FIRST DIVISION

[G.R. No. 127249. February 27, 1998]

CAMARINES NORTE ELECTRIC COOPERATIVE, INC. (CANORE-CO); RUBEN N.
BARRAMEDA; ELVIS L. ESPIRITU; MERARDO G. ENERO, JR.; MARCELITO
B. ABAS; and REYNALDO V. ABUNDO,petitioners, vs. HON. RUBEN D.
TORRES, in his capacity as Executive Secretary; REX TANTIONGCO;
HONESTO DE JESUS; ANDRES IBASCO; TEODULO M. MEA; and VICENTE
LUKBAN, respondent.

DECISION
DAVIDE, JR., J.:

May the Office of the President validly constitute an ad hoc committee to take over
and manage the affairs of an electric cooperative?
This is the key issue in this original action for certiorari and prohibition under Rule
65 of the Rules of Court wherein the petitioners seek to (a) annul and set aside
Memorandum Order No. 409 of the Office of the President dated 3 December 1996
constituting an Ad Hoc Committee to take over and manage the affairs of
the Camarines Norte Electric Cooperative, Inc., (hereafter CANORECO) until such time
as a general membership meeting can be called to decide the serious issues affecting
the said cooperative and normalcy in operations is restored"; and (b) prohibit the
respondents from performing acts or continuing proceedings pursuant to the
Memorandum Order.
The factual backdrop of this case is not complicated.
Petitioner CANORECO is an electric cooperative organized under the provisions of
P.D. No. 269, otherwise known as the National Electrification Administration Decree,
as amended by P.D. No. 1645.
On 10 March 1990, then President Corazon C. Aquino signed into law R.A. No.
6938 and R.A. No. 6939. The former is the Cooperative Code of the Philippines, while
the latter created the Cooperative Development Authority (CDA) and vested solely
upon the CDA the power to register cooperatives.
Article 122 of the Cooperative Code expressly provides that electric cooperatives
shall be covered by the Code. Article 128 of the said Code and Section 17 of R.A. No.
6939 similarly provide that cooperatives created under P.D. No. 269, as amended by
P.D. No. 1645, shall have three years within which to qualify and register with the CDA
and that after they shall have so qualified and registered, the provisions of Sections 3
and 5 of P.D. No. 1645 shall no longer be applicable to them. These Sections 3 and 5
read as follows:

SEC. 3. Section 5(a), Chapter II of Presidential Decree No. 269 is hereby amended by
adding sub-paragraph (6) to read as follows:

(6) To authorize the NEA Administrator to designate, subject to the confirmation of the
Board Administrators, an Acting General Manager and/or Project Supervisor for a
Cooperative where vacancies in the said positions occur and/or when the interest of
the Cooperative and the program so requires, and to prescribe the functions of said
Acting General Manager and/or Project Supervisor, which powers shall not be nullified,
altered or diminished by any policy or resolution of the Board of Directors of the
Cooperative concerned.
1
...

SEC. 5. Section 10, Chapter II of Presidential Decree No. 269 is hereby amended to
read as follows:

Section 10. Enforcement Powers and Remedies. -- In the exercise of its power of
supervision and control over electric cooperatives and other borrower, supervised or
controlled entities, the NEA is empowered to issue orders, rules and regulations
and motu proprio or upon petition of third parties, to conduct investigations, referenda
and other similar actions in all matters affecting said electric cooperatives and other
borrower, or supervised or controlled entities.

...
Finally, the repealing clause (Article 127) of the Cooperative Code provides:

Provided, however, That nothing in this Code shall be interpreted to mean the
amendment or repeal of any provision of Presidential Decree No. 269: Provided,
further, That the electric cooperatives which qualify as such under this Code shall fall
under the coverage thereof.

CANORECO registered with the CDA pursuant to R.A. No. 6938 and R.A. No.
6939.On 8 March 1993, the CDA issued a Certificate of Provisional Registration (T-
003-93) to CANORECO effective for two years.[1] On 1 March 1995, the CDA extended
this provisional registration until 4 May 1997.[2] However, on 10 July 1996,
CANORECO filed with the CDA its approved amendments to its Articles of
Cooperation converting itself from a non-stock to a stock cooperative pursuant to the
provisions of R.A. No. 6938 and the Omnibus Implementing Rules and Regulations on
Electric Cooperatives. On the same date the CDA issued a Certificate of
Registration[3] of the amendments to CANORECO Articles of Cooperation certifying
that CANORECO is registered as a full-[f]ledged cooperative under and by virtue of
R.A. 6938.
Previously, on 11 March 1995, the Board of Directors of CANORECO[4] approved
Resolution No. 22 appointing petitioner Reynaldo V. Abundo as permanent General
Manager. The Board was composed of

Ruben N. Barrameda -- President

Elvis L. Espiritu -- Vice president

Merardo G. Enero, Jr. -- Secretary

Marcelito B. Abas -- Treasurer

Antonio R. Obias -- Director

Luis A. Pascua -- Director

Norberto Z. Ochoa -- Director

Leonida Z. Manalo -- OIC GM/Ex-Officio

2
 On 28 May 1995, Antonio Obias, Norberto Ochoa, Luis Pascua, and Felicito Ilan
held a special meeting of the Board of Directors of CANORECO. The minutes of the
meeting[5]showed that President Ruben Barrameda, Vice-President Elvis Espiritu, and
Treasurer Marcelito Abas were absent; that Obias acted as temporary chairman; that
the latter informed those present that it was the responsibility of the Board after the
annual meeting to meet and elect the new set of officers, but that despite the fact that
he had called the attention of President Barrameda and Directors Abas and Espiritu for
the holding thereof, the three chose not to appear; and that those present in the special
meeting declared all positions in the board vacant and thereafter proceeded to hold
elections by secret balloting with all the directors present considered candidates for the
positions. The following won and were declared as the newly elected officers of the
CANORECO:

President . . . . . . . . Norberto Ochoa

Vice President . . . . Antonio Obias

Secretary . . . . . . . . Felicito Ilan

Treasurer. . . . . . . . Luis Pascua

Thereupon, these newly elected officers approved the following resolutions:

1) Resolution No. 27, c.s. -- confirming the election of the new set of officers of the
Board of Directors of CANORECO

2) Resolution No. 28, c.s. -- recalling Resolution No. 22, c.s. appointing Mr.
Reynaldo V. Abundo as permanent General Manager in view of the fact that such
appointment was in violation of the provisions of R.A. 6713; declaring the position
of General Manager as vacant; and designating Mr. Oscar Acobera as Officer-in-
Charge

3) Resolution No. 29, c.s. -- authorizing the Board President, or in his absence, the
Vice-President, countersigned by the Treasurer, or in his absence, the Secretary,
to be the only officers who can transfer funds from savings to current
accounts;and authorizing the Officer-in-Charge, Mr. Acobera, to issue checks
without countersignature in an amount not to exceed P3,000.00 and in excess
thereof, to be countersigned by the President and/or the Treasurer

4) Resolution No. 30, c.s. -- hiring the services of Atty. Juanito Subia as retainer-
lawyer for CANORECO.[6]

The petitioners challenged the above resolutions and the election of officers by
filing with the CDA a Petition for Declaration of Nullity of Board Resolutions and
Election of Officers with Prayer for Issuance of Injunction/Temporary Restraining
Order, which the CDA docketed as CDA-CO Case No. 95-010.
In its Resolution of 15 February 1996,[7] the CDA resolved the petition in favor of the
petitioners and decreed as follows:

WHEREFORE, premises considered, the Board Meeting of May 28, 1995, participated
by the respondents, and all the Resolutions issued on such occasion, are hereby
declared NULL AND VOID AB INITIO.

3
Likewise, the election of respondents Norberto Ochoa, Antonio Obias, Felicito Ilan, and
Luis Pascua, as President, Vice-President, Secretary, and Treasurer, respectively, of
CANORECO is hereby declared NULL AND VOID AB INITIO.

Hence, respondents Norberto Ochoa, Antonio Obias, Felicito Ilan, and Luis Pascua are
hereby ordered to refrain from representing themselves as President, Vice-President,
Secretary, and Treasurer, respectively, of CANORECO. The same respondents are
further ordered to refrain from acting as authorized signatories to the bank accounts of
CANORECO.

Further respondent Felicito Ilan is hereby ordered to refrain from exercising the duties
and functions of a member of the Board of CANORECO until the election protest is
resolved with finality by the proper forum. In the meantime, the incumbency of
petitioner Merardo Enero, Jr. as Director of the CANORECO Board is hereby
recognized.

A status quo is hereby ordered as regards the position of General Manager, being held
by Mr. Reynaldo Abundo, considering that the recall of his appointment was done
under a void Resolution, and that the designation of Mr. Oscar Acodera as Officer-in-
Charge, under the same void Resolution, has no force and effect.

Finally, respondents Antonio Obias, Norberto Ochoa, Luisito Pascua, and petitioners
Ruben Barrameda, Elvis Espiritu, Marcelito Abas and Merardo Enero, Jr. are hereby
ordered to work together, as Board of Directors, for the common good of CANORECO
and its consumer-members, and to maintain an atmosphere of sincere cooperation
among the officers and members of CANORECO.

On 28 June 1996, in defiance of the abovementioned Resolution of the CDA and

with the active participation of some officials of the National Electrification
Administration (NEA), the group of Norberto Ochoa, Antonio Obias, Felicito Ilan, and
Luis Pascua forcibly took possession of the offices of CANORECO and assumed the
duties as officers thereof.[8]
On 26 September 1996, pursuant to the writ of execution and order to vacate
issued by the CDA, the petitioners were able to reassume control of the CANORECO
and to perform their respective functions.[9]
On 3 December 1996, the President of the Philippines issued Memorandum Order
No. 409[10] onstituting an Ad Hoc Committee to temporarily take over and manage the
affairs of CANORECO. It reads as follows:

To efficiently and effectively address the worsening problem of the Camarines Norte
Electric Cooperative, Inc. (CANORECO) and in order not to prejudice and endanger
the interest of the people who rely on the said cooperative for their supply of electricity,
an AD HOC Committee is hereby constituted to take over and manage the affairs of
CANORECO until such time as a general membership meeting can be called to decide
the serious issues affecting the said cooperative and normalcy in operations is
restored.Further, if and when warranted, the present Board of Directors may be called
upon by the Committee for advisory services without prejudice to the receipt of their
per diems as may be authorized by existing rules and regulations.

