G.R. No.
133640 November 25, 2005
RODOLFO S. BELTRAN, doing business
under the name and style, OUR LADY OF
FATIMA BLOOD BANK, FELY G. MOSALE,
doing business under the name and style,
MOTHER SEATON BLOOD BANK; PEOPLES
BLOOD BANK, INC.; MARIA VICTORIA T.
VITO, M.D., doing business under the name
and style, AVENUE BLOOD BANK; JESUS M.
GARCIA, M.D., doing business under the
name and style, HOLY REDEEMER BLOOD
BANK, ALBERT L. LAPITAN, doing business
under the name and style, BLUE CROSS
BLOOD TRANSFUSION SERVICES;
EDGARDO R. RODAS, M.D., doing business
under the name and style, RECORD BLOOD
BANK, in their individual capacities and for
and in behalf of PHILIPPINE ASSOCIATION
OF BLOOD BANKS, Petitioners,
vs.
THE SECRETARY OF HEALTH, Respondent.
x ------------------------------------------------ x
G.R. No. 133661
DOCTORS BLOOD CENTER, Petitioner,
vs.
DEPARTMENT OF HEALTH, Respondent.
x --------------------------------------------- x
G.R. No. 139147
RODOLFO S. BELTRAN, doing business
under the name and style, OUR LADY OF
FATIMA BLOOD BANK, FELY G. MOSALE,
doing business under the name and style,
MOTHER SEATON BLOOD BANK; PEOPLES
BLOOD BANK, INC.; MARIA VICTORIA T.
VITO, M.D., doing business under the name
and style, AVENUE BLOOD BANK; JESUS M.
GARCIA, M.D., doing business under the
name and style, HOLY REDEEMER BLOOD
BANK, ALBERT L. LAPITAN, doing business
under the name and style, BLUE CROSS
BLOOD TRANSFUSION SERVICES;
EDGARDO R. RODAS, M.D., doing business
under the name and style, RECORD BLOOD
BANK, in their Individual capacities and for
and in behalf of PHILIPPINE ASSOCIATION
OF BLOOD BANKS, Petitioners,
vs.
THE SECRETARY OF HEALTH, Respondent.
DECISION
AZCUNA, J.:
Before this Court are petitions assailing primarily
the constitutionality of Section 7 of Republic Act
No. 7719, otherwise known as the "National
Blood Services Act of 1994," and the validity of
Administrative Order (A.O.) No. 9, series of 1995
or the Rules and Regulations Implementing
Republic Act No. 7719.
G.R. No. 133640,1 entitled "Rodolfo S. Beltran,
doing business under the name and style, Our
Lady of Fatima Blood Bank, et al., vs. The
Secretary of Health" and G.R. No.
2
133661, entitled "Doctors Blood Bank Center
vs. Department of Health" are petitions for
certiorari and mandamus, respectively, seeking
the annulment of the following: (1) Section 7 of
Republic Act No. 7719; and, (2) Administrative
Order (A.O.) No. 9, series of 1995. Both petitions
likewise pray for the issuance of a writ of
prohibitory injunction enjoining the Secretary of
Health from implementing and enforcing the
aforementioned law and its Implementing Rules
and Regulations; and, for a mandatory injunction
ordering and commanding the Secretary of
Health to grant, issue or renew petitioners
license to operate free standing blood banks
(FSBB).
The above cases were consolidated in a
resolution of the Court En Banc dated June 2,
1998.3
G.R. No. 139147,4 entitled "Rodolfo S. Beltran,
doing business under the name and style, Our
Lady of Fatima Blood Bank, et al., vs. The
Secretary of Health," on the other hand, is a
petition to show cause why respondent Secretary
of Health should not be held in contempt of court.
This case was originally assigned to the Third
Division of this Court and later consolidated with
G.R. Nos. 133640 and 133661 in a resolution
dated August 4, 1999.5
Petitioners comprise the majority of the Board of
Directors of the Philippine Association of Blood
Banks, a duly registered non-stock and non-profit
association composed of free standing blood
banks.
Public respondent Secretary of Health is being
sued in his capacity as the public official directly
involved and charged with the enforcement and
implementation of the law in question.
The facts of the case are as follows:
Republic Act No. 7719 or the National Blood
Services Act of 1994 was enacted into law on
April 2, 1994. The Act seeks to provide
an adequate supply of safe blood by promoting
voluntary blood donation and by regulating blood
banks in the country. It was approved by then
President Fidel V. Ramos on May 15, 1994 and
was subsequently published in the Official
Gazette on August 18, 1994. The law took effect
on August 23, 1994.
On April 28, 1995, Administrative Order No. 9,
Series of 1995, constituting the Implementing
Rules and Regulations of said law was
promulgated by respondent Secretary of the
Department of Health (DOH).6
Section 7 of R.A. 7719 7 provides:
"Section 7. Phase-out of Commercial Blood
Banks - All commercial blood banks shall be
phased-out over a period of two (2) years after
the effectivity of this Act, extendable to a
maximum period of two (2) years by the
Secretary."
Section 23 of Administrative Order No. 9
provides:
"Section 23. Process of Phasing Out. -- The
Department shall effect the phasing-out of all
commercial blood banks over a period of two (2)
years, extendible for a maximum period of two
(2) years after the effectivity of R.A. 7719. The
decision to extend shall be based on the result of
a careful study and review of the blood supply
and demand and public safety."8
Blood banking and blood transfusion services in
the country have been arranged in four (4)
categories: blood centers run by the Philippine
National Red Cross (PNRC), government-run
blood services, private hospital blood banks, and
commercial blood services.
Years prior to the passage of the National Blood
Services Act of 1994, petitioners have already
been operating commercial blood banks under
Republic Act No. 1517, entitled "An Act
Regulating the Collection, Processing and Sale
of Human Blood, and the Establishment and
Operation of Blood Banks and Blood Processing
Laboratories." The law, which was enacted on
June 16, 1956, allowed the establishment and
operation by licensed physicians of blood banks
and blood processing laboratories. The Bureau
of Research and Laboratories (BRL) was created
in 1958 and was given the power to regulate
clinical laboratories in 1966 under Republic Act
No. 4688. In 1971, the Licensure Section was
created within the BRL. It was given the duty to
enforce the licensure requirements for blood
banks as well as clinical laboratories. Due to this
development, Administrative Order No. 156,
Series of 1971, was issued. The new rules and
regulations triggered a stricter enforcement of
the Blood Banking Law, which was characterized
by frequent spot checks, immediate suspension
and communication of such suspensions to
hospitals, a more systematic record-keeping and
frequent communication with blood banks
through monthly information bulletins.
Unfortunately, by the 1980s, financial difficulties
constrained the BRL to reduce the frequency of
its supervisory visits to the blood banks.9
Meanwhile, in the international scene, concern
for the safety of blood and blood products
intensified when the dreaded disease Acute
Immune Deficiency Syndrome (AIDS) was first
described in 1979. In 1980, the International
Society of Blood Transfusion (ISBT) formulated
the Code of Ethics for Blood Donation and
Transfusion. In 1982, the first case of
transfusion-associated AIDS was described in
an infant. Hence, the ISBT drafted in 1984, a
model for a national blood policy outlining certain
principles that should be taken into
consideration. By 1985, the ISBT had
disseminated guidelines requiring AIDS testing
of blood and blood products for transfusion.10
In 1989, another revision of the Blood Banking
Guidelines was made. The DOH issued
Administrative Order No. 57, Series of 1989,
which classified banks into primary, secondary
and tertiary depending on the services they
provided. The standards were adjusted
according to this classification. For instance, floor
area requirements varied according to
classification level. The new guidelines likewise
required Hepatitis B and HIV testing, and that the
blood bank be headed by a pathologist or a
hematologist.11
In 1992, the DOH issued Administrative Order
No. 118-A institutionalizing the National Blood
Services Program (NBSP). The BRL was
designated as the central office primarily
responsible for the NBSP. The program paved
the way for the creation of a committee that will
implement the policies of the program and the
formation of the Regional Blood Councils.
In August 1992, Senate Bill No. 1011, entitled
"An Act Promoting Voluntary Blood Donation,
Providing for an Adequate Supply of Safe Blood,
Regulating Blood Banks and Providing Penalties
for Violations Thereof, and for other Purposes"
was introduced in the Senate.12
Meanwhile, in the House of Representatives,
House Bills No. 384, 546, 780 and 1978 were
being deliberated to address the issue of safety
of the Philippine blood bank system.
Subsequently, the Senate and House Bills were
referred to the appropriate committees and
subsequently consolidated.13
In January of 1994, the New Tropical Medicine
Foundation, with the assistance of the U.S.
Agency for International Development (USAID)
released its final report of a study on the
Philippine blood banking system entitled "Project
to Evaluate the Safety of the Philippine Blood
Banking System." It was revealed that of the
blood units collected in 1992, 64.4 % were
supplied by commercial blood banks, 14.5% by
the PNRC, 13.7% by government hospital-based
blood banks, and 7.4% by private hospital-based
blood banks. During the time the study was
made, there were only twenty-four (24)
registered or licensed free-standing or
commercial blood banks in the country. Hence,
with these numbers in mind, the study deduced
that each commercial blood bank produces five
times more blood than the Red Cross and fifteen
times more than the government-run blood
banks. The study, therefore, showed that the
Philippines heavily relied on commercial sources
of blood. The study likewise revealed that 99.6%
of the donors of commercial blood banks and
77.0% of the donors of private-hospital based
blood banks are paid donors. Paid donors are
those who receive remuneration for donating
their blood. Blood donors of the PNRC and
government-run hospitals, on the other hand, are
mostly voluntary.14
It was further found, among other things, that
blood sold by persons to blood commercial
banks are three times more likely to have any of
the four (4) tested infections or blood transfusion
transmissible diseases, namely, malaria,
syphilis, Hepatitis B and Acquired Immune
Deficiency Syndrome (AIDS) than those donated
to PNRC.15
Commercial blood banks give paid donors
varying rates around P50 to P150, and because
of this arrangement, many of these donors are
poor, and often they are students, who need
cash immediately. Since they need the money,
these donors are not usually honest about their
medical or social history. Thus, blood from
healthy, voluntary donors who give their true
medical and social history are about three times
much safer than blood from paid donors.16
What the study also found alarming is that many
Filipino doctors are not yet fully trained on the
specific indications for blood component
transfusion. They are not aware of the lack of
blood supply and do not feel the need to adjust
their practices and use of blood and blood
products. It also does not matter to them where
the blood comes from.17
On August 23, 1994, the National Blood Services
Act providing for the phase out of commercial
blood banks took effect. On April 28, 1995,
Administrative Order No. 9, Series of 1995,
constituting the Implementing Rules and
Regulations of said law was promulgated by
DOH.
The phase-out period was extended for two
years by the DOH pursuant to Section 7 of
Republic Act No. 7719 and Section 23 of its
Implementing Rules and Regulations. Pursuant
to said Act, all commercial blood banks should
have been phased out by May 28, 1998. Hence,
petitioners were granted by the Secretary of
Health their licenses to open and operate a blood
bank only until May 27, 1998.
On May 20, 1998, prior to the expiration of the
licenses granted to petitioners, they filed a
petition for certiorari with application for the
issuance of a writ of preliminary injunction or
temporary restraining order under Rule 65 of the
Rules of Court assailing the constitutionality and
validity of the aforementioned Act and its
Implementing Rules and Regulations. The case
was entitled "Rodolfo S. Beltran, doing business
under the name and style, Our Lady of Fatima
Blood Bank," docketed as G.R. No. 133640.
On June 1, 1998, petitioners filed an Amended
Petition for Certiorari with Prayer for Issuance of
a Temporary Restraining Order, writ of
preliminary mandatory injunction and/or status
quo ante order.18
In the aforementioned petition, petitioners assail
the constitutionality of the questioned legal
provisions, namely, Section 7 of Republic Act No.
7719 and Section 23 of Administrative Order No.
9, Series of 1995, on the following grounds: 19
1. The questioned legal provisions of
the National Blood Services Act and its
Implementing Rules violate the equal protection
clause for irrationally discriminating against free
standing blood banks in a manner which is not
germane to the purpose of the law;
2. The questioned provisions of the National
Blood Services Act and its Implementing
Rules represent undue delegation if not outright
abdication of the police power of the state; and,
3. The questioned provisions of the National
Blood Services Act and its Implementing
Rules are unwarranted deprivation of personal
liberty.
On May 22, 1998, the Doctors Blood Center filed
a similar petition for mandamus with a prayer for
the issuance of a temporary restraining order,
preliminary prohibitory and mandatory injunction
before this Court entitled "Doctors Blood Center
vs. Department of Health," docketed as G.R. No.
133661. 20 This was consolidated with G.R. No.
133640.21
Similarly, the petition attacked the
constitutionality of Republic Act No. 7719 and its
implementing rules and regulations, thus,
praying for the issuance of a license to operate
commercial blood banks beyond May 27, 1998.
Specifically, with regard to Republic Act No.
7719, the petition submitted the following
questions22 for resolution:
1. Was it passed in the exercise of police power,
and was it a valid exercise of such power?
2. Does it not amount to deprivation of property
without due process?
3. Does it not unlawfully impair the obligation of
contracts?
4. With the commercial blood banks being
abolished and with no ready machinery to deliver
the same supply and services, does R.A. 7719
truly serve the public welfare?
On June 2, 1998, this Court issued a Resolution
directing respondent DOH to file a consolidated
comment. In the same Resolution, the Court
issued a temporary restraining order (TRO) for
respondent to cease and desist from
implementing and enforcing Section 7 of
Republic Act No. 7719 and its implementing rules
and regulations until further orders from the
Court.23
On August 26, 1998, respondent Secretary of
Health filed a Consolidated Comment on the
petitions for certiorari and mandamus in G.R.
Nos. 133640 and 133661, with opposition to the
issuance of a temporary restraining order.24
In the Consolidated Comment, respondent
Secretary of Health submitted that blood from
commercial blood banks is unsafe and therefore
the State, in the exercise of its police power, can
close down commercial blood banks to protect
the public. He cited the record of deliberations on
Senate Bill No. 1101 which later became
Republic Act No. 7719, and the sponsorship
speech of Senator Orlando Mercado.
The rationale for the closure of these commercial
blood banks can be found in the deliberations of
Senate Bill No. 1011, excerpts of which are
quoted below:
Senator Mercado: I am providing over a period
of two years to phase out all commercial blood
banks. So that in the end, the new section would
have a provision that states:
"ALL COMMERCIAL BLOOD BANKS SHALL BE
PHASED OUT OVER A PERIOD OF TWO
YEARS AFTER THE EFFECTIVITY OF THIS
ACT. BLOOD SHALL BE COLLECTED FROM
VOLUNTARY DONORS ONLY AND THE
SERVICE FEE TO BE CHARGED FOR EVERY
BLOOD PRODUCT ISSUED SHALL BE
LIMITED TO THE NECESSARY EXPENSES
ENTAILED IN COLLECTING AND
PROCESSING OF BLOOD. THE SERVICE FEE
SHALL BE MADE UNIFORM THROUGH
GUIDELINES TO BE SET BY THE
DEPARTMENTOF HEALTH."
I am supporting Mr. President, the finding of a
study called "Project to Evaluate the Safety of the
Philippine Blood Banking System." This has
been taken note of. This is a study done with the
assistance of the USAID by doctors under the
New Tropical Medicine Foundation in Alabang.
Part of the long-term measures proposed by this
particular study is to improve laws, outlaw buying
and selling of blood and legally define good
manufacturing processes for blood. This goes to
the very heart of my amendment which seeks to
put into law the principle that blood should not be
subject of commerce of man.
The Presiding Officer [Senator Aquino]: What
does the sponsor say?
Senator Webb: Mr. President, just for clarity, I
would like to find out how the Gentleman defines
a commercial blood bank. I am at a loss at times
what a commercial blood bank really is.
Senator Mercado: We have a definition, I
believe, in the measure, Mr. President.
The Presiding Officer [Senator Aquino]: It is a
business where profit is considered.
Senator Mercado: If the Chairman of the
Committee would accept it, we can put a
provision on Section 3, a definition of a
commercial blood bank, which, as defined in this
law, exists for profit and engages in the buying
and selling of blood or its components.
Senator Webb: That is a good description, Mr.
President.
Senator Mercado: I refer, Mr. President, to a
letter written by Dr. Jaime Galvez-Tan, the Chief
of Staff, Undersecretary of Health, to the good
Chairperson of the Committee on Health.
In recommendation No. 4, he says:
"The need to phase out all commercial blood
banks within a two-year period will give the
Department of Health enough time to build up
governments capability to provide an adequate
supply of blood for the needs of the nation...the
use of blood for transfusion is a medical service
and not a sale of commodity."
Taking into consideration the experience of the
National Kidney Institute, which has succeeded
in making the hospital 100 percent dependent on
voluntary blood donation, here is a success story
of a hospital that does not buy blood. All those
who are operated on and need blood have to
convince their relatives or have to get volunteers
who would donate blood
If we give the responsibility of the testing of blood
to those commercial blood banks, they will cut
corners because it will protect their profit.
In the first place, the people who sell their blood
are the people who are normally in the high-risk
category. So we should stop the system of selling
and buying blood so that we can go into a
national voluntary blood program.
It has been said here in this report, and I quote:
"Why is buying and selling of blood not safe?
This is not safe because a donor who expects
payment for his blood will not tell the truth about
his illnesses and will deny any risky social
behavior such as sexual promiscuity which
increases the risk of having syphilis or AIDS or
abuse of intravenous addictive drugs. Laboratory
tests are of limited value and will not detect early
infections. Laboratory tests are required only for
four diseases in the Philippines. There are other
blood transmissible diseases we do not yet
screen for and there could be others where there
are no tests available yet.
A blood bank owner expecting to gain profit from
selling blood will also try his best to limit his
expenses. Usually he tries to increase his profit
by buying cheaper reagents or test kits, hiring
cheaper manpower or skipping some tests
altogether. He may also try to sell blood even
though these have infections in them. Because
there is no existing system of counterchecking
these, the blood bank owner can usually get
away with many unethical practices.
The experience of Germany, Mr. President is
illustrative of this issue. The reason why
contaminated blood was sold was that there
were corners cut by commercial blood banks in
the testing process. They were protecting their
profits.25
The sponsorship speech of Senator Mercado
further elucidated his stand on the issue:
We do not expect good blood from donors who
Senator Mercado: Today, across the country,
hundreds of poverty-stricken, sickly and weak
Filipinos, who, unemployed, without hope and
without money to buy the next meal, will walk into
a commercial blood bank, extend their arms and
plead that their blood be bought. They will lie
about their age, their medical history. They will
lie about when they last sold their blood. For
doing this, they will receive close to a hundred
pesos. This may tide them over for the next few
days. Of course, until the next bloodletting.
This same blood will travel to the posh city
hospitals and urbane medical centers. This same
blood will now be bought by the rich at a price
over 500% of the value for which it was sold.
Between this buying and selling, obviously,
someone has made a very fast buck.
Every doctor has handled at least one
transfusion-related disease in an otherwise
normal patient. Patients come in for minor
surgery of the hand or whatever and they leave
with hepatitis B. A patient comes in for an
appendectomy and he leaves with malaria. The
worst nightmare: A patient comes in for a
Caesarian section and leaves with AIDS.
sell their blood because of poverty. The humane
dimension of blood transfusion is not in the act of
receiving blood, but in the act of giving it
For years, our people have been at the mercy of
commercial blood banks that lobby their interests
among medical technologists, hospital
administrators and sometimes even physicians
so that a proactive system for collection of blood
from healthy donors becomes difficult, tedious
and unrewarding.
The Department of Health has never
institutionalized a comprehensive national
program for safe blood and for voluntary blood
donation even if this is a serious public health
concern and has fallen for the linen of
commercial blood bankers, hook, line and sinker
because it is more convenient to tell the patient
to buy blood.
Commercial blood banks hold us hostage to their
threat that if we are to close them down, there will
be no blood supply. This is true if the
Government does not step in to ensure that safe
supply of blood. We cannot allow commercial
interest groups to dictate policy on what is and
what should be a humanitarian effort. This
cannot and will never work because their interest
in blood donation is merely monetary. We cannot
expect commercial blood banks to take the lead
in voluntary blood donation. Only the
Government can do it, and the Government must
do it."26
On May 5, 1999, petitioners filed a Motion for
Issuance of Expanded Temporary Restraining
Order for the Court to order respondent
Secretary of Health to cease and desist from
announcing the closure of commercial blood
banks, compelling the public to source the
needed blood from voluntary donors only, and
committing similar acts "that will ultimately cause
the shutdown of petitioners blood banks."27
On July 8, 1999, respondent Secretary filed his
Comment and/or Opposition to the above motion
stating that he has not ordered the closure of
commercial blood banks on account of the
Temporary Restraining Order (TRO) issued on
June 2, 1998 by the Court. In compliance with the
TRO, DOH had likewise ceased to distribute the
health advisory leaflets, posters and flyers to the
public which state that "blood banks are closed
or will be closed." According to respondent
Secretary, the same were printed and circulated
in anticipation of the closure of the commercial
blood banks in accordance with R.A. No. 7719,
and were printed and circulated prior to the
issuance of the TRO.28
On July 15, 1999, petitioners in G.R. No. 133640
filed a Petition to Show Cause Why Public
Respondent Should Not be Held in Contempt of
Court, docketed as G.R. No. 139147, citing
public respondents willful disobedience of or
resistance to the restraining order issued by the
Court in the said case. Petitioners alleged that
respondents act constitutes circumvention of the
temporary restraining order and a mockery of the
authority of the Court and the orderly
administration of justice.29 Petitioners added that
despite the issuance of the temporary restraining
order in G.R. No. 133640, respondent, in his
effort to strike down the existence of commercial
blood banks, disseminated misleading
information under the guise of health advisories,
press releases, leaflets, brochures and flyers
stating, among others, that "this year [1998] all
commercial blood banks will be closed by 27
May. Those who need blood will have to rely on
government blood banks."30 Petitioners further
claimed that respondent Secretary of Health
announced in a press conference during the
Blood Donors Week that commercial blood
banks are "illegal and dangerous" and that they
"are at the moment protected by a restraining
order on the basis that their commercial interest
is more important than the lives of the people."
These were all posted in bulletin boards and
other conspicuous places in all government
hospitals as well as other medical and health
centers.31
In respondent Secretarys Comment to the
Petition to Show Cause Why Public Respondent
Should Not Be Held in Contempt of Court, dated
January 3, 2000, it was explained that nothing
was issued by the department ordering the
closure of commercial blood banks. The subject
health advisory leaflets pertaining to said closure
pursuant to Republic Act No. 7719 were printed
and circulated prior to the Courts issuance of a
temporary restraining order on June 21, 1998.32
Public respondent further claimed that the
primary purpose of the information campaign
was "to promote the importance and safety of
voluntary blood donation and to educate the
public about the hazards of patronizing blood
supplies from commercial blood banks."33 In
doing so, he was merely performing his regular
functions and duties as the Secretary of Health
to protect the health and welfare of the public.
Moreover, the DOH is the main proponent of the
voluntary blood donation program espoused by
Republic Act No. 7719, particularly Section 4
thereof which provides that, in order to ensure
the adequate supply of human blood, voluntary
blood donation shall be promoted through public
education, promotion in schools, professional
education, establishment of blood services
network, and walking blood donors.
Hence, by authority of the law, respondent
Secretary contends that he has the duty to
promote the program of voluntary blood
donation. Certainly, his act of encouraging the
public to donate blood voluntarily and educating
the people on the risks associated with blood
coming from a paid donor promotes general
health and welfare and which should be given
more importance than the commercial
businesses of petitioners.34
On July 29, 1999, interposing personal and
substantial interest in the case as taxpayers and
citizens, a Petition-in-Intervention was filed
interjecting the same arguments and issues as
laid down by petitioners in G.R. No. 133640 and
133661, namely, the unconstitutionality of the
Acts, and, the issuance of a writ of prohibitory
injunction. The intervenors are the immediate
relatives of individuals who had died allegedly
because of shortage of blood supply at a critical
time.35
The intervenors contended that Republic Act No.
7719 constitutes undue delegation of legislative
powers and unwarranted deprivation of personal
liberty.36
In a resolution, dated September 7, 1999, and
without giving due course to the aforementioned
petition, the Court granted the Motion for
Intervention that was filed by the above
intervenors on August 9, 1999.
In his Comment to the petition-in-intervention,
respondent Secretary of Health stated that the
sale of blood is contrary to the spirit and letter of
the Act that "blood donation is a humanitarian
act" and "blood transfusion is a professional
medical service and not a sale of commodity
(Section 2[a] and [b] of Republic Act No. 7719).
The act of selling blood or charging fees other
than those allowed by law is even penalized
under Section 12."37
Thus, in view of these, the Court is now tasked
to pass upon the constitutionality of Section 7 of
Republic Act No. 7719 or the National Blood
Services Act of 1994 and its Implementing Rules
and Regulations.
In resolving the controversy, this Court deems it
necessary to address the issues and/or
questions raised by petitioners concerning the
constitutionality of the aforesaid Act in G.R. No. WHETHER OR NOT R.A. 7719 IS A VALID
133640 and 133661 as summarized hereunder: EXERCISE OF POLICE POWER; and,

I VI

WHETHER OR NOT SECTION 7 OF R.A. 7719 WHETHER OR NOT SECTION 7 OF R.A. 7719
CONSTITUTES UNDUE DELEGATION OF AND ITS IMPLEMENTING RULES AND
LEGISLATIVE POWER; REGULATIONS TRULY SERVE PUBLIC
WELFARE.
II
As to the first ground upon which the
WHETHER OR NOT SECTION 7 OF R.A. 7719 constitutionality of the Act is being challenged, it
AND ITS IMPLEMENTING RULES AND is the contention of petitioners that the phase out
REGULATIONS VIOLATE THE EQUAL of commercial or free standing blood banks is
PROTECTION CLAUSE; unconstitutional because it is an improper and
unwarranted delegation of legislative power.
III
According to petitioners, the Act was incomplete
WHETHER OR NOT SECTION 7 OF R.A. 7719 when it was passed by the Legislature, and the
AND ITS IMPLEMENTING RULES AND latter failed to fix a standard to which the
REGULATIONS VIOLATE THE NON- Secretary of Health must conform in the
IMPAIRMENT CLAUSE; performance of his functions. Petitioners also
contend that the two-year extension period that
IV may be granted by the Secretary of Health for the
phasing out of commercial blood banks pursuant
WHETHER OR NOT SECTION 7 OF R.A. 7719 to Section 7 of the Act constrained the Secretary
AND ITS IMPLEMENTING RULES AND to legislate, thus constituting undue delegation of
REGULATIONS CONSTITUTE DEPRIVATION legislative power.
OF PERSONAL LIBERTY AND PROPERTY;
In testing whether a statute constitutes an undue
V delegation of legislative power or not, it is usual
to inquire whether the statute was complete in all
its terms and provisions when it left the hands of
the Legislature so that nothing was left to the
judgment of the administrative body or any other
appointee or delegate of the
38
Legislature. Except as to matters of detail that
may be left to be filled in by rules and regulations
to be adopted or promulgated by executive
officers and administrative boards, an act of the
Legislature, as a general rule, is incomplete and
hence invalid if it does not lay down any rule or
definite standard by which the administrative
board may be guided in the exercise of the
discretionary powers delegated to it.39
Republic Act No. 7719 or the National Blood
Services Act of 1994 is complete in itself. It is
clear from the provisions of the Act that the
Legislature intended primarily to safeguard the
health of the people and has mandated several
measures to attain this objective. One of these is
the phase out of commercial blood banks in the
country. The law has sufficiently provided a
definite standard for the guidance of the
Secretary of Health in carrying out its provisions,
that is, the promotion of public health by
providing a safe and adequate supply of blood
through voluntary blood donation. By its
provisions, it has conferred the power and
authority to the Secretary of Health as to its
execution, to be exercised under and in
pursuance of the law.
Congress may validly delegate to administrative
agencies the authority to promulgate rules and
regulations to implement a given legislation and
effectuate its policies.40 The Secretary of Health
has been given, under Republic Act No. 7719,
broad powers to execute the provisions of said
Act. Section 11 of the Act states:
"SEC. 11. Rules and Regulations. The
implementation of the provisions of the Act shall
be in accordance with the rules and regulations
to be promulgated by the Secretary, within sixty
(60) days from the approval hereof"
This is what respondent Secretary exactly did
when DOH, by virtue of the administrative bodys
authority and expertise in the matter, came out
with Administrative Order No.9, series of 1995 or
the Rules and Regulations Implementing
Republic Act No. 7719. Administrative Order. No.
9 effectively filled in the details of the law for its
proper implementation.
Specifically, Section 23 of Administrative Order
No. 9 provides that the phase-out period for
commercial blood banks shall be extended for
another two years until May 28, 1998 "based on
the result of a careful study and review of the
blood supply and demand and public safety."
This power to ascertain the existence of facts
and conditions upon which the Secretary may
effect a period of extension for said phase-out
can be delegated by Congress. The true
distinction between the power to make laws and
discretion as to its execution is illustrated by the
fact that the delegation of power to make the law,
which necessarily involves a discretion as to
what it shall be, and conferring an authority or
discretion as to its execution, to be exercised
under and in pursuance of the law. The first
cannot be done; to the latter no valid objection
can be made.41
In this regard, the Secretary did not go beyond
the powers granted to him by the Act when said
phase-out period was extended in accordance
with the Act as laid out in Section 2 thereof:
"SECTION 2. Declaration of Policy In order to
promote public health, it is hereby declared the
policy of the state:
a) to promote and encourage voluntary blood
donation by the citizenry and to instill public
consciousness of the principle that blood
donation is a humanitarian act;
b) to lay down the legal principle that the
provision of blood for transfusion is a medical
service and not a sale of commodity;
c) to provide for adequate, safe, affordable and
equitable distribution of blood supply and blood
products;
d) to inform the public of the need for voluntary
blood donation to curb the hazards caused by the
commercial sale of blood;
e) to teach the benefits and rationale of voluntary
blood donation in the existing health subjects of
the formal education system in all public and
private schools as well as the non-formal system;
f) to mobilize all sectors of the community to
participate in mechanisms for voluntary and non-
profit collection of blood;
g) to mandate the Department of Health to
establish and organize a National Blood
Transfusion Service Network in order to
rationalize and improve the provision of
adequate and safe supply of blood;
h) to provide for adequate assistance to
institutions promoting voluntary blood donation
and providing non-profit blood services, either
through a system of reimbursement for costs
from patients who can afford to pay, or donations
from governmental and non-governmental
entities;
i) to require all blood collection units and blood
banks/centers to operate on a non-profit basis;
j) to establish scientific and professional
standards for the operation of blood collection
units and blood banks/centers in the Philippines;
k) to regulate and ensure the safety of all
activities related to the collection, storage and
banking of blood; and,
l) to require upgrading of blood banks/centers to
include preventive services and education to
control spread of blood transfusion transmissible
diseases."
Petitioners also assert that the law and its
implementing rules and regulations violate the
equal protection clause enshrined in the
Constitution because it unduly discriminates
against commercial or free standing blood banks
in a manner that is not germane to the purpose
of the law.42
What may be regarded as a denial of the equal
protection of the laws is a question not always
easily determined. No rule that will cover every
case can be formulated. Class legislation,
discriminating against some and favoring others
is prohibited but classification on a reasonable
basis and not made arbitrarily or capriciously is
permitted. The classification, however, to be
reasonable: (a) must be based on substantial
distinctions which make real differences; (b)
must be germane to the purpose of the law; (c)
must not be limited to existing conditions only;
and, (d) must apply equally to each member of
the class.43
Republic Act No. 7719 or The National Blood
Services Act of 1994, was enacted for the
promotion of public health and welfare. In the
aforementioned study conducted by the New
Tropical Medicine Foundation, it was revealed
that the Philippine blood banking system is
disturbingly primitive and unsafe, and with its
current condition, the spread of infectious
diseases such as malaria, AIDS, Hepatitis B and
syphilis chiefly from blood transfusion is
unavoidable. The situation becomes more
distressing as the study showed that almost 70%
of the blood supply in the country is sourced from
paid blood donors who are three times riskier
than voluntary blood donors because they are
unlikely to disclose their medical or social history
during the blood screening.44
The above study led to the passage of Republic
Act No. 7719, to instill public consciousness of
the importance and benefits of voluntary blood
donation, safe blood supply and proper blood
collection from healthy donors. To do this, the
Legislature decided to order the phase out of
commercial blood banks to improve the
Philippine blood banking system, to regulate the
supply and proper collection of safe blood, and
so as not to derail the implementation of the
voluntary blood donation program of the
government. In lieu of commercial blood banks,
non-profit blood banks or blood centers, in strict
adherence to professional and scientific
standards to be established by the DOH, shall be
set in place.45
Based on the foregoing, the Legislature never
intended for the law to create a situation in which
unjustifiable discrimination and inequality shall
be allowed. To effectuate its policy, a
classification was made between nonprofit blood
banks/centers and commercial blood banks.
We deem the classification to be valid and
reasonable for the following reasons:
One, it was based on substantial distinctions.
The former operates for purely humanitarian
reasons and as a medical service while the latter
is motivated by profit. Also, while the former
wholly encourages voluntary blood donation, the
latter treats blood as a sale of commodity.
Two, the classification, and the consequent
phase out of commercial blood banks is germane
to the purpose of the law, that is, to provide the
nation with an adequate supply of safe blood by
promoting voluntary blood donation and treating
blood transfusion as a humanitarian or medical
service rather than a commodity. This
necessarily involves the phase out of commercial
blood banks based on the fact that they operate
as a business enterprise, and they source their
blood supply from paid blood donors who are
considered unsafe compared to voluntary blood
donors as shown by the USAID-sponsored study
on the Philippine blood banking system.
Three, the Legislature intended for the general
application of the law. Its enactment was not
solely to address the peculiar circumstances of
the situation nor was it intended to apply only to
the existing conditions.
Lastly, the law applies equally to all commercial
blood banks without exception.
Having said that, this Court comes to the inquiry
as to whether or not Republic Act No. 7719
constitutes a valid exercise of police power.
The promotion of public health is a fundamental
obligation of the State. The health of the people
is a primordial governmental concern. Basically,
the National Blood Services Act was enacted in
the exercise of the States police power in order
to promote and preserve public health and
safety.
Police power of the state is validly exercised if (a)
the interest of the public generally, as
distinguished from those of a particular class,
requires the interference of the State; and, (b) the
means employed are reasonably necessary to
the attainment of the objective sought to be
accomplished and not unduly oppressive upon
individuals.46
In the earlier discussion, the Court has
mentioned of the avowed policy of the law for the
protection of public health by ensuring an
adequate supply of safe blood in the country
through voluntary blood donation. Attaining this
objective requires the interference of the State
given the disturbing condition of the Philippine
blood banking system.
In serving the interest of the public, and to give
meaning to the purpose of the law, the
Legislature deemed it necessary to phase out
commercial blood banks. This action may
seriously affect the owners and operators, as
well as the employees, of commercial blood
banks but their interests must give way to serve
a higher end for the interest of the public.
The Court finds that the National Blood Services
Act is a valid exercise of the States police power.
Therefore, the Legislature, under the
circumstances, adopted a course of action that is
both necessary and reasonable for the common
good. Police power is the State authority to enact
legislation that may interfere with personal liberty
or property in order to promote the general
welfare.47
It is in this regard that the Court finds the related
grounds and/or issues raised by petitioners,
namely, deprivation of personal liberty and
property, and violation of the non-impairment
clause, to be unmeritorious.
Petitioners are of the opinion that the Act is
unconstitutional and void because it infringes on
the freedom of choice of an individual in
connection to what he wants to do with his blood
which should be outside the domain of State
intervention. Additionally, and in relation to the
issue of classification, petitioners asseverate
that, indeed, under the Civil Code, the human
body and its organs like the heart, the kidney and
the liver are outside the commerce of man but
this cannot be made to apply to human blood
because the latter can be replenished by the
body. To treat human blood equally as the
human organs would constitute invalid
classification. 48
Petitioners likewise claim that the phase out of
the commercial blood banks will be
disadvantageous to them as it will affect their
businesses and existing contracts with hospitals
and other health institutions, hence Section 7 of
the Act should be struck down because it violates
the non-impairment clause provided by the
Constitution.
As stated above, the State, in order to promote
the general welfare, may interfere with personal
liberty, with property, and with business and
occupations. Thus, persons may be subjected to
certain kinds of restraints and burdens in order to
secure the general welfare of the State and to
this fundamental aim of government, the rights of
the individual may be subordinated.49
Moreover, in the case of Philippine Association
of Service Exporters, Inc. v. Drilon,50 settled is
the rule that the non-impairment clause of the
Constitution must yield to the loftier purposes
targeted by the government. The right granted by
this provision must submit to the demands and
necessities of the States power of regulation.
While the Court understands the grave
implications of Section 7 of the law in question,
the concern of the Government in this case,
however, is not necessarily to maintain profits of
business firms. In the ordinary sequence of
events, it is profits that suffer as a result of
government regulation.
Furthermore, the freedom to contract is not
absolute; all contracts and all rights are subject
to the police power of the State and not only may
regulations which affect them be established by
the State, but all such regulations must be
subject to change from time to time, as the
general well-being of the community may
require, or as the circumstances may change, or
as experience may demonstrate the
51
necessity. This doctrine was reiterated in the
case of Vda. de Genuino v. Court of Agrarian
Relations52 where the Court held that individual
rights to contract and to property have to give
way to police power exercised for public welfare.
As for determining whether or not the shutdown
of commercial blood banks will truly serve the
general public considering the shortage of blood
supply in the country as proffered by petitioners,
we maintain that the wisdom of the Legislature in
the lawful exercise of its power to enact laws
cannot be inquired into by the Court. Doing so
would be in derogation of the principle of
separation of powers.53
That, under the circumstances, proper regulation
of all blood banks without distinction in order to
achieve the objective of the law as contended by
petitioners is, of course, possible; but, this would
be arguing on what the law may be or should
be and not what the law is.
Between is and ought there is a far cry. The
wisdom and propriety of legislation is not for this
Court to pass upon.54
Finally, with regard to the petition for contempt in
G.R. No. 139147, on the other hand, the Court
finds respondent Secretary of Healths
explanation satisfactory. The statements in the
flyers and posters were not aimed at influencing
or threatening the Court in deciding in favor of the
constitutionality of the law.
Contempt of court presupposes a contumacious
attitude, a flouting or arrogant belligerence in
defiance of the court.55 There is nothing
contemptuous about the statements and
information contained in the health advisory that
were distributed by DOH before the TRO was
issued by this Court ordering the former to cease
and desist from distributing the same.
In sum, the Court has been unable to find any
constitutional infirmity in the questioned
provisions of the National Blood Services Act of
1994 and its Implementing Rules and
Regulations.
The fundamental criterion is that all reasonable
doubts should be resolved in favor of the
constitutionality of a statute. Every law has in its
favor the presumption of constitutionality. For a
law to be nullified, it must be shown that there is
a clear and unequivocal breach of the
Constitution. The ground for nullity must be clear
and beyond reasonable doubt.56 Those who
petition this Court to declare a law, or parts
thereof, unconstitutional must clearly establish
the basis therefor. Otherwise, the petition must
fail.
Based on the grounds raised by petitioners to
challenge the constitutionality of the National
Blood Services Act of 1994 and its Implementing
Rules and Regulations, the Court finds that
petitioners have failed to overcome the
presumption of constitutionality of the law. As to
whether the Act constitutes a wise legislation,
considering the issues being raised by
petitioners, is for Congress to determine.57

WHEREFORE, premises considered, the Court

renders judgment as follows:

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

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

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

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

No costs.

SO ORDERED.

G.R. No. 166494 June 29, 2007
CARLOS SUPERDRUG CORP., doing
business under the name and style "Carlos
Superdrug," ELSIE M. CANO, doing business
under the name and style "Advance Drug,"
Dr. SIMPLICIO L. YAP, JR., doing business
under the name and style "City Pharmacy,"
MELVIN S. DELA SERNA, doing business
under the name and style "Botica dela
Serna," and LEYTE SERV-WELL CORP.,
doing business under the name and style
"Leyte Serv-Well Drugstore," petitioners,
vs.
DEPARTMENT OF SOCIAL WELFARE and
DEVELOPMENT (DSWD), DEPARTMENT OF
HEALTH (DOH), DEPARTMENT OF FINANCE
(DOF), DEPARTMENT OF JUSTICE (DOJ),
and DEPARTMENT OF INTERIOR and LOCAL
GOVERNMENT (DILG), respondents.
DECISION
AZCUNA, J.:
This is a petition1 for Prohibition with Prayer for
Preliminary Injunction assailing the
constitutionality of Section 4(a) of Republic Act
(R.A.) No. 9257,2 otherwise known as the
"Expanded Senior Citizens Act of 2003."
Petitioners are domestic corporations and
proprietors operating drugstores in the
Philippines.
Public respondents, on the other hand, include
the Department of Social Welfare and
Development (DSWD), the Department of Health
(DOH), the Department of Finance (DOF), the
Department of Justice (DOJ), and the
Department of Interior and Local Government
(DILG) which have been specifically tasked to
monitor the drugstores compliance with the law;
promulgate the implementing rules and
regulations for the effective implementation of
the law; and prosecute and revoke the licenses
of erring drugstore establishments.
The antecedents are as follows:
On February 26, 2004, R.A. No. 9257, amending
R.A. No. 7432,3 was signed into law by President
Gloria Macapagal-Arroyo and it became effective
on March 21, 2004. Section 4(a) of the Act
states:
SEC. 4. Privileges for the Senior Citizens. The
senior citizens shall be entitled to the following:
(a) the grant of twenty percent (20%) discount
from all establishments relative to the utilization
of services in hotels and similar lodging
establishments, restaurants and recreation
centers, and purchase of medicines in all
establishments for the exclusive use or
enjoyment of senior citizens, including funeral
and burial services for the death of senior
citizens; ------
The establishment may claim the discounts
granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods
sold or services rendered: Provided, That the
cost of the discount shall be allowed as
deduction from gross income for the same
taxable year that the discount is
granted. Provided, further, That the total amount
of the claimed tax deduction net of value added
tax if applicable, shall be included in their gross
sales receipts for tax purposes and shall be
subject to proper documentation and to the
provisions of the National Internal Revenue
Code, as amended.4
On May 28, 2004, the DSWD approved and
adopted the Implementing Rules and
Regulations of R.A. No. 9257, Rule VI, Article 8
of which states:
Article 8. Tax Deduction of Establishments.
The establishment may claim the discounts
granted under Rule V, Section 4 Discounts for
Establishments;5 Section 9, Medical and Dental
Services in Private Facilities[,]6 and Sections
107 and 118 Air, Sea and Land Transportation
as tax deduction based on the net cost of the
goods sold or services rendered. Provided, That
the cost of the discount shall be allowed as
deduction from gross income for the same
taxable year that the discount is
granted; Provided, further, That the total amount
of the claimed tax deduction net of value added
tax if applicable, shall be included in their gross
sales receipts for tax purposes and shall be
subject to proper documentation and to the
provisions of the National Internal Revenue
Code, as amended; Provided, finally, that the
implementation of the tax deduction shall be
subject to the Revenue Regulations to be issued
by the Bureau of Internal Revenue (BIR) and
approved by the Department of Finance (DOF).9
On July 10, 2004, in reference to the query of the
Drug Stores Association of the Philippines
(DSAP) concerning the meaning of a tax
deduction under the Expanded Senior Citizens
Act, the DOF, through Director IV Ma. Lourdes B.
Recente, clarified as follows:
1) The difference between the Tax Credit (under
the Old Senior Citizens Act) and Tax Deduction
(under the Expanded Senior Citizens Act).
1.1. The provision of Section 4 of R.A. No. 7432
(the old Senior Citizens Act) grants twenty
percent (20%) discount from all establishments
relative to the utilization of transportation
services, hotels and similar lodging
establishment, restaurants and recreation
centers and purchase of medicines anywhere in
the country, the costs of which may be claimed
by the private establishments concerned as tax
credit.
Effectively, a tax credit is a peso-for-peso
deduction from a taxpayers tax liability due to the
government of the amount of discounts such
establishment has granted to a senior citizen.
The establishment recovers the full amount of
discount given to a senior citizen and hence, the
government shoulders 100% of the discounts
granted.
It must be noted, however, that conceptually, a
tax credit scheme under the Philippine tax
system, necessitates that prior payments of
taxes have been made and the taxpayer is
attempting to recover this tax payment from
his/her income tax due. The tax credit scheme
under R.A. No. 7432 is, therefore, inapplicable
since no tax payments have previously occurred.
1.2. The provision under R.A. No. 9257, on the
other hand, provides that the establishment
concerned may claim the discounts under
Section 4(a), (f), (g) and (h) as tax
deduction from gross income, based on the net
cost of goods sold or services rendered.
Under this scheme, the establishment concerned
is allowed to deduct from gross income, in
computing for its tax liability, the amount of
discounts granted to senior citizens. Effectively,
the government loses in terms of foregone
revenues an amount equivalent to the marginal
tax rate the said establishment is liable to pay the
government. This will be an amount equivalent to
32% of the twenty percent (20%) discounts so
granted. The establishment shoulders the
remaining portion of the granted discounts.
It may be necessary to note that while the burden
on [the] government is slightly diminished in
terms of its percentage share on the discounts
granted to senior citizens, the number of
potential establishments that may claim tax
deductions, have however, been broadened.
Aside from the establishments that may claim tax
credits under the old law, more establishments
were added under the new law such as:
establishments providing medical and dental
services, diagnostic and laboratory services,
including professional fees of attending doctors
in all private hospitals and medical facilities,
operators of domestic air and sea transport
services, public railways and skyways and bus
transport services.
A simple illustration might help amplify the points
discussed above, as follows:
Tax Deduction Tax Credit
Gross Sales x x x x x x x x x x x x
Less : Cost of goods sold x x x x x x x x x x
Net Sales x x x x x x x x x x x x
Less: Operating Expenses:
Tax Deduction on Discounts x x x x --
Other deductions: x x x x x x x x
Net Taxable Income x x x x x x x x x x
Tax Due x x x x x x
Less: Tax Credit -- ______x x
Net Tax Due -- x x
As shown above, under a tax
deduction scheme, the tax deduction on
discounts was subtracted from Net Sales
together with other deductions which are
considered as operating expenses before the
Tax Due was computed based on the Net
Taxable Income. On the other hand, under a tax
credit scheme, the amount of discounts which is
the tax credit item, was deducted directly from
the tax due amount.10
Meanwhile, on October 1, 2004, Administrative
Order (A.O.) No. 171 or the Policies and
Guidelines to Implement the Relevant Provisions
of Republic Act 9257, otherwise known as the
"Expanded Senior Citizens Act of 2003"11was
issued by the DOH, providing the grant of twenty
percent (20%) discount in the purchase of
unbranded generic medicines from all
establishments dispensing medicines for the
exclusive use of the senior citizens.
On November 12, 2004, the DOH issued
Administrative Order No 17712 amending A.O.
No. 171. Under A.O. No. 177, the twenty percent
discount shall not be limited to the purchase of
unbranded generic medicines only, but shall
extend to both prescription and non-prescription
medicines whether branded or generic. Thus, it
stated that "[t]he grant of twenty percent (20%)
discount shall be provided in the purchase of
medicines from all establishments dispensing
medicines for the exclusive use of the senior
citizens."
Petitioners assail the constitutionality of Section
4(a) of the Expanded Senior Citizens Act based
on the following grounds:13
1) The law is confiscatory because it infringes
Art. III, Sec. 9 of the Constitution which provides
that private property shall not be taken for public
use without just compensation;
2) It violates the equal protection clause (Art. III,
Sec. 1) enshrined in our Constitution which
states that "no person shall be deprived of life,
liberty or property without due process of law, nor
shall any person be denied of the equal
protection of the laws;" and
3) The 20% discount on medicines violates the
constitutional guarantee in Article XIII, Section 11
that makes "essential goods, health and other
social services available to all people at
affordable cost."14
Petitioners assert that Section 4(a) of the law is
unconstitutional because it constitutes
deprivation of private property. Compelling
drugstore owners and establishments to grant
the discount will result in a loss of profit
and capital because 1) drugstores impose a
mark-up of only 5% to 10% on branded
medicines; and 2) the law failed to provide a
scheme whereby drugstores will be justly
compensated for the discount.
Examining petitioners arguments, it is apparent
that what petitioners are ultimately questioning is
the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty
percent (20%) discount that they extend to senior
citizens.
Based on the afore-stated DOF Opinion, the tax
deduction scheme does not fully reimburse
petitioners for the discount privilege accorded to
senior citizens. This is because the discount is
treated as a deduction, a tax-deductible expense
that is subtracted from the gross income and
results in a lower taxable income. Stated
otherwise, it is an amount that is allowed by
law15 to reduce the income prior to the
application of the tax rate to compute the amount
of tax which is due.16 Being a tax deduction, the
discount does not reduce taxes owed on a peso
for peso basis but merely offers a fractional
reduction in taxes owed.
Theoretically, the treatment of the discount as a
deduction reduces the net income of the private
establishments concerned. The discounts given
would have entered the coffers and formed part
of the gross sales of the private establishments,
were it not for R.A. No. 9257.
The permanent reduction in their total revenues
is a forced subsidy corresponding to the taking of
private property for public use or benefit.17 This
constitutes compensable taking for which
petitioners would ordinarily become entitled to a
just compensation.
Just compensation is defined as the full and fair
equivalent of the property taken from its owner
by the expropriator. The measure is not the
takers gain but the owners loss. The
word just is used to intensify the meaning of the
word compensation, and to convey the idea that
the equivalent to be rendered for the property to
be taken shall be real, substantial, full and
ample.18
A tax deduction does not offer full reimbursement
of the senior citizen discount. As such, it would
not meet the definition of just compensation.19
Having said that, this raises the question of
whether the State, in promoting the health and
welfare of a special group of citizens, can impose
upon private establishments the burden of partly
subsidizing a government program.
The Court believes so.
The Senior Citizens Act was enacted primarily to
maximize the contribution of senior citizens to
nation-building, and to grant benefits and
privileges to them for their improvement and well-
being as the State considers them an integral
part of our society.20
The priority given to senior citizens finds its basis
in the Constitution as set forth in the law itself.
Thus, the Act provides:
SEC. 2. Republic Act No. 7432 is hereby
amended to read as follows:
SECTION 1. Declaration of Policies and
Objectives. Pursuant to Article XV, Section 4 of
the Constitution, it is the duty of the family to take
care of its elderly members while the State may
design programs of social security for them. In
addition to this, Section 10 in the Declaration of
Principles and State Policies provides: "The
State shall provide social justice in all phases of
national development." Further, Article XIII,
Section 11, provides: "The State shall adopt an
integrated and comprehensive approach to
health development which shall endeavor to
make essential goods, health and other social
services available to all the people at affordable
cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women
and children." Consonant with these
constitutional principles the following are the
declared policies of this Act:
(f) To recognize the important role of the
private sector in the improvement of the
welfare of senior citizens and to actively seek
their partnership.21
To implement the above policy, the law grants a
twenty percent discount to senior citizens for
medical and dental services, and diagnostic and
laboratory fees; admission fees charged by
theaters, concert halls, circuses, carnivals, and
other similar places of culture, leisure and
amusement; fares for domestic land, air and sea
travel; utilization of services in hotels and similar
lodging establishments, restaurants and
recreation centers; and purchases of medicines
for the exclusive use or enjoyment of senior
citizens. As a form of reimbursement, the law
provides that business establishments extending
the twenty percent discount to senior citizens
may claim the discount as a tax deduction.
The law is a legitimate exercise of police power
which, similar to the power of eminent domain,
has general welfare for its object. Police power is
not capable of an exact definition, but has been
purposely veiled in general terms to underscore
its comprehensiveness to meet all exigencies
and provide enough room for an efficient and
flexible response to conditions and
circumstances, thus assuring the greatest
benefits. 22 Accordingly, it has been described as
"the most essential, insistent and the least
limitable of powers, extending as it does to all the
great public needs."23 It is "[t]he power vested in
the legislature by the constitution to make,
ordain, and establish all manner of wholesome
and reasonable laws, statutes, and ordinances,
either with penalties or without, not repugnant to
the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of
the subjects of the same."24
For this reason, when the conditions so demand
as determined by the legislature, property rights
must bow to the primacy of police power because
property rights, though sheltered by due process,
must yield to general welfare.25
Police power as an attribute to promote the
common good would be diluted considerably if
on the mere plea of petitioners that they will
suffer loss of earnings and capital, the
questioned provision is invalidated. Moreover, in
the absence of evidence demonstrating the
alleged confiscatory effect of the provision in
question, there is no basis for its nullification in
view of the presumption of validity which every
law has in its favor.26
Given these, it is incorrect for petitioners to insist
that the grant of the senior citizen discount is
unduly oppressive to their business, because
petitioners have not taken time to calculate
correctly and come up with a financial report, so
that they have not been able to show properly
whether or not the tax deduction scheme really
works greatly to their disadvantage.27
In treating the discount as a tax deduction,
petitioners insist that they will incur losses
because, referring to the DOF Opinion, for
every P1.00 senior citizen discount that
petitioners would give, P0.68 will be shouldered
by them as only P0.32 will be refunded by the
government by way of a tax deduction.
To illustrate this point, petitioner Carlos Super
Drug cited the anti-hypertensive maintenance
drug Norvasc as an example. According to the
latter, it acquires Norvasc from the distributors
at P37.57 per tablet, and retails it at P39.60 (or
at a margin of 5%). If it grants a 20% discount to
senior citizens or an amount equivalent to P7.92,
then it would have to sell Norvasc at P31.68
which translates to a loss from capital of P5.89
per tablet. Even if the government will allow a tax
deduction, only P2.53 per tablet will be refunded
and not the full amount of the discount which
is P7.92. In short, only 32% of the 20% discount
will be reimbursed to the drugstores.28
Petitioners computation is flawed. For purposes
of reimbursement, the law states that the cost of
the discount shall be deducted from gross
income,29 the amount of income derived from all
sources before deducting allowable expenses,
which will result in net income. Here, petitioners
tried to show a loss on a per transaction basis,
which should not be the case. An income
statement, showing an accounting of petitioners
sales, expenses, and net profit (or loss) for a
given period could have accurately reflected the
effect of the discount on their income. Absent any
financial statement, petitioners cannot
substantiate their claim that they will be operating
at a loss should they give the discount. In
addition, the computation was erroneously
based on the assumption that their customers
consisted wholly of senior citizens. Lastly, the
32% tax rate is to be imposed on income, not on
the amount of the discount.
Furthermore, it is unfair for petitioners to criticize
the law because they cannot raise the prices of
their medicines given the cutthroat nature of the
players in the industry. It is a business decision
on the part of petitioners to peg the mark-up at
5%. Selling the medicines below acquisition cost,
as alleged by petitioners, is merely a result of this
decision. Inasmuch as pricing is a property right,
petitioners cannot reproach the law for being
oppressive, simply because they cannot afford to
raise their prices for fear of losing their customers
to competition.
The Court is not oblivious of the retail side of the
pharmaceutical industry and the competitive
pricing component of the business. While the
Constitution protects property rights, petitioners
must accept the realities of business and the
State, in the exercise of police power, can
intervene in the operations of a business which
may result in an impairment of property rights in
the process.
Moreover, the right to property has a social
dimension. While Article XIII of the Constitution
provides the precept for the protection of
property, various laws and jurisprudence,
particularly on agrarian reform and the regulation
of contracts and public utilities, continuously
serve as a reminder that the right to property can
be relinquished upon the command of the State
for the promotion of public good.30 ---
Undeniably, the success of the senior citizens
program rests largely on the support imparted by
petitioners and the other private establishments
concerned. This being the case, the means
employed in invoking the active participation of
the private sector, in order to achieve the
purpose or objective of the law, is reasonably
and directly related. Without sufficient proof that
Section 4(a) of R.A. No. 9257 is arbitrary, and
that the continued implementation of the same
would be unconscionably detrimental to
petitioners, the Court will refrain from quashing a
legislative act.31
WHEREFORE, the petition is DISMISSED for
lack of merit.
G.R. No. 158793 June 8, 2006
JAMES MIRASOL, RICHARD SANTIAGO, and
LUZON MOTORCYCLISTS FEDERATION,
INC., Petitioners,
vs.
DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS and TOLL REGULATORY
BOARD, Respondents.
DECISION
CARPIO, J.:
This petition for review on certiorari1 seeks to
reverse the Decision dated 10 March 2003 of the
Regional Trial Court, Branch 147, Makati City
(RTC) in Civil Case No. 01-034, as well as the
RTCs Order dated 16 June 2003 which denied
petitioners Motion for Reconsideration.
Petitioners assert that Department of Public
Works and Highways (DPWH) Department
Order No. 74 (DO 74), Department Order No.
215 (DO 215), and the Revised Rules and
Regulations on Limited Access Facilities of the
Toll Regulatory Board (TRB) violate Republic Act
No. 2000 (RA 2000) or the Limited Access
Highway Act. Petitioners also seek to declare
Department Order No. 123 (DO 123) and
Administrative Order No. 1 (AO
1)2 unconstitutional.
Antecedent Facts
The facts are not in dispute. As summarized by
the Solicitor General, the facts are as follows:
1. On January 10, 2001, petitioners filed
before the trial court a Petition for
Declaratory Judgment with Application for
Temporary Restraining Order and
Injunction docketed as Civil Case No. 01-
034. The petition sought the declaration of
nullity of the following administrative
issuances for being inconsistent with the
provisions of Republic Act 2000, entitled
"Limited Access Highway Act" enacted in
1957:
a. DPWH Administrative Order No. 1,
Series of 1968;
b. DPWH Department Order No. 74,
Series of 1993;
c. Art. II, Sec. 3(a) of the Revised
Rules on Limited Access Facilities
 promulgated in 199[8] by the DPWH
thru the Toll Regulatory Board (TRB).
2. Previously, pursuant to its mandate
under R.A. 2000, DPWH issued on June 25,
1998 Department Order (DO) No. 215
declaring the Manila-Cavite (Coastal Road)
Toll Expressway as limited access facilities.
3. Accordingly, petitioners filed an
Amended Petition on February 8, 2001
wherein petitioners sought the declaration
of nullity of the aforesaid administrative
issuances. Moreover, petitioners prayed for
the issuance of a temporary restraining
order and/or preliminary injunction to
prevent the enforcement of the total ban on
motorcycles along the entire breadth of
North and South Luzon Expressways and
the Manila-Cavite (Coastal Road) Toll
Expressway under DO 215.
4. On June 28, 2001, the trial court, thru
then Presiding Judge Teofilo Guadiz, after
due hearing, issued an order granting
petitioners application for preliminary
injunction. On July 16, 2001, a writ of
preliminary injunction was issued by the trial
court, conditioned upon petitioners filing of
cash bond in the amount of P100,000.00,
which petitioners subsequently complied
with.
5. On July 18, 2001, the DPWH acting thru
the TRB, issued Department Order No. 123
allowing motorcycles with engine
displacement of 400 cubic centimeters
inside limited access facilities (toll ways).
6. Upon the assumption of Honorable
Presiding Judge Ma. Cristina Cornejo, both
the petitioners and respondents were
required to file their respective Memoranda.
Petitioners likewise filed [their]
Supplemental Memorandum. Thereafter,
the case was deemed submitted for
decision.
7. Consequently, on March 10, 2003, the
trial court issued the assailed decision
dismissing the petition but declaring invalid
DO 123. Petitioners moved for a
reconsideration of the dismissal of their
petition; but it was denied by the trial court
in its Order dated June 16, 2003.3
Hence, this petition.
The RTCs Ruling
The dispositive portion of the RTCs Decision
dated 10 March 2003 reads:
WHEREFORE, [t]he Petition is denied/dismissed
insofar as petitioners seek to declare null and
void ab initio DPWH Department Order No. 74,
Series of 1993, Administrative Order No. 1, and
Art. II, Sec. 3(a) of the Revised Rules on Limited
Access Facilities promulgated by the DPWH thru
the TRB, the presumed validity thereof not
having been overcome; but the petition is
granted insofar as DPWH Department Order No.
123 is concerned, declaring the same to be
invalid for being violative of the equal protection
clause of the Constitution.
SO ORDERED.4
The Issues
Petitioners seek a reversal and raise the
following issues for resolution:
1. WHETHER THE RTCS DECISION IS
ALREADY BARRED BY RES JUDICATA;
2. WHETHER DO 74, DO 215 AND THE
TRB REGULATIONS CONTRAVENE RA
2000; AND
3. WHETHER AO 1 AND DO 123 ARE
UNCONSTITUTIONAL.5
The Ruling of the Court
The petition is partly meritorious.
Whether the RTCs Decision Dismissing
Petitioners Case is Barred by Res Judicata
Petitioners rely on the RTCs Order dated 28
June 2001, which granted their prayer for a writ
of preliminary injunction. Since respondents did
not appeal from that Order, petitioners argue that
the Order became "a final judgment" on the
issues. Petitioners conclude that the RTC erred
when it subsequently dismissed their petition in
its Decision dated 10 March 2003.
Petitioners are mistaken. As the RTC correctly
stated, the Order dated 28 June 2001 was not an
adjudication on the merits of the case that would
trigger res judicata. A preliminary injunction does
not serve as a final determination of the issues.
It is a provisional remedy, which merely serves
to preserve the status quo until the court could
hear the merits of the case.6 Thus, Section 9 of
Rule 58 of the 1997 Rules of Civil Procedure
requires the issuance of a final injunction to
confirm the preliminary injunction should the
court during trial determine that the acts
complained of deserve to be permanently
enjoined. A preliminary injunction is a mere
adjunct, an ancillary remedy which exists only as
an incident of the main proceeding.7
Validity of DO 74, DO 215 and the TRB
Regulations
Petitioners claim that DO 74,8 DO 215,9 and the
TRBs Rules and Regulations issued under them
violate the provisions of RA 2000. They contend
that the two issuances unduly expanded the
power of the DPWH in Section 4 of RA 2000 to
regulate toll ways. Petitioners assert that the
DPWHs regulatory authority is limited to acts like
redesigning curbings or central dividing sections.
They claim that the DPWH is only allowed to re-
design the physical structure of toll ways, and not
to determine "who or what can be qualified as toll
way users."10
Section 4 of RA 200011 reads:
SEC. 4. Design of limited access facility.
The Department of Public Works and
Communications is authorized to so design
any limited access facility and to so regulate,
restrict, or prohibit access as to best serve
the traffic for which such facility is intended;
and its determination of such design shall be
final. In this connection, it is authorized to divide
and separate any limited access facility into
separate roadways by the construction of raised
curbings, central dividing sections, or other
physical separations, or by designating such
separate roadways by signs, markers, stripes,
and the proper lane for such traffic by appropriate
signs, markers, stripes and other devices. No
person, shall have any right of ingress or egress
to, from or across limited access facilities to or
from abutting lands, except at such designated
points at which access may be permitted, upon
such terms and conditions as may be specified
from time to time. (Emphasis supplied)
On 19 February 1968, Secretary Antonio V.
Raquiza of the Department of Public Works
and Communications issued AO 1, which,
among others, prohibited motorcycles on limited
access highways. The pertinent provisions of AO
1 read:
SUBJECT: Revised Rules and Regulations
Governing Limited Access Highways
By virtue of the authority granted the
Secretary [of] Public Works and
Communications under Section 3 of R.A.
2000, otherwise known as the Limited Access
Highway Act, the following rules and regulations
governing limited access highways are hereby
promulgated for the guidance of all concerned:
xxxx
Section 3 On limited access highways, it is
unlawful for any person or group of persons
to:
xxxx
(h) Drive any bicycle, tricycle,
pedicab, motorcycle or any vehicle (not
motorized);
x x x x12 (Emphasis supplied)
On 5 April 1993, Acting Secretary Edmundo V.
Mir of the Department of Public Works and
Highways issued DO 74:
SUBJECT: Declaration of the North Luzon
Expressway from Balintawak to Tabang and the
South Luzon Expressway from Nichols to
Alabang as Limited Access Facilities
Pursuant to Section 2 of Republic Act No. 2000,
a limited access facility is defined as "a highway
or street especially designed for through traffic,
and over, from, or to which owners or occupants
of abutting land or other persons have no right or
easement or only a limited right or easement of
access, light, air or view by reason of the fact that
their proper[t]y abuts upon such limited access
facility or for any other reason. Such highways or
streets may be parkways, from which trucks,
buses, and other commerical [sic] vehicles shall
be excluded; or they may be free ways open to
use by all customary forms of street and highway
traffic."
Section 3 of the same Act authorizes the
Department of Public Works and
Communications (now Department of Public
Works and Highways) "to plan, designate,
establish, regulate, vacate, alter, improve,
maintain, and provide limited access facilities for
public use wherever it is of the opinion that traffic
conditions, present or future, will justify such
special facilities."
Therefore, by virtue of the authority granted
above, the Department of Public Works and
Highways hereby designates and declares the
Balintawak to Tabang Sections of the North
Luzon Expressway, and the Nichols to Alabang
Sections of the South Luzon Expressways, to be
LIMITED ACCESS HIGHWAYS/FACILITIES
subject to such rules and regulations that may be
imposed by the DPWH thru the Toll Regulatory
Board (TRB).
In view thereof, the National Capital Region
(NCR) of this Department is hereby ordered,
after consultation with the TRB and in
coordination with the Philippine National Police
(PNP), to close all illegal openings along the said
Limited Access Highways/Facilities. In this
connection, the NCR is instructed to organize its
own enforcement and security group for the
purpose of assuring the continued closure of the
right-of-way fences and the implementation of
the rules and regulations that may be imposed by
the DPWH thru the TRB.
This Order shall take effect immediately.13
On 25 June 1998, then DPWH Secretary
Gregorio R. Vigilar issued DO 215:
SUBJECT: Declaration of the R-1 Expressway,
from Seaside drive to Zapote, C-5 Link
Expressway, from Zapote to Noveleta, of the
Manila Cavite Toll Expressway as Limited
Access Facility.
Pursuant to Section 2 of Republic Act No. 2000,
a limited access facility is defined as "a highway
or street especially designed for through traffic,
and over, from, or to which owners or occupants
of abutting land or other persons have no right or
easement or only a limited right or easement of
access, light, air or view by reason of the fact that
their property abuts upon such limited access
facility or for any other reason. Such highways or
streets may be parkways, from which trucks,
buses, and other commercial vehicles shall be
excluded; or they may be free ways open to use
by all customary forms of street and highway
traffic."
Section 3 of the same Act authorizes the
Department of Public Works and
Communications (now Department of Public
Works and Highways) "to plan, designate,
establish, regulate, vacate, alter, improve,
maintain, and provide limited access facilities for
public use wherever it is of the opinion that traffic
conditions, present or future, will justify such
special facilities."
Therefore, by virtue of the authority granted
above, the Department of Public Works and
Highways hereby designates and declares the R-
1 Expressway, C-5 Link Expressway and the R-
1 Extension Expressway Sections of the Manila
Cavite Toll Expressway to be LIMITED ACCESS
HIGHWAYS/FACILITIES subject to such rules
and regulations that may be imposed by the
DPWH thru the Toll Regulatory Board (TRB).
In view thereof, the National Capital Region
(NCR) of this Department is hereby ordered,
after consultation with the TRB and in
coordination with the Philippine National Police
(PNP), to close all illegal openings along the said
Limited Access Highways/Facilities. In this
connection, the NCR is instructed to organize its
own enforcement and security group for the
purpose of assuring the continued closure of the
right-of-way fences and the implementation of
the rules and regulations that may be imposed by
the DPWH thru the TRB.
This Order shall take effect immediately.14
The RTC held that Section 4 of RA 2000
expressly authorized the DPWH to design limited
access facilities and to regulate, restrict, or
prohibit access as to serve the traffic for which
such facilities are intended. According to the
RTC, such authority to regulate, restrict, or
prohibit logically includes the determination of
who and what can and cannot be permitted entry
or access into the limited access facilities. Thus,
the RTC concluded that AO 1, DO 74, and the
Revised Rules and Regulations on Limited
Access Facilities, which ban motorcycles entry
or access to the limited access facilities, are not
inconsistent with RA 2000.
RA 2000, otherwise known as the Limited
Access Highway Act, was approved on 22 June
1957. Section 4 of RA 2000 provides that
"[t]he Department of Public Works and
Communications is authorized to so design any
limited access facility and to so regulate, restrict,
or prohibit access as to best serve the traffic for
which such facility is intended." The RTC
construed this authorization to regulate, restrict,
or prohibit access to limited access facilities to
apply to the Department of Public Works and
Highways (DPWH).
The RTCs ruling is based on a wrong premise.
The RTC assumed that the DPWH derived its
authority from its predecessor, the Department of
Public Works and Communications, which is
expressly authorized to regulate, restrict, or
prohibit access to limited access facilities under
Section 4 of RA 2000. However, such
assumption fails to consider the evolution of the
Department of Public Works and
Communications.
Under Act No. 2711, otherwise known as the
Revised Administrative Code, approved on 10
March 1917, there were only seven executive
departments, namely: the Department of the
Interior, the Department of Finance, the
Department of Justice, the Department of
Agriculture and Commerce, the Department of
Public Works and Communications, the
Department of Public Instruction, and the
Department of Labor.15 On 20 June 1964,
Republic Act No. 413616 created the Land
Transportation Commission under the
Department of Public Works and
Communications. Later, the Department of
Public Works and Communications was
restructured into the Department of Public
Works, Transportation and Communications.
On 16 May 1974, Presidential Decree No. 458
(PD 458) separated the Bureau of Public
Highways from the Department of Public Works,
Transportation and Communications and
created it as a department to be known as
Department of Public Highways. Under Section 3
of PD 458, the Department of Public Highways is
"responsible for developing and implementing
programs on the construction and maintenance
of roads, bridges and airport runways."
With the amendment of the 1973 Philippine
Constitution in 1976, resulting in the shift in the
form of government, national agencies were
renamed from Departments to Ministries. Thus,
the Department of Public Works, Transportation
and Communications became the Ministry of
Public Works, Transportation and
Communications.
On 23 July 1979, then President Ferdinand E.
Marcos issued Executive Order No. 546 (EO
546), creating a Ministry of Public Works and
a Ministry of Transportation and
Communications.17 Under Section 1 of EO 546,
the Ministry of Public Works assumed
the public works functions of the Ministry of
Public Works, Transportation and
Communications. The functions of the Ministry
of Public Works were the "construction,
maintenance and repair of port works, harbor
facilities, lighthouses, navigational aids, shore
protection works, airport buildings and
associated facilities, public buildings and school
buildings, monuments and other related
structures, as well as undertaking harbor and
river dredging works, reclamation of foreshore
and swampland areas, water supply, and flood
control and drainage works."18
On the other hand, the Ministry of
Transportation and Communications became
the "primary policy, planning, programming,
coordinating, implementing, regulating and
administrative entity of the executive branch of
the government in the promotion, development,
and regulation of a dependable and coordinated
network of transportation and communication
systems."19 The functions of the Ministry of
Transportation and Communications were:
a. Coordinate and supervise all activities of
the Ministry relative to transportation and
communications;
b. Formulate and recommend national
policies and guidelines for the
preparation and implementation of an
integrated and comprehensive
transportation and communications
system at the national, regional and
local levels;
c. Establish and administer comprehensive
and integrated programs for transportation
and communication, and for this purpose,
may call on any agency, corporation, or
organization, whether government or
private, whose development programs
include transportation and communications
as an integral part to participate and assist
in the preparation and implementation of
such programs;
d. Regulate, whenever necessary,
activities relative to transportation and
communications and prescribe and
collect fees in the exercise of such
power;
e. Assess, review and provide direction to
transportation and communications
research and development programs of the
government in coordination with other
institutions concerned; and
f. Perform such other functions as may be
necessary to carry into effect the provisions
of this Executive Order.20 (Emphasis
supplied)
On 27 July 1981, then President Marcos issued
Executive Order No. 710 (EO 710), which
merged the Ministry of Public Works and the
Ministry of Public Highways for "greater simplicity
and economy in operations."21 The restructured
agency became known as the Ministry of
Public Works and Highways. Under Section 1
of EO 710 the functions of the Ministry of Public
Works and the Ministry of Public
22
Highways were transferred to the Ministry of
Public Works and Highways.
Upon the ratification of the 1987 Constitution in On the other hand, among the functions of
February 1987, the former Ministry of Public the Ministry of Transportation and
Works and Highways became the Department Communications (now Department of
of Public Works and Highways (DPWH) and Transportation and Communications
the former Ministry of Transportation and [DOTC]) were to (1) formulate and recommend
Communications became the Department of national policies and guidelines for the
Transportation and Communications (DOTC). preparation and implementation of an integrated
and comprehensive transportation and
DPWH issued DO 74 and DO 215 declaring communications systems at the national,
certain expressways as limited access facilities regional, and local levels; and (2) regulate,
on 5 April 1993 and 25 June 1998, respectively. whenever necessary, activities relative to
Later, the TRB, under the DPWH, issued the transportation and communications and
Revised Rules and Regulations on Limited prescribe and collect fees in the exercise of such
Access Facilities. However, on 23 July 1979, power. Clearly, under EO 546, it is the DOTC, not
long before these department orders and the DPWH, which has authority to regulate,
regulations were issued, the Ministry of Public restrict, or prohibit access to limited access
Works, Transportation and facilities.
Communications was divided into two agencies
the Ministry of Public Works and Even under Executive Order No. 125 (EO
the Ministry of Transportation and 125)24 and Executive Order No. 125-A (EO 125-
Communications by virtue of EO 546. The A),25 which further reorganized the DOTC, the
question is, which of these two agencies is now authority to administer and enforce all laws, rules
authorized to regulate, restrict, or prohibit access and regulations relative to transportation is
to limited access facilities?23 clearly with the DOTC.26

