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Executive Order No.

292 [BOOK VII/Chapter 1-General Provisions]

BOOK VII

Administrative Procedure

CHAPTER 1

General Provisions

SECTION 2. Definitions.—As used in this Book:


(1) “Agency” includes any department, bureau, office, commission, authority or officer of the National Government
authorized by law or executive order to make rules, issue licenses, grant rights or privileges, and adjudicate cases;
research institutions with respect to licensing functions; government corporations with respect to functions
regulating private right, privileges, occupation or business; and officials in the exercise of disciplinary power as
provided by law.

(2) “Rule” means any agency statement of general applicability that implements or interprets a law, fixes and
describes the procedures in, or practice requirements of, an agency, including its regulations. The term includes
memoranda or statements concerning the internal administration or management of an agency not affecting the
rights of, or procedure available to, the public.

(3) “Rate” means any charge to the public for a service open to all and upon the same terms, including individual or
joint rates, tolls, classifications, or schedules thereof, as well as commutation, mileage, kilometerage and other
special rates which shall be imposed by law or regulation to be observed and followed by any person.

(4) “Rule making” means an agency process for the formulation, amendment, or repeal of a rule.

(5) “Contested case” means any proceeding, including licensing, in which the legal rights, duties or privileges
asserted by specific parties as required by the Constitution or by law are to be determined after hearing.

(6) “Person” includes an individual, partnership, corporation, association, public or private organization of any
character other than an agency.

(7) “Party” includes a person or agency named or admitted as a party, or properly seeking and entitled as of right to
be admitted as a party, in any agency proceeding; but nothing herein shall be construed to prevent an agency from
admitting any person or agency as a party for limited purposes.

(8) “Decision” means the whole or any part of the final disposition, not of an interlocutory character, whether
affirmative, negative, or injunctive in form, of an agency in any matter, including licensing, rate fixing and granting of
rights and privileges.

(9) “Adjudication” means an agency process for the formulation of a final order.

(10) “License” includes the whole or any part of any agency permit, certificate, passport, clearance, approval,
registration, charter, membership, statutory exemption or other form of permission, or regulation of the exercise of a
right or privilege.

(11) “Licensing” includes agency process involving the grant, renewal, denial, revocation, suspension, annulment,
withdrawal, limitation, amendment, modification or conditioning of a license.
(12) “Sanction” includes the whole or part of a prohibition, limitation or other condition affecting the liberty of any
person; the withholding of relief; the imposition of penalty or fine; the destruction, taking, seizure or withholding of
property; the assessment of damages, reimbursement, restitution, compensation, cost, charges or fees; the
revocation or suspension of license; or the taking of other compulsory or restrictive action.

(13) “Relief” includes the whole or part of any grant of money, assistance, license, authority, privilege, exemption,
exception, or remedy; recognition of any claim, right, immunity, privilege, exemption or exception; or taking of any
action upon the application or petition of any person.

(14) “Agency proceeding” means any agency process with respect to rule-making, adjudication and licensing.

(15) “Agency action” includes the whole or part of every agency rule, order, license, sanction, relief or its equivalent
or denial thereof.

MALAGA vs. PENACHOS


G.R. No. 86695. September 3, 1992

1.ADMINISTRATIVE LAW; GOVERNMENT INSTRUMENTALITY, DEFINED. — The 1987 Administrative Code


defines a government instrumentality as follows: Instrumentality refers to any agency of the National Government,
not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a
charter. This term includes regulatory agencies, chartered institutions, and government-owned or controlled
corporations. (Sec. 2 (5) Introductory Provisions).
2.ID.; CHARTERED INSTITUTION; DEFINED; APPLICATION IN CASE AT BAR. — The 1987 Administrative Code
describes a chartered institution thus: Chartered institution — refers to any agency organized or operating under a
special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term
includes the state universities and colleges, and the monetary authority of the state. (Sec. 2 (12) Introductory
Provisions). It is clear from the above definitions that ISCOF is a chartered institution and is therefore covered by
P.D. 1818. There are also indications in its charter that ISCOF is a government instrumentality. First, it was created
in pursuance of the integrated fisheries development policy of the State, a priority program of the government to
effect the socio-economic life of the nation. Second, the Treasurer of the Republic of the Philippines shall also be
the ex-officio Treasurer of the state college with its accounts and expenses to be audited by the Commission on
Audit or its duly authorized representative. Third, heads of bureaus and offices of the National Government are
authorized to loan or transfer to it, upon request of the president of the state college, such apparatus, equipment, or
supplies and even the services of such employees as can be spared without serious detriment to public service.
Lastly, an additional amount of P1.5M had been appropriated out of the funds of the National Treasury and it was
also decreed in its charter that the funds and maintenance of the state college would henceforth be included in the
General Appropriations Law. (Presidential Decree No. 1523)
3.ID.; PROHIBITION OF ANY COURT FROM ISSUING INJUNCTION IN CASES INVOLVING INFRASTRUCTURE
PROJECTS OF GOVERNMENT (P.D. 1818); POWER OF THE COURTS TO RESTRAIN APPLICATION. — In the
case of Datiles and Co. vs. Sucaldito, (186 SCRA 704) this Court interpreted a similar prohibition contained in P.D.
605, the law after which P.D. 1818 was patterned. It was there declared that the prohibition pertained to the
issuance of injunctions or restraining orders by courts against administrative acts in controversies involving facts or
the exercise of discretion in technical cases. The Court observed that to allow the courts to judge these matters
would disturb the smooth functioning of the administrative machinery. Justice Teodoro Padilla made it clear,
however, that on issues definitely outside of this dimension and involving questions of law, courts could not be
prevented by P.D. No. 605 from exercising their power to restrain or prohibit administrative acts. We see no reason
why the above ruling should not apply to P.D. 1818. There are at least two irregularities committed by PBAC that
justified injunction of the bidding and the award of the project.
4.ID.; POLICIES AND GUIDELINES PRESCRIBED FOR GOVERNMENT INFRASTRUCTURE (PD 1594); RULES
IMPLEMENTING THEREOF, NOT SUFFICIENTLY COMPLIED WITH IN CASE AT BAR. — Under the Rules
Implementing P.D. 1594, prescribing policies and guidelines for government infrastructure contracts, PBAC shall
provide prospective bidders with the Notice to Pre-qualification and other relevant information regarding the
proposed work. Prospective contractors shall be required to file their ARC-Contractors Confidential Application for
Registration & Classifications & the PRE-C2 Confidential Pre-qualification Statement for the Project (prior to the
amendment of the rules, this was referred to as Pre-C1) not later than the deadline set in the published Invitation to
Bid, after which date no PRE-C2 shall be submitted and received. Invitations to Bid shall be advertised for at least
three times within a reasonable period but in no case less than two weeks in at least two newspapers of general
circulations. (IB 13 1.2-19, Implementing Rules and Regulations of P.D. 1594 as amended) PBAC advertised the
pre-qualification deadline as December 2, 1988, without stating the hour thereof, and announced that the opening
of bids would be at 3 o'clock in the afternoon of December 12, 1988. This scheduled was changed and a notice of
such change was merely posted at the ISCOF bulletin board. The notice advanced the cut-off time for the
submission of pre-qualification documents to 10 o'clock in the morning of December 2, 1988, and the opening of
bids to 1 o'clock in the afternoon of December 12, 1988. The new schedule caused the pre-disqualification of the
petitioners as recorded in the minutes of the PBAC meeting held on December 6, 1988. While it may be true that
there were fourteen contractors who were pre-qualified despite the change in schedule, this fact did not cure the
defect of the irregular notice. Notably, the petitioners were disqualified because they failed to meet the new
deadline and not because of their expired licenses. (B.E. & Best Built's licenses were valid until June 30, 1989. [Ex.
P & O respectively: both were marked on December 28, 1988]) We have held that where the law requires a
previous advertisement before government contracts can be awarded, non-compliance with the requirement will, as
a general rule, render the same void and of no effect. (Caltex Phil. v. Delgado Bros., 96 Phil. 368) The fact that an
invitation for bids has been communicated to a number of possible bidders is not necessarily sufficient to establish
compliance with the requirements of the law if it is shown that other possible bidders have not been similarly
notified.
5.ID.; ID.; ID.; PURPOSE THEREOF; CASE AT BAR. — The purpose of the rules implementing P.D. 1594 is to
secure competitive bidding and to prevent favoritism, collusion and fraud in the award of these contracts to the
detriment of the public. This purpose was defeated by the irregularities committed by PBAC. It has been held that
the three principles in public bidding are the offer to the public, an opportunity for competition and a basis for exact
comparison of bids. A regulation of the matter which excludes any of these factors destroys the distinctive character
of the system and thwarts the purpose of its adoption. (Hannan v. Board of Education, 25 Okla. 372) In the case at
bar, it was the lack of proper notice regarding the pre-qualification requirement and the bidding that caused the
elimination of petitioners B.E. and Best Built. It was not because of their expired licenses, as private respondents
now claim. Moreover, the plans and specifications which are the contractors' guide to an intelligent bid, were not
issued on time, thus defeating the guaranty that contractors be placed on equal footing when they submit their bids.
The purpose of competitive bidding is negated if some contractors are informed ahead of their rivals of the plans
and specifications that are to be the subject of their bids.
6.ID.; ID.; ID.; EFFECT OF NON-COMPLIANCE THEREOF. — It has been held in a long line of cases that a
contract granted without the competitive bidding required by law is void, and the party to whom it is awarded cannot
benefit from it. It has not been shown that the irregularities committed by PBAC were induced by or participated in
by any of the contractors. Hence, liability shall attach only to the private respondents for the prejudice sustained by
the petitioners as a result of the anomalies described above.
7.CIVIL LAW; NOMINAL DAMAGES; AWARD THEREOF, WHEN AVAILABLE. — As there is no evidence of the
actual loss suffered by the petitioners, compensatory damage may not be awarded to them. Moral damages do not
appear to be due either. Even so, the Court cannot close its eyes to the evident bad faith that characterized the
conduct of the private respondents, including the irregularities in the announcement of the bidding and their efforts
to persuade the ISCOF president to award the project after two days from receipt of the restraining order and
before they moved to lift such order. For such questionable acts, they are liable in nominal damages at least in
accordance with Article 2221 of the Civil Code, which states: Art. 2221. Nominal damages are adjudicated in order
that a right of the plaintiff, which has been violated or invaded by the defendant may be vindicated or, recognized,
and not for the purpose of indemnifying the plaintiff for any loss suffered by him. These damages are to be
assessed against the private respondents in the amount of P10,000.00 each, to be paid separately for each of
petitioners B.E. Construction and Best Built Construction.
This controversy involves the extent and applicability of P.D. 1818, which prohibits any court from issuing
injunctions in cases involving infrastructure projects of the government. prLL

The facts are not disputed.


The Iloilo State College of Fisheries (henceforth ISCOF) through its Pre-qualification, Bids and Awards Committee
(henceforth PBAC) caused the publication in the November 25, 26, 28, 1988 issues of the Western Visayas Daily
an Invitation to Bid for the construction of the Micro Laboratory Building at ISCOF. The notice announced that the
last day for the submission of pre-qualification requirements (PRE C-1) ** was December 2, 1988, and that the bids
would be received and opened on December 12, 1988, 3 o'clock in the afternoon. 1
Petitioners Maria Elena Malaga and Josieleen Najarro, respectively doing business under the name of the B.E.
Construction and Best Built Construction, submitted their pre-qualification documents at two o'clock in the afternoon
of December 2, 1988. Petitioner Jose Occeña submitted his own PRE-C1 on December 5, 1988. All three of them
were not allowed to participate in the bidding because their documents were considered late, having been
submitted after the cut-off time of ten o'clock in the morning of December 2, 1988.
On December 12, 1988, the petitioners filed a complaint with the Regional Trial Court of Iloilo against the chairman
and members of PBAC in their official and personal capacities. The plaintiffs claimed that although they had
submitted their PRE-C1 on time, the PBAC refused without just cause to accept them. As a result, they were not
included in the list of pre-qualified bidders, could not secure the needed plans and other documents, and were
unable to participate in the scheduled bidding.
In their prayer, they sought the resetting of the December 12, 1988 bidding and the acceptance of their PRE-C1
documents. They also asked that if the bidding had already been conducted, the defendants be directed not to
award the project pending resolution of their complaint.
On the same date, Judge Lodrigio L. Lebaquin issued a restraining order prohibiting PBAC from conducting the
bidding and awarding the project. 2
On December 16, 1988, the defendants filed a motion to lift the restraining order on the ground that the Court was
prohibited from issuing restraining orders, preliminary injunctions and preliminary mandatory injunctions by P.D.
1818. cdll
The decree reads pertinently as follows:
Section 1.No Court in the Philippines shall have jurisdiction to issue any restraining order,
preliminary injunction, or preliminary infrastructure project, or a mining, fishery, forest or other
natural resource development project of the government, or any public utility operated by the
government, including among others public utilities for the transport of the goods and
commodities, stevedoring and arrastre contracts, to prohibit any person or persons, entity or
government official from proceeding with, or continuing the execution or implementation of any
such project, or the operation of such public utility, or pursuing any lawful activity necessary for
such execution, implementation or operation.
The movants also contended that the question of the propriety of a preliminary injunction had become moot and
academic because the restraining order was received late, at 2 o'clock in the afternoon of December 12, 1988, after
the bidding had been conducted and closed at eleven thirty in the morning of that date.
In their opposition of the motion, the plaintiffs argued against the applicability of P.D. 1818, pointing out that while
ISCOF was a state college, it had its own charter and separate existence and was not part of the national
government or of any local political subdivision. Even if P.D. 1818 were applicable, the prohibition presumed a valid
and legal government project, not one tainted with anomalies like the project at bar.
They also cited Filipinas Marble Corp. vs. IAC, 3 where the Court allowed the issuance of a writ of preliminary
injunction despite a similar prohibition found in P.D. 385. The Court therein stated that:
The government, however, is bound by basic principles of fairness and decency under the due
process clauses of the Bill of Rights. P.D. 385 was never meant to protect officials of
government-lending institutions who take over the management of a borrower corporation, lead
that corporation to bankruptcy through mismanagement or misappropriation of its funds,
and who, after ruining it, use the mandatory provisions of the decree to avoid the consequences
of their misleads (p. 188, emphasis supplied).
On January 2, 1989, the trial court lifted the restraining order and denied the petition for preliminary injunction. It
declared that the building sought to be construed at the ISCOF was an infrastructure project of the government
falling within the coverage of P.D. 1818. Even if it were not, the petition for the issuance of a writ of preliminary
injunction would still fail because the sheriff's return showed that PBAC was served a copy of the restraining order
after the bidding sought to be restrained had already been held. Furthermore, the members of the PBAC could not
be restrained from awarding the project because the authority to do so was lodged in the President of the ISCOF,
who was not a party to the case. 4
In the petition now before us, it is reiterated that P.D. 1818 does not cover the ISCOF because of its separate and
distinct corporate personality. It is also stressed again that the prohibition under P.D. 1818 could not apply to the
present controversy because the project was vitiated with irregularities, to wit: prcd
1.The invitation to bid as published fixed the deadline of submission of pre-qualification
document on December 2, 1988 without indicating any time, yet after 10:00 o'clock of the given
late, the PBAC already refused to accept petitioners' documents.
2.The time and date of bidding was published as December 12, 1988 at 3:00 p.m. yet it was held
at 10:00 o'clock in the morning.
3.Private respondents, for the purpose of inviting bidders to participate, issued a mimeographed
"Invitation to Bid" form, which by law (P.D. 1594 and Implementing Rules, Exh. B-1) is to contain
the particulars of the project subject of bidding for the purpose of.
(i)enabling bidders to make an intelligent and accurate bids;
(ii)for PBAC to have a uniform basis for evaluating the bids;
(iii)to prevent collusion between a bidder and the PBAC, by opening to all the
particulars of a project.
Additionally, the Invitation to Bid prepared by the respondents and the Itemized Bill of Quantities therein were left
blank. 5 And although the project in question was a "Construction," the private respondents used an Invitation to
Bid form for "Materials." 6
The petitioners also point out that the validity of the writ of preliminary injunction had not yet become moot and
academic because even if the bids had been opened before the restraining order was issued, the project itself had
not yet been awarded. The ISCOF president was not an indispensable party because the signing of the award was
merely a ministerial function which he could perform only upon the recommendation of the Award Committee. At
any rate, the complaint had already been duly amended to include him as a party defendant.
In their Comment, the private respondents maintain that since the members of the board of trustees of the ISCOF
are all government officials under Section 7 of P.D. 1523 and since the operations and maintenance of the ISCOF
are provided for in the General Appropriations Law, it is should be considered a government institution whose
infrastructure project is covered by P.D. 1818.
Regarding the schedule for pre-qualification, the private respondents insist that PBAC posted on the ISCOF bulletin
board an announcement that the deadline for the submission of pre-qualifications documents was at 10 o'clock of
December 2, 1988, and the opening of bids would be held at 1 o'clock in the afternoon of December 12, 1988. As of
ten o'clock in the morning of December 2, 1988, B.E. construction and Best Built construction had filed only their
letters of intent. At two o'clock in the afternoon, B.E., and Best Built filed through their common representative,
Nenette Garuello, their pre-qualification documents which were admitted but stamped "submitted late." The
petitioners were informed of their disqualification on the same date, and the disqualification became final on
December 6, 1988. Having failed to take immediate action to compel PBAC to pre-qualify them despite their notice
of disqualification, they cannot now come to this Court to question the binding proper in which they had not
participated.
In the petitioners' Reply, they raise as an additional irregularity the violation of the rule that where the estimate
project cost is from P1M to P5M, the issuance of plans, specifications and proposal book forms should made thirty
days before the date of bidding. 7 They point out that these forms were issued only on December 2, 1988, and not
at the latest on November 12, 1988, the beginning of the 30-day period prior to the scheduled bidding.
In their Rejoinder, the private respondents aver that the documents of B.E. and Best Built were received although
filed late and were reviewed by the Award Committee, which discovered that the contractors had expired licenses.
B.E.'s temporary certificate of Renewal of Contractor's License was valid only until September 30, 1988, while Best
Built's license was valid only up to June 30, 1988. llcd
The Court has considered the arguments of the parties in light of their testimonial and documentary evidence and
the applicable laws and jurisprudence. It finds for the petitioners.
The 1987 Administrative Code defines a government instrumentality as follows:
Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. This term includes regulatory agencies, chartered institutions, and
government-owned or controlled corporations. (Sec. 2 (5) Introductory Provisions).
The same Code describes a chartered institution thus:
Chartered institution — refers to any agency organized or operating under a special charter, and
vested by law with functions relating to specific constitutional policies or objectives. This term
includes the state universities and colleges, and the monetary authority of the state. (Sec. 2 (12)
Introductory Provisions).
It is clear from the above definitions that ISCOF is a chartered institution and is therefore covered by P.D. 1818.
There are also indications in its charter that ISCOF is a government instrumentality. First, it was created in
pursuance of the integrated fisheries development policy of the State, a priority program of the government to effect
the socio-economic life of the nation. Second, the Treasurer of the Republic of the Philippines also be the ex-
officioTreasurer of the state college with its accounts and expenses to be audited by the Commission on Audit or its
duly authorized representative. Third, heads of bureaus and offices of the National Government are authorized to
loan or transfer to it, upon request of the president of the state college, such apparatus, equipment, or supplies and
even the services of such employees as can be spared without serious detriment to public service. Lastly, an
additional amount of P1.5M had been appropriated out of the funds of the National Treasury and it was also
decreed in its charter that the funds and maintenance of the state college would henceforth be included in the
General Appropriations Law. 8
Nevertheless, it does not automatically follow that ISCOF is covered by the prohibition in the said decree.
In the case of Datiles and Co. vs. Sucaldito, 9 this Court interpreted a similar prohibition contained in P.D. 605, the
law after which P.D. 1818 was patterned. It was there declared that the prohibition pertained to the issuance of
injunctions or restraining orders by courts against administrative acts in controversies involving facts or the exercise
of discretion in technical cases. The Court observed that to allow the courts to judge these matters would disturb
the smooth functioning of the administrative machinery. Justice Teodoro Padilla made it clear, however, that on
issues definitely outside of this dimension and involving questions of law, courts could not be prevented by P.D. No.
605 from exercising their power to restrain or prohibit administrative acts.
We see no reason why the above ruling should not apply to P.D. 1818.
There are at least two irregularities committed by PBAC that justified injunction of the bidding and the award of the
project. LLjur
First, PBAC set deadlines for the filing of the PRE-C1 and the opening of bids and then changed these deadlines
without prior notice to prospective participants.
Under the Rules Implementing P.D. 1594, prescribing policies and guidelines for government infrastructure
contracts, PBAC shall provide prospective bidders with the Notice of Pre-qualification and other relevant
information regarding the proposed work. Prospective contractors shall be required to file their ARC-Contractors
Confidential Application for Registration & Classifications & the PRE-C2 Confidential Pre-qualification Statement for
the Project (prior to the amendment of the rules, this was referred to as PRE-C1) not later than the deadline set in
the published Invitation to Bid, after which date no PRE-C2 shall be submitted and received. Invitations to Bid shall
be advertised for at least three times within a reasonable period but in no case less than two weeks in at least two
newspapers of general circulations. 10
PBAC advertised the pre-qualification deadline as December 2, 1988, without stating the hour thereof, and
announced that the opening of bids would be at 3 o'clock in the afternoon of December 12, 1988. This schedule
was changed and a notice of such change was merely posted at the ISCOF bulletin board. The notice advanced
the cut-off time for the submission of pre-qualification documents to 10 o'clock in the morning of December 2, 1988,
and the opening of bids to 1 o'clock in the afternoon of December 12, 1988.
The new schedule caused the pre-disqualification of the petitioners as recorded in the minutes of the PBAC
meeting held on December 6, 1988. While it may be true that there were fourteen contractors who were pre-
qualified despite the change in schedule, this fact did not cure the defect of the irregular notice. Notably, the
petitioners were disqualified because they failed to meet the new deadline and not because of their expired
licenses. ***
We have held that where the law requires a previous advertisement before government contracts can be awarded,
non-compliance with the requirement will, as a general rule, render the same void and of no effect. 11 The facts
that an invitation for bids has been communicated to a number of possible bidders is not necessarily sufficient to
establish compliance with the requirements of the law if it is shown that other public bidders have not been similarly
notified. 12
Second, PBAC was required to issue to pre-qualified applicants the plans, specifications and proposal book forms
for the project to be bid thirty days before the date of bidding if the estimate project cost was between P1M and
P5M. PBAC has not denied that these forms were issued only on December 2, 1988, or only ten days before the
bidding scheduled for December 12, 1988. At the very latest, PBAC should have issued them on November 12,
1988, or 30 days before the scheduled bidding.
It is apparent that the present controversy did not arise from the discretionary acts of the administrative body nor
does it involve merely technical matters. What is involved here is non-compliance with the procedural rules on
bidding which required strict observance. The purpose of the rules implementing P.D. 1594 is to secure competitive
bidding and to prevent favoritism, collusion and fraud in the award of these contracts to the detriment of the public.
This purpose was defeated by the irregularities committed by PBAC.LLpr
It has been held that the three principles in public bidding are the offer to the public, an opportunity for competition
and a basis for exact comparison of bids. A regulation of the matter which excludes any of these factors destroys
the distinctive character of the system and thwarts the purpose of its adoption. 13
In the case at bar, it was the lack of proper notice regarding the pre-qualification requirement and the bidding that
caused the elimination of petitioners B.E. and Best Built. It was not because of their expired licenses, as private
respondents now claim. Moreover, the plans and specifications which are the contractors' guide to an intelligent bid,
were not issued on time, thus defeating the guaranty that contractors be placed on equal footing when they submit
their bids. The purpose of competitive bidding is negated if some contractors are informed ahead of their rivals of
the plans and specifications that are to be the subject of their bids.
P.D. 1818 was not intended to shield from judicial scrutiny irregularities committed by administrative agencies such
as the anomalies above described. Hence, the challenged restraining order was not improperly issued by the
respondent judge and the writ of preliminary injunction should not have been denied. We note from Annex Q of the
private respondent's memorandum, however, that the subject project has already been "100% completed as to the
Engineering Standard." This fait accompli has made the petition for a writ of preliminary injunction moot and
academic.
We come now to the liabilities of the private respondents.
It has been held in a long line of cases that a contract granted without the competitive bidding required by law is
void, and the party to whom it is awarded cannot benefit from it. 14 It has not been shown that the irregularities
committed by PBAC were induced by or participated in by any of the contractors. Hence, liability shall attach only to
the private respondents for the prejudice sustained by the petitioners as a result of the anomalies described above.
As there is no evidence of the actual loss suffered by the petitioners, compensatory damage may not be awarded
to them. Moral damages do not appear to be due either. Even so, the Court cannot close its eyes to the evident bad
faith that characterized the conduct of the private respondents, including the irregularities in the announcement of
the bidding and their efforts to persuade the ISCOF president to award the project after two days from receipt of the
restraining order and before they moved to lift such order. For such questionable acts, they are liable in nominal
damages at least in accordance with Article 2221 of the Civil Code, which states:
"Art. 2221.Nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant may be vindicated or, recognized, and not for the purpose
of indemnifying the plaintiff for any loss suffered by him.
These damages are to assessed against the private respondents in the amount of P10,000.00 each, to be paid
separately for each of petitioners B.E. Construction and Best Built Construction. The other petitioner, Occeña
Builders, is not entitled to relief because it admittedly submitted its pre-qualification documents on December 5,
1988, or three days after the deadline. Cdpr
WHEREFORE, judgment is hereby rendered: a) upholding the restraining order dated December 12, 1988, as not
covered by the prohibition in P.D. 1818; b) ordering the chairman and the members of the PBAC board of trustees,
namely Manuel R. Penachos, Jr., Alfredo Matangga, Enrico Ticar, and Teresita Villanueva, to each pay separately
to petitioners Maria Elena Malaga and Josieleen Najarro nominal damages P10,000.00 each; and c) removing the
said chairman and members from the PBAC board of trustees, or whoever among them is still incumbent therein,
for their malfeasance in office. Costs against PBAC.

Let a copy of this decision be sent to the Office of the Ombudsman.


SO ORDERED.
THE UNITED RESIDENTS OF DOMINICAN HILL, INC. vs. COMMISSION ON THE SETTLEMENT OF LAND
PROBLEMS
G.R. No. 135945 March 7, 2001

Before us is a petition for prohibition and declaratory relief seeking the annulment of a status quo order1 dated
September 29, 1998 issued by the public respondent Commission on the Settlement of Land Problems (COSLAP,
for brevity) in COSLAP Case No. 98-253.
The facts are:
The property being fought over by the parties is a 10.36-hectare property in Baguio City called Dominican Hills,
formerly registered in the name of Diplomat Hills, Inc. It appeared that the property was mortgaged to the United
Coconut Planters Bank (UCPB) which eventually foreclosed the mortgage thereon and acquired the same as
highest bidder. On April 11, 1983, it was donated to the Republic of the Philippines by UCPB through its President,
Eduardo Cojuangco. The deed of donation stipulated that Dominican Hills would be utilized for the "priority
programs, projects, activities in human settlements and economic development and governmental purposes" of the
Ministry of Human Settlements.
On December 12, 1986, the then President Corazon C. Aquino issued Executive Order No. 85 abolishing the Office
of Media Affairs and the Ministry of Human Settlements. All agencies under the latter's supervision as well as all its
assets, programs and projects, were transferred to the Presidential Management Staff (PMS). 2
On October 18, 1988, the PMS received an application from petitioner UNITED RESIDENTS OF DOMINICAN
HILL, INC. (UNITED, for brevity), a community housing association composed of non-real property owning
residents of Baguio City, to acquire a portion of the Dominican Hills property. On February 2, 1990, PMS Secretary
Elfren Cruz referred the application to the HOME INSURANCE GUARANTY CORPORATION (HIGC). HIGC
consented to act as originator for UNITED.3 Accordingly, on May 9, 1990, a Memorandum of Agreement was
signed by and among the PMS, the HIGC, and UNITED. The Memorandum of Agreement called for the PMS to sell
the Dominican Hills property to HIGC which would, in turn, sell the same to UNITED. The parties agreed on a
selling price of P75.00 per square meter.
Thus, on June 12, 1991, HIGC sold 2.48 hectares of the property to UNITED. The deed of conditional sale provided
that ten (10) per cent of the purchase price would be paid upon signing, with the balance to be amortized within one
year from its date of execution. After UNITED made its final payment on January 31, 1992, HIGC executed a Deed
of Absolute Sale dated July 1, 1992.
Petitioner alleges that sometime in 1993, private respondents entered the Dominican Hills property allocated to
UNITED and constructed houses thereon. Petitioner was able to secure a demolition order from the city mayor.4
Unable to stop the razing of their houses, private respondents, under the name DOMINICAN HILL BAGUIO
RESIDENTS HOMELESS ASSOCIATION (ASSOCIATION, for brevity) filed an action5 for injunction docketed as
Civil Case No. 3316-R, in the Regional Trial Court of Baguio City, Branch 4. Private respondents were able to
obtain a temporary restraining order but their prayer for a writ of preliminary injunction was later denied in an Order
dated March 18, 1996.6
While Civil Case No. 3316-R was pending, the ASSOCIATION, this time represented by the Land Reform
Beneficiaries Association, Inc. (BENEFICIARIES, for brevity), filed Civil Case No. 3382-R before Branch 61 of the
same court. The complaint7 prayed for damages, injunction and annulment of the said Memorandum of Agreement
between UNITED and HIGC. Upon motion of UNITED, the trial court in an Order dated May 27, 1996 dismissed
Civil Case No. 3382-R.8 The said Order of dismissal is currently on appeal with the Court of Appeals. 9
Demolition Order No. 1-96 was subsequently implemented by the Office of the City Mayor and the City Engineer's
Office of Baguio City. However, petitioner avers that private respondents returned and reconstructed the
demolished structures.
To forestall the re-implementation of the demolition order, private respondents filed on September 29, 1998 a
petition10 for annulment of contracts with prayer for a temporary restraining order, docketed as COSLAP Case No.
98-253, in the Commission on the Settlement of Land Problems (COSLAP) against petitioner, HIGC, PMS, the City
Engineer's Office, the City Mayor, as well as the Register of Deeds of Baguio City. On the very same day, public
respondent COSLAP issued the contested order requiring the parties to maintain the status quo.
Without filing a motion for reconsideration from the aforesaid status quo order, petitioner filed the instant petition
questioning the jurisdiction of the COSLAP.
The issues we are called upon to resolve are:
1
IS THE COMMISSION ON THE SETTLEMENT OF LAND PROBLEMS [COSLAP] CREATED UNDER
EXECUTIVE ORDER NO. 561 BY THE OFFICE OF THE PHILIPPINES [sic] EMPOWERED TO HEAR
AND TRY A PETITION FOR ANNULMENT OF CONTRACTS WITH PRAYER FOR A TEMPORARY
RESTRAINING ORDER AND THUS, ARROGATE UNTO ITSELF THE POWER TO ISSUE STATUS QUO
ORDER AND CONDUCT A HEARING THEREOF [sic]?
2
ASSUMING THAT THE COMMISSION ON THE SETTLEMENT OF LAND PROBLEMS [COSLAP] HAS
JURISDICTION ON THE MATTER, IS IT EXEMPTED FROM OBSERVING A CLEAR CASE OF FORUM
SHOPPING ON THE PART OF THE PRIVATE RESPONDENTS?
To the extent that the instant case is denominated as one for declaratory relief, we initially clarify that we do not
possess original jurisdiction to entertain such petitions. 11 Such is vested in the Regional Trial Courts.12 Accordingly,
we shall limit our review to ascertaining if the proceedings before public respondent COSLAP are without or in
excess, of its jurisdiction. In this wise, a recounting of the history of the COSLAP may provide useful insights into
the extent of its powers and functions.
The COSLAP was created by virtue of Executive Order No. 561 dated September 21, 1979. Its forerunner was the
Presidential Action Committee on Land Problems (PACLAP) founded on July 31, 1970 by virtue of Executive Order
No. 251. As originally conceived, the committee was tasked "to expedite and coordinate the investigation and
resolution of land disputes, streamline and shorten administrative procedures, adopt bold and decisive measures to
solve land problems, and/or recommend other solutions." It was given the power to issue subpoenas duces tecum
and ad testificandum and to call upon any department, office, agency or instrumentality of the government,
including government owned or controlled corporations and local government units, for assistance in the
performance of its functions. At the time, the PACLAP did not exercise quasi-judicial functions.
On March 19, 1971, Executive Order No. 305 was issued reconstituting the PACLAP. 13 The committee was given
exclusive jurisdiction over all cases involving public lands and other lands of the public domain and accordingly was
tasked:
1. To investigate, coordinate, and resolve expeditiously land disputes, streamline administrative
procedures, and in general, to adopt bold and decisive measures to solve problems involving public lands
and lands of the public domain;
2. To coordinate and integrate the activities of all government agencies having to do with public lands or
lands of the public domain;
3. To study and review present policies as embodied in land laws and administrative rules and regulations,
in relation to the needs for land of the agro-industrial sector and small farmers, with the end in view to
evolving and recommending new laws and policies and establishing priorities in the grant of public land,
and the simplification of processing of land applications in order to relieve the small man from the
complexities of existing laws, rules and regulations;
4. To evolve and implement a system for the speedy investigation and resolution of land disputes;
5. To receive all complaints of settlers and small farmers, involving public lands or other lands of the public
domain;
6. To look into the conflicts between Christians and non-Christians, between corporations and small settlers
and farmers; cause the speedy settlement of such conflicts in accordance with priorities or policies
established by the Committee; and
7. To perform such other functions as may be assigned to it by the President.
Thereafter, the PACLAP was reorganized pursuant to Presidential Decree No. 832 dated November 27, 1975.14 Its
jurisdiction was revised thus:
xxx xxx xxx
2. Refer for immediate action any land problem or dispute brought to the attention of the PACLAP, to any
member agency having jurisdiction thereof: Provided, that when the Executive Committee decides to act on
a case, its resolution, order or decision thereon, shall have the force and effect of a regular administrative
resolution, order or decision, and shall be binding upon the parties therein involved and upon the member
agency having jurisdiction thereof;
xxx xxx xxx
Notably, the said Presidential Decree No. 832 did not contain any provision for judicial review of the resolutions,
orders or decisions of the PACLAP.
On September 21, 1979, the PACLAP was abolished and its functions transferred to the present Commission on
the Settlement of Land Problems by virtue of Executive Order No. 561. This reorganization, effected in line with
Presidential Decree No. 1416, brought the COSLAP directly under the Office of the President.15 It was only at this
time that a provision for judicial review was made from resolutions, orders or decisions of the said agency, as
embodied in section 3(2) thereof, to wit:
Powers and functions. — The Commission shall have the following powers and functions:
1. Coordinate the activities, particularly the investigation work, of the various government offices
and agencies involved in the settlement of land problems or disputes, and streamline administrative
procedures to relieve small settlers and landholders and members of cultural minorities of the
expense and time-consuming delay attendant to the solution of such problems or disputes;
2. Refer and follow-up for immediate action by the agency having appropriate jurisdiction any land
problem or dispute referred to the Commission: Provided, that the Commission may, in the
following cases, assume jurisdiction and resolve land problems or disputes which are critical and
explosive in nature considering, for instance, the large number of the parties involved, the presence
or emergence of social tension or unrest, or other similar critical situations requiring immediate
action:
(a) Between occupants/squatters and pasture lease agreement holders or timber
concessionaires;
(b) Between occupants/squatters and government reservation grantees;
(c) Between occupants/squatters and public land claimants or applicants;
(d) Petitions for classification, release and/or subdivision of lands of the public domain; and
(e) Other similar land problems of grave urgency and magnitude.
The Commission shall promulgate such rules of procedure as will insure expeditious resolution and action
on the above cases. The resolution, order or decision of the Commission on any of the foregoing cases
shall have the force and effect of a regular administrative resolution, order or decision and shall be binding
upon the parties therein and upon the agency having jurisdiction over the same. Said resolution, order or
decision shall become final and executory within thirty (30) days from its promulgation and shall be
appealable by certiorari only to the Supreme Court.
xxx xxx xxx
In the performance of its functions and discharge of its duties, the Commission is authorized, through the
Commission, to issue subpoena and subpoena duces tecum for the appearance of witnesses and the
production of records, books and documents before it. It may also call upon any ministry, office, agency or
instrumentality of the National Government, including government-owned or controlled corporations, and
local governments for assistance. This authority is likewise, conferred upon the provincial offices as may be
established pursuant to Section 5 of this Executive Order.
In Bañaga v. Commission on the Settlement of Land Problems,16 we characterized the COSLAP's jurisdiction as
being general in nature, as follows:
Petitioners also contend in their petition that the COSLAP itself has no jurisdiction to resolve the protest
and counter-protest of the parties because its power to resolve land problems is confined to those cases
"which are critical and explosive in nature."
This contention is devoid of merit. It is true that Executive Order No. 561 provides that the COSLAP may
take cognizance of cases which are "critical and explosive in nature considering, for instance, the large
number of parties involved, the presence or emergence of social tension or unrest, or other similar critical
situations requiring immediate action." However, the use of the word "may" does not mean that the
COSLAP's jurisdiction is merely confined to the above mentioned cases. The provisions of the said
Executive Order are clear that the COSLAP was created as a means of providing a more effective
mechanism for the expeditious settlement of land problems in general, which are frequently the source of
conflicts among settlers, landowners and cultural minorities. Besides, the COSLAP merely took over from
the abolished PACLAP whose functions, including its jurisdiction, power and authority to act on, decide and
resolve land disputes (Sec. 2, P.D. No. 832) were all assumed by it. The said Executive Order No. 561
containing said provision, being enacted only on September 21, 1979, cannot affect the exercise of
jurisdiction of the PACLAP Provincial Committee of Koronadal on September 29, 1978. Neither can it affect
the decision of the COSLAP which merely affirmed said exercise of jurisdiction.
Given the facts of the case, it is our view that the COSLAP is not justified in assuming jurisdiction over the
controversy. As matters stand, it is not the judiciary's place to question the wisdom behind a law; 17 our task is to
interpret the law. We feel compelled to observe, though, that by reason of the ambiguous terminology employed in
Executive Order No. 561, the power to assume jurisdiction granted to the COSLAP provides an ideal breeding
ground for forum shopping, as we shall explain subsequently. Suffice it to state at this stage that the COSLAP may
not assume jurisdiction over cases which are already pending in the regular courts.
The reason is simple. Section 3(2) of Executive Order 561 speaks of any resolution, order or decision of the
COSLAP as having the "force and effect of a regular administrative resolution, order or decision." The qualification
places an unmistakable emphasis on the administrative character of the COSLAP's determination, amplified by the
statement that such resolutions, orders or decisions "shall be binding upon the parties therein and upon the agency
having jurisdiction over the same." An agency is defined by statute as "any of the various units of the Government,
including a department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local
government or a distinct unit therein."18 A department, on the other hand, "refers to an executive department
created by law."19 Whereas, a bureau is understood to refer "to any principal subdivision of any department." 20 In
turn, an office "refers, within the framework of governmental organization, to any major functional unit of a
department or bureau including regional offices. It may also refer to any position held or occupied by individual
persons, whose functions are defined by law or regulation."21 An instrumentality is deemed to refer "to any agency
of the National Government, not integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering special funds and enjoying
operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and
government-owned or controlled corporations."22 Applying the principle in statutory construction of ejusdem generis,
i.e., "where general words follow an enumeration or 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," 23 section 3(2) of Executive Order 561
patently indicates that the COSLAP's dispositions are binding on administrative or executive agencies. The history
of the COSLAP itself bolsters this view. Prior enactments enumerated its member agencies among which it was to
exercise a coordinating function.
The COSLAP discharges quasi-judicial functions:
"Quasi-judicial function" is a term which applies to the actions, discretion, etc. of public administrative
officers or bodies, who are required to investigate facts, or ascertain the existence of facts, hold hearings,
and draw conclusions from them, as a basis for their official action and to exercise discretion of a judicial
nature."24
However, it does not depart from its basic nature as an administrative agency, albeit one that exercises quasi-
judicial functions. Still, administrative agencies are not considered courts; they are neither part of the judicial
system nor are they deemed judicial tribunals.25 The doctrine of separation of powers observed in our system of
government reposes the three (3) great powers into its three (3) branches — the legislative, the executive, and the
judiciary — each department being co-equal and coordinate, and supreme in its own sphere. Accordingly, the
executive department may not, by its own fiat, impose the judgment of one of its own agencies, upon the judiciary.
Indeed, under the expanded jurisdiction of the Supreme Court, it is empowered "to determine whether or not there
has been grave abuse of discretion amounting to lack of or excess of jurisdiction on the part of any branch or
instrumentality of the Government."26
There is an equally persuasive reason to grant the petition. As an additional ground for the annulment of the
assailed status quo order of COSLAP, UNITED accuses private respondents of engaging in forum shopping. Forum
shopping exists when a party "repetitively avail[s] of several judicial remedies in different courts, simultaneously or
successively, all substantially founded on the same transactions and the same essential facts and circumstances,
and all raising substantially the same issues either pending in, or already resolved adversely by some other
court."27 In this connection, Supreme Court Administrative Circular No. 04-94 dated February 8, 1994 provides:
Revised Circular No. 28-91, dated February 8, 1994, applies to and governs the filing of petitions in the
Supreme Court and the Court of Appeals and is intended to prevent the multiple filing of petitions or
complaints involving the same issues in other tribunals or agencies as a form of forum shopping.
Complementary thereto and for the same purpose, the following requirements, in addition to those in
pertinent provisions of the Rules of Court and existing circulars, shall be strictly complied with in the filing of
complaints, petitions, applications or other initiatory pleadings in all courts and agencies other than the
Supreme Court and the Court of Appeals and shall be subject to the sanctions provided hereunder.
1. The plaintiff, petitioner, applicant or principal part seeking relief in the complaint, petition,
application or other initiatory pleading shall certify under oath in such original pleading, or in a
sworn certification annexed thereto and simultaneously filed therewith, to the truth of the following
facts and undertakings: (a) he has not theretofore commenced any other action or proceeding
involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or
agency; (b) to the best of his knowledge, no such action or proceedings is pending in the Supreme
Court, the Court of Appeals, or any other tribunal or agency; (c) if there is any such action or
proceeding which is either pending or may have been terminated, he must state the status thereof;
and (d) if he should thereafter learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals or any other tribunal or agency, he undertakes to
report that fact within five (5) days therefrom to the court or agency wherein the original pleading
and sworn certification contemplated herein have been filed.
The complaint and other initiatory pleadings referred to and subject of this Circular are the original
civil complaint, counterclaim, cross-claim, third (fourth, etc.) party complaint, or complaint-in-
intervention, petition, or application wherein a party asserts his claim for relief.
2. Any violation of this Circular shall be a cause for the dismissal of the complaint, petition,
application or other initiatory pleading, upon motion and after hearing. However, any clearly willful
and deliberate forum shopping by any other party and his counsel through the filing of multiple
complaints or other initiatory pleadings to obtain favorable action shall be a ground for the
summary dismissal thereof and shall constitute contempt of court. Furthermore, the submission of
a false certification or non-compliance with the undertakings therein, as provided in Paragraph 1
hereof, shall constitute indirect contempt of court, without prejudice to disciplinary proceedings
against the counsel and the filing of a criminal action against the part. [emphasis supplied]
xxx xxx xxx
The said Administrative Circular's use of the auxiliary verb "shall" imports "an imperative obligation . . . inconsistent
with the idea of discretion."28 Hence, compliance therewith is mandatory.29
It bears stressing that there is a material distinction between the requirement of submission of the certification
against forum shopping from the undertakings stated therein. Accordingly,
x x x [f]ailure to comply with this requirement cannot be excused by the fact that plaintiff is not guilty of
forum shopping. The Court of Appeals, therefore, erred in concluding that Administrative Circular No. 04-94
did not apply to private respondent's case merely because her complaint was not based on petitioner's
cause of action. The Circular applies to any complaint, petition, application, or other initiatory pleading,
regardless of whether the party filing it has actually committed forum shopping. Every party filing a
complaint or any other initiatory pleading is required to swear under oath that he has not committed nor will
he commit forum shopping. Otherwise, we would have an absurd situation where the parties themselves
would be the judge of whether their actions constitute a violation of said Circular, and compliance therewith
would depend on their belief that they might or might not have violated the requirement. Such interpretation
of the requirement would defeat the very purpose of Circular 04-94.
Indeed, compliance with the certification against forum shopping is separate from, and independent of, the
avoidance of forum shopping itself. Thus, there is a difference in the treatment — in terms of imposable
sanctions — between failure to comply with the certification requirement and violation of the prohibition
against forum shopping. The former is merely a cause for the dismissal, without prejudice, of the complaint
or initiatory pleading, while the latter is a ground for summary dismissal thereof and constitutes direct
contempt.30
A scrutiny of the pleadings filed before the trial courts and the COSLAP sufficiently establishes private respondents'
propensity for forum shopping. We lay the premise that the certification against forum shopping must be executed
by the plaintiff or principal party, and not by his counsel.31 Hence, one can deduce that the certification is a
peculiar personal representation on the part of the principal party, an assurance given to the court or other tribunal
that there are no other pending cases involving basically the same parties, issues and causes of action. In the case
at bar, private respondents' litany of omissions range from failing to submit the required certification against forum
shopping to filing a false certification, and then to forum shopping itself. First, the petition filed before the COSLAP
conspicuously lacked a certification against forum shopping. Second, it does not appear from the record that the
ASSOCIATION informed Branch 4 of the Regional Trial Court of Baguio City before which Civil Case No. 3316-R
was pending, that another action, Civil Case No. 3382-R, was filed before Branch 61 of the same court. Another
group of homeless residents of Dominican Hill, the LAND REFORM BENEFICIARIES ASSOCIATION, INC.
initiated the latter case. The aforesaid plaintiff, however, does not hesitate to admit that it filed the second case in
representation of private respondent, as one of its affiliates. In the same manner, the certification against forum
shopping accompanying the complaint in Civil Case No. 3382-R does not mention the pendency of Civil Case No.
3316-R. In fact, the opposite assurance was given, that there was no action pending before any other tribunal.
Another transgression is that both branches of the trial court do not appear to have been notified of the filing of the
subject COSLAP Case No. 98-253.
It is evident from the foregoing facts that private respondents, in filing multiple petitions, have mocked our attempts
to eradicate forum shopping and have thereby upset the orderly administration of justice. They sought recourse
from three (3) different tribunals in order to obtain the writ of injunction they so desperately desired. "The willful
attempt by private respondents to obtain a preliminary injunction in another court after it failed to acquire the same
from the original court constitutes grave abuse of the judicial process." 32
In this connection, we expounded on forum shopping in Viva Productions, Inc. v. Court of Appeals33 that:
Private respondent's intention to engage in forum shopping becomes manifest with undoubted clarity upon
the following considerations. Notably, if not only to ensure the issuance of an injunctive relief, the
significance of the action for damages before the Makati court would be nil. What damages against private
respondent would there be to speak about if the Parañaque court already enjoins the performance of the
very same act complained of in the Makati court? Evidently, the action for damages is premature if not for
the preliminary injunctive relief sought. Thus, we find grave abuse of discretion on the part of the Makati
court, being a mere co-equal of the Parañaque court, in not giving due deference to the latter before which
the issue of the alleged violation of the sub-judice rule had already been raised and submitted. In such
instance, the Makati court, if it was wary of dismissing the action outrightly under Administrative Circular
No. 04-94, should have, at least, ordered the consolidation of its case with that of the Parañaque court,
which had first acquired jurisdiction over the related case x x x, or it should have suspended the
proceedings until the Parañaque court may have ruled on the issue x x x.
xxx xxx xxx
Thus, while we might admit that the causes of action before the Makati court and the Parañaque court are
distinct, and that private respondent cannot seek civil indemnity in the contempt proceedings, the same
being in the nature of criminal contempt, we nonetheless cannot ignore private respondent's intention of
seeking exactly identical reliefs when it sought the preliminary relief of injunction in the Makati court. As
earlier indicated, had private respondent been completely in good faith there would have been no
hindrance in filing the action for damages with the regional trial court of Parañaque and having it
consolidated with the contempt proceedings before Branch 274, so that the same issue on the alleged
violation of the sub judice rule will not have to be passed upon twice, and there would be no possibility of
having two courts of concurrent jurisdiction making two conflicting resolutions.
Yet from another angle, it may be said that when the Parañaque court acquired jurisdiction over the said
issue, it excluded all other courts of concurrent jurisdiction from acquiring jurisdiction over the same. To
hold otherwise would be to risk instances where courts of concurrent jurisdiction might have conflicting
orders. This will create havoc and result in an extremely disordered administration of justice. Therefore,
even on the assumption that the Makati court may acquire jurisdiction over the subject matter of the action
for damages, without prejudice to the application of Administrative Circular No. 04-94, it cannot
nonetheless acquire jurisdiction over the issue of whether or not petitioner has violated the sub judice rule.
At best, the Makati court may hear the case only with respect to the alleged injury suffered by private
respondent after the Parañaque court shall have ruled favorably on the said issue.
We also noted several indications of private respondents' bad faith. The complaint filed in Civil Case No. 3316-R
was prepared by the ASSOCIATION's counsel, Atty. Conrado Villamor Catral, Jr. whereas the complaint filed in
Civil Case No. 3382-R was signed by a different lawyer, Atty. Thomas S. Tayengco. With regard to the petition filed
with the COSLAP, the same was signed by private respondents individually. As to the latter case, we noted that the
petition itself could not have been prepared by ordinary laymen, inasmuch as it exhibits familiarity with statutory
provisions and legal concepts, and is written in a lawyerly style.
In the same manner, the plaintiffs in the three (3) different cases were made to appear as dissimilar: in Civil Case
No. 3316-R, the plaintiff was ASSOCIATION of which private respondent Mario Padilan was head, while the plaintiff
in Civil Case No. 3382-R was the BENEFICIARIES. Before the COSLAP, private respondents themselves were the
petitioners, led again by Padilan.34 Private respondents also attempted to vary their causes of action: in Civil Case
No. 3382-R and COSLAP Case No. 98-253, they seek the annulment of the Memorandum of Agreement executed
by and among UNITED, the PMS, and HIGC as well as the transfer certificates of title accordingly issued to
petitioner. All three (3) cases sought to enjoin the demolition of private respondents' houses.
It has been held that forum shopping is evident where the elements of litis pendentia or res judicata are present.
Private respondents' subterfuge comes to naught, for the effects of res judicata or litis pendentia may not be
avoided by varying the designation of the parties or changing the form of the action or adopting a different mode of
presenting one's case.35
In view of the foregoing, all that remains to be done is the imposition of the proper penalty. A party's willful and
deliberate act of forum shopping is punishable by summary dismissal of the actions filed. 36 The summary dismissal
of both COSLAP Case No. 98-253 and Civil Case No. 3316-R is therefore warranted under the premises. We shall
refrain from making any pronouncement on Civil Case No. 3382-R, the dismissal of which was elevated on appeal
to the Court of Appeals where it is still pending.
WHEREFORE, the petition is hereby GRANTED. The status quo order dated September 29, 1998 issued in
COSLAP Case No. 98-253 by respondent Commission On The Settlement Of Land Problems (COSLAP) is hereby
SET ASIDE; and the petition filed in COSLAP Case No. 98-253 and the complaint in Civil Case No. 3316-R are
hereby DISMISSED for lack of jurisdiction and forum shopping. Costs against private respondents.
SO ORDERED

ANAK MINDANAO PARTY-LIST GROUP vs. THE EXECUTIVE SECRETARY


G.R. No. 166052 August 29, 2007

DECISION
Petitioners Anak Mindanao Party-List Group (AMIN) and Mamalo Descendants Organization, Inc. (MDOI) assail the
constitutionality of Executive Order (E.O.) Nos. 364 and 379, both issued in 2004, via the present Petition for
Certiorari and Prohibition with prayer for injunctive relief.
E.O. No. 364, which President Gloria Macapagal-Arroyo issued on September 27, 2004, reads:
EXECUTIVE ORDER NO. 364
TRANSFORMING THE DEPARTMENT OF AGRARIAN REFORM INTO THE DEPARTMENT OF LAND REFORM
WHEREAS, one of the five reform packages of the Arroyo administration is Social Justice and Basic [N]eeds;
WHEREAS, one of the five anti-poverty measures for social justice is asset reform;
WHEREAS, asset reforms covers [sic] agrarian reform, urban land reform, and ancestral domain reform;
WHEREAS, urban land reform is a concern of the Presidential Commission [for] the Urban Poor (PCUP) and
ancestral domain reform is a concern of the National Commission on Indigenous Peoples (NCIP);
WHEREAS, another of the five reform packages of the Arroyo administration is Anti-Corruption and Good
Government;
WHEREAS, one of the Good Government reforms of the Arroyo administration is rationalizing the bureaucracy by
consolidating related functions into one department;
WHEREAS, under law and jurisprudence, the President of the Philippines has broad powers to reorganize the
offices under her supervision and control;
NOW[,] THEREFORE[,] I, Gloria Macapagal-Arroyo, by the powers vested in me as President of the Republic of the
Philippines, do hereby order:
SECTION 1. The Department of Agrarian Reform is hereby transformed into the Department of Land Reform. It
shall be responsible for all land reform in the country, including agrarian reform, urban land reform, and ancestral
domain reform.
SECTION 2. The PCUP is hereby placed under the supervision and control of the Department of Land Reform. The
Chairman of the PCUP shall be ex-officio Undersecretary of the Department of Land Reform for Urban Land
Reform.
SECTION 3. The NCIP is hereby placed under the supervision and control of the Department of Land Reform. The
Chairman of the NCIP shall be ex-officio Undersecretary of the Department of Land Reform for Ancestral Domain
Reform.
SECTION 4. The PCUP and the NCIP shall have access to the services provided by the Department’s Finance,
Management and Administrative Office; Policy, Planning and Legal Affairs Office, Field Operations and Support
Services Office, and all other offices of the Department of Land Reform.
SECTION 5. All previous issuances that conflict with this Executive Order are hereby repealed or modified
accordingly.
SECTION 6. This Executive Order takes effect immediately. (Emphasis and underscoring supplied)
E.O. No. 379, which amended E.O. No. 364 a month later or on October 26, 2004, reads:
EXECUTIVE ORDER NO. 379
AMENDING EXECUTIVE ORDER NO. 364 ENTITLED TRANSFORMING THE DEPARTMENT OF AGRARIAN
REFORM INTO THE DEPARTMENT OF LAND REFORM
WHEREAS, Republic Act No. 8371 created the National Commission on Indigenous Peoples;
WHEREAS, pursuant to the Administrative Code of 1987, the President has the continuing authority to reorganize
the administrative structure of the National Government.
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines, by virtue of
the powers vested in me by the Constitution and existing laws, do hereby order:
Section 1. Amending Section 3 of Executive Order No. 364. Section 3 of Executive Order No. 364, dated
September 27, 2004 shall now read as follows:
"Section 3. The National Commission on Indigenous Peoples (NCIP) shall be an attached agency of the
Department of Land Reform."
Section 2. Compensation. The Chairperson shall suffer no diminution in rank and salary.
Section 3. Repealing Clause. All executive issuances, rules and regulations or parts thereof which are inconsistent
with this Executive Order are hereby revoked, amended or modified accordingly.
Section 4. Effectivity. This Executive Order shall take effect immediately. (Emphasis and underscoring in the
original)
Petitioners contend that the two presidential issuances are unconstitutional for violating:
- THE CONSTITUTIONAL PRINCIPLES OF SEPARATION OF POWERS AND OF THE RULE OF LAW[;]
- THE CONSTITUTIONAL SCHEME AND POLICIES FOR AGRARIAN REFORM, URBAN LAND
REFORM, INDIGENOUS PEOPLES’ RIGHTS AND ANCESTRAL DOMAIN[; AND]
- THE CONSTITUTIONAL RIGHT OF THE PEOPLE AND THEIR ORGANIZATIONS TO EFFECTIVE AND
REASONABLE PARTICIPATION IN DECISION-MAKING, INCLUDING THROUGH ADEQUATE
CONSULTATION[.]1
By Resolution of December 6, 2005, this Court gave due course to the Petition and required the submission of
memoranda, with which petitioners and respondents complied on March 24, 2006 and April 11, 2006, respectively.
The issue on the transformation of the Department of Agrarian Reform (DAR) into the Department of Land Reform
(DLR) became moot and academic, however, the department having reverted to its former name by virtue of E.O.
No. 4562 which was issued on August 23, 2005.
The Court is thus left with the sole issue of the legality of placing the Presidential Commission 3 for the Urban Poor
(PCUP) under the supervision and control of the DAR, and the National Commission on Indigenous Peoples (NCIP)
under the DAR as an attached agency.
Before inquiring into the validity of the reorganization, petitioners’ locus standi or legal standing, inter
alia,4 becomes a preliminary question.
The Office of the Solicitor General (OSG), on behalf of respondents, concedes that AMIN5 has the requisite legal
standing to file this suit as member6 of Congress.
Petitioners find it impermissible for the Executive to intrude into the domain of the Legislature. They posit that an
act of the Executive which injures the institution of Congress causes a derivative but nonetheless substantial injury,
which can be questioned by a member of Congress.7 They add that to the extent that the powers of Congress are
impaired, so is the power of each member thereof, since his office confers a right to participate in the exercise of
the powers of that institution.8
Indeed, a member of the House of Representatives has standing to maintain inviolate the prerogatives, powers and
privileges vested by the Constitution in his office.9
The OSG questions, however, the standing of MDOI, a registered people’s organization
of Teduray and Lambangiantribesfolk of (North) Upi and South Upi in the province of Maguindanao.
As co-petitioner, MDOI alleges that it is concerned with the negative impact of NCIP’s becoming an attached
agency of the DAR on the processing of ancestral domain claims. It fears that transferring the NCIP to the DAR
would affect the processing of ancestral domain claims filed by its members.
Locus standi or legal standing has been defined as a personal and substantial interest in a case such that the party
has sustained or will sustain direct injury as a result of the governmental act that is being challenged. The gist of
the question of standing is whether a party alleges such personal stake in the outcome of the controversy as to
assure that concrete adverseness which sharpens the presentation of issues upon which the court depends for
illumination of difficult constitutional questions.10
It has been held that a party who assails the constitutionality of a statute must have a direct and personal interest. It
must show not only that the law or any governmental act is invalid, but also that it sustained or is in immediate
danger of sustaining some direct injury as a result of its enforcement, and not merely that it suffers thereby in some
indefinite way. It must show that it has been or is about to be denied some right or privilege to which it is lawfully
entitled or that it is about to be subjected to some burdens or penalties by reason of the statute or act complained
of.11
For a concerned party to be allowed to raise a constitutional question, it must show that (1) it has personally
suffered some actual or threatened injury as a result of the allegedly illegal conduct of the government, (2) the
injury is fairly traceable to the challenged action, and (3) the injury is likely to be redressed by a favorable action.12
An examination of MDOI’s nebulous claims of "negative impact" and "probable setbacks" 13 shows that they are too
abstract to be considered judicially cognizable. And the line of causation it proffers between the challenged action
and alleged injury is too attenuated.
Vague propositions that the implementation of the assailed orders will work injustice and violate the rights of its
members cannot clothe MDOI with the requisite standing. Neither would its status as a "people’s organization" vest
it with the legal standing to assail the validity of the executive orders. 14
La Bugal-B’laan Tribal Association, Inc. v. Ramos,15 which MDOI cites in support of its claim to legal standing, is
inapplicable as it is not similarly situated with the therein petitioners who alleged personal and substantial injury
resulting from the mining activities permitted by the assailed statute. And so is Cruz v. Secretary of Environment
and Natural Resources,16 for the indigenous peoples’ leaders and organizations were not the petitioners therein,
who necessarily had to satisfy the locus standi requirement, but were intervenors who sought and were allowed to
be impleaded, not to assail but to defend the constitutionality of the statute.
Moreover, MDOI raises no issue of transcendental importance to justify a relaxation of the rule on legal standing.
To be accorded standing on the ground of transcendental importance, Senate of the Philippines v. Ermita17 requires
that the following elements must be established: (1) the public character of the funds or other assets involved in the
case, (2) the presence of a clear case of disregard of a constitutional or statutory prohibition by the public
respondent agency or instrumentality of government, and (3) the lack of any other party with a more direct and
specific interest in raising the questions being raised. The presence of these elements MDOI failed to establish,
much less allege.
Francisco, Jr. v. Fernando18 more specifically declares that the transcendental importance of the issues raised must
relate to the merits of the petition.
This Court, not being a venue for the ventilation of generalized grievances, must thus deny adjudication of the
matters raised by MDOI.
Now, on AMIN’s position. AMIN charges the Executive Department with transgression of the principle of separation
of powers.
Under the principle of separation of powers, Congress, the President, and the Judiciary may not encroach on fields
allocated to each of them. The legislature is generally limited to the enactment of laws, the executive to the
enforcement of laws, and the judiciary to their interpretation and application to cases and controversies. The
principle presupposes mutual respect by and between the executive, legislative and judicial departments of the
government and calls for them to be left alone to discharge their duties as they see fit.19
AMIN contends that since the DAR, PCUP and NCIP were created by statutes, 20 they can only be transformed,
merged or attached by statutes, not by mere executive orders.
While AMIN concedes that the executive power is vested in the President 21 who, as Chief Executive, holds the
power of control of all the executive departments, bureaus, and offices, 22 it posits that this broad power of control
including the power to reorganize is qualified and limited, for it cannot be exercised in a manner contrary to law,
citing the constitutional duty23 of the President to ensure that the laws, including those creating the agencies, be
faithfully executed.
AMIN cites the naming of the PCUP as a presidential commission to be clearly an extension of the President, and
the creation of the NCIP as an "independent agency under the Office of the President." 24 It thus argues that since
the legislature had seen fit to create these agencies at separate times and with distinct mandates, the President
should respect that legislative disposition.
In fine, AMIN contends that any reorganization of these administrative agencies should be the subject of a statute.
AMIN’s position fails to impress.
The Constitution confers, by express provision, the power of control over executive departments, bureaus and
offices in the President alone. And it lays down a limitation on the legislative power.
The line that delineates the Legislative and Executive power is not indistinct. Legislative power is "the authority,
under the Constitution, to make laws, and to alter and repeal them." The Constitution, as the will of the people in
their original, sovereign and unlimited capacity, has vested this power in the Congress of the Philippines. The grant
of legislative power to Congress is broad, general and comprehensive. The legislative body possesses plenary
power for all purposes of civil government. Any power, deemed to be legislative by usage and tradition, is
necessarily possessed by Congress, unless the Constitution has lodged it elsewhere. In fine, except as limited by
the Constitution, either expressly or impliedly, legislative power embraces all subjects and extends to matters of
general concern or common interest.
While Congress is vested with the power to enact laws, the President executes the laws. The executive power is
vested in the President. It is generally defined as the power to enforce and administer the laws. It is the power of
carrying the laws into practical operation and enforcing their due observance.
As head of the Executive Department, the President is the Chief Executive. He represents the government as a
whole and sees to it that all laws are enforced by the officials and employees of his department. He has control
over the executive department, bureaus and offices. This means that he has the authority to assume directly the
functions of the executive department, bureau and office, or interfere with the discretion of its officials. Corollary to
the power of control, the President also has the duty of supervising and enforcement of laws for the maintenance of
general peace and public order. Thus, he is granted administrative power over bureaus and offices under his
control to enable him to discharge his duties effectively. 25 (Italics omitted, underscoring supplied)
The Constitution’s express grant of the power of control in the President justifies an executive action to carry out
reorganization measures under a broad authority of law.26
In enacting a statute, the legislature is presumed to have deliberated with full knowledge of all existing laws and
jurisprudence on the subject.27 It is thus reasonable to conclude that in passing a statute which places an agency
under the Office of the President, it was in accordance with existing laws and jurisprudence on the President’s
power to reorganize.
In establishing an executive department, bureau or office, the legislature necessarily ordains an executive agency’s
position in the scheme of administrative structure. Such determination is primary, 28 but subject to the President’s
continuing authority to reorganize the administrative structure. As far as bureaus, agencies or offices in the
executive department are concerned, the power of control may justify the President to deactivate the functions of a
particular office. Or a law may expressly grant the President the broad authority to carry out reorganization
measures.29 The Administrative Code of 1987 is one such law:30
SEC. 30. Functions of Agencies under the Office of the President.– Agencies under the Office of the President
shall continue to operate and function in accordance with their respective charters or laws creating them, except as
otherwise provided in this Code or by law.
SEC. 31. Continuing Authority of the President to Reorganize his Office.– The President, subject to the policy in
the Executive Office and in order to achieve simplicity, economy and efficiency, shall have continuing
authority to reorganize the administrative structure of the Office of the President. For this purpose, he may take any
of the following actions:
(1) Restructure the internal organization of the Office of the President Proper, including the immediate
Offices, the Presidential Special Assistants/Advisers System and the Common Staff Support System, by
abolishing, consolidating, or merging units thereof or transferring functions from one unit to another;
(2) Transfer any function under the Office of the President to any other Department or Agency as well as
transfer functions to the Office of the President from other Departments and Agencies; and
(3) Transfer any agency under the Office of the President to any other department or agency as well as
transfer agencies to the Office of the President from other departments or agencies.31 (Italics in the original;
emphasis and underscoring supplied)
In carrying out the laws into practical operation, the President is best equipped to assess whether an executive
agency ought to continue operating in accordance with its charter or the law creating it. This is not to say that the
legislature is incapable of making a similar assessment and appropriate action within its plenary power. The
Administrative Code of 1987 merely underscores the need to provide the President with suitable solutions to
situations on hand to meet the exigencies of the service that may call for the exercise of the power of control.
x x x The law grants the President this power in recognition of the recurring need of every President to reorganize
his office "to achieve simplicity, economy and efficiency." The Office of the President is the nerve center of the
Executive Branch. To remain effective and efficient, the Office of the President must be capable of being shaped
and reshaped by the President in the manner he deems fit to carry out his directives and policies. After all, the
Office of the President is the command post of the President. This is the rationale behind the President’s continuing
authority to reorganize the administrative structure of the Office of the President. 32
The Office of the President consists of the Office of the President proper and the agencies under it. 33 It is not
disputed that PCUP and NCIP were formed as agencies under the Office of the President. 34 The "Agencies under
the Office of the President" refer to those offices placed under the chairmanship of the President, those under the
supervision and control of the President, those under the administrative supervision of the Office of the President,
those attached to the Office for policy and program coordination, and those that are not placed by law or order
creating them under any special department.35
As thus provided by law, the President may transfer any agency under the Office of the President to any other
department or agency, subject to the policy in the Executive Office and in order to achieve simplicity, economy and
efficiency. Gauged against these guidelines,36 the challenged executive orders may not be said to have been
issued with grave abuse of discretion or in violation of the rule of law.
The references in E.O. 364 to asset reform as an anti-poverty measure for social justice and to rationalization of the
bureaucracy in furtherance of good government37 encapsulate a portion of the existing "policy in the Executive
Office." As averred by the OSG, the President saw it fit to streamline the agencies so as not to hinder the delivery
of crucial social reforms.38
The consolidation of functions in E.O. 364 aims to attain the objectives of "simplicity, economy and efficiency" as
gathered from the provision granting PCUP and NCIP access to the range of services provided by the DAR’s
technical offices and support systems.39
The characterization of the NCIP as an independent agency under the Office of the President does not remove said
body from the President’s control and supervision with respect to its performance of administrative functions. So it
has been opined:
That Congress did not intend to place the NCIP under the control of the President in all instances is evident in the
IPRA itself, which provides that the decisions of the NCIP in the exercise of its quasi-judicial functions shall be
appealable to the Court of Appeals, like those of the National Labor Relations Commission (NLRC) and the
Securities and Exchange Commission (SEC). Nevertheless, the NCIP, although independent to a certain degree,
was placed by Congress "under the office of the President" and, as such, is still subject to the President’s power of
control and supervision granted under Section 17, Article VII of the Constitution with respect to its performance of
administrative functions[.]40 (Underscoring supplied)
In transferring the NCIP to the DAR as an attached agency, the President effectively tempered the exercise of
presidential authority and considerably recognized that degree of independence.
The Administrative Code of 1987 categorizes administrative relationships into (1) supervision and control, (2)
administrative supervision, and (3) attachment.41 With respect to the third category, it has been held that an
attached agency has a larger measure of independence from the Department to which it is attached than one which
is under departmental supervision and control or administrative supervision. This is borne out by the "lateral
relationship" between the Department and the attached agency. The attachment is merely for "policy and program
coordination."42 Indeed, the essential autonomous character of a board is not negated by its attachment to a
commission.43
AMIN argues, however, that there is an anachronism of sorts because there can be no policy and program
coordination between conceptually different areas of reform. It claims that the new framework subsuming agrarian
reform, urban land reform and ancestral domain reform is fundamentally incoherent in view of the widely different
contexts.44 And it posits that it is a substantive transformation or reorientation that runs contrary to the constitutional
scheme and policies.
AMIN goes on to proffer the concept of "ordering the law"45 which, so it alleges, can be said of the Constitution’s
distinct treatment of these three areas, as reflected in separate provisions in different parts of the Constitution. 46 It
argues that the Constitution did not intend an over-arching concept of agrarian reform to encompass the two other
areas, and that how the law is ordered in a certain way should not be undermined by mere executive orders in the
guise of administrative efficiency.
The Court is not persuaded.
The interplay of various areas of reform in the promotion of social justice is not something implausible or
unlikely.47Their interlocking nature cuts across labels and works against a rigid pigeonholing of executive tasks
among the members of the President’s official family. Notably, the Constitution inhibited from identifying and
compartmentalizing the composition of the Cabinet. In vesting executive power in one person rather than in a plural
executive, the evident intention was to invest the power holder with energy. 48
AMIN takes premium on the severed treatment of these reform areas in marked provisions of the Constitution. It is
a precept, however, that inferences drawn from title, chapter or section headings are entitled to very little
weight.49And so must reliance on sub-headings,50 or the lack thereof, to support a strained deduction be given the
weight of helium.
Secondary aids may be consulted to remove, not to create doubt. 51 AMIN’s thesis unsettles, more than settles the
order of things in construing the Constitution. Its interpretation fails to clearly establish that the so-called "ordering"
or arrangement of provisions in the Constitution was consciously adopted to imply a signification in terms of
government hierarchy from where a constitutional mandate can per se be derived or asserted. It fails to
demonstrate that the "ordering" or layout was not simply a matter of style in constitutional drafting but one of
intention in government structuring. With its inherent ambiguity, the proposed interpretation cannot be made a basis
for declaring a law or governmental act unconstitutional.
A law has in its favor the presumption of constitutionality. For it 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.52Any reasonable doubt should, following the universal rule of legal hermeneutics, be resolved in favor of the
constitutionality of a law.53
Ople v. Torres54 on which AMIN relies is unavailing. In that case, an administrative order involved a system of
identification that required a "delicate adjustment of various contending state policies" properly lodged in the
legislative arena. It was declared unconstitutional for dealing with a subject that should be covered by law and for
violating the right to privacy.
In the present case, AMIN glaringly failed to show how the reorganization by executive fiat would hamper the
exercise of citizen’s rights and privileges. It rested on the ambiguous conclusion that the reorganization jeopardizes
economic, social and cultural rights. It intimated, without expounding, that the agendum behind the issuances is to
weaken the indigenous peoples’ rights in favor of the mining industry. And it raised concerns about the possible
retrogression in DAR’s performance as the added workload may impede the implementation of the comprehensive
agrarian reform program.lavvphil
AMIN has not shown, however, that by placing the NCIP as an attached agency of the DAR, the President altered
the nature and dynamics of the jurisdiction and adjudicatory functions of the NCIP concerning all claims and
disputes involving rights of indigenous cultural communities and
indigenous peoples. Nor has it been shown, nay alleged, that the reorganization was made in bad faith.55
As for the other arguments raised by AMIN which pertain to the wisdom or soundness of the executive decision, the
Court finds it unnecessary to pass upon them. The raging debate on the most fitting framework in the delivery of
social services is endless in the political arena. It is not the business of this Court to join in the fray. Courts have no
judicial power to review cases involving political questions and, as a rule, will desist from taking cognizance of
speculative or hypothetical cases, advisory opinions and cases that have become moot. 56
Finally, a word on the last ground proffered for declaring the unconstitutionality of the assailed issuances ─ that
they violate Section 16, Article XIII of the Constitution57 on the people’s right to participate in decision-making
through adequate consultation mechanisms.
The framers of the Constitution recognized that the consultation mechanisms were already operating without the
State’s action by law, such that the role of the State would be mere facilitation, not necessarily creation of these
consultation mechanisms. The State provides the support, but eventually it is the people, properly organized in their
associations, who can assert the right and pursue the objective. Penalty for failure on the part of the government to
consult could only be reflected in the ballot box and would not nullify government action. 58
WHEREFORE, the petition is DISMISSED. Executive Order Nos. 364 and 379 issued on September 27, 2004 and
October 26, 2004, respectively, are declared not unconstitutional.
SO ORDERED.