The AD HOC Committee shall be composed of the following:

REX TANTIONGCO -- Chairman

4
Presidential Assistant on Energy Affairs

HONESTO DE JESUS -- Member

Cooperative Development Authority Nominee

ANDRES IBASCO -- Member

Cooperative Development Authority Nominee

TEODULO M. MEA -- Member

National Electrification Administration Nominee

VICENTE LUKBAN -- Member

National Electrification Administration Nominee

The said Committee shall have the following functions:

1. Designate the following upon the recommendation of the Chairman:

1.1 an Acting General Manager who shall handle the day-to-day operations
of the Cooperative. In the meantime, the General Manager shall be
deemed to be on leave without prejudice to the payment of his salaries
legally due him; and

1.2 a Comptroller who shall handle the financial affairs of the Cooperative.

2. Ensure that:

The AD HOC Committee shall submit a written report to the President, through the
Office of the Executive Secretary, every two (2) weeks from the effectivity of this Order.

A General Membership Meeting shall be called by the AD HOC Committee to

determine whether or not there is a need to change the composition of the membership
of the Cooperatives Board of Directors. If the need exists, the AD HOC Committee
shall call for elections. Once the composition of the Board of Directors is finally settled,
it shall decide on the appointment of a General Manager in accordance with prescribed
laws, rules and regulations. Upon the appointment of a General Manager, the
Committee shall become functus officio.

This Memorandum Order shall take effect immediately.

On 11 December 1996, the petitioners filed this petition wherein they claim that
I. THE PRESIDENT HAS NO POWER TO TAKE OVER AND MANAGE OR TO
ORDER THE TAKE-OVER OR MANAGEMENT OF CANORECO.
II. [THE] TAKE-OVER OF CANORECO BY THE AD HOC COMMITTEE IS
UNLAWFUL DESPITE DESIGNATION OF CANORECO CONSUMERS AS
MEMBERS OF AD HOC COMMITTEE.
III. [THE] RELEGATION OF PETITIONERS AS MERE ADVISERS TO THE AD
HOC COMMITTEE AMOUNTS TO REMOVAL FROM OFFICE WHICH THE
5
 PRESIDENT HAS NO POWER TO DO. MOREOVER, PETITIONERS
REMOVAL VIOLATES PETITIONERS RIGHT TO DUE PROCESS OF LAW.
IV. THE PRESIDENT IS LIKEWISE WITHOUT POWER TO DESIGNATE OR
ORDER THE DESIGNATION OF AN ACTING GENERAL MANAGER FOR
CANORECO AND TO CONSIDER THE INCUMBENT REYNALDO V.
ABUNDO TO BE ON LEAVE.
The petitioners assert that there is no provision in the Constitution or in a statute
expressly, or even impliedly, authorizing the President or his representatives to take
over or order the take-over of electric cooperatives. Although conceding that while the
State, through its police power, has the right to interfere with private business or
commerce, they maintain that the exercise thereof is generally limited to the regulation
of the business or commerce and that the power to regulate does not include the
power to take over, control, manage, or direct the operation of the
business. Accordingly, the creation of the Ad Hoc Committee for the purpose of take-
over was illegal and void.
The petitioners further claim that Memorandum Order No. 409 removed them from
their positions as members of the Board of Directors of CANORECO. The President
does not have the authority to appoint, much less to remove, members of the board of
directors of a private enterprise including electric cooperatives. He cannot rely on his
power of supervision over the NEA to justify the designation of an acting general
manager for CANORECO under P.D. No. 269 as amended by P.D. No. 1645, for
CANORECO had already registered with the CDA pursuant to R.A. No. 6938 and R.A.
No. 6939; hence, the latter laws now govern the internal affairs of CANORECO.
On 3 January 1997, the petitioners filed an Urgent Motion for Issuance of a
Temporary Restraining Order.
On 9 January 1997, the petitioners filed a Manifestation and Motion informing the
Court that on 8 January 1997 respondent Rex Tantiongco notified the petitioners that
the Ad Hoc Committee was taking over the affairs and management of CANORECO
effective as of that date.[11] They reiterated their plea for the issuance of a temporary
restraining order because the Ad Hoc Committee has taken control of CANORECO
and usurped the functions of the individual petitioners.
In the Resolution dated 13 January 1997, we required respondents to comment on
the petition.
Despite four extensions granted it, the Office of the Solicitor General (OSG) failed
to file its Comment. Hence, in the resolution of 16 July 1997 we deemed the OSG to
have waived the filing of its Comment and declared this case submitted for
decision. The OSGs motion to admit its Comment, as well as the attached Comment,
belatedly filed on 24 July 1997 was merely noted without action in the resolution of 13
August 1997. We also subsequently denied for lack of merit its motion for
reconsideration.
We find the instant petition impressed with merit.
Having registered itself with the CDA pursuant to Section 128 of R.A. No. 6938 and
Section 17 of R.A. No. 6939, CANORECO was brought under the coverage of said
laws.Article 38 of R.A. No. 6938 vests upon the board of directors the conduct and
management of the affairs of cooperatives, and Article 39 provides for the powers of
the board of directors. These sections read:

6
Article 38. Composition of the Board of Directors. -- The conduct and management of
the affairs of a cooperative shall be vested in a board of directors which shall be
composed of not less than five (5) nor more than fifteen (15) members elected by the
general assembly for a term fixed in the by-laws but not exceeding a term of two (2)
years and shall hold office until their successors are duly elected and qualified, or until
duly removed. However, no director shall serve for more than three (3) consecutive
terms.

Article 39. Powers of the Board of Directors. -- The board of directors shall direct and
supervise the business, manage the property of the cooperative and may, by
resolution, exercise all such powers of the cooperative as are not reserved for the
general assembly under this Code and the by-laws.

As to the officers of cooperatives, Article 43 of the Code provides:

ART. 43. Officers of the Cooperatives. The board of directors shall elect from among
themselves only the chairman and vice-chairman, and elect or appoint other officers of
the cooperative from outside of the board in accordance with their by-laws. All officers
shall serve during good behavior and shall not be removed except for cause and after
due hearing. Loss of confidence shall not be a valid ground for removal unless
evidenced by acts or omissions causing loss of confidence in the honesty and integrity
of such officer. No two (2) or more persons with relationship up to the third degree of
consanguinity or affinity shall serve as elective or appointive officers in the same
board.[12]

Under Article 34 of the Code, the general assembly of cooperatives has the exclusive
power, which cannot be delegated, to elect or appoint the members of the board of
directors and to remove them for cause. Article 51 thereof provides for removal of
directors and officers as follows:

ART. 51. Removal. -- An elective officer, director, or committee member may be

removed by a vote of two-thirds (2/3) of the voting members present and constituting a
quorum, in a regular or special general assembly meeting called for the purpose. The
person involved shall be given an opportunity to be heard at said assembly.

Memorandum Order No. 409 clearly removed from the Board of Directors of
CANORECO the power to manage the affairs of CANORECO and transferred such
power to the Ad Hoc Committee, albeit temporarily. Considering that (1) the take-over
will be until such time that a general membership meeting can be called to decide the
serious issues affecting the said cooperative and normalcy in operations is restored,
and (2) the date such meeting shall be called and the determination of whether there is
a need to change the composition of the membership of CANORECOs Board of
Directors are exclusively left to the Ad Hoc Committee, it necessarily follows that the
incumbent directors were, for all intents and purposes, suspended at the least, and
removed, at the most, from their office. The said Memorandum did no less to the
lawfully appointed General Manager by directing that upon the settlement of the issue
concerning the composition of the board of directors the Committee shall decide on the
appointment of a general manager. In the meantime, it authorized the Committee to
designate upon the recommendation of the Chairman an Acting Manager, with the
lawfully appointed Manager considered on leave, but who is, however, entitled to the
payment of his salaries.

7
 Nothing in law supported the take-over of the management of the affairs of
CANORECO, and the suspension, if not removal, of the Board of Directors and the
officers thereof.
It must be pointed out that the controversy which resulted in the issuance of the
Memorandum Order stemmed from a struggle between two groups vying for control of
the management of CANORECO. One faction was led by the group of Norberto
Ochoa, while the other was petitioners group whose members were, at that time, the
incumbent directors and officers. It was the action of Ochoa and his cohorts in holding
a special meeting on 28 May 1995 and then declaring vacant the positions of
cooperative officers and thereafter electing themselves to the positions of president,
vice-president, treasurer, and secretary of CANORECO which compelled the
petitioners to file a petition with the CDA. The CDA thereafter came out with a decision
favorable to the petitioners.
Obviously there was a clear case of intra-cooperative dispute. Article 121 of the
Cooperative Code is explicit on how the dispute should be resolved; thus:

ART. 121. Settlement of Disputes. -- Disputes among members, officers, directors, and
committee members, and intra-cooperative disputes shall, as far as practicable, be
settled amicably in accordance with the conciliation or mediation mechanisms
embodied in the by-laws of the cooperative, and in applicable laws.

Should such a conciliation/mediation proceeding fail, the matter shall be settled in a

court of competent jurisdiction.

Complementing this Article is Section 8 of R.A. No. 6939, which provides:

SEC. 8. Mediation and Conciliation. Upon request of either or both or both parties, the
[CDA] shall mediate and conciliate disputes with the cooperative or between
cooperatives: Provided, That if no mediation or conciliation succeeds within three (3)
months from request thereof, a certificate of non-resolution shall be issued by the
commission prior to the filing of appropriate action before the proper courts.