Under Section 1 of EO 546, the Ministry of Thus, DO 74 and DO 215 are void because the
Public Works (now DPWH) assumed the public DPWH has no authority to declare certain
works functions of the Ministry of Public expressways as limited access facilities. Under
Works, Transportation and Communications. the law, it is the DOTC which is authorized to
administer and enforce all laws, rules and
regulations in the field of transportation and to
regulate related activities.
Since the DPWH has no authority to regulate
activities relative to transportation, the
TRB27 cannot derive its power from the DPWH to
issue regulations governing limited access
facilities. The DPWH cannot delegate a power or
function which it does not possess in the first
place. Since DO 74 and DO 215 are void, it
follows that the rules implementing them are
likewise void.
Whether AO 1 and DO 123 are Unconstitutional
DPWH Secretary Simeon A. Datumanong issued
DO 123 on 18 July 2001. DO 123 reads in part:
SUBJECT: Revised Rules and Regulations
Governing Limited Access Highways
By virtue of the authority granted the
Secretary of Public Works and Highways
under Section 3 of R.A. 2000, otherwise
known as the Limited Access Highway Act,
the following revised rules and regulations
governing limited access highways are hereby
promulgated for the guidance of all concerned:
1. Administrative Order No. 1 dated February 19,
1968, issued by the Secretary of the then
Department of Public Works and
Communications, is hereby amended by deleting
the word "motorcycles" mentioned in Section
3(h) thereof. Therefore, motorcycles are
hereby allowed to operate inside the toll
roads and limited access highways, subject
to the following:
a. Motorcycles shall have an engine
displacement of at least 400 cubic
centimeters (cc) provided that:
x x x x28 (Emphasis supplied)
The RTCs Decision dated 10 March 2003
declared DO 123 unconstitutional on the ground
that it violates the equal protection clause by
allowing only motorcycles with at least 400 cubic
centimeters engine displacement to use the toll
ways. The RTC reasoned that the creation of a
distinction within the class of motorcycles was
not based on real differences.
We need not pass upon the constitutionality of
the classification of motorcycles under DO 123.
As previously discussed, the DPWH has no
authority to regulate limited access highways
since EO 546 has devolved this function to the
DOTC. Thus, DO 123 is void for want of authority
of the DPWH to promulgate it.
On the other hand, the assailed portion of AO 1
states:
Section 3. On limited access highways, it is
unlawful for any person or group of persons to:
xxxx
(h) Drive any bicycle, tricycle, pedicab,
motorcycle or any vehicle (not motorized);
xxxx
Petitioners assail the DPWHs failure to provide
"scientific" and "objective" data on the danger of
having motorcycles plying our highways. They
attack this exercise of police power as baseless
and unwarranted. Petitioners belabor the fact
that there are studies that provide proof that
motorcycles are safe modes of transport. They
also claim that AO 1 introduces an unreasonable
classification by singling-out motorcycles from
other motorized modes of transport. Finally,
petitioners argue that AO 1 violates their right to
travel.
Petitioners arguments do not convince us.
We emphasize that the Secretary of
the Department of Public Works and
Communications issued AO 1 on 19 February
1968.
Section 3 of RA 200029 authorized the issuance
of the guidelines. In contrast, DPWH issued DO
74, DO 215 and DO 123 after EO 546 devolved
to the DOTC the authority to regulate limited
access highways.
We now discuss the constitutionality of AO 1.
Administrative issuances have the force and
effect of law.30 They benefit from the same
presumption of validity and constitutionality
enjoyed by statutes.31 These two precepts place
a heavy burden upon any party assailing
governmental regulations. The burden of proving
unconstitutionality rests on such party.32 The
burden becomes heavier when the police power
is at issue.
The use of public highways by motor vehicles is
subject to regulation as an exercise of the police
power of the state.33 The police power is far-
reaching in scope and is the "most essential,
insistent and illimitable" of all government
powers.34 The tendency is to extend rather than
to restrict the use of police power. The sole
standard in measuring its exercise is
reasonableness.35 What is "reasonable" is not
subject to exact definition or scientific
formulation. No all-embracing test of
reasonableness exists,36 for its determination
rests upon human judgment applied to the facts
and circumstances of each particular case.37
We find that AO 1 does not impose unreasonable
restrictions. It merely outlines several
precautionary measures, to which toll way users
must adhere. These rules were designed to
ensure public safety and the uninhibited flow of
traffic within limited access facilities. They cover
several subjects, from what lanes should be used
by a certain vehicle, to maximum vehicle height.
The prohibition of certain types of vehicles is but
one of these. None of these rules violates
reason. The purpose of these rules and the logic
behind them are quite evident. A toll way is not
an ordinary road. The special purpose for which
a toll way is constructed necessitates the
imposition of guidelines in the manner of its use
and operation. Inevitably, such rules will restrict
certain rights. But the mere fact that certain rights
are restricted does not invalidate the rules.
Consider Section 3(g) of AO 1, which prohibits
the conduct of rallies inside toll ways.38 The
regulation affects the right to peaceably
assemble. The exercise of police power involves
restriction, restriction being implicit in the power
itself. Thus, the test of constitutionality of a police
power measure is limited to an inquiry on
whether the restriction imposed on constitutional
rights is reasonable, and not whether it imposes
a restriction on those rights.
None of the rules outlined in AO 1 strikes us as
arbitrary and capricious. The DPWH, through the
Solicitor General, maintains that the toll ways
were not designed to accommodate motorcycles
and that their presence in the toll ways will
compromise safety and traffic considerations.
The DPWH points out that the same study the
petitioners rely on cites that the inability of other
drivers to detect motorcycles is the predominant
cause of accidents.39 Arguably, prohibiting the
use of motorcycles in toll ways may not be the
"best" measure to ensure the safety and comfort
of those who ply the toll ways.
However, the means by which the government
chooses to act is not judged in terms of what is
"best," rather, on simply whether the act is
reasonable. The validity of a police power
measure does not depend upon the absolute
assurance that the purpose desired can in fact
be probably fully accomplished, or upon the
certainty that it will best serve the purpose
intended.40 Reason, not scientific exactitude, is
the measure of the validity of the governmental
regulation. Arguments based on what is "best"
are arguments reserved for the Legislatures
discussion. Judicial intervention in such matters
will only be warranted if the assailed regulation is
patently whimsical. We do not find the situation
in this case to be so.
Neither do we find AO 1 oppressive. Petitioners
are not being deprived of their right to use the
limited access facility. They are merely being
required, just like the rest of the public, to adhere
to the rules on how to use the facility. AO 1 does
not infringe upon petitioners right to travel but
merely bars motorcycles, bicycles, tricycles,
pedicabs, and any non-
motorized vehicles as the mode of traveling
along limited access highways.41 Several cheap,
accessible and practical alternative modes of
transport are open to petitioners. There is
nothing oppressive in being required to take a
bus or drive a car instead of ones scooter,
bicycle, calesa, or motorcycle upon using a toll
way.
Petitioners reliance on the studies they gathered
is misplaced. Police power does not rely upon
the existence of definitive studies to support its
use. Indeed, no requirement exists that the
exercise of police power must first be
conclusively justified by research. The yardstick
has always been simply whether the
governments act is reasonable and not
oppressive.42 The use of "reason" in this sense is
simply meant to guard against arbitrary and
capricious government action. Scientific certainty
and conclusiveness, though desirable, may not
be demanded in every situation. Otherwise, no
government will be able to act in situations
demanding the exercise of its residual powers
because it will be tied up conducting studies.
A police power measure may be assailed upon
proof that it unduly violates constitutional
limitations like due process and equal protection
of the law.43 Petitioners attempt to seek redress
from the motorcycle ban under the aegis of equal
protection must fail. Petitioners contention that
AO 1 unreasonably singles out motorcycles is
specious. To begin with, classification by itself is
not prohibited.44
A classification can only be assailed if it is
deemed invidious, that is, it is not based on real
or substantial differences. As explained by Chief
Justice Fernando in Bautista v. Juinio:45
x x x To assure that the general welfare be
promoted, which is the end of law, a regulatory
measure may cut into the rights to liberty and
property. Those adversely affected may under
such circumstances invoked the equal protection
clause only if they can show that the
governmental act assailed, far from being
inspired by the attainment of the common weal
was prompted by the spirit of hostility, or at the
very least, discrimination that finds no support in
reason. It suffices then that the laws operate
equally and uniformly on all persons under
similar circumstances or that all persons must be
treated in the same manner, the conditions not
being different, both in the privileges conferred
and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle
is that equal protection and security shall be
given to every person under circumstances,
which if not identical is analogous. If law be
looked upon in terms of burden or charges, those
that fall within a class should be treated in the
same fashion, whatever restrictions cast on
some in the group equally binding the rest.
We find that it is neither warranted nor
reasonable for petitioners to say that the only
justifiable classification among modes of
transport is the motorized against the non-
motorized. Not all motorized vehicles are created
equal. A 16-wheeler truck is substantially
different from other light vehicles. The first may
be denied access to some roads where the latter
are free to drive. Old vehicles may be reasonably
differentiated from newer models.46 We find that
real and substantial differences exist between a
motorcycle and other forms of transport sufficient
to justify its classification among those prohibited
from plying the toll ways. Amongst all types of
motorized transport, it is obvious, even to a child,
that a motorcycle is quite different from a car, a
bus or a truck. The most obvious and troubling
difference would be that a two-wheeled vehicle is
less stable and more easily overturned than a
four-wheeled vehicle.
A classification based on practical convenience
and common knowledge is not unconstitutional
simply because it may lack purely theoretical or
scientific uniformity. Moreover, we take note that
the Philippines is home to a host of unique
motorized modes of transport ranging from
modified hand-carts (kuliglig) to bicycle
"sidecars" outfitted with a motor. To follow
petitioners argument to its logical conclusion
would open up toll ways to all these contraptions.
Both safety and traffic considerations militate
against any ruling that would bring about such a to the manner of using the toll way, a subject that
nightmare. can be validly limited by regulation.

Petitioners complain that the prohibition on the Petitioners themselves admit that alternative
use of motorcycles in toll ways unduly deprive routes are available to them. Their complaint is
them of their right to travel. that these routes are not the safest and most
convenient. Even if their claim is true, it hardly
We are not persuaded. qualifies as an undue curtailment of their
freedom of movement and travel. The right to
A toll way is not an ordinary road. As a facility
travel does not entitle a person to the best form
designed to promote the fastest access to certain
of transport or to the most convenient route to his
destinations, its use, operation, and
destination. The obstructions found in normal
maintenance require close regulation. Public
streets, which petitioners complain of (i.e.,
interest and safety require the imposition of
potholes, manholes, construction barriers, etc.),
certain restrictions on toll ways that do not apply
are not suffered by them alone.
to ordinary roads. As a special kind of road, it is
but reasonable that not all forms of transport Finally, petitioners assert that their possession of
could use it. a drivers license from the Land Transportation
Office (LTO) and the fact that their vehicles are
The right to travel does not mean the right to
registered with that office entitle them to use all
choose any vehicle in traversing a toll way. The
kinds of roads in the country. Again, petitioners
right to travel refers to the right to move from one
are mistaken. There exists no absolute right to
place to another. Petitioners can traverse the toll
drive. On the contrary, this privilege, is heavily
way any time they choose using private or public
regulated. Only a qualified group is allowed to
four-wheeled vehicles. Petitioners are not denied
drive motor vehicles: those who pass the tests
the right to move from Point A to Point B along
administered by the LTO. A drivers license
the toll way. Petitioners are free to access the toll
issued by the LTO merely allows one to drive a
way, much as the rest of the public can. The
particular mode of transport. It is not a license to
mode by which petitioners wish to travel pertains
drive or operate any form of transportation on
any type of road. Vehicle registration in the LTO
on the other hand merely signifies the
roadworthiness of a vehicle. This does not
preclude the government from prescribing which
roads are accessible to certain vehicles.

WHEREFORE, we PARTLY GRANT the

petition. We MODIFY the Decision dated 10
March 2003 of the Regional Trial Court, Branch
147, Makati City and its Order dated 16 June
2003 in Civil Case No. 01-034. We
declare VOID Department Order Nos. 74, 215,
and 123 of the Department of Public Works and
Highways, and the Revised Rules and
Regulations on Limited Access Facilities of the
Toll Regulatory Board. We
declare VALID Administrative Order No. 1 of the
Department of Public Works and
Communications.

SO ORDERED.
G.R. No. 187836 November 25, 2014
SOCIAL JUSTICE SOCIETY (SJS) OFFICERS,
NAMELY, SAMSON S. ALCANTARA, and
VLADIMIR ALARIQUE
CABIGAO, Petitioners,
vs.
ALFREDO S. LIM, in his capacity as mayor of
the City of Manila, Respondent.
x-----------------------x
G.R. No. 187916
JOSE L. ATIENZA, JR., BIENVINIDO M.
ABANTE, MA. LOURDES M. ISIP-GARCIA,
RAFAEL P. BORROMEO JOCELYN DAWIS-
ASUNCION, minors MARIAN REGINA B.
TARAN, MACAILA RICCI B. TARAN,
RICHARD KENNETH B. TARAN, represented
and joined by their parents RICHARD AND
MARITES TARAN, minors CZARINA
ALYSANDRA C. RAMOS, CEZARAH
ADRIANNA C. RAMOS, and CRISTEN AIDAN
C. RAMOS represented and joined by their
mother DONNA C. RAMOS, minors JAZMIN
SYLLITA T. VILA AND ANTONIO T. CRUZ IV,
represented and joined by their mother
MAUREEN C. TOLENTINO, Petitioners,
vs.
MAYOR ALFREDO S. LIM, VICE MAYOR
FRANCISCO DOMAGOSO, COUNCILORS
ARLENE W. KOA, MOISES T. LIM, JESUS
FAJARDO LOUISITO N. CHUA, VICTORIANO
T. A. MELENDEZ, JOHN MARVIN C. NIETO,
ROLANDO M. VALERIANO, RAYMUNDO R.
YUPANGCO, EDWARD VP MACEDA,
RODERICK D. V ALBUENA, JOSEFINA M.
SISCAR, SALVADOR PHILLIP H. LACUNA,
LUCIANO M. VELOSO, CARLO V. LOPEZ,
ERNESTO F. RIVERA,1 DANILO VICTOR H.
LACUNA, JR., ERNESTO G. ISIP, HONEY H.
LACUNA-PANGAN, ERNESTO M. DIONISO,
JR. and ERICK IAN O. NIEVA, Respondents.
x-----------------------x
CHEVRON PHILIPPINES INC., PETRON
CORPORATION AND PILIPINAS SHELL
PETROLEUM CORPORATION, Intervenors.
DECISION
PEREZ, J.:
Challenged in these consolidated petitions2 is
the validity of Ordinance No. 81873 entitled "AN
ORDINANCE AMENDING ORDINANCE NO.
8119, OTHERWISE KNOWN AS THE MANILA
COMPREHENSIVE LAND USE PLAN AND
ZONING ORDINANCE OF 2006, BY SOUTHWEST, THE AREA OF PUNTA,
CREATING A MEDIUM INDUSTRIAL ZONE (1- STA.ANA BOUNDED BY THE PASIG RIVER,
2) AND HEAVY INDUSTRIAL ZONE (1-3), AND MARCELINO OBRERO ST., MAYO 28 ST. AND
PROVIDING FOR ITS ENFORCEMENT" THE F. MANALO STREET FROM INDUSTRIAL
enacted by the Sangguniang Panlungsod of II TO COMMERCIAL I," and Ordinance No.
Manila (Sangguniang Panlungsod) on 14 May 81195 entitled "AN ORDINANCE ADOPTING
2009. THE MANILA COMPREHENSIVE LAND USE
PLAN AND ZONING REGULATIONS OF 2006
The creation of a medium industrial zone (1-2) AND PROVIDING FOR THE
and heavy industrial zone (1-3) effectively lifted ADMINISTRATION, ENFORCEMENT AND
the prohibition against owners and operators of AMENDMENT THERETO."
businesses, including herein intervenors
Chevron Philippines, Inc. (Chevron), Pilipinas The Parties
Shell Petroleum Corporation (Shell), and Petron
Corporation (Petron), collectively referred to as Petitioners allege the parties respective capacity
the oil companies, from operating in the to sue and be sued, viz:
designated commercial zone an industrial zone
prior to the enactment of Ordinance Petitioners
No. Residence Suing capacity aside
80274 entitled "AN ORDINANCE in Manila residents of Ma
RECLASSIFYING THE LAND USE OF THAT personal circumstan
PORTION OF LAND BOUNDED BY THE
PASIGRIVER IN THE NORTH, PNR RAILROAD G.R. No. 187836
TRACK IN THE EAST, BEATA ST. IN THE
SOUTH, PALUMPONG ST. SJS IN Officer
THE Samson S. Not mentioned Manila
SOUTHWEST AND ESTERO DE PANDACAN Alcantara in the petition; One of the petitione
IN THE WEST, PNR RAILROAD (Alcantara)
IN THE holding office in Atienza (G.R. No.
NORTHWEST AREA, ESTERO DE PANDACAN Ermita, Manila Pesident of ABAKA
IN THE NORTHEAST, PASIG RIVER IN THE PARTY LIST with m
SOUTHEAST AND DR. M. L. CARREON IN THE
 areJocelyn
residents
Dawis-Asuncion
of the City of Sta. Mesa Incumbent City Cou
Manila City of Manila
Vladimir Alarique T. Pandacan OneMinors
of theMarian
petitioners
Regina
in B.
SJSTaran,
v. Paco Citizens, real estate
abigao) Atienza
Macalia(G.R.
RicciNo.B.156052)
Taran, Richard taxpayers
Kenneth B. Taran, represented
and Officer
* The allegation is inaccurate. SJS joined by their parents
Richard and
Alcantara is actually one of the counsels for Marites Taran
petitioner SJS in G.R. No. 156052. The
Minors Czarina Alysandra C. Tondo Citizens, real estate
petitioners in that case are the SJS itself,
Ramos, Cezarah Adrianna C. taxpayers
Cabigao and Bonifacio S. Tumbokon
Ramos, and Cristen Aidan C.
(Tumbokon).
Ramos represented and joined
G.R. No. 187916 by
their mother Donna c. Ramos
yor Jose L. Atienza, San Andres Former Mayor Syllita
Minors Jasmin of T.Manila;
Vila and Sta. Ana Citizens, real estate
tienza) Secretary of Department
Antonio T. Cruz IV, represented of taxpayers
Environment
and joined by and theirNatural
mother
Resources (DENR)
Maureen C. Tolentino
M. Abante Sta. Ana Citizen and taxpayer;
member of the House of
Respondents Sued in their capacit
Representatives
s M. Isip-Garcia San Miguel Incumbent City CouncilorG.R. Nos. 187836 and 187916
of the
City of Manila
Former Mayor Alfredo S. Lim (Mayor Lim) Incumbent Mayor o
orromeo Paco Incumbent City Councilor of the the time of the fi
City of Manila present petitions
 s Sued
Chevron
in their capacity asPhilippines, importing, distributing and marketing o
Inc. (CHEVRON) products in the Philippines since 1922
Pilipinas Shell Petroleum manufacturing, refining, importing,
Corporation (SHELL) and marketing of petroleum produ
G.R. No. 187916
Philippines
Francisco Domagoso (Vice-Mayor Vice-Mayor and (PETRON)
Petron Corporation Presiding manufacturing, refining, importing,
Officer and marketing of petroleum produ
of the City Council of Manila Philippines
Koa Principal author of City
They claim that their rights with respect to the oil
Ordinance No. 8187
depots in Pandacan would be directly affected by
im, Jesus Fajardo, Louisito N. Chua, Personal and officialthecapacities
outcome of these cases.
A. Melendez, John Marvin Nieto, as councilors who voted and
Valeriano, Raymondo R. Yupangco, approved City Ordinance The Antecedents
No.
Maceda, Roderick D. Valbuena, 8187
These petitions are a sequel to the case of Social
Siscar, Phillip H. Lacuna, Luciano M.
Justice Society v. Mayor Atienza,
Carlo V. Lopez, Ernesto F. 8
Jr. (hereinafter referred to asG.R. No. 156052),
nilo Victor H. Lacuna, Jr., Ernesto G.
where the Court found: (1) that the ordinance
y H. Lacuna-Pangan, Ernesto M.
subject thereof Ordinance No. 8027 was
, Erick Ian O. Nieva
enacted "to safeguard the rights to life, security
and safety of the inhabitants of Manila;"9 (2) that
The following intervenors, all of which are
it had passed the tests of a valid ordinance; and
corporations organized under Philippine laws,
(3) that it is not superseded by Ordinance No.
intervened:7
8119.10 Declaring that it is constitutional and
valid,11 the Court accordingly ordered its
Nature of Business immediate enforcement with a specific directive
on the relocation and transfer of the Pandacan
oil terminals.12
Highlighting that the Court has soruled that the
Pandacan oil depots should leave, herein
petitioners now seek the nullification of
Ordinance No. 8187, which contains provisions
contrary to those embodied in Ordinance No.
8027. Allegations of violation of the right to health
and the right to a healthful and balanced
environment are also included.
For a better perspective of the facts of these
cases, we again trace the history of the
Pandacan oil terminals, aswell as the intervening
events prior to the reclassification of the land use
from Industrial II to Commercial I under
Ordinance No. 8027 until the creation of Medium
Industrial Zone and Heavy Industrial Zone
pursuant to Ordinance No. 8187.
History of the Pandacan
Oil Terminals
We quote the following from the Resolution of the
Court in G.R. No. 156052:
Pandacan (one of the districts of the City of
Manila) is situated along the banks of the Pasig
[R]iver. Atthe turn of the twentieth century,
Pandacan was unofficially designated as the
industrial center of Manila. The area, then largely
uninhabited, was ideal for various emerging
industries as the nearby river facilitated the
transportation of goods and products. In the
1920s, it was classifiedas an industrial zone.
Among its early industrial settlers werethe oil
companies. x x x On December 8, 1941, the
Second World War reached the shores of the
Philippine Islands. x x x [I]n their zealous attempt
to fend off the Japanese Imperial Army, the
United States Army took control of the Pandacan
Terminals and hastily made plans to destroy the
storage facilities to deprive the advancing
Japanese Army of a valuable logistics weapon.
The U.S. Army burned unused petroleum,
causing a frightening conflagration. Historian
Nick Joaquin recounted the events as follows:
After the USAFFE evacuated the City late in
December 1941, all army fuel storage dumps
were set on fire. The flames spread, enveloping
the City in smoke, setting even the rivers ablaze,
endangering bridges and all riverside buildings.
For one week longer, the "open city" blazed
a cloud of smoke by day, a pillar of fire by night.
The fire consequently destroyed the Pandacan
Terminals and rendered its network of depots
and service stations inoperative.
After the war, the oil depots were reconstructed.
Pandacan changed as Manila rebuilt itself. The
three major oil companies resumed the operation
of their depots. But the district was no longer a
sparsely populated industrial zone; it had
evolved into a bustling, hodgepodge community.
Today, Pandacan has become a densely
populated area inhabited by about 84,000
people, majority of whom are urban poor who call
it home. Aside from numerous industrial
installations, there are also small businesses,
churches, restaurants, schools, daycare centers
and residences situated there. Malacaang
Palace, the official residence of the President of
the Philippines and the seat of governmental
power, is just two kilometers away. There is a
private school near the Petron depot. Along the
walls of the Shell facility are shanties of informal
settlers. More than 15,000 students are enrolled
in elementary and high schools situated near
these facilities. A university with a student
population of about 25,000 is located directly
across the depot on the banks of the Pasig
[R]iver.
The 36-hectare Pandacan Terminals house the
oil companies distribution terminals and depot
facilities.1wphi1 The refineries of Chevron and
Shell in Tabangao and Bauan, both in Batangas,
respectively, are connected to the Pandacan
Terminals through a 114-kilometer underground
pipeline system. Petrons refinery in Limay,
Bataan, on the other hand, also services the
depot. The terminals store fuel and other
petroleum products and supply 95% of the fuel
requirements of Metro Manila, 50% of Luzons
consumption and 35% nationwide. Fuel can also
be transported through barges along the Pasig
[R]iver ortank trucks via the South Luzon
Expressway.13 (Citations omitted)
Memorandum of Agreement (MOA)
dated 12 October 2001 between the oil
companies
and the Department of Energy (DOE)
On 12 October 2001, the oil companies and the
DOE entered into a MOA14 "in light of recent
international developments involving acts of
terrorism on civilian and government
landmarks,"15 "potential new security risks
relating to the Pandacan oil terminals and the
impact on the surrounding community which may
be affected,"16 and "to address the perceived
risks posed by the proximity of communities,
businesses and offices to the Pandacan oil
terminals, consistent with the principle of
sustainable development."17 The stakeholders
acknowledged that "there is a need for a
comprehensive study to address the economic,
social, environmental and security concerns with
the end in view of formulating a Master Plan to
address and minimize the potential risks and
hazards posed by the proximity of communities,
businesses and offices to the Pandacan oil
terminals without adversely affecting the security
and reliability of supply and distribution of
petroleum products to Metro Manila and the rest
of Luzon, and the interests of consumers and
users of such petroleum products in those
areas."18
The enactment of Ordinance No. 8027
against the continued stay of the oil depots
The MOA, however, was short-lived.
On 20 November 2001, during the incumbency
of former Mayor Jose L. Atienza, Jr. (Mayor
Atienza) nowone of the petitioners in G.R. No.
187916 the Sangguniang Panlungsod enacted
Ordinance No. 802719 reclassifying the use of
the land in Pandacan, Sta. Ana, and its adjoining
areas from Industrial II to Commercial I.
The owners and operators of the businesses
thus affected by the reclassification were given
six months from the date of effectivity of the
Ordinance within which to stop the operation of
their businesses.
Nevertheless, the oil companies weregranted an
extension of until 30 April 2003 within which to
comply with the Ordinance pursuant to the
following:
(1) Memorandum of Understanding
(MOU)20 dated 26 June 2002 between the
City of Manila and the Department of
Energy (DOE), on the one hand, and the oil
companies, on the other, where the parties
agreed that "the scaling down of the
Pandacan Terminals [was] the most viable
and practicable option"21 and committed to
adopt specific measures22 consistent with
the said objective;
(2) Resolution No. 97 dated 25 July
200223 of the Sangguniang Panlungsod,
which ratified the 26 June 2002 MOU but
limited the extension of the period within
which to comply to six months from 25 July
2002; and
 (3) Resolution No. 13 dated 30 January
200324 of the Sanguniang Panlungsod,
which extended the validity of Resolution
No. 97 to 30 April 2003, authorized then
Mayor Atienza to issue special business
permits to the oil companies, and called for
a reassessment of the ordinance.
Social Justice Society v. Atienza (G.R. No.
156052):
The filing of an action for mandamus
before the Supreme Court
to enforce Ordinance No. 8027
In the interim, an original action for mandamus
entitled Social Justice Society v. Atienza, Jr.
docketed as G.R. No. 15605225 was filed on 4
December 2002 by Tumbokon and herein
petitioners SJS and Cabigao against then Mayor
Atienza. The petitioners sought to compel former
Mayor Atienza to enforce Ordinance No. 8027
and cause the immediate removal of the
terminals of the oil companies.26
Issuance by the Regional Trial Court (RTC)
of writs of preliminary prohibitory injunction
and preliminary mandatory injunction,
and status quo order in favor of the oil companies
Unknown to the Court, during the pendency of
G.R. No. 156052, and before the expiration of the
validity ofResolution No. 13, the oil companies
filed the following actions before the Regional
Trial Court of Manila: (1) an action for the
annulment of Ordinance No. 8027 with
application for writs of preliminary prohibitory
injunction and preliminary mandatory injunction
by Chevron; (2) a petition for prohibition and
mandamus also for the annulment of the
Ordinance with application for writs of preliminary
prohibitory injunction and preliminary mandatory
injunction by Shell; and (3) a petition assailing
the validity of the Ordinance with prayer for the
issuance of a writ of preliminary injunction and/or
temporary restraining order (TRO) by Petron.27
Writs of preliminary prohibitory injunction and
preliminary mandatory injunction were issued in
favor of Chevron and Shell on 19 May 2003.
Petron, on the other hand, obtained a status quo
order on 4 August 2004.28
The Enactment of Ordinance No. 8119 defining
the Manila land use plan and zoning regulations
On 16 June 2006, then Mayor Atienza approved
Ordinance No. 8119 entitled "An Ordinance
Adopting the Manila Comprehensive Land Use
Plan and Zoning Regulations of 2006 and
Providing for the Administration, Enforcement
and Amendment thereto."29
Pertinent provisions relative to these cases are
the following:
(a) Article IV, Sec. 730 enumerating the
existing zones or districts in the City of
Manila;
(b) Article V, Sec. 2331 designating the
Pandacan oil depot area as a "Planned Unit
Development/Overlay Zone" (O-PUD); and
(c) the repealing clause, which reads:
SEC. 84. Repealing Clause. All ordinances,
rules, regulations in conflict with the provisions of
this Ordinance are hereby repealed;
PROVIDED, That the rights that are vested upon
the effectivity of this Ordinance shall not be
impaired.32
7 March 2007 Decision in G.R. No. 156052;
The mayor has the mandatory legal duty to
enforce
Ordinance No. 8027 and order the removal of the
Pandacan terminals
On 7 March 2007, the Court granted the petition
for mandamus, and directed then respondent
Mayor Atienza to immediately enforce Ordinance
No. 8027.33
Confined to the resolution of the following issues
raised by the petitioners, to wit:
1. whether respondent [Mayor Atienza]has
the mandatory legal duty to enforce
Ordinance No. 8027 and order the removal
of the Pandacan Terminals, and
2. whether the June 26, 2002 MOU and the
resolutions ratifying it can amend or repeal
Ordinance No. 8027.34
the Court declared:
x x x [T]he Local Government Code imposes
upon respondent the duty, as city mayor, to
"enforce all laws and ordinances relative to the
governance of the city." One of these is
Ordinance No. 8027. As the chief executive of
the city, he has the duty to enforce Ordinance
No. 8027 as long as it has not been repealed by
the Sanggunian or annulled by the courts. He
has no other choice. It is his ministerial duty to do
so. x x x
xxxx
The question now is whether the MOU entered
into by respondent with the oil companies and
the subsequent resolutions passed by the
Sanggunianhave made the respondents duty to
enforce Ordinance No. 8027 doubtful, unclear or
uncertain. x x x
We need not resolve this issue. Assuming that
the terms of the MOU were inconsistent with
Ordinance No. 8027, the resolutions which
ratified it and made it binding on the Cityof Manila
expressly gave it full force and effect only until
April 30, 2003. Thus, at present, there is nothing
that legally hinders respondent from enforcing
Ordinance No. 8027.
Ordinance No. 8027 was enacted right after the
Philippines, along with the rest of the world,
witnessed the horror of the September 11, 2001
attack on the Twin Towers of the World Trade
Center in New York City. The objective of the
ordinance is toprotect the residents of Manila
from the catastrophic devastation that will surely
occur in case of a terrorist attack on the
Pandacan Terminals. No reason exists why such
a protective measure should be
35
delayed. (Emphasis supplied; citations
omitted)
13 February 2008 Resolution in G.R. No.
156052;
Ordinance No. 8027 is constitutional
The oil companies and the Republic of the
Philippines, represented by the DOE, filed their
motions for leave to intervene and for
reconsideration of the 7 March 2007 Decision.
During the oral arguments, the parties submitted
to the power of the Court torule on the
constitutionality and validity of the assailed
Ordinance despite the pendency of the cases in
the RTC.36
On 13 February 2008, the Court granted the
motions for leave to intervene of the oil
companies and the Republic of the Philippines
but denied their respective motions for
reconsideration. The dispositive portion of the
Resolution reads:
WHEREFORE, x x x
We reiterate our order to respondent Mayor of
the City of Manila to enforce Ordinance No.
8027. In coordination with the appropriate
agencies and other parties involved, respondent
Mayor is hereby ordered to oversee the
relocation and transfer of the Pandacan
Terminals out of its present site.37
13 February 2008 Resolution in G.R. No.
156052;
Ordinance No. 8027 was not impliedly repealed
by Ordinance No. 8119
The Court also ruled that Ordinance No. 8027
was not impliedly repealed by Ordinance No.
8119. On this score, the Court ratiocinated:
For the first kind of implied repeal, there must be
an irreconcilable conflict between the two
ordinances. There is no conflict between the two
ordinances. Ordinance No. 8027 reclassified the
Pandacan area from Industrial II to Commercial
I. Ordinance No. 8119, Section 23, designated it
as a "Planned Unit Development/Overlay Zone
(O-PUD)." In its Annex "C" which defined the
zone boundaries, the Pandacan area was shown
to be within the "High Density Residential/Mixed
Use Zone (R-3/MXD)." x x x [B]oth ordinances
actually have a common objective, i.e., to shift
the zoning classification from industrial to
commercial (Ordinance No. 8027) or mixed
residential commercial (Ordinance No. 8119)
xxxx
Ordinance No. 8027 is a special law since it
deals specifically with a certain area described
therein (the Pandacan oil depot area) whereas
Ordinance No. 8119 can be considered a general
law as it covers the entire city of Manila.
xxxx
x x x The repealing clause of Ordinance No. 8119
cannot be taken to indicate the legislative intent
to repeal all prior inconsistent laws on the subject
matter, including Ordinance No. 8027, a special
enactment, since the aforequoted minutes (an
official record of the discussions in the
Sanggunian) actually indicated the clear intent to
preserve the provisions of Ordinance No. 8027.38
Filing of a draft Resolution amending Ordinance
No. 8027 effectively allowing
the oil depots to stay in the Pandacan area;
Manifestation and
Motion to forestall the passing of the new
Ordinance filed in G.R. No. 156052
On 5 March 2009, respondent then Councilor
Arlene W. Koa, filed with the Sangguniang
Panlungsod a draft resolution entitled "An
Ordinance Amending Ordinance No. 8119
Otherwise Known as The Manila
Comprehensive Land Use Plan and Zoning
Ordinance of 2006 by Creating a Medium
Industrial Zone (1-2) and Heavy Industrial Zone
(1-3) and Providing for its
Enforcement."39 Initially numbered as Draft
Ordinance No. 7177, this was later renumbered
as Ordinance No. 8187, the assailed Ordinance
in these instant petitions.
Considering that the provisions thereof run
contrary to Ordinance No. 8027, the petitioners
in G.R. No. 156052 filed a "Manifestation and
Motion to: a) Stop the City Council of Manila from
further hearing the amending ordinance to
Ordinance No. 8027; [and] b) Transfer the
monitoring of the enforcement of the Resolution
of the Honorable Court on this case dated 13
February 2008 from Branch 39, Manila Regional
Trial Court to the Supreme Court."40
28 April 2009 Resolution in G.R. No. 156052;
Second Motion for Reconsideration denied with
finality;
succeeding motions likewise denied or otherwise
noted without action
On 28 April 2009, pending the resolution of the
Manifestation and Motion, the Court denied with
finalitythe second motion for reconsideration
dated 27 February 2008 of the oil companies.41
It further ruled that no further pleadings shall be
entertained in the case.42
Succeeding motions were thus deniedand/or
noted without action. And, after the "Very Urgent
Motion to Stop the Mayor of the City of Manila
from Signing Draft Ordinance No. 7177 and to
Cite Him for Contempt if He Would Do So" filed
on 19 May 2009 was denied on 2 June 2009 for
being moot,43 all pleadings pertaining to the
earlier motion against the drafting of an
ordinance to amend Ordinance No. 8027 were
noted without action.44
The Enactment of Ordinance No. 8187
allowing the continued stay of the oil depots
On 14 May 2009, during the incumbency of
former Mayor Alfredo S. Lim (Mayor Lim), who
succeeded Mayor Atienza, the Sangguniang
Panlungsod enacted Ordinance No. 8187.45
The new Ordinance repealed, amended,
rescinded or otherwise modified Ordinance No.
8027, Section 23 of Ordinance No. 8119, and all
other Ordinances or provisions inconsistent
therewith46 thereby allowing, once again, the
operation of "Pollutive/Non-Hazardous and
Pollutive/Hazardous manufacturing and
processing establishments" and "Highly
Pollutive/Non-Hazardous[,]
Pollutive/Hazardous[,] Highly
Pollutive/Extremely Hazardous[,] Non-
Pollutive/Extremely Hazardous; and
Pollutive/Extremely Hazardous; and
Pollutive/Extremely Hazardous manufacturing
and processing establishments" within the newly
created Medium Industrial Zone (1-2) and Heavy
Industrial Zone (1-3) in the Pandacan area.
Thus, where the Industrial Zoneunder Ordinance
No. 8119 was limited to Light Industrial Zone (I-
1), Ordinance No. 8187 appended to the list a
Medium Industrial Zone (I-2) and a Heavy
Industrial Zone (I-3), where petroleum refineries
and oil depots are now among those expressly
allowed.
Hence these petitions.
The Petitions
G.R. No. 187836
To support their petition for prohibition against
the enforcement of Ordinance No. 8187, the
petitioner Social Justice Society (SJS) officers
allege that:
1. The enactment of the assailed Ordinance
is not a valid exercise of police power
because the measures provided therein do
not promote the general welfare of the
people within the contemplation of the
following provisions of law:
a) Article III, Section 18 (kk)47 of
Republic Act No. 409 otherwise known
as the "Revised Charter of the City of
Manila," which provides that the
Municipal Board shall have the
legislative power to enact all
ordinances it may deem necessary
and proper;
b) Section 1648 of Republic Act No.
7160 known as the Local Government
Code, which defines the scope of the
general welfare clause;
2. The conditions at the time the Court
declared Ordinance No. 8027 constitutional
in G.R. No. 156052 exist to this date;
3. Despite the finality of the Decision in G.R.
No. 156052, and notwithstanding that the
conditions and circumstances warranting
the validity of the Ordinance remain the
same, the Manila City Council passed a
contrary Ordinance, thereby refusing to
recognize that "judicial decisions applying
or interpreting the laws or the Constitution
 form part of the legal system of the
Philippines;"49 and
4. Ordinance No. 8187 is violative of
Sections 15 and 16, Article II of the
Constitution of the Philippines on the duty of
the State "to protect and promote the right
to health of the people"50 and "protect and
advance the right of the people to a
balanced and healthful
ecology."51 Petitioners pray that Ordinance
No. 8187 of the City of Manila be declared
null and void, and that respondent, and all
persons acting under him, be prohibited
from enforcing the same.
G.R. No. 187916
The petition for Prohibition, Mandamus and
Certiorari with Prayer for Temporary Restraining
Order and/or Injunction against the enforcement
of Ordinance No. 8187 of former Secretary of
Department of Environment and Natural
Resources and then Mayor Atienza, together
with other residents and taxpayers of the City of
Manila, also alleges violation of the right to health
of the people and the right to a healthful and
balanced environment under Sections 15 and 16
of the Constitution.
Petitioners likewise claim that the Ordinance is in
violation of the following health and environment-
related municipal laws, and international
conventions and treaties to which the Philippines
is a state party:
1. Municipal Laws
(a) Sections 4,52 12,53 1954 and 3055 of
Republic Act No. 8749 otherwise
known as the Philippine Clean Air Act;
(b) Environment Code (Presidential
Decree No. 1152);
(c) Toxic and Hazardous Wastes Law
(Republic Act No. 6969); and
(d) Civil Code provisions on nuisance
and human relations;
2. International Conventions and Treaties to
which the Philippines is a state party
a. Section 1 of the Universal
Declaration of Human Rights, which
states that "[e]veryone has the right to
life, liberty and security of person;"
b. Articles 6,56 2457 and 2758 of the
Convention on the Rights of the Child,
 summarized by the petitioners in the
following manner:
1. the human right to safe and healthy
environment[;]
2. human right to the highest attainable
standard of health[;]
3. the human right to ecologically
sustainable development[;]
4. the human right to an adequate standard
of living, including access to safe food and
water[;]
5. the human right of the child to live in an
environment appropriate for physical and
mental development[; and]
6. the human right to full and equal
participation for all persons in
environmental decision-making and
development planning, and in shaping
decisions and policies affecting ones
community, at the local, national and
international levels.59
Petitioners likewise posit that the title of
Ordinance No. 8187 purports to amend or repeal
Ordinance No. 8119 when it actually intends to
repeal Ordinance No. 8027. According to them,
Ordinance No. 8027 was never mentioned in the
title and the body of the new ordinance in
violation of Section 26, Article VI of the 1987
Constitution, which provides that every bill
passed by Congress shall embrace only one
subject which shall be expressed in the title
thereof.
Also pointed out by the petitioners is a specific
procedure outlined in Ordinance No. 8119 that
should be observed when amending the zoning
ordinance. This is provided for under Section 81
thereof, which reads:
SEC. 81. Amendments to the Zoning Ordinance.
The proposed amendments to the Zoning
Ordinance asreviewed and evaluated by the City
Planning and Development Office (CPDO)shall
be submitted to the City Council for approval of
the majority of the Sangguniang Panlungsod
members. The amendments shall be acceptable
and eventually approved: PROVIDED, That
there is sufficient evidence and justification for
such proposal; PROVIDED FURTHER,That
such proposal is consistent with the development
goals, planning objectives, and strategies of the
Manila Comprehensive Land Use Plan. Said
amendments shall take effect immediately upon
approval or after thirty (30) days from application.
Petitioners thus pray that:
1. upon filing of [the] petition, [the] case be
referred to the Court [E]n Banc, and setting
(sic) the case for oral argument;
2. upon the filing of [the] petition, a
temporary restraining order be issued
enjoining the respondents from publishing
and posting Manila City Ordinance No.
8187 and/or posting of Manila City
Ordinance No. 8187; and/or taking any
steps to implementing (sic) and/or enforce
the same and after due hearing, the
temporary restraining order be converted to
a permanent injunction;
3. x x x Manila City Ordinance 8187 [be
declared] as null and void for being
repugnant to the Constitution and existing
municipal laws and international covenants;
4. x x x the respondents [be ordered] to
refrain from enforcing and/or implementing
Manila City Ordinance No. 8187;
5. x x x respondent City Mayor Alfredo S.
Lim [be enjoined] from issuing any permits
(business or otherwise) to all industries
whose allowable uses are anchored under
the provisions of Manila Ordinance No.
8187; and
6. x x x respondent Mayor of Manila Alfredo
S. Lim [be ordered] to comply with the Order
of the Honorable Court in G.R. 156052
dated February 13, 2008.60
The Respondents Position on the Consolidated
Petitions
Respondent former Mayor Lim
In his Memorandum,61 former Mayor Lim,
through the City Legal Officer, attacks the
petitioners lack of legal standing to sue. He
likewise points out that the petitioners failed to
observe the principle of hierarchy of courts.
Maintaining that Ordinance No. 8187 is valid and
constitutional, he expounds on the following
arguments:
On the procedural issues, he contends that: (1) it
is the function of the Sangguniang Panlungsod
to enact zoning ordinances, for which reason, it
may proceed to amend or repeal Ordinance No.
8119 without prior referral to the Manila Zoning
Board of Adjustment and Appeals (MZBAA) as
prescribed under Section 80 (Procedure for Re-
Zoning) and the City Planning and Development
Office (CPDO) pursuant to Section 81
(Amendments to the Zoning Ordinance) of
Ordinance No. 8119, especially when the action
actually originated from the Sangguniang
Panlungsod itself; (2) the Sangguniang
Panlungsod may, in the later ordinance,
expressly repeal all or part of the zoning
ordinance sought to be modified; and (3) the
provision repealing Section 23 of Ordinance No.
8119 is not violative of Section 26, Article VI of
the 1987 Constitution, which requires that every
bill must embrace only one subject and that such
shall be expressed in the title.
On the substantive issues, he posits that the
petitions are based on unfounded fears; that the
assailed ordinance is a valid exercise of police
power; that it is consistent with the general
welfare clause and public policy, and is not
unreasonable; that it does not run contrary to the
Constitution, municipal laws, and international
conventions; and that the petitioners failed to
overcome the presumption of validity of the
assailed ordinance.
Respondents Vice-Mayor Domagoso and the
City Councilors who voted in favor of the assailed
ordinance
On 14 September 2012, after the Court gave the
respondents several chances to submit their
Memorandum,62 they, through the Secretary of
the Sangguniang Panlungsod, prayed that the
Court dispense with the filing thereof.
In their Comment,63 however, respondents
offered a position essentially similar to those
proffered by former Mayor Lim.
The Intervenors Position on the Consolidated
Petitions
On the other hand, the oil companies sought the
outright dismissal of the petitions based on
alleged procedural infirmities, among others,
incomplete requisites of judicial review, violation
of the principle of hierarchy of courts, improper
remedy, submission of a defective verification
and certification against forum shopping, and
forum shopping.
As to the substantive issues, they maintain,
among others, that the assailed ordinance is
constitutional and valid; that the Sangguniang
Panlalawigan is in the best position to determine
the needs of its constituents; that it is a valid
exercise of legislative power; that it does not
violate health and environment-related
provisions of the Constitution, laws, and
international conventions and treaties to which
the Philippines is a party; that the oil depots are
not likely targets of terrorists; that the scaling
down of the operations in Pandacan pursuant to
the MOU has been followed; and that the people
are safe in view of the safety measures installed
in the Pandacan terminals.
Incidentally, in its Manifestation dated 30
November 2010,64 Petron informed the Court
that it will "cease [the] operation of its petroleum
product storage facilities"65 in the Pandacan oil
terminal not later than January 2016 on account
of the following:
2.01 Environmental issues, many of which are
unfounded, continually crop up and tarnish the
Companys image.
2.02. The location of its Pandacanterminal is
continually threatened, and made uncertain
preventing long-term planning, by the changing
local government composition. Indeed, the
relevant zoning ordinances have been amended
three (3) times, and their validity subjected to
litigation.66
Intervening Events
On 28 August 2012, while the Court was awaiting
the submission of the Memorandum of
respondents Vice-Mayor Domagoso and the
councilors who voted in favor of the assailed
Ordinance, the Sangguniang Panlungsod, which
composition had already substantially changed,
enacted Ordinance No. 828367 entitled "AN
ORDINANCE AMENDING SECTION 2 OF
ORDINANCE NO. 8187 BY RECLASSIFYING
THE AREA WHERE PETROLEUM
REFINERIES AND OIL DEPOTS ARE
LOCATED FROM HEAVY INDUSTRIAL (1-3)
TO HIGH INTENSITY COMMERCIAL/MIXED
USE ZONE (C3/MXD).
The new ordinance essentially amended the
assailed ordinance to exclude the area where
petroleum refineries and oil depots are located
from the Industrial Zone.
Ordinance No. 8283 thus permits the operation
of the industries operating within the Industrial
Zone. However, the oil companies, whose oil
depots are located in the High Intensity
Commercial/Mixed Use Zone (C3/MXD), are
given until the end of January 2016 within which
to relocate their terminals.
Former Mayor Lim, who was then the incumbent
mayor, did not support the amendment.
Maintaining that the removal of the oil depots
was prejudicial to public welfare, and, on account
of the pending cases in the Supreme Court, he
vetoed Ordinance No. 8283 on 11 September
2012.68
On 28 November 2012, former Mayor Lim filed a
Manifestation informing this Court that the
Sangguniang Panlungsod voted to override the
veto, and that he, in turn, returned it again with
his veto. He likewise directed the Sangguniang
Panlungsod to append his written reasons for his
veto of the Ordinance, so that the same will be
forwarded to the President for his consideration
in the event that his veto is overridden again.69
On 11 December 2012, Shell also filed a similar
Manifestation.70
Meanwhile, three days after former Mayor Lim
vetoed the new ordinance, Atty. Luch R. Gempis,
Jr. (Atty. Gempis), Secretary of the Sangguniang
Panlungsod, writing on behalf of respondents
Vice-Mayor Domagoso and the City Councilors
of Manila who voted in favor of the assailed
Ordinance, finally complied with this Courts
Resolution dated 17 July 2012 reiterating its
earlier directives71 to submit the said
respondents Memorandum.
In his Compliance/Explanation with Urgent
Manifestation72 dated 13 September 2012, Atty.
Gempis explained that it was not his intention to
show disrespect to this Court or to delay or
prejudice the disposition of the cases.
According to him, he signed the Comment
prepared by respondents Vice-Mayor and the
City Councilors only to attest that the pleading
was personally signed by the respondents. He
clarified that he was not designated as the legal
counsel of the respondents as, in fact, he was of
the impression that, pursuant to Section
481(b)(3) of the Local Government Code,73 it is
the City Legal Officer who isauthorized to
represent the local government unit or any official
thereof in a litigation. It was for the same reason
that he thought that the filing of a Memorandum
may already be dispensed with when the City
Legal Officer filed its own on 8 February 2010.
He further explained that the Ordinance subject
of these cases was passed during the 7th
Council (2007-2010); that the composition of the
8th Council (2010-2013) had already changed
after the 2010 elections; and that steps were
already taken to amend the ordinance again.
Hence, he was in a dilemma as to the position of Our Ruling
the Sangguniang Panlungsod at the time he
received the Courts Resolution of 31 May 2011. We see no reason why Ordinance No. 8187
should not be stricken down insofar as the
Atty. Gempis, thus, prayed that the Court presence of the oil depots in Pandacan is
dispense with the filing of the required concerned.
memorandum in view of the passing of
Ordinance No. 8283. I

