gauge the performance of the complainants through the mere lapse
of three months considering that the date of the letter of termination is June 10,
1998 and its effectivity date June 15, 1998. (emphasis supplied)
[6]

Meanwhile, the COMELEC disqualified Mayor Jose Miranda as a mayoralty

candidate in the 1998 May elections. His son Joel G. Miranda, herein petitioner,
substituted for him and was proclaimed Mayor of Santiago City. He then filed a
motion for reconsideration of the CSC Resolution No. 982717 (in favor of
respondents) but it was denied in the CSC Resolution No. 990557 dated March
3, 1999.
Petitioner then filed with the Court of Appeals a petition for review on
certiorari, docketed as CA-G.R. SP No. 36997. On May 21, 1999, the Court of
Appeals rendered a Decision affirming in toto the CSC Resolution No.
982717. Forthwith, petitioner filed a motion for reconsideration, but before it
could be resolved by the Court of Appeals, several events supervened.This
Court, in G.R. No. 136351, Joel G. Miranda vs. Antonio M. Abaya and the
COMELEC, set aside the proclamation of petitioner as Mayor of Santiago City
for lack of a certificate of candidacy and declared Vice Mayor Amelita Navarro
as City Mayor by operation of law. [7]

On December 20, 1999, Mayor Navarro filed with the Court of Appeals a
Motion to Withdraw the Motion for Reconsideration (previously submitted by
former Mayor Joel G. Miranda).
On June 5, 2000, the Court of Appeals denied petitioners motion for
reconsideration of its Decision.
On June 11, 2000, the Court of Appeals granted Mayor Navarros Motion to
Withdraw the Motion for Reconsideration. In effect, the CSC Resolution
reinstating respondents to their positions stays.
In this petition, petitioner Joel G. Miranda contends that the Court of Appeals
erred in affirming the CSC Resolution declaring that the termination of
respondents services is illegal and ordering their reinstatement to their former
positions with payment of backwages.
In their comment, respondents claim that since petitioner ceased to be
Mayor of Santiago City, he has no legal personality to file the instant petition
and, therefore, the same should be dismissed. They insist that they were not
actually evaluated on their performance. But assuming there was indeed such
an evaluation, it should have been done by their immediate supervisors, not by
those appointed by former Mayor Jose Miranda.
In his reply, petitioner contends that as a taxpayer, he has a legal interest
in the case at bar, hence, can lawfully file this petition.
Section 17, Rule 3 of the 1997 Rules of Civil Procedure, as amended,
provides:

Sec. 17. Death or separation of a party who is a public officer. When a public officer
is a party in an action in his official capacity and during its pendency dies, resigns or
otherwise ceases to hold office, the action may be continued and maintained by or
against his successor if, within thirty (30) days after the successor takes office or such
time as may be granted by the Court, it is satisfactorily shown by any party that there
is substantial need for continuing or maintaining it and the successor adopts or
continues or threatens to adopt or continue the action of his predecessor.

It is clear from the above Rule that when petitioner ceased to be mayor of
Santiago City, the action may be continued and maintained by his successor,
Mayor Amelita Navarro, if there is substantial need to do so.
Mayor Navarro, however, found no substantial need to continue and
maintain the action of her predecessor in light of the CSC Resolution declaring
that respondents services were illegally terminated by former Mayor Jose
Miranda. In fact, she filed with the Court of Appeals aMotion to Withdraw the
Motion for Reconsideration (lodged by petitioner). She likewise reinstated all
the respondents to their respective positions and approved the payment of their
salaries.
Petitioner insists though that as a taxpayer, he is a real party-in-interest
and, therefore, should continue and maintain this suit. Such contention is
misplaced. Section 2, Rule 3 of the same Rules provides:

Section 2. Parties in interest. - A 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. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest. (emphasis supplied)

Even as a taxpayer, petitioner does not stand to be benefited or injured by

the judgment of the suit. Not every action filed by a taxpayer can qualify to
challenge the legality of official acts done by the government. It bears stressing
[8]

that a taxpayers suit refers to a case where the act complained

of directly involves the illegal disbursement of public funds from
taxation. The issue in this case is whether respondents services were illegally
[9]

terminated. Clearly, it does not involve the illegal disbursement of public

funds, hence, petitioners action cannot be considered a taxpayers suit.
At any rate, to put to rest the controversy at hand, we shall resolve the issue
of whether respondents services were illegally terminated by former Mayor Jose
Miranda.
The 1987 Constitution provides that no officer or employee of the civil
service shall be removed or suspended except for cause provided by
law. Under the Revised Administrative Code of 1987, a government officer or
[10]

employee may be removed from the service on two (2) grounds: (1)
unsatisfactory conduct and (2) want of capacity. While the Code does not define
and delineate the concepts of these two grounds, however, the Civil Service
Law (Presidential Decree No. 807, as amended) provides specific grounds for
dismissing a government officer or employee from the service. Among these
grounds are inefficiency and incompetence in the performance of official
duties. In the case at bar, respondents were dismissed on the ground of poor
performance. Poor performance falls within the concept of inefficiency and
incompetence in the performance of official duties which, as earlier mentioned,
are grounds for dismissing a government official or employee from the service.
But inefficiency or incompetence can only be determined after the passage
of sufficient time, hence, the probationary period of six (6) months for the
respondents. Indeed, to be able to gauge whether a subordinate is inefficient or
incompetent requires enough time on the part of his immediate superior within
which to observe his performance. This condition, however, was not observed
in this case. As aptly stated by the CSC, it is quite improbable that Mayor Jose
Miranda could finally determine the performance of respondents for only the
first three months of the probationary period.
Not only that, we find merit in respondents claim that they were denied due
process. They cited Item 2.2 (b), Section VI of the Omnibus Guidelines on
Appointments and Other Personnel Actions (CSC Memorandum Circular No.
38, Series of 1993, as amended by CSC Memorandum Circular No. 12, Series
of 1994) which provides:

2.2. Unsatisfactory or Poor Performance

xxx

b. An official or employee who, for one evaluation period, is rated poor in

performance, may be dropped from the rolls after due notice. Due notice
shall mean that the officer or employee is informed in writing of the
status of his performance not later than the fourth month of that
rating period with sufficient warning that failure to improve his
performance within the remaining period of the semester shall
warrant his separation from the service. Such notice shall also contain
sufficient information which shall enable the employee to prepare an
explanation. (emphasis supplied)
[11]

Respondents vehemently assert that they were never notified in writing

regarding the status of their performance, neither were they warned that they
will be dismissed from the service should they fail to improve their
performance. Significantly, petitioner did not refute respondents assertion. The
records show that what respondents received was only the termination order
from Mayor Jose Miranda. Obviously, respondents right to due process was
violated.
Moreover, respondents contend that the only reason behind their arbitrary
dismissal was Mayor Jose Mirandas perception that they were not loyal to him,
being appointees of then Acting Mayor Navarro. This contention appears to be
true considering that all those who were accepted and screened by the PSPB
during the incumbency of Acting Mayor Navarro were rated to have performed
poorly by an audit team whose three members were personally picked by Mayor
Jose Miranda.
The Constitution has envisioned the civil service to be a career service
based on merit and rewards system that will truly be accountable and
responsive to the people and deserving of their trust and support. These noble
[12]

objectives will be frustrated if the tenure of its members is subject to the whim
of partisan politics. A civil servant who lives in ceaseless fear of being
capriciously removed from office every time a new political figure assumes
power will strive to do anything that pleases the latter. In this way, he will hardly
develop efficiency, accountability and a sense of loyalty to the public service.
Such a climate will only breed opportunistic, inefficient and irresponsible civil
servants to the detriment of the public. This should not be countenanced.
In fine, we hold that petitioner, not being a real party in interest, has no legal
personality to file this petition. Besides, his motion for reconsideration was
validly withdrawn by the incumbent Mayor. Even assuming he is a real party in
interest, we see no reason to disturb the findings of both the CSC and the Court
of Appeals. The reinstatement of respondents who, unfortunately, were victims
of political bickerings, is in order.
WHEREFORE, the petition is DENIED. The assailed Decision dated May
21, 1999 of the Court of Appeals in CA-G.R. SP No. 36997 is AFFIRMED.
Treble costs against petitioner.
SO ORDERED.
G.R. No. 92585 May 8, 1992

CALTEX PHILIPPINES, INC., petitioner,

vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C. FERNANDEZ
and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.

DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the authority of
the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the Oil Price
Stabilization Fund (OPSF) and seeking the reversal of said Commission's decision denying its claims for
recovery of financing charges from the Fund and reimbursement of underrecovery arising from sales to
the National Power Corporation, Atlas Consolidated Mining and Development Corporation (ATLAS) and
Marcopper Mining Corporation (MAR-COPPER), preventing it from exercising the right to offset its
remittances against its reimbursement vis-a-vis the OPSF and disallowing its claims which are still
pending resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF).

Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional
Commissions 3 may be brought to this Court on certiorari by the aggrieved party within thirty (30) days
from receipt of a copy thereof. The certiorari referred to is the special civil action for certiorari under
Rule 65 of the Rules of Court. 4

Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings
and rulings of the administrator of the fund itself and in disallowing a claim which is still pending
resolution at the OEA level, and (b) "grave abuse of discretion and completely without jurisdiction" 5 in
declaring that petitioner cannot avail of the right to offset any amount that it may be required under the
law to remit to the OPSF against any amount that it may receive by way of reimbursement therefrom
are sufficient to bring this petition within Rule 65 of the Rules of Court, and, considering further the
importance of the issues raised, the error in the designation of the remedy pursued will, in this instance,
be excused.

The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.) No.
1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as follows:

Sec. 8 . There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be
designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing frequent price changes
brought about by exchange rate adjustments and/or changes in world market prices of crude oil and
imported petroleum products. The Oil Price Stabilization Fund may be sourced from any of the
following:

a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum
products subject to tax under this Decree arising from exchange rate adjustment, as may be determined
by the Minister of Finance in consultation with the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of tax exemptions of government
corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy;

c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund
through an appropriate Order that may be issued by the Board of Energy requiring payment by persons
or companies engaged in the business of importing, manufacturing and/or marketing petroleum
products;

d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the
importation of crude oil and petroleum products is less than the peso costs computed using the
reference foreign exchange rate as fixed by the Board of Energy.
The Fund herein created shall be used for the following:

1) To reimburse the oil companies for cost increases in crude oil and imported petroleum products
resulting from exchange rate adjustment and/or increase in world market prices of crude oil;

2) To reimburse the oil companies for possible cost under-recovery incurred as a result of the reduction
of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be
determined by the Ministry of Finance. "Cost underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction
in the landed cost of oil inventories in the possession of the oil companies at the time of the price
change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price
reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy.

The material operative facts of this case, as gathered from the pleadings of the parties, are not disputed.

On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as
Petitioner, directing the latter to remit to the OPSF its collection, excluding that unremitted for the years
1986 and 1988, of the additional tax on petroleum products authorized under the aforesaid Section 8 of
P.D. No. 1956 which, as of 31 December 1987, amounted to P335,037,649.00 and informing it that,
pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. 6

On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with the
OEA showed that the grand total of its unremitted collections of the above tax is P1,287,668,820.00,
broken down as follows:

1986 P233,190,916.00
1987 335,065,650.00
1988 719,412,254.00;

directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from receipt
of the letter; advising it that the COA will hold in abeyance the audit of all its claims for reimbursement
from the OPSF; and directing it to desist from further offsetting the taxes collected against outstanding
claims in 1989 and subsequent periods. 7

In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement
certificates from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to March
1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of government
transactions of national government agencies and government-owned or controlled corporations. 8

In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the
reimbursement certificates from the OPSF and repeated its earlier directive to petitioner to forward
payment of the latter's unremitted collections to the OPSF to facilitate COA's audit action on the
reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the
payment of the collections and the recovery of claims, since the outright payment of the sum of P1.287
billion to the OEA as a prerequisite for the processing of said claims against the OPSF will cause a very
serious impairment of its cash position. 10 The proposal reads:

We, therefore, very respectfully propose the following:

(1) Any procedural arrangement acceptable to COA to facilitate monitoring of payments and
reimbursements will be administered by the ERB/Finance Dept./OEA, as agencies designated by law to
administer/regulate OPSF.

(2) For the retroactive period, Caltex will deliver to OEA, P1.287 billion as payment to OPSF, similarly
OEA will deliver to Caltex the same amount in cash reimbursement from OPSF.

(3) The COA audit will commence immediately and will be conducted expeditiously.

(4) The review of current claims (1989) will be conducted expeditiously to preclude further accumulation
of reimbursement from OPSF.

On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921 accepting
the above-stated proposal but prohibiting petitioner from further offsetting remittances and
reimbursements for the current and ensuing years. 11 Decision No. 921 reads:

This pertains to the within separate requests of Mr. Manuel A. Estrella, President, Petron Corporation,
and Mr. Francis Ablan, President and Managing Director, Caltex (Philippines) Inc., for reconsideration of
this Commission's adverse action embodied in its letters dated February 2, 1989 and March 9, 1989, the
former directing immediate remittance to the Oil Price Stabilization Fund of collections made by the
firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987, and the latter reiterating the same
directive but further advising the firms to desist from offsetting collections against their claims with the
notice that "this Commission will hold in abeyance the audit of all . . . claims for reimbursement from
the OPSF."

It appears that under letters of authority issued by the Chairman, Energy Regulatory Board, the
aforenamed oil companies were allowed to offset the amounts due to the Oil Price Stabilization Fund
against their outstanding claims from the said Fund for the calendar years 1987 and 1988, pending with
the then Ministry of Energy, the government entity charged with administering the OPSF. This
Commission, however, expressing serious doubts as to the propriety of the offsetting of all types of
reimbursements from the OPSF against all categories of remittances, advised these oil companies that
such offsetting was bereft of legal basis. Aggrieved thereby, these companies now seek reconsideration
and in support thereof clearly manifest their intent to make arrangements for the remittance to the
Office of Energy Affairs of the amount of collections equivalent to what has been previously
offset, provided that this Commission authorizes the Office of Energy Affairs to prepare the
corresponding checks representing reimbursement from the OPSF. It is alleged that the implementation
of such an arrangement, whereby the remittance of collections due to the OPSF and the reimbursement
of claims from the Fund shall be made within a period of not more than one week from each other, will
benefit the Fund and not unduly jeopardize the continuing daily cash requirements of these firms.
Upon a circumspect evaluation of the circumstances herein obtaining, this Commission perceives no
further objectionable feature in the proposed arrangement, provided that 15% of whatever amount is
due from the Fund is retained by the Office of Energy Affairs, the same to be answerable for suspensions
or disallowances, errors or discrepancies which may be noted in the course of audit and surcharges for
late remittances without prejudice to similar future retentions to answer for any deficiency in such
surcharges, and provided further that no offsetting of remittances and reimbursements for the current
and ensuing years shall be allowed.

Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director
Wenceslao R. De la Paz of the Office of Energy Affairs: 12

Dear Atty. dela Paz:

Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and based on our initial
verification of documents submitted to us by your Office in support of Caltex (Philippines), Inc. offsets
(sic) for the year 1986 to May 31, 1989, as well as its outstanding claims against the Oil Price
Stabilization Fund (OPSF) as of May 31, 1989, we are pleased to inform your Office that Caltex
(Philippines), Inc. shall be required to remit to OPSF an amount of P1,505,668,906, representing
remittances to the OPSF which were offset against its claims reimbursements (net of unsubmitted
claims). In addition, the Commission hereby authorize (sic) the Office of Energy Affairs (OEA) to cause
payment of P1,959,182,612 to Caltex, representing claims initially allowed in audit, the details of which
are presented hereunder: . . .