BEJA, SR. vs. COURT OF APPEALS


G.R. No. 97149 March 31, 1992

The instant petition for certiorari questions the jurisdiction of the Secretary of the Department of Transportation and
Communications (DOTC) and/or its Administrative Action Board (AAB) over administrative cases involving
personnel below the rank of Assistant General Manager of the Philippine Ports Authority (PPA), an agency
attached to the said Department.
Petitioner Fidencio Y. Beja, Sr. 1 was first employed by the PPA as arrastre supervisor in 1975. He became
Assistant Port Operations Officer in 1976 and Port Operations Officer in 1977. In February 1988, as a result of the
reorganization of the PPA, he was appointed Terminal Supervisor.
On October 21, 1988, the PPA General Manager, Rogelio A. Dayan, filed Administrative Case No. 11-04-88
against petitioner Beja and Hernando G. Villaluz for grave dishonesty, grave misconduct, willful violation of
reasonable office rules and regulations and conduct prejudicial to the best interest of the service. Beja and Villaluz
allegedly erroneously assessed storage fees resulting in the loss of P38,150.77 on the part of the PPA.
Consequently, they were preventively suspended for the charges. After a preliminary investigation conducted by
the district attorney for Region X, Administrative Case No. 11-04-88 was "considered closed for lack of merit."
On December 13, 1988, another charge sheet, docketed as Administrative Case No. 12-01-88, was filed against
Beja by the PPA General Manager also for dishonesty, grave misconduct, violation of reasonable office rules and
regulations, conduct prejudicial to the best interest of the service and for being notoriously undesirable. The charge
consisted of six (6) different specifications of administrative offenses including fraud against the PPA in the total
amount of P218,000.00. Beja was also placed under preventive suspension pursuant to Sec. 41 of P.D. No. 807.
The case was redocketed as Administrative Case No. PPA-AAB-1-049-89 and thereafter, the PPA general
manager indorsed it to the AAB for "appropriate action." At the scheduled hearing, Beja asked for continuance on
the ground that he needed time to study the charges against him. The AAB proceeded to hear the case and gave
Beja an opportunity to present evidence. However, on February 20, 1989, Beja filed a petition for certiorari with
preliminary injunction before the Regional Trial Court of Misamis Oriental. 2 Two days later, he filed with the AAB a
manifestation and motion to suspend the hearing of Administrative Case No. PPA-AAB-1-049-89 on account of the
pendency of the certiorari proceeding before the court. AAB denied the motion and continued with the hearing of
the administrative case.
Thereafter, Beja moved for the dismissal of the certiorari case below and proceeded to file before this Court a
petition for certiorari with preliminary injunction and/or temporary restraining order. The case was docketed as G.R.
No. 87352 captioned "Fidencio Y. Beja v. Hon. Reinerio 0. Reyes, etc., et al." In the en banc resolution of March
30, 1989, this Court referred the case to the Court of Appeals for "appropriate action." 3 G.R. No. 87352 was
docketed in the Court of Appeals as CA-G.R. SP No. 17270.
Meanwhile, a decision was rendered by the AAB in Administrative Case No. PPA-AAB-049-89. Its dispositive
portion reads:
WHEREFORE, judgment is hereby rendered, adjudging the following, namely:
a) That respondents Geronimo Beja, Jr. and Hernando Villaluz are exonerated from the charge
against them;
b) That respondent Fidencio Y. Beja be dismissed from the service;
c) That his leave credits and retirement benefits are declared forfeited;
d) That he be disqualified from re-employment in the government service;
e) That his eligibility is recommended to be cancelled.
Pasig, Metro Manila, February 28, 1989.
On December 10, 1990, after appropriate proceedings, the Court of Appeals also rendered a decision 4 in CA-G.R.
SP No. 17270 dismissing the petition for certiorari for lack of merit. Hence, Beja elevated the case back to this
Court through an "appeal by certiorari with preliminary injunction and/or temporary restraining order."
We find the pleadings filed in this case to be sufficient bases for arriving at a decision and hence, the filing of
memoranda has been dispensed with.
In his petition, Beja assails the Court of Appeals for having "decided questions of substance in a way probably not
in accord with law or with the applicable decisions" of this Court. 5 Specifically, Beja contends that the Court of
Appeals failed to declare that: (a) he was denied due process; (b) the PPA general manager has no power to issue
a preventive suspension order without the necessary approval of the PPA board of directors; (c) the PPA general
manager has no power to refer the administrative case filed against him to the DOTC-AAB, and (d) the DOTC
Secretary, the Chairman of the DOTC-AAB and DOTC-AAB itself as an adjudicatory body, have no jurisdiction to
try the administrative case against him. Simply put, Beja challenges the legality of the preventive suspension and
the jurisdiction of the DOTC Secretary and/or the AAB to initiate and hear administrative cases against PPA
personnel below the rank of Assistant General Manager.
Petitioner anchors his contention that the PPA general manager cannot subject him to a preventive suspension on
the following provision of Sec. 8, Art. V of Presidential Decree No. 857 reorganizing the PPA:
(d) the General Manager shall, subject to the approval of the Board, appoint and remove personnel
below the rank of Assistant General Manager. (Emphasis supplied.)
Petitioner contends that under this provision, the PPA Board of Directors and not the PPA General Manager is the
"proper disciplining authority. 6
As correctly observed by the Solicitor General, the petitioner erroneously equates "preventive suspension" as a
remedial measure with "suspension" as a penalty for administrative dereliction. The imposition of preventive
suspension on a government employee charged with an administrative offense is subject to the following provision
of the Civil Service Law, P.D. No. 807:
Sec. 41. Preventive Suspension. — The proper disciplining authority may preventively suspend any
subordinate officer or employee under his authority pending an investigation, if the charge against
such officer or employee involves dishonesty, oppression or grave misconduct, or neglect in the
performance of duty, or if there are reasons to believe that the respondent is guilty of charges
which would warrant his removal from the service.
Imposed during the pendency of an administrative investigation, preventive suspension is not a penalty in itself. It is
merely a measure of precaution so that the employee who is charged may be separated, for obvious reasons, from
the scene of his alleged misfeasance while the same is being investigated. 7 Thus, preventive suspension is distinct
from the administrative penalty of removal from office such as the one mentioned in Sec. 8(d) of P.D. No 857. While
the former may be imposed on a respondent during the investigation of the charges against him, the latter is the
penalty which may only be meted upon him at the termination of the investigation or the final disposition of the
case.
The PPA general manager is the disciplining authority who may, by himself and without the approval of the PPA
Board of Directors, subject a respondent in an administrative case to preventive suspension. His disciplinary
powers are sanctioned, not only by Sec. 8 of P.D. No. 857 aforequoted, but also by Sec. 37 of P.D. No. 807
granting heads of agencies the "jurisdiction to investigate and decide matters involving disciplinary actions against
officers and employees" in the PPA.
Parenthetically, the period of preventive suspension is limited. It may be lifted even if the disciplining authority has
not finally decided the administrative case provided the ninety-day period from the effectivity of the preventive
suspension has been exhausted. The employee concerned may then be reinstated. 8 However, the said ninety-day
period may be interrupted. Section 42 of P.D. No. 807 also mandates that any fault, negligence or petition of a
suspended employee may not be considered in the computation of the said period. Thus, when a suspended
employee obtains from a court of justice a restraining order or a preliminary injunction inhibiting proceedings in an
administrative case, the lifespan of such court order should be excluded in the reckoning of the permissible period
of the preventive suspension. 9
With respect to the issue of whether or not the DOTC Secretary and/or the AAB may initiate and hear
administrative cases against PPA Personnel below the rank of Assistant General Manager, the
Court qualifiedly rules in favor of petitioner.
The PPA was created through P.D. No. 505 dated July 11, 1974. Under that Law, the corporate powers of the PPA
were vested in a governing Board of Directors known as the Philippine Port Authority Council. Sec. 5(i) of the same
decree gave the Council the power "to appoint, discipline and remove, and determine the composition of the
technical staff of the Authority and other personnel."
On December 23, 1975, P.D. No. 505 was substituted by P.D. No. 857, See. 4(a) thereof created the Philippine
Ports Authority which would be "attached" to the then Department of Public Works, Transportation and
Communication. When Executive Order No. 125 dated January 30, 1987 reorganizing the Ministry of
Transportation and Communications was issued, the PPA retained its "attached" status. 10 Even Executive Order
No. 292 or the Administrative Code of 1987 classified the PPA as an agency "attached" to the Department of
Transportation and Communications (DOTC). Sec. 24 of Book IV, Title XV, Chapter 6 of the same Code provides
that the agencies attached to the DOTC "shall continue to operate and function in accordance with the respective
charters or laws creating them, except when they conflict with this Code."
Attachment of an agency to a Department is one of the three administrative relationships mentioned in Book IV,
Chapter 7 of the Administrative Code of 1987, the other two being supervision and control and administrative
supervision. "Attachment" is defined in Sec. 38 thereof as follows:
(3) Attachment. — (a) This refers to the lateral relationship between the Department or its
equivalent and the attached agency or corporation for purposes of policy and program
coordination. The coordination shall be accomplished by having the department represented in the
governing board of the attached agency or corporation, either as chairman or as a member, with or
without voting rights, if this is permitted by the charter; having the attached corporation or agency
comply with a system of periodic reporting which shall reflect the progress of programs and
projects; and having the department or its equivalent provide general policies through its
representative in the board, which shall serve as the framework for the internal policies of the
attached corporation or agency;
(b) Matters of day-to-day administration or all those pertaining to internal operations shall he left to
the discretion or judgment of the executive officer of the agency or corporation. In the event that the
Secretary and the head of the board or the attached agency or corporation strongly disagree on the
interpretation and application of policies, and the Secretary is unable to resolve the disagreement,
he shall bring the matter to the President for resolution and direction;
(c) Government-owned or controlled corporations attached to a department shall submit to the
Secretary concerned their audited financial statements within sixty (60) days after the close of the
fiscal year; and
(d) Pending submission of the required financial statements, the corporation shall continue to
operate on the basis of the preceding year's budget until the financial statements shall have been
submitted. Should any government-owned or controlled corporation incur an operation deficit at the
close of its fiscal year, it shall be subject to administrative supervision of the department; and the
corporation's operating and capital budget shall be subject to the department's examination,
review, modification and approval. (emphasis supplied.)
An attached agency has a larger measure of independence from the Department to which it is attached than one
which is under departmental supervision and control or administrative supervision. This is borne out by the "lateral
relationship" between the Department and the attached agency. The attachment is merely for "policy and program
coordination." With respect to administrative matters, the independence of an attached agency from Departmental
control and supervision is further reinforced by the fact that even an agency under a Department's administrative
supervision is free from Departmental interference with respect to appointments and other personnel actions "in
accordance with the decentralization of personnel functions" under the Administrative Code of 1987. 11 Moreover,
the Administrative Code explicitly provides that Chapter 8 of Book IV on supervision and control shall not apply to
chartered institutions attached to a Department. 12
Hence, the inescapable conclusion is that with respect to the management of personnel, an attached agency is, to
a certain extent, free from Departmental interference and control. This is more explicitly shown by P.D. No. 857
which provides:
Sec. 8. Management and Staff. — a) The President shall, upon the recommendation of the Board,
appoint the General Manager and the Assistant General Managers.
(b) All other officials and employees of the Authority shall be selected and appointed on the basis
of merit and fitness based on a comprehensive and progressive merit system to be established by
the Authority immediately upon its organization and consistent with Civil Service rules and
regulations. The recruitment, transfer, promotion, and dismissal of all personnel of the Authority,
including temporary workers, shall be governed by such merit system.
(c) The General Manager shall, subject to the approval of the Board, determine the staffing pattern
and the number of personnel of the Authority, define their duties and responsibilities, and fix their
salaries and emoluments. For professional and technical positions, the General Manager shall
recommend salaries and emoluments that are comparable to those of similar positions in other
government-owned corporations, the provisions of existing rules and regulations on wage and
position classification notwithstanding.
(d) The General Manager shall, subject to the approval by the Board, appoint and remove
personnel below the rank of Assistant General Manager.
xxx xxx xxx
(emphasis supplied.)
Although the foregoing section does not expressly provide for a mechanism for an administrative investigation of
personnel, by vesting the power to remove erring employees on the General Manager, with the approval of the PPA
Board of Directors, the law impliedly grants said officials the power to investigate its personnel below the rank of
Assistant Manager who may be charged with an administrative offense. During such investigation, the PPA General
Manager, as earlier stated, may subject the employee concerned to preventive suspension. The investigation
should be conducted in accordance with the procedure set out in Sec. 38 of P.D. No. 807. 13 Only after gathering
sufficient facts may the PPA General Manager impose the proper penalty in accordance with law. It is the latter
action which requires the approval of the PPA Board of Directors. 14
From an adverse decision of the PPA General Manager and the Board of Directors, the employee
concerned may elevate the matter to the Department Head or Secretary. Otherwise, he may appeal directly to the
Civil Service Commission. The permissive recourse to the Department Secretary is sanctioned by the Civil Service
Law (P.D. No. 807) under the following provisions:
Sec. 37. Disciplinary Jurisdiction. — (a) The Commission shall decide upon appeal all
administrative disciplinary cases involving the imposition of a penalty of suspension for more than
thirty days, or fine in an amount exceeding thirty days salary, demotion in rank or salary or transfer,
removal or dismissal from office. A complaint may be filed directly with the Commission by a private
citizen against a government official or employee in which case it may hear and decide the case or
it may deputize any department or agency or official or group of officials to conduct the
investigation. The results of the investigation shall be submitted to the Commission with
recommendation as to the penalty to be imposed or other action to be taken.
(b) The heads of departments, agencies and instrumentalities, provinces, cities and municipalities
shall have jurisdiction to investigate and decide matters involving disciplinary action against officers
and employees under their jurisdiction. The decisions shall be final in case the penalty imposed is
suspension for not more than thirty days or fine in an amount not exceeding thirty days' salary. In
case the decision rendered by a bureau or office head is appealable to the Commission, the same
may be initially appealed to the department and finally to the Commission and pending appeal, the
same shall be executory except when the penalty is removal, in which case the same shall be
executory only after confirmation by the department head.
xxx xxx xxx
(Emphasis supplied.)
It is, therefore, clear that the transmittal of the complaint by the PPA General Manager to the AAB was premature.
The PPA General Manager should have first conducted an investigation, made the proper recommendation for the
imposable penalty and sought its approval by the PPA Board of Directors. It was discretionary on the part of the
herein petitioner to elevate the case to the then DOTC Secretary Reyes. Only then could the AAB take jurisdiction
of the case.
The AAB, which was created during the tenure of Secretary Reyes under Office Order No. 88-318 dated July 1,
1988, was designed to act, decide and recommend to him "all cases of administrative malfeasance, irregularities,
grafts and acts of corruption in the Department." Composed of a Chairman and two (2) members, the AAB came
into being pursuant to Administrative Order No. 25 issued by the President on May 25, 1987. 15 Its special nature as
a quasi-judicial administrative body notwithstanding, the AAB is not exempt from the observance of due process in
its proceedings. 16 We are not satisfied that it did so in this case the respondents protestation that petitioner waived
his right to be heard notwithstanding. It should be observed that petitioner was precisely questioning the AAB's
jurisdiction when it sought judicial recourse.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED insofar as it upholds the power of the PPA
General Manager to subject petitioner to preventive suspension and REVERSED insofar as it validates the
jurisdiction of the DOTC and/or the AAB to act on Administrative Case No. PPA-AAB-1-049-89 and rules that due
process has been accorded the petitioner.
The AAB decision in said case is hereby declared NULL and VOID and the case in REMANDED to the PPA whose
General Manager shall conduct with dispatch its reinvestigation.
The preventive suspension of petitioner shall continue unless after a determination of its duration, it is found that he
had served the total of ninety (90) days in which case he shall be reinstated immediately.
SO ORDERED.

EUGENIO vs. CIVIL SERVICE COMMISSION


G.R. No. 115863 March 31, 1995

The power of the Civil Service Commission to abolish the Career Executive Service Board is challenged in this
petition for certiorari and prohibition.
First the facts. Petitioner is the Deputy Director of the Philippine Nuclear Research Institute. She applied for a
Career Executive Service (CES) Eligibility and a CESO rank on August 2, 1993, she was given a CES eligibility. On
September 15, 1993, she was recommended to the President for a CESO rank by the Career Executive Service
Board. 1
All was not to turn well for petitioner. On October 1, 1993, respondent Civil Service Commission 2 passed Resolution
No. 93-4359, viz:
RESOLUTION NO. 93-4359
WHEREAS, Section 1(1) of Article IX-B provides that Civil Service shall be administered by the
Civil Service Commission, . . .;
WHEREAS, Section 3, Article IX-B of the 1987 Philippine Constitution provides that "The Civil
Service Commission, as the central personnel agency of the government, is mandated to establish
a career service and adopt measures to promote morale, efficiency, integrity, responsiveness,
progresiveness and courtesy in the civil service, . . .";
WHEREAS, Section 12 (1), Title I, Subtitle A, Book V of the Administrative Code of 1987 grants the
Commission the power, among others, to administer and enforce the constitutional and statutory
provisions on the merit system for all levels and ranks in the Civil Service;
WHEREAS, Section 7, Title I, Subtitle A, Book V of the Administrative Code of 1987 Provides,
among others, that The Career Service shall be characterized by (1) entrance based on merit and
fitness to be determined as far as practicable by competitive examination, or based highly technical
qualifications; (2) opportunity for advancement to higher career positions; and (3) security of
tenure;
WHEREAS, Section 8 (c), Title I, Subtitle A, Book V of the administrative Code of 1987 provides
that "The third level shall cover Positions in the Career Executive Service";
WHEREAS, the Commission recognizes the imperative need to consolidate, integrate and unify the
administration of all levels of positions in the career service.
WHEREAS, the provisions of Section 17, Title I, Subtitle A. Book V of the Administrative Code of
1987 confers on the Commission the power and authority to effect changes in its organization as
the need arises.
WHEREAS, Section 5, Article IX-A of the Constitution provides that the Civil Service Commission
shall enjoy fiscal autonomy and the necessary implications thereof;
NOW THEREFORE, foregoing premises considered, the Civil Service Commission hereby
resolves to streamline reorganize and effect changes in its organizational structure. Pursuant
thereto, the Career Executive Service Board, shall now be known as the Office for Career
Executive Service of the Civil Service Commission. Accordingly, the existing personnel, budget,
properties and equipment of the Career Executive Service Board shall now form part of the Office
for Career Executive Service.
The above resolution became an impediment. to the appointment of petitioner as Civil Service Officer, Rank IV. In a
letter to petitioner, dated June 7, 1994, the Honorable Antonio T. Carpio, Chief Presidential legal Counsel, stated:
xxx xxx xxx
On 1 October 1993 the Civil Service Commission issued CSC Resolution No. 93-4359 which
abolished the Career Executive Service Board.
Several legal issues have arisen as a result of the issuance of CSC Resolution No. 93-4359,
including whether the Civil Service Commission has authority to abolish the Career Executive
Service Board. Because these issues remain unresolved, the Office of the President has refrained
from considering appointments of career service eligibles to career executive ranks.
xxx xxx xxx
You may, however, bring a case before the appropriate court to settle the legal issues arising from
issuance by the Civil Service Commission of CSC Resolution No. 93-4359, for guidance of all
concerned.
Thank You.
Finding herself bereft of further administrative relief as the Career Executive Service Board which recommended
her CESO Rank IV has been abolished, petitioner filed the petition at bench to annul, among others, resolution No.
93-4359. The petition is anchored on the following arguments:
A.
IN VIOLATION OF THE CONSTITUTION, RESPONDENT COMMISSION USURPED THE
LEGISLATIVE FUNCTIONS OF CONGRESS WHEN IT ABOLISHED THE CESB, AN OFFICE
CREATED BY LAW, THROUGH THE ISSUANCE OF CSC: RESOLUTION NO. 93-4359;
B.
ALSO IN VIOLATION OF THE CONSTITUTION, RESPONDENT CSC USURPED THE
LEGISLATIVE FUNCTIONS OF CONGRESS WHEN IT ILLEGALLY AUTHORIZED THE
TRANSFER OF PUBLIC MONEY, THROUGH THE ISSUANCE OF CSC RESOLUTION NO. 93-
4359.
Required to file its Comment, the Solicitor General agreed with the contentions of petitioner. Respondent
Commission, however, chose to defend its ground. It posited the following position:
ARGUMENTS FOR PUBLIC RESPONDENT-CSC
I. THE INSTANT PETITION STATES NO CAUSE OF ACTION AGAINST THE PUBLIC
RESPONDENT-CSC.
II. THE RECOMMENDATION SUBMITTED TO THE PRESIDENT FOR APPOINTMENT TO A
CESO RANK OF PETITIONER EUGENIO WAS A VALID ACT OF THE CAREER EXECUTIVE
SERVICE BOARD OF THE CIVIL SERVICE COMMISSION AND IT DOES NOT HAVE ANY
DEFECT.
III. THE OFFICE OF THE PRESIDENT IS ESTOPPED FROM QUESTIONING THE VALIDITY OF
THE RECOMMENDATION OF THE CESB IN FAVOR OF PETITIONER EUGENIO SINCE THE
PRESIDENT HAS PREVIOUSLY APPOINTED TO CESO RANK FOUR (4) OFFICIALS
SIMILARLY SITUATED AS SAID PETITIONER. FURTHERMORE, LACK OF MEMBERS TO
CONSTITUTE A QUORUM. ASSUMING THERE WAS NO QUORUM, IS NOT THE FAULT OF
PUBLIC RESPONDENT CIVIL SERVICE COMMISSION BUT OF THE PRESIDENT WHO HAS
THE POWER TO APPOINT THE OTHER MEMBERS OF THE CESB.
IV. THE INTEGRATION OF THE CESB INTO THE COMMISSION IS AUTHORIZED BY LAW
(Sec. 12 (1), Title I, Subtitle A, Book V of the Administrative Code of the 1987). THIS PARTICULAR
ISSUE HAD ALREADY BEEN SETTLED WHEN THE HONORABLE COURT DISMISSED THE
PETITION FILED BY THE HONORABLE MEMBERS OF THE HOUSE OF REPRESENTATIVES,
NAMELY: SIMEON A. DATUMANONG, FELICIANO R. BELMONTE, JR., RENATO V. DIAZ, AND
MANUEL M. GARCIA IN G.R. NO. 114380. THE AFOREMENTIONED PETITIONERS ALSO
QUESTIONED THE INTEGRATION OF THE CESB WITH THE COMMISSION.
We find merit in the petition.3
The controlling fact is that the Career Executive Service Board (CESB) was created in the Presidential Decree
(P.D.) No. 1 on September 1, 19744 which adopted the Integrated Plan. Article IV, Chapter I, Part of the III of the
said Plan provides:
Article IV — Career Executive Service
1. A Career Executive Service is created to form a continuing pool of well-selected and
development oriented career administrators who shall provide competent and faithful service.
2. A Career Executive Service hereinafter referred to in this Chapter as the Board, is created to
serve as the governing body of the Career Executive Service. The Board shall consist of the
Chairman of the Civil Service Commission as presiding officer, the Executive Secretary and the
Commissioner of the Budget as ex-officio members and two other members from the private sector
and/or the academic community who are familiar with the principles and methods of personnel
administration.
xxx xxx xxx
5. The Board shall promulgate rules, standards and procedures on the selection, classification,
compensation and career development of members of the Career Executive Service. The Board
shall set up the organization and operation of the service. (Emphasis supplied)
It cannot be disputed, therefore, that as the CESB was created by law, it can only be abolished by the legislature.
This follows an unbroken stream of rulings that the creation and abolition of public offices is primarily a legislative
function. As aptly summed up in AM JUR 2d on Public Officers and
Employees, 5 viz:
Except for such offices as are created by the Constitution, the creation of public offices is primarily
a legislative function. In so far as the legislative power in this respect is not restricted by
constitutional provisions, it supreme, and the legislature may decide for itself what offices are
suitable, necessary, or convenient. When in the exigencies of government it is necessary to create
and define duties, the legislative department has the discretion to determine whether additional
offices shall be created, or whether these duties shall be attached to and become ex-officio duties
of existing offices. An office created by the legislature is wholly within the power of that body, and it
may prescribe the mode of filling the office and the powers and duties of the incumbent, and if it
sees fit, abolish the office.
In the petition at bench, the legislature has not enacted any law authorizing the abolition of the CESB. On the
contrary, in all the General Appropriations Acts from 1975 to 1993, the legislature has set aside funds for the
operation of CESB. Respondent Commission, however, invokes Section 17, Chapter 3, Subtitle A. Title I, Book V of
the Administrative Code of 1987 as the source of its power to abolish the CESB. Section 17 provides:
Sec. 17. Organizational Structure. — Each office of the Commission shall be headed by a Director
with at least one Assistant Director, and may have such divisions as are necessary independent
constitutional body, the Commission may effect changes in the organization as the need arises.
But as well pointed out by petitioner and the Solicitor General, Section 17 must be read together with Section 16 of
the said Code which enumerates the offices under the respondent Commission, viz:
Sec. 16. Offices in the Commission. — The Commission shall have the following offices:
(1) The Office of the Executive Director headed by an Executive Director, with a Deputy Executive
Director shall implement policies, standards, rules and regulations promulgated by the
Commission; coordinate the programs of the offices of the Commission and render periodic reports
on their operations, and perform such other functions as may be assigned by the Commission.
(2) The Merit System Protection Board composed of a Chairman and two (2) members shall have
the following functions:
xxx xxx xxx
(3) The Office of Legal Affairs shall provide the Chairman with legal advice and assistance; render
counselling services; undertake legal studies and researches; prepare opinions and ruling in the
interpretation and application of the Civil Service law, rules and regulations; prosecute violations of
such law, rules and regulations; and represent the Commission before any court or tribunal.
(4) The Office of Planning and Management shall formulate development plans, programs and
projects; undertake research and studies on the different aspects of public personnel management;
administer management improvement programs; and provide fiscal and budgetary services.
(5) The Central Administrative Office shall provide the Commission with personnel, financial,
logistics and other basic support services.
(6) The Office of Central Personnel Records shall formulate and implement policies, standards,
rules and regulations pertaining to personnel records maintenance, security, control and disposal;
provide storage and extension services; and provide and maintain library services.
(7) The Office of Position Classification and Compensation shall formulate and implement policies,
standards, rules and regulations relative to the administration of position classification and
compensation.
(8) The Office of Recruitment, Examination and Placement shall provide leadership and assistance
in developing and implementing the overall Commission programs relating to recruitment,
execution and placement, and formulate policies, standards, rules and regulations for the proper
implementation of the Commission's examination and placement programs.
(9) The Office of Career Systems and Standards shall provide leadership and assistance in the
formulation and evaluation of personnel systems and standards relative to performance appraisal,
merit promotion, and employee incentive benefit and awards.
(10) The Office of Human Resource Development shall provide leadership and assistance in the
development and retention of qualified and efficient work force in the Civil Service; formulate
standards for training and staff development; administer service-wide scholarship programs;
develop training literature and materials; coordinate and integrate all training activities and evaluate
training programs.
(11) The Office of Personnel Inspection and Audit shall develop policies, standards, rules and
regulations for the effective conduct or inspection and audit personnel and personnel management
programs and the exercise of delegated authority; provide technical and advisory services to Civil
Service Regional Offices and government agencies in the implementation of their personnel
programs and evaluation systems.
(12) The Office of Personnel Relations shall provide leadership and assistance in the development
and implementation of policies, standards, rules and regulations in the accreditation of employee
associations or organizations and in the adjustment and settlement of employee grievances and
management of employee disputes.
(13) The Office of Corporate Affairs shall formulate and implement policies, standards, rules and
regulations governing corporate officials and employees in the areas of recruitment, examination,
placement, career development, merit and awards systems, position classification and
compensation, performing appraisal, employee welfare and benefit, discipline and other aspects of
personnel management on the basis of comparable industry practices.
(14) The Office of Retirement Administration shall be responsible for the enforcement of the
constitutional and statutory provisions, relative to retirement and the regulation for the effective
implementation of the retirement of government officials and employees.
(15) The Regional and Field Offices. — The Commission shall have not less than thirteen (13)
Regional offices each to be headed by a Director, and such field offices as may be needed, each to
be headed by an official with at least the rank of an Assistant Director.
As read together, the inescapable conclusion is that respondent Commission's power to reorganize is
limited to offices under its control as enumerated in Section 16, supra. From its inception, the CESB was
intended to be an autonomous entity, albeit administratively attached to respondent Commission. As
conceptualized by the Reorganization Committee "the CESB shall be autonomous. It is expected to view
the problem of building up executive manpower in the government with a broad and positive outlook." 6 The
essential autonomous character of the CESB is not negated by its attachment to respondent Commission.
By said attachment, CESB was not made to fall within the control of respondent Commission. Under the
Administrative Code of 1987, the purpose of attaching one functionally inter-related government agency to
another is to attain "policy and program coordination." This is clearly etched out in Section 38(3), Chapter 7,
Book IV of the aforecited Code, to wit:
(3) Attachment. — (a) This refers to the lateral relationship between the department or its
equivalent and attached agency or corporation for purposes of policy and program coordination.
The coordination may be accomplished by having the department represented in the governing
board of the attached agency or corporation, either as chairman or as a member, with or without
voting rights, if this is permitted by the charter; having the attached corporation or agency comply
with a system of periodic reporting which shall reflect the progress of programs and projects; and
having the department or its equivalent provide general policies through its representative in the
board, which shall serve as the framework for the internal policies of the attached corporation or
agency.
Respondent Commission also relies on the case of Datumanong, et al., vs. Civil Service Commission, G. R. No.
114380 where the petition assailing the abolition of the CESB was dismissed for lack of cause of action. Suffice to
state that the reliance is misplaced considering that the cited case was dismissed for lack of standing of the
petitioner, hence, the lack of cause of action.
IN VIEW WHEREOF, the petition is granted and Resolution No. 93-4359 of the respondent Commission is hereby
annulled and set aside. No costs.
SO ORDERED.

LUZON DEVELOPMENT BANK vs. ASSOCIATION OF LUZON DEVELOPMENT BANK EMPLOYEES


G.R. No. 120319 October 6, 1995

From a submission agreement of the Luzon Development Bank (LDB) and the Association of Luzon Development
Bank Employees (ALDBE) arose an arbitration case to resolve the following issue:
Whether or not the company has violated the Collective Bargaining Agreement provision and the
Memorandum of Agreement dated April 1994, on promotion.
At a conference, the parties agreed on the submission of their respective Position Papers on December 1-15, 1994.
Atty. Ester S. Garcia, in her capacity as Voluntary Arbitrator, received ALDBE's Position Paper on January 18,
1995. LDB, on the other hand, failed to submit its Position Paper despite a letter from the Voluntary Arbitrator
reminding them to do so. As of May 23, 1995 no Position Paper had been filed by LDB.
On May 24, 1995, without LDB's Position Paper, the Voluntary Arbitrator rendered a decision disposing as follows:
WHEREFORE, finding is hereby made that the Bank has not adhered to the Collective Bargaining
Agreement provision nor the Memorandum of Agreement on promotion.
Hence, this petition for certiorari and prohibition seeking to set aside the decision of the Voluntary Arbitrator and to
prohibit her from enforcing the same.
In labor law context, arbitration is the reference of a labor dispute to an impartial third person for determination on
the basis of evidence and arguments presented by such parties who have bound themselves to accept the decision
of the arbitrator as final and binding.
Arbitration may be classified, on the basis of the obligation on which it is based, as either compulsory or voluntary.
Compulsory arbitration is a system whereby the parties to a dispute are compelled by the government to forego
their right to strike and are compelled to accept the resolution of their dispute through arbitration by a third
party.1 The essence of arbitration remains since a resolution of a dispute is arrived at by resort to a disinterested
third party whose decision is final and binding on the parties, but in compulsory arbitration, such a third party is
normally appointed by the government.
Under voluntary arbitration, on the other hand, referral of a dispute by the parties is made, pursuant to a voluntary
arbitration clause in their collective agreement, to an impartial third person for a final and binding
resolution.2 Ideally, arbitration awards are supposed to be complied with by both parties without delay, such that
once an award has been rendered by an arbitrator, nothing is left to be done by both parties but to comply with the
same. After all, they are presumed to have freely chosen arbitration as the mode of settlement for that particular
dispute. Pursuant thereto, they have chosen a mutually acceptable arbitrator who shall hear and decide their case.
Above all, they have mutually agreed to de bound by said arbitrator's decision.
In the Philippine context, the parties to a Collective Bargaining Agreement (CBA) are required to include therein
provisions for a machinery for the resolution of grievances arising from the interpretation or implementation of the
CBA or company personnel policies.3 For this purpose, parties to a CBA shall name and designate therein a
voluntary arbitrator or a panel of arbitrators, or include a procedure for their selection, preferably from those
accredited by the National Conciliation and Mediation Board (NCMB). Article 261 of the Labor Code accordingly
provides for exclusive original jurisdiction of such voluntary arbitrator or panel of arbitrators over (1) the
interpretation or implementation of the CBA and (2) the interpretation or enforcement of company personnel
policies. Article 262 authorizes them, but only upon agreement of the parties, to exercise jurisdiction over other
labor disputes.
On the other hand, a labor arbiter under Article 217 of the Labor Code has jurisdiction over the following
enumerated cases:
. . . (a) Except as otherwise provided under this Code the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the
case by the parties for decision without extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wages, rates of pay, hours of work and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-
employee relations;
5. Cases arising from any violation of Article 264 of this Code, including questions involving the
legality of strikes and lockouts;
6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits,
all other claims, arising from employer-employee relations, including those of persons in domestic
or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless
of whether accompanied with a claim for reinstatement.
xxx xxx xxx
It will thus be noted that the jurisdiction conferred by law on a voluntary arbitrator or a panel of such arbitrators is
quite limited compared to the original jurisdiction of the labor arbiter and the appellate jurisdiction of the National
Labor Relations Commission (NLRC) for that matter.4 The state of our present law relating to voluntary arbitration
provides that "(t)he award or decision of the Voluntary Arbitrator . . . shall be final and executory after ten (10)
calendar days from receipt of the copy of the award or decision by the parties,"5 while the "(d)ecision, awards, or
orders of the Labor Arbiter are final and executory unless appealed to the Commission by any or both parties within
ten (10) calendar days from receipt of such decisions, awards, or orders." 6 Hence, while there is an express mode
of appeal from the decision of a labor arbiter, Republic Act No. 6715 is silent with respect to an appeal from the
decision of a voluntary arbitrator.
Yet, past practice shows that a decision or award of a voluntary arbitrator is, more often than not, elevated to the
Supreme Court itself on a petition for certiorari,7 in effect equating the voluntary arbitrator with the NLRC or the
Court of Appeals. In the view of the Court, this is illogical and imposes an unnecessary burden upon it.
In Volkschel Labor Union, et al. v. NLRC, et al.,8 on the settled premise that the judgments of courts and awards of
quasi-judicial agencies must become final at some definite time, this Court ruled that the awards of voluntary
arbitrators determine the rights of parties; hence, their decisions have the same legal effect as judgments of a
court. In Oceanic Bic Division (FFW), et al. v. Romero, et al.,9 this Court ruled that "a voluntary arbitrator by the
nature of her functions acts in a quasi-judicial capacity." Under these rulings, it follows that the voluntary arbitrator,
whether acting solely or in a panel, enjoys in law the status of a quasi-judicial agency but independent of, and apart
from, the NLRC since his decisions are not appealable to the latter.10
Section 9 of B.P. Blg. 129, as amended by Republic Act No. 7902, provides that the Court of Appeals shall
exercise:
xxx xxx xxx
(B) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards
of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions,
including the Securities and Exchange Commission, the Employees Compensation Commission
and the Civil Service Commission, except those falling within the appellate jurisdiction of the
Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under
Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of
the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act
of 1948.
xxx xxx xxx
Assuming arguendo that the voluntary arbitrator or the panel of voluntary arbitrators may not strictly be considered
as a quasi-judicial agency, board or commission, still both he and the panel are comprehended within the concept
of a "quasi-judicial instrumentality." It may even be stated that it was to meet the very situation presented by the
quasi-judicial functions of the voluntary arbitrators here, as well as the subsequent arbitrator/arbitral tribunal
operating under the Construction Industry Arbitration Commission, 11 that the broader term "instrumentalities" was
purposely included in the above-quoted provision.
An "instrumentality" is anything used as a means or agency. 12 Thus, the terms governmental "agency" or
"instrumentality" are synonymous in the sense that either of them is a means by which a government acts, or by
which a certain government act or function is performed.13 The word "instrumentality," with respect to a state,
contemplates an authority to which the state delegates governmental power for the performance of a state
function.14 An individual person, like an administrator or executor, is a judicial instrumentality in the settling of an
estate,15 in the same manner that a sub-agent appointed by a bankruptcy court is an instrumentality of the
court,16and a trustee in bankruptcy of a defunct corporation is an instrumentality of the state. 17
The voluntary arbitrator no less performs a state function pursuant to a governmental power delegated to him under
the provisions therefor in the Labor Code and he falls, therefore, within the contemplation of the term
"instrumentality" in the aforequoted Sec. 9 of B.P. 129. The fact that his functions and powers are provided for in
the Labor Code does not place him within the exceptions to said Sec. 9 since he is a quasi-judicial instrumentality
as contemplated therein. It will be noted that, although the Employees Compensation Commission is also provided
for in the Labor Code, Circular No. 1-91, which is the forerunner of the present Revised Administrative Circular No.
1-95, laid down the procedure for the appealability of its decisions to the Court of Appeals under the foregoing
rationalization, and this was later adopted by Republic Act No. 7902 in amending Sec. 9 of B.P. 129.
A fortiori, the decision or award of the voluntary arbitrator or panel of arbitrators should likewise be appealable to
the Court of Appeals, in line with the procedure outlined in Revised Administrative Circular No. 1-95, just like those
of the quasi-judicial agencies, boards and commissions enumerated therein.
This would be in furtherance of, and consistent with, the original purpose of Circular No. 1-91 to provide a uniform
procedure for the appellate review of adjudications of all quasi-judicial entities18 not expressly excepted from the
coverage of Sec. 9 of B.P. 129 by either the Constitution or another statute. Nor will it run counter to the legislative
intendment that decisions of the NLRC be reviewable directly by the Supreme Court since, precisely, the cases
within the adjudicative competence of the voluntary arbitrator are excluded from the jurisdiction of the NLRC or the
labor arbiter.
In the same vein, it is worth mentioning that under Section 22 of Republic Act No. 876, also known as the
Arbitration Law, arbitration is deemed a special proceeding of which the court specified in the contract or
submission, or if none be specified, the Regional Trial Court for the province or city in which one of the parties
resides or is doing business, or in which the arbitration is held, shall have jurisdiction. A party to the controversy
may, at any time within one (1) month after an award is made, apply to the court having jurisdiction for an order
confirming the award and the court must grant such order unless the award is vacated, modified or corrected. 19
In effect, this equates the award or decision of the voluntary arbitrator with that of the regional trial court.
Consequently, in a petition for certiorari from that award or decision, the Court of Appeals must be deemed to have
concurrent jurisdiction with the Supreme Court. As a matter of policy, this Court shall henceforth remand to the
Court of Appeals petitions of this nature for proper disposition.
ACCORDINGLY, the Court resolved to REFER this case to the Court of Appeals.
SO ORDERED.

IRON AND STEEL AUTHORITY vs. THE COURT OF APPEALS


G.R. No. 102976 October 25, 1995

Petitioner Iron and Steel Authority ("ISA") was created by Presidential Decree (P.D.) No. 272 dated 9 August 1973
in order, generally, to develop and promote the iron and steel industry in the Philippines. The objectives of the ISA
are spelled out in the following terms:
Sec. 2. Objectives — The Authority shall have the following objectives:
(a) to strengthen the iron and steel industry of the Philippines and to expand the domestic and
export markets for the products of the industry;
(b) to promote the consolidation, integration and rationalization of the industry in order to increase
industry capability and viability to service the domestic market and to compete in international
markets;
(c) to rationalize the marketing and distribution of steel products in order to achieve a balance
between demand and supply of iron and steel products for the country and to ensure that industry
prices and profits are at levels that provide a fair balance between the interests of investors,
consumers suppliers, and the public at large;
(d) to promote full utilization of the existing capacity of the industry, to discourage investment in
excess capacity, and in coordination, with appropriate government agencies to encourage capital
investment in priority areas of the industry;
(e) to assist the industry in securing adequate and low-cost supplies of raw materials and to reduce
the excessive dependence of the country on imports of iron and steel.
The list of powers and functions of the ISA included the following:
Sec. 4. Powers and Functions. — The authority shall have the following powers and functions:
xxx xxx xxx
(j) to initiate expropriation of land required for basic iron and steel facilities for subsequent resale
and/or lease to the companies involved if it is shown that such use of the State's power is
necessary to implement the construction of capacity which is needed for the attainment of the
objectives of the Authority;
xxx xxx xxx
(Emphasis supplied)
P.D. No. 272 initially created petitioner ISA for a term of five (5) years counting from 9 August 1973. 1 When ISA's
original term expired on 10 October 1978, its term was extended for another ten (10) years by Executive Order No.
555 dated 31 August 1979.
The National Steel Corporation ("NSC") then a wholly owned subsidiary of the National Development Corporation
which is itself an entity wholly owned by the National Government, embarked on an expansion program embracing,
among other things, the construction of an integrated steel mill in Iligan City. The construction of such a steel mill
was considered a priority and major industrial project of the Government. Pursuant to the expansion program of the
NSC, Proclamation No. 2239 was issued by the President of the Philippines on 16 November 1982 withdrawing
from sale or settlement a large tract of public land (totalling about 30.25 hectares in area) located in Iligan City, and
reserving that land for the use and immediate occupancy of NSC.
Since certain portions of the public land subject matter Proclamation No. 2239 were occupied by a non-operational
chemical fertilizer plant and related facilities owned by private respondent Maria Cristina Fertilizer Corporation
("MCFC"), Letter of Instruction (LOI), No. 1277, also dated 16 November 1982, was issued directing the NSC to
"negotiate with the owners of MCFC, for and on behalf of the Government, for the compensation of MCFC's present
occupancy rights on the subject land." LOI No. 1277 also directed that should NSC and private respondent MCFC
fail to reach an agreement within a period of sixty (60) days from the date of LOI No. 1277, petitioner ISA was to
exercise its power of eminent domain under P.D. No. 272 and to initiate expropriation proceedings in respect of
occupancy rights of private respondent MCFC relating to the subject public land as well as the plant itself and
related facilities and to cede the same to the NSC.2
Negotiations between NSC and private respondent MCFC did fail. Accordingly, on 18 August 1983, petitioner ISA
commenced eminent domain proceedings against private respondent MCFC in the Regional Trial Court, Branch 1,
of Iligan City, praying that it (ISA) be places in possession of the property involved upon depositing in court the
amount of P1,760,789.69 representing ten percent (10%) of the declared market values of that property. The
Philippine National Bank, as mortgagee of the plant facilities and improvements involved in the expropriation
proceedings, was also impleaded as party-defendant.
On 17 September 1983, a writ of possession was issued by the trial court in favor of ISA. ISA in turn placed NSC in
possession and control of the land occupied by MCFC's fertilizer plant installation.
The case proceeded to trial. While the trial was ongoing, however, the statutory existence of petitioner ISA expired
on 11 August 1988. MCFC then filed a motion to dismiss, contending that no valid judgment could be rendered
against ISA which had ceased to be a juridical person. Petitioner ISA filed its opposition to this motion.
In an Order dated 9 November 1988, the trial court granted MCFC's motion to dismiss and did dismiss the case.
The dismissal was anchored on the provision of the Rules of Court stating that "only natural or juridical persons or
entities authorized by law may be parties in a civil case."3 The trial court also referred to non-compliance by
petitioner ISA with the requirements of Section 16, Rule 3 of the Rules of Court.4
Petitioner ISA moved for reconsideration of the trial court's Order, contending that despite the expiration of its term,
its juridical existence continued until the winding up of its affairs could be completed. In the alternative, petitioner
ISA urged that the Republic of the Philippines, being the real party-in-interest, should be allowed to be substituted
for petitioner ISA. In this connection, ISA referred to a letter from the Office of the President dated 28 September
1988 which especially directed the Solicitor General to continue the expropriation case.
The trial court denied the motion for reconsideration, stating, among other things that:
The property to be expropriated is not for public use or benefit [__] but for the use and benefit [__]
of NSC, a government controlled private corporation engaged in private business and for profit,
specially now that the government, according to newspaper reports, is offering for sale to the public
its [shares of stock] in the National Steel Corporation in line with the pronounced policy of the
present administration to disengage the government from its private business ventures. 5 (Brackets
supplied)
Petitioner went on appeal to the Court of Appeals. In a Decision dated 8 October 1991, the Court of Appeals
affirmed the order of dismissal of the trial court. The Court of Appeals held that petitioner ISA, "a government
regulatory agency exercising sovereign functions," did not have the same rights as an ordinary corporation and that
the ISA, unlike corporations organized under the Corporation Code, was not entitled to a period for winding up its
affairs after expiration of its legally mandated term, with the result that upon expiration of its term on 11 August
1987, ISA was "abolished and [had] no more legal authority to perform governmental functions." The Court of
Appeals went on to say that the action for expropriation could not prosper because the basis for the proceedings,
the ISA's exercise of its delegated authority to expropriate, had become ineffective as a result of the delegate's
dissolution, and could not be continued in the name of Republic of the Philippines, represented by the Solicitor
General:
It is our considered opinion that under the law, the complaint cannot prosper, and therefore, has to
be dismissed without prejudice to the refiling of a new complaint for expropriation if the Congress
sees it fit." (Emphases supplied)
At the same time, however, the Court of Appeals held that it was premature for the trial court to have ruled
that the expropriation suit was not for a public purpose, considering that the parties had not yet rested their
respective cases.
In this Petition for Review, the Solicitor General argues that since ISA initiated and prosecuted the action for
expropriation in its capacity as agent of the Republic of the Philippines, the Republic, as principal of ISA, is entitled
to be substituted and to be made a party-plaintiff after the agent ISA's term had expired.
Private respondent MCFC, upon the other hand, argues that the failure of Congress to enact a law further
extending the term of ISA after 11 August 1988 evinced a "clear legislative intent to terminate the juridical existence
of ISA," and that the authorization issued by the Office of the President to the Solicitor General for continued
prosecution of the expropriation suit could not prevail over such negative intent. It is also contended that the
exercise of the eminent domain by ISA or the Republic is improper, since that power would be exercised "not on
behalf of the National Government but for the benefit of NSC."
The principal issue which we must address in this case is whether or not the Republic of the Philippines is entitled
to be substituted for ISA in view of the expiration of ISA's term. As will be made clear below, this is really the only
issue which we must resolve at this time.
Rule 3, Section 1 of the Rules of Court specifies who may be parties to a civil action:
Sec. 1. Who May Be Parties. — Only natural or juridical persons or entities authorized by law may
be parties in a civil action.
Under the above quoted provision, it will be seen that those who can be parties to a civil action may be
broadly categorized into two (2) groups:
(a) those who are recognized as persons under the law whether natural, i.e., biological persons, on
the one hand, or juridical person such as corporations, on the other hand; and
(b) entities authorized by law to institute actions.
Examination of the statute which created petitioner ISA shows that ISA falls under category (b) above. P.D. No.
272, as already noted, contains express authorization to ISA to commence expropriation proceedings like those
here involved:
Sec. 4. Powers and Functions. — The Authority shall have the following powers and functions:
xxx xxx xxx
(j) to initiate expropriation of land required for basic iron and steel facilities for subsequent resale
and/or lease to the companies involved if it is shown that such use of the State's power is
necessary to implement the construction of capacity which is needed for the attainment of the
objectives of the Authority;
xxx xxx xxx
(Emphasis supplied)
It should also be noted that the enabling statute of ISA expressly authorized it to enter into certain kinds of
contracts "for and in behalf of the Government" in the following terms:
xxx xxx xxx
(i) to negotiate, and when necessary, to enter into contracts for and in behalf of the government, for
the bulk purchase of materials, supplies or services for any sectors in the industry, and to maintain
inventories of such materials in order to insure a continuous and adequate supply thereof and
thereby reduce operating costs of such sector;
xxx xxx xxx
(Emphasis supplied)
Clearly, ISA was vested with some of the powers or attributes normally associated with juridical personality. There
is, however, no provision in P.D. No. 272 recognizing ISA as possessing general or comprehensive juridical
personality separate and distinct from that of the Government. The ISA in fact appears to the Court to be a non-
incorporated agency or instrumentality of the Republic of the Philippines, or more precisely of the Government of
the Republic of the Philippines. It is common knowledge that other agencies or instrumentalities of the Government
of the Republic are cast in corporate form, that is to say, are incorporated agencies or instrumentalities, sometimes
with and at other times without capital stock, and accordingly vested with a juridical personality distinct from the
personality of the Republic. Among such incorporated agencies or instrumentalities are: National Power
Corporation;6 Philippine Ports Authority;7 National Housing Authority;8 Philippine National Oil Company;9 Philippine
National Railways; 10 Public Estates Authority; 11 Philippine Virginia Tobacco Administration,12 and so forth. It is
worth noting that the term "Authority" has been used to designate both incorporated and non-incorporated agencies
or instrumentalities of the Government.
We consider that the ISA is properly regarded as an agent or delegate of the Republic of the Philippines. The
Republic itself is a body corporate and juridical person vested with the full panoply of powers and attributes which
are compendiously described as "legal personality." The relevant definitions are found in the Administrative Code of
1987:
Sec. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole,
or a particular statute, require a different meaning:
(1) Government of the Republic of the Philippines refers to the corporate governmental
entity through which the functions of government are exercised throughout the Philippines,
including, save as the contrary appears from the context, the various arms through which political
authority is made effective in the Philippines, whether pertaining to the autonomous regions, the
provincial, city, municipal or barangay subdivisions or other forms of local government.
xxx xxx xxx
(4) Agency of the Government refers to any of the various units of the Government, including a
department, bureau, office, instrumentality, or government-owned or controlled corporation, or a
local government or a distinct unit therein.
xxx xxx xxx
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered institutions and government-
owned or controlled corporations.
xxx xxx xxx
(Emphases supplied)
When the statutory term of a non-incorporated agency expires, the powers, duties and functions as well as the
assets and liabilities of that agency revert back to, and are re-assumed by, the Republic of the Philippines, in the
absence of special provisions of law specifying some other disposition thereof such as, e.g., devolution or
transmission of such powers, duties, functions, etc. to some other identified successor agency or instrumentality of
the Republic of the Philippines. When the expiring agency is an incorporated one, the consequences of such expiry
must be looked for, in the first instance, in the charter of that agency and, by way of supplementation, in the
provisions of the Corporation Code. Since, in the instant case, ISA is a non-incorporated agency or instrumentality
of the Republic, its powers, duties, functions, assets and liabilities are properly regarded as folded back into the
Government of the Republic of the Philippines and hence assumed once again by the Republic, no special
statutory provision having been shown to have mandated succession thereto by some other entity or agency of the
Republic.
The procedural implications of the relationship between an agent or delegate of the Republic of the Philippines and
the Republic itself are, at least in part, spelled out in the Rules of Court. The general rule is, of course, that an
action must be prosecuted and defended in the name of the real party in interest. (Rule 3, Section 2) Petitioner ISA
was, at the commencement of the expropriation proceedings, a real party in interest, having been explicitly
authorized by its enabling statute to institute expropriation proceedings. The Rules of Court at the same time
expressly recognize the role of representative parties:
Sec. 3. Representative Parties. — A trustee of an expressed trust, a guardian, an executor or
administrator, or a party authorized by statute may sue or be sued without joining the party for
whose benefit the action is presented or defended; but the court may, at any stage of the
proceedings, order such beneficiary to be made a party. . . . . (Emphasis supplied)
In the instant case, ISA instituted the expropriation proceedings in its capacity as an agent or delegate or
representative of the Republic of the Philippines pursuant to its authority under P.D. No. 272. The present
expropriation suit was brought on behalf of and for the benefit of the Republic as the principal of ISA. Paragraph 7
of the complaint stated:
7. The Government, thru the plaintiff ISA, urgently needs the subject parcels of land for the
construction and installation of iron and steel manufacturing facilities that are indispensable to the
integration of the iron and steel making industry which is vital to the promotion of public interest and
welfare. (Emphasis supplied)
The principal or the real party in interest is thus the Republic of the Philippines and not the National Steel
Corporation, even though the latter may be an ultimate user of the properties involved should the
condemnation suit be eventually successful.
From the foregoing premises, it follows that the Republic of the Philippines is entitled to be substituted in the
expropriation proceedings as party-plaintiff in lieu of ISA, the statutory term of ISA having expired. Put a little
differently, the expiration of ISA's statutory term did not by itself require or justify the dismissal of the eminent
domain proceedings.
It is also relevant to note that the non-joinder of the Republic which occurred upon the expiration of ISA's statutory
term, was not a ground for dismissal of such proceedings since a party may be dropped or added by order of the
court, on motion of any party or on the court's own initiative at any stage of the action and on such terms as are
just. 13 In the instant case, the Republic has precisely moved to take over the proceedings as party-plaintiff.
In E.B. Marcha Transport Company, Inc. v. Intermediate Appellate Court, 14 the Court recognized that the Republic
may initiate or participate in actions involving its agents. There the Republic of the Philippines was held to be a
proper party to sue for recovery of possession of property although the "real" or registered owner of the property
was the Philippine Ports Authority, a government agency vested with a separate juridical personality. The Court
said:
It can be said that in suing for the recovery of the rentals, the Republic of the Philippines acted as
principal of the Philippine Ports Authority, directly exercising the commission it had earlier
conferred on the latter as its agent. . . .15 (Emphasis supplied)
In E.B. Marcha, the Court also stressed that to require the Republic to commence all over again another
proceeding, as the trial court and Court of Appeals had required, was to generate unwarranted delay and
create needless repetition of proceedings:
More importantly, as we see it, dismissing the complaint on the ground that the Republic of the
Philippines is not the proper party would result in needless delay in the settlement of this
matter and also in derogation of the policy against multiplicity of suits. Such a decision would
require the Philippine Ports Authority to refile the very same complaint already proved by the
Republic of the Philippines and bring back as it were to square one.16 (Emphasis supplied)
As noted earlier, the Court of Appeals declined to permit the substitution of the Republic of the Philippines for the
ISA upon the ground that the action for expropriation could not prosper because the basis for the proceedings, the
ISA's exercise of its delegated authority to expropriate, had become legally ineffective by reason of the expiration of
the statutory term of the agent or delegated i.e., ISA. Since, as we have held above, the powers and functions of
ISA have reverted to the Republic of the Philippines upon the termination of the statutory term of ISA, the question
should be addressed whether fresh legislative authority is necessary before the Republic of the Philippines may
continue the expropriation proceedings initiated by its own delegate or agent.
While the power of eminent domain is, in principle, vested primarily in the legislative department of the government,
we believe and so hold that no new legislative act is necessary should the Republic decide, upon being substituted
for ISA, in fact to continue to prosecute the expropriation proceedings. For the legislative authority, a long time ago,
enacted a continuing or standing delegation of authority to the President of the Philippines to exercise, or cause the
exercise of, the power of eminent domain on behalf of the Government of the Republic of the Philippines. The 1917
Revised Administrative Code, which was in effect at the time of the commencement of the present expropriation
proceedings before the Iligan Regional Trial Court, provided that:
Sec. 64. Particular powers and duties of the President of the Philippines. — In addition to his
general supervisory authority, the President of the Philippines shall have such other specific
powers and duties as are expressly conferred or imposed on him by law, and also, in particular, the
powers and duties set forth in this Chapter.
Among such special powers and duties shall be:
xxx xxx xxx
(h) To determine when it is necessary or advantageous to exercise the right of eminent domain in
behalf of the Government of the Philippines; and to direct the Secretary of Justice, where such act
is deemed advisable, to cause the condemnation proceedings to be begun in the court having
proper jurisdiction. (Emphasis supplied)
The Revised Administrative Code of 1987 currently in force has substantially reproduced the foregoing
provision in the following terms:
Sec. 12. Power of eminent domain. — The President shall determine when it is necessary or
advantageous to exercise the power of eminent domain in behalf of the National Government,
and direct the Solicitor General, whenever he deems the action advisable, to institute expopriation
proceedings in the proper court. (Emphasis supplied)
In the present case, the President, exercising the power duly delegated under both the 1917 and 1987
Revised Administrative Codes in effect made a determination that it was necessary and advantageous to
exercise the power of eminent domain in behalf of the Government of the Republic and accordingly
directed the Solicitor General to proceed with the suit. 17
It is argued by private respondent MCFC that, because Congress after becoming once more the depository of
primary legislative power, had not enacted a statute extending the term of ISA, such non-enactment must be
deemed a manifestation of a legislative design to discontinue or abort the present expropriation suit. We find this
argument much too speculative; it rests too much upon simple silence on the part of Congress and casually
disregards the existence of Section 12 of the 1987 Administrative Code already quoted above.
Other contentions are made by private respondent MCFC, such as, that the constitutional requirement of "public
use" or "public purpose" is not present in the instant case, and that the indispensable element of just compensation
is also absent. We agree with the Court of Appeals in this connection that these contentions, which were adopted
and set out by the Regional Trial Court in its order of dismissal, are premature and are appropriately addressed in
the proceedings before the trial court. Those proceedings have yet to produce a decision on the merits, since trial
was still on going at the time the Regional Trial Court precipitously dismissed the expropriation proceedings.
Moreover, as a pragmatic matter, the Republic is, by such substitution as party-plaintiff, accorded an opportunity to
determine whether or not, or to what extent, the proceedings should be continued in view of all the subsequent
developments in the iron and steel sector of the country including, though not limited to, the partial privatization of
the NSC.
WHEREFORE, for all the foregoing, the Decision of the Court of Appeals dated 8 October 1991 to the extent that it
affirmed the trial court's order dismissing the expropriation proceedings, is hereby REVERSED and SET ASIDE
and the case is REMANDED to the court a quo which shall allow the substitution of the Republic of the Philippines
for petitioner Iron and Steel Authority and for further proceedings consistent with this Decision. No pronouncement
as to costs.
SO ORDERED.

LEYSON JR. vs. OFFICE OF THE OMBUDSMAN


G.R. No. 134990 April 27, 2000

On 7 February 1996 International Towage and Transport Corporation (ITTC), a domestic corporation engaged in
the lighterage or shipping business, entered into a one (1)-year contract with Legaspi Oil Company, Inc. (LEGASPI
OIL), Granexport Manufacturing Corporation (GRANEXPORT) and United Coconut Chemicals, Inc. (UNITED
COCONUT), comprising the Coconut Industry Investment Fund (CIIF) companies, for the transport of coconut oil in
bulk through MT Transasia. The majority shareholdings of these CIIF companies are owned by the United Coconut
Planters Bank (UCPB) as administrator of the CIIF. Under the terms of the contract, either party could terminate the
agreement provided a three (3)-month advance notice was given to the other party. However, in August 1996, or
prior to the expiration of the contract, the CIIF companies with their new President, respondent Oscar A. Torralba,
terminated the contract without the requisite advance notice. The CIIF companies engaged the services of another
vessel, MT Marilag, operated by Southwest Maritime Corporation.
On 11 March 1997 petitioner Manuel M. Leyson Jr., Executive Vice President of ITTC, filed with public respondent
Office of the Ombudsman a grievance case against respondent Oscar A. Torralba. The following is a summary of
the irregularities and corrupt practices allegedly committed by respondent Torralba: (a) breach of contract -
unilateral cancellation of valid and existing contract; (b) bad faith - falsification of documents and reports to stop the
operation of MT Transasia; (c) manipulation - influenced their insurance to disqualify MT Transasia; (d)
unreasonable denial of requirement imposed; (e) double standards and inconsistent in favor of MT Marilag; (f)
engaged and entered into a contract with Southwest Maritime Corp. which is not the owner of MT Marilag, where
liabilities were waived and whose paid-up capital is only P250,000.00; and, (g) overpricing in the freight rate
causing losses of millions of pesos to Cocochem.1
On 2 January 1998 petitioner charged respondent Tirso Antiporda, Chairman of UCPB and CIIF Oil Mills, and
respondent Oscar A. Torralba with violation of The Anti-Graft and Corrupt Practices Act also before the
Ombudsman anchored on the aforementioned alleged irregularities and corrupt practices.
On 30 January 1998 public respondent dismissed the complaint based on its finding that —
The case is a simple case of breach of contract with damages which should have been filed in the regular
court. This Office has no jurisdiction to determine the legality or validity of the termination of the contract
entered into by CIIF and ITTC. Besides the entities involved are private corporations (over) which this
Office has no jurisdiction.2
On 4 June 1998 reconsideration of the dismissal of the complaint was denied. The Ombudsman was unswayed in
his finding that the present controversy involved breach of contract as he also took into account the circumstance
that petitioner had already filed a collection case before the Regional Trial Court of Manila-Br. 15, docketed as Civil
Case No. 97-83354. Moreover, the Ombudsman found that the filing of the motion for reconsideration on 31 March
1998 was beyond the inextendible period of five (5) days from notice of the assailed resolution on 19 March 1998. 3
Petitioner now imputes grave abuse of discretion on public respondent in dismissing his complaint. He submits that
inasmuch as Philippine Coconut Producers Federation, Inc. (COCOFED) v. PCGG4 and Republic
v. Sandiganbayan5 have declared that the coconut levy funds are public funds then, conformably with Quimpo v.
Tanodbayan,6 corporations formed and organized from those funds or whose controlling stocks are from those
funds should be regarded as government owned and/or controlled corporations. As in the present case, since the
funding or controlling interest of the companies being headed by private respondents was given or owned by the
CIIF as shown in the certification of their Corporate Secretary,7 it follows that they are government owned and/or
controlled corporations. Corollarily, petitioner asserts that respondents Antiporda and Torralba are public officers
subject to the jurisdiction of the Ombudsman.
Petitioner alleges next that public respondent's conclusion that his complaint refers to a breach of contract is
whimsical, capricious and irresponsible amounting to a total disregard of its main point, i. e., whether private
respondents violated The Anti-Graft and Corrupt Practices Act when they entered into a contract with Southwest
Maritime Corporation which was grossly disadvantageous to the government in general and to the CIIF in
particular. Petitioner admits that his motion for reconsideration was filed out of time. Nonetheless, he advances that
public respondent should have relaxed its rules in the paramount interest of justice; after all, the delay was just a
matter of days and he, a layman not aware of technicalities, personally filed the complaint.
Private respondents counter that the CIIF companies were duly organized and are existing by virtue of the
Corporation Code. Their stockholders are private individuals and entities. In addition, private respondents contend
that they are not public officers as defined under The Anti-Graft and Corrupt Practices Act but are private
executives appointed by the Boards of Directors of the CIIF companies. They asseverate that petitioner's motion for
reconsideration was filed through the expert assistance of a learned counsel. They then charge petitioner with
forum shopping since he had similarly filed a case for collection of a sum of money plus damages before the trial
court.
The Office of the Solicitor General maintains that the Ombudsman approved the recommendation of the
investigating officer to dismiss the complaint because he sincerely believed there was no sufficient basis for the
criminal indictment of private respondents.
We find no grave abuse of discretion committed by the Ombudsman. COCOFED v. PCGG referred to in Republic
v.Sandiganbayan reviewed the history of the coconut levy funds. These funds actually have four (4) general
classes: (a) the Coconut Investment Fund created under R. A. No. 6260; 8 (b) the Coconut Consumers Stabilization
Fund created under P. D. No. 276;9 (c) the Coconut Industry Development Fund created under P. D. No.
582; 10 and, (d) the Coconut Industry Stabilization Fund created under P. D. No. 1841. 11
The various laws relating to the coconut industry were codified in 1976. On 21 October of that year, P. D. No.
961 12was promulgated. On 11 June 1978 it was amended by P. D. No. 1468 13 by inserting a new provision
authorizing the use of the balance of the Coconut Industry Development Fund for the acquisition of "shares of
stocks in corporations organized for the purpose of engaging in the establishment and operation of industries . . .
commercial activities and other allied business undertakings relating to coconut and other palm oil
indust(ries)." 14 From this fund thus created, or the CIIF, shares of stock in what have come to be known as the
"CIIF companies" were purchased.
We then stated in COCOFED that the coconut levy funds were raised by the State's police and taxing powers such
that the utilization and proper management thereof were certainly the concern of the Government. These funds
have a public character and are clearly affected with public interest.
Quimpo v. Tanodbayan involved the issue as to whether PETROPHIL was a government owned or controlled
corporation the employees of which fell within the jurisdictional purview of the Tanodbayan for purposes of The
Anti-Graft and Corrupt Practices Act. We upheld the jurisdiction of the Tanodbayan on the ratiocination that —
While it may be that PETROPHIL was not originally "created" as a government-owned or controlled
corporation, after it was acquired by PNOC, which is a government-owned or controlled corporation,
PETROPHIL became a subsidiary of PNOC and thus shed-off its private status. It is now funded and
owned by the government as, in fact, it was acquired to perform functions related to government programs
and policies on oil, a vital commodity in the economic life of the nation. It was acquired not temporarily but
as a permanent adjunct to perform essential government or government-related functions, as the marketing
arm of the PNOC to assist the latter in selling and distributing oil and petroleum products to assure and
maintain an adequate and stable domestic supply.
But these jurisprudential rules invoked by petitioner in support of his claim that the CIIF companies are government
owned and/or controlled corporations are incomplete without resorting to the definition of "government owned or
controlled corporation" contained in par. (13), Sec. 2, Introductory Provisions of the Administrative Code of
1987, i. e., any agency organized as a stock or non-stock corporation vested with functions relating to public needs
whether governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock. The definition mentions three (3) requisites, namely, first, any agency
organized as a stock or non-stock corporation; second, vested with functions relating to public needs whether
governmental or proprietary in nature; and, third, owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51)
percent of its capital stock.
In the present case, all three (3) corporations comprising the CIIF companies were organized as stock
corporations.The UCPB-CIIF owns 44.10% of the shares of LEGASPI OIL, 91.24% of the shares of
GRANEXPORT, and 92.85% of the shares of UNITED COCONUT. 15 Obviously, the below 51% shares of stock in
LEGASPI OIL removes this firm from the definition of a government owned or controlled corporation. Our concern
has thus been limited to GRANEXPORT and UNITED COCONUT as we go back to the second requisite.
Unfortunately, it is in this regard that petitioner failed to substantiate his contentions. There is no showing that
GRANEXPORT and/or UNITED COCONUT was vested with functions relating to public needs whether
governmental or proprietary in nature unlike PETROPHIL in Quimpo. The Court thus concludes that the CIIF
companies are, as found by public respondent, private corporations not within the scope of its jurisdiction.
With the foregoing conclusion, we find it unnecessary to resolve the other issues raised by petitioner.
A brief note on private respondents' charge of forum shopping. Executive Secretary v. Gordon 16 is instructive that
forum shopping consists of filing multiple suits involving the same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a favorable judgment. It is readily apparent that the
present charge will not prosper because the cause of action herein, i. e., violation of The Anti-Graft and Corrupt
Practices Act, is different from the cause of action in the case pending before the trial court which is collection of a
sum of money plus damages.
WHEREFORE, the petition is DISMISSED. The Resolution of public respondent Office of the Ombudsman of 30
January 1998 which dismissed the complaint of petitioner Manuel M. Leyson Jr., as well as its Order of 4 June
1998 denying his motion for reconsideration, is AFFIRMED. Costs against petitioner.
SO ORDERED.
PEOPLE vs. SANDIGANBAYAN
G.R. Nos. 147706-07 February 16, 2005

Does the Sandiganbayan have jurisdiction over presidents, directors or trustees, or managers of government-
owned or controlled corporations organized and incorporated under the Corporation Code for purposes of the
provisions of RA 3019, otherwise known as the Anti-Graft and Corrupt Practices Act? The petitioner, represented
by the Office of the Special Prosecutor (OSP), takes the affirmative position in this petition for certiorari under Rule
65 of the Rules of Court. Respondent Efren L. Alas contends otherwise, together with the respondent court.
Pursuant to a resolution dated September 30, 1999 of the Office of the Ombudsman, two separate
informations[1] for violation of Section 3(e) of RA 3019, otherwise known as the Anti-Graft and Corrupt Practices
Act, were filed with the Sandiganbayan on November 17, 1999 against Efren L. Alas. The charges emanated from
the alleged anomalous advertising contracts entered into by Alas, in his capacity as President and Chief Operating
Officer of the Philippine Postal Savings Bank (PPSB), with Bagong Buhay Publishing Company which purportedly
caused damage and prejudice to the government.
On October 30, 2002, Alas filed a motion to quash the informations for lack of jurisdiction, which motion was
vehemently opposed by the prosecution. After considering the arguments of both parties, the respondent court
ruled that PPSB was a private corporation and that its officers, particularly herein respondent Alas, did not fall
under Sandiganbayan jurisdiction. According to the Sandiganbayan:
After a careful consideration of the arguments of the accused-movant as well as of that of the prosecution, we are
of the considered opinion that the instant motion of the accused is well taken. Indeed, it is the basic thrust of
Republic Act as well as (sic) Presidential Decree No. 1606 as amended by President Decree No. 1486 and
Republic Act No. 7975 and Republic Act No. 8249 that the Sandiganbayan has jurisdiction only over public officers
unless private persons are charged with them in the commission of the offenses.
The records disclosed that while Philippine Postal Savings Bank is a subsidiary of the Philippine Postal Corporation
which is a government owned corporation, the same is not created by a special law. It was organized and
incorporated under the Corporation Code which is Batas Pambansa Blg. 68. It was registered with the Securities
and Exchange Commission under SEC No. AS094-005593 on June 22, 1994 with a lifetime of fifty (50) years.
Under its Articles of Incorporation the purpose for which said entity is formed was primarily for business, xxx
Likewise, a scrutiny of the seven (7) secondary purposes of the corporation points to the conclusion that it exists for
business. Obviously, it is not involved in the performance of a particular function in the exercise of government
power. Thus, its officers and employees are not covered by the GSIS and are under the SSS law, and actions for
reinstatement and backwages are not within the jurisdiction of the Civil Service Commission but by the National
Labor Relations Commission (NLRC).
The Supreme Court, in the case of Trade Unions of the Philippines and Allied Services vs. National Housing Corp.,
173 SCRA 33, held that the Civil Service now covers only government owned or controlled corporations with
original or legislative charters, those created by an act of Congress or by special law, and not those incorporated
under and pursuant to a general legislation. The Highest Court categorically ruled that the Civil Service does not
include government-owned or controlled corporation which are organized as subsidiaries of government-owned or
controlled corporation under the general corporation law.
In Philippine National Oil Company Energy Development Corporation vs. Leogardo, 175 SCRA 26, the Supreme
Court emphasized that:
The test in determining whether a government-owned or controlled corporation is subject to the Civil Service Law is
the manner of its creation such that government corporation created by special charter are subject to its provision
while those incorporated under the general corporation law are not within its coverage.
Likewise in Davao City Water District vs. Civil Service Commission, 201 SCRA 601 it was held that by government-
owned or controlled corporation with original charter we mean government-owned or controlled corporation created
by a special law and not under the Corporation Code of the Philippines while in Llenes vs. Dicdican, et al., 260
SCRA 207, a public officer has been ruled, as a person whose duties involve the exercise of discretion in the
performance of the function of government.
Clearly, on the basis of the foregoing pronouncements of the Supreme Court, the accused herein cannot be
considered a public officer. Thus, this Court may not exercise jurisdiction over his act.[2]
Dissatisfied, the People, through the Office of the Special Prosecutor (OSP), filed this petition [3] arguing, in
essence, that the PPSB was a government-owned or controlled corporation as the term was defined under Section
2(13) of the Administrative Code of 1987.[4] Likewise, in further defining the jurisdiction of the Sandiganbayan, RA
8249 did not make a distinction as to the manner of creation of the government-owned or controlled corporations
for their officers to fall under its jurisdiction. Hence, being President and Chief Operating Officer of the PPSB at the
time of commission of the crimes charged, respondent Alas came under the jurisdiction of the Sandiganbayan.
Quoting at length from the assailed resolution dated February 15, 2001, respondent Alas, on the other hand,
practically reiterated the pronouncements made by the respondent court in support of his conclusion that the PPSB
was not created by special law, hence, its officers did not fall within the jurisdiction of the Sandiganbayan. [5]
We find merit in the petition.
Section 2(13) of EO 292[6] defines government-owned or controlled corporations as follows:
Sec. 2. General Terms Defined Unless the specific words of the text or the context as a whole or a particular
statute, shall require a different meaning:
xxx xxx xxx
(13) government owned or controlled corporations refer to any agency organized as a stock or non-stock
corporation vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the government directly or indirectly or through its instrumentalities either wholly, or where applicable as
in the case of stock corporations to the extent of at least 51% of its capital stock: provided, that government owned
or controlled corporations maybe further categorized by the department of the budget, the civil service commission
and the commission on audit for the purpose of the exercise and discharge of their respective powers, functions
and responsibilities with respect to such corporations.
From the foregoing, PPSB fits the bill as a government-owned or controlled corporation, and organized and
incorporated under the Corporation Code as a subsidiary of the Philippine Postal Corporation (PHILPOST). More
than 99% of the authorized capital stock of PPSB belongs to the government while the rest is nominally held by its
incorporators who are/were themselves officers of PHILPOST. The creation of PPSB was expressly sanctioned by
Section 32 of RA 7354, otherwise known as the Postal Service Act of 1992, for purposes of, among others, to
encourage and promote the virtue of thrift and the habit of savings among the general public, especially the youth
and the marginalized sector in the countryside xxx and to facilitate postal service by receiving collections and
making payments, including postal money orders.[7]
It is not disputed that the Sandiganbayan has jurisdiction over presidents, directors or trustees, or managers of
government-owned or controlled corporations with original charters whenever charges of graft and corruption are
involved. However, a question arises whether the Sandiganbayan has jurisdiction over the same officers in
government-owned or controlled corporations organized and incorporated under the Corporation Code in view of
the delimitation provided for in Article IX-B Section 2(1) of the 1987 Constitution which states that:
SEC. 2. (1) The Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the
government, including government-owned or controlled corporations with original charters.
It should be pointed out however, that the jurisdiction of the Sandiganbayan is separate and distinct from the
Civil Service Commission. The same is governed by Article XI, Section 4 of the 1987 Constitution which provides
that the present anti-graft court known as the Sandiganbayan shall continue to function and exercise its jurisdiction
as now or hereafter may be provided by law. This provision, in effect, retained the jurisdiction of the anti-graft court
as defined under Article XIII, Section 5 of the 1973 Constitution which mandated its creation, thus:
Sec. 5. The Batasang Pambansa shall create a special court, to be known as Sandiganbayan, which shall have
jurisdiction over criminal and civil cases involving graft and corrupt practices and such other offense committed by
public officers and employees, including those in government-owned or controlled corporations, in relation to their
office as may be determined by law. (Italics ours)
On March 30, 1995, Congress, pursuant to its authority vested under the 1987 Constitution, enacted RA
7975[8] maintaining the jurisdiction of the Sandiganbayan over presidents, directors or trustees, or managers of
government-owned or controlled corporations without any distinction whatsoever. Thereafter, on February 5, 1997,
Congress enacted RA 8249[9] which preserved the subject provision:
Section 4, Jurisdiction. The Sandiganbayan shall exercise exclusive original jurisdiction in all cases involving:
a. Violations of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt
Practices Act, Republic Act No. 1379, and Chapter II, Section, Title VII, Book II of the Revised
Penal Code, where one or more of the accused are officials occupying the following positions in the
government, whether in a permanent, acting or interim capacity, at the time of the commission of
the offense,
(1) Officials of the executive branch occupying the positions of regional director, and higher,
otherwise classified as grade 27 and higher, of the Compensation and Position Classification Act of
1989 (Republic Act No. 6758) specifically including:
xxx xxx xxx
(g) Presidents, directors or trustees, or managers of government-owned or
controlled corporations, state universities or educational institutions or foundations. (Italics
ours)
The legislature, in mandating the inclusion of presidents, directors or trustees, or managers of government-
owned or controlled corporations within the jurisdiction of the Sandiganbayan, has consistently refrained from
making any distinction with respect to the manner of their creation.
The deliberate omission, in our view, clearly reveals the intention of the legislature to include the presidents,
directors or trustees, or managers of both types of corporations within the jurisdiction of the Sandiganbayan
whenever they are involved in graft and corruption. Had it been otherwise, it could have simply made the necessary
distinction. But it did not.
It is a basic principle of statutory construction that when the law does not distinguish, we should not
distinguish. Ubi lex non distinguit nec nos distinguere debemos. Corollarily, Article XI Section 12 of the 1987
Constitution, on the jurisdiction of the Ombudsman (the governments prosecutory arm against persons charged
with graft and corruption), includes officers and employees of government-owned or controlled corporations,
likewise without any distinction.
In Quimpo v. Tanodbayan,[10] this Court, already mindful of the pertinent provisions of the 1987 Constitution,
ruled that the concerned officers of government-owned or controlled corporations, whether created by special law
or formed under the Corporation Code, come under the jurisdiction of the Sandiganbayan for purposes of the
provisions of the Anti-Graft and Corrupt Practices Act. Otherwise, as we emphasized therein, a major policy of
Government, which is to eradicate, or at the very least minimize, the graft and corruption that has permeated the
fabric of the public service like a malignant social cancer, would be seriously undermined. In fact, Section 1 of the
Anti-Graft and Corrupt Practices Act embodies this policy of the government, that is, to repress certain acts not only
of public officers but also of private persons constituting graft or corrupt practices or which may lead thereto.
The foregoing pronouncement has not outlived its usefulness. On the contrary, it has become even more
relevant today due to the rampant cases of graft and corruption that erode the peoples faith in government. For
indeed, a government-owned or controlled corporation can conceivably create as many subsidiary corporations
under the Corporation Code as it might wish, use public funds, disclaim public accountability and escape the
liabilities and responsibilities provided by law. By including the concerned officers of government-owned or
controlled corporations organized and incorporated under the Corporation Code within the jurisdiction of the
Sandiganbayan, the legislature evidently seeks to avoid just that.
WHEREFORE, in view of the foregoing, the petition is hereby GRANTED and the assailed resolution dated
February 15, 2001 of the respondent court is hereby REVERSED and SET ASIDE.
SO ORDERED.