Even granting for the sake of argument that the party aggrieved by a decision of the
CDA could pursue an administrative appeal to the Office of the President on the theory
that the CDA is an agency under its direct supervision and control, still the Office of the
President could not in this case, motu proprio or upon request of a party, supplant or
overturn the decision of the CDA. The record does not disclose that the group of
Norberto Ochoa appealed from the decision of the CDA in CDA-CO Case No. 95-010
to the Office of the President as the head of the Executive Department exercising
supervision and control over said agency. In fact the CDA had already issued a Cease
and Desist Order dated 14 August 1996 ordering Antonio Obias, Norberto Ochoa, Luis
Pascua, Felicito Ilan and their followers to cease and desist from acting as the Board of
Directors and Officers of Camarines Norte Electric Cooperative (CANORECO) and to
refrain from implementing their Resolution calling for the District V Election on August
17 and 24, 1996.[13]Consequently, the said decision of the CDA had long become final
and executory when Memorandum Order No. 409 was issued on 3 December
1996. That Memorandum cannot then be considered as one reversing the decision of
the CDA which had attained finality.
Under Section 15, Chapter III of Book VII of the Administrative Code of 1987
(Executive Order No. 292), decisions of administrative agencies become final and
executory fifteen days after receipt of a copy thereof by the party adversely affected
8
unless within that period an administrative appeal or judicial review, if proper, has been
perfected. One motion for reconsideration is allowed. A final resolution or decision of
an administrative agency also binds the Office of the President even if such agency is
under the administrative supervision and control of the latter.
We have stated before, and reiterate it now, that administrative decisions must end
sometime, as fully as public policy demands that finality be written on judicial
controversies. Public interest requires that proceedings already terminated should not
be altered at every step, for the rule of non quieta movere prescribes that what had
already been terminated should not be disturbed. A disregard of this principle does not
commend itself to sound public policy.[14]
Neither can police power be invoked to clothe with validity the assailed
Memorandum Order No. 409. Police power is the power inherent in a government to
enact laws, within constitutional limits, to promote the order, safety, health, morals, and
general welfare of society.[15] It is lodged primarily in the legislature. By virtue of a valid
delegation of legislative power, it may also be exercised by the President and
administrative boards, as well as the lawmaking bodies on all municipal levels,
including the barangay.[16]Delegation of legislative powers to the President is permitted
in Sections 23(2) and 28(2) of Article VI of the Constitution.[17] The pertinent laws on
cooperatives, namely, R.A. No. 6938, R.A. No. 6939, and P.D. No. 269 as amended by
P.D. No. 1645 do not provide for the President or any other administrative body to take
over the internal management of a cooperative. Article 98 of R.A. 6938 instead
provides:

ART. 98. Regulation of Public Service Cooperatives. -- (1) The internal affairs of public
service cooperatives such as the rights and privileges of members, the rules and
procedures for meetings of the general assembly, board of directors and committees;
for the election and qualification of officers, directors, and committee members;
allocation and distribution of surpluses, and all other matters relating to their internal
affairs shall be governed by this Code.

We do not then hesitate to rule that Memorandum Order No. 409 has no
constitutional and statutory basis. It violates the basic underlying principle enshrined in
Article 4(2) of R.A. No. 6938 that cooperatives are democratic organizations and that
their affairs shall be administered by persons elected or appointed in a manner agreed
upon by the members. Likewise, it runs counter to the policy set forth in Section 1 of
R.A. No. 6939 that the State shall, except as provided in said Act, maintain a policy of
non-interference in the management and operation of cooperatives.
WHEREFORE, the instant petition is GRANTED and Memorandum Order No. 409
of the President is hereby declared INVALID.
SO ORDERED.

9
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 124360 November 5, 1997

FRANCISCO S. TATAD, petitioner,

vs.
THE SECRETARY OF THE DEPARTMENT OF ENERGY AND THE SECRETARY
OF THE DEPARTMENT OF FINANCE, respondents.

G.R. No. 127867 November 5, 1997

EDCEL C. LAGMAN, JOKER P. ARROYO, ENRIQUE GARCIA, WIGBERTO

TANADA, FLAG HUMAN RIGHTS FOUNDATION, INC., FREEDOM FROM DEBT
COALITION (FDC), SANLAKAS, petitioners,
vs.
HON. RUBEN TORRES in his capacity as the Executive Secretary, HON.
FRANCISCO VIRAY, in his capacity as the Secretary of Energy, CALTEX
Philippines, Inc., PETRON Corporation and PILIPINAS SHELL
Corporation, respondents.

PUNO, J.:

The petitions at bar challenge the constitutionality of Republic Act No. 8180 entitled
"An Act Deregulating the Downstream Oil Industry and For Other Purposes".1 R.A. No.
8180 ends twenty six (26) years of government regulation of the downstream oil
industry. Few cases carry a surpassing importance on the life of every Filipino as these
petitions for the upswing and downswing of our economy materially depend on the
oscillation of oil.

First, the facts without the fat. Prior to 1971, there was no government agency
regulating the oil industry other than those dealing with ordinary commodities. Oil
companies were free to enter and exit the market without any government interference.
There were four (4) refining companies (Shell, Caltex, Bataan Refining Company and
Filoil Refining) and six (6) petroleum marketing companies (Esso, Filoil, Caltex, Getty,
Mobil and Shell), then operating in the country.2

In 1971, the country was driven to its knees by a crippling oil crisis. The government,
realizing that petroleum and its products are vital to national security and that their
continued supply at reasonable prices is essential to the general welfare, enacted the
Oil Industry Commission Act.3 It created the Oil Industry Commission (OIC)
to regulate the business of importing, exporting, re-exporting, shipping, transporting,
processing, refining, storing, distributing, marketing and selling crude oil, gasoline,
kerosene, gas and other refined petroleum products. The OIC was vested with
the power to fix the market prices of petroleum products, to regulate the capacities of
refineries, to license new refineries and to regulate the operations and trade practices
of the industry.4

In addition to the creation of the OIC, the government saw the imperious need for a
more active role of Filipinos in the oil industry. Until the early seventies, the
10
downstream oil industry was controlled by multinational companies. All the oil refineries
and marketing companies were owned by foreigners whose economic interests did not
always coincide with the interest of the Filipino. Crude oil was transported to the
country by foreign-controlled tankers. Crude processing was done locally by foreign-
owned refineries and petroleum products were marketed through foreign-owned retail
outlets. On November 9, 1973, President Ferdinand E. Marcos boldly created the
Philippine National Oil Corporation (PNOC) to break the control by foreigners of our oil
industry.5 PNOC engaged in the business of refining, marketing, shipping, transporting,
and storing petroleum. It acquired ownership of ESSO Philippines and Filoil to serve as
its marketing arm. It bought the controlling shares of Bataan Refining Corporation, the
largest refinery in the country.6 PNOC later put up its own marketing subsidiary —
Petrophil. PNOC operated under the business name PETRON Corporation. For the
first time, there was a Filipino presence in the Philippine oil market.

In 1984, President Marcos through Section 8 of Presidential Decree No. 1956, created
the Oil Price Stabilization Fund (OPSF) to cushion the effects of frequent changes in
the price of oil caused by exchange rate adjustments or increase in the world market
prices of crude oil and imported petroleum products. The fund is used (1) to reimburse
the oil companies for cost increases in crude oil and imported petroleum products
resulting from exchange rate adjustment and/or increase in world market prices of
crude oil, and (2) to reimburse oil companies for cost underrecovery incurred as a
result of the reduction of domestic prices of petroleum products. Under the law, the
OPSF may be sourced from:

1. any increase in the tax collection from ad valorem tax or customs duty
imposed on petroleum products subject to tax under P.D. No. 1956 arising
from exchange rate adjustment,

2. any increase in the tax collection as a result of the lifting of tax

exemptions of government corporations, as may be determined by the
Minister of Finance in consultation with the Board of Energy,

3. any additional amount to be imposed on petroleum products to augment

the resources of the fund through an appropriate order that may be issued
by the Board of Energy requiring payment of persons or companies
engaged in the business of importing, manufacturing and/or marketing
petroleum products, or

4. any resulting peso costs differentials in case the actual peso costs paid
by oil companies in the importation of crude oil and petroleum products is
less than the peso costs computed using the reference foreign exchange
rate as fixed by the Board of Energy.7

By 1985, only three (3) oil companies were operating in the country — Caltex, Shell
and the government-owned PNOC.

In May, 1987, President Corazon C. Aquino signed Executive Order No. 172 creating
the Energy Regulatory Boardto regulate the business of importing, exporting, re-
exporting, shipping, transporting, processing, refining, marketing and distributing
energy resources "when warranted and only when public necessity requires." The
Board had the following powers and functions:

1. Fix and regulate the prices of petroleum products;

11
 2. Fix and regulate the rate schedule or prices of piped
gas to be charged by duly franchised gas companies
which distribute gas by means of underground pipe
system;

3. Fix and regulate the rates of pipeline concessionaries

under the provisions of R.A. No. 387, as amended . . . ;

4. Regulate the capacities of new refineries or additional

capacities of existing refineries and license refineries that
may be organized after the issuance of (E.O. No. 172)
under such terms and conditions as are consistent with
the national interest; and

5. Whenever the Board has determined that there is a

shortage of any petroleum product, or when public
interest so requires, it may take such steps as it may
consider necessary, including the temporary adjustment
of the levels of prices of petroleum products and the
payment to the Oil Price Stabilization Fund . . . by
persons or entities engaged in the petroleum industry of
such amounts as may be determined by the Board, which
may enable the importer to recover its cost of
importation.8

On December 9, 1992, Congress enacted R.A. No. 7638 which created

the Department of Energy to prepare, integrate, coordinate, supervise and control all
plans, programs, projects, and activities of the government in relation to energy
exploration, development, utilization, distribution and conservation.9 The thrust of the
Philippine energy program under the law was toward privatization of government
agencies related to energy, deregulation of the power and energy industry and
reduction of dependency on oil-fired plants.10 The law also aimed to encourage free
and active participation and investment by the private sector in all energy activities.
Section 5(e) of the law states that "at the end of four (4) years from the effectivity of
this Act, the Department shall, upon approval of the President, institute the programs
and timetable of deregulation of appropriate energy projects and activities of the
energy industry."