As presented in the foregoing computation the disallowances totalled P387,683,535, which included
P130,420,235 representing those claims disallowed by OEA, details of which is (sic) shown in Schedule 1
as summarized as follows:

Disallowance of COA
Particulars Amount

Recovery of financing charges P162,728,475 /a

Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558

P257,263,300

Disallowances of OEA 130,420,235

Total P387,683,535

The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges

Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate that recovery of
financing charges by oil companies is not among the items for which the OPSF may be utilized.
Therefore, it is our view that recovery of financing charges has no legal basis. The mechanism for such
claims is provided in DOF Circular 1-87.

b. Product Sales Sales to International Vessels/Airlines

BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order No. 87-03-095
indicating that (sic) February 7, 1987 as the effectivity date that (sic) oil companies should pay OPSF
impost on export sales of petroleum products. Effective February 7, 1987 sales to international
vessels/airlines should not be included as part of its domestic sales. Changing the effectivity date of the
resolution from February 7, 1987 to October 20, 1987 as covered by subsequent ERB Resolution No. 88-
12 dated November 18, 1988 has allowed Caltex to include in their domestic sales volumes to
international vessels/airlines and claim the corresponding reimbursements from OPSF during the period.
It is our opinion that the effectivity of the said resolution should be February 7, 1987.

c. Inventory losses Settlement of Ad Valorem

We reviewed the system of handling Borrow and Loan (BLA) transactions including the related BLA
agreement, as they affect the claims for reimbursements of ad valorem taxes. We observed that oil
companies immediately settle ad valorem taxes for BLA transaction (sic). Loan balances therefore are
not tax paid inventories of Caltex subject to reimbursements but those of the borrower. Hence, we
recommend reduction of the claim for July, August, and November, 1987 amounting to P14,034,786.

d. Sales to Atlas/Marcopper

LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the suspension of payment of
all taxes, duties, fees, imposts and other charges whether direct or indirect due and payable by the
copper mining companies in distress to the national and local governments." It is our opinion that LOI
1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal
basis.

Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount as herein
authorized shall be subject to availability of funds of OPSF as of May 31, 1989 and applicable auditing
rules and regulations. With regard to the disallowances, it is further informed that the aggrieved party
has 30 days within which to appeal the decision of the Commission in accordance with law.

On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision
based on the following grounds: 13

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES, ORDERS, RESOLUTIONS,

CIRCULARS ISSUED BY THE DEPARTMENT OF FINANCE AND THE ENERGY REGULATORY BOARD
PURSUANT TO EXECUTIVE ORDER NO. 137.

xxx xxx xxx

B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF EXECUTIVE POWER BY

DEPARTMENT OF FINANCE AND ENERGY REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED
AND APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY LEGISLATION.

xxx xxx xxx

C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED BY THE EXECUTIVE
BRANCH OF GOVERNMENT, REMAINS VALID.

xxx xxx xxx

On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for
Reconsideration. 14

On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner
Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for recovery of
financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while allowing the recovery of
product sales or those arising from export sales. 15 Decision No. 1171 reads as follows:

Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the .authority to recover
financing charges from the OPSF on the basis of Department of Finance (DOF) Circular 1-87, dated
February 18, 1987, which allowed oil companies to "recover cost of financing working capital associated
with crude oil shipments," and provided a schedule of reimbursement in terms of peso per barrel. It
appears that on November 6, 1989, the DOF issued a memorandum to the President of the Philippines
explaining the nature of these financing charges and justifying their reimbursement as follows:

As part of your program to promote economic recovery, . . . oil companies (were authorized) to
refinance their imports of crude oil and petroleum products from the normal trade credit of 30 days up
to 360 days from date of loading . . . Conformably . . ., the oil companies deferred their foreign exchange
remittances for purchases by refinancing their import bills from the normal 30-day payment term up to
the desired 360 days. This refinancing of importations carried additional costs (financing charges) which
then became, due to government mandate, an inherent part of the cost of the purchases of our
country's oil requirement.

We beg to disagree with such contention. The justification that financing charges increased oil costs and
the schedule of reimbursement rate in peso per barrel (Exhibit 1) used to support alleged increase (sic)
were not validated in our independent inquiry. As manifested in Exhibit 2, using the same formula which
the DOF used in arriving at the reimbursement rate but using comparable percentages instead of pesos,
the ineluctable conclusion is that the oil companies are actually gaining rather than losing from the
extension of credit because such extension enables them to invest the collections in marketable
securities which have much higher rates than those they incur due to the extension. The Data we used
were obtained from CPI (CALTEX) Management and can easily be verified from our records.

With respect to product sales or those arising from sales to international vessels or airlines, . . ., it is
believed that export sales (product sales) are entitled to claim refund from the OPSF.

As regard your claim for underrecovery arising from inventory losses, . . . It is the considered view of this
Commission that the OPSF is not liable to refund such surtax on inventory losses because these are paid
to BIR and not OPSF, in view of which CPI (CALTEX) should seek refund from BIR. . . .

Finally, as regards the sales to Atlas and Marcopper, it is represented that you are entitled to claim
recovery from the OPSF pursuant to LOI 1416 issued on July 17, 1984, since these copper mining
companies did not pay CPI (CALTEX) and OPSF imposts which were added to the selling price.
Upon a circumspect evaluation, this Commission believes and so holds that the CPI (CALTEX) has no
authority to claim reimbursement for this uncollected OPSF impost because LOI 1416 dated July 17,
1984, which exempts distressed mining companies from "all taxes, duties, import fees and other
charges" was issued when OPSF was not yet in existence and could not have contemplated OPSF
imposts at the time of its formulation. Moreover, it is evident that OPSF was not created to aid
distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices.

Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it imputes
to the COA the commission of the following errors: 16

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING CHARGES FROM THE

OPSF.

II

RESPONDENT COMMISSION ERRED IN DISALLOWING

CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES TO NPC.

III

RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR REIMBURSEMENT ON SALES TO

ATLAS AND MARCOPPER.

IV

RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING ITS LEGAL RIGHT TO OFFSET
ITS REMITTANCES AGAINST ITS REIMBURSEMENT VIS-A-VIS THE OPSF.

RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE STILL PENDING
RESOLUTION BY (SIC) THE OEA AND THE DOF.

In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition within
ten (10) days from notice. 18

On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the Office
of the Solicitor General, filed their Comment. 19

This Court resolved to give due course to this petition on 30 May 1991 and required the parties to file
their respective Memoranda within twenty (20) days from notice. 20

In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment filed
on 6 September 1990 be considered as the Memorandum for respondents. 21

Upon the other hand, petitioner filed its Memorandum on 14 August 1991.

I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:
(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added a second
purpose, to wit:

2) To reimburse the oil companies for possible cost underrecovery incurred as a result of the reduction
of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be
determined by the Ministry of Finance. "Cost underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction
in the landed cost of oil inventories in the possession of the oil companies at the time of the price
change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price
reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

the "other factors" mentioned therein that may be determined by the Ministry (now Department) of
Finance may include financing charges for "in essence, financing charges constitute unrecovered cost of
acquisition of crude oil incurred by the oil companies," as explained in the 6 November 1989
Memorandum to the President of the Department of Finance; they "directly translate to cost
underrecovery in cases where the money market placement rates decline and at the same time the tax
on interest income increases. The relationship is such that the presence of underrecovery or
overrecovery is directly dependent on the amount and extent of financing charges."

(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the basis
of Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:

To allow oil companies to recover the costs of financing working capital associated with crude oil
shipments, the following guidelines on the utilization of the Oil Price Stabilization Fund pertaining to the
payment of the foregoing (sic) exchange risk premium and recovery of financing charges will be
implemented:

1. The OPSF foreign exchange premium shall be reduced to a flat rate of one (1) percent for the first (6)
months and 1/32 of one percent per month thereafter up to a maximum period of one year, to be
applied on crude oil' shipments from January 1, 1987. Shipments with outstanding financing as of
January 1, 1987 shall be charged on the basis of the fee applicable to the remaining period of financing.

2. In addition, for shipments loaded after January 1987, oil companies shall be allowed to recover
financing charges directly from the OPSF per barrel of crude oil based on the following schedule:

Financing Period Reimbursement Rate

Pesos per Barrel

Less than 180 days None

180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28
The above rates shall be subject to review every sixty
days. 22

Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the Office
of Energy Affairs as follows:

HON. VICENTE T. PATERNO

Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila

Dear Sir:

This refers to the letters of the Oil Industry dated December 4, 1986 and February 5, 1987 and
subsequent discussions held by the Price Review committee on February 6, 1987.

On the basis of the representations made, the Department of Finance recognizes the necessity to reduce
the foreign exchange risk premium accruing to the Oil Price Stabilization Fund (OPSF). Such a reduction
would allow the industry to recover partly associated financing charges on crude oil imports.
Accordingly, the OPSF foreign exchange risk fee shall be reduced to a flat charge of 1% for the first six (6)
months plus 1/32% of 1% per month thereafter up to a maximum period of one year, effective January
1, 1987. In addition, since the prevailing company take would still leave unrecovered financing charges,
reimbursement may be secured from the OPSF in accordance with the provisions of the attached
Department of Finance circular. 23

Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the guidelines
for the computation of the foreign exchange risk fee and the recovery of financing charges from the
OPSF, to wit:

B. FINANCE CHARGES

1. Oil companies shall be allowed to recover financing charges directly from the OPSF for both crude and
product shipments loaded after January 1, 1987 based on the following rates:

Financing Period Reimbursement Rate

(PBbl.)

Less than 180 days None

180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28

2. The above rates shall be subject to review every sixty days. 24

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further
guidelines on the recoverability of financing charges, to wit:
Following are the supplemental rules to Department of Finance Circular No. 1-87 dated February 18,
1987 which allowed the recovery of financing charges directly from the Oil Price Stabilization Fund.
(OPSF):

1. The Claim for reimbursement shall be on a per shipment basis.

2. The claim shall be filed with the Office of Energy Affairs together with the claim on peso cost
differential for a particular shipment and duly certified supporting documents providedfor under
Ministry of Finance No. 11-85.

3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to be issued by the
Office of Energy Affairs. The said certificate may be used to offset against amounts payable to the OPSF.
The oil companies may also redeem said certificates in cash if not utilized, subject to availability of
funds. 25

The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-017. 26

The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the light
of the determination of executive agencies. The determination by the Department of Finance and the
OEA that financing charges are recoverable from the OPSF is entitled to great weight and
consideration. 27 The function of the COA, particularly in the matter of allowing or disallowing certain
expenditures, is limited to the promulgation of accounting and auditing rules for, among others, the
disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses
of government funds and properties. 28

(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's claim that
petitioner is gaining, instead of losing, from the extension of credit, is belatedly raised and not
supported by expert analysis.

In impeaching the validity of petitioner's assertions, the respondents argue that:

1. The Constitution gives the COA discretionary power to disapprove irregular or unnecessary
government expenditures and as the monetary claims of petitioner are not allowed by law, the COA
acted within its jurisdiction in denying them;

2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges from the OPSF;

3. Under the principle of ejusdem generis, the "other factors" mentioned in the second purpose of the
OPSF pursuant to E.O. No. 137 can only include "factors which are of the same nature or analogous to
those enumerated;"

4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of the Department of
Finance violates P.D. No. 1956 and E.O. No. 137; and

5. Department of Finance rules and regulations implementing P.D. No. 1956 do not likewise allow
reimbursement of financing
charges. 29

We find no merit in the first assigned error.

As to the power of the COA, which must first be resolved in view of its primacy, We find the theory of
petitioner that such does not extend to the disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures, or use of government funds and properties, but only to
the promulgation of accounting and auditing rules for, among others, such disallowance to be
untenable in the light of the provisions of the 1987 Constitution and related laws.

Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to examine, audit, and
settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned and controlled corporations with original
charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been
granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c)
other government-owned or controlled corporations and their subsidiaries; and (d) such non-
governmental entities receiving subsidy or equity, directly or indirectly, from or through the
government, which are required by law or the granting institution to submit to such audit as a condition
of subsidy or equity. However, where the internal control system of the audited agencies is inadequate,
the Commission may adopt such measures, including temporary or special pre-audit, as are necessary
and appropriate to correct the deficiencies. It shall keep the general accounts, of the Government and,
for such period as may be provided by law, preserve the vouchers and other supporting papers
pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the
scope of its audit and examination, establish the techniques and methods required therefor, and
promulgate accounting and auditing rules and regulations, including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or, unconscionable expenditures, or uses
of government funds and properties.

These present powers, consistent with the declared independence of the Commission, 30 are broader
and more extensive than that conferred by the 1973 Constitution. Under the latter, the Commission was
empowered to:

Examine, audit, and settle, in accordance with law and regulations, all accounts pertaining to the
revenues, and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities including
government-owned or controlled corporations, keep the general accounts of the Government and, for
such period as may be provided by law, preserve the vouchers pertaining thereto; and promulgate
accounting and auditing rules and regulations including those for the prevention of irregular,
unnecessary, excessive, or extravagant expenditures or uses of funds and property. 31

Upon the other hand, under the 1935 Constitution, the power and authority of the COA's precursor, the
General Auditing Office, were, unfortunately, limited; its very role was markedly passive. Section 2 of
Article XI thereofprovided:

Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining to the revenues and
receipts from whatever source, including trust funds derived from bond issues; and audit, in accordance
with law and administrative regulations, all expenditures of funds or property pertaining to or held in
trust by the Government or the provinces or municipalities thereof. He shall keep the general accounts
of the Government and the preserve the vouchers pertaining thereto. It shall be the duty of the Auditor
General to bring to the attention of the proper administrative officer expenditures of funds or property
which, in his opinion, are irregular, unnecessary, excessive, or extravagant. He shall also perform such
other functions as may be prescribed by law.

As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures or

uses of funds, the 1935 Constitution did not grant the Auditor General the power to issue rules and
regulations to prevent the same. His was merely to bring that matter to the attention of the proper
administrative officer.

The ruling on this particular point, quoted by petitioner from the cases of Guevarra
vs. Gimenez 32 and Ramos vs.Aquino, 33 are no longer controlling as the two (2) were decided in the light
of the 1935 Constitution.

There can be no doubt, however, that the audit power of the Auditor General under the 1935
Constitution and the Commission on Audit under the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of funds and property. Our present Constitution retains
that same power and authority, further strengthened by the definition of the COA's general jurisdiction
in Section 26 of the Government Auditing Code of the Philippines 34 and Administrative Code of
1987. 35 Pursuant to its power to promulgate accounting and auditing rules and regulations for the
prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds, 36 the COA
promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is responsible for the
enforcement of the rules and regulations, it goes without saying that failure to comply with them is a
ground for disapproving the payment of the proposed expenditure. As observed by one of the
Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas: 37

It should be noted, however, that whereas under Article XI, Section 2, of the 1935 Constitution the
Auditor General could not correct "irregular, unnecessary, excessive or extravagant" expenditures of
public funds but could only "bring [the matter] to the attention of the proper administrative officer,"
under the 1987 Constitution, as also under the 1973 Constitution, the Commission on Audit can
"promulgate accounting and auditing rules and regulations including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses
of government funds and properties." Hence, since the Commission on Audit must ultimately be
responsible for the enforcement of these rules and regulations, the failure to comply with these
regulations can be a ground for disapproving the payment of a proposed expenditure.

Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active role
and invested it with broader and more extensive powers, they did not intend merely to make the COA a
toothless tiger, but rather envisioned a dynamic, effective, efficient and independent watchdog of the
Government.

The issue of the financing charges boils down to the validity of Department of Finance Circular No. 1-87,
Department of Finance Circular No. 4-88 and the implementing circulars of the OEA, issued pursuant to
Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to determine "other factors" which
may result in cost underrecovery and a consequent reimbursement from the OPSF.
The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges are
not included in "cost underrecovery" and, therefore, cannot be considered as one of the "other factors."
Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what "cost
underrecovery" is. It merely states what it includes. Thus:

. . . "Cost underrecovery" shall include the following:

i. Reduction in oil company takes as directed by the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the
price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price
reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

These "other factors" can include only those which are of the same class or nature as the two specifically
enumerated in subparagraphs (i) and (ii). A common characteristic of both is that they are in the nature
of government mandated price reductions. Hence, any other factor which seeks to be a part of the
enumeration, or which could qualify as a cost underrecovery, must be of the same class or nature as
those specifically enumerated.

Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad and
unrestricted authority to determine or define "other factors."

Both views are unacceptable to this Court.

The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or
things, by words of a particular and specific meaning, such general words are not to be construed in
their widest extent, but are held to be as applying only to persons or things of the same kind or class as
those specifically mentioned. 38 A reading of subparagraphs (i) and (ii) easily discloses that they do not
have a common characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valoremtaxes. Therefore, subparagraph (iii) cannot be
limited by the enumeration in these subparagraphs. What should be considered for purposes of
determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of the Section
which explicitly allows cost underrecovery only if such were incurred as a result of the reduction of
domestic prices of petroleum products.

Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the
sense that such were incurred as a result of the inability to fully offset financing expenses from yields in
money market placements, they do not, however, fall under the foregoing provision of P.D. No. 1956, as
amended, because the same did not result from the reduction of the domestic price of petroleum
products. Until paragraph (2), Section 8 of the decree, as amended, is further amended by Congress, this
Court can do nothing. The duty of this Court is not to legislate, but to apply or interpret the law. Be that
as it may, this Court wishes to emphasize that as the facts in this case have shown, it was at the behest
of the Government that petitioner refinanced its oil import payments from the normal 30-day trade
credit to a maximum of 360 days. Petitioner could be correct in its assertion that owing to the extended
period for payment, the financial institution which refinanced said payments charged a higher interest,
thereby resulting in higher financing expenses for the petitioner. It would appear then that equity
considerations dictate that petitioner should somehow be allowed to recover its financing losses, if any,
which may have been sustained because it accommodated the request of the Government. Although
under Section 29 of the National Internal Revenue Code such losses may be deducted from gross
income, the effect of that loss would be merely to reduce its taxable income, but not to actually wipe
out such losses. The Government then may consider some positive measures to help petitioner and
others similarly situated to obtain substantial relief. An amendment, as aforestated, may then be in
order.

Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the
Department of Finance to determine or define "other factors" is to uphold an undue delegation of
legislative power, it clearly appearing that the subject provision does not provide any standard for the
exercise of the authority. It is a fundamental rule that delegation of legislative power may be sustained
only upon the ground that some standard for its exercise is provided and that the legislature, in making
the delegation, has prescribed the manner of the exercise of the delegated authority. 39

Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant by
reason of the foregoing disquisitions. It may nevertheless be stated that petitioner failed to disprove
COA's claim that it had in fact gained in the process. Otherwise stated, petitioner failed to sufficiently
show that it incurred a loss. Such being the case, how can petitioner claim for reimbursement? It cannot
have its cake and eat it too.

II. Anent the claims arising from sales to the National Power Corporation, We find for the petitioner. The
respondents themselves admit in their Comment that underrecovery arising from sales to NPC are
reimbursable because NPC was granted full exemption from the payment of taxes; to prove this,
respondents trace the laws providing for such exemption. 40 The last law cited is the Fiscal Incentives
Regulatory Board's Resolution No. 17-87 of 24 June 1987 which provides, in part, "that the tax and duty
exemption privileges of the National Power Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products . . . are restored effective March 10, 1987." In a
Memorandum issued on 5 October 1987 by the Office of the President, NPC's tax exemption was
confirmed and approved.

Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to
the NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price
Standby Fund to support the OPSF. 41 The pertinent part of Section 2, Republic Act No. 6952 provides:

Sec. 2. Application of the Fund shall be subject to the following conditions:

(1) That the Fund shall be used to reimburse the oil companies for (a) cost increases of imported crude
oil and finished petroleum products resulting from foreign exchange rate adjustments and/or increases
in world market prices of crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the
National Power Corporation (NPC); and (c) other cost underrecoveries incurred as may be finally decided
by the Supreme
Court; . . .

Hence, petitioner can recover its claim arising from sales of petroleum products to the National Power
Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner relies on
Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of payments of all
taxes, duties, fees and other charges, whether direct or indirect, due and payable by the copper mining
companies in distress to the national government. Pursuant to this LOI, then Minister of Energy, Hon.
Geronimo Velasco, issued Memorandum Circular No. 84-11-22 advising the oil companies that Atlas
Consolidated Mining Corporation and Marcopper Mining Corporation are among those declared to be in
distress.

In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August 1989 letter
to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI 1416 which
implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis;" 42 in
its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no authority to claim reimbursement
for this uncollected impost because LOI 1416 dated July 17, 1984, . . . was issued when OPSF was not yet
in existence and could not have contemplated OPSF imposts at the time of its formulation." 43 It is
further stated that: "Moreover, it is evident that OPSF was not created to aid distressed mining
companies but rather to help the domestic oil industry by stabilizing oil prices."

In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended to
exempt said distressed mining companies from the payment of OPSF dues for the following reasons:

a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956 creating the OPSF was
promulgated on October 10, 1984, while E.O. 137, amending P.D. 1956, was issued on February 25,
1987.

b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with the
government's effort to prevent the collapse of the copper industry. P.D No. 1956, as amended, was
issued for the purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported petroleum product's; and

c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other charges, whether direct
or indirect, due and payable by the copper mining companies in distress to the Notional and Local
Governments . . ." On the other hand, OPSF dues are not payable by (sic) distressed copper companies
but by oil companies. It is to be noted that the copper mining companies do not pay OPSF dues. Rather,
such imposts are built in or already incorporated in the prices of oil products. 44

Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining
companies, it does not accord petitioner the same privilege with respect to its obligation to pay OPSF
dues.

We concur with the disquisitions of the respondents. Aside from such reasons, however, it is apparent
that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of the Civil Code,
which reads:

Laws shall take effect after fifteen days following the completion of their publication in the Official
Gazette, unless it is otherwise provided. . . .

In applying said provision, this Court ruled in the case of Taada vs. Tuvera: 46
WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all unpublished
presidential issuances which are of general application, and unless so published they shall have no
binding force and effect.

Resolving the motion for reconsideration of said decision, this Court, in its Resolution promulgated on
29 December 1986, 47 ruled:

We hold therefore that all statutes, including those of local application and private laws, shall be
published as a condition for their effectivity, which shall begin fifteen days after publication unless a
different effectivity date is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by the President in the
exercise of legislative powers whenever the same are validly delegated by the legislature or, at present,
directly conferred by the Constitution. Administrative rules and regulations must also be published if
their purpose is to enforce or implement existing laws pursuant also to a valid delegation.

xxx xxx xxx

WHEREFORE, it is hereby declared that all laws as above defined shall immediately upon their approval,
or as soon thereafter as possible, be published in full in the Official Gazette, to become effective only
after fifteen days from their publication, or on another date specified by the legislature, in accordance
with Article 2 of the Civil Code.

LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette after
its issuance or at any time after the decision in the abovementioned cases.

Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on 18 June
1987. As amended, the said provision now reads:

Laws shall take effect after fifteen days following the completion of their publication either in the
Official Gazette or in a newspaper of general circulation in the Philippines, unless it is
otherwise provided.

We are not aware of the publication of LOI 1416 in any newspaper of general circulation pursuant to
Executive Order No. 200.

Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must still
fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of
the taxing authority. 48The burden of proof rests upon the party claiming exemption to prove that it is in
fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly
mentioned in the exempting law or at least be within its purview by clear legislative intent.

In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS and
MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend
the payment of taxes by copper mining companies, it does not give petitioner the same privilege with
respect to the payment of OPSF dues.

IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the
Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction. 49 Respondents, on
the other hand, contend that said amount was already disallowed by the OEA for failure to substantiate
it. 50 In fact, when OEA submitted the claims of petitioner for pre-audit, the abovementioned amount
was already excluded.

An examination of the records of this case shows that petitioner failed to prove or substantiate its
contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the submission of respondents that said amount has already
been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said claim must be
upheld.

V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from
petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner contends that
it should be allowed to offset its claims from the OPSF against its contributions to the fund as this has
been allowed in the past, particularly in the years 1987 and 1988. 51

Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on
compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which provides for
"Retention of Money for Satisfaction of Indebtedness to Government." 52 Petitioner also mentions
communications from the Board of Energy and the Department of Finance that supposedly authorize
compensation.

Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can be no
offsetting of taxes against the claims that a taxpayer may have against the government, as taxes do not
arise from contracts or depend upon the will of the taxpayer, but are imposed by law. Respondents also
allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised Administrative Code, is
misplaced because "while this provision empowers the COA to withhold payment of a government
indebtedness to a person who is also indebted to the government and apply the government
indebtedness to the satisfaction of the obligation of the person to the government, like authority or
right to make compensation is not given to the private person." 54 The reason for this, as stated
in Commissioner of Internal Revenue vs. Algue, Inc., 55 is that money due the government, either in the
form of taxes or other dues, is its lifeblood and should be collected without hindrance. Thus, instead of
giving petitioner a reason for compensation or set-off, the Revised Administrative Code makes it the
respondents' duty to collect petitioner's indebtedness to the OPSF.

Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a result
of taxation because "P.D. 1956, amended, did not create a source of taxation; it instead established a
special fund . . .," 56 and that the OPSF contributions do not go to the general fund of the state and are
not used for public purpose, i.e., not for the support of the government, the administration of law, or
the payment of public expenses. This alleged lack of a public purpose behind OPSF exactions
distinguishes such from a tax. Hence, the ruling in the Francia case is inapplicable.

Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the OPSF;
the said law provides in part that:

Sec. 2. Application of the fund shall be subject to the following conditions:

xxx xxx xxx

(3) That no amount of the Petroleum Price Standby Fund shall be used to pay any oil company which has
an outstanding obligation to the Government without said obligation being offset first, subject to the
requirements of compensation or offset under the Civil Code.

We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose
because they go to a special fund of the government. Taxation is no longer envisioned as a measure
merely to raise revenue to support the existence of the government; taxes may be levied with a
regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the state. 57 There can be no
doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare.
Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause
economic crisis of untold proportions. It would have a chain reaction in terms of, among others,
demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization
then of oil prices is of prime concern which the state, via its police power, may properly address.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is taxation.
No amount of semantical juggleries could dim this fact.

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. 58Taxes cannot be the subject of compensation because the government and taxpayer are
not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off. 59

We may even further state that technically, in respect to the taxes for the OPSF, the oil companies
merely act as agents for the Government in the latter's collection since the taxes are, in reality, passed
unto the end-users the consuming public. In that capacity, the petitioner, as one of such companies,
has the primary obligation to account for and remit the taxes collected to the administrator of the OPSF.
This duty stems from the fiduciary relationship between the two; petitioner certainly cannot be
considered merely as a debtor. In respect, therefore, to its collection for the OPSF vis-a-vis its claims for
reimbursement, no compensation is likewise legally feasible. Firstly, the Government and the petitioner
cannot be said to be mutually debtors and creditors of each other. Secondly, there is no proof that
petitioner's claim is already due and liquidated. Under Article 1279 of the Civil Code, in order that
compensation may be proper, it is necessary that:

(1) each one of the obligors be bound principally, and that he be at the same time a principal creditor of
the other;

(2) both debts consist in a sum of :money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;

(3) the two (2) debts be due;

(4) they be liquidated and demandable;

(5) over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

That compensation had been the practice in the past can set no valid precedent. Such a practice has no
legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims against their
OPSF contributions. Instead, it prohibits the government from paying any amount from the Petroleum
Price Standby Fund to oil companies which have outstanding obligations with the government, without
said obligation being offset first subject to the rules on compensation in the Civil Code.

WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged decision
of the Commission on Audit, except that portion thereof disallowing petitioner's claim for
reimbursement of underrecovery arising from sales to the National Power Corporation, which is hereby
allowed.

With costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of
Rizal, petitioner-appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-
appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