Issue We first rule on the procedural issues raised by

the respondents and the oil companies.
The petitioners arguments are primarily
anchored on the ruling of the Court in G. R. No. At the outset, let it be emphasized that the Court,
156052 declaring Ordinance No. 8027 in G.R. No. 156052, has already pronounced that
constitutional and valid after finding that the the matter of whether or not the oil depots should
presence of the oil terminals in Pandacan is a remain in the Pandacan area is of transcendental
threat to the life and security of the people of importance to the residents of Manila.74
Manila. From thence, the petitioners enumerated
We may, thus, brush aside procedural infirmities,
constitutional provisions, municipal laws and
if any, as we had in the past, and take
international treaties and conventions on health
cognizance of the cases75 if only to determine if
and environment protection allegedly violated by
the acts complained of are no longer within the
the enactment of the assailed Ordinance to
bounds of the Constitution and the laws in
support their position.
place.76
The resolution of the present controversy is,
Put otherwise, there can be no valid objection to
thus, confined to the determination of whether or
this Courts discretion to waive one or some
not the enactment of the assailed Ordinance
procedural requirements if only to remove any
allowing the continued stay of the oil companies
impediment to address and resolve the serious
in the depots is, indeed, invalid and
constitutional question77 raised in these petitions
unconstitutional.
of transcendental importance, the same having
farreaching implications insofar as the safety and
general welfare of the residents of Manila, and
even its neighboring communities, are
concerned.
Proper Remedy
Respondents and intervenors argue that the
petitions should be outrightly dismissed for
failure on the part of the petitioners to properly
apply related provisions of the Constitution, the
Rules of Court, and/or the Rules of Procedure for
Environmental Cases relative to the appropriate
remedy available to them.
To begin with, questioned is the applicability of
Rule 6578 of the Rules of Court to assail the
validity and constitutionality of the Ordinance.
there is no appeal, or any plain,
speedy, and adequate remedy
in the ordinary course of law
Rule 65 specifically requires that the remedy may
be availed of only when "there is no appeal, or
any plain, speedy, and adequate remedy in the
ordinary course of law."79
Shell argues that the petitioners should have
sought recourse before the first and second level
courts under the Rules of Procedure for
Environmental Cases,80 which govern "the
enforcement or violations of environmental and
other related laws, rules and
81
regulations." Petron additionally submits that
the most adequate remedy available to
petitioners is to have the assailed ordinance
repealed by the Sangguniang Panlungsod. In the
alternative, a local referendum may be had. And,
assuming that there were laws violated, the
petitioners may file an action for each alleged
violation of law against the particular individuals
that transgressed the law.
It would appear, however, that the remedies
identified by the intervenors prove to be
inadequate toresolve the present controversies
in their entirety owing to the intricacies of the
circumstances herein prevailing.
The scope of the Rules of Procedure for
Environmental Cases is embodied in Sec. 2, Part
I, Rule I thereof. It states that the Rules shall
govern the procedure in civil, criminal and special
civil actions before the Metropolitan Trial Courts,
Municipal Trial Courts in Cities, Municipal Trial
Courts and Municipal Circuit Trial Courts, and the
Regional Trial Courts involving enforcement or
violations of environmental and other related
laws, rules and regulations such as but not
limited to the following:
(k) R.A. No. 6969, Toxic Substances and
Hazardous Waste Act;
xxxx
(r) R.A. No. 8749, Clean Air Act;
xxxx
(y) Provisions in C.A. No. 141, x x x; and
other existing laws that relate to the
conservation, development, preservation,
protection and utilization of the environment
and natural resources.82 (Emphasis
supplied)
Notably, the aforesaid Rules are limited in scope.
While, indeed, there are allegations of violations
of environmental laws in the petitions, these only
serve as collateral attacks that would support the
other position of the petitioners the protection
of the rightto life, security and safety. Moreover,
it bears emphasis that the promulgation of the
said Rules was specifically intended to meet the
following objectives:
SEC. 3. Objectives.The objectives of these
Rules are:
(a) To protect and advance the
constitutional right of the people to a
balanced and healthful ecology;
(b) To provide a simplified, speedy and
inexpensive procedure for the enforcement
of environmental rights and duties
recognized under the Constitution, existing
laws, rules and regulations, and
international agreements;
(c) To introduce and adopt innovations and
best practices ensuring the effective
enforcement of remedies and redress for
violation of environmental laws; and
(d) To enable the courts to monitor and
exact compliance with orders and
judgments in environmental cases.83
Surely, the instant petitions are not within the
contemplation of these Rules.
Relative to the position of Petron, it failed to
consider that these petitions are already a sequel
to G.R. No. 156052, and that there are some
issues herein raised that the remedies available
at the level of the Sangguniang Panlungsod
could not address. Neither could the filing of an
individual action for each law violated be
harmonized with the essence of a "plain, speedy,
and adequate" remedy.
From another perspective, Shell finds fault with
the petitioners direct recourse to this Court
when, pursuant to Section 5, Article VIII of the
Constitution, the Supreme Court exercises only
appellate jurisdiction over cases involving the
constitutionality or validity of an
84
ordinance. Thus:
Section 5.The Supreme Court shall have the
following powers:
xxxx
2. Review, revise, reverse, modify, or affirm on
appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of
lower courtsin:
a. All cases in which the constitutionality or
validity of any treaty, international or executive
agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or
regulation is in question. (Emphasis supplied)
To further support its position, it cites the case of
Liga ng mga Barangay National v. City Mayor of
Manila,85 where the petitioners sought the
nullification of the mayors executive order and
the councils ordinance concerning certain
functions of the petitioners that are vested in
them by law. There, the Court held:
Second, although the instant petition is styled as
a petition for certiorari, in essence, it seeks the
declaration by this Court of the unconstitutionality
or illegality of the questioned ordinance and
executive order. It, thus, partakes of the nature
of a petition for declaratory relief over which this
Court has only appellate, not original,
jurisdiction.86 Section 5, Article VIII of the
Constitution provides: x x x
As such, this petition must necessary fail, as this
Court does not have original jurisdiction over a
petition for declaratory relief even if only
questions of law are involved.87
Assuming that a petition for declaratory relief is
the proper remedy, and that the petitions should
have been filed with the Regional Trial Court, we
have, time and again, resolved to treat such a
petition as one for prohibition, provided that the
case has far-reaching implications and
transcendental issues that need to be
resolved,88 as in these present petitions.
On a related issue, we initially found convincing
the argument that the petitions should have been
filed with the Regional Trial Court, it having
concurrent jurisdiction with this Court over a
special civil action for prohibition, and original
jurisdiction over petitions for declaratory relief.
However, as we have repeatedly said, the
petitions at bar are of transcendental importance
warranting a relaxation of the doctrine of
hierarchy of courts.89 In the case of Jaworski v.
PAGCOR,90 the Court ratiocinated:
Granting arguendothat the present action cannot
be properly treated as a petition for prohibition,
the transcendental importance of the issues
involved in this case warrants that weset aside
the technical defects and take primary
jurisdiction over the petition at bar. x x x This is
in accordance with the well-entrenched principle
that rules of procedure are not inflexible tools
designed to hinder or delay, but to facilitate and
promote the administration of justice.Their strict
and rigid application, which would result in
technicalities that tend to frustrate, rather than
promote substantial justice, must always be
eschewed. (Emphasis supplied)
persons aggrieved thereby
As to who may file a petition for certiorari,
prohibition or mandamus, Petron posits that
petitioners are not among the "persons
aggrieved" contemplated under Sections 1 to 3
of Rule 65 of the Rules of Court.
Chevron argues that petitioners, whether as
"citizens," taxpayers," or legislators," lack the
legal standing toassail the validity and
constitutionality of Ordinance No. 8187. It further
claims that petitioners failed to show that they
have suffered any injury and/or threatened injury
as a result of the act complained of.91
Shell also points out that the petitions cannot be
considered taxpayers suit, for then, there should
be a claim that public funds were illegally
disbursed and that petitioners have sufficient
interest concerning the prevention of illegal
expenditure of public money.92 In G.R. No.
187916, Shell maintains that the petitioners
failed to show their personal interest in the case
and/or to establish that they may represent the
general sentiments of the constituents of the City
of Manila so as to be treated as a class suit. Even
the minors, it argues, are not numerous and
representative enough for the petition to be
treated as a class suit. Asto the city councilors
who joined the petitioners in assailing the validity
of Ordinance No. 8187, Shell posits that they
cannot invoke the ruling in Prof. David v. Pres.
Macapagal-Arroyo,93 where the Court held that
legislators may question the constitutionality of a
statute, if and when it infringes upon their
prerogatives as legislators, because of the
absence of the allegation that the assailed
ordinance indeed infringes upon their
prerogatives.
Former Mayor Lim submitted a similar position
supported by a number of cases on the concept
of locus standi,94 the direct injury test,95 an
outline of the stringent requirements of legal
standing when suing as a citizen,96 as a
taxpayer,97 as a legislator and in cases where
class suits are filed in behalf of all citizens.98
Their arguments are misplaced.
In G.R. No. 156052, we ruled that the petitioners
in that case have a legal right to seek the
enforcement of Ordinance No. 8027 because the
subject of the petition concerns a public right,
and they, as residents of Manila, have a direct
interest in the implementation of the ordinances
of the city. Thus:
To support the assertion that petitioners have a
clear legal right to the enforcement of the
ordinance, petitioner SJS states that it is a
political party registered with the Commission on
Elections and has its offices in Manila. It claims
to have many members who are residents of
Manila. The other petitioners, Cabigao and
Tumbokon, are allegedly residents of Manila.
We need not belabor this point. We have ruled in
previous cases that when
a mandamus proceeding concerns a public right
and its object is to compel a public duty, the
people who are interested in the execution of the
laws are regarded as the real parties in interest
and they need not show any specific interest.
Besides, as residents of Manila, petitioners have
a direct interest in the enforcement of the citys
ordinances.99 x x x (Citations omitted)
No different are herein petitioners who seek to
prohibit the enforcement of the assailed
ordinance, and who deal with the same subject
matter that concerns a public right. Necessarily,
the people who are interested in the nullification
of such an ordinance are themselves the real
parties in interest, for which reason, they are no
longer required to show any specific interest
therein. Moreover, it is worth mentioning that
SJS, now represented by SJS Officer Alcantara,
has been recognized by the Court in G.R. No.
156052 to have legal standing to sue in
connection with the same subject matter herein
considered. The rest of the petitioners are
residents of Manila. Hence, all of them have a
direct interest in the prohibition proceedings
against the enforcement of the assailed
ordinance.
In the case of Initiatives for Dialogue and
Empowerment through Alternative Legal
Services, Inc. (IDEALS, INC.) v. Power Sector
Assets and Liabilities Management Corporation
(PSALM),100 involving a petition for certiorari and
prohibition to permanently enjoin PSALM from
selling the Angat Hydro-Electric Power Plant
(AHEPP) to Korea Water Resources Corporation
(K-Water), the Court ruled:
"Legal standing" or locus standihas been defined
as a personal and substantial interest in the case
such that the party has sustained or will sustain
direct injury as a result of the governmental act
that is being challenged, alleging more than a
generalized grievance. x x x This Court,
however, has adopted a liberal attitude on the
locus standi of a petitioner where the petitioner is
able to craft anissue of transcendental
significance to the people, as when the issues
raised are of paramount importance to the public.
Thus, when the proceeding involves the
assertion of a public right, the mere fact that the
petitioner is a citizen satisfies the requirement of
personal interest.
There can be no doubt that the matter of
ensuring adequate water supply for domestic use
is one of paramount importance to the public.
That the continued availability of potable water in
Metro Manila might be compromised if PSALM
proceeds with the privatization of the
hydroelectric power plant in the Angat Dam
Complex confers upon petitioners such personal
stake in the resolution of legal issues in a petition
to stop its implementation.101 (Emphasis
supplied; citations omitted)
In like manner, the preservation of the life,
security and safety of the people is indisputably
a right of utmost importance to the public.
Certainly, the petitioners, as residents of Manila,
have the required personal interest to seek relief
from this Court to protect such right.
in excess of its or his jurisdiction,
or with grave abuse of discretion
amounting to lack or excess of jurisdiction
Petron takes issue with the alleged failure of the
petitioners to establish the facts with certainty
that would show that the acts of the respondents
fall within the parameters of the grave abuse of
discretion clause settled by jurisprudence, to wit:
x x x "[G]rave abuse of discretion" means such
capricious and whimsical exercise of judgment
as is equivalent to lack of jurisdiction. The abuse
of discretion must be grave as where the power
is exercised in an arbitrary or despotic manner by
reason of passion or personal hostility and must
be so patent and gross asto amount to an
evasion of positive duty or to a virtual refusal to
perform the duty enjoined by or to act all in
contemplation of law.102
It is pointless to discuss the matter at length in
these instant cases of transcendental
importance in view of the Courts
pronouncement, in Magallona v.
103
Ermita. There it held that the writs of
certiorariand prohibition are proper remedies to
test the constitutionality of statutes,
notwithstanding the following defects:
In praying for the dismissal of the petition on
preliminary grounds, respondents seek a strict
observance of the offices of the writs of certiorari
and prohibition, noting that the writs cannot
issue absent any showing of grave abuse of
discretion in the exercise of judicial, quasi-
judicial or ministerial powers on the part of
respondents and resulting prejudice on the part
of petitioners.
Respondents submission holds true in ordinary
civil proceedings. When this Court exercises its
constitutional power of judicial review, however,
we have, by tradition, viewed the writs of
certiorariand prohibition as proper remedial
vehicles to test the constitutionality of
statutes, and indeed, of acts of other
branches of government. Issues of
constitutional importx x x carry such
relevance in the life of this nation that the
Court inevitably finds itself constrained to
take cognizance of the case and pass upon
the issues raised, noncompliance with the
letter of procedural rules
notwithstanding. The statute sought to be
reviewed here is one such law.104 (Emphasis
supplied; citations omitted)
Requisites of judicial review
For a valid exercise of the power of judicial
review, the following requisites shall concur: (1)
the existence of a legal controversy; (2) legal
standing to sue of the party raising the
constitutional question; (3) a plea that judicial
review be exercised at the earliest opportunity;
and (4) the constitutional question is the lis mota
of the case.105
Only the first two requisites are put in issue in
these cases.
On the matter of the existence of a legal
controversy, we reject the contention that the
petitions consist of bare allegations based on
speculations, surmises, conjectures and
hypothetical grounds.
The Court declared Ordinance No. 8027 valid
and constitutional and ordered its
implementation. Withthe passing of the new
ordinance containing the contrary provisions, it
cannot be any clearer that here lies an actual
case or controversy for judicial review. The
allegation on this, alone, is sufficient for the
purpose.
The second requisite has already been
exhaustively discussed.
Proof of identification required in the notarization
of the verification and certification against forum
shopping in G.R. No. 187916
At the bottom of the Verification and Certification
against Forum Shopping of the petition in G.R.
No. 187916 is the statement of the notary public
to the effect that the affiant, in his presence and
after presenting "an integrally competent proof of
identification with signature and
106
photograph," signed the document under
oath.
Citing Sec. 163 of the Local Government
Code,107 which provides that an individual
acknowledging any document before a notary
public shall present his Community Tax
Certificate (CTC), Chevron posits that the
petitioners failure to present his CTC rendered
the petition fatally defective warranting the
outright dismissal of the petition.
We disagree.
The verification and certification against forum
shopping are governed specifically by Sections 4
and 5,Rule 7 of the Rules of Court.
Section 4 provides that a pleading, when
required to be verified, shall be treated as an
unsigned pleading if it lacks a proper verification
while Section 5 requires that the certification to
be executed by the plaintiff or principal party be
under oath.
These sections, in turn, should be read together
with Sections 6 and 12, Rule 2 of the 2004 Rules
on Notarial Practice.
Section 6108 of the latter Rules, specifically,
likewise provides that any competent evidence of
identity specified under Section 12 thereof may
now be presented before the notary public, to wit:
SEC. 12. Competent Evidence of Identity. - The
phrase "competent evidence of identity" refers to
the identification of an individual based on:
(a) at least one current identification
document issued by an official agency
bearing the photograph and signature
of the individual, such as but not
limited to passport, drivers license,
Professional Regulations Commission
ID, National Bureau of Investigation
clearance, police clearance, postal ID,
voters ID, Barangay certification,
Government Service and Insurance
System (GSIS) e-card, Social Security
System (SSS) card, Philhealth card,
senior citizen card, Overseas Workers
Welfare Administration (OWWA) ID,
OFW ID, seamans book, alien
certificate of registration/immigrant
certificate of registration, government
office ID, certification from the National
Council for the Welfare of Disable
Persons (NCWDP), Department of
Social Welfare and Development
(DSWD) certification; or
(b) x x x.109
Forum shopping
Shell contends that the petitioners in G.R. No.
187836 violated the rule against forum shopping
allegedly because all the elements thereof are
present in relation to G.R. No. 156052, to wit:
1. "identity of parties, or at least such parties
who represent the same interests in both
actions" According to Shell, the interest of
petitioner SJS in G.R. No. 156052 and the
officers of SJS in G.R. No. 187836 are
clearly the same. Moreover, both actions
implead the incumbent mayor of the City of
Manila as respondent. Both then
respondent Mayor Atienza in G.R. No.
156052 and respondent former Mayor Lim
in G.R. No. 187836 are sued in their
capacity as Manila mayor.
2. "identity of rights asserted and relief
prayed for, the relief being founded on the
 same fact(s)" Shell contends that, in both
actions, petitioners assert the same rights
to health and to a balanced and healthful
ecology relative to the fate of the Pandacan
terminal, and seek essentially the same
reliefs, that is, the removal of the oil depots
from the present site.
3. "the identity of the two preceding
particulars is such that any judgment
rendered in the pending case, regardless of
which party is successful, would amount to
res judicata in the other" Relative to the
filing of the Manifestation and Motion to: a)
Stop the City Council of Manila from further
hearing the amending ordinance to
Ordinance No. 8027 x x x (Manifestation
and Motion) and Very Urgent Motion to Stop
the Mayor of the City of Manila from Signing
Draft Ordinance No. 7177 [now Ordinance
No. 8187] and to Cite Him for Contempt if
He Would Do So (Urgent Motion) both in
G.R. No. 156052, Shell points out the
possibility that the Court would have
rendered conflicting rulings "on cases
involving the same facts, parties, issues
and reliefs prayed for."110
We are not persuaded.
In Spouses Cruz v. Spouses Caraos,111 the
Court expounded on the nature of forum
shopping. Thus:
Forum shopping is an act of a party, against
whom an adverse judgment or order has been
rendered in one forum, of seeking and possibly
getting a favorable opinion in another forum,
other than by appeal or special civil action for
certiorari. It may also be the institution of two or
more actions or proceedings grounded on the
same cause on the supposition that one or the
other court would make a favorable disposition.
The established rule is that for forum shopping to
exist, both actions must involve the same
transactions, same essential facts and
circumstances and must raise identical causes of
actions, subject matter, and issues. x x
x112 (Citations omitted) It bears to stress that the
present petitions were initially filed, not to secure
a judgment adverse to the first decision, but,
precisely, to enforce the earlier ruling to relocate
the oil depots from the Pandacan area.
As to the matter of the denial of the petitioners
Manifestation and Urgent Motion in G.R. No.
156052, which wereboth incidental to the
enforcement of the decision favorable to them
brought about by the intervening events after the
judgment had become final and executory, and
which involve the same Ordinance assailed in
these petitions, we so hold that the filing of the
instant petitions is not barred by res judicata.
In the same case of Spouses Cruz v. Spouses
Caraos involving the refiling of a complaint,
which had been earlier dismissed without
qualification that the dismissal was with
prejudice, and which had not been decided on
the merits, the Court declared that such re-filing
did not amount to forum shopping. It ratiocinated:
It is not controverted that the allegations of the
respective complaints in both Civil Case No. 95-
1387 and Civil Case No. 96-0225 are similarly
worded, and are identical in all relevant details,
including typographical errors, except for the
additional allegations in support of respondents
prayer for the issuance of preliminary injunction
in Civil Case No. 95-1387. It is similarly not
disputed that both actions involve the same
transactions; same essential facts and
circumstances; and raise identical causes of
actions, subject matter, and issues.
xxxx
x x x The dismissal of Civil Case No. 95-1387
was without prejudice. Indeed, the Order dated
20 November 1995, dismissing Civil Case No.
95-1387 was an unqualified dismissal. More
significantly, its dismissal was not based on
grounds under paragraphs (f), (h), and (i) of
Section 1 of Rule 16 of the Rules of Court, which
dismissal shall bar the refiling of the same action
or claim as crystallized in Section 5 of Rule 16
thereof, thus:
SEC. 5. Effect of dismissal. Subject to the right
of appeal, an order granting a motion to dismiss
based on paragraphs (f), (h), and (i) of section 1
hereof shall bar the refiling of the same action or
claim.
From the foregoing, it is clear that dismissals
under paragraphs (f), (h), and (i) of Section 1 of
Rule 16 of the Rules of Court constitute res
judicata, to wit:
(f) That the cause of action isbarred by a prior
judgment or by the statute of limitations;
xxxx
(h) That the claim or demand set forth in the
plaintiffs pleading has been paid, waived,
abandoned, or otherwise extinguished;
(i) That the claim on which the action is founded
is unenforceable under the provisions of the
statute of frauds.
Res judicata or bar by prior judgmentis a doctrine
which holds that a matter that has been
adjudicated by a court of competent jurisdiction
must be deemed to have been finally and
conclusively settled if it arises in any subsequent
litigation between the same parties and for the
same cause. Res judicata exists when the
following elements are present: (a) the former
judgment must be final; (b) the court which
rendered judgment had jurisdiction over the
parties and the subject matter; (3)it must be a
judgment on the merits; and (d) and there must
be, between the first and second actions, identity
ofparties, subject matter, and cause of
action.113 (Emphasis supplied; citations omitted)
Here, it should be noted that this Court denied
the said Manifestation and Urgent Motion, and
refused to act on the succeeding pleadings, for
being moot.114 Clearly, the merits of the motion
were not considered by the Court. The following
disquisition of the Court in Spouses Cruz v.
Spouses Caraosis further enlightening:
The judgment of dismissal in Civil Case No. 95-
1387 does not constitute res judicata to
sufficiently bar the refiling thereof in Civil Case
No. 96-0225. As earlier underscored, the
dismissal was one without prejudice. Verily, it
was not a judgment on the merits. It bears
reiterating that a judgment on the merits is one
rendered after a determination of which party is
right, as distinguished from a judgment rendered
upon some preliminary or formal or merely
technical point. The dismissal of the case without
prejudice indicates the absence of a decision on
the merits and leaves the parties free to litigate
the matter in a subsequent action asthough the
dismissed action had not been
commenced.115(Emphasis supplied; citations
omitted)
Considering that there is definitely no forum
shopping in the instant cases, we need not
discuss in detail the elements of forum shopping.
II
The Local Government Code of 1991 expressly
provides that the Sangguniang Panlungsod is
vested with the power to "reclassify land within
the jurisdiction of the city"116 subject to the
pertinent provisions of the Code. It is also settled
that an ordinance may be modified or repealed
by another ordinance.117 These have been
properly applied in G.R. No. 156052, where the
Court upheld the position of the Sangguniang
Panlungsod to reclassify the land subject of the
Ordinance,118 and declared that the mayor has
the duty to enforce Ordinance No. 8027,
provided that it has not been repealed by the
Sangguniang Panlungsod or otherwise annulled
by the courts.119 In the same case, the Court also
used the principle that the Sanguniang
Panlungsod is in the best position to determine
the needs of its Constituents120 that the
removal of the oil depots from the Pandacan area
is necessary "to protect the residents of Manila
from catastrophic devastation in case of a
terrorist attack on the Pandacan Terminals."121
Do all these principles equally apply to the cases
at bar involving the same subject matter to justify
the contrary provisions of the assailed
Ordinance?
We answer in the negative.
We summarize the position of the Sangguniang
Panlungsodon the matter subject of these
petitions. In 2001, the Sanggunian found the
relocation of the Pandacan oil depots necessary.
Hence, the enactment of Ordinance No. 8027.
In 2009, when the composition of the
Sanggunian had already changed, Ordinance
No. 8187 was passed in favor of the retention of
the oil depots. In 2012, again when some of the
previous members were no longer re-elected, but
with the Vice-Mayor still holding the same seat,
and pending the resolution of these petitions,
Ordinance No. 8283 was enacted to give the oil
depots until the end of January 2016 within which
to transfer to another site. Former Mayor Lim
stood his groundand vetoed the last ordinance.
In its Comment, the 7th Council (2007-2010)
alleged that the assailed Ordinance was enacted
to alleviate the economic condition of its
constituents.122
Expressing the same position, former Mayor Lim
even went to the extent of detailing the
steps123 he took prior to the signing of the
Ordinance, if only to show his honest intention to
make the right decision.
The fact remains, however, that notwithstanding
that the conditions with respect to the operations
of the oil depots existing prior to the enactment
of Ordinance No. 8027 do not substantially differ
to this day, as would later be discussed, the
position of the Sangguniang Panlungsod on the
matter has thrice changed, largely depending on
the new composition of the council and/or
political affiliations. The foregoing, thus, shows
that its determination of the "general welfare" of
the city does not after all gear towards the
protection of the people in its true sense and
meaning, but is, one way or another, dependent
on the personal preference of the members who
sit in the council as to which particular sector
among its constituents it wishes to favor.
Now that the City of Manila, through the mayor
and the city councilors, has changed its view on
the matter, favoring the citys economic related
benefits, through the continued stay of the oil
terminals, over the protection of the very lives
and safety of its constituents, it is imperative for
this Court to make a final determination on the
basis of the facts on the table as to which specific
right of the inhabitants of Manila should prevail.
For, in this present controversy, history reveals
that there is truly no such thing as "the will of
Manila" insofar as the general welfare of the
people is concerned.
If in sacrilege, in free translation of Angara124 by
Justice Laurel, we say when the judiciary
mediates we do notin reality nullify or invalidate
an act of the Manila Sangguniang Panlungsod,
but only asserts the solemn and sacred
obligation assigned to the Court by the
Constitution to determine conflicting claims of
authority under the Constitution and to establish
for the parties in an actual controversy the rights
which that instrument secures and guarantees to
them.
III
The measures taken by the intervenors to lend
support to their position that Manila is now safe
despite the presence of the oil terminals remain
ineffective. These have not completely removed
the threat to the lives of the in habitants of Manila.
In G.R. No. 156052, the validity and
constitutionality of Ordinance No. 8027 was
declared as a guarantee for the protection of the
constitutional right to life of the residents of
Manila. There, the Court said that the enactment
of the said ordinance was a valid exercise of
police power with the concurrence of the two
requisites: a lawful subject "to safeguard the
rights to life, security and safety of all the
inhabitants of Manila;"125 and a lawful method
the enactment of Ordinance No. 8027
reclassifying the land use from industrial to
commercial, which effectively ends the continued
stay of the oil depots in Pandacan.126
In the present petitions, the respondents and the
oil companies plead that the Pandacan Terminal
has never been one of the targets of terrorist
attacks;127 that the petitions were based on
unfounded fears and mere conjectures;128and
that the possibility that it would be picked by the
terrorists is nil given the security measures
installed thereat.129
The intervenors went on to identify the measures
taken to ensure the safety of the people even
with the presence of the Pandacan Terminals.
Thus:
1. Chevron claims that it, together with Shell
and Petron, continues to enhance the
safety and security features of the
terminals. They likewise adopt fire and
product spill prevention measures in
accordance with the local standards set by
the Bureau of Fire Protection, among
others, and with the international standards
of the American Petroleum Industry ("API")
and the National Fire Prevention and Safety
Association ("NFPSA"); that since 1914, the
oil depots had not experienced "any
incident beyond the ordinary risks and
expectations"130 of the residents of Manila;
and that it received a passing grade on the
safety measures they installed in the
facilities from the representatives of the City
of Manila who conducted an ocular
inspection on 22 May 2009; and
2. Referring to the old MOU entered into
between the City of Manila and the DOE, on
the one hand, and the oil companies, on the
other, where the parties thereto conceded
and acknowledged that the scale-down
option for the Pandacan Terminal
operations is the best alternative to the
relocation of the terminals, Shell
enumeratesthe steps taken to scale down
its operations.
As to the number of main fuel tanks, the entire
Pandacan Terminal has already
decommissioned twenty-eight out of sixty-four
tanks. Speaking for Shell alone, its LPG
Spheres, which it claims is the only product that
may cause explosion, was part of those
decommissioned, thereby allegedly removing
the danger of explosion. Safety buffer zones and
linear/green parks were likewise created to
separate the terminal from the nearest residential
area. Shells portion of the oil depot is likewise
allegedly equipped with the latest technology to
ensure air-quality control and waterquality
control, and to prevent and cope with possible oil
spills with a crisis management plan in place in
the event that an oil spill occurs. Finally, Shell
claims that the recommendations of EQE
International in its Quantitative Risk Assessment
(QRA) study, which it says is one of the leading
independent risk assessment providers in the
world and largest risk management consultancy,
were sufficiently complied with; and that, on its
own initiative, it adopted additional measures for
the purpose, for which reason, "the individual risk
level resulting from any incident occurring from
the Pandacan Terminal, per the QRA study, is
twenty (20) times lower compared to the
individual risk level of an average working or
domestic environment."131
We are not persuaded.
The issue of whether or not the Pandacan
Terminal is not a likely target of terrorist attacks
has already been passed upon in G. R. No.
156052. Based on the assessment of the
Committee on Housing, Resettlement and Urban
Development of the City of Manila and the then
position of the Sangguniang Panlungsod,132 the
Court was convinced that the threat of terrorism
is imminent. It remains so convinced.
Even assuming that the respondents and
intervenors were correct, the very nature of the
depots where millions of liters of highly
flammable and highly volatile products,
regardless of whether ornot the composition may
cause explosions, has no place in a densely
populated area. Surely, any untoward incident in
the oil depots, beit related to terrorism of
whatever origin or otherwise, would definitely
cause not only destruction to properties within
and among the neighboring communities but
certainly mass deaths and injuries.
With regard to the scaling down of the operations
in the Pandacan Terminals, which the oil
companies continue to insist to have been
validated and recognized by the MOU, the
Court,in G.R. No. 156052, has already put this
issue to rest. It specifically declared that even
assuming that the terms of the MOU and
Ordinance No. 8027 were inconsistent, the
resolutions ratifying the MOU gave it full force
and effect only until 30 April 2003.133
The steps taken by the oil companies, therefore,
remain insufficient to convince the Court that the
dangers posed by the presence of the terminals
in a thickly populated area have already been
completely removed.
For, given that the threat sought to be prevented
may strike at one point or another, no matter how
remote it is as perceived by one or some, we
cannot allow the right to life to bedependent on
the unlikelihood of an event. Statistics and
theories of probability have no place in situations
where the very life of not just an individual but of
residents of big neighborhoods is at stake.
IV
It is the removal of the danger to life not the mere
subdual of risk of catastrophe, that we saw in and
made us favor Ordinance No. 8027. That reason,
unaffected by Ordinance No. 8187, compels the
affirmance of our Decision in G.R. No. 156052.
In striking down the contrary provisions of the
assailed Ordinance relative to the continued stay
of the oil depots, we follow the same line of
reasoning used in G.R. No. 156052, to wit:
Ordinance No. 8027 was enacted "for the
purpose of promoting sound urban planning,
ensuring health, public safety and general
welfare" of the residents of Manila. The
Sanggunian was impelled to take measures to
protect the residents of Manila from catastrophic
devastation in case of a terrorist attack on the
Pandacan Terminals. Towards this objective, the
Sanggunian reclassified the area defined in the
ordinance from industrial to commercial.
The following facts were found by the Committee
on Housing, Resettlement and Urban
Development of the City of Manila which
recommended the approval of the ordinance:
(1) the depot facilities contained 313.5
million liters of highly flammable and highly
volatile products which include petroleum
gas, liquefied petroleum gas, aviation fuel,
diesel, gasoline, kerosene and fuel oil
among others;
(2) the depot is open to attack through land,
water or air;
(3) it is situated in a densely populated
place and near Malacaang Palace; and
(4) in case of an explosion or conflagration
in the depot, the fire could spread to the
neighboring communities.
The ordinance was intended to safeguard the
rights to life, security and safety of all the
inhabitants of Manila and not just of a particular
class. The depot is perceived, rightly or wrongly,
as a representation of western interests which
means that it is a terrorist target. As long as it
(sic) there is such a target in their midst, the
residents of Manila are not safe. It therefore
became necessary to remove these terminals to
dissipate the threat. According to respondent:
Such a public need became apparent after the
9/11 incident which showed that what was
perceived to be impossible to happen, to the
most powerful country in the world at that, is
actually possible. The destruction of property and
the loss of thousands of lives on that fateful day
became the impetus for a public need. Inthe
aftermath of the 9/11 tragedy, the threats of
terrorism continued [such] that it became
imperative for governments to take measures to
combat their effects.
xxxx
Both law and jurisprudence support the
constitutionality and validity of Ordinance No.
8027. Without a doubt, there are no impediments
to its enforcement and implementation. Any
delay is unfair to the inhabitants of the City of
Manila and its leaders who have categorically
expressed their desire for the relocation of the
terminals. Their power to chart and control their
own destiny and preserve their lives and safety
should not be curtailed by the intervenors
warnings of doomsday scenarios and threats of
economic disorder if the ordinance is
enforced.134
The same best interest of the public guides the
present decision. The Pandacan oil depot
remains a terrorist target even if the contents
have been lessened. In the absence of any
convincing reason to persuade this Court that the
life, security and safety of the inhabitants of
Manila are no longer put at risk by the presence
of the oil depots, we hold that Ordinance No.
8187 in relation to the Pandacan Terminals is
invalid and unconstitutional.
There is, therefore, no need to resolve the rest of
the issues.
Neither is it necessary to discuss at length the
test of police power against the assailed
ordinance. Suffice it to state that the objective
adopted by the Sangguniang Panlungsod to
promote the constituents general welfare in
terms of economic benefits cannot override the
very basic rights to life, security and safety of the
people.
In. G.R. No. 156052, the Court explained:
Essentially, the oil companies are fighting for
their right to property. They allege that they stand
tolose billions of pesos if forced to relocate.
However, based on the hierarchy of
constitutionally protected rights, the right to life
enjoys precedence over the right to property. The
reason is obvious: life is irreplaceable, property
is not. When the state or LGUs exercise of police
power clashes with a few individuals right to
property, the former should prevail.135
We thus conclude with the very final words in
G.R. No. 156052:
On Wednesday, January 23, 2008, a defective
tanker containing 2,000 liters of gasoline and
14,000 liters of diesel exploded in the middle of
the street a short distance from the exit gate of
the Pandacan Terminals, causing death,
extensive damage and a frightening
conflagration in the vicinity of the incident. Need
we say anthing about what will happen if it is the
estimated 162 to 211 million liters [or whatever is
left of the 26 tanks] of petroleum products in the
terminal complex will blow up?136
V To ensure the orderly transfer, movement and
As in the prequel case, we note that as early as
October 2001, the oil companies signed a MOA
with the DOE obliging themselves to:
... undertake a comprehensive and comparative
study ... [which] shall include the preparation ofa
Master Plan, whose aim is to determine the
scope and timing of the feasible location of the
Pandacan oil terminals and all associated
facilities and infrastructure including government
support essential for the relocation such as the
necessary transportation infrastructure, land and
right of way acquisition, resettlement of displaced
residents and environmental and social
acceptability which shall be based on mutual
benefit of the Parties and the public.
such that:
Now that they are being compelled to discontinue
their operations in the Pandacan Terminals, they
cannot feign unreadiness considering that they
had years to prepare for this eventuality.137
On the matter of the details of the relocation, the
Court gave the oil companies the following time
frames for compliance:
relocation of assets and personnel, the
intervenors Chevron Philippines Inc., Petron
Corporation and Pilipinas Shell Petroleum
Corporation shall, within a nonextendible period
of ninety (90) days, submit to the Regional Trial
Court of Manila, Branch 39, the comprehensive
plan and relocation schedule which have
allegedly been prepared. The presiding judge of
Manila RTC, Branch 39 will monitor the strict
enforcement of this resolution.138
The periods were given in the Decision in G.R.
No. 156052 which became final on 23 April 2009.
Five years have passed, since then. The years
of non-compliance may be excused by the swing
of local legislative leads. We now stay the sway
and begin a final count.
A comprehensive and well-coordinated plan
within a specific timeframe shall, therefore, be
observed in the relocation of the Pandacan
Terminals. The oil companies shall begiven a
fresh non-extendible period of forty-five (45) days
from notice within which to submit to the
Regional Trial Court, Branch 39, Manila an
updated comprehensive plan and relocation
schedule. The relocation, inturn, shall be
completed not later than six months from the
date of their submission. Finally, let it be
underscored that after the last Manifestation filed
by Shell informing this Court that respondent
former Mayor Lim vetoed Ordinance No. 8283 for
the second time, and was anticipating its referral
to the President for the latters consideration,
nothing was heard from any of the parties until
the present petitions as to the status of the
approval or disapproval of the said ordinance. As
it is, the fate of the Pandacan Terminals remains
dependent on this final disposition of these
cases.
VI
On the matter of the failure of Atty. Gempis to
immediately comply with the directives of this
Court to file the Memorandum for the Vice-Mayor
and the city councilors who voted in favor of the
assailed Ordinance, the records do not bear
proof that he received a copy of any of the
resolutions pertaining to the filing of the
Memorandum.
A narration of the events from his end would
show, however, that he was aware of the
directive issued in 2009 when he stated that
"when the City Legal Officer filed its
Memorandum dated 8 February 2010, [he]
thought the filing of a Memorandum for the other
respondent city officials could be dispensed
with."139 There was also a categorical admission
that he received the later Resolution of 31 May
2011 but that he could not prepare a
Memorandum defending the position of
respondents vice-mayor and the city councilors
who voted in favor of Ordinance No. 8187 in view
of the ongoing drafting of Ordinance No. 8283,
which would change the position of the
Sanggunian, if subsequently approved.
The reasons he submitted are notimpressed with
merit.
That he was not officially designated as the
counsel for the vicemayor and the city councilors
is beside the point. As an officer of the court, he
cannot feign ignorance of the fact that"a
resolution of this Court is not a mere request but
an order which should be complied with promptly
and completely."140 As early as 2009, he should
have immediately responded and filed a
Manifestation and therein set forth his reasons
why he cannot represent the vice-mayor and the
city councilors. And, even assuming that the 31
May 2011 Resolution was the first directive he
personally received, he had no valid excuse for
disregarding the same. Worse, the Court had to
issue a show cause order before he finally
heeded.
Atty. Gempis should "strive harderto live up to his
duties of observing and maintaining the respect
dueto the courts, respect for law and for legal
processes and of upholding the integrity and
dignity of the legal profession in order to perform
his responsibilities asa lawyer effectively."141
In Sibulo v. Ilagan,142 which involves a lawyers
repeated failure to comply with the directives of
the Court, the penalty recommended by the
Integrated Bar of the Philippines was reduced
from suspension to reprimand and a warning.
The Court ratiocinated:
Considering, however, that respondent was
absolved of the administrative charge against
him and is being taken to task for his
intransigence and lack of respect, the Court finds
that the penalty of suspension would not be
warranted under the circumstances.
xxxx
To the Courts mind, a reprimand and a warning
are sufficient sanctions for respondents
disrespectful actuations directed against the
Court and the IBP. The imposition of these
sanctions in the present case would be more
consistent with the avowed purpose of
disciplinary case, which is "not so much to punish
the individual attorney as to protect the
dispensation of justice by sheltering the judiciary
and the public from the misconduct or
inefficiency of officers of the court."143
We consider the participation of Atty. Gempis in
this case and opt to be lenient even as we
reiterate the objective of protecting the Branch 39 shall monitor the strict enforcement of
dispensation of justice. We deem it sufficient to this Decision.
remind Atty. Gempis to be more mindful of his
duty as a lawyer towards the Court. For failure to observe the respect due to the
Court, Atty. Luch R. Gempis, Jr., Secretary of the
WHEREFORE, in light of all the foregoing, Sangguniang Panlungsod, is REMINDED of his
Ordinance No. 8187 is hereby declared duties towards the Court and WARNED that a
UNCONSTITUTIONAL and INVALID with repetition of an act similar to that here committed
respect to the continued stay of the Pandacan Oil shall be dealt with more severely.
Terminals.
SO ORDERED.
The incumbent mayor of the City of Manila is
hereby ordered to CEASE and DESIST from
enforcing Ordinance No. 8187.1wphi1 In
coordination with the appropriate government
agencies and the parties herein involved, he is
further ordered to oversee the relocation and
transfer of the oil terminals out of the Pandacan
area.