Pursuant to the policies enunciated in R.A. No. 7638, the government approved
the privatization of Petron Corporation in 1993. On December 16, 1993, PNOC sold
40% of its equity in Petron Corporation to the Aramco Overseas Company.

In March 1996, Congress took the audacious step of deregulating the downstream oil
industry. It enacted R.A. No.8180, entitled the "Downstream Oil Industry Deregulation
Act of 1996." Under the deregulated environment, "any person or entity may import or
purchase any quantity of crude oil and petroleum products from a foreign or domestic
source, lease or own and operate refineries and other downstream oil facilities and
market such crude oil or use the same for his own requirement," subject only to
monitoring by the Department of
Energy.11

12
The deregulation process has two phases: the transition phase and the full
deregulation phase. During the transition phase, controls of the non-pricing aspects of
the oil industry were to be lifted. The following were to be accomplished: (1)
liberalization of oil importation, exportation, manufacturing, marketing and distribution,
(2) implementation of an automatic pricing mechanism, (3) implementation of an
automatic formula to set margins of dealers and rates of haulers, water transport
operators and pipeline concessionaires, and (4) restructuring of oil taxes. Upon full
deregulation, controls on the price of oil and the foreign exchange cover were to be
lifted and the OPSF was to be abolished.

The first phase of deregulation commenced on August 12, 1996.

On February 8, 1997, the President implemented the full deregulation of the

Downstream Oil Industry through E.O.No. 372.

The petitions at bar assail the constitutionality of various provisions of R.A No. 8180
and E.O. No. 372.

In G.R. No. 124360, petitioner Francisco S. Tatad seeks the annulment of section 5(b)
of R.A. No. 8180. Section 5(b) provides:

b) Any law to the contrary notwithstanding and starting with the effectivity of this
Act, tariff duty shall be imposed and collected on imported crude oil at the rate of
three percent (3%) and imported refined petroleum products at the rate of seven
percent (7%), except fuel oil and LPG, the rate for which shall be the same as
that for imported crude oil: Provided, That beginning on January 1, 2004 the tariff
rate on imported crude oil and refined petroleum products shall be the
same: Provided, further, That this provision may be amended only by an Act of
Congress.

The petition is anchored on three arguments:

First, that the imposition of different tariff rates on imported crude oil and imported
refined petroleum products violates the equal protection clause. Petitioner contends
that the 3%-7% tariff differential unduly favors the three existing oil refineries and
discriminates against prospective investors in the downstream oil industry who do not
have their own refineries and will have to source refined petroleum products from
abroad.

Second, that the imposition of different tariff rates does not deregulate the downstream
oil industry but instead controls the oil industry, contrary to the avowed policy of the
law. Petitioner avers that the tariff differential between imported crude oil and imported
refined petroleum products bars the entry of other players in the oil industry because it
effectively protects the interest of oil companies with existing refineries. Thus, it runs
counter to the objective of the law "to foster a truly competitive market."

Third, that the inclusion of the tariff provision in section 5(b) of R.A. No. 8180 violates
Section 26(1) Article VI of the Constitution requiring every law to have only one subject
which shall be expressed in its title. Petitioner contends that the imposition of tariff
rates in section 5(b) of R.A. No. 8180 is foreign to the subject of the law which is the
deregulation of the downstream oil industry.

13
In G.R. No. 127867, petitioners Edcel C. Lagman, Joker P. Arroyo, Enrique Garcia,
Wigberto Tanada, Flag Human Rights Foundation, Inc., Freedom from Debt Coalition
(FDC) and Sanlakas contest the constitutionality of section 15 of R.A. No. 8180 and
E.O. No. 392. Section 15 provides:

Sec. 15. Implementation of Full Deregulation. — Pursuant to Section 5(e) of

Republic Act No. 7638, the DOE shall, upon approval of the President,
implement the full deregulation of the downstream oil industry not later than
March 1997. As far as practicable, the DOE shall time the full deregulation when
the prices of crude oil and petroleum products in the world market are declining
and when the exchange rate of the peso in relation to the US dollar is stable.
Upon the implementation of the full deregulation as provided herein, the
transition phase is deemed terminated and the following laws are deemed
repealed:

xxx xxx xxx

E.O. No. 372 states in full, viz.:

WHEREAS, Republic Act No. 7638, otherwise known as the "Department of

Energy Act of 1992," provides that, at the end of four years from its effectivity last
December 1992, "the Department (of Energy) shall, upon approval of the
President, institute the programs and time table of deregulation of appropriate
energy projects and activities of the energy sector;"

WHEREAS, Section 15 of Republic Act No. 8180, otherwise known as the

"Downstream Oil Industry Deregulation Act of 1996," provides that "the DOE
shall, upon approval of the President, implement full deregulation of the
downstream oil industry not later than March, 1997. As far as practicable, the
DOE shall time the full deregulation when the prices of crude oil and petroleum
products in the world market are declining and when the exchange rate of the
peso in relation to the US dollar is stable;"

WHEREAS, pursuant to the recommendation of the Department of Energy, there

is an imperative need to implement the full deregulation of the downstream oil
industry because of the following recent developments: (i) depletion of the buffer
fund on or about 7 February 1997 pursuant to the Energy Regulatory Board's
Order dated 16 January 1997; (ii) the prices of crude oil had been stable at $21-
$23 per barrel since October 1996 while prices of petroleum products in the
world market had been stable since mid-December of last year. Moreover, crude
oil prices are beginning to soften for the last few days while prices of some
petroleum products had already declined; and (iii) the exchange rate of the peso
in relation to the US dollar has been stable for the past twelve (12) months,
averaging at around P26.20 to one US dollar;

WHEREAS, Executive Order No. 377 dated 31 October 1996 provides for an
institutional framework for the administration of the deregulated industry by
defining the functions and responsibilities of various government agencies;

WHEREAS, pursuant to Republic Act No. 8180, the deregulation of the industry
will foster a truly competitive market which can better achieve the social policy
objectives of fair prices and adequate, continuous supply of environmentally-
clean and high quality petroleum products;
14
 NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the
Philippines, by the powers vested in me by law, do hereby declare the full
deregulation of the downstream oil industry.

In assailing section 15 of R.A. No. 8180 and E.O. No. 392, petitioners offer the
following submissions:

First, section 15 of R.A. No. 8180 constitutes an undue delegation of legislative power
to the President and the Secretary of Energy because it does not provide a
determinate or determinable standard to guide the Executive Branch in determining
when to implement the full deregulation of the downstream oil industry. Petitioners
contend that the law does not define when it is practicable for the Secretary of Energy
to recommend to the President the full deregulation of the downstream oil industry or
when the President may consider it practicable to declare full deregulation. Also, the
law does not provide any specific standard to determine when the prices of crude oil in
the world market are considered to be declining nor when the exchange rate of the
peso to the US dollar is considered stable.

Second, petitioners aver that E.O. No. 392 implementing the full deregulation of the
downstream oil industry is arbitrary and unreasonable because it was enacted due to
the alleged depletion of the OPSF fund — a condition not found in R.A. No. 8180.

Third, section 15 of R.A. No. 8180 and E.O. No. 392 allow the formation of a de
facto cartel among the three existing oil companies — Petron, Caltex and Shell — in
violation of the constitutional prohibition against monopolies, combinations in restraint
of trade and unfair competition.

Respondents, on the other hand, fervently defend the constitutionality of R.A. No. 8180
and E.O. No. 392. In addition, respondents contend that the issues raised by the
petitions are not justiciable as they pertain to the wisdom of the law. Respondents
further aver that petitioners have no locus standi as they did not sustain nor will they
sustain direct injury as a result of the implementation of R.A. No. 8180.

The petitions were heard by the Court on September 30, 1997. On October 7, 1997,
the Court ordered the private respondents oil companies "to maintain the status quo
and to cease and desist from increasing the prices of gasoline and other petroleum fuel
products for a period of thirty (30) days . . . subject to further orders as conditions may
warrant."

We shall now resolve the petitions on the merit. The petitions raise procedural and
substantive issues bearing on the constitutionality of R.A. No. 8180 and E.O. No. 392.
The procedural issues are: (1) whether or not the petitions raise a justiciable
controversy, and (2) whether or not the petitioners have the standing to assail the
validity of the subject law and executive order. The substantive issues are: (1) whether
or not section 5 (b) violates the one title — one subject requirement of the Constitution;
(2) whether or not the same section violates the equal protection clause of the
Constitution; (3) whether or not section 15 violates the constitutional prohibition on
undue delegation of power; (4) whether or not E.O. No. 392 is arbitrary and
unreasonable; and (5) whether or not R.A. No. 8180 violates the constitutional
prohibition against monopolies, combinations in restraint of trade and unfair
competition.

15
We shall first tackle the procedural issues. Respondents claim that the avalanche of
arguments of the petitioners assail the wisdom of R.A. No. 8180. They aver that
deregulation of the downstream oil industry is a policy decision made by Congress and
it cannot be reviewed, much less be reversed by this Court. In constitutional parlance,
respondents contend that the petitions failed to raise a justiciable controversy.

Respondents' joint stance is unnoteworthy. Judicial power includes not only the duty of
the courts to settle actual controversies involving rights which are legally demandable
and enforceable, but also the duty to determine whether or not there has been grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the government.12 The courts, as guardians of the
Constitution, have the inherent authority to determine whether a statute enacted by the
legislature transcends the limit imposed by the fundamental law. Where a statute
violates the Constitution, it is not only the right but the duty of the judiciary to declare
such act as unconstitutional and void.13 We held in the recent case of Tanada
v. Angara:14

xxx xxx xxx

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

contravenes the Constitution, the petition no doubt raises a justiciable
controversy. Where an action of the legislative branch is seriously alleged to
have infringed the Constitution, it becomes not only the right but in fact the duty
of the judiciary to settle the dispute. The question thus posed is judicial rather
than political. The duty to adjudicate remains to assure that the supremacy of the
Constitution is upheld. Once a controversy as to the application or interpretation
of a constitutional provision is raised before this Court, it becomes a legal issue
which the Court is bound by constitutional mandate to decide.