DECISION
CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of
Rizal, dismissing the above entitled case and dissolving the writ of preliminary injunction
therein issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted
this action for declaratory relief, with injunction, upon the ground that Republic Act No. 920,
entitled An Act Appropriating Funds for Public Works, approved on June 20, 1953,
contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 for the construction,
reconstruction, repair, extension and improvement of Pasig feeder road terminals (Gen.
Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado
Gen. Malvar Gen. Lim); that, at the time of the passage and approval of said Act, the
aforementioned feeder roads were nothing but projected and planned subdivision roads, not
yet constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal (according
to the tracings attached to the petition as Annexes A and B, near Shaw Boulevard, not far
away from the intersection between the latter and Highway 54), which projected feeder roads
do not connect any government property or any important premises to the main highway;
that the aforementioned Antonio Subdivision (as well as the lands on which said feeder roads
were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time
of the passage and approval of said Act, was a member of the Senate of the Philippines; that
on May, 1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal,
offering to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June
13, 1953, the offer was accepted by the council, subject to the condition that the donor would
submit a plan of the said roads and agree to change the names of two of them; that no deed
of donation in favor of the municipality of Pasig was, however, executed; that on July 10,
1953, respondent Zulueta wrote another letter to said council, calling attention to the approval
of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for the construction
of the projected feeder roads in question; that the municipal council of Pasig endorsed said
letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present has not
made any endorsement thereon that inasmuch as the projected feeder roads in question
were private property at the time of the passage and approval of Republic Act No. 920, the
appropriation of P85,000.00 therein made, for the construction, reconstruction, repair,
extension and improvement of said projected feeder roads, was illegal and, therefore, void ab
initio; that said appropriation of P85,000.00 was made by Congress because its members
were made to believe that the projected feeder roads in question were public roads and not
private streets of a private subdivision; that, in order to give a semblance of legality, when
there is absolutely none, to the aforementioned appropriation, respondents Zulueta executed
on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged
deed of donation copy of which is annexed to the petition of the four (4) parcels of land
constituting said projected feeder roads, in favor of the Government of the Republic of the
Philippines; that said alleged deed of donation was, on the same date, accepted by the then
Executive Secretary; that being subject to an onerous condition, said donation partook of the
nature of a contract; that, such, said donation violated the provision of our fundamental law
prohibiting members of Congress from being directly or indirectly financially interested in any
contract with the Government, and, hence, is unconstitutional, as well as null and void ab
initio, for the construction of the projected feeder roads in question with public funds would
greatly enhance or increase the value of the aforementioned subdivision of respondent
Zulueta, aside from relieving him from the burden of constructing his subdivision streets or
roads at his own expense; that the construction of said projected feeder roads was then
being undertaken by the Bureau of Public Highways; and that, unless restrained by the court,
the respondents would continue to execute, comply with, follow and implement the
aforementioned illegal provision of law, to the irreparable damage, detriment and prejudice
not only to the petitioner but to the Filipino nation.
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null
and void; that the alleged deed of donation of the feeder roads in question be declared
unconstitutional and, therefore, illegal; that a writ of injunction be issued enjoining the
Secretary of Public Works and Communications, the Director of the Bureau of Public Works
and Highways and Jose C. Zulueta from ordering or allowing the continuance of the above-
mentioned feeder roads project, and from making and securing any new and further releases
on the aforementioned item of Republic Act No. 920, and the disbursing officers of the
Department of Public Works and Highways from making any further payments out of said
funds provided for in Republic Act No. 920; and that pending final hearing on the merits, a
writ of preliminary injunction be issued enjoining the aforementioned parties respondent from
making and securing any new and further releases on the aforesaid item of Republic Act No.
920 and from making any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had no legal
capacity to sue, and that the petition did not state a cause of action. In support to this
motion, respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial
governor, should represent the Province of Rizal, pursuant to section 1683 of the Revised
Administrative Code; that said respondent is not aware of any law which makes illegal the
appropriation of public funds for the improvements of . . . private property; and that, the
constitutional provision invoked by petitioner is inapplicable to the donation in question, the
same being a pure act of liberality, not a contract. The other respondents, in turn, maintained
that petitioner could not assail the appropriation in question because there is no actual bona
fide case . . . in which the validity of Republic Act No. 920 is necessarily involved and
petitioner has not shown that he has a personal and substantial interest in said Act and that
its enforcement has caused or will cause him a direct injury.
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision,
dated October 29, 1953, holding that, since public interest is involved in this case, the
Provincial Governor of Rizal and the provincial fiscal thereof who represents him therein,
have the requisite personalities to question the constitutionality of the disputed item of
Republic Act No. 920; that the legislature is without power appropriate public revenues for
anything but a public purpose, that the instructions and improvement of the feeder roads in
question, if such roads where private property, would not be a public purpose; that, being
subject to the following condition:
The within donation is hereby made upon the condition that the Government of the Republic
of the Philippines will use the parcels of land hereby donated for street purposes only and for
no other purposes whatsoever; it being expressly understood that should the Government of
the Republic of the Philippines violate the condition hereby imposed upon it, the title to the
land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C.
ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is
absolutely forbidden by the Constitution and consequently illegal, for Article 1409 of the
Civil Code of the Philippines, declares in existence and void from the very beginning contracts
whose cause, objector purpose is contrary to law, morals . . . or public policy; that the legality
of said donation may not be contested, however, by petitioner herein, because his interest
are not directly affected thereby; and that, accordingly, the appropriation in question should
be upheld and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the
aforementioned motions to dismiss, which as much, are deemed to have admitted
hypothetically the allegations of fact made in the petition of appellant herein. According to
said petition, respondent Zulueta is the owner of several parcels of residential land situated
in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been
reserved for the projected feeder roads aforementioned, which, admittedly, were private
property of said respondent when Republic Act No. 920, appropriating P85,000.00 for the
construction, reconstruction, repair, extension and improvement of said roads, was passed
by Congress, as well as when it was approved by the President on June 20, 1953. The petition
further alleges that the construction of said roads, to be undertaken with the aforementioned
appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the
burden of constructing his subdivision streets or roads at his own expenses, 1 and would
greatly enhance or increase the value of the subdivision of said respondent. The lower court
held that under these circumstances, the appropriation in question was clearly for a private,
not a public purpose.
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2 However,
respondent Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws . . . Aside from the fact that movant is not aware of any law
which makes illegal the appropriation of public funds for the improvement of what we, in the
meantime, may assume as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature
of the Government established under the Constitution of the Republic of the Philippines and
the system of checks and balances underlying our political structure. Moreover, it is refuted
by the decisions of this Court invalidating legislative enactments deemed violative of the
Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. . . . It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of the
interest to be affected nor the degree to which the general advantage of the community, and
thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public
or to the state, which results from the promotion of private interest and the prosperity of private
enterprises or business, does not justify their aid by the use public money. (25 R.L.C. pp.
398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only,
discussed supra sec. 14, money raised by taxation can be expended only for public purposes
and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be
used only for public purpose. The right of the legislature to appropriate funds is correlative
with its right to tax, and, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to
another purpose, no appropriation of state funds can be made for other than for a public
purpose.
xxx xxx xxx
The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve the
public. (81 C.J.S. pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as
such, exists primarily for the promotion of the general welfare. Besides, reflecting as they do,
the established jurisprudence in the United States, after whose constitutional system ours
has been patterned, said views and jurisprudence are, likewise, part and parcel of our own
constitutional law.
This notwithstanding, the lower court felt constrained to uphold the appropriation in question,
upon the ground that petitioner may not contest the legality of the donation above referred to
because the same does not affect him directly. This conclusion is, presumably, based upon
the following premises, namely: (1) that, if valid, said donation cured the constitutional infirmity
of the aforementioned appropriation; (2) that the latter may not be annulled without a previous
declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article
1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these
premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the
latter consists of an amendment of the organic law, removing, with retrospective operation,
the constitutional limitation infringed by said statute. Referring to the P85,000.00
appropriation for the projected feeder roads in question, the legality thereof depended upon
whether said roads were public or private property when the bill, which, latter on, became
Republic Act 920, was passed by Congress, or, when said bill was approved by the President
and the disbursement of said sum became effective, or on June 20, 1953 (see section 13 of
said Act). Inasmuch as the land on which the projected feeder roads were to be constructed
belonged then to respondent Zulueta, the result is that said appropriation sought a private
purpose, and hence, was null and void. 4 The donation to the Government, over five (5)
months after the approval and effectivity of said Act, made, according to the petition, for the
purpose of giving a semblance of legality, or legalizing, the appropriation in question, did
not cure its aforementioned basic defect. Consequently, a judicial nullification of said donation
need not precede the declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to
exceptions. For instance, the creditors of a party to an illegal contract may, under the
conditions set forth in Article 1177 of said Code, exercise the rights and actions of the latter,
except only those which are inherent in his person, including therefore, his right to the
annulment of said contract, even though such creditors are not affected by the same, except
indirectly, in the manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will
sustain a direct injury in consequence of its enforcement. Yet, there are many decisions
nullifying, at the instance of taxpayers, laws providing for the disbursement of public
funds, 5 upon the theory that the expenditure of public funds by an officer of the State for the
purpose of administering an unconstitutional act constitutes a misapplication of such funds,
which may be enjoined at the request of a taxpayer. 6 Although there are some decisions to
the contrary, 7the prevailing view in the United States is stated in the American Jurisprudence
as follows:
In the determination of the degree of interest essential to give the requisite standing to attack
the constitutionality of a statute, the general rule is that not only persons individually affected,
but also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys
raised by taxation and may therefore question the constitutionality of statutes requiring
expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs.
Mellon (262 U.S. 447), insofar as federal laws are concerned, upon the ground that the
relationship of a taxpayer of the U.S. to its Federal Government is different from that of a
taxpayer of a municipal corporation to its government. Indeed, under the composite system
of government existing in the U.S., the states of the Union are integral part of the Federation
from an international viewpoint, but, each state enjoys internally a substantial measure of
sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same
was made by representatives of each state of the Union, not of the people of the U.S., except
insofar as the former represented the people of the respective States, and the people of each
State has, independently of that of the others, ratified said Constitution. In other words, the
Federal Constitution and the Federal statutes have become binding upon the people of the
U.S. in consequence of an act of, and, in this sense, through the respective states of the
Union of which they are citizens. The peculiar nature of the relation between said people and
the Federal Government of the U.S. is reflected in the election of its President, who is chosen
directly, not by the people of the U.S., but by electors chosen by each State, in such manner
as the legislature thereof may direct (Article II, section 2, of the Federal Constitution).
The relation between the people of the Philippines and its taxpayers, on the other hand, and
the Republic of the Philippines, on the other, is not identical to that obtaining between the
people and taxpayers of the U.S. and its Federal Government. It is closer, from a domestic
viewpoint, to that existing between the people and taxpayers of each state and the
government thereof, except that the authority of the Republic of the Philippines over the
people of the Philippines is more fully direct than that of the states of the Union, insofar as
the simple and unitary type of our national government is not subject to limitations analogous
to those imposed by the Federal Constitution upon the states of the Union, and those imposed
upon the Federal Government in the interest of the Union. For this reason, the rule
recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating
local or state public funds which has been upheld by the Federal Supreme Court
(Crampton vs. Zabriskie, 101 U.S. 601) has greater application in the Philippines than that
adopted with respect to acts of Congress of the United States appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a
land by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the
purpose of contesting the price being paid to the owner thereof, as unduly exorbitant. It is true
that in Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee
of the Government was not permitted to question the constitutionality of an appropriation for
backpay of members of Congress. However, in Rodriguez vs. Treasurer of the
Philippines and Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we
entertained the action of taxpayers impugning the validity of certain appropriations of public
funds, and invalidated the same. Moreover, the reason that impelled this Court to take such
position in said two (2) cases the importance of the issues therein raised is present in
the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases, petitioner
herein is not merely a taxpayer. The Province of Rizal, which he represents officially as its
Provincial Governor, is our most populated political subdivision, 8 and, the taxpayers therein
bear a substantial portion of the burden of taxation, in the Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently
justify petitioners action in contesting the appropriation and donation in question; that this
action should not have been dismissed by the lower court; and that the writ of preliminary
injunction should have been maintained.
WHEREFORE, the decision appealed from is hereby REVERSED, and the records are
remanded to the lower court for further proceedings not inconsistent with this decision, with
the costs of this instance against respondent Jose C. Zulueta. It is SO ORDERED.

June 18, 1987

G.R. No. L-75697

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION,
CITY MAYOR and CITY TREASURER OF MANILA, respondents.

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on
behalf of other videogram operators adversely affected. It assails the constitutionality of Presidential
Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to
regulate and supervise the videogram industry (hereinafter briefly referred to as the BOARD). The
Decree was promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days
after completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential
Decree No. 1994 amended the National Internal Revenue Code providing, inter alia:

SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette,
ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers,
Importers and Distributors Association of the Philippines, and Philippine Motion Pictures Producers
Association, hereinafter collectively referred to as the Intervenors, were permitted by the Court to
intervene in the case, over petitioner's opposition, upon the allegations that intervention was
necessary for the complete protection of their rights and that their "survival and very existence is
threatened by the unregulated proliferation of film piracy." The Intervenors were thereafter allowed to
file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among

others, videotapes, discs, cassettes or any technical improvement or variation thereof, have
greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp
decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the
collection of sales, contractor's specific, amusement and other taxes, thereby resulting in
substantial losses estimated at P450 Million annually in government revenues;
 2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum
from rentals, sales and disposition of videograms, and such earnings have not been
subjected to tax, thereby depriving the Government of approximately P180 Million in taxes
each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the
viability of the movie industry, particularly the more than 1,200 movie houses and theaters
throughout the country, and occasioned industry-wide displacement and unemployment due
to the shutdown of numerous moviehouses and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the

Government to create an environment conducive to growth and development of all business
industries, including the movie industry which has an accumulated investment of about P3
Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only
alleviate the dire financial condition of the movie industry upon which more than 75,000
families and 500,000 workers depend for their livelihood, but also provide an additional
source of revenue for the Government, and at the same time rationalize the heretofore
uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features

constitutes a clear and present danger to the moral and spiritual well-being of the youth, and
impairs the mandate of the Constitution for the State to support the rearing of the youth for
civic efficiency and the development of moral character and promote their physical,
intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb
these blatant malpractices which have flaunted our censorship and copyright laws;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the
people and betraying the national economic recovery program, bold emergency measures
must be adopted with dispatch; ... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;

2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the vast powers
conferred upon him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to
include the general purpose which a statute seeks to achieve. It is not necessary that the title
express each and every end that the statute wishes to accomplish. The requirement is satisfied if all
the parts of the statute are related, and are germane to the subject matter expressed in the title, or
as long as they are not inconsistent with or foreign to the general subject and title. 2An act having a
single general subject, indicated in the title, may contain any number of provisions, no matter how
diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and
may be considered in furtherance of such subject by providing for the method and means of carrying
out the general object." 3 The rule also is that the constitutional requirement as to the title of a bill
should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be
given practical rather than technical construction. 5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a
rider is without merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any

provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the
purchase price or rental rate, as the case may be, for every sale, lease or disposition of a
videogram containing a reproduction of any motion picture or audiovisual program. Fifty
percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other
fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED,
That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the
Metropolitan Manila Commission.

xxx xxx xxx

The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the DECREE, which is the regulation of the video industry
through the Videogram Regulatory Board as expressed in its title. The tax provision is not
inconsistent with, nor foreign to that general subject and title. As a tool for regulation 6 it is simply one
of the regulatory and control mechanisms scattered throughout the DECREE. The express purpose
of the DECREE to include taxation of the video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those
preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE,
which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to
express all those objectives in the title or that the latter be an index to the body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or even definitely deters the activities
taxed. 8 The power to impose taxes is one so unlimited in force and so searching in extent, that the
courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest
in the discretion of the authority which exercises it. 9 In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by
the realization that earnings of videogram establishments of around P600 million per annum have
not been subjected to tax, thereby depriving the Government of an additional source of revenue. It is
an end-user tax, imposed on retailers for every videogram they make available for public viewing. It
is similar to the 30% amusement tax imposed or borne by the movie industry which the theater-
owners pay to the government, but which is passed on to the entire cost of the admission ticket, thus
shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all
videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also
an objective of the DECREE to protect the movie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature
to impose the tax was to favor one industry over another. 11

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 "inequities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation". 12 Taxation has been
made the implement of the state's police power.13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by
the former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in
the judgment of the President ... , there exists a grave emergency or a threat or imminence thereof,
or whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to
act adequately on any matter for any reason that in his judgment requires immediate action, he may,
in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which
shall form part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the
people and betraying the national economic recovery program necessitated bold emergency
measures to be adopted with dispatch. Whatever the reasons "in the judgment" of the then
President, considering that the issue of the validity of the exercise of legislative power under the said
Amendment still pends resolution in several other cases, we reserve resolution of the question
raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of
legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the
direct assistance of other agencies and units of the government and deputize, for a fixed and limited
period, the heads or personnel of such agencies and units to perform enforcement functions for the
Board" is not a delegation of the power to legislate but merely a conferment of authority or discretion
as to its execution, enforcement, and implementation. "The true distinction is between the delegation
of power to make the law, which necessarily involves a discretion as to what it shall be, and
conferring authority or discretion as to its execution to be exercised under and in pursuance of the
law. The first cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very
language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed and
limited period" with the deputized agencies concerned being "subject to the direction and control of
the BOARD." That the grant of such authority might be the source of graft and corruption would not
stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will
not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or
different testimony than the law required at the time of the commission of the offense." It is
petitioner's position that Section 15 of the DECREE in providing that:

All videogram establishments in the Philippines are hereby given a period of forty-five (45)
days after the effectivity of this Decree within which to register with and secure a permit from
the BOARD to engage in the videogram business and to register with the BOARD all their
inventories of videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or otherwise disposed
of. Thereafter any videogram found in the possession of any person engaged in the
videogram business without the required proof of registration by the BOARD, shall be prima
facie evidence of violation of the Decree, whether the possession of such videogram be for
private showing and/or public exhibition.

raises immediately a prima facie evidence of violation of the DECREE when the required proof of
registration of any videogram cannot be presented and thus partakes of the nature of an ex post
facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et
al. 15

... it is now well settled that "there is no constitutional objection to the passage of a law
providing that the presumption of innocence may be overcome by a contrary presumption
founded upon the experience of human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856
[1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL
LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have been
proved that they shall be prima facie evidence of the existence of the guilt of the accused
and shift the burden of proof provided there be a rational connection between the facts
proved and the ultimate facts presumed so that the inference of the one from proof of the
others is not unreasonable and arbitrary because of lack of connection between the two in
common experience". 16

Applied to the challenged provision, there is no question that there is a rational connection between
the fact proved, which is non-registration, and the ultimate fact presumed which is violation of the
DECREE, besides the fact that the prima facie presumption of violation of the DECREE attaches
only after a forty-five-day period counted from its effectivity and is, therefore, neither retrospective in
character.

6. We do not share petitioner's fears that the video industry is being over-regulated and being eased
out of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation
was apparent. While the underlying objective of the DECREE is to protect the moribund movie
industry, there is no question that public welfare is at bottom of its enactment, considering "the unfair
competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought
about by the availability of unclassified and unreviewed video tapes containing pornographic films
and films with brutally violent sequences; and losses in government revenues due to the drop in
theatrical attendance, not to mention the fact that the activities of video establishments are virtually
untaxed since mere payment of Mayor's permit and municipal license fees are required to engage in
business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video
industry. On the contrary, video establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of
the DECREE. These considerations, however, are primarily and exclusively a matter of legislative
concern.

Only congressional power or competence, not the wisdom of the action taken, may be the
basis for declaring a statute invalid. This is as it ought to be. The principle of separation of
powers has in the main wisely allocated the respective authority of each department and
confined its jurisdiction to such a sphere. There would then be intrusion not allowable under
the Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would
substitute its own. If there be adherence to the rule of law, as there ought to be, the last
offender should be courts of justice, to which rightly litigants submit their controversy
precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack
on the validity of the challenged provision likewise insofar as there may be objections, even if
valid and cogent on its wisdom cannot be sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged
statute. We find no clear violation of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.