MANILA INTERNATIONAL AIRPORT AUTHORITY vs. CITY OF PASAY


G.R. No. 163072 April 2, 2009

DECISION

This is a petition for review on certiorari1 of the Decision2 dated 30 October 2002 and the Resolution dated 19
March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.
The Facts
Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino International
Airport (NAIA) Complex under Executive Order No. 903 (EO 903),3 otherwise known as the Revised Charter of the
Manila International Airport Authority. EO 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos.
Under Sections 34 and 225 of EO 903, approximately 600 hectares of land, including the runways, the airport tower,
and other airport buildings, were transferred to MIAA. The NAIA Complex is located along the border between
Pasay City and Parañaque City.
On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay for the
taxable years 1992 to 2001. MIAA’s real property tax delinquency for its real properties located in NAIA Complex,
Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is tabulated as follows:

TAX DECLA-RATION TAXABLE YEAR TAX DUE PENALTY TOTAL

A7-183-08346 1997-2001 243,522,855.00 123,351,728.18 366,874,583.18

A7-183-05224 1992-2001 113,582,466.00 71,159,414.98 184,741,880.98

A7-191-00843 1992-2001 54,454,800.00 34,115,932.20 88,570,732.20

A7-191-00140 1992-2001 1,632,960.00 1,023,049.44 2,656,009.44

A7-191-00139 1992-2001 6,068,448.00 3,801,882.85 9,870,330.85

A7-183-05409 1992-2001 59,129,520.00 37,044,644.28 96,174,164.28

A7-183-05410 1992-2001 20,619,720.00 12,918,254.58 33,537,974.58

A7-183-05413 1992-2001 7,908,240.00 4,954,512.36 12,862,752.36

A7-183-05412 1992-2001 18,441,981.20 11,553,901.13 29,995,882.33

A7-183-05411 1992-2001 109,946,736.00 68,881,630.13 178,828,366.13

A7-183-05245 1992-2001 7,440,000.00 4,661,160.00 12,101,160.00

GRAND TOTAL ₱642,747,726.20 ₱373,466,110.13 ₱1,016,213,836.33

On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy and warrants of levy for the
NAIA Pasay properties. MIAA received the notices and warrants of levy on 28 August 2001. Thereafter, the City
Mayor of Pasay threatened to sell at public auction the NAIA Pasay properties if the delinquent real property taxes
remain unpaid.
On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and injunction with prayer for
preliminary injunction or temporary restraining order. The petition sought to enjoin the City of Pasay from imposing
real property taxes on, levying against, and auctioning for public sale the NAIA Pasay properties.
On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power of the City of Pasay to
impose and collect realty taxes on the NAIA Pasay properties. MIAA filed a motion for reconsideration, which the
Court of Appeals denied. Hence, this petition.
The Court of Appeals’ Ruling
The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the Local Government Code,
which took effect on 1 January 1992, withdrew the exemption from payment of real property taxes granted to
natural or juridical persons, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under Republic Act No. 6938, non-stock and non-profit hospitals and educational
institutions. Since MIAA is a government-owned corporation, it follows that its tax exemption under Section 21 of
EO 903 has been withdrawn upon the effectivity of the Local Government Code.
The Issue
The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt from real property tax.
The Court’s Ruling
The petition is meritorious.
In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited Sections 193 and 234 of
the Local Government Code which read:
SECTION 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code.
SECTION 234. Exemptions from Real Property Tax. – The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or
religious cemeteries and all lands, buildings and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts
and government owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environment protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently
enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled corporations are
hereby withdrawn upon the effectivity of this Code.
The Court of Appeals held that as a government-owned corporation, MIAA’s tax exemption under Section 21 of EO
903 has already been withdrawn upon the effectivity of the Local Government Code in 1992.
In Manila International Airport Authority v. Court of Appeals 6 (2006 MIAA case), this Court already resolved the
issue of whether the airport lands and buildings of MIAA are exempt from tax under existing laws. The 2006 MIAA
case originated from a petition for prohibition and injunction which MIAA filed with the Court of Appeals, seeking to
restrain the City of Parañaque from imposing real property tax on, levying against, and auctioning for public sale the
airport lands and buildings located in Parañaque City. The only difference between the 2006 MIAA case and this
case is that the 2006 MIAA case involved airport lands and buildings located in Parañaque City while this case
involved airport lands and buildings located in Pasay City. The 2006 MIAA case and this case raised the same
threshold issue: whether the local government can impose real property tax on the airport lands, consisting mostly
of the runways, as well as the airport buildings, of MIAA. In the 2006 MIAA case, this Court held:
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is
MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because
MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with
corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions
of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local
governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section
234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such
exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of
public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code
provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth.
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of
MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use
or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under
Section 234(a) of the Local Government Code.7 (Emphasis in the original)
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Administrative Code of
1987 uses the phrase "includes x x x government-owned or controlled corporations" which means that a
government "instrumentality" may or may not be a "government-owned or controlled corporation." Obviously, the
term government "instrumentality" is broader than the term "government-owned or controlled corporation." Section
2(10) provides:
SEC. 2. General Terms Defined.– x x x
(10) Instrumentality refers to any agency of the national Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned or controlled corporations.
The term "government-owned or controlled corporation" has a separate definition under Section 2(13)8 of the
Introductory Provisions of the Administrative Code of 1987:
SEC. 2. General Terms Defined.– x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case
of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: Provided, That government-
owned or controlled corporations may further be categorized by the department of Budget, the Civil Service
Commission, and the Commission on Audit for the purpose of the exercise and discharge of their respective
powers, functions and responsibilities with respect to such corporations.
The fact that two terms have separate definitions means that while a government "instrumentality" may include a
"government-owned or controlled corporation," there may be a government "instrumentality" that will not qualify as
a "government-owned or controlled corporation."
A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13) will show that
MIAA would not fall under such definition. MIAA is a government "instrumentality" that does not qualify as a
"government-owned or controlled corporation." As explained in the 2006 MIAA case:
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is
not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. x x x
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares
and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.
xxx
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a
non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members. Even if we assume that the Government is considered as
the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot
distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20%
of its annual gross operating income to the National Treasury. This prevents MIAA from qualifying as a non-stock
corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public
utility, is organized to operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation. What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with
corporate powers. x x x
When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time,
MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order."9
Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt
from any kind of tax from the local governments. Indeed, the exercise of the taxing power of local government units
is subject to the limitations enumerated in Section 133 of the Local Government Code. 10 Under Section 133(o)11 of
the Local Government Code, local government units have no power to tax instrumentalities of the national
government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for public use, and
as such are exempt from real property tax under Section 234(a) of the Local Government Code. However, under
the same provision, if MIAA leases its real property to a taxable person, the specific property leased becomes
subject to real property tax.12 In this case, only those portions of the NAIA Pasay properties which are leased to
taxable persons like private parties are subject to real property tax by the City of Pasay.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October 2002 and the Resolution
dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416. We DECLARE the NAIA Pasay properties
of the Manila International Airport Authority EXEMPT from real property tax imposed by the City of Pasay. We
declare VOID all the real property tax assessments, including the final notices of real property tax delinquencies,
issued by the City of Pasay on the NAIA Pasay properties of the Manila International Airport Authority, except for
the portions that the Manila International Airport Authority has leased to private parties.
No costs.
SO ORDERED.

UNIVERSITY OF THE PHILIPPINES vs. DIZON


G.R. No. 171182 August 23, 2012

DECISION
Trial judges should not immediately issue writs of execution or garnishment against the Government or any of its
subdivisions, agencies and instrumentalities to enforce money judgments. 1 They should bear in mind that the
primary jurisdiction to examine, audit and settle all claims of any sort due from the Government or any of its
subdivisions, agencies and instrumentalities pertains to the Commission on Audit (COA) pursuant to Presidential
Decree No. 1445 (Government Auditing Code of the Philippines).
The Case
On appeal by the University of the Philippines and its then incumbent officials (collectively, the UP) is the decision
promulgated on September 16, 2005,2 whereby the Court of Appeals (CA) upheld the order of the Regional Trial
Court (RTC), Branch 80, in Quezon City that directed the garnishment of public funds amounting to ₱
16,370,191.74 belonging to the UP to satisfy the writ of execution issued to enforce the already final and executory
judgment against the UP.
Antecedents
On August 30, 1990, the UP, through its then President Jose V. Abueva, entered into a General Construction
Agreement with respondent Stern Builders Corporation (Stern Builders), represented by its President and General
Manager Servillano dela Cruz, for the construction of the extension building and the renovation of the College of
Arts and Sciences Building in the campus of the University of the Philippines in Los Baños (UPLB). 3
In the course of the implementation of the contract, Stern Builders submitted three progress billings corresponding
to the work accomplished, but the UP paid only two of the billings. The third billing worth ₱ 273,729.47 was not paid
due to its disallowance by the Commission on Audit (COA). Despite the lifting of the disallowance, the UP failed to
pay the billing, prompting Stern Builders and dela Cruz to sue the UP and its co-respondent officials to collect the
unpaid billing and to recover various damages. The suit, entitled Stern Builders Corporation and Servillano R. Dela
Cruz v. University of the Philippines Systems, Jose V. Abueva, Raul P. de Guzman, Ruben P. Aspiras, Emmanuel
P. Bello, Wilfredo P. David, Casiano S. Abrigo, and Josefina R. Licuanan, was docketed as Civil Case No. Q-93-
14971 of the Regional Trial Court in Quezon City (RTC).4
After trial, on November 28, 2001, the RTC rendered its decision in favor of the plaintiffs,5 viz:
Wherefore, in the light of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the
defendants ordering the latter to pay plaintiff, jointly and severally, the following, to wit:
1. ₱ 503,462.74 amount of the third billing, additional accomplished work and retention money
2. ₱ 5,716,729.00 in actual damages
3. ₱ 10,000,000.00 in moral damages
4. ₱ 150,000.00 and ₱ 1,500.00 per appearance as attorney’s fees; and
5. Costs of suit.
SO ORDERED.
Following the RTC’s denial of its motion for reconsideration on May 7, 2002, 6 the UP filed a notice of appeal on
June 3, 2002.7 Stern Builders and dela Cruz opposed the notice of appeal on the ground of its filing being belated,
and moved for the execution of the decision. The UP countered that the notice of appeal was filed within the
reglementary period because the UP’s Office of Legal Affairs (OLS) in Diliman, Quezon City received the order of
denial only on May 31, 2002. On September 26, 2002, the RTC denied due course to the notice of appeal for
having been filed out of time and granted the private respondents’ motion for execution. 8
The RTC issued the writ of execution on October 4, 2002,9 and the sheriff of the RTC served the writ of execution
and notice of demand upon the UP, through its counsel, on October 9, 2002.10 The UP filed an urgent motion to
reconsider the order dated September 26, 2002, to quash the writ of execution dated October 4, 2002, and to
restrain the proceedings.11 However, the RTC denied the urgent motion on April 1, 2003.12
On June 24, 2003, the UP assailed the denial of due course to its appeal through a petition for certiorari in the
Court of Appeals (CA), docketed as CA-G.R. No. 77395.13
On February 24, 2004, the CA dismissed the petition for certiorari upon finding that the UP’s notice of appeal had
been filed late,14 stating:
Records clearly show that petitioners received a copy of the Decision dated November 28, 2001 and January 7,
2002, thus, they had until January 22, 2002 within which to file their appeal. On January 16, 2002 or after the lapse
of nine (9) days, petitioners through their counsel Atty. Nolasco filed a Motion for Reconsideration of the aforesaid
decision, hence, pursuant to the rules, petitioners still had six (6) remaining days to file their appeal. As admitted by
the petitioners in their petition (Rollo, p. 25), Atty. Nolasco received a copy of the Order denying their motion for
reconsideration on May 17, 2002, thus, petitioners still has until May 23, 2002 (the remaining six (6) days) within
which to file their appeal. Obviously, petitioners were not able to file their Notice of Appeal on May 23, 2002 as it
was only filed on June 3, 2002.
In view of the said circumstances, We are of the belief and so holds that the Notice of Appeal filed by the petitioners
was really filed out of time, the same having been filed seventeen (17) days late of the reglementary period. By
reason of which, the decision dated November 28, 2001 had already become final and executory. "Settled is the
rule that the perfection of an appeal in the manner and within the period permitted by law is not only mandatory but
jurisdictional, and failure to perfect that appeal renders the challenged judgment final and executory. This is not an
empty procedural rule but is grounded on fundamental considerations of public policy and sound practice." (Ram’s
Studio and Photographic Equipment, Inc. vs. Court of Appeals, 346 SCRA 691, 696). Indeed, Atty. Nolasco
received the order of denial of the Motion for Reconsideration on May 17, 2002 but filed a Notice of Appeal only on
June 3, 3003. As such, the decision of the lower court ipso facto became final when no appeal was perfected after
the lapse of the reglementary period. This procedural caveat cannot be trifled with, not even by the High Court.15
The UP sought a reconsideration, but the CA denied the UP’s motion for reconsideration on April 19, 2004. 16
On May 11, 2004, the UP appealed to the Court by petition for review on certiorari (G.R. No. 163501).
On June 23, 2004, the Court denied the petition for review. 17 The UP moved for the reconsideration of the denial of
its petition for review on August 29, 2004,18 but the Court denied the motion on October 6, 2004.19 The denial
became final and executory on November 12, 2004.20
In the meanwhile that the UP was exhausting the available remedies to overturn the denial of due course to the
appeal and the issuance of the writ of execution, Stern Builders and dela Cruz filed in the RTC their motions for
execution despite their previous motion having already been granted and despite the writ of execution having
already issued. On June 11, 2003, the RTC granted another motion for execution filed on May 9, 2003 (although
the RTC had already issued the writ of execution on October 4, 2002). 21
On June 23, 2003 and July 25, 2003, respectively, the sheriff served notices of garnishment on the UP’s depository
banks, namely: Land Bank of the Philippines (Buendia Branch) and the Development Bank of the Philippines
(DBP), Commonwealth Branch.22 The UP assailed the garnishment through an urgent motion to quash the notices
of garnishment;23 and a motion to quash the writ of execution dated May 9, 2003.24
On their part, Stern Builders and dela Cruz filed their ex parte motion for issuance of a release order. 25
On October 14, 2003, the RTC denied the UP’s urgent motion to quash, and granted Stern Builders and dela
Cruz’s ex parte motion for issuance of a release order. 26
The UP moved for the reconsideration of the order of October 14, 2003, but the RTC denied the motion on
November 7, 2003.27
On January 12, 2004, Stern Builders and dela Cruz again sought the release of the garnished funds. 28 Despite the
UP’s opposition,29 the RTC granted the motion to release the garnished funds on March 16, 2004. 30 On April 20,
2004, however, the RTC held in abeyance the enforcement of the writs of execution issued on October 4, 2002 and
June 3, 2003 and all the ensuing notices of garnishment, citing Section 4, Rule 52, Rules of Court, which provided
that the pendency of a timely motion for reconsideration stayed the execution of the judgment. 31
On December 21, 2004, the RTC, through respondent Judge Agustin S. Dizon, authorized the release of the
garnished funds of the UP,32 to wit:
WHEREFORE, premises considered, there being no more legal impediment for the release of the garnished
amount in satisfaction of the judgment award in the instant case, let the amount garnished be immediately released
by the Development Bank of the Philippines, Commonwealth Branch, Quezon City in favor of the plaintiff.
SO ORDERED.
The UP was served on January 3, 2005 with the order of December 21, 2004 directing DBP to release the
garnished funds.33
On January 6, 2005, Stern Builders and dela Cruz moved to cite DBP in direct contempt of court for its non-
compliance with the order of release.34
Thereupon, on January 10, 2005, the UP brought a petition for certiorari in the CA to challenge the jurisdiction of
the RTC in issuing the order of December 21, 2004 (CA-G.R. CV No. 88125).35 Aside from raising the denial of due
process, the UP averred that the RTC committed grave abuse of discretion amounting to lack or excess of
jurisdiction in ruling that there was no longer any legal impediment to the release of the garnished funds. The UP
argued that government funds and properties could not be seized by virtue of writs of execution or garnishment, as
held in Department of Agriculture v. National Labor Relations Commission, 36 and citing Section 84 of Presidential
Decree No. 1445 to the effect that "revenue funds shall not be paid out of any public treasury or depository except
in pursuance of an appropriation law or other specific statutory authority;" and that the order of garnishment clashed
with the ruling in University of the Philippines Board of Regents v. Ligot-Telan37 to the effect that the funds
belonging to the UP were public funds.
On January 19, 2005, the CA issued a temporary restraining order (TRO) upon application by the UP. 38
On March 22, 2005, Stern Builders and dela Cruz filed in the RTC their amended motion for sheriff’s assistance to
implement the release order dated December 21, 2004, stating that the 60-day period of the TRO of the CA had
already lapsed.39 The UP opposed the amended motion and countered that the implementation of the release order
be suspended.40
On May 3, 2005, the RTC granted the amended motion for sheriff’s assistance and directed the sheriff to proceed
to the DBP to receive the check in satisfaction of the judgment.41
The UP sought the reconsideration of the order of May 3, 2005. 42
On May 16, 2005, DBP filed a motion to consign the check representing the judgment award and to dismiss the
motion to cite its officials in contempt of court.43
On May 23, 2005, the UP presented a motion to withhold the release of the payment of the judgment award.44
On July 8, 2005, the RTC resolved all the pending matters,45 noting that the DBP had already delivered to the
sheriff Manager’s Check No. 811941 for ₱ 16,370,191.74 representing the garnished funds payable to the order of
Stern Builders and dela Cruz as its compliance with the RTC’s order dated December 21, 2004.46 However, the
RTC directed in the same order that Stern Builders and dela Cruz should not encash the check or withdraw its
amount pending the final resolution of the UP’s petition for certiorari, to wit: 47
To enable the money represented in the check in question (No. 00008119411) to earn interest during the pendency
of the defendant University of the Philippines application for a writ of injunction with the Court of Appeals the same
may now be deposited by the plaintiff at the garnishee Bank (Development Bank of the Philippines), the disposition
of the amount represented therein being subject to the final outcome of the case of the University of the Philippines
et al., vs. Hon. Agustin S. Dizon et al., (CA G.R. 88125) before the Court of Appeals.
Let it be stated herein that the plaintiff is not authorized to encash and withdraw the amount represented in the
check in question and enjoy the same in the fashion of an owner during the pendency of the case between the
parties before the Court of Appeals which may or may not be resolved in plaintiff’s favor.
With the end in view of seeing to it that the check in question is deposited by the plaintiff at the Development Bank
of the Philippines (garnishee bank), Branch Sheriff Herlan Velasco is directed to accompany and/or escort the
plaintiff in making the deposit of the check in question.
SO ORDERED.
On September 16, 2005, the CA promulgated its assailed decision dismissing the UP’s petition for certiorari, ruling
that the UP had been given ample opportunity to contest the motion to direct the DBP to deposit the check in the
name of Stern Builders and dela Cruz; and that the garnished funds could be the proper subject of garnishment
because they had been already earmarked for the project, with the UP holding the funds only in a fiduciary
capacity,48 viz:
Petitioners next argue that the UP funds may not be seized for execution or garnishment to satisfy the judgment
award. Citing Department of Agriculture vs. NLRC, University of the Philippines Board of Regents vs. Hon. Ligot-
Telan, petitioners contend that UP deposits at Land Bank and the Development Bank of the Philippines, being
government funds, may not be released absent an appropriations bill from Congress.
The argument is specious. UP entered into a contract with private respondents for the expansion and renovation of
the Arts and Sciences Building of its campus in Los Baños, Laguna. Decidedly, there was already an appropriations
earmarked for the said project. The said funds are retained by UP, in a fiduciary capacity, pending completion of
the construction project.
We agree with the trial Court [sic] observation on this score:
"4. Executive Order No. 109 (Directing all National Government Agencies to Revert Certain Accounts
Payable to the Cumulative Result of Operations of the National Government and for Other Purposes)
Section 9. Reversion of Accounts Payable, provides that, all 1995 and prior years documented accounts
payable and all undocumented accounts regardless of the year they were incurred shall be reverted to the
Cumulative Result of Operations of the National Government (CROU). This shall apply to accounts payable
of all funds, except fiduciary funds, as long as the purpose for which the funds were created have not been
accomplished and accounts payable under foreign assisted projects for the duration of the said project. In
this regard, the Department of Budget and Management issued Joint-Circular No. 99-6 4.0 (4.3) Procedural
Guidelines which provides that all accounts payable that reverted to the CROU may be considered for
payment upon determination thru administrative process, of the existence, validity and legality of the claim.
Thus, the allegation of the defendants that considering no appropriation for the payment of any amount
awarded to plaintiffs appellee the funds of defendant-appellants may not be seized pursuant to a writ of
execution issued by the regular court is misplaced. Surely when the defendants and the plaintiff entered
into the General Construction of Agreement there is an amount already allocated by the latter for the said
project which is no longer subject of future appropriation."49
After the CA denied their motion for reconsideration on December 23, 2005, the petitioners appealed by petition for
review.
Matters Arising During the Pendency of the Petition
On January 30, 2006, Judge Dizon of the RTC (Branch 80) denied Stern Builders and dela Cruz’s motion to
withdraw the deposit, in consideration of the UP’s intention to appeal to the CA, 50 stating:
Since it appears that the defendants are intending to file a petition for review of the Court of Appeals resolution in
CA-G.R. No. 88125 within the reglementary period of fifteen (15) days from receipt of resolution, the Court agrees
with the defendants stand that the granting of plaintiffs’ subject motion is premature.
Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part that the "disposition
of the amount represented therein being subject to the final outcome of the case of the University of the Philippines,
et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125 before the Court of Appeals) is that the judgment or
resolution of said court has to be final and executory, for if the same will still be elevated to the Supreme Court, it
will not attain finality yet until the highest court has rendered its own final judgment or resolution. 51
However, on January 22, 2007, the UP filed an Urgent Application for A Temporary Restraining Order and/or A Writ
of Preliminary Injunction,52 averring that on January 3, 2007, Judge Maria Theresa dela Torre-Yadao (who had
meanwhile replaced Judge Dizon upon the latter’s appointment to the CA) had issued another order allowing Stern
Builders and dela Cruz to withdraw the deposit,53 to wit:
It bears stressing that defendants’ liability for the payment of the judgment obligation has become indubitable due
to the final and executory nature of the Decision dated November 28, 2001. Insofar as the payment of the [sic]
judgment obligation is concerned, the Court believes that there is nothing more the defendant can do to escape
liability. It is observed that there is nothing more the defendant can do to escape liability. It is observed that
defendant U.P. System had already exhausted all its legal remedies to overturn, set aside or modify the decision
(dated November 28, 2001( rendered against it. The way the Court sees it, defendant U.P. System’s petition before
the Supreme Court concerns only with the manner by which said judgment award should be satisfied. It has nothing
to do with the legality or propriety thereof, although it prays for the deletion of [sic] reduction of the award of moral
damages.
It must be emphasized that this Court’s finding, i.e., that there was sufficient appropriation earmarked for the
project, was upheld by the Court of Appeals in its decision dated September 16, 2005. Being a finding of fact, the
Supreme Court will, ordinarily, not disturb the same was said Court is not a trier of fact. Such being the case,
defendants’ arguments that there was no sufficient appropriation for the payment of the judgment obligation must
fail.
While it is true that the former Presiding Judge of this Court in its Order dated January 30, 2006 had stated that:
Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part that the "disposition
of the amount represented therein being subject to the final outcome of the case of the University of the Philippines,
et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125 before the Court of Appeals) is that the judgment or
resolution of said court has to be final and executory, for if the same will still be elevated to the Supreme Court, it
will not attain finality yet until the highest court has rendered its own final judgment or resolution.
it should be noted that neither the Court of Appeals nor the Supreme Court issued a preliminary injunction enjoining
the release or withdrawal of the garnished amount. In fact, in its present petition for review before the Supreme
Court, U.P. System has not prayed for the issuance of a writ of preliminary injunction. Thus, the Court doubts
whether such writ is forthcoming.
The Court honestly believes that if defendants’ petition assailing the Order of this Court dated December 31, 2004
granting the motion for the release of the garnished amount was meritorious, the Court of Appeals would have
issued a writ of injunction enjoining the same. Instead, said appellate court not only refused to issue a wit of
preliminary injunction prayed for by U.P. System but denied the petition, as well. 54
The UP contended that Judge Yadao thereby effectively reversed the January 30, 2006 order of Judge Dizon
disallowing the withdrawal of the garnished amount until after the decision in the case would have become final and
executory.
Although the Court issued a TRO on January 24, 2007 to enjoin Judge Yadao and all persons acting pursuant to
her authority from enforcing her order of January 3, 2007,55 it appears that on January 16, 2007, or prior to the
issuance of the TRO, she had already directed the DBP to forthwith release the garnished amount to Stern Builders
and dela Cruz; 56 and that DBP had forthwith complied with the order on January 17, 2007 upon the sheriff’s service
of the order of Judge Yadao.57
These intervening developments impelled the UP to file in this Court a supplemental petition on January 26,
2007,58alleging that the RTC (Judge Yadao) gravely erred in ordering the immediate release of the garnished
amount despite the pendency of the petition for review in this Court.
The UP filed a second supplemental petition59 after the RTC (Judge Yadao) denied the UP’s motion for the
redeposit of the withdrawn amount on April 10, 2007,60 to wit:
This resolves defendant U.P. System’s Urgent Motion to Redeposit Judgment Award praying that plaintiffs be
directed to redeposit the judgment award to DBP pursuant to the Temporary Restraining Order issued by the
Supreme Court. Plaintiffs opposed the motion and countered that the Temporary Restraining Order issued by the
Supreme Court has become moot and academic considering that the act sought to be restrained by it has already
been performed. They also alleged that the redeposit of the judgment award was no longer feasible as they have
already spent the same.
It bears stressing, if only to set the record straight, that this Court did not – in its Order dated January 3, 2007 (the
implementation of which was restrained by the Supreme Court in its Resolution dated January 24, 2002) – direct
that that garnished amount "be deposited with the garnishee bank (Development Bank of the Philippines)". In the
first place, there was no need to order DBP to make such deposit, as the garnished amount was already deposited
in the account of plaintiffs with the DBP as early as May 13, 2005. What the Court granted in its Order dated
January 3, 2007 was plaintiff’s motion to allow the release of said deposit. It must be recalled that the Court found
plaintiff’s motion meritorious and, at that time, there was no restraining order or preliminary injunction from either
the Court of Appeals or the Supreme Court which could have enjoined the release of plaintiffs’ deposit. The Court
also took into account the following factors:
a) the Decision in this case had long been final and executory after it was rendered on November 28, 2001;
b) the propriety of the dismissal of U.P. System’s appeal was upheld by the Supreme Court;
c) a writ of execution had been issued;
d) defendant U.P. System’s deposit with DBP was garnished pursuant to a lawful writ of execution issued
by the Court; and
e) the garnished amount had already been turned over to the plaintiffs and deposited in their account with
DBP.
The garnished amount, as discussed in the Order dated January 16, 2007, was already owned by the plaintiffs,
having been delivered to them by the Deputy Sheriff of this Court pursuant to par. (c), Section 9, Rule 39 of the
1997 Rules of Civil Procedure. Moreover, the judgment obligation has already been fully satisfied as per Report of
the Deputy Sheriff.
Anent the Temporary Restraining Order issued by the Supreme Court, the same has become functus oficio, having
been issued after the garnished amount had been released to the plaintiffs. The judgment debt was released to the
plaintiffs on January 17, 2007, while the Temporary Restraining Order issued by the Supreme Court was received
by this Court on February 2, 2007. At the time of the issuance of the Restraining Order, the act sought to be
restrained had already been done, thereby rendering the said Order ineffectual.
After a careful and thorough study of the arguments advanced by the parties, the Court is of the considered opinion
that there is no legal basis to grant defendant U.P. System’s motion to redeposit the judgment amount. Granting
said motion is not only contrary to law, but it will also render this Court’s final executory judgment nugatory.
Litigation must end and terminate sometime and somewhere, and it is essential to an effective administration of
justice that once a judgment has become final the issue or cause involved therein should be laid to rest. This
doctrine of finality of judgment is grounded on fundamental considerations of public policy and sound practice. In
fact, nothing is more settled in law than that once a judgment attains finality it thereby becomes immutable and
unalterable. It may no longer be modified in any respect, even if the modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to
be made by the court rendering it or by the highest court of the land.
WHEREFORE, premises considered, finding defendant U.P. System’s Urgent Motion to Redeposit Judgment
Award devoid of merit, the same is hereby DENIED.
SO ORDERED.
Issues
The UP now submits that:
I
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN DISMISSING THE PETITION, ALLOWING IN
EFFECT THE GARNISHMENT OF UP FUNDS, WHEN IT RULED THAT FUNDS HAVE ALREADY BEEN
EARMARKED FOR THE CONSTRUCTION PROJECT; AND THUS, THERE IS NO NEED FOR FURTHER
APPROPRIATIONS.
II
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN ALLOWING GARNISHMENT OF A STATE
UNIVERSITY’S FUNDS IN VIOLATION OF ARTICLE XIV, SECTION 5(5) OF THE CONSTITUTION.
III
IN THE ALTERNATIVE, THE UNIVERSITY INVOKES EQUITY AND THE REVIEW POWERS OF THIS
HONORABLE COURT TO MODIFY, IF NOT TOTALLY DELETE THE AWARD OF ₱ 10 MILLION AS MORAL
DAMAGES TO RESPONDENTS.
IV
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE OF THE
JUDGMENT AWARD IN ITS ORDER DATED 3 JANUARY 2007 ON THE GROUND OF EQUITY AND JUDICIAL
COURTESY.
V
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE OF THE
JUDGMENT AWARD IN ITS ORDER DATED 16 JANUARY 2007 ON THE GROUND THAT PETITIONER
UNIVERSITY STILL HAS A PENDING MOTION FOR RECONSIDERATION OF THE ORDER DATED 3 JANUARY
2007.
VI
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN NOT ORDERING THE REDEPOSIT OF THE
GARNISHED AMOUNT TO THE DBP IN VIOLATION OF THE CLEAR LANGUAGE OF THE SUPREME COURT
RESOLUTION DATED 24 JANUARY 2007.
The UP argues that the amount earmarked for the construction project had been purposely set aside only for the
aborted project and did not include incidental matters like the awards of actual damages, moral damages and
attorney’s fees. In support of its argument, the UP cited Article 12.2 of the General Construction Agreement, which
stipulated that no deductions would be allowed for the payment of claims, damages, losses and expenses,
including attorney’s fees, in case of any litigation arising out of the performance of the work. The UP insists that the
CA decision was inconsistent with the rulings in Commissioner of Public Highways v. San Diego61 and Department
of Agriculture v. NLRC62 to the effect that government funds and properties could not be seized under writs of
execution or garnishment to satisfy judgment awards.
Furthermore, the UP contends that the CA contravened Section 5, Article XIV of the Constitution by allowing the
garnishment of UP funds, because the garnishment resulted in a substantial reduction of the UP’s limited budget
allocated for the remuneration, job satisfaction and fulfillment of the best available teachers; that Judge Yadao
should have exhibited judicial courtesy towards the Court due to the pendency of the UP’s petition for review; and
that she should have also desisted from declaring that the TRO issued by this Court had become functus officio.
Lastly, the UP states that the awards of actual damages of ₱ 5,716,729.00 and moral damages of ₱ 10 million
should be reduced, if not entirely deleted, due to its being unconscionable, inequitable and detrimental to public
service.
In contrast, Stern Builders and dela Cruz aver that the petition for review was fatally defective for its failure to
mention the other cases upon the same issues pending between the parties (i.e., CA-G.R. No. 77395 and G.R No.
163501); that the UP was evidently resorting to forum shopping, and to delaying the satisfaction of the final
judgment by the filing of its petition for review; that the ruling in Commissioner of Public Works v. San Diego had no
application because there was an appropriation for the project; that the UP retained the funds allotted for the project
only in a fiduciary capacity; that the contract price had been meanwhile adjusted to ₱ 22,338,553.25, an amount
already more than sufficient to cover the judgment award; that the UP’s prayer to reduce or delete the award of
damages had no factual basis, because they had been gravely wronged, had been deprived of their source of
income, and had suffered untold miseries, discomfort, humiliation and sleepless years; that dela Cruz had even
been constrained to sell his house, his equipment and the implements of his trade, and together with his family had
been forced to live miserably because of the wrongful actuations of the UP; and that the RTC correctly declared the
Court’s TRO to be already functus officio by reason of the withdrawal of the garnished amount from the DBP.
The decisive issues to be considered and passed upon are, therefore:
(a) whether the funds of the UP were the proper subject of garnishment in order to satisfy the judgment award; and
(b) whether the UP’s prayer for the deletion of the awards of actual damages of ₱ 5,716,729.00, moral damages of
₱ 10,000,000.00 and attorney’s fees of ₱ 150,000.00 plus ₱ 1,500.00 per appearance could be granted despite the
finality of the judgment of the RTC.
Ruling
The petition for review is meritorious.
I.
UP’s funds, being government funds,
are not subject to garnishment
The UP was founded on June 18, 1908 through Act 1870 to provide advanced instruction in literature, philosophy,
the sciences, and arts, and to give professional and technical training to deserving students.63 Despite its
establishment as a body corporate,64 the UP remains to be a "chartered institution"65 performing a legitimate
government function. It is an institution of higher learning, not a corporation established for profit and declaring any
dividends.66 In enacting Republic Act No. 9500 (The University of the Philippines Charter of 2008), Congress has
declared the UP as the national university67 "dedicated to the search for truth and knowledge as well as the
development of future leaders."68
Irrefragably, the UP is a government instrumentality,69 performing the State’s constitutional mandate of promoting
quality and accessible education.70 As a government instrumentality, the UP administers special funds sourced from
the fees and income enumerated under Act No. 1870 and Section 1 of Executive Order No. 714, 71 and from the
yearly appropriations, to achieve the purposes laid down by Section 2 of Act 1870, as expanded in Republic Act
No. 9500.72 All the funds going into the possession of the UP, including any interest accruing from the deposit of
such funds in any banking institution, constitute a "special trust fund," the disbursement of which should always be
aligned with the UP’s mission and purpose,73 and should always be subject to auditing by the COA. 74
Presidential Decree No. 1445 defines a "trust fund" as a fund that officially comes in the possession of an agency of
the government or of a public officer as trustee, agent or administrator, or that is received for the fulfillment of some
obligation.75 A trust fund may be utilized only for the "specific purpose for which the trust was created or the funds
received."76
The funds of the UP are government funds that are public in character. They include the income accruing from the
use of real property ceded to the UP that may be spent only for the attainment of its institutional
objectives.77 Hence, the funds subject of this action could not be validly made the subject of the RTC’s writ of
execution or garnishment. The adverse judgment rendered against the UP in a suit to which it had impliedly
consented was not immediately enforceable by execution against the UP,78 because suability of the State did not
necessarily mean its liability.79
A marked distinction exists between suability of the State and its liability. As the Court succinctly stated in
Municipality of San Fernando, La Union v. Firme:80
A distinction should first be made between suability and liability. "Suability depends on the consent of the state to
be sued, liability on the applicable law and the established facts. The circumstance that a state is suable does not
necessarily mean that it is liable; on the other hand, it can never be held liable if it does not first consent to be sued.
Liability is not conceded by the mere fact that the state has allowed itself to be sued. When the state does waive its
sovereign immunity, it is only giving the plaintiff the chance to prove, if it can, that the defendant is liable.
Also, in Republic v. Villasor,81 where the issuance of an alias writ of execution directed against the funds of the
Armed Forces of the Philippines to satisfy a final and executory judgment was nullified, the Court said:
xxx The universal rule that where the State gives its consent to be sued by private parties either by general or
special law, it may limit claimant’s action "only up to the completion of proceedings anterior to the stage of
execution" and that the power of the Courts ends when the judgment is rendered, since government funds and
properties may not be seized under writs of execution or garnishment to satisfy such judgments, is based on
obvious considerations of public policy. Disbursements of public funds must be covered by the corresponding
appropriation as required by law. The functions and public services rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated by
law.
The UP correctly submits here that the garnishment of its funds to satisfy the judgment awards of actual and moral
damages (including attorney’s fees) was not validly made if there was no special appropriation by Congress to
cover the liability. It was, therefore, legally unwarranted for the CA to agree with the RTC’s holding in the order
issued on April 1, 2003 that no appropriation by Congress to allocate and set aside the payment of the judgment
awards was necessary because "there (were) already an appropriations (sic) earmarked for the said project."82 The
CA and the RTC thereby unjustifiably ignored the legal restriction imposed on the trust funds of the Government
and its agencies and instrumentalities to be used exclusively to fulfill the purposes for which the trusts were created
or for which the funds were received except upon express authorization by Congress or by the head of a
government agency in control of the funds, and subject to pertinent budgetary laws, rules and regulations.83
Indeed, an appropriation by Congress was required before the judgment that rendered the UP liable for moral and
actual damages (including attorney’s fees) would be satisfied considering that such monetary liabilities were not
covered by the "appropriations earmarked for the said project." The Constitution strictly mandated that "(n)o money
shall be paid out of the Treasury except in pursuance of an appropriation made by law."84
II
COA must adjudicate private respondents’ claim
before execution should proceed
The execution of the monetary judgment against the UP was within the primary jurisdiction of the COA. This was
expressly provided in Section 26 of Presidential Decree No. 1445, to wit:
Section 26. General jurisdiction. - The authority and powers of the Commission shall extend to and comprehend all
matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the
Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and
inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the
accounts of all persons respecting funds or property received or held by them in an accountable capacity, as well
as the examination, audit, and settlement of all debts and claims of any sort due from or owing to the Government
or any of its subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned or
controlled corporations, including their subsidiaries, and other self-governing boards, commissions, or agencies of
the Government, and as herein prescribed, including non governmental entities subsidized by the government,
those funded by donations through the government, those required to pay levies or government share, and those
for which the government has put up a counterpart fund or those partly funded by the government.
It was of no moment that a final and executory decision already validated the claim against the UP. The settlement
of the monetary claim was still subject to the primary jurisdiction of the COA despite the final decision of the RTC
having already validated the claim.85 As such, Stern Builders and dela Cruz as the claimants had no alternative
except to first seek the approval of the COA of their monetary claim.
On its part, the RTC should have exercised utmost caution, prudence and judiciousness in dealing with the motions
for execution against the UP and the garnishment of the UP’s funds. The RTC had no authority to direct the
immediate withdrawal of any portion of the garnished funds from the depository banks of the UP. By eschewing
utmost caution, prudence and judiciousness in dealing with the execution and garnishment, and by authorizing the
withdrawal of the garnished funds of the UP, the RTC acted beyond its jurisdiction, and all its orders and issuances
thereon were void and of no legal effect, specifically: (a) the order Judge Yadao issued on January 3, 2007 allowing
Stern Builders and dela Cruz to withdraw the deposited garnished amount; (b) the order Judge Yadao issued on
January 16, 2007 directing DBP to forthwith release the garnish amount to Stern Builders and dela Cruz; (c) the
sheriff’s report of January 17, 2007 manifesting the full satisfaction of the writ of execution; and (d) the order of April
10, 2007 deying the UP’s motion for the redeposit of the withdrawn amount. Hence, such orders and issuances
should be struck down without exception.
Nothing extenuated Judge Yadao’s successive violations of Presidential Decree No. 1445. She was aware of
Presidential Decree No. 1445, considering that the Court circulated to all judges its Administrative Circular No. 10-
2000,86 issued on October 25, 2000, enjoining them "to observe utmost caution, prudence and judiciousness in the
issuance of writs of execution to satisfy money judgments against government agencies and local government
units" precisely in order to prevent the circumvention of Presidential Decree No. 1445, as well as of the rules and
procedures of the COA, to wit:
In order to prevent possible circumvention of the rules and procedures of the Commission on Audit, judges
are hereby enjoined to observe utmost caution, prudence and judiciousness in the issuance of writs of
execution to satisfy money judgments against government agencies and local government units.
Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA 617, 625 1970), this
Court explicitly stated:
"The universal rule that where the State gives its consent to be sued by private parties either by general or special
law, it may limit claimant’s action ‘only up to the completion of proceedings anterior to the stage of execution’ and
that the power of the Court ends when the judgment is rendered, since government funds and properties may not
be seized under writs of execution or garnishment to satisfy such judgments, is based on obvious considerations of
public policy. Disbursements of public funds must be covered by the corresponding appropriation as required by
law. The functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the
diversion of public funds from their legitimate and specific objects, as appropriated by law.
Moreover, it is settled jurisprudence that upon determination of State liability, the prosecution,
enforcement or satisfaction thereof must still be pursued in accordance with the rules and procedures laid
down in P.D. No. 1445, otherwise known as the Government Auditing Code of the Philippines (Department
of Agriculture v. NLRC, 227 SCRA 693, 701-02 1993 citing Republic vs. Villasor, 54 SCRA 84 1973). All
money claims against the Government must first be filed with the Commission on Audit which must act
upon it within sixty days. Rejection of the claim will authorize the claimant to elevate the matter to the
Supreme Court on certiorari and in effect, sue the State thereby (P.D. 1445, Sections 49-50).
However, notwithstanding the rule that government properties are not subject to levy and execution unless
otherwise provided for by statute (Republic v. Palacio, 23 SCRA 899 1968; Commissioner of Public Highways v.
San Diego, supra) or municipal ordinance (Municipality of Makati v. Court of Appeals, 190 SCRA 206 1990), the
Court has, in various instances, distinguished between government funds and properties for public use and those
not held for public use. Thus, in Viuda de Tan Toco v. Municipal Council of Iloilo (49 Phil 52 1926, the Court ruled
that "where property of a municipal or other public corporation is sought to be subjected to execution to satisfy
judgments recovered against such corporation, the question as to whether such property is leviable or not is to be
determined by the usage and purposes for which it is held." The following can be culled from Viuda de Tan Toco v.
Municipal Council of Iloilo:
1. Properties held for public uses – and generally everything held for governmental purposes – are not
subject to levy and sale under execution against such corporation. The same rule applies to funds in the
hands of a public officer and taxes due to a municipal corporation.
2. Where a municipal corporation owns in its proprietary capacity, as distinguished from its public or government
capacity, property not used or used for a public purpose but for quasi-private purposes, it is the general rule that
such property may be seized and sold under execution against the corporation.
3. Property held for public purposes is not subject to execution merely because it is temporarily used for private
purposes. If the public use is wholly abandoned, such property becomes subject to execution.
This Administrative Circular shall take effect immediately and the Court Administrator shall see to it that it is
faithfully implemented.
Although Judge Yadao pointed out that neither the CA nor the Court had issued as of then any writ of preliminary
injunction to enjoin the release or withdrawal of the garnished amount, she did not need any writ of injunction from
a superior court to compel her obedience to the law. The Court is disturbed that an experienced judge like her
should look at public laws like Presidential Decree No. 1445 dismissively instead of loyally following and
unquestioningly implementing them. That she did so turned her court into an oppressive bastion of mindless
tyranny instead of having it as a true haven for the seekers of justice like the UP.
III
Period of appeal did not start without effective
service of decision upon counsel of record;
Fresh-period rule announced in
Neypes v. Court of Appeals
can be given retroactive application
The UP next pleads that the Court gives due course to its petition for review in the name of equity in order to
reverse or modify the adverse judgment against it despite its finality. At stake in the UP’s plea for equity was the
return of the amount of ₱ 16,370,191.74 illegally garnished from its trust funds. Obstructing the plea is the finality of
the judgment based on the supposed tardiness of UP’s appeal, which the RTC declared on September 26, 2002.
The CA upheld the declaration of finality on February 24, 2004, and the Court itself denied the UP’s petition for
review on that issue on May 11, 2004 (G.R. No. 163501). The denial became final on November 12, 2004.
It is true that a decision that has attained finality becomes immutable and unalterable, and cannot be modified in
any respect,87 even if the modification is meant to correct erroneous conclusions of fact and law, and whether the
modification is made by the court that rendered it or by this Court as the highest court of the land. 88 Public policy
dictates that once a judgment becomes final, executory and unappealable, the prevailing party should not be
deprived of the fruits of victory by some subterfuge devised by the losing party. Unjustified delay in the enforcement
of such judgment sets at naught the role and purpose of the courts to resolve justiciable controversies with
finality.89Indeed, all litigations must at some time end, even at the risk of occasional errors.
But the doctrine of immutability of a final judgment has not been absolute, and has admitted several exceptions,
among them: (a) the correction of clerical errors; (b) the so-called nunc pro tunc entries that cause no prejudice to
any party; (c) void judgments; and (d) whenever circumstances transpire after the finality of the decision that render
its execution unjust and inequitable.90 Moreover, in Heirs of Maura So v. Obliosca,91 we stated that despite the
absence of the preceding circumstances, the Court is not precluded from brushing aside procedural norms if only to
serve the higher interests of justice and equity. Also, in Gumaru v. Quirino State College, 92 the Court nullified the
proceedings and the writ of execution issued by the RTC for the reason that respondent state college had not been
represented in the litigation by the Office of the Solicitor General.
We rule that the UP’s plea for equity warrants the Court’s exercise of the exceptional power to disregard the
declaration of finality of the judgment of the RTC for being in clear violation of the UP’s right to due process.
Both the CA and the RTC found the filing on June 3, 2002 by the UP of the notice of appeal to be tardy. They
based their finding on the fact that only six days remained of the UP’s reglementary 15-day period within which to
file the notice of appeal because the UP had filed a motion for reconsideration on January 16, 2002 vis-à-vis the
RTC’s decision the UP received on January 7, 2002; and that because the denial of the motion for reconsideration
had been served upon Atty. Felimon D. Nolasco of the UPLB Legal Office on May 17, 2002, the UP had only until
May 23, 2002 within which to file the notice of appeal.
The UP counters that the service of the denial of the motion for reconsideration upon Atty. Nolasco was defective
considering that its counsel of record was not Atty. Nolasco of the UPLB Legal Office but the OLS in Diliman,
Quezon City; and that the period of appeal should be reckoned from May 31, 2002, the date when the OLS
received the order. The UP submits that the filing of the notice of appeal on June 3, 2002 was well within the
reglementary period to appeal.
We agree with the submission of the UP.
Firstly, the service of the denial of the motion for reconsideration upon Atty. Nolasco of the UPLB Legal Office was
invalid and ineffectual because he was admittedly not the counsel of record of the UP. The rule is that it is on the
counsel and not the client that the service should be made.93
That counsel was the OLS in Diliman, Quezon City, which was served with the denial only on May 31, 2002. As
such, the running of the remaining period of six days resumed only on June 1, 2002, 94 rendering the filing of the
UP’s notice of appeal on June 3, 2002 timely and well within the remaining days of the UP’s period to appeal.
Verily, the service of the denial of the motion for reconsideration could only be validly made upon the OLS in
Diliman, and no other. The fact that Atty. Nolasco was in the employ of the UP at the UPLB Legal Office did not
render the service upon him effective. It is settled that where a party has appeared by counsel, service must be
made upon such counsel.95 Service on the party or the party’s employee is not effective because such notice is not
notice in law.96 This is clear enough from Section 2, second paragraph, of Rule 13, Rules of Court, which explicitly
states that: "If any party has appeared by counsel, service upon him shall be made upon his counsel or one of
them, unless service upon the party himself is ordered by the court. Where one counsel appears for several parties,
he shall only be entitled to one copy of any paper served upon him by the opposite side." As such, the period to
appeal resumed only on June 1, 2002, the date following the service on May 31, 2002 upon the OLS in Diliman of
the copy of the decision of the RTC, not from the date when the UP was notified.97
Accordingly, the declaration of finality of the judgment of the RTC, being devoid of factual and legal bases, is set
aside.
Secondly, even assuming that the service upon Atty. Nolasco was valid and effective, such that the remaining
period for the UP to take a timely appeal would end by May 23, 2002, it would still not be correct to find that the
judgment of the RTC became final and immutable thereafter due to the notice of appeal being filed too late on June
3, 2002.
In so declaring the judgment of the RTC as final against the UP, the CA and the RTC applied the rule contained in
the second paragraph of Section 3, Rule 41 of the Rules of Court to the effect that the filing of a motion for
reconsideration interrupted the running of the period for filing the appeal; and that the period resumed upon notice
of the denial of the motion for reconsideration. For that reason, the CA and the RTC might not be taken to task for
strictly adhering to the rule then prevailing.
However, equity calls for the retroactive application in the UP’s favor of the fresh-period rule that the Court first
announced in mid-September of 2005 through its ruling in Neypes v. Court of Appeals, 98 viz:
To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity to appeal their cases,
the Court deems it practical to allow a fresh period of 15 days within which to file the notice of appeal in the
Regional Trial Court, counted from receipt of the order dismissing a motion for a new trial or motion for
reconsideration.
The retroactive application of the fresh-period rule, a procedural law that aims "to regiment or make the appeal
period uniform, to be counted from receipt of the order denying the motion for new trial, motion for reconsideration
(whether full or partial) or any final order or resolution," 99 is impervious to any serious challenge. This is because
there are no vested rights in rules of procedure. 100 A law or regulation is procedural when it prescribes rules and
forms of procedure in order that courts may be able to administer justice.101 It does not come within the legal
conception of a retroactive law, or is not subject of the general rule prohibiting the retroactive operation of statues,
but is given retroactive effect in actions pending and undetermined at the time of its passage without violating any
right of a person who may feel that he is adversely affected.
We have further said that a procedural rule that is amended for the benefit of litigants in furtherance of the
administration of justice shall be retroactively applied to likewise favor actions then pending, as equity delights in
equality.102 We may even relax stringent procedural rules in order to serve substantial justice and in the exercise of
this Court’s equity jurisdiction.103 Equity jurisdiction aims to do complete justice in cases where a court of law is
unable to adapt its judgments to the special circumstances of a case because of the inflexibility of its statutory or
legal jurisdiction.104
It is cogent to add in this regard that to deny the benefit of the fresh-period rule to the UP would amount to injustice
and absurdity – injustice, because the judgment in question was issued on November 28, 2001 as compared to the
judgment in Neypes that was rendered in 1998; absurdity, because parties receiving notices of judgment and final
orders issued in the year 1998 would enjoy the benefit of the fresh-period rule but the later rulings of the lower
courts like that herein would not.105
Consequently, even if the reckoning started from May 17, 2002, when Atty. Nolasco received the denial, the UP’s
filing on June 3, 2002 of the notice of appeal was not tardy within the context of the fresh-period rule. For the UP,
the fresh period of 15-days counted from service of the denial of the motion for reconsideration would end on June
1, 2002, which was a Saturday. Hence, the UP had until the next working day, or June 3, 2002, a Monday, within
which to appeal, conformably with Section 1 of Rule 22, Rules of Court, which holds that: "If the last day of the
period, as thus computed, falls on a Saturday, a Sunday, or a legal holiday in the place where the court sits, the
time shall not run until the next working day."
IV
Awards of monetary damages,
being devoid of factual and legal bases,
did not attain finality and should be deleted
Section 14 of Article VIII of the Constitution prescribes that express findings of fact and of law should be made in
the decision rendered by any court, to wit:
Section 14. No decision shall be rendered by any court without expressing therein clearly and distinctly the facts
and the law on which it is based.
No petition for review or motion for reconsideration of a decision of the court shall be refused due course or denied
without stating the legal basis therefor.
Implementing the constitutional provision in civil actions is Section 1 of Rule 36, Rules of Court, viz:
Section 1. Rendition of judgments and final orders. — A judgment or final order determining the merits of the case
shall be in writing personally and directly prepared by the judge, stating clearly and distinctly the facts and the law
on which it is based, signed by him, and filed with the clerk of the court. (1a)
The Constitution and the Rules of Court apparently delineate two main essential parts of a judgment, namely: the
body and the decretal portion. Although the latter is the controlling part, 106 the importance of the former is not to be
lightly regarded because it is there where the court clearly and distinctly states its findings of fact and of law on
which the decision is based. To state it differently, one without the other is ineffectual and useless. The omission of
either inevitably results in a judgment that violates the letter and the spirit of the Constitution and the Rules of
Court.
The term findings of fact that must be found in the body of the decision refers to statements of fact, not to
conclusions of law.107 Unlike in pleadings where ultimate facts alone need to be stated, the Constitution and the
Rules of Court require not only that a decision should state the ultimate facts but also that it should specify the
supporting evidentiary facts, for they are what are called the findings of fact.
The importance of the findings of fact and of law cannot be overstated. The reason and purpose of the Constitution
and the Rules of Court in that regard are obviously to inform the parties why they win or lose, and what their rights
and obligations are. Only thereby is the demand of due process met as to the parties. As Justice Isagani A. Cruz
explained in Nicos Industrial Corporation v. Court of Appeals:108
It is a requirement of due process that the parties to a litigation be informed of how it was decided, with an
explanation of the factual and legal reasons that led to the conclusions of the court. The court cannot simply say
that judgment is rendered in favor of X and against Y and just leave it at that without any justification whatsoever for
its action. The losing party is entitled to know why he lost, so he may appeal to a higher court, if permitted, should
he believe that the decision should be reversed. A decision that does not clearly and distinctly state the facts and
the law on which it is based leaves the parties in the dark as to how it was reached and is especially prejudicial to
the losing party, who is unable to pinpoint the possible errors of the court for review by a higher tribunal.
Here, the decision of the RTC justified the grant of actual and moral damages, and attorney’s fees in the following
terse manner, viz:
xxx The Court is not unmindful that due to defendants’ unjustified refusal to pay their outstanding obligation to
plaintiff, the same suffered losses and incurred expenses as he was forced to re-mortgage his house and lot
located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay its monetary obligations in the form of
interest and penalties incurred in the course of the construction of the subject project. 109
The statement that "due to defendants’ unjustified refusal to pay their outstanding obligation to plaintiff, the same
suffered losses and incurred expenses as he was forced to re-mortgage his house and lot located in Quezon City to
Metrobank (Exh. "CC") and BPI Bank just to pay its monetary obligations in the form of interest and penalties
incurred in the course of the construction of the subject project" was only a conclusion of fact and law that did not
comply with the constitutional and statutory prescription. The statement specified no detailed expenses or losses
constituting the ₱ 5,716,729.00 actual damages sustained by Stern Builders in relation to the construction project or
to other pecuniary hardships. The omission of such expenses or losses directly indicated that Stern Builders did not
prove them at all, which then contravened Article 2199, Civil Code, the statutory basis for the award of actual
damages, which entitled a person to an adequate compensation only for such pecuniary loss suffered by him as he
has duly proved. As such, the actual damages allowed by the RTC, being bereft of factual support, were
speculative and whimsical. Without the clear and distinct findings of fact and law, the award amounted only to an
ipse dixit on the part of the RTC,110 and did not attain finality.
There was also no clear and distinct statement of the factual and legal support for the award of moral damages in
the substantial amount of ₱ 10,000,000.00. The award was thus also speculative and whimsical. Like the actual
damages, the moral damages constituted another judicial ipse dixit, the inevitable consequence of which was to
render the award of moral damages incapable of attaining finality. In addition, the grant of moral damages in that
manner contravened the law that permitted the recovery of moral damages as the means to assuage "physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury."111 The contravention of the law was manifest considering that Stern Builders, as an
artificial person, was incapable of experiencing pain and moral sufferings. 112 Assuming that in granting the
substantial amount of ₱ 10,000,000.00 as moral damages, the RTC might have had in mind that dela Cruz had
himself suffered mental anguish and anxiety. If that was the case, then the RTC obviously disregarded his separate
and distinct personality from that of Stern Builders.113 Moreover, his moral and emotional sufferings as the
President of Stern Builders were not the sufferings of Stern Builders. Lastly, the RTC violated the basic principle
that moral damages were not intended to enrich the plaintiff at the expense of the defendant, but to restore the
plaintiff to his status quo ante as much as possible. Taken together, therefore, all these considerations exposed the
substantial amount of ₱ 10,000,000.00 allowed as moral damages not only to be factually baseless and legally
indefensible, but also to be unconscionable, inequitable and unreasonable.
Like the actual and moral damages, the ₱ 150,000.00, plus ₱ 1,500.00 per appearance, granted as attorney’s fees
were factually unwarranted and devoid of legal basis. The general rule is that a successful litigant cannot recover
attorney’s fees as part of the damages to be assessed against the losing party because of the policy that no
premium should be placed on the right to litigate.114 Prior to the effectivity of the present Civil Code, indeed, such
fees could be recovered only when there was a stipulation to that effect. It was only under the present Civil Code
that the right to collect attorney’s fees in the cases mentioned in Article 2208 115 of the Civil Code came to be
recognized.116 Nonetheless, with attorney’s fees being allowed in the concept of actual damages, 117 their amounts
must be factually and legally justified in the body of the decision and not stated for the first time in the decretal
portion.118 Stating the amounts only in the dispositive portion of the judgment is not enough; 119 a rendition of the
factual and legal justifications for them must also be laid out in the body of the decision. 120
That the attorney’s fees granted to the private respondents did not satisfy the foregoing requirement suffices for the
Court to undo them.121 The grant was ineffectual for being contrary to law and public policy, it being clear that the
express findings of fact and law were intended to bring the case within the exception and thereby justify the award
of the attorney’s fees. Devoid of such express findings, the award was a conclusion without a premise, its basis
being improperly left to speculation and conjecture.122
Nonetheless, the absence of findings of fact and of any statement of the law and jurisprudence on which the
awards of actual and moral damages, as well as of attorney’s fees, were based was a fatal flaw that invalidated the
decision of the RTC only as to such awards. As the Court declared in Velarde v. Social Justice Society,123 the
failure to comply with the constitutional requirement for a clear and distinct statement of the supporting facts and
law "is a grave abuse of discretion amounting to lack or excess of jurisdiction" and that "(d)ecisions or orders issued
in careless disregard of the constitutional mandate are a patent nullity and must be struck down as void." 124 The
other item granted by the RTC (i.e., ₱ 503,462.74) shall stand, subject to the action of the COA as stated herein.
WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS ASIDE the decision
of the Court of Appeals under review; ANNULS the orders for the garnishment of the funds of the University of the
Philippines and for the release of the garnished amount to Stern Builders Corporation and Servillano dela Cruz;
and DELETES from the decision of the Regional Trial Court dated November 28, 2001 for being void only the
awards of actual damages of ₱ 5,716,729.00, moral damages of ₱ 10,000,000.00, and attorney's fees of ₱
150,000.00, plus ₱ 1,500.00 per appearance, in favor of Stern Builders Corporation and Servillano dela Cruz.
The Court ORDERS Stem Builders Corporation and Servillano dela Cruz to redeposit the amount of ₱
16,370,191.74 within 10 days from receipt of this decision.
Costs of suit to be paid by the private respondents.
SO ORDERED.

MANILA INTERNATIONAL AIRPORT AUTHORITY vs. COURT OF APPEALS


G.R. No. 155650 July 20, 2006

D E C I S I ON
The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport
(NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the
Manila International Airport Authority (MIAA Charter). Executive Order No. 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909[1] and 298[2] amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the
NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, [3] including the runways
and buildings (Airport Lands and Buildings) then under the Bureau of Air Transportation. [4] The MIAA Charter
further provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode
unless specifically approved by the President of the Philippines.[5]

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The
OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to
MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the
real estate tax imposed by the City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City
of Paraaque for the taxable years 1992 to 2001. MIAAs real estate tax delinquency is broken down as follows:

TAX TAXABLEYEAR TAX DUE PENALTY TOTAL


DECLARATION
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.00[6]

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on
the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction
the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a
clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC
pointed out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show
proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from
real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction,
with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City
of Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and
Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-
day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAAs motion for
reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present
petition for review.[7]

Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls
of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the
main lobby of the Paraaque City Hall. The City of Paraaque published the notices in the 3 and 10 January
2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The notices
announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February
2003, 10:00 a.m., at the Legislative Session Hall Building of Paraaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-
Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain
respondents the City of Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City
Treasurer of Paraaque, and the City Assessor of Paraaque (respondents) from auctioning the Airport Lands and
Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The
Court ordered respondents to cease and desist from selling at public auction the Airport Lands and
Buildings. Respondents received the TRO on the same day that the Court issued it. However, respondents
received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the
hearing, MIAA, respondent City of Paraaque, and the Solicitor General subsequently submitted their respective
Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of
MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of
the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote
the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are
devoted to public use and public service, the ownership of these properties remains with the
State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local
governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of
real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government
Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes
the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public
property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the
tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption
privileges of government-owned and-controlled corporationsupon the effectivity of the Local Government
Code. Respondents also argue that a basic rule of statutory construction is that the express mention of one person,
thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of
the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings
are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos[8] where we held
that the Local Government Code has withdrawn the exemption from real estate tax granted to international
airports. Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is
now estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax.

The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt
from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City
of Paraaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues
raised in this petition become moot.

The Courts Ruling

We rule that MIAAs Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from
real estate tax. Respondents claim that the deletion of the phrase any government-owned or controlled so exempt
by its charter in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of
government-owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real
Property Tax Code enumerating the entities exempt from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax.
However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory
Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a


stock or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be organized as a stock or non-stock
corporation. MIAA is not organized as a stock or non-stock corporation.MIAA is not a stock corporation because it
has no capital stock divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA
Charter[9] provides:

SECTION 10. Capital. The capital of the Authority to be contributed by the National
Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten
Billion (P10,000,000,000.00) Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such
other properties, movable and immovable[,] which may be contributed by the National Government
or transferred by it from any of its agencies, the valuation of which shall be determined jointly with
the Department of Budget and Management and the Commission on Audit on the date of such
contribution or transfer after making due allowances for depreciation and other deductions taking
into account the loans and other liabilities of the Authority at the time of the takeover of the assets
and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about
seventy percentum (70%) of the unremitted share of the National Government from 1983 to 1986
to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as amended,
shall be converted into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in the General
Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code[10] defines a stock corporation as one whose capital stock is divided
into shares and x x x authorized to distribute to the holders of such shares dividends x x x. MIAA has
capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a
stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code
defines a non-stock corporation as one where no part of its income is distributable as dividends to its members,
trustees or officers. A non-stock corporation must have members. Even if we assume that the Government is
considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations
cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to
remit 20% of its annual gross operating income to the National Treasury. [11] This prevents MIAA from qualifying as a
non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers. MIAA is not organized for any of these
purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned
or controlled corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is
vested with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government instrumentality as follows:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not become
a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain,[12] police authority[13] and the levying of fees and charges.[14] At the same
time, MIAA exercises all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order.[15]

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality
remains part of the National Government machinery although not integrated with the department framework. The
MIAA Charter expressly states that transforming MIAA into a separate and autonomous body [16] will make its
operation more financially viable.[17]

Many government instrumentalities are vested with corporate powers but they do not become stock or non-
stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-
owned or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports
Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities
exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section
2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes
loosely called government corporate entities. However, they are not government-owned or controlled corporations
in the strict sense as understood under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which
states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities and local government units. (Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may only exercise such power subject to
such guidelines and limitations as the Congress may provide. [18]

When local governments invoke the power to tax on national government instrumentalities, such power is
construed strictly against local governments. The rule is that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax national government
instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government instrumentality from local
taxation, such exemption is construed liberally in favor of the national government instrumentality. As this Court
declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of
the government itself or its agencies. In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course of its operations.
For these reasons, provisions granting exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.[19]
There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering
essential public services to inhabitants of local governments. The only exception is when the legislature clearly
intended to tax government instrumentalities for the delivery of essential public services for sound and
compelling policy considerations. There must be express language in the law empowering local governments to
tax national government instrumentalities. Any doubt whether such power exists is resolved against local
governments.

Thus, Section 133 of the Local Government Code states that unless otherwise provided in the Code,
local governments cannot tax national government instrumentalities.As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:

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. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the supremacy of the National Government over local
governments.

Justice Holmes, speaking for the Supreme Court, made reference to the
entire absence of power on the part of the States to touch, in that way (taxation) at
least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51)
and it can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them.
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, 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. [20]

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the
State or the Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for
public service, shall form part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code,
like roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned by the State. The
term ports includes seaports and airports. The MIAA Airport Lands and Buildings constitute a port constructed
by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public
dominion and thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of the Airport Lands and Buildings as properties for public
use. The operation by the government of a tollway does not change the character of the road as one for public
use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the
government, or only those among the public who actually use the road through the toll fees they pay upon using the
road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of
public roads.

The charging of fees to the public does not determine the character of the property whether it is of public
dominion or not. Article 420 of the Civil Code defines property of public dominion as one intended for public
use. Even if the government collects toll fees, the road is still intended for public use if anyone can use the road
under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of
vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the
public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the
bulk of the income that maintains the operations of MIAA.The collection of such fees does not change the character
of MIAA as an airport for public use. Such fees are often termed users tax. This means taxing those among the
public who actually use a public facility instead of taxing all the public including those who never use the particular
public facility. A users tax is more equitable a principle of taxation mandated in the 1987 Constitution.[21]
The Airport Lands and Buildings of MIAA, which its Charter calls the principal airport of the Philippines for both
international and domestic air traffic,[22] are properties of public dominion because they are intended for public
use. As properties of public dominion, they indisputably belong to the State or the Republic of the
Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public
dominion. As properties of public dominion, the Airport Landsand Buildings are outside the commerce of
man. The Court has ruled repeatedly that properties of public dominion are outside the commerce of man. As early
as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are
outside the commerce of man, thus:

According to article 344 of the Civil Code: Property for public use in provinces and in towns
comprises the provincial and town roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service supported by said towns or provinces.

The said Plaza Soledad being a promenade for public use, the municipal council
of Cavite could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it
for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place
to the defendant for private use the plaintiff municipality exceeded its authority in the exercise of its
powers by executing a contract over a thing of which it could not dispose, nor is it empowered so to
do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce
of man may be the object of a contract, and plazas and streets are outside of this commerce, as
was decided by the supreme court of Spain in its decision of February 12, 1895, which
says: Communal things that cannot be sold because they are by their very nature outside of
commerce are those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc. (Emphasis supplied) [23]

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside
the commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to
be made available to the public in general. They are outside the commerce of man and cannot
be disposed of or even leased by the municipality to private parties. While in case of war or during
an emergency, town plazas may be occupied temporarily by private individuals, as was done and
as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said
temporary occupation or use must also cease, and the town officials should see to it that the town
plazas should ever be kept open to the public and free from encumbrances or illegal private
constructions.[24] (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the
subject of an auction sale.[25]

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition
through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public
dominion is void for being contrary to public policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can
foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber[26] the Airport Lands and Buildings, the President must first withdraw from
public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No.
141, which remains to this day the existing general law governing the classification and disposition of lands of the
public domain other than timber and mineral lands,[27] provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
Resources, the President may designate by proclamation any tract or tracts of land of the public
domain as reservations for the use of the Republic of the Philippines or of any of its branches, or of
the inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-
public uses or purposes when the public interest requires it, including reservations for highways,
rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures
or lequas communales, public parks, public quarries, public fishponds, working mens village and
other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section
eighty-three shall be non-alienable and shall not be subject to occupation, entry, sale, lease,
or other disposition until again declared alienable under the provisions of this Act or by
proclamation of the President. (Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use,
these properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings
are inalienable in their present status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains
with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such
public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the
Government. (1) The President shall have the power to reserve for settlement or public use,
and for specific public purposes, any of the lands of the public domain, the use of which is
not otherwise directed by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the
commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter
12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties
owned by the Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be executed in
behalf of the government by the following:

(1) For property belonging to and titled in the name of the Republic of the Philippines, by
the President, unless the authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of
any political subdivision or of any corporate agency or instrumentality, by the executive head
of the agency or instrumentality. (Emphasis supplied)

In MIAAs case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its
executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic
can sign such deed of conveyance.[28]

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the
Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA Charter
provides:

SECTION 3. Creation of the Manila International Airport Authority. x x x x


The land where the Airport is presently located as well as the surrounding land area
of approximately six hundred hectares, are hereby transferred, conveyed and assigned to
the ownership and administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall undertake an actual survey of
the area transferred within one year from the promulgation of this Executive Order and the
corresponding title to be issued in the name of the Authority. Any portion thereof shall not be
disposed through sale or through any other mode unless specifically approved by the
President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public
airport facilities, runways, lands, buildings and other property, movable or immovable,
belonging to the Airport, and all assets, powers, rights, interests and privileges belonging to the
Bureau of Air Transportation relating to airport works or air operations, including all equipment
which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to
the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air
Transportation and Transitory Provisions. The Manila International Airport including
the Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby
abolished.
x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to
MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for
both international and domestic air traffic, is required to provide standards of airport
accommodation and service comparable with the best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be
upgraded to meet the current and future air traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing
high standards of accommodation and service within the context of a financially viable
operation, will best be achieved by a separate and autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772,
the President of the Philippines is given continuing authority to reorganize the National
Government, which authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not
meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely
to reorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The
Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the
Republic. No party claims any ownership rights over MIAAs assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings shall not be disposed through
sale or through any other mode unless specifically approved by the President of the Philippines. This only
means that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article
428 of the Civil Code, only the owner has the right to x x x dispose of a thing. Since MIAA cannot dispose of
the Airport Lands and Buildings, MIAA does not own the AirportLands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without
the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one
who can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that
the Airport Lands and Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable


Section 234(a) of the Local Government Code exempts from real estate tax any [r]eal property owned by
the Republic of the Philippines. Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person;

x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local
governments from imposing [t]axes, fees or charges of any kind on the National Government, its agencies
and instrumentalities x x x. The real properties owned by the Republic are titled either in the name of the Republic
itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows
real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national
government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic loses its
tax exemption only if the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person. MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of
the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt
from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is
subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration
to a taxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines
v. Quezon City, the Court ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those
parts of the hospital leased to private individuals are not exempt from such taxes. On the other
hand, the portions of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes.[29]

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local
Government Code of 1991 withdrew the tax exemption of all persons, whether natural or juridical upon the
effectivity of the Code. Section 193 provides:

SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local
Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate
tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the
withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the
provisions lay down the explicit proposition that the withdrawal of realty tax exemption applies to all
persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit
provision.

The term All persons encompasses the two classes of persons recognized under
our laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical
person at all. (Emphasis and underscoring in the original)

The minority posits that the determinative test whether MIAA is exempt from local taxation is its
status whether MIAA is a juridical person or not. The minority also insists that Sections 193 and 234 may be
examined in isolation from Section 133(o) to ascertain MIAAs claim of exemption.
The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly
withdrew the tax exemption of all juridical persons [u]nlessotherwise provided in this Code. Now, Section 133(o)
of the Local Government Code expressly provides otherwise, specifically prohibiting local governments from
imposing any kind of tax on national government instrumentalities. Section 133(o) states:

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


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

xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies
and instrumentalities, and local government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of
tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax the
national government, its agencies and instrumentalities. The taxing powers of local governments do not extend
to the national government, its agencies and instrumentalities, [u]nless otherwise provided in this Code as stated in
the saving clause of Section 133. The saving clause refers to Section 234(a) on the exception to the exemption
from real estate tax of real property owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are
subject to tax by local governments. The minority insists that the juridical persons exempt from local taxation
are limited to the three classes of entities specifically enumerated as exempt in Section 193. Thus, the
minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives
duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and
educational institutions. It would be belaboring the obvious why the MIAA does not fall within any
of the exempt entities under Section 193. (Emphasis supplied)

The minoritys theory directly contradicts and completely negates Section 133(o) of the Local Government
Code. This theory will result in gross absurdities. It will make the national government, which itself is a juridical
person, subject to tax by local governments since the national government is not included in the enumeration of
exempt entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not
only real estate tax, on the national government.

Under the minoritys theory, many national government instrumentalities with juridical personalities will also
be subject to any kind of local tax, and not only real estate tax. Some of the national government
instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas,[30] Philippine Rice Research Institute,[31]Laguna Lake
Development Authority,[32] Fisheries Development Authority,[33] Bases Conversion Development
Authority,[34] Philippine Ports Authority,[35] Cagayan de Oro Port Authority,[36] San Fernando Port
Authority,[37] Cebu Port Authority,[38] and Philippine National Railways.[39]

The minoritys theory violates Section 133(o) of the Local Government Code which expressly prohibits local
governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not
distinguish between national government instrumentalities with or without juridical personalities. Where the
law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local
taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local
governments from imposing any kind of tax on the national government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause [u]nless otherwise provided in this
Code. This means that unless the Local Government Code grants an express authorization, local governments
have no power to tax the national government, its agencies and instrumentalities. Clearly, the rule is local
governments have no power to tax the national government, its agencies and instrumentalities. As an exception to
this rule, local governments may tax the national government, its agencies and instrumentalities only if the Local
Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code,
which makes the national government subject to real estate tax when it gives the beneficial use of its real
properties to a taxable entity. Section 234(a) of the Local Government Code provides:

SEC. 234. Exemptions from Real Property Tax The following are exempted from
payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person.

x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local governments. The
exception to the exemption applies only to real estate tax and not to any other tax. The justification for the
exception to the exemption is that the real property, although owned by the Republic, is not devoted to public use or
public service but devoted to the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the
later provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted
rule of construction, in case of conflict the subsequent provisions should prevail. Therefore,
MIAA, as a juridical person, is subject to real property taxes, the general exemptions attaching to
instrumentalities under Section 133(o) of the Local Government Code being qualified by Sections
193 and 234 of the same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and
Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any one
presented a persuasive argument that there is such a conflict. The minoritys assumption of an irreconcilable conflict
in the statutory provisions is an egregious error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly
admits its subordination to other provisions of the Code when Section 193 states [u]nless otherwise
provided in this Code. By its own words, Section 193 admits the superiority of other provisions of the Local
Government Code that limit the exercise of the taxing power in Section 193. When a provision of law grants a
power but withholds such power on certain matters, there is no conflict between the grant of power and the
withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from its
power.

Second, Section 133 is entitled Common Limitations on the Taxing Powers of Local Government
Units. Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a
delegated power to tax. Section 133 states that the taxing powers of local governments shall not extend to the
levy of any kind of tax on the national government, its agencies and instrumentalities. There is no clearer limitation
on the taxing power than this.

Since Section 133 prescribes the common limitations on the taxing powers of local governments, Section
133 logically prevails over Section 193 which grants local governments such taxing powers. By their very
meaning and purpose, the common limitations on the taxing power prevail over the grant or exercise of the
taxing power.If the taxing power of local governments in Section 193 prevails over the limitations on such taxing
power in Section 133, then local governments can impose any kind of tax on the national government, its agencies
and instrumentalities a gross absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities,
except as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating
[u]nless otherwise provided in this Code. This exception which is an exception to the exemption of the Republic
from real estate tax imposed by local governments refers to Section 234(a) of the Code. The exception to the
exemption in Section 234(a) subjects real property owned by the Republic, whether titled in the name of the
national government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property is
given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase government-owned or
controlled corporation is not controlling. The minority points out that Section 2 of the Introductory Provisions of the
Administrative Code admits that its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a
whole, or a particular statute, shall require a different meaning:

xxxx

The minority then concludes that reliance on the Administrative Code definition is flawed.

The minoritys argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may
require a different meaning than that defined in the Administrative Code. However, this does not automatically
mean that the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that unless the specific words x x x of a particular statute shall require a
different meaning, the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific
language in the Local Government Code defining the phrase government-owned or controlled corporation
differently from the definition in the Administrative Code, the definition in the Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase government-owned
or controlled corporation differently from the definition in the Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase government-owned or controlled
corporation. The Administrative Code, however, expressly defines the phrase government-owned or controlled
corporation. The inescapable conclusion is that the Administrative Code definition of the phrase government-owned
or controlled corporation applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code incorporates in a unified document
the major structural, functional and procedural principles and rules of governance. Thus, the Administrative
Code is the governing law defining the status and relationship of government departments, bureaus, offices,
agencies and instrumentalities. Unless a statute expressly provides for a different status and relationship for a
specific government unit or entity, the provisions of the Administrative Code prevail.