Even a sideglance at the petitions will reveal that petitioners have raised constitutional
issues which deserve the resolution of this Court in view of their seriousness and their
value as precedents. Our statement of facts and definition of issues clearly show that
petitioners are assailing R.A. No. 8180 because its provisions infringe the Constitution
and not because the law lacks wisdom. The principle of separation of power mandates
that challenges on the constitutionality of a law should be resolved in our courts of
justice while doubts on the wisdom of a law should be debated in the halls of
Congress. Every now and then, a law may be denounced in court both as bereft of
wisdom and constitutionally infirmed. Such denunciation will not deny this Court of its
jurisdiction to resolve the constitutionality of the said law while prudentially refusing to
pass on its wisdom.

The effort of respondents to question the locus standi of petitioners must also fall on
barren ground. In language too lucid to be misunderstood, this Court has brightlined its
liberal stance on a petitioner's locus standi where the petitioner is able to craft an issue
of transcendental significance to the people.15 In Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan,16 we stressed:

xxx xxx xxx

Objections to taxpayers' suit for lack of sufficient personality, standing or interest

are, however, in the main procedural matters. Considering the importance to the
public of the cases at bar, and in keeping with the Court's duty, under the 1987

16
 Constitution, to determine whether or not the other branches of government have
kept themselves within the limits of the Constitution and the laws and that they
have not abused the discretion given to them, the Court has brushed aside
technicalities of procedure and has taken cognizance of these petitions.

There is not a dot of disagreement between the petitioners and the respondents on the
far reaching importance of the validity of RA No. 8180 deregulating our downstream oil
industry. Thus, there is no good sense in being hypertechnical on the standing of
petitioners for they pose issues which are significant to our people and which deserve
our forthright resolution.

We shall now track down the substantive issues. In G.R. No. 124360 where petitioner
is Senator Tatad, it is contended that section 5(b) of R.A. No. 8180 on tariff differential
violates the provision17 of the Constitution requiring every law to have only one subject
which should be expressed in its title. We do not concur with this contention. As a
policy, this Court has adopted a liberal construction of the one title — one subject rule.
We have consistently ruled18 that the title need not mirror, fully index or catalogue all
contents and minute details of a law. A law having a single general subject indicated in
the title may contain any number of provisions, no matter how diverse they may be, so
long as they are not inconsistent with or foreign to the general subject, and may be
considered in furtherance of such subject by providing for the method and means of
carrying out the general subject.19 We hold that section 5(b) providing for tariff
differential is germane to the subject of R.A. No. 8180 which is the deregulation of the
downstream oil industry. The section is supposed to sway prospective investors to put
up refineries in our country and make them rely less on imported petroleum.20 We
shall, however, return to the validity of this provision when we examine its blocking
effect on new entrants to the oil market.

We shall now slide to the substantive issues in G.R. No. 127867. Petitioners assail
section 15 of R.A. No. 8180 which fixes the time frame for the full deregulation of the
downstream oil industry. We restate its pertinent portion for emphasis, viz.:

Sec. 15. Implementation of Full Deregulation — Pursuant to section 5(e) of

Republic Act No. 7638, the DOE shall, upon approval of the President,
implement the full deregulation of the downstream oil industry not later than
March 1997. As far as practicable, the DOE shall time the full deregulation when
the prices of crude oil and petroleum products in the world market
are declining and when the exchange rate of the peso in relation to the US dollar
is stable . . .

Petitioners urge that the phrases "as far as practicable," "decline of crude oil prices in
the world market" and "stability of the peso exchange rate to the US dollar" are
ambivalent, unclear and inconcrete in meaning. They submit that they do not provide
the "determinate or determinable standards" which can guide the President in his
decision to fully deregulate the downstream oil industry. In addition, they contend that
E.O. No. 392 which advanced the date of full deregulation is void for it illegally
considered the depletion of the OPSF fund as a factor.

The power of Congress to delegate the execution of laws has long been settled by this
Court. As early as 1916 in Compania General de Tabacos de Filipinas vs. The Board
of Public Utility Commissioners,21 this Court thru, Mr. Justice Moreland, held that "the
true distinction is between the delegation of power to make the law, which necessarily
17
involves a discretion as to what it shall be, and conferring authority or discretion as to
its execution, to be exercised under and in pursuance of the law. The first cannot be
done; to the latter no valid objection can be made." Over the years, as the legal
engineering of men's relationship became more difficult, Congress has to rely more on
the practice of delegating the execution of laws to the executive and other
administrative agencies. Two tests have been developed to determine whether the
delegation of the power to execute laws does not involve the abdication of the power to
make law itself. We delineated the metes and bounds of these tests in Eastern
Shipping Lines, Inc. VS. POEA,22 thus:

There are two accepted tests to determine whether or not there is a valid
delegation of legislative power, viz: the completeness test and the sufficient
standard test. Under the first test, the law must be complete in all its terms and
conditions when it leaves the legislative such that when it reaches the delegate
the only thing he will have to do is to enforce it. Under the sufficient standard test,
there must be adequate guidelines or limitations in the law to map out the
boundaries of the delegate's authority and prevent the delegation from running
riot. Both tests are intended to prevent a total transference of legislative authority
to the delegate, who is not allowed to step into the shoes of the legislature and
exercise a power essentially legislative.

The validity of delegating legislative power is now a quiet area in our constitutional
landscape. As sagely observed, delegation of legislative power has become an
inevitability in light of the increasing complexity of the task of government. Thus, courts
bend as far back as possible to sustain the constitutionality of laws which are assailed
as unduly delegating legislative powers. Citing Hirabayashi v. United States23 as
authority, Mr. Justice Isagani A. Cruz states "that even if the law does not expressly
pinpoint the standard, the courts will bend over backward to locate the same elsewhere
in order to spare the statute, if it can, from constitutional infirmity." 24

Given the groove of the Court's rulings, the attempt of petitioners to strike down section
15 on the ground of undue delegation of legislative power cannot prosper. Section 15
can hurdle both the completeness test and the sufficient standard test. It will be noted
that Congress expressly provided in R.A. No. 8180 that full deregulation will start at the
end of March 1997, regardless of the occurrence of any event. Full deregulation at the
end of March 1997 is mandatory and the Executive has no discretion to postpone it for
any purported reason. Thus, the law is complete on the question of the final date of full
deregulation. The discretion given to the President is to advance the date of full
deregulation before the end of March 1997. Section 15 lays down the standard to
guide the judgment of the President — he is to time it as far as practicable when the
prices of crude oil and petroleum products in the world market are declining and when
the exchange rate of the peso in relation to the US dollar is stable.

Petitioners contend that the words "as far as practicable," "declining" and "stable"
should have been defined in R.A. No. 8180 as they do not set determinate or
determinable standards. The stubborn submission deserves scant consideration. The
dictionary meanings of these words are well settled and cannot confuse men of
reasonable intelligence. Webster defines "practicable" as meaning possible to practice
or perform, "decline" as meaning to take a downward direction, and "stable" as
meaning firmly established.25 The fear of petitioners that these words will result in the
exercise of executive discretion that will run riot is thus groundless. To be sure, the

18
Court has sustained the validity of similar, if not more general standards in other
cases.26

It ought to follow that the argument that E.O. No. 392 is null and void as it was based
on indeterminate standards set by R.A. 8180 must likewise fail. If that were all to the
attack against the validity of E.O. No. 392, the issue need not further detain our
discourse. But petitioners further posit the thesis that the Executive misapplied R.A.
No. 8180 when it considered the depletion of the OPSF fund as a factor in fully
deregulating the downstream oil industry in February 1997. A perusal of section 15 of
R.A. No. 8180 will readily reveal that it only enumerated two factors to be considered
by the Department of Energy and the Office of the President, viz.: (1) the time when
the prices of crude oil and petroleum products in the world market are declining, and
(2) the time when the exchange rate of the peso in relation to the US dollar is stable.
Section 15 did not mention the depletion of the OPSF fund as a factor to be given
weight by the Executive before ordering full deregulation. On the contrary, the debates
in Congress will show that some of our legislators wanted to impose as a pre-condition
to deregulation a showing that the OPSF fund must not be in deficit.27 We therefore
hold that the Executive department failed to follow faithfully the standards set by R.A.
No. 8180 when it considered the extraneous factor of depletion of the OPSF fund. The
misappreciation of this extra factor cannot be justified on the ground that the Executive
department considered anyway the stability of the prices of crude oil in the world
market and the stability of the exchange rate of the peso to the dollar. By considering
another factor to hasten full deregulation, the Executive department rewrote the
standards set forth in R.A. 8180. The Executive is bereft of any right to alter either by
subtraction or addition the standards set in R.A. No. 8180 for it has no power to make
laws. To cede to the Executive the power to make law is to invite tyranny, indeed, to
transgress the principle of separation of powers. The exercise of delegated power is
given a strict scrutiny by courts for the delegate is a mere agent whose action cannot
infringe the terms of agency. In the cases at bar, the Executive co-mingled the factor of
depletion of the OPSF fund with the factors of decline of the price of crude oil in the
world market and the stability of the peso to the US dollar. On the basis of the text of
E.O. No. 392, it is impossible to determine the weight given by the Executive
department to the depletion of the OPSF fund. It could well be the principal
consideration for the early deregulation. It could have been accorded an equal
significance. Or its importance could be nil. In light of this uncertainty, we rule that the
early deregulation under E.O. No. 392 constitutes a misapplication of R.A. No. 8180.