G.R. No. L-77194 March 15, 1988

VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE

ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER
LACSON, TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO LLAMAS, RODOLFO
SIASON, PACIFICO MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET
AL., petitioners,
vs.
REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY
ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA
P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL FEDERATION OF SUGARCANE
PLANTERS, intervenors.

MELENCIO-HERRERA, J.:

Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in their individual capacities and in
representation of other sugar producers, planters and millers, said to be so numerous that it is impracticable to bring them all before the
Court although the subject matter of the present controversy is of common interest to all sugar producers, whether parties in this action or
not.
Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government
office tasked with the function of regulating and supervising the sugar industry until it was
superseded by its co-respondent Sugar Regulatory Administration (SRA, for brevity) under
Executive Order No. 18 on May 28, 1986. Although said Executive Order abolished the
PHILSUCOM, its existence as a juridical entity was mandated to continue for three (3) more years
"for the purpose of prosecuting and defending suits by or against it and enables it to settle and close
its affairs, to dispose of and convey its property and to distribute its assets."

Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation.

Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in
different mill districts of Negros Occidental, were allowed to intervene by the Court, since they have
common cause with petitioners and respondents having interposed no objection to their intervention.
Subsequently, on January 14,1988, the National Federation of Sugar Planters (NFSP) also moved to
intervene, which the Court allowed on February 16,1988.

Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding
respondents:

TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC

PLANTERS BANK BY THE TRANSFER AND DISTRIBUTION OF THE SHARES OF
STOCK IN THE SAID BANK; NOW HELD BY AND STILL CARRIED IN THE NAME
OF THE PHILIPPINE SUGAR COMMISSION, TO THE SUGAR PRODUCERS,
PLANTERS AND MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF THE
761,416 COMMON SHARES VALUED AT P36,548.000.00, AND 53,005,045
PREFERRED SHARES (A, B & C) WITH A TOTAL PAR VALUE OF
P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE SAID
INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF Pl.00 PER
PICUL FROM SUGAR PROCEEDS OF THE SUGAR PRODUCERS COMMENCING
THE YEAR 1978-79 UNTIL THE PRESENT AS STABILIZATION FUND PURSUANT
TO P.D. # 388.

Respondent Bank does not take issue with either petitioners or its correspondents as it has no
beneficial or equitable interest that may be affected by the ruling in this Petition, but welcomes the
filing of the Petition since it will settle finally the issue of legal ownership of the questioned shares of
stock.

Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no
trust results from Section 7 of P.D. No. 388; that the stabilization fees collected are considered
government funds under the Government Auditing Code; that the transfer of shares of stock from
PHILSUCOM to the sugar producers would be irregular, if not illegal; and that this suit is barred by
laches.

The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization fees
collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for
them, or public funds; and (2) whether shares of stock in respondent Bank paid for with said
stabilization fees belong to the PHILSUCOM or to the different sugar planters and millers from whom
the fees were collected or levied.

P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided for the
collection of a Stabilization Fund as follows:
 SEC. 7. Capitalization, Special Fund of the Commission, Development and
Stabilization Fund. There is hereby established a fund for the commission for the
purpose of financing the growth and development of the sugar industry and all its
components, stabilization of the domestic market including the foreign market to
be administered in trust by the Commission and deposited in the Philippine National
Bank derived in the manner herein below cited from the following sources:

a. Stabilization fund shall be collected as provided for in the various provisions of this
Decree.

b. Stabilization fees shall be collected from planters and millers in the amount of Two
(P2.00) Pesos for every picul produced and milled for a period of five years from the
approval of this Decree and One (Pl.00) Peso for every picul produced and milled
every year thereafter.

Provided: That fifty (P0.50) centavos per picul of the amount levied on planters,
millers and traders under Section 4(c) of this Decree will be used for the payment of
salaries and wages of personnel, fringe benefits and allowances of officers and
employees for the purpose of accomplishing and employees for the purpose of
accomplishing the efficient performance of the duties of the Commission.

Provided, further: That said amount shall constitute a lien on the sugar quedan
and/or warehouse receipts and shall be paid immediately by the planters and mill
companies, sugar centrals and refineries to the Commission. (paragraphing and bold
supplied).

Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered in
trust by the Commission." However, while the element of an intent to create a trust is present, a
resulting trust in favor of the sugar producers, millers and planters cannot be said to have ensued
because the presumptive intention of the parties is not reasonably ascertainable from the language
of the statute itself.

The doctrine of resulting trusts is founded on the presumed intention of the parties;
and as a general rule, it arises where, and only where such may be reasonably
presumed to be the intention of the parties, as determined from the facts and
circumstances existing at the time of the transaction out of which it is sought to be
established (89 C.J.S. 947).

No implied trust in favor of the sugar producers either can be deduced from the imposition of the
levy. "The essential Idea of an implied trust involves a certain antagonism between the cestui que
trust and the trustee even when the trust has not arisen out of fraud nor out of any transaction of a
fraudulent or immoral character (65 CJ 222). It is not clearly shown from the statute itself that the
PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the benefit of the
sugar producers. It must be categorically demonstrated that the very administrative agency which is
the source of such regulation would place a burden on itself (Batchelder v. Central Bank of the
Philippines, L-25071, July 29,1972,46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 [1954]).

Neither can petitioners place reliance on the history of respondents Bank. They recite that at the
beginning, the Bank was owned by the Roman-Rojas Group. Because it underwent difficulties early
in the year 1978, Mr. Roberto S. Benedicto, then Chairman of the PHILSUCOM, submitted a
proposal to the Central Bank for the rehabilitation of the Bank. The Central Bank acted favorably on
the proposal at the meeting of the Monetary Board on March 31, 1978 subject to the infusion of fresh
capital by the Benedicto Group. Petitioners maintain that this infusion of fresh capital was
accomplished, not by any capital investment by Mr. Benedicto, but by PHILSUCOM, which set aside
the proceeds of the P1.00 per picul stabilization fund to pay for its subscription in shares of stock of
respondent Bank. It is petitioners' submission that all shares were placed in PHILSUCOM's name
only out of convenience and necessity and that they are the true and beneficial owners thereof.

In point of fact, we cannot see our way clear to upholding petitioners' position that the investment of
the proceeds from the stabilization fund in subscriptions to the capital stock of the Bank were being
made for and on their behalf. That could have been clarified by the Trust Agreement, dated May 28,
1986, entered into between PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as Officer-
in-Charge, and respondent RPB- Trust Department' as "Trustee," acknowledging that PHILSUCOM
holds said shares for and in behalf of the sugar producers," the latter "being the true and beneficial
owners thereof." The Agreement, however, did not get off the ground because it failed to receive the
approval of the PHILSUCOM Board of Commissioners as required in the Agreement itself.

The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the adverse
opinion of the SRA, Resident Auditor, dated June 25,1986, which was aimed by the Chairman of the
Commission on Audit, on January 26,1987.

On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling of
the Commission on Audit that the aforementioned Agreement is of doubtful validity."

From the legal standpoint, we find basis for the opinion of the Commission on Audit reading:

That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory

Administration, in particular, owns and stocks. While it is true that the collected
stabilization fees were set aside by PHILSUCOM to pay its subscription to RPB, it did
not collect said fees for the account of the sugar producers. That stabilization fees
are charges/levies on sugar produced and milled which accrued to PHILSUCOM
under PD 338, as amended. ...

The stabilization fees collected are in the nature of a tax, which is within the power of the State to
impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar
liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a "Development
and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created
under Section 6 of Commonwealth Act 567. 1 The tax collected is not in a pure exercise of the taxing
power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz vs. Araneta,
supra.).

The protection of a large industry constituting one of the great sources of the state's
wealth and therefore directly or indirectly affecting the welfare of so great a portion of
the population of the State is affected to such an extent by public interests as to be
within the police power of the sovereign. (Johnson vs. State ex rel. Marey, 128 So.
857, cited in Lutz vs. Araneta, supra).

The stabilization fees in question are levied by the State upon sugar millers, planters and producers
for a special purpose that of "financing the growth and development of the sugar industry and all
its components, stabilization of the domestic market including the foreign market the fact that the
State has taken possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence vs. American Surety Co., 263 Mich 586,
249 ALR 535, cited in 42 Am. Jur. Sec. 2, p. 718). Having been levied for a special purpose, the
revenues collected are to be treated as a special fund, to be, in the language of the statute,
"administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned,
the balance, if any, is to be transferred to the general funds of the Government. That is the essence
of the trust intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution,
Article VI, Sec. 23(l]). 2

The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds
are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which
may be paid out only in pursuance of an appropriation made by law (1987) Constitution, Article VI,
Sec. 29[1],1973 Constitution, Article VIII, Sec. 18[l]).

That the fees were collected from sugar producers, planters and millers, and that the funds were
channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a
trust fired for their benefit nor make them the beneficial owners of the shares so purchased. It is but
rational that the fees be collected from them since it is also they who are to be benefited from the
expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien to
the purpose intended because of the Bank's character as a commodity bank for sugar conceived for
the industry's growth and development. Furthermore, of note is the fact that one-half, (1/2) or PO.50
per picul, of the amount levied under P.D. No. 388 is to be utilized for the "payment of salaries and
wages of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM"
thereby immediately negating the claim that the entire amount levied is in trust for sugar, producers,
planters and millers.

To rule in petitioners' favor would contravene the general principle that revenues derived from taxes
cannot be used for purely private purposes or for the exclusive benefit of private persons. The
Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its components,
stabilization of the domestic market," including the foreign market the industry being of vital
importance to the country's economy and to national interest.

WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No costs.

This Decision is immediately executory.

SO ORDERED.

G.R. No. 101273 July 3, 1992

CONGRESSMAN ENRIQUE T. GARCIA (Second District of Bataan), petitioner,

vs.
THE EXECUTIVE SECRETARY, THE COMMISSIONER OF CUSTOMS, THE NATIONAL ECONOMIC
AND DEVELOPMENT AUTHORITY, THE TARIFF COMMISSION, THE SECRETARY OF FINANCE,
and THE ENERGY REGULATORY BOARD, respondents.

FELICIANO, J.:

On 27 November 1990, the President issued Executive Order No. 438 which imposed, in addition to any
other duties, taxes and charges imposed by law on all articles imported into the Philippines, an additional
duty of five percent (5%) ad valorem. This additional duty was imposed across the board on all imported
articles, including crude oil and other oil products imported into the Philippines. This additional duty was
subsequently increased from five percent (5%) ad valorem to nine percent (9%) ad valorem by the
promulgation of Executive Order No. 443, dated 3 January 1991.

On 24 July 1991, the Department of Finance requested the Tariff Commission to initiate the process
required by the Tariff and Customs Code for the imposition of a specific levy on crude oil and other
petroleum products, covered by HS Heading Nos. 27.09, 27.10 and 27.11 of Section 104 of the Tariff and
Customs Code as amended. Accordingly, the Tariff Commission, following the procedure set forth in
Section 401 of the Tariff and Customs Code, scheduled a public hearing to give interested parties an
opportunity to be heard and to present evidence in support of their respective positions.

Meantime, Executive Order No. 475 was issued by the President, on 15 August 1991 reducing the rate of
additional duty on all imported articles from nine percent (9%) to five percent (5%) ad valorem, except in
the cases of crude oil and other oil products which continued to be subject to the additional duty of nine
percent (9%) ad valorem.

Upon completion of the public hearings, the Tariff Commission submitted to the President a "Report on
Special Duty on Crude Oil and Oil Products" dated 16 August 1991, for consideration and appropriate
action. Seven (7) days later, the President issued Executive Order No. 478, dated 23 August 1991, which
levied (in addition to the aforementioned additional duty of nine percent (9%) ad valorem and all other
existing ad valorem duties) a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil
and P1.00 per liter of imported oil products.

In the present Petition for Certiorari, Prohibition and Mandamus, petitioner assails the validity of Executive
Orders Nos. 475 and 478. He argues that Executive Orders Nos. 475 and 478 are violative of Section 24,
Article VI of the 1987 Constitution which provides as follows:

Sec. 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.

He contends that since the Constitution vests the authority to enact revenue bills in Congress, the
President may not assume such power by issuing Executive Orders Nos. 475 and 478 which are
in the nature of revenue-generating measures.

Petitioner further argues that Executive Orders No. 475 and 478 contravene Section 401 of the Tariff and
Customs Code, which Section authorizes the President, according to petitioner, to increase, reduce or
remove tariff duties or to impose additional duties only when necessary to protect local industries or
products but not for the purpose of raising additional revenue for the government.

Thus, petitioner questions first the constitutionality and second the legality of Executive Orders Nos. 475
and 478, and asks us to restrain the implementation of those Executive Orders. We will examine these
questions in that order.

Before doing so, however, the Court notes that the recent promulgation of Executive Order No. 507 did
not render the instant Petition moot and academic. Executive Order No. 517 which is dated 30 April 1992
provides as follows:

Sec. 1. Lifting of the Additional Duty. The additional duty in the nature of ad
valorem imposed on all imported articles prescribed by the provisions of Executive Order
No. 443, as amended, is hereby lifted; Provided, however, that the selected articles
covered by HS Heading Nos. 27.09 and 27.10 of Section 104 of the Tariff and Customs
Code, as amended, subject of Annex "A" hereof, shall continue to be subject to the
additional duty of nine (9%) percent ad valorem.
 Under the above quoted provision, crude oil and other oil products continue to be subject to the
additional duty of nine percent (9%) ad valorem under Executive Order No. 475 and to the special
duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products under
Executive Order No. 478.

Turning first to the question of constitutionality, under Section 24, Article VI of the Constitution, the
enactment of appropriation, revenue and tariff bills, like all other bills is, of course, within the province of
the Legislative rather than the Executive Department. It does not follow, however, that therefore
Executive Orders Nos. 475 and 478, assuming they may be characterized as revenue measures, are
prohibited to the President, that they must be enacted instead by the Congress of the Philippines. Section
28(2) of Article VI of the Constitution provides as follows:

(2) The Congress may, by law, authorize the President to fix within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonage and wharfage dues, and other duties or imposts within the framework of
the national development program of the Government. (Emphasis supplied)

There is thus explicit constitutional permission 1 to Congress to authorize the President "subject to such
limitations and restrictions is [Congress] may impose" to fix "within specific limits" "tariff rates . . . and
other duties or imposts . . ."

The relevant congressional statute is the Tariff and Customs Code of the Philippines, and Sections 104
and 401, the pertinent provisions thereof. These are the provisions which the President explicitly invoked
in promulgating Executive Orders Nos. 475 and 478. Section 104 of the Tariff and Customs Code
provides in relevant part:

Sec. 104. All tariff sections, chapters, headings and subheadings and the rates of import
duty under Section 104 of Presidential Decree No. 34 and all subsequent amendments
issued under Executive Orders and Presidential Decrees are hereby adopted and form
part of this Code.

There shall be levied, collected, and paid upon all imported articles the rates of duty
indicated in the Section under this section except as otherwise specifically provided for in
this Code: Provided, that, the maximum rate shall not exceed one hundred per cent ad
valorem.