The minority also contends that the phrase government-owned or controlled corporation should apply only to
corporations organized under the Corporation Code, the general incorporation law, and not to corporations created
by special charters. The minority sees no reason why government corporations with special charters should have a
capital stock.Thus, the minority declares:

I submit that the definition of government-owned or controlled corporations under the


Administrative Code refer to those corporations owned by the government or its instrumentalities
which are created not by legislative enactment, but formed and organized under the Corporation
Code through registration with the Securities and Exchange Commission. In short, these
are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure
for GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are
not empowered to declare dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It
will also result in gross absurdities.
First, the Administrative Code definition of the phrase government-owned or controlled corporation does not
distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does
not distinguish, courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized as
stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of
the Philippines. The special charter[40] of the Land Bank of the Philippines provides:

SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion
pesos, divided into seven hundred and eighty million common shares with a par value of
ten pesos each, which shall be fully subscribed by the Government, and one hundred and twenty
million preferred shares with a par value of ten pesos each, which shall be issued in accordance
with the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)

Likewise, the special charter[41] of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be
Five Billion Pesos to be divided into Fifty Million common shares with par value of P100 per
share. These shares are available for subscription by the National Government. Upon the
effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common
shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the
Government with the net asset values of the Bank remaining after the transfer of assets and
liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the
Philippine Crop Insurance Corporation,[42] Philippine International Trading Corporation,[43] and the Philippine
National Bank[44] before it was reorganized as a stock corporation under the Corporation Code. All these
government-owned corporations organized under special charters as stock corporations are subject to real estate
tax on real properties owned by them. To rule that they are not government-owned or controlled corporations
because they are not registered with the Securities and Exchange Commission would remove them from the reach
of Section 234 of the Local Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that
meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the
government-owned or controlled corporation must be established for the common good. The second condition is
that the government-owned or controlled corporation must meet the test of economic viability. Section 16,
Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability. (Emphasis and underscoring
supplied)

The Constitution expressly authorizes the legislature to create government-owned or controlled


corporations through special charters only if these entities are required to meet the twin conditions of common
good and economic viability. In other words, Congress has no power to create government-owned or
controlled corporations with special charters unless they are made to comply with the two conditions of
common good and economic viability. The test of economic viability applies only to government-owned or
controlled corporations that perform economic or commercial activities and need to compete in the market
place. Being essentially economic vehicles of the State for the common good meaning for economic development
purposes these government-owned or controlled corporations with special charters are usually organized as stock
corporations just like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or
public functions need not meet the test of economic viability.These instrumentalities perform essential public
services for the common good, services that every modern State must provide its citizens. These instrumentalities
need not be economically viable since the government may even subsidize their entire operations. These
instrumentalities are not the government-owned or controlled corporations referred to in Section 16, Article XII of
the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities
vested with corporate powers but performing essential governmental or public functions. Congress has plenary
authority to create government instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public services. However, when the legislature
creates through special charters corporations that perform economic or commercial activities, such entities known
as government-owned or controlled corporations must meet the test of economic viability because they compete in
the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and
similar government-owned or controlled corporations, which derive their income to meet operating expenses solely
from commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their own in the market place and
thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the
government creates a corporation, there is a sense in which this corporation becomes exempt from
the test of economic performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers money through new equity infusions
from the government and what is always invoked is the common good. That is the reason why this
year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all taxpayers money
which could have been relocated to agrarian reform, to social services like health and education, to
augment the salaries of grossly underpaid public employees. And yet this is all going down the
drain.

Therefore, when we insert the phrase ECONOMIC VIABILITY together with the common
good, this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from
the responsibility of meeting the market test so that they become viable. And so, Madam President,
I reiterate, for the committees consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of ECONOMIC VIABILITY OR THE ECONOMIC
TEST, together with the common good.[45]

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: ACommentary:
The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase in the interest of the common good and subject to the test of
economic viability. The addition includes the ideas that they must show capacity to function
efficiently in business and that they should not go into activities which the private sector
can do better. Moreover, economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in financial terms. [46] (Emphasis
supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate powers
and performing essential public services. The State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability of rendering such essential public service
does not excuse the State from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized essentially for
economic or commercial objectives, must meet the test of economic viability. These are the government-owned or
controlled corporations that are usually organized under their special charters as stock corporations, like the Land
Bank of the Philippines and the Development Bank of the Philippines. These are the government-owned or
controlled corporations, along with government-owned or controlled corporations organized under the Corporation
Code, that fall under the definition of government-owned or controlled corporations in Section 2(10) of the
Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to
compete in the market place. MIAA does not compete in the market place because there is no competing
international airport operated by the private sector. MIAA performs an essential public service as the primary
domestic and international airport of the Philippines. The operation of an international airport requires the presence
of personnel from the following government agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers,
screening out those without visas or travel documents, or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;

3. The quarantine office of the Department of Health, to enforce health measures against the spread of
infectious diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases
into the country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and
the escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to
enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises such as runway and buildings for the government
personnel, passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an international
airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives
its revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The
terminal fees that MIAA charges every passenger are regulatory or administrative fees [47] and not income from
commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code, which provides:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or
controlled corporation. Without a change in its capital structure, MIAA remains a government instrumentality under
Section 2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders
essential public services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of
the phrase government-owned or controlled corporations under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase government-owned or controlled
corporation as merely clarificatory or illustrative. This is fatal. The 1987 Constitution prescribes explicit conditions
for the creation of government-owned or controlled corporations. The Administrative Code defines what constitutes
a government-owned or controlled corporation. To belittle this phrase as clarificatory or illustrative is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the
Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation.
Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987
Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of
the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any
kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local
Government Code. Such exception applies only if the beneficial use of real property owned by the Republic is given
to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article
420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth. (Emphasis supplied)

The term ports x x x constructed by the State includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether intended
for public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties
of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate
tax under Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal
relation and status of government units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the
Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject
to [t]axes, fees or charges of any kind by local governments. The only exception is when MIAA leases its real
property to a taxable person as provided in Section 234(a) of the Local Government Code, in which case the
specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420
specifically mentions ports x x x constructed by the State, which includes public airports and seaports, as
properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic,
there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under
Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of public
dominion are not subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals
of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and
Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City
of Paraaque.We declare VOID all the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Paraaque on the Airport Lands and Buildings of the Manila International Airport
Authority, except for the portions that the Manila International Airport Authority has leased to private parties. We
also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila
International Airport Authority.

No costs.

SO ORDERED.
LOCKHEED DETECTIVE AND WATCHMAN AGENCY, INC. vs. UNIVERSITY OF THE PHILIPPINES
G.R. No. 185918 April 18, 2012
DECISION
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
assailing the August 20, 2008 Amended Decision[1] and December 23, 2008 Resolution[2] of the Court of Appeals
(CA) in CA-G.R. SP No. 91281.
The antecedent facts of the case are as follows:
Petitioner Lockheed Detective and Watchman Agency, Inc. (Lockheed) entered into a contract for security services
with respondent University of the Philippines (UP).
In 1998, several security guards assigned to UP filed separate complaints against Lockheed and UP for payment of
underpaid wages, 25% overtime pay, premium pay for rest days and special holidays, holiday pay, service
incentive leave pay, night shift differentials, 13th month pay, refund of cash bond, refund of deductions for the
Mutual Benefits Aids System (MBAS), unpaid wages from December 16-31, 1998, and attorneys fees.
On February 16, 2000, the Labor Arbiter rendered a decision as follows:
WHEREFORE, premises considered, respondents Lockheed Detective and Watchman Agency,
Inc. and UP as job contractor and principal, respectively, are hereby declared to be solidarily liable
to complainants for the following claims of the latter which are found meritorious.
Underpaid wages/salaries, premium pay for work on rest day and special holiday, holiday pay, 5
days service incentive leave pay, 13th month pay for 1998, refund of cash bond (deducted at
P50.00 per month from January to May 1996, P100.00 per month from June 1996 and P200.00
from November 1997), refund of deduction for Mutual Benefits Aids System at the rate of P50.00 a
month, and attorneys fees; in the total amount of P1,184,763.12 broken down as follows per
attached computation of the Computation and [E]xamination Unit of this Commission, which
computation forms part of this Decision:
1. JOSE SABALAS P77,983.62
2. TIRSO DOMASIAN 76,262.70
3. JUAN TAPEL 80,546.03
4. DINDO MURING 80,546.03
5. ALEXANDER ALLORDE 80,471.78
6. WILFREDO ESCOBAR 80,160.63
7. FERDINAND VELASQUEZ 78,595.53
8. ANTHONY GONZALES 76,869.97
9. SAMUEL ESCARIO 80,509.78
10. PEDRO FAILORINA 80,350.87
11. MATEO TANELA 70,590.58
12. JOB SABALAS 59,362.40
13. ANDRES DACANAYAN 77,403.73
14. EDDIE OLIVAR 77,403.73
P1,077,057.38
plus 10% attorneys fees 107,705.74
GRAND TOTAL AWARD P1,184,763.12
Third party respondent University of the Philippines is hereby declared to be liable to Third Party
Complainant and cross claimant Lockheed Detective and Watchman Agency for the unpaid
legislated salary increases of the latters security guards for the years 1996 to 1998, in the total
amount of P13,066,794.14, out of which amount the amounts due complainants here shall be paid.
The other claims are hereby DISMISSED for lack of merit (night shift differential and 13 th month
pay) or for having been paid in the course of this proceedings (salaries for December 15-31,
1997 in the amount of P40,140.44).
The claims of Erlindo Collado, Rogelio Banjao and Amor Banjao are hereby DISMISSED as
amicably settled for and in consideration of the amounts of P12,315.72, P12,271.77 and
P12,819.33, respectively.
SO ORDERED.[3]
Both Lockheed and UP appealed the Labor Arbiters decision. By Decision[4] dated April 12, 2002, the NLRC
modified the Labor Arbiters decision. The NLRC held:
WHEREFORE, the decision appealed from is hereby modified as follows:
1. Complainants claims for premium pay for work on rest day and special holiday, and 5
days service incentive leave pay, are hereby dismissed for lack of basis.
2. The respondent University of the Philippines is still solidarily liable with Lockheed in
the payment of the rest of the claims covering the period of their service contract.
The Financial Analyst is hereby ordered to recompute the awards of the complainants in
accordance with the foregoing modifications.
SO ORDERED.[5]
The complaining security guards and UP filed their respective motions for reconsideration. On August 14, 2002,
however, the NLRC denied said motions.
As the parties did not appeal the NLRC decision, the same became final and executory on October 26, 2002.[6] A
writ of execution was then issued but later quashed by the Labor Arbiter on November 23, 2003 on motion of UP
due to disputes regarding the amount of the award. Later, however, said order quashing the writ was reversed by
the NLRC by Resolution[7] dated June 8, 2004, disposing as follows:
WHEREFORE, premises considered, we grant this instant appeal. The Order dated 23 November
2003 is hereby reversed and set aside. The Labor Arbiter is directed to issue a Writ of Execution
for the satisfaction of the judgment award in favor of Third-Party complainants.
SO ORDERED.[8]
UP moved to reconsider the NLRC resolution. On December 28, 2004, the NLRC upheld its resolution but with
modification that the satisfaction of the judgment award in favor of Lockheed will be only against the funds of UP
which are not identified as public funds.
The NLRC order and resolution having become final, Lockheed filed a motion for the issuance of an alias writ of
execution. The same was granted on May 23, 2005.[9]
On July 25, 2005, a Notice of Garnishment[10] was issued to Philippine National Bank (PNB) UP Diliman Branch for
the satisfaction of the award of P12,142,522.69 (inclusive of execution fee).
In a letter[11] dated August 9, 2005, PNB informed UP that it has received an order of release dated August 8,
2005 issued by the Labor Arbiter directing PNB UP Diliman Branch to release to the NLRC Cashier, through the
assigned NLRC Sheriff Max L. Lago, the judgment award/amount of P12,142,522.69. PNB likewise reminded UP
that the bank only has 10 working days from receipt of the order to deliver the garnished funds and unless it
receives a notice from UP or the NLRC before the expiry of the 10-day period regarding the issuance of a court
order or writ of injunction discharging or enjoining the implementation and execution of the Notice of Garnishment
and Writ of Execution, the bank shall be constrained to cause the release of the garnished funds in favor of the
NLRC.
On August 16, 2005, UP filed an Urgent Motion to Quash Garnishment. [12] UP contended that the funds being
subjected to garnishment at PNB are government/public funds. As certified by the University Accountant, the
subject funds are covered by Savings Account No. 275-529999-8, under the name of UP System Trust Receipts,
earmarked for Student Guaranty Deposit, Scholarship Fund, Student Fund, Publications, Research Grants, and
Miscellaneous Trust Account. UP argued that as public funds, the subject PNB account cannot be disbursed except
pursuant to an appropriation required by law. The Labor Arbiter, however, dismissed the urgent motion for lack of
merit on August 30, 2005.[13]
On September 2, 2005, the amount of P12,062,398.71 was withdrawn by the sheriff from UPs PNB account.[14]
On September 12, 2005, UP filed a petition for certiorari before the CA based on the following grounds:
I.
The concept of solidary liability by an indirect employer notwithstanding, respondent NLRC gravely
abused its discretion in a manner amounting to lack or excess of jurisdiction by misusing such
concept to justify the garnishment by the executing Sheriff of public/government funds belonging to
UP.
II.
Respondents NLRC and Arbiter LORA acted without jurisdiction or gravely abused their
discretion in a manner amounting to lack or excess of jurisdiction when, by means of an Alias Writ
of Execution against petitioner UP, they authorized respondent Sheriff to garnish UPs public funds.
Similarly, respondent LORA gravely abused her discretion when she resolved petitioners Motion to
Quash Notice of Garnishment addressed to, and intended for, the NLRC, and when she unilaterally
and arbitrarily disregarded an official Certification that the funds garnished are public/government
funds, and thereby allowed respondent Sheriff to withdraw the same from PNB.
III.
Respondents gravely abused their discretion in a manner amounting to lack or excess of
jurisdiction when they, despite prior knowledge, effected the execution that caused paralyzation
and dislocation to petitioners governmental functions.[15]
On March 12, 2008, the CA rendered a decision[16] dismissing UPs petition for certiorari. Citing Republic v.
COCOFED,[17] which defines public funds as moneys belonging to the State or to any political subdivisions of the
State, more specifically taxes, customs, duties and moneys raised by operation of law for the support of the
government or the discharge of its obligations, the appellate court ruled that the funds sought to be garnished do
not seem to fall within the stated definition.
On reconsideration, however, the CA issued the assailed Amended Decision. It held that without departing from its
findings that the funds covered in the savings account sought to be garnished do not fall within the classification of
public funds, it reconsiders the dismissal of the petition in light of the ruling in the case of National Electrification
Administration v. Morales[18] which mandates that all money claims against the government must first be filed with
the Commission on Audit (COA).
Lockheed moved to reconsider the amended decision but the same was denied in the assailed CA Resolution
dated December 23, 2008. The CA cited Manila International Airport Authority v. Court of Appeals [19] which held
that UP ranks with MIAA, a government instrumentality exercising corporate powers but not organized as a stock or
non-stock corporation. While said corporations are government instrumentalities, they are loosely called
government corporate entities but not government-owned and controlled corporations in the strict sense.
Hence this petition by Lockheed raising the following arguments:
1. RESPONDENT UP IS A GOVERNMENT ENTITY WITH A SEPARATE AND DISTINCT
PERSONALITY FROM THE NATIONAL GOVERNMENT AND HAS ITS OWN CHARTER
GRANTING IT THE RIGHT TO SUE AND BE SUED. IT THEREFORE CANNOT AVAIL OF
THE IMMUNITY FROM SUIT OF THE GOVERNMENT. NOT HAVING IMMUNITY FROM
SUIT, RESPONDENT UP CAN BE HELD LIABLE AND EXECUTION CAN THUS ENSUE.
2. MOREOVER, IF THE COURT LENDS IT ASSENT TO THE INVOCATION OF THE
DOCTRINE OF STATE IMMUNITY, THIS WILL RESULT [IN] GRAVE INJUSTICE.
3. FURTHERMORE, THE PROTESTATIONS OF THE RESPONDENT ARE TOO LATE IN THE
DAY, AS THE EXECUTION PROCEEDINGS HAVE ALREADY BEEN TERMINATED.[20]
Lockheed contends that UP has its own separate and distinct juridical entity from the national government
and has its own charter. Thus, it can be sued and be held liable. Moreover, Executive Order No. 714 entitled Fiscal
Control and Management of the Funds of UP recognizes that as an institution of higher learning, UP has always
granted full management and control of its affairs including its financial affairs.[21] Therefore, it cannot shield itself
from its private contractual liabilities by simply invoking the public character of its funds. Lockheed also cites
several cases wherein it was ruled that funds of public corporations which can sue and be sued were not exempt
from garnishment.
Lockheed likewise argues that the rulings in the NEA and MIAA cases are inapplicable. It contends that UP
is not similarly situated with NEA because the jurisdiction of COA over the accounts of UP is only on a post-audit
basis. As to the MIAA case, the liability of MIAA pertains to the real estate taxes imposed by the City
of Paranaque while the obligation of UP in this case involves a private contractual obligation. Lockheed also argues
that the declaration in MIAA specifically citing UP was mere obiter dictum.
Lockheed moreover submits that UP cannot invoke state immunity to justify and perpetrate an injustice. UP
itself admitted its liability and thus it should not be allowed to renege on its contractual obligations. Lockheed
contends that this might create a ruinous precedent that would likely affect the relationship between the public and
private sectors.
Lastly, Lockheed contends that UP cannot anymore seek the quashal of the writ of execution and notice of
garnishment as they are already fait accompli.
For its part, UP contends that it did not invoke the doctrine of state immunity from suit in the proceedings a
quo and in fact, it did not object to being sued before the labor department. It maintains, however, that suability does not
necessarily mean liability. UP argues that the CA correctly applied the NEA ruling when it held that all money claims
must be filed with the COA.
As to alleged injustice that may result for invocation of state immunity from suit, UP reiterates that it
consented to be sued and even participated in the proceedings below. Lockheed cannot now claim that invocation
of state immunity, which UP did not invoke in the first place, can result in injustice.
On the fait accompli argument, UP argues that Lockheed cannot wash its hands from liability for the
consummated garnishment and execution of UPs trust fund in the amount of P12,062,398.71. UP cites that
damage was done to UP and the beneficiaries of the fund when said funds, which were earmarked for specific
educational purposes, were misapplied, for instance, to answer for the execution fee of P120,123.98 unilaterally
stipulated by the sheriff. Lockheed, being the party which procured the illegal garnishment, should be held primarily
liable. The mere fact that the CA set aside the writ of garnishment confirms the liability of Lockheed to reimburse
and indemnify in accordance with law.
The petition has no merit.
We agree with UP that there was no point for Lockheed in discussing the doctrine of state immunity from
suit as this was never an issue in this case. Clearly, UP consented to be sued when it participated in the
proceedings below. What UP questions is the hasty garnishment of its funds in its PNB account.
This Court finds that the CA correctly applied the NEA case. Like NEA, UP is a juridical personality
separate and distinct from the government and has the capacity to sue and be sued. Thus, also like NEA, it cannot
evade execution, and its funds may be subject to garnishment or levy. However, before execution may be had, a
claim for payment of the judgment award must first be filed with the COA. Under Commonwealth Act No. 327,[22] as
amended by Section 26 of P.D. No. 1445,[23] it is the COA which has primary jurisdiction to examine, audit and
settle all debts and claims of any sort due from or owing the Government or any of its subdivisions, agencies and
instrumentalities, including government-owned or controlled corporations and their subsidiaries. With respect to
money claims arising from the implementation of Republic Act No. 6758, [24] their allowance or disallowance is for
COA to decide, subject only to the remedy of appeal by petition for certiorari to this Court.[25]
We cannot subscribe to Lockheeds argument that NEA is not similarly situated with UP because the COAs
jurisdiction over the latter is only on post-audit basis. A reading of the pertinent Commonwealth Act provision clearly
shows that it does not make any distinction as to which of the government subdivisions, agencies and
instrumentalities, including government-owned or controlled corporations and their subsidiaries whose debts should
be filed before the COA.
As to the fait accompli argument of Lockheed, contrary to its claim that there is nothing that can be done
since the funds of UP had already been garnished, since the garnishment was erroneously carried out and did not
go through the proper procedure (the filing of a claim with the COA), UP is entitled to reimbursement of the
garnished funds plus interest of 6% per annum, to be computed from the time of judicial demand to be reckoned
from the time UP filed a petition for certiorari before the CA which occurred right after the withdrawal of the
garnished funds from PNB.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. Petitioner Lockheed
Detective and Watchman Agency, Inc. is ordered to REIMBURSE respondent University of the Philippines the
amount of P12,062,398.71 plus interest of 6% per annum, to be computed from September 12, 2005 up to the
finality of this Decision, and 12% interest on the entire amount from date of finality of this Decision until fully paid.
No pronouncement as to costs.
SO ORDERED.
LIBAN vs. GORDON
G.R. No. 175352 July 15, 2009
DECISION

The Case

This is a petition to declare Senator Richard J. Gordon (respondent) as having forfeited his seat in the Senate.

The Facts

Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari (petitioners) filed with this Court a Petition
to Declare Richard J. Gordon as Having Forfeited His Seat in the Senate. Petitioners are officers of the Board of
Directors of the Quezon City Red Cross Chapter while respondent is Chairman of the Philippine National Red
Cross (PNRC) Board of Governors.

During respondents incumbency as a member of the Senate of the Philippines,[1] he was elected Chairman of the
PNRC during the 23 February 2006 meeting of the PNRC Board of Governors. Petitioners allege that by accepting
the chairmanship of the PNRC Board of Governors, respondent has ceased to be a member of the Senate as
provided in Section 13, Article VI of the Constitution, which reads:

SEC. 13. No Senator or Member of the House of Representatives may hold any other office or
employment in the Government, or any subdivision, agency, or instrumentality thereof, including
government-owned or controlled corporations or their subsidiaries, during his term without forfeiting
his seat. Neither shall he be appointed to any office which may have been created or the
emoluments thereof increased during the term for which he was elected.
Petitioners cite Camporedondo v. NLRC,[2] which held that the PNRC is a government-owned or controlled
corporation. Petitioners claim that in accepting and holding the position of Chairman of the PNRC Board of
Governors, respondent has automatically forfeited his seat in the Senate, pursuant to Flores v. Drilon,[3] which held
that incumbent national legislators lose their elective posts upon their appointment to another government office.

In his Comment, respondent asserts that petitioners have no standing to file this petition which appears to be an
action for quo warranto, since the petition alleges that respondent committed an act which, by provision of law,
constitutes a ground for forfeiture of his public office. Petitioners do not claim to be entitled to the Senate office of
respondent. Under Section 5, Rule 66 of the Rules of Civil Procedure, only a person claiming to be entitled to a
public office usurped or unlawfully held by another may bring an action for quo warranto in his own name. If the
petition is one for quo warranto, it is already barred by prescription since under Section 11, Rule 66 of the Rules of
Civil Procedure, the action should be commenced within one year after the cause of the public officers forfeiture of
office. In this case, respondent has been working as a Red Cross volunteer for the past 40 years. Respondent was
already Chairman of the PNRC Board of Governors when he was elected Senator in May 2004, having been
elected Chairman in 2003 and re-elected in 2005.

Respondent contends that even if the present petition is treated as a taxpayers suit, petitioners cannot be allowed
to raise a constitutional question in the absence of any claim that they suffered some actual damage or threatened
injury as a result of the allegedly illegal act of respondent. Furthermore, taxpayers are allowed to sue only when
there is a claim of illegal disbursement of public funds, or that public money is being diverted to any improper
purpose, or where petitioners seek to restrain respondent from enforcing an invalid law that results in wastage of
public funds.

Respondent also maintains that if the petition is treated as one for declaratory relief, this Court would have no
jurisdiction since original jurisdiction for declaratory relief lies with the Regional Trial Court.

Respondent further insists that the PNRC is not a government-owned or controlled corporation and that the
prohibition under Section 13, Article VI of the Constitution does not apply in the present case since volunteer
service to the PNRC is neither an office nor an employment.

In their Reply, petitioners claim that their petition is neither an action for quo warranto nor an action for declaratory
relief. Petitioners maintain that the present petition is a taxpayers suit questioning the unlawful disbursement of
funds, considering that respondent has been drawing his salaries and other compensation as a Senator even if he
is no longer entitled to his office. Petitioners point out that this Court has jurisdiction over this petition since it
involves a legal or constitutional issue which is of transcendental importance.
The Issues

Petitioners raise the following issues:

1. Whether the Philippine National Red Cross (PNRC) is a government- owned or controlled
corporation;

2. Whether Section 13, Article VI of the Philippine Constitution applies to the case of respondent
who is Chairman of the PNRC and at the same time a Member of the Senate;

3. Whether respondent should be automatically removed as a Senator pursuant to Section


13, Article VI of the Philippine Constitution; and

4. Whether petitioners may legally institute this petition against respondent. [4]

The substantial issue boils down to whether the office of the PNRC Chairman is a government office or an office in
a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the
Constitution.

The Courts Ruling

We find the petition without merit.

Petitioners Have No Standing to File this Petition

A careful reading of the petition reveals that it is an action for quo warranto. Section 1, Rule 66 of the Rules of
Court provides:

Section 1. Action by Government against individuals. An action for the usurpation of a public
office, position or franchise may be commenced by a verified petition brought in the name of
the Republic of the Philippines against:
(a) A person who usurps, intrudes into, or unlawfully holds or exercises a public office, position or
franchise;
(b) A public officer who does or suffers an act which by provision of law, constitutes a ground for the
forfeiture of his office; or
(c) An association which acts as a corporation within the Philippines without being legally incorporated or without
lawful authority so to act. (Emphasis supplied)

Petitioners allege in their petition that:


4. Respondent became the Chairman of the PNRC when he was elected as such during the First
Regular Luncheon-Meeting of the Board of Governors of the PNRC held on February 23, 2006, the
minutes of which is hereto attached and made integral part hereof as Annex A.
5. Respondent was elected as Chairman of the PNRC Board of Governors, during his incumbency
as a Member of the House of Senate of the Congress of the Philippines, having been elected as
such during the national elections last May 2004.

6. Since his election as Chairman of the PNRC Board of Governors, which position he duly accepted, respondent
has been exercising the powers and discharging the functions and duties of said office, despite the fact that he is
still a senator.
7. It is the respectful submission of the petitioner[s] that by accepting the chairmanship of the Board of
Governors of the PNRC, respondent has ceased to be a Member of the House of Senate as provided
in Section 13, Article VI of the Philippine Constitution, x x x
xxxx
10. It is respectfully submitted that in accepting the position of Chairman of the Board of Governors of the
PNRC on February 23, 2006, respondent has automatically forfeited his seat in the House of Senate and,
therefore, has long ceased to be a Senator, pursuant to the ruling of this Honorable Court in the case of
FLORES, ET AL. VS. DRILON AND GORDON, G.R. No. 104732, x x x
11. Despite the fact that he is no longer a senator, respondent continues to act as such and still performs the
powers, functions and duties of a senator, contrary to the constitution, law and jurisprudence.
12. Unless restrained, therefore, respondent will continue to falsely act and represent himself as a senator or
member of the House of Senate, collecting the salaries, emoluments and other compensations, benefits and
privileges appertaining and due only to the legitimate senators, to the damage, great and irreparable injury of the
Government and the Filipino people.[5] (Emphasis supplied)

Thus, petitioners are alleging that by accepting the position of Chairman of the PNRC Board of Governors,
respondent has automatically forfeited his seat in the Senate. In short, petitioners filed an action for usurpation
of public office against respondent, a public officer who allegedly committed an act which constitutes a ground for
the forfeiture of his public office. Clearly, such an action is for quo warranto, specifically under Section 1(b), Rule 66
of the Rules of Court.

Quo warranto is generally commenced by the Government as the proper party plaintiff. However, under Section 5,
Rule 66 of the Rules of Court, an individual may commence such an action if he claims to be entitled to the public
office allegedly usurped by another, in which case he can bring the action in his own name. The person
instituting quo warranto proceedings in his own behalf must claim and be able to show that he is entitled to the
office in dispute, otherwise the action may be dismissed at any stage.[6] In the present case, petitioners do not claim
to be entitled to the Senate office of respondent. Clearly, petitioners have no standing to file the present petition.

Even if the Court disregards the infirmities of the petition and treats it as a taxpayers suit, the petition would still fail
on the merits.

PNRC is a Private Organization Performing Public Functions

On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95,[7] otherwise known as the PNRC
Charter. The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization, whose mission is to bring
timely, effective, and compassionate humanitarian assistance for the most vulnerable without consideration of
nationality, race, religion, gender, social status, or political affiliation. [8] The PNRC provides six major services:
Blood Services, Disaster Management, Safety Services, Community Health and Nursing, Social Services and
Voluntary Service.[9]

The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a voluntary
organization for the purpose contemplated in the Geneva Convention of 27 July 1929. [10] The Whereas clauses
of the PNRC Charter read:

WHEREAS, there was developed at Geneva, Switzerland, on August 22, 1864, a convention by
which the nations of the world were invited to join together in diminishing, so far lies within their
power, the evils inherent in war;
WHEREAS, more than sixty nations of the world have ratified or adhered to the subsequent
revision of said convention, namely the Convention of Geneva of July 29 [sic], 1929 for the
Amelioration of the Condition of the Wounded and Sick of Armies in the Field (referred to in this
Charter as the Geneva Red Cross Convention);
WHEREAS, the Geneva Red Cross Convention envisages the establishment in each country of a voluntary
organization to assist in caring for the wounded and sick of the armed forces and to furnish supplies for
that purpose;
WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946
and proclaimed its adherence to the Geneva Red Cross Convention on February 14, 1947,
and by that action indicated its desire to participate with the nations of the world in
mitigating the suffering caused by war and to establish in the Philippines a voluntary
organization for that purpose as contemplated by the Geneva Red Cross Convention;
WHEREAS, there existed in the Philippines since 1917 a Charter of the American National Red
Cross which must be terminated in view of the independence of the Philippines; and
WHEREAS, the volunteer organizations established in the other countries which have ratified or
adhered to the Geneva Red Cross Convention assist in promoting the health and welfare of their
people in peace and in war, and through their mutual assistance and cooperation directly and
through their international organizations promote better understanding and sympathy among the
peoples of the world. (Emphasis supplied)
The PNRC is a member National Society of the International Red Cross and Red Crescent Movement (Movement),
which is composed of the International Committee of the Red Cross (ICRC), the International Federation of Red
Cross and Red Crescent Societies (International Federation), and the National Red Cross and Red Crescent
Societies (National Societies). The Movement is united and guided by its seven Fundamental Principles:

1. HUMANITY The International Red Cross and Red Crescent Movement, born of a desire to bring
assistance without discrimination to the wounded on the battlefield, endeavors, in its
international and national capacity, to prevent and alleviate human suffering wherever it may be
found. Its purpose is to protect life and health and to ensure respect for the human being. It
promotes mutual understanding, friendship, cooperation and lasting peace amongst all
peoples.
2. IMPARTIALITY It makes no discrimination as to nationality, race, religious beliefs, class or political opinions. It
endeavors to relieve the suffering of individuals, being guided solely by their needs, and to give priority to the most
urgent cases of distress.
3. NEUTRALITY In order to continue to enjoy the confidence of all, the Movement may not
take sides in hostilities or engage at any time in controversies of a political, racial,
religious or ideological nature.
4. INDEPENDENCE The Movement is independent. The National Societies, while auxiliaries
in the humanitarian services of their governments and subject to the laws of their
respective countries, must always maintain their autonomy so that they may be able at
all times to act in accordance with the principles of the Movement.
5. VOLUNTARY SERVICE It is a voluntary relief movement not prompted in any manner by desire
for gain.
6. UNITY There can be only one Red Cross or one Red Crescent Society in any one country. It must be open to all.
It must carry on its humanitarian work throughout its territory.
7. UNIVERSALITY The International Red Cross and Red Crescent Movement, in which all Societies have equal
status and share equal responsibilities and duties in helping each other, is worldwide. (Emphasis supplied)

The Fundamental Principles provide a universal standard of reference for all members of the Movement. The
PNRC, as a member National Society of the Movement, has the duty to uphold the Fundamental Principles and
ideals of the Movement. In order to be recognized as a National Society, the PNRC has to be autonomous and
must operate in conformity with the Fundamental Principles of the Movement. [11]
The reason for this autonomy is fundamental. To be accepted by warring belligerents as neutral workers during
international or internal armed conflicts, the PNRC volunteers must not be seen as belonging to any side of the
armed conflict. In the Philippines where there is a communist insurgency and a Muslim separatist rebellion, the
PNRC cannot be seen as government-owned or controlled, and neither can the PNRC volunteers be identified as
government personnel or as instruments of government policy. Otherwise, the insurgents or separatists will treat
PNRC volunteers as enemies when the volunteers tend to the wounded in the battlefield or the displaced civilians
in conflict areas.

Thus, the PNRC must not only be, but must also be seen to be, autonomous, neutral and independent in order to
conduct its activities in accordance with the Fundamental Principles. The PNRC must not appear to be an
instrument or agency that implements government policy; otherwise, it cannot merit the trust of all and cannot
effectively carry out its mission as a National Red Cross Society. [12] It is imperative that the PNRC must be
autonomous, neutral, and independent in relation to the State.

To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot be owned or controlled by
the government. Indeed, the Philippine government does not own the PNRC. The PNRC does not have
government assets and does not receive any appropriation from the Philippine Congress.[13] The PNRC is financed
primarily by contributions from private individuals and private entities obtained through solicitation campaigns
organized by its Board of Governors, as provided under Section 11 of the PNRC Charter:

SECTION 11. As a national voluntary organization, the Philippine National Red Cross shall be
financed primarily by contributions obtained through solicitation campaigns throughout the
year which shall be organized by the Board of Governors and conducted by the Chapters in
their respective jurisdictions. These fund raising campaigns shall be conducted independently of
other fund drives by other organizations. (Emphasis supplied)

The government does not control the PNRC. Under the PNRC Charter, as amended, only six of the thirty
members of the PNRC Board of Governors are appointed by the President of the Philippines. Thus, twenty-
four members, or four-fifths (4/5), of the PNRC Board of Governors are not appointed by the President. Section 6 of
the PNRC Charter, as amended, provides:

SECTION 6. The governing powers and authority shall be vested in a Board of Governors
composed of thirty members, six of whom shall be appointed by the President of the Philippines,
eighteen shall be elected by chapter delegates in biennial conventions and the remaining six shall
be selected by the twenty-four members of the Board already chosen. x x x.

Thus, of the twenty-four members of the PNRC Board, eighteen are elected by the chapter delegates of the PNRC,
and six are elected by the twenty-four members already chosena select group where the private sector members
have three-fourths majority. Clearly, an overwhelming majority of four-fifths of the PNRC Board are elected or
chosen by the private sector members of the PNRC.

The PNRC Board of Governors, which exercises all corporate powers of the PNRC, elects the PNRC Chairman
and all other officers of the PNRC. The incumbent Chairman of PNRC, respondent Senator Gordon, was elected,
as all PNRC Chairmen are elected, by a private sector-controlled PNRC Board four-fifths of whom are private
sector members of the PNRC. The PNRC Chairman is not appointed by the President or by any subordinate
government official.

Under Section 16, Article VII of the Constitution,[14] the President appoints all officials and employees in the
Executive branch whose appointments are vested in the President by the Constitution or by law. The President also
appoints those whose appointments are not otherwise provided by law. Under this Section 16, the law may also
authorize the heads of departments, agencies, commissions, or boards to appoint officers lower in rank than such
heads of departments, agencies, commissions or boards. [15] In Rufino v. Endriga,[16] the Court explained
appointments under Section 16 in this wise:

Under Section 16, Article VII of the 1987 Constitution, the President appoints three groups of
officers. The first group refers to the heads of the Executive departments, ambassadors, other
public ministers and consuls, officers of the armed forces from the rank of colonel or naval captain,
and other officers whose appointments are vested in the President by the Constitution. The second
group refers to those whom the President may be authorized by law to appoint. The third group
refers to all other officers of the Government whose appointments are not otherwise provided by
law.

Under the same Section 16, there is a fourth group of lower-ranked officers whose appointments Congress may by
law vest in the heads of departments, agencies, commissions, or boards. x x x

xxx

In a department in the Executive branch, the head is the Secretary. The law may not authorize the Undersecretary,
acting as such Undersecretary, to appoint lower-ranked officers in the Executive department. In an agency, the
power is vested in the head of the agency for it would be preposterous to vest it in the agency itself. In a
commission, the head is the chairperson of the commission. In a board, the head is also the chairperson of the
board. In the last three situations, the law may not also authorize officers other than the heads of the agency,
commission, or board to appoint lower-ranked officers.

xxx

The Constitution authorizes Congress to vest the power to appoint lower-ranked officers specifically in the heads of
the specified offices, and in no other person. The word heads refers to the chairpersons of the commissions or
boards and not to their members, for several reasons.

The President does not appoint the Chairman of the PNRC. Neither does the head of any department, agency,
commission or board appoint the PNRC Chairman. Thus, the PNRC Chairman is not an official or employee of the
Executive branch since his appointment does not fall under Section 16, Article VII of the Constitution. Certainly, the
PNRC Chairman is not an official or employee of the Judiciary or Legislature. This leads us to the obvious
conclusion that the PNRC Chairman is not an official or employee of the Philippine Government. Not being a
government official or employee, the PNRC Chairman, as such, does not hold a government office or
employment.
Under Section 17, Article VII of the Constitution,[17] the President exercises control over all government offices in
the Executive branch. If an office is legally not under the control of the President, then such office is not part
of the Executive branch. In Rufino v. Endriga,[18] the Court explained the Presidents power of control over all
government offices as follows:

Every government office, entity, or agency must fall under the Executive, Legislative, or Judicial
branches, or must belong to one of the independent constitutional bodies, or must be a quasi-
judicial body or local government unit. Otherwise, such government office, entity, or agency has no
legal and constitutional basis for its existence.

The CCP does not fall under the Legislative or Judicial branches of government. The CCP is also not one of the
independent constitutional bodies. Neither is the CCP a quasi-judicial body nor a local government unit. Thus, the
CCP must fall under the Executive branch. Under the Revised Administrative Code of 1987, any agency not placed
by law or order creating them under any specific department falls under the Office of the President.

Since the President exercises control over all the executive departments, bureaus, and offices, the President
necessarily exercises control over the CCP which is an office in the Executive branch. In mandating that the
President shall have control of all executive . . . offices, Section 17, Article VII of the 1987 Constitution does not
exempt any executive office one performing executive functions outside of the independent constitutional bodies
from the Presidents power of control. There is no dispute that the CCP performs executive, and not legislative,
judicial, or quasi-judicial functions.

The Presidents power of control applies to the acts or decisions of all officers in the Executive branch. This
is true whether such officers are appointed by the President or by heads of departments, agencies,
commissions, or boards. The power of control means the power to revise or reverse the acts or decisions
of a subordinate officer involving the exercise of discretion.

In short, the President sits at the apex of the Executive branch, and exercises control of all the executive
departments, bureaus, and offices. There can be no instance under the Constitution where an officer of the
Executive branch is outside the control of the President. The Executive branch is unitary since there is only one
President vested with executive power exercising control over the entire Executive branch.Any office in the
Executive branch that is not under the control of the President is a lost command whose existence is without any
legal or constitutional basis. (Emphasis supplied)

An overwhelming four-fifths majority of the PNRC Board are private sector individuals elected to the PNRC Board
by the private sector members of the PNRC. The PNRC Board exercises all corporate powers of the PNRC. The
PNRC is controlled by private sector individuals. Decisions or actions of the PNRC Board are not reviewable by the
President. The President cannot reverse or modify the decisions or actions of the PNRC Board. Neither can
the President reverse or modify the decisions or actions of the PNRC Chairman. It is the PNRC Board that
can review, reverse or modify the decisions or actions of the PNRC Chairman. This proves again that the office of
the PNRC Chairman is a private office, not a government office.
Although the State is often represented in the governing bodies of a National Society, this can be justified by the
need for proper coordination with the public authorities, and the government representatives may take part in
decision-making within a National Society. However, the freely-elected representatives of a National Societys active
members must remain in a large majority in a National Societys governing bodies. [19]

The PNRC is not government-owned but privately owned. The vast majority of the thousands of PNRC
members are private individuals, including students. Under the PNRC Charter, those who contribute to the
annual fund campaign of the PNRC are entitled to membership in the PNRC for one year. Thus, any one between 6
and 65 years of age can be a PNRC member for one year upon contributing P35, P100, P300, P500 or P1,000 for
the year.[20] Even foreigners, whether residents or not, can be members of the PNRC. Section 5 of the PNRC
Charter, as amended by Presidential Decree No. 1264,[21] reads:

SEC. 5. Membership in the Philippine National Red Cross shall be open to the entire population in
the Philippines regardless of citizenship. Any contribution to the Philippine National Red Cross
Annual Fund Campaign shall entitle the contributor to membership for one year and said
contribution shall be deductible in full for taxation purposes.
Thus, the PNRC is a privately owned, privately funded, and privately run charitable organization. The PNRC is not
a government-owned or controlled corporation.

Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC,[22] which ruled that the PNRC is a
government-owned or controlled corporation. In ruling that the PNRC is a government-owned or controlled
corporation, the simple test used was whether the corporation was created by its own special charter for the
exercise of a public function or by incorporation under the general corporation law. Since the PNRC was created
under a special charter, the Court then ruled that it is a government corporation. However,
the Camporedondo ruling failed to consider the definition of a government-owned or controlled corporation as
provided under Section 2(13) of the Introductory Provisions of the Administrative Code of 1987:

SEC. 2. General Terms Defined. x x x


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

A government-owned or controlled corporation must be owned by the government, and in the case of a stock
corporation, at least a majority of its capital stock must be owned by the government. In the case of a non-stock
corporation, by analogy at least a majority of the members must be government officials holding such membership
by appointment or designation by the government. Under this criterion, and as discussed earlier, the government
does not own or control PNRC.

The PNRC Charter is Violative of the Constitutional Proscription against the Creation of Private
Corporations by Special Law

The 1935 Constitution, as amended, was in force when the PNRC was created by special charter on 22 March
1947. Section 7, Article XIV of the 1935 Constitution, as amended,reads:

SEC. 7. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned or
controlled by the Government or any subdivision or instrumentality thereof.

The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting Congress from creating private
corporations except by general law. Section 1 of the PNRC Charter, as amended, creates the PNRC as a body
corporate and politic, thus:

SECTION 1. There is hereby created in the Republic of the Philippines a body corporate and
politic to be the voluntary organization officially designated to assist the Republic of the
Philippines in discharging the obligations set forth in the Geneva Conventions and to
perform such other duties as are inherent upon a National Red Cross Society. The national
headquarters of this Corporation shall be located in Metropolitan Manila. (Emphasis supplied)

In Feliciano v. Commission on Audit,[23] the Court explained the constitutional provision prohibiting Congress from
creating private corporations in this wise:

We begin by explaining the general framework under the fundamental law. The Constitution
recognizes two classes of corporations. The first refers to private corporations created under a
general law. The second refers to government-owned or controlled corporations created by special
charters. Section 16, Article XII of the Constitution provides:

Sec. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or
controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability.

The Constitution emphatically prohibits the creation of private corporations except by general law
applicable to all citizens. The purpose of this constitutional provision is to ban private corporations
created by special charters, which historically gave certain individuals, families or groups special
privileges denied to other citizens.

In short, Congress cannot enact a law creating a private corporation with a special charter.
Such legislation would be unconstitutional. Private corporations may exist only under a
general law. If the corporation is private, it must necessarily exist under a general
law. Stated differently, only corporations created under a general law can qualify as private
corporations. Under existing laws, the general law is the Corporation Code, except that the
Cooperative Code governs the incorporation of cooperatives.

The Constitution authorizes Congress to create government-owned or controlled corporations


through special charters. Since private corporations cannot have special charters, it follows that
Congress can create corporations with special charters only if such corporations are government-
owned or controlled.[24] (Emphasis supplied)

In Feliciano, the Court held that the Local Water Districts are government-owned or controlled corporations since
they exist by virtue of Presidential Decree No. 198, which constitutes their special charter. The seed capital assets
of the Local Water Districts, such as waterworks and sewerage facilities, were public property which were
managed, operated by or under the control of the city, municipality or province before the assets were transferred
to the Local Water Districts. The Local Water Districts also receive subsidies and loans from the Local Water
Utilities Administration (LWUA). In fact, under the 2009 General Appropriations Act, [25] the LWUA has a budget
amounting to P400,000,000 for its subsidy requirements.[26] There is no private capital invested in the Local
Water Districts. The capital assets and operating funds of the Local Water Districts all come from the government,
either through transfer of assets, loans, subsidies or the income from such assets or funds.

The government also controls the Local Water Districts because the municipal or city mayor, or the provincial
governor, appoints all the board directors of the Local Water Districts. Furthermore, the board directors and other
personnel of the Local Water Districts are government employees subject to civil service laws and anti-graft laws.
Clearly, the Local Water Districts are considered government-owned or controlled corporations not only because of
their creation by special charter but also because the government in fact owns and controls the Local Water
Districts.
Just like the Local Water Districts, the PNRC was created through a special charter. However, unlike the Local
Water Districts, the elements of government ownership and control are clearly lacking in the PNRC. Thus,
although the PNRC is created by a special charter, it cannot be considered a government-owned or controlled
corporation in the absence of the essential elements of ownership and control by the government. In creating the
PNRC as a corporate entity, Congress was in fact creating a private corporation. However, the constitutional
prohibition against the creation of private corporations by special charters provides no exception even for non-profit
or charitable corporations. Consequently, the PNRC Charter, insofar as it creates the PNRC as a private
corporation and grants it corporate powers,[27] is void for being unconstitutional. Thus, Sections
1,[28] 2,[29] 3,[30] 4(a),[31] 5,[32] 6,[33] 7,[34] 8,[35] 9,[36] 10,[37] 11,[38] 12,[39] and 13[40] of the PNRC Charter, as amended, are
void.

The other provisions[41] of the PNRC Charter remain valid as they can be considered as a recognition by the State
that the unincorporated PNRC is the local National Society of the International Red Cross and Red Crescent
Movement, and thus entitled to the benefits, exemptions and privileges set forth in the PNRC Charter. The other
provisions of the PNRC Charter implement the Philippine Governments treaty obligations under Article 4(5) of the
Statutes of the International Red Cross and Red Crescent Movement, which provides that to be recognized as a
National Society, the Society must be duly recognized by the legal government of its country on the basis of the
Geneva Conventions and of the national legislation as a voluntary aid society, auxiliary to the public authorities in
the humanitarian field.

In sum, we hold that the office of the PNRC Chairman is not a government office or an office in a government-
owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution.
However, since the PNRC Charter is void insofar as it creates the PNRC as a private corporation, the PNRC should
incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be
a private corporation.

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government
office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13,
Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the
Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos.
1264 and 1643, are VOID because they create the PNRC as a private corporation or grant it corporate powers.

SO ORDERED.

REPUBLIC OF THE PHILIPPINES vs. CITY OF PARANAQUE


G.R. No. 191109 July 18, 2012

DECISION

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, on pure questions of
law, assailing the January 8, 2010 Order1 of the Regional Trial Court, Branch 195, Parafiaque City (RTC), which
ruled that petitioner Philippine Reclamation Authority (PRA) is a government-owned and controlled corporation
(GOCC), a taxable entity, and, therefore, . not exempt from payment of real property taxes. The pertinent portion of
the said order reads:
In view of the finding of this court that petitioner is not exempt from payment of real property taxes, respondent
Parañaque City Treasurer Liberato M. Carabeo did not act xxx without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack or in excess of jurisdiction in issuing the warrants of levy on the subject
properties.
WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit Attached Supplemental
Petition is denied and the supplemental petition attached thereto is not admitted.
The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree (P.D.) No.
1084 (Creating the Public Estates Authority, Defining its Powers and Functions, Providing Funds Therefor and For
Other Purposes) which took effect on February 4,
1977 to provide a coordinated, economical and efficient reclamation of lands, and the administration and operation
of lands belonging to, managed and/or operated by, the government with the object of maximizing their utilization
and hastening their development consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President Ferdinand Marcos,
PEA was designated as the agency primarily responsible for integrating, directing and coordinating all reclamation
projects for and on behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming PEA into PRA,
which shall perform all the powers and functions of the PEA relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila Bay,
including those located in Parañaque City, and was issued Original Certificates of Title (OCT Nos. 180, 202, 206,
207, 289, 557, and 559) and Transfer Certificates of Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and 9686)
over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer Liberato M. Carabeo (Carabeo) issued Warrants of Levy on
PRA’s reclaimed properties (Central Business Park and Barangay San Dionisio) located in Parañaque City based
on the assessment for delinquent real property taxes made by then Parañaque City Assessor Soledad Medina Cue
for tax years 2001 and 2002.
On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining order (TRO) and/or writ
of preliminary injunction against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order denying PRA’s petition for the issuance of a
temporary restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the public auction of the
subject reclaimed properties on April 7, 2003. In response, Carabeo sent a letter stating that the public auction
could not be deferred because the RTC had already denied PRA’s TRO application.
On April 25, 2003, the RTC denied PRA’s prayer for the issuance of a writ of preliminary injunction for being moot
and academic considering that the auction sale of the subject properties on April 7, 2003 had already been
consummated.
On August 3, 2009, after an exchange of several pleadings and the failure of both parties to arrive at a compromise
agreement, PRA filed a Motion for Leave to File and Admit Attached Supplemental Petition which sought to declare
as null and void the assessment for real property taxes, the levy based on the said assessment, the public auction
sale conducted on April 7, 2003, and the Certificates of Sale issued pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing PRA’s petition. In ruling that PRA was not exempt
from payment of real property taxes, the RTC reasoned out that it was a GOCC under Section 3 of P.D. No. 1084.
It was organized as a stock corporation because it had an authorized capital stock divided into no par value shares.
In fact, PRA admitted its corporate personality and that said properties were registered in its name as shown by the
certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of Section 193 of Republic Act
(R.A.) No. 7160 Local Government Code (LGC) which was the prevailing law in 2001 and 2002 with respect to real
property taxation. The RTC also ruled that the tax exemption claimed by PRA under E.O. No. 654 had already been
expressly repealed by R.A. No. 7160 and that PRA failed to comply with the procedural requirements in Section
206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order based on the
following GROUNDS
I
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY
TAX ON THE SUBJECT RECLAIMED LANDS CONSIDERING
THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL GOVERNMENT AND IS,
THEREFORE, EXEMPT FROM PAYMENT OF REAL PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O)
OF REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE VIS-À-VIS MANILA INTERNATIONAL
AIRPORT AUTHORITY V. COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED LANDS ARE PART OF
THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the Administrative Code.
Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution because it is not required to meet the
test of economic viability. Instead, PRA is a government instrumentality vested with corporate powers and
performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative
Code. Although it has a capital stock divided into shares, it is not authorized to distribute dividends and allotment of
surplus and profits to its stockholders. Therefore, it may not be classified as a stock corporation because it lacks
the second requisite of a stock corporation which is the distribution of dividends and allotment of surplus and profits
to the stockholders.
It insists that it may not be classified as a non-stock corporation because it has no members and it is not organized
for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil
service, or similar purposes, like trade, industry, agriculture and like chambers as provided in Section 88 of the
Corporation Code.
Moreover, PRA points out that it was not created to compete in the market place as there was no competing
reclamation company operated by the private sector. Also, while PRA is vested with corporate powers under P.D.
No. 1084, such circumstance does not make it a corporation but merely an incorporated instrumentality and that the
mere fact that an incorporated instrumentality of the National Government holds title to real property does not make
said instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987 recognizes a
scenario where a piece of land owned by the Republic is titled in the name of a department, agency or
instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is exempt from payment of
real property tax except when the beneficial use of the real property is granted to a taxable person. PRA claims that
based on Section 133(o) of the LGC, local governments cannot tax the national government which delegate to local
governments the power to tax.
It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt from the payment
of real estate taxes. Reclaimed lands retain their inherent potential as areas for public use or public service. While
the subject reclaimed lands are still in its hands, these lands remain public lands and form part of the public
domain. Hence, the assessment of real property taxes made on said lands, as well as the levy thereon, and the
public sale thereof on April 7, 2003, including the issuance of the certificates of sale in favor of the respondent
Parañaque City, are invalid and of no force and effect.
On the other hand, the City of Parañaque (respondent) argues that PRA since its creation consistently represented
itself to be a GOCC. PRA’s very own charter (P.D. No. 1084) declared it to be a GOCC and that it has entered into
several thousands of contracts where it represented itself to be a GOCC. In fact, PRA admitted in its original and
amended petitions and pre-trial brief filed with the RTC of Parañaque City that it was a GOCC.
Respondent further argues that PRA is a stock corporation with an authorized capital stock divided into 3 million no
par value shares, out of which 2 million shares have been subscribed and fully paid up. Section 193 of the LGC of
1991 has withdrawn tax exemption privileges granted to or presently enjoyed by all persons, whether natural or
juridical, including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.
THE COURT’S RULING
The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case
of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x.
On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x
From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock corporation" while
an instrumentality is vested by law with corporate powers. Likewise, when the law makes a government
instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery
although not integrated with the department framework.
When the law vests in a government instrumentality corporate powers, the instrumentality does not necessarily
become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it
remains a government instrumentality exercising not only governmental but also corporate powers.
Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a GOCC. Examples
are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines, and
Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes loosely called government corporate
entities. They are not, however, GOCCs in the strict sense as understood under the Administrative Code, which is
the governing law defining the legal relationship and status of government entities. 2
Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided
into shares and x x x authorized to distribute to the holders of such shares dividends x x x." Section 87 thereof
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members,
trustees or officers." Further, Section 88 provides that non-stock corporations are "organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers."
Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has capital
stock divided into shares; and (2) that it is authorized to distribute dividends and allotments of surplus and profits to
its stockholders. If only one requisite is present, it cannot be properly classified as a stock corporation. As for non-
stock corporations, they must have members and must not distribute any part of their income to said members.3
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot be
considered as a stock corporation because although it has a capital stock divided into no par value shares as
provided in Section 74 of P.D. No. 1084, it is not authorized to distribute dividends, surplus allotments or profits to
stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances
pertaining to PRA, particularly, E.O. No. 525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to distribute
dividends, surplus allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have members. A non-stock
corporation must have members.8 Moreover, it was not organized for any of the purposes mentioned in Section 88
of the Corporation Code. Specifically, it was created to manage all government reclamation projects.
Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section 16, Article XII of the
1987 Constitution provides as follows:
Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.
The fundamental provision above authorizes Congress to create GOCCs through special charters on two
conditions: 1) the GOCC must be established for the common good; and 2) the GOCC must meet the test of
economic viability. In this case, PRA may have passed the first condition of common good but failed the second
one - economic viability. Undoubtedly, the purpose behind the creation of PRA was not for economic or commercial
activities. Neither was it created to compete in the market place considering that there were no other competing
reclamation companies being operated by the private sector. As mentioned earlier, PRA was created essentially to
perform a public service considering that it was primarily responsible for a coordinated, economical and efficient
reclamation, administration and operation of lands belonging to the government with the object of maximizing their
utilization and hastening their development consistent with the public interest. Sections 2 and 4 of P.D. No. 1084
reads, as follows:
Section 2. Declaration of policy. It is the declared policy of the State to provide for a coordinated, economical and
efficient reclamation of lands, and the administration and operation of lands belonging to, managed and/or operated
by the government, with the object of maximizing their utilization and hastening their development consistent with
the public interest.
Section 4. Purposes. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by dredging, filling or other means, or to
acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any and all kinds of
lands, buildings, estates and other forms of real property, owned, managed, controlled and/or operated by
the government.
(c) To provide for, operate or administer such services as may be necessary for the efficient, economical
and beneficial utilization of the above properties.
The twin requirement of common good and economic viability was lengthily discussed in the case of Manila
International Airport Authority v. Court of Appeals,9 the pertinent portion of which reads:
Third, the government-owned or controlled corporations created through special charters are those that meet the
two conditions prescribed in Section 16, Article XII of the Constitution.
The first condition is that the government-owned or controlled corporation must be established for the common
good. The second condition is that the government-owned or controlled corporation must meet the test of economic
viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.
The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations"
through special charters only if these entities are required to meet the twin conditions of common good and
economic viability. In other words, Congress has no power to create government-owned or controlled corporations
with special charters unless they are made to comply with the two conditions of common good and economic
viability. The test of economic viability applies only to government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of
the State for the common good — meaning for economic development purposes — these government-owned or
controlled corporations with special charters are usually organized as stock corporations just like ordinary private
corporations.
In contrast, government instrumentalities vested with corporate powers and performing governmental or public
functions need not meet the test of economic viability. These instrumentalities perform essential public services for
the common good, services that every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations. These instrumentalities are
not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public functions. Congress has plenary authority to
create government instrumentalities vested with corporate powers provided these instrumentalities perform
essential government functions or public services. However, when the legislature creates through special charters
corporations that perform economic or commercial activities, such entities — known as "government-owned or
controlled corporations" — must meet the test of economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive their incometo meet operating expenses solely from
commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their own in the market place and
thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission
the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation,
there is a sense in which this corporation becomes exempt from the test of economic performance. We know what
happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through
new equity infusions from the government and what is always invoked is the common good. That is the reason why
this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity
infusions to support a few government financial institutions. And this is all taxpayers' money which could have been
relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly
underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and
I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the common good.
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the
phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the
ideas that they must show capacity to function efficiently in business and that they should not go into activities
which the private sector can do better. Moreover, economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in financial terms.
Clearly, the test of economic viability does not apply to government entities vested with corporate powers and
performing essential public services. The State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability of rendering such essential public service
does not excuse the State from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability. These are the government-owned or controlled
corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled corporations organized under the Corporation Code, that
fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative
Code. [Emphases supplied]
This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory Provisions of the
Administrative Code or under Section 16, Article XII of the 1987 Constitution. The facts, the evidence on record and
jurisprudence on the issue support the position that PRA was not organized either as a stock or a non-stock
corporation. Neither was it created by Congress to operate commercially and compete in the private market.
Instead, PRA is a government instrumentality vested with corporate powers and performing an essential public
service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Being an incorporated
government instrumentality, it is exempt from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by PRA. On the other
hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts PRA from paying realty taxes and
protects it from the taxing powers of local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:
SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local
government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by the Republic of the Philippines (the Republic) is exempt
from real property tax unless the beneficial use thereof has been granted to a taxable person. In this case, there is
no proof that PRA granted the beneficial use of the subject reclaimed lands to a taxable entity. There is no showing
on record either that PRA leased the subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same Code, which prohibits local governments
from imposing "taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities x
x x." The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be
exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when the title of the real property is transferred to an agency or instrumentality even as
the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax
exemption, unless "the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person."10
The rationale behind Section 133(o) has also been explained in the case of the Manila International Airport
Authority,11 to wit:
Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."
When local governments invoke the power to tax on national government instrumentalities, such power is
construed strictly against local governments. The rule is that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national government instrumentality from local taxation, such exemption
is construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v.
Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or
its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to
be handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for rendering essential
public services to inhabitants of local governments. The only exception is when the legislature clearly intended to
tax government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
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. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254
US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, 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" (McCulloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it.
[Emphases supplied]
The Court agrees with PRA that the subject reclaimed lands are still part of the public domain, owned by the State
and, therefore, exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the
State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and supervision of the State. The
State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned
by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more
than twenty-five years, and under such terms and conditions as may provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of waterpower, beneficial use may
be the measure and limit of the grant.
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by
the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service
or for the development of the national wealth. [Emphases supplied]
Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore areas of Manila Bay.
As such, these lands remain public lands and form part of the public domain. In the case of Chavez v. Public
Estates Authority and AMARI Coastal Development Corporation, 12 the Court held that foreshore and submerged
areas irrefutably belonged to the public domain and were inalienable unless reclaimed, classified as alienable lands
open to disposition and further declared no longer needed for public service. The fact that alienable lands of the
public domain were transferred to the PEA (now PRA) and issued land patents or certificates of title in PEA’s name
did not automatically make such lands private. This Court also held therein that reclaimed lands retained their
inherent potential as areas for public use or public service.
As the central implementing agency tasked to undertake reclamation projects nationwide, with authority to sell
reclaimed lands, PEA took the place of DENR as the government agency charged with leasing or selling reclaimed
lands of the public domain. The reclaimed lands being leased or sold by PEA are not private lands, in the same
manner that DENR, when it disposes of other alienable lands, does not dispose of private lands but alienable lands
of the public domain. Only when qualified private parties acquire these lands will the lands become private lands. In
the hands of the government agency tasked and authorized to dispose of alienable of disposable lands of the public
domain, these lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as well as "any and all
kinds of lands." PEA can hold both lands of the public domain and private lands. Thus, the mere fact that alienable
lands of the public domain like the Freedom Islands are transferred to PEA and issued land patents or certificates
of title in PEA's name does not automatically make such lands private.13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.-
(1)The President shall have the power to reserve for settlement or public use, and for specific public purposes, any
of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation.
Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are properties of public
dominion. The ownership of such lands remains with the State unless they are withdrawn by law or presidential
proclamation from public use.
Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila Bay are part of
the "lands of the public domain, waters x x x and other natural resources" and consequently "owned by the State."
As such, foreshore and submerged areas "shall not be alienated," unless they are classified as "agricultural lands"
of the public domain. The mere reclamation of these areas by PEA does not convert these inalienable natural
resources of the State into alienable or disposable lands of the public domain. There must be a law or presidential
proclamation officially classifying these reclaimed lands as alienable or disposable and open to disposition or
concession. Moreover, these reclaimed lands cannot be classified as alienable or disposable if the law has
reserved them for some public or quasi-public use.
As the Court has repeatedly ruled, properties of public dominion are not subject to execution or foreclosure
sale.14Thus, the assessment, levy and foreclosure made on the subject reclaimed lands by respondent, as well as
the issuances of certificates of title in favor of respondent, are without basis.
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial Court, Branch 195,
Parañaque City, is REVERSED and SET ASIDE. All reclaimed properties owned by the Philippine Reclamation
Authority are hereby declared EXEMPT from real estate taxes. All real estate tax assessments, including the final
notices of real estate tax delinquencies, issued by the City of Parañaque on the subject reclaimed properties; the
assailed auction sale, dated April 7, 2003; and the Certificates of Sale subsequently issued by the Parañaque City
Treasurer in favor of the City of Parañaque, are all declared VOID.
SO ORDERED.
NATIONAL ELECTRIFICATION ADMINISTRATION vs. MORALES
G.R. No. 154200 July 24, 2007
DECISION
The sole issue for resolution in the Petition for Review on Certiorari1 before us is whether the Court of Appeals (CA)
committed an error of law in its July 4, 2002 Decision2 in CA-G.R. SP No. 62919 in ordering the implementation of a
writ of execution against the funds of the National Electrification Administration (NEA).
There being no dispute as to the facts,3 the following findings of the CA are adopted:4
Danilo Morales and 105 other employees5 (Morales, et al.) of the NEA filed with the Regional Trial Court (RTC),
Branch 88, Quezon City, a class suit6 against their employer for payment of rice allowance, meal allowance,
medical/dental/optical allowance, children’s allowance and longevity pay purportedly authorized under Republic Act
(R.A.) No. 6758.7 In its December 16, 1999 Decision,8 the RTC ordered NEA, thus:
WHEREFORE, foregoing considered, the petition is hereby GRANTED directing the respondent NEA, its Board of
Administrators to forthwith settle the claims of the petitioners and other employees similarly situated and extend to
them the benefits and allowances to which they are entitled but which until now they have been deprived of as
enumerated under Section 5 of DBM CCC No. 10 and their inclusion in the Provident Funds Membership,
retroactive from the date of their appointments up to the present or until their separation from the service.
No costs.
SO ORDERED.9
Upon motion of Morales, et al., the RTC issued a Writ of Execution dated February 22, 2000, 10 which reads:
NOW, THEREFORE, you are hereby directed to cause respondents National Electrification Administration (NEA)
and its Board of Administrators with principal office address at 1050 CDC Bldg., Quezon Avenue, Quezon City to
forthwith settle the claims of the petitioners and other employees similarly situated and extend to them the benefits
and allowances to which they are entitled but which until now they have been deprived of as enumerated under
Sec. 5 of DBM CCC No. 10 and you are further directed to cause their inclusion in the Provident Fund Membership,
retroactive from the date of their appointments up to the present or until their separation from the service. 11
Thereafter, a Notice of Garnishment12 was issued against the funds of NEA with Development Bank of the
Philippines (DBP) to the extent of ₱16,581,429.00.
NEA filed a Motion to Quash Writs of Execution/Garnishment,13 claiming that the garnished public funds are exempt
from execution under Section 414 of Presidential Decree (P.D.) No. 1445,15 but manifesting that it is willing to pay
the claims of Morales, et al.,16 only that it has no funds to cover the same, although it already requested the
Department of Budget and Management (DBM) for a supplemental budget.17
In its Order of May 17, 2000, the RTC denied the Motion to Quash but, at the same time, held in abeyance the
implementation of the Writ of Execution, thus:
WHEREFORE, the motion to quash writs of execution/ garnishment is DENIED but the implementation of the
judgment is placed on hold for ninety (90) days reckoned from this day. The respondents are directed to formally
inform this Court and the petitioners of the prospect of obtaining funds from Department of Budget and
Management within 30 days from receipt and every 30 days thereafter, until the 90 day period has lapsed.
The motion to direct DBP to release to the petitioners the NEA funds garnished earlier amounting to ₱16,591.429 is
also DENIED.
SO ORDERED.18 (Emphasis ours)
Morales, et al. filed a Partial Motion for Reconsideration19 but the RTC denied it.20
Meanwhile, in a letter dated June 28, 2000, former DBM Secretary Benjamin E. Diokno informed NEA Administrator
Conrado M. Estrella III of the denial of the NEA request for a supplemental budget on the ground that the claims
under R.A. No. 6758 which the RTC had ordered to be settled cannot be paid because Morales, et al. are not
"incumbents of positions as of July 1, 1989 who are actually receiving and enjoying such benefits."21
Moreover, in an Indorsement dated March 23, 2000, the Commission on Audit (COA) advised NEA against making
further payments in settlement of the claims of Morales, et al.. Apparently, COA had already passed upon claims
similar to those of Morales, et al. in its earlier "Decision No. 95-074" dated January 25, 1995. Portions of the
Indorsement read as follows:
This Office concurs with the above view. The court may have exceeded its jurisdiction when it entertained the
petition for the entitlement of the after-hired employees which had already been passed upon by this
Commission in COA Decision No. 95-074 dated January 25, 1995. There, it was held that: "the adverse action
of this Commission sustaining the disallowance made by the Auditor, NEA, on the payment of fringe benefits
granted to NEA employees hired from July 1, 1989 to October 31, 1989 is hereby reconsidered. Accordingly,
subject disallowance is lifted."
Thus, employees hired after the extended date of October 31, 1989, pursuant to the above COA decision
cannot defy that decision by filing a petition for mandamus in the lower court. Presidential Decree No. 1445
and the 1987 Constitution prescribe that the only mode for appeal from decisions of this Commission is on
certiorari to the Supreme Court in the manner provided by law and the Rules of Court. Clearly, the lower
court had no jurisdiction when it entertained the subject case of mandamus. And void decisions of the
lower court can never attain finality, much less be executed. Moreover, COA was not made a party thereto,
hence, it cannot be compelled to allow the payment of claims on the basis of the questioned decision.
PREMISES CONSIDERED, the auditor of NEA should post-audit the disbursement vouchers on the bases of this
Commission's decision particularly the above-cited COA Decision No. 94-074 [sic] and existing rules and
regulations, as if there is no decision of the court in the subject special civil action for mandamus. At the same time,
management should be informed of the intention of this Office to question the validity of the court decision before
the Supreme Court through the Office of the Solicitor General.22 (Emphasis ours)
Parenthetically, the records at hand do not indicate when Morales, et al. were appointed. Even the December 16,
1999 RTC Decision is vague for it merely states that they were appointed after June 30, 1989, which could mean
that they were appointed either before the cut-off date of October 31, 1989 or after.23 Thus, there is not enough
basis for this Court to determine that the foregoing COA Decision No. 95-074 adversely affects Morales, et
al..Moreover, the records do not show whether COA actually questioned the December 16, 1999 RTC Decision
before this Court.
On July 18, 2000, Morales, et al. filed a Motion for an Order to Implement Writ of Execution, pointing out that the
reason cited in the May 17, 2000 RTC Order for suspension of the implementation of the writ of execution no longer
exists given that DBM already denied NEA’s request for funding. 24 They also filed a Petition to Cite NEA Board of
Administrators Mario Tiaoqui, Victoria Batungbacal, Federico Puno and Remedios Macalingcag in Contempt of
Court25 for allegedly withholding appropriations to cover their claims.
Acting first on the petition for contempt, the RTC issued a Resolution dated December 11, 2000, to wit:
The court is aware of its order dated May 17, 2000, particularly the directive upon respondents to inform this court
and the petitioners of the prospect of obtaining funds from the Department of Budget and Management within the
period specified. From the comments of the respondents, it appears they did or are doing their best to
secure the needed funds to satisfy the judgment sought to be enforced. In this regard, Administrative
Circular No. 10-2000 of the Supreme Court provides:
"In order to prevent possible circumvention of the rules and procedures of the Commission on Audit, judges are
hereby enjoined to observe utmost caution, prudence and judiciousness in the issuance of writs of execution to
satisfy money judgments against government agencies and local government units.
Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA 617, 625 [1970], this
Court explicitly stated:
"The universal rule that where the State gives its consent to be sued by private parties either by general or special
law, it may limit claimant's action only up to the completion of proceedings anterior to the stage of execution and the
power of the court ends when the judgment is rendered, since government funds and properties may not be seized
under writs of execution or garnishment to satisfy such judgment, is based on obvious considerations of public
policy. Disbursements of public funds must be covered by the corresponding appropriation as required by law. The
functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion
of public funds from their legitimate and specific objects as appropriated by law."
Moreover, it is settled jurisprudence that upon determination of State liability, the prosecution, enforcement or
satisfaction thereof must still be pursued in accordance with the rules and procedures laid down in P.D. No. 1445,
otherwise known as the Government Auditing Code of the Philippines (Department of Agriculture v. NLRC, 227
SCRA 693, 701-02 [1993] citing Republic v. Villasor, 54 SCRA 84 [1973]). All money claims against the
Government must "first be filed with the Commission on Audit which must act upon it within sixty days. Rejection of
the claim will authorize the claimant to elevate the matter to the Supreme Court on certiorari and in effect sue the
State thereby (P.D. 1445, Sections 49-50)."
WHEREFORE, foregoing considered, petition to cite respondents in contempt of court is premature, hence the
same is hereby DENIED.
SO ORDERED.26 (Emphasis ours)
Subsequently, the RTC issued an Order dated January 8, 2001, denying the Motion for an Order to Implement Writ
of Execution, citing the same SC Administrative Circular No. 10-2000.
Upon a Petition for Certiorari27 filed by Morales, et al., the CA rendered the July 4, 2002 Decision assailed herein,
the decretal portion of which reads:
WHEREFORE, the petition is hereby GRANTED. The Order dated January 8, 2001 and the Resolution of
December 11, 2000 of the public respondent Judge are declared NULL and VOID.
Accordingly, the respondent judge is directed to implement the Writ of Execution relative thereto.
SO ORDERED..28
The CA held that NEA can no longer take shelter under the provisions of P.D. No. 1445 and SC Administrative
Circular No. 10-2000 because it is a government-owned or controlled corporation (GOCC) created under P.D. No.
269, effective August 6, 1973.29 Citing Philippine National Bank v. Court of Industrial Relations,30 the CA held that,
as such GOCC, petitioner NEA may be subjected to court processes just like any other corporation; specifically, its
properties may be proceeded against by way of garnishment or levy. 31
NEA and its Board of Directors (petitioners) immediately filed herein petition for review. It is their contention that the
CA erred in directing implementation of the writ of execution on two grounds: first, execution is premature as
Morales, et al. (respondents) have yet to file their judgment claim with the COA in accordance with P.D. No. 1445
and SC Administrative Circular No. 10-2000;32 and second, execution is not feasible without DBM as an
indispensable party to the petition for certiorari for it is said department which can certify that funds are available to
cover the judgment claim.33
The petition is meritorious.
Indeed, respondents cannot proceed against the funds of petitioners because the December 16, 1999 RTC
Decision sought to be satisfied is not a judgment for a specific sum of money susceptible of execution by
garnishment; it is a special judgment requiring petitioners to settle the claims of respondents in accordance with
existing regulations of the COA.
In its plain text, the December 16, 1999 RTC Decision merely directs petitioners to "settle the claims of
[respondents] and other employees similarly situated."34 It does not require petitioners to pay a certain sum of
money to respondents. The judgment is only for the performance of an act other than the payment of money,
implementation of which is governed by Section 11, Rule 39 of the Rules of Court, which provides:
Section 11. Execution of special judgments. - When a judgment requires the performance of any act other than
those mentioned in the two preceding sections, a certified copy of the judgment shall be attached to the writ of
execution and shall be served by the officer upon the party against whom the same is rendered, or upon any other
person required thereby, or by law, to obey the same, and such party or person may be punished for contempt if he
disobeys such judgment.
Garnishment cannot be employed to implement such form of judgment. Under Section 9 of Rule 39, to wit:
Section 9. Execution of judgments for money, how enforced. -
xxxx
(c) Garnishment of debts and credits. - The officer may levy on debts due the judgment obligor and other credits,
including bank deposits, financial interests, royalties, commissions and other personal property not capable of
manual delivery in the possession or control of third parties. Levy shall be made by serving notice upon the person
owing such debts or having in his possession or control such credits to which the judgment obligor is entitled. The
garnishment shall cover only such amount as will satisfy the judgment and all lawful fees.
Garnishment is proper only when the judgment to be enforced is one for payment of a sum of money.
The RTC exceeded the scope of its judgment when, in its February 22, 2000 Writ of Execution, it directed
petitioners to "extend to [respondents] the benefits and allowances to which they are entitled but which until now
they have been deprived of as enumerated under Sec. 5 of DBM CCC No. 10 and x x x to cause their inclusion in
the Provident Fund Membership."35 Worse, it countenanced the issuance of a notice of garnishment against the
funds of petitioners with DBP to the extent of ₱16,581,429.00 even when no such amount was awarded in its
December 16, 1999 Decision.
However, in its subsequent Orders dated May 17, 2000 and January 8, 2001, the RTC attempted to set matters
right by directing the parties to now await the outcome of the legal processes for the settlement of respondents’
claims.
That is only right.
Without question, petitioner NEA is a GOCC36 -- a juridical personality separate and distinct from the government,
with capacity to sue and be sued.37 As such GOCC, petitioner NEA cannot evade execution; its funds may be
garnished or levied upon in satisfaction of a judgment rendered against it.38 However, before execution may
proceed against it, a claim for payment of the judgment award must first be filed with the COA.39
Under Commonwealth Act No. 327,40 as amended by Section 26 of P.D. No. 1445, it is the COA which has primary
jurisdiction to examine, audit and settle "all debts and claims of any sort" due from or owing the Government or any
of its subdivisions, agencies and instrumentalities, including government-owned or controlled corporations and their
subsidiaries.41 With respect to money claims arising from the implementation of R.A. No. 6758, their allowance or
disallowance is for COA to decide, subject only to the remedy of appeal by petition for certiorari to this Court.42
All told, the RTC acted prudently in halting implementation of the writ of execution to allow the parties recourse to
the processes of the COA. It may be that the tenor of the March 23, 2000 Indorsement issued by COA already
spells doom for respondents’ claims; but it is not for this Court to preempt the action of the COA on the post-audit to
be conducted by it per its Indorsement dated March 23, 2000.
In fine, it was grave error for the CA to reverse the RTC and direct immediate implementation of the writ of
execution through garnishment of the funds of petitioners,
WHEREFORE, the petition is GRANTED. The July 4, 2002 Decision of the Court of Appeals is REVERSED
andSET ASIDE. The Resolution dated December 11, 2000 and Order dated January 8, 2001 of the Regional Trial
Court, Branch 88, Quezon City in Special Civil Action No. Q-99-38275 are REINSTATED.
SO ORDERED.