As likewise required in G.R. No. 156052, the

intervenors Chevron Philippines, Inc., Pilipinas
Shell Petroleum Corporation, and Petron
Corporation shall, within a non-extendible period
of forty-five (45) days, submit to the Regional
Trial Court, Branch 39, Manila an updated
comprehensive plan and relocation schedule,
which relocation shall be completed not later
than six (6) months from the date the required
documents are submitted. The presiding judge of
 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
G.R. No. 91649 May 14, 1991 order, and because

ATTORNEYS HUMBERTO BASCO, A. It constitutes a waiver of a right

EDILBERTO BALCE, SOCRATES MARANAN prejudicial to a third person with a right
AND LORENZO SANCHEZ,petitioners, recognized by law. It waived the Manila City
vs. government's right to impose taxes and
PHILIPPINE AMUSEMENTS AND GAMING license fees, which is recognized by law;
CORPORATION (PAGCOR), respondent.
B. For the same reason stated in the
H.B. Basco & Associates for petitioners. immediately preceding paragraph, the law
Valmonte Law Offices collaborating counsel for has intruded into the local government's
petitioners. right to impose local taxes and license fees.
Aguirre, Laborte and Capule for respondent This, in contravention of the constitutionally
PAGCOR. 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. 2nd 534, 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.1wphi1 Under our system of
government, policy issues are within the
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-34915 June 24, 1983
CITY GOVERNMENT OF QUEZON CITY and
CITY COUNCIL OF QUEZON CITY, petitioners,
vs.
HON. JUDGE VICENTE G. ERICTA as Judge
of the Court of First Instance of Rizal, Quezon
City, Branch XVIII; HIMLAYANG PILIPINO,
INC., respondents.
City Fiscal for petitioners.
Manuel Villaruel, Jr. and Feliciano Tumale for
respondents.
GUTIERREZ, JR., J.:
This is a petition for review which seeks the
reversal of the decision of the Court of First
Instance of Rizal, Branch XVIII declaring Section
9 of Ordinance No. 6118, S-64, of the Quezon
City Council null and void.
Section 9 of Ordinance No. 6118, S-64, entitled
"ORDINANCE REGULATING THE
ESTABLISHMENT, MAINTENANCE AND
OPERATION OF PRIVATE MEMORIAL TYPE
CEMETERY OR BURIAL GROUND WITHIN
THE JURISDICTION OF QUEZON CITY AND
PROVIDING PENALTIES FOR THE
VIOLATION THEREOF" provides:
Sec. 9. At least six (6) percent of the
total area of the memorial park
cemetery shall be set aside for charity
burial of deceased persons who are
paupers and have been residents of
Quezon City for at least 5 years prior
to their death, to be determined by
competent City Authorities. The area
so designated shall immediately be
developed and should be open for
operation not later than six months
from the date of approval of the
application.
For several years, the aforequoted section of the
Ordinance was not enforced by city authorities
but seven years after the enactment of the
ordinance, the Quezon City Council passed the
following resolution:
RESOLVED by the council of Quezon
assembled, to request, as it does
hereby request the City Engineer,
Quezon City, to stop any further selling
and/or transaction of memorial park
lots in Quezon City where the owners
thereof have failed to donate the
 required 6% space intended for Petitioners argue that the taking of the
paupers burial. respondent's property is a valid and reasonable
exercise of police power and that the land is
Pursuant to this petition, the Quezon City taken for a public use as it is intended for the
Engineer notified respondent Himlayang Pilipino, burial ground of paupers. They further argue that
Inc. in writing that Section 9 of Ordinance No. the Quezon City Council is authorized under its
6118, S-64 would be enforced charter, in the exercise of local police power, " to
make such further ordinances and resolutions
Respondent Himlayang Pilipino reacted by filing
not repugnant to law as may be necessary to
with the Court of First Instance of Rizal Branch
carry into effect and discharge the powers and
XVIII at Quezon City, a petition for declaratory
duties conferred by this Act and such as it shall
relief, prohibition and mandamus with
deem necessary and proper to provide for the
preliminary injunction (Sp. Proc. No. Q-16002)
health and safety, promote the prosperity,
seeking to annul Section 9 of the Ordinance in
improve the morals, peace, good order, comfort
question The respondent alleged that the same
and convenience of the city and the inhabitants
is contrary to the Constitution, the Quezon City
thereof, and for the protection of property
Charter, the Local Autonomy Act, and the
therein."
Revised Administrative Code.
On the other hand, respondent Himlayang
There being no issue of fact and the questions
Pilipino, Inc. contends that the taking or
raised being purely legal both petitioners and
confiscation of property is obvious because the
respondent agreed to the rendition of a judgment
questioned ordinance permanently restricts the
on the pleadings. The respondent court,
use of the property such that it cannot be used
therefore, rendered the decision declaring
for any reasonable purpose and deprives the
Section 9 of Ordinance No. 6118, S-64 null and
owner of all beneficial use of his property.
void.
The respondent also stresses that the general
A motion for reconsideration having been
welfare clause is not available as a source of
denied, the City Government and City Council
power for the taking of the property in this case
filed the instant petition.
because it refers to "the power of promoting the
public welfare by restraining and regulating the
use of liberty and property." The respondent
points out that if an owner is deprived of his
property outright under the State's police power,
the property is generally not taken for public use
but is urgently and summarily destroyed in order
to promote the general welfare. The respondent
cites the case of a nuisance per se or the
destruction of a house to prevent the spread of a
conflagration.
We find the stand of the private respondent as
well as the decision of the respondent Judge to
be well-founded. We quote with approval the
lower court's ruling which declared null and void
Section 9 of the questioned city ordinance:
The issue is: Is Section 9 of the
ordinance in question a valid exercise
of the police power?
An examination of the Charter of
Quezon City (Rep. Act No. 537), does
not reveal any provision that would
justify the ordinance in question
except the provision granting police
power to the City. Section 9 cannot be
justified under the power granted to
Quezon City to tax, fix the license fee,
and regulate such other business,
trades, and occupation as may be
established or practised in the City.'
(Subsections 'C', Sec. 12, R.A. 537).
The power to regulate does not include
the power to prohibit (People vs.
Esguerra, 81 PhiL 33, Vega vs.
Municipal Board of Iloilo, L-6765, May
12, 1954; 39 N.J. Law, 70, Mich. 396).
A fortiori, the power to regulate does
not include the power to confiscate.
The ordinance in question not only
confiscates but also prohibits the
operation of a memorial park
cemetery, because under Section 13
of said ordinance, 'Violation of the
provision thereof is punishable with a
fine and/or imprisonment and that
upon conviction thereof the permit to
operate and maintain a private
cemetery shall be revoked or
cancelled.' The confiscatory clause
and the penal provision in effect deter
one from operating a memorial park
cemetery. Neither can the ordinance in
question be justified under sub-
section "t", Section 12 of Republic Act
537 which authorizes the City Council (00) To make such further
to- ordinance and regulations
not repugnant to law as may
'prohibit the burial of the be necessary to carry into
dead within the center of effect and discharge the
population of the city and powers and duties
provide for their burial in conferred by this act and
such proper place and in such as it shall deem
such manner as the council necessary and proper to
may determine, subject to provide for the health and
the provisions of the general safety, promote, the
law regulating burial prosperity, improve the
grounds and cemeteries morals, peace, good order,
and governing funerals and comfort and convenience of
disposal of the dead.' (Sub- the city and the inhabitants
sec. (t), Sec. 12, Rep. Act thereof, and for the
No. 537). protection of property
therein; and enforce
There is nothing in the above provision
obedience thereto with such
which authorizes confiscation or as
lawful fines or penalties as
euphemistically termed by the
the City Council may
respondents, 'donation'
prescribe under the
We now come to the question whether provisions of subsection (jj)
or not Section 9 of the ordinance in of this section.
question is a valid exercise of police
We start the discussion with a
power. The police power of Quezon
restatement of certain basic principles.
City is defined in sub-section 00, Sec.
Occupying the forefront in the bill of
12, Rep. Act 537 which reads as
rights is the provision which states that
follows:
'no person shall be deprived of life,
liberty or property without due process
of law' (Art. Ill, Section 1 subparagraph
1, Constitution).
On the other hand, there are three
inherent powers of government by
which the state interferes with the
property rights, namely-. (1) police
power, (2) eminent domain, (3)
taxation. These are said to exist
independently of the Constitution as
necessary attributes of sovereignty.
Police power is defined by Freund as
'the power of promoting the public
welfare by restraining and regulating
the use of liberty and property'
(Quoted in Political Law by Tanada
and Carreon, V-11, p. 50). It is usually
exerted in order to merely regulate the
use and enjoyment of property of the
owner. If he is deprived of his property
outright, it is not taken for public use
but rather to destroy in order to
promote the general welfare. In police
power, the owner does not recover
from the government for injury
sustained in consequence thereof (12
C.J. 623). It has been said that police
power is the most essential of
government powers, at times the most
insistent, and always one of the least
limitable of the powers of government
(Ruby vs. Provincial Board, 39 PhiL
660; Ichong vs. Hernandez, 1,7995,
May 31, 1957). This power embraces
the whole system of public regulation
(U.S. vs. Linsuya Fan, 10 PhiL 104).
The Supreme Court has said that
police power is so far-reaching in
scope that it has almost become
impossible to limit its sweep. As it
derives its existence from the very
existence of the state itself, it does not
need to be expressed or defined in its
scope. Being coextensive with self-
preservation and survival itself, it is the
most positive and active of all
governmental processes, the most
essential insistent and illimitable
Especially it is so under the modern
democratic framework where the
demands of society and nations have
multiplied to almost unimaginable
proportions. The field and scope of
police power have become almost
boundless, just as the fields of public
interest and public welfare have
become almost all embracing and
have transcended human foresight.
Since the Courts cannot foresee the
needs and demands of public interest
and welfare, they cannot delimit
beforehand the extent or scope of the
police power by which and through
which the state seeks to attain or
achieve public interest and welfare.
(Ichong vs. Hernandez, L-7995, May
31, 1957).
The police power being the most
active power of the government and
the due process clause being the
broadest station on governmental
power, the conflict between this power
of government and the due process
clause of the Constitution is oftentimes
inevitable.
It will be seen from the foregoing
authorities that police power is usually
exercised in the form of mere
regulation or restriction in the use of
liberty or property for the promotion of
the general welfare. It does not involve
the taking or confiscation of property
with the exception of a few cases
where there is a necessity to
confiscate private property in order to
destroy it for the purpose of protecting
the peace and order and of promoting
the general welfare as for instance, the
confiscation of an illegally possessed
article, such as opium and firearms.
It seems to the court that Section 9 of
Ordinance No. 6118, Series of 1964 of
Quezon City is not a mere police
regulation but an outright confiscation.
It deprives a person of his private
property without due process of law,
nay, even without compensation.
In sustaining the decision of the respondent
court, we are not unmindful of the heavy burden
shouldered by whoever challenges the validity of
duly enacted legislation whether national or local
As early as 1913, this Court ruled in Case v.
Board of Health (24 PhiL 250) that the courts
resolve every presumption in favor of validity
and, more so, where the ma corporation asserts
that the ordinance was enacted to promote the
common good and general welfare.
In the leading case of Ermita-Malate Hotel and
Motel Operators Association Inc. v. City Mayor of
Manila (20 SCRA 849) the Court speaking
through the then Associate Justice and now
Chief Justice Enrique M. Fernando stated
Primarily what calls for a reversal of
such a decision is the a of any
evidence to offset the presumption of
validity that attaches to a statute or
ordinance. As was expressed
categorically by Justice Malcolm 'The
presumption is all in favor of validity. ...
The action of the elected
representatives of the people cannot
be lightly set aside. The councilors
must, in the very nature of things, be
familiar with the necessities of their
particular ... municipality and with all
the facts and lances which surround
the subject and necessitate action.
The local legislative body, by enacting
the ordinance, has in effect given
notice that the regulations are
essential to the well-being of the
people. ... The Judiciary should not
lightly set aside legislative action when
there is not a clear invasion of
personal or property rights under the
guise of police regulation. (U.S. v.
Salaveria (1918], 39 Phil. 102, at p.
111. There was an affirmation of the
presumption of validity of municipal
ordinance as announced in the leading
Salaveria decision in Ebona v. Daet,
[1950]85 Phil. 369.)
We have likewise considered the
principles earlier stated in Case v.
Board of Health supra :
... Under the provisions of municipal
charters which are known as the
general welfare clauses, a city, by
virtue of its police power, may adopt
ordinances to the peace, safety,
health, morals and the best and
highest interests of the municipality. It
is a well-settled principle, growing out
of the nature of well-ordered and
society, that every holder of property,
however absolute and may be his title,
holds it under the implied liability that
his use of it shall not be injurious to the
equal enjoyment of others having an
equal right to the enjoyment of their
property, nor injurious to the rights of
the community. An property in the
state is held subject to its general
regulations, which are necessary to
 the common good and general
welfare. Rights of property, like all
other social and conventional rights,
are subject to such reasonable
limitations in their enjoyment as shall
prevent them from being injurious, and
to such reasonable restraints and
regulations, established by law, as the
legislature, under the governing and
controlling power vested in them by
the constitution, may think necessary
and expedient. The state, under the
police power, is possessed with
plenary power to deal with all matters
relating to the general health, morals,
and safety of the people, so long as it
does not contravene any positive
inhibition of the organic law and
providing that such power is not
exercised in such a manner as to
justify the interference of the courts to
prevent positive wrong and
oppression.
but find them not applicable to the facts of this
case.
There is no reasonable relation between the
setting aside of at least six (6) percent of the total
area of an private cemeteries for charity burial
grounds of deceased paupers and the promotion
of health, morals, good order, safety, or the
general welfare of the people. The ordinance is
actually a taking without compensation of a
certain area from a private cemetery to benefit
paupers who are charges of the municipal
corporation. Instead of building or maintaining a
public cemetery for this purpose, the city passes
the burden to private cemeteries.
The expropriation without compensation of a
portion of private cemeteries is not covered by
Section 12(t) of Republic Act 537, the Revised
Charter of Quezon City which empowers the city
council to prohibit the burial of the dead within the
center of population of the city and to provide for
their burial in a proper place subject to the
provisions of general law regulating burial
grounds and cemeteries. When the Local
Government Code, Batas Pambansa Blg. 337
provides in Section 177 (q) that a Sangguniang
panlungsod may "provide for the burial of the
dead in such place and in such manner as
prescribed by law or ordinance" it simply
authorizes the city to provide its own city owned
land or to buy or expropriate private properties to
construct public cemeteries. This has been the
law and practise in the past. It continues to the
present. Expropriation, however, requires acknowledged by the private respondent when it
payment of just compensation. The questioned accepted the permits to commence operations.
ordinance is different from laws and regulations
requiring owners of subdivisions to set aside WHEREFORE, the petition for review is hereby
certain areas for streets, parks, playgrounds, and DISMISSED. The decision of the respondent
other public facilities from the land they sell to court is affirmed.
buyers of subdivision lots. The necessities of
SO ORDERED.
public safety, health, and convenience are very
clear from said requirements which are intended
to insure the development of communities with
salubrious and wholesome environments. The
beneficiaries of the regulation, in turn, are made
to pay by the subdivision developer when
individual lots are sold to home-owners.

As a matter of fact, the petitioners rely solely on

the general welfare clause or on implied powers
of the municipal corporation, not on any express
provision of law as statutory basis of their
exercise of power. The clause has always
received broad and liberal interpretation but we
cannot stretch it to cover this particular taking.
Moreover, the questioned ordinance was passed
after Himlayang Pilipino, Inc. had incorporated.
received necessary licenses and permits and
commenced operating. The sequestration of six
percent of the cemetery cannot even be
considered as having been impliedly

G.R. No. 175356 December 3, 2013
MANILA MEMORIAL PARK, INC. AND LA
FUNERARIA PAZ-SUCAT, INC., Petitioners,
vs.
SECRETARY OF THE DEPARTMENT OF
SOCIAL WELFARE AND DEVELOPMENT and
THE SECRETARY OF THE DEPARTMENT OF
FINANCE, Respondents.
DECISION
DEL CASTILLO, J.:
When a party challeges the constitutionality of a
law, the burden of proof rests upon him.
Before us is a Petition for Prohibition2 under Rule
65 of the Rules of Court filed by petitioners
Manila Memorial Park, Inc. and La Funeraria
Paz-Sucat, Inc., domestic corporations engaged
in the business of providing funeral and burial
services, against public respondents Secretaries
of the Department of Social Welfare and
Development (DSWD) and the Department of
Finance (DOF).
Petitioners assail the constitutionality of Section
4 of Republic Act (RA) No. 7432,3 as amended
by RA 9257,4 and the implementing rules and
regulations issued by the DSWD and DOF
insofar as these allow business establishments
to claim the 20% discount given to senior citizens
as a tax deduction.
Factual Antecedents
On April 23, 1992, RA 7432 was passed into law,
granting senior citizens the following privileges:
SECTION 4. Privileges for the Senior Citizens.
The senior citizens shall be entitled to the
following:
a) the grant of twenty percent (20%) discount
from all establishments relative to utilization of
transportation services, hotels and similar
lodging establishment[s], restaurants and
recreation centers and purchase of medicine
anywhere in the country: Provided, That private
establishments may claim the cost as tax credit;
b) a minimum of twenty percent (20%) discount
on admission fees charged by theaters, cinema
houses and concert halls, circuses, carnivals and
other similar places of culture, leisure, and
amusement;
c) exemption from the payment of individual
income taxes: Provided, That their annual
taxable income does not exceed the property
level as determined by the National Economic
and Development Authority (NEDA) for that year;
d) exemption from training fees for
socioeconomic programs undertaken by the
OSCA as part of its work;
e) free medical and dental services in
government establishment[s] anywhere in the
country, subject to guidelines to be issued by the
Department of Health, the Government Service
Insurance System and the Social Security
System;
f) to the extent practicable and feasible, the
continuance of the same benefits and privileges
given by the Government Service Insurance
System (GSIS), Social Security System (SSS)
and PAG-IBIG, as the case may be, as are
enjoyed by those in actual service.
On August 23, 1993, Revenue Regulations (RR)
No. 02-94 was issued to implement RA 7432.
Sections 2(i) and 4 of RR No. 02-94 provide:
Sec. 2. DEFINITIONS. For purposes of these
regulations: i. Tax Credit refers to the amount
representing the 20% discount granted to a
qualified senior citizen by all establishments
relative to their utilization of transportation
services, hotels and similar lodging
establishments, restaurants, drugstores,
recreation centers, theaters, cinema houses,
concert halls, circuses, carnivals and other
similar places of culture, leisure and amusement,
which discount shall be deducted by the said
establishments from their gross income for
income tax purposes and from their gross sales
for value-added tax or other percentage tax
purposes. x x x x Sec. 4.
RECORDING/BOOKKEEPING
REQUIREMENTS FOR PRIVATE
ESTABLISHMENTS. Private establishments,
i.e., transport services, hotels and similar lodging
establishments, restaurants, recreation centers,
drugstores, theaters, cinema houses, concert
halls, circuses, carnivals and other similar places
of culture[,] leisure and amusement, giving 20%
discounts to qualified senior citizens are required
to keep separate and accurate record[s] of sales
made to senior citizens, which shall include the
name, identification number, gross
sales/receipts, discounts, dates of transactions
and invoice number for every transaction. The
amount of 20% discount shall be deducted from
the gross income for income tax purposes and
from gross sales of the business enterprise
concerned for purposes of the VAT and other
percentage taxes.
In Commissioner of Internal Revenue v. Central
Luzon Drug Corporation,5 the Court declared
Sections 2(i) and 4 of RR No. 02-94 as erroneous
because these contravene RA 7432,6 thus:
RA 7432 specifically allows private
establishments to claim as tax credit the amount
of discounts they grant. In turn, the Implementing
Rules and Regulations, issued pursuant thereto,
provide the procedures for its availment. To deny
such credit, despite the plain mandate of the law
and the regulations carrying out that mandate, is
indefensible. First, the definition given by
petitioner is erroneous. It refers to tax credit as
the amount representing the 20 percent discount
that "shall be deducted by the said
establishments from their gross income for
income tax purposes and from their gross sales
for value-added tax or other percentage tax
purposes." In ordinary business language, the
tax credit represents the amount of such
discount. However, the manner by which the
discount shall be credited against taxes has not
been clarified by the revenue regulations. By
ordinary acceptation, a discount is an
"abatement or reduction made from the gross
amount or value of anything." To be more
precise, it is in business parlance "a deduction or
lowering of an amount of money;" or "a reduction
from the full amount or value of something,
especially a price." In business there are many
kinds of discount, the most common of which is
that affecting the income statement or financial
report upon which the income tax is based.
xxxx
Sections 2.i and 4 of Revenue Regulations No.
(RR) 2-94 define tax credit as the 20 percent
discount deductible from gross income for
income tax purposes, or from gross sales for
VAT or other percentage tax purposes. In effect,
the tax credit benefit under RA 7432 is related to
a sales discount. This contrived definition is
improper, considering that the latter has to be
deducted from gross sales in order to compute
the gross income in the income statement and
cannot be deducted again, even for purposes of
computing the income tax. When the law says
that the cost of the discount may be claimed as
a tax credit, it means that the amount when
claimed shall be treated as a reduction from
any tax liability, plain and simple. The option to
avail of the tax credit benefit depends upon the
existence of a tax liability, but to limit the benefit
to a sales discount which is not even identical
to the discount privilege that is granted by law
does not define it at all and serves no useful
purpose. The definition must, therefore, be
stricken down.
Laws Not Amended by Regulations
Second, the law cannot be amended by a mere
regulation. In fact, a regulation that "operates to
create a rule out of harmony with the statute is a
mere nullity;" it cannot prevail. It is a cardinal rule
that courts "will and should respect the
contemporaneous construction placed upon a
statute by the executive officers whose duty it is
to enforce it x x x." In the scheme of judicial tax
administration, the need for certainty and
predictability in the implementation of tax laws is
crucial. Our tax authorities fill in the details that
"Congress may not have the opportunity or
competence to provide." The regulations these
authorities issue are relied upon by taxpayers,
who are certain that these will be followed by the
courts. Courts, however, will not uphold these
authorities interpretations when clearly absurd,
erroneous or improper. In the present case, the
tax authorities have given the term tax credit in
Sections 2.i and 4 of RR 2-94 a meaning utterly
in contrast to what RA 7432 provides. Their
interpretation has muddled x x x the intent of
Congress in granting a mere discount privilege,
not a sales discount. The administrative agency
issuing these regulations may not enlarge, alter
or restrict the provisions of the law it administers;
it cannot engraft additional requirements not
contemplated by the legislature.
In case of conflict, the law must prevail. A
"regulation adopted pursuant to law is law."
Conversely, a regulation or any portion thereof
not adopted pursuant to law is no law and has
neither the force nor the effect of law.7
On February 26, 2004, RA 92578 amended
certain provisions of RA 7432, to wit:
SECTION 4. Privileges for the Senior Citizens.
The senior citizens shall be entitled to the
following:
(a) the grant of twenty percent (20%) discount
from all establishments relative to the utilization
of services in hotels and similar lodging
establishments, restaurants and recreation
centers, and purchase of medicines in all
establishments for the exclusive use or
enjoyment of senior citizens, including funeral
and burial services for the death of senior
citizens;
xxxx
The establishment may claim the discounts
granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods
sold or services rendered: Provided, That the
cost of the discount shall be allowed as
deduction from gross income for the same
taxable year that the discount is granted.
Provided, further, That the total amount of the
claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales
receipts for tax purposes and shall be subject to
proper documentation and to the provisions of
the National Internal Revenue Code, as
amended.
To implement the tax provisions of RA 9257, the
Secretary of Finance issued RR No. 4-2006, the
pertinent provision of which provides:
SEC. 8. AVAILMENT BY ESTABLISHMENTS
OF SALES DISCOUNTS AS DEDUCTION
FROM GROSS INCOME. Establishments
enumerated in subparagraph (6) hereunder
granting sales discounts to senior citizens on the
sale of goods and/or services specified
thereunder are entitled to deduct the said
discount from gross income subject to the
following conditions:
(1) Only that portion of the gross sales
EXCLUSIVELY USED, CONSUMED OR
ENJOYED BY THE SENIOR CITIZEN shall be
eligible for the deductible sales discount.
(2) The gross selling price and the sales discount
MUST BE SEPARATELY INDICATED IN THE
OFFICIAL RECEIPT OR SALES INVOICE
issued by the establishment for the sale of goods
or services to the senior citizen.
(3) Only the actual amount of the discount
granted or a sales discount not exceeding 20%
of the gross selling price can be deducted from
the gross income, net of value added tax, if
applicable, for income tax purposes, and from
gross sales or gross receipts of the business
enterprise concerned, for VAT or other
percentage tax purposes.
(4) The discount can only be allowed as
deduction from gross income for the same
taxable year that the discount is granted.
(5) The business establishment giving sales
discounts to qualified senior citizens is required
to keep separate and accurate record[s] of sales,
which shall include the name of the senior
citizen, TIN, OSCA ID, gross sales/receipts,
sales discount granted, [date] of [transaction]
and invoice number for every sale transaction to
senior citizen.
(6) Only the following business establishments
which granted sales discount to senior citizens
on their sale of goods and/or services may claim
the said discount granted as deduction from
gross income, namely:
xxxx
(i) Funeral parlors and similar establishments
The beneficiary or any person who shall shoulder
the funeral and burial expenses of the deceased
senior citizen shall claim the discount, such as
casket, embalmment, cremation cost and other
related services for the senior citizen upon
payment and presentation of [his] death
certificate.
The DSWD likewise issued its own Rules and
Regulations Implementing RA 9257, to wit:
RULE VI DISCOUNTS AS TAX DEDUCTION OF
ESTABLISHMENTS
Article 8. Tax Deduction of Establishments.
The establishment may claim the discounts
granted under Rule V, Section 4 Discounts for
Establishments, Section 9, Medical and Dental
Services in Private Facilities and Sections 10 and
11 Air, Sea and Land Transportation as tax
deduction based on the net cost of the goods
sold or services rendered.
Provided, That the cost of the discount shall be
allowed as deduction from gross income for the
same taxable year that the discount is
granted; Provided, further, That the total amount
of the claimed tax deduction net of value added
tax if applicable, shall be included in their gross
sales receipts for tax purposes and shall be
subject to proper documentation and to the
provisions of the National Internal Revenue
Code, as amended; Provided, finally, that the
implementation of the tax deduction shall be
subject to the Revenue Regulations to be issued
by the Bureau of Internal Revenue (BIR) and
approved by the Department of Finance (DOF).
Feeling aggrieved by the tax deduction scheme,
petitioners filed the present recourse, praying
that Section 4 of RA 7432, as amended by RA
9257, and the implementing rules and
regulations issued by the DSWD and the DOF be
declared unconstitutional insofar as these allow
business establishments to claim the 20%
discount given to senior citizens as a tax
deduction; that the DSWD and the DOF be
prohibited from enforcing the same; and that the
tax credit treatment of the 20% discount under
the former Section 4 (a) of RA 7432 be
reinstated.
Issues
Petitioners raise the following issues:
A.
WHETHER THE PETITION PRESENTS AN
ACTUAL CASE OR CONTROVERSY.
B.
WHETHER SECTION 4 OF REPUBLIC ACT
NO. 9257 AND X X X ITS IMPLEMENTING
RULES AND REGULATIONS, INSOFAR AS
THEY PROVIDE THAT THE TWENTY
PERCENT (20%) DISCOUNT TO SENIOR
CITIZENS MAY BE CLAIMED AS A TAX
DEDUCTION BY THE PRIVATE
ESTABLISHMENTS, ARE INVALID AND
UNCONSTITUTIONAL.9
Petitioners Arguments
Petitioners emphasize that they are not
questioning the 20% discount granted to senior
citizens but are only assailing the constitutionality
of the tax deduction scheme prescribed under
RA 9257 and the implementing rules and
regulations issued by the DSWD and the DOF.10
Petitioners posit that the tax deduction scheme
contravenes Article III, Section 9 of the
Constitution, which provides that: "[p]rivate
property shall not be taken for public use without
just compensation."11
In support of their position, petitioners cite
Central Luzon Drug Corporation,12 where it was
ruled that the 20% discount privilege constitutes
taking of private property for public use which
requires the payment of just
13
compensation, and Carlos Superdrug
Corporation v. Department of Social Welfare and
Development,14 where it was acknowledged that
the tax deduction scheme does not meet the
definition of just compensation.15
Petitioners likewise seek a reversal of the ruling
in Carlos Superdrug Corporation16 that the tax
deduction scheme adopted by the government is
justified by police power.17
They assert that "[a]lthough both police power
and the power of eminent domain have the
general welfare for their object, there are still
traditional distinctions between the two"18 and
that "eminent domain cannot be made less
supreme than police power."19
Petitioners further claim that the legislature, in
amending RA 7432, relied on an erroneous
contemporaneous construction that prior
payment of taxes is required for tax credit.20
Petitioners also contend that the tax deduction
scheme violates Article XV, Section 421 and
Article XIII, Section 1122of the Constitution
because it shifts the States constitutional
mandate or duty of improving the welfare of the
elderly to the private sector.23
Under the tax deduction scheme, the private
sector shoulders 65% of the discount because
only 35%24 of it is actually returned by the
government.25
Consequently, the implementation of the tax
deduction scheme prescribed under Section 4 of
RA 9257 affects the businesses of petitioners.26
Thus, there exists an actual case or controversy
of transcendental importance which deserves
judicious disposition on the merits by the highest
court of the land.27
Respondents Arguments
Respondents, on the other hand, question the
filing of the instant Petition directly with the
Supreme Court as this disregards the hierarchy
of courts.28
They likewise assert that there is no justiciable
controversy as petitioners failed to prove that the
tax deduction treatment is not a "fair and full
equivalent of the loss sustained" by them.29
As to the constitutionality of RA 9257 and its
implementing rules and regulations, respondents
contend that petitioners failed to overturn its
presumption of constitutionality.30
More important, respondents maintain that the
tax deduction scheme is a legitimate exercise of
the States police power.31
Our Ruling
The Petition lacks merit.
There exists an actual case or controversy.
We shall first resolve the procedural issue. When
the constitutionality of a law is put in issue,
judicial review may be availed of only if the
following requisites concur: "(1) the existence of
an actual and appropriate case; (2) the existence
of personal and substantial interest on the part of
the party raising the [question of
constitutionality]; (3) recourse to judicial review is
made at the earliest opportunity; and (4) the
[question of constitutionality] is the lis mota of the
case."32
In this case, petitioners are challenging the
constitutionality of the tax deduction scheme
provided in RA 9257 and the implementing rules
and regulations issued by the DSWD and the
DOF. Respondents, however, oppose the
Petition on the ground that there is no actual
case or controversy. We do not agree with
respondents. An actual case or controversy
exists when there is "a conflict of legal rights" or
"an assertion of opposite legal claims susceptible
of judicial resolution."33
The Petition must therefore show that "the
governmental act being challenged has a direct
adverse effect on the individual challenging it."34
In this case, the tax deduction scheme
challenged by petitioners has a direct adverse
effect on them. Thus, it cannot be denied that
there exists an actual case or controversy.
The validity of the 20% senior citizen
discount and tax deduction scheme under RA
9257, as an exercise of police power of the
State, has already been settled in Carlos
Superdrug Corporation.
Petitioners posit that the resolution of this case
lies in the determination of whether the legally
mandated 20% senior citizen discount is an
exercise of police power or eminent domain. If it
is police power, no just compensation is
warranted. But if it is eminent domain, the tax
deduction scheme is unconstitutional because it
is not a peso for peso reimbursement of the 20%
discount given to senior citizens. Thus, it
constitutes taking of private property without
payment of just compensation. At the outset, we
note that this question has been settled in Carlos
Superdrug Corporation.35
In that case, we ruled:
Petitioners assert that Section 4(a) of the law is
unconstitutional because it constitutes
deprivation of private property. Compelling
drugstore owners and establishments to grant
the discount will result in a loss of profit and
capital because 1) drugstores impose a mark-up
of only 5% to 10% on branded medicines; and 2)
the law failed to provide a scheme whereby
drugstores will be justly compensated for the
discount. Examining petitioners arguments, it is
apparent that what petitioners are ultimately
questioning is the validity of the tax deduction
scheme as a reimbursement mechanism for the
twenty percent (20%) discount that they extend
to senior citizens. Based on the afore-stated
DOF Opinion, the tax deduction scheme does
not fully reimburse petitioners for the discount
privilege accorded to senior citizens. This is
because the discount is treated as a deduction,
a tax-deductible expense that is subtracted from
the gross income and results in a lower taxable
income. Stated otherwise, it is an amount that is
allowed by law to reduce the income prior to the
application of the tax rate to compute the amount
of tax which is due. Being a tax deduction, the
discount does not reduce taxes owed on a peso
for peso basis but merely offers a fractional
reduction in taxes owed. Theoretically, the
treatment of the discount as a deduction reduces
the net income of the private establishments
concerned. The discounts given would have
entered the coffers and formed part of the gross
sales of the private establishments, were it not
for R.A. No. 9257. The permanent reduction in
their total revenues is a forced subsidy
corresponding to the taking of private property for
public use or benefit. This constitutes
compensable taking for which petitioners would
ordinarily become entitled to a just
compensation. Just compensation is defined as
the full and fair equivalent of the property taken
from its owner by the expropriator. The measure
is not the takers gain but the owners loss. The
word just is used to intensify the meaning of the
word compensation, and to convey the idea that
the equivalent to be rendered for the property to
be taken shall be real, substantial, full and ample.
A tax deduction does not offer full reimbursement
of the senior citizen discount. As such, it would
not meet the definition of just compensation.
Having said that, this raises the question of
whether the State, in promoting the health and
welfare of a special group of citizens, can impose
upon private establishments the burden of partly
subsidizing a government program. The Court
believes so. The Senior Citizens Act was
enacted primarily to maximize the contribution of
senior citizens to nation-building, and to grant
benefits and privileges to them for their
improvement and well-being as the State
considers them an integral part of our society.
The priority given to senior citizens finds its basis
in the Constitution as set forth in the law itself.
Thus, the Act provides: SEC. 2. Republic Act No.
7432 is hereby amended to read as follows:
SECTION 1. Declaration of Policies and
Objectives. Pursuant to Article XV, Section 4
of the Constitution, it is the duty of the family to
take care of its elderly members while the State
may design programs of social security for them.
In addition to this, Section 10 in the Declaration
of Principles and State Policies provides: "The
State shall provide social justice in all phases of
national development." Further, Article XIII,
Section 11, provides: "The State shall adopt an
integrated and comprehensive approach to
health development which shall endeavor to
make essential goods, health and other social
services available to all the people at affordable
cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women
and children." Consonant with these
constitutional principles the following are the
declared policies of this Act:
benefits. Accordingly, it has been described as
(f) To recognize the important role of the private
sector in the improvement of the welfare of senior
citizens and to actively seek their partnership.
To implement the above policy, the law grants a
twenty percent discount to senior citizens for
medical and dental services, and diagnostic and
laboratory fees; admission fees charged by
theaters, concert halls, circuses, carnivals, and
other similar places of culture, leisure and
amusement; fares for domestic land, air and sea
travel; utilization of services in hotels and similar
lodging establishments, restaurants and
recreation centers; and purchases of medicines
for the exclusive use or enjoyment of senior
citizens. As a form of reimbursement, the law
provides that business establishments extending
the twenty percent discount to senior citizens
may claim the discount as a tax deduction. The
law is a legitimate exercise of police power
which, similar to the power of eminent domain,
has general welfare for its object. Police power is
not capable of an exact definition, but has been
purposely veiled in general terms to underscore
its comprehensiveness to meet all exigencies
and provide enough room for an efficient and
flexible response to conditions and
circumstances, thus assuring the greatest
"the most essential, insistent and the least
limitable of powers, extending as it does to all the
great public needs." It is "[t]he power vested in
the legislature by the constitution to make,
ordain, and establish all manner of wholesome
and reasonable laws, statutes, and ordinances,
either with penalties or without, not repugnant to
the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of
the subjects of the same." For this reason, when
the conditions so demand as determined by the
legislature, property rights must bow to the
primacy of police power because property rights,
though sheltered by due process, must yield to
general welfare. Police power as an attribute to
promote the common good would be diluted
considerably if on the mere plea of petitioners
that they will suffer loss of earnings and capital,
the questioned provision is invalidated.
Moreover, in the absence of evidence
demonstrating the alleged confiscatory effect of
the provision in question, there is no basis for its
nullification in view of the presumption of validity
which every law has in its favor. Given these, it is
incorrect for petitioners to insist that the grant of
the senior citizen discount is unduly oppressive
to their business, because petitioners have not
taken time to calculate correctly and come up
with a financial report, so that they have not been
able to show properly whether or not the tax
deduction scheme really works greatly to their
disadvantage. In treating the discount as a tax
deduction, petitioners insist that they will incur
losses because, referring to the DOF Opinion, for
every P1.00 senior citizen discount that
petitioners would give, P0.68 will be shouldered
by them as only P0.32 will be refunded by the
government by way of a tax deduction. To
illustrate this point, petitioner Carlos Super Drug
cited the anti-hypertensive maintenance drug
Norvasc as an example. According to the latter,
it acquires Norvasc from the distributors
at P37.57 per tablet, and retails it at P39.60 (or
at a margin of 5%). If it grants a 20% discount to
senior citizens or an amount equivalent to P7.92,
then it would have to sell Norvasc at P31.68
which translates to a loss from capital of P5.89
per tablet. Even if the government will allow a tax
deduction, only P2.53 per tablet will be refunded
and not the full amount of the discount which
is P7.92. In short, only 32% of the 20% discount
will be reimbursed to the drugstores. Petitioners
computation is flawed. For purposes of
reimbursement, the law states that the cost of the
discount shall be deducted from gross income,
the amount of income derived from all sources
before deducting allowable expenses, which will
result in net income. Here, petitioners tried to
show a loss on a per transaction basis, which
should not be the case. An income statement,
showing an accounting of petitioners' sales,
expenses, and net profit (or loss) for a given
period could have accurately reflected the effect
of the discount on their income. Absent any
financial statement, petitioners cannot
substantiate their claim that they will be operating
at a loss should they give the discount. In
addition, the computation was erroneously
based on the assumption that their customers
consisted wholly of senior citizens. Lastly, the
32% tax rate is to be imposed on income, not on
the amount of the discount.
Furthermore, it is unfair for petitioners to criticize
the law because they cannot raise the prices of
their medicines given the cutthroat nature of the
players in the industry. It is a business decision
on the part of petitioners to peg the mark-up at
5%. Selling the medicines below acquisition cost,
as alleged by petitioners, is merely a result of this
decision. Inasmuch as pricing is a property right,
petitioners cannot reproach the law for being
oppressive, simply because they cannot afford to
raise their prices for fear of losing their customers
to competition. The Court is not oblivious of the
retail side of the pharmaceutical industry and the
competitive pricing component of the business.
While the Constitution protects property rights,
petitioners must accept the realities of business
and the State, in the exercise of police power,
can intervene in the operations of a business
which may result in an impairment of property
rights in the process.
Moreover, the right to property has a social
dimension. While Article XIII of the Constitution
provides the precept for the protection of
property, various laws and jurisprudence,
particularly on agrarian reform and the regulation
of contracts and public utilities, continuously
serve as x x x reminder[s] that the right to
property can be relinquished upon the command
of the State for the promotion of public good.
Undeniably, the success of the senior citizens
program rests largely on the support imparted by
petitioners and the other private establishments
concerned. This being the case, the means
employed in invoking the active participation of
the private sector, in order to achieve the
purpose or objective of the law, is reasonably
and directly related. Without sufficient proof that
Section 4 (a) of R.A. No. 9257 is arbitrary, and
that the continued implementation of the same
would be unconscionably detrimental to
petitioners, the Court will refrain from quashing a
legislative act.36 (Bold in the original; underline
supplied)
We, thus, found that the 20% discount as well as
the tax deduction scheme is a valid exercise of
the police power of the State.
No compelling reason has been proffered to
overturn, modify or abandon the ruling in
Carlos Superdrug Corporation.
Petitioners argue that we have previously ruled
in Central Luzon Drug Corporation37 that the
20% discount is an exercise of the power of
eminent domain, thus, requiring the payment of
just compensation. They urge us to re-examine
our ruling in Carlos Superdrug
Corporation38 which allegedly reversed the ruling
in Central Luzon Drug Corporation.39
They also point out that Carlos Superdrug
Corporation40 recognized that the tax deduction
scheme under the assailed law does not provide
for sufficient just compensation. We agree with
petitioners observation that there are statements
in Central Luzon Drug Corporation41 describing
the 20% discount as an exercise of the power of
eminent domain, viz.:
[T]he privilege enjoyed by senior citizens does
not come directly from the State, but rather from
the private establishments concerned.
Accordingly, the tax credit benefit granted to
these establishments can be deemed as their
just compensation for private property taken by
the State for public use. The concept of public
use is no longer confined to the traditional notion
of use by the public, but held synonymous with
public interest, public benefit, public welfare, and
public convenience. The discount privilege to
which our senior citizens are entitled is actually a
benefit enjoyed by the general public to which
these citizens belong. The discounts given would
have entered the coffers and formed part of the
gross sales of the private establishments
concerned, were it not for RA 7432. The
permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of
private property for public use or benefit. As a
result of the 20 percent discount imposed by RA
7432, respondent becomes entitled to a just
compensation. This term refers not only to the
issuance of a tax credit certificate indicating the
correct amount of the discounts given, but also
to the promptness in its release. Equivalent to the
payment of property taken by the State, such
issuance when not done within a reasonable
time from the grant of the discounts cannot be
considered as just compensation. In effect,
respondent is made to suffer the consequences
of being immediately deprived of its revenues
while awaiting actual receipt, through the
certificate, of the equivalent amount it needs to
cope with the reduction in its revenues. Besides,
the taxation power can also be used as an
implement for the exercise of the power of
eminent domain. Tax measures are but
"enforced contributions exacted on pain of penal
sanctions" and "clearly imposed for a public
purpose." In recent years, the power to tax has
indeed become a most effective tool to realize
social justice, public welfare, and the equitable
distribution of wealth. While it is a declared
commitment under Section 1 of RA 7432, social
justice "cannot be invoked to trample on the
rights of property owners who under our
Constitution and laws are also entitled to
protection. The social justice consecrated in our
[C]onstitution [is] not intended to take away rights
from a person and give them to another who is
not entitled thereto." For this reason, a just
compensation for income that is taken away from
respondent becomes necessary. It is in the tax
credit that our legislators find support to realize
social justice, and no administrative body can
alter that fact. To put it differently, a private
establishment that merely breaks even
without the discounts yet will surely start to
incur losses because of such discounts. The
same effect is expected if its mark-up is less than
20 percent, and if all its sales come from retail
purchases by senior citizens. Aside from the
observation we have already raised earlier, it will
also be grossly unfair to an establishment if the
discounts will be treated merely as deductions
from either its gross income or its gross sales.
Operating at a loss through no fault of its own, it
will realize that the tax credit limitation under RR
2-94 is inutile, if not improper. Worse, profit-
generating businesses will be put in a better
position if they avail themselves of tax credits
denied those that are losing, because no taxes
are due from the latter.42 (Italics in the original;
emphasis supplied)
The above was partly incorporated in our ruling
in Carlos Superdrug Corporation43 when we
stated preliminarily that
Petitioners assert that Section 4(a) of the law is
unconstitutional because it constitutes
deprivation of private property. Compelling
drugstore owners and establishments to grant
the discount will result in a loss of profit and
capital because 1) drugstores impose a mark-up
of only 5% to 10% on branded medicines; and 2)
the law failed to provide a scheme whereby
drugstores will be justly compensated for the
discount. Examining petitioners arguments, it is
apparent that what petitioners are ultimately
questioning is the validity of the tax deduction
scheme as a reimbursement mechanism for the
twenty percent (20%) discount that they extend
to senior citizens. Based on the afore-stated
DOF Opinion, the tax deduction scheme does
not fully reimburse petitioners for the discount
privilege accorded to senior citizens. This is
because the discount is treated as a deduction,
a tax-deductible expense that is subtracted from
the gross income and results in a lower taxable
income. Stated otherwise, it is an amount that is
allowed by law to reduce the income prior to the
application of the tax rate to compute the amount
of tax which is due. Being a tax deduction, the
discount does not reduce taxes owed on a peso
for peso basis but merely offers a fractional
reduction in taxes owed. Theoretically, the
treatment of the discount as a deduction reduces
the net income of the private establishments
concerned. The discounts given would have
entered the coffers and formed part of the gross
sales of the private establishments, were it not
for R.A. No. 9257. The permanent reduction in
their total revenues is a forced subsidy
corresponding to the taking of private property for
public use or benefit. This constitutes
compensable taking for which petitioners would
ordinarily become entitled to a just
compensation. Just compensation is defined as
the full and fair equivalent of the property taken
from its owner by the expropriator. The measure
is not the takers gain but the owners loss. The
word just is used to intensify the meaning of the
word compensation, and to convey the idea that
the equivalent to be rendered for the property to
be taken shall be real, substantial, full and ample.
A tax deduction does not offer full reimbursement
of the senior citizen discount. As such, it would
not meet the definition of just compensation.
Having said that, this raises the question of
whether the State, in promoting the health and
welfare of a special group of citizens, can impose
upon private establishments the burden of partly
subsidizing a government program. The Court
believes so.44
This, notwithstanding, we went on to rule in
Carlos Superdrug Corporation45 that the 20%
discount and tax deduction scheme is a valid
exercise of the police power of the State. The
present case, thus, affords an opportunity for us
to clarify the above-quoted statements in Central
Luzon Drug Corporation46 and Carlos Superdrug
Corporation.47
First, we note that the above-quoted disquisition
on eminent domain in Central Luzon Drug
Corporation48 is obiter dicta and, thus, not
binding precedent. As stated earlier, in Central
Luzon Drug Corporation,49 we ruled that the BIR
acted ultra vires when it effectively treated the
20% discount as a tax deduction, under Sections
2.i and 4 of RR No. 2-94, despite the clear
wording of the previous law that the same should
be treated as a tax credit. We were, therefore,
not confronted in that case with the issue as to
whether the 20% discount is an exercise of police
power or eminent domain. Second, although we
adverted to Central Luzon Drug Corporation50 in
our ruling in Carlos Superdrug Corporation,51 this
referred only to preliminary matters. A fair
reading of Carlos Superdrug Corporation52would
show that we categorically ruled therein that the
20% discount is a valid exercise of police power.
Thus, even if the current law, through its tax
deduction scheme (which abandoned the tax
credit scheme under the previous law), does not
provide for a peso for peso reimbursement of the
20% discount given by private establishments,
no constitutional infirmity obtains because, being
a valid exercise of police power, payment of just
compensation is not warranted. We have
carefully reviewed the basis of our ruling in
Carlos Superdrug Corporation53 and we find no
cogent reason to overturn, modify or abandon it.
We also note that petitioners arguments are a
mere reiteration of those raised and resolved in
Carlos Superdrug Corporation.54 Thus, we
sustain Carlos Superdrug Corporation.55
Nonetheless, we deem it proper, in what follows,
to amplify our explanation in Carlos Superdrug
Corporation56 as to why the 20% discount is a
valid exercise of police power and why it may not,
under the specific circumstances of this case, be
considered as an exercise of the power of
eminent domain contrary to the obiter in Central
Luzon Drug Corporation.57
Police power versus eminent domain.
Police power is the inherent power of the State
to regulate or to restrain the use of liberty and
property for public welfare.58
The only limitation is that the restriction imposed
should be reasonable, not oppressive.59
In other words, to be a valid exercise of police
power, it must have a lawful subject or objective
and a lawful method of accomplishing the goal.60
Under the police power of the State, "property
rights of individuals may be subjected to
restraints and burdens in order to fulfill the
objectives of the government."61
The State "may interfere with personal liberty,
property, lawful businesses and occupations to
promote the general welfare [as long as] the
interference [is] reasonable and not arbitrary."62
Eminent domain, on the other hand, is the
inherent power of the State to take or appropriate
private property for public use.63
The Constitution, however, requires that private
property shall not be taken without due process
of law and the payment of just compensation.64
Traditional distinctions exist between police
power and eminent domain. In the exercise of
police power, a property right is impaired by
regulation,65 or the use of property is merely
prohibited, regulated or restricted66 to promote
public welfare. In such cases, there is no
compensable taking, hence, payment of just
compensation is not required. Examples of these
regulations are property condemned for being
noxious or intended for noxious purposes (e.g., a
building on the verge of collapse to be
demolished for public safety, or obscene
materials to be destroyed in the interest of public
morals)67 as well as zoning ordinances
prohibiting the use of property for purposes
injurious to the health, morals or safety of the
community (e.g., dividing a citys territory into
residential and industrial areas).68
It has, thus, been observed that, in the exercise
of police power (as distinguished from eminent
domain), although the regulation affects the right
of ownership, none of the bundle of rights which
constitute ownership is appropriated for use by
or for the benefit of the public.69
On the other hand, in the exercise of the power
of eminent domain, property interests are
appropriated and applied to some public purpose
which necessitates the payment of just
compensation therefor. Normally, the title to and
possession of the property are transferred to the
expropriating authority. Examples include the
acquisition of lands for the construction of public
highways as well as agricultural lands acquired
by the government under the agrarian reform law
for redistribution to qualified farmer beneficiaries.
However, it is a settled rule that the acquisition of
title or total destruction of the property is not
essential for "taking" under the power of eminent
domain to be present.70
Examples of these include establishment of
easements such as where the land owner is
perpetually deprived of his proprietary rights
because of the hazards posed by electric
transmission lines constructed above his
property71 or the compelled interconnection of
the telephone system between the government
and a private company.72
In these cases, although the private property
owner is not divested of ownership or
possession, payment of just compensation is
warranted because of the burden placed on the
property for the use or benefit of the public.
The 20% senior citizen discount is an
exercise of police power.
It may not always be easy to determine whether
a challenged governmental act is an exercise of
police power or eminent domain. The very nature
of police power as elastic and responsive to
various social conditions73 as well as the
evolving meaning and scope of public use74 and
just compensation75 in eminent domain evinces
that these are not static concepts. Because of the
exigencies of rapidly changing times, Congress
may be compelled to adopt or experiment with
different measures to promote the general
welfare which may not fall squarely within the
traditionally recognized categories of police
power and eminent domain. The judicious
approach, therefore, is to look at the nature and
effects of the challenged governmental act and
decide, on the basis thereof, whether the act is
the exercise of police power or eminent domain.
Thus, we now look at the nature and effects of
the 20% discount to determine if it constitutes an
exercise of police power or eminent domain. The
20% discount is intended to improve the welfare
of senior citizens who, at their age, are less likely
to be gainfully employed, more prone to illnesses
and other disabilities, and, thus, in need of
subsidy in purchasing basic commodities. It may
not be amiss to mention also that the discount
serves to honor senior citizens who presumably
spent the productive years of their lives on
contributing to the development and progress of
the nation. This distinct cultural Filipino practice
of honoring the elderly is an integral part of this
law. As to its nature and effects, the 20%
discount is a regulation affecting the ability of
private establishments to price their products and
services relative to a special class of individuals,
senior citizens, for which the Constitution affords
preferential concern.76
In turn, this affects the amount of profits or
income/gross sales that a private establishment
can derive from senior citizens. In other words,
the subject regulation affects the pricing, and,
hence, the profitability of a private establishment.
However, it does not purport to appropriate or
burden specific properties, used in the operation
or conduct of the business of private
establishments, for the use or benefit of the
public, or senior citizens for that matter, but
merely regulates the pricing of goods and
services relative to, and the amount of profits or
income/gross sales that such private
establishments may derive from, senior citizens.
The subject regulation may be said to be similar
to, but with substantial distinctions from, price
control or rate of return on investment control
laws which are traditionally regarded as police
power measures.77
These laws generally regulate public utilities or
industries/enterprises imbued with public interest
in order to protect consumers from exorbitant or
unreasonable pricing as well as temper
corporate greed by controlling the rate of return
on investment of these corporations considering
that they have a monopoly over the goods or
services that they provide to the general public.
The subject regulation differs therefrom in that
(1) the discount does not prevent the
establishments from adjusting the level of prices
of their goods and services, and (2) the discount
does not apply to all customers of a given
establishment but only to the class of senior
citizens. Nonetheless, to the degree material to
the resolution of this case, the 20% discount may
be properly viewed as belonging to the category
of price regulatory measures which affect the
profitability of establishments subjected thereto.
On its face, therefore, the subject regulation is a
police power measure. The obiter in Central
Luzon Drug Corporation,78 however, describes
the 20% discount as an exercise of the power of
eminent domain and the tax credit, under the
previous law, equivalent to the amount of
discount given as the just compensation therefor.
The reason is that (1) the discount would have
formed part of the gross sales of the
establishment were it not for the law prescribing
the 20% discount, and (2) the permanent
reduction in total revenues is a forced subsidy
corresponding to the taking of private property for
public use or benefit. The flaw in this reasoning
is in its premise. It presupposes that the subject
regulation, which impacts the pricing and, hence,
the profitability of a private establishment,
automatically amounts to a deprivation of
property without due process of law. If this were
so, then all price and rate of return on investment
control laws would have to be invalidated
because they impact, at some level, the
regulated establishments profits or
income/gross sales, yet there is no provision for
payment of just compensation. It would also
mean that overnment cannot set price or rate of
return on investment limits, which reduce the
profits or income/gross sales of private
establishments, if no just compensation is paid
even if the measure is not confiscatory. The
obiter is, thus, at odds with the settled octrine that
the State can employ police power measures to
regulate the pricing of goods and services, and,
hence, the profitability of business
establishments in order to pursue legitimate
State objectives for the common good, provided
that the regulation does not go too far as to
amount to "taking."79
In City of Manila v. Laguio, Jr.,80 we recognized
that x x x a taking also could be found if
government regulation of the use of property
went "too far." When regulation reaches a certain
magnitude, in most if not in all cases there must
be an exercise of eminent domain and
compensation to support the act. While property
may be regulated to a certain extent, if regulation
goes too far it will be recognized as a taking. No
formula or rule can be devised to answer the
questions of what is too far and when regulation
becomes a taking. In Mahon, Justice Holmes
recognized that it was "a question of degree and
therefore cannot be disposed of by general
propositions." On many other occasions as well,
the U.S. Supreme Court has said that the issue
of when regulation constitutes a taking is a
matter of considering the facts in each case. The
Court asks whether justice and fairness require
that the economic loss caused by public action
must be compensated by the government and
thus borne by the public as a whole, or whether
the loss should remain concentrated on those
few persons subject to the public action.81
The impact or effect of a regulation, such as the
one under consideration, must, thus, be
determined on a case-to-case basis. Whether
that line between permissible regulation under
police power and "taking" under eminent domain
has been crossed must, under the specific
circumstances of this case, be subject to proof
and the one assailing the constitutionality of the
regulation carries the heavy burden of proving
that the measure is unreasonable, oppressive or
confiscatory. The time-honored rule is that the
burden of proving the unconstitutionality of a law
rests upon the one assailing it and "the burden
becomes heavier when police power is at
issue."82
The 20% senior citizen discount has not been
shown to be unreasonable, oppressive or
confiscatory.
In Alalayan v. National Power
83
Corporation, petitioners, who were franchise
holders of electric plants, challenged the validity
of a law limiting their allowable net profits to no
more than 12% per annum of their investments
plus two-month operating expenses. In rejecting
their plea, we ruled that, in an earlier case, it was
found that 12% is a reasonable rate of return and
that petitioners failed to prove that the aforesaid
rate is confiscatory in view of the presumption of
constitutionality.84
We adopted a similar line of reasoning in Carlos
Superdrug Corporation85 when we ruled that
petitioners therein failed to prove that the 20%
discount is arbitrary, oppressive or confiscatory.
We noted that no evidence, such as a financial
report, to establish the impact of the 20%
discount on the overall profitability of petitioners
was presented in order to show that they would
be operating at a loss due to the subject
regulation or that the continued implementation
of the law would be unconscionably detrimental
to the business operations of petitioners. In the
case at bar, petitioners proceeded with a
hypothetical computation of the alleged loss that
they will suffer similar to what the petitioners in
Carlos Superdrug Corporation86 did. Petitioners
went directly to this Court without first
establishing the factual bases of their claims.
Hence, the present recourse must, likewise, fail.
Because all laws enjoy the presumption of
constitutionality, courts will uphold a laws validity
if any set of facts may be conceived to sustain
it.87
On its face, we find that there are at least two
conceivable bases to sustain the subject
regulations validity absent clear and convincing
proof that it is unreasonable, oppressive or
confiscatory. Congress may have legitimately
concluded that business establishments have
the capacity to absorb a decrease in profits or
income/gross sales due to the 20% discount
without substantially affecting the reasonable
rate of return on their investments considering (1)
not all customers of a business establishment
are senior citizens and (2) the level of its profit
margins on goods and services offered to the
general public. Concurrently, Congress may
have, likewise, legitimately concluded that the
establishments, which will be required to extend
the 20% discount, have the capacity to revise
their pricing strategy so that whatever reduction
in profits or income/gross sales that they may
sustain because of sales to senior citizens, can
be recouped through higher mark-ups or from
other products not subject of discounts. As a
result, the discounts resulting from sales to
senior citizens will not be confiscatory or unduly
oppressive. In sum, we sustain our ruling in
Carlos Superdrug Corporation88 that the 20%
senior citizen discount and tax deduction scheme
are valid exercises of police power of the State
absent a clear showing that it is arbitrary,
oppressive or confiscatory.
Conclusion
In closing, we note that petitioners hypothesize,
consistent with our previous ratiocinations, that
the discount will force establishments to raise
their prices in order to compensate for its impact
on overall profits or income/gross sales. The
general public, or those not belonging to the
senior citizen class, are, thus, made to effectively
shoulder the subsidy for senior citizens. This, in
petitioners view, is unfair.
As already mentioned, Congress may be
reasonably assumed to have foreseen this
eventuality. But, more importantly, this goes into
the wisdom, efficacy and expediency of the
subject law which is not proper for judicial review.
In a way, this law pursues its social equity
objective in a non-traditional manner unlike past
and existing direct subsidy programs of the
government for the poor and marginalized
sectors of our society. Verily, Congress must be
given sufficient leeway in formulating welfare
legislations given the enormous challenges that
the government faces relative to, among others,
resource adequacy and administrative capability
in implementing social reform measures which
aim to protect and uphold the interests of those
most vulnerable in our society. In the process,
the individual, who enjoys the rights, benefits and
privileges of living in a democratic polity, must
bear his share in supporting measures intended
for the common good. This is only fair. In fine,
without the requisite showing of a clear and
unequivocal breach of the Constitution, the
validity of the assailed law must be sustained.
Refutation of the Dissent
The main points of Justice Carpios Dissent may
be summarized as follows: (1) the discussion on
eminent domain in Central Luzon Drug
Corporation89 is not obiter dicta ; (2) allowable
taking, in police power, is limited to property that
is destroyed or placed outside the commerce of
man for public welfare; (3) the amount of
mandatory discount is private property within the
ambit of Article III, Section 990 of the Constitution;
and (4) the permanent reduction in a private
establishments total revenue, arising from the
mandatory discount, is a taking of private
property for public use or benefit, hence, an
exercise of the power of eminent domain
requiring the payment of just compensation. I We
maintain that the discussion on eminent domain
in Central Luzon Drug Corporation91 is obiter
dicta. As previously discussed, in Central Luzon
Drug Corporation,92 the BIR, pursuant to
Sections 2.i and 4 of RR No. 2-94, treated the
senior citizen discount in the previous law, RA
7432, as a tax deduction instead of a tax credit
despite the clear provision in that law which
stated
SECTION 4. Privileges for the Senior Citizens.
The senior citizens shall be entitled to the
following:
a) The grant of twenty percent (20%) discount
from all establishments relative to utilization of
transportation services, hotels and similar
lodging establishment, restaurants and
recreation centers and purchase of medicines
anywhere in the country: Provided, That private
establishments may claim the cost as tax credit;
(Emphasis supplied)
Thus, the Court ruled that the subject revenue
regulation violated the law, viz:
The 20 percent discount required by the law to
be given to senior citizens is a tax credit, not
merely a tax deduction from the gross income or
gross sale of the establishment concerned. A tax
credit is used by a private establishment only
after the tax has been computed; a tax
deduction, before the tax is computed. RA 7432
unconditionally grants a tax credit to all covered
entities. Thus, the provisions of the revenue
regulation that withdraw or modify such grant are
void. Basic is the rule that administrative
regulations cannot amend or revoke the law.93
As can be readily seen, the discussion on
eminent domain was not necessary in order to
arrive at this conclusion. All that was needed was
to point out that the revenue regulation
contravened the law which it sought to
implement. And, precisely, this was done in
Central Luzon Drug Corporation94 by comparing
the wording of the previous law vis--vis the
revenue regulation; employing the rules of
statutory construction; and applying the settled
principle that a regulation cannot amend the law
it seeks to implement. A close reading of Central
Luzon Drug Corporation95 would show that the
Court went on to state that the tax credit "can be
deemed" as just compensation only to explain
why the previous law provides for a tax credit
instead of a tax deduction. The Court surmised
that the tax credit was a form of just
compensation given to the establishments
covered by the 20% discount. However, the
reason why the previous law provided for a tax
credit and not a tax deduction was not necessary
to resolve the issue as to whether the revenue
regulation contravenes the law. Hence, the
discussion on eminent domain is obiter dicta.
A court, in resolving cases before it, may look
into the possible purposes or reasons that
impelled the enactment of a particular statute or
legal provision. However, statements made
relative thereto are not always necessary in
resolving the actual controversies presented
before it. This was the case in Central Luzon
Drug Corporation96resulting in that unfortunate
statement that the tax credit "can be deemed" as
just compensation. This, in turn, led to the
erroneous conclusion, by deductive reasoning,
that the 20% discount is an exercise of the power
of eminent domain. The Dissent essentially
adopts this theory and reasoning which, as will
be shown below, is contrary to settled principles
in police power and eminent domain analysis. II
The Dissent discusses at length the doctrine on
"taking" in police power which occurs when
private property is destroyed or placed outside
the commerce of man. Indeed, there is a whole
class of police power measures which justify the
destruction of private property in order to
preserve public health, morals, safety or welfare.
As earlier mentioned, these would include a
building on the verge of collapse or confiscated
obscene materials as well as those mentioned by
the Dissent with regard to property used in
violating a criminal statute or one which
constitutes a nuisance. In such cases, no
compensation is required. However, it is equally
true that there is another class of police power
measures which do not involve the destruction of
private property but merely regulate its use. The
minimum wage law, zoning ordinances, price
control laws, laws regulating the operation of
motels and hotels, laws limiting the working
hours to eight, and the like would fall under this
category. The examples cited by the Dissent,
likewise, fall under this category: Article 157 of
the Labor Code, Sections 19 and 18 of the Social
Security Law, and Section 7 of the Pag-IBIG
Fund Law. These laws merely regulate or, to use
the term of the Dissent, burden the conduct of the
affairs of business establishments. In such
cases, payment of just compensation is not
required because they fall within the sphere of
permissible police power measures. The senior
citizen discount law falls under this latter
category. III The Dissent proceeds from the
theory that the permanent reduction of profits or
income/gross sales, due to the 20% discount, is
a "taking" of private property for public purpose
without payment of just compensation. At the
outset, it must be emphasized that petitioners
never presented any evidence to establish that
they were forced to suffer enormous losses or
operate at a loss due to the effects of the
assailed law. They came directly to this Court
and provided a hypothetical computation of the
loss they would allegedly suffer due to the
operation of the assailed law. The central
premise of the Dissents argument that the 20%
discount results in a permanent reduction in
profits or income/gross sales, or forces a
business establishment to operate at a loss is,
thus, wholly unsupported by competent
evidence. To be sure, the Court can invalidate a
law which, on its face, is arbitrary, oppressive or
confiscatory.97
But this is not the case here.
In the case at bar, evidence is indispensable
before a determination of a constitutional
violation can be made because of the following
reasons. First, the assailed law, by imposing the
senior citizen discount, does not take any of the
properties used by a business establishment like,
say, the land on which a manufacturing plant is
constructed or the equipment being used to
produce goods or services. Second, rather than
taking specific properties of a business
establishment, the senior citizen discount law
merely regulates the prices of the goods or
services being sold to senior citizens by
mandating a 20% discount. Thus, if a product is
sold at P10.00 to the general public, then it shall
be sold at P8.00 ( i.e., P10.00 less 20%) to
senior citizens. Note that the law does not
impose at what specific price the product shall be
sold, only that a 20% discount shall be given to
senior citizens based on the price set by the
business establishment. A business
establishment is, thus, free to adjust the prices of
the goods or services it provides to the general
public. Accordingly, it can increase the price of
the above product to P20.00 but is required to
sell it at P16.00 (i.e. , P20.00 less 20%) to senior
citizens. Third, because the law impacts the
prices of the goods or services of a particular
establishment relative to its sales to senior
citizens, its profits or income/gross sales are
affected. The extent of the impact would,
however, depend on the profit margin of the
business establishment on a particular good or
service. If a product costs P5.00 to produce and
is sold at P10.00, then the profit98 is P5.0099 or a
profit margin100 of 50%.101
Under the assailed law, the aforesaid product
would have to be sold at P8.00 to senior citizens
yet the business would still earn P3.00102 or a
30%103 profit margin. On the other hand, if the
product costs P9.00 to produce and is required
to be sold at P8.00 to senior citizens, then the
business would experience a loss of P1.00.104
But note that since not all customers of a
business establishment are senior citizens, the
business establishment may continue to
earn P1.00 from non-senior citizens which, in
turn, can offset any loss arising from sales to
senior citizens.
Fourth, when the law imposes the 20% discount
in favor of senior citizens, it does not prevent the
business establishment from revising its pricing
strategy.
By revising its pricing strategy, a business
establishment can recoup any reduction of profits
or income/gross sales which would otherwise
arise from the giving of the 20% discount. To
illustrate, suppose A has two customers: X, a
senior citizen, and Y, a non-senior citizen. Prior
to the law, A sells his products at P10.00 a piece
to X and Y resulting in income/gross sales
of P20.00 (P10.00 + P10.00). With the passage
of the law, A must now sell his product to X
at P8.00 (i.e., P10.00 less 20%) so that his
income/gross sales would be P18.00 (P8.00
+ P10.00) or lower by P2.00. To prevent this
from happening, A decides to increase the price
of his products to P11.11 per piece. Thus, he
sells his product to X at P8.89 (i.e. , P11.11 less
20%) and to Y at P11.11. As a result, his
income/gross sales would still
105
be P20.00 (P8.89 + P11.11). The capacity,
then, of business establishments to revise their
pricing strategy makes it possible for them not to
suffer any reduction in profits or income/gross
sales, or, in the alternative, mitigate the reduction
of their profits or income/gross sales even after
the passage of the law. In other words, business
establishments have the capacity to adjust their
prices so that they may remain profitable even
under the operation of the assailed law.
The Dissent, however, states that The
explanation by the majority that private
establishments can always increase their prices
to recover the mandatory discount will only
encourage private establishments to adjust their
prices upwards to the prejudice of customers
who do not enjoy the 20% discount. It was
likewise suggested that if a company increases
its prices, despite the application of the 20%
discount, the establishment becomes more
profitable than it was before the implementation
of R.A. 7432. Such an economic justification is
self-defeating, for more consumers will suffer
from the price increase than will benefit from the
20% discount. Even then, such ability to increase
prices cannot legally validate a violation of the
eminent domain clause.106
But, if it is possible that the business
establishment, by adjusting its prices, will suffer
no reduction in its profits or income/gross sales
(or suffer some reduction but continue to operate
profitably) despite giving the discount, what
would be the basis to strike down the law? If it is
possible that the business establishment, by
adjusting its prices, will not be unduly burdened,
how can there be a finding that the assailed law
is an unconstitutional exercise of police power or
eminent domain? That there may be a burden
placed on business establishments or the
consuming public as a result of the operation of
the assailed law is not, by itself, a ground to
declare it unconstitutional for this goes into the
wisdom and expediency of the law.
The cost of most, if not all, regulatory measures
of the government on business establishments is
ultimately passed on to the consumers but that,
by itself, does not justify the wholesale
nullification of these measures. It is a basic
postulate of our democratic system of
government that the Constitution is a social
contract whereby the people have surrendered
their sovereign powers to the State for the
common good.107
All persons may be burdened by regulatory
measures intended for the common good or to
serve some important governmental interest,
such as protecting or improving the welfare of a
special class of people for which the Constitution
affords preferential concern. Indubitably, the one
assailing the law has the heavy burden of proving
that the regulation is unreasonable, oppressive
or confiscatory, or has gone "too far" as to
amount to a "taking." Yet, here, the Dissent
would have this Court nullify the law without any
proof of such nature.
Further, this Court is not the proper forum to
debate the economic theories or realities that
impelled Congress to shift from the tax credit to
the tax deduction scheme. It is not within our
power or competence to judge which scheme is
more or less burdensome to business
establishments or the consuming public and,
thereafter, to choose which scheme the State
should use or pursue. The shift from the tax
credit to tax deduction scheme is a policy
determination by Congress and the Court will
respect it for as long as there is no showing, as
here, that the subject regulation has
transgressed constitutional limitations.
Unavoidably, the lack of evidence constrains the
Dissent to rely on speculative and hypothetical
argumentation when it states that the 20%
discount is a significant amount and not a
minimal loss (which erroneously assumes that
the discount automatically results in a loss when
it is possible that the profit margin is greater than
20% and/or the pricing strategy can be revised to
prevent or mitigate any reduction in profits or
income/gross sales as illustrated above),108 and
not all private establishments make a 20% profit
margin (which conversely implies that there are
those who make more and, thus, would not be
greatly affected by this regulation).109
In fine, because of the possible scenarios
discussed above, we cannot assume that the
20% discount results in a permanent reduction in
profits or income/gross sales, much less that
business establishments are forced to operate at
a loss under the assailed law. And, even if we
gratuitously assume that the 20% discount
results in some degree of reduction in profits or
income/gross sales, we cannot assume that such
reduction is arbitrary, oppressive or confiscatory.
To repeat, there is no actual proof to back up this
claim, and it could be that the loss suffered by a
business establishment was occasioned through
its fault or negligence in not adapting to the
effects of the assailed law. The law uniformly
applies to all business establishments covered
thereunder. There is, therefore, no unjust
discrimination as the aforesaid business
establishments are faced with the same
constraints. The necessity of proof is all the more
pertinent in this case because, as similarly
observed by Justice Velasco in his Concurring
Opinion, the law has been in operation for over
nine years now. However, the grim picture
painted by petitioners on the unconscionable
losses to be indiscriminately suffered by
business establishments, which should have led
to the closure of numerous business
establishments, has not come to pass. Verily, we
cannot invalidate the assailed law based on
assumptions and conjectures. Without adequate
proof, the presumption of constitutionality must
prevail. IV At this juncture, we note that the
Dissent modified its original arguments by
including a new paragraph, to wit:
Section 9, Article III of the 1987 Constitution
speaks of private property without any
distinction. It does not state that there should be
profit before the taking of property is subject to
just compensation. The private property referred
to for purposes of taking could be inherited,
donated, purchased, mortgaged, or as in this
case, part of the gross sales of private
establishments. They are all private property and
any taking should be attended by corresponding
payment of just compensation. The 20%
discount granted to senior citizens belong to
private establishments, whether these
establishments make a profit or suffer a loss. In
fact, the 20% discount applies to non-profit
establishments like country, social, or golf clubs
which are open to the public and not only for
exclusive membership. The issue of profit or loss
to the establishments is immaterial.110
Two things may be said of this argument. First, it
contradicts the rest of the arguments of the
Dissent. After it states that the issue of profit or
loss is immaterial, the Dissent proceeds to argue
that the 20% discount is not a minimal
loss111 and that the 20% discount forces
business establishments to operate at a loss.112
Even the obiter in Central Luzon Drug
Corporation,113 which the Dissent essentially
adopts and relies on, is premised on the
permanent reduction of total revenues and the
loss that business establishments will be forced
to suffer in arguing that the 20% discount
constitutes a "taking" under the power of eminent
domain. Thus, when the Dissent now argues that
the issue of profit or loss is immaterial, it
contradicts itself because it later argues, in order
to justify that there is a "taking" under the power
of eminent domain in this case, that the 20%
discount forces business establishments to
suffer a significant loss or to operate at a loss.
Second, this argument suffers from the same
flaw as the Dissent's original arguments. It is an
erroneous characterization of the 20% discount.
According to the Dissent, the 20% discount is
part of the gross sales and, hence, private
property belonging to business establishments.
However, as previously discussed, the 20%
discount is not private property actually owned
and/or used by the business establishment. It
should be distinguished from properties like
lands or buildings actually used in the operation
of a business establishment which, if
appropriated for public use, would amount to a
"taking" under the power of eminent domain.
Instead, the 20% discount is a regulatory
measure which impacts the pricing and, hence,
the profitability of business establishments. At
the time the discount is imposed, no particular
property of the business establishment can be
said to be "taken." That is, the State does not
acquire or take anything from the business
establishment in the way that it takes a piece of
private land to build a public road. While the 20%
discount may form part of the potential profits or
income/gross sales114 of the business
establishment, as similarly characterized by
Justice Bersamin in his Concurring Opinion,
potential profits or income/gross sales are not
private property, specifically cash or money,
already belonging to the business establishment.
They are a mere expectancy because they are
potential fruits of the successful conduct of the
business. Prior to the sale of goods or services,
a business establishment may be subject to
State regulations, such as the 20% senior citizen
discount, which may impact the level or amount
of profits or income/gross sales that can be
generated by such establishment. For this
reason, the validity of the discount is to be
determined based on its overall effects on the
operations of the business establishment.
Again, as previously discussed, the 20%
discount does not automatically result in a 20%
reduction in profits, or, to align it with the term
used by the Dissent, the 20% discount does not
mean that a 20% reduction in gross sales
necessarily results. Because (1) the profit margin
of a product is not necessarily less than 20%, (2)
not all customers of a business establishment
are senior citizens, and (3) the establishment
may revise its pricing strategy, such reduction in
profits or income/gross sales may be prevented
or, in the alternative, mitigated so that the
business establishment continues to operate
profitably. Thus, even if we gratuitously assume
that some degree of reduction in profits or
income/gross sales occurs because of the 20%
discount, it does not follow that the regulation is
unreasonable, oppressive or confiscatory
because the business establishment may make
the necessary adjustments to continue to
operate profitably. No evidence was presented
by petitioners to show otherwise. In fact, no
evidence was presented by petitioners at all.
Justice Leonen, in his Concurring and Dissenting
Opinion, characterizes "profits" (or income/gross
sales) as an inchoate right. Another way to view
it, as stated by Justice Velasco in his Concurring
Opinion, is that the business establishment
merely has a right to profits. The Constitution
adverts to it as the right of an enterprise to a
reasonable return on investment.115
Undeniably, this right, like any other right, may
be regulated under the police power of the State
to achieve important governmental objectives
like protecting the interests and improving the
welfare of senior citizens. It should be noted
though that potential profits or income/gross
sales are relevant in police power and eminent
domain analyses because they may, in
appropriate cases, serve as an indicia when a
regulation has gone "too far" as to amount to a
"taking" under the power of eminent domain.
When the deprivation or reduction of profits or
income/gross sales is shown to be
unreasonable, oppressive or confiscatory, then
the challenged governmental regulation may be
nullified for being a "taking" under the power of
eminent domain. In such a case, it is not profits
or income/gross sales which are actually taken
and appropriated for public use. Rather, when
the regulation causes an establishment to incur
losses in an unreasonable, oppressive or
confiscatory manner, what is actually taken is
capital and the right of the business
establishment to a reasonable return on
investment. If the business losses are not halted
because of the continued operation of the
regulation, this eventually leads to the
destruction of the business and the total loss of
the capital invested therein. But, again,
petitioners in this case failed to prove that the
subject regulation is unreasonable, oppressive
or confiscatory.
V.
The Dissent further argues that we erroneously
used price and rate of return on investment
control laws to justify the senior citizen discount
law. According to the Dissent, only profits from
industries imbued with public interest may be
regulated because this is a condition of their
franchises. Profits of establishments without
franchises cannot be regulated permanently
because there is no law regulating their profits.
The Dissent concludes that the permanent
reduction of total revenues or gross sales of
business establishments without franchises is a
taking of private property under the power of
eminent domain. In making this argument, it is
unfortunate that the Dissent quotes only a portion
of the ponencia The subject regulation may be
said to be similar to, but with substantial
distinctions from, price control or rate of return on
investment control laws which are traditionally
regarded as police power measures. These laws
generally regulate public utilities or
industries/enterprises imbued with public interest
in order to protect consumers from exorbitant or
unreasonable pricing as well as temper
corporate greed by controlling the rate of return
on investment of these corporations considering
that they have a monopoly over the goods or
services that they provide to the general public.
The subject regulation differs therefrom in that
(1) the discount does not prevent the
establishments from adjusting the level of prices
of their goods and services, and (2) the discount
does not apply to all customers of a given
establishment but only to the class of senior
citizens. x x x116
The above paragraph, in full, states
The subject regulation may be said to be similar
to, but with substantial distinctions from, price
control or rate of return on investment control
laws which are traditionally regarded as police
power measures. These laws generally regulate
public utilities or industries/enterprises imbued
with public interest in order to protect consumers
from exorbitant or unreasonable pricing as well
as temper corporate greed by controlling the rate
of return on investment of these corporations
considering that they have a monopoly over the
goods or services that they provide to the general
public. The subject regulation differs therefrom in
that (1) the discount does not prevent the
establishments from adjusting the level of prices
of their goods and services, and (2) the discount
does not apply to all customers of a given
establishment but only to the class of senior
citizens.
Nonetheless, to the degree material to the
resolution of this case, the 20% discount may be
properly viewed as belonging to the category of
price regulatory measures which affects the
profitability of establishments subjected thereto.
(Emphasis supplied)
The point of this paragraph is to simply show that
the State has, in the past, regulated prices and
profits of business establishments. In other
words, this type of regulatory measures is
traditionally recognized as police power
measures so that the senior citizen discount may
be considered as a police power measure as
well. What is more, the substantial distinctions
between price and rate of return on investment
control laws vis--vis the senior citizen discount
law provide greater reason to uphold the validity
of the senior citizen discount law. As previously
discussed, the ability to adjust prices allows the
establishment subject to the senior citizen
discount to prevent or mitigate any reduction of
profits or income/gross sales arising from the
giving of the discount. In contrast,
establishments subject to price and rate of return
on investment control laws cannot adjust prices
accordingly. Certainly, there is no intention to say
that price and rate of return on investment control
laws are the justification for the senior citizen
discount law. Not at all. The justification for the
senior citizen discount law is the plenary powers
of Congress. The legislative power to regulate
business establishments is broad and covers a
wide array of areas and subjects. It is well within
Congress legislative powers to regulate the
profits or income/gross sales of industries and
enterprises, even those without franchises. For
what are franchises but mere legislative
enactments? There is nothing in the Constitution
that prohibits Congress from regulating the
profits or income/gross sales of industries and
enterprises without franchises. On the contrary,
the social justice provisions of the Constitution
enjoin the State to regulate the "acquisition,
ownership, use, and disposition" of property and
its increments.117
This may cover the regulation of profits or
income/gross sales of all businesses, without
qualification, to attain the objective of diffusing
wealth in order to protect and enhance the right
of all the people to human dignity.118
Thus, under the social justice policy of the
Constitution, business establishments may be
compelled to contribute to uplifting the plight of
vulnerable or marginalized groups in our society
provided that the regulation is not arbitrary,
oppressive or confiscatory, or is not in breach of
some specific constitutional limitation. When the
Dissent, therefore, states that the "profits of
private establishments which are non-
franchisees cannot be regulated permanently,
and there is no such law regulating their profits
permanently,"119 it is assuming what it ought to
prove. First, there are laws which, in effect,
permanently regulate profits or income/gross
sales of establishments without franchises, and
RA 9257 is one such law. And, second,
Congress can regulate such profits or
income/gross sales because, as previously
noted, there is nothing in the Constitution to
prevent it from doing so. Here, again, it must be
emphasized that petitioners failed to present any
proof to show that the effects of the assailed law
on their operations has been unreasonable,
oppressive or confiscatory. The permanent
regulation of profits or income/gross sales of
business establishments, even those without
franchises, is not as uncommon as the Dissent
depicts it to be. For instance, the minimum wage
law allows the State to set the minimum wage of
employees in a given region or geographical
area. Because of the added labor costs arising
from the minimum wage, a permanent reduction
of profits or income/gross sales would result,
assuming that the employer does not increase
the prices of his goods or services. To illustrate,
suppose it costs a company P5.00 to produce a
product and it sells the same at P10.00 with a
50% profit margin. Later, the State increases the
minimum wage. As a result, the company incurs
greater labor costs so that it now costs P7.00 to
produce the same product. The profit per product
of the company would be reduced to P3.00 with
a profit margin of 30%. The net effect would be
the same as in the earlier example of granting a
20% senior citizen discount. As can be seen, the
minimum wage law could, likewise, lead to a
permanent reduction of profits. Does this mean
that the minimum wage law should, likewise, be
declared unconstitutional on the mere plea that it
results in a permanent reduction of profits?
Taking it a step further, suppose the company
decides to increase the price of its product in
order to offset the effects of the increase in labor
cost; does this mean that the minimum wage law,
following the reasoning of the Dissent, is
unconstitutional because the consuming public is
effectively made to subsidize the wage of a group
of laborers, i.e., minimum wage earners? The
same reasoning can be adopted relative to the
examples cited by the Dissent which, according
to it, are valid police power regulations. Article
157 of the Labor Code, Sections 19 and 18 of the
Social Security Law, and Section 7 of the Pag-
IBIG Fund Law would effectively increase the
labor cost of a business establishment. This
would, in turn, be integrated as part of the cost of
its goods or services. Again, if the establishment
does not increase its prices, the net effect would
be a permanent reduction in its profits or
income/gross sales. Following the reasoning of
the Dissent that "any form of permanent taking of
private property (including profits or
120
income/gross sales) is an exercise of eminent
domain that requires the State to pay just
compensation,"121 then these statutory
provisions would, likewise, have to be declared
unconstitutional. It does not matter that these
benefits are deemed part of the employees
legislated wages because the net effect is the
same, that is, it leads to higher labor costs and a
permanent reduction in the profits or
income/gross sales of the business
122
establishments.
The point then is this most, if not all, regulatory
measures imposed by the State on business
establishments impact, at some level, the latters
prices and/or profits or income/gross sales.123
If the Court were to sustain the Dissents theory,
then a wholesale nullification of such measures
would inevitably result. The police power of the
State and the social justice provisions of the
Constitution would, thus, be rendered nugatory.
There is nothing sacrosanct about profits or
income/gross sales. This, we made clear in
Carlos Superdrug Corporation:124
Police power as an attribute to promote the
common good would be diluted considerably if
on the mere plea of petitioners that they will
suffer loss of earnings and capital, the
questioned provision is invalidated. Moreover, in
the absence of evidence demonstrating the
alleged confiscatory effect of the provision in
question, there is no basis for its nullification in
view of the presumption of validity which every
law has in its favor.
xxxx
The Court is not oblivious of the retail side of the
pharmaceutical industry and the competitive
pricing component of the business. While the
Constitution protects property rights petitioners
must the realities of business and the State, in
the exercise of police power, can intervene in the
operations of a business which may result in an
impairment of property rights in the process.
Moreover, the right to property has a social
dimension. While Article XIII of the Constitution
provides the percept for the protection of
property, various laws and jurisprudence,
particularly on agrarian reform and the regulation
of contracts and public utilities, continously serve
as a reminder for the promotion of public good.
Undeniably, the success of the senior citizens
program rests largely on the support imparted by
petitioners and the other private establishments
concerned. This being the case, the means
employed in invoking the active participation of
the private sector, in order to achieve the
purpose or objective of the law, is reasonably
and directly related. Without sufficient proof that
Section 4(a) of R.A. No. 9257 is arbitrary, and
that the continued implementation of the same
would be unconscionably detrimental to
petitioners, the Court will refrain form quashing a
legislative act.125