We now come to grips with the contention that some provisions of R.A. No. 8180
violate section 19 of Article XII of the 1987 Constitution. These provisions are:

(1) Section 5 (b) which states — "Any law to the contrary notwithstanding and
starting with the effectivity of this Act, tariff duty shall be imposed and collected
on imported crude oil at the rate of three percent (3%) and imported refined
petroleum products at the rate of seven percent (7%) except fuel oil and LPG, the
rate for which shall be the same as that for imported crude oil. Provided, that
beginning on January 1, 2004 the tariff rate on imported crude oil and refined
petroleum products shall be the same. Provided, further, that this provision may
be amended only by an Act of Congress."

(2) Section 6 which states — "To ensure the security and continuity of petroleum
crude and products supply, the DOE shall require the refiners and importers to

19
 maintain a minimum inventory equivalent to ten percent (10%) of their respective
annual sales volume or forty (40) days of supply, whichever is lower," and

(3) Section 9 (b) which states — "To ensure fair competition and prevent cartels
and monopolies in the downstream oil industry, the following acts shall be
prohibited:

xxx xxx xxx

(b) Predatory pricing which means selling or offering to sell any

product at a price unreasonably below the industry average cost so
as to attract customers to the detriment of competitors.

On the other hand, section 19 of Article XII of the Constitution allegedly violated by the
aforestated provisions of R.A. No. 8180 mandates: "The State shall regulate or prohibit
monopolies when the public interest so requires. No combinations in restraint of trade
or unfair competition shall be allowed."

A monopoly is a privilege or peculiar advantage vested in one or more persons or

companies, consisting in the exclusive right or power to carry on a particular business
or trade, manufacture a particular article, or control the sale or the whole supply of a
particular commodity. It is a form of market structure in which one or only a few firms
dominate the total sales of a product or service.28 On the other hand, a combination in
restraint of trade is an agreement or understanding between two or more persons, in
the form of a contract, trust, pool, holding company, or other form of association, for
the purpose of unduly restricting competition, monopolizing trade and commerce in a
certain commodity, controlling its, production, distribution and price, or otherwise
interfering with freedom of trade without statutory authority.29 Combination in restraint
of trade refers to the means while monopoly refers to the end.30

Article 186 of the Revised Penal Code and Article 28 of the New Civil Code breathe life
to this constitutional policy. Article 186 of the Revised Penal Code penalizes
monopolization and creation of combinations in restraint of
trade, 31 while Article 28 of the New Civil Code makes any person who shall engage in
unfair competition liable for damages.32

Respondents aver that sections 5(b), 6 and 9(b) implement the policies and objectives
of R.A. No. 8180. They explain that the 4% tariff differential is designed to encourage
new entrants to invest in refineries. They stress that the inventory requirement is meant
to guaranty continuous domestic supply of petroleum and to discourage fly-by-night
operators. They also submit that the prohibition against predatory pricing is intended to
protect prospective entrants. Respondents manifested to the Court that new players
have entered the Philippines after deregulation and have now captured 3% — 5% of
the oil market.

The validity of the assailed provisions of R.A. No. 8180 has to be decided in light of the
letter and spirit of our Constitution, especially section 19, Article XII. Beyond doubt, the
Constitution committed us to the free enterprise system but it is a system impressed
with its own distinctness. Thus, while the Constitution embraced free enterprise as an
economic creed, it did not prohibit per se the operation of monopolies which can,
however, be regulated in the public interest.33 Thus too, our free enterprise system is
not based on a market of pure and unadulterated competition where the State pursues
a strict hands-off policy and follows the let-the-devil devour the hindmost rule.
20
Combinations in restraint of trade and unfair competitions are absolutely proscribed
and the proscription is directed both against the State as well as the private
sector.34 This distinct free enterprise system is dictated by the need to achieve the
goals of our national economy as defined by section 1, Article XII of the Constitution
which are: more equitable distribution of opportunities, income and wealth; a sustained
increase in the amount of goods and services produced by the nation for the benefit of
the people; and an expanding productivity as the key to raising the quality of life for all,
especially the underprivileged. It also calls for the State to protect Filipino enterprises
against unfair competition and trade practices.

Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses
competition. The desirability of competition is the reason for the prohibition against
restraint of trade, the reason for the interdiction of unfair competition, and the reason
for regulation of unmitigated monopolies. Competition is thus the underlying principle of
section 19, Article XII of our Constitution which cannot be violated by R.A. No. 8180.
We subscribe to the observation of Prof. Gellhorn that the objective of anti-trust law is
"to assure a competitive economy, based upon the belief that through competition
producers will strive to satisfy consumer wants at the lowest price with the sacrifice of
the fewest resources. Competition among producers allows consumers to bid for
goods and services, and thus matches their desires with society's opportunity
costs."35 He adds with appropriateness that there is a reliance upon "the operation of
the 'market' system (free enterprise) to decide what shall be produced, how resources
shall be allocated in the production process, and to whom the various products will be
distributed. The market system relies on the consumer to decide what and how much
shall be produced, and on competition, among producers to determine who will
manufacture it."

Again, we underline in scarlet that the fundamental principle espoused by section 19,
Article XII of the Constitution is competition for it alone can release the creative forces
of the market. But the competition that can unleash these creative forces is competition
that is fighting yet is fair. Ideally, this kind of competition requires the presence of not
one, not just a few but several players. A market controlled by one player (monopoly)
or dominated by a handful of players (oligopoly) is hardly the market where honest-to-
goodness competition will prevail. Monopolistic or oligopolistic markets deserve our
careful scrutiny and laws which barricade the entry points of new players in the market
should be viewed with suspicion.

Prescinding from these baseline propositions, we shall proceed to examine whether

the provisions of R.A. No. 8180 on tariff differential, inventory reserves, and predatory
prices imposed substantial barriers to the entry and exit of new players in our
downstream oil industry. If they do, they have to be struck down for they will
necessarily inhibit the formation of a truly competitive market. Contrariwise, if they are
insignificant impediments, they need not be stricken down.

In the cases at bar, it cannot be denied that our downstream oil industry is operated
and controlled by an oligopoly, a foreign oligopoly at that. Petron, Shell and Caltex
stand as the only major league players in the oil market. All other players belong to the
lilliputian league. As the dominant players, Petron, Shell and Caltex boast of existing
refineries of various capacities. The tariff differential of 4% therefore works to their
immense benefit. Yet, this is only one edge of the tariff differential. The other edge cuts
and cuts deep in the heart of their competitors. It erects a high barrier to the entry of
new players. New players that intend to equalize the market power of Petron, Shell and
21
Caltex by building refineries of their own will have to spend billions of pesos. Those
who will not build refineries but compete with them will suffer the huge disadvantage of
increasing their product cost by 4%. They will be competing on an uneven field. The
argument that the 4% tariff differential is desirable because it will induce prospective
players to invest in refineries puts the cart before the horse. The first need is to attract
new players and they cannot be attracted by burdening them with heavy disincentives.
Without new players belonging to the league of Petron, Shell and Caltex, competition
in our downstream oil industry is an idle dream.

The provision on inventory widens the balance of advantage of Petron, Shell and
Caltex against prospective new players. Petron, Shell and Caltex can easily comply
with the inventory requirement of R.A. No. 8180 in view of their existing storage
facilities. Prospective competitors again will find compliance with this requirement
difficult as it will entail a prohibitive cost. The construction cost of storage facilities and
the cost of inventory can thus scare prospective players. Their net effect is to further
occlude the entry points of new players, dampen competition and enhance the control
of the market by the three (3) existing oil companies.

Finally, we come to the provision on predatory pricing which is defined as ". . . selling
or offering to sell any product at a price unreasonably below the industry average cost
so as to attract customers to the detriment of competitors." Respondents contend that
this provision works against Petron, Shell and Caltex and protects new entrants. The
ban on predatory pricing cannot be analyzed in isolation. Its validity is interlocked with
the barriers imposed by R.A. No. 8180 on the entry of new players. The inquiry should
be to determine whether predatory pricing on the part of the dominant oil companies is
encouraged by the provisions in the law blocking the entry of new players. Text-writer
Hovenkamp,36 gives the authoritative answer and we quote:

xxx xxx xxx

The rationale for predatory pricing is the sustaining of losses today that will give a
firm monopoly profits in the future. The monopoly profits will never materialize,
however, if the market is flooded with new entrants as soon as the successful
predator attempts to raise its price. Predatory pricing will be profitable only if the
market contains significant barriers to new entry.

As aforediscsussed, the 4% tariff differential and the inventory requirement are

significant barriers which discourage new players to enter the market. Considering
these significant barriers established by R.A. No. 8180 and the lack of players with the
comparable clout of PETRON, SHELL and CALTEX, the temptation for a dominant
player to engage in predatory pricing and succeed is a chilling reality. Petitioners'
charge that this provision on predatory pricing is anti-competitive is not without reason.

Respondents belittle these barriers with the allegation that new players have entered
the market since deregulation. A scrutiny of the list of the alleged new players will,
however, reveal that not one belongs to the class and category of PETRON, SHELL
and CALTEX. Indeed, there is no showing that any of these new players intends to
install any refinery and effectively compete with these dominant oil companies. In any
event, it cannot be gainsaid that the new players could have been more in number and
more impressive in might if the illegal entry barriers in R.A. No. 8180 were not erected.

22
We come to the final point. We now resolve the total effect of the untimely
deregulation, the imposition of 4% tariff differential on imported crude oil and refined
petroleum products, the requirement of inventory and the prohibition on predatory
pricing on the constitutionality of R.A. No. 8180. The question is whether these
offending provisions can be individually struck down without invalidating the entire R.A.
No. 8180. The ruling case law is well stated by author Agpalo,37 viz.:

xxx xxx xxx

The general rule is that where part of a statute is void as repugnant to the
Constitution, while another part is valid, the valid portion, if separable from the
invalid, may stand and be enforced. The presence of a separability clause in a
statute creates the presumption that the legislature intended separability, rather
than complete nullity of the statute. To justify this result, the valid portion must be
so far independent of the invalid portion that it is fair to presume that the
legislature would have enacted it by itself if it had supposed that it could not
constitutionally enact the other. Enough must remain to make a complete,
intelligible and valid statute, which carries out the legislative intent. . . .