The rates of duty herein provided or subsequently fixed pursuant to Section Four
Hundred One of this Code shall be subject to periodic investigation by the Tariff
Commission and may be revised by the President upon recommendation of the National
Economic and Development Authority.

xxx xxx xxx

(Emphasis supplied)

Section 401 of the same Code needs to be quoted in full:

Sec. 401. Flexible Clause.

a. In the interest of national economy, general welfare and/or national security, and
subject to the limitations herein prescribed, the President, upon recommendation of the
National Economic and Development Authority (hereinafter referred to as NEDA), is
hereby empowered: (1) to increase, reduce or remove existing protective rates of import
 duty (including any necessary change in classification). The existing rates may be
increased or decreased but in no case shall the reduced rate of import duty be lower than
the basic rate of ten (10) per cent ad valorem, nor shall the increased rate of import duty
be higher than a maximum of one hundred (100) per cent ad valorem; (2) to establish
import quota or to ban imports of any commodity, as may be necessary; and (3) to
impose an additional duty on all imports not exceeding ten (10) per cent ad valorem,
whenever necessary; Provided, That upon periodic investigations by the Tariff
Commission and recommendation of the NEDA, the President may cause a gradual
reduction of protection levels granted in Section One hundred and four of this Code,
including those subsequently granted pursuant to this section.

b. Before any recommendation is submitted to the President by the NEDA pursuant to the
provisions of this section, except in the imposition of an additional duty not exceeding ten
(10) per cent ad valorem, the Commission shall conduct an investigation in the course of
which they shall hold public hearings wherein interested parties shall be afforded
reasonable opportunity to be present, produce evidence and to be heard. The
Commission shall also hear the views and recommendations of any government office,
agency or instrumentality concerned. The Commission shall submit their findings and
recommendations to the NEDA within thirty (30) days after the termination of the public
hearings.

c. The power of the President to increase or decrease rates of import duty within the
limits fixed in subsection "a" shall include the authority to modify the form of duty. In
modifying the form of duty, the corresponding ad valorem or specific equivalents of the
duty with respect to imports from the principal competing foreign country for the most
recent representative period shall be used as bases.

d. The Commissioner of Customs shall regularly furnish the Commission a copy of all
customs import entries as filed in the Bureau of Customs. The Commission or its duly
authorized representatives shall have access to, and the right to copy all liquidated
customs import entries and other documents appended thereto as finally filed in the
Commission on Audit.

e. The NEDA shall promulgate rules and regulations necessary to carry out the
provisions of this section.

f. Any Order issued by the President pursuant to the provisions of this section shall take
effect thirty (30) days after promulgation, except in the imposition of additional duty not
exceeding ten (10) per cent ad valorem which shall take effect at the discretion of the
President. (Emphasis supplied)

Petitioner, however, seeks to avoid the thrust of the delegated authorizations found in Sections 104 and
401 of the Tariff and Customs Code, by contending that the President is authorized to act under the Tariff
and Customs Code only "to protect local industries and products for the sake of the national economy,
general welfare and/or national security." 2 He goes on to claim that:

E.O. Nos. 478 and 475 having nothing to do whatsoever with the protection of local
industries and products for the sake of national economy, general welfare and/or national
security. On the contrary, they work in reverse, especially as to crude oil, an essential
product which we do not have to protect, since we produce only minimal quantities and
have to import the rest of what we need.
 These Executive Orders are avowedly solely to enable the government to raise
government finances, contrary to Sections 24 and 28 (2) of Article VI of the Constitution,
as well as to Section 401 of the Tariff and Customs Code. 3 (Emphasis in the original)

The Court is not persuaded. In the first place, there is nothing in the language of either Section 104 or of
401 of the Tariff and Customs Code that suggest such a sharp and absolute limitation of authority. The
entire contention of petitioner is anchored on just two (2) words, one found in Section 401 (a)(1):
"existing protective rates of import duty," and the second in the proviso found at the end of Section 401
(a): "protection levels granted in Section 104 of this Code . . . . " We believe that the words "protective"
and ''protection" are simply not enough to support the very broad and encompassing limitation which
petitioner seeks to rest on those two (2) words.

In the second place, petitioner's singular theory collides with a very practical fact of which this Court may
take judicial notice that the Bureau of Customs which administers the Tariff and Customs Code, is one
of the two (2) principal traditional generators or producers of governmental revenue, the other being the
Bureau of Internal Revenue. (There is a third agency, non-traditional in character, that generates lower
but still comparable levels of revenue for the government The Philippine Amusement and Games
Corporation [PAGCOR].)

In the third place, customs duties which are assessed at the prescribed tariff rates are very much like
taxes which are frequently imposed for both revenue-raising and for regulatory purposes. 4 Thus, it has
been held that "customs duties" is "the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a foreign
country." 5 The levying of customs duties on imported goods may have in some measure the effect of
protecting local industries where such local industries actually exist and are producing comparable
goods. Simultaneously, however, the very same customs duties inevitably have the effect of producing
governmental revenues. Customs duties like internal revenue taxes are rarely, if ever, designed to
achieve one policy objective only. Most commonly, customs duties, which constitute taxes in the sense of
exactions the proceeds of which become public funds 6 have either or both the generation of revenue
and the regulation of economic or social activity as their moving purposes and frequently, it is very difficult
to say which, in a particular instance, is the dominant or principal objective. In the instant case, since the
Philippines in fact produces ten (10) to fifteen percent (15%) of the crude oil consumed here, the
imposition of increased tariff rates and a special duty on imported crude oil and imported oil products may
be seen to have some "protective" impact upon indigenous oil production. For the effective, price of
imported crude oil and oil products is increased. At the same time, it cannot be gainsaid that substantial
revenues for the government are raised by the imposition of such increased tariff rates or special duty.

In the fourth place, petitioner's concept which he urges us to build into our constitutional and customs law,
is a stiflingly narrow one. Section 401 of the Tariff and Customs Code establishes general standards with
which the exercise of the authority delegated by that provision to the President must be consistent: that
authority must be exercised in "the interest of national economy, general welfare and/or national security."
Petitioner, however, insists that the "protection of local industries" is the only permissible objective that
can be secured by the exercise of that delegated authority, and that therefore "protection of local
industries" is the sum total or the alpha and the omega of "the national economy, general welfare and/or
national security." We find it extremely difficult to take seriously such a confined and closed view of the
legislative standards and policies summed up in Section 401. We believe, for instance, that the protection
of consumers, who after all constitute the very great bulk of our population, is at the very least as
important a dimension of "the national economy, general welfare and national security" as the protection
of local industries. And so customs duties may be reduced or even removed precisely for the purpose of
protecting consumers from the high prices and shoddy quality and inefficient service that tariff-protected
and subsidized local manufacturers may otherwise impose upon the community.

It seems also important to note that tariff rates are commonly established and the corresponding customs
duties levied and collected upon articles and goods which are not found at all and not produced in the
Philippines. The Tariff and Customs Code is replete with such articles and commodities: among the more
interesting examples are ivory (Chapter 5, 5.10); castoreum or musk taken from the beaver (Chapter 5,
5.14); Olives (Chapter 7, Notes); truffles or European fungi growing under the soil on tree roots (Chapter
7, Notes); dates (Chapter 8, 8.01); figs (Chapter 8, 8.03); caviar (Chapter 16, 16.01); aircraft (Chapter 88,
88.0l); special diagnostic instruments and apparatus for human medicine and surgery (Chapter 90,
Notes); X-ray generators; X-ray tubes;
X-ray screens, etc. (Chapter 90, 90.20); etc. In such cases, customs duties may be seen to be imposed
either for revenue purposes purely or perhaps, in certain cases, to discourage any importation of the
items involved. In either case, it is clear that customs duties are levied and imposed entirely apart from
whether or not there are any competing local industries to protect.

Accordingly, we believe and so hold that Executive Orders Nos. 475 and 478 which may be conceded to
be substantially moved by the desire to generate additional public revenues, are not, for that reason
alone, either constitutionally flawed, or legally infirm under Section 401 of the Tariff and Customs Code.
Petitioner has not successfully overcome the presumptions of constitutionality and legality to which those
Executive Orders are entitled. 7

The conclusion we have reached above renders it unnecessary to deal with petitioner's additional
contention that, should Executive Orders Nos. 475 and 478 be declared unconstitutional and illegal, there
should be a roll back of prices of petroleum products equivalent to the "resulting excess money not be
needed to adequately maintain the Oil Price Stabilization Fund (OPSF)." 8

WHEREFORE, premises considered, the Petition for Certiorari, Prohibition and Mandamus is hereby
DISMISSED for lack of merit. Costs against petitioner.

SO ORDERED.

G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,

vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity
as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of
Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.

Nachura & Sarmiento for petitioner.

The Solicitor General for public respondents.

NARVASA, C.J.:

The petitioner seeks the corrective,1 prohibitive and coercive remedies provided by Rule 65 of the
Rules of Court,2upon the following posited grounds, viz.:3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution;4

2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order
No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;"5
3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund,6 because it contravenes 8, paragraph 2 (2) of
P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.

It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The
OPSF was designed to reimburse oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024,7 and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order
also authorized the investment of the fund in government securities, with the earnings from such
placements accruing to the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by the Ministry of Finance.

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion;8 that to abate the worsening deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents Oscar
Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his
capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board "are poised to accept,
process and pay claims not authorized under P.D. 1956."9

The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:

(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.

The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not channeled to another government
objective." 10 Petitioner further points out that since "a 'special fund' consists of monies collected
through the taxing power of a State, such amounts belong to the State, although the use thereof is
limited to the special purpose/objective for which it was created." 11

He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI
of the Constitution, viz.:

(2) The Congress may, by law, authorize the President to fix, within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
 and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government;

and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, and because they are, supposedly, taxes
levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a
portion thereof is taken from collections of ad valorem taxes and the increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State. The Solicitor General observes that the "argument rests on the assumption that
the OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose." 13 The petitioner's perceptions are, in the Court's view, not quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding in Valmonte v. Energy Regulatory Board, et al. 14

The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established
"for the purpose of minimizing the frequent price changes brought about by exchange
rate adjustment and/or changes in world market prices of crude oil and imported
petroleum products." 15 Under P.D. No. 1956, as amended by Executive Order No.
137 dated 27 February 1987, this Trust Account may be funded from any of the
following sources:

a) Any increase in the tax collection from ad valorem tax or customs

duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board
of Energy;

b) Any increase in the tax collection as a result of the lifting of tax

exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy:

c) Any additional amount to be imposed on petroleum products to

augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.
 xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude
oil and petroleum products from sources of supply to the Philippines may also vary
from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in
world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day or even only from week to week would result in a chaotic market
with unpredictable effects upon the country's economy in general. The OPSF was
established precisely to protect local consumers from the adverse consequences that
such frequent oil price adjustments may have upon the economy. Thus, the OPSF
serves as a pocket, as it were, into which a portion of the purchase price of oil and
petroleum products paid by consumers as well as some tax revenues are inputted
and from which amounts are drawn from time to time to reimburse oil companies,
when appropriate situations arise, for increases in, as well as underrecovery of, costs
of crude importation. The OPSF is thus a buffer mechanism through which the
domestic consumer prices of oil and petroleum products are stabilized, instead of
fluctuating every so often, and oil companies are allowed to recover those portions of
their costs which they would not otherwise recover given the level of domestic prices
existing at any given time. To the extent that some tax revenues are also put into it,
the OPSF is in effect a device through which the domestic prices of petroleum
products are subsidized in part. It appears to the Court that the establishment and
maintenance of the OPSF is well within that pervasive and non-waivable power and
responsibility of the government to secure the physical and economic survival and
well-being of the community, that comprehensive sovereign authority we designate
as the police power of the State. The stabilization, and subsidy of domestic prices of
petroleum products and fuel oil clearly critical in importance considering, among
other things, the continuing high level of dependence of the country on imported
crude oil are appropriately regarded as public purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality
of the sugar stabilization fees and explained their nature and character, viz.:

The stabilization fees collected are in the nature of a tax, which is within the power of
the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).

xxx xxx xxx

The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
 263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance if any, is to be
transferred to the general funds of the Government. That is the essence of the trust
intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). 17

The character of the Stabilization Fund as a special kind of fund is emphasized by

the fact that the funds are deposited in the Philippine National Bank and not in the
Philippine Treasury, moneys from which may be paid out only in pursuance of an
appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the
1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to
the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without precedent.

With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides
a sufficient standard by which the authority must be exercised. In addition to the general policy of the
law to protect the local consumer by stabilizing and subsidizing domestic pump rates, 8(c) of P.D.
1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what
is involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the
ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with expediency in
carrying out the objectives of the law which are embraced by the police power of the State.

The interplay and constant fluctuation of the various factors involved in the determination of the price
of oil and petroleum products, and the frequently shifting need to either augment or exhaust the
Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by
the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or
avoid the undesirable consequences of such fluidity. As such, the standard as it is expressed,
suffices to guide the delegate in the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.

For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix
a standard limits of which
are sufficiently determinate or determinable to which the delegate must conform. 20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the
 charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be
carried out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole. 21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law
intended was to permit the additional imposts for as long as there exists a need to protect the
general public and the petroleum industry from the adverse consequences of pump rate fluctuations.
"Where the standards set up for the guidance of an administrative officer and the action taken are in
fact recorded in the orders of such officer, so that Congress, the courts and the public are assured
that the orders in the judgment of such officer conform to the legislative standard, there is no failure
in the performance of the legislative functions." 22

This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may
be justified.

In relation to the third question respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of 8, paragraph 2
(2) of P.D. 1956, amended 23 the Court finds for the petitioner.

The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'" 24 and since these items are reimbursements for which the
OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million." 25 It is argued "that under the principle of ejusdem generis . . . the term 'other
factors' (as used in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result
in the reduction of domestic prices of petroleum products." 26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines
of the rule of ejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed
upon the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
 persons or things of the same kind or class as those specifically mentioned." 28 A
reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these subparagraphs.
What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly
allows the cost underrecovery only if such were incurred as a result of the reduction
of domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of
domestic prices of petroleum products. Under the same provision, however, the payment of
inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil
companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher
price.

Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is
equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and
regulations as held in Caltex 29 and which have been pointed to by the Solicitor General. At any rate,
doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A.
6952, establishing the Petroleum Price Standby Fund, 2 of which specifically authorizes the
reimbursement of "cost underrecovery incurred as a result of fuel oil sales to the National Power
Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort
to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the
so-called overpayment refunds. To be sure, the absence of any argument for or against the validity
of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.

Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.

WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement
of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.

SO ORDERED.

[G.R. No. 119761. August 29, 1996]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON.
COURT OF APPEALS, HON. COURT OF TAX APPEALS and
FORTUNE TOBACCO CORPORATION, respondents.

DECISION
VITUG, J.:

The Commissioner of Internal Revenue ("CIR") disputes the decision, dated

31 March 1995, of respondent Court of Appeals affirming the 10th August 1994
[1]

decision and the 11th October 1994 resolution of the Court of Tax
Appeals ("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco
[2]

Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of

Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the
manufacture of different brands of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation
separate certificates of trademark registration over "Champion," "Hope," and
"More" cigarettes. In a letter, dated 06 January 1987, of then Commissioner of
Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the
Presidential Commission on Good Government, "the initial position of the
Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands
since they were listed in the World Tobacco Directory as belonging to foreign
companies.However, Fortune Tobacco changed the names of 'Hope' to
Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands
from the foreign brand category. Proof was also submitted to the Bureau (of
Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco
Corporation register and therefore a local brand." Ad Valorem taxes were
[3]

imposed on these brands, at the following rates:

[4]

"BRAND AD VALOREM TAX RATE

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

Hope Luxury M. 100's

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

A bill, which later became Republic Act ("RA") No. 7654, was enacted, on
[6]

10 June 1993, by the legislature and signed into law, on 14 June 1993, by the
President of the Philippines.The new law became effective on 03 July 1993. It
amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to
read; as follows:

"SEC. 142. Cigars and Cigarettes. -

"x x x x x x x x x.

"(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below based on the
constructive manufacturer's wholesale price or the actual manufacturer's wholesale
price, whichever is higher:
"(1) On locally manufactured cigarettes which are currently classified and taxed at
fifty-five percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five
Pesos (P5.00) per pack.

"(2). On other locally manufactured cigarettes, forty-five percent (45%) provided that
the minimum tax shall not be less than Three Pesos (P3.00) per pack.

"x x x x x x x x x.