In conclusion, we maintain that the correct rule in

determining whether the subject regulatory
measure has amounted to a "taking" under the
power of eminent domain is the one laid down
in Alalayan v. National Power Corporation126 and
followed in Carlos Superdurg
127
Corporation consistent with long standing
principles in police power and eminent domain
analysis. Thus, the deprivation or reduction of G.R. Nos. L-49839-46 April 26, 1991
profits or income. Gross sales must be clearly
JOSE B. L. REYES and EDMUNDO A.
shown to be unreasonable, oppressive or
REYES, petitioners,
confiscatory. Under the specific circumstances of
this case, such determination can only be made vs.
upon the presentation of competent proof which PEDRO ALMANZOR, VICENTE ABAD
SANTOS, JOSE ROO, in their capacities as
petitioners failed to do. A law, which has been in
operation for many years and promotes the appointed and Acting Members of the
welfare of a group accorded special concern by CENTRAL BOARD OF ASSESSMENT
APPEALS; TERESITA H. NOBLEJAS,
the Constitution, cannot and should not be
ROMULO M. DEL ROSARIO, RAUL C.
summarily invalidated on a mere allegation that
it reduces the profits or income/gross sales of FLORES, in their capacities as appointed and
business establishments. Acting Members of the BOARD OF
ASSESSMENT APPEALS of Manila; and
WHEREFORE, the Petition is hereby NICOLAS CATIIL in his capacity as City
DISMISSED for lack of merit. Assessor of Manila, respondents.

SO ORDERED. Barcelona, Perlas, Joven & Academia Law

Offices for petitioners.

PARAS, J.:
This is a petition for review on certiorari to
reverse the June 10, 1977 decision of the Central
Board of Assessment Appeals1 in CBAA Cases
Nos. 72-79 entitled "J.B.L. Reyes, Edmundo
Reyes, et al. v. Board of Assessment Appeals of
Manila and City Assessor of Manila" which
affirmed the March 29, 1976 decision of the
Board of Tax Assessment Appeals2 in BTAA
Cases Nos. 614, 614-A-J, 615, 615-A, B, E,
"Jose Reyes, et al. v. City Assessor of Manila"
and "Edmundo Reyes and Milagros Reyes v.
City Assessor of Manila" upholding the
classification and assessments made by the City
Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros
Reyes are owners of parcels of land situated in
Tondo and Sta. Cruz Districts, City of Manila,
which are leased and entirely occupied as
dwelling sites by tenants. Said tenants were
paying monthly rentals not exceeding three
hundred pesos (P300.00) in July, 1971. On July
14, 1971, the National Legislature enacted
Republic Act No. 6359 prohibiting for one year
from its effectivity, an increase in monthly rentals
of dwelling units or of lands on which another's
dwelling is located, where such rentals do not
exceed three hundred pesos (P300.00) a month
but allowing an increase in rent by not more than
10% thereafter. The said Act also suspended
paragraph (1) of Article 1673 of the Civil Code for
two years from its effectivity thereby disallowing
the ejectment of lessees upon the expiration of
the usual legal period of lease. On October 12,
1972, Presidential Decree No. 20 amended R.A.
No. 6359 by making absolute the prohibition to
increase monthly rentals below P300.00 and by
indefinitely suspending the aforementioned
provision of the Civil Code, excepting leases with
a definite period. Consequently, the Reyeses,
petitioners herein, were precluded from raising
the rentals and from ejecting the tenants. In
1973, respondent City Assessor of Manila re-
classified and reassessed the value of the
subject properties based on the schedule of
market values duly reviewed by the Secretary of
Finance. The revision, as expected, entailed an
increase in the corresponding tax rates
prompting petitioners to file a Memorandum of
Disagreement with the Board of Tax Assessment
Appeals. They averred that the reassessments
made were "excessive, unwarranted,
inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them
greatly exceeded the annual income derived
from their properties. They argued that the
income approach should have been used in
determining the land values instead of the
comparable sales approach which the City
Assessor adopted (Rollo, pp. 9-10-A). The Board
of Tax Assessment Appeals, however,
considered the assessments valid, holding thus:
WHEREFORE, and considering that the
appellants have failed to submit concrete
evidence which could overcome the
presumptive regularity of the classification
and assessments appear to be in
accordance with the base schedule of
market values and of the base schedule of
building unit values, as approved by the
Secretary of Finance, the cases should be,
as they are hereby, upheld.
SO ORDERED. (Decision of the Board of
Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of
Assessment Appeals.1wphi1 They submitted,
among others, the summary of the yearly rentals
to show the income derived from the properties.
Respondent City Assessor, on the other hand,
submitted three (3) deeds of sale showing the
different market values of the real property
situated in the same vicinity where the subject
properties of petitioners are located. To better
appreciate the locational and physical features of
the land, the Board of Hearing Commissioners
conducted an ocular inspection with the
presence of two representatives of the City
Assessor prior to the healing of the case. Neither
the owners nor their authorized representatives
were present during the said ocular inspection
despite proper notices served them. It was found
that certain parcels of land were below street
level and were affected by the tides (Rollo, pp.
24-25).
On June 10, 1977, the Central Board of
Assessment Appeals rendered its decision, the
dispositive portion of which reads:
WHEREFORE, the appealed decision
insofar as the valuation and assessment of
the lots covered by Tax Declaration Nos.
(5835) PD-5847, (5839), (5831) PD-5844
and PD-3824 is affirmed.
For the lots covered by Tax Declaration
Nos. (1430) PD-1432, PD-1509, 146 and
(1) PD-266, the appealed Decision is
modified by allowing a 20% reduction in
 their respective market values and applying
therein the assessment level of 30% to
arrive at the corresponding assessed value.
SO ORDERED. (Decision of the Central
Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for
reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN
ADOPTING THE "COMPARABLE SALES
APPROACH" METHOD IN FIXING THE
ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used
in tax assessment of the properties in question.
Petitioners maintain that the "Income Approach"
method would have been more realistic for in
disregarding the effect of the restrictions
imposed by P.D. 20 on the market value of the
properties affected, respondent Assessor of the
City of Manila unlawfully and unjustifiably set
increased new assessed values at levels so high
and successive that the resulting annual real
estate taxes would admittedly exceed the sum
total of the yearly rentals paid or payable by the
dweller tenants under P.D. 20. Hence, petitioners
protested against the levels of the values
assigned to their properties as revised and
increased on the ground that they were arbitrarily
excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-
A).
On the other hand, while respondent Board of
Tax Assessment Appeals admits in its decision
that the income approach is used in determining
land values in some vicinities, it maintains that
when income is affected by some sort of price
control, the same is rejected in the consideration
and study of land values as in the case of
properties affected by the Rent Control Law for
they do not project the true market value in the
open market (Rollo, p. 21). Thus, respondents
opted instead for the "Comparable Sales
Approach" on the ground that the value estimate
of the properties predicated upon prices paid in
actual, market transactions would be a uniform
and a more credible standards to use especially
in case of mass appraisal of properties (Ibid.).
Otherwise stated, public respondents would
have this Court completely ignore the effects of
the restrictions of P.D. No. 20 on the market
value of properties within its coverage. In any
event, it is unquestionable that both the
"Comparable Sales Approach" and the "Income
Approach" are generally acceptable methods of
appraisal for taxation purposes (The Law on
Transfer and Business Taxation by Hector S. De
Leon, 1988 Edition). However, it is conceded that
the propriety of one as against the other would of
course depend on several factors. Hence, as
early as 1923 in the case of Army & Navy Club,
Manila v. Wenceslao Trinidad, G.R. No. 19297
(44 Phil. 383), it has been stressed that the
assessors, in finding the value of the property,
have to consider all the circumstances and
elements of value and must exercise a prudent
discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973
Constitution, then enforced, the rule of taxation
must not only be uniform, but must also be
equitable and progressive.
Uniformity has been defined as that principle by
which all taxable articles or kinds of property of
the same class shall be taxed at the same rate
(Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no
mention of the equitable or progressive aspects
of taxation required in the 1973 Charter
(Fernando "The Constitution of the Philippines",
p. 221, Second Edition). Thus, the need to
examine closely and determine the specific
mandate of the Constitution.
Taxation is said to be equitable when its burden
falls on those better able to pay. Taxation is
progressive when its rate goes up depending on
the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty".
In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to
tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights,
both the due process and equal protection
clauses of the Constitution may properly be
invoked to invalidate in appropriate cases a
revenue measure. If it were otherwise, there
would be truth to the 1903 dictum of Chief Justice
Marshall that "the power to tax involves the
power to destroy." The web or unreality spun
from Marshall's famous dictum was brushed
away by one stroke of Mr. Justice Holmes pen,
thus: "The power to tax is not the power to
destroy while this Court sits. So it is in the
Philippines " (Sison, Jr. v. Ancheta, 130 SCRA
655 [1984]; Obillos, Jr. v. Commissioner of
Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be
invoked where a taxing statute is so arbitrary that
it finds no support in the Constitution. An obvious
example is where it can be shown to amount to
confiscation of property. That would be a clear
abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a
reasonable and natural classification for
purposes of taxation but the government's act
must not be prompted by a spirit of hostility, or at
the very least discrimination that finds no support
in reason. It suffices then that the laws operate
equally and uniformly on all persons under
similar circumstances or that all persons must be
treated in the same manner, the conditions not
being different both in the privileges conferred
and the liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D.
464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and
assessment of real property for taxation
purposes is that the property must be "appraised
at its current and fair market value."
By no strength of the imagination can the market
value of properties covered by P.D. No. 20 be
equated with the market value of properties not
so covered. The former has naturally a much
lesser market value in view of the rental
restrictions.
Ironically, in the case at bar, not even the factors
determinant of the assessed value of subject
properties under the "comparable sales
approach" were presented by the public
respondents, namely: (1) that the sale must
represent a bonafide arm's length transaction
between a willing seller and a willing buyer and
(2) the property must be comparable property
(Rollo, p. 27). Nothing can justify or support their
view as it is of judicial notice that for properties
covered by P.D. 20 especially during the time in
question, there were hardly any willing buyers.
As a general rule, there were no takers so that
there can be no reasonable basis for the
conclusion that these properties were
comparable with other residential properties not
burdened by P.D. 20. Neither can the given
circumstances be nonchalantly dismissed by
public respondents as imposed under distressed
conditions clearly implying that the same were
merely temporary in character. At this point in
time, the falsity of such premises cannot be more
convincingly demonstrated by the fact that the
law has existed for around twenty (20) years with
no end to it in sight.
Verily, taxes are the lifeblood of the government Appeals of Manila and the City Assessor of
and so should be collected without unnecessary Manila are ordered to make a new assessment
hindrance. However, such collection should be by the income approach method to guarantee a
made in accordance with law as any arbitrariness fairer and more realistic basis of computation
will negate the very reason for government itself (Rollo, p. 71).
It is therefore necessary to reconcile the
apparently conflicting interests of the authorities SO ORDERED.
and the taxpayers so that the real purpose of
taxations, which is the promotion of the common
good, may be achieved (Commissioner of
Internal Revenue v. Algue Inc., et al., 158 SCRA
9 [1988]). Consequently, it stands to reason that
petitioners who are burdened by the government
by its Rental Freezing Laws (then R.A. No. 6359
and P.D. 20) under the principle of social justice
should not now be penalized by the same
government by the imposition of excessive taxes G.R. No. 167330 September 18, 2009
petitioners can ill afford and eventually result in
the forfeiture of their properties. PHILIPPINE HEALTH CARE PROVIDERS,
INC., Petitioner,
By the public respondents' own computation the vs.
assessment by income approach would amount COMMISSIONER OF INTERNAL
to only P10.00 per sq. meter at the time in REVENUE, Respondent.
question.
RESOLUTION
PREMISES CONSIDERED, (a) the petition is
GRANTED; (b) the assailed decisions of public CORONA, J.:
respondents are REVERSED and SET ASIDE;
and (e) the respondent Board of Assessment
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote
the right to health of the people and instill health
consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated
and comprehensive approach to health
development which shall endeavor to make
essential goods, health and other social services
available to all the people at affordable cost.
There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women,
and children. The State shall endeavor to provide
free medical care to paupers.1
For resolution are a motion for reconsideration
and supplemental motion for reconsideration
dated July 10, 2008 and July 14, 2008,
respectively, filed by petitioner Philippine Health
Care Providers, Inc.2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose
primary purpose is "[t]o establish, maintain,
conduct and operate a prepaid group practice
health care delivery system or a health
maintenance organization to take care of the sick
and disabled persons enrolled in the health care
plan and to provide for the administrative, legal,
and financial responsibilities of the organization."
Individuals enrolled in its health care programs
pay an annual membership fee and are entitled
to various preventive, diagnostic and curative
medical services provided by its duly licensed
physicians, specialists and other professional
technical staff participating in the group practice
health delivery system at a hospital or clinic
owned, operated or accredited by it.
xxx xxx xxx
On January 27, 2000, respondent Commissioner
of Internal Revenue [CIR] sent petitioner a formal
demand letter and the corresponding
assessment notices demanding the payment of
deficiency taxes, including surcharges and
interest, for the taxable years 1996 and 1997 in
the total amount of P224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)]
assessment was imposed on petitioners health
care agreement with the members of its health
care program pursuant to Section 185 of the
1997 Tax Code xxxx
xxx xxx xxx
Petitioner protested the assessment in a letter
dated February 23, 2000. As respondent did not
act on the protest, petitioner filed a petition for
review in the Court of Tax Appeals (CTA)
seeking the cancellation of the deficiency VAT
and DST assessments.
On April 5, 2002, the CTA rendered a decision,
the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the
instant Petition for Review is PARTIALLY
GRANTED. Petitioner is hereby ORDERED to
PAY the deficiency VAT amounting
to P22,054,831.75 inclusive of 25% surcharge
plus 20% interest from January 20, 1997 until
fully paid for the 1996 VAT deficiency
and P31,094,163.87 inclusive of 25% surcharge
plus 20% interest from January 20, 1998 until
fully paid for the 1997 VAT deficiency.
Accordingly, VAT Ruling No. [231]-88 is declared
void and without force and effect. The 1996 and
1997 deficiency DST assessment against
petitioner is hereby CANCELLED AND SET
ASIDE. Respondent is ORDERED to DESIST
from collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the
[Court of Appeals (CA)] insofar as it cancelled the
DST assessment. He claimed that petitioners
health care agreement was a contract of
insurance subject to DST under Section 185 of
the 1997 Tax Code.
On August 16, 2004, the CA rendered its
decision. It held that petitioners health care
agreement was in the nature of a non-life
insurance contract subject to DST.
WHEREFORE, the petition for review is
GRANTED. The Decision of the Court of Tax
Appeals, insofar as it cancelled and set aside the
1996 and 1997 deficiency documentary stamp
tax assessment and ordered petitioner to desist
from collecting the same is REVERSED and SET
ASIDE.
Respondent is ordered to pay the amounts
of P55,746,352.19 and P68,450,258.73 as
deficiency Documentary Stamp Tax for 1996 and
1997, respectively, plus 25% surcharge for late
payment and 20% interest per annum from
January 27, 2000, pursuant to Sections 248 and
249 of the Tax Code, until the same shall have
been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA
denied it. Hence, petitioner filed this case.
xxx xxx xxx
In a decision dated June 12, 2008, the Court
denied the petition and affirmed the CAs
decision. We held that petitioners health care
agreement during the pertinent period was in the
nature of non-life insurance which is a contract of
indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares3 and Philamcare Health Systems, Inc.
v. CA.4We also ruled that petitioners contention
that it is a health maintenance organization
(HMO) and not an insurance company is
irrelevant because contracts between
companies like petitioner and the beneficiaries
under their plans are treated as insurance
contracts. Moreover, DST is not a tax on the
business transacted but an excise on the
privilege, opportunity or facility offered at
exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the
present motion for reconsideration and
supplemental motion for reconsideration,
asserting the following arguments:
(a) The DST under Section 185 of the
National Internal Revenue of 1997 is
imposed only on a company engaged in the
business of fidelity bonds and other
insurance policies. Petitioner, as an HMO,
is a service provider, not an insurance
company.
(b) The Court, in dismissing the appeal
in CIR v. Philippine National Bank, affirmed
in effect the CAs disposition that health
care services are not in the nature of an
insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care
agreements from items subject to DST is
clear, especially in the light of the
amendments made in the DST law in 2002.
(e) Assuming arguendo that petitioners
agreements are contracts of indemnity, they
are not those contemplated under Section
185.
(f) Assuming arguendo that petitioners
agreements are akin to health insurance,
health insurance is not covered by Section
185.
 (g) The agreements do not fall under the
phrase "other branch of insurance"
mentioned in Section 185.
(h) The June 12, 2008 decision should only
apply prospectively.
(i) Petitioner availed of the tax amnesty
benefits under RA5 9480 for the taxable
year 2005 and all prior years. Therefore, the
questioned assessments on the DST are
now rendered moot and academic.6
Oral arguments were held in Baguio City on April
22, 2009. The parties submitted their
memoranda on June 8, 2009.
In its motion for reconsideration, petitioner
reveals for the first time that it availed of a tax
amnesty under RA 94807(also known as the "Tax
Amnesty Act of 2007") by fully paying the amount
of P5,127,149.08 representing 5% of its net
worth as of the year ending December 31, 2005.8
We find merit in petitioners motion for
reconsideration.
Petitioner was formally registered and
incorporated with the Securities and Exchange
Commission on June 30, 1987.9 It is engaged in
the dispensation of the following medical
services to individuals who enter into health care
agreements with it:
Preventive medical services such as periodic
monitoring of health problems, family planning
counseling, consultation and advices on diet,
exercise and other healthy habits, and
immunization;
Diagnostic medical services such as routine
physical examinations, x-rays, urinalysis,
fecalysis, complete blood count, and the like and
Curative medical services which pertain to the
performing of other remedial and therapeutic
processes in the event of an injury or sickness on
the part of the enrolled member.10
Individuals enrolled in its health care program
pay an annual membership fee. Membership is
on a year-to-year basis. The medical services
are dispensed to enrolled members in a hospital
or clinic owned, operated or accredited by
petitioner, through physicians, medical and
dental practitioners under contract with it. It
negotiates with such health care practitioners
regarding payment schemes, financing and other
procedures for the delivery of health services.
Except in cases of emergency, the professional
services are to be provided only by petitioner's
physicians, i.e. those directly employed by it11 or
whose services are contracted by it.12 Petitioner
also provides hospital services such as room and
board accommodation, laboratory services,
operating rooms, x-ray facilities and general
nursing care.13 If and when a member avails of
the benefits under the agreement, petitioner
pays the participating physicians and other
health care providers for the services rendered,
at pre-agreed rates.14
To avail of petitioners health care programs, the
individual members are required to sign and
execute a standard health care agreement
embodying the terms and conditions for the
provision of the health care services. The same
agreement contains the various health care
services that can be engaged by the enrolled
member, i.e., preventive, diagnostic and curative
medical services. Except for the curative aspect
of the medical service offered, the enrolled
member may actually make use of the health
care services being offered by petitioner at any
time.
Health Maintenance Organizations Are Not
Engaged In The Insurance Business
We said in our June 12, 2008 decision that it is
irrelevant that petitioner is an HMO and not an
insurer because its agreements are treated as
insurance contracts and the DST is not a tax on
the business but an excise on the privilege,
opportunity or facility used in the transaction of
the business.15
Petitioner, however, submits that it is of critical
importance to characterize the business it is
engaged in, that is, to determine whether it is an
HMO or an insurance company, as this
distinction is indispensable in turn to the issue of
whether or not it is liable for DST on its health
care agreements.16
A second hard look at the relevant law and
jurisprudence convinces the Court that the
arguments of petitioner are meritorious.
Section 185 of the National Internal Revenue
Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and
other insurance policies. On all policies of
insurance or bonds or obligations of the nature
of indemnity for loss, damage, or liability
made or renewed by any person, association
or company or corporation transacting the
business of accident, fidelity, employers
liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire
insurance), and all bonds, undertakings, or
recognizances, conditioned for the performance
of the duties of any office or position, for the
doing or not doing of anything therein specified,
and on all obligations guaranteeing the validity or
legality of any bond or other obligations issued
by any province, city, municipality, or other public
body or organization, and on all obligations
guaranteeing the title to any real estate, or
guaranteeing any mercantile credits, which may
be made or renewed by any such person,
company or corporation, there shall be collected
a documentary stamp tax of fifty centavos
(P0.50) on each four pesos (P4.00), or fractional
part thereof, of the premium charged. (Emphasis
supplied)
It is a cardinal rule in statutory construction that
no word, clause, sentence, provision or part of a
statute shall be considered surplusage or
superfluous, meaningless, void and insignificant.
To this end, a construction which renders every
word operative is preferred over that which
makes some words idle and nugatory.17 This
principle is expressed in the maxim Ut magis
valeat quam pereat, that is, we choose the
interpretation which gives effect to the whole of
the statute its every word.18
From the language of Section 185, it is evident
that two requisites must concur before the DST
can apply, namely: (1) the document must be
a policy of insurance or an obligation in the
nature of indemnity and (2) the maker should
be transacting the business of accident,
fidelity, employers liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or
other branch of insurance (except life, marine,
inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875
(or "The National Health Insurance Act of 1995"),
an HMO is "an entity that provides, offers or
arranges for coverage of designated health
services needed by plan members for a fixed
prepaid premium."19 The payments do not vary
with the extent, frequency or type of services
provided.
The question is: was petitioner, as an HMO,
engaged in the business of insurance during the
pertinent taxable years? We rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as
the Insurance Code) enumerates what
constitutes "doing an insurance business" or
"transacting an insurance business:"
a) making or proposing to make, as insurer,
any insurance contract;
b) making or proposing to make, as surety,
any contract of suretyship as a vocation and
not as merely incidental to any other
legitimate business or activity of the surety;
c) doing any kind of business, including a
reinsurance business, specifically
recognized as constituting the doing of an
insurance business within the meaning of
this Code;
d) doing or proposing to do any business in
substance equivalent to any of the
foregoing in a manner designed to evade
the provisions of this Code.
In the application of the provisions of this Code,
the fact that no profit is derived from the making
of insurance contracts, agreements or
transactions or that no separate or direct
consideration is received therefore, shall not be
deemed conclusive to show that the making
thereof does not constitute the doing or
transacting of an insurance business.
Various courts in the United States, whose
jurisprudence has a persuasive effect on our
decisions,21 have determined that HMOs are not
in the insurance business. One test that they
have applied is whether the assumption of risk
and indemnification of loss (which are elements
of an insurance business) are the principal object
and purpose of the organization or whether they
are merely incidental to its business. If these are
the principal objectives, the business is that of
insurance. But if they are merely incidental and
service is the principal purpose, then the
business is not insurance.
Applying the "principal object and purpose
test,"22 there is significant American case law
supporting the argument that a corporation (such
as an HMO, whether or not organized for profit),
whose main object is to provide the members of
a group with health services, is not engaged in
the insurance business.
The rule was enunciated in Jordan v. Group
Health Association23 wherein the Court of
Appeals of the District of Columbia Circuit held
that Group Health Association should not be
considered as engaged in insurance activities
since it was created primarily for the distribution
of health care services rather than the
assumption of insurance risk.
xxx Although Group Healths activities may be
considered in one aspect as creating security
against loss from illness or accident more truly
they constitute the quantity purchase of well-
rounded, continuous medical service by its
members. xxx The functions of such an
organization are not identical with those of
insurance or indemnity companies. The latter
are concerned primarily, if not exclusively, with
risk and the consequences of its descent, not
with service, or its extension in kind, quantity or
distribution; with the unusual occurrence, not the
daily routine of living. Hazard is predominant. On
the other hand, the cooperative is concerned
principally with getting service rendered to
its members and doing so at lower prices
made possible by quantity purchasing and
economies in operation. Its primary purpose
is to reduce the cost rather than the risk of
medical care; to broaden the service to the
individual in kind and quantity; to enlarge the
number receiving it; to regularize it as an
everyday incident of living, like purchasing
food and clothing or oil and gas, rather than
merely protecting against the financial loss
caused by extraordinary and unusual
occurrences, such as death, disaster at sea,
fire and tornado. It is, in this instance, to take
care of colds, ordinary aches and pains, minor ills
and all the temporary bodily discomforts as well
as the more serious and unusual illness. To
summarize, the distinctive features of the
cooperative are the rendering of service, its
extension, the bringing of physician and
patient together, the preventive features, the
regularization of service as well as payment,
the substantial reduction in cost by quantity
purchasing in short, getting the medical job
done and paid for; not, except incidentally to
these features, the indemnification for cost
after the services is rendered. Except the last,
these are not distinctive or generally
characteristic of the insurance
arrangement. There is, therefore, a substantial
difference between contracting in this way for the
rendering of service, even on the contingency
that it be needed, and contracting merely to
stand its cost when or after it is rendered.
That an incidental element of risk distribution or
assumption may be present should not outweigh
all other factors. If attention is focused only on
that feature, the line between insurance or
indemnity and other types of legal arrangement
and economic function becomes faint, if not
extinct. This is especially true when the contract
is for the sale of goods or services on
contingency. But obviously it was not the
purpose of the insurance statutes to regulate all
arrangements for assumption or distribution of
risk. That view would cause them to engulf
practically all contracts, particularly conditional
sales and contingent service agreements. The
fallacy is in looking only at the risk element,
to the exclusion of all others present or their
subordination to it. The question turns, not
on whether risk is involved or assumed, but
on whether that or something else to which it
is related in the particular plan is its principal
object purpose.24 (Emphasis supplied)
In California Physicians Service v.
25
Garrison, the California court felt that, after
scrutinizing the plan of operation as a whole of
the corporation, it was service rather than
indemnity which stood as its principal purpose.
There is another and more compelling reason for
holding that the service is not engaged in the
insurance business. Absence or presence of
assumption of risk or peril is not the sole test
to be applied in determining its status. The
question, more broadly, is whether, looking
at the plan of operation as a whole, service
rather than indemnity is its principal object
and purpose. Certainly the objects and
purposes of the corporation organized and
maintained by the California physicians have a
wide scope in the field of social
service. Probably there is no more impelling
need than that of adequate medical care on a
voluntary, low-cost basis for persons of small
income. The medical profession unitedly is
endeavoring to meet that need.
Unquestionably this is service of a high
order and not indemnity.26 (Emphasis
supplied)
American courts have pointed out that the main
difference between an HMO and an insurance
company is that HMOs undertake to provide or
arrange for the provision of medical services
through participating physicians while insurance
companies simply undertake to indemnify the
insured for medical expenses incurred up to a
pre-agreed limit. Somerset Orthopedic
Associates, P.A. v. Horizon Blue Cross and Blue
Shield of New Jersey27 is clear on this point:
The basic distinction between medical service
corporations and ordinary health and accident
insurers is that the former undertake to provide
prepaid medical services through participating
physicians, thus relieving subscribers of any
further financial burden, while the latter only
undertake to indemnify an insured for medical
expenses up to, but not beyond, the schedule of
rates contained in the policy.
xxx xxx xxx
The primary purpose of a medical service
corporation, however, is an undertaking to
provide physicians who will render services to
subscribers on a prepaid basis. Hence, if there
are no physicians participating in the medical
service corporations plan, not only will the
subscribers be deprived of the protection
which they might reasonably have expected
would be provided, but the corporation will,
in effect, be doing business solely as a health
and accident indemnity insurer without having
qualified as such and rendering itself subject to
the more stringent financial requirements of the
General Insurance Laws.
A participating provider of health care services is
one who agrees in writing to render health care
services to or for persons covered by a contract
issued by health service corporation in return for
which the health service corporation agrees
to make payment directly to the participating
provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would
be insufficient to override the primary purpose of
the business to provide medical services as
needed, with payment made directly to the
provider of these services.29 In short, even if
petitioner assumes the risk of paying the cost of
these services even if significantly more than
what the member has prepaid, it nevertheless
cannot be considered as being engaged in the
insurance business.
By the same token, any indemnification resulting
from the payment for services rendered in case
of emergency by non-participating health
providers would still be incidental to petitioners
purpose of providing and arranging for health
care services and does not transform it into an
insurer. To fulfill its obligations to its members
under the agreements, petitioner is required to
set up a system and the facilities for the delivery
of such medical services. This indubitably shows
that indemnification is not its sole object.
In fact, a substantial portion of petitioners
services covers preventive and diagnostic
medical services intended to keep members from
developing medical conditions or diseases.30 As
an HMO, it is its obligation to maintain the good
health of its members. Accordingly, its health
care programs are designed to prevent or to
minimize thepossibility of any assumption of
risk on its part. Thus, its undertaking under its
agreements is not to indemnify its members
against any loss or damage arising from a
medical condition but, on the contrary, to provide
the health and medical services needed to
prevent such loss or damage.31
Overall, petitioner appears to provide insurance-
type benefits to its members (with respect to
its curative medical services), but these are
incidental to the principal activity of providing
them medical care. The "insurance-like" aspect
of petitioners business is miniscule compared to
its noninsurance activities. Therefore, since it
substantially provides health care services rather
than insurance services, it cannot be considered
as being in the insurance business.
It is important to emphasize that, in adopting the
"principal purpose test" used in the above-quoted
U.S. cases, we are not saying that petitioners
operations are identical in every respect to those
of the HMOs or health providers which were
parties to those cases. What we are stating is
that, for the purpose of determining what "doing
an insurance business" means, we have to
scrutinize the operations of the business as a
whole and not its mere components. This is of
course only prudent and appropriate, taking into
account the burdensome and strict laws, rules
and regulations applicable to insurers and other
entities engaged in the insurance business.
Moreover, we are also not unmindful that there
are other American authorities who have found
particular HMOs to be actually engaged in
insurance activities.32
Lastly, it is significant that petitioner, as an HMO,
is not part of the insurance industry. This is
evident from the fact that it is not supervised by
the Insurance Commission but by the
Department of Health.33 In fact, in a letter dated
September 3, 2000, the Insurance
Commissioner confirmed that petitioner is not
engaged in the insurance business. This
determination of the commissioner must be
accorded great weight. It is well-settled that the
interpretation of an administrative agency which
is tasked to implement a statute is accorded
great respect and ordinarily controls the
interpretation of laws by the courts. The reason
behind this rule was explained in Nestle
Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the
emergence of the multifarious needs of a modern
or modernizing society and the establishment of
diverse administrative agencies for addressing
and satisfying those needs; it also relates to the
accumulation of experience and growth of
specialized capabilities by the administrative
agency charged with implementing a particular
statute. In Asturias Sugar Central, Inc. vs.
Commissioner of Customs,35 the Court stressed
that executive officials are presumed to have
familiarized themselves with all the
considerations pertinent to the meaning and
purpose of the law, and to have formed an
independent, conscientious and competent
expert opinion thereon. The courts give much
weight to the government agency officials
charged with the implementation of the law, their
competence, expertness, experience and
informed judgment, and the fact that they
frequently are the drafters of the law they
interpret.36
A Health Care Agreement Is Not An Insurance
Contract Contemplated Under Section 185 Of
The NIRC of 1997
Section 185 states that DST is imposed on "all
policies of insurance or obligations of the
nature of indemnity for loss, damage, or
liability." In our decision dated June 12, 2008,
we ruled that petitioners health care agreements
are contracts of indemnity and are therefore
insurance contracts:
It is incorrect to say that the health care
agreement is not based on loss or damage
because, under the said agreement, petitioner
assumes the liability and indemnifies its member
for hospital, medical and related expenses (such
as professional fees of physicians). The term
"loss or damage" is broad enough to cover the
monetary expense or liability a member will incur
in case of illness or injury.
Under the health care agreement, the rendition
of hospital, medical and professional services to
the member in case of sickness, injury or
emergency or his availment of so-called "out-
patient services" (including physical
examination, x-ray and laboratory tests, medical
consultations, vaccine administration and family
planning counseling) is the contingent event
which gives rise to liability on the part of the
member. In case of exposure of the member to
liability, he would be entitled to indemnification by
petitioner.
Furthermore, the fact that petitioner must relieve
its member from liability by paying for expenses
arising from the stipulated contingencies belies
its claim that its services are prepaid. The
expenses to be incurred by each member cannot
be predicted beforehand, if they can be predicted
at all. Petitioner assumes the risk of paying for
the costs of the services even if they are
significantly and substantially more than what the
member has "prepaid." Petitioner does not bear
the costs alone but distributes or spreads them
out among a large group of persons bearing a
similar risk, that is, among all the other members
of the health care program. This is insurance.37
We reconsider. We shall quote once again the
pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and
other insurance policies. On all policies of
insurance or bonds or obligations of the
nature of indemnity for loss, damage, or
liability made or renewed by any person,
association or company or corporation
transacting the business of accident, fidelity,
employers liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other
branch of insurance (except life, marine, inland,
and fire insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided
by the principle that tax statutes are strictly
construed against the taxing authority.38 This is
because 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
39
government. Hence, tax laws may not be
extended by implication beyond the clear import
of their language, nor their operation enlarged so
as to embrace matters not specifically
provided.40
We are aware that, in Blue
Cross and Philamcare, the Court pronounced
that a health care agreement is in the nature of
non-life insurance, which is primarily a contract
of indemnity. However, those cases did not
involve the interpretation of a tax provision.
Instead, they dealt with the liability of a health
service provider to a member under the terms of
their health care agreement. Such contracts, as
contracts of adhesion, are liberally interpreted in
favor of the member and strictly against the
HMO. For this reason, we reconsider our ruling
that Blue Cross and Philamcare are applicable
here.
Section 2 (1) of the Insurance Code defines a
contract of insurance as an agreement whereby
one undertakes for a consideration to indemnify
another against loss, damage or liability arising
from an unknown or contingent event. An
insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by
the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a
general scheme to distribute actual losses
among a large group of persons bearing a
similar risk and
5. In consideration of the insurers promise,
the insured pays a premium.41
Do the agreements between petitioner and its
members possess all these elements? They do
not.
First. In our jurisdiction, a commentator of our
insurance laws has pointed out that, even if a
contract contains all the elements of an
insurance contract, if its primary purpose is the
rendering of service, it is not a contract of
insurance:
It does not necessarily follow however, that a
contract containing all the four elements
mentioned above would be an insurance
contract. The primary purpose of the parties in
making the contract may negate the
existence of an insurance contract. For
example, a law firm which enters into contracts
with clients whereby in consideration of
periodical payments, it promises to represent
such clients in all suits for or against them, is not
engaged in the insurance business. Its contracts
are simply for the purpose of rendering personal
services. On the other hand, a contract by which
a corporation, in consideration of a stipulated
amount, agrees at its own expense to defend a
physician against all suits for damages for
malpractice is one of insurance, and the
corporation will be deemed as engaged in the
business of insurance. Unlike the lawyers
retainer contract, the essential purpose of such a
contract is not to render personal services, but to
indemnify against loss and damage resulting
from the defense of actions for
malpractice.42 (Emphasis supplied)
Second. Not all the necessary elements of a
contract of insurance are present in petitioners
agreements. To begin with, there is no loss,
damage or liability on the part of the member that
should be indemnified by petitioner as an HMO.
Under the agreement, the member pays
petitioner a predetermined consideration in
exchange for the hospital, medical and
professional services rendered by the
petitioners physician or affiliated physician to
him. In case of availment by a member of the
benefits under the agreement, petitioner does
not reimburse or indemnify the member as the
latter does not pay any third party. Instead, it is
the petitioner who pays the participating
physicians and other health care providers for
the services rendered at pre-agreed rates. The
member does not make any such payment.
In other words, there is nothing in petitioner's
agreements that gives rise to a monetary liability
on the part of the member to any third party-
provider of medical services which might in turn
necessitate indemnification from petitioner. The
terms "indemnify" or "indemnity" presuppose that
a liability or claim has already been incurred.
There is no indemnity precisely because the
member merely avails of medical services to be
paid or already paid in advance at a pre-agreed
price under the agreements.
Third. According to the agreement, a member
can take advantage of the bulk of the benefits
anytime, e.g. laboratory services, x-ray, routine
annual physical examination and consultations,
vaccine administration as well as family planning
counseling, even in the absence of any peril, loss
or damage on his or her part.
Fourth. In case of emergency, petitioner is
obliged to reimburse the member who receives
care from a non-participating physician or
hospital. However, this is only a very minor part
of the list of services available. The assumption
of the expense by petitioner is not confined to the
happening of a contingency but includes
incidents even in the absence of illness or injury.
In Michigan Podiatric Medical Association v.
National Foot Care Program, Inc.,43 although the
health care contracts called for the defendant to
partially reimburse a subscriber for treatment
received from a non-designated doctor, this did
not make defendant an insurer. Citing Jordan,
the Court determined that "the primary activity of
the defendant (was) the provision of podiatric
services to subscribers in consideration of
prepayment for such services."44 Since
indemnity of the insured was not the focal point
of the agreement but the extension of medical
services to the member at an affordable cost, it
did not partake of the nature of a contract of
insurance.
Fifth. Although risk is a primary element of an
insurance contract, it is not necessarily true that
risk alone is sufficient to establish it. Almost
anyone who undertakes a contractual obligation
always bears a certain degree of financial risk.
Consequently, there is a need to distinguish
prepaid service contracts (like those of petitioner)
from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a
business risk when it offers to provide health
services: the risk that it might fail to earn a
reasonable return on its investment. But it is not
the risk of the type peculiar only to insurance
companies. Insurance risk, also known as
actuarial risk, is the risk that the cost of insurance
claims might be higher than the premiums paid.
The amount of premium is calculated on the
basis of assumptions made relative to the
insured.45
However, assuming that petitioners commitment
to provide medical services to its members can
be construed as an acceptance of the risk that it
will shell out more than the prepaid fees, it still
will not qualify as an insurance contract because
petitioners objective is to provide medical
services at reduced cost, not to distribute risk like
an insurer.
In sum, an examination of petitioners
agreements with its members leads us to
conclude that it is not an insurance contract
within the context of our Insurance Code.
There Was No Legislative Intent To Impose
DST On Health Care Agreements Of HMOs
Furthermore, militating in convincing fashion
against the imposition of DST on petitioners
health care agreements under Section 185 of the
NIRC of 1997 is the provisions legislative
history. The text of Section 185 came into U.S.
law as early as 1904 when HMOs and health
care agreements were not even in existence in
this jurisdiction. It was imposed under Section
116, Article XI of Act No. 1189 (otherwise known
as the "Internal Revenue Law of 1904")46enacted
on July 2, 1904 and became effective on August
1, 1904. Except for the rate of tax, Section 185 of
the NIRC of 1997 is a verbatim reproduction of
the pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and
paid for and in respect to the several bonds,
debentures, or certificates of stock and
indebtedness, and other documents,
instruments, matters, and things mentioned and
described in this section, or for or in respect to
the vellum, parchment, or paper upon which such
instrument, matters, or things or any of them
shall be written or printed by any person or
persons who shall make, sign, or issue the same,
on and after January first, nineteen hundred and
five, the several taxes following:
xxx xxx xxx
Third xxx (c) on all policies of insurance or
bond or obligation of the nature of indemnity
for loss, damage, or liability made or renewed
by any person, association, company, or
corporation transacting the business of
accident, fidelity, employers liability, plate
glass, steam boiler, burglar, elevator,
automatic sprinkle, or other branch of
insurance (except life, marine, inland, and fire
insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal
Revenue Law of 1914) was enacted revising and
consolidating the laws relating to internal
revenue. The aforecited pertinent portion of
Section 116, Article XI of Act No. 1189 was
completely reproduced as Section 30 (l), Article
III of Act No. 2339. The very detailed and
exclusive enumeration of items subject to DST
was thus retained.
On December 31, 1916, Section 30 (l), Article III
of Act No. 2339 was again reproduced as
Section 1604 (l), Article IV of Act No. 2657
(Administrative Code). Upon its amendment on
March 10, 1917, the pertinent DST provision
became Section 1449 (l) of Act No. 2711,
otherwise known as the Administrative Code of
1917.
Section 1449 (1) eventually became Sec. 222 of
Commonwealth Act No. 466 (the NIRC of 1939),
which codified all the internal revenue laws of the
Philippines. In an amendment introduced by RA
40 on October 1, 1946, the DST rate was
increased but the provision remained
substantially the same.
Thereafter, on June 3, 1977, the same provision
with the same DST rate was reproduced in PD
1158 (NIRC of 1977) as Section 234. Under PDs
1457 and 1959, enacted on June 11, 1978 and
October 10, 1984 respectively, the DST rate was
again increased.1avvphi1
Effective January 1, 1986, pursuant to Section 45
of PD 1994, Section 234 of the NIRC of 1977 was
renumbered as Section 198. And under Section
23 of EO47 273 dated July 25, 1987, it was again
renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section
185 was amended but, again, only with respect
to the rate of tax.
Notwithstanding the comprehensive amendment
of the NIRC of 1977 by RA 8424 (or the NIRC of
1997), the subject legal provision was retained
as the present Section 185. In 2004,
amendments to the DST provisions were
introduced by RA 924348 but Section 185 was
untouched.
On the other hand, the concept of an HMO was
introduced in the Philippines with the formation
of Bancom Health Care Corporation in 1974. The
same pioneer HMO was later reorganized and
renamed Integrated Health Care Services, Inc.
(or Intercare). However, there are those who
claim that Health Maintenance, Inc. is the HMO
industry pioneer, having set foot in the
Philippines as early as 1965 and having been
formally incorporated in 1991. Afterwards, HMOs
proliferated quickly and currently, there are 36
registered HMOs with a total enrollment of more
than 2 million.49
We can clearly see from these two histories (of
the DST on the one hand and HMOs on the
other) that when the law imposing the DST was
first passed, HMOs were yet unknown in the
Philippines. However, when the various
amendments to the DST law were enacted, they
were already in existence in the Philippines and
the term had in fact already been defined by RA
7875. If it had been the intent of the legislature to
impose DST on health care agreements, it could
have done so in clear and categorical terms. It
had many opportunities to do so. But it did not.
The fact that the NIRC contained no specific
provision on the DST liability of health care
agreements of HMOs at a time they were already
known as such, belies any legislative intent to
impose it on them. As a matter of fact,
petitioner was assessed its DST liability only
on January 27, 2000, after more than a decade
in the business as an HMO.50
Considering that Section 185 did not change
since 1904 (except for the rate of tax), it would
be safe to say that health care agreements were
never, at any time, recognized as insurance
contracts or deemed engaged in the business of
insurance within the context of the provision.
The Power To Tax Is Not The Power To
Destroy
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 is to
pay it.51 So potent indeed is the power that it was
once opined that "the power to tax involves the
power to destroy."52
Petitioner claims that the assessed DST to date
which amounts to P376 million53 is way beyond
its net worth of P259 million.54 Respondent never
disputed these assertions. Given the realities on
the ground, imposing the DST on petitioner
would be highly oppressive. It is not the purpose
of the government to throttle private business.
On the contrary, the government ought to
encourage private enterprise.55 Petitioner, just
like any concern organized for a lawful economic
activity, has a right to maintain a legitimate
business.56 As aptly held in Roxas, et al. v. CTA,
et al.:57
The power of taxation is sometimes called also
the power to destroy. Therefore it should be
exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the
tax collector kill the "hen that lays the golden
egg."58
Legitimate enterprises enjoy the constitutional
protection not to be taxed out of existence.
Incurring losses because of a tax imposition may
be an acceptable consequence but killing the
business of an entity is another matter and
should not be allowed. It is counter-productive
and ultimately subversive of the nations thrust
towards a better economy which will ultimately
benefit the majority of our people.59
Petitioners Tax Liability Was Extinguished
Under The Provisions Of RA 9840
Petitioner asserts that, regardless of the
arguments, the DST assessment for taxable
years 1996 and 1997 became moot and
academic60 when it availed of the tax amnesty
under RA 9480 on December 10, 2007. It
paid P5,127,149.08 representing 5% of its net
worth as of the year ended December 31, 2005
and complied with all requirements of the tax
amnesty. Under Section 6(a) of RA 9480, it is
entitled to immunity from payment of taxes as
well as additions thereto, and the appurtenant
civil, criminal or administrative penalties under
the 1997 NIRC, as amended, arising from the
failure to pay any and all internal revenue taxes
for taxable year 2005 and prior years.61
Far from disagreeing with petitioner, respondent
manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of
tax amnesty entitles a taxpayer to immunity from
payment of the tax involved, including the civil,
criminal, or administrative penalties provided
under the 1997 [NIRC], for tax liabilities arising in
2005 and the preceding years.
In view of petitioners availment of the benefits of
[RA 9840], and without conceding the merits of
this case as discussed above, respondent
concedes that such tax amnesty
extinguishes the tax liabilities of petitioner.
This admission, however, is not meant to
preclude a revocation of the amnesty granted in
case it is found to have been granted under
circumstances amounting to tax fraud under
Section 10 of said amnesty law.62 (Emphasis
supplied)
Furthermore, we held in a recent case that DST
is one of the taxes covered by the tax amnesty
program under RA 9480.63 There is no other
conclusion to draw than that petitioners liability
for DST for the taxable years 1996 and 1997 was
totally extinguished by its availment of the tax
amnesty under RA 9480.
Is The Court Bound By A Minute Resolution
In Another Case?
Petitioner raises another interesting issue in its
motion for reconsideration: whether this Court is
bound by the ruling of the CA64 in CIR v.
Philippine National Bank65 that a health care
agreement of Philamcare Health Systems is not
an insurance contract for purposes of the DST.
In support of its argument, petitioner cites the
August 29, 2001 minute resolution of this Court
dismissing the appeal in Philippine National
Bank (G.R. No. 148680).66 Petitioner argues that
the dismissal of G.R. No. 148680 by minute
resolution was a judgment on the merits; hence,
the Court should apply the CA ruling there that a
health care agreement is not an insurance
contract.
It is true that, although contained in a minute
resolution, our dismissal of the petition was a
disposition of the merits of the case. When we
dismissed the petition, we effectively affirmed the
CA ruling being questioned. As a result, our
ruling in that case has already become
final.67 When a minute resolution denies or
dismisses a petition for failure to comply with
formal and substantive requirements, the
challenged decision, together with its findings of
fact and legal conclusions, are deemed
sustained.68 But what is its effect on other cases?
With respect to the same subject matter and the
same issues concerning the same parties, it
constitutes res judicata.69 However, if other
parties or another subject matter (even with the
same parties and issues) is involved, the minute
resolution is not binding precedent. Thus, in CIR
v. Baier-Nickel,70 the Court noted that a previous
case, CIR v. Baier-Nickel71 involving the same
parties and the same issues, was previously
disposed of by the Court thru a minute resolution
dated February 17, 2003 sustaining the ruling of
the CA. Nonetheless, the Court ruled that the
previous case "ha(d) no bearing" on the latter
case because the two cases involved different
subject matters as they were concerned with the
taxable income of different taxable years.72
Besides, there are substantial, not simply formal,
distinctions between a minute resolution and a
decision. The constitutional requirement under
the first paragraph of Section 14, Article VIII of
the Constitution that the facts and the law on
which the judgment is based must be expressed
clearly and distinctly applies only to decisions,
not to minute resolutions. A minute resolution is
signed only by the clerk of court by authority of
the justices, unlike a decision. It does not require
the certification of the Chief Justice. Moreover,
unlike decisions, minute resolutions are not
published in the Philippine Reports. Finally, the
proviso of Section 4(3) of Article VIII speaks of a
decision.73Indeed, as a rule, this Court lays down
doctrines or principles of law which constitute
binding precedent in a decision duly signed by
the members of the Court and certified by the
Chief Justice.
Accordingly, since petitioner was not a party in
G.R. No. 148680 and since petitioners liability
for DST on its health care agreement was not the
subject matter of G.R. No. 148680, petitioner
cannot successfully invoke the minute resolution
in that case (which is not even binding
precedent) in its favor. Nonetheless, in view of
the reasons already discussed, this does not
detract in any way from the fact that petitioners
health care agreements are not subject to DST.
A Final Note
Taking into account that health care agreements
are clearly not within the ambit of Section 185 of
the NIRC and there was never any legislative
intent to impose the same on HMOs like
petitioner, the same should not be arbitrarily and
unjustly included in its coverage.
It is a matter of common knowledge that there is
a great social need for adequate medical
services at a cost which the average wage
earner can afford. HMOs arrange, organize and
manage health care treatment in the furtherance
of the goal of providing a more efficient and
inexpensive health care system made possible
by quantity purchasing of services and
economies of scale. They offer advantages over
the pay-for-service system (wherein individuals
are charged a fee each time they receive medical
services), including the ability to control costs.
They protect their members from exposure to the
high cost of hospitalization and other medical
expenses brought about by a fluctuating
economy. Accordingly, they play an important
role in society as partners of the State in
achieving its constitutional mandate of providing
its citizens with affordable health services.
The rate of DST under Section 185 is equivalent
to 12.5% of the premium charged.74 Its
imposition will elevate the cost of health care
services. This will in turn necessitate an increase
in the membership fees, resulting in either
placing health services beyond the reach of the
ordinary wage earner or driving the industry to
the ground. At the end of the day, neither side
wins, considering the indispensability of the
services offered by HMOs.
WHEREFORE, the motion for reconsideration
is GRANTED. The August 16, 2004 decision of
the Court of Appeals in CA-G.R. SP
No. 70479 is REVERSED and SET ASIDE. The
1996 and 1997 deficiency DST assessment
against petitioner is
hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from
collecting the said tax.
No costs.
SO ORDERED.