The exception to the general rule is that when the parts of a statute are so
mutually dependent and connected, as conditions, considerations, inducements,
or compensations for each other, as to warrant a belief that the legislature
intended them as a whole, the nullity of one part will vitiate the rest. In making the
parts of the statute dependent, conditional, or connected with one another, the
legislature intended the statute to be carried out as a whole and would not have
enacted it if one part is void, in which case if some parts are unconstitutional, all
the other provisions thus dependent, conditional, or connected must fall with
them.

R.A. No. 8180 contains a separability clause. Section 23 provides that "if for any
reason, any section or provision of this Act is declared unconstitutional or invalid, such
parts not affected thereby shall remain in full force and effect." This separability clause
notwithstanding, we hold that the offending provisions of R.A. No. 8180 so permeate its
essence that the entire law has to be struck down. The provisions on tariff differential,
inventory and predatory pricing are among the principal props of R.A. No. 8180.
Congress could not have deregulated the downstream oil industry without these
provisions. Unfortunately, contrary to their intent, these provisions on tariff differential,
inventory and predatory pricing inhibit fair competition, encourage monopolistic power
and interfere with the free interaction of market forces. R.A. No. 8180 needs provisions
to vouchsafe free and fair competition. The need for these vouchsafing provisions
cannot be overstated. Before deregulation, PETRON, SHELL and CALTEX had no real
competitors but did not have a free run of the market because government controls
both the pricing and non-pricing aspects of the oil industry. After deregulation,
PETRON, SHELL and CALTEX remain unthreatened by real competition yet are no
longer subject to control by government with respect to their pricing and non-pricing
decisions. The aftermath of R.A. No. 8180 is a deregulated market where competition
can be corrupted and where market forces can be manipulated by oligopolies.

The fall out effects of the defects of R.A. No. 8180 on our people have not escaped
Congress. A lot of our leading legislators have come out openly with bills seeking the
repeal of these odious and offensive provisions in R.A. No. 8180. In the
Senate, Senator Freddie Webb has filed S.B. No. 2133 which is the result of the
23
hearings conducted by the Senate Committee on Energy. The hearings revealed that
(1) there was a need to level the playing field for the new entrants in the downstream
oil industry, and (2) there was no law punishing a person for selling petroleum products
at unreasonable prices. Senator Alberto G. Romulo also filed S.B. No. 2209 abolishing
the tariff differential beginning January 1, 1998. He declared that the amendment ". .
. would mean that instead of just three (3) big oil companies there will be other major
oil companies to provide more competitive prices for the market and the consuming
public." Senator Heherson T . Alvarez, one of the principal proponents of R.A. No.
8180, also filed S.B. No. 2290 increasing the penalty for violation of its section 9. It is
his opinion as expressed in the explanatory note of the bill that the present oil
companies are engaged in cartelization despite R.A. No. 8180, viz,:

xxx xxx xxx

Since the downstream oil industry was fully deregulated in February 1997, there
have been eight (8) fuel price adjustments made by the three oil majors, namely:
Caltex Philippines, Inc.; Petron Corporation; and Pilipinas Shell Petroleum
Corporation. Very noticeable in the price adjustments made, however, is the
uniformity in the pump prices of practically all petroleum products of the three oil
companies. This, despite the fact, that their selling rates should be determined by
a combination of any of the following factors: the prevailing peso-dollar exchange
rate at the time payment is made for crude purchases, sources of crude, and
inventory levels of both crude and refined petroleum products. The abovestated
factors should have resulted in different, rather than identical prices.

The fact that the three (3) oil companies' petroleum products are uniformly priced
suggests collusion, amounting to cartelization, among Caltex Philippines, Inc.,
Petron Corporation and Pilipinas Shell Petroleum Corporation to fix the prices of
petroleum products in violation of paragraph (a), Section 9 of R.A. No. 8180.

To deter this pernicious practice and to assure that present and prospective
players in the downstream oil industry conduct their business with conscience
and propriety, cartel-like activities ought to be severely penalized.

Senator Francisco S. Tatad also filed S.B. No. 2307 providing for a uniform tariff rate
on imported crude oil and refined petroleum products. In the explanatory note of the
bill, he declared in no uncertain terms that ". . . the present set-up has raised serious
public concern over the way the three oil companies have uniformly adjusted the prices
of oil in the country, an indication of a possible existence of a cartel or a cartel-like
situation within the downstream oil industry. This situation is mostly attributed to the
foregoing provision on tariff differential, which has effectively discouraged the entry of
new players in the downstream oil industry."

In the House of Representatives, the moves to rehabilitate R.A. No. 8180 are equally
feverish. Representative Leopoldo E. San Buenaventura has filed H.B. No. 9826
removing the tariff differential for imported crude oil and imported refined petroleum
products. In the explanatory note of the bill, Rep. Buenaventura explained:

xxx xxx xxx

As we now experience, this difference in tariff rates between imported crude oil
and imported refined petroleum products, unwittingly provided a built-in-
advantage for the three existing oil refineries in the country and eliminating
24
 competition which is a must in a free enterprise economy. Moreover, it created a
disincentive for other players to engage even initially in the importation and
distribution of refined petroleum products and ultimately in the putting up of
refineries. This tariff differential virtually created a monopoly of the downstream
oil industry by the existing three oil companies as shown by their uniform and
capricious pricing of their products since this law took effect, to the great
disadvantage of the consuming public.

Thus, instead of achieving the desired effects of deregulation, that of free

enterprise and a level playing field in the downstream oil industry, R.A. 8180 has
created an environment conducive to cartelization, unfavorable, increased,
unrealistic prices of petroleum products in the country by the three existing
refineries.

Representative Marcial C. Punzalan, Jr., filed H.B. No. 9981 to prevent collusion
among the present oil companies by strengthening the oversight function of the
government, particularly its ability to subject to a review any adjustment in the prices of
gasoline and other petroleum products. In the explanatory note of the bill, Rep.
Punzalan, Jr., said:

xxx xxx xxx

To avoid this, the proposed bill seeks to strengthen the oversight function of
government, particularly its ability to review the prices set for gasoline and other
petroleum products. It grants the Energy Regulatory Board (ERB) the authority to
review prices of oil and other petroleum products, as may be petitioned by a
person, group or any entity, and to subsequently compel any entity in the industry
to submit any and all documents relevant to the imposition of new prices. In
cases where the Board determines that there exist collusion, economic
conspiracy, unfair trade practice, profiteering and/or overpricing, it may take any
step necessary to protect the public, including the readjustment of the prices of
petroleum products. Further, the Board may also impose the fine and penalty of
imprisonment, as prescribed in Section 9 of R.A. 8180, on any person or entity
from the oil industry who is found guilty of such prohibited acts.

By doing all of the above, the measure will effectively provide Filipino consumers
with a venue where their grievances can be heard and immediately acted upon
by government.

Thus, this bill stands to benefit the Filipino consumer by making the price-setting
process more transparent and making it easier to prosecute those who
perpetrate such prohibited acts as collusion, overpricing, economic conspiracy
and unfair trade.

Representative Sergio A.F . Apostol filed H.B. No. 10039 to remedy an omission in
R.A. No. 8180 where there is no agency in government that determines what is
"reasonable" increase in the prices of oil products. Representative Dente O. Tinga, one
of the principal sponsors of R.A. No. 8180, filed H.B. No. 10057 to strengthen its anti-
trust provisions. He elucidated in its explanatory note:

xxx xxx xxx

25
 The definition of predatory pricing, however, needs to be tightened up particularly
with respect to the definitive benchmark price and the specific anti-competitive
intent. The definition in the bill at hand which was taken from the Areeda-
Turner test in the United States on predatory pricing resolves the questions. The
definition reads, "Predatory pricing means selling or offering to sell any oil
product at a price below the average variable cost for the purpose of destroying
competition, eliminating a competitor or discouraging a competitor from entering
the market."

The appropriate actions which may be resorted to under the Rules of Court in
conjunction with the oil deregulation law are adequate. But to stress their
availability and dynamism, it is a good move to incorporate all the remedies in the
law itself. Thus, the present bill formalizes the concept of government
intervention and private suits to address the problem of antitrust violations.
Specifically, the government may file an action to prevent or restrain any act of
cartelization or predatory pricing, and if it has suffered any loss or damage by
reason of the antitrust violation it may recover damages. Likewise, a private
person or entity may sue to prevent or restrain any such violation which will result
in damage to his business or property, and if he has already suffered damage he
shall recover treble damages. A class suit may also be allowed.

To make the DOE Secretary more effective in the enforcement of the law, he
shall be given additional powers to gather information and to require reports.

Representative Erasmo B. Damasing filed H.B. No. 7885 and has a more unforgiving
view of R.A. No. 8180. He wants it completely repealed. He explained:

xxx xxx xxx

Contrary to the projections at the time the bill on the Downstream Oil Industry
Deregulation was discussed and debated upon in the plenary session prior to its
approval into law, there aren't any new players or investors in the oil industry.
Thus, resulting in practically a cartel or monopoly in the oil industry by the three
(3) big oil companies, Caltex, Shell and Petron. So much so, that with the
deregulation now being partially implemented, the said oil companies have
succeeded in increasing the prices of most of their petroleum products with little
or no interference at all from the government. In the month of August, there was
an increase of Fifty centavos (50¢) per liter by subsidizing the same with the
OPSF, this is only temporary as in March 1997, or a few months from now, there
will be full deregulation (Phase II) whereby the increase in the prices of
petroleum products will be fully absorbed by the consumers since OPSF will
already be abolished by then. Certainly, this would make the lives of our people,
especially the unemployed ones, doubly difficult and unbearable.