NATIONAL IRRIGATION ADMINISTRATION vs. ENCISO


G.R. No. 142571 May 5, 2006
DECISION
The instant petition for review on certiorari under Rule 45 of the Rules of Court seeks to nullify and set aside the
Decision dated March 20, 20001 of the Court of Appeals (CA) in CA-G.R. CV No. 59681 affirming an earlier
decision of the Regional Trial Court (RTC) of Makati City, Branch 141, in its Civil Case No. 94-005, an action for a
sum of money with damages thereat commenced by the respondent against the herein petitioner, its Administrator
and its Assistant Administrator for Systems and Operations and Equipment Management.
Succinctly summarized by the Court of Appeals in the assailed decision are the following undisputed facts:
Records show that in 1984, defendant-appellant [petitioner] National Irrigation Administration (NIA) commenced the
widening of the Binahaan River in Brgy. Cansamada, Dagami, Leyte. This project was divided into small sections
costing not more than P50,000.00 each so as not to require public bidding. However, pre-bidding was nevertheless
conducted by NIA and participated in by different contractors to determine the possible lowest bid which shall serve
as the cost of the project. With this arrangement, contractors are assigned to work on specific sections without
formal contracts. When the works for the assigned sections are completed to NIA’s satisfaction, NIA will then
prepare the requisite contract and other pertinent documents so that the contractor can collect payment.
Plaintiff-appellant [respondent] Enciso, doing business as a contractor under the name LCE Construction, worked
on a portion of the river from "station 16 + 400 to station 16 + 900". His first billing of P227,165.90 was paid by NIA.
However, his second and final billing of P259,154.01 was denied on the ground that the work done on the right side
of the river was not accomplished. [Words in bracket supplied.]
Respondent finally instituted a complaint for collection of a sum of money with damages and attorney’s fees with
the RTC of Makati City, thereat docketed as Civil Case No. 94-005 and eventually raffled to Branch 141 thereof.
Petitioner and co-defendants filed a motion to dismiss on grounds of non-exhaustion of administrative remedies
and lack of cause of action. The RTC denied the motion and proceeded to trial.
In a decision dated February 27, 1998, the RTC rendered judgment for respondent, as plaintiff, holding petitioner,
as defendant, liable, thus:
WHEREFORE, judgment is hereby rendered ordering defendant National Irrigation Administration to pay plaintiff
the sum of P259,154.01 with legal rate of interest of 12% per annum effective on 1 August 1985 until fully paid;
P50,000.00, as and for attorney’s fees; and the costs of suit.
SO ORDERED.
Both parties went up to the Court of Appeals (CA). For its part, petitioner contended that the trial court erred in
denying its motion to dismiss and thereafter holding it liable to respondent. On the other hand, respondent
interposed that the trial court erred in failing to hold petitioner’s co-defendants personally liable for damages and in
adjudging petitioner NIA solely liable based on the face value of the work accomplished in 1985. The CA, however,
found no reversible error in the appealed decision and affirmed it as follows:1avvphil.net
WHEREFORE, finding no reversible error in the appealed decision which is in accord with the evidence and
jurisprudential principle on the matter, the same is hereby AFFIRMED.
SO ORDERED.
Only petitioner NIA came to this Court via this petition for review raising the following issues for resolution:
the court of appeals erred in affirming the ruling of the regional trial court denying petitioner’s motion to dismiss
(annex "c" hereof) which averred, among other things, that respondent failed to exhaust administrative remedies
available to him under the law.
the court of appeals erred in declaring that petitioner is liable to respondent for the alleged work at petitioner’s
project though the alleged assignment was done in violation of existing rules and regulations.
The Court finds the petition meritorious.
Petitioner raised the issue of non-exhaustion of administrative remedies in its appeal before the CA, on account of
respondent’s failure to file his claim before the Commission on Audit (COA) prior to instituting a complaint for
collection of sum of money with the RTC. Instead of addressing the question, however, the CA discussed NIA’s
separate and distinct corporate personality from the government or the State, which is a non-issue. What the CA
failed to rule upon is, given the fact that NIA is a government entity vested with a separate corporate personality
from the State, whether NIA, being a government entity disbursing public funds or tax-payers’ money is subject to
the jurisdiction of COA such that any claim for collection of sum of money against it, specially in this instance where
it is not covered by any written contract, must be initially lodged before the COA.
The issue should have been resolved in the affirmative.
Among the powers vested upon COA as provided for in Section 26, Presidential Decree No. 1445, are the
following:
SECTION 26. General jurisdiction. – The authority and powers of the Commission shall extend to and comprehend
all matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the
Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and
inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the
accounts of all persons respecting funds or property received or held by them in an accountable capacity, as well
as the examination, audit, and settlement of all claims of any sort due from or owing to the Government or any of its
subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned or controlled
corporations, including their subsidiaries, and other self-governing boards, commissions, agencies of the
Government, and as herein prescribed, including non-governmental entities subsidized by the government, those
funded by donations through the government, those required to pay levies or government share, and those for
which the government has put up a counterpart fund or those partly funded by the government. [Emphasis
supplied.]
COA, as one of the three (3) independent constitutional commissions, is specifically vested with the power,
authority and duty to examine, audit and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property owned or held in trust by the government, or any of its subdivisions,
agencies or instrumentalities. To ensure the effective discharge of its functions, COA has been empowered, subject
to the limitations imposed by Article IX(D) of the 1987 Constitution, to define the scope of its audit and examination
and establish the techniques and methods required therefor, and promulgate accounting and auditing rules and
regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant
or unconscionable expenditures or uses of government funds and properties.2
In the instant case, when determining the regularity of disbursement of public funds by the petitioner NIA for the
alleged services rendered by respondent in the widening project involving a portion of Binahaan River in Barangay
Cansamada, Dagami, Leyte more specifically, from station 16 + 400 to station 16 + 900 thereof, the accounting and
auditing principles, rules and regulations set by COA must be taken into consideration. In this light, it is highly
doubtful whether respondent may compel petitioner NIA’s officers to release payment of his claims without any
previously approved contract for the supposed river-widening project in violation of existing COA rules and
regulations, without subjecting said official to administrative and/or personal liabilities and/or accountabilities.
Be that as it may, for the supposed refusal or failure by the concerned public officials to act over respondent’s
money claim or even the mere inaction for an unreasonable period, the proper and immediate remedy of the
respondent was to file his claim with the COA, such inaction or refusal to pay being tantamount to disallowance of
the claim. Only after COA has ruled on the claim, may the injured party invoke judicial intervention by bringing the
matter to this Court on petition for certiorari.
Exhaustion of administrative remedies is a doctrine of long standing and courts have clear guidelines on the matter.
Paat vs. Court of Appeals3 wrote:
This Court in a long line of cases has consistently held that before a party is allowed to seek the intervention of the
court, it is a pre-condition that he should have availed of all the means of administrative processes afforded him.
Hence, if a remedy within the administrative machinery can still be resorted to by giving the administrative officer
concerned every opportunity to decide on a matter that comes within his jurisdiction then such remedy should be
exhausted first before court’s judicial power can be sought. The premature invocation of court’s intervention is fatal
to one’s cause of action. Accordingly, absent any finding of waiver or estoppel the case is susceptible of dismissal
for lack of cause of action. This doctrine of exhaustion of administrative remedies was not without its practical and
legal reasons, for one thing, availment of administrative remedy entails lesser expenses and provides for a
speedier disposition of controversies. It is no less true to state that the courts of justice for reasons of comity and
convenience will shy away from a dispute until the system of administrative redress has been completed and
complied with so as to give the administrative agency concerned every opportunity to correct its error and to
dispose of the case. However, we are not amiss to reiterate that the principle of exhaustion of administrative
remedies as tested by a battery of cases is not an ironclad rule. This doctrine is a relative one and its flexibility is
called upon by the peculiarity and uniqueness of the factual and circumstantial settings of a case. Hence, it is
disregarded (1) when there is a violation of due process, (2) when the issue involved is purely a legal question, (3)
when the administrative action is patently illegal amounting to lack or excess of jurisdiction, (4) when there
is estoppel on the part of the administrative agency concerned, (5) when there is irreparable injury, (6) when the
respondent is a department secretary whose acts as an alter ego of the President bears the implied and assumed
approval of the latter, (7) when to require exhaustion of administrative remedies would be unreasonable, (8) when it
would amount to a nullification of a claim, (9) when the subject matter is a private land in land case proceedings,
(10) when the rule does not provide a plain, speedy and adequate remedy, and (11) when there are circumstances
indicating the urgency of judicial intervention.
Petitioner had timely raised this ground to dismiss the action before the RTC, and since there is no showing that
respondent’s case falls under any one of the accepted exceptions, petitioner’s motion to dismiss should have been
granted, forthwith dismissing the case for lack of cause of action.
Anent the second issue, the legality or regularity of petitioner’s payment of respondent’s claim may be best
addressed in a proper case before the COA, considering that there might be factual matters involved therein, which
is definitely not within the province of the present petition for review on certiorari.
WHEREFORE, the petition is hereby GRANTED. The appealed decision is hereby REVERSED and SET ASIDE,
and respondent’s Complaint before the RTC is DISMISSED for lack of cause of action, with costs against
respondent.
SO ORDERED.
NATIONAL ELECTRIFICATION ADMINISTRATION vs. COMMISSION ON AUDIT
G.R. No. 167807 December 6, 2011

DECISION

This is a special civil action via certiorari under Rule 65 in relation to Rule 64 of the 1997 Revised Rules of Civil
Procedure from the Decision1 of the Commission on Audit (COA) No. 2003-134 dated October 9, 2003, which
denied the grant of rice allowance to employees of the National Electrification Administration (NEA) who were hired
after June 30, 1989 (petitioners) and COA’s Resolution2 No. 2005-010 dated February 24, 2005, which likewise
denied petitioners’ Motion for Reconsideration.
On July 1, 1989, Republic Act No. 6758 (the Compensation and Position Classification Act of 1989) took effect,
Section 12 of which provides:
Sec. 12. Consolidation of Allowances and Compensation. — All allowances, except for representation and
transportation allowances; clothing and laundry allowances; subsistence allowance of marine officers and crew on
board government vessels and hospital personnel; hazard pay; allowances of foreign service personnel stationed
abroad; and such other additional compensation not otherwise specified herein as may be determined by the DBM,
shall be deemed included in the standardized salary rates herein prescribed. Such other additional compensation,
whether in cash or in kind, being received by incumbents only as of July 1, 1989 not integrated into the
standardized salary rates shall continue to be authorized.
Existing additional compensation of any national government official or employee paid from local funds of a local
government unit shall be absorbed into the basic salary of said official or employee and shall be paid by the
National Government. (Emphasis ours.)
Pursuant to its authority to implement Republic Act No. 6758 under Section 23 thereof, the Department of Budget
and Management (DBM) on October 2, 1989 issued Corporate Compensation Circular No. 10 (DBM-CCC No. 10),
otherwise known as the "Implementing Rules and Regulations of R.A. No. 6758." Paragraph 5.5 of DBM-CCC No.
10 reads:
5.5 The following allowances/fringe benefits authorized to GOCCs/GFIs pursuant to the aforementioned
issuances are not likewise to be integrated into the basic salary and allowed to be continued only for
incumbents of positions as of June 30, 1989 who are authorized and actually receiving said
allowances/benefits as of said date, at the same terms and conditions prescribed in said issuances[:]
5.5.1 Rice Subsidy;
5.5.2 Sugar Subsidy;
5.5.3 Death Benefits other than those granted by the GSIS;
5.5.4 Medical/dental/optical allowances/benefits;
5.5.5 Children’s Allowance;
5.5.6 Special Duty Pay/Allowance;
5.5.7 Meal Subsidy;
5.5.8 Longevity Pay; and
5.5.9 Teller’s Allowance. (Emphasis added.)
A group of NEA employees who were hired after October 31, 19893 claimed that they did not receive meal, rice,
and children’s allowances. Thus, on July 23, 1999, they filed a special civil action for mandamus against NEA and
its Board of Administrators before the Regional Trial Court (RTC), Branch 88, Quezon City, docketed as SP. Civil
Action No. Q-99-38275, alleging violation of their right to the equal protection clause under the Constitution.
On December 15, 1999, the RTC rendered its Decision4 in their favor, disposing of the case in the following
manner:
WHEREFORE, foregoing considered, the petition is hereby GRANTED directing the respondent NEA, its Board of
Administrators to forthwith settle the claims of the petitioners and other employees similarly situated and extend to
them the benefits and allowances to which they are entitled but which until now they have been deprived of as
enumerated under Section 5 of DBM CCC No. 10 and their inclusion in the Provident Funds Membership,
retroactive from the date of their appointments up to the present or until their separation from the service.5
At the instance of the complainants, the Branch Clerk of Court of RTC Branch 88, Quezon City, Lily D. Labarda,
issued a CERTIFICATION6 dated January 24, 2000, which states:
This is to certify that the Decision dated December 16, 1999 7 of the above-entitled case which reads the dispositive
portion:
xxxx
is now final and executory.
This certification [is] issued upon the request of Ms. Blesilda B. Aguilar for whatever legal purpose/s it may serve. 8
Afterwards, the Presiding Judge of RTC Branch 88, Quezon City issued a Writ of Execution 9 in SP. Civil Action No.
Q-99-38275 on February 22, 2000.10 Thereafter, the RTC issued a Notice of Garnishment against the funds of NEA
with Development Bank of the Philippines (DBP) to the extent of ₱16,581,429.00.11
NEA questioned before the Court of Appeals the Orders of the lower court, and the case was docketed as CA-G.R.
SP No. 62919. On July 4, 2002, the Court of Appeals rendered a Decision 12 declaring null and void the December
11, 2000 Resolution as well as the January 8, 2001 Order of the RTC, and ordering the implementation of a writ of
execution against the funds of NEA. Thus, NEA filed a Petition for Review on Certiorari with this Court, docketed as
G.R. No. 154200. Meanwhile, the RTC held in abeyance the execution of its December 15, 1999 Decision pending
resolution of this Court of the review on certiorari in National Electrification Administration v. Morales. 13
On July 24, 2007, this Court reversed and set aside the Court of Appeals decision and described the subsequent
events relating to the case in this manner14 :
Meanwhile, in a letter dated June 28, 2000, former DBM Secretary Benjamin E. Diokno informed NEA Administrator
Conrado M. Estrella III of the denial of the NEA request for a supplemental budget on the ground that the claims
under R.A. No. 6758 which the RTC had ordered to be settled cannot be paid because Morales, et al. are not
"incumbents of positions as of July 1, 1989 who are actually receiving and enjoying such benefits."
Moreover, in an Indorsement dated March 23, 2000, the Commission on Audit (COA) advised NEA against making
further payments in settlement of the claims of Morales, et al. Apparently, COA had already passed upon claims
similar to those of Morales, et al. in its earlier "Decision No. 95-074" dated January 25, 1995. Portions of the
Indorsement read as follows:
This Office concurs with the above view. The court may have exceeded its jurisdiction when it entertained the
petition for the entitlement of the after-hired employees which had already been passed upon by this
Commission in COA Decision No. 95-074 dated January 25, 1995. There, it was held that: "the adverse action
of this Commission sustaining the disallowance made by the Auditor, NEA, on the payment of fringe benefits
granted to NEA employees hired from July 1, 1989 to October 31, 1989 is hereby reconsidered. Accordingly,
subject disallowance is lifted."
Thus, employees hired after the extended date of October 31, 1989, pursuant to the above COA decision
cannot defy that decision by filing a petition for mandamus in the lower court. Presidential Decree No. 1445
and the 1987 Constitution prescribe that the only mode for appeal from decisions of this Commission is on
certiorari to the Supreme Court in the manner provided by law and the Rules of Court. Clearly, the lower
court had no jurisdiction when it entertained the subject case of mandamus. And void decisions of the
lower court can never attain finality, much less be executed. Moreover, COA was not made a party thereto,
hence, it cannot be compelled to allow the payment of claims on the basis of the questioned decision.
PREMISES CONSIDERED, the auditor of NEA should post-audit the disbursement vouchers on the bases of this
Commission's decision particularly the above-cited COA Decision No. 94-074 [sic] and existing rules and
regulations, as if there is no decision of the court in the subject special civil action for mandamus. At the same time,
management should be informed of the intention of this Office to question the validity of the court decision before
the Supreme Court through the Office of the Solicitor General.
Parenthetically, the records at hand do not indicate when Morales, et al. were appointed. Even the December [15],
1999 RTC Decision is vague for it merely states that they were appointed after June 30, 1989, which could mean
that they were appointed either before the cut-off date of October 31, 1989 or after. Thus, there is not enough basis
for this Court to determine that the foregoing COA Decision No. 95-074 adversely affects Morales, et al.. Moreover,
the records do not show whether COA actually questioned the December 16, 1999 RTC Decision before this
Court.15
The Court ruled that respondents therein could not proceed against the funds of NEA "because the December [15],
1999 RTC Decision sought to be satisfied is not a judgment for a specific sum of money susceptible of execution by
garnishment; it is a special judgment requiring petitioners to settle the claims of respondents in accordance with
existing regulations of the COA."16 The Court further held as follows:
In its plain text, the December [15], 1999 RTC Decision merely directs petitioners to "settle the claims of
[respondents] and other employees similarly situated." It does not require petitioners to pay a certain sum of money
to respondents. The judgment is only for the performance of an act other than the payment of money,
implementation of which is governed by Section 11, Rule 39 of the Rules of Court, which provides:
Section 11. Execution of special judgments. - When a judgment requires the performance of any act other than
those mentioned in the two preceding sections, a certified copy of the judgment shall be attached to the writ of
execution and shall be served by the officer upon the party against whom the same is rendered, or upon any other
person required thereby, or by law, to obey the same, and such party or person may be punished for contempt if he
disobeys such judgment.
xxxx
Garnishment is proper only when the judgment to be enforced is one for payment of a sum of money.
The RTC exceeded the scope of its judgment when, in its February 22, 2000 Writ of Execution, it directed
petitioners to "extend to [respondents] the benefits and allowances to which they are entitled but which until now
they have been deprived of as enumerated under Sec. 5 of DBM CCC No. 10 and x x x to cause their inclusion in
the Provident Fund Membership." Worse, it countenanced the issuance of a notice of garnishment against the
funds of petitioners with DBP to the extent of ₱16,581,429.00 even when no such amount was awarded in its
December 16, 1999 Decision.
However, in its subsequent Orders dated May 17, 2000 and January 8, 2001, the RTC attempted to set matters
right by directing the parties to now await the outcome of the legal processes for the settlement of respondents’
claims.
That is only right.
Without question, petitioner NEA is a GOCC -- a juridical personality separate and distinct from the government,
with capacity to sue and be sued. As such GOCC, petitioner NEA cannot evade execution; its funds may be
garnished or levied upon in satisfaction of a judgment rendered against it. However, before execution may proceed
against it, a claim for payment of the judgment award must first be filed with the COA.
Under Commonwealth Act No. 327, as amended by Section 26 of P.D. No. 1445, it is the COA which has primary
jurisdiction to examine, audit and settle "all debts and claims of any sort" due from or owing the Government or any
of its subdivisions, agencies and instrumentalities, including government-owned or controlled corporations and their
subsidiaries. With respect to money claims arising from the implementation of R.A. No. 6758, their allowance or
disallowance is for COA to decide, subject only to the remedy of appeal by petition for certiorari to this Court.
All told, the RTC acted prudently in halting implementation of the writ of execution to allow the parties recourse to
the processes of the COA. It may be that the tenor of the March 23, 2000 Indorsement issued by COA already
spells doom for respondents’ claims; but it is not for this Court to preempt the action of the COA on the post-audit to
be conducted by it per its Indorsement dated March 23, 2000.
In fine, it was grave error for the CA to reverse the RTC and direct immediate implementation of the writ of
execution through garnishment of the funds of petitioners,
WHEREFORE, the petition is GRANTED. The July 4, 2002 Decision of the Court of Appeals is REVERSED
andSET ASIDE. The Resolution dated December 11, 2000 and Order dated January 8, 2001 of the Regional Trial
Court, Branch 88, Quezon City in Special Civil Action No. Q-99-38275 are REINSTATED.17
Meantime, the Civil Service Commission issued Resolution No. 001295 dated June 1, 2001 18 and interpreted
Section 12 of Republic Act No. 6758 in this manner:
Material to the resolution of this instant request is Section 12 of SSL x x x.
xxxx
The Commission, x x x is of the view that this provision of law does not imply that such other additional
compensation not integrated into the salary rates shall not be received by employees appointed after July 1, 1989.
The word "only" before the phrase "as of July 1, 1989" does not refer to incumbents but qualifies what additional
compensation can be continued together with the qualifying words "not integrated into the standardized rates shall
continue to be authorized." The correct interpretation therefore is that, additional compensation being received by
employees not integrated into the standardized rates as of July 1, 1989 shall continue to be authorized and
received/enjoyed by said employees, whether or not said employee was appointed prior to or after July 1, 1989.
A different interpretation will result in the creation of two classes of employees, i.e., one class receiving less pay
than another class for substantially equal work. Said interpretation will violate Section 2 of the SSL which provides,
thus:
xxxx
Additionally, this interpretation will also violate the constitutional precept that no person shall be denied the equal
protection of law (Section 1, Article III of the 1987 Constitution). Applying this precept the Supreme Court declared
that "equal protection of the law is against unde favor on an individual or class (Tiu vs. Court of Appeals, GR No.
127410, January 20, 1999).19
The Office of the Government Corporate Counsel (OGCC), in response to the request of then NEA Administrator
Manuel Luis S. Sanchez, issued on August 14, 2001 its Opinion No. 157, s. 2001 20 declaring that the RTC decision,
not having been appealed, had become the law of the case which must now be applied. The pertinent portion of
such opinion reads:
HON. MANUEL LUIS S. SANCHEZ
Administrator
National Electrification Administration
NEA Road, Diliman, Quezon City
Re: Request for legal opinion on the propriety and applicability to NEA employees hired after July 1, 1989 of OGCC
Opinion NO. 086, s. 2001
xxxx
Pursuant to law, subject Decision became final and executory fifteen (15) days after its rendition, there being no
appeal or motion for reconsideration filed in the interim, as certified to by Atty. Lily D. Labarda, Branch 88, Quezon
City, on January 24, 2000.
The foregoing considered, this Office therefore cannot opine otherwise save to uphold the supremacy and finality of
the aforequoted Decision of the Court on the matter. Its judgment is now res judicata, hence, the controlling legal
rule, as far as Petitioners NEA employees are concerned, is that they must be extended the benefits and
allowances "to which they are entitled but which until now they have been deprived of as enumerated under Section
5 of DBM CCC No. 101 x x x, retroactive from the date of their appointments up to the present or until their
separation from the service." This is the law of the case which must now be applied. At any rate, we have stated in
OGCC Opinion No. 086, S. 2001 that even employees hired after July 1, 1989 may receive the subject benefits
provided there is determination by the DBM that the same have not been actually integrated into their basic
salaries.
Hence, your query is therefore answered in the affirmative.21
Pursuant to the above opinion in its favor, the NEA Board of Administrators issued Resolution No. 29 on August 9,
200122 approving the entitlement to rice, medical, children, meal, and other related allowances to NEA employees
hired after October 31, 1989,23 and the payment of these benefits, chargeable to its Personnel Services Savings.
This resolution was the outcome of the meeting of the NEA Board of Administrators on the same date, and reads:
RESOLUTION NO. 29
xxxx
RESOLVED THEREFORE TO APPROVE, as it hereby approves, the entitlement to rice, medical, children, meal
and other related allowances of NEA employees hired after October 31, 1989 and payment of these benefits;
RESOLVED FURTHER TO CONFIRM, as it hereby confirms, the initial appropriation and payment of One Million
Six Hundred Forty Six Thousand One Hundred Twenty Seven Pesos and Thirty Centavos (P1,646,127.30) for this
purpose chargeable against the Personnel Services Savings.24
Thus, NEA granted the questioned allowances to its employees who were not receiving these benefits/allowances,
including rice allowance amounting to ₱1,865,811.84 covering the period January to August 2001. 25
However, the resident auditor of COA, Carmelita M. Agullana (Agullana), did not allow the payment of rice
allowance for the period January to August 2001 to NEA employees who were not incumbents as of June 30, 1989,
under Notice of Disallowance26 No. 2001-004-101 dated September 6, 2001. Agullana indicated the "Facts and/or
Reasons for Disallowance" as follows:
Payment of Rice Allowance for the period January, 2001 to August, 2001 to employees who were not incumbents
as of June 30, 1989 not allowed pursuant to RA #6758 as implemented by Corporate Compensation Circular No.
10 prescribing the Rules and Regulations for the Implementation of the Revised Compensation and Position
Classification System for Government-Owned and/or Controlled Corporations (GOCCs) and Financial Institutions
(GFIs) specifically Sections 5.4 and 5.5 thereof. x x x. 27
NEA, through then Acting Administrator Francisco G. Silva, and assisted by counsel, appealed Agullana’s
disallowance to the COA on September 27, 2001,28 arguing that the disallowance had no basis in law and in fact,
and that the subject disbursement was anchored on a court decision that had become final and executory.
The COA denied the appeal from the disallowance in a Decision29 dated October 9, 2003 (Decision No. 2003-134).
The COA stated that:
The Director of x x x Corporate Audit Office II recommended the affirmance of the subject disallowance contending
that Section 12 of Republic Act (RA) No. 6758 (Salary Standardization Law) x x x remains applicable on the matter
since Department of Budget and Management-Corporate Compensation Circular No. 10, s. 1989 (DBM-CCC No.
10) was declared ineffective by the Supreme Court in the case of De Jesus, et al. vs. COA, et al. (G.R. No. 109023,
August 13, 1998) due to its non-publication in the Official Gazette or in a newspaper of general circulation. She
pointed out that the alleged discriminatory effect and violation of the policy to provide equal pay for substantially
equal work in the above-quoted provision have been sufficiently considered in Philippine Ports Authority vs. COA,
214 SCRA 653 and later confirmed in Philippine International Trading Corporation vs. COA, G.R. No. 132593, June
25, 1999, wherein the Supreme Court ruled that:
"x x x we must mention that this Court has confirmed in Philippine Ports Authority vs. Commission on Audit the
legislative intent to protect incumbents who are receiving salaries and allowances over and above those authorized
by RA 6758 to continue to receive the same even after RA 6758 took effect. In reserving the benefit to incumbents,
the legislature has manifested its intent to gradually phase out this privilege without upsetting the policy of non-
diminution of pay and consistent with the rule that laws should only be applied prospectively in the spirit of fair
play."
She also conformed to the OGCC Opinion No. 52, s. 1999 dated March 22, 1999, edifying the implication of the De
Jesus Case which enunciated thusly:
"Notwithstanding the ruling in the De Jesus Case, the applicable law is still Section 12 of R.A. No. 6758 which
allows additional compensation being received by incumbents as of July 1, 1989 not integrated into the standard
rates to continue. The recent nullification of DBM-CCC No. 10 applies favorably only to those incumbent employees
(hired prior to July 1, 1989) and does not in any way change the position or situation of those employees hired after
the cut-off date. With the issuance of R.A. 6758, employees hired after July 1, 1989 must follow the revised and
unified compensation and position classification system in the government, for which the DBM was directed to
establish and administer and which shall be applied for all government entities.
xxxx
The new hirees having accepted their employment, aware of such a condition that they are not entitled to additional
benefits and allowances, they would be estopped from complaining."
Moreover, the Director noted that when the rice allowance to the claimants was granted in the year 2001, the DBM
had already published CCC No. 10.
Anent the contention that the subject decision of the RTC has become the law of the case which must be applied,
she stressed that the said doctrine is one of the policies only and will be disregarded when compelling
circumstances call for a redetermination of the point of law. As cited in Black’s Law Dictionary, 6th Edition, 1990,
"the doctrine is merely a rule of procedure and does not go to the power of the court, and will not be adhered to
where its application will result in unjust decision."
xxxx
PREMISES CONSIDERED, the instant appeal is hereby DENIED and the disallowance in the total amount of
₱1,865,811.84 is accordingly affirmed.30
NEA filed a Motion for Reconsideration of the said Decision, but this was denied in COA Decision No. 2005-
01031dated February 24, 2005, the pertinent portions of which read:
After a careful re-evaluation, this Commission finds herein motion devoid of merit, the issues raised therein being a
mere reiteration of the previous arguments of the movant in his appeal and which were already considered and
passed upon by this Commission in the assailed decision.
WHEREFORE, there being no new and material evidence adduced as would warrant a reversal or modification of
the decision herein sought to be reconsidered, the instant motion for reconsideration has to be, as it is hereby,
denied with finality.32
Thus, petitioners came to this Court questioning the COA’s decision and resolution on the disallowance of their rice
subsidy.
Petitioners claim that the COA’s reliance on DBM-CCC No. 10 is totally misplaced, alleging that this interpretation
had been "squarely debunked" by the Supreme Court in a number of cases, including Cruz v. Commission on
Audit.33 Furthermore, petitioners claim that in a similar case involving Opinion No. 086, s. 2001 of the OGCC, it
wrote: "[It] is our considered opinion that employees of COA, whether appointed before or after July 1, 1989, are
entitled to the benefits enumerated under Section 5.5 of DBM-CCC No. 10 x x x."34
We quote portions of Opinion No. 086, s. 2001 of the OGCC below:
Please be informed that our Office had previously rendered legal opinions involving the same issue upon the
request of some of our client corporations similarly situated. In our Opinion No. 55, Series of 2000, we stated:
"At the outset we would like to clarify that the amount of the standardized salary vis-à-vis the pre-SSL salary (plus
allowance) is not conclusively determinant of whether or not a certain allowance is deemed integrated into the
former. Section 12 of R.A. 6758 expressly provides:
xxxx
The law is thus clear. The general rule is that all allowances are deemed included in the standardized rates set
forth in R.A. 6758. This is consistent with the primary intent of the Act to eliminate wage inequities. The law,
however, admits of certain exceptions and as stated in the second sentence of the aforecited provision, such other
additional compensation in cash or in kind not integrated into the standardized rates being received by incumbents
as of July 1, 1989 shall continue to be authorized. It is our view, however, that a government agency, in this case
NDC, does not have discretion to determine what allowances received by incumbent employees prior to SSL are
deemed included or integrated in the standardized rates. It is the DBM which has the mandate and authority under
the SSL to determine what additional compensation shall be integrated and it is precisely why it issued NCC No.
10."
The foregoing opinion is consistent with our Opinion No. 52, Series of 1999, wherein we opined:
"x x x Nonetheless, as Section 12 of RA 6758 expressly provides that such additional compensation, whether in
cash or in kind, being received by incumbent employees as of July 1, 1989 not integrated to the standardized salary
rates as may be determined by the DBM shall continue to be authorized, the question becomes a matter of fact, on
whether or not the aforementioned allowances have been integrated into the salaries of employees."35 (Emphases
in the quoted text.)
Petitioners claim that "the Civil Service Commission, the Office of the Government Corporate Counsel and the
highest court of the land, the Supreme Court, chose not to distinguish the entitlement of benefits to those hired
before and after October 31, 1989 (or in this case, July [1], 1989)," while "the COA sweepingly does so by just a
wave of the hand."36 To support this claim, petitioners erroneously cite Javier v. Philippine Ports Authority, CA-G.R.
No. 67937, March 12, 2002, as a decision by this Court, but said decision was rendered by the Court of Appeals.
Petitioners argue that assuming that they are not entitled to the rice allowance in question, they should not be
required to refund the amounts received, on grounds of fairness and equity. In connection with this, petitioners
allege as follows:
Prior to December 31, 2003, NEA consists of 720 employees more or less who received the rice allowance. Upon
[the] restructuring of NEA in December 2003, all NEA employees were legally terminated. Out of 720 employees,
only 320 employees are now left with to operate NEA. Most of the (sic) them are rehired while minority of them are
newly hired. Thus, the refund of P1,865,811.84, shall be shouldered by those who remained as NEA employees.
Secondly, those who received the said rice allowance accepted it in good faith believing that they are entitled to it
as a matter of law.37
In its Comment38 dated September 21, 2005, COA’s lone argument is that "[t]he assailed COA decision is not
tainted with grave abuse of discretion. The disallowance of payment for the rice [subsidy] by the COA is in accord
with the law and the rules." COA maintains that the law on the matter, Section 12 of Republic Act No. 6758, is clear,
as its last sentence provides reservation of certain allowances to incumbents. COA argues in this wise:
The Supreme Court in Philippine Ports Authority vs. Commission on Audit confirmed the legislative intent to protect
incumbents who are receiving salaries and/or allowances over and above those authorized by R.A. 6758 to
continue to receive the same even after the law took effect. In reserving the benefit to incumbents, the legislature
has manifested its intent to gradually phase out this privilege without upsetting the policy of non-diminution of pay
and consistent with the rule that laws should only be applied prospectively in the spirit of fairness and justice.
Thus, pursuant to its authority under Section 23 of R.A. No. 6758, the DBM x x x issued on October 2, 1989, DBM-
CCC No. 10. Section 5.5 of DBM-CCC No. 10 enumerated the various allowances/fringe benefits authorized to
GOCCs/GFIs which are not to be integrated into the basic salary and allowed to be continued only for incumbents
of positions as of June 30, 1989 who are authorized and actually receiving said allowances/benefits as of said date.
Among these was the rice subsidy/allowance.
Hence, in light of the effectivity of DBM-CCC No. 10 on March 16, 1999 following its reissuance (in its entirety on
February 15, 1999) and publication in the Official Gazette on March 1, 1999, the disallowance by the COA of the
rice allowance for the period beginning January 2001 up to August 2001 is not tainted with grave abuse of
discretion but in accord with the law and the rules.39
Petitioners, in their Reply,40 anchor their petition on their allegation that the RTC Decision had already become final
and executory, could no longer be disturbed, and must be respected by the parties. To support their claim, they cite
Arcenas v. Court of Appeals41 wherein this Court held:
For, it is a fundamental rule that when a final judgment becomes executory, it thereby becomes immutable and
unalterable. The judgment may no longer be modified in any respect, even if the modification is meant to correct
what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is
attempted to be made by the court rendering it or by the highest Court of the land. The only recognized exceptions
are the correction of clerical errors or the making of so-called nunc pro tunc entries which cause no prejudice to any
party, and, of course, where the judgment is void. Any amendment or alteration which substantially affects a final
and executory judgment is null and void for lack of jurisdiction, including the entire proceedings held for that
purpose.42 (Emphasis ours.)
Petitioners likewise cite Panado v. Court of Appeals 43 wherein the Court held that "[i]t is axiomatic that final and
executory judgments can no longer be attacked by any of the parties or be modified, directly or indirectly, even by
the highest court of the land."44 From the foregoing jurisprudence, petitioners conclude that the acts of COA in
disallowing the claims and ordering refund of benefits already received clearly constitute grave abuse of discretion
amounting to lack of jurisdiction inasmuch as said acts frustrated the final and executory decision of the trial court.
The pivotal issues as determined by the COA are:
1. Whether or not the immutability of final decision doctrine must prevail over the exclusive jurisdiction of
[the COA] to audit and settle disbursements of funds; and
2. Whether or not the NEA employees hired after June 30, 1989 are entitled to rice allowance. 45
The COA resolved these issues in this manner:
As to the first issue, the immutability rule applies only when the decision is promulgated by a court possessed of
jurisdiction to hear and decide the case. Undoubtedly, the petition in the guise of a case for mandamus is a money
claim falling within the original and exclusive jurisdiction of this Commission. Noting the propensity of the lower
courts in taking cognizance of cases filed by claimants in violation of such primary jurisdiction, the Supreme Court
issued Administrative Circular 10-2000 dated October 23, 2000 enjoining judges of lower courts to exercise caution
in order to prevent "possible circumvention of the rules and procedures of the Commission on Audit" and reiterating
the basic rule that: "All money claims against the Government must be filed with the Commission on Audit which
shall act upon it within sixty days. Rejection of the claim will authorize the claimant to elevate the matter to the
Supreme Court on certiorari and in effect sue the State thereby."
Under the doctrine of primary jurisdiction, when an administrative body is clothed with original and exclusive
jurisdiction, courts are utterly without power and authority to exercise concurrently such jurisdiction. Accordingly, all
the proceedings of the court in violation of that doctrine and all orders and decisions reached thereby are null and
void. It will be noted in the cited Supreme Court Circular that money claims are cognizable by the COA and its
decision is appealable only to the Supreme Court. The lower courts have nothing to do with such genus of
transactions.
Anent the issue of entitlement to rice allowance by employees hired after June 30, 1989, this Commission is left
with no option but to affirm the disallowance in the face of the explicit provisions of DBM-CCC No. 10. After its
publication on March 9, 1999 in the Official Gazette, rice allowance was allowed only for incumbents as of July 1,
1989. Obviously, there is no violation of the equal protection clause as cited in the PITC case, supra, because
whatever increments the incumbents are enjoying over those of non-incumbents are transitory, for the same law
provides that such difference shall be deducted from the salary increase the former should receive under Section
17. Thus, the equalization or standardization of what the two categories of employees will be receiving in terms of
benefits is ensured.
PREMISES CONSIDERED, the instant appeal is hereby DENIED and the disallowance in the total amount of
₱1,865,811.84 is accordingly affirmed.46
We agree with the findings of the COA.
In National Electrification Administration v. Morales, the order of garnishment against the NEA funds to implement
the RTC Decision was in issue, and we said that the COA had exclusive jurisdiction to decide on the allowance or
disallowance of money claims arising from the implementation of Republic Act No. 6758. We observed therein that
"the RTC acted prudently in halting implementation of the writ of execution to allow the parties recourse to the
processes of the COA."47 In fact, we even stated there that "it is not for this Court to preempt the action of the COA
on the post-audit to be conducted by it per its Indorsement dated March 23, 2000."48
We find that the COA had ruled in accordance with law and jurisprudence, and we see no reason to reverse its
decision.
Section 5.5 of DBM-CCC No. 10 is clear that rice subsidy is one of the benefits that will be granted to employees of
GOCCs49 or GFIs50 only if they are "incumbents" as of July 1, 1989. We reproduce the first paragraph of Section
5.5 below:
5.5 The following allowances/fringe benefits authorized to GOCCs/GFIs pursuant to the aforementioned issuances
are not likewise to be integrated into the basic salary and allowed to be continued only for incumbents of positions
as of June 30, 1989 who are authorized and actually receiving said allowances/benefits as of said date, at the
same terms and conditions prescribed in said issuances[:]
5.5.1 Rice Subsidy; x x x.51
We have defined an incumbent as "a person who is in present possession of an office; one who is legally
authorized to discharge the duties of an office."52 There is no question that petitioners were not incumbents as of
June 30, 1989. We have likewise characterized NEA as a GOCC in National Electrification Administration v.
Morales. Thus, Section 5.5 quoted above, issued pursuant to the authority given to the DBM under Section 12 of
Republic Act No. 6758, was correctly applied by the COA.
We find our pronouncements in Philippine National Bank v. Palma53 to be applicable and conclusive on this issue
now before us:
During these tough economic times, this Court understands, and in fact sympathizes with, the plight of ordinary
government employees. Whenever legally possible, it has bent over backwards to protect labor and favor it with
additional economic advantages. In the present case, however, the Salary Standardization Law clearly provides
that the claimed benefits shall continue to be granted only to employees who were "incumbents" as of July 1, 1989.
Hence, much to its regret, the Court has no authority to reinvent or modify the law to extend those benefits even to
employees hired after that date.1awphil
xxxx
Stare Decisis
The doctrine "stare decisis et non quieta movere (Stand by the decisions and disturb not what is settled)" is firmly
entrenched in our jurisprudence. Once this Court has laid down a principle of law as applicable to a certain state of
facts, it would adhere to that principle and apply it to all future cases in which the facts are substantially the same
as in the earlier controversy.
The precise interpretation and application of the assailed provisions of RA 6758, namely those in Section 12, have
long been established in Philippine Ports Authority v. COA. The essential pronouncements in that case have further
been fortified by Manila International Airport Authority v. COA, Philippine International Trading Corporation v. COA,
and Social Security System v. COA.
This Court has consistently held in those cases that allowances or fringe benefits, whether or not integrated into the
standardized salaries prescribed by RA 6758, should continue to be enjoyed by employees who (1) were
incumbents and (2) were receiving those benefits as of July 1, 1989.
In Philippine Ports Authority v. COA, the x x x Court said that the intention of the framers of that law was to phase
out certain allowances and privileges gradually, without upsetting the principle of non-diminution of pay. The
intention of Section 12 to protect incumbents who were already receiving those allowances on July 1, 1989, when
RA 6758 took effect was emphasized thus:
"An incumbent is a person who is in present possession of an office.
"The consequential outcome, under sections 12 and 17, is that if the incumbent resigns or is promoted to a higher
position, his successor is no longer entitled to his predecessor’s RATA privilege x x x or to the transition allowance."
Finally, to explain what July 1, 1989 pertained to, we held in the same case as follows:
"x x x. The date July 1, 1989 becomes crucial only to determine that as of said date, the officer was
an incumbentand was receiving the RATA, for purposes of entitling him to its continued grant. x x x."
In Philippine International Trading Corporation v. COA, this Court confirmed the legislative intention in this wise:
"x x x [T]here was no intention on the part of the legislature to revoke existing benefits being enjoyed
by incumbentsof government positions at the time of the passage of RA 6758 by virtue of Sections 12 and 17
thereof. x x x."
The Court stressed that in reserving the benefits to incumbents alone, the legislature’s intention was not only to
adhere to the policy of non-diminution of pay, but also to be consistent with the prospective application of laws and
the spirit of fairness and justice.
xxxx
In consonance with stare decisis, there should be no more misgivings about the proper application of Section 12. In
the present case, the payment of benefits to employees hired after July 1, 1989, was properly withheld, because
the law clearly mandated that those benefits should be reserved only to incumbents who were already enjoying
them before its enactment. Withholding them from the others ensured that the compensation of the incumbents
would not be diminished in the course of the latter’s continued employment with the government
agency.54 (Emphasis ours, citations omitted.)
As petitioners were hired after June 30, 1989, the COA was correct in disallowing the grant of the benefit to them,
as they were clearly not entitled to it. As quoted above, we have repeatedly held that under Section 12 of Republic
Act No. 6758, the only requirements for the continuous grant of allowances and fringe benefits on top of the
standardized salary rates for employees of GOCCs and GFIs are as follows: (1) the employee must be an
incumbent as of July 1, 1989; and (2) the allowance or benefit was not consolidated in the standardized salary rate
as prescribed by Republic Act No. 6758.55
We hereby reiterate our ruling in Philippine National Bank v. Palma as regards Section 12 of Republic Act No.
6758, as follows:
In sum, we rule thus:
1. Under Section 12 of RA 6758, additional compensation already being received by the employees of
petitioner, but not integrated into the standardized salary rates -- enumerated in Section 5.5 of DBM-CC[C]
No. 10, like "rice subsidy, sugar subsidy, death benefits other than those granted by the GSIS," and so on -
- shall continue to be given.
2. However, the continuation of the grant shall be available only to those "incumbents" already receiving it
on July 1, 1989.
3. Thus, in PPA v. COA, this Court held that PPA employees already receiving the RATA granted by LOI
No. 97 should continue to receive them, provided they were already "incumbents" on or before July 1,
1989.
4. PITC v. COA held that in enacting RA 6758, Congress was adhering to the policy of non-diminution of
existing pay. Hence, if a benefit was not yet existing when the law took effect on July 1, 1989, there was
nothing to continue and no basis for applying the policy.
5. Neither would Cruz v. COA be applicable. In those cases, the COA arbitrarily set a specific date, October
31, 1989; RA 6758 had not made a distinction between those hired before and those after that date. In the
present case, the law itself set July 1, 1989, as the date when employees should be "incumbents," because
that was when RA 6758 took effect. It was not an arbitrarily chosen date; there was sufficient reason for
setting it as the cutoff point.56
Notwithstanding our ruling above, however, we take up as another matter the refund ordered by the COA on the
rice subsidy that petitioners had already received. As regards the refund, we rule in favor of petitioners and will not
require them to return the amounts anymore.
This is because, to begin with, the officials and administrators of NEA themselves had believed that their
employees were entitled to the allowances, and this was covered by Resolution No. 29 of the NEA Board of
Administrators. The petitioners thus received in good faith the rice subsidy together with other allowances provided
in said Resolution. For reasons of equity and fairness, therefore, and considering their long wait for this matter to be
resolved with finality, we will no longer require a refund from these public servants.
Our pronouncements on refund in De Jesus v. Commission on Audit, 57 wherein we cited Blaquera v. Hon.
Alcala,58are applicable:
Considering, however, that all the parties here acted in good faith, we cannot countenance the refund of subject
incentive benefits for the year 1992, which amounts the petitioners have already received. Indeed, no indicia of bad
faith can be detected under the attendant facts and circumstances. The officials and chiefs of offices concerned
disbursed such incentive benefits in the honest belief that the amounts given were due to the recipients and the
latter accepted the same with gratitude, confident that they richly deserve such benefits.
This ruling in Blaquera applies to the instant case. Petitioners here received the additional allowances and bonuses
in good faith under the honest belief that LWUA Board Resolution No. 313 authorized such payment. At the time
petitioners received the additional allowances and bonuses, the Court had not yet decided Baybay Water District.
Petitioners had no knowledge that such payment was without legal basis. Thus, being in good faith, petitioners
need not refund the allowances and bonuses they received but disallowed by the COA. 59 (Emphasis supplied.)
As in the cases above quoted, we cannot countenance the refund of the rice subsidies given to petitioners by NEA
for the period January to August 2001 at this late time, especially since they were given by the government agency
to its employees in good faith.
WHEREFORE, premises considered, the petition is hereby PARTIALLY GRANTED. COA Decision No. 2003-134
dated October 9, 2003 and COA Resolution No. 2005-010 dated February 24, 2005 are hereby AFFIRMED with the
CLARIFICATION that the petitioners shall no longer be required to refund the rice subsidies for the period January
to August 2001, which they had received from NEA but were later disallowed by the COA.
SO ORDERED.

TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES vs. MANALANG-


DEMIGILIO.
G.R. No. 176343 September 18, 2012

DECISION

The issuance by the proper disciplining authority of an order of preventive suspension for 90 days of a civil service
officer or employee pending investigation of her administrative case is authorized provided that a formal charge is
served to her and the charge involves dishonesty, oppression, grave misconduct, or neglect in the performance of
duty, or if there are reasons to believe that she is guilty of the charge as to warrant her removal from the service.
Proof showing that the respondent officer or employee may unduly influence the witnesses against her or may
tamper the documentary evidence on file at her office is not a prerequisite before she may be preventively
suspended.
Antecedents
Trade and Investment Development Corporation of the Philippines (TIDCORP) is a wholly owned government
corporation whose primary purpose is to guarantee foreign loans, in whole or in part, granted to any domestic
entity, enterprise or corporation organized or licensed to engage in business in the Philippines. 1
On May 13, 2003, the Board of Directors of TIDCORP formally charged Maria Rosario Manalang-Demigillo
(Demigillo), then a Senior Vice-President in TIDCORP, with grave misconduct, conduct prejudicial to the best
interest of the service, insubordination, and gross discourtesy in the course of official duties. The relevant portions
of the formal charge read:
After a thorough study, evaluation, and deliberation, the Board finds merit to the findings and recommendation of
the Investigating Committee on the existence of a probable cause for Grave Misconduct, Conduct Prejudicial to the
Best Interest of the Service, Insubordination, and Gross Discourtesy in the Course of Official Duties. However and
to avoid any suspicion of partiality in the conduct of the investigation, the Board hereby refers this case to the Office
of the Government Corporate Counsel to conduct a formal investigation on the following:
1) The incident during the Credit Committee Meeting on 06 March 2002 where you allegedly engaged yourself in a
verbal tussle with Mr. Joel C. Valdes, President and CEO. Allegedly, you raised your voice, got angry, shouted at
Mr. Valdes and were infuriated by his remarks such as "are we talking of apples and apples here?", "everybody
should focus on the issues at hand" and "out of the loop";
2) The incident during the Reorganization Meeting on 18 July 2002 where you appeared to have been rude and
arrogant in the way you answered Mr. Valdes to some questions like "Ano gusto mo? Bibigay ko personally sa
iyo…sasabihan ko personally ikaw?", "You know Joel alam natin sa isa’t-isa…that…I don’t know how to term
it…there is no love lost no?", "Ang ibig sabihin kung may galit ka…" "Let’s be candid you know…" "What is the
opportunity? Let me see…pakita ko sa’yo lahat ang aking ano…" and "Anong output tell me?";
3) The incident during the Planning Session on 05 August 2002. Records show that you reacted to the statement of
Mr. Valdes urging everybody to give support to the Marketing Group in this manner – "But of course, we would not
want to be the whipping boy!" Records also show that in the same meeting, you used arrogant and threatening
remarks to the President and CEO like "don’t cause division to hide your inefficiency and gastos! If you push me to
the wall, I have goods on you too…", "You want me to charge you to the Ombudsman?", "May humihingi ng
documents sa akin, sabayan ko na sila", "Now I’m fighting you openly…"and "I am threatening you";
4) The incident involving your Memorandum to Mr. Valdes dated 19 September 2002, the pertinent portions of
which read, as follows:
"I am repulsed and nauseated by the information that yesterday, 18 September 2002 at the OPCOM meeting, you
claim to have talked to me or consulted me about the car you caused to be purchased for the Corporate Auditor
Ms. Maria Bautista.
I have never talked to you about your desire to give Ms. Bautista a car.
This is a brazen lie, a fabrication. Such moral turpitude! How low, how base, how desperate!
Accordingly, as you have given me no (sic), I am taking you to task for this and all the illegal acts you have done
and are doing against me and TIDCORP."
It appears that the said Memorandum was circulated even to those who were not privy to the cause of the issuance
of such statement.
5) The incident where you assisted and made it appear to be acting as counsel of Mr. Vicente C. Uy in the case
involving the latter relative to the conduct of the APEC Capacity Building for Trade and Investment Insurance
Training Program in April 2002;
6) The incident on 13 November 2002 where you allegedly urged and induced officials and employees at the 3rd
floor of TIDCORP to proceed to the Office of the President and CEO to give support to EVP Jane Tambanillo who
was allegedly then being forced to resign by Mr. Valdes. This caused not only a commotion but disturbance and
disruption of the office work at both 3rd and 4th floors;
7) The incident on 13 November 2002 where you allegedly shouted at Atty. Jane Laragan and berated Mr. Valdes
in front of officers and employees whom you gathered as per allegation number 6; and
8) Relative to allegation number 7, your stubborn refusal to obey the order of Mr. Valdes to go back to work as it
was only 9:30 a.m. and instead challenged him to be the one to bring you down to the 3rd floor instead of asking
the guard to do so.
Pursuant to Section 16, Rule II of the Uniform Rules on Administrative Cases in the Civil Service and in the spirit of
justice, fair play, and due process, you are hereby given the opportunity to submit additional evidence to what you
have already submitted during the preliminary investigation, if any to the Board, through the OGCC, within seventy
two (72) hours from receipt of this Memorandum.
In this regard, you are informed of your right to be assisted by a counsel of your choice and to indicate in your
answer whether or not you elect a formal investigation. Nevertheless, and in accordance with the aforecited
provision of the Uniform Rules on Administrative Cases in the Civil Service, any requests for clarification, bills of
particulars or motion to dismiss which are obviously designed to delay the administrative proceeding shall not be
entertained. If any of these pleadings are interposed, the same shall be considered as an answer and shall be
evaluated as such.
Finally, and after considering Section 19 of the same Rules, which gives authority to the disciplining body to issue
an order of preventive suspension, you are hereby preventively suspended for a period of ninety (90) days from
receipt hereof.
Let a copy of this memorandum and the complete records of the case be forwarded immediately to the Office of the
Government Corporate Counsel (OGCC) for appropriate action.2
TIDCORP referred the charge to the Office of the Government Corporate Counsel (OGCC) for formal investigation
and reception of evidence. Pending the investigation, TIDCORP placed Demigillo under preventive suspension for
90 days.3
Demigillo assailed her preventive suspension in the Civil Service Commission (CSC), 4 which issued on January 21,
2004 Resolution No. 040047 declaring her preventive suspension to be "not in order." 5 The CSC stated that under
Section 19(2), Rule II, of the Uniform Rules on
Administrative Cases in the Civil Service (Uniform Rules), a civil service officer like Demigillo might be preventively
suspended by the disciplining authority only if any of the two grounds were present, to wit: (1) there was a
possibility that the civil service employee might unduly influence or intimidate potential witnesses against him; or (2)
there was a possibility that the civil service employee might tamper the documentary evidence on file in her
office.6 According to the CSC, TIDCORP did not prove with substantial evidence the existence of any of such
grounds, explaining thus:
xxx. As the party claiming affirmative evidence, that is, Demigillo’s possibility of influencing potential witnesses or
tampering with evidence, TIDCORP is bound to prove the same by substantial evidence. However, it failed to.
TIDCORP claims that its witnesses "refused to issue any sworn statement during the preliminary investigation in
deference to their immediate superior x x x and that the same witnesses, however, intimated that they may be
compelled to tell the truth if called to testify during the investigation." On the basis of these statements, it is clear
that the witnesses’ refusal to execute sworn statement is by reason of their "deference" to Demigillo not on account
of her "intimidation or influence." Further, the fact that said witnesses "will be compelled to tell the truth" is not
because of Demigillo’s continued presence or absence in the office but because they are bound by their oath to tell
the truth during the investigation. Under these circumstances, it is not difficult to ascertain that the order of
preventive suspension is not necessary.
Anent the potential tampering of documents by Demigillo, the Commission similarly finds the same remote. There is
no showing that the documentary evidence of the case leveled against her were in her possession or custody as
would otherwise justify the imposition of preventive suspension. As borne by the evidence on record, the acts
complained of against Demigillo constitute verbal tussles between her and President Valdes which were all
recorded and documented by the TIDCORP. In this situation, there is no chance of Demigillo’s tampering with
documents.
From the foregoing disquisition, the Commission finds that the preventive suspension of Demigillo for ninety (90)
days was improvidently made because the possibility of exerting/influencing possible witnesses or tampering with
documents, which is the evil sought to be avoided in this case, does not exist. 7
Upon denial of its motion for reconsideration by the CSC,8 TIDCORP appealed to the Court of Appeals
(CA),9submitting the sole issue of:
WHETHER OR NOT THE CSC ERRED IN SO HOLDING THE PREVENTIVE SUSPENSION OF APPELLANT
DEMIGILLO WAS NOT IN ORDER.10
On November 7, 2006, the CA promulgated its decision affirming the CSC,11 holding and ruling as follows:
The main issue in this case is whether or not respondent Demigillo was validly placed under preventive suspension
on the ground that she could possibly influence or intimidate potential witnesses or tamper the evidence on record
in her office, thus, affecting the investigation of the case against her.
Petitioner argues that the preventive suspension imposed against respondent Demigillo is valid as it is in
accordance with the CSC rules and regulations and Section 51, Chapter 6, Title I (A), Book V of Executive Order
No. 292 which states that "the proper disciplining authority may preventively suspend any subordinate officer or
employee under his authority pending an investigation, if the charge against such officer or employee involves
dishonesty, oppression or grave misconduct, or neglect in the performance of duty, or if there are reasons to
believe that the respondent is guilty of charges which would warrant his removal from the service", hence, the CSC
erred in holding the same not in order. Further, petitioner contends that since the provision of the Administrative
Code of 1987 on preventive suspension does not set any condition on its imposition, the provision in the Uniform
Rules on Administrative Cases in the Civil Service promulgated by the CSC should be stricken out as it is not found
in the law itself.
We are not persuaded.
We agree with the CSC Resolution No. 040047 which cited Section 19 (paragraph 2), Rule II, Uniform Rules on
Administrative Cases in the Civil Service as basis in ruling against the order of preventive suspension against
herein respondent. The pertinent portion of the provision reads, as follows:
An order of preventive suspension may be issued to temporarily remove the respondent from the scene of his
misfeasance or malfeasance and to preclude the possibility of exerting undue influence or pressure on the
witnesses against him or tampering of documentary evidence on file with his Office.
Based on the aforequoted provision, any of the two grounds: (1) to preclude the possibility of exerting undue
influence or pressure on the witnesses against him; or (2) tampering of documentary evidence on file with his office,
can be validly invoked by the disciplining authority to justify the imposition of the preventive suspension. As
correctly pointed out by respondent in her motion for leave to file and admit attached comment, and comment to
amended petition for review, under Section 19 (paragraph 2), Rule II, of the Uniform Rules of Administrative Cases
in the Civil Service (URACCS), preventive suspension is warranted in order to preclude the respondent from
exerting "undue influence" on the witnesses against her. But in this case, TIDCORP failed to prove the possibility of
respondent exerting undue influence on the witnesses, but instead CSC found TIDCORP to have admitted
unequivocally that it is because of the witnesses’ deference or respect for respondent that they did not execute
sworn statements. Indeed, the esteem or respect given is not undue influence; it even negates any wrongdoing on
the part of respondent. Indeed, the alleged incidents being harped about by TIDCORP do not in any way prove
undue influence of respondent on the witnesses. The incidents involved mere verbal tussles between Mr. Joel
Valdes, TIDCORP President and CEO, respondent Demigillo and Jane Larangon, who had already executed her
affidavit even before respondent’s preventive suspension. In brief, TIDCORP failed to prove undue influence as
there is nothing in those incidents showing the commission or coercion or compulsion upon one to do what is
against his will.
We agree with the findings of the CSC that respondent’s possibility to exert undue influence or pressure on the
witnesses against her is remote. The purpose of preventive suspension is to avoid the possibility on the part of the
person charged of a certain offense, to exert influence or undue pressure on the potential witnesses against her. In
Gloria vs. Court of Appeals, the High Court said that preventive suspension pending investigation is a measure
intended to enable the disciplining authority to investigate charges against respondent by preventing the latter from
intimidating or in any way influencing witnesses against him. And as correctly pointed out by the CSC, the
possibility of exerting influence or pressure on the potential witnesses does not exist in this case because the
complainant or the person who stands to be a witness for the government is influential, so to speak, as he holds the
highest position in TIDCORP. It is really difficult to imagine that a person who occupies the highest position in an
organization could be influenced or intimidated by his subordinate. The president of the organization has greater
degree of control in the organization, and to claim that he could be intimated or influenced by his subordinate is
baseless and unbelievable. Considering that Valdes was President of TIDCROP and a primary witness against
respondent who is his mere subordinate, we find no valid ground for petitioner to impose preventive suspension
against respondent.
Moreover, as correctly pointed out by the CSC in its resolution, as the party claiming affirmative relief, TIDCORP is
bound to prove the basis thereof, i.e. respondent’s possibility of influencing potential witnesses or tampering with
the evidence, by substantial evidence, which it failed to do. There is no showing that the documentary evidence
against respondent are in her possession or custody. The acts complained of against respondent arose out of the
verbal tussles between her and President Valdes which were all recorded and documented by TIDCORP. In this
situation, there is no chance for respondent’s tampering with the documents.
As regards the argument that since the provision of the Administrative Code of 1987 on preventive suspension
does not set any condition on its imposition, the provision in the Uniform Rules on Administrative Cases in the Civil
Service promulgated by the CSC should be stricken out as it is not found in the law itself, we rule in the negative.
We agree with respondent that the aforequoted argument of petitioner is misplaced and unfounded. Section 12 (2),
Chapter 3, Tile I (A) of Book V of the Revised Administrative Code, provides that among the powers and functions
of the Civil Service Commission is to prescribe, amend and enforce rules and regulations for carrying into effect the
provisions of the Civil Service Law and other pertinent laws. It is on the basis of this grant of power to the CSC that
CSC Resolution No. 991936, otherwise known as the Uniform Rules on Administrative Cases in the Civil Service
was promulgated.
Indeed, the rule-making power of the administrative body is intended to enable it to implement the policy of the law
and to provide for the more effective enforcement of its provisions. Through the exercise of this power of
subordinate legislation, it is possible for the administrative body to transmit "the active power of the state from its
source to the point of application," that is, apply the law and so fulfill the mandate of the legislature. It is an
elementary rule in administrative law that administrative regulations and policies enacted by administrative bodies
to interpret the law which they are entrusted to enforce, have the force of law, are entitled to great respect, and
have in their favor a presumption of legality.
Furthermore, Section 10 of Rule 43 of the 1997 Rules of Civil Procedure, provides that the findings of fact of the
court or agency concerned, when supported by substantial evidence, shall be binding on the Court of Appeals.
Indeed, jurisprudence is replete with the rule that findings of fact of quasi-judicial agencies which have acquired
expertise because their jurisdiction is confined to specific matters are generally accorded not only respect, but at
times even finality if such findings are supported by substantial evidence.
WHEREFORE, the instant petition is DENIED. The assailed Resolutions dated January 21, 2004 and June 7, 2004,
issued by the Civil Service Commission, are AFFIRMED.
SO ORDERED.12
Hence, TIDCORP has appealed to the Court.13
Issue
The sole issue concerns the validity of TIDCORP’s 90-day preventive suspension of Demigillo.
Ruling
We grant the petition, and hold that the 90-day preventive suspension order issued against Demigillo was valid.
The Revised Administrative Code of 1987 (RAC) embodies the major structural, functional and procedural
principles and rules of governance of government agencies and constitutional bodies like the CSC. Section 1,
Chapter 1, Subtitle A, Title I, Book V, of the RAC states that the CSC is the central personnel agency of the
government. Section 51 and Section 52, Chapter 6, Subtitle A, Title I, Book V of the RAC respectively contain the
rule on preventive suspension of a civil service officer or employee pending investigation, and the duration of the
preventive suspension, viz:
Section 51. Preventive Suspension. – The proper disciplining authority may preventively suspend any subordinate
officer or employee under his authority pending an investigation, if the charge against such officer or employee
involves dishonesty, oppression or grave misconduct, or neglect in the performance of duty, or if there are reasons
to believe that the respondent is guilty of charges which would warrant his removal from the service.
Section 52. Lifting of Preventive Suspension Pending Administrative Investigation. – When the administrative case
against the officer or employee under preventive suspension is not finally decided by the disciplining authority
within the period of ninety (90) days after the date of suspension of the respondent who is not a presidential
appointee, the respondent shall be automatically reinstated in the service: Provided, That when the delay in the
disposition of the case is due to the fault, negligence or petition of the respondent, the period of delay shall not be
counted in computing the period of suspension herein provided.
Under Section 51, supra, the imposition of preventive suspension by the proper disciplining authority is authorized
provided the charge involves dishonesty, oppression, or grave misconduct, or neglect in the performance of duty, or
if there are reasons to believe that the respondent is guilty of charges which would warrant his removal from the
service. Section 51 nowhere states or implies that before a preventive suspension may issue there must be proof
that the subordinate may unduly influence the witnesses against him or may tamper the documentary evidence on
file in her office.
In Gloria v. Court of Appeals,14 several public school teachers were preventively suspended for 90 days while being
investigated for the charge of grave misconduct, among others. Citing Section 51 of the RAC, the Court sustained
the imposition of the 90-day preventive suspension pending investigation of the charges, saying:
The preventive suspension of civil service employees charged with dishonesty, oppression or grave misconduct, or
neglect of duty is authorized by the Civil Service Law. It cannot, therefore, be considered "unjustified," even if later
the charges are dismissed so as to justify the payment of salaries to the employee concerned. It is one of those
sacrifices which holding a public office requires for the public good xxx. 15
Pursuant to its rule-making authority, the CSC promulgated the Uniform Rules on August 31, 1999. Section 19 and
Section 20 of Rule II of the Uniform Rules defined the guidelines in the issuance of an order of preventive
suspension and the duration of the suspension, to wit:
Section 19. Preventive Suspension. – Upon petition of the complainant or motu proprio, the proper disciplining
authority may issue an order of preventive suspension upon service of the Formal Charge, or immediately
thereafter to any subordinate officer or employee under his authority pending an investigation, if the charge
involves:
a. dishonesty;
b. oppression;
c. grave misconduct;
d. neglect in the performance of duty; or
e. if there are reasons to believe that the respondent is guilty of charges which would warrant his removal
from the service.
An order of preventive suspension may be issued to temporarily remove the respondent from the scene of his
misfeasance or malfeasance and to preclude the possibility of exerting undue influence or pressure on the
witnesses against him or tampering of documentary evidence on file with his Office.
In lieu of preventive suspension, for the same purpose, the proper disciplining authority or head of office may
reassign respondent to other unit of the agency during the formal hearings.
Section 20. Duration of Preventive Suspension. – When the administrative case against an officer or employee
under preventive suspension is not finally decided by the disciplining authority within the period of ninety (90) days
after the date of his preventive suspension, unless otherwise provided by special law, he shall be automatically
reinstated in the service; provided that, when the delay in the disposition of the case is due to the fault, negligence
or petition of the respondent, the period of delay should not be included in the counting of the 90 calendar days
period of preventive suspension. Provided further that should the respondent be on Maternity/Paternity leave, said
preventive suspension shall be deferred or interrupted until such time that said leave has been fully enjoyed.
It is clear from Section 19, supra, that before an order of preventive suspension pending an investigation may
validly issue, only two prerequisites need be shown, namely: (1) that the proper disciplining authority has served a
formal charge to the affected officer or employee; and (2) that the charge involves either dishonesty, oppression,
grave misconduct, neglect in the performance of duty, or if there are reasons to believe that the respondent is guilty
of the charges which would warrant her removal from the service. Proof showing that the subordinate officer or
employee may unduly influence the witnesses against her or may tamper the documentary evidence on file in her
office is not among the prerequisites.
Preventing the subordinate officer or employee from influencing the witnesses and tampering the documentary
evidence under her custody are mere purposes for which an order of preventive suspension may issue as reflected
under paragraph 2 of Section 19, supra. This is apparent in the phrase "for the same purpose" found in paragraph 3
of Section 19. A "purpose" cannot be considered and understood as a "condition." A purpose means "reason for
which something is done or exists," while a condition refers to a "necessary requirement for something else to
happen;" or is a "restriction, qualification."16 The two terms have different meanings and implications, and one
cannot substitute for the other.
In Gloria v. Court of Appeals,17 we stated that preventive suspension pending investigation "is a measure intended
to enable the disciplining authority to investigate charges against respondent by preventing the latter from
intimidating or in any way influencing witnesses against him." As such, preventing the subordinate officer or
employee from intimidating the witnesses during investigation or from tampering the documentary evidence in her
office is a purpose, not a condition, for imposing preventive suspension, as shown in the use of the word
"intended."
Relevantly, CSC Resolution No. 030502, which was issued on May 5, 2003 for the proper enforcement of
preventive suspension pending investigation, provides in part as follows:
WHEREAS, Sections 51 and 52, Chapter 6, Subtitle A, Title I, Book V of the Administrative Code of 1987, set out
the controlling standards on the imposition of preventive suspension, as follows:
xxxx
WHEREAS, in order to effectuate the afore-quoted provisions of law, the Civil Service Commission, as the central
personnel agency of the government empowered, inter alia, with the promulgation, amendment and enforcement of
rules and regulations intended to carry out into effect the provisions of the Civil Service Law and other pertinent
laws, adopted Sections 19, 20, and 21 of the Uniform Rules on Administrative Cases in the Civil Service (CSC
Memorandum Circular No. 19, s. 1999), to wit:
xxxx
4. The imposition of preventive suspension shall be confined to the well-defined instances set forth under the
pertinent provisions of the Administrative Code of 1987 and the Local Government Code of 1991. Both of these
laws decree that recourse may be had to preventive suspension where the formal charge involves any of the
following administrative offenses, or under the circumstances specified in paragraph (e) herein:
a. Dishonesty;
b. Oppression;
c. Grave Misconduct;
d. Neglect in the performance of duty; or
e. If there are reasons to believe that the respondent is guilty of the charge/s, which would warrant his
removal from the service.
xxxx
a. A declaration by a competent authority that an order of preventive suspension is null and void on its face entitles
the respondent official or employee to immediate reinstatement and payment of back salaries corresponding to the
period of the unlawful preventive suspension.
The phrase "null and void on its face" in relation to a preventive suspension order imports any of the following
circumstances:
i) The order was issued by one who is not authorized by law;
ii) The order was not premised on any of the grounds or causes warranted by law;
iii) The order of suspension was without a formal charge; or
iv) While lawful in the sense that it is based on the enumerated grounds, the duration of the imposed preventive
suspension has exceeded the prescribed periods, in which case the payment of back salaries shall correspond to
the excess period only.
CSC Resolution No. 030502 apparently reiterates the rule stated in Section 19 of the Uniform Rules, supra, that for
a preventive suspension to issue, there must be a formal charge and the charge involves the offenses enumerated
therein. The resolution considers an order of preventive suspension as null and void if the order was not premised
on any of the mentioned grounds, or if the order was issued without a formal charge. As in the case of Section 19,
the resolution does not include as a condition for issuing an order of preventive suspension that there must be proof
adduced showing that the subordinate officer or employee may unduly influence the witnesses against her or
tamper the documentary evidence in her custody.
Consequently, the CSC and the CA erred in making the purpose of preventive suspension a condition for its
issuance. Although, as a rule, we defer to the interpretation by administrative agencies like the CSC of their own
rules, especially if the interpretation is affirmed by the CA, we withhold deference if the interpretation is palpably
erroneous,18 like in this instance.
We hold that TIDCORP’s issuance against Demigillo of the order for her 90-day preventive suspension pending the
investigation was valid and lawful.
WHEREFORE, we GRANT the petition for review on certiorari; SET ASIDE the decision of the Court of Appeals
promulgated on November 7, 2006, and DECLARE AS VALID the order for the preventive suspension for 90 days
of MA. ROSARIO S. MANALANG-DEMIGILIO pending her investigation for grave misconduct.
The respondent shall pay the costs of suit.
SO ORDERED.
BOY SCOUTS OF THE PHILIPPINES vs. NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 80767 April 22, 1991

This Petition for Certiorari is directed at (1) the Decision,1 dated 27 February 1987, and (2) the Resolution2 dated 16
October 1987, both issued by the National Labor Relations Commission ("NLRC") in Case No. 1637-84.
Private respondents Fortunato C. Esquerra, Roberto O. Malaborbor, Estanislao M. Misa, Vicente N. Evangelista
and Marcelino P. Garcia, had all been rank-and-file employees of petitioner Boy Scouts of the Philippines ("BSP").
At the time of termination of their services in February 1985, private respondents were stationed at the BSP Camp
in Makiling, Los Baños, Laguna.
The events which led to such termination of services are as follows:
On 19 October 1984, the Secretary-General of petitioner BSP issued Special Orders Nos. 80, 81, 83, 84 and 85
addressed separately to the five (5) private respondents, informing them that on 20 November 1984, they were to
be transferred from the BSP Camp in Makiling to the BSP Land Grant in Asuncion, Davao del Norte. These Orders
were opposed by private respondents who, on 4 November 1984, appealed the matter to the BSP National
President.
On 6 November 1984, petitioner BSP conducted a pre-transfer briefing at its National Headquarters in Manila.
Private respondents were in attendance during the briefing and they were there assured that their transfer to Davao
del Norte would not involve any diminution in salary, and that each of them would receive a relocation allowance
equivalent to one (1) month's basic pay. This assurance, however, failed to persuade private respondents to
abandon their opposition to the transfer orders issued by the BSP Secretary-General.
On 13 November 1984, a complaint3
(docketed as NLRC Case No. 16-84J) for illegal transfer was filed with the then Ministry of Labor and Employment,
Sub-Regional Arbitration Branch IV, San Pablo City, Laguna. Private respondents there sought to enjoin
implementation of Special Orders Nos. 80, 81, 83, 84 and 85, alleging, among other things, that said orders were
"indubitable and irrefutable action[s] prejudicial not only to [them] but to [their] families and [would] seriously affect
[their] economic stability and solvency considering the present cost of living."
On 21 November 1984 (or the day immediately following the date of scheduled transfer), the BSP Camp Manager
in Makiling issued a Memorandum requiring the five (5) private respondents to explain why they should not be
charged administratively for insubordination. The Memorandum was a direct result of the refusal by private
respondents, two (2) days earlier, to accept from petitioner BSP their respective boat tickets to Davao del Norte and
their relocation allowances.
Meanwhile, in a letter of the same date, the BSP National President informed private respondents that their refusal
to comply with the Special Orders was not sufficiently justified and constituted rank disobedience. Memoranda
subsequently issued by the BSP Secretary-General stressed that such refusal as well as the explanations proffered
therefor, were unacceptable and could altogether result in termination of employment with petitioner BSP. These
warnings notwithstanding, private respondents continued pertinaciously to disobey the disputed transfer orders.
Petitioner BSP consequently imposed a five-day suspension on the five (5) private respondents, in the latter part of
January 1985. Subsequently, by Special Order dated 12 February 1985 issued by the BSP Secretary-General,
private respondents' services were ordered terminated effective 15 February 1985.
On 22 February 1985, private respondents amended their original complaint to include charges of illegal dismissal
and unfair labor practice against petitioner BSP.4
The Labor Arbiter thereafter proceeded to hear the complaint.
In a decision5 dated 31 July 1985, the Labor Arbiter ordered the dismissal of private respondents' complaint for lack
of merit.
On 27 February 1987, however, the ruling of the Labor Arbiter was reversed by public respondent, NLRC, which
held that private respondents had been illegally dismissed by petitioner BSP. The dispositive portion of the NLRC
decision read:
WHEREFORE, premises considered the Decision appealed from is hereby SET ASIDE and a new one
entered ordering the respondent-appellee [petitioner BSP] to reinstate the complainants-appellants [private
respondents] to their former positions without loss of seniority rights and other benefits appurtenant thereto
and with full backwages from the time they were illegally dismissed from the service up to the date of their
actual reinstatement.
SO ORDERED.
The Court notes at the outset that in the Position Paper 6 filed by petitioner BSP with the Labor Arbiter, it was
alleged in the second paragraph thereof, that petitioner is a "civic service, non-stock and non-profit organization,
relying mostly [on] government and public support, existing under and by virtue of Commonwealth Act No. 111, as
amended, by Presidential Decree No. 460 . . . " A similar allegation was contained in the Brief for Appellee7 and in
the Petition8 and Memorandum9 filed by petitioner BSP with public respondent NLRC and this Court, respectively.
The same allegation, moreover, appeared in the Comment10 (also treated as the Memorandum) submitted to this
Court by the Solicitor General on behalf of public respondent NLRC; for their part, private respondents stated in
their Appeal Memorandum 11 with the NLRC that petitioner BSP is "by mandate of law a Public Corporation," a
statement reiterated by them in their Memorandum 12 before this Court.
In a Resolution dated 9 August 1989, this Court required the parties and the Office of the Government Corporate
Counsel to file a comment on the question of whether or not petitioner BSP is in fact a government-owned or
controlled corporation.
Petitioner, private respondents, the Office of the Solicitor General and the Office of the Government Corporate
Counsel filed their respective comments.
The central issue is whether or not the BSP is embraced within the Civil Service as that term is defined in Article IX
(B) (2) (1) of the 1987 Constitution which reads as follows:
The Civil Service embraces all branches, subdivisions, instrumentality mentalities and agencies of the
Government, including government-owned or controlled corporations with original charters.
xxx xxx xxx
The answer to the central issue will determine whether or not private respondent NLRC had jurisdiction to render
the Decision and Resolution which are here sought to be nullified.
The responses of the parties, on the one hand, and of the Office of the Solicitor General and the Office of the
Government Corporate Counsel, upon the other hand, in compliance with the Resolution of this Court of 9 August
1989, present a noteworthy uniformity. Petitioner BSP and private respondents submit substantially the same view
"that the BSP is a purely private organization". In contrast, the Solicitor General and the Government Corporate
Counsel take much the same position, that is, that the BSP is a "public corporation' or a "quasi-public corporation"
and, as well, a "government controlled corporation." Petitioner BSP's compliance with our Resolution invokes the
following provisions of its Constitution and By-laws:
The Boy Scouts of the Philippines declares that it is an independent, voluntary, non-political, non-sectarian
and non-governmental organization, with obligations towards nation building and with international
orientation.
The BSP, petitioner stresses, does not receive any monetary or financial subsidy from the Government whether on
the national or local level.13 Petitioner declares that it is a "purely private organization" directed and controlled by its
National Executive Board the members of which are, it is said, all "voluntary scouters," including seven (7) Cabinet
Secretaries.14
Private respondents submitted a supplementary memorandum arguing that while petitioner BSP was created as a
public corporation, it had lost that status when Section 2 of Commonwealth Act No. 111 as amended by P.D. No.
460 conferred upon it the powers which ordinary private corporations organized under the Corporation Code have:
Sec. 2. The said corporation shall have perpetual succession with power to sue and be sued; to hold such
real and personal estate as shall be necessary for corporate purposes, and to receive real and personal
property by gift, devise, or bequest; to adopt a seal, and to alter or destroy the same at pleasure; to have
offices and conduct its business and affairs in the City of Manila and in the several provinces; to make and
adopt by-laws, rules and regulations not inconsistent with the laws of the Philippines, and generally to do all
such acts and things (including the establishment of regulations for the election of associates and
successors: as may be necessary to carry into effect the provisions of the Act and promote the purposes of
said corporation.
Private respondents also point out that the BSP is registered as a private employer with the Social Security System
and that all its staff members and employees are covered by the Social Security Act, indicating that the BSP had
lost its personality or standing as a public corporation. It is further alleged that the BSP's assets and liabilities,
official transactions and financial statements have never been subjected to audit by the government auditing
office, i.e., the Commission on Audit, being audited rather by the private auditing firm of Sycip Gorres Velayo and
Co. Private respondents finally state that the appointments of BSP officers and staff were not approved or
confirmed by the Civil Service Commission.
The views of the Office of the Solicitor General and the Office of the Government Corporate Counsel on the above
issue appeared to be generally similar. The Solicitor General's Office, although it had appeared for the NLRC and
filed a Comment on the latter's behalf on the merits of the Petition for Certiorari, submitted that the BSP is a
government-owned or controlled corporation, having been created by virtue of Commonwealth Act No. 111 entitled
"An Act to Create a Public Corporation to be known as the Boy Scouts of the Philippines and to Define its Powers
and Purposes." The Solicitor General stressed that the BSP was created in order to "promote, through
organization, and cooperation with other agencies the ability of boys to do things for themselves and others, to train
them in scoutcraft, and to teach them patriotism, courage, self-reliance, and kindred virtues, using the methods
which are now in common use by boy scouts."5 He further noted that the BSP's objectives and purposes are "solely
of a benevolent character and not for pecuniary profit by its members. 16 The Solicitor General also underscored the
extent of government participation in the BSP under its charter as reflected in the composition of its governing
body:
The governing body of the said corporation shall consist of a National Executive Board composed of (a)
the President of the Philippines or his representative; (b) the charter and life members of the Boy Scouts of
the Philippines; (c) the Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d) the
Regional Chairman of the Scout Regions of the Philippines; (e) the Secretary of Education and Culture, the
Secretary of Social Welfare, the Secretary of National Defense, the Secretary of Labor, the Secretary of
Finance, the Secretary of Youth and Sports, and the Secretary of local Government and Community
Development; (f) an equal number of individuals from the private sector; (g) the National President of the
Girl Scouts of the Philippines; (h) one Scout of Senior age from each Scout Region to represent the boy
membership; and (i) three representatives of the cultural minorities. Except for the Regional Chairman who
shall be elected by the Regional Scout Councils during their annual meetings, and the Scouts of their
respective regions, all members of the National Executive Board shall be either by appointment or
cooption, subject to ratification and confirmation by the Chief Scout, who shall be the Head of State. . .
.17 (Emphasis supplied)
The Government Corporate Counsel, like the Solicitor General, describes the BSP as a "public corporation" but,
unlike the Solicitor General, suggests that the BSP is more of a "quasi corporation" than a "public corporation." The
BSP, unlike most public corporations which are created for a political purpose, is not vested with political or
governmental powers to be exercised for the public good or public welfare in connection with the administration of
civil government. The Government Corporate Counsel submits, more specifically, that the BSP falls within the ambit
of the term "government-owned or controlled corporation" as defined in Section 2 of P.D. No. 2029 (approved on 4
February 1986) which reads as follows:
A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing
governmental or proprietary functions, which is directly chartered by special law or if organized under the
general corporation law is owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its outstanding capital stock or
its outstanding voting capital stock.
xxx xxx xxx
(Emphasis supplied)
Examining the relevant statutory provisions and the arguments outlined above, the Court considers that the
following need to be considered in arriving at the appropriate legal characterization of the BSP for purposes of
determining whether its officials and staff members are embraced in the Civil Service. Firstly, BSP's functions as
set out in its statutory charter do have a public aspect. BSP's functions do relate to the fostering of the public virtues
of citizenship and patriotism and the general improvement of the moral spirit and fiber of our youth. The social value
of activities like those to which the BSP dedicates itself by statutory mandate have in fact, been accorded
constitutional recognition. Article II of the 1987 Constitution includes in the "Declaration of Principles and State
Policies," the following:
Sec. 13. The State recognizes the vital role of the youth in nation-building and shall promote and protect
their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism
and nationalism, and encourage their involvement in public and civic affairs.
At the same time, BSP's sanctions do not relate to the governance of any part of territory of the Philippines; BSP is
not a public corporation in the same sense that municipal corporations or local governments are public
corporations. BSP's functions can not also be described as proprietary functions in the same sense that the
functions or activities of government-owned or controlled corporations like the National Development Company or
the National Steel Corporation can be described as proprietary or "business-like" in character. Nevertheless, the
public character of BSP's functions and activities must be conceded, for they pertain to the educational, civic and
social development of the youth which constitutes a very substantial and important part of the nation.
The second aspect that the Court must take into account relates to the governance of the BSP. The composition of
the National Executive Board of the BSP includes, as noted from Section 5 of its charter quoted earlier, includes
seven (7) Secretaries of Executive Departments. The seven (7) Secretaries (now six [6] in view of the abolition of
the Department of Youth and Sports and merger thereof into the Department of Education, Culture and Sports) by
themselves do not constitute a majority of the members of the National Executive Board. We must note at the same
time that the appointments of members of the National Executive Board, except only the appointments of the
Regional Chairman and Scouts of Senior age from the various Scout Regions, are subject to ratification and
confirmation by the Chief Scout, who is the President of the Philippines. Vacancies to the Board are filled by a
majority vote of the remaining members thereof, but again subject to ratification and confirmation by the Chief
Scout.18 We must assume that such confirmation or ratification involves the exercise of choice or discretion on the
part of ratifying or confirming power. It does appears therefore that there is substantial governmental (i.e.,
Presidential) participation or intervention in the choice of the majority of the members of the National Executive
Board of the BSP.
The third aspect relates to the character of the assets and funds of the BSP. The original assets of the BSP were
acquired by purchase or gift or other equitable arrangement with the Boy Scouts of America, of which the BSP was
part before the establishment of the Commonwealth of the Philippines. The BSP charter, however, does not
indicate that such assets were public or statal in character or had originated from the Government or the State.
According to petitioner BSP, its operating funds used for carrying out its purposes and programs, are derived
principally from membership dues paid by the Boy Scouts themselves and from property rentals. In this respect, the
BSP appears similar to private non-stock, non-profit corporations, although its charter expressly envisages
donations and contributions to it from the Government and any of its agencies and instrumentalities. 19 We note only
that BSP funds have not apparently heretofore been regarded as public funds by the Commission on Audit,
considering that such funds have not been audited by the Commission.
While the BSP may be seen to be a mixed type of entity, combining aspects of both public and private entities, we
believe that considering the character of its purposes and its functions, the statutory designation of the BSP as "a
public corporation" and the substantial participation of the Government in the selection of members of the National
Executive Board of the BSP, the BSP, as presently constituted under its charter, is a government-controlled
corporation within the meaning of Article IX. (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that the Administrative Code of 1987 designates the BSP as one of
the attached agencies of the Department of Education, Culture and Sports ("DECS").20 An "agency of the
Government" is defined as referring to any of the various units of the Government including a department, bureau,
office, instrumentality, government-owned or-controlled corporation, or local government or distinct unit
therein.21"Government instrumentality" is in turn defined in the 1987 Administrative Code in the following manner:
Instrumentality –– refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy usually through a charter. This
term includesregulatory agencies, chartered institutions and government-owned or controlled
corporations.22 (Emphasis supplied)
The same Code describes a "chartered institution" in the following terms:
Chartered institution –– refers to any agency organized or operating under a special charter, and vested by
law with functions relating to specific constitutional policies or objectives. This term includes the state
universities and colleges, and the monetary authority of the State.23 (Emphasis supplied)
We believe that the BSP is appropriately regarded as "a government instrumentality" under the 1987 Administrative
Code.
It thus appears that the BSP may be regarded as both a "government controlled corporation with an original
charter" and as an "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the
Constitution. It follows that the employees of petitioner BSP are embraced within the Civil Service and are
accordingly governed by the Civil Service Law and Regulations.
It remains only to note that even before the effectivity of the 1987 Constitution employees of the BSP already fell
within the scope of the Civil Service. In National Housing Corporation v. Juco,24 decided in 1985, the Court,
speaking through Mr. Justice Gutierrez, held:
There should no longer be any question at this time that employees of government-owned or controlled
corporations are governed by the civil service law and civil service rules and regulations.
Section 1, Article XII-B of the [19731 Constitution specifically provides:
The Civil Service embraces every branch, agency, subdivision and instrumentality of the Government,
including every government-owned or controlled corporation. . . .
The 1935 Constitution had a similar provision in its Section 1, Article XII which stated:
A Civil Service embracing all branches and subdivisions of the Government shall be provided by law.
The inclusion of "government-owned or controlled corporations" within the embrace of the civil service
shows a deliberate effort of the framers to plug an earlier loophole which allowed government-owned or
controlled corporations to avoid the full consequences of the all encompassing coverage of the civil service
system. The same explicit intent is shown by the addition of "agency" and "instrumentality" to branches and
subdivisions of the Government. All offices and firms of the government are covered. The amendments
introduced in 1973 are not idle exercises or meaningless gestures. They carry the strong message that civil
service coverage is broad and all-embracing insofar as employment in the government in any of its
governmental or corporate arms is concerned.25
The complaint in NLRC Case No. 1637-84 having been filed on 13 November 1984, when the 1973 Constitution
was still in force, our ruling in Juco applies in the case at bar.26
In view of the foregoing, we hold that both the Labor Arbiter and public respondent NLRC had no jurisdiction over
the complaint filed by private respondents in NLRC Case No. 1637-84; neither labor agency had before it any
matter which could validly have been passed upon by it in the exercise of original or appellate jurisdiction. The
appealed Decision and Resolution in this case, having been rendered without jurisdiction, vested no rights and
imposed no liabilities upon any of the parties here involved. That neither party had expressly raised the issue of
jurisdiction in the pleadings poses no obstacle to this ruling of the Court, which may motu proprio take cognizance
of the issue of existence or absence of jurisdiction and pass upon the same. 27
ACCORDINGLY, the Decision of the Labor Arbiter dated 31 July 1985, and the Decision dated 27 February 1987
and Resolution dated 16 October 1987, issued by public respondent NLRC, in NLRC Case No. 1637-84, are
hereby SET ASIDE. All other orders and resolutions rendered in this case by the Labor Arbiter and the NLRC are
likewise SET ASIDE. No pronouncement as to costs.