G.R. No. L-24693 October 23, 1967
ERMITA-MALATE HOTEL AND MOTEL
OPERATORS ASSOCIATION, INC., HOTEL
DEL MAR, INC. and GO HIU, petitioners-
appellees,
vs.
THE HONORABLE, CITY MAYOR OF
MANILA, respondent-appellant.
VICTOR ALABANZA, intervenor-appellee.
J. M. Aruego, A. Tenchavez and L. U. Go for
petitioners-appellees.
Panganiban, Abad and Associates for
respondent-appellant.
RESOLUTION
FERNANDO, J.:
A Motion for the reconsideration of our decision
of July 31, 1967 was filed by petitioners, followed
by a Motion for new trial. As the Motion for
reconsideration is clearly without merit, there is
no occasion for this sought-for new trial.
Consequently, both motions are denied.
(1) No merit in the Motion for reconsideration.
In the decision of this Court of July 31, 1967,
sought to be reconsidered, its basis was
categorically set forth in the following language:
As noted at the outset, the judgment must
be reversed. A decent regard for
constitutional doctrines of a fundamental
character ought to have admonished the
lower court against such a sweeping
condemnation of the challenged ordinance.
Its decision cannot be allowed to stand,
consistently with what has hitherto been the
accepted standards of constitutional
adjudication, in both procedural and
substantive aspects.
Primarily what calls for a reversal of such a
decision is the absence of any evidence to
offset the presumption of validity that
attaches to a challenged statute or
ordinance. As was expressed categorically
by Justice Malcolm: "The presumption is all
in favor of validity. . . . The action of the
elected representatives of the people
cannot be lightly set aside. The councilors
must, in the very nature of things, be familiar
with the necessities of their particular
municipality and with all the facts and
circumstances which surround the subject
and necessitates action. The local
legislative body, by enacting the ordinance,
has in effect given notice that the
regulations are essential to the well being of
the people. . .. The Judiciary should not
lightly set aside legislative action when
there is not a clear invasion of personal or
property rights under the guise of police
regulation.
It admits of no doubt therefore that there
being a presumption of validity, the
necessity for evidence to rebut it is
unavoidable, unless the statute or
ordinance is void on its face, which is not
the case here. The principle has been
nowhere better expressed than in the
leading case of O'Gorman & Young v.
Hartford Fire Insurance Co., where the
American Supreme Court through Justice
Brandeis tersely and succinctly summed up
the matter thus: "The statute here
questioned deals with a subject clearly
within the scope of the police power. We are
asked to declare it void on the ground that
the specific method of regulation prescribed
is unreasonable and hence deprives the
plaintiff of due process of law. As underlying
questions of fact may condition the
constitutionality of legislation of this
character, the presumption of
constitutionality must prevail in the absence
of some factual foundation of record for
overthrowing the statute." No such factual
foundation being laid in the present case,
the lower court deciding the matter on the
pleadings and the stipulation of facts, the
presumption of validity must prevail and the
judgment against the ordinance set aside.
The O'Gorman principle1 fails to meet the
approval of counsel of petitioners. They would
restrain unduly and unjustifiably its operation. In
the language of the motion for reconsideration:
"The U. S. Supreme Court was not laying down
as a general rule in constitutional cases that
there must be a factual foundation of record to
offset the presumption of constitutionality of any
and every law."
To paraphrase Justice Brandeis, this
interpretation is without support in authority or
reason and rests upon a misconception. It is to
betray an almost total lack of awareness of the
import and significance of the O'Gorman doctrine
in American constitutional law. Authorities on the
subject of proven competence and knowledge
flatly reject such a view.
2 3
Dodd, Dowling, Freund Sutherland, De Wolfe
Howe, and Brown,4 and Kauper5 in their
standard casebooks quote the same excerpt
from O'Gorman v. Hartford Fire Ins. Co.
appearing in the opinion of this Court. Dodd
entertained no doubt: "The accepted view is that
stated by Mr. Justice Brandeis in the O'Gorman
case."6
Frankfurter and Landis were equally explicit in
their appreciation of what the O'Gorman dictum
means. "As doctrine, there is nothing new in the
avowal of a need for concreteness in passing
judgment upon the legislative judgment. But
perhaps last term marks a more sedulous
attention to its observance. Certainly the
procedure followed by the Court in O'Gorman &
Young v. Hartford Fire Ins. Co., if regularly
observed, will affect not a little the fate of
legislation. If insisted upon, it will compel the bar
to argue questions of legislative validity in the
perspective of the circumstances which gave rise
to a particular statute."7
The late Professor Hamilton of the Yale Law
School, one of the most distinguished
constitutionalists, would have been appalled by
the unorthodoxy of the view of counsel of
petitioners. For him, the O'Gorman opinion was
a manifestation of the jurist's art at its best:
If the jurists have the feelings of other men,
Monday, the fifth of January nineteen
hundred and thirty one, must have been a
day of consequence in the life of Mr. Justice
Brandeis. On that day he handed down the
judgment of the United States Supreme
Court in the O'Gorman case. The cause
was a simple suit in contract: the result
depended upon the validity of a New Jersey
statute regulating the commissions to be
paid by insurance companies to their
agents for securing business. The more
general question was the tolerance to be
accorded to legislative price-fixing under
the Fourteenth Amendment. And, as the
fortunes of litigation broke, the issue came
to be the intellectual procedure by which the
constitutionality of the acts which make up
the public control of business are to be
determined. Upon that day the views of
Brandeis became "the opinion of the court,"
and a new chapter in judicial history began
to be written.
xxx xxx xxx
In form "the opinion of the court" is a very
simple and unpretentious document. It
begins with a statement of the issue and a
history of the case, continues with a brief
summary of the reasons for the statute and
a statement that "the business of insurance
is so affected with a public interest that the
state may regulate the rates," and
concludes with a declaration of the test for
validity. As "underlying questions of fact
may condition the constitutionality of
legislation of this character," it follows that
"the presumption of constitutionality must
prevail in the absence of some factual
foundation of record for overthrowing the
statute." It did not appear "upon the face of
the statute, or from any facts of which the
court must take judicial notice" that in New
Jersey "evils did not exist," for which the
statute was "an appropriate remedy."
Accordingly the court was compelled to
declare the statute valid; in fact it was left
with no alternative.
Yet the simple lines of a short opinion
present a superb example of the jurist's art.
. . .8
This is not to discount the possibility of a situation
where the nullity of a statute, executive order, or
ordinance may not be readily apparent but the
threat to constitutional rights, especially those
involving the freedom of the mind, present and
ominous. That in such an event there should not
be a rigid insistence on the requirement that
evidence be presented does not argue against
the force of the above excerpts on the weight to
be accorded the O'Gorman doctrine in this case.
The prop here failing, is there anything else in the
Motion for reconsideration that calls for a
modification of the decision of this Court? The
answer must be in the negative. It ought not to
have escaped petitioners that the opinion of the
Court after noting the lack of factual foundation
to offset the presumption of constitutionality went
on to discuss the due process aspects to make
clear that on its face, the Ordinance cannot be
considered void.
Nor may petitioners assert with plausibility
that on its face the ordinance is fatally
defective as being repugnant to the due
process clause of the Constitution. The
mantle of protection associated with the due
process guaranty does not cover
petitioners. This particular manifestation of
a police power measure being specifically
aimed to safeguard public morals is
immune from such imputation of nullity
resting purely on conjecture and
unsupported by anything of substance. To
hold otherwise would be to unduly restrict
and narrow the scope of police power which
has been properly characterized as the
most essential, insistent and the least
limitable of powers, extending as it does "to
all the great public needs." It would be, to
paraphrase another leading decision, to
destroy the very purpose of the state if it
could be deprived or allowed itself to be
deprived of its competence to promote
public health, public morals, public safety
and the general welfare. Negatively put,
police power is "that inherent and plenary
power in the State which enables it to
prohibit all that is hurtful to the comfort,
safety, and welfare of society."
There is no question but that the challenged
ordinance was precisely enacted to
minimize certain practices hurtful to public
morals. The explanatory note of the then
Councilor Herminio Astorga included as
annex to the stipulation of facts speaks of
the alarming increase in the rate of
prostitution, adultery and fornication in
Manila, traceable in great part to the
existence of motels, which "provide a
necessary atmosphere for clandestine
entry, presence and exit" and thus become
the "ideal haven for prostitutes and thrill-
seekers." The challenged ordinance then
proposes to check the clandestine
harboring of transients and guests of these
establishments by requiring these
transients and guests to fill up a registration
form, prepared for the purpose, in a lobby
open to public view at all times, and by
introducing several other amendatory
provisions calculated to shatter the privacy
that characterizes the registration of
transients and guests." Moreover, the
increase in the license fees was intended to
discourage "establishments of the kind from
operating for purpose other than legal" and
at the same time, to increase "the income of
the city government." It would appear
therefore that the stipulation of facts, far
from sustaining any attack against the
validity of the ordinance, argues eloquently
for it.
There is nothing in the Motion for reconsideration
that in any wise affects adversely or impairs the
force of the above conclusion. The task of
proving that the challenged Ordinance is void on
its face is one attended with difficulty.
Nonetheless, with the persistence worthy of a
better cause, petitioners would cite as fatal
infirmity the alleged invasion of the rights against
unreasonable search and seizure, to liberty, and
to property.
As the unchallenged rule, to paraphrase Laurel,
is that unless a person is injuriously affected in
any of his constitutional rights by the operation of
statute or ordinance,9 he has no standing, the
invocation of petitioners as motel operators of
their alleged right to being free from
unreasonable search and seizure need not be
taken seriously. Nor does their claim of the
alleged infringement of their liberty deserve any
further thought, its implausibility being self-
evident, except perhaps as to the liberty to
contract, which is part and parcel of their right to
the property. Unfortunately for them, in this
jurisdiction the liberty to contract, except in
the Pomar10 case as noted in the decision, has
never stood in the way of the enactment of police
power measures when called for by
circumstances such as undoubtedly exist in this
case. The same is true in the United States,
where such a concept has definitely fallen from
its previously high state under the impact of the
Nebbia,11 West Coast Hotel Co.12 and Olson
decisions.13
That leaves only the alleged grievance that there
was an unconstitutional invasion of property
rights. It goes without saying that petitioners
themselves cannot ignore that one could,
consistently with the fundamental law, be
deprived of his property as long as due process
is observed. The decision makes clear that such
indeed was the case as far as this Ordinance
was concerned. To that aspect, a considerable
portion of the opinion was devoted, citing a
number of applicable decisions of this Court, all
tending to demonstrate that there was no due
process infraction. The Motion for
reconsideration is conspicuously barren of any
attempt to show that under our previous
decisions referred to, the challenged Ordinance
could be successfully assailed. It would follow
then that this reiteration of an argument,
previously shown to be far from persuasive, is
deserving of a similar fate.
That is all there is to the Motion for
reconsideration. That and what Justice Cardozo
aptly referred to as reference to "grotesque or
fanciful situations," which if they would arise
could then be appropriately dealt with. As the
famed jurist aptly noted: "That they are
conceivable though improbable ought not to
govern our construction."14 That is not the way
then to impugn the validity of an ordinance.
Neither could it be rightfully looked upon as
laying a foundation for setting aside a decision.
The Motion for reconsideration, to repeat, is
palpably lacking in merit.
(1) No occasion for new trial.
Subsequently, a supplemental Motion for new
trial dated September 25, 1967, was filed the
same day. As earlier pointed out, with the Motion
for reconsideration having been shown to be
devoid of merit, the supplemental Motion for new
trial should likewise be denied. In the main, what
was so unsuccessfully put forth by counsel for
petitioners was adhered to. Additional counsel
would bring in new points, namely, the alleged
denial of equal protection and the repugnancy to
"the laissez faire principle underlying our
economic system, as it would substantially
reduce return on the investment." Neither
suffices to justify any modification of the decision,
much less its reconsideration. A new trial would
therefore be an exercise in futility.
The alleged denial of equal protection was
predicated on the greater advantages that the
motels in the suburbs of Manila would enjoy as
against those within the city limits. On its face,
such argument is clearly unfounded. If the
legislative power of the Municipal Board of the
City of Manila were not limited to its boundaries,
if it could apply to the suburban area, then
perhaps plausibility could be imparted to such a
claim. Since, as is undeniable, the challenged
Ordinance applies to all the motels in Manila, an
assertion that there is denial of equal protection
would, to put it at its mildest, be extremely far-
fetched.
Nor does the invocation of the laissez
faire concept as bar against the enactment of
regulatory measures, which undoubtedly would
result in the diminution of income and the loss of
business, occasion any misgiving as to the
conformity of the decision arrived at by this Court
with controlling constitutional law principles. Did
not petitioners take note of the view announced
by Justice Laurel quoted in the decision to the
effect that the policy "of laissez faire has to some
extent given way to the assumption by the
government of the right of intervention even in
contractual relations affected with public
interest." The decision likewise cited this jurist,
speaking for the Court in Calalang v.
Williams:15 "Public welfare, then, lies at the
bottom of the enactment of said law, and the
state in order to promote the general welfare may
interfere with personal liberty, with property, and
with business and occupations. Perhaps and
property may be subjected to all kinds of
restraints and burdens, in order to secure, the
general comfort, health, and prosperity of the
state. . . . To this fundamental aim of our
Government the rights of the individual are
subordinated." That was in 1940. Then in 1955,
came Co Kiam v. City of Manila,16 where Justice
Reyes, A., for a unanimous Court categorically
declared: "And surely, the mere fact that some
individuals in the community may be deprived of
their present business or a particular mode of
earning a living can not prevent the exercise of
the police power. As was said in a case, persons
licensed to pursue occupations which may in the
public need and interest be affected by the
exercise of the police power embark in those
occupations subject to the disadvantages which
may result from the legal exercise of that power.
(City of New Orleans v. Stafford, 27 L. Ann.
417)."
Nor does the reference by new counsel to
American state court decisions call for a different
conclusion. The United States Supreme Court in
the leading case of West Virginia State Board of
Education v. Barnette,17 decided in 1943, was
equally explicit, saying "the laissez-faire concept
or principle of non-interference has withered at
least as to economic affairs, and social
advancements are increasingly sought through
closer integration of society and through
expanded and strengthened governmental
controls." Two names of great repute, Freund
and Learned Hand, were cited by petitioners.
Neither if properly understood, could help their
cause at all. According to Freund: "In short, when
freedom of the mind is imperiled by law, it is
freedom that commands a momentum of
respect, when property is imperiled, it is the
lawmakers' judgment that commands respect.
This dual standard may not precisely reverse the
presumption of constitutionality in civil liberties
cases, but obviously it does set up a hierarchy of
values within the due process clause."18 The
illustrious Learned Hand writing on Chief Justice
Stone's concept of the judicial function had
occasion to note the "discredited attitude" of what
he referred to "as the old apostles of the
institution of property. . . ."19
What then is left? Clearly nothing to call for the
reconsideration of our decision of July 31, 1967.
Nor is there the least justification for a new trial
and reception of evidence.

WHEREFORE, the Motion for reconsideration of

petitioners of September 16, 1967 and
supplemental Motion for new trial of September
25, 1967, are denied.

Concepcion, C.J., Reyes, J.B.L., Dizon,

Makalintal, Bengzon, J.P., Zaldivar, Sanchez,
Castro and Angeles, JJ., concur.
 merely a tax deduction from the gross income or
gross sale of the establishment concerned. A tax
credit is used by a private establishment only
after the tax has been computed; a tax
COMMISSIONER OF INTERNAL G.R. No.
deduction, before the tax is computed. RA 7432
159647
unconditionally grants a tax credit to all covered
REVENUE,
entities. Thus, the provisions of the revenue
Petitioner, Present:
regulation that withdraw or modify such grant are
Panganiban, J.,
void. Basic is the rule that administrative
Chairman,
regulations cannot amend or revoke the law.
Sandoval-Gutierrez,
- versus - Corona,
The Case
Carpio Morales, and
Garcia, JJ
Before us is a Petition for Review[1] under Rule
CENTRAL LUZON DRUG Promulgated:
45 of the Rules of Court, seeking to set aside the
CORPORATION,
August 29, 2002 Decision[2] and the August 11,
Respondent. April 15, 2005
2003 Resolution[3] of the Court of Appeals (CA)
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
in CA-GR SP No. 67439. The assailed Decision
-- -- -- -- -- -- x
reads as follows:

WHEREFORE, premises considered, the

DECISION
Resolution appealed from is AFFIRMED in
toto. No costs.[4]
PANGANIBAN, J.:
The assailed Resolution denied petitioners
Motion for Reconsideration.
T he 20 percent discount required by the law to
be given to senior citizens is a tax credit, not

The Facts
The CA narrated the antecedent facts as follows:
Respondent is a domestic corporation primarily
engaged in retailing of medicines and other
pharmaceutical products. In 1996, it operated six
(6) drugstores under the business name and
style Mercury Drug.
From January to December 1996, respondent
granted twenty (20%) percent sales discount to
qualified senior citizens on their purchases of
medicines pursuant to Republic Act No. [R.A.]
7432 and its Implementing Rules and
Regulations. For the said period, the amount
allegedly representing the 20% sales discount
granted by respondent to qualified senior citizens
totaled P904,769.00.
On April 15, 1997, respondent filed its Annual
Income Tax Return for taxable year 1996
declaring therein that it incurred net losses from
its operations.
On January 16, 1998, respondent filed with
petitioner a claim for tax refund/credit in the
amount of P904,769.00 allegedly arising from
the 20% sales discount granted by respondent to
qualified senior citizens in compliance with [R.A.]
7432. Unable to obtain affirmative response from
petitioner, respondent elevated its claim to the
Court of Tax Appeals [(CTA or Tax Court)] via a
Petition for Review.
On February 12, 2001, the Tax Court rendered
a Decision[5] dismissing respondents Petition for
lack of merit. In said decision, the [CTA] justified
its ruling with the following ratiocination:
x x x, if no tax has been paid to the government,
erroneously or illegally, or if no amount is due
and collectible from the taxpayer, tax refund or
tax credit is unavailing. Moreover, whether the
recovery of the tax is made by means of a claim
for refund or tax credit, before recovery is
allowed[,] it must be first established that there
was an actual collection and receipt by the
government of the tax sought to be recovered. x
x x.
xxxxxxxxx
Prescinding from the above, it could logically be
deduced that tax credit is premised on the
existence of tax liability on the part of taxpayer.
In other words, if there is no tax liability, tax credit
is not available.
Respondent lodged a Motion for
Reconsideration. The [CTA], in its assailed
resolution,[6] granted respondents motion for
reconsideration and ordered herein petitioner to
issue a Tax Credit Certificate in favor of
respondent citing the decision of the then Special
Fourth Division of [the CA] in CA G.R. SP No.
60057 entitled Central [Luzon] Drug Corporation
vs. Commissioner of Internal
Revenue promulgated on May 31, 2001, to wit:
However, Sec. 229 clearly does not apply in the
instant case because the tax sought to be
refunded or credited by petitioner was not
erroneously paid or illegally collected. We take
exception to the CTAs sweeping but unfounded
statement that both tax refund and tax credit are
modes of recovering taxes which are either
erroneously or illegally paid to the government.
Tax refunds or credits do not exclusively pertain
to illegally collected or erroneously paid taxes as
they may be other circumstances where a refund
is warranted. The tax refund provided under
Section 229 deals exclusively with illegally
collected or erroneously paid taxes but there are
other possible situations, such as the refund of
excess estimated corporate quarterly income tax
paid, or that of excess input tax paid by a VAT-
registered person, or that of excise tax paid on
goods locally produced or manufactured but
actually exported. The standards and mechanics
for the grant of a refund or credit under these
situations are different from that under Sec. 229.
Sec. 4[.a)] of R.A. 7432, is yet another instance
of a tax credit and it does not in any way refer to
illegally collected or erroneously paid taxes, x x
x.[7]
Ruling of the Court of Appeals
The CA affirmed in toto the Resolution of the
Court of Tax Appeals (CTA) ordering petitioner
to issue a tax credit certificate in favor of
respondent in the reduced amount
of P903,038.39. It reasoned that Republic Act
No. (RA) 7432 required neither a tax liability nor
a payment of taxes by private establishments
prior to the availment of a tax credit. Moreover,
such credit is not tantamount to an unintended
benefit from the law, but rather a just
compensation for the taking of private property
for public use.
Hence this Petition.[8]
The Issues
Petitioner raises the following issues for our
consideration:
Whether the Court of Appeals erred in holding
that respondent may claim the 20% sales
discount as a tax credit instead of as a deduction
from gross income or gross sales.
Whether the Court of Appeals erred in holding
that respondent is entitled to a refund.[9]
These two issues may be summed up in only
one: whether respondent, despite incurring a net
loss, may still claim the 20 percent sales discount
as a tax credit.
The Courts Ruling
The Petition is not meritorious.
Sole Issue:
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss
Section 4a) of RA 7432[10] grants to senior
citizens the privilege of obtaining a 20 percent
discount on their purchase of medicine from any
private establishment in the country.[11] The latter
may then claim the cost of the discount as a tax
credit.[12] But can such credit be claimed, even
though an establishment operates at a loss?
We answer in the affirmative.
Tax Credit versus
Tax Deduction
Although the term is not specifically defined in
our Tax Code,[13] tax credit generally refers to an
amount that is subtracted directly from ones total
tax liability.[14]It is an allowance against the tax
itself[15] or a deduction from what is owed[16] by a
taxpayer to the government. Examples of tax
credits are withheld taxes, payments of
estimated tax, and investment tax credits.[17]
Tax credit should be understood in relation to
other tax concepts. One of these is tax
deduction -- defined as a subtraction from
income for tax purposes,[18] or an amount that is
allowed by law to reduce income prior to [the]
application of the tax rate to compute the amount
of tax which is due.[19] An example of a tax
deduction is any of the allowable deductions
enumerated in Section 34[20] of the Tax Code.
A tax credit differs from a tax deduction. On the
one hand, a tax credit reduces the tax due,
including -- whenever applicable -- the income
tax that is determined after applying the
corresponding tax rates to taxable
[21]
income. A tax deduction, on the other,
reduces the income that is subject to tax[22] in
order to arrive at taxable income.[23] To think of
the former as the latter is to avoid, if not entirely
confuse, the issue. A tax credit is used
only after the tax has been computed; a tax
deduction, before.
Tax Liability Required
for Tax Credit
Since a tax credit is used to reduce directly the
tax that is due, there ought to be a tax
liability before the tax credit can be applied.
Without that liability, any tax creditapplication will
be useless. There will be no reason for deducting
the latter when there is, to begin with, no
existing obligation to the government. However,
as will be presented shortly, the existence of a
tax credit or its grant by law is not the same as
the availment or use of such credit. While the
grant is mandatory, the availment or use is not.
If a net loss is reported by, and no other taxes
are currently due from, a business
establishment, there will obviously be no tax
liability against which any tax credit can be
applied.[24] For the establishment to choose the
immediate availment of a tax credit will be
premature and impracticable. Nevertheless, the
irrefutable fact remains that, under RA 7432,
Congress has granted without conditions a tax
credit benefit to all covered establishments.
Although this tax credit benefit is available, it
need not be used by losing ventures, since there
is no tax liability that calls for its application.
Neither can it be reduced to nil by the quick yet
callow stroke of an administrative pen, simply
because no reduction of taxes can instantly be
effected. By its nature, the tax creditmay still be
deducted from a future, not a present, tax
liability, without which it does not have any use.
In the meantime, it need not move. But it
breathes.
Prior Tax Payments Not
Required for Tax Credit
While a tax liability is essential to the availment
or use of any tax credit, prior tax payments are
not. On the contrary, for the existence or
grant solely of such credit, neither a tax liability
nor a prior tax payment is needed. The Tax Code
is in fact replete with provisions granting or
allowing tax credits, even though no taxes have
been previously paid.
For example, in computing the estate tax due,
Section 86(E) allows a tax credit -- subject to
certain limitations -- for estate taxes paid to a
foreign country. Also found in Section 101(C) is
a similar provision for donors taxes -- again when
paid to a foreign country -- in computing for
the donors tax due. The tax credits in both
instances allude to the prior payment of taxes,
even if not made to our government.
Under Section 110, a VAT (Value-Added Tax)-
registered person engaging in transactions --
whether or not subject to the VAT -- is also
allowed a tax credit that includes a ratable
portion of any input tax not directly attributable to
either activity. This input tax may either be the
VAT on the purchase or importation of goods or
services that is merely due from -- not
necessarily paid by -- such VAT-registered
person in the course of trade or business; or the
transitional input tax determined in accordance
with Section 111(A). The latter type may in fact
be an amount equivalent to only eight percent of
the value of a VAT-registered persons beginning
inventory of goods, materials and supplies, when
such amount -- as computed -- is higher than the
actual VAT paid on the said items.[25] Clearly
from this provision, the tax credit refers to an
input tax that is either due only or given a value
by mere comparison with the VAT actually paid -
- then later prorated. No tax is actually paid prior
to the availment of such credit.
In Section 111(B), a one and a half percent
input tax credit that is merely presumptive is
allowed. For the purchase of primary agricultural
products used as inputs -- either in the
processing of sardines, mackerel and milk, or in
the manufacture of refined sugar and cooking oil
-- and for the contract price of public work
contracts entered into with the government,
again, no prior tax payments are needed for the
use of the tax credit.

More important, a VAT-registered person whose
sales are zero-rated or effectively zero-rated
may, under Section 112(A), apply for the
issuance of a tax creditcertificate for the amount
of creditable input taxes merely due -- again not
necessarily paid to -- the government and
attributable to such sales, to the extent that the
input taxes have not been applied against output
taxes.[26] Where a taxpayer
is engaged in zero-rated or effectively zero-rated
sales and also in taxable or exempt sales, the
amount of creditable input taxes due that are not
directly and entirely attributable to any one of
these transactions shall be proportionately
allocated on the basis of the volume of sales.
Indeed, in availing of such tax credit for VAT
purposes, this provision -- as well as the one
earlier mentioned -- shows that the prior payment
of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the
Tax Code is another illustration of a tax
credit allowed, even though no prior tax
payments are not required. Specifically, in this
provision, the imposition of a final withholding tax
rate on cash and/or property dividends received
by a nonresident foreign corporation from a
domestic corporation is subjected to the
condition that a foreign tax credit will be given by
the domiciliary country in an amount equivalent
to taxes that are merely deemed
paid.[27] Although true, this provision actually
refers to the tax credit as a condition only for the
imposition of a lower tax rate, not as
a deduction from the corresponding tax liability.
Besides, it is not our government but the
domiciliary country that credits against the
income tax payable to the latter by the foreign
corporation, the tax to be foregone or spared.[28]
In contrast, Section 34(C)(3), in relation to
Section 34(C)(7)(b), categorically allows as
credits, against the income tax imposable under
Title II, the amount of income taxes merely
incurred -- not necessarily paid -- by a domestic
corporation during a taxable year in any foreign
country. Moreover, Section 34(C)(5) provides
that for such taxes incurred but not paid, a tax
credit may be allowed, subject to the condition
precedent that the taxpayer shall simply give a
bond with sureties satisfactory to and approved
by petitioner, in such sum as may be required;
and further conditioned upon payment by the
taxpayer of any tax found due, upon petitioners
redetermination of it.
In addition to the above-cited provisions in the
Tax Code, there are also tax treaties and special
laws that grant or allow tax credits, even though
no prior tax payments have been made.
Under the treaties in which the tax credit method
is used as a relief to avoid double
taxation, income that is taxed in the state of
source is also taxable in the state of residence,
but the tax paid in the former is merely allowed
as a credit against the tax levied in the
latter.[29] Apparently, payment is made to
the state of source, not the state of residence. No
tax, therefore, has been previously paid to the
latter.
Under special laws that particularly affect
businesses, there can also be tax
credit incentives. To illustrate, the incentives
provided for in Article 48 of Presidential Decree
No. (PD) 1789, as amended by Batas Pambansa
Blg. (BP) 391, include tax credits equivalent to
either five percent of the net value earned, or five
or ten percent of the net local content of
exports.[30] In order to avail of such credits under
the said law and still achieve its objectives, no
prior tax payments are necessary.
From all the foregoing instances, it is evident that
prior tax payments are not indispensable to the
availment of a tax credit. Thus, the CA correctly
held that the availment under RA 7432 did not
require prior tax payments by private
establishments concerned.[31] However, we do
not agree with its finding[32] that the carry-over
of tax credits under the said special law to
succeeding taxable periods, and even their
application against internal revenue taxes, did
not necessitate the existence of a tax liability.
The examples above show that a tax liability is
certainly important in the availment or use, not
the existence or grant, of a tax credit. Regarding
this matter, a private establishment reporting
a net loss in its financial statements is no
different from another that presents a net
income. Both are entitled to the tax
credit provided for under RA 7432, since the law
itself accords that unconditional benefit.
However, for the losing establishment to
immediately apply such credit, where no tax is
due, will be an improvident usance.
Sections 2.i and 4 of Revenue
Regulations No. 2-94 Erroneous
RA 7432 specifically allows private
establishments to claim as tax credit the amount
of discounts they grant.[33] In turn, the
Implementing Rules and Regulations, issued
pursuant thereto, provide the procedures for its
availment.[34] To deny such credit, despite the
plain mandate of the law and the regulations
carrying out that mandate, is indefensible.
First, the definition given by petitioner is
erroneous. It refers to tax credit as the amount
representing the 20 percent discount that shall
be deducted by the said establishments from
their gross income for income tax purposes and
from their gross sales for value-added tax or
other percentage tax purposes.[35] In ordinary
business language, the tax credit represents the
amount of such discount. However, the manner
by which the discount shall be credited against
taxes has not been clarified by the revenue
regulations.
By ordinary acceptation, a discount is an
abatement or reduction made from the gross
amount or value of anything.[36] To be more
precise, it is in business parlance a deduction or
lowering of an amount of money;[37] or a
reduction from the full amount or value of
something, especially a price.[38] In business
there are many kinds of discount, the most
common of which is that affecting the income
statement[39] or financial report upon which
the income tax is based.
Business Discounts
Deducted from Gross Sales
A cash discount, for example, is one granted by
business establishments to credit customers for
their prompt payment.[40] It is a reduction in price
offered to the purchaser if payment is made
within a shorter period of time than the maximum
time specified.[41] Also referred to as a sales
discount on the part of the seller and a purchase
discount on the part of the buyer, it may be
expressed in such
[42]
terms as 5/10, n/30.
A quantity discount, however, is a reduction in
price allowed for purchases made in large
quantities, justified by savings in packaging,
shipping, and handling.[43] It is also called
a volume or bulk discount.[44]
A percentage reduction from the list price x x x
allowed by manufacturers to wholesalers and by
wholesalers to retailers[45] is known as a trade
discount. No entry for it need be made in the
manual or computerized books of accounts,
since the purchase or sale is already valued at
the net price actually charged the buyer.[46] The
purpose for the discount is to encourage trading
or increase sales, and the prices at which the
purchased goods may be resold are also
suggested.[47] Even a chain discount -- a series
of discounts from one list price -- is recorded at
net.[48]
Finally, akin to a trade discount is a functional
discount. It is a suppliers price discount given to
a purchaser based on the [latters] role in the
[formers] distribution system.[49] This role usually
involves warehousing or advertising.
Based on this discussion, we find that the nature
of a sales discount is peculiar. Applying
generally accepted accounting principles
(GAAP) in the country, this type of discount is
reflected in the income statement[50] as a line
item deducted -- along with returns, allowances,
rebates and other similar expenses -- from gross
sales to arrive at net sales.[51] This type of
presentation is resorted to, because
the accounts receivable and sales figures that
arise from sales discounts, -- as well as
from quantity, volume or bulk discounts -- are
recorded in the manual and computerized books
of accounts and reflected in the financial
statements at the gross amounts of the
invoices.[52] This manner of recording credit sales
-- known as the gross method -- is most widely
used, because it is simple, more convenient to
apply than the net method, and produces no
material errors over time.[53]
However, under the net method used in
recording trade, chain or functional discounts,
only the net amounts of the invoices -- after the
discounts have been deducted -- are recorded in
the books of accounts[54] and reflected in the
financial statements. A separate line item cannot
be shown,[55] because the transactions
themselves involving both accounts
receivable and sales have already been entered
into, net of the said discounts.
The term sales discounts is not expressly
defined in the Tax Code, but one provision
adverts to amounts whose sum -- along
with sales returns, allowances and cost of goods
sold[56] -- is deducted from gross sales to come
up with the gross
[57]
income, profit or margin derived from
[58]
business. In another provision therein, sales
discounts that are granted and indicated in the
invoices at the time of sale -- and that do not
depend upon the happening of any future event
-- may be excluded from the gross sales within
the same quarter they were given.[59] While
determinative only of the VAT, the latter provision
also appears as a suitable reference point for
income tax purposes already embraced in the
former. After all, these two provisions affirm
that sales discounts are amounts that are always
deductible from gross sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
A distinguishing feature of the implementing
rules of RA 7432 is the private establishments
outright deduction of the discount from the
invoice price of the medicine sold to the senior
citizen.[60] It is, therefore, expected that for each
retail sale made under this law, the discount
period lasts no more than a day, because such
discount is given -- and the net amount thereof
collected -- immediately upon perfection of the
sale.[61] Although prompt payment is made for an
arms-length transaction by the senior citizen, the
real and compelling reason for the private
establishment giving the discount is that the law
itself makes it mandatory.
What RA 7432 grants the senior citizen is a mere
discount privilege, not a sales discount or any of
the above discounts in particular. Prompt
payment is not the reason for (although a
necessary consequence of) such grant. To be
sure, the privilege enjoyed by the senior citizen
must be equivalent to the tax credit benefit
enjoyed by the private establishment granting the
discount. Yet, under the revenue regulations
promulgated by our tax authorities, this benefit
has been erroneously likened and confined to
a sales discount.
To a senior citizen, the monetary effect of the
privilege may be the same as that resulting from
a sales discount. However, to a private
establishment, the effect is different from a
simple reduction in price that results from such
discount. In other words, the tax credit benefit is
not the same as a sales discount. To repeat from
our earlier discourse, this benefit cannot and
should not be treated as a tax deduction.
To stress, the effect of a sales discount on
the income statement and income tax return of
an establishment covered by RA 7432 is different
from that resulting from the availment or use of
its tax credit benefit. While the former is a
deduction before, the latter is a deduction after,
the income tax is computed. As mentioned
earlier, a discount is not necessarily a sales
discount, and a tax credit for a simple discount
privilege should not be automatically treated like
a sales discount. Ubi lex non distinguit, nec nos
distinguere debemus. Where the law does not
distinguish, we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No.
(RR) 2-94 define tax credit as the 20 percent
discount deductible from gross
income for income tax purposes, or from gross
sales for VAT or other percentage tax purposes.
In effect, the tax credit benefit under RA 7432 is
related to a sales discount. This contrived
definition is improper, considering that the latter
has to be deducted from gross sales in order to
compute the gross income in the income
statement and cannot be deducted again, even
for purposes of computing the income tax.
When the law says that the cost of the discount
may be claimed as a tax credit, it means that the
amount -- when claimed -- shall be treated as a
reduction from any tax liability, plain and simple.
The option to avail of the tax credit benefit
depends upon the existence of a tax liability, but
to limit the benefit to a sales discount -- which is
not even identical to the discount privilege that is
granted by law -- does not define it at all and
serves no useful purpose. The definition must,
therefore, be stricken down.
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere
regulation. In fact, a regulation that operates to
create a rule out of harmony with
the statute is a mere nullity;[62] it cannot prevail.
It is a cardinal rule that courts will and should
respect the contemporaneous construction
placed upon a statute by the executive officers
whose duty it is to enforce it x x x.[63] In the
scheme of judicial tax administration, the need
for certainty and predictability in the
implementation of tax laws is crucial.[64] Our tax
authorities fill in the details that Congress may
not have the opportunity or competence to
provide.[65] The regulations these authorities
issue are relied upon by taxpayers, who are
certain that these will be followed by the
courts.[66] Courts, however, will not uphold these
authorities interpretations when clearly absurd,
erroneous or improper.
In the present case, the tax authorities have
given the term tax credit in Sections 2.i and 4 of
RR 2-94 a meaning utterly in contrast to what RA
7432 provides. Their interpretation has muddled
up the intent of Congress in granting a mere
discount privilege, not a sales discount. The
administrative agency issuing these regulations
may not enlarge, alter or restrict the provisions of
the law it administers; it cannot engraft additional
requirements not contemplated by the
legislature.[67]
In case of conflict, the law must prevail.[68] A
regulation adopted pursuant to law is
law.[69] Conversely, a regulation or any portion
thereof not adopted pursuant to law is no law and
has neither the force nor the effect of law.[70]
Availment of Tax
Credit Voluntary
Third, the word may in the text of the
statute[71] implies that the
availability of the tax credit benefit is neither
unrestricted nor mandatory.[72] There is no
absolute right conferred upon respondent, or any
similar taxpayer, to avail itself of the tax
credit remedy whenever it chooses; neither does
it impose a duty on the part of the government to
sit back and allow an important facet of tax
collection to be at the sole control and discretion
of the taxpayer.[73] For the tax authorities to
compel respondent to deduct the 20 percent
discount from either its gross income or its gross
sales[74] is, therefore, not only to make an
imposition without basis in law, but also to
blatantly contravene the law itself.
What Section 4.a of RA 7432 means is that
the tax credit benefit is merely permissive, not
imperative. Respondent is given two options --
either to claim or not to claim the cost of the
discounts as a tax credit. In fact, it may even
ignore the credit and simply consider the gesture
as an act of beneficence, an expression of its
social conscience.
Granting that there is a tax liability and
respondent claims such cost as a tax credit, then
the tax credit can easily be applied. If there is
none, the credit cannot be used and will just have
to be carried over and revalidated[75] accordingly.
If, however, the business continues to operate at
a loss and no other taxes are due, thus
compelling it to close shop, the credit can never
be applied and will be lost altogether.
In other words, it is the existence or the lack of a
tax liability that determines whether the cost of
the discounts can be used as a tax credit. RA
7432 does not give respondent the unfettered
right to avail itself of the credit whenever it
pleases. Neither does it allow our tax
administrators to expand or contract the
legislative mandate. The plain meaning rule
or verba legis in statutory construction is thus
applicable x x x. Where the words of a statute are
clear, plain and free from ambiguity, it must be
given its literal meaning and applied without
attempted interpretation.[76]
Tax Credit Benefit
Deemed Just Compensation
Fourth, Sections 2.i and 4 of RR 2-94 deny the
exercise by the State of its power of eminent
domain. Be it stressed that the privilege enjoyed
by senior citizens does not come directly from
the State, but rather from the private
establishments concerned. Accordingly, the tax
credit benefit granted to these establishments
can be deemed as their just compensation for
private property taken by the State for public
use.[77]
The concept of public use is no longer confined
to the traditional notion of use by the public, but
held synonymous with public interest, public
benefit, public welfare, and public
[78]
convenience. The discount privilege to which
our senior citizens are entitled is actually a
benefit enjoyed by the general public to which
these citizens belong. The discounts given would
have entered the coffers and formed part of
the gross sales of the private establishments
concerned, were it not for RA 7432. The
permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of
private property for public use or benefit.
As a result of the 20 percent discount imposed
by RA 7432, respondent becomes entitled to
a just compensation. This term refers not only to
the issuance of a tax credit certificate indicating
the correct amount of the discounts given, but
also to the promptness in its release. Equivalent
to the payment of property taken by the State,
such issuance -- when not done within
a reasonable time from the grant of the discounts
-- cannot be considered as just compensation. In
effect, respondent is made to suffer the
consequences of being immediately deprived of
its revenues while awaiting actual receipt,
through the certificate, of the equivalent amount
it needs to cope with the reduction in its
revenues.[79]
Besides, the taxation power can also be used as
an implement for the exercise of the power of
eminent domain.[80] Tax measures are but
enforced contributions exacted on pain of penal
sanctions[81] and clearly imposed for a public
purpose.[82] In recent years, the power to tax has
indeed become a most effective tool to realize
social justice, public welfare, and the equitable
distribution of wealth.[83]
While it is a declared commitment under Section
1 of RA 7432, social justice cannot be invoked to
trample on the rights of property owners who
under our Constitution and laws are also entitled
to protection. The social justice consecrated in
our [C]onstitution [is] not intended to take away
rights from a person and give them to another
who is not entitled thereto.[84] For this reason, a
just compensation for income that is taken away
from respondent becomes necessary. It is in
the tax credit that our legislators find support to
realize social justice, and no administrative body
can alter that fact.
To put it differently, a private establishment that
merely breaks even[85] -- without the discounts
yet -- will surely start to incur losses because of
such discounts. The same effect is expected if its
mark-up is less than 20 percent, and if all its
sales come from retail purchases by senior
citizens. Aside from the observation we have
already raised earlier, it will also be grossly unfair
to an establishment if the discounts will be
treated merely as deductions from either
its gross income or its gross sales. Operating at
a loss through no fault of its own, it will realize
that the tax credit limitation under RR 2-94 is
inutile, if not improper. Worse, profit-generating
businesses will be put in a better position if they
avail themselves of tax credits denied those that
are losing, because no taxes are due from the
latter.
Grant of Tax Credit
Intended by the Legislature
Fifth, RA 7432 itself seeks to adopt measures
whereby senior citizens are assisted by the
community as a whole and to establish a
program beneficial to them.[86]These objectives
are consonant with the constitutional policy of
making health x x x services available to all the
people at affordable cost[87] and of giving priority
for the needs of the x x x elderly.[88] Sections 2.i
and 4 of RR 2-94, however, contradict these
constitutional policies and statutory objectives.
Furthermore, Congress has allowed all private
establishments a simple tax credit, not a
deduction. In fact, no cash outlay is required from
the government for the availment or use of such
credit. The deliberations on February 5, 1992 of
the Bicameral Conference Committee Meeting
on Social Justice, which finalized RA 7432,
disclose the true intent of our legislators to treat
the sales discounts as a tax credit, rather than as
a deduction from gross income. We quote from
those deliberations as follows:
"THE CHAIRMAN (Rep. Unico). By the way,
before that ano, about deductions from taxable
income. I think we incorporated there a provision
na - on the responsibility of the private hospitals
and drugstores, hindi ba?
SEN. ANGARA. Oo.
THE CHAIRMAN. (Rep. Unico), So, I think we
have to put in also a provision here about the
deductions from taxable income of that private
hospitals, di ba ganon 'yan?
MS. ADVENTO. Kaya lang po sir, and mga
discounts po nila affecting government and
public institutions, so, puwede na po nating hindi
isama yung mga less deductions ng taxable
income.
THE CHAIRMAN. (Rep. Unico). Puwede na.
Yung about the private hospitals. Yung isiningit
natin?
MS. ADVENTO. Singit na po ba yung 15% on
credit. (inaudible/did not use the microphone).
SEN. ANGARA. Hindi pa, hindi pa.
THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba
naisama natin?
SEN. ANGARA. Oo. You want to insert that?
THE CHAIRMAN (Rep. Unico). Yung ang
proposal ni Senator Shahani, e.
SEN. ANGARA. In the case of private hospitals
they got the grant of 15% discount, provided that,
the private hospitals can claim the expense as a
tax credit.
REP. AQUINO. Yah could be allowed as
deductions in the perpetrations of (inaudible)
income.
SEN. ANGARA. I-tax credit na lang natin para
walang cash-out ano?
REP. AQUINO. Oo, tax credit. Tama, Okay.
Hospitals ba o lahat ng establishments na
covered.
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang
yon, as private hospitals lang.
REP. AQUINO. Ano ba yung establishments na
covered?
SEN. ANGARA. Restaurant lodging houses,
recreation centers.
REP. AQUINO. All establishments covered
siguro?
SEN. ANGARA. From all establishments. Alisin
na natin 'Yung kuwan kung ganon. Can we go
back to Section 4 ha?
REP. AQUINO. Oho.
SEN. ANGARA. Letter A. To capture that
thought, we'll say the grant of 20% discount from
all establishments et cetera, et cetera, provided
that said establishments - provided that private
establishments may claim the cost as a tax
credit. Ganon ba 'yon?
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they
don't need to claim it.
THE CHAIRMAN. (Rep. Unico). Tax credit.
SEN. ANGARA. As a tax credit [rather] than a
kuwan - deduction, Okay.
REP. AQUINO Okay.
SEN. ANGARA. Sige Okay. Di subject to style na
lang sa Letter A".[89]
Special Law
Over General Law
Sixth and last, RA 7432 is a special law that
should prevail over the Tax Code -- a general
law. x x x [T]he rule is that on a specific matter
the special law shall prevail over the general law, regulation can supplant or modify the acts of
which shall Congress.
be resorted to only to supply deficiencies in the
former.[90] In addition, [w]here there are two WHEREFORE, the Petition is hereby DENIED.
statutes, the earlier special and the later general The assailed Decision and Resolution of the
-- the terms of the general broad enough to Court of Appeals AFFIRMED. No
include the matter provided for in the special -- pronouncement as to costs.
the fact that one is special and the other is
general creates a presumption that the special is SO ORDERED.
to be considered as remaining an exception to
the general,[91] one as a general law of the land,
the other as the law of a particular case.[92] It is a
canon of statutory construction that a
later statute, general in its terms and not
expressly repealing a prior special statute, will
ordinarily not affect the special provisions of such
earlier statute.[93]