"When the registered manufacturer's wholesale price or the actual manufacturer's

wholesale price whichever is higher of existing brands of cigarettes, including the
amounts intended to cover the taxes, of cigarettes packed in twenties does not exceed
Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty percent
(20%)." (Italics supplied.)
[7]

About a month after the enactment and two (2) days before the effectivity of
RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was
issued by the BIR the full text of which expressed:

"REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS

July 1, 1993

REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT : Reclassification of Cigarettes Subject to Excise Tax

TO : All Internal Revenue Officers and Others Concerned.

"In view of the issues raised on whether 'HOPE,' 'MORE' and 'CHAMPION'
cigarettes which are locally manufactured are appropriately considered as locally
manufactured cigarettes bearing a foreign brand, this Office is compelled to review
the previous rulings on the matter.

"Section 142(c)(1) National Internal Revenue Code, as amended by R.A. No. 6956,
provides:

"'On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%)
Provided, That this rate shall apply regardless of whether or not the right to use or title
to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern."

"Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes
is that the locally manufactured cigarettes bear a foreign brand regardless of whether
or not the right to use or title to the foreign brand was sold or transferred by its owner
to the local manufacturer. The brand must be originally owned by a foreign
manufacturer or producer. If ownership of the cigarette brand is, however, not
definitely determinable, 'x x x the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern. x x x'

"'HOPE' is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. 'MORE' is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-Macdonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune
Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds,
USA. 'Champion' is registered in the said directory as being manufactured by (a)
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune
Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.

"Since there is no showing who among the above-listed manufacturers of the

cigarettes bearing the said brands are the real owner/s thereof, then it follows that the
same shall be considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held
in BIR Ruling No. 410-88, dated August 24, 1988, 'in cases where it cannot be
established or there is dearth of evidence as to whether a brand is foreign or not, resort
to the World Tobacco Directory should be made.'

"In view of the foregoing, the aforesaid brands of cigarettes, viz: 'HOPE,' 'MORE' and
'CHAMPION' being manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.

"Any ruling inconsistent herewith is revoked or modified accordingly.

(SGD) LIWAYWAY
VINZONS-CHATO
Commissioner"
 On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A.
Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it
was addressed to no one in particular. On 15 July 1993, Fortune Tobacco
received, by ordinary mail, a certified xerox copy of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the
BIR, Fortune Tobacco, requested for a review, reconsideration and recall of
RMC 37-93. The request was denied on 29 July 1993. The following day, or on
30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency
amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the
CTA. [8]

On 10 August 1994, the CTA upheld the position of Fortune Tobacco and
adjudged:

"WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands

of cigarettes, viz: `HOPE,' `MORE' and `CHAMPION' being manufactured by
Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid
and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the
brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55%
pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and
were therefore still classified as other locally manufactured cigarettes and taxed at
45% or 20% as the case may be.

"Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune

Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and
interest, is hereby canceled for lack of legal basis.

"Respondent Commissioner of Internal Revenue is hereby enjoined from collecting

the deficiency tax assessment made and issued on petitioner in relation to the
implementation of RMC No. 37-93.

"SO ORDERED." [9]

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

"I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF

INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX
CODE.

"II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION

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

"III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR

RMC 37-93 ON JULY 2, 1993.

IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL

LOCALLY MANUFACTURED CIGARETTES SIMILARLY SITUATED AS
'HOPE,' 'MORE' AND 'CHAMPION' CIGARETTES.

"V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING

HOPE, MORE AND CHAMPION CIGARETTES BEFORE THE EFFECTIVITY
OF R.A. NO. 7654.

VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT

INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS
CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT." [10]

In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling

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

"x x x a legislative rule is in the nature of subordinate legislation, designed to

implement a primary legislation by providing the details thereof. In the same way that
laws must have the benefit of public hearing, it is generally required that before a
legislative rule is adopted there must be hearing. In this connection, the
Administrative Code of 1987 provides:

"Public Participation. - If not otherwise required by law, an agency shall, as far as

practicable, publish or circulate notices of proposed rules and afford interested parties
the opportunity to submit their views prior to the adoption of any rule.

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

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

"In addition such rule must be published. On the other hand, interpretative rules are
designed to provide guidelines to the law which the administrative agency is in charge
of enforcing."[12]

It should be understandable that when an administrative rule is merely

interpretative in nature, its applicability needs nothing further than its bare
issuance for it gives no real consequence more than what the law itself has
already prescribed. When, upon the other hand, the administrative rule goes
beyond merely providing for the means that can facilitate or render least
cumbersome the implementation of the law but substantially adds to or
increases the burden of those governed, it behooves the agency to accord at
least to those directly affected a chance to be heard, and thereafter to be duly
informed, before that new issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under
which it has been issued, convinces us that the circular cannot be viewed simply
as a corrective measure (revoking in the process the previous holdings of past
Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as
amended, but has, in fact and most importantly, been made in order to place
"Hope Luxury," "Premium More" and "Champion" within the classification of
locally manufactured cigarettes bearing foreign brands and to thereby have
them covered by RA 7654. Specifically, the new law would have its amendatory
provisions applied to locally manufactured cigarettes which at the time of its
effectivity were not so classified as bearing foreign brands. Prior to the issuance
of the questioned circular, "Hope Luxury," "Premium More," and "Champion"
cigarettes were in the category of locally manufactured cigarettes notbearing
foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the
enactment of RA 7654, would have had no new tax rate consequence on private
respondent's products. Evidently, in order to place "Hope Luxury," "Premium
More," and "Champion" cigarettes within the scope of the amendatory law and
subject them to an increased tax rate, the now disputed RMC 37-93 had to be
issued. In so doing, the BIR not simply interpreted the law; verily, it legislated
under its quasi-legislative authority. The due observance of the requirements of
notice, of hearing, and of publication should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

"RMC NO. 10-86

Effectivity of Internal Revenue Rules and Regulations

"It has been observed that one of the problem areas bearing on compliance with
Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the
tax paying public. Unless there is due notice, due compliance therewith may not be
reasonably expected. And most importantly, their strict enforcement could possibly
suffer from legal infirmity in the light of the constitutional provision on `due process
of law' and the essence of the Civil Code provision concerning effectivity of laws,
whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New
Civil Code).

"In order that there shall be a just enforcement of rules and regulations, in conformity
with the basic element of due process, the following procedures are hereby prescribed
for the drafting, issuance and implementation of the said Revenue Tax Issuances:

"(1). This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit
Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue
Memorandum Orders bearing on internal revenue tax rules and regulations.

"(2). Except when the law otherwise expressly provides, the aforesaid internal revenue
tax issuances shall not begin to be operative until after due notice thereof may be
fairly presumed.

"Due notice of the said issuances may be fairly presumed only after the following
procedures have been taken:

"xxx xxx xxx

"(5). Strict compliance with the foregoing procedures is enjoined." [13]

Nothing on record could tell us that it was either impossible or impracticable for
the BIR to observe and comply with the above requirements before giving effect
to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity
of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates
taxation to be uniform and equitable. Uniformity requires that all subjects or
objects of taxation, similarly situated, are to be treated alike or put on equal
footing both in privileges and liabilities. Thus, all taxable articles or kinds of
[14]

property of the same class must be taxed at the same rate and the tax must
[15]

operate with the same force and effect in every place where the subject may be
found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," Premium More"
and "Champion" cigarettes and, unless petitioner would be willing to concede
to the submission of private respondent that the circular should, as in fact my
esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion,
be considered adjudicatory in nature and thus violative of due process following
the Ang Tibay doctrine, the measure suffers from lack of uniformity of
[16]

taxation. In its decision, the CTA has keenly noted that other cigarettes bearing
foreign brands have not been similarly included within the scope of the circular,
such as -

"1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.

(a) `PALM TREE' is listed as manufactured by office of Monopoly, Korea (Exhibit

`R')

"2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY

(a) `GOLDEN KEY' is listed being manufactured by United Tobacco, Pakistan

(Exhibit `S')

(b) `CANNON' is listed as being manufactured by Alpha Tobacco, Bangladesh

(Exhibit `T')

"3. Locally manufactured by LA PERLA INDUSTRIES, INC.

(a) `WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia

(Exhibit `U')
(b) `RIGHT' is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit
`V-1')

"4. Locally manufactured by MIGHTY CORPORATION

(a) 'WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit

'U-1')

"5. Locally manufactured by STERLING TOBACCO CORPORATION

(a) UNION' is listed as being manufactured by Sumatra Tobacco, Indonesia and

Brown and Williamson, USA (Exhibit 'U-3')

(b) WINNER' is listed as being manufactured by Alpha Tobacco, Bangladesh;

Nanyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier
Tobacco, Pakistan and Haggar, Sudan (Exhibit 'U-4')." [17]

The court quoted at length from the transcript of the hearing conducted on 10
August 1993 by the Committee on Ways and Means of the House of
Representatives; viz:

"THE CHAIRMAN. So you have specific information on Fortune Tobacco

alone. You don't have specific information on other tobacco manufacturers. Now,
there are other brands which are similarly situated.They are locally manufactured
bearing foreign brands. And may I enumerate to you all these brands, which are also
listed in the World Tobacco Directory x x x. Why were these brands not reclassified at
55 if your want to give a level playing field to foreign manufacturers?

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

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

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

"x x x x x x x x x.

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

"x x x x x x x x x.

"HON. DIAZ. But did you not consider that there are similarly situated?

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

All taken, the Court is convinced that the hastily promulgated RMC 37-93
has fallen short of a valid and effective administrative issuance.
 WHEREFORE, the decision of the Court of Appeals, sustaining that of the
Court of Tax Appeals, is AFFIRMED. No costs.
SO ORDERED.

[G.R. No. 120082. September 11, 1996]

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs. HON. FERDINAND J. MARCOS, in his capacity as the
Presiding Judge of the Regional Trial Court, Branch 20, Cebu City,
THE CITY OF CEBU, represented by its Mayor, HON. TOMAS R.
OSMEA, and EUSTAQUIO B. CESA, respondents.

DECISION
DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure question of law
are the decision of 22 March 1995[1] of the Regional Trial Court (RTC)
of Cebu City, Branch 20, dismissing the petition for declaratory relief in Civil
Case No. CEB-16900, entitled Mactan Cebu International Airport Authority vs.
City of Cebu, and its order of 4 May 1995[2]denying the motion to reconsider the
decision.
We resolved to give due course to this petition for it raises issues dwelling
on the scope of the taxing power of local government units and the limits of tax
exemption privileges of government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant
petition as follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by

virtue of Republic Act No. 6958, mandated to principally undertake the economical,
efficient and effective control, management and supervision of the Mactan
International Airport in the Province of Cebu and the Lahug Airport in Cebu City, x x
x and such other airports as may be established in the Province of Cebu x x x (Sec. 3,
RA 6958). It is also mandated to:

a) encourage, promote and develop international and domestic air traffic in the Central
Visayas and Mindanao regions as a means of making the regions centers of
international trade and tourism, and accelerating the development of the means of
transportation and communication in the country; and,

b) upgrade the services and facilities of the airports and to formulate internationally
acceptable standards of airport accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption
from payment of realty taxes in accordance with Section 14 of its Charter:

Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed
by the National Government or any of its political subdivisions, agencies and
instrumentalities x x x.

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of

the Treasurer of the City of Cebu, demanded payment for realty taxes on several
parcels of land belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A,
989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A),
located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount
of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified, claiming
in its favor the aforecited Section 14 of RA 6958 which exempts it from payment of
realty taxes. It was also asserted that it is an instrumentality of the government
performing governmental functions, citing Section 133 of the Local Government
Code of 1991 which puts limitations on the taxing powers of local government units:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. -
- Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:

a) x x x

xxx

o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units. (underscoring supplied)

Respondent City refused to cancel and set aside petitioners realty tax account,
insisting that the MCIAA is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the
Local Government Code that took effect on January 1, 1992:
Section 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in
this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under RA No. 6938, non-
stock and non-profit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code. (underscoring supplied)

xxx

Section 234. Exemptions from Real Property Taxes. x x x

(a) x x x

xxx

(e) x x x

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations are hereby withdrawn upon
the effectivity of this Code.

As the City of Cebu was about to issue a warrant of levy against the properties of
petitioner, the latter was compelled to pay its tax account under protest and thereafter
filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu, Branch
20, on December 29, 1994. MCIAA basically contended that the taxing powers of
local government units do not extend to the levy of taxes or fees of any kind on
an instrumentality of the national government. Petitioner insisted that while it is
indeed a government-owned corporation, it nonetheless stands on the same footing as
an agency or instrumentality of the national government by the very nature of its
powers and functions.

Respondent City, however, asserted that MCIAA is not an instrumentality of the

government but merely a government-owned corporation performing proprietary
functions. As such, all exemptions previously granted to it were deemed withdrawn by
operation of law, as provided under Sections 193 and 234 of the Local Government
Code when it took effect on January 1, 1992.[3]

The petition for declaratory relief was docketed as Civil Case No. CEB-
16900.
In its decision of 22 March 1995,[4] the trial court dismissed the petition in
light of its findings, to wit:
A close reading of the New Local Government Code of 1991 or RA 7160 provides the
express cancellation and withdrawal of exemption of taxes by government-owned and
controlled corporation per Sections after the effectivity of said Code on January 1,
1992, to wit: [proceeds to quote Sections 193 and 234]

Petitioners claimed that its real properties assessed by respondent City Government of
Cebu are exempted from paying realty taxes in view of the exemption granted under
RA 6958 to pay the same (citing Section 14 of RA 6958).

However, RA 7160 expressly provides that All general and special laws, acts, city
charters, decrees [sic], executive orders, proclamations and administrative regulations,
or part of parts thereof which are inconsistent with any of the provisions of this Code
are hereby repealed or modified accordingly. (/f/, Section 534, RA 7160).

With that repealing clause in RA 7160, it is safe to infer and state that the tax
exemption provided for in RA 6958 creating petitioner had been expressly repealed by
the provisions of the New Local Government Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties
effective after January 1, 1992 until the present.

This Courts ruling finds expression to give impetus and meaning to the overall
objectives of the New Local Government Code of 1991, RA 7160. It is hereby
declared the policy of the State that the territorial and political subdivisions of the
State shall enjoy genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make them more effective
partners in the attainment of national goals. Toward this end, the State shall provide
for a more responsive and accountable local government structure instituted through a
system of decentralization whereby local government units shall be given more
powers, authority, responsibilities, and resources. The process of decentralization
shall proceed from the national government to the local government units. x x x[5]

Its motion for reconsideration having been denied by the trial court in its 4
May 1995 order, the petitioner filed the instant petition based on the following
assignment of errors:
I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS
VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN
THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.
II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY
REAL PROPERTY TAXES TO THE CITY OF CEBU.
 Anent the first assigned error, the petitioner asserts that although it is a
government-owned or controlled corporation, it is mandated to perform
functions in the same category as an instrumentality of Government. An
instrumentality of Government is one created to perform governmental
functions primarily to promote certain aspects of the economic life of the
people.[6]Considering its task not merely to efficiently operate and manage the
Mactan-Cebu International Airport, but more importantly, to carry out the
Government policies of promoting and developing the Central Visayas and
Mindanao regions as centers of international trade and tourism, and
accelerating the development of the means of transportation and
communication in the country,[7] and that it is an attached agency of the
Department of Transportation and Communication (DOTC),[8] the petitioner may
stand in [sic] the same footing as an agency or instrumentality of the national
government. Hence, its tax exemption privilege under Section 14 of its Charter
cannot be considered withdrawn with the passage of the Local Government
Code of 1991 (hereinafter LGC) because Section 133 thereof specifically states
that the `taxing powers of local government units shall not extend to the levy of
taxes or fees or charges of any kind on the national government, its agencies
and instrumentalities.
As to the second assigned error, the petitioner contends that being an
instrumentality of the National Government, respondent City of Cebu has no
power nor authority to impose realty taxes upon it in accordance with the
aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine
Amusement and Gaming Corporation:[9]

Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stock are owned by the National
Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by a mere Local government.

The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (McCulloch v. Maryland, 4
Wheat 316, 4 L Ed. 579)
This doctrine emanates from the supremacy of the National Government over local
governments.