COMMISSIONER OF INTERNAL REVENUE vs. GENERAL FOODS (PHILS.), INC.


G.R. No. 143672 April 24, 2003
DECISION
Petitioner Commissioner of Internal Revenue (Commissioner) assails the resolution[1] of the Court of Appeals
reversing the decision[2] of the Court of Tax Appeals which in turn denied the protest filed by respondent General
Foods (Phils.), Inc., regarding the assessment made against the latter for deficiency taxes.
The records reveal that, on June 14, 1985, respondent corporation, which is engaged in the manufacture of
beverages such as Tang, Calumet and Kool-Aid, filed its income tax return for the fiscal year ending February 28,
1985. In said tax return, respondent corporation claimed as deduction, among other business expenses, the
amount of P9,461,246 for media advertising for Tang.
On May 31, 1988, the Commissioner disallowed 50% or P4,730,623 of the deduction claimed by respondent
corporation. Consequently, respondent corporation was assessed deficiency income taxes in the amount
of P2,635, 141.42. The latter filed a motion for reconsideration but the same was denied.
On September 29, 1989, respondent corporation appealed to the Court of Tax Appeals but the appeal was
dismissed:
With such a gargantuan expense for the advertisement of a singular product, which even excludes other advertising
and promotions expenses, we are not prepared to accept that such amount is reasonable to stimulate the current
sale of merchandise regardless of Petitioners explanation that such expense does not connote unreasonableness
considering the grave economic situation taking place after the Aquino assassination characterized by capital fight,
strong deterioration of the purchasing power of the Philippine peso and the slacking demand for consumer
products (Petitioners Memorandum, CTA Records, p. 273). We are not convinced with such an explanation. The
staggering expense led us to believe that such expenditure was incurred to create or maintain some form of good
will for the taxpayers trade or business or for the industry or profession of which the taxpayer is a member. The
term good will can hardly be said to have any precise signification; it is generally used to denote the benefit arising
from connection and reputation (Words and Phrases, Vol. 18, p. 556 citing Douhart vs. Loagan, 86 III. App.
294). As held in the case of Welch vs. Helvering, efforts to establish reputation are akin to acquisition of capital
assets and, therefore, expenses related thereto are not business expenses but capital expenditures. (Atlas Mining
and Development Corp. vs. Commissioner of Internal Revenue, supra). For sure such expenditure was meant not
only to generate present sales but more for future and prospective benefits. Hence, abnormally large expenditures
for advertising are usually to be spread over the period of years during which the benefits of the expenditures are
received (Mertens, supra, citing Colonial Ice Cream Co., 7 BTA 154).
WHEREFORE, in all the foregoing, and finding no error in the case appealed from, we hereby RESOLVE to
DISMISS the instant petition for lack of merit and ORDER the Petitioner to pay the respondent Commissioner the
assessed amount of P2,635,141.42 representing its deficiency income tax liability for the fiscal year ended
February 28, 1985.[3]
Aggrieved, respondent corporation filed a petition for review at the Court of Appeals which rendered a decision
reversing and setting aside the decision of the Court of Tax Appeals:
Since it has not been sufficiently established that the item it claimed as a deduction is excessive, the same should
be allowed.
WHEREFORE, the petition of petitioner General Foods (Philippines), Inc. is hereby GRANTED. Accordingly, the
Decision, dated 8 February 1994 of respondent Court of Tax Appeals is REVERSED and SET ASIDE and the
letter, dated 31 May 1988 of respondent Commissioner of Internal Revenue is CANCELLED.
SO ORDERED.[4]
Thus, the instant petition, wherein the Commissioner presents for the Courts consideration a lone issue:
whether or not the subject media advertising expense for Tang incurred by respondent corporation was an ordinary
and necessary expense fully deductible under the National Internal Revenue Code (NIRC).
It is a governing principle in taxation that tax exemptions must be construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority;[5] and he who claims an exemption must be able to justify his
claim by the clearest grant of organic or statute law. An exemption from the common burden cannot be permitted to
exist upon vague implications.[6]
Deductions for income tax purposes partake of the nature of tax exemptions; hence, if tax exemptions are
strictly construed, then deductions must also be strictly construed.
We then proceed to resolve the singular issue in the case at bar. Was the media advertising expense for Tang
paid or incurred by respondent corporation for the fiscal year ending February 28, 1985 necessary and ordinary,
hence, fully deductible under the NIRC? Or was it a capital expenditure, paid in order to create goodwill and
reputation for respondent corporation and/or its products, which should have been amortized over a reasonable
period?
Section 34 (A) (1), formerly Section 29 (a) (1) (A), of the NIRC provides:
(A) Expenses.-
(1) Ordinary and necessary trade, business or professional expenses.-
(a) In general.- There shall be allowed as deduction from gross income all ordinary and necessary
expenses paid or incurred during the taxable year in carrying on, or which are directly
attributable to, the development, management, operation and/or conduct of the trade,
business or exercise of a profession.
Simply put, to be deductible from gross income, the subject advertising expense must comply with the
following requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during
the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d)
it must be supported by receipts, records or other pertinent papers. [7]
The parties are in agreement that the subject advertising expense was paid or incurred within the
corresponding taxable year and was incurred in carrying on a trade or business. Hence, it was necessary.
However, their views conflict as to whether or not it was ordinary. To be deductible, an advertising expense should
not only be necessary but also ordinary. These two requirements must be met.
The Commissioner maintains that the subject advertising expense was not ordinary on the ground that it failed
the two conditions set by U.S. jurisprudence: first, reasonableness of the amount incurred and second, the amount
incurred must not be a capital outlay to create goodwill for the product and/or private respondents
business. Otherwise, the expense must be considered a capital expenditure to be spread out over a reasonable
time.
We agree.
There is yet to be a clear-cut criteria or fixed test for determining the reasonableness of an advertising
expense. There being no hard and fast rule on the matter, the right to a deduction depends on a number of factors
such as but not limited to: the type and size of business in which the taxpayer is engaged; the volume and amount
of its net earnings; the nature of the expenditure itself; the intention of the taxpayer and the general economic
conditions. It is the interplay of these, among other factors and properly weighed, that will yield a proper evaluation.
In the case at bar, the P9,461,246 claimed as media advertising expense for Tang alone was almost one-half
of its total claim for marketing expenses. Aside from that, respondent-corporation also claimed P2,678,328 as other
advertising and promotions expense and another P1,548,614, for consumer promotion.
Furthermore, the subject P9,461,246 media advertising expense for Tang was almost double the amount of
respondent corporations P4,640,636 general and administrative expenses.
We find the subject expense for the advertisement of a single product to be inordinately large. Therefore, even
if it is necessary, it cannot be considered an ordinary expense deductible under then Section 29 (a) (1) (A) of the
NIRC.
Advertising is generally of two kinds: (1) advertising to stimulate the current sale of merchandise or use of
services and (2) advertising designed to stimulate the future sale of merchandise or use of services. The second
type involves expenditures incurred, in whole or in part, to create or maintain some form of goodwill for the
taxpayers trade or business or for the industry or profession of which the taxpayer is a member. If the expenditures
are for the advertising of the first kind, then, except as to the question of the reasonableness of amount, there is no
doubt such expenditures are deductible as business expenses. If, however, the expenditures are for advertising of
the second kind, then normally they should be spread out over a reasonable period of time.
We agree with the Court of Tax Appeals that the subject advertising expense was of the second kind. Not only
was the amount staggering; the respondent corporation itself also admitted, in its letter protest[8] to the
Commissioner of Internal Revenues assessment, that the subject media expense was incurred in order to protect
respondent corporations brand franchise, a critical point during the period under review.
The protection of brand franchise is analogous to the maintenance of goodwill or title to ones property. This is
a capital expenditure which should be spread out over a reasonable period of time.[9]
Respondent corporations venture to protect its brand franchise was tantamount to efforts to establish a
reputation. This was akin to the acquisition of capital assets and therefore expenses related thereto were not to be
considered as business expenses but as capital expenditures. [10]
True, it is the taxpayers prerogative to determine the amount of advertising expenses it will incur and where to
apply them.[11] Said prerogative, however, is subject to certain considerations. The first relates to the extent to
which the expenditures are actually capital outlays; this necessitates an inquiry into the nature or purpose of such
expenditures.[12] The second, which must be applied in harmony with the first, relates to whether the expenditures
are ordinary and necessary. Concomitantly, for an expense to be considered ordinary, it must be reasonable in
amount. The Court of Tax Appeals ruled that respondent corporation failed to meet the two foregoing limitations.
We find said ruling to be well founded. Respondent corporation incurred the subject advertising expense in
order to protect its brand franchise. We consider this as a capital outlay since it created goodwill for its business
and/or product. The P9,461,246 media advertising expense for the promotion of a single product, almost one-half of
petitioner corporations entire claim for marketing expenses for that year under review, inclusive of other advertising
and promotion expenses of P2,678,328 and P1,548,614 for consumer promotion, is doubtlessly unreasonable.
It has been a long standing policy and practice of the Court to respect the conclusions of quasi-judicial
agencies such as the Court of Tax Appeals, a highly specialized body specifically created for the purpose of
reviewing tax cases. The CTA, by the nature of its functions, is dedicated exclusively to the study and consideration
of tax problems. It has necessarily developed an expertise on the subject. We extend due consideration to its
opinion unless there is an abuse or improvident exercise of authority. [13] Since there is none in the case at bar, the
Court adheres to the findings of the CTA.
Accordingly, we find that the Court of Appeals committed reversible error when it declared the subject media
advertising expense to be deductible as an ordinary and necessary expense on the ground that it has not been
established that the item being claimed as deduction is excessive. It is not incumbent upon the taxing authority to
prove that the amount of items being claimed is unreasonable. The burden of proof to establish the validity of
claimed deductions is on the taxpayer.[14] In the present case, that burden was not discharged satisfactorily.
WHEREFORE, premises considered, the instant petition is GRANTED. The assailed decision of the Court of
Appeals is hereby REVERSED and SET ASIDE. Pursuant to Sections 248 and 249 of the Tax Code, respondent
General Foods (Phils.), Inc. is hereby ordered to pay its deficiency income tax in the amount of P2,635,141.42, plus
25% surcharge for late payment and 20% annual interest computed from August 25, 1989, the date of the denial of
its protest, until the same is fully paid.
SO ORDERED.

THE PEOPLE OF THE PHILIPPINES vs. BAQUERO


G.R. No. L-4962 April 27, 1957 (101 Phil. 209)

This is an appeal from the decision of the Court of First Instance of Cotobato, finding the defendants, Victor
Baquero, Eladio Oriarte, and Carmelo Bangayceso, guilty of the crime of robbery with homicide, sentencing the two
as principals to reclusion perpetua, with the accessories of the law, and the third one, as accomplice, to seventeen
years and four months of reclusion temporal, with the accesories of the law, all of them to indemnify jointly and
severally the heir of the deceased in the sum of P3,000 and to pay 3/4 of the costs.
From a careful study of the record, we find the following facts to have been duly established. Chinaman Sia Mian
owned two stores in the town of Kidapawan, Cotabato, one in the poblacion and the other in the barrio of Singao.
He divided his time between them, and when he was absent from the Singao store, he entrusted the same to
another Chinaman of his confidence, named Te Kian Giap alias Sergio Sia Su, hereafter to be referred to as Sia
Su. The store in Singao occupied the ground floor of a two-story building, the second story being used as sleeping
quarters. Defendant Carmelo Bangayceso was employed in the store as a helper or servant and he used to sleep
in the second floor with Sia Su.
At about eight o'clock in the evening of April 14, 1950, Maria Abenoha and her husband, Narciso Cano, alias Siso,
whose house was about 200 meters from the store, went to the latter to buy sugar. At the time, Sia Su, in the
absence of Sia Mian was keeping the store. There Maria and Siso met defendants Victor Baquero and Eladio
Oriarte who were buying some dried fish. While at the store, Baquero asked Sia Su for a cigarette and he was
given a stick of cigarette by the Chinaman. Thereafter, the couple and the two defendants went to the house of
Maria, the two defendants to get Baquero's dog. After leaving the house of Maria, Baquero and Oriarte met Juanito
Remulta who suggested that the three go to the store of Sia Su to drink some beer. The three were carrying bolos.
They found the store closed apparently, upon the proposal of Remulta, the three decided to rob it. It was then
between 10:00 and 11:00 o'clock in the evening, and to be sure that Sia Su and Carmelo were already fast asleep,
they waited under a tree until about 1:00 in the morning, after which they went to the store, and to gain entrance
dug a hole under one of the walls. They stealthily went up the floor where they found Carmelo and Sia Su fast
asleep. With the aid of a flashlight carried by Baquero, the took turns in hacking Sia Su who naturally cried out in
pain and for help, his assailants continuing the attack until their victim appeared to be dead, Remulta apparently
doing most of the hacking.
Carmelo rudely awakened, got up and tried to hide in a corner of the room, Baquero asked him where the money
was kept and Carmelo said it was in the aparador. Further asked about the key to it, Carmelo answered that it was
kept under the pillow of Sia Su. Baquero got the key, opened the aparador, and took the money kept there,
according to the information, amounting to P600. Thoroughly scared and afraid for his life, Carmelo jumped through
the window of the second floor and ran toward the house of assistant barrio lieutenant Agapito Remosora, about 50
meters from the store. There he told Remosora that robbers had entered the store and had attacked Sia Su. Asked
to go to the poblacion, about five kilometers away, to report the matter to the authorities, Carmelo declined,
possibly because of fear, and so Remosora sent two of his own men who reported the incident to the constabulary.
Before the arrival of Carmelo at the house of Remosora, the latter had heard the shout or cry for help made by Sia
Su. So, it was not a complete surprise for him to see Carmelo arrive and report the incident.
Maria Abenoha, still awake at the time of the robbery because she was making rice cakes (bibingca), also heard
the cry or shout for help made by Sia Su, and she and her husband hurried to the house of one Florencio Ortega
nearby and from there they returned to the house of Maria where they got her petromax lamp and then they all
went to the house of barrio lieutenant Remosora. From there, in the company of Remosora and Carmelo they
repaired to the store and called up to Sia Su, who answered, though weakly, suggesting that Carmelo enter the
house by climbing up the window so as to open the store from the inside. Carmelo made the attempt but failed
because the window was about 14 feet above the ground. Then Remosora discovered the hole dug by the robbers
under the wall and asked Carmelo to enter the store through it, which he did. Sia Su told Carmelo to get the key to
the door of the store from the pocket of his pants, and following the instructions, Carmelo found the key and opened
the store and admitted his companions. They found Sia Su in a rather critical condition because of his serious
wounds, which according to the medical, certificate later issued by Dr. Bienvenido Hizon, a municipal maternity and
clinical physician, numbered twelve, wounds from which he died between 5:00 and 6:00 o'clock that same morning.
They questioned him as to his assailants and he told them that he had been attacked by someone whose name he
ignored, but that it was the same man to whom he had given a cigarette the night before at the store. At this
juncture, Maria volunteered the information that it must be Victor Baquero because he was the one to whom, Sia
Su gave a cigarette in her presence, and Sia Su readily confirmed what she said.
At about 5:00 o'clock, Capt. Lugtu of the Constabulary detachment stationed in the poblacion arrived with some of
his soldiers. After questioning Sia Su, and after being assured that the latter felt that he would probably die because
of the gravity of his wounds, and after insisting that his assailant was Baquero, Capt. Lugto prepared a statement,
Exhibit C, which reads as follows:
DYING DECLARATION

15 April '50

I, Sergio Sia Su, knowing that I will die with these wounds inflicted on me will tell the following:
That I know the fellow who attacked me and he is the very fellow whom I gave cigarette last night at about
8:00 o'clock. I think his name is Victor.
It was thumbmarked by Sia Su and by Agapito Remosora and Florencia Ortega, and at the bottom signed by Capt.
Lugtu himself. About half an hour after making the statement, Sia Su died. Early that same morning, the soldiers
arrested Baquero and Oriarte who were found in a hut on the land being worked by, Baquero. On being questioned,
the two admitted participation in the robbery and implicated Remulta as the mastermind. The Constabulary lost no
time in arresting Remulta. The three, Baquero, Remulta and Oriarte, made statements, Exhibits D, E, and F,
respectively, admitting having entered the store through the hole that they dug under the wall, hacking Sia Su and
later taking the money from the aparador at the indication of Carmelo, and later escaping, although they said that at
first, they intended merely to rob but not to kill Sia Su. In his statement, Baquero said that the money he took from
the aparador amounted to P480.00, and that when he was arrested by the Constabulary, on the way to the
barracks, he threw the money into the bushes on the roadside. Later, accompanied by him and at his indication, the
soldier found the money and exhibited it in court. Carmelo also made two statement, Exhibits G and G1, but in the
same he never admitted any conspiracy or understanding with the three aforementioned defendants. The only
admission made by him is that threatened by the three robbers, he indicated where the money was kept and even
the place where the key to the same could be found, namely, under the pillow of Sia Su.
The four were charged with robbery with homicide in the Court of First Instance of Cotabato. Before trial, at the
request of Remulta, assisted by counsel, he withdrew his former plea of not guilty and upon re-arraignment, he
pleaded guilty to the charge and in a separate decision was, sentenced to reclusion perpetua, with the accessories
of the law, to indemnify the heirs of Sia Su in the sum of P3,000 and to pay of the costs.
Pending the appeal of Oriarte, Carmelo and Baquero, the latter by motion dated July 29, 1954, prepared in the
State Penitentiary where he was confined, withdrew his appeal, which was granted. So, only the appeal of Oriarte
and Carmelo remains for determination.
We agree with the Solicitor General that the evidence is insufficient to convict Carmelo even as an accomplice.
There is every reason to believe that he had no part whatsoever in the robbery and the killing of Sia Su. This is
shown by the fact that before the robbers left the store with their loot, he fled the house by jumping through the
window and reported the matter to the barrio lieutenant. He knew nothing about the hole dug by the robbers under
the wall, and so when he returned to the store accompanied by the barrio lieutenant, Maria Abenoha and her
companions, he tried to enter the house by climbing up the window of the second floor, though in vain. The only
evidence regarding his connection with the commission of the crime was that when questioned by the robbers, he
reluctantly indicated the place where Sia Su kept the money of the store and also indicated the place where the key
to the aparador was kept. All this he did, evidently because of fear.
As regards Oriarte, we have his written statement sworn to before the Justice of the Peace, admitting his
participation in the commission of the robbery with homicide. In it, he not only agreed with his two companions to
rob the store, which they did, but he took part in inflicting wounds on Sia Su. He also admitted the ownership of one
of the bolos used in attacking Sia Su, and the pants stained with blood which he wore on the night of the
commission of the crime.
At the trial, he repudiated his written statement, claiming that he had been maltreated by the Constabulary and that
consequently, said statement was not made voluntarily. This same claim was also made by his co-defendants
Baquero and Remulta, and they were rejected by the trial court, in our opinion, correctly. The Justice of the Peace,
before whom the statement was sworn to, in order to avoid any pressure on the part of the Constabulary soldiers,
including Capt. Lugtu, took the precaution of sending said soldiers and officer away from his office, and after their
departure, he explained to the defendant, including Oriarte, the contents of their statement. He even asked them if
they had been maltreated and they all answered in the negative.
We find that the evidence does not establish the guilt of Carmelo, even as an accomplice. Consequently, he should
be acquitted, as he is hereby acquitted, with costs de oficio. We find the guilt of Oriarte established beyond
reasonable doubt. Because of the presence of the aggravating circumstances of dwelling, treachery, abuse of
superior force and/or nighttime, the extreme penalty of death could be imposed upon him. However, for lack of
sufficient votes to impose this penalty, we affirm the decision of the trial court, imposing the penalty of reclusion
perpetua. As to the amount of the indemnity, following the recommendation of the Solicitor General, the amount
awarded by the trial court is hereby increased to P6,000. With this modification, the decision appealed from,
including the return of the P480.00 to the heirs of the owner thereof, is hereby affirmed, with costs.

FAR EAST BANK AND TRUST COMPANY vs. COURT OF APPEALS


GR No. 129130 December 9, 2005 ( 477 scra 49)

DECISION

This is a Petition for Review on Certiorari assailing the decision of the Court of Appeals (CA) dated May 7,
1997 in CA-G.R. SP No. 41666.
The CA affirmed in toto the decision of the Court of Tax Appeals (CTA) dated January 24, 1996 and its
resolution of July 31, 1996, dismissing petitioner Far East Bank and Trust Companys claim for refund of excess
creditable withholding taxes in the aggregate amount of Seven Hundred Fifty-Five Thousand Seven Hundred and
Fifteen Pesos (P755,715) allegedly paid and remitted to the Bureau of Internal Revenue (BIR) sometime in 1990
and 1991.
The antecedent facts are as follows:
Petitioner is a domestic banking corporation duly organized and existing under and by virtue of
Philippine laws. In the early part of 1992, the Cavite Development Bank [CDB], also a domestic
banking corporation, was merged with Petitioner with the latter as its surviving entity [under] the
merger. Petitioner being the surviving entity[, it] acquired all [the] assets of CDB.
During the period from 1990 to 1991, CDB sold some acquired assets in the course of which it
allegedly withheld the creditable tax from the sales proceeds which amounted to P755,715.00.
In said years, CDB filed income tax returns which reflected that CDB incurred negative taxable
income or losses for both years. Since there was no tax against which to credit or offset the taxes
withheld by CDB, the result was that CDB, according to petitioner, had excess creditable
withholding tax.
Thus, petitioner, being the surviving entity of the merger, filed this Petition for Review after its
administrative claim for refund was not acted upon.[1]
In denying petitioners claim, the CA held that the evidence presented by petitioner consisting of (1)
confirmation receipts, payment orders, and official receipts issued by the Central Bank and the BIR with CDB as the
payor; [2] (2) Income Tax Returns for 1990 and 1991 with attached financial statements filed by petitioner with the
BIR;[3] and, (3) a list prepared by the Accounting Department of petitioner purportedly showing the CDB schedule of
creditable withholding tax applied for refund for 1990 and 1991,[4] all failed to clearly establish that the taxes arising
from the sale of its acquired assets sometime in 1990 and 1991 were properly withheld and remitted to the BIR.
The CA likewise ruled that it was incumbent upon petitioner to present BIR Form No. 1743.1 as required under
Revenue Regulation 6-85 to conclusively prove its right to the refund. It held that petitioners failure to do so was
fatal to its cause.
Hence, this Petition.
Petitioner anchors its arguments on the following grounds:
1. THE DECISION OF MAY 7,1997 WHEREBY RESPONDENT CA DISMISSED PETITIONERS
APPEAL, AND RESPONDENT CTAS DECISION DATED JANUARY 24, 1996 AND
RESOLUTION OF JULY 31,1996, ARE NOT BASED ON THE FACTS AND THE LAW.
2. PETITIONER HAS ADDUCED EVIDENCE A QUO WHICH SUFFICIENTLY AND
SUBSTANTIALLY ESTABLISH[ES] THE FACT THAT THE CREDITABLE WITHHOLDING
TAX ON THE SALE OF ACQUIRED ASSETS WAS WITHHELD AND THEN REMITTED
TO THE BUREAU OF INTERNAL REVENUE; AND,
3. THE DISMISSAL OF THE CLAIM FOR REFUND BEFORE RESPONDENT CTA ARISES FROM
AN UNDULY STRICT APPLICATION OF THE REGULATIONS WHICH IS NOT
WARRANTED IN VIEW OF THE CLEAR PROOFS ADDUCED BY PETITIONER WHICH
ESTABLISH THE BASIS FOR THE RELIEFS SOUGHT.[5]
Petitioner contends that the confirmation receipts presented by it constitute competent and irrefutable proof
of the fact that taxes were withheld and remitted to the BIR.[6] It is admitted that the taxes reflected on the
confirmation receipts as well as on the payment orders and official receipts issued by the BIR were withheld by
CDB. Petitioner maintains that these pertained to the proceeds of the sale of its acquired assets in 1990 and 1991.
According to petitioner, CDB took the initiative of paying the withholding tax accruing thereon notwithstanding the
fact that it was the recipient of the income, to ensure that the correct taxes were remitted to the BIR. Petitioner
further argues that the list prepared by its Accounting Department identifying the persons to whom the various sales
were made and indicating the amount of taxes withheld for each transaction should have been given more weight
by the court a quo as this document, when taken with the tax withholding forms, indubitably establishes the fact of
withholding and the basis for the claims for refund.[7] Considering, therefore, that petitioner had adequately
established by other evidence the basis for the grant of the claim for tax refund, petitioner asserts that its failure to
submit BIR Form No. 1743.1 is not fatal to its cause.
The crucial issue in this case turns on a question of fact, that is, whether petitioner adduced sufficient
evidence to prove its entitlement to a refund.
The findings of fact of the CTA, a special court exercising particular expertise on the subject of tax, are
generally regarded as final, binding and conclusive[8] upon this Court, especially if these are substantially similar to
the findings of the CA which is normally the final arbiter of questions of fact. [9] The findings shall not be reviewed
nor disturbed on appeal[10] unless a party can show that these are not supported by evidence, [11] or when the
judgment is premised on a misapprehension of facts, or when the lower courts failed to notice certain relevant facts
which if considered would justify a different conclusion.[12]
Petitioner has not sufficiently presented a case for the application of an exception from the rule.
Firstly, the CA cannot be faulted for not lending credence to petitioners contention that it withheld, for its
own account, the creditable withholding taxes on the sale of its acquired assets. In our withholding tax system,
possession of the amount that is used to settle the tax liability is acquired by the payor as the withholding agent of
the government.[13] For this reason, the Tax Code imposes, among others, certain obligations upon the withholding
agent to monitor its compliance with this duty. These include the filing of the quarterly withholding tax returns, [14] the
submission to the payee, in respect of his or its receipts during the calendar quarter or year, of a written statement
showing the income or other payments made by the withholding agent during such quarter or year and the amount
of the tax deducted and withheld therefrom,[15] and the filing with the BIR of a reconciliation statement of quarterly
payments and a list of payees and income payments. [16] Codal provisions on withholding tax are mandatory and
must be complied with by the withholding agent. This is significant in that a taxpayer cannot be compelled to
answer for the non-performance by the withholding agent of its legal duty to withhold unless there is collusion or
bad faith. In addition, the former could not be deemed to have evaded the tax had the withholding agent performed
its duty. [17]
On the other hand, it is incumbent upon the payee to reflect in his or its own return the income upon which
any creditable tax is required to be withheld at the source. Only when there is an excess of the amount of tax so
withheld over the tax due on the payees return can a refund become possible.
A taxpayer must thus do two things to be able to successfully make a claim for the tax refund: (a) declare
the income payments it received as part of its gross income and (b) establish the fact of withholding. [18] On this
score, the relevant revenue regulation provides as follows:
Section 10. Claims for tax credit or refund. -- Claims for tax credit or refund of income tax
deducted and withheld on income payments shall be given due course only when it is shown on the
return that the income payment received was declared as part of the gross income and the fact of
withholding is established by a copy of the statement duly issued by the payor to the payee (BIR
Form No. 1743.1) showing the amount paid and the amount of tax withheld therefrom. [19]
As mentioned, petitioner relies heavily on the confirmation receipts with the corresponding official receipts
and payment orders to support its case. Standing alone, however, these documents only establish that CDB
withheld certain amounts in 1990 and 1991. It does not follow that the payments reflected in the confirmation
receipts relate to the creditable withholding taxes arising from the sale of the acquired properties. The claim that
CDB had excess creditable withholding taxes can only be upheld if it were clearly and positively shown that the
amounts on the various confirmation receipts were the amounts withheld by virtue of the sale of the acquired
assets. On this point, the CA correctly pronounced:
The confirmation receipts alone, by themselves, will not suffice to prove that the taxes reflected in
the income tax returns are the same taxes withheld from CDBs income payments from the sale of
its acquired assets. This is because a cursory examination of the said Confirmation Receipts,
Payment Orders and Official Receipts will show that what are reflected therein are merely the
names of the payors and the amount of tax. The nature of the tax paid, or at the very least, the
income payments from which the taxes paid were withheld are not reflected therein. If these are the
only entries that are found on these proferred documents, We cannot begrudge the Respondent
Court from nurturing veritable doubts on the nature and identity of the taxes withheld, when it
declared, in part, in its Decision (Annex A of the Petition) that, It can not well be said that the
amounts paid and remitted to the BIR were for CDBs account and not for the other possible payees
of withholding taxes which CDB may also be liable to remit as a withholding agent x x x . [20]

Petitioner, apparently aware of the foregoing deficiency, offered into evidence a CDB Schedule of
Creditable Withholding Tax for the period 1990 to 1991[21] prepared by petitioners representative to show
that the taxes CDB withheld did, indeed, pertain to the taxes accruing on the sale of the acquired assets.
The CA, however, found the same to be self-serving and unverifiable and therefore barren of evidentiary
weight.[22] We accord this finding on an issue of fact the highest respect and we will not set it aside lightly.
It bears emphasis that questions on whether certain items of evidence should be accorded probative value
or weight, or rejected as feeble or spurious, or whether the proofs on one side or the other are clear and convincing
and adequate to establish a proposition in issue, are without doubt questions of fact. This is true regardless of
whether the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted
by the adverse party, may be said to be strong, clear and convincing. Whether certain documents presented by one
side should be accorded full faith and credit in the face of protests as to their spurious character by the other side;
whether inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs
weightall these are issues of fact. Questions like these are not reviewable by us. As a rule, we confine our review of
cases decided by the CA only to questions of law raised in the petition and therein distinctly set forth.[23] We note
that without the CDB Schedule, no evidence links the Confirmation Receipts, Payment Orders and Official Receipts
to the taxes allegedly withheld by CDB on the sale of the acquired assets.
As to the annual income tax returns for 1990 and 1991 [24] presented by petitioner, we must stress that the
mere admission into the records of these returns does not automatically make their contents or entries undisputed
and binding facts. Mere allegations by petitioner of the figures in its returns are not a sufficient proof of the amount
of its refund entitlement. They do not even constitute evidence adverse to respondent, against whom these are
being presented.[25]
Furthermore, we note that in the proceedings below, respondent Commissioner of Internal Revenue (CIR)
raised the fact that there was a discrepancy in the excess creditable withholding tax reflected in the returns with the
amounts sought to be refunded by petitioner. Whereas the 1990 and 1991 Income Tax Returns indicated that CDB
had excess creditable withholding tax in the amounts of P535,310 and P357,511, respectively, the amounts
claimed by petitioner as indicated in the CDB Schedule were P512,940.50 for 1990 and P242,774.50 for
1991.[26] The records are bereft of any explanation for such discrepancy. This further undermines petitioners
contentions, and its reliance on the CDB Schedule.
Petitioner also asserts that the confusion or difficulty in the implementation of Revenue Memorandum
Circular 7-90[27] was the reason why CDB took upon itself the task of withholding the taxes arising from the sale, to
ensure accuracy. Assuming this were true, CDB should have, nevertheless, accomplished the necessary returns to
clearly identify the nature of the payments made and file the same with the BIR. Section 2 of the circular clearly
provides that the amount of withholding tax paid by a corporation to the BIR during the quarter on sales or
exchanges of property and which are creditable against the corporations tax liability are evidenced by
Confirmation/Official Receipts and covered by BIR Form Nos. 1743W and 1743-B. On the other hand, Revenue
Regulation 6-85 states that BIR Form No. 1743.1 establishes the fact of withholding. Since no competent evidence
was adduced by petitioner, the failure to offer these returns as evidence of the amount of petitioners entitlement
during the trial phase of this case is fatal to its cause. For its negligence, petitioner cannot be allowed to seek
refuge in a liberal application of the [r]ules.[28] The liberal interpretation and application of rules apply only in proper
cases of demonstrable merit and under justifiable causes and circumstances. [29]
We must emphasize that tax refunds, like tax exemptions, are construed strictly against the taxpayer and
liberally in favor of the taxing authority. [30] In the event, petitioner has not met its burden of proof in establishing the
factual basis for its claim for refund and we find no reason to disturb the ruling of the lower courts.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals dated May 7, 1997 in CA-
G.R. SP No. 41666 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.

SEA-LAND SERVICE, INC. vs. COURT OF APPEALS


G.R. No. 122605 April 30, 2001 (357 scra 441)
The Case
Appeal via certiorari from the decision of the Court of Appeals affirming in toto that of the Court of Tax Appeals
which denied petitioner’s claim for tax credit or refund of income tax paid on its gross Philippine billings for taxable
year 1984, in the amount of P870,093.12.1
The Facts
The facts, as found by the Court of Appeals, are as follows:
"Sea-Land Service Incorporated (SEA-LAND), an American international shipping company
licensed by the Securities and Exchange Commission to do business in the Philippines entered into
a contract with the United States Government to transport military household goods and effects of
U.S. military personnel assigned to the Subic Naval Base.
"From the aforesaid contract, SEA-LAND derived an income for the taxable year 1984 amounting
to P58,006,207.54. During the taxable year in question, SEA-LAND filed with the Bureau of Internal
Revenue (BIR) the corresponding corporate Income Tax Return (ITR) and paid the income tax due
thereon of 1.5% as required in Section 25 (a)(2) of the National Internal Revenue Code (NIRC) in
relation to Article 9 of the RP-US Tax Treaty, amounting to P870,093.12.
"Claiming that it paid the aforementioned income tax by mistake, a written claim for refund was filed
with the BIR on 15 April 1987. However, before the said claim for refund could be acted upon by
public respondent Commissioner of Internal Revenue, petitioner-appellant filed a petition for review
with the CTA docketed as CTA Case No. 4149, to judicially pursue its claim for refund and to stop
the running of the two-year prescriptive period under the then Section 243 of the NIRC.
"On 21 February 1995, CTA rendered its decision denying SEA-LAND’s claim for refund of the
income tax it paid in 1984."2
On March 30, 1995, petitioner appealed the decision of the Court of Tax Appeals to the Court of Appeals.3
After due proceedings, on October 26, 1995, the Court of Appeals promulgated its decision dismissing the appeal
and affirming in toto the decision of the Court of Tax Appeals.4
Hence, this petition.5
The Issue
The issue raised is whether or not the income that petitioner derived from services in transporting the household
goods and effects of U.S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the
RP-US Military Bases Agreement.
The Court’s Ruling
We deny the petition.
The RP-US Military Bases Agreement provides:
"No national of the United States, or corporation organized under the laws of the United States,
shall be liable to pay income tax in the Philippines in respect of any profits derived under a contract
made in the United States with the government of the United States in connection with the
construction, maintenance, operation and defense of the bases, or any tax in the nature of a
license in respect of any service or work for the United States in connection with the construction,
maintenance, operation and defense of the bases."6
Petitioner Sea-Land Service, Inc. a US shipping company licensed to do business in the Philippines earned income
during taxable year 1984 amounting to P58,006,207.54, and paid income tax thereon of 1.5% amounting to
P870,093.12.
The question is whether petitioner is exempted from the payment of income tax on its revenue earned from the
transport or shipment of household goods and effects of US personnel assigned at Subic Naval Base.
"Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the
taxing power. Taxation is the rule and exemption is the exception."7 The law "does not look with favor on tax
exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken
and too categorical to be misinterpreted."8
Under Article XII (4) of the RP-US Military Bases Agreement, the Philippine Government agreed to exempt from
payment of Philippine income tax nationals of the United States, or corporations organized under the laws of the
United States, residents in the United States in respect of any profit derived under a contract made in the United
States with the Government of the United States in connection with the construction, maintenance, operation
and defense of the bases.
It is obvious that the transport or shipment of household goods and effects of U.S. military personnel is not included
in the term "construction, maintenance, operation and defense of the bases." Neither could the performance of this
service to the U.S. government be interpreted as directly related to the defense and security of the Philippine
territories. "When the law speaks in clear and categorical language, there is no reason for interpretation or
construction, but only for application."9 Any interpretation that would give it an expansive construction to
encompass petitioner’s exemption from taxation would be unwarranted.
The avowed purpose of tax exemption "is some public benefit or interest, which the lawmaking body considers
sufficient to offset the monetary loss entailed in the grant of the exemption."10 The hauling or transport of household
goods and personal effects of U. S. military personnel would not directly contribute to the defense and security of
the Philippines.
We see no reason to reverse the ruling of the Court of Appeals, which affirmed the decision of the Court of Tax
Appeals. The Supreme "Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which,
by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily
developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority."11
Hence, the Court of Appeals did not err or gravely abuse its discretion in dismissing the petition for review. We can
not grant the petition.
The Judgment
WHEREFORE, the Court DENIES the petition for lack of merit.
No costs.
SO ORDERED.
YAMANE vs. BA LEPANTO CONDOMINUM
G.R. No. 154993 October 25, 2005

DECISION
Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of this Court two
novel questions: one procedural, the other substantive, yet both of obvious significance. The first pertains to the
proper mode of judicial review undertaken from decisions of the regional trial courts resolving the denial of tax
protests made by local government treasurers, pursuant to the Local Government Code. The second is whether a
local government unit can, under the Local Government Code, impel a condominium corporation to pay business
taxes.[1]
While we agree with the City Treasurers position on the first issue, there ultimately is sufficient justification
for the Court to overlook what is essentially a procedural error. We uphold respondents on the second issue.
Indeed, there are disturbing aspects in both procedure and substance that attend the attempts by the City of Makati
to flex its taxing muscle. Considering that the tax imposition now in question has utterly no basis in law, judicial
relief is imperative. There are fewer indisputable causes for the exercise of judicial review over the exercise of the
taxing power than when the tax is based on whim, and not on law.
The facts, as culled from the record, follow.
Respondent BA-Lepanto Condominium Corporation (the Corporation) is a duly organized condominium corporation
constituted in accordance with the Condominium Act,[2] which owns and holds title to the common and limited
common areas of the BA-Lepanto Condominium (the Condominium), situated in Paseo de Roxas, Makati City. Its
membership comprises the various unit owners of the Condominium. The Corporation is authorized, under Article V
of its Amended By-Laws, to collect regular assessments from its members for operating expenses, capital
expenditures on the common areas, and other special assessments as provided for in the Master Deed with
Declaration of Restrictions of the Condominium.
On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998 signed by the
City Treasurer. The Notice of Assessment stated that the Corporation is liable to pay the correct city business
taxes, fees and charges, computed as totaling P1,601,013.77 for the years 1995 to 1997.[3] The Notice of
Assessment was silent as to the statutory basis of the business taxes assessed.
Through counsel, the Corporation responded with a written tax protest dated 12 February 1999, addressed
to the City Treasurer. It was evident in the protest that the Corporation was perplexed on the statutory basis of the
tax assessment.
With due respect, we submit that the Assessment has no basis as the Corporation is not
liable for business taxes and surcharges and interest thereon, under the Makati [Revenue] Code or
even under the [Local Government] Code.
The Makati [Revenue] Code and the [Local Government] Code do not contain any provisions
on which the Assessment could be based. One might argue that Sec. 3A.02(m) of the Makati
[Revenue] Code imposes business tax on owners or operators of any business not specified in the
said code. We submit, however, that this is not applicable to the Corporation as the Corporation is not
an owner or operator of any business in the contemplation of the Makati [Revenue] Code and even
the [Local Government] Code.[4]
Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati Revenue Code,
the Corporation proceeded to argue that under both the Makati Code and the Local Government Code, business is
defined as trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. It was
submitted that the Corporation, as a condominium corporation, was organized not for profit, but to hold title over the
common areas of the Condominium, to manage the Condominium for the unit owners, and to hold title to the
parcels of land on which the Condominium was located. Neither was the Corporation authorized, under its articles
of incorporation or by-laws to engage in profit-making activities. The assessments it did collect from the unit owners
were for capital expenditures and operating expenses.[5]
The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She insisted that the
collection of dues from the unit owners was effected primarily to sustain and maintain the expenses of the common
areas, with the end in view [sic] of getting full appreciative living values [sic] for the individual condominium
occupants and to command better marketable [sic] prices for those occupants who would in the future sell their
respective units.[6] Thus, she concluded since the chances of getting higher prices for well-managed common areas
of any condominium are better and more effective that condominiums with poor [sic] managed common areas, the
corporation activity is a profit venture making [sic].[7]
From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of Makati.[8] On 1
March 2000, the Makati RTC Branch 57 rendered a Decision[9] dismissing the appeal for lack of merit. Accepting
the premise laid by the City Treasurer, the RTC acknowledged, in sadly risible language:
Herein appellant, to defray the improvements and beautification of the common areas, collect [sic]
assessments from its members. Its end view is to get appreciate living rules for the unit owners [sic], to
give an impression to outsides [sic] of the quality of service the condominium offers, so as to allow
present owners to command better prices in the event of sale.[10]
With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of business
under Section 13(b) of the Local Government Code, and thus subject to local business taxation. [11]
From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of Civil
Procedure with the Court of Appeals. Initially, the petition was dismissed outright[12] on the ground that only
decisions of the RTC brought on appeal from a first level court could be elevated for review under the mode of
review prescribed under Rule 42.[13] However, the Corporation pointed out in its Motion for Reconsiderationthat
under Section 195 of the Local Government Code, the remedy of the taxpayer on the denial of the protest filed with
the local treasurer is to appeal the denial with the court of competent jurisdiction. [14] Persuaded by this contention,
the Court of Appeals reinstated the petition.[15]
On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the Decision[16] now assailed
before this Court. The appellate court reversed the RTC and declared that the Corporation was not liable to pay
business taxes to the City of Makati.[17] In doing so, the Court of Appeals delved into jurisprudential definitions of
profit,[18] and concluded that the Corporation was not engaged in profit. For one, it was held that the very statutory
concept of a condominium corporation showed that it was not a juridical entity intended to make profit, as its sole
purpose was to hold title to the common areas in the condominium and to maintain the condominium. [19]
The Court of Appeals likewise cited provisions from the Corporations Amended Articles of Incorporation and
Amended By-Laws that, to its estimation, established that the Corporation was not engaged in business and the
assessment collected from unit owners limited to those necessary to defray the expenses in the maintenance of the
common areas and management the condominium.[20]
Upon denial of her Motion for Reconsideration,[21] the City Treasurer elevated the present Petition for
Review under Rule 45. It is argued that the Corporation is engaged in business, for the dues collected from the
different unit owners is utilized towards the beautification and maintenance of the Condominium, resulting in full
appreciative living values for the condominium units which would command better market prices should they be sold
in the future. The City Treasurer likewise avers that the rationale for business taxes is not on the income received or
profit earned by the business, but the privilege to engage in business. The fact that the
Corporation is empowered to acquire, own, hold, enjoy, lease, operate and maintain, and to convey sell, transfer or
otherwise dispose of real or personal property allegedly qualifies as incident to the fact of [the Corporations] act of
engaging in business.[22]
The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the Court of
Appeals when the latter filed its Petition for Review under Rule 42. It is reasoned that the decision of the Makati
RTC was rendered in the exercise of original jurisdiction, it being the first court which took cognizance of the case.
Accordingly, with the Corporation having pursued an erroneous mode of appeal, the RTC Decision is deemed to
have become final and executory.
First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in deciding an
appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code,
exercises original jurisdiction or appellate jurisdiction. The question assumes a measure of importance to this
petition, for the adoption of the position of the City Treasurer that the mode of review of the decision taken by the
RTC is governed by Rule 41 of the Rules of Civil Procedure means that the decision of the RTC would have long
become final and executory by reason of the failure of the Corporation to file a notice of appeal. [23]
There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals, holds
that the RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This position is
anchored on the language of Section 195 of the Local Government Code which states that the remedy of the
taxpayer whose protest is denied by the local treasurer is to appeal with the court of competent
jurisdiction.[24] Apparently though, the Local Government Code does not elaborate on how such appeal should be
undertaken.
The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is original
in character. This is the first time that the position has been presented to the court for adjudication. Still, this
argument does find jurisprudential mooring in our ruling in Garcia v. De Jesus,[25] where the Court proffered the
following distinction between original jurisdiction and appellate jurisdiction: Original jurisdiction is the power of the
Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by
law. Appellate jurisdiction is the authority of a Court higher in rank to re-examine the final order or judgment of a
lower Court which tried the case now elevated for judicial review. [26]
The quoted definitions were taken from the commentaries of the esteemed Justice Florenz Regalado. With
the definitions as beacon, the review taken by the RTC over the denial of the protest by the local treasurer would fall
within that courts original jurisdiction. In short, the review is the initial judicial cognizance of the matter. Moreover,
labeling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not
the judgment or order of a lower court, but of a local government official.
The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the 1997 Rules of
Civil Procedure, Section 1 of which lists a slew of administrative agencies and quasi-judicial tribunals or their officers
whose decisions may be reviewed by the Court of Appeals in the exercise of its appellate jurisdiction. However, the
basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129), [27] ineluctably confers appellate jurisdiction on the
Court of Appeals over final rulings of quasi-judicial agencies, instrumentalities, boards or commission, by explicitly
using the phrase appellate jurisdiction. [28] The power to create or characterize jurisdiction of courts belongs to the
legislature. While the traditional notion of appellate jurisdiction connotes judicial review over lower court decisions, it
has to yield to statutory redefinitions that clearly expand its breadth to encompass even review of decisions of
officers in the executive branches of government.
Yet significantly, the Local Government Code, or any other statute for that matter, does not expressly confer
appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. On the
other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts,
confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit
Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional
Trial Courts over rulings made by non-judicial entities.
From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and
that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court
of Appeals. However, we make this pronouncement subject to two important qualifications. First, in this particular
case there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately uphold
the adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight of the
pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act No.
9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA).
Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises exclusive appellate
jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases
original decided or resolved by them in the exercise of their originally or appellate jurisdiction. Moreover, the
provision also states that the review is triggered by filing a petition for review under a procedure analogous to that
provided for under Rule 42 of the 1997 Rules of Civil Procedure.[29]
Republic Act No. 9282, however, would not apply to this case simply because it arose prior to the effectivity
of that law. To declare otherwise would be to institute a jurisdictional rule derived not from express statutory grant,
but from implication. The jurisdiction of a court to take cognizance of a case should be clearly conferred and should
not be deemed to exist on mere implications,[30] and this settled rule would be needlessly emasculated should we
declare that the Corporations position is correct in law.
Be that as it may, characteristic of all procedural rules is adherence to the precept that they should not be
enforced blindly, especially if mechanical application would defeat the higher ends that animates our civil
procedurethe just, speedy and inexpensive disposition of every action and proceeding.[31] Indeed, we have
repeatedly upheldand utilized ourselvesthe discretion of courts to nonetheless take cognizance of petitions raised
on an erroneous mode of appeal and instead treat these petitions in the manner as they should have appropriately
been filed.[32] The Court of Appeals could very well have treated the Corporations petition for review as an ordinary
appeal.
Moreover, we recognize that the Corporations error in elevating the RTC decision for review via Rule 42
actually worked to the benefit of the City Treasurer. There is wider latitude on the part of the Court of Appeals to
refuse cognizance over a petition for review under Rule 42 than it would have over an ordinary appeal under Rule
41. Under Section 13, Rule 41, the stated grounds for the dismissal of an ordinary appeal prior to the transmission
of the case records are when the appeal was taken out of time or when the docket fees were not paid. [33] On the
other hand, Section 6, Rule 42 provides that in order that the Court of Appeals may allow due course to the petition
for review, it must first make a prima facie finding that the lower court has committed an error that would warrant the
reversal or modification of the decision under review.[34] There is no similar requirement of a prima
facie determination of error in the case of ordinary appeal, which is perfected upon the filing of the notice of appeal
in due time.[35]
Evidently, by employing the Rule 42 mode of review, the Corporation faced a greater risk of having its
petition rejected by the Court of Appeals as compared to having filed an ordinary appeal under Rule 41. This was
not an error that worked to the prejudice of the City Treasurer.
We now proceed to the substantive issue, on whether the City of Makati may collect business taxes on
condominium corporations.
We begin with an overview of the power of a local government unit to impose business taxes.
The power of local government units to impose taxes within its territorial jurisdiction derives from the Constitution
itself, which recognizes the power of these units to create its own sources of revenue and to levy taxes, fees, and
charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of
local autonomy.[36] These guidelines and limitations as provided by Congress are in main contained in the Local
Government Code of 1991 (the Code), which provides for comprehensive instances when and how local
government units may impose taxes. The significant limitations are enumerated primarily in Section 133 of the
Code, which include among others, a prohibition on the imposition of income taxes except when levied on banks
and other financial institutions.[37] None of the other general limitations under Section 133 find application to the
case at bar.
The most well-known mode of local government taxation is perhaps the real property tax, which is governed by Title
II, Book II of the Code, and which bears no application in this case. A different set of provisions, found under Title I
of Book II, governs other taxes imposable by local government units, including business taxes. Under Section 151
of the Code, cities such as Makati are authorized to levy the same taxes fees and charges as provinces and
municipalities. It is in Article II, Title II, Book II of the Code, governing municipal taxes, where the provisions on
business taxation relevant to this petition may be found.[38]
Section 143 of the Code specifically enumerates several types of business on which municipalities and cities may
impose taxes. These include manufacturers, wholesalers, distributors, dealers of any article of commerce of
whatever nature; those engaged in the export or commerce of essential commodities; contractors and other
independent contractors; banks and financial institutions; and peddlers engaged in the sale of any merchandise or
article of commerce. Moreover, the local sanggunian is also authorized to impose taxes on any other businesses
not otherwise specified under Section 143 which the sanggunian concerned may deem proper to tax.
The coverage of business taxation particular to the City of Makati is provided by the Makati Revenue Code
(Revenue Code), enacted through Municipal Ordinance No. 92-072. The Revenue Code remains in effect as of this
writing. Article A, Chapter III of the Revenue Code governs business taxes in Makati, and it is quite specific as to the
particular businesses which are covered by business taxes. To give a sample of the specified businesses under the
Revenue Code which are not enumerated under the Local Government Code, we cite Section 3A.02(f) of the Code,
which levies a gross receipt tax :
(f) On contractors and other independent contractors defined in Sec. 3A.01(q) of Chapter III of
this Code, and on owners or operators of business establishments rendering or offering services
such as: advertising agencies; animal hospitals; assaying laboratories; belt and buckle shops;
blacksmith shops; bookbinders; booking officers for film exchange; booking offices for
transportation on commission basis; breeding of game cocks and other sporting animals
belonging to others; business management services; collecting agencies; escort services;
feasibility studies; consultancy services; garages; garbage disposal contractors; gold and
silversmith shops; inspection services for incoming and outgoing cargoes; interior decorating
services; janitorial services; job placement or recruitment agencies; landscaping contractors;
lathe machine shops; management consultants not subject to professional tax; medical and
dental laboratories; mercantile agencies; messsengerial services; operators of shoe shine
stands; painting shops; perma press establishments; rent-a-plant services; polo players; school
for and/or horse-back riding academy; real estate appraisers; real estate brokerages; photostatic,
white/blue printing, Xerox, typing, and mimeographing services; rental of bicycles and/or
tricycles, furniture, shoes, watches, household appliances, boats, typewriters, etc.; roasting of
pigs, fowls, etc.; shipping agencies; shipyard for repairing ships for others; shops for shearing
animals; silkscreen or T-shirt printing shops; stables; travel agencies; vaciador shops; veterinary
clinics; video rentals and/or coverage services; dancing schools/speed reading/EDP; nursery,
vocational and other schools not regulated by the Department of Education, Culture and Sports,
(DECS), day care centers; etc.[39]
Other provisions of the Revenue Code likewise subject hotel and restaurant owners and operators [40], real
estate dealers, and lessors of real estate[41] to business taxes.
Should the comprehensive listing not prove encompassing enough, there is also a catch-all provision similar
to that under the Local Government Code. This is found in Section 3A.02(m) of the Revenue Code, which provides:
(m) On owners or operators of any business not specified above shall pay the tax at the rate of
two percent (2%) for 1993, two and one-half percent (2 %) for 1994 and 1995, and three percent (3%)
for 1996 and the years thereafter of the gross receipts during the preceding year. [42]
The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer rely on to make the
Corporation liable for business taxes. Even at this point, there already stands a problem with the City Treasurers
cause of action.
Our careful examination of the record reveals a highly disconcerting fact. At no point has the City Treasurer
been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to
what exactly is the precise statutory basis under the Makati Revenue Code for the levying of the business tax on
petitioner. We have examined all of the pleadings submitted by the City Treasurer in all the antecedent judicial
proceedings, as well as in this present petition, and also the communications by the City Treasurer to the
Corporation which form part of the record. Nowhere therein is there any citation made by the City Treasurer of any
provision of the Revenue Code which would serve as the legal authority for the collection of business taxes from
condominiums in Makati.
Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is officially made
aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax.
Section 195 of the Local Government Code does not go as far as to expressly require that the notice of assessment
specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or
charge, the amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to
the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment.
There may have been prima facie compliance with the requirement under Section 195. However in this case, the
Revenue Code provides multiple provisions on business taxes, and at varying rates. Hence, we could appreciate
the Corporations confusion, as expressed in its protest, as to the exact legal basis for the tax. [43]Reference to the
local tax ordinance is vital, for the power of local government units to impose local taxes is exercised through the
appropriate ordinance enacted by the sanggunian, and not by the Local Government Code alone.[44] What
determines tax liability is the tax ordinance, the Local Government Code being the enabling law for the local
legislative body.
Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) seems designed
as a catch-all provision, Section 3A.02(f), which provides for a different tax rate from that of the former provision,
may be construed to be of similar import. While Section 3A.02(f) is quite exhaustive in enumerating the class of
businesses taxed under the provision, the listing, while it does not include condominium-related enterprises, ends
with the abbreviation etc., or et cetera.
We do note our discomfort with the unlimited breadth and the dangerous uncertainty which are the twin
hallmarks of the words et cetera. Certainly, we cannot be disposed to uphold any tax imposition that derives its
authority from enigmatic and uncertain words such as et cetera. Yet we cannot even say with definiteness whether
the tax imposed on the Corporation in this case is based on et cetera, or on Section 3A.02(m), or on any other
provision of the Revenue Code. Assuming that the assessment made on the Corporation is on a provision other
than Section 3A.02(m), the main legal issue takes on a different complexion. For example, if it is based on et cetera
under Section 3A.02(f), we would have to examine whether the Corporation faces analogous comparison with the
other businesses listed under that provision.
Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all through out as to
the exact basis for the tax imposition which she wishes that this Court uphold. Indeed, there is only one thing that
prevents this Court from ruling that there has been a due process violation on account of the City Treasurers failure
to disclose on paper the statutory basis of the taxthat the Corporation itself does not allege injury arising from such
failure on the part of the City Treasurer.
We do not know why the Corporation chose not to put this issue into litigation, though we can ultimately
presume that no injury was sustained because the City Treasurer failed to cite the specific statutory basis of the tax.
What is essential though is that the local treasurer be required to explain to the taxpayer with sufficient particularity
the basis of the tax, so as to leave no doubt in the mind of the taxpayer as to the specific tax involved.
In this case, the Corporation seems confident enough in litigating despite the failure of the City Treasurer to
admit on what exact provision of the Revenue Code the tax liability ensued. This is perhaps because the
Corporation has anchored its central argument on the position that the Local Government Code itself does not
sanction the imposition of business taxes against it. This position was sustained by the Court of Appeals, and now
merits our analysis.
As stated earlier, local tax on businesses is authorized under Section 143 of the Local Government Code.
The word business itself is defined under Section 131(d) of the Code as trade or commercial activity regularly
engaged in as a means of livelihood or with a view to profit.[45] This definition of business takes on importance, since
Section 143 allows local government units to impose local taxes on businesses other than those specified under the
provision. Moreover, even those business activities specifically named in Section 143 are themselves susceptible to
broad interpretation. For example, Section 143(b) authorizes the imposition of business taxes on wholesalers,
distributors, or dealers in any article of commerce of whatever kind or nature.
It is thus imperative that in order that the Corporation may be subjected to business taxes, its activities must
fall within the definition of business as provided in the Local Government Code. And to hold that they do is to ignore
the very statutory nature of a condominium corporation.
The creation of the condominium corporation is sanctioned by Republic Act No. 4726, otherwise known as
the Condominium Act. Under the law, a condominium is an interest in real property consisting of a separate interest
in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly,
in the land on which it is located and in other common areas of the building.[46] To enable the orderly administration
over these common areas which are jointly owned by the various unit owners, the Condominium Act permits the
creation of a condominium corporation, which is specially formed for the purpose of holding title to the common
area, in which the holders of separate interests shall automatically be members or shareholders, to the exclusion of
others, in proportion to the appurtenant interest of their respective
units.[47] The necessity of a condominium corporation has not gained widespread acceptance [48], and even is merely
permissible under the Condominium Act.[49] Nonetheless, the condominium corporation has been resorted to by
many condominium projects, such as the Corporation in this case.
In line with the authority of the condominium corporation to manage the condominium project, it may be
authorized, in the deed of restrictions, to make reasonable assessments to meet authorized expenditures, each
condominium unit to be assessed separately for its share of such expenses in proportion (unless otherwise
provided) to its owners fractional interest in any common areas.[50] It is the collection of these assessments from unit
owners that form the basis of the City Treasurers claim that the Corporation is doing business.
The Condominium Act imposes several limitations on the condominium corporation that prove crucial to the
disposition of this case. Under Section 10 of the law, the
corporate purposes of a condominium corporation are limited to the holding of the common areas, either in
ownership or any other interest in real property recognized by law; to the management of the project; and to such
other purposes as may be necessary, incidental or convenient to the accomplishment of such purpose. [51] Further,
the same provision prohibits the articles of incorporation or by-laws of the condominium corporation from containing
any provisions which are contrary to the provisions of the Condominium Act, the enabling or master deed, or the
declaration of restrictions of the condominium project.[52]
We can elicit from the Condominium Act that a condominium corporation is precluded by statute from
engaging in corporate activities other than the holding of the common areas, the administration of the condominium
project, and other acts necessary, incidental or convenient to the accomplishment of such purposes. Neither the
maintenance of livelihood, nor the procurement of profit, fall within the scope of permissible corporate purposes of a
condominium corporation under the Condominium Act.
The Court has examined the particular Articles of Incorporation and By-Laws of the Corporation, and these
documents unmistakably hew to the limitations contained in the Condominium Act. Per the Articles of Incorporation,
the Corporations corporate purposes are limited to: (a) owning and holding title to the common and limited common
areas in the Condominium Project; (b) adopting such necessary measures for the protection and safeguard of the
unit owners and their property, including the power to contract for security services and for insurance coverage on
the entire project; (c) making and adopting needful rules and regulations concerning the use, enjoyment and
occupancy of the units and common areas, including the power to fix penalties and assessments for violation of
such rules; (d) to provide for the maintenance, repair, sanitation, and cleanliness of the common and limited
common areas; (e) to provide and contract for public utilities and other services to the common areas; (f) to contract
for the services of persons or firms to assist in the management and operation of the Condominium Project; (g) to
discharge any lien or encumbrances upon the Condominium Project; (h) to enforce the terms contained in the
Master Deed with Declaration of Restrictions of the Project; (i) to levy and
collect those assessments as provided in the Master Deed, in order to defray the costs, expenses and losses of the
condominium; (j) to acquire, own, hold, enjoy, lease operate and maintain, and to convey, sell transfer, mortgage or
otherwise dispose of real or personal property in connection with the purposes and activities of the corporation; and
(k) to exercise and perform such other powers reasonably necessary, incidental or convenient to accomplish the
foregoing purposes.[53]
Obviously, none of these stated corporate purposes are geared towards maintaining a livelihood or the
obtention of profit. Even though the Corporation is empowered to levy assessments or dues from the unit owners,
these amounts collected are not intended for the incurrence of profit by the Corporation or its members, but to
shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project. Just as
much is confirmed by Section 1, Article V of the Amended By-Laws, which enumerate the particular expenses to be
defrayed by the regular assessments collected from the unit owners. These would include the salaries of the
employees of the Corporation, and the cost of maintenance and ordinary repairs of the common areas.[54]
The City Treasurer nonetheless contends that the collection of these assessments and dues are with the
end view of getting full appreciative living values for the condominium units, and as a result, profit is obtained once
these units are sold at higher prices. The Court cites with approval the two counterpoints raised by the Court of
Appeals in rejecting this contention. First, if any profit is obtained by the sale of the units, it accrues not to the
corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the
owner is already required to pay capital gains tax on the appreciated value of the condominium unit. [55]
Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every Makati City car
owner may be considered as being engaged in business, since the repairs or improvements on the car may be
deemed oriented towards appreciating the value of the car upon resale. There is an evident distinction between
persons who spend on repairs and improvements on their personal and real property for the purpose of increasing
its resale value, and those who defray such expenses for the purpose of preserving the property. The vast majority
of persons fall under the second category, and it would be highly specious to subject these persons to local
business taxes. The profit motive in such cases is hardly the driving factor behind such improvements, if it were
contemplated at all. Any profit that would be derived under such circumstances would merely be incidental, if not
accidental.
Besides, we shudder at the thought of upholding tax liability on the basis of the standard of full appreciative
living values, a phrase that defies statutory explication, commonsensical meaning, the English language, or even
definition from Google. The exercise of the power of taxation constitutes a deprivation of property under the
due process clause,[56] and the taxpayers right to due process is violated when arbitrary or oppressive methods are
used in assessing and collecting taxes. [57] The fact that the Corporation did not fall within the enumerated classes of
taxable businesses under either the Local Government Code or the Makati Revenue Code already forewarns that a
clear demonstration is essential on the part of the City Treasurer on why the Corporation should be taxed anyway.
Full appreciative living values is nothing but blather in search of meaning, and to impose a tax hinged on that
standard is both arbitrary and oppressive.
The City Treasurer also contends that the fact that the Corporation is engaged in business is evinced by
the Articles of Incorporation, which specifically empowers the Corporation to acquire, own, hold, enjoy, lease,
operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal
property.[58] What the City Treasurer fails to add is that every corporation organized under the Corporation
Code[59] is so specifically empowered. Section 36(7) of the Corporation Code states that every corporation
incorporated under the Code has the power and capacity to purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such real and personal property . . . as the transaction of the lawful
business of the corporation may reasonably and necessarily require . . . . [60] Without this power, corporations, as
juridical persons, would be deprived of the capacity to engage in most meaningful legal relations.
Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership
over personal and real property is limited by its stated corporate purposes, which are by themselves further limited
by the Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law
from transacting its properties for the purpose of gainful profit.
Accordingly, and with a significant degree of comfort, we hold that condominium corporations are generally
exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that
seeks to declare otherwise.
Still, we can note a possible exception to the rule. It is not unthinkable that the unit owners of a
condominium would band together to engage in activities for profit under the shelter of the condominium
corporation.[61] Such activity would be prohibited under the Condominium Act, but if the fact is established, we see
no reason why the condominium corporation may be made liable by the local government unit for business taxes.
Even though such activities would be considered as ultra vires, since they are engaged in beyond the legal capacity
of the condominium corporation[62], the principle of estoppel would preclude the corporation or its officers and
members from invoking the void nature of its undertakings for profit as a means of acquitting itself of tax liability.
Still, the City Treasurer has not posited the claim that the Corporation is engaged in business activities
beyond the statutory purposes of a condominium corporation. The assessment appears to be based solely on the
Corporations collection of assessments from unit owners, such assessments being utilized to defray the necessary
expenses for the Condominium Project and the common areas. There is no contemplation of business, no
orientation towards profit in this case. Hence, the assailed tax assessment has no basis under the Local
Government Code or the Makati Revenue Code, and the insistence of the city in its collection of the void tax
constitutes an attempt at deprivation of property without due process of law.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE vs. THE PHILIPPINE AMERICAN ACCIDENT INSURANCE