RA 7432 is an earlier law not expressly repealed

by, and therefore remains an exception to, the
Tax Code -- a later law. When the former states
that a tax credit may be claimed, then the
requirement of prior tax payments under certain
provisions of the latter, as discussed above,
cannot be made to apply. Neither can the
instances of or references to a tax
[94]
deduction under the Tax Code be made to
restrict RA 7432. No provision of any revenue
G.R. No. 81561 January 18, 1991
PEOPLE OF THE PHILIPPINES, plaintiff-
appellee
vs.
ANDRE MARTI, accused-appellant.
The Solicitor General for plaintiff-appellee.
Reynaldo B. Tatoy and Abelardo E. Rogacion for
accused-appellant.
BIDIN, J.:
This is an appeal from a decision * rendered by
the Special Criminal Court of Manila (Regional
Trial Court, Branch XLIX) convicting accused-
appellant of violation of Section 21 (b), Article IV
in relation to Section 4, Article 11 and Section 2
(e) (i), Article 1 of Republic Act 6425, as
amended, otherwise known as the Dangerous
Drugs Act.
The facts as summarized in the brief of the
prosecution are as follows:
On August 14, 1987, between 10:00 and
11:00 a.m., the appellant and his common-
law wife, Shirley Reyes, went to the booth
of the "Manila Packing and Export
Forwarders" in the Pistang Pilipino
Complex, Ermita, Manila, carrying with
them four (4) gift wrapped packages. Anita
Reyes (the proprietress and no relation to
Shirley Reyes) attended to them. The
appellant informed Anita Reyes that he was
sending the packages to a friend in Zurich,
Switzerland. Appellant filled up the contract
necessary for the transaction, writing
therein his name, passport number, the
date of shipment and the name and address
of the consignee, namely, "WALTER
FIERZ, Mattacketr II, 8052 Zurich,
Switzerland" (Decision, p. 6)
Anita Reyes then asked the appellant if she
could examine and inspect the packages.
Appellant, however, refused, assuring her
that the packages simply contained books,
cigars, and gloves and were gifts to his
friend in Zurich. In view of appellant's
representation, Anita Reyes no longer
insisted on inspecting the packages. The
four (4) packages were then placed inside a
brown corrugated box one by two feet in
size (1' x 2'). Styro-foam was placed at the
bottom and on top of the packages before
the box was sealed with masking tape, thus
making the box ready for shipment
(Decision, p. 8).
Before delivery of appellant's box to the
Bureau of Customs and/or Bureau of
Posts, Mr. Job Reyes (proprietor) and
husband of Anita (Reyes), following
standard operating procedure, opened the
boxes for final inspection. When he opened
appellant's box, a peculiar odor emitted
therefrom. His curiousity aroused, he
squeezed one of the bundles allegedly
containing gloves and felt dried leaves
inside. Opening one of the bundles, he
pulled out a cellophane wrapper protruding
from the opening of one of the gloves. He
made an opening on one of the cellophane
wrappers and took several grams of the
contents thereof (tsn, pp. 29-30, October 6,
1987; Emphasis supplied).
Job Reyes forthwith prepared a letter
reporting the shipment to the NBI and
requesting a laboratory examination of the
samples he extracted from the cellophane
wrapper (tsn, pp. 5-6, October 6, 1987).
He brought the letter and a sample of
appellant's shipment to the Narcotics
Section of the National Bureau of
Investigation (NBI), at about 1:30 o'clock in
the afternoon of that date, i.e., August 14,
1987. He was interviewed by the Chief of
Narcotics Section. Job Reyes informed the
NBI that the rest of the shipment was still in
his office. Therefore, Job Reyes and three
(3) NBI agents, and a photographer, went to
the Reyes' office at Ermita, Manila (tsn, p.
30, October 6, 1987).
Job Reyes brought out the box in which
appellant's packages were placed and, in
the presence of the NBI agents, opened the
top flaps, removed the styro-foam and took
out the cellophane wrappers from inside the
gloves. Dried marijuana leaves were found
to have been contained inside the
cellophane wrappers (tsn, p. 38, October 6,
1987; Emphasis supplied).
The package which allegedly contained
books was likewise opened by Job Reyes.
He discovered that the package contained
bricks or cake-like dried marijuana leaves.
The package which allegedly contained
tabacalera cigars was also opened. It
turned out that dried marijuana leaves were
neatly stocked underneath the cigars (tsn,
p. 39, October 6, 1987).
 The NBI agents made an inventory and took
charge of the box and of the contents
thereof, after signing a "Receipt"
acknowledging custody of the said effects
(tsn, pp. 2-3, October 7, 1987).
Thereupon, the NBI agents tried to locate
appellant but to no avail. Appellant's stated
address in his passport being the Manila Central
Post Office, the agents requested assistance
from the latter's Chief Security. On August 27,
1987, appellant, while claiming his mail at the
Central Post Office, was invited by the NBI to
shed light on the attempted shipment of the
seized dried leaves. On the same day the
Narcotics Section of the NBI submitted the dried
leaves to the Forensic Chemistry Section for
laboratory examination. It turned out that the
dried leaves were marijuana flowering tops as
certified by the forensic chemist. (Appellee's
Brief, pp. 9-11, Rollo, pp. 132-134).
Thereafter, an Information was filed against
appellant for violation of RA 6425, otherwise
known as the Dangerous Drugs Act.
After trial, the court a quo rendered the assailed
decision.
In this appeal, accused/appellant assigns the
following errors, to wit:
THE LOWER COURT ERRED IN
ADMITTING IN EVIDENCE THE
ILLEGALLY SEARCHED AND SEIZED
OBJECTS CONTAINED IN THE FOUR
PARCELS.
THE LOWER COURT ERRED IN
CONVICTING APPELLANT DESPITE THE
UNDISPUTED FACT THAT HIS RIGHTS
UNDER THE CONSTITUTION WHILE
UNDER CUSTODIAL PROCEEDINGS
WERE NOT OBSERVED.
THE LOWER COURT ERRED IN NOT
GIVING CREDENCE TO THE
EXPLANATION OF THE APPELLANT ON
HOW THE FOUR PARCELS CAME INTO
HIS POSSESSION (Appellant's Brief, p.
1; Rollo, p. 55)
1. Appellant contends that the evidence subject
of the imputed offense had been obtained in
violation of his constitutional rights against
unreasonable search and seizure and privacy of
communication (Sec. 2 and 3, Art. III,
Constitution) and therefore argues that the same
should be held inadmissible in evidence (Sec. 3
(2), Art. III).
Sections 2 and 3, Article III of the Constitution
provide:
Sec. 2. The right of the people to be secure
in their persons, houses, papers and effects
against unreasonable searches and
seizures of whatever nature and for any
purpose shall be inviolable, and no search
warrant or warrant of arrest shall issue
except upon probable cause to be
determined personally by the judge after
examination under oath or affirmation of the
complainant and the witnesses he may
produce, and particularly describing the
place to be searched and the persons or
things to be seized.
Sec. 3. (1) The privacy of communication
and correspondence shall be inviolable
except upon lawful order of the court, or
when public safety or order requires
otherwise as prescribed by law.
(2) Any evidence obtained in violation of this
or the preceding section shall be
inadmissible for any purpose in any
proceeding.
Our present constitutional provision on the
guarantee against unreasonable search and
seizure had its origin in the 1935 Charter which,
worded as follows:
The right of the people to be secure in their
persons, houses, papers and effects
against unreasonable searches and
seizures shall not be violated, and no
warrants shall issue but
upon probable cause, to be determined by
the judge after examination under oath or
affirmation of the complainant and the
witnesses he may produce, and particularly
describing the place to be searched, and
the persons or things to be seized. (Sec. 1
[3], Article III)
was in turn derived almost verbatim from the
Fourth Amendment ** to the United States
Constitution. As such, the Court may turn to the
pronouncements of the United States Federal
Supreme Court and State Appellate Courts
which are considered doctrinal in this jurisdiction.
Thus, following the exclusionary rule laid down
in Mapp v. Ohio by the US Federal Supreme
Court (367 US 643, 81 S.Ct. 1684, 6 L.Ed. 1081
[1961]), this Court, in Stonehill v. Diokno (20
SCRA 383 [1967]), declared as inadmissible any
evidence obtained by virtue of a defective search
and seizure warrant, abandoning in the process
the ruling earlier adopted in Moncado v. People's
Court (80 Phil. 1 [1948]) wherein the admissibility
of evidence was not affected by the illegality of
its seizure. The 1973 Charter (Sec. 4 [2], Art. IV)
constitutionalized the Stonehill ruling and is
carried over up to the present with the advent of
the 1987 Constitution.
In a number of cases, the Court strictly adhered
to the exclusionary rule and has struck down the
admissibility of evidence obtained in violation of
the constitutional safeguard against
unreasonable searches and seizures. (Bache &
Co., (Phil.), Inc., v. Ruiz, 37 SCRA 823 [1971];
Lim v. Ponce de Leon, 66 SCRA 299 [1975];
People v. Burgos, 144 SCRA 1 [1986]; Roan v.
Gonzales, 145 SCRA 687 [1987]; See
also Salazar v. Hon. Achacoso, et al., GR No.
81510, March 14, 1990).
It must be noted, however, that in all those cases
adverted to, the evidence so obtained were
invariably procured by the State acting through
the medium of its law enforcers or other
authorized government agencies.
On the other hand, the case at bar assumes a
peculiar character since the evidence sought to
be excluded was primarily discovered and
obtained by a private person, acting in a private
capacity and without the intervention and
participation of State authorities. Under the
circumstances, can accused/appellant validly
claim that his constitutional right against
unreasonable searches and seizure has been
violated? Stated otherwise, may an act of a
private individual, allegedly in violation of
appellant's constitutional rights, be invoked
against the State?
We hold in the negative. In the absence of
governmental interference, the liberties
guaranteed by the Constitution cannot be
invoked against the State.
As this Court held in Villanueva v. Querubin (48
SCRA 345 [1972]:
1. This constitutional right (against
unreasonable search and seizure) refers to
the immunity of one's person, whether
citizen or alien, from interference by
government, included in which is his
residence, his papers, and other
possessions. . . .
. . . There the state, however powerful, does
not as such have the access except under
 the circumstances above noted, for in the
traditional formulation, his house, however
humble, is his castle. Thus is outlawed any
unwarranted intrusion by government,
which is called upon to refrain from any
invasion of his dwelling and to respect the
privacies of his life. . . . (Cf. Schermerber v.
California, 384 US 757 [1966] and Boyd v.
United States, 116 US 616 [1886];
Emphasis supplied).
In Burdeau v. McDowell (256 US 465 (1921), 41
S Ct. 547; 65 L.Ed. 1048), the Court there in
construing the right against unreasonable
searches and seizures declared that:
(t)he Fourth Amendment gives protection
against unlawful searches and seizures,
and as shown in previous cases, its
protection applies to governmental action.
Its origin and history clearly show that it was
intended as a restraint upon the activities of
sovereign authority, and was not intended
to be a limitation upon other than
governmental agencies; as against such
authority it was the purpose of the Fourth
Amendment to secure the citizen in the right
of unmolested occupation of his dwelling
and the possession of his property, subject
to the right of seizure by process duly
served.
The above ruling was reiterated in State v.
Bryan (457 P.2d 661 [1968]) where a parking
attendant who searched the automobile to
ascertain the owner thereof found marijuana
instead, without the knowledge and participation
of police authorities, was declared admissible in
prosecution for illegal possession of narcotics.
And again in the 1969 case of Walker v.
State (429 S.W.2d 121), it was held that the
search and seizure clauses are restraints upon
the government and its agents, not upon private
individuals (citing People v. Potter, 240 Cal.
App.2d 621, 49 Cap. Rptr, 892 (1966); State v.
Brown, Mo., 391 S.W.2d 903 (1965); State v.
Olsen, Or., 317 P.2d 938 (1957).
Likewise appropos is the case of Bernas v.
US (373 F.2d 517 (1967). The Court there said:
The search of which appellant complains,
however, was made by a private citizen
the owner of a motel in which appellant
stayed overnight and in which he left behind
a travel case containing the
evidence***complained of. The search was
made on the motel owner's own initiative.
 Because of it, he became suspicious, called
the local police, informed them of the bag's
contents, and made it available to the
authorities.
The fourth amendment and the case law
applying it do not require exclusion of
evidence obtained through a search by a
private citizen. Rather, the amendment only
proscribes governmental action."
The contraband in the case at bar having come
into possession of the Government without the
latter transgressing appellant's rights against
unreasonable search and seizure, the Court
sees no cogent reason why the same should not
be admitted against him in the prosecution of the
offense charged.
Appellant, however, would like this court to
believe that NBI agents made an illegal search
and seizure of the evidence later on used in
prosecuting the case which resulted in his
conviction.
The postulate advanced by accused/appellant
needs to be clarified in two days. In both
instances, the argument stands to fall on its own
weight, or the lack of it.
First, the factual considerations of the case at bar
readily foreclose the proposition that NBI agents
conducted an illegal search and seizure of the
prohibited merchandise. Records of the case
clearly indicate that it was Mr. Job Reyes, the
proprietor of the forwarding agency, who made
search/inspection of the packages. Said
inspection was reasonable and a standard
operating procedure on the part of Mr. Reyes as
a precautionary measure before delivery of
packages to the Bureau of Customs or the
Bureau of Posts (TSN, October 6 & 7, 1987, pp.
15-18; pp. 7-8; Original Records, pp. 119-122;
167-168).
It will be recalled that after Reyes opened the box
containing the illicit cargo, he took samples of the
same to the NBI and later summoned the agents
to his place of business. Thereafter, he opened
the parcel containing the rest of the shipment and
entrusted the care and custody thereof to the NBI
agents. Clearly, the NBI agents made no search
and seizure, much less an illegal one, contrary to
the postulate of accused/appellant.
Second, the mere presence of the NBI agents did
not convert the reasonable search effected by
Reyes into a warrantless search and seizure
proscribed by the Constitution. Merely to observe
and look at that which is in plain sight is not a
search. Having observed that which is open,
where no trespass has been committed in aid
thereof, is not search (Chadwick v. State, 429
SW2d 135). Where the contraband articles are
identified without a trespass on the part of the
arresting officer, there is not the search that is
prohibited by the constitution (US v. Lee 274 US
559, 71 L.Ed. 1202 [1927]; Ker v. State of
California 374 US 23, 10 L.Ed.2d. 726 [1963];
Moore v. State, 429 SW2d 122 [1968]).
In Gandy v. Watkins (237 F. Supp. 266 [1964]),
it was likewise held that where the property was
taken into custody of the police at the specific
request of the manager and where the search
was initially made by the owner there is no
unreasonable search and seizure within the
constitutional meaning of the term.
That the Bill of Rights embodied in the
Constitution is not meant to be invoked against
acts of private individuals finds support in the
deliberations of the Constitutional Commission.
True, the liberties guaranteed by the
fundamental law of the land must always be
subject to protection. But protection against
whom? Commissioner Bernas in his sponsorship
speech in the Bill of Rights answers the query
which he himself posed, as follows:
First, the general reflections. The protection
of fundamental liberties in the essence of
constitutional democracy. Protection
against whom? Protection against the state.
The Bill of Rights governs the relationship
between the individual and the state. Its
concern is not the relation between
individuals, between a private individual
and other individuals. What the Bill of Rights
does is to declare some forbidden zones in
the private sphere inaccessible to any
power holder. (Sponsorship Speech of
Commissioner Bernas , Record of the
Constitutional Commission, Vol. 1, p. 674;
July 17, 1986; Emphasis supplied)
The constitutional proscription against unlawful
searches and seizures therefore applies as a
restraint directed only against the government
and its agencies tasked with the enforcement of
the law. Thus, it could only be invoked against
the State to whom the restraint against arbitrary
and unreasonable exercise of power is imposed.
If the search is made upon the request of law
enforcers, a warrant must generally be first
secured if it is to pass the test of constitutionality.
However, if the search is made at the behest or
initiative of the proprietor of a private
establishment for its own and private purposes,
as in the case at bar, and without the intervention
of police authorities, the right against
unreasonable search and seizure cannot be
invoked for only the act of private individual, not
the law enforcers, is involved. In sum, the
protection against unreasonable searches and
seizures cannot be extended to acts committed
by private individuals so as to bring it within the
ambit of alleged unlawful intrusion by the
government.
Appellant argues, however, that since the
provisions of the 1935 Constitution has been
modified by the present phraseology found in the
1987 Charter, expressly declaring as
inadmissible any evidence obtained in violation
of the constitutional prohibition against illegal
search and seizure, it matters not whether the
evidence was procured by police authorities or
private individuals (Appellant's Brief, p. 8, Rollo,
p. 62).
The argument is untenable. For one thing, the
constitution, in laying down the principles of the
government and fundamental liberties of the
people, does not govern relationships between
individuals. Moreover, it must be emphasized
that the modifications introduced in the 1987
Constitution (re: Sec. 2, Art. III) relate to the
issuance of either a search warrant or warrant of
arrest vis-a-vis the responsibility of the judge in
the issuance thereof (See Soliven v. Makasiar,
167 SCRA 393 [1988]; Circular No. 13 [October
1, 1985] and Circular No. 12 [June 30, 1987]. The
modifications introduced deviate in no manner as
to whom the restriction or inhibition against
unreasonable search and seizure is directed
against. The restraint stayed with the State and
did not shift to anyone else.
Corolarilly, alleged violations against
unreasonable search and seizure may only be
invoked against the State by an individual
unjustly traduced by the exercise of sovereign
authority. To agree with appellant that an act of
a private individual in violation of the Bill of Rights
should also be construed as an act of the State
would result in serious legal complications and
an absurd interpretation of the constitution.
Similarly, the admissibility of the evidence
procured by an individual effected through
private seizure equally applies, in pari passu, to
the alleged violation, non-governmental as it is,
of appellant's constitutional rights to privacy and
communication.
2. In his second assignment of error, appellant
contends that the lower court erred in convicting
him despite the undisputed fact that his rights
under the constitution while under custodial
investigation were not observed.
Again, the contention is without merit, We have
carefully examined the records of the case and
found nothing to indicate, as an "undisputed
fact", that appellant was not informed of his
constitutional rights or that he gave statements
without the assistance of counsel. The law
enforcers testified that accused/appellant was
informed of his constitutional rights. It is
presumed that they have regularly performed
their duties (See. 5(m), Rule 131) and their
testimonies should be given full faith and
credence, there being no evidence to the
contrary. What is clear from the records, on the
other hand, is that appellant refused to give any
written statement while under investigation as
testified by Atty. Lastimoso of the NBI, Thus:
Fiscal Formoso:
You said that you investigated Mr. and Mrs.
Job Reyes. What about the accused here,
did you investigate the accused together
with the girl?
WITNESS:
Yes, we have interviewed the accused
together with the girl but the accused
availed of his constitutional right not to give
any written statement, sir. (TSN, October 8,
1987, p. 62; Original Records, p. 240)
The above testimony of the witness for the
prosecution was not contradicted by the defense
on cross-examination. As borne out by the
records, neither was there any proof by the
defense that appellant gave uncounselled
confession while being investigated. What is
more, we have examined the assailed judgment
of the trial court and nowhere is there any
reference made to the testimony of appellant
while under custodial investigation which was
utilized in the finding of conviction. Appellant's
second assignment of error is therefore
misplaced.
3. Coming now to appellant's third assignment of
error, appellant would like us to believe that he
was not the owner of the packages which
contained prohibited drugs but rather a certain
Michael, a German national, whom appellant met
in a pub along Ermita, Manila: that in the course
of their 30-minute conversation, Michael
requested him to ship the packages and gave
him P2,000.00 for the cost of the shipment since
the German national was about to leave the
country the next day (October 15, 1987, TSN, pp.
2-10).
Rather than give the appearance of veracity, we
find appellant's disclaimer as incredulous, self-
serving and contrary to human experience. It can
easily be fabricated. An acquaintance with a
complete stranger struck in half an hour could not
have pushed a man to entrust the shipment of
four (4) parcels and shell out P2,000.00 for the
purpose and for appellant to readily accede to
comply with the undertaking without first
ascertaining its contents. As stated by the trial
court, "(a) person would not simply entrust
contraband and of considerable value at that as
the marijuana flowering tops, and the cash
amount of P2,000.00 to a complete stranger like
the Accused. The Accused, on the other hand,
would not simply accept such undertaking to take
custody of the packages and ship the same from
a complete stranger on his mere say-so"
(Decision, p. 19, Rollo, p. 91). As to why he
readily agreed to do the errand, appellant failed
to explain. Denials, if unsubstantiated by clear
and convincing evidence, are negative self-
serving evidence which deserve no weight in law
and cannot be given greater evidentiary weight
than the testimony of credible witnesses who
testify on affirmative matters (People v. Esquillo,
171 SCRA 571 [1989]; People vs. Sariol, 174
SCRA 237 [1989]).
Appellant's bare denial is even made more
suspect considering that, as per records of the
Interpol, he was previously convicted of
possession of hashish by the Kleve Court in the
Federal Republic of Germany on January 1,
1982 and that the consignee of the frustrated
shipment, Walter Fierz, also a Swiss national,
was likewise convicted for drug abuse and is just
about an hour's drive from appellant's residence
in Zurich, Switzerland (TSN, October 8, 1987, p.
66; Original Records, p. 244; Decision, p.
21; Rollo, p. 93).
Evidence to be believed, must not only proceed
from the mouth of a credible witness, but it must
be credible in itself such as the common
experience and observation of mankind can
approve as probable under the circumstances
(People v. Alto, 26 SCRA 342
[1968], citing Daggers v. Van Dyke, 37 N.J. Eg.
130; see also People v. Sarda, 172 SCRA 651
[1989]; People v. Sunga, 123 SCRA 327 [1983]);
Castaares v. CA, 92 SCRA 567 [1979]). As
records further show, appellant did not even
bother to ask Michael's full name, his complete
address or passport number. Furthermore, if
indeed, the German national was the owner of
the merchandise, appellant should have so
indicated in the contract of shipment (Exh. "B",
Original Records, p. 40). On the contrary,
appellant signed the contract as the owner and
shipper thereof giving more weight to the
presumption that things which a person
possesses, or exercises acts of ownership over,
are owned by him (Sec. 5 [j], Rule 131). At this
point, appellant is therefore estopped to claim
otherwise.

Premises considered, we see no error committed

by the trial court in rendering the assailed
judgment.

WHEREFORE, the judgment of conviction

finding appellant guilty beyond reasonable doubt
of the crime charged is hereby AFFIRMED. No
costs.

SO ORDERED.
G.R. No. 187417, February 24, 2016
 CHRISTINE JOY CAPIN-
CADIZ, Petitioner, v. BRENT HOSPITAL
AND COLLEGES, INC., Respondent.
DECISION
REYES, J.:
This is a petition for review
on certiorari1 under Rule 45 of the Rules
of Court assailing the Resolutions dated
July 22, 20082 and February 24, 20093 of
the Court of Appeals (CA) in CA-G.R. SP
No. 02373-MIN, which dismissed the
petition filed by petitioner Christine Joy
Capin-Cadiz (Cadiz) on the following
grounds: (1) incomplete statement of
material dates; (2) failure to attach
registry receipts; and (3) failure to
indicate the place of issue of counsel's
Professional Tax Receipt (PTR) and
Integrated Bar of the Philippines (IBP)
official receipts.
Antecedent Facts
Cadiz was the Human Resource Officer of
respondent Brent Hospital and Colleges,
Inc. (Brent) at the time of her indefinite
suspension from employment in 2006.
The cause of suspension was Cadiz's
Unprofessionalism and Unethical Behavior
Resulting to Unwed Pregnancy. It appears
that Cadiz became pregnant out of
wedlock, and Brent imposed the
suspension until such time that she
marries her boyfriend in accordance with
law.
Cadiz then filed with the Labor Arbiter
(LA) a complaint for Unfair Labor Practice,
Constructive Dismissal, Non-Payment of
Wages and Damages with prayer for
Reinstatement.4
Ruling of the Labor Tribunals
In its Decision5 dated April 12, 2007, the
LA found that Cadiz's indefinite
suspension amounted to a constructive
dismissal; nevertheless, the LA ruled that
Cadiz was not illegally dismissed as there
was just cause for her dismissal, that is,
she engaged in premarital sexual
relations with her boyfriend resulting in a
pregnancy out of wedlock.6 The LA further
stated that her "immoral conduct x x x
[was] magnified as serious misconduct
not only by heir getting pregnant as a
result thereof before and without
marriage, but more than that, also by the
fact that Brent is an institution of the
Episcopal Church in the Philippines
operating both a hospital and college
where [Cadiz] was employed."7 The LA
also ruled that she was not entitled to
reinstatement "at least until she marries
her boyfriend," to backwages and
vacation/sick leave pay. Brent, however,
manifested that it was willing to pay her
1311 month pay. The dispositive portion
of the decision reads:
WHEREFORE, judgment is hereby
rendered, ordering [Brent] to pay [Cadiz]
13th month pay in the sum of Seven
Thousand Nine Hundred Seventy &
11/100 Pesos (P7,970.11).
All other charges and claims are hereby
dismissed for lack of merit.
SO
ORDERED.8ChanRoblesVirtualawlibrary
Cadiz appealed to the National Labor
Relations Commission (NLRC), which
affirmed the LA decision in its
Resolution9 dated December 10, 2007.
Her motion for reconsideration having
been denied by the NLRC in its
Resolution10 dated February 29, 2008,
Cadiz elevated her case to the CA on
petition for certiorari under Rule 65.
Ruling of the CA
The CA, however, dismissed her petition
outright due to technical defects in the
petition: (1) incomplete statement of
material dates; (2) failure to attach
registry receipts; and (3) failure to
indicate the place of issue of counsel's
PTR and IBP official receipts.11 Cadiz
sought reconsideration of the assailed CA
Resolution dated July 22, 2008 but it was
denied in the assailed Resolution dated
February 24, 2009.12The CA further ruled
that "a perusal of the petition will reveal
that public respondent NLRC committed
no grave abuse of discretion amounting to
lack or excess of jurisdiction x x x holding
[Cadiz's] dismissal from employment
valid."13
Hence, the present petition. Cadiz argues
that -
I EXEMPLARY DAMAGES AND ATTORNEY'S
THE HONORABLE [NLRC] GRAVELY
ABUSED ITS DISCRETION WHEN IT HELD
TFIAT [CADIZ'S] IMPREGNATION
OUTSIDE OF WEDLOCK IS A GROUND
FOR THE TERMINATION OF [CADIZ'S]
EMPLOYMENT14
II
THE [NLRC] COMMITTED GRAVE ABUSE
OF DISCRETION WHEN IT UPHELD THE
DISMISSAL OF [CADIZ] ON THE GROUND
THAT THE INDEFINITE SUSPENSION WAS
VALID AND REQUIRED [CADIZ] TO FIRST
ENTER INTO MARRIAGE BEFORE SHE CAN
BE ADMITTED BACK TO HER
EMPLOYMENT15
III
RESPONDENT [NLRC] GRAVELY ABUSED
ITS DISCRETION WHEN IT DENIED
[CADIZ'S] CLAIM FOR BACKWAGES,
ALLOWANCES, SICK LEAVE PAY,
MATERNITY PAY AND MORAL AND
FEES16
IV
THE [CA] MISPLACED APPLICATION OF
THE MATERIAL DATA RULE RESULTING
TO GRAVE ABUSE OF DISCRETION WHEN
IT DISMISSED THE APPEAL17
Cadiz contends, among others, that
getting pregnant outside of wedlock is not
grossly immoral, especially when both
partners do not have any legal
impediment to marry. Cadiz surmises that
the reason for her suspension was not
because of her relationship with her then
boyfriend but because of the resulting
pregnancy. Cadiz also lambasts Brent's
condition for her reinstatement - that she
gets married to her boyfriend - saying
that this violates the stipulation against
marriage under Article 136 of the Labor
Code. Finally, Cadiz contends that there
was substantial compliance with the rules
of procedure, and the CA should not have
dismissed the petition.18
Brent, meanwhile, adopts and reiterates
its position before the LA and the NLRC
that Cadiz's arguments are irrational and
out of context. Brent argues, among
others, that for Cadiz to limit acts of
immorality only to extra-marital affairs is
to "change the norms, beliefs, teachings
and practices of BRENT as a Church
institution of the x x x Episcopal Church in
the Philippines."19
Ruling of the Court
Ordinarily, the Court will simply gloss
over the arguments raised by Cadiz,
given that the main matter dealt with by
the CA were the infirmities found in the
petition and which caused the dismissal of
her case before it. In view, however, of
the significance of the issues involved in
Cadiz's dismissal from employment, the
Court will resolve the petition including
the substantial grounds raised herein.
The issue to be resolved is whether the
CA committed a reversible error in ruling
that: (1) Cadiz's petition is dismissible on
ground of technical deficiencies; and (2)
the NLRC did not commit grave abuse of
discretion in upholding her dismissal from
employment.
Rules of procedure are mere
tools designed to facilitate the
attainment of justice
In dismissing outright Cadiz's petition, the
CA found the following defects: (1)
incomplete statement of material dates;
(2) failure to attach registry receipts; and
(3) failure to indicate the place of issue of
counsel's PTR and IBP official receipts.
Rule 46, Section 3 of the Rules of Court
states the contents of a petition filed with
the CA under Rule 65, viz, "the petition
shall x x x indicate the material dates
showing when notice of the judgment or
final order or resolution subject thereof
was received, when a motion for new trial
or reconsideration, if any, was filed and
when notice of the denial thereof was
received." The rationale for this is to
enable the CA to determine whether the
petition was filed within the period fixed
in the rules.20 Cadiz's failure to state the
date of receipt of the copy of the NLRC
decision, however, is not fatal to her case
since the more important material date
which must be duly alleged in a petition is
the date of receipt of the resolution of
denial of the motion for
reconsideration,21 which she has duly
complied with.22
The CA also dismissed the petition for
failure to attach the registry receipt in the
affidavit of service.23Cadiz points out, on
the other hand, that the registry receipt
number was indicated in the petition and
this constitutes substantial compliance
with the requirement. What the rule
requires, however, is that the registry
receipt must be appended to the paper
being served.24 Clearly, mere indication of
the registry receipt numbers will not
suffice. In fact, the absence of the
registry receipts amounts to lack of proof
of service.25 Nevertheless, despite this
defect, the Court finds that the ends of
substantial justice would be better served
by relaxing the application of technical
rules of procedure.26 With regard to
counsel's failure to indicate the place
where the IBP and PTR receipts were
issued, there was substantial compliance
with the requirement since it was
indicated in the verification and
certification of non-forum shopping, as
correctly argued by Cadiz's
lawyer.27cralawred
Time and again, the Court has
emphasized that rules of procedure are
designed to secure substantial justice.
These are mere tools to expedite the
decision or resolution of cases and if their
strict and rigid application would frustrate
rather than promote substantial justice,
then it must be avoided.28
Immorality as a just cause for
termination of employment

Both the LA and the NLRC upheld Cadiz's
dismissal as. one attended with just
cause. The LA, while ruling that Cadiz's
indefinite suspension was tantamount to a
constructive dismissal, nevertheless found
that there was just cause for her
dismissal. According to the LA, "there was
just cause therefor, consisting in her
engaging in premarital sexual relations
with Carl Cadiz, allegedly her boyfriend,
resulting in her becoming pregnant out of
wedlock."29 The LA deemed said act to be
immoral, which was punishable by
dismissal under Brent's rules and which
likewise constituted serious misconduct
under Article 282(a) of the Labor Code.
The LA also opined that since Cadiz was
Brent's ITuman Resource Officer in charge
of implementing its rules against immoral
conduct, she should have been the
"epitome of proper conduct."30 The LA
ruled:
[Cadiz's] immoral conduct by having
premarital sexual relations with her
alleged boy friend, a former Brent worker
and her co-employee, is magnified as
serious misconduct not only by her
getting pregnant as a result thereof
before and without marriage, but more
than that, also by the fact that Brent is an
institution of the Episcopal Church in the
Philippines xxx committed to "developing
competent and dedicated professionals
xxx and in providing excellent medical
and other health services to the
community for the Glory of God and
Service to Humanity." x x x As if these
were not enough, [Cadiz] was Brent's
Human Resource Officer charged with,
among others, implementing the rules of
Brent against immoral conduct, including
premarital sexual relations, or fornication
xxx. She should have been the epitome of
proper conduct, but miserably failed. She
herself engaged in premarital sexual
relations, which surely scandalized the
Brent community, x x x.31
The NLRC, for its part, sustained the LA's
conclusion.
The Court, however, cannot subscribe to
the labor tribunals' conclusions.
Admittedly, one of the grounds for
disciplinary action under Brent's policies is
immorality, which is punishable by
dismissal at first offense32 Brent's Policy
Manual provides:
CATEGORY IV
In accordance with Republic Act No.
1052,33 the following are just cause for
terminating an employment of an
employee without a definite period:
xxxx
2. Serious misconduct or willful
disobedience by the employee of the
orders of his employer or representative
in connection with his work, such as, but
not limited to the following:
chanRoblesvirtualLawlibrary
xxxx
b. Commission of immoral conduct or
indecency within the company premises,
such as an act of lasciviousness or any
act which is sinful and vulgar in nature.
c. Immorality, concubinage,
bigamy.34ChanRoblesVirtualawlibrary
Its Employee's Manual of Policies,
meanwhile, enumerates "[a]cts of
immorality such as scandalous behaviour,
acts of lasciviousness against any person
(patient, visitors, co-workers) within
hospital premises"35 as a ground for
discipline and discharge. Brent also relied
on Section 94 of the Manual of
Regulations for Private Schools (MRPS),
which lists "disgraceful or immoral
conduct" as a cause for terminating
employment.36
Thus, the question that must be resolved
is whether Cadiz's premarital relations
with her boyfriend and the resulting
pregnancy out of wedlock constitute
immorality. To resolve this, the Court
makes reference to the recently
promulgated case of Cheryll Santos Lens
v. St. Scholastica 's College Westgrove
and/or Sr. Edna Quiambao, OSB37
Leus involved the same personal
circumstances as the case at bench, albeit
the employer was a Catholic and
sectarian educational institution and the
petitioner, Cheryl 1 Santos Leus (Leus),
worked as an assistant to the school's
Director of the Lay Apostolate and
Community Outreach Directorate. Leus
was dismissed from employment by the
school for having borne a child out of
wedlock. The Court ruled in Leus that the
determination of whether a conduct is
disgraceful or immoral involves a two-
step process: first, a consideration of the
totality of the circumstances surrounding
the conduct; and second, an assessment
of the said circumstances vis-a-vis the
prevailing norms of conduct, i.e., what
the society generally considers moral and
respectable.
In this case, the surrounding facts leading
to Cadiz's dismissal are straightforward -
she was employed as a human resources
officer in an educational and medical
institution of the Episcopal Church of the
Philippines; she and her boyfriend at that
time were both single; they engaged in
premarital sexual relations, which
resulted into pregnancy. The labor
tribunals characterized these as
constituting disgraceful or immoral
conduct. They also sweepingly concluded
that as Human Resource Officer, Cadiz
should have been the epitome of proper
conduct and her indiscretion "surely
scandalized the Brent community."38
The foregoing circumstances, however, do
not readily equate to disgraceful and
immoral conduct. Brent's Policy Manual
and Employee's Manual of Policies do not
define what constitutes immorality; it
simply stated immorality as a ground for
disciplinary action. Instead, Brent
erroneously relied on the standard
dictionary definition of fornication as a
form of illicit relation and proceeded to
conclude that Cadiz's acts fell under such
classification, thus constituting
immorality.39
Jurisprudence has already set the
standard of morality with which an act
should be gauged - it is public and
secular, not religious.40 Whether a
conduct is considered disgraceful or
immoral should be made in accordance
with the prevailing norms of conduct,
which, as stated in Leus, refer to those
conducts which are proscribed because
they are detrimental to conditions
upon which depend the existence and
progress of human society. The fact
that a particular act does not conform to
the traditional moral views of a certain
sectarian institution is not sufficient
reason to qualify such act as immoral
unless it, likewise, does not conform to
public and secular standards. More
importantly, there must be substantial
evidence to establish that premarital
sexual relations and pregnancy out of
wedlock is considered disgraceful or
immoral.41
The totality of the circumstances of this
case does not justify the conclusion that
Cadiz committed acts of immorality.
Similar to Leus, Cadiz and her boyfriend
were both single and had no legal
impediment to marry at the time she
committed the alleged immoral conduct.
In fact, they eventually married on April
15, 2008.42 Aside from these, the labor
tribunals' respective conclusion that
Cadiz's "indiscretion" "scandalized the
Brent community" is speculative, at most,
and there is no proof adduced by Brent to
support such sweeping conclusion. Even
Brent admitted that it came to know of
Cadiz's "situation" only when her
pregnancy became manifest.43 Brent also
conceded that "[a]t the time [Cadiz] and
Carl R. Cadiz were just carrying on their
boyfriend-girlfriend relationship, there
was no knowledge or evidence by [Brent]
that they were engaged also in premarital
sex."44 This only goes to show that Cadiz
did not flaunt her premarital relations
with her boyfriend and it was not carried
on under scandalous or disgraceful
circumstances. As declared in Leus,
"there is no law which penalizes an
unmarried mother by reason of her sexual
conduct or proscribes the consensual
sexual activity between two unmarried
persons; that neither does such situation
contravene[s] any fundamental state
policy enshrined in the
Constitution."45 The fact that Brent is a
sectarian institution does not
automatically subject Cadiz to its religious
standard of morality absent an express
statement in its manual of personnel
policy and regulations, prescribing such
religious standard as gauge as these
regulations create the obligation on both
the employee and the employer to abide
by the same.46
Brent, likewise, cannot resort to the MRPS
because the Court already stressed in
Leus that "premarital sexual relations
between two consenting adults who have
no impediment to marry each other, and,
consequently, conceiving a child out of
wedlock, gauged from a purely public and
secular view of morality, does not amount
to a disgraceful or immoral conduct under
Section 94(e) of the 1992 MRPS."47
Marriage as a condition for
reinstatement
The doctrine of management prerogative
gives an employer the right to "regulate,
according to his own discretion and
judgment, all aspects of employment,
including hiring, work assignments,
working methods, the time, place and
manner of work, work supervision,
transfer of employees, lay-off of workers,
and discipline, dismissal, and recall of
employees."48 In this case, Brent imposed
on Cadiz the condition that she
subsequently contract marriage with her
then boyfriend for her to be reinstated.
According to Brent, this is "in consonance
with the policy against encouraging illicit
or common-law relations that would
subvert the sacrament of marriage."49
Statutory law is replete with legislation
protecting labor and promoting equal
opportunity in employment. No less than
the 1987 Constitution mandates that the
"State shall afford full protection to labor,
local and overseas, organized and
unorganized, and promote full
employment and equality of employment
opportunities for all."50 The Labor Code of
the Philippines, meanwhile, provides:
Art. 136. Stipulation against marriage. It
shall be unlawful for an employer to
require as a condition of employment or
continuation of employment that a
woman employee shall not get married,
or to stipulate expressly or tacitly that
upon getting married, a woman employee
shall be deemed resigned or separated, or
to actually dismiss, discharge,
discriminate or otherwise prejudice a
woman employee merely by reason of her
marriage.
With particular regard to women, Republic
Act No. 9710 or the Magna Carta of
Women51 protects women against
discrimination in all matters relating to
marriage and family relations, including
the right to choose freely a spouse
and to enter into marriage only with
their free and full consent.52
Weighed against these safeguards, it
becomes apparent that Brent's condition
is coercive, oppressive and
discriminatory. There is no rhyme or
reason for it. It forces Cadiz to marry for
economic reasons and deprives her of the
freedom to choose her status, which is a
privilege that inheres in her as an
intangible and inalienable right.53 While a
marriage or no-marriage qualification
may be justified as a "bona fide
occupational qualification," Brent must
prove two factors necessitating its
imposition, viz: (1) that the employment
qualification is reasonably related to
the essential operation of the job
involved; and (2) that there is a factual
basis for believing that all or substantially
all persons meeting the qualification
would be unable to properly perform the
duties of the job.54 Brent has not shown
the presence of neither of these factors.
Perforce, the Court cannot uphold the
validity of said condition.
Given the foregoing, Cadiz, therefore, is
entitled to reinstatement without loss of
seniority rights, and payment of
backwages computed from the time
compensation was withheld up to the date
of actual reinstatement. Where multiplied by number of x
reinstatement is no longer viable as an years
option, separation pay should be awarded
as an alternative and as a form of in service (Aug 02 to Nov 4
financial assistance.55 In the computation 06)
of separation pay, the Court stresses
that it should not go beyond the date P36,434.80
an employee was deemed to have
The Court also finds that Cadiz is only
been actually separated from
entitled to limited backwages. Generally,
employment, or beyond the date
the computation of backwages is
when reinstatement was rendered
reckoned from the date of illegal dismissal
impossible.56 In this case, the records
until actual reinstatement.59 In case
do not show whether Cadiz already
separation pay is ordered in lieu of
severed her employment with Brent or
reinstatement or reinstatement is waived
whether she is gainfully employed
by the employee, backwages is computed
elsewhere; thus, the computation of
from the time of dismissal until the
separation pay shall be pegged based on
finality of the decision ordering separation
the findings that she was employed on
pay.60Jurisprudence further clarified that
August 16, 2002, on her own admission
the period for computing the backwages
in her complaint that she was dismissed
during the period of appeal should end on
on November 17, 2006, and that she was
the date that a higher court reversed the
earning a salary of P9,108.70 per
labor arbitration ruling of illegal
month,57 which shall then be computed at
dismissal.61 If applied in Cadiz's case,
a rate of one (1) month salary for every
then the computation of backwages
year of service,58 as follows:
should be from November 17, 2006,
which was the time of her illegal
Monthly salary P9,108.70 dismissal, until the date of promulgation
of this decision. Nevertheless, the Court
has also recognized that the constitutional
policy of providing full protection to labor
is not intended to oppress or destroy
management.62 The Court notes that at
the time of Cadiz's indefinite suspension
from employment, Leus was yet to be
decided by the Court. Moreover, Brent
was acting in good faith and on its honest
belief that Cadiz's pregnancy out of
wedlock constituted immorality. Thus,
fairness and equity dictate that the award
of backwages shall only be equivalent to
one (1) year or P109,304.40, computed
as follows:
Monthly salary P9,108.70
multiplied by one year x February 24, 2009 of the Court of Appeals
x in CA-G.R. SP No. 02373-M1N
or 12 months 12
P109,304.40
Finally, with regard to Cadiz's prayer for
moral and exemplary damages, the Court
finds the same without merit. A finding of
illegal dismissal, by itself, does not
establish bad faith to entitle an employee
to moral damages.63 Absent clear and
convincing evidence showing that Cadiz's
dismissal from Brent's employ had been
carried out in an arbitrary, capricious and
malicious manner, moral and exemplary
damages cannot be awarded. The Court
nevertheless grants the award of
attorney's fees in the amount often
percent (10%) of the total monetary
award, Cadiz having been forced to
litigate in order to seek redress of her
grievances.64
WHEREFORE, the petition is GRANTED.
The Resolutions dated July 22, 2008 and
are REVERSED and SET ASIDE, and
a NEW ONE ENTERED finding petitioner
Christine Joy Capin-Cadiz to have been
dismissed without just cause.
Respondent Brent Hospital and Colleges,
Inc. is hereby ORDERED TO
PAY petitioner Christine Joy Capin-Cadiz:
(1) One Hundred Nine Thousand Three
Hundred Four Pesos and 40/100
(P109,304.40) as backwages;
(2) Thirty-Six Thousand Four Hundred
Thirty-Four Pesos and 80/100
(P36,434.80) as separation pay; and
(3) Attorney's fees equivalent to ten
percent (10%) of the total award.
The monetary awards granted shall earn
legal interest at the rate of six percent
(6%) per annum from the date of the
finality of this Decision until fully paid.
SO ORDERED
CONCURRING OPINION
JARDELEZA, J.:
Liberty is a right enshrined in the
Constitution. However, as a testament to
the impossibility of determining what it
truly means to be free, neither the
Constitution nor our jurisprudence has
attempted to define its metes and
bounds. This case challenges this Court to
ascertain the extent of the protection of
the right to liberty. This Court is called to
answer the question of how free a woman
is in this country to design the course of
her own life. The Constitution must be
read to grant her this freedom.
Petitioner Christine Joy Capin-Cadiz
(Christine Joy) worked as the Human
Resources Officer of respondent Brent
Hospital and Colleges, Inc. ("Brent"). In
the course of her employment, she met
and fell in love with another Brent
employee. Both Christine Joy and her
boyfriend were single and with no legal
impediment to marry. While in the
relationship but before their marriage,
Christine Joy became pregnant with her
boyfriend's child. This prompted Brent to
issue an indefinite suspension against
her. Brent cited as a ground her
unprofessionalism and unethical behavior
resulting to unwed pregnancy. Brent also
told Christine Joy that she will be
reinstated on the condition that she gets
married to her boyfriend who was, at that
time, no longer a Brent employee.
Christine Joy eventually married her
boyfriend. This notwithstanding, Christine
Joy felt that Brent's condition that she get
married first before it reinstates her is
unacceptable and an affront to the
provision of the Labor Code concerning
stipulations against marriage.
Claiming that this indefinite suspension
amounted to constructive dismissal,
Christine Joy filed a complaint for illegal
dismissal before the National Labor
Relations Commission (NLRC). The Labor
Arbiter (LA) found that while the
indefinite suspension was indeed a
constructive dismissal, there was just
cause for Brent to terminate Christine
Joy's employment. According to the LA,
this just cause was that Christine Joy
engaged in premarital sexual relations
with her boyfriend resulting in pregnancy
out of wedlock. The LA also ruled that she
was not entitled to reinstatement until
she marries her boyfriend. Christine Joy
appealed the LA decision before the
NLRC. The NLRC affirmed the LA.
Christine Joy then filed a special civil
action for certiorari under Rule 65 of the
Rules of Court before the Court of
Appeals. However, the CA dismissed her
petition on procedural grounds.
Brent and the labor tribunals argue that
there was just cause for Christine Joy's
dismissal because Brent's Policy Manual
identifies acts of immorality as a ground
for disciplinary action. Brent also invokes
Section 94 of the Manual of Regulations
for Private Schools (MRPS) which lists
disgraceful or immoral conduct as a
ground for terminating an employee.
I agree with my esteemed colleague
Justice Bienvenido L. Reyes' application of
the doctrine in Leus v. St. Scholastica's
College Westgrove.1 I take this
opportunity to contribute to the analysis
for cases similar to this and Leus where
women's fundamental rights are pitted
against an employer's management
prerogatives. While the ponencia views
the issue from the perspective of public
and secular morality, there is also a
constitutional dimension to this case that
should be considered. This is a woman's
right to personal autonomy as a
fundamental right.
The Constitution protects personal
autonomy as part of the Due Process
Clause in the Bill of Rights. Indeed, the
Bill of Rights cannot be invoked against
private employers.2 However, the values
expressed in the Constitution cannot be
completely ignored in the just
adjudication of labor cases.
In this case, Brent's reliance on laws and
governmental issuances justifies the view
that the Constitution should permeate a
proper adjudication of the issue. Brent
invokes the MRPS to support Christine
Joy's dismissal. The MRPS is a
department order issued by the
Department of Education (DepEd) in the
exercise of its power to regulate private
schools. It is thus a government issuance
which the DepEd is authorized to issue in
accordance with law. Further, the labor
tribunals also invoke the Labor Code
which provides for the just causes for
termination. The Labor Code is a
presidential decree and has the status of
law. The Constitution is deemed written
into every law and government issuance.
Hence, in the application of laws and
governmental regulations, their provisions
should not be interpreted in a manner
that will violate the fundamental law of
the land.
Further, the relationship between labor
and management is a matter imbued with
public interest. The Constitution accords
protection to labor through various
provisions identifying the rights of
laborers. This Court has also persistently
emphasized the constitutional protection
accorded to labor. In Philippine Telegraph
and Telephone Company v. NLRC,3 this
Court held that the constitutional
guarantee of protection to labor and
security of tenure are "paramount in the
due process scheme."4 Thus, in that case,
this Court found that the employer's
dismissal of a female employee because
of her marriage runs afoul of the right
against discrimination afforded to women
workers by no less than the Constitution.5
Finally, Leus and the ponencia explain
that in determining whether a particular
conduct may be considered as immoral in
the public and secular sense, courts must
follow a two-step process. First, courts
must consider the totality of the
circumstances surrounding the conduct
and second, courts must assess these
circumstances vis-a-vis the prevailing
norms of conduct or what society
generally considers as moral. I propose
that in ascertaining whether the public
holds a particular conduct as moral, the
Constitution is a necessary and inevitable
guide. The Constitution is an expression
of the ideals of the society that enacted
and ratified it. Its bill of rights, in
particular, is an embodiment of the most
important values of the people enacting a
Constitution. Values that find expression
in a society's Constitution are not only
accepted as moral, they are also
fundamental. Thus, I propose that in
ascertaining whether an act is moral or
immoral, a due consideration of
constitutional values must be made. In
Christine Joy's case, her decision to
continue her pregnancy outside of
wedlock is a constitutionally protected
right. It is therefore not only moral, it is
also a constitutional value that this Court
is duty bound to uphold.
It is within this framework of analysis that
I view the issue in this case.
Due Process and the Constitutional
Right to Personal Liberty and Privacy
Section 1 of Article III of the Bill of Rights
provides that no person shall be deprived
of liberty without due process of law. The
concept of the constitutional right to
liberty accepts of no precise definition and
finds no specific boundaries. Indeed,
there is no one phrase or combination of
words that can capture what it means to
be free. This Court, nevertheless, as early
as the case of Rubi v. Provincial Board of
Mindoro,6 explained that liberty is not
merely freedom from imprisonment or
restraint. This Court, speaking through
Justice George Malcolm, said -
Civil liberty may be said to mean that
measure of freedom which may be enjoyed
in a civilized community, consistently with
the peaceful enjoyment of like freedom in
others. The right to liberty guaranteed by
the Constitution includes the right to exist
and the right to be free from arbitrary
personal restraint or servitude. The term
cannot be dwarfed into mere freedom from
physical restraint of the person of the
citizen, but is deemed to embrace the right
of man to enjoy the faculties with which he
has been endowed by his Creator, subject
only to such restraints as are necessary for
the common welfare. As enunciated in a
long array of authorities including epoch-
making decisions of the United States
Supreme Court, liberty includes the right
of the citizen to be free to use his faculties
in lawful ways; to live and work where he
will; to earn his livelihood by any lawful
calling; to pursue any avocation, and for
that purpose, to enter into all contracts
which may be proper, necessary, and
essential to his carrying out these
purposes to a successful conclusion. The
chief elements of the guaranty are the
right to contract, the right to choose one's
employment, the right to labor, and the
right of locomotion.
In general, it may be said that liberty
means the opportunity to do those things
which are ordinarily done by free
men.7ChanRoblesVirtualawlibrary
In Morfe v. Mutuc,8 this Court held that
the constitutional right to liberty includes
the concept of privacy. Quoting US
Supreme Court Justice Louis Brandeis,
this Court explained that the right to be
let alone is "the most comprehensive of
rights and the right most valued by
civilized men."9 Justice Enrique Fernando,
in his ponencia, even went a step further
and adopted the ruling in the US Supreme
Court case Griswold v. Connecticut.10 He
said that the right to privacy is "accorded
recognition independently of its
identification with liberty."11 He also
added that "[t]he concept of liberty would
be emasculated if it does not likewise
compel respect for his personality as a
unique individual whose claim to privacy
and interference demands respect."12
Ople v. Torresu13 reveals how this Court
has come to recognize privacy as a
component of liberty under the Due
Process Clause and as a constitutional
right arising from zones created by
several other provisions of the
Constitution. Chief Justice Reynato S.
Puno, for this Court, explained that
privacy finds express recognition in
Section 3 of Article III of the Constitution
which speaks of the privacy of
communication and correspondence. He
further stated that there are other facets
of privacy protected under various
provisions of the Constitution such as the
Due Process Clause, the right against
unreasonable searches and seizures, the
liberty of abode and of changing the
same, the right of association and the
right against self-incrimination.
Jurisprudence directs us to the conclusion
that the constitutional right to liberty
does not merely refer to freedom from
physical restraint. It also includes the
right to be free to choose to be, in the
words of Justice Fernando, a "unique
individual."14 This necessarily includes the
freedom to choose how a person defines
her personhood and how she decides to
live her life. Liberty, as a constitutional
right, involves not just freedom from
unjustified imprisonment. It also pertains
to the freedom to make choices that are
intimately related to a person's own
definition of her humanity. The
constitutional protection extended to this
right mandates that beyond a certain
point, personal choices must not be
interfered with or unduly burdened as
such interference with or burdening of the
right to choose is a breach of the right to
be free.
In the United States, whose Constitution
has heavily influenced ours, jurisprudence
on the meaning of personal liberty is
much more detailed and expansive. Their
protection of the constitutional right to
privacy has covered marital privacy, the
right of a woman to choose to terminate
her pregnancy and sexual conduct
between unmarried persons.
In Griswold v. Connecticut,15 the US
Supreme Court held that privacy is a right
protected under the US Constitution.
Griswold explained that the US
Constitution's Bill of Rights creates zones
of privacy which prevents interference
save for a limited exception. Thus,
Griswold invalidated a statute which
criminalizes the sale of contraceptives to
married persons, holding that marital
privacy falls within the penumbra of the
right to privacy under the US
Constitution's Bill of Rights.
Eisenstadt v. Baird16 extended this right
to privacy to unmarried persons. In this
case, the US Supreme Court also held
invalid a law prohibiting the distribution of
contraceptives to unmarried
persons. Einstadt explained that "[i]f the
right of privacy means anything, it is the
right of the individual, married or single,
to be free from unwarranted
governmental intrusion into matters so
fundamentally affecting a person as the
decision whether to bear or beget a
child."17
In the celebrated case Roe v. Wade,18 the
US Supreme Court again explored the
concept of the constitutional right to
privacy. In this case, the US Supreme
Court affirmed that while the US
Constitution does not expressly mention a
right to privacy, its provisions create such
zones of privacy which warrant
constitutional protection. Roe added to
the growing jurisprudence on the right to
privacy by stating that prior US Supreme
Court cases reveal that "only personal
rights that can be deemed 'fundamental'
or 'implicit in the concept of ordered
liberty,' are included in this guarantee of
personal privacy. They also make it clear
that the right has some extension to
activities relating to marriage,
procreation, contraception, family
relationships, and [child rearing] and
education."19 In Roe, the US Supreme
Court held that the constitutional right to
privacy also encompasses a woman's
choice whether to terminate her
pregnancy.
Planned Parenthood of Southeastern Pa.
v. Casey,20 which affirmed the essential
ruling in Roe, added to this discussion on
the right to privacy. The US Supreme
Court repeated that the constitutional
right to privacy means a protection from
interference so that people, married or
single, may be free to make the most
intimate and personal choices of a
lifetime. These choices, which are central
to personal dignity and autonomy, are
also central to the protection given under
the Fourteenth Amendment of the US
Constitution, the American Constitutional
law equivalent of our Due Process Clause.
Affirming that a woman has the right to
choose to terminate her pregnancy as a
component of her right to
privacy, Planned Parenthood stated that
"[t]he destiny of the woman must be
shaped to a large extent on her own
conception of her spiritual imperatives
and her place in society."21
The US Supreme Court also ruled that the
right to privacy includes sexual conduct
between consenting adults. Thus,
in Lawrence v. Texas,22 the US Supreme
Court invalidated a law criminalizing
sodomy. Lawrence held that "[t]he
petitioners are entitled to respect for their
private lives. The State cannot demean
their existence or control their destiny by
making their private sexual conduct a
crime. Their right to liberty under the Due
Process Clause gives them the full right to
engage in their conduct without
intervention of the government."23
The right to privacy as a component of
personal liberty in the Due Process Clause
also includes the freedom to choose
whom to marry. This was the import of
the US Supreme Court's ruling in Loving
v. Virginia24 which invalidated a law
prohibiting interracial marriages. This was
also one of the essential rulings
in Obergefell v. Hodges25 which held
same-sex marriage as constitutional.
I propose that our reading of the
constitutional right to personal liberty and
privacy should approximate how personal
liberty as a concept has developed in the
US as adopted in our jurisprudence.
At the heart of this case are two rights
that are essential to the concept of
personal liberty and privacy, if they are to
be given any meaning at all. Brent's act
of dismissing Christine Joy because of her
pregnancy out of wedlock, with the
condition that she will be reinstated if she
marries her then boyfriend, unduly
burdens first, her right to choose whether
to marry, and second, her right to decide
whether she will bear and rear her child
without marriage. These are personal
decisions that go into the core of how
Christine Joy chooses to live her life. This
Court cannot countenance any undue
burden that prejudices her right to be
free.
The Right to Choose Marriage
The Labor Code contains provisions
pertaining to stipulations against
marriage. Specifically, Article 134 states
that it is unlawful for employers to require
as a condition for employment or
continuation of employment that a
woman employee shall not get married.
This provision also prohibits the dismissal
of a woman employee by reason of her
marriage. This Court, in the case
of Philippine Telegraph and Telephone
Company v. NLRC,26 has applied this
provision and found illegal the dismissal
of a woman employee because of a
condition in her contract that she remains
single during her employment. Christine
Joy's case involves the reverse, albeit the
effect is as burdensome and as odious.