Justice Holmes, speaking for the Supreme Court, made reference to the entire absence
of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in
such a way as to prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional
Law, Vol. 2, p. 140)

Otherwise, mere creatures of the State can defeat National policies thru extermination
of what local authorities may perceive to be undesirable activities or enterprise using
the power to tax as a tool for regulation (U.S. v. Sanchez, 340 US 42). The power to
tax which was called by Justice Marshall as the power to destroy (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the
very entity which has the inherent power to wield it. (underscoring supplied)

It then concludes that the respondent Judge cannot therefore correctly say
that the questioned provisions of the Code do not contain any distinction
between a government corporation performing governmental functions as
against one performing merely proprietary ones such that the exemption
privilege withdrawn under the said Code would apply to all government
corporations. For it is clear from Section 133, in relation to Section 234, of the
LGC that the legislature meant to exclude instrumentalities of the national
government from the taxing powers of the local government units.
In its comment, respondent City of Cebu alleges that as a local government
unit and a political subdivision, it has the power to impose, levy, assess, and
collect taxes within its jurisdiction. Such power is guaranteed by the
Constitution[10] and enhanced further by the LGC. While it may be true that
under its Charter the petitioner was exempt from the payment of realty
taxes,[11] this exemption was withdrawn by Section 234 of the LGC. In response
to the petitioners claim that such exemption was not repealed because being
an instrumentality of the National Government, Section 133 of the LGC prohibits
local government units from imposing taxes, fees, or charges of any kind on it,
respondent City of Cebu points out that the petitioner is likewise a government-
owned corporation, and Section 234 thereof does not distinguish between
government-owned or controlled corporations performing governmental and
purely proprietary functions. Respondent City of Cebu urges this Court to apply
by analogy its ruling that the Manila International Airport Authority is a
government-owned corporation,[12]and to reject the application
of Basco because it was promulgated . . . before the enactment and the signing
into law of R.A. No. 7160, and was not, therefore, decided in the light of the
spirit and intention of the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits, so that security
against its abuse is to be found only in the responsibility of the legislature which
imposes the tax on the constituency who are to pay it. Nevertheless, effective
limitations thereon may be imposed by the people through their
Constitutions.[13] Our Constitution, for instance, provides that the rule of taxation
shall be uniform and equitable and Congress shall evolve a progressive system
of taxation.[14] So potent indeed is the power that it was once opined that the
power to tax involves the power to destroy.[15] Verily, taxation is a destructive
power which interferes with the personal and property rights of the people and
takes from them a portion of their property for the support of the
government. Accordingly, tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer.[16] But since taxes are what
we pay for civilized society,[17] or are the lifeblood of the nation, the law frowns
against exemptions from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayer and liberally in favor of the
taxing authority.[18] A claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken.[19] Elsewise
stated, taxation is the rule, exemption therefrom is the exception.[20] However, if
the grantee of the exemption is a political subdivision or instrumentality, the rigid
rule of construction does not apply because the practical effect of the exemption
is merely to reduce the amount of money that has to be handled by the
government in the course of its operations.[21]
The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely by
virtue of a valid delegation as before, but pursuant to direct authority conferred
by Section 5, Article X of the Constitution.[22] Under the latter, the exercise of the
power may be subject to such guidelines and limitations as the Congress may
provide which, however, must be consistent with the basic policy of local
autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the
petitioner is exempt from the payment of realty taxes imposed by the National
Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and exemption
therefrom the exception, the exemption may thus be withdrawn at the pleasure
of the taxing authority. The only exception to this rule is where the exemption
was granted to private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered by the non-
impairment clause of the Constitution.[23]
The LGC, enacted pursuant to Section 3, Article X of the Constitution,
provides for the exercise by local government units of their power to tax, the
scope thereof or its limitations, and the exemptions from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing
powers of local government units as follows:

SEC. 133. Common Limitations on the Taxing Power of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa,
except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues,
and all other kinds of customs fees, charges and dues except wharfage on wharves
constructed and maintained by the local government unit concerned;
(e) Taxes, fees and charges and other impositions upon goods carried into or out of, or
passing through, the territorial jurisdictions of local government units in the guise of
charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in
any form whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or
non-pioneer for a period of six (6) and four (4) years, respectively from the date of
registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or
water, except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of
all kinds of licenses or permits for the driving thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as
otherwise provided herein;
 (n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-
nine hundred thirty-eight (R.A. No. 6938) otherwise known as the Cooperatives Code
of the Philippines respectively; and
(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT,
ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT
UNITS. (emphasis supplied)

Needless to say, the last item (item o) is pertinent to this case. The taxes, fees
or charges referred to are of any kind; hence, they include all of these, unless
otherwise provided by the LGC.The term taxes is well understood so as to need
no further elaboration, especially in light of the above enumeration. The term
fees means charges fixed by law or ordinance for the regulation or inspection
of business or activity,[24] while charges are pecuniary liabilities such as rents or
fees against persons or property.[25]
Among the taxes enumerated in the LGC is real property tax, which is
governed by Section 232. It reads as follows:

SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality
within the Metropolitan Manila Area may levy an annual ad valorem tax on real
property such as land, building, machinery, and other improvements not hereafter
specifically exempted.

Section 234 of the LGC provides for the exemptions from payment of real
property taxes and withdraws previous exemptions therefrom granted to natural
and juridical persons, including government-owned and controlled corporations,
except as provided therein. It provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof had been granted, for
consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable or educational
purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or controlled corporations engaged in the
supply and distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A.
No. 6938; and
 (e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.

These exemptions are based on the ownership, character, and use of the
property. Thus:
(a) Ownership Exemptions. Exemptions from real property taxes on the basis
of ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city,
(iv) a municipality, (v) a barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of their
character are: (i) charitable institutions, (ii) houses and temples of prayer like
churches, parsonages or convents appurtenant thereto, mosques, and (iii) non-profit
or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the actual,
direct and exclusive use to which they are devoted are: (i) all lands, buildings and
improvements which are actually directly and exclusively used for religious, charitable
or educational purposes; (ii) all machineries and equipment actually, directly and
exclusively used by local water districts or by government-owned or controlled
corporations engaged in the supply and distribution of water and/or generation and
transmission of electric power; and (iii) all machinery and equipment used for pollution
control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the

country, all machinery and equipment for pollution control and environmental
protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural

or juridical persons including government-owned or controlled corporations are
withdrawn upon the effectivity of the Code.[26]

Section 193 of the LGC is the general provision on withdrawal of tax

exemption privileges. It provides:

SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.
 On the other hand, the LGC authorizes local government units to grant tax
exemption privileges. Thus, Section 192 thereof provides:

SEC. 192. Authority to Grant Tax Exemption Privileges.-- Local government units
may, through ordinances duly approved, grant tax exemptions, incentives or reliefs
under such terms and conditions as they may deem necessary.

The foregoing sections of the LGC speak of: (a) the limitations on the taxing
powers of local government units and the exceptions to such limitations; and
(b) the rule on tax exemptions and the exceptions thereto. The use
of exceptions or provisos in these sections, as shown by the following clauses:
(1) unless otherwise provided herein in the opening paragraph of Section 133;
(2) Unless otherwise provided in this Code in Section 193;
(3) not hereafter specifically exempted in Section 232; and
(4) Except as provided herein in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in Section 133 seems to be inaccurately worded.
Instead of the clause unless otherwise provided herein, with the herein to
mean, of course, the section, it should have used the clause unless otherwise
provided in this Code. The former results in absurdity since the section itself
enumerates what are beyond the taxing powers of local government units and,
where exceptions were intended, the exceptions are explicitly indicated in the
next. For instance, in item (a) which excepts income taxes when levied on
banks and other financial institutions; item (d) which excepts wharfage on
wharves constructed and maintained by the local government unit concerned;
and item (1) which excepts taxes, fees and charges for the registration and
issuance of licenses or permits for the driving of tricycles. It may also be
observed that within the body itself of the section, there are exceptions which
can be found only in other parts of the LGC, but the section interchangeably
uses therein the clause except as otherwise provided herein as in items (c) and
(i), or the clause except as provided in this Code in item (j). These clauses
would be obviously unnecessary or mere surplusages if the opening clause of
the section were Unless otherwise provided in this Code instead of Unless
otherwise provided herein. In any event, even if the latter is used, since under
Section 232 local government units have the power to levy real property tax,
except those exempted therefrom under Section 234, then Section 232 must
be deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude
that as a general rule, as laid down in Section 133, the taxing powers of local
government units cannot extend to the levy of, inter alia, taxes, fees and
charges of any kind on the National Government, its agencies and
instrumentalities, and local government units; however, pursuant to Section
232, provinces, cities, and municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, real property owned by the
Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person, as provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by
natural or juridical persons, including government-owned and controlled
corporations, Section 193 of the LGC prescribes the general rule, viz., they
are withdrawn upon the effectivity of the LGC, except those granted to local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, and unless otherwise
provided in the LGC. The latter proviso could refer to Section 234 which
enumerates the properties exempt from real property tax. But the last
paragraph of Section 234 further qualifies the retention of the exemption insofar
as real property taxes are concerned by limiting the retention only to those
enumerated therein; all others not included in the enumeration lost the privilege
upon the effectivity of the LGC. Moreover, even as to real property owned by
the Republic of the Philippines or any of its political subdivisions covered by
item (a) of the first paragraph of Section 234, the exemption is withdrawn if the
beneficial use of such property has been granted to a taxable person for
consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from payment of real property taxes granted
to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is,
undoubtedly, a government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958,
has been withdrawn. Any claim to the contrary can only be justified if the
petitioner can seek refuge under any of the exceptions provided in Section 234,
but not under Section 133, as it now asserts, since, as shown above, the said
section is qualified by Sections 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133
that the taxing powers of the local government units cannot extend to the levy
of:

(o) taxes, fees or charges of any kind on the National Government, its agencies or
instrumentalities, and local government units.
It must show that the parcels of land in question, which are real property, are
any one of those enumerated in Section 234, either by virtue of ownership,
character, or use of the property.Most likely, it could only be the first, but not
under any explicit provision of the said section, for none exists. In light of the
petitioners theory that it is an instrumentality of the Government, it could only
be within the first item of the first paragraph of the section by expanding the
scope of the term Republic of the Philippines to embrace its instrumentalities
and agencies. For expediency, we quote:

(a) real property owned by the Republic of the Philippines, or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.

This view does not persuade us. In the first place, the petitioners claim that
it is an instrumentality of the Government is based on Section 133(o), which
expressly mentions the word instrumentalities; and, in the second place, it fails
to consider the fact that the legislature used the phrase National Government,
its agencies and instrumentalities in Section 133(o), but only the phrase
Republic of the Philippines or any of its political subdivisions in Section 234(a).
The terms Republic of the Philippines and National Government are not
interchangeable. The former is broader and synonymous with Government of
the Republic of the Philippines which the Administrative Code of 1987 defines
as the corporate governmental entity through which the functions of government
are exercised throughout the Philippines, including, save as the contrary
appears from the context, the various arms through which political authority is
made affective in the Philippines, whether pertaining to the autonomous
regions, the provincial, city, municipal or barangay subdivisions or other forms
of local government.[27] These autonomous regions, provincial, city, municipal
or barangay subdivisions are the political subdivisions.[28]
On the other hand, National Government refers to the entire machinery of
the central government, as distinguished from the different forms of local
governments.[29] The National Government then is composed of the three great
departments: the executive, the legislative and the judicial.[30]
An agency of the Government refers to any of the various units of the
Government, including a department, bureau, office, instrumentality, or
government-owned or controlled corporation, or a local government or a distinct
unit therein;[31] while an instrumentality refers to any agency of the National
Government, not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy,
usually through a charter. This term includes regulatory agencies, chartered
institutions and government-owned and controlled corporations.[32]
If Section 234(a) intended to extend the exception therein to the withdrawal
of the exemption from payment of real property taxes under the last sentence
of the said section to the agencies and instrumentalities of the National
Government mentioned in Section 133(o), then it should have restated the
wording of the latter. Yet, it did not. Moreover, that Congress did not wish to
expand the scope of the exemption in Section 234(a) to include real property
owned by other instrumentalities or agencies of the government including
government-owned and controlled corporations is further borne out by the fact
that the source of this exemption is Section 40(a) of P.D. No. 464, otherwise
known as The Real Property Tax Code, which reads:

SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned or controlled corporation so exempt by its
charter: Provided, however, That this exemption shall not apply to real property of the
above-mentioned entities the beneficial use of which has been granted, for
consideration or otherwise, to a taxable person.

Note that as reproduced in Section 234(a), the phrase and any government-
owned or controlled corporation so exempt by its charter was excluded. The
justification for this restricted exemption in Section 234(a) seems obvious: to
limit further tax exemption privileges, especially in light of the general provision
on withdrawal of tax exemption privileges in Section 193 and the special
provision on withdrawal of exemption from payment of real property taxes in the
last paragraph of Section 234. These policy considerations are consistent with
the State policy to ensure autonomy to local governments[33] and the objective
of the LGC that they enjoy genuine and meaningful local autonomy to enable
them to attain their fullest development as self-reliant communities and make
them effective partners in the attainment of national goals.[34] The power to tax
is the most effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement
of peace, progress, and prosperity of the people. It may also be relevant to
recall that the original reasons for the withdrawal of tax exemption privileges
granted to government-owned and controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises, and there was
a need for these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due from them.[35]
The crucial issues then to be addressed are: (a) whether the parcels of land
in question belong to the Republic of the Philippines whose beneficial use has
been granted to the petitioner, and (b) whether the petitioner is a taxable
person.
Section 15 of the petitioners Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public
airport facilities, runways, lands, buildings and other properties, movable or
immovable, belonging to or presently administered by the airports, and all assets,
powers, rights, interests and privileges relating on airport works or air operations,
including all equipment which are necessary for the operations of air navigation,
aerodrome control towers, crash, fire, and rescue facilities are hereby transferred to
the Authority: Provided, however, that the operations control of all equipment
necessary for the operation of radio aids to air navigation, airways communication, the
approach control office, and the area control center shall be retained by the Air
Transportation Office. No equipment, however, shall be removed by the Air
Transportation Office from Mactan without the concurrence of the Authority. The
Authority may assist in the maintenance of the Air Transportation Office equipment.

The airports referred to are the Lahug Air Port in Cebu City and the Mactan
International Airport in the Province of Cebu,[36] which belonged to the Republic
of the Philippines, then under the Air Transportation Office (ATO).[37]
It may be reasonable to assume that the term lands refer to lands in Cebu
City then administered by the Lahug Air Port and includes the parcels of land
the respondent City of Cebu seeks to levy on for real property taxes. This
section involves a transfer of the lands, among other things, to the petitioner
and not just the transfer of the beneficial use thereof, with the ownership being
retained by the Republic of the Philippines.
This transfer is actually an absolute conveyance of the ownership thereof
because the petitioners authorized capital stock consists of, inter alia, the value
of such real estate owned and/or administered by the airports.[38] Hence, the
petitioner is now the owner of the land in question and the exception in Section
234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a taxable person
under its Charter. It was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax is conclusive proof of
the legislative intent to make it a taxable person subject to all taxes, except real
property tax.
Finally, even if the petitioner was originally not a taxable person for
purposes of real property tax, in light of the foregoing disquisitions, it had
already become, even if it be conceded to be an agency or instrumentality of
the Government, a taxable person for such purpose in view of the withdrawal in
the last paragraph of Section 234 of exemptions from the payment of real
property taxes, which, as earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance
on Basco vs. Philippine Amusement and Gaming Corporation[39] is unavailing
since it was decided before the effectivity of the LGC. Besides, nothing can
prevent Congress from decreeing that even instrumentalities or agencies of the
Government performing governmental functions may be subject to tax. Where
it is done precisely to fulfill a constitutional mandate and national policy, no one
can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision and
order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-
16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.