COMPANY, INC.
G. R. No. 141658 March 18, 2005
DECISION
The Case
Before the Court is a petition for review[1] assailing the Decision[2] of 7 January 2000 of the Court of Appeals
in CA-G.R. SP No. 36816. The Court of Appeals affirmed the Decision [3]of 5 January 1995 of the Court of Tax
Appeals (CTA) in CTA Cases Nos. 2514, 2515 and 2516. The CTA ordered the Commissioner of Internal
Revenue (petitioner) to refund a total of P29,575.02 to respondent companies (respondents).
Antecedent Facts
Respondents are domestic corporations licensed to transact insurance business in the country. From August
1971 to September 1972, respondents paid the Bureau of Internal Revenue under protest the 3% tax imposed on
lending investors by Section 195-A[4] of Commonwealth Act No. 466 (CA 466), as amended by Republic Act No.
6110 (RA 6110) and other laws. CA 466 was the National Internal Revenue Code (NIRC) applicable at the time.
Respondents paid the following amounts: P7,985.25 from Philippine American (PHILAM) Accident Insurance
Company; P7,047.80 from PHILAM Assurance Company; and P14,541.97 from PHILAM General Insurance
Company. These amounts represented 3% of each companys interest income from mortgage and other loans.
Respondents also paid the taxes required of insurance companies under CA 466.
On 31 January 1973, respondents sent a letter-claim to petitioner seeking a refund of the taxes paid under
protest. When respondents did not receive a response, each respondent filed on 26 April 1973 a petition for
review with the CTA. These three petitions, which were later consolidated, argued that respondents were not
lending investors and as such were not subject to the 3% lending investors tax under Section 195-A.
The CTA archived respondents case for several years while another case with a similar issue was pending
before the higher courts. When respondents case was reinstated, the CTA ruled that respondents were entitled to
their refund.
The Ruling of the Court of Tax Appeals
The CTA held that respondents are not taxable as lending investors because the term lending investors
does not embrace insurance companies. The CTA traced the history of the tax on lending investors, as follows:
Originally, a person who was engaged in lending money at interest was taxed as a money lender. [Sec. 1464(x),
Rev. Adm. Code] The term money lenders was defined as including all persons who make a practice of lending
money for themselves or others at interest. [Sec. 1465(v), id.] Under this law, an insurance company was not
considered a money lender and was not taxable as such. To quote from an old BIR Ruling:
The lending of money at interest by insurance companies constitutes a necessary incident of their regular
business. For this reason, insurance companies are not liable to tax as money lenders or real estate brokers for
making or negotiating loans secured by real property. (Ruling, February 28, 1920; BIR 135.2) (The Internal
Revenue Law, Annotated, 2nd ed., 1929, by B.L. Meer, page 143)
The same rule has been applied to banks.
For making investments on salary loans, banks will not be required to pay the money lenders tax imposed by this
subsection, for the reason that money lending is considered a mere incident of the banking business. [See Ruling
No. 43, (October 8, 1926) 25 Off. Gaz. 1326) (The Internal Revenue Law, Annotated, id.)
The term money lenders was later changed to lending investors but the definition of the term remains the same.
[Sec. 1464(x), Rev. Adm. Code, as finally amended by Com. Act No. 215, and Sec. 1465(v) of the same Code, as
finally amended by Act No. 3963] The same law is embodied in the present National Internal Revenue Code
(Com. Act No. 466) without change, except in the amount of the tax. [See Secs. 182(A) (3) (dd) and 194(u),
National Internal Revenue Code.]
It is a well-settled rule that an administrative interpretation of a law which has been followed and applied for a
long time, and thereafter the law is re-enacted without substantial change, such administrative interpretation is
deemed to have received legislative approval. In short, the administrative interpretation becomes part of the law
as it is presumed to carry out the legislative purpose.[5]
The CTA held that the practice of lending money at interest is part of the insurance business. CA 466
already taxes the insurance business. The CTA pointed out that the law recognizes and even regulates this
practice of lending money by insurance companies.
The CTA observed that CA 466 also treated differently insurance companies from lending investors in
regard to fixed taxes. Under Section 182(A)(3)(gg), insurance companies were subject to the same fixed tax as
banks and finance companies. The CTA reasoned that insurance companies were grouped with banks and
finance companies because the latters lending activities were also integral to their business. In contrast, lending
investors were taxed at a different fixed tax under Section 182(A)(3)(dd) of CA 466. The CTA stated that
insurance companies xxx had never been required by respondent [CIR] to pay the fixed tax imposed on lending
investors xxx.[6]
The dispositive portion of the Decision of 5 January 1995 of the Court of Tax Appeals (CTA Decision) reads:
WHEREFORE, premises considered, petitioners Philippine American Accident Insurance Co., Philippine
American Assurance Co., and Philippine American General Insurance Co., Inc. are not taxable on their lending
transactions independently of their insurance business. Accordingly, respondent is hereby ordered to refund to
petitioner[s] the sum of P7,985.25, P7,047.80 and P14,541.97 in CTA Cases No. 2514, 2515 and 2516,
respectively representing the fixed and percentage taxes when (sic) paid by petitioners as lending investor from
August 1971 to September 1972.
No pronouncement as to cost.
SO ORDERED.[7]
Dissatisfied, petitioner elevated the matter to the Court of Appeals.[8]
The Ruling of the Court of Appeals
The Court of Appeals ruled that respondents are not taxable as lending investors. In its Decision of 7
January 2000 (CA Decision), the Court of Appeals affirmed the ruling of the CTA, thus:
WHEREFORE, premises considered, the petition is DISMISSED, hereby AFFIRMING the decision, dated
January 5, 1995, of the Court of Tax Appeals in CTA Cases Nos. 2514, 2515 and 2516.
SO ORDERED.[9]
Petitioner appealed the CA Decision to this Court.
The Issues
Petitioner raises the sole issue:
WHETHER RESPONDENT INSURANCE COMPANIES ARE SUBJECT TO THE 3% PERCENTAGE TAX AS
LENDING INVESTORS UNDER SECTIONS 182(A)(3)(DD) AND 195-A, RESPECTIVELY IN RELATION TO
SECTION 194(U), ALL OF THE NIRC.[10]
The Ruling of the Court
The petition lacks merit.
On the Additional Issue Raised by Petitioner
Section 182(A)(3)(dd) of CA 466 imposes an annual fixed tax on lending investors, depending on their
location.[11] The sole question before the CTA was whether respondents were subject to the percentage tax on
lending investors under Section 195-A. Petitioner raised for the first time the issue of the fixed tax in the Petition
for Review[12] petitioner filed before the Court of Appeals.
Ordinarily, a party cannot raise for the first time on appeal an issue not raised in the trial court. [13] The Court
of Appeals should not have taken cognizance of the issue on respondents supposed liability under Section
182(A)(3)(dd). However, we cannot entirely fault the Court of Appeals or petitioner. Even if the percentage tax on
lending investors was the sole issue before it, the CTA ordered petitioner to refund to the PHILAM companies the
fixed and percentage taxes [t]hen paid by petitioners as lending investor. [14] Although the amounts for refund
consisted only of what respondents paid as percentage taxes, the CTA Decision also ordered the refund to
respondents of the fixed tax on lending investors. Respondents in their pleadings deny any liability under Section
182(A)(3)(dd), on the same ground that they are not lending investors.
The question of whether respondents should pay the fixed tax under Section 182(A)(3)(dd) revolves around
the same issue of whether respondents are taxable as lending investors. In similar circumstances, the Court has
held that an appellate court may consider an unassigned error if it is closely related to an error that was properly
assigned.[15] This rule properly applies to the present case. Thus, we shall consider and rule on the issue of
whether respondents are subject to the fixed tax under Section 182(A)(3)(dd).
Whether Insurance Companies are
Taxable as Lending Investors
Invoking Sections 195-A and 182(A)(3)(dd) in relation to Section 194(u) of CA 466, petitioner argues that
insurance companies are subject to two fixed taxes and two percentage taxes. Petitioner alleges that:
As a lending investor, an insurance company is subject to an annual fixed tax of P500.00 and another P500.00
under Section 182 (A)(3)(dd) and (gg) of the Tax Code. As an underwriter, an insurance company is subject to
the 3% tax of the total premiums collected and another 3% on the gross receipts as a lending investor under
Sections 255 and 195-A, respectively of the same Code. xxx[16]
Petitioner also contends that the refund granted to respondents is in the nature of a tax exemption, and
cannot be allowed unless granted explicitly and categorically.
The rule that tax exemptions should be construed strictly against the taxpayer presupposes that the taxpayer
is clearly subject to the tax being levied against him. Unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled rule that the imposition of a tax cannot be
presumed.[17] Where there is doubt, tax laws must be construed strictly against the government and in favor of the
taxpayer.[18] This is because taxes are burdens on the taxpayer, and should not be unduly imposed or presumed
beyond what the statutes expressly and clearly import. [19]
Section 182(A)(3)(dd) of CA 466 also provides:
Sec. 182. Fixed taxes. (A) On business xxx
xxx
(3) Other fixed taxes. The following fixed taxes shall be collected as follows, the amount stated being for the
whole year, when not otherwise specified;
xxx
(dd) Lending investors
1. In chartered cities and first class municipalities, five hundred pesos;
2. In second and third class municipalities, two hundred and fifty pesos;
3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five
pesos; Provided, That lending investors who do business as such in more than one province
shall pay a tax of five hundred pesos.
Section 195-A of CA 466 provides:
Sec. 195-A. Percentage tax on dealers in securities; lending investors. Dealers in securities and lending investors
shall pay a tax equivalent to three per centum on their gross income.
Neither Section 182(A)(3)(dd) nor Section 195-A mentions insurance companies. Section 182(A)(3)(dd)
provides for the taxation of lending investors in different localities. Section 195-A refers to dealers in securities and
lending investors. The burden is thus on petitioner to show that insurance companies are lending investors for
purposes of taxation.
In this case, petitioner does not dispute that respondents are in the insurance business. Petitioner merely
alleges that the definition of lending investors under CA 466 is broad enough to encompass insurance companies.
Petitioner insists that because of Section 194(u), the two principal activities of the insurance business, namely,
underwriting and investment, are separately taxable.[20]
Section 194(u) of CA 466 states:
(u) Lending investor includes all persons who make a practice of lending money for themselves or others at
interest.
xxx
As can be seen, Section 194(u) does not tax the practice of lending per se. It merely defines what lending
investors are. The question is whether the lending activities of insurance companies make them lending investors
for purposes of taxation.
We agree with the CTA and Court of Appeals that it does not. Insurance companies cannot be considered
lending investors under CA 466, as amended.
Definition of Lending
Investors under CA 466 Does
Not Include Insurance
Companies.
The definition in Section 194(u) of CA 466 is not broad enough to include the business of insurance
companies. The Insurance Code of 1978[21] is very clear on what constitutes an insurance company. It provides that
an insurer or insurance company shall include all individuals, partnerships, associations or corporations xxx
engaged as principals in the insurance business, excepting mutual benefit associations. [22] More specifically,
respondents fall under the category of insurance corporations as defined in Section 185 of the Insurance Code,
thus:
SECTION 185. Corporations formed or organized to save any person or persons or other corporations harmless
from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to
compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the
performance of or compliance with contractual obligations or the payment of debts of others shall be known as
insurance corporations.
Plainly, insurance companies and lending investors are different enterprises in the eyes of the law. Lending
investors cannot, for a consideration, hold anyone harmless from loss, damage or liability, nor provide
compensation or indemnity for loss. The underwriting of risks is the prerogative of insurers, the great majority of
which are incorporated insurance companies[23] like respondents.
Granting of Mortgage and
other Loans are Investment
Practices that are Part of the
Insurance Business.
True, respondents granted mortgage and other kinds of loans. However, this was not done independently of
respondents insurance business. The granting of certain loans is one of several means of investment allowed to
insurance companies. No less than the Insurance Code mandates and regulates this practice. [24]
Unlike the practice of lending investors, the lending activities of insurance companies are circumscribed and
strictly regulated by the State. Insurance companies cannot freely lend to themselves or others as lending investors
can,[25] nor can insurance companies grant simply any kind of loan. Even prior to 1978, the Insurance Code
prescribed strict rules for the granting of loans by insurance companies.[26] These provisions on mortgage, collateral
and policy loans were reiterated in the Insurance Code of 1978 and are still in force today.
Petitioner concedes that respondents investment practices are as much a part of the insurance business as
the task of underwriting. Nevertheless, petitioner argues that such investment practices are separately taxable
under CA 466.
The CTA and the Court of Appeals found that the investment of premiums and other funds received by
respondents through the granting of mortgage and other loans was necessary to respondents business and hence,
should not be taxed separately.
Insurance companies are required by law to possess and maintain substantial legal reserves to meet their
obligations to policyholders.[27] This obviously cannot be accomplished through the collection of premiums alone, as
the legal reserves and capital and surplus insurance companies are obligated to maintain run into millions of pesos.
As such, the creation of investment income has long been held to be generally, if not necessarily, essential to the
business of insurance.[28]
The creation of investment income in the manner sanctioned by the laws on insurance is thus part of the
business of insurance, and the fruits of these investments are essentially income from the insurance business. This
is particularly true if the invested assets are held either as reserved funds to provide for policy obligations or as
capital and surplus to provide an extra margin of safety which will be attractive to insurance buyers.[29]
The Court has also held that when a company is taxed on its main business, it is no longer taxable further for
engaging in an activity or work which is merely a part of, incidental to and is necessary to its main
business.[30] Respondents already paid percentage and fixed taxes on their insurance business. To require them to
pay percentage and fixed taxes again for an activity which is necessarily a part of the same business, the law must
expressly require such additional payment of tax. There is, however, no provision of law requiring such additional
payment of tax.
Sections 195-A and 182(A)(3)(dd) of CA 466 do not require insurance companies to pay double percentage
and fixed taxes. They merely tax lending investors, not lending activities. Respondents were not transformed into
lending investors by the mere fact that they granted loans, as these investments were part of, incidental and
necessary to their insurance business.
Different Tax Treatment of
Insurance Companies and
Lending Investors.
Section 182(A)(3) of CA 466 accorded different tax treatments to lending investors and insurance companies.
The relevant portions of Section 182 state:
Sec. 182. Fixed taxes. (A) On business xxx
(3) Other fixed taxes. The following fixed taxes shall be collected as follows, the amount stated being for the whole
year, when not otherwise specified;
xxx
(dd) Lending investors
1. In chartered cities and first class municipalities, five hundred pesos;
2. In second and third class municipalities, two hundred and fifty pesos;
3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-
five pesos; Provided, That lending investors who do business as such in more than one
province shall pay a tax of five hundred pesos.
xxx
(gg) Banks, insurance companies, finance and investment companies doing business in the Philippines and
franchise grantees, five hundred pesos.
xxx (Emphasis supplied.)
The separate provisions on lending investors and insurance companies demonstrate an intention to treat these
businesses differently. If Congress intended insurance companies to be taxed as lending investors, there would be
no need for Section 182(A)(3)(gg). Section 182(A)(3)(dd) would have been sufficient. That insurance companies
were included with banks, finance and investment companies also supports the CTAs conclusion that insurance
companies had more in common with the latter enterprises than with lending investors. As the CTA pointed out,
banks also regularly lend money at interest, but are not taxable as lending investors.
We find no merit in petitioners contention that Congress intended to subject respondents to two percentage
taxes and two fixed taxes. Petitioners argument goes against the doctrine of strict interpretation of tax impositions.
Petitioners argument is likewise not in accord with existing jurisprudence. In Commissioner of Internal
Revenue v. Michel J. Lhuillier Pawnshop, Inc.,[31] the Court ruled that the different tax treatment accorded to
pawnshops and lending investors in the NIRC of 1977 and the NIRC of 1986 showed the intent of Congress to deal
with both subjects differently. The same reasoning applies squarely to the present case.
Even the current tax law does not treat insurance companies as lending investors. Under Section 108(A) [32] of
the NIRC of 1997, lending investors and non-life insurance companies, except for their crop insurances, are subject
to value-added tax (VAT). Life insurance companies are exempt from VAT, but are subject to percentage tax under
Section 123 of the NIRC of 1997.
Indeed, the fact that Sections 195-A and 182(A)(3)(dd) of CA 466 failed to mention insurance companies
already implies the latters exclusion from the coverage of these provisions. When a statute enumerates the things
upon which it is to operate, everything else by implication must be excluded from its operation and effect.[33]
Definition of Lending
Investors in CA 466 is Not
New.
Petitioner does not dispute that it issued a ruling in 1920 to the effect that the lending of money at interest was
a necessary incident of the insurance business, and that insurance companies were thus not subject to the tax on
money lenders. Petitioner argues only that the 1920 ruling does not apply to the instant case because RA 6110
introduced the definition of lending investors to CA 466 only in 1969.
The subject definition was actually introduced much earlier, at a time when lending investors were still referred
to as money lenders. Sections 45 and 46 of the Internal Revenue Law of 1914[34] (1914 Tax Code) state:
SECTION 45. Amount of Tax on Business. Fixed taxes on business shall be collected as follows, the amount stated
being for the whole year, when not otherwise specified:
xxx
(x) Money lenders, eighty pesos;
xxx
SECTION 46. Words and Phrases Defined. In applying the provisions of the preceding section words and
phrases shall be taken in the sense and extension indicated below:
xxx
Money lender includes all persons who make a practice of lending money for themselves or others at
interest. (Emphasis supplied)
As can be seen, the definitions of money lender under the 1914 Tax Code and lending investor under CA 466
are identical. The term money lender was merely changed to lending investor when Act No. 3963 amended the
Revised Administrative Code in 1932.[35] This same definition of lending investor has since appeared in Section
194(u) of CA 466 and later tax laws.
Note that insurance companies were not included among the businesses subject to an annual fixed tax under
the 1914 Tax Code.[36] That Congress later saw the need to introduce Section 182(A)(3)(gg) in CA 466 bolsters our
view that there was no legislative intent to tax insurance companies as lending investors. If insurance companies
were already taxed as lending investors, there would have been no need for a separate provision specifically
requiring insurance companies to pay fixed taxes.
The Court Accords Great
Weight to the Factual Findings
of the CTA.
Dedicated exclusively to the study and consideration of tax problems, the CTA has necessarily developed an
expertise in the subject of taxation that this Court has recognized time and again. For this reason, the findings of
fact of the CTA, particularly when affirmed by the Court of Appeals, are generally conclusive on this Court absent
grave abuse of discretion or palpable error,[37] which are not present in this case.
WHEREFORE, we DENY the instant petition and AFFIRM the Decision of 7 January 2000 of the Court of
Appeals in CA-G.R. SP No. 36816.
SO ORDERED.

Humphrey's Executor vs. United States, 295 U.S. 602 (1935)


May 27, 1935 295 U.S. 602

CERTIFICATE FROM THE COURT OF CLAIMS


Syllabus
1. The Federal Trade Commission Act fixes the terms of the Commissioners and provides that any Commissioner
may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. Held that Congress
intended to restrict the power of removal to one or more of those causes. Shurtleff v. United States, 189 U. S. 311,
distinguished. Pp. 295 U. S. 621, 295 U. S. 626.
2. This construction of the Act is confirmed by a consideration of the character of the Commission -- an
independent, nonpartisan body of experts, charged with duties neither political nor executive, but
predominantly quasi-judicial and quasi-legislative, and by the legislative history of the Act. P. 295 U. S. 624.
3. When Congress provides for the appointment of officers whose functions, like those of the Federal Trade
Commissioners, are of Legislative and judicial quality, rather than executive, and limits the grounds upon which
they may be removed from office, the President has no constitutional power to remove them for reasons other than
those so specified. Myers v. United States, 272 U. S. 52, limited, and expressions in that opinion in part
disapproved. Pp. 295 U. S. 626, 295 U. S. 627.
Page 295 U. S. 603
The Myers case dealt with the removal of a postmaster, an executive officer restricted to executive functions and
charged with no duty at all related to either the legislative or the judicial power. The actual decision in
the Myers case finds support in the theory that such an officer is merely one of the units in the executive
department, and, hence, inherently subject to the exclusive and illimitable power of removal by the Chief Executive,
whose subordinate he is. That decision goes no farther than to include purely executive officers. The Federal Trade
Commission, in contrast, is an administrative body created by Congress to carry into effect legislative policies
embodied in the statute in accordance with the legislative standard therein prescribed, and to perform other
specified duties as a legislative or as a judicial aid. Such a body cannot in any proper sense be characterized as an
arm or an eye of the executive. Its duties are performed without executive leave, and, in the contemplation of the
statute, must be free from executive control. To the extent that it exercises any executive function -- as
distinguished from executive power in the constitutional sense -- it does so in the discharge and effectuation of
its quasi-legislative or quasi-judicial powers, or as an agency of the legislative or judicial departments of the
Government. Pp. 295 U. S. 627-628.
4. The authority of Congress, in creating quasi-legislative or quasi-judicial agencies, to require them to act in
discharge of their duties independently of executive control cannot well be doubted, and that authority includes, as
an appropriate incident, power to fix the period during which they shall continue in office, and to forbid their removal
except for cause in the meantime. P. 295 U. S. 629.
5. The fundamental necessity of maintaining each of the three general departments of government entirely free
from the control or coercive influence, direct or indirect, of either of the others has often been stressed, and is
hardly open to serious question. So much is implied in the very fact of the separation of the powers of these
departments by the Constitution, and in the rule which recognizes their essential coequality. P. 295 U. S. 629.
6. Whether the power of the President to remove an officer shall prevail over the authority of Congress to condition
the power by fixing a definite term and precluding a removal except for cause will depend upon the character of the
office. To the extent that, between the decision in the Myers case, which sustains the unrestrictable power of the
President to remove purely executive officers, and the present decision that such power does not extend to an
office
Page 295 U. S. 604
such as that here involved there shall remain a field of doubt, such cases as may fall within it are left for future
consideration and determination as they may arise. P. 295 U. S. 631.
7. While the general rule preclude the use of congressional debates to explain the meaning of the words of a
statute, they may be considered as reflecting light upon its general purposes and the evils which it sought to
remedy. P. 295 U. S. 625.
8. Expressions in an opinion which are beyond the point involved do not come within the rule of stare
decisis. P. 295 U. S. 626.
CERTIFICATE from the Court of Claims, propounding questions arising on a claim for the salary withheld from the
plaintiff's testator, from the time when the President undertook to remove him from office to the time of his death.
Page 295 U. S. 618
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
Plaintiff brought suit in the Court of Claims against the United States to recover a sum of money alleged to be due
the deceased for salary as a Federal Trade Commissioner from October 8, 1933, when the President undertook to
remove him from office, to the time of his death on February 14, 1934. The court below has certified to this court
two questions (Act of February 13, 1925, § 3(a), c. 229, 43 Stat. 936, 939; 28 U.S.C. § 288) in respect of the power
of the President to make the removal. The material facts which give rise to the questions are as follows:
William E. Humphrey, the decedent, on December 10, 1931, was nominated by President Hoover to succeed
himself as a member of the Federal Trade Commission, and was confirmed by the United States Senate. He was
duly commissioned for a term of seven years expiring September 25, 1938; and, after taking the required oath of
office, entered upon his duties. On July 25, 1933, President Roosevelt addressed a letter to the commissioner
asking for his resignation, on the ground
"that the aims and purposes of the Administration with respect to the work of the Commission can be carried out
most effectively with personnel of my own selection,"
but disclaiming any reflection upon the commissioner personally or upon his services. The commissioner replied,
asking time to consult
Page 295 U. S. 619
his friends. After some further correspondence upon the subject, the President, on August 31, 1933, wrote the
commissioner expressing the hope that the resignation would be forthcoming, and saying:
"You will, I know, realize that I do not feel that your mind and my mind go along together on either the policies or
the administering of the Federal Trade Commission, and, frankly, I think it is best for the people of this country that I
should have a full confidence."
The commissioner declined to resign, and on October 7, 1933, the President wrote him:
"Effective as of this date, you are hereby removed from the office of Commissioner of the Federal Trade
Commission."
Humphrey never acquiesced in this action, but continued thereafter to insist that he was still a member of the
commission, entitled to perform its duties and receive the compensation provided by law at the rate of $10,000 per
annum. Upon these and other facts set forth in the certificate, which we deem it unnecessary to recite, the following
questions are certified:
"1. Do the provisions of section 1 of the Federal Trade Commission Act, stating that 'any commissioner may be
removed by the President for inefficiency, neglect of duly, or malfeasance in office,' restrict or limit the power of the
President to remove a commissioner except upon one or more of the causes named?"
"If the foregoing question is answered in the affirmative, then -- "
"2. If the power of the President to remove a commissioner is restricted or limited as shown by the foregoing
interrogatory and the answer made thereto, is such a restriction or limitation valid under the Constitution of the
United States?"
The Federal Trade Commission Act, c. 311, 38 Stat. 717; 15 U.S.C. §§ 41, 42, creates a commission of five
Page 295 U. S. 620
members to be appointed by the President by and with the advice and consent of the Senate, and § 1 provides:
"Not more than three of the commissioners shall be members of the same political party. The first commissioners
appointed shall continue in office for terms of three, four, five, six, and seven years, respectively, from the date of
the taking effect of this Act, the term of each to be designated by the President, but their successors shall be
appointed for terms of seven years, except that any person chosen to fill a vacancy shall be appointed only for the
unexpired term of the commissioner whom he shall succeed. The commission shall choose a chairman from its
own membership. No commissioner shall engage in any other business, vocation, or employment. Any
commissioner may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. . . ."
Section 5 of the act in part provides:
"That unfair methods of competition in commerce are hereby declared unlawful."
"The commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except
banks, and common carriers subject to the Acts to regulate commerce, from using unfair methods of competition in
commerce."
In exercising this power, the commission must issue a complaint stating its charges and giving notice of hearing
upon a day to be fixed. A person, partnership, or corporation proceeded against is given the right to appear at the
time and place fixed and show cause why an order to cease and desist should not be issued. There is provision for
intervention by others interested. If the commission finds the method of competition is one prohibited by the act, it is
directed to make a report in writing stating its findings as to the facts, and to issue and cause to be served a cease
and desist order. If the order is disobeyed, the commission may apply to the appropriate circuit court of
Page 295 U. S. 621
appeals for its enforcement. The party subject to the order may seek and obtain a review in the circuit court of
appeals in a manner provided by the act.
Section 6, among other things, gives the commission wide powers of investigation in respect of certain corporations
subject to the act and in respect of other matters, upon which it must report to Congress with recommendations.
Many such investigations have been made, and some have served as the basis of congressional legislation.
Section 7 provides:
"That in any suit in equity brought by or under the direction of the Attorney General as provided in the antitrust Acts,
the court may, upon the conclusion of the testimony therein, if it shall be then of opinion that the complainant is
entitled to relief, refer said suit to the commission, as a master in chancery, to ascertain and report an appropriate
form of decree therein. The commission shall proceed upon such notice to the parties and under such rules of
procedure as the court may prescribe, and upon the coming in of such report such exceptions may be filed and
such proceedings had in relation thereto as upon the report of a master in other equity causes, but the court may
adopt or reject such report, in whole or in part, and enter such decree as the nature of the case may in its judgment
require."
First. The question first to be considered is whether, by the provisions of § 1 of the Federal Trade Commission Act,
already quoted, the President's power is limited to removal for the specific causes enumerated therein. The
negative contention of the government is based principally upon the decision of this court in Shrutleff v. United
States, 189 U. S. 311. That case involved the power of the President to remove a general appraiser of merchandise
appointed under the Act of June 10, 1890, 26 Stat. 131. Section 12 of the act provided for the appointment by the
President, by and with the advice and consent
Page 295 U. S. 622
of the Senate, of nine general appraisers of merchandise, who "may be removed from office at any time by the
President for inefficiency, neglect of duty, or malfeasance in office." The President removed Shurtleff without
assigning any cause therefor. The Court of Claims dismissed plaintiff's petition to recover salary, upholding the
President's power to remove for causes other than those stated. In this court, Shurtleff relied upon the
maxim expressio unius est exclusio alterius, but this court held that, while the rule expressed in the maxim was a
very proper one, and founded upon justifiable reasoning in many instances, it
"should not be accorded controlling weight when to do so would involve the alteration of the universal practice of
the government for over a century and the consequent curtailment of the powers of the executive in such an
unusual manner."
What the court meant by this expression appears from a reading of the opinion. That opinion -- after saying that no
term of office was fixed by the act and that, with the exception of judicial officers provided for by the Constitution, no
civil officer had ever held office by life tenure since the foundation of the government -- points out that to construe
the statute as contended for by Shurtleff would give the appraiser the right to hold office during his life or until found
guilty of some act specified in the statute, the result of which would be a complete revolution in respect of the
general tenure of office, effected by implication with regard to that particular office only.
"We think it quite inadmissible," the court said (pp. 189 U. S. 316, 189 U. S. 318),
"to attribute an intention on the part of Congress to make such an extraordinary change in the usual rule governing
the tenure of office, and one which is to be applied to this particular office only, without stating such intention in
plain and explicit language, instead of leaving it to be implied from doubtful inferences. . . . We cannot bring
ourselves to the belief that Congress ever
Page 295 U. S. 623
intended this result while omitting to use language which would put that intention beyond doubt."
These circumstances, which led the court to reject the maxim as inapplicable, are exceptional. In the face of the
unbroken precedent against life tenure, except in the case of the judiciary, the conclusion that Congress intended
that, from among all other civil officers, appraisers alone should be selected to hold office for life was so extreme as
to forbid, in the opinion of the court, any ruling which would produce that result if it reasonably could be avoided.
The situation here presented is plainly and wholly different. The statute fixes a term of office, in accordance with
many precedents. The first commissioners appointed are to continue in office for terms of three, four, five, six, and
seven years, respectively, and their successors are to be appointed for terms of seven years -- any commissioner
being subject to removal by the President for inefficiency, neglect of duty, or malfeasance in office. The words of
the act are definite and unambiguous.
The government says the phrase "continue in office" is of no legal significance, and, moreover, applies only to the
first commissioners. We think it has significance. It may be that, literally, its application is restricted as suggested;
but it nevertheless lends support to a view contrary to that of the government as to the meaning of the entire
requirement in respect of tenure; for it is not easy to suppose that Congress intended to secure the first
commissioners against removal except for the causes specified, and deny like security to their successors. Putting
this phrase aside, however, the fixing of a definite term subject to removal for cause, unless there be some
countervailing provision or circumstance indicating the contrary, which here we are unable to find, is enough to
establish the legislative intent that the term is not to be curtailed in the absence of such cause. But if the intention of
Page 295 U. S. 624
Congress that no removal should be made during the specified term except for one or more of the enumerated
causes were not clear upon the face of the statute, as we think it is, it would be made clear by a consideration of
the character of the commission and the legislative history which accompanied and preceded the passage of the
act. The commission is to be nonpartisan, and it must, from the very nature of its duties, act with entire impartiality.
It is charged with the enforcement of no policy except the policy of the law. Its duties are neither political nor
executive, but predominantly quasi-judicial and quasi-legislative. Like the Interstate Commerce Commission, its
members are called upon to exercise the trained judgment of a body of experts "appointed by law and informed by
experience." Illinois Central R. Co. v. Interstate Commerce Comm'n, 206 U. S. 441, 206 U. S. 454; Standard Oil
Co. v. United States, 283 U. S. 235, 283 U. S. 238-239. The legislative reports in both houses of Congress clearly
reflect the view that a fixed term was necessary to the effective and fair administration of the law. In the report to
the Senate (No. 597, 63d Cong., 2d Sess., pp. 10-11) the Senate Committee on Interstate Commerce, in support of
the bill which afterwards became the act in question, after referring to the provision fixing the term of office at seven
years, so arranged that the membership would not be subject to complete change at any one time, said:
"The work of this commission will be of a most exacting and difficult character, demanding persons who have
experience in the problems to be met -- that is, a proper knowledge of both the public requirements and the
practical affairs of industry. It is manifestly desirable that the terms of the commissioners shall be long enough to
give them an opportunity to acquire the expertness in dealing with these special questions concerning industry that
comes from experience. "
Page 295 U. S. 625
The report declares that one advantage which the commission possessed over the Bureau of Corporations (an
executive subdivision in the Department of Commerce which was abolished by the act) lay in the fact of its
independence, and that it was essential that the commission should not be open to the suspicion of partisan
direction. The report quotes (p. 22) a statement to the committee by Senator Newlands, who reported the bill, that
the tribunal should be of high character and
"independent of any department of the government . . . a board or commission of dignity, permanence, and ability,
independent of executive authority, except in its selection, and independent in character."
The debates in both houses demonstrate that the prevailing view was that the commission was not to be "subject to
anybody in the government, but . . . only to the people of the United States"; free from "political domination or
control" or the "probability or possibility of such a thing"; to be "separate and apart from any existing department of
the government -- not subject to the orders of the President."
More to the same effect appears in the debates, which were long and thorough, and contain nothing to the contrary.
While the general rule precludes the use of these debates to explain the meaning of the words of the statute, they
may be considered as reflecting light upon its general purposes and the evils which it sought to remedy. Federal
Trade Comm'n v. Raladam Co., 283 U. S. 643, 283 U. S. 650.
Thus, the language of the act, the legislative reports, and the general purposes of the legislation as reflected by the
debates all combine to demonstrate the Congressional intent to create a body of experts who shall gain experience
by length of service -- a body which shall be independent of executive authority except in its selection, and free to
exercise its judgment without the leave or hindrance
Page 295 U. S. 626
of any other official or any department of the government. To the accomplishment of these purposes it is clear that
Congress was of opinion that length and certainty of tenure would vitally contribute. And to hold that, nevertheless,
the members of the commission continue in office at the mere will of the President might be to thwart, in large
measure, the very ends which Congress sought to realize by definitely fixing the term of office.
We conclude that the intent of the act is to limit the executive power of removal to the causes enumerated, the
existence of none of which is claimed here, and we pass to the second question.
Second. To support its contention that the removal provision of § 1, as we have just construed it, is an
unconstitutional interference with the executive power of the President, the government's chief reliance is Myers v.
United States, 272 U. S. 52. That case has been so recently decided, and the prevailing and dissenting opinions so
fully review the general subject of the power of executive removal, that further discussion would add little of value to
the wealth of material there collected. These opinions examine at length the historical, legislative and judicial data
bearing upon the question, beginning with what is called "the decision of 1789" in the first Congress and coming
down almost to the day when the opinions were delivered. They occupy 243 pages of the volume in which they are
printed. Nevertheless, the narrow point actually decided was only that the President had power to remove a
postmaster of the first class without the advice and consent of the Senate as required by act of Congress. In the
course of the opinion of the court, expressions occur which tend to sustain the government's contention, but these
are beyond the point involved, and, therefore do not come within the rule of stare decisis. Insofar as they are out of
harmony with the views here set forth, these expressions are disapproved. A like situation was
Page 295 U. S. 627
presented in the case of Cohens v. Virginia, 6 Wheat. 264, 19 U. S. 399, in respect of certain general expressions
in the opinion in Marbury v. Madison, 1 Cranch 137. Chief Justice Marshall, who delivered the opinion in
the Marbury case, speaking again for the court in the Cohens case, said:
"It is a maxim not to be disregarded that general expressions, in every opinion, are to be taken in connection with
the case in which those expressions are used. If they go beyond the case, they may be respected, but ought not to
control the judgment in a subsequent suit when the very point is presented for decision. The reason of this maxim is
obvious. The question actually before the Court is investigated with care, and considered in its full extent. Other
principles which may serve to illustrate it are considered in their relation to the case decided, but their possible
bearing on all other cases is seldom completely investigated."
And he added that these general expressions in the case of Marbury v. Madison were to be understood with the
limitations put upon them by the opinion in the Cohens case. See also Carroll v. Lessee of Carroll, 16 How. 275, 57
U. S. 286-287; O'Donoghue v. United States, 289 U. S. 516, 289 U. S. 550.
The office of a postmaster is so essentially unlike the office now involved that the decision in the Myers case cannot
be accepted as controlling our decision here. A postmaster is an executive officer restricted to the performance of
executive functions. He is charged with no duty at all related to either the legislative or judicial power. The actual
decision in the Myers case finds support in the theory that such an officer is merely one of the units in the executive
department, and, hence, inherently subject to the exclusive and illimitable power of removal by the Chief Executive,
whose subordinate and aid he is. Putting aside dicta, which may be followed if sufficiently persuasive but which are
not controlling, the necessary reach of the decision goes far enough to include
Page 295 U. S. 628
all purely executive officers. It goes no farther; much less does it include an officer who occupies no place in the
executive department, and who exercises no part of the executive power vested by the Constitution in the
President.
The Federal Trade Commission is an administrative body created by Congress to carry into effect legislative
policies embodied in the statute in accordance with the legislative standard therein prescribed, and to perform other
specified duties as a legislative or as a judicial aid. Such a body cannot in any proper sense be characterized as an
arm or an eye of the executive. Its duties are performed without executive leave, and, in the contemplation of the
statute, must be free from executive control. In administering the provisions of the statute in respect of "unfair
methods of competition" -- that is to say, in filling in and administering the details embodied by that general
standard -- the commission acts in part quasi-legislatively and in part quasi-judicially. In making investigations and
reports thereon for the information of Congress under 6, in aid of the legislative power, it acts as a legislative
agency. Under § 7, which authorizes the commission to act as a master in chancery under rules prescribed by the
court, it acts as an agency of the judiciary. To the extent that it exercises any executive function -- as distinguished
from executive power in the constitutional sense -- it does so in the discharge and effectuation of its quasi-
legislative or quasi-judicial powers, or as an agency of the legislative or judicial departments of the government.*
Page 295 U. S. 629
If Congress is without authority to prescribe causes for removal of members of the trade commission and limit
executive power of removal accordingly, that power at once becomes practically all-inclusive in respect of civil
officers with the exception of the judiciary provided for by the Constitution. The Solicitor General, at the bar,
apparently recognizing this to be true, with commendable candor, agreed that his view in respect of the removability
of members of the Federal Trade Commission necessitated a like view in respect of the Interstate Commerce
Commission and the Court of Claims. We are thus confronted with the serious question whether not only the
members of these quasi-legislative and quasi-judicial bodies, but the judges of the legislative Court of Claims,
exercising judicial power (Williams v. United States, 289 U. S. 553,289 U. S. 565-567), continue in office only at the
pleasure of the President.
We think it plain under the Constitution that illimitable power of removal is not possessed by the President in
respect of officers of the character of those just named. The authority of Congress, in creating quasi-legislative
or quasi-judicial agencies, to require them to act in discharge of their duties independently of executive control
cannot well be doubted, and that authority includes, as an appropriate incident, power to fix the period during which
they shall continue in office, and to forbid their removal except for cause in the meantime. For it is quite evident that
one who holds his office only during the pleasure of another cannot be depended upon to maintain an attitude of
independence against the latter's will.
The fundamental necessity of maintaining each of the three general departments of government entirely free from
the control or coercive influence, direct or indirect, of either of the others has often been stressed, and is hardly
open to serious question. So much is implied in
Page 295 U. S. 630
the very fact of the separation of the powers of these departments by the Constitution, and in the rule which
recognizes their essential coequality. The sound application of a principle that makes one master in his own house
precludes him from imposing his control in the house of another who is master there. James Wilson, one of the
framers of the Constitution and a former justice of this court, said that the independence of each department
required that its proceedings "should be free from the remotest influence, direct or indirect, of either of the other two
powers." Andrews, The Works of James Wilson (1896), vol. 1, p. 367. And Mr. Justice Story, in the first volume of
his work on the Constitution, 4th ed., § 530, citing No. 48 of the Federalist, said that neither of the departments in
reference to each other "ought to possess, directly or indirectly, an overruling influence in the administration of their
respective powers." And see O'Donoghue v. United States, supra., at pp. 289 U. S. 530-531.
The power of removal here claimed for the President falls within this principle, since its coercive influence threatens
the independence of a commission which is not only wholly disconnected from the executive department, but
which, as already fully appears, was created by Congress as a means of carrying into operation legislative and
judicial powers, and as an agency of the legislative and judicial departments.
In the light of the question now under consideration, we have reexamined the precedents referred to in
the Myers case, and find nothing in them to justify a conclusion contrary to that which we have reached. The so-
called "decision of 1789" had relation to a bill proposed by Mr. Madison to establish an executive Department of
Foreign Affairs. The bill provided that the principal officer was "to be removable from office by the President of the
United States." This clause was changed to read "whenever the principal officer shall be removed
Page 295 U. S. 631
from office by the President of the United States," certain things should follow, thereby, in connection with the
debates, recognizing and confirming, as the court thought in the Myers case, the sole power of the President in the
matter. We shall not discuss the subject further, since it is so fully covered by the opinions in the Myers case,
except to say that the office under consideration by Congress was not only purely executive, but the officer one
who was responsible to the President, and to him alone, in a very definite sense. A reading of the debates shows
that the President's illimitable power of removal was not considered in respect of other than executive officers. And
it is pertinent to observe that, when, at a later time, the tenure of office for the Comptroller of the Treasury was
under consideration, Mr. Madison quite evidently thought that, since the duties of that office were not purely of an
executive nature, but partook of the judiciary quality as well, a different rule in respect of executive removal might
well apply. 1 Annals of Congress, cols. 611-612.
In Marbury v. Madison, supra, pp. 5 U. S. 162, 5 U. S. 165-166, it is made clear that Chief Justice Marshall was of
opinion that a justice of the peace for the District of Columbia was not removable at the will of the President, and
that there was a distinction between such an officer and officers appointed to aid the President in the performance
of his constitutional duties. In the latter case, the distinction he saw was that "their acts are his acts," and his will,
therefore, controls; and, by way of illustration, he adverted to the act establishing the Department of Foreign Affairs,
which was the subject of the "decision of 1789."
The result of what we now have said is this: whether the power of the President to remove an officer shall prevail
over the authority of Congress to condition the power by fixing a definite term and precluding a removal except for
cause will depend upon the character of the office; the Myers decision, affirming the power of the President
Page 295 U. S. 632
alone to make the removal, is confined to purely executive officers, and, as to officers of the kind here under
consideration, we hold that no removal can be made during the prescribed term for which the officer is appointed
except for one or more of the causes named in the applicable statute. To the extent that, between the decision in
the Myers case, which sustains the unrestrictable power of the President to remove purely executive officers, and
our present decision that such power does not extend to an office such as that here involved, there shall remain a
field of doubt, we leave such cases as may fall within it for future consideration and determination as they may
arise. In accordance with the foregoing, the questions submitted are answered.
Question No. 1, Yes. Question No. 2, Yes.
* The docket title of this case is: Rathbun, Executor v. United States.
* The provision of § 6(d) of the act which authorizes the President to direct an investigation and report by the
commission in relation to alleged violations of the antitrust acts is so obviously collateral to the main design of the
act as not to detract from the force of this general statement as to the character of that body.

EXECUTIVE ORDER NO. 392 January 9, 1990


CONSTITUTING THE METROPOLITAN MANILA AUTHORITY PROVIDING FOR ITS POWERS AND
FUNCTIONS AND FOR OTHER PURPOSES
WHEREAS, pursuant to Presidential Decree No. 824, as amended, a public corporation known as Metropolitan
Manila was formed from among the Cities of Manila, Quezon, Pasay, and Caloocan and the Municipalities of
Makati, Mandaluyong, San Juan, Las Piñas, Malabon, Navotas, Pasig, Pateros, Parañaque, Marikina, Muntinlupa,
Taguig, and Valenzuela, and placed under the administration of the Metropolitan Manila Commission;
WHEREAS, the President exercises direct supervision and control over the Metropolitan Manila Commission
(Section 13, Presidential Decree No. 824, as amended);
WHEREAS, Article X, Sections 11 and 13 of the Constitution provide that:
"Sec. 11. The Congress may, by law, create special metropolitan political subdivisions, subject to the plebiscite as
set forth in Section 10 hereof. The component cities and municipalities shall retain their basic autonomy and shall
be entitled to their own local executives and legislative assemblies. The jurisdiction of the metropolitan authority
that will thereby be created shall be limited to basic services requiring coordination.
xxx xxx xxx
Sec. 13. Local government units may group themselves, consolidate or coordinate their efforts, services, and
resources for purposes commonly beneficial to them in accordance with law."
WHEREAS, it is for the best interest of the constituents of the local government units comprising the Metropolitan
Manila that the consolidation or coordination of the efforts, services and resources for purposes beneficial to them
be administered by their duly elected local chief executives;
WHEREAS, while Congress is tasked to pass a law that will provide the metropolitan authority on a more
permanent basis, the present demands for a cohesive consolidation or coordination of basic services among the
component cities and municipalities of the Metropolitan Manila necessitate an urgent devolution of the powers and
functions of the Metropolitan Manila to an interim authority;
WHEREAS, Article XVIII, Section of the Constitution states:
"Sec. 8. Until otherwise provided by the Congress, the President may constitute the Metropolitan Authority to be
composed of the heads of all local government units comprising the Metropolitan Manila area."
NOW, THEREFORE, I, CORAZON C. AQUINO, President of the Philippines, by virtue of the powers vested in me
by the Constitution and by law, do hereby order:
Sec. 1. Until otherwise provided by the Congress there is hereby constituted the Metropolitan Manila Authority,
hereinafter referred to as the Authority, to be composed of the heads of the four (4) cities and thirteen (13)
municipalities comprising the Metropolitan Manila area.
The Authority shall have jurisdiction over the delivery of basic urban services requiring coordination in the
Metropolitan Manila. These basic urban services shall include among others: land use, planning and zoning traffic
management; public safety; urban development and renewal management and control of operations during
calamities and emergencies affecting public welfare and safety; and sanitation and waste management. Any
change in the classification of zoning shall however be subject to the approval of the Housing and Land Use
Regulatory Board (HLURB).
Sec. 2. The Authority shall be governed by the Metropolitan Manila Council, hereinafter referred to as the Council,
composed of the Mayors of the four (4) cities and thirteen (13) municipalities of Metropolitan.
The Chairman shall be elected from among the Mayor members of the Council to serve for a term of six (6) months.
The Council shall be assisted by a professional Metropolitan General Manager and three Deputy General
Managers to be appointed by the President of the Philippines.
The Secretaries of Transportation and Communications, Public Works and Highways, and Budget and
Management shall attend all meeting of the Council as non-voting members.
The Council shall be responsible for the following:
1. Formulation of policies on the delivery of basic services requiring coordination or consolidation for the operations
of the Authority; and
2. Promulgation of resolutions and other issuances of metropolitan-wide application, approval of a code of basic
services requiring coordination, and exercise of its rule- making powers.
The members of the Council shall have one (1) vote each. The Council shall establish the necessary technical,
consultative and secretariat support.
Sec. 3. The Metropolitan Manila Commission shall devolve to the Authority all its powers and functions, which are
not otherwise inconsistent with the Constitution and existing laws, in order to carry out its mandate to deliver basic
urban services requiring coordination or consolidation in Metropolitan Manila.
Sec. 4. The Chairman of the Council shall have the following functions:
1. Call and preside at the meetings of the Council;
2. Present for the approval of the Council the annual budget of the Authority;
3. Submit the organizational structure and staffing pattern of the Authority for approval by the Council and the
President;
4. Present for the approval of the Council after consultation with the local government units and the appropriate
government entities the following plans and proposals: the annual operations plan, proposed policies and
programs, revenue-raising measures and proposals, draft rules and regulations, and such other plans and projects
necessary to carry out the purpose of this Executive Order and which require the approval of the Council;
5. Prepare and submit to the Council and to the President of the Philippines annual reports and evaluation of
programs and projects;
6. Recommend to the President and Congress, with the approval of the Council, measures which will improve the
quality of life of the people in Metropolitan Manila or which will introduce services not covered by this Executive
Order which are necessary for the betterment of Metropolitan Manila;
7. Recommend to the national policy-making bodies the implementation of plans and programs of agencies and/or
local governments that conform to the regional development plan; and
8. Perform such other functions as may be required by law, by the President, or by the Council of the Authority in
accordance with this Executive Order.
Sec. 5. The Metropolitan General Manager of the Authority shall have the following functions:
1. Manage the day-to-day operations of the Authority;
2. Develop programs and implement projects along the policies set by the Council and assist the Chairman of the
Council in the management and operations of the Authority;
3. Act as head of the technical, consultative and management of the Authority;
4. Assist the Chairman and the Council in the preparation of rules and regulations, the comprehensive development
plan, the operations and appropriations measure, the basic services code, and such other measures which are
necessary to help the Chairman and the Council attain the objectives of this Executive Order;
5. Prepare the annual reports and other reports of projects and programs required by this Executive Order, for the
approval of the Chairman; and,
6. Perform such other functions as may be required by law, by Council, or by its Chairman.
Sec. 6. The local government units shall continue to be primarily responsible for the administration of their
respective political jurisdictions. While local governments shall be involved with specific problems and issues
concerning their respective political jurisdictions, the Authority shall attend to metropolitan-wide and/or common
problems or those transcending local boundaries. Local city and municipal councils shall formulate and submit
city/municipal plans and priorities to Authority for integration with the sectoral and regional plans. The Authority
shall provide technical assistance and guidance on the preparation of local development plans and programs to
ensure conformity with the regional plan. The Authority shall review legislation proposed by the local legislative
assemblies to ensure consistency among local governments and with the comprehensive development plan of
Metropolitan Manila, and advise the local governments accordingly.
Sec. 7. To carry out the purposes of this Executive Order, the Authority shall submit to the Department of Budget
and Management the budget for its annual operating expenses for inclusion in the general appropriations law.
City and municipal treasurers of the local government units comprising Metropolitan Manila shall continue to collect
all revenues and receipts accruing to the Metropolitan Manila Commission and remit the same to the Authority;
Provided, that such income collections as well as the share of the Authority from the regular sources of revenue in
the General Fund of the city or municipality as local counterpart for the integrated basic services and
developmental projects shall treated as a trust fund in their books of account; Provided, further, that the remittances
thereof shall be effected within the first thirty (30) days following the end of each month. Failure to remit the same
within the prescribed period without justifiable reason shall subject the person or persons responsible for such
delay to the penalties and sanctions imposed under existing laws. In this regard the Council is authorized to
conduct an inquiry as to the cause of such delay.
All sources of revenues of the Metropolitan Manila Commission shall remain valid and in effect, and shall
henceforth pertain to the Authority.
Sec. 8. All city and municipal treasures, municipal assessors, and their assistants as well as all other officials
whose appointments is currently vested upon the Metropolitan Manila Commission shall be appointed by the
President of the Philippines, upon recommendation of the Council, subject to the Civil Service law, rules and
regulations.
Other treasury and assessment personnel shall be appointed by the local chief executive in the city or municipality
in accordance with existing laws.
Sec. 9. The Authority, the Council, the Chairman of the Council, and the Metropolitan Manager shall be under the
direct supervision of the President of the Philippines. The President shall have the power to revoke, amend or
modify any rule, resolution or act of the Authority, the Council, the Chairman of the Council, and the Metropolitan
Manager.
The President shall continue to exercise administrative disciplinary jurisdiction over the elective City and Municipal
officials in the Metropolitan Manila.
Sec. 10. To enable the President of the Philippines to assess the performance of the Authority and the
management system of Metropolitan Manila, the Authority shall undertake a periodic review of its functions,
organizational structure, and impact of its programs and projects at least once every year and submit a special
report thereof to the President with appropriate findings and recommendations.
Sec. 11. To prevent disruption in the delivery of basic urban services pending the full implementation of the
Authority's organizational structure and staffing pattern, all officials and employees of the Metropolitan Manila
Commission including the incumbent Commissioners who shall automatically become Deputy General Manager,
shall continue to exercise their duties and functions under the direction of the Authority until they have been given
notice for change of duties and functions, transfer to another office or position, or termination of service. Until
otherwise provided by law, the Authority shall be exempted from the coverage of Batas Pambansa Blg. 337, the
Local Government Code.
All assets and properties presently in use and/or under accountability of the Metropolitan Manila Commission and
all its obligations, indebtedness or liabilities shall be transferred to the Authority subject to the conditions that may
be established by the Department of Budget and Management, Office of the President and Commission on Audit.
Civil service laws and regulations pertinent to the displacement of personnel affected by this Executive Order shall
be strictly enforced.
Sec. 12. The Acting Governor of the Metropolitan Manila shall supervise the transfer to the Authority of such
subsisting powers and functions, including the transfer of properties, assets and liabilities, and personnel of the
Metropolitan Manila Commission within the period of sixty (60) days from the date of this Executive Order. Upon the
effectivity of this Executive Order, the Acting Governor shall convene the mayors of the cities and municipalities
comprising Metropolitan Manila and shall preside the organizational meeting, which shall include, among others, in
its agency, and the election of the Chairman of the Council. After the election of the Chairman of the Council but
within sixty (60) days referred to herein, the acting Governor shall turn over the affairs of the Metropolitan Manila
Commission to the Council.
Sec. 13. This Executive Order shall take effect upon approval and completion of its publication in at least two (2)
national newspapers of general circulation.
DONE in the City of Manila, this 9th day of January, in the year of Our Lord, nineteen hundred and ninety.

THE PRESIDENTIAL ANTI-DOLLAR SALTING TASK FORCE vs. COURT OF APPEALS


G.R. No. 83578 March 16, 1989

The petitioner, the Presidential Anti-Dollar Salting Task Force, the President's arm assigned to investigate and
prosecute so-called "dollar salting" activities in the country (per Presidential Decree No. 1936 as amended by
Presidential Decree No. 2002), asks the Court to hold as null and void two Resolutions of the Court of Appeals,
dated September 24, 1987 1 and May 20, 1988, 2 reversing its Decision, dated October 24, 1986. 3 The Decision
set aside an Order, dated April 16, 1985, of the Regional Trial Court, 4 as well as its Order, dated August 21, 1985.
The Resolution, dated September 24, 1987 disposed of, and granted, the private respondent Karamfil Import-
Export Co., Inc.'s motion for reconsideration of the October 24, 1986 Decision; the Resolution dated May 20, 1988,
in turn, denied the petitioner's own motion for reconsideration.
The facts are not in controversy. We quote:
On March 12, 1985, State Prosecutor Jose B. Rosales, who is assigned with the Presidential Anti-
Dollar Salting Task Force hereinafter referred to as PADS Task Force for purposes of convenience,
issued search warrants Nos. 156, 157, 158, 159, 160 and 161 against the petitioners Karamfil
Import-Export Co., Inc., P & B Enterprises Co., Inc., Philippine Veterans Corporation, Philippine
Veterans Development Corporation, Philippine Construction Development Corporation, Philippine
Lauan Industries Corporation, Inter-trade Development (Alvin Aquino), Amelili U. Malaquiok
Enterprises and Jaime P. Lucman Enterprises.
The application for the issuance of said search warrants was filed by Atty. Napoleon Gatmaytan of the Bureau of
Customs who is a deputized member of the PADS Task Force. Attached to the said application is the affidavit of
Josefin M. Castro who is an operative and investigator of the PADS Task Force. Said Josefin M. Castro is likewise
the sole deponent in the purported deposition to support the application for the issuance of the six (6) search
warrants involved in this case. The application filed by Atty. Gatmaytan, the affidavit and deposition of Josefin M.
Castro are all dated March 12, 1985. 5
Shortly thereafter, the private respondent (the petitioner below) went to the Regional Trial Court on a petition to
enjoin the implementation of the search warrants in question. 6 On March 13, 1985, the trial court issued a
temporary restraining order [effective "for a period of five (5) days notice " 7 ] and set the case for hearing on March
18, 1985.
In disposing of the petition, the said court found the material issues to be:
1) Competency of this Court to act on petition filed by the petitioners;
2) Validity of the search warrants issued by respondent State Prosecutor;
3) Whether or not the petition has become moot and academic because all the search warrants
sought to be quashed had already been implemented and executed. 8
On April 16, 1985, the lower court issued the first of its challenged Orders, and held:
WHEREFORE, in view of all the foregoing, the Court hereby declares Search Warrant Nos. 156,
157, 158, 159, 160, and 161 to be null and void. Accordingly, the respondents are hereby ordered
to return and surrender immediately all the personal properties and documents seized by them
from the petitioners by virtue of the aforementioned search warrants.
SO ORDERED. 9
On August 21, 1985, the trial court denied reconsideration.
On April 4, 1986, the Presidential Anti-Dollar Salting Task Force went to the respondent Court of Appeals to
contest, on certiorari, the twin Order(s) of the lower court.
In ruling initially for the Task Force, the Appellate Court held:
Herein petitioner is a special quasi-judicial body with express powers enumerated under PD 1936
to prosecute foreign exchange violations defined and punished under P.D. No. 1883.
The petitioner, in exercising its quasi-judicial powers, ranks with the Regional Trial Courts, and the
latter in the case at bar had no jurisdiction to declare the search warrants in question null and void.
Besides as correctly pointed out by the Assistant Solicitor General the decision of the Presidential
Anti-Dollar Salting Task Force is appealable to the Office of the President.10
On November 12, 1986, Karamfil Import-Export Co., Inc. sought a reconsideration, on the question primarily of
whether or not the Presidential Anti-Dollar Salting Task Force is "such other responsible officer' countenanced by
the 1973 Constitution to issue warrants of search and seizure.
As we have indicated, the Court of Appeals, on Karamfil's motion, reversed itself and issued its Resolution, dated
September 1987, and subsequently, its Resolution, dated May 20, 1988, denying the petitioner's motion for
reconsideration.
In its petition to this Court, the petitioner alleges that in so issuing the Resolution(s) above-mentioned, the
respondent Court of Appeals "committed grave abuse of discretion and/or acted in excess of its appellate
jurisdiction," 11 specifically:
a) In deviating from the settled policy and rulings of the Supreme Court that no Regional Trial
Courts may countermand or restrain the enforcement of lawful writs or decrees issued by a quasi-
judicial body of equal and coordinate rank, like the PADS Task Force;
b) For resorting to judicial legislation to arrive at its erroneous basis for reconsidering its previous
Decision dated October 24, 1986 (see Annex "I") and thus promulgated the questioned Resolutions
(Annexes "A" and "B"), which violated the constitutional doctrine on separation of powers;
c) In not resolving directly the other important issues raised by the petitioner in its Petition in CA-
G.R. No. 08622-SP despite the fact that petitioner has demonstrated sufficiently and convincingly
that respondent RTC, in issuing the questioned Orders in Special Proceeding No. M-624 (see
Annexes "C" and 'D"), committed grave abuse of discretion and/or acted in excess of jurisdiction:
1. In ruling that (a) the description of the things to be seized as stated in the contested search
warrant were too general which allegedly render the search warrants null and void; (b) the
applications for the contested search warrants actually charged two offenses in contravention of
the 2nd paragraph, Section 3, Rule 126 of the Rules of Court; and (c) this case has not become
moot and academic, even if the contested search warrants had already been fully implemented
with positive results; and
2. In ruling that the petitioner PADS Task Force has not been granted under PD 1936 'judicial or
quasi-judicial jurisdiction. 12
We find, upon the foregoing facts, that the essential questions that confront us are- (i) is the Presidential Anti-Dollar
Salting Task Force a quasi-judicial body, and one co-equal in rank and standing with the Regional Trial Court, and
accordingly, beyond the latter's jurisdiction; and (ii) may the said presidential body be said to be "such other
responsible officer as may be authorized by law" to issue search warrants under the 1973 Constitution questions
we take up seriatim.**
In submitting that it is a quasi-judicial entity, the petitioner states that it is endowed with "express powers and
functions under PD No. 1936, to prosecute foreign exchange violations as defined and punished under PD No.
1883." 13 "By the very nature of its express powers as conferred by the laws," so it is contended, "which are
decidedly quasi-judicial or discretionary function, such as to conduct preliminary investigation on the charges of
foreign exchange violations, issue search warrants or warrants of arrest, hold departure orders, among others, and
depending upon the evidence presented, to dismiss the charges or to file the corresponding information in court of
Executive Order No. 934, PD No. 1936 and its Implementing Rules and Regulations effective August 26, 1984),
petitioner exercises quasi-judicial power or the power of adjudication ." 14
The Court of Appeals, in its Resolution now assailed, 15 was of the opinion that "[t]he grant of quasi-judicial powers
to petitioner did not diminish the regular courts' judicial power of interpretation. The right to interpret a law and, if
necessary to declare one unconstitutional, exclusively pertains to the judiciary. In assuming this function, courts do
not proceed on the theory that the judiciary is superior to the two other coordinate branches of the government, but
solely on the theory that they are required to declare the law in every case which come before them." 16
This Court finds the Appellate Court to be in error, since what the petitioner puts to question is the Regional Trial
Court's act of assuming jurisdiction over the private respondent's petition below and its subsequent countermand of
the Presidential Anti-Dollar Salting Task Force's orders of search and seizure, for the reason that the presidential
body, as an entity (allegedly) coordinate and co-equal with the Regional Trial Court, was (is) not vested with such a
jurisdiction. An examination of the Presidential Anti-Dollar Salting Task Force's petition shows indeed its recognition
of judicial review (of the acts of Government) as a basic privilege of the courts. Its objection, precisely, is whether it
is the Regional Trial Court, or the superior courts, that may undertake such a review.
Under the Judiciary Reorganization Act of 1980, 17 the Court of Appeals exercises:
(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards
of Regional Trial Court and quasi-judicial agencies, instrumentalities, boards or commissions,
except those falling within the appellate jurisdiction of the Supreme Court in accordance with the
Constitution, the provisions of this Act, and of subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948. 18
xxx xxx xxx
Under the present Constitution, with respect to its provisions on Constitutional Commissions, it is provided, in part
that:
... Unless otherwise provided by this Constitution or by law, any decision, order, or ruling of each
Commission may be brought to the Supreme Court on certiorari by the aggrieved party within thirty
days from receipt of a copy thereof. 19
On the other hand, Regional Trial Courts have exclusive original jurisdiction:
(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person or body exercising
judicial or quasi-judicial functions. 20
xxx xxx xxx
Likewise:
... The Supreme Court may designate certain branches of the Regional Trial Court to handle
exclusively criminal cases, juvenile and domestic relations cases, agrarian case, urban land reform
cases which do not fall under the jurisdiction of quasi- judicial bodies and agencies and/or such
other special cases as the Supreme Court may determine in the interest of a speedy and efficient
administration of justice. 21
xxx xxx xxx
Under our Resolution dated January 11, 1983: 22
... The appeals to the Intermediate Appellate Court [now, Court of Appeals] from quasi-judicial
bodies shall continue to be governed by the provisions of Republic Act No. 5434 insofar as the
same is not inconsistent with the provisions of B.P. Blg. 129. 23
The pertinent provisions of Republic Act No. 5434 are as follows:
SECTION 1. Appeals from specified agencies.— Any provision of existing law or Rule of Court to
the contrary notwithstanding, parties aggrieved by a final ruling, award, order, decision, or
judgment of the Court of Agrarian Relations; the Secretary of Labor under Section 7 of Republic
Act Numbered Six hundred and two, also known as the "Minimum Wage Law"; the Department of
Labor under Section 23 of Republic Act Numbered Eight hundred seventy-five, also known as the
"Industrial Peace Act"; the Land Registration Commission; the Securities and Exchange
Commission; the Social Security Commission; the Civil Aeronautics Board; the Patent Office and
the Agricultural Inventions Board, may appeal therefrom to the Court of Appeals, within the period
and in the manner herein provided, whether the appeal involves questions of fact, mixed questions
of fact and law, or questions of law, or all three kinds of questions. From final judgments or
decisions of the Court of Appeals, the aggrieved party may appeal by certiorari to the Supreme
Court as provided in Rule 45 of the Rules of Court. 24
Because of subsequent amendments, including the abolition of various special courts, 25 jurisdiction over quasi-
judicial bodies has to be, consequently, determined by the corresponding amendatory statutes. Under the Labor
Code, decisions and awards of the National Labor Relations Commission are final and executory, but,
nevertheless, 'reviewable by this Court through a petition for certiorari and not by way of appeal." 26
Under the Property Registration Decree, decisions of the Commission of Land Registration, en consults, are
appealable to the Court of Appeals. 27
The decisions of the Securities and Exchange Commission are likewise appealable to the Appellate Court, 28 and
so are decisions of the Social Security Commission.29
As a rule, where legislation provides for an appeal from decisions of certain administrative bodies to the Court of
Appeals, it means that such bodies are co-equal with the Regional Trial Courts, in terms of rank and stature, and
logically, beyond the control of the latter.
As we have observed, the question is whether or not the Presidential Anti-Dollar Salting Task Force is, in the first
place, a quasi-judicial body, and one whose decisions may not be challenged before the regular courts, other than
the higher tribunals the Court of Appeals and this Court.
A quasi-judicial body has been defined as "an organ of government other than a court and other than a legislature,
which affects the rights of private parties through either adjudication or rule making." 30 The most common types of
such bodies have been listed as follows:
(1) Agencies created to function in situations wherein the government is offering some gratuity,
grant, or special privilege, like the defunct Philippine Veterans Board, Board on Pensions for
Veterans, and NARRA, and Philippine Veterans Administration.
(2) Agencies set up to function in situations wherein the government is seeking to carry on certain
government functions, like the Bureau of Immigration, the Bureau of Internal Revenue, the Board of
Special Inquiry and Board of Commissioners, the Civil Service Commission, the Central Bank of
the Philippines.
(3) Agencies set up to function in situations wherein the government is performing some business
service for the public, like the Bureau of Posts, the Postal Savings Bank, Metropolitan Waterworks
& Sewerage Authority, Philippine National Railways, the Civil Aeronautics Administration.
(4) Agencies set up to function in situations wherein the government is seeking to regulate
business affected with public interest, like the Fiber Inspections Board, the Philippine Patent Office,
Office of the Insurance Commissioner.
(5) Agencies set up to function in situations wherein the government is seeking under the police
power to regulate private business and individuals, like the Securities & Exchange Commission,
Board of Food Inspectors, the Board of Review for Moving Pictures, and the Professional
Regulation Commission.
(6) Agencies set up to function in situations wherein the government is seeking to adjust individual
controversies because of some strong social policy involved, such as the National Labor Relations
Commission, the Court of Agrarian Relations, the Regional Offices of the Ministry of Labor, the
Social Security Commission, Bureau of Labor Standards, Women and Minors Bureau. 31
As may be seen, it is the basic function of these bodies to adjudicate claims and/or to determine rights, and unless
its decision are seasonably appealed to the proper reviewing authorities, the same attain finality and become
executory. A perusal of the Presidential Anti-Dollar Salting Task Force's organic act, Presidential Decree No. 1936,
as amended by Presidential Decree No. 2002, convinces the Court that the Task Force was not meant to exercise
quasi-judicial functions, that is, to try and decide claims and execute its judgments. As the President's arm called
upon to combat the vice of "dollar salting" or the blackmarketing and salting of foreign exchange, 32 it is tasked
alone by the Decree to handle the prosecution of such activities, but nothing more. We quote:
SECTION 1. Powers of the Presidential Anti-Dollar Salting Task Force.-The Presidential Anti-Dollar
Salting Task Force, hereinafter referred to as Task Force, shall have the following powers and
authority:
a) Motu proprio or upon complaint, to investigate and prosecute all dollar salting activities, including
the overvaluation of imports and the undervaluation of exports;
b) To administer oaths, summon persons or issue subpoenas requiring the attendance and
testimony of witnesses or the production of such books, papers, contracts, records, statements of
accounts, agreements, and other as may be necessary in the conduct of investigation;
c) To appoint or designate experts, consultants, state prosecutors or fiscals, investigators and
hearing officers to assist the Task Force in the discharge of its duties and responsibilities; gather
data, information or documents; conduct hearings, receive evidence, both oral and documentary, in
all cases involving violation of foreign exchange laws or regulations; and submit reports containing
findings and recommendations for consideration of appropriate authorities;
d) To punish direct and indirect contempts with the appropriate penalties therefor under Rule 71 of
the Rules of Court; and to adopt such measures and take such actions as may be necessary to
implement this Decree.
xxx xxx xxx
f. After due investigation but prior to the filing of the appropriate criminal charges with the fiscal's
office or the courts as the case may be, to impose a fine and/or administrative sanctions as the
circumstances warrant, upon any person found committing or to have committed acts constituting
blackmarketing or salting abroad of foreign exchange, provided said person voluntarily admits the
facts and circumstances constituting the offense and presents proof that the foreign exchange
retained abroad has already been brought into the country.
Thereafter, no further civil or criminal action may be instituted against said person before any other
judicial regulatory or administrative body for violation of Presidential Decree No. 1883.
The amount of the fine shall be determined by the Chairman of the Presidential Anti- Dollar Salting
Task Force and paid in Pesos taking into consideration the amount of foreign exchange retained
abroad, the exchange rate differentials, uncollected taxes and duties thereon, undeclared profits,
interest rates and such other relevant factors.
The fine shall be paid to the Task Force which shall retain Twenty percent (20 %) thereof. The
informer, if any, shall be entitled to Twenty percent (20 %) of the fine. Should there be no informer,
the Task Force shall be entitle to retain Forty percent (40 %) of the fine and the balance shall
accrue to the general funds of the National government. The amount of the fine to be retained by
the Task Force shall form part of its Confidential Fund and be utilized for the operations of the Task
Force . 33
The Court sees nothing in the aforequoted provisions (except with respect to the Task Force's powers to issue
search warrants) that will reveal a legislative intendment to confer it with quasi-judicial responsibilities relative to
offenses punished by Presidential Decree No. 1883. Its undertaking, as we said, is simply, to determine whether or
not probable cause exists to warrant the filing of charges with the proper court, meaning to say, to conduct an
inquiry preliminary to a judicial recourse, and to recommend action "of appropriate authorities". It is not unlike a
fiscal's office that conducts a preliminary investigation to determine whether or not prima facie evidence exists to
justify haling the respondent to court, and yet, while it makes that determination, it cannot be said to be acting as a
quasi-court. For it is the courts, ultimately, that pass judgment on the accused, not the fiscal.
It is not unlike the Presidential Commission on Good Government either, the executive body appointed to
investigate and prosecute cases involving "ill-gotten wealth". It had been vested with enormous powers, like the
issuance of writs of sequestration, freeze orders, and similar processes, but that did not, on account thereof alone,
make it a quasi-judicial entity as defined by recognized authorities. It cannot pronounce judgement of the accused's
culpability, the jurisdiction to do which is exclusive upon the Sandiganbayan. 34
If the Presidential Anti-Dollar Salting Task Force is not, hence, a quasi-judicial body, it cannot be said to be co-
equal or coordinate with the Regional Trial Court. There is nothing in its enabling statutes that would demonstrate
its standing at par with the said court.
In that respect, we do not find error in the respondent Court of Appeal's resolution sustaining the assumption of
jurisdiction by the court a quo.
It will not do to say that the fact that the Presidential Task Force has been empowered to issue warrants of arrest,
search, and seizure, makes it, ergo, a "semi-court". Precisely, it is the objection interposed by the private
respondent, whether or not it can under the 1973 Charter, issue such kinds of processes.
It must be observed that under the present Constitution, the powers of arrest and search are exclusive upon
judges. 35 To that extent, the case has become moot and academic. Nevertheless, since the question has been
specifically put to the Court, we find it unavoidable to resolve it as the final arbiter of legal controversies, pursuant to
the provisions of the 1973 Constitution during whose regime the case was commenced.
Since the 1973 Constitution took force and effect and until it was so unceremoniously discarded in 1986, its
provisions conferring the power to issue arrest and search warrants upon an officer, other than a judge, by fiat of
legislation have been at best controversial. In Lim v. Ponce de Leon, 36 a 1975 decision, this Court ruled that a
fiscal has no authority to issue search warrants, but held in the same vein that, by virtue of the responsible officer"
clause of the 1973 Bill of Rights, "any lawful officer authorized by law can issue a search warrant or warrant of
arrest.37 Authorities, however, have continued to express reservations whether or not fiscals may, by statute, be
given such a power. 38
Less than a year later, we promulgated Collector of Customs v. Villaluz, 39 in which we categorically averred: Until
now only the judge can issue the warrant of arrest." 40 "No law or presidential decree has been enacted or
promulgated vesting the same authority in a particular responsible officer ." 41
Apparently, Villaluz had settled the debate, but the same question persisted following this Courts subsequent
rulings upholding the President's alleged emergency arrest powers .42 [Mr. Justice Hugo Gutierrez would hold,
however, that a Presidential Commitment Order (PCO) is (was) not a species of "arrest" in its technical sense, and
that the (deposed) Chief Executive, in issuing one, does not do so in his capacity as a "responsible officer" under
the 1973 Charter, but rather, as Commander-in-Chief of the Armed Forces in times of emergency, or in order to
carry out the deportation of undesirable aliens.43 In the distinguished Justice's opinion then, these are acts that can
be done without need of judicial intervention because they are not, precisely, judicial but Presidential actions.]
In Ponsica v. Ignalaga,44 however, we held that the mayor has been made a "responsible officer' by the Local
Government Code, 45 but had ceased to be one with the approval of the 1987 Constitution according judges sole
authority to issue arrest and search warrants. But in the same breath, we did not rule the grant under the Code
unconstitutional based on the provisions of the former Constitution. We were agreed, though, that the "responsible
officer" referred to by the fundamental law should be one capable of approximating "the cold neutrality of an
impartial judge." 46
In striking down Presidential Decree No. 1936 the respondent Court relied on American jurisprudence,
notably, Katz v. United States, 47 Johnson v. United States, 48 and Coolidge v. New Hampshire 49 in which the
American Supreme Court ruled that prosecutors (like the petitioner) cannot be given such powers because of their
incapacity for a "detached scrutiny" 50 of the cases before them. We affirm the Appellate Court.
We agree that the Presidential Anti-Dollar Salting Task Force exercises, or was meant to exercise, prosecutorial
powers, and on that ground, it cannot be said to be a neutral and detached "judge" to determine the existence of
probable cause for purposes of arrest or search. Unlike a magistrate, a prosecutor is naturally interested in the
success of his case. Although his office "is to see that justice is done and not necessarily to secure the conviction of
the person accused," 51 he stands, invariably, as the accused's adversary and his accuser. To permit him to issue
search warrants and indeed, warrants of arrest, is to make him both judge and jury in his own right, when he is
neither. That makes, to our mind and to that extent, Presidential Decree No. 1936 as amended by Presidential
Decree No. 2002, unconstitutional.
It is our ruling, thus, that when the 1973 Constitution spoke of "responsible officer" to whom the authority to issue
arrest and search warrants may be delegated by legislation, it did not furnish the legislator with the license to give
that authority to whomsoever it pleased. It is to be noted that the Charter itself makes the qualification that the
officer himself must be "responsible". We are not saying, of course, that the Presidential Anti-Dollar Salting Task
Force (or any similar prosecutor) is or has been irresponsible in discharging its duty. Rather, we take
"responsibility", as used by the Constitution, to mean not only skill and competence but more significantly, neutrality
and independence comparable to the impartiality presumed of a judicial officer. A prosecutor can in no manner be
said to be possessed of the latter qualities.
According to the Court of Appeals, the implied exclusion of prosecutors under the 1973 Constitution was founded
on the requirements of due process, notably, the assurance to the respondent of an unbiased inquiry of the charges
against him prior to the arrest of his person or seizure of his property. We add that the exclusion is also demanded
by the principle of separation of powers on which our republican structure rests. Prosecutors exercise essentially an
executive function (the petitioner itself is chaired by the Minister, now Secretary, of Trade and Industry), since
under the Constitution, the President has pledged to execute the laws. 52 As such, they cannot be made to issue
judicial processes without unlawfully impinging the prerogative of the courts.
At any rate, Ponsica v. Ignalaga should foreclose all questions on the matter, although the Court hopes that this
disposition has clarified a controversy that had generated often bitter debates and bickerings.
The Court joins the Government in its campaign against the scourge of "dollar- salting", a pernicious practice that
has substantially drained the nation's coffers and has seriously threatened its economy. We recognize the menace
it has posed (and continues to pose) unto the very stability of the country, the urgency for tough measures
designed to contain if not eradicate it, and foremost, the need for cooperation from the citizenry in an all-out
campaign. But while we support the State's efforts, we do so not at the expense of fundamental rights and liberties
and constitutional safeguards against arbitrary and unreasonable acts of Government. If in the event that as a
result of this ruling, we prove to be an "obstacle" to the vital endeavour of stamping out the blackmarketing of
valuable foreign exchange, we do not relish it and certainly, do not mean it. The Constitution simply does not leave
us much choice.
WHEREFORE, the petition is DISMISSED. No costs.
SO ORDERED.