In constructively dismissing Christine Joy
and promising her reinstatement provided
she marries her boyfriend, Brent has
breached not a mere statutory prohibition
but a constitutional right. While as I have
already explained, there is jurisprudence
to the effect that the Bill of Rights cannot
be invoked against a private employer,
Brent's act of invoking the MRPS and the
Labor Code brings this case within the
ambit of the Constitution. In arguing that
immorality is a just cause for dismissal
under the MRPS and the Labor Code,
Brent is effectively saying that these
government issuances violate the
constitutional right to personal liberty and
privacy. This interpretation cannot be
countenanced. The Constitution is
deemed written into these government
issuances and as such, they must be
construed to recognize the protection
vested by the Bill of Rights.
As I have already discussed, the rights to
personal liberty and privacy are embodied
in the Due Process Clause and expounded
by jurisprudence. These rights pertain to
the freedom to make personal choices
that define a human being's life and
personhood. The decision to marry and to
whom are two of the most important
choices that a woman can make in her
life. In the words of the US Supreme
Court in Obergefell "[n]o union is more
profound than marriage, for it embodies
the highest ideals of love, fidelity,
devotion, sacrifice, and family. In forming
a marital union, two people become
something greater than once they
were."27 The State has no business
interfering with this choice. Neither can it
sanction any undue burden of the right to
make these choices. Brent, in
conditioning Christine Joy's reinstatement
on her marriage, has effectively burdened
her freedom. She was forced to choose to
lose her job or marry in order to keep it.
By invoking the MRPS and the Labor
Code, Brent is, in effect, saying that this
kind of compelled choice is sanctioned by
the State. Contrary to this position, the
State cannot countenance placing a
woman employee in a situation where she
will have to give up one right (the right to
marry as a component of personal liberty
and privacy) for another (the right to
employment). This is not the kind of
State that we are in. Nor is it the kind of
values that our Constitution stands for.
The Right to Bear and Rear
a Child outside of Marriage
The Labor Code prohibits the
discriminatory act of discharging a woman
on account of her pregnancy.28Brent, in
constructively dismissing Christine Joy
because of her pregnancy, violated this
prohibition. Brent, however, attempts to
evade this prohibition by claiming that it
was not the mere fact of Christine Joy's
pregnancy that caused her dismissal.
Rather, according to Brent, it is her
pregnancy outside of wedlock that
justified her termination as immorality is
a just cause under the MRPS and the
Labor Code. In doing so, Brent not only
violated the law, it even went further and
asked the labor tribunals and the judiciary
to lend an interpretation to the Labor
Code and the MRPS that disregards the
Constitution.
Christine Joy has the right to decide how
she will rear her child. If this choice
involves being a single mother for now or
for good, no law or government issuance
may be used to interfere with this
decision. Christine Joy, and all other
women similarly situated, should find
refuge in the protection extended by the
Constitution.
The Constitution highlights the value of
the family as the foundation of the
nation.29 Complementary to this, the
Family Code of the Philippines provides
that marriage is the foundation of the
family.30 Indeed, our laws and tradition
recognize that children are usually reared
and families built within the confines of
marriage. The Constitution and the laws,
however, merely express an ideal. While
marriage is the ideal starting point of a
family, there is no constitutional or
statutory provision limiting the definition
of a family or preventing any attempt to
deviate from our traditional template of
what a family should be.
In other jurisdictions, there is a growing
clamor for laws to be readjusted to suit
the needs of a rising class of women -
single mothers by choice. These countries
are faced with the same predicament that
Brent confronted in this case - their rules
have lagged behind the demands of the
times. Nevertheless, in our jurisdiction,
the Constitution remains as the guide to
ascertain how new situations are to be
dealt with. In Christine Joy's case, the
Constitution tells us that her right to
personal liberty and privacy protects her
choice as to whether she will raise her
child in a marriage. Brent, in dismissing
Christine Joy because of her pregnancy
outside of wedlock, unduly burdened her
right to choose. Again, the MRPS and the
Labor Code cannot be used to justify
Brent's acts. These government issuances
respect the Constitution and abide by it.
Any contrary interpretation cannot be
countenanced.
In my proposed reading of the
constitutional right to personal liberty and
privacy, Christine Joy and other women
similarly situated are free to be single
mothers by choice. This cannot be
curtailed in the workplace through
discriminatory policies against pregnancy
out of wedlock. The Constitution allows
women in this country to design the
course of their own lives. They are free to
chart their own destinies.
Constitution and Public Secular Morality
I finally propose that in applying the two-
tier test in Leus and in the ponencia, the
Constitution should be considered as a
gauge of what the public deems as moral.
In this case, there is a constitutionally
declared value to protecting the right to
choose to marry and the right to be a
single mother by choice. This is our
people's determination of what is moral.
Thus, in the incisive analysis of Justice
Reyes, whenever this right to choose is
involved, the Constitution compels us to
find that the act is constitutionally
protected, and as such, is necessarily
moral in the public and secular sense.
ACCORDINGLY, I vote to grant the
Petition.chanroblesvirtuallawlibrary
[G.R. No. 104768. July 21, 2003]
Republic of the Philippines, petitioner, vs.
Sandiganbayan, Major General
Josephus Q. Ramas and Elizabeth
Dimaano, respondents.
DECISION
CARPIO, J.:
The Case
Before this Court is a petition for review
on certiorari seeking to set aside the Resolutions
of the Sandiganbayan (First Division)[1] dated 18
November 1991 and 25 March 1992 in Civil Case
No. 0037. The first Resolution dismissed
petitioners Amended Complaint and ordered the
return of the confiscated items to respondent
Elizabeth Dimaano, while the second Resolution
denied petitioners Motion for
Reconsideration. Petitioner prays for the grant of
the reliefs sought in its Amended Complaint, or
in the alternative, for the remand of this case to
the Sandiganbayan (First Division) for further
proceedings allowing petitioner to complete the
presentation of its evidence.
Antecedent Facts
 Immediately upon her assumption to office
following the successful EDSA Revolution, then
President Corazon C. Aquino issued Executive
Order No. 1 (EO No. 1) creating the Presidential
Commission on Good Government (PCGG). EO
No. 1 primarily tasked the PCGG to recover all
ill-gotten wealth of former President Ferdinand E.
Marcos, his immediate family, relatives,
subordinates and close associates. EO No. 1
vested the PCGG with the power (a) to conduct
investigation as may be necessary in order to
accomplish and carry out the purposes of this
order and the power (h) to promulgate such rules
and regulations as may be necessary to carry out
the purpose of this order. Accordingly, the
PCGG, through its then Chairman Jovito R.
Salonga, created an AFP Anti-Graft Board (AFP
Board) tasked to investigate reports of
unexplained wealth and corrupt practices by AFP
personnel, whether in the active service or
retired.[2]
Based on its mandate, the AFP Board
investigated various reports of alleged
unexplained wealth of respondent Major General
Josephus Q. Ramas (Ramas). On 27 July 1987,
the AFP Board issued a Resolution on its
findings and recommendation on the reported
unexplained wealth of Ramas. The relevant part
of the Resolution reads:
III. FINDINGS and EVALUATION:
Evidence in the record showed that respondent
is the owner of a house and lot located at 15-
Yakan St., La Vista, Quezon City. He is also the
owner of a house and lot located in Cebu
City. The lot has an area of 3,327 square meters.
The value of the property located in Quezon City
may be estimated modestly at P700,000.00.
The equipment/items and communication
facilities which were found in the premises of
Elizabeth Dimaano and were confiscated by
elements of the PC Command of Batangas were
all covered by invoice receipt in the name of
CAPT. EFREN SALIDO, RSO Command Coy,
MSC, PA. These items could not have been in
the possession of Elizabeth Dimaano if not given
for her use by respondent Commanding General
of the Philippine Army.
Aside from the military equipment/items and
communications equipment, the raiding team
was also able to confiscate money in the amount
of P2,870,000.00 and $50,000 US Dollars in the
house of Elizabeth Dimaano on 3 March 1986.
Affidavits of members of the Military Security
Unit, Military Security Command, Philippine
Army, stationed at Camp Eldridge, Los Baos,
Laguna, disclosed that Elizabeth Dimaano is the
mistress of respondent. That respondent usually
goes and stays and sleeps in the alleged house
of Elizabeth Dimaano in Barangay Tengga, Itaas,
Batangas City and when he arrives, Elizabeth
Dimaano embraces and kisses respondent. That
on February 25, 1986, a person who rode in a car
went to the residence of Elizabeth Dimaano with
four (4) attache cases filled with money and
owned by MGen Ramas.
Sworn statement in the record disclosed also that
Elizabeth Dimaano had no visible means of
income and is supported by respondent for she
was formerly a mere secretary.
Taking in toto the evidence, Elizabeth Dimaano
could not have used the military equipment/items
seized in her house on March 3, 1986 without the
consent of respondent, he being the
Commanding General of the Philippine Army. It
is also impossible for Elizabeth Dimaano to claim
that she owns the P2,870,000.00 and $50,000
US Dollars for she had no visible source of
income.
This money was never declared in the Statement
of Assets and Liabilities of respondent. There
was an intention to cover the existence of these
money because these are all ill-gotten and
unexplained wealth.Were it not for the affidavits
of the members of the Military Security Unit
assigned at Camp Eldridge, Los Baos, Laguna,
the existence and ownership of these money
would have never been known.
The Statement of Assets and Liabilities of
respondent were also submitted for scrutiny and
analysis by the Boards consultant. Although the
amount of P2,870,000.00 and $50,000 US
Dollars were not included, still it was disclosed
that respondent has an unexplained wealth
of P104,134. 60.
IV. CONCLUSION:
In view of the foregoing, the Board finds that a
prima facie case exists against respondent for ill-
gotten and unexplained wealth in the amount
of P2,974,134.00 and $50,000 US Dollars.
V. RECOMMENDATION:
Wherefore it is recommended that Maj. Gen.
Josephus Q. Ramas (ret.) be prosecuted and
tried for violation of RA 3019, as amended,
otherwise known as Anti-Graft and Corrupt
Practices Act and RA 1379, as amended,
otherwise known as The Act for the Forfeiture of
Unlawfully Acquired Property.[3]
Thus, on 1 August 1987, the PCGG filed a
petition for forfeiture under Republic Act No.
1379 (RA No. 1379) [4] against Ramas.
Before Ramas could answer the petition, then
Solicitor General Francisco I. Chavez filed an
Amended Complaint naming the Republic of the
Philippines (petitioner), represented by the
PCGG, as plaintiff and Ramas as defendant. The
Amended Complaint also impleaded Elizabeth
Dimaano (Dimaano) as co-defendant.
The Amended Complaint alleged that Ramas
was the Commanding General of the Philippine
Army until 1986. On the other hand, Dimaano
was a confidential agent of the Military Security
Unit, Philippine Army, assigned as a clerk-typist
at the office of Ramas from 1 January 1978 to
February 1979. The Amended Complaint further
alleged that Ramas acquired funds, assets and
properties manifestly out of proportion to his
salary as an army officer and his other income
from legitimately acquired property by taking
undue advantage of his public office and/or using
his power, authority and influence as such officer
of the Armed Forces of the Philippines and as a
subordinate and close associate of the deposed
President Ferdinand Marcos.[5]
The Amended Complaint also alleged that the
AFP Board, after a previous inquiry, found
reasonable ground to believe that respondents
have violated RA No. 1379.[6] The Amended
Complaint prayed for, among others, the
forfeiture of respondents properties, funds and
equipment in favor of the State.
Ramas filed an Answer with Special and/or
Affirmative Defenses and Compulsory
Counterclaim to the Amended Complaint. In his
Answer, Ramas contended that his property
consisted only of a residential house at La Vista
Subdivision, Quezon City, valued at P700,000,
which was not out of proportion to his salary and
other legitimate income. He denied ownership of
any mansion in Cebu City and the cash,
communications equipment and other items
confiscated from the house of Dimaano.
Dimaano filed her own Answer to the
Amended Complaint. Admitting her employment
as a clerk-typist in the office of Ramas from
January-November 1978 only, Dimaano claimed
ownership of the monies, communications
equipment, jewelry and land titles taken from her
house by the Philippine Constabulary raiding
team.
After termination of the pre-trial,[7] the court
set the case for trial on the merits on 9-11
November 1988.
On 9 November 1988, petitioner asked for a
deferment of the hearing due to its lack of
preparation for trial and the absence of witnesses
and vital documents to support its case. The
court reset the hearing to 17 and 18 April 1989.
On 13 April 1989, petitioner filed a motion for
leave to amend the complaint in order to charge
the delinquent properties with being subject to
forfeiture as having been unlawfully acquired by
defendant Dimaano alone x x x.[8]
Nevertheless, in an order dated 17 April 1989,
the Sandiganbayan proceeded with petitioners
presentation of evidence on the ground that the
motion for leave to amend complaint did not state
when petitioner would file the amended
complaint. The Sandiganbayan further stated
that the subject matter of the amended complaint
was on its face vague and not related to the
existing complaint. The Sandiganbayan also
held that due to the time that the case had been
pending in court, petitioner should proceed to
present its evidence.
After presenting only three witnesses,
petitioner asked for a postponement of the trial.
On 28 September 1989, during the
continuation of the trial, petitioner manifested its
inability to proceed to trial because of the
absence of other witnesses or lack of further
evidence to present. Instead, petitioner
reiterated its motion to amend the complaint to
conform to the evidence already presented or to
change the averments to show that Dimaano
alone unlawfully acquired the monies or
properties subject of the forfeiture.
The Sandiganbayan noted that petitioner had
already delayed the case for over a year mainly
because of its many postponements. Moreover,
petitioner would want the case to revert to its
preliminary stage when in fact the case had long
been ready for trial. The Sandiganbayan ordered
petitioner to prepare for presentation of its
additional evidence, if any.
During the trial on 23 March 1990, petitioner
again admitted its inability to present further
evidence. Giving petitioner one more chance to
present further evidence or to amend the
complaint to conform to its evidence, the
Sandiganbayan reset the trial to 18 May
1990. The Sandiganbayan, however, hinted that
the re-setting was without prejudice to any action
that private respondents might take under the
circumstances.
However, on 18 May 1990, petitioner again
expressed its inability to proceed to trial because
it had no further evidence to present. Again, in
the interest of justice, the Sandiganbayan
granted petitioner 60 days within which to file an
appropriate pleading. The Sandiganbayan,
however, warned petitioner that failure to act
would constrain the court to take drastic action.
Private respondents then filed their motions to
dismiss based on Republic v. Migrino.[9] The
Court held in Migrino that the PCGG does not
have jurisdiction to investigate and prosecute
military officers by reason of mere position held
without a showing that they are subordinates of
former President Marcos.
On 18 November 1991, the Sandiganbayan
rendered a resolution, the dispositive portion of
which states:
WHEREFORE, judgment is hereby rendered
dismissing the Amended Complaint, without
pronouncement as to costs. The counterclaims
are likewise dismissed for lack of merit, but the
confiscated sum of money, communications
equipment, jewelry and land titles are ordered
returned to Elizabeth Dimaano.
The records of this case are hereby remanded
and referred to the Hon. Ombudsman, who has
primary jurisdiction over the forfeiture cases
under R.A. No. 1379, for such appropriate action
as the evidence warrants. This case is also
referred to the Commissioner of the Bureau of
Internal Revenue for a determination of any tax
liability of respondent Elizabeth Dimaano in
connection herewith.
SO ORDERED.
On 4 December 1991, petitioner filed its
Motion for Reconsideration.
In answer to the Motion for Reconsideration,
private respondents filed a Joint
Comment/Opposition to which petitioner filed its
Reply on 10 January 1992.
On 25 March 1992, the Sandiganbayan
rendered a Resolution denying the Motion for
Reconsideration.
Ruling of the Sandiganbayan
The Sandiganbayan dismissed the Amended
Complaint on the following grounds:
 (1.) The actions taken by the PCGG are not in THAT THERE WAS NO
accordance with the rulings of the SHOWING OF
Supreme Court in Cruz, Jr. v. CONSPIRACY, COLLUSION
Sandiganbayan[10] and Republic v. OR RELATIONSHIP BY
[11]
Migrino which involve the same CONSANGUINITY OR
issues. AFFINITY BY AND
BETWEEN RESPONDENT
(2.) No previous inquiry similar to preliminary RAMAS AND RESPONDENT
investigations in criminal cases was DIMAANO
conducted against Ramas and NOTWITHSTANDING THE
Dimaano. FACT THAT SUCH
CONCLUSIONS WERE
(3.) The evidence adduced against Ramas
CLEARLY UNFOUNDED
does not constitute a prima facie case
AND PREMATURE, HAVING
against him.
BEEN RENDERED PRIOR
(4.) There was an illegal search and seizure TO THE COMPLETION OF
of the items confiscated. THE PRESENTATION OF
THE EVIDENCE OF THE
PETITIONER.
The Issues
B. RESPONDENT COURT
SERIOUSLY ERRED IN
Petitioner raises the following issues: HOLDING THAT THE
A. RESPONDENT COURT ACTIONS TAKEN BY THE
SERIOUSLY ERRED IN PETITIONER, INCLUDING
CONCLUDING THAT THE FILING OF THE
PETITIONERS EVIDENCE ORIGINAL COMPLAINT AND
CANNOT MAKE A CASE THE AMENDED
FOR FORFEITURE AND COMPLAINT, SHOULD BE
STRUCK OUT IN LINE WITH of the petitioner and even
THE RULINGS OF THE before the latter was
SUPREME COURT IN CRUZ, allowed to formally offer its
JR. v. SANDIGANBAYAN, evidence and rest its case;
194 SCRA 474 AND
REPUBLIC v. MIGRINO, 189 C. RESPONDENT COURT
SCRA 289, SERIOUSLY ERRED IN
NOTWITHSTANDING THE HOLDING THAT THE
FACT THAT: ARTICLES AND THINGS
SUCH AS SUMS OF MONEY,
1. The cases of Cruz, Jr. v. COMMUNICATIONS
Sandiganbayan, supra, and EQUIPMENT, JEWELRY
Republic v. Migrino, supra, AND LAND TITLES
are clearly not applicable to CONFISCATED FROM THE
this case; HOUSE OF RESPONDENT
DIMAANO WERE
2. Any procedural defect in the ILLEGALLY SEIZED AND
institution of the complaint in THEREFORE EXCLUDED
Civil Case No. 0037 was AS EVIDENCE.[12]
cured and/or waived by
respondents with the filing
of their respective answers The Courts Ruling
with counterclaim; and

3. The separate motions to First Issue: PCGGs Jurisdiction to

dismiss were evidently Investigate Private Respondents
improper considering that
they were filed after This case involves a revisiting of an old issue
commencement of the already decided by this Court in Cruz, Jr. v.
presentation of the evidence Sandiganbayan[13] and Republic v. Migrino.[14]
 The primary issue for resolution is whether the
PCGG has the jurisdiction to investigate and
cause the filing of a forfeiture petition against
Ramas and Dimaano for unexplained wealth
under RA No. 1379.
We hold that PCGG has no such jurisdiction.
The PCGG created the AFP Board to
investigate the unexplained wealth and corrupt
practices of AFP personnel, whether in the active
service or retired.[15] The PCGG tasked the AFP
Board to make the necessary recommendations
to appropriate government agencies on the
action to be taken based on its findings.[16] The
PCGG gave this task to the AFP Board pursuant
to the PCGGs power under Section 3 of EO No.
1 to conduct investigation as may be necessary
in order to accomplish and to carry out the
purposes of this order. EO No. 1 gave the PCGG
specific responsibilities, to wit:
SEC. 2. The Commission shall be charged with
the task of assisting the President in regard to the
following matters:
(a) The recovery of all ill-gotten wealth
accumulated by former President
Ferdinand E. Marcos, his immediate
family, relatives, subordinates and
close associates, whether located in
the Philippines or abroad, including
the takeover and sequestration of all
business enterprises and entities
owned or controlled by them, during
his administration, directly or through
nominees, by taking undue
advantage of their public office and/
or using their powers, authority,
influence, connections or
relationship.
(b) The investigation of such cases of graft
and corruption as the President may
assign to the Commission from time
to time.
x x x.
The PCGG, through the AFP Board, can only
investigate the unexplained wealth and corrupt
practices of AFP personnel who fall under either
of the two categories mentioned in Section 2 of
EO No. 1. These are: (1) AFP personnel who
have accumulated ill-gotten wealth during the
administration of former President Marcos by
being the latters immediate family, relative,
subordinate or close associate, taking undue
advantage of their public office or using their
powers, influence x x x;[17] or (2) AFP personnel
involved in other cases of graft and corruption
provided the President assigns their cases to the
PCGG.[18]
Petitioner, however, does not claim that the
President assigned Ramas case to the
PCGG. Therefore, Ramas case should fall under
the first category of AFP personnel before the
PCGG could exercise its jurisdiction over
him. Petitioner argues that Ramas was
undoubtedly a subordinate of former President
Marcos because of his position as the
Commanding General of the Philippine
Army. Petitioner claims that Ramas position
enabled him to receive orders directly from his
commander-in-chief, undeniably making him a
subordinate of former President Marcos.
We hold that Ramas was not a subordinate of
former President Marcos in the sense
contemplated under EO No. 1 and its
amendments.
Mere position held by a military officer does
not automatically make him a subordinate as this
term is used in EO Nos. 1, 2, 14 and 14-A absent
a showing that he enjoyed close association with
former President Marcos. Migrino discussed
this issue in this wise:
A close reading of EO No. 1 and related
executive orders will readily show what is
contemplated within the term subordinate. The
Whereas Clauses of EO No. 1 express the
urgent need to recover the ill-gotten wealth
amassed by former President Ferdinand E.
Marcos, his immediate family, relatives, and
close associates both here and abroad.
EO No. 2 freezes all assets and properties in the
Philippines in which former President Marcos
and/or his wife, Mrs. Imelda Marcos, their close
relatives, subordinates, business associates,
dummies, agents, or nominees have any interest
or participation.
Applying the rule in statutory construction known
as ejusdem generis that is-
[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 to be
held as applying only to persons or things of the
same kind or class as those specifically
mentioned [Smith, Bell & Co, Ltd. vs. Register of
Deeds of Davao, 96 Phil. 53, 58, citing Black on
Interpretation of Laws, 2nd Ed., 203].
[T]he term subordinate as used in EO Nos. 1 & 2
refers to one who enjoys a close association with
former President Marcos and/or his wife, similar
to the immediate family member, relative, and
close associate in EO No. 1 and the close
relative, business associate, dummy, agent,
or nominee in EO No. 2.
xxx
It does not suffice, as in this case, that the
respondent is or was a government official or
employee during the administration of former
President Marcos. There must be a prima facie
showing that the respondent unlawfully
accumulated wealth by virtue of his close
association or relation with former Pres.
Marcos and/or his wife. (Emphasis supplied)
Ramas position alone as Commanding
General of the Philippine Army with the rank of
Major General[19] does not suffice to make him a
subordinate of former President Marcos for
purposes of EO No. 1 and its amendments. The
PCGG has to provide a prima facie showing that
Ramas was a close associate of former
President Marcos, in the same manner that
business associates, dummies, agents or
nominees of former President Marcos were close
to him. Such close association is manifested
either by Ramas complicity with former President
Marcos in the accumulation of ill-gotten wealth by
the deposed President or by former President
Marcos acquiescence in Ramas own
accumulation of ill-gotten wealth if any.
This, the PCGG failed to do.
Petitioners attempt to differentiate the instant
case from Migrino does not convince
us. Petitioner argues that unlike in Migrino, the
AFP Board Resolution in the instant case states
that the AFP Board conducted the investigation
pursuant to EO Nos. 1, 2, 14 and 14-A in relation
to RA No. 1379. Petitioner asserts that there is a
presumption that the PCGG was acting within its
jurisdiction of investigating crony-related cases
of graft and corruption and that Ramas was truly
a subordinate of the former President. However,
the same AFP Board Resolution belies this
contention. Although the Resolution begins with
such statement, it ends with the following
recommendation:
V. RECOMMENDATION:
Wherefore it is recommended that Maj. Gen.
Josephus Q. Ramas (ret.) be prosecuted and
tried for violation of RA 3019, as amended,
otherwise known as Anti-Graft and Corrupt
Practices Act and RA 1379, as amended,
otherwise known as The Act for the Forfeiture of
Unlawfully Acquired Property.[20]
Thus, although the PCGG sought to investigate
and prosecute private respondents under EO
Nos. 1, 2, 14 and 14-A, the result yielded a
finding of violation of Republic Acts Nos. 3019
and 1379 without any relation to EO Nos. 1, 2, 14
and 14-A. This absence of relation to EO No. 1
and its amendments proves fatal to petitioners
case. EO No. 1 created the PCGG for a specific
and limited purpose, and necessarily its powers
must be construed to address such specific and
limited purpose.
Moreover, the resolution of the AFP Board
and even the Amended Complaint do not show
that the properties Ramas allegedly owned were
accumulated by him in his capacity as a
subordinate of his commander-in-
chief. Petitioner merely enumerated the
properties Ramas allegedly owned and
suggested that these properties were
disproportionate to his salary and other
legitimate income without showing that Ramas
amassed them because of his close association
with former President Marcos. Petitioner, in
fact, admits that the AFP Board resolution does
not contain a finding that Ramas accumulated his
wealth because of his close association with
former President Marcos, thus:
10. While it is true that the resolution of the
Anti-Graft Board of the New Armed Forces of
the Philippines did not categorically find
a prima facie evidence showing that
respondent Ramas unlawfully accumulated
wealth by virtue of his close association or
relation with former President Marcos and/or
his wife, it is submitted that such omission
was not fatal. The resolution of the Anti-Graft
Board should be read in the context of the law
creating the same and the objective of the
investigation which was, as stated in the above,
pursuant to Republic Act Nos. 3019 and 1379 in
relation to Executive Order Nos. 1, 2, 14 and 14-
a;[21] (Emphasis supplied)
Such omission is fatal. Petitioner forgets that
it is precisely a prima facie showing that the ill-
gotten wealth was accumulated by a subordinate
of former President Marcos that vests jurisdiction
on PCGG. EO No. 1[22] clearly premises the
creation of the PCGG on the urgent need to
recover all ill-gotten wealth amassed by former
President Marcos, his immediate family,
relatives, subordinates and close
associates. Therefore, to say that such omission
was not fatal is clearly contrary to the intent
behind the creation of the PCGG.
 In Cruz, Jr. v. Sandiganbayan,[23] the Court
outlined the cases that fall under the jurisdiction
of the PCGG pursuant to EO Nos. 1,
2,[24] 14,[25] 14-A:[26]
A careful reading of Sections 2(a) and 3 of
Executive Order No. 1 in relation with Sections 1,
2 and 3 of Executive Order No. 14, shows what
the authority of the respondent PCGG to
investigate and prosecute covers:
(a) the investigation and prosecution of the
civil action for the recovery of ill-gotten
wealth under Republic Act No.
1379, accumulated by former
President Marcos, his immediate
family, relatives, subordinates and
close associates, whether located in
the Philippines or abroad, including
the take-over or sequestration of all
business enterprises and entities
owned or controlled by them, during
his administration, directly or through
his nominees, by taking undue
advantage of their public office
and/or using their powers, authority
and influence, connections or
relationships; and
(b) the investigation and prosecution of
such offenses committed in the
acquisition of said ill-gotten wealth as
contemplated under Section 2(a) of
Executive Order No. 1.
However, other violations of the Anti-Graft
and Corrupt Practices Act not otherwise
falling under the foregoing categories,
require a previous authority of the President
for the respondent PCGG to investigate and
prosecute in accordance with Section 2 (b) of
Executive Order No. 1. Otherwise,
jurisdiction over such cases is vested in the
Ombudsman and other duly authorized
investigating agencies such as the provincial
and city prosecutors, their assistants, the
Chief State Prosecutor and his assistants and
the state prosecutors. (Emphasis supplied)
The proper government agencies, and not the
PCGG, should investigate and prosecute
forfeiture petitions not falling under EO No. 1 and
its amendments. The preliminary investigation of
unexplained wealth amassed on or before 25
February 1986 falls under the jurisdiction of the
Ombudsman, while the authority to file the
corresponding forfeiture petition rests with the
Solicitor General.[27] The Ombudsman Act or
Republic Act No. 6770 (RA No. 6770) vests in the
Ombudsman the power to conduct preliminary
investigation and to file forfeiture proceedings
involving unexplained wealth amassed after 25
February 1986.[28]
After the pronouncements of the Court
in Cruz, the PCGG still pursued this case despite
the absence of a prima facie finding that Ramas
was a subordinate of former President Marcos.
The petition for forfeiture filed with the
Sandiganbayan should be dismissed for lack of
authority by the PCGG to investigate
respondents since there is no prima
facie showing that EO No. 1 and its amendments
apply to respondents. The AFP Board Resolution
and even the Amended Complaint state that
there are violations of RA Nos. 3019 and
1379. Thus, the PCGG should have
recommended Ramas case to the Ombudsman
who has jurisdiction to conduct the preliminary
investigation of ordinary unexplained wealth and
graft cases. As stated in Migrino:
[But] in view of the patent lack of authority of the
PCGG to investigate and cause the prosecution
of private respondent for violation of Rep. Acts
Nos. 3019 and 1379, the PCGG must also be
enjoined from proceeding with the case, without
prejudice to any action that may be taken by the
proper prosecutory agency. The rule of law
mandates that an agency of government be
allowed to exercise only the powers granted to it.
Petitioners argument that private respondents
have waived any defect in the filing of the
forfeiture petition by submitting their respective
Answers with counterclaim deserves no merit as
well.
Petitioner has no jurisdiction over private
respondents. Thus, there is no jurisdiction to
waive in the first place. The PCGG cannot
exercise investigative or prosecutorial powers
never granted to it. PCGGs powers are specific
and limited. Unless given additional assignment
by the President, PCGGs sole task is only to
recover the ill-gotten wealth of the Marcoses,
their relatives and cronies.[29] Without these
elements, the PCGG cannot claim jurisdiction
over a case.
Private respondents questioned the authority
and jurisdiction of the PCGG to investigate and
prosecute their cases by filing their Motion to
Dismiss as soon as they learned of the
pronouncement of the Court in Migrino. This
case was decided on 30 August 1990, which
explains why private respondents only filed their
Motion to Dismiss on 8 October
1990.Nevertheless, we have held that the parties
may raise lack of jurisdiction at any stage of the
proceeding.[30] Thus, we hold that there was no
waiver of jurisdiction in this case. Jurisdiction is
vested by law and not by the parties to an
action.[31]
Consequently, the petition should be
dismissed for lack of jurisdiction by the PCGG to
conduct the preliminary investigation. The
Ombudsman may still conduct the proper
preliminary investigation for violation of RA No.
1379, and if warranted, the Solicitor General may
file the forfeiture petition with the
[32]
Sandiganbayan. The right of the State to
forfeit unexplained wealth under RA No. 1379 is
not subject to prescription, laches or estoppel.[33]
Second Issue: Propriety of Dismissal of Case
Before Completion of Presentation of
Evidence
Petitioner also contends that the
Sandiganbayan erred in dismissing the case
before completion of the presentation of
petitioners evidence.
We disagree.
Based on the findings of the Sandiganbayan
and the records of this case, we find that
petitioner has only itself to blame for non-
completion of the presentation of its
evidence. First, this case has been pending for
four years before the Sandiganbayan dismissed
it. Petitioner filed its Amended Complaint on 11
August 1987, and only began to
present its evidence on 17 April 1989. Petitioner
had almost two years to prepare its evidence.
However, despite this sufficient time, petitioner
still delayed the presentation of the rest of its
evidence by filing numerous motions for
postponements and extensions. Even before the
date set for the presentation of its evidence,
petitioner filed, on 13 April 1989, a Motion for
Leave to Amend the Complaint.[34] The motion
sought to charge the delinquent properties
(which comprise most of petitioners evidence)
with being subject to forfeiture as having been
unlawfully acquired by defendant Dimaano alone
x x x.
The Sandiganbayan, however, refused to
defer the presentation of petitioners evidence
since petitioner did not state when it would file
the amended complaint. On 18 April 1989, the
Sandiganbayan set the continuation of the
presentation of evidence on 28-29 September
and 9-11 October 1989, giving petitioner ample
time to prepare its evidence. Still, on 28
September 1989, petitioner manifested its
inability to proceed with the presentation of its
evidence. The Sandiganbayan issued an Order
expressing its view on the matter, to wit:
The Court has gone through extended inquiry
and a narration of the above events because this
case has been ready for trial for over a year and
much of the delay hereon has been due to the
inability of the government to produce on
scheduled dates for pre-trial and for trial
documents and witnesses, allegedly upon the
failure of the military to supply them for the
preparation of the presentation of evidence
thereon.Of equal interest is the fact that this
Court has been held to task in public about its
alleged failure to move cases such as this one
beyond the preliminary stage, when, in view of
the developments such as those of today, this
Court is now faced with a situation where a case
already in progress will revert back to the
preliminary stage, despite a five-month pause
where appropriate action could have been
undertaken by the plaintiff Republic.[35]
On 9 October 1989, the PCGG manifested in
court that it was conducting a preliminary
investigation on the unexplained wealth of
private respondents as mandated by RA No.
1379.[36]The PCGG prayed for an additional four
months to conduct the preliminary investigation.
The Sandiganbayan granted this request and
scheduled the presentation of evidence on 26-29
March 1990. However, on the scheduled date,
petitioner failed to inform the court of the result of
the preliminary investigation the PCGG
supposedly conducted. Again, the
Sandiganbayan gave petitioner until 18 May
1990 to continue with the presentation of its
evidence and to inform the court of what lies
ahead insofar as the status of the case is
concerned x x x.[37] Still on the date set, petitioner
failed to present its evidence. Finally, on 11 July
1990, petitioner filed its Re-Amended
[38]
Complaint. The Sandiganbayan correctly
observed that a case already pending for years
would revert to its preliminary stage if the court
were to accept the Re-Amended Complaint.
Based on these circumstances, obviously
petitioner has only itself to blame for failure to
complete the presentation of its evidence. The
Sandiganbayan gave petitioner more than
sufficient time to finish the presentation of its
evidence. The Sandiganbayan overlooked
petitioners delays and yet petitioner ended the
long-string of delays with the filing of a Re-
Amended Complaint, which would only prolong
even more the disposition of the case.
Moreover, the pronouncements of the Court
in Migrino and Cruz prompted the
Sandiganbayan to dismiss the case since the
PCGG has no jurisdiction to investigate and
prosecute the case against private respondents.
This alone would have been sufficient legal basis
for the Sandiganbayan to dismiss the forfeiture
case against private respondents.
Thus, we hold that the Sandiganbayan did not
err in dismissing the case before completion of
the presentation of petitioners evidence.
Third Issue: Legality of the Search and
Seizure
Petitioner claims that the Sandiganbayan
erred in declaring the properties confiscated from
Dimaanos house as illegally seized and therefore
inadmissible in evidence. This issue bears a
significant effect on petitioners case since these
properties comprise most of petitioners evidence
against private respondents. Petitioner will not
have much evidence to support its case against
private respondents if these properties are
inadmissible in evidence.
On 3 March 1986, the Constabulary raiding
team served at Dimaanos residence a search
warrant captioned Illegal Possession of Firearms
and Ammunition. Dimaano was not present
during the raid but Dimaanos cousins witnessed
the raid. The raiding team seized the items
detailed in the seizure receipt together with other
items not included in the search warrant. The
raiding team seized these items: one baby
armalite rifle with two magazines; 40 rounds of
5.56 ammunition; one pistol, caliber .45;
communications equipment, cash consisting
of P2,870,000 and US$50,000, jewelry, and land
titles.
Petitioner wants the Court to take judicial
notice that the raiding team conducted the
search and seizure on March 3, 1986 or five days
after the successful EDSA
[39]
revolution. Petitioner argues that a
revolutionary government was operative at that
time by virtue of Proclamation No. 1 announcing
that President Aquino and Vice President Laurel
were taking power in the name and by the will of
the Filipino people.[40] Petitioner asserts that the
revolutionary government effectively withheld the
operation of the 1973 Constitution which
guaranteed private respondents exclusionary
right.
Moreover, petitioner argues that the
exclusionary right arising from an illegal search
applies only beginning 2 February 1987, the date
of ratification of the 1987 Constitution. Petitioner
contends that all rights under the Bill of Rights
had already reverted to its embryonic stage at
the time of the search. Therefore, the
government may confiscate the monies and
items taken from Dimaano and use the same in
evidence against her since at the time of their
seizure, private respondents did not enjoy any
constitutional right.
Petitioner is partly right in its arguments.
The EDSA Revolution took place on 23-25
February 1986. As succinctly stated in President
Aquinos Proclamation No. 3 dated 25 March
1986, the EDSA Revolution was done in
defiance of the provisions of the 1973
Constitution.[41] The resulting government was
indisputably a revolutionary government bound
by no constitution or legal limitations except
treaty obligations that the revolutionary
government, as the de jure government in the
Philippines, assumed under international law.
The correct issues are: (1) whether the
revolutionary government was bound by the Bill
of Rights of the 1973 Constitution during
the interregnum, that is, after the actual and
effective take-over of power by the revolutionary
government following the cessation of resistance
by loyalist forces up to 24 March 1986
(immediately before the adoption of the
Provisional Constitution); and (2) whether the
protection accorded to individuals under the
International Covenant on Civil and Political
Rights (Covenant) and the Universal Declaration
of Human Rights (Declaration) remained in effect
during the interregnum.
We hold that the Bill of Rights under the 1973
Constitution was not operative during the
interregnum. However, we rule that the
protection accorded to individuals under the
Covenant and the Declaration remained in effect
during the interregnum.
During the interregnum, the directives and
orders of the revolutionary government were the
supreme law because no constitution limited the
extent and scope of such directives and
orders. With the abrogation of the 1973
Constitution by the successful revolution, there
was no municipal law higher than the directives
and orders of the revolutionary
government. Thus, during the interregnum, a
person could not invoke any exclusionary right
under a Bill of Rights because there was neither
a constitution nor a Bill of Rights during the
interregnum. As the Court explained in Letter of
Associate Justice Reynato S. Puno:[42]
A revolution has been defined as the complete
overthrow of the established government in any
country or state by those who were previously
subject to it or as a sudden, radical and
fundamental change in the government or
political system, usually effected with violence or
at least some acts of violence. In Kelsen's book,
General Theory of Law and State, it is defined as
that which occurs whenever the legal order of a
community is nullified and replaced by a new
order . . . a way not prescribed by the first order
itself.
It was through the February 1986 revolution, a
relatively peaceful one, and more popularly
known as the people power revolution that the
Filipino people tore themselves away from an
existing regime. This revolution also saw the
unprecedented rise to power of the Aquino
government.
From the natural law point of view, the right of
revolution has been defined as an inherent right
of a people to cast out their rulers, change their
policy or effect radical reforms in their system of
government or institutions by force or a general
uprising when the legal and constitutional
methods of making such change have proved
inadequate or are so obstructed as to be
unavailable. It has been said that the locus of
positive law-making power lies with the people of
the state and from there is derived the right of the
people to abolish, to reform and to alter any
existing form of government without regard to the
existing constitution.
xxx
It is widely known that Mrs. Aquinos rise to
the presidency was not due to constitutional
processes; in fact, it was achieved in
violation of the provisions of the 1973
Constitution as a Batasang Pambansa
resolution had earlier declared Mr. Marcos as
the winner in the 1986 presidential
election. Thus it can be said that the
organization of Mrs. Aquinos Government which
was met by little resistance and her control of the
state evidenced by the appointment of the
Cabinet and other key officers of the
administration, the departure of the Marcos
Cabinet officials, revamp of the Judiciary and the
Military signaled the point where the legal
system then in effect, had ceased to be
obeyed by the Filipino. (Emphasis supplied)
To hold that the Bill of Rights under the 1973
Constitution remained operative during the
interregnum would render void all sequestration
orders issued by the Philippine Commission on
Good Government (PCGG) before the adoption
of the Freedom Constitution. The sequestration
orders, which direct the freezing and even the
take-over of private property by mere executive
issuance without judicial action, would violate the
due process and search and seizure clauses of
the Bill of Rights.
During the interregnum, the government in
power was concededly a revolutionary
government bound by no constitution. No one
could validly question the sequestration orders
as violative of the Bill of Rights because there
was no Bill of Rights during the
interregnum. However, upon the adoption of the
Freedom Constitution, the sequestered
companies assailed the sequestration orders as
contrary to the Bill of Rights of the Freedom
Constitution.
In Bataan Shipyard & Engineering Co. Inc.
vs. Presidential Commission on Good
Government,[43] petitioner Baseco, while
conceding there was no Bill of Rights during the
interregnum, questioned the continued validity of
the sequestration orders upon adoption of the
Freedom Constitution in view of the due process
clause in its Bill of Rights. The Court ruled that
the Freedom Constitution, and later the 1987
Constitution, expressly recognized the validity
of sequestration orders, thus:
If any doubt should still persist in the face of the
foregoing considerations as to the validity and
propriety of sequestration, freeze and takeover
orders, it should be dispelled by the fact that
these particular remedies and the authority of the
PCGG to issue them have received constitutional
approbation and sanction. As already
mentioned, the Provisional or Freedom
Constitution recognizes the power and duty of
the President to enact measures to achieve the
mandate of the people to . . . (r)ecover ill-gotten
properties amassed by the leaders and
supporters of the previous regime and protect the
interest of the people through orders of
sequestration or freezing of assets or accounts.
And as also already adverted to, Section 26,
Article XVIII of the 1987 Constitution treats of,
and ratifies the authority to issue sequestration
or freeze orders under Proclamation No. 3 dated
March 25, 1986.
The framers of both the Freedom Constitution
and the 1987 Constitution were fully aware that
the sequestration orders would clash with the Bill
of Rights. Thus, the framers of both constitutions
had to include specific language recognizing the
validity of the sequestration orders. The following
discourse by Commissioner Joaquin G. Bernas
during the deliberations of the Constitutional
Commission is instructive:
FR. BERNAS: Madam President, there is
something schizophrenic about the arguments in
defense of the present amendment.
For instance, I have carefully studied
Minister Salongas lecture in the Gregorio
Araneta University Foundation, of which all
of us have been given a copy. On the one
hand, he argues that everything the
Commission is doing is traditionally legal.
This is repeated by Commissioner Romulo
also. Minister Salonga spends a major
portion of his lecture developing that
argument. On the other hand, almost as an
afterthought, he says that in the end what
matters are the results and not the legal
niceties, thus suggesting that the PCGG
should be allowed to make some legal
shortcuts, another word for niceties or
exceptions.
Now, if everything the PCGG is doing is
legal, why is it asking the CONCOM for
special protection? The answer is
clear. What they are doing will not stand
the test of ordinary due process, hence
they are asking for protection, for
exceptions. Grandes malos, grandes
remedios, fine, as the saying stands, but
let us not say grandes malos, grande y
malos remedios. That is not an allowable
extrapolation. Hence, we should not give
the exceptions asked for, and let me
elaborate and give three reasons:
First, the whole point of the February
Revolution and of the work of the
CONCOM is to hasten constitutional
normalization. Very much at the heart of
the constitutional normalization is the full
effectivity of the Bill of Rights. We cannot,
in one breath, ask for constitutional
normalization and at the same time ask for
a temporary halt to the full functioning of
what is at the heart of constitutionalism.
That would be hypocritical; that would be a
repetition of Marcosian protestation of due
process and rule of law. The New Society
word for that is backsliding. It is tragic
when we begin to backslide even before
we get there.
Second, this is really a corollary of the first.
Habits tend to become ingrained. The
committee report asks for extraordinary
exceptions from the Bill of Rights for six
months after the convening of Congress,
and Congress may even extend this
longer.
Good deeds repeated ripen into virtue; bad
deeds repeated become vice. What the
committee report is asking for is that we
should allow the new government to
acquire the vice of disregarding the Bill of
Rights.
Vices, once they become ingrained,
become difficult to shed. The practitioners
of the vice begin to think that they have a
vested right to its practice, and they will
fight tooth and nail to keep the franchise.
That would be an unhealthy way of
consolidating the gains of a democratic
revolution.
Third, the argument that what matters are
the results and not the legal niceties is an
argument that is very disturbing. When it
comes from a staunch Christian like
Commissioner Salonga, a Minister, and
repeated verbatim by another staunch
Christian like Commissioner Tingson, it
becomes doubly disturbing and even
discombobulating. The argument makes
the PCGG an auctioneer, placing the Bill of
Rights on the auction block. If the price is
right, the search and seizure clause will be
sold. Open your Swiss bank account to us
and we will award you the search and
seizure clause. You can keep it in your
private safe.
Alternatively, the argument looks on the
present government as hostage to the
hoarders of hidden wealth. The hoarders
will release the hidden health if the ransom
price is paid and the ransom price is the
Bill of Rights, specifically the due process
in the search and seizure clauses. So,
there is something positively revolving
about either argument. The Bill of Rights is
not for sale to the highest bidder nor can it
be used to ransom captive dollars. This
nation will survive and grow strong, only if
it would become convinced of the values
enshrined in the Constitution of a price that
is beyond monetary estimation.
For these reasons, the honorable course
for the Constitutional Commission is to
delete all of Section 8 of the committee
 report and allow the new Constitution to
take effect in full vigor. If Section 8 is
deleted, the PCGG has two options. First,
it can pursue the Salonga and the Romulo
argument that what the PCGG has been
doing has been completely within the pale
of the law. If sustained, the PCGG can go
on and should be able to go on, even
without the support of Section 8. If not
sustained, however, the PCGG has only
one honorable option, it must bow to the
majesty of the Bill of Rights.
The PCGG extrapolation of the law is
defended by staunch Christians. Let me
conclude with what another Christian
replied when asked to toy around with the
law. From his prison cell, Thomas More
said, "I'll give the devil benefit of law for my
nations safety sake. I ask the Commission
to give the devil benefit of law for our
nations sake. And we should delete
Section 8.
Thank you, Madam President. (Emphasis
supplied)
Despite the impassioned plea by
Commissioner Bernas against the amendment
excepting sequestration orders from the Bill of R
ights, the Constitutional Commission still
adopted the amendment as Section 26,[44] Article
XVIII of the 1987 Constitution. The framers of the
Constitution were fully aware that absent Section
26, sequestration orders would not stand the test
of due process under the Bill of Rights.
Thus, to rule that the Bill of Rights of the 1973
Constitution remained in force during the
interregnum, absent a constitutional provision
excepting sequestration orders from such Bill of
Rights, would clearly render all sequestration
orders void during the
interregnum. Nevertheless, even during the
interregnum the Filipino people continued to
enjoy, under the Covenant and the Declaration,
almost the same rights found in the Bill of Rights
of the 1973 Constitution.
The revolutionary government, after installing
itself as the de jure government, assumed
responsibility for the States good faith
compliance with the Covenant to which the
Philippines is a signatory. Article 2(1) of the
Covenant requires each signatory State to
respect and to ensure to all individuals within its
territory and subject to its jurisdiction the
rights[45] recognized in the present
Covenant. Under Article 17(1) of the Covenant,
the revolutionary government had the duty to
insure that [n]o one shall be subjected to arbitrary
or unlawful interference with his privacy, family,
home or correspondence.
The Declaration, to which the Philippines is
also a signatory, provides in its Article 17(2) that
[n]o one shall be arbitrarily deprived of his
property. Although the signatories to the
Declaration did not intend it as a legally binding
document, being only a declaration, the Court
has interpreted the Declaration as part of the
generally accepted principles of international law
and binding on the State.[46] Thus, the
revolutionary government was also obligated
under international law to observe the rights[47] of
individuals under the Declaration.
The revolutionary government did not
repudiate the Covenant or the Declaration during
the interregnum. Whether the revolutionary
government could have repudiated all its
obligations under the Covenant or the
Declaration is another matter and is not the issue
here. Suffice it to say that the Court considers the
Declaration as part of customary international
law, and that Filipinos as human beings are
proper subjects of the rules of international law
laid down in the Covenant. The fact is the
revolutionary government did not repudiate the
Covenant or the Declaration in the same way it
repudiated the 1973 Constitution. As the de
jure government, the revolutionary government
could not escape responsibility for the States
good faith compliance with its treaty obligations
under international law.
It was only upon the adoption of the
Provisional Constitution on 25 March 1986 that
the directives and orders of the revolutionary
government became subject to a higher
municipal law that, if contravened, rendered such
directives and orders void. The Provisional
Constitution adopted verbatim the Bill of Rights
of the 1973 Constitution.[48] The Provisional
Constitution served as a self-limitation by the
revolutionary government to avoid abuses of the
absolute powers entrusted to it by the people.
During the interregnum when no constitution
or Bill of Rights existed, directives and orders
issued by government officers were valid so long
as these officers did not exceed the authority
granted them by the revolutionary government.
The directives and orders should not have also
violated the Covenant or the Declaration. In this
case, the revolutionary government
presumptively sanctioned the warrant since the
revolutionary government did not repudiate
it. The warrant, issued by a judge upon proper
application, specified the items to be searched
and seized. The warrant is thus valid with respect
to the items specifically described in the warrant.
However, the Constabulary raiding team
seized items not included in the warrant. As
admitted by petitioners witnesses, the raiding
team confiscated items not included in the
warrant, thus:
Direct Examination of Capt. Rodolfo Sebastian
AJ AMORES
Q. According to the search warrant,
you are supposed to seize only for
weapons. What else, aside from
the weapons, were seized from the
house of Miss Elizabeth Dimaano?
xxx
A. The communications equipment,
money in Philippine currency and
US dollars, some jewelries, land
titles, sir.
Q. Now, the search warrant speaks
only of weapons to be seized from
the house of Elizabeth
Dimaano. Do you know the reason
why your team also seized other
properties not mentioned in said
search warrant?
A. During the conversation right after
the conduct of said raid, I was
informed that the reason why they
also brought the other items not
included in the search warrant was
because the money and other
jewelries were contained in attach
cases and cartons with markings
Sony Trinitron, and I think three (3)
vaults or steel safes. Believing that
the attach cases and the steel
safes were containing firearms,
they forced open these containers
only to find out that they contained
money.
Q. You said you found money instead
of weapons, do you know the
reason why your team seized this
money instead of weapons?
A. I think the overall team leader and
the other two officers assisting him
decided to bring along also the
money because at that time it was
already dark and they felt most
secured if they will bring that
because they might be suspected
 also of taking money out of those Q. And this party believed there were
items, your Honor.[49] weapons deposited in the house of
Miss Elizabeth Dimaano?
Cross-examination A. Yes, your Honor.
Atty. Banaag
Q. And they so swore before the
Q. Were you present when the search Municipal Trial Judge?
warrant in connection with this case A. Yes, your Honor.
was applied before the Municipal Q. But they did not mention to you, the
Trial Court of Batangas, Branch 1? applicant for the
A. Yes, sir. search warrant, any other
Q. And the search warrant applied for properties or contraband which
by you was for the search and could be found in the residence of
seizure of five (5) baby armalite Miss Elizabeth Dimaano?
rifles M-16 and five (5) boxes of A. They just gave us still unconfirmed
ammunition? report about some hidden items, for
A. Yes, sir. instance, the communications
equipment and money. However, I
xxx did not include that in the
application for search warrant
AJ AMORES considering that we have not
Q. Before you applied for a search established concrete evidence
warrant, did you conduct about that. So when
surveillance in the house of Miss Q. So that when you applied for search
Elizabeth Dimaano? warrant, you had reason to believe
A. The Intelligence Operatives that only weapons were in the
conducted surveillance house of Miss Elizabeth Dimaano?
together with the MSU elements, A. Yes, your Honor.[50]
your Honor.
xxx
Q. You stated that a .45 caliber pistol
was seized along with one
armalite rifle M-16 and how many
ammunition?
A. Forty, sir.
Q. And this became the subject of your
complaint with the issuing Court,
with the fiscals office who charged
Elizabeth Dimaano for Illegal
Possession of Firearms and
Ammunition?
A. Yes, sir.
Q. Do you know what happened to that
case?
A. I think it was dismissed, sir.
Q. In the fiscals office?
A. Yes, sir.
Q. Because the armalite rifle you
seized, as well as the .45 caliber
pistol had a Memorandum Receipt
in the name of Felino Melegrito, is
that not correct?
A. I think that was the reason, sir.
Q. There were other articles seized
which were not included in
the search warrant, like for
instance, jewelries. Why did you
seize the jewelries?
A. I think it was the decision of the
overall team leader and his
assistant to bring along also the
jewelries and other items, sir. I do
not really know where it was taken
but they brought along also these
articles. I do not really know their
reason for bringing the same, but I
just learned that these were taken
because they might get lost if they
will just leave this behind.
xxx
Q. How about the money seized by
your raiding team, they were not
also included in the search
warrant?
A. Yes sir, but I believe they were also
taken considering that the money
was discovered to be contained in
attach cases. These attach cases
were suspected to be containing
pistols or other high powered
firearms, but in the course of the
search the contents turned out to
 be money. So the team leader also
decided to take this considering
that they believed that if they will
just leave the money behind, it
might get lost also.
Q. That holds true also with respect to
the other articles that were seized
by your raiding team, like Transfer
Certificates of Title of lands?
A. Yes, sir. I think they were contained
in one of the vaults that were
opened.[51]
It is obvious from the testimony of Captain
Sebastian that the warrant did not include the
monies, communications equipment, jewelry and
land titles that the raiding team confiscated. The
search warrant did not particularly describe these
items and the raiding team confiscated them on
its own authority. The raiding team had no legal
basis to seize these items without showing that
these items could be the subject of warrantless
search and seizure.[52] Clearly, the raiding team
exceeded its authority when it seized these
items.
The seizure of these items was therefore void,
and unless these items are contraband per
se,[53] and they are not, they must be returned to
the person from whom the raiding seized
them.However, we do not declare that such
person is the lawful owner of these items, merely
that the search and seizure warrant could not be
used as basis to seize and withhold these items
from the possessor. We thus hold that these
items should be returned immediately to
Dimaano.
WHEREFORE, the petition for certiorari
is DISMISSED. The questioned Resolutions of
the Sandiganbayan dated 18 November 1991
and 25 March 1992 in Civil Case No. 0037,
remanding the records of this case to the
Ombudsman for such appropriate action as the
evidence may warrant, and referring this case to
the Commissioner of the Bureau of Internal
Revenue for a determination of any tax liability of
respondent Elizabeth Dimaano, are AFFIRMED.
SO ORDERED.