DE LA LLANA vs. ALBA


G.R. No. L-57883 March 12, 1982

DECISION
This Court, pursuant to its grave responsibility of passing upon the validity of any executive or legislative act in an
appropriate cases, has to resolve the crucial issue of the constitutionality of Batas PambansaBlg. 129, entitled “An
act reorganizing the Judiciary, Appropriating Funds Therefor and for Other Purposes.” The task of judicial review,
aptly characterized as exacting and delicate, is never more so than when a conceded legislative power, that of
judicial reorganization, 1 may possibly collide with the time-honored principle of the independence of the
judiciary 2as protected and safeguarded by this constitutional provision: “The Members of the Supreme Court and
judges of inferior courts shall hold office during good behavior until they reach the age of seventy years or become
incapacitated to discharge the duties of their office. The Supreme Court shall have the power to discipline judges of
inferior courts and, by a vote of at least eight Members, order their dismissal.” 3 For the assailed legislation
mandates that Justices and judges of inferior courts from the Court of Appeals to municipal circuit courts, except
the occupants of the Sandiganbayan and the Court of Tax Appeals, unless appointed to the inferior courts
established by such Act, would be considered separated from the judiciary. It is the termination of their incumbency
that for petitioners justifies a suit of this character, it being alleged that thereby the security of tenure provision of
the Constitution has been ignored and disregarded,
That is the fundamental issue raised in this proceeding, erroneously entitled Petition for Declaratory Relief and/or
for Prohibition 4 considered by this Court as an action for prohibited petition, seeking to enjoin respondent Minister
of the Budget, respondent Chairman of the Commission on Audit, and respondent Minister of Justice from taking
any action implementing Batas PambansaBlg. 129. Petitioners 5 sought to bolster their claim by imputing lack of
good faith in its enactment and characterizing as an undue delegation of legislative power to the President his
authority to fix the compensation and allowances of the Justices and judges thereafter appointed and the
determination of the date when the reorganization shall be deemed completed. In the very comprehensive and
scholarly Answer of Solicitor General Estelito P. Mendoza, 6 it was pointed out that there is no valid justification for
the attack on the constitutionality of this statute, it being a legitimate exercise of the power vested in the
BatasangPambansa to reorganize the judiciary, the allegations of absence of good faith as well as the attack on the
independence of the judiciary being unwarranted and devoid of any support in law. A Supplemental Answer was
likewise filed on October 8, 1981, followed by a Reply of petitioners on October 13. After the hearing in the morning
and afternoon of October 15, in which not only petitioners and respondents were heard through counsel but also
the amici curiae, 7 and thereafter submission of the minutes of the proceeding on the debate on Batas
PambansaBlg. 129, this petition was deemed submitted for decision.
The importance of the crucial question raised called for intensive and rigorous study of all the legal aspects of the
case. After such exhaustive deliberation in several sessions, the exchange of views being supplemented by
memoranda from the members of the Court, it is our opinion and so hold that Batas PambansaBlg. 129 is not
unconstitutional.
1. The argument as to the lack of standing of petitioners is easily resolved. As far as Judge de la Llana is
concerned, he certainly falls within the principle set forth in Justice Laurel’s opinion in People v. Vera. 8 Thus: “The
unchallenged rule is that the person who impugns the validity of a statute must have a personal and substantial
interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement.” 9 The
other petitioners as members of the bar and officers of the court cannot be considered as devoid of “any personal
and substantial interest” on the matter. There is relevance to this excerpt from a separate opinion in Aquino, Jr. v.
Commission on Elections: 10 “Then there is the attack on the standing of petitioners, as vindicating at most what
they consider a public right and not protecting their rights as individuals. This is to conjure the specter of the public
right dogma as an inhibition to parties intent on keeping public officials staying on the path of constitutionalism. As
was so well put by Jaffe: ‘The protection of private rights is an essential constituent of public interest and,
conversely, without a well-ordered state there could be no enforcement of private rights.Private and public interests
are, both in substantive and procedural sense, aspects of the totality of the legal order.’ Moreover, petitioners have
convincingly shown that in their capacity as taxpayers, their standing to sue has been amply demonstrated. There
would be a retreat from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by the
very decision of People v. Vera where the doctrine was first fully discussed, if we act differently now. I do not think
we are prepared to take that step. Respondents, however, would hark back to the American Supreme Court
doctrine in Mellon v. Frothingham with their claim that what petitioners possess ‘is an interest which is shared in
common by other people and is comparatively so minute and indeterminate as to afford any basis and assurance
that the judicial process can act on it.’ That is to speak in the language of a bygone era even in the United States.
For as Chief Justice Warren clearly pointed out in the later case of Flast v. Cohen, the barrier thus set up if not
breached has definitely been lowered.” 11
2. The imputation of arbitrariness to the legislative body in the enactment of Batas PambansaBlg. 129 to
demonstrate lack of good faith does manifest violence to the facts. Petitioners should have exercised greater care
in informing themselves as to its antecedents. They had laid themselves open to the accusation of reckless
disregard for the truth, On August 7, 1980, a Presidential Committee on Judicial Reorganization was
organized. 12This Executive Order was later amended by Executive Order No. 619-A., dated September 5 of that
year. It clearly specified the task assigned to it: “1. The Committee shall formulate plans on the reorganization of
the Judiciary which shall be submitted within seventy (70) days from August 7, 1980 to provide the President
sufficient options for the reorganization of the entire Judiciary which shall embrace all lower courts, including the
Court of Appeals, the Courts of First Instance, the City and Municipal Courts, and all Special Courts, but excluding
the Sandigan Bayan.” 13 On October 17, 1980, a Report was submitted by such Committee on Judicial
Reorganization. It began with this paragraph: “The Committee on Judicial Reorganization has the honor to submit
the following Report. It expresses at the outset its appreciation for the opportunity accorded it to study ways and
means for what today is a basic and urgent need, nothing less than the restructuring of the judicial system. There
are problems, both grave and pressing, that call for remedial measures. The felt necessities of the time, to borrow a
phrase from Holmes, admit of no delay, for if no step be taken and at the earliest opportunity, it is not too much to
say that the people’s faith in the administration of justice could be shaken. It is imperative that there be a greater
efficiency in the disposition of cases and that litigants, especially those of modest means — much more so, the
poorest and the humblest — can vindicate their rights in an expeditious and inexpensive manner. The rectitude and
the fairness in the way the courts operate must be manifest to all members of the community and particularly to
those whose interests are affected by the exercise of their functions. It is to that task that the Committee addresses
itself and hopes that the plans submitted could be a starting point for an institutional reform in the Philippine
judiciary. The experience of the Supreme Court, which since 1973 has been empowered to supervise inferior
courts, from the Court of Appeals to the municipal courts, has proven that reliance on improved court management
as well as training of judges for more efficient administration does not suffice. I hence, to repeat, there is need for a
major reform in the judicial so stem it is worth noting that it will be the first of its kind since the Judiciary Act became
effective on June 16, 1901.” 14 I t went to say: “I t does not admit of doubt that the last two decades of this century
are likely to be attended with problems of even greater complexity and delicacy. New social interests are pressing
for recognition in the courts. Groups long inarticulate, primarily those economically underprivileged, have found
legal spokesmen and are asserting grievances previously ignored. Fortunately, the judicially has not proved
inattentive. Its task has thus become even more formidable. For so much grist is added to the mills of justice.
Moreover, they are likewise to be quite novel. The need for an innovative approach is thus apparent. The national
leadership, as is well-known, has been constantly on the search for solutions that will prove to be both acceptable
and satisfactory. Only thus may there be continued national progress.” 15 After which comes: “To be less abstract,
the thrust is on development. That has been repeatedly stressed — and rightly so. All efforts are geared to its
realization. Nor, unlike in the past, was it to b “considered as simply the movement towards economic progress and
growth measured in terms of sustained increases in per capita income and Gross National Product (GNP). 16 For
the New Society, its implication goes further than economic advance, extending to “the sharing, or more
appropriately, the democratization of social and economic opportunities, the substantiation of the true meaning of
social justice.” 17 This process of modernization and change compels the government to extend its field of activity
and its scope of operations. The efforts towards reducing the gap between the wealthy and the poor elements in
the nation call for more regulatory legislation. That way the social justice and protection to labor mandates of the
Constitution could be effectively implemented.” 18 There is likelihood then “that some measures deemed inimical by
interests adversely affected would be challenged in court on grounds of validity. Even if the question does not go
that far, suits may be filed concerning their interpretation and application. … There could be pleas for injunction or
restraining orders. Lack of success of such moves would not, even so, result in their prompt final disposition. Thus
delay in the execution of the policies embodied in law could thus be reasonably expected. That is not conducive to
progress in development.” 19 For, as mentioned in such Report, equally of vital concern is the problem of clogged
dockets, which “as is well known, is one of the utmost gravity. Notwithstanding the most determined efforts exerted
by the Supreme Court, through the leadership of both retired Chief Justice QuerubeMakalintal and the late Chief
Justice Fred Ruiz Castro, from the time supervision of the courts was vested in it under the 1973 Constitution, the
trend towards more and more cases has continued.” 20 It is understandable why. With the accelerated economic
development, the growth of population, the increasing urbanization, and other similar factors, the judiciary is called
upon much oftener to resolve controversies. Thus confronted with what appears to be a crisis situation that calls for
a remedy, the BatasangPambansa had no choice. It had to act, before the ailment became even worse. Time was
of the essence, and yet it did not hesitate to be duly mindful, as it ought to be, of the extent of its coverage before
enacting Batas PambansaBlg. 129.
3. There is no denying, therefore, the need for “institutional reforms,” characterized in the Report as “both pressing
and urgent.” 21 It is worth noting, likewise, as therein pointed out, that a major reorganization of such scope, if it
were to take place, would be the most thorough after four generations. 22 The reference was to the basic Judiciary
Act generations .enacted in June of 1901, 23 amended in a significant way, only twice previous to the
Commonwealth. There was, of course, the creation of the Court of Appeals in 1935, originally composed “of a
Presiding Judge and ten appellate Judges, who shall be appointed by the President of the Philippines, with the
consent of the Commission on Appointments of the National Assembly, 24 It could “sit en banc, but it may sit in two
divisions, one of six and another of five Judges, to transact business, and the two divisions may sit at the same
time.” 25 Two years after the establishment of independence of the Republic of the Philippines, the Judiciary Act of
1948 26 was passed. It continued the existing system of regular inferior courts, namely, the Court of Appeals, Courts
of First Instance, 27 the Municipal Courts, at present the City Courts, and the Justice of the Peace Courts, now the
Municipal Circuit Courts and Municipal Courts. The membership of the Court of Appeals has been continuously
increased. 28 Under a 1978 Presidential Decree, there would be forty-five members, a Presiding Justice and forty-
four Associate Justices, with fifteen divisions. 29 Special courts were likewise created. The first was the Court of Tax
Appeals in 1954, 30 next came the Court of Agrarian Relations in 1955, 31 and then in the same year a Court of the
Juvenile and Domestic Relations for Manila in 1955, 32 subsequently followed by the creation of two other such
courts for Iloilo and Quezon City in 1966. 33 In 1967, Circuit Criminal Courts were established, with the Judges
having the same qualifications, rank, compensation, and privileges as judges of Courts of First Instance. 34
4. After the submission of such Report, Cabinet Bill No. 42, which later became the basis of Batas PambansaBlg.
129, was introduced. After setting forth the background as above narrated, its Explanatory Note continues:
“Pursuant to the President’s instructions, this proposed legislation has been drafted in accordance with the
guidelines of that report with particular attention to certain objectives of the reorganization, to wit, the attainment of
more efficiency in disposal of cases, a reallocation of jurisdiction, and a revision of procedures which do not tend to
the proper meeting out of justice. In consultation with, and upon a consensus of, the governmental and
parliamentary leadership, however, it was felt that some options set forth in the Report be not availed of. Instead of
the proposal to confine the jurisdiction of the intermediate appellate court merely to appellate adjudication, the
preference has been opted to increase rather than diminish its jurisdiction in order to enable it to effectively assist
the Supreme Court. This preference has been translated into one of the innovations in the proposed Bill.” 35 In
accordance with the parliamentary procedure, the Bill was sponsored by the Chairman of the Committee on
Justice, Human Rights and Good Government to which it was referred. Thereafter, Committee Report No. 225 was
submitted by such Committee to the BatasangPambansa recommending the approval with some amendments. In
the sponsorship speech of Minister Ricardo C. Puno, there was reference to the Presidential Committee on Judicial
Reorganization. Thus: “On October 17, 1980, the Presidential Committee on Judicial Reorganization submitted its
report to the President which contained the ‘Proposed Guidelines for Judicial Reorganization.’ Cabinet Bill No. 42
was drafted substantially in accordance with the options presented by these guidelines. Some options set forth in
the aforesaid report were not availed of upon consultation with and upon consensus of the government and
parliamentary leadership. Moreover, some amendments to the bill were adopted by the Committee on Justice,
Human Rights and Good Government, to which The bill was referred, following the public hearings on the bill held
in December of 1980. The hearings consisted of dialogues with the distinguished members of the bench and the
bar who had submitted written proposals, suggestions, and position papers on the bill upon the invitation of the
Committee on Justice, Human Rights and Good Government.” 36 Stress was laid by the sponsor that the enactment
of such Cabinet Bill would, firstly, result in the attainment of more efficiency in the disposal of cases. Secondly, the
improvement in the quality of justice dispensed by the courts is expected as a necessary consequence of the
easing of the court’s dockets. Thirdly, the structural changes introduced in the bill, together with the reallocation of
jurisdiction and the revision of the rules of procedure, are designated to suit the court system to the exigencies of
the present day Philippine society, and hopefully, of the foreseeable future.” 37 it may be observed that the volume
containing the minutes of the proceedings of the BatasangPambansa show that 590 pages were devoted to its
discussion. It is quite obvious that it took considerable time and effort as well as exhaustive study before the act
was signed by the President on August 14, 1981. With such a background, it becomes quite manifest how lacking
in factual basis is the allegation that its enactment is tainted by the vice of arbitrariness. What appears undoubted
and undeniable is the good faith that characterized its enactment from its inception to the affixing of the Presidential
signature.
5. Nothing is better settled in our law than that the abolition of an office within the competence of a legitimate body
if done in good faith suffers from no infirmity. The ponencia of Justice J.B.L. Reyes in Cruz v. Primicias,
Jr. 38reiterated such a doctrine: “We find this point urged by respondents, to be without merit. No removal or
separation of petitioners from the service is here involved, but the validity of the abolition of their offices. This is a
legal issue that is for the Courts to decide. It is well-known rule also that valid abolition of offices is neither removal
nor separation of the incumbents. … And, of course, if the abolition is void, the incumbent is deemed never to have
ceased to hold office. The preliminary question laid at rest, we pass to the merits of the case. As well-settled as the
rule that the abolition of an office does not amount to an illegal removal of its incumbent is the principle that, in
order to be valid, the abolition must be made in good faith.” 39 The above excerpt was quoted with approval
in Bendanillo, Sr. v. Provincial Governor, 40 two earlier cases enunciating a similar doctrine having preceded
it. 41 As with the offices in the other branches of the government, so it is with the judiciary. The test remains whether
the abolition is in good faith. As that element is conspicuously present in the enactment of Batas PambansaBlg.
129, then the lack of merit of this petition becomes even more apparent. The concurring opinion of Justice Laurel
in Zandueta v. De la Costa 42 cannot be any clearer. This is a quo warranto proceeding filed by petitioner, claiming
that he, and not respondent, was entitled to the office of judge of the Fifth Branch of the Court of First Instance of
Manila. There was a Judicial Reorganization Act in 1936, 43 a year after the inauguration of the Commonwealth,
amending the Administrative Code to organize courts of original jurisdiction known as the Courts of First Instance
Prior to such statute, petitioner was the incumbent of such branch. Thereafter, he received an ad interim
appointment, this time to the Fourth Judicial District, under the new legislation. Unfortunately for him, the
Commission on Appointments of then National Assembly disapproved the same, with respondent being appointed
in his place. He contested the validity of the Act insofar as it resulted in his being forced to vacate his position This
Court did not rule squarely on the matter. His petition was dismissed on the ground of estoppel. Nonetheless, the
separate concurrence of Justice Laurel in the result reached, to repeat, reaffirms in no uncertain terms the standard
of good faith to preclude any doubt as to the abolition of an inferior court, with due recognition of the security of
tenure guarantee. Thus: “I am of the opinion that Commonwealth Act No. 145 in so far as it reorganizes, among
other judicial districts, the Ninth Judicial District, and establishes an entirely new district comprising Manila and the
provinces of Rizal and Palawan, is valid and constitutional. This conclusion flows from the fundamental proposition
that the legislature may abolish courts inferior to the Supreme Court and therefore may reorganize them territorially
or otherwise thereby necessitating new appointments and commissions. Section 2, Article VIII of the Constitution
vests in the National Assembly the power to define, prescribe and apportion the jurisdiction of the various courts,
subject to certain limitations in the case of the Supreme Court. It is admitted that section 9 of the same article of the
Constitution provides for the security of tenure of all the judges. The principles embodied in these two sections of
the same article of the Constitution must be coordinated and harmonized. A mere enunciation of a principle will not
decide actual cases and controversies of every sort. (Justice Holmes in Lochner vs. New York, 198 U.S., 45; 49
Law. ed; 937)” 44 justice Laurel continued: “I am not insensible to the argument that the National Assembly may
abuse its power and move deliberately to defeat the constitutional provision guaranteeing security of tenure to all
judges, But, is this the case? One need not share the view of Story, Miller and Tucker on the one hand, or the
opinion of Cooley, Watson and Baldwin on the other, to realize that the application of a legal or constitutional
principle is necessarily factual and circumstantial and that fixity of principle is the rigidity of the dead and the
unprogressive. I do say, and emphatically, however, that cases may arise where the violation of the constitutional
provision regarding security of tenure is palpable and plain, and that legislative power of reorganization may be
sought to cloak an unconstitutional and evil purpose. When a case of that kind arises, it will be the time to make the
hammer fall and heavily. But not until then. I am satisfied that, as to the particular point here discussed, the purpose
was the fulfillment of what was considered a great public need by the legislative department and that
Commonwealth Act No. 145 was not enacted purposely to affect adversely the tenure of judges or of any particular
judge. Under these circumstances, I am for sustaining the power of the legislative department under the
Constitution. To be sure, there was greater necessity for reorganization consequent upon the establishment of the
new government than at the time Acts Nos. 2347 and 4007 were approved by the defunct Philippine Legislature,
and although in the case of these two Acts there was an express provision providing for the vacation by the judges
of their offices whereas in the case of Commonwealth Act No. 145 doubt is engendered by its silence, this doubt
should be resolved in favor of the valid exercise of the legislative power.” 45
6. A few more words on the question of abolition. In the above-cited opinion of Justice Laurel in Zandueta,
reference was made to Act No. 2347 46 on the reorganization of the Courts of First Instance and to Act No.
4007 47 on the reorganization of all branches of the government, including the courts of first instance. In both of
them, the then Courts of First Instance were replaced by new courts with the same appellation. As Justice Laurel
pointed out, there was no question as to the fact of abolition. He was equally categorical as to Commonwealth Act
No. 145, where also the system of the courts of first instance was provided for expressly. It was pointed out by
Justice Laurel that the mere creation of an entirely new district of the same court is valid and constitutional. such
conclusion flowing “from the fundamental proposition that the legislature may abolish courts inferior to the Supreme
Court and therefore may reorganize them territorially or otherwise thereby necessitating new appointments and
commissions.” 48 The challenged statute creates an intermediate appellate court, 49 regional trial
courts, 50 metropolitan trial courts of the national capital region, 51 and other metropolitan trial courts,52 municipal
trial courts in cities, 53 as well as in municipalities, 54 and municipal circuit trial courts. 55 There is even less reason
then to doubt the fact that existing inferior courts were abolished. For the BatasangPambansa, the establishment of
such new inferior courts was the appropriate response to the grave and urgent problems that pressed for solution.
Certainly, there could be differences of opinion as to the appropriate remedy. The choice, however, was for the
Batasan to make, not for this Court, which deals only with the question of power. It bears mentioning that in Brillo v.
Eñage 56 this Court, in an unanimous opinion penned by the late Justice Diokno, citing Zandueta v. De la Costa,
ruled: “La segunda question que el recurrridoplanteaesque la Carta de Tacloban ha abolido el puesto. Si
efectivamente ha sidoabolido el cargo, entonces ha quedadoextinguido el derecho de recurenteaocuparlo y a
cobrar el salariocorrespodiente. McCulley vs. State, 46 LRA, 567. El derecho de unjuez de desempenarlo hasta los
70 años de edado se incapacite no priva al Congreso de sufacultad de abolir, fusionar o reorganizarjuzgados no
constitucionales.” 57 Nonetheless, such well-established principle was not held applicable to the situation there
obtaining, the Charter of Tacloban City creating a city court in place of the former justice of the peace court. Thus:
“Pero en el caso de autos el Juzgado de Tacloban no ha sidoabolido. Solo se le ha cambiado el nombre con el
cambio de forma del gobierno local.” 58 The present case is anything but that. Petitioners did not and could not
prove that the challenged statute was not within the bounds of legislative authority.
7. This opinion then could very well stop at this point. The implementation of Batas PambansaBlg. 129, concededly
a task incumbent on the Executive, may give rise, however, to questions affecting a judiciary that should be kept
independent. The all-embracing scope of the assailed legislation as far as all inferior courts from the Courts of
Appeals to municipal courts are concerned, with the exception solely of the Sandiganbayan and the Court of Tax
Appeals 59 gave rise, and understandably so, to misgivings as to its effect on such cherished Ideal. The first
paragraph of the section on the transitory provision reads: “The provisions of this Act shall be immediately carried
out in accordance with an Executive Order to be issued by the President. The Court of Appeals, the Courts of First
Instance, the Circuit Criminal Courts, the Juvenile and Domestic Relations Courts, the Courts of Agrarian Relations,
the City Courts, the Municipal Courts, and the Municipal Circuit Courts shall continue to function as presently
constituted and organized, until the completion of the reorganization provided in this Act as declared by the
President. Upon such declaration, the said courts shall be deemed automatically abolished and the incumbents
thereof shall cease to hold the office.” 60 There is all the more reason then why this Court has no choice but to
inquire further into the allegation by petitioners that the security of tenure provision, an assurance of a judiciary free
from extraneous influences, is thereby reduced to a barren form of words. The amended Constitution adheres even
more clearly to the long-established tradition of a strong executive that antedated the 1935 Charter. As noted in the
work of former Vice-Governor Hayden, a noted political scientist, President Claro M. Recto of the 1934 Convention,
in his closing address, in stressing such a concept, categorically spoke of providing “an executive power which,
subject to the fiscalization of the Assembly, and of public opinion, will not only know how to govern, but will actually
govern, with a firm and steady hand, unembarrassed by vexatious interferences by other departments, or by unholy
alliances with this and that social group.” 61 The above excerpt was cited with approval by Justice Laurel in Planas
v. Gil. 62Moreover, under the 1981 Amendments, it may be affirmed that once again the principle of separation of
powers, to quote from the same jurist as ponente in Angara v. Electoral Commission, 63 “obtains not through
express provision but by actual division.” 64 The president, under Article VII, shall be the head of state and chief
executive of the Republic of the Philippines.” 65 Moreover, it is equally therein expressly provided that all the powers
he possessed under the 1935 Constitution are once again vested in him unless the BatasangPambansa provides
otherwise.” 66 Article VII of the 1935 Constitution speaks categorically: “The Executive power shall be vested in a
President of the Philippines.” 67 As originally framed, the 1973 Constitution created the position of President as the
“symbolic head of state.” 68 In addition, there was a provision for a Prime Minister as the head of government
exercising the executive power with the assistance of the Cabinet 69 Clearly, a modified parliamentary system was
established. In the light of the 1981 amendments though, this Court in Free Telephone Workers Union v. Minister of
Labor 70 could state: “The adoption of certain aspects of a parliamentary system in the amended Constitution does
not alter its essentially presidential character.” 71 The retention, however, of the position of the Prime Minister with
the Cabinet, a majority of the members of which shall come from the regional representatives of the
BatasangPambansa and the creation of an Executive Committee composed of the Prime Minister as Chairman and
not more than fourteen other members at least half of whom shall be members of the BatasangPambansa, clearly
indicate the evolving nature of the system of government that is now operative. 72 What is equally apparent is that
the strongest ties bind the executive and legislative departments. It is likewise undeniable that the
BatasangPambansa retains its full authority to enact whatever legislation may be necessary to carry out national
policy as usually formulated in a caucus of the majority party. It is understandable then why in Fortun v. Labang 73 it
was stressed that with the provision transferring to the Supreme Court administrative supervision over the
Judiciary, there is a greater need “to preserve unimpaired the independence of the judiciary, especially so at
present, where to all intents and purposes, there is a fusion between the executive and the legislative branches.” 74
8. To be more specific, petitioners contend that the abolition of the existing inferior courts collides with the security
of tenure enjoyed by incumbent Justices and judges under Article X, Section 7 of the Constitution. There was a
similar provision in the 1935 Constitution. It did not, however, go as far as conferring on this Tribunal the power to
supervise administratively inferior courts. 75 Moreover, this Court is empowered “to discipline judges of inferior
courts and, by a vote of at least eight members, order their dismissal.” 76 Thus it possesses the competence to
remove judges. Under the Judiciary Act, it was the President who was vested with such power. 77 Removal is, of
course, to be distinguished from termination by virtue of the abolition of the office. There can be no tenure to a non-
existent office. After the abolition, there is in law no occupant. In case of removal, there is an office with an
occupant who would thereby lose his position. It is in that sense that from the standpoint of strict law, the question
of any impairment of security of tenure does not arise. Nonetheless, for the incumbents of inferior courts abolished,
the effect is one of separation. As to its effect, no distinction exists between removal and the abolition of the office.
Realistically, it is devoid of significance. He ceases to be a member of the judiciary. In the implementation of the
assailed legislation, therefore, it would be in accordance with accepted principles of constitutional construction that
as far as incumbent justices and judges are concerned, this Court be consulted and that its view be accorded the
fullest consideration. No fear need be entertained that there is a failure to accord respect to the basic principle that
this Court does not render advisory opinions. No question of law is involved. If such were the case, certainly this
Court could not have its say prior to the action taken by either of the two departments. Even then, it could do so but
only by way of deciding a case where the matter has been put in issue. Neither is there any intrusion into who shall
be appointed to the vacant positions created by the reorganization. That remains in the hands of the Executive to
whom it properly belongs. There is no departure therefore from the tried and tested ways of judicial power, Rather
what is sought to be achieved by this liberal interpretation is to preclude any plausibility to the charge that in the
exercise of the conceded power of reorganizing tulle inferior courts, the power of removal of the present
incumbents vested in this Tribunal is ignored or disregarded. The challenged Act would thus be free from any
unconstitutional taint, even one not readily discernible except to those predisposed to view it with distrust.
Moreover, such a construction would be in accordance with the basic principle that in the choice of alternatives
between one which would save and another which would invalidate a statute, the former is to be preferred. 78 There
is an obvious way to do so. The principle that the Constitution enters into and forms part of every act to avoid any
constitutional taint must be applied Nuñez v. Sandiganbayan, 79 promulgated last January, has this relevant
excerpt: “It is true that other Sections of the Decree could have been so worded as to avoid any constitutional
objection. As of now, however, no ruling is called for. The view is given expression in the concurring and dissenting
opinion of Justice Makasiar that in such a case to save the Decree from the direct fate of invalidity, they must be
construed in such a way as to preclude any possible erosion on the powers vested in this Court by the Constitution.
That is a proposition too plain to be committed. It commends itself for approval.” 80 Nor would such a step be
unprecedented. The Presidential Decree constituting Municipal Courts into Municipal Circuit Courts, specifically
provides: “The Supreme Court shall carry out the provisions of this Decree through implementing orders, on a
province-to-province basis.” 81 It is true there is no such provision in this Act, but the spirit that informs it should not
be ignored in the Executive Order contemplated under its Section 44. 82 Thus Batas PambansaBlg. 129 could stand
the most rigorous test of constitutionality. 83
9. Nor is there anything novel in the concept that this Court is called upon to reconcile or harmonize constitutional
provisions. To be specific, the BatasangPambansa is expressly vested with the authority to reorganize inferior
courts and in the process to abolish existing ones. As noted in the preceding paragraph, the termination of office of
their occupants, as a necessary consequence of such abolition, is hardly distinguishable from the practical
standpoint from removal, a power that is now vested in this Tribunal. It is of the essence of constitutionalism to
assure that neither agency is precluded from acting within the boundaries of its conceded competence. That is why
it has long been well-settled under the constitutional system we have adopted that this Court cannot, whenever
appropriate, avoid the task of reconciliation. As Justice Laurel put it so well in the previously cited Angara decision,
while in the main, “the Constitution has blocked out with deft strokes and in bold lines, allotment of power to the
executive, the legislative and the judicial departments of the government, the overlapping and interlacing of
functions and duties between the several departments, however, sometimes makes it hard to say just where the
one leaves off and the other begins.” 84 It is well to recall another classic utterance from the same jurist, even more
emphatic in its affirmation of such a view, moreover buttressed by one of those insights for which Holmes was so
famous “The classical separation of government powers, whether viewed in the light of the political philosophy of
Aristotle, Locke, or Motesquieu or of the postulations of Mabini, Madison, or Jefferson, is a relative theory of
government. There is more truism and actuality in interdependence than in independence and separation of
powers, for as observed by Justice Holmes in a case of Philippine origin, we cannot lay down ‘with mathematical
precision and divide the branches into water-tight compartments’ not only because ‘the great ordinances of the
Constitution do not establish and divide fields of black and white but also because ‘even the more specific of them
are found to terminate in a penumbra shading gradually from one extreme to the other.'” 85 This too from Justice
Tuazon, likewise expressing with force and clarity why the need for reconciliation or balancing is well-nigh
unavodiable under the fundamental principle of separation of powers: “The constitutional structure is a complicated
system, and overlappings of governmental functions are recognized, unavoidable, and inherent necessities of
governmental coordination.” 86 In the same way that the academe has noted the existence in constitutional litigation
of right versus right, there are instances, and this is one of them, where, without this attempt at harmonizing the
provisions in question, there could be a case of power against power. That we should avoid.
10. There are other objections raised but they pose no difficulty. Petitioners would characterize as an undue
delegation of legislative power to the President the grant of authority to fix the compensation and the allowances of
the Justices and judges thereafter appointed. A more careful reading of the challenged Batas PambansaBlg. 129
ought to have cautioned them against raising such an issue. The language of the statute is quite clear. The
questioned provisions reads as follows: “Intermediate Appellate Justices, Regional Trial Judges, Metropolitan Trial
Judges, municipal Trial Judges, and Municipal Circuit Trial Judges shall receive such receive such compensation
and allowances as may be authorized by the President along the guidelines set forth in Letter of Implementation
No. 93 pursuant to Presidential Decree No. 985, as amended by Presidential Decree No. 1597.” 87 The existence of
a standard is thus clear. The basic postulate that underlies the doctrine of non-delegation is that it is the legislative
body which is entrusted with the competence to make laws and to alter and repeal them, the test being the
completeness of the statue in all its terms and provisions when enacted. As pointed out in Edu v. Ericta: 88 “To
avoid the taint of unlawful delegation, there must be a standard, which implies at the very least that the legislature
itself determines matters of principle and lays down fundamental policy. Otherwise, the charge of complete
abdication may be hard to repel. A standard thus defines legislative policy, marks its limits, maps out its boundaries
and specifies the public agency to apply it. It indicates the circumstances under which the legislative command is to
be effected. It is the criterion by which legislative purpose may be carried out. Thereafter, the executive or
administrative office designated may in pursuance of the above guidelines promulgate supplemental rules and
regulations. The standard may be either express or implied. If the former, the non-delegation objection is easily
met. The standard though does not have to be spelled out specifically. It could be implied from the policy and
purpose of the act considered as a whole.” 89 The undeniably strong links that bind the executive and legislative
departments under the amended Constitution assure that the framing of policies as well as their implementation
can be accomplished with unity, promptitude, and efficiency. There is accuracy, therefore, to this observation in the
Free Telephone Workers Union decision: “There is accordingly more receptivity to laws leaving to administrative
and executive agencies the adoption of such means as may be necessary to effectuate a valid legislative purpose.
It is worth noting that a highly-respected legal scholar, Professor Jaffe, as early as 1947, could speak of delegation
as the ‘dynamo of modern government.'” 90 He warned against a “restrictive approach” which could be “a deterrent
factor to much-needed legislation.”91 Further on this point from the same opinion” “The spectre of the non-
delegation concept need not haunt, therefore, party caucuses, cabinet sessions or legislative chambers.” 92 Another
objection based on the absence in the statue of what petitioners refer to as a “definite time frame limitation” is
equally bereft of merit. They ignore the categorical language of this provision: “The Supreme Court shall submit to
the President, within thirty (30) days from the date of the effectivity of this act, a staffing pattern for all courts
constituted pursuant to this Act which shall be the basis of the implementing order to be issued by the President in
accordance with the immediately succeeding section.” 93 The first sentence of the next section is even more
categorical: “The provisions of this Act shall be immediately carried out in accordance with an Executive Order to
be issued by the President.” 94 Certainly petitioners cannot be heard to argue that the President is insensible to his
constitutional duty to take care that the laws be faithfully executed. 95 In the meanwhile, the existing inferior courts
affected continue functioning as before, “until the completion of the reorganization provided in this Act as declared
by the President. Upon such declaration, the said courts shall be deemed automatically abolished and the
incumbents thereof shall cease to hold office.” 96 There is no ambiguity. The incumbents of the courts thus
automatically abolished “shall cease to hold office.” No fear need be entertained by incumbents whose length of
service, quality of performance, and clean record justify their being named anew, 97 in legal contemplation without
any interruption in the continuity of their service. 98 It is equally reasonable to assume that from the ranks of
lawyers, either in the government service, private practice, or law professors will come the new appointees. In the
event that in certain cases a little more time is necessary in the appraisal of whether or not certain incumbents
deserve reappointment, it is not from their standpoint undesirable. Rather, it would be a reaffirmation of the good
faith that will characterize its implementation by the Executive. There is pertinence to this observation of Justice
Holmes that even acceptance of the generalization that courts ordinarily should not supply omissions in a law, a
generalization qualified as earlier shown by the principle that to save a statute that could be done, “there is no
canon against using common sense in construing laws as saying what they obviously mean.” 99 Where then is the
unconstitutional flaw
11. On the morning of the hearing of this petition on September 8, 1981, petitioners sought to have the writer of this
opinion and Justices Ramon C. Aquino and AmeurfinaMelencio-Herrera disqualified because the first-named was
the chairman and the other two, members of the Committee on Judicial Reorganization. At the hearing, the motion
was denied. It was made clear then and there that not one of the three members of the Court had any hand in the
framing or in the discussion of Batas PambansaBlg. 129. They were not consulted. They did not testify. The
challenged legislation is entirely the product of the efforts of the legislative body. 100 Their work was limited, as set
forth in the Executive Order, to submitting alternative plan for reorganization. That is more in the nature of scholarly
studies. That the undertook. There could be no possible objection to such activity. Ever since 1973, this Tribunal
has had administrative supervision over interior courts. It has had the opportunity to inform itself as to the way
judicial business is conducted and how it may be improved. Even prior to the 1973 Constitution, it is the recollection
of the writer of this opinion that either the then Chairman or members of the Committee on Justice of the then
Senate of the Philippines 101 consulted members of the Court in drafting proposed legislation affecting the judiciary.
It is not inappropriate to cite this excerpt from an article in the 1975 Supreme Court Review: “In the twentieth
century the Chief Justice of the United States has played a leading part in judicial reform. A variety of conditions
have been responsible for the development of this role, and foremost among them has been the creation of explicit
institutional structures designed to facilitate reform.” 102 Also: “Thus the Chief Justice cannot avoid exposure to and
direct involvement in judicial reform at the federal level and, to the extent issues of judicial federalism arise, at the
state level as well.” 103
12. It is a cardinal article of faith of our constitutional regime that it is the people who are endowed with rights, to
secure which a government is instituted. Acting as it does through public officials, it has to grant them either
expressly or impliedly certain powers. Those they exercise not for their own benefit but for the body politic. The
Constitution does not speak in the language of ambiguity: “A public office is a public trust.” 104 That is more than a
moral adjuration It is a legal imperative. The law may vest in a public official certain rights. It does so to enable
them to perform his functions and fulfill his responsibilities more efficiently. It is from that standpoint that the security
of tenure provision to assure judicial independence is to be viewed. It is an added guarantee that justices and
judges can administer justice undeterred by any fear of reprisal or untoward consequence. Their judgments then
are even more likely to be inspired solely by their knowledge of the law and the dictates of their conscience, free
from the corrupting influence of base or unworthy motives. The independence of which they are assured is
impressed with a significance transcending that of a purely personal right. As thus viewed, it is not solely for their
welfare. The challenged legislation thus subject to the most rigorous scrutiny by this Tribunal, lest by lack of due
care and circumspection, it allow the erosion of that Ideal so firmly embedded in the national consciousness. There
is this farther thought to consider. Independence in thought and action necessarily is rooted in one’s mind and
heart. As emphasized by former Chief Justice Paras in Ocampo v. Secretary of Justice, 105 there is no surer
guarantee of judicial independence than the God-given character and fitness of those appointed to the Bench. The
judges may be guaranteed a fixed tenure of office during good behavior, but if they are of such stuff as allows them
to be subservient to one administration after another, or to cater to the wishes of one litigant after another, the
independence of the judiciary will be nothing more than a myth or an empty Ideal. Our judges, we are confident,
can be of the type of Lord Coke, regardless or in spite of the power of Congress — we do not say unlimited but as
herein exercised — to reorganize inferior courts.” 106 That is to recall one of the greatest Common Law jurists, who
at the cost of his office made clear that he would not just blindly obey the King’s order but “will do what becomes
[him] as a judge.” So it was pointed out in the first leading case stressing the independence of the
judiciary, Borromeo v. Mariano, 107 The ponencia of Justice Malcolm Identified good judges with “men who have a
mastery of the principles of law, who discharge their duties in accordance with law, who are permitted to perform
the duties of the office undeterred by outside influence, and who are independent and self-respecting human units
in a judicial system equal and coordinate to the other two departments of government.” 108 There is no reason to
assume that the failure of this suit to annul Batas PambansaBlg. 129 would be attended with deleterious
consequences to the administration of justice. It does not follow that the abolition in good faith of the existing
inferior courts except the Sandiganbayan and the Court of Tax Appeals and the creation of new ones will result in a
judiciary unable or unwilling to discharge with independence its solemn duty or one recreant to the trust reposed in
it. Nor should there be any fear that less than good faith will attend the exercise be of the appointing power vested
in the Executive. It cannot be denied that an independent and efficient judiciary is something to the credit of any
administration. Well and truly has it been said that the fundamental principle of separation of powers assumes, and
justifiably so, that the three departments are as one in their determination to pursue the Ideals and aspirations and
to fulfilling the hopes of the sovereign people as expressed in the Constitution. There is wisdom as well as validity
to this pronouncement of Justice Malcolm in Manila Electric Co. v. Pasay Transportation Company, 109 a decision
promulgated almost half a century ago: “Just as the Supreme Court, as the guardian of constitutional rights, should
not sanction usurpations by any other department or the government, so should it as strictly confine its own sphere
of influence to the powers expressly or by implication conferred on it by the Organic Act.” 110 To that basic postulate
underlying our constitutional system, this Court remains committed.
WHEREFORE, the unconstitutionality of Batas PambansaBlg. 129 not having been shown, this petition
isDISMISSED. No costs.

REPUBLIC ACT NO. 6656


AN ACT TO PROTECT THE SECURITY OF TENURE OF CIVIL SERVICE OFFICERS AND EMPLOYEES IN THE
IMPLEMENTATION OF GOVERNMENT REORGANIZATION
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
SECTION 1. It is hereby declared the policy of the State to protect the security of tenure of civil service officers and
employees in the reorganization of the various agencies of the National Government and of local governments,
state colleges and universities expressly authorized by law, including government-owned or controlled corporations
with original charters, without sacrificing the need to promote morale, efficiency, integrity, responsiveness,
progressiveness, and courtesy in the civil service pursuant to Article IX, B, Section 3 of the Constitution.
SEC. 2. No officer or employee in the career service shall be removed except for a valid cause and after due notice
and hearing. A valid cause for removal exists when, pursuant to a bona fide reorganization, a position has been
abolished or rendered redundant or there is a need to merge, divide, or consolidate positions in order to meet the
exigencies of the service, or other lawful causes allowed by the Civil Service Law. The existence of any or some of
the following circumstances may be considered as evidence of bad faith in the removals made as a result of
reorganization, giving rise to a claim for reinstatement or reappointment by an aggrieved party:
(a) Where there is a significant increase in the number of positions in the new staffing pattern of the department or
agency concerned;
(b) Where an office is abolished and another performing substantially the same functions is created;
(c) Where incumbents are replaced by those less qualified in terms of status of appointment, performance and
merit;
(d) Where there is a reclassification of offices in the department or agency concerned and the reclassified offices
perform substantially the same functions as the original offices;
(e) Where the removal violates the order of separation provided in Section 3 hereof.
SEC. 3. In the separation of personnel pursuant to reorganization, the following order of removal shall be followed:
(a) Casual employees with less than five (5) years of government service;
(b) Casual employees with five (5) years or more of government service;
(c) Employees holding temporary appointments; and
(d) Employees holding permanent appointments: Provided, That those in the same category as enumerated above,
who are least qualified in terms of performance and merit shall be laid off first, length of service notwithstanding.
SEC. 4. Officers and employees holding permanent appointments shall be given preference for appointment to the
new positions in the approved staffing pattern comparable to their former positions or in case there are not enough
comparable positions, to positions next lower in rank.
No new employees shall be taken in until all permanent officers and employees have been appointed, including
temporary and casual employees who possess the necessary qualification requirements, among which is the
appropriate civil service eligibility, for permanent appointment to positions in the approved staffing pattern, in case
there are still positions to be filled, unless such positions are policy-determining, primarily confidential or highly
technical in nature.
SEC. 5. Officers and employees holding permanent appointments shall be given preference for appointment in
other agencies if they meet the qualification requirements of the positions therein.
SEC. 6. In order that the best qualified and most deserving persons shall be appointed in any reorganization, there
shall be created a Placement Committee in each department or agency to assist the appointing authority in the
judicious selection and placement of personnel. The Committee shall consist of two (2) members appointed by the
head of the department or agency, a representative of the appointing authority, and two (2) members duly elected
by the employees holding positions in the first and second levels of the career service: Provided, That if there is a
registered employee association with a majority of the employees as members, that employee association shall
also have a representative in the Committee: Provided, further, That immediately upon approval of the staffing
pattern of the department or agency concerned, such staffing pattern shall be made known to all officers and
employees of the agency who shall be invited to apply for any of the positions authorized therein. Said application
shall be considered by the Committee in the placement and selection of personnel.
SEC. 7. A list of the personnel appointed to the authorized positions in the approved staffing pattern shall be made
known to all the officers and employees of the department or agency. Any of such officers and employees
aggrieved by the appointments made may file an appeal with the appointing authority who shall make a decision
within thirty (30) days from the filing thereof.
SEC. 8. An officer or employee who is still not satisfied with the decision of the appointing authority may further
appeal within ten (10) days from receipt thereof to the Civil Service Commission which shall render a decision
thereon within thirty (30) days and whose decision shall be final and executory.
SEC. 9. All officers and employees who are found by the Civil Service Commission to have been separated in
violation of the provisions of this Act, shall be ordered reinstated or reappointed as the case may be without loss of
seniority and shall be entitled to full pay for the period of separation. Unless also separated for cause, all officers
and employees, including casuals and temporary employees, who have been separated pursuant to reorganization
shall, if entitled thereto, be paid the appropriate separation pay and retirement and other benefits under existing
laws within ninety (90) days from the date of the effectivity of their separation or from the date of the receipt of the
resolution of their appeals as the case may be: Provided, That application for clearance has been filed and no
action thereon has been made by the corresponding department or agency. Those who are not entitled to said
benefits shall be paid a separation gratuity in the amount equivalent to one (1) month salary for every year of
service. Such separation pay and retirement benefits shall have priority of payment out of the savings of the
department or agency concerned.
SEC. 10. All heads of department, commissions, bureaus, agencies or offices who after the effectivity of this Act
willfully violate any provision thereof, including failure to abide by the rules promulgated by the Civil Service
Commission or to implement a Civil Service Commission reinstatement order, shall upon conviction be punished by
a fine not exceeding ten thousand pesos (P10,000) or by imprisonment of not less than three (3) nor more than five
(5) years or both such fine and imprisonment in the discretion of the Court, and suffer permanent disqualification to
hold public office.
SEC. 11. The executive branch of the government shall implement reorganization schemes within a specified
period of time authorized by law.
In the case of the 1987 reorganization of the executive branch, all departments and agencies which are authorized
by executive orders promulgated by the President to reorganize shall have ninety (90) days from the approval of
this Act within which to implement their respective reorganization plans in accordance with the provisions of this
Act.
SEC. 12. The Civil Service Commission shall promulgate the necessary rules and regulations to implement the
provisions of this Act.
SEC. 13. All laws, rules and regulations or parts thereof, inconsistent with the provisions of this Act are hereby
repealed or modified accordingly. The rights and benefits under this Act shall be retroactive as of June 30, 1987.
SEC. 14. If any part, section or provision of this Act shall be held invalid or unconstitutional, no other part, section or
provision thereof shall be affected thereby.
SEC. 15. This Act shall take effect fifteen (15) days from the date of its publication in at least two (2) newspapers of
general circulation.

BAGAOISAN vs. NATIONAL TOBACCO ADMINISTRATION


G.R. No. 152845. August 5, 2003
DECISION
President Joseph Estrada issued on 30 September 1998 Executive Order No. 29, entitled Mandating the
Streamlining of the National Tobacco Administration (NTA), a government agency under the Department of
Agriculture. The order was followed by another issuance, on 27 October 1998, by President Estrada of Executive
Order No. 36, amending Executive Order No. 29, insofar as the new staffing pattern was concerned, by increasing
from four hundred (400) to not exceeding seven hundred fifty (750) the positions affected thereby. In compliance
therewith, the NTA prepared and adopted a new Organization Structure and Staffing Pattern (OSSP) which, on 29
October 1998, was submitted to the Office of the President.
On 11 November 1998, the rank and file employees of NTA Batac, among whom included herein petitioners,
filed a letter-appeal with the Civil Service Commission and sought its assistance in recalling the OSSP. On 04
December 1998, the OSSP was approved by the Department of Budget and Management (DBM) subject to certain
revisions. On even date, the NTA created a placement committee to assist the appointing authority in the selection
and placement of permanent personnel in the revised OSSP. The results of the evaluation by the committee on the
individual qualifications of applicants to the positions in the new OSSP were then disseminated and posted at the
central and provincial offices of the NTA.
On 10 June 1996, petitioners, all occupying different positions at the NTA office in Batac, Ilocos Norte,
received individual notices of termination of their employment with the NTA effective thirty (30) days from receipt
thereof. Finding themselves without any immediate relief from their dismissal from the service, petitioners filed a
petition for certiorari, prohibition and mandamus, with prayer for preliminary mandatory injunction and/or temporary
restraining order, with the Regional Trial Court (RTC) of Batac, Ilocos Norte, and prayed -
1) that a restraining order be immediately issued enjoining the respondents from enforcing the notice of termination
addressed individually to the petitioners and/or from committing further acts of dispossession and/or ousting the
petitioners from their respective offices;
2) that a writ of preliminary injunction be issued against the respondents, commanding them to maintain the status
quo to protect the rights of the petitioners pending the determination of the validity of the implementation of their
dismissal from the service; and
3) that, after trial on the merits, judgment be rendered declaring the notice of termination of the petitioners illegal
and the reorganization null and void and ordering their reinstatement with backwages, if applicable, commanding
the respondents to desist from further terminating their services, and making the injunction permanent. [1]
The RTC, on 09 September 2000, ordered the NTA to appoint petitioners in the new OSSP to positions similar
or comparable to their respective former assignments. A motion for reconsideration filed by the NTA was denied by
the trial court in its order of 28 February 2001. Thereupon, the NTA filed an appeal with the Court of Appeals,
raising the following issues:
I. Whether or not respondents submitted evidence as proof that petitioners, individually, were not the best
qualified and most deserving among the incumbent applicant-employees.
II. Whether or not incumbent permanent employees, including herein petitioners, automatically enjoy a
preferential right and the right of first refusal to appointments/reappointments in the new
Organization Structure And Staffing Pattern (OSSP) of respondent NTA.
III. Whether or not respondent NTA in implementing the mandated reorganization pursuant to E.O. No.
29, as amended by E.O. No. 36, strictly adhere to the implementing rules on reorganization,
particularly RA 6656 and of the Civil Service Commission Rules on Government Reorganization.
IV. Whether or not the validity of E.O. Nos. 29 and 36 can be put in issue in the instant case/appeal. [2]
On 20 February 2002, the appellate court rendered a decision reversing and setting aside the assailed orders of the
trial court.
Petitioners went to this Court to assail the decision of the Court of Appeals, contending that -
I. The Court of Appeals erred in making a finding that went beyond the issues of the case and which are
contrary to those of the trial court and that it overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would justify a different conclusion;
II. The Court of Appeals erred in upholding Executive Order Nos. 29 and 36 of the Office of the President
which are mere administrative issuances which do not have the force and effect of a law to warrant
abolition of positions and/or effecting total reorganization;
III. The Court of Appeals erred in holding that petitioners removal from the service is in accordance with
law;
IV. The Court of Appeals erred in holding that respondent NTA was not guilty of bad faith in the
termination of the services of petitioners; (and)
V. The Court of Appeals erred in ignoring case law/jurisprudence in the abolition of an office. [3]
In its resolution of 10 July 2002, the Court required the NTA to file its comment on the petition. On 18 November
2002, after the NTA had filed its comment of 23 September 2002, the Court issued its resolution denying the
petition for failure of petitioners to sufficiently show any reversible error on the part of the appellate court in its
challenged decision so as to warrant the exercise by this Court of its discretionary appellate jurisdiction. A motion
for reconsideration filed by petitioners was denied in the Courts resolution of 20 January 2002.
On 21 February 2003, petitioners submitted a Motion to Admit Petition For En Banc Resolution of the case
allegedly to address a basic question, i.e., the legal and constitutional issue on whether the NTA may be
reorganized by an executive fiat, not by legislative action.[4] In their Petition for an En Banc Resolution petitioners
would have it that -
1. The Court of Appeals decision upholding the reorganization of the National Tobacco Administration sets a
dangerous precedent in that:
a) A mere Executive Order issued by the Office of the President and procured by a government functionary would
have the effect of a blanket authority to reorganize a bureau, office or agency attached to the various executive
departments;
b) The President of the Philippines would have the plenary power to reorganize the entire government Bureaucracy
through the issuance of an Executive Order, an administrative issuance without the benefit of due deliberation,
debate and discussion of members of both chambers of the Congress of the Philippines;
c) The right to security of tenure to a career position created by law or statute would be defeated by the mere
adoption of an Organizational Structure and Staffing Pattern issued pursuant to an Executive Order which is not a
law and could thus not abolish an office created by law;
2. The case law on abolition of an office would be disregarded, ignored and abandoned if the Court of Appeals
decision subject matter of this Petition would remain undisturbed and untouched. In other words, previous doctrines
and precedents of this Highest Court would in effect be reversed and/or modified with the Court of Appeals
judgment, should it remain unchallenged.
3. Section 4 of Executive Order No. 245 dated July 24, 1987 (Annex D, Petition), issued by the Revolutionary
government of former President Corazon Aquino, and the law creating NTA, which provides that the governing
body of NTA is the Board of Directors, would be rendered meaningless, ineffective and a dead letter law because
the challenged NTA reorganization which was erroneously upheld by the Court of Appeals was adopted and
implemented by then NTA Administrator Antonio de Guzman without the corresponding authority from the Board of
Directors as mandated therein. In brief, the reorganization is an ultra vires act of the NTA Administrator.
4. The challenged Executive Order No. 29 issued by former President Joseph Estrada but unsigned by then
Executive Secretary Ronaldo Zamora would in effect be erroneously upheld and given legal effect as to supersede,
amend and/or modify Executive Order No. 245, a law issued during the Freedom Constitution of President Corazon
Aquino. In brief, a mere executive order would amend, supersede and/or render ineffective a law or statute. [5]
In order to allow the parties a full opportunity to ventilate their views on the matter, the Court ultimately
resolved to hear the parties in oral argument. Essentially, the core question raised by them is whether or not the
President, through the issuance of an executive order, can validly carry out the reorganization of the NTA.
Notwithstanding the apparent procedural lapse on the part of petitioner to implead the Office of the President
as party respondent pursuant to Section 7, Rule 3, of the 1997 Revised Rules of Civil Procedure, [6] this Court
resolved to rule on the merits of the petition.
Buklod ng Kawaning EIIB vs. Zamora[7] ruled that the President, based on existing laws, had the authority to
carry out a reorganization in any branch or agency of the executive department. In said case, Buklod ng Kawaning
EIIB challenged the issuance, and sought the nullification, of Executive Order No. 191 (Deactivation of the
Economic Intelligence and Investigation Bureau) and Executive Order No. 223 (Supplementary Executive Order
No. 191 on the Deactivation of the Economic Intelligence and Investigation Bureau and for Other Matters) on the
ground that they were issued by the President with grave abuse of discretion and in violation of their constitutional
right to security of tenure. The Court explained:
The general rule has always been that the power to abolish a public office is lodged with the legislature. This
proceeds from the legal precept that the power to create includes the power to destroy. A public office is either
created by the Constitution, by statute, or by authority of law. Thus, except where the office was created by the
Constitution itself, it may be abolished by the same legislature that brought it into existence.
The exception, however, is that as far as bureaus, agencies or offices in the executive department are concerned,
the Presidents power of control may justify him to inactivate the functions of a particular office, or certain laws may
grant him the broad authority to carry out reorganization measures. The case in point is Larin v. Executive
Secretary [280 SCRA 713]. In this case, it was argued that there is no law which empowers the President to
reorganize the BIR. In decreeing otherwise, this Court sustained the following legal basis, thus:
`Initially, it is argued that there is no law yet which empowers the President to issue E.O. No. 132 or to reorganize
the BIR.
`We do not agree.
`x x x x x x
`Section 48 of R.A. 7645 provides that:
``Sec. 48. Scaling Down and Phase Out of Activities of Agencies Within the Executive Branch. The heads of
departments, bureaus and offices and agencies are hereby directed to identify their respective activities which are
no longer essential in the delivery of public services and which may be scaled down, phased out or
abolished, subject to civil service rules and regulations. x x x. Actual scaling down, phasing out or abolition of the
activities shall be effected pursuant to Circulars or Orders issued for the purpose by the Office of the President.
`Said provision clearly mentions the acts of `scaling down, phasing out and abolition of offices only and does not
cover the creation of offices or transfer of functions. Nevertheless, the act of creating and decentralizing is included
in the subsequent provision of Section 62 which provides that:
``Sec. 62. Unauthorized organizational changes. Unless otherwise created by law or directed by the President of
the Philippines, no organizational unit or changes in key positions in any department or agency shall be authorized
in their respective organization structures and be funded from appropriations by this Act.
`The foregoing provision evidently shows that the President is authorized to effect organizational changes including
the creation of offices in the department or agency concerned.
`x x x x x x
`Another legal basis of E.O. No. 132 is Section 20, Book III of E.O. No. 292 which states:
``Sec. 20. Residual Powers. Unless Congress provides otherwise, the President shall exercise such other powers
and functions vested in the President which are provided for under the laws and which are not specifically
enumerated above or which are not delegated by the President in accordance with law.
`This provision speaks of such other powers vested in the President under the law. What law then gives him the
power to reorganize? It is Presidential Decree No. 1772 which amended Presidential Decree No. 1416. These
decrees expressly grant the President of the Philippines the continuing authority to reorganize the national
government, which includes the power to group, consolidate bureaus and agencies, to abolish offices, to transfer
functions, to create and classify functions, services and activities and to standardize salaries and materials. The
validity of these two decrees are unquestionable. The 1987 Constitution clearly provides that `all laws, decrees,
executive orders, proclamations, letter of instructions and other executive issuances not inconsistent with this
Constitution shall remain operative until amended, repealed or revoked. So far, there is yet no law amending or
repealing said decrees.
Now, let us take a look at the assailed executive order.
In the whereas clause of E.O. No. 191, former President Estrada anchored his authority to deactivate EIIB on
Section 77 of Republic Act 8745 (FY 1999 General Appropriations Act), a provision similar to Section 62 of R.A.
7645 quoted in Larin, thus:
`Sec. 77. Organized Changes. Unless otherwise provided by law or directed by the President of the Philippines, no
changes in key positions or organizational units in any department or agency shall be authorized in their respective
organizational structures and funded from appropriations provided by this Act.
We adhere to the x x x ruling in Larin that this provision recognizes the authority of the President to effect
organizational changes in the department or agency under the executive structure. Such a ruling further finds
support in Section 78 of Republic Act No. 8760. Under this law, the heads of departments, bureaus, offices and
agencies and other entities in the Executive Branch are directed (a) to conduct a comprehensive review of this
respective mandates, missions, objectives, functions, programs, projects, activities and systems and procedures;
(b) identify activities which are no longer essential in the delivery of public services and which may be scaled down,
phased-out or abolished; and (c) adopt measures that will result in the streamlined organization and improved
overall performance of their respective agencies. Section 78 ends up with the mandate that the actual streamlining
and productivity improvement in agency organization and operation shall be effected pursuant to Circulars or
Orders issued for the purpose by the Office of the President. The law has spoken clearly. We are left only with the
duty to sustain.
But of course, the list of legal basis authorizing the President to reorganize any department or agency in the
executive branch does not have to end here. We must not lose sight of the very source of the power that which
constitutes an express grant of power. Under Section 31, Book III of Executive Order No. 292 (otherwise known as
the Administrative Code of 1987), the President, subject to the policy in the Executive Office and in order to achieve
simplicity, economy and efficiency, shall have the continuing authority to reorganize the administrative structure of
the Office of the President. For this purpose, he may transfer the functions of other Departments or Agencies to the
Office of the President. In Canonizado vs. Aguirre [323 SCRA 312], we ruled that reorganization involves the
reduction of personnel, consolidation of offices, or abolition thereof by reason of economy or redundancy of
functions. It takes place when there is an alteration of the existing structure of government offices or units therein,
including the lines of control, authority and responsibility between them. The EIIB is a bureau attached to the
Department of Finance. It falls under the Office of the President. Hence, it is subject to the Presidents continuing
authority to reorganize.
It having been duly established that the President has the authority to carry out reorganization in any branch or
agency of the executive department, what is then left for us to resolve is whether or not the reorganization is
valid. In this jurisdiction, reorganizations have been regarded as valid provided they are pursued in good
faith. Reorganization is carried out in `good faith if it is for the purpose of economy or to make bureaucracy more
efficient. Pertinently, Republic Act No. 6656 provides for the circumstances which may be considered as evidence
of bad faith in the removal of civil service employees made as a result of reorganization, to wit: (a) where there is a
significant increase in the number of positions in the new staffing pattern of the department or agency
concerned; (b) where an office is abolished and another performing substantially the same functions is
created; (c) where incumbents are replaced by those less qualified in terms of status of appointment, performance
and merit; (d) where there is a classification of offices in the department or agency concerned and the reclassified
offices perform substantially the same functions as the original offices, and (e) where the removal violates the order
of separation.[8]
The Court of Appeals, in its now assailed decision, has found no evidence of bad faith on the part of the NTA;
thus -
In the case at bar, we find no evidence that the respondents committed bad faith in issuing the notices of non-
appointment to the petitioners.
Firstly, the number of positions in the new staffing pattern did not increase. Rather, it decreased from 1,125
positions to 750. It is thus natural that ones position may be lost through the removal or abolition of an office.
Secondly, the petitioners failed to specifically show which offices were abolished and the new ones that were
created performing substantially the same functions.
Thirdly, the petitioners likewise failed to prove that less qualified employees were appointed to the positions to
which they applied.
x x x x x x x x x.
Fourthly, the preference stated in Section 4 of R.A. 6656, only means that old employees should be considered
first, but it does not necessarily follow that they should then automatically be appointed. This is because the law
does not preclude the infusion of new blood, younger dynamism, or necessary talents into the government service,
provided that the acts of the appointing power are bonafide for the best interest of the public service and the person
chosen has the needed qualifications.[9]
These findings of the appellate court are basically factual which this Court must respect and be held bound.
It is important to emphasize that the questioned Executive Orders No. 29 and No. 36 have not
abolished the National Tobacco Administration but merely mandated its reorganization through the
streamlining or reduction of its personnel. Article VII, Section 17,[10] of the Constitution, expressly grants the
President control of all executive departments, bureaus, agencies and offices which may justify an executive action
to inactivate the functions of a particular office or to carry out reorganization measures under a broad authority of
law.[11]Section 78 of the General Provisions of Republic Act No. 8522 (General Appropriations Act of FY 1998) has
decreed that the President may direct changes in the organization and key positions in any department, bureau or
agency pursuant to Article VI, Section 25,[12] of the Constitution, which grants to the Executive Department the
authority to recommend the budget necessary for its operation. Evidently, this grant of power includes the authority
to evaluate each and every government agency, including the determination of the most economical and efficient
staffing pattern, under the Executive Department.
In the recent case of Rosa Ligaya C. Domingo, et al. vs. Hon. Ronaldo D. Zamora, in his capacity as the
Executive Secretary, et al.,[13] this Court has had occasion to also delve on the Presidents power to reorganize the
Office of the President under Section 31(2) and (3) of Executive Order No. 292 and the power to reorganize the
Office of the President Proper. The Court has there observed:
x x x. Under Section 31(1) of EO 292, the President can reorganize the Office of the President Proper by
abolishing, consolidating or merging units, or by transferring functions from one unit to another. In contrast, under
Section 31(2) and (3) of EO 292, the Presidents power to reorganize offices outside the Office of the
President Proper but still within the Office of the President is limited to merely transferring functions or agencies
from the Office of the President to Departments or Agencies, and vice versa.
The provisions of Section 31, Book III, Chapter 10, of Executive Order No. 292 (Administrative Code of 1987),
above-referred to, reads thusly:
SEC. 31. Continuing Authority of the President to Reorganize his Office. The President, subject to the policy in the
Executive Office and in order to achieve simplicity, economy and efficiency, shall have continuing authority to
reorganize the administrative structure of the Office of the President. For this purpose, he may take any of the
following actions:
(1) Restructure the internal organization of the Office of the President Proper, including the immediate Offices, the
Presidential Special Assistants/Advisers System and the Common Staff Support System, by abolishing,
consolidating or merging units thereof or transferring functions from one unit to another;
(2) Transfer any function under the Office of the President to any other Department or Agency as well as transfer
functions to the Office of the President from other Departments and Agencies; and
(3) Transfer any agency under the Office of the President to any other department or agency as well as transfer
agencies to the Office of the President from other departments and agencies.
The first sentence of the law is an express grant to the President of a continuing authority to reorganize the
administrative structure of the Office of the President. The succeeding numbered paragraphs are not in the
nature of provisos that unduly limit the aim and scope of the grant to the President of the power to reorganize but
are to be viewed in consonance therewith. Section 31(1) of Executive Order No. 292 specifically refers to the
Presidents power to restructure the internal organization of the Office of the President Proper, by abolishing,
consolidating or merging units hereof or transferring functions from one unit to another, while Section 31(2) and (3)
concern executive offices outside the Office of the President Properallowing the President to transfer any function
under the Office of the President to any other Department or Agency and vice-versa, and the transfer of any agency
under the Office of the President to any other department or agency and vice-versa.[14]
In the present instance, involving neither an abolition nor transfer of offices, the assailed action is a mere
reorganization under the general provisions of the law consisting mainly of streamlining the NTA in the interest of
simplicity, economy and efficiency. It is an act well within the authority of President motivated and carried out,
according to the findings of the appellate court, in good faith, a factual assessment that this Court could only but
accept.[15]
In passing, relative to petitioners Motion for an En Banc Resolution of the Case, it may be well to remind
counsel, that the Court En Banc is not an appellate tribunal to which appeals from a Division of the Court may be
taken. A Division of the Court is the Supreme Court as fully and veritably as the Court En Banc itself and a decision
of its Division is as authoritative and final as a decision of the Court En Banc. Referrals of cases from a Division to
the Court En Banc do not take place as just a matter of routine but only on such specified grounds as the Court in
its discretion may allow.[16]
WHEREFORE, the Motion to Admit Petition for En Banc resolution and the Petition for an En Banc Resolution
are DENIED for lack of merit. Let entry of judgment be made in due course. No costs.
SO ORDERED.

DENR vs. DENR REGION 12 EMPLOYEES


G.R. No. 149724. August 19, 2003

DECISION
This is a petition for review assailing the Resolutions dated May 31, 2000 [1] of the Court of Appeals which
dismissed the petition for certiorari in CA-G.R. SP No. 58896, and its Resolution dated August 20, 2001 [2], which
denied the motion for reconsideration.
The facts are as follows:
On November 15, 1999, Regional Executive Director of the Department of Environment and Natural
Resources for Region XII, Israel C. Gaddi, issued a Memorandum [3] directing the immediate transfer of the DENR
XII Regional Offices from Cotabato City to Koronadal (formerly Marbel), South Cotabato. The Memorandum was
issued pursuant to DENR Administrative Order No. 99-14, issued by then DENR Secretary Antonio H. Cerilles,
which reads in part:
Subject: Providing for the Redefinition of Functions and Realignment of Administrative Units in the
Regional and Field Offices:
Pursuant to Executive Order No. 192, dated June 10, 1987 and as an interim administrative arrangement to
improve the efficiency and effectiveness of the Department of Environment and Natural Resources (DENR) in
delivering its services pending approval of the government-wide reorganization by Congress, the following
redefinition of functions and realignment of administrative units in the regional and field offices are hereby
promulgated:
Section 1. Realignment of Administrative Units:
The DENR hereby adopts a policy to establish at least one Community Environment and Natural Resources Office
(CENRO) or Administrative Unit per Congressional District except in the Autonomous Region of Muslim Mindanao
(ARMM) and the National Capital Region (NCR). The Regional Executive Directors (REDs) are hereby authorized
to realign/relocate existing CENROs and implement this policy in accordance with the attached distribution list per
region which forms part of this Order. Likewise, the following realignment and administrative arrangements are
hereby adopted:
xxxxxxxxx
1.6. The supervision of the Provinces of South Cotabato and Sarangani shall be transferred from Region XI to XII. [4]
Respondents, employees of the DENR Region XII who are members of the employees association,
COURAGE, represented by their Acting President, Baguindanai A. Karim, filed with the Regional Trial Court of
Cotabato, a petition for nullity of orders with prayer for preliminary injunction.
On December 8, 1999, the trial court issued a temporary restraining order enjoining petitioner from
implementing the assailed Memorandum. The dispositive portion of the Order reads:
WHEREFORE, defendants DENR Secretary Antonio H. Cerilles and Regional Executive Director Israel C. Gaddi
are hereby ordered to cease and desist from doing the act complained of, namely, to stop the transfer of DENR
[Region] 12 offices from Cotabato City to Korandal (Marbel), South Cotabato.
xxx xxx xxx.
SO ORDERED.[5]
Petitioner filed a Motion for Reconsideration with Motion to Dismiss, raising the following grounds:
I.
The power to transfer the Regional Office of the Department of Environment and Natural Resources (DENR) is
executive in nature.
II.
The decision to transfer the Regional Office is based on Executive Order No. 429, which reorganized Region XII.
III.
The validity of EO 429 has been affirmed by the Honorable Supreme Court in the Case of Chiongbian vs. Orbos
(1995) 245 SCRA 255.
IV.
Since the power to reorganize the Administrative Regions is Executive in Nature citing Chiongbian, the Honorable
Court has no jurisdiction to entertain this petition.[6]
On January 14, 2000, the trial court rendered judgment, the dispositive portion of which reads:
CONSEQUENTLY, order is hereby issued ordering the respondents herein to cease and desist from enforcing their
Memorandum Order dated November 15, 1999 relative to the transfer of the DENR Regional Offices from Region
12 to Region 11 at Koronadal, South Cotabato for being bereft of legal basis and issued with grave abuse of
discretion amounting to lack or excess of jurisdiction on their part, and they are further ordered to return back the
seat of the DENR Regional Offices 12 to Cotabato City.
SO ORDERED.[7]
Petitioners motion for reconsideration was denied in an Order dated April 10, 2000. A petition
for certiorari under Rule 65 was filed before the Court of Appeals, docketed as CA-G.R. SP No. 58896. The petition
was dismissed outright for: (1) failure to submit a written explanation why personal service was not done on the
adverse party; (2) failure to attach affidavit of service; (3) failure to indicate the material dates when copies of the
orders of the lower court were received; (4) failure to attach certified true copy of the order denying petitioners
motion for reconsideration; (5) for improper verification, the same being based on petitioners knowledge and belief,
and (6) wrong remedy of certiorari under Rule 65 to substitute a lost appeal. [8]
The motion for reconsideration was denied in a resolution dated August 20, 2001. [9] Hence, this petition based
on the following assignment of errors:
I
RULES OF PROCEDURE CAN NOT BE USED TO DEFEAT THE ENDS OF SUBSTANTIAL JUSTICE
II
THE DECISION OF THE LOWER COURT DATED 14 JANUARY 2000 WHICH WAS AFFIRMED IN THE
QUESTIONED RESOLUTIONS OF THE COURT OF APPEALS DATED 31 MAY 2000 AND 20 AUGUST 2001 IS
PATENTLY ILLEGAL AND SHOULD BE NULLIFIED, CONSIDERING THAT:
A. RESPONDENTS HAVE NO CAUSE OF ACTION AGAINST PETITIONER AS THEY HAVE NO
RIGHT TO CAUSE THE DENR REGION 12 OFFICE TO REMAIN IN COTABATO CITY.
B. THE STATE DID NOT GIVE ITS CONSENT TO BE SUED.
C. THE DECISION OF THE LOWER COURT DATED 14 JANUARY 2000 IS CONTRARY TO THE
RULE OF PRESUMPTION OF REGULARITY IN THE PERFORMANCE OF OFFICIAL
FUNCTIONS.
D. IN ANY EVENT, THE DECISION OF THE LOWER COURT DATED 14 JANUARY 2000 IS
CONTRARY TO THE LETTER AND INTENT OF EXECUTIVE ORDER NO. 429 AND
REPUBLIC ACT NO. 6734.
E. THE DETERMINATION OF THE PROPRIETY AND PRACTICALITY OF THE TRANSFER OF
REGIONAL OFFICES IS INHERENTLY EXECUTIVE, AND THEREFORE, NON-
JUSTICIABLE.[10]
In essence, petitioner argues that the trial court erred in enjoining it from causing the transfer of the DENR XII
Regional Offices, considering that it was done pursuant to DENR Administrative Order 99-14.
The issues to be resolved in this petition are: (1) Whether DAO-99-14 and the Memorandum implementing the
same were valid; and (2) Whether the DENR Secretary has the authority to reorganize the DENR.
Prefatorily, petitioner prays for a liberal application of procedural rules considering the greater interest of
justice.
This Court is fully aware that procedural rules are not to be simply disregarded for these prescribed
procedures ensure an orderly and speedy administration of justice. However, it is equally true that litigation is not
merely a game of technicalities. Time and again, courts have been guided by the principle that the rules of
procedure are not to be applied in a very rigid and technical manner, as rules of procedure are used only to help
secure and not to override substantial justice.[11] Thus, if the application of the Rules would tend to frustrate rather
than promote justice, it is always within the power of this Court to suspend the rules, or except a particular case
from its operation.[12]
Despite the presence of procedural flaws, we find it necessary to address the issues because of the demands
of public interest, including the need for stability in the public service and the serious implications this case may
cause on the effective administration of the executive department. Although no appeal was made within the
reglementary period to appeal, nevertheless, the departure from the general rule that the extraordinary writ of
certiorari cannot be a substitute for the lost remedy of appeal is justified because the execution of the assailed
decision would amount to an oppressive exercise of judicial authority. [13]
Petitioner maintains that the assailed DAO-99-14 and the implementing memorandum were valid and that the
trial court should have taken judicial notice of Republic Act No. 6734, otherwise known as An Organic Act for the
Autonomous Region in Muslim Mindanao, and its implementing Executive Order 429, [14] as the legal bases for the
issuance of the assailed DAO-99-14. Moreover, the validity of R.A. No. 6734 and E.O. 429 were upheld in the case
of Chiongbian v. Orbos.[15] Thus, the respondents cannot, by means of an injunction, force the DENR XII Regional
Offices to remain in Cotabato City, as the exercise of the authority to transfer the same is executive in nature.
It is apropos to reiterate the elementary doctrine of qualified political agency, thus:
Under this doctrine, which recognizes the establishment of a single executive, all executive and administrative
organizations are adjuncts of the Executive Department, the heads of the various executive departments are
assistants and agents of the Chief Executive, and, except in cases where the Chief Executive is required by the
Constitution or law to act in person or the exigencies of the situation demand that he act personally, the multifarious
executive and administrative functions of the Chief Executive are performed by and through the executive
departments, and the acts of the Secretaries of such departments, performed and promulgated in the regular
course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the
Chief Executive.[16]
This doctrine is corollary to the control power of the President as provided for under Article VII, Section 17 of
the 1987 Constitution, which reads:
Sec. 17. The President shall have control of all the executive departments, bureaus, and offices. He shall ensure
that the laws be faithfully executed.
However, as head of the Executive Department, the President cannot be expected to exercise his control (and
supervisory) powers personally all the time. He may delegate some of his powers to the Cabinet members except
when he is required by the Constitution to act in person or the exigencies of the situation demand that he acts
personally.[17]
In Buklod ng Kawaning EIIB v. Zamora,[18] this Court upheld the continuing authority of the President to carry
out the reorganization in any branch or agency of the executive department. Such authority includes the creation,
alteration or abolition of public offices.[19] The Chief Executives authority to reorganize the National Government
finds basis in Book III, Section 20 of E.O. No. 292, otherwise known as the Administrative Code of 1987, viz:
Section 20. Residual Powers. Unless Congress provides otherwise, the President shall exercise such other powers
and functions vested in the President which are provided for under the laws and which are not specifically
enumerated above or which are not delegated by the President in accordance with law.
Further, in Larin v. Executive Secretary,[20] this Court had occasion to rule:
This provision speaks of such other powers vested in the President under the law. What law then gives him the
power to reorganize? It is Presidential Decree No. 1772 which amended Presidential Decree No. 1416. These
decrees expressly grant the President of the Philippines the continuing authority to reorganize the national
government, which includes the power to group, consolidate bureaus and agencies, to abolish offices, to transfer
functions, to create and classify functions, services and activities and to standardize salaries and materials. The
validity of these two decrees is unquestionable. The 1987 Constitution clearly provides that all laws, decrees,
executive orders, proclamations, letters of instructions and other executive issuances not inconsistent with this
Constitution shall remain operative until amended, repealed or revoked. So far, there is yet no law amending or
repealing said decrees.
Applying the doctrine of qualified political agency, the power of the President to reorganize the National
Government may validly be delegated to his cabinet members exercising control over a particular executive
department. Thus, in DOTC Secretary v. Mabalot,[21] we held that the President through his duly constituted political
agent and alter ego, the DOTC Secretary may legally and validly decree the reorganization of the Department,
particularly the establishment of DOTC-CAR as the LTFRB Regional Office at the Cordillera Administrative Region,
with the concomitant transfer and performance of public functions and responsibilities appurtenant to a regional
office of the LTFRB.
Similarly, in the case at bar, the DENR Secretary can validly reorganize the DENR by ordering the transfer of
the DENR XII Regional Offices from Cotabato City to Koronadal, South Cotabato. The exercise of this authority by
the DENR Secretary, as an alter ego, is presumed to be the acts of the President for the latter had not expressly
repudiated the same.
The trial court should have taken judicial notice of R.A. No. 6734, as implemented by E.O. No. 429, as legal
basis of the Presidents power to reorganize the executive department, specifically those administrative regions
which did not vote for their inclusion in the ARMM. It is axiomatic that a court has the mandate to apply relevant
statutes and jurisprudence in determining whether the allegations in a complaint establish a cause of action. While
it focuses on the complaint, a court clearly cannot disregard decisions material to the proper appreciation of the
questions before it.[22] In resolving the motion to dismiss, the trial court should have taken cognizance of the official
acts of the legislative, executive, and judicial departments because they are proper subjects of mandatory judicial
notice as provided by Section 1 of Rule 129 of the Rules of Court, to wit:
A court shall take judicial notice, without the introduction of evidence, of the existence and territorial extent of
states, their political history, forms of government and symbols of nationality, the law of nations, the admiralty and
maritime courts of the world and their seals, the political constitution and history of the Philippines, the official acts
of the legislative, executive and judicial departments of the Philippines, the laws of nature, the measure of
time, and the geographical divisions. (Emphasis supplied)
Article XIX, Section 13 of R.A. No. 6734 provides:
SECTION 13. The creation of the Autonomous Region in Muslim Mindanao shall take effect when approved by a
majority of the votes cast by the constituent units provided in paragraph (2) of Sec. 1 of Article II of this Act in a
plebiscite which shall be held not earlier than ninety (90) days or later than one hundred twenty (120) days after the
approval of this Act: Provided, That only the provinces and cities voting favorably in such plebiscite shall be
included in the Autonomous Region in Muslim Mindanao. The provinces and cities which in the plebiscite do not
vote for inclusion in the Autonomous Region shall remain in the existing administrative regions: Provided, however,
That the President may, by administrative determination, merge the existing regions.
Pursuant to the authority granted by the aforequoted provi