The much ballyhooed coming in of new players in the oil industry is quite remote
considering that these prospective investors cannot fight the existing and well
established oil companies in the country today, namely, Caltex, Shell and Petron.
Even if these new players will come in, they will still have no chance to compete
with the said three (3) existing big oil companies considering that there is an
imposition of oil tariff differential of 4% between importation of crude oil by the
said oil refineries paying only 3% tariff rate for the said importation and 7% tariff
rate to be paid by businessmen who have no oil refineries in the Philippines but
26
 will import finished petroleum/oil products which is being taxed with 7% tariff
rates.

So, if only to help the many who are poor from further suffering as a result of
unmitigated increase in oil products due to deregulation, it is a must that the
Downstream Oil Industry Deregulation Act of 1996, or R.A.8180 be repealed
completely.

Various resolutions have also been filed in the Senate calling for an immediate and
comprehensive review of R.A. No. 8180 to prevent the downpour of its ill effects on the
people. Thus, S. Res. No. 574 was filed by Senator Gloria M. Macapagal entitled
Resolution "Directing the Committee on Energy to Inquire Into The Proper
Implementation of the Deregulation of the Downstream Oil Industry and Oil Tax
Restructuring As Mandated Under R.A. Nos. 8180 and 8184, In Order to Make The
Necessary Corrections In the Apparent Misinterpretation Of The Intent And Provision
Of The Laws And Curb The Rising Tide Of Disenchantment Among The Filipino
Consumers And Bring About The Real Intentions And Benefits Of The Said
Law." Senator Blas P. Ople filed S. Res. No. 664 entitled resolution "Directing the
Committee on Energy To Conduct An Inquiry In Aid Of Legislation To Review The
Government's Oil Deregulation Policy In Light Of The Successive Increases In
Transportation, Electricity And Power Rates, As well As Of Food And Other Prime
Commodities And Recommend Appropriate Amendments To Protect The Consuming
Public." Senator Ople observed:

xxx xxx xxx

WHEREAS, since the passage of R.A. No. 8180, the Energy Regulatory Board
(ERB) has imposed successive increases in oil prices which has triggered
increases in electricity and power rates, transportation fares, as well as in prices
of food and other prime commodities to the detriment of our people, particularly
the poor;

WHEREAS, the new players that were expected to compete with the oil cartel-
Shell, Caltex and Petron-have not come in;

WHEREAS, it is imperative that a review of the oil deregulation policy be made to

consider appropriate amendments to the existing law such as an extension of the
transition phase before full deregulation in order to give the competitive market
enough time to develop;

WHEREAS, the review can include the advisability of providing some incentives
in order to attract the entry of new oil companies to effect a dynamic competitive
market;

WHEREAS, it may also be necessary to defer the setting up of the institutional

framework for full deregulation of the oil industry as mandated under Executive
Order No. 377 issued by President Ramos last October 31, 1996 . . .

Senator Alberto G. Romulo filed S. Res. No. 769 entitled resolution "Directing the
Committees on Energy and Public Services In Aid Of Legislation To Assess The
Immediate Medium And Long Term Impact of Oil Deregulation On Oil Prices And The
Economy." Among the reasons for the resolution is the finding that "the requirement of

27
a 40-day stock inventory effectively limits the entry of other oil firms in the market with
the consequence that instead of going down oil prices will rise."

Parallel resolutions have been filed in the House of Representatives. Representative

Dante O. Tinga filed H. Res. No. 1311 "Directing The Committee on Energy To
Conduct An Inquiry, In Aid of Legislation, Into The Pricing Policies And Decisions Of
The Oil Companies Since The Implementation of Full Deregulation Under the Oil
Deregulation Act (R.A. No. 8180) For the Purpose of Determining In the Context Of
The Oversight Functions Of Congress Whether The Conduct Of The Oil Companies,
Whether Singly Or Collectively, Constitutes Cartelization Which Is A Prohibited Act
Under R.A. No. 8180, And What Measures Should Be Taken To Help Ensure The
Successful Implementation Of The Law In Accordance With Its Letter And Spirit,
Including Recommending Criminal Prosecution Of the Officers Concerned Of the Oil
Companies If Warranted By The Evidence, And For Other Purposes." Representatives
Marcial C. Punzalan, Jr. Dante O. Tinga and Antonio E. Bengzon III filed H.R. No. 894
directing the House Committee on Energy to inquire into the proper implementation of
the deregulation of the downstream oil industry. House Resolution No. 1013 was also
filed by Representatives Edcel C. Lagman, Enrique T . Garcia, Jr. and Joker
P.Arroyo urging the President to immediately suspend the implementation of E.O. No.
392.

In recent memory there is no law enacted by the legislature afflicted with so much
constitutional deformities as R.A. No. 8180. Yet, R.A. No. 8180 deals with oil, a
commodity whose supply and price affect the ebb and flow of the lifeblood of the
nation. Its shortage of supply or a slight, upward spiral in its price shakes our economic
foundation. Studies show that the areas most impacted by the movement of oil are
food manufacture, land transport, trade, electricity and water.38 At a time when our
economy is in a dangerous downspin, the perpetuation of R.A. No. 8180 threatens to
multiply the number of our people with bent backs and begging bowls. R.A. No. 8180
with its anti-competition provisions cannot be allowed by this Court to stand even while
Congress is working to remedy its defects.

The Court, however, takes note of the plea of PETRON, SHELL and CALTEX to lift our
restraining order to enable them to adjust upward the price of petroleum and petroleum
products in view of the plummeting value of the peso. Their plea, however, will now
have to be addressed to the Energy Regulatory Board as the effect of the declaration
of unconstitutionality of R.A. No. 8180 is to revive the former laws it repealed. 39 The
length of our return to the regime of regulation depends on Congress which can
fasttrack the writing of a new law on oil deregulation in accord with the Constitution.

With this Decision, some circles will chide the Court for interfering with an economic
decision of Congress. Such criticism is charmless for the Court is annulling R.A. No.
8180 not because it disagrees with deregulation as an economic policy but because as
cobbled by Congress in its present form, the law violates the Constitution. The right call
therefor should be for Congress to write a new oil deregulation law that conforms with
the Constitution and not for this Court to shirk its duty of striking down a law that
offends the Constitution. Striking down R.A. No. 8180 may cost losses in quantifiable
terms to the oil oligopolists. But the loss in tolerating the tampering of our Constitution
is not quantifiable in pesos and centavos. More worthy of protection than the supra-
normal profits of private corporations is the sanctity of the fundamental principles of the
Constitution. Indeed when confronted by a law violating the Constitution, the Court has
no option but to strike it down dead. Lest it is missed, the Constitution is a covenant
28
that grants and guarantees both the political and economic rights of the people. The
Constitution mandates this Court to be the guardian not only of the people's political
rights but their economic rights as well. The protection of the economic rights of the
poor and the powerless is of greater importance to them for they are concerned more
with the exoterics of living and less with the esoterics of liberty. Hence, for as long as
the Constitution reigns supreme so long will this Court be vigilant in upholding the
economic rights of our people especially from the onslaught of the powerful. Our
defense of the people's economic rights may appear heartless because it cannot be
half-hearted.

IN VIEW WHEREOF, the petitions are granted. R.A. No. 8180 is declared
unconstitutional and E.O. No. 372 void.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 4349 September 24, 1908

THE UNITED STATES, plaintiff-appellee,

vs.
ANICETO BARRIAS, defendant-appellant.

Ortigas & Fisher for appellant.

Attorney-General Araneta for appellee.

TRACEY, J.:

In the Court of First Instance of the city of Manila the defendant was charged within a
violation of paragraphs 70 and 83 of Circular No. 397 of the Insular Collector of
Customs, duly published in the Official Gazette and approved by the Secretary of
Finance and Justice.1 After a demurrer to the complaint of the lighter Maude, he was
moving her and directing her movement, when heavily laden, in the Pasig River, by
bamboo poles in the hands of the crew, and without steam, sail, or any other external
power. Paragraph 70 of Circular No. 397 reads as follows:

No heavily loaded casco, lighter, or other similar craft shall be permitted to move
in the Pasig River without being towed by steam or moved by other adequate
power.

Paragraph 83 reads, in part, as follows:

For the violation of any part of the foregoing regulations, the persons offending
shall be liable to a fine of not less than P5 and not more than P500, in the
discretion of the court.

In this court, counsel for the appellant attacked the validity of paragraph 70 on two
grounds: First that it is unauthorized by section 19 of Act No. 355; and, second, that if
the acts of the Philippine Commission bear the interpretation of authorizing the
29
Collector to promulgate such a law, they are void, as constituting an illegal delegation
of legislative power.

The Attorney-General does not seek to sustain the conviction but joins with the counsel
for the defense in asking for the discharge of the prisoner on the first ground stated by
the defense, that the rule of the Collector cited was unauthorized and illegal, expressly
passing over the other question of the delegation of legislative power.

By sections 1, 2, and 3 of Act No. 1136, passed April 29, 1904, the Collector of
Customs is authorized to license craft engaged in the lighterage or other exclusively
harbor business of the ports of the Islands, and, with certain exceptions, all vessels
engaged in lightering are required to be so licensed. Sections 5 and 8 read as follows:

SEC. 5. The Collector of Customs for the Philippine Islands is hereby authorized,
empowered, and directed to promptly make and publish suitable rules and
regulations to carry this law into effect and to regulate the business herein
licensed.

SEC. 8. Any person who shall violate the provisions of this Act, or of any rule or
regulation made and issued by the Collector of Customs for the Philippine
Islands, under and by authority of this Act, shall be deemed guilty of a
misdemeanor, and upon conviction shall be punished by imprisonment for not
more than six months, or by a fine of not more than one hundred dollars, United
States currency, or by both such fine and imprisonment, at the discretion of the
court; Provided, That violations of law may be punished either by the method
prescribed in section seven hereof, or by that prescribed in this section or by
both.

Under this statute, which was not referred to on the argument, or in the original briefs,
there is no difficulty in sustaining the regulation of the Collector as coming within the
terms of section 5. Lighterage, mentioned in the Act, is the very business in which this
vessel was engaged, and when heavily laden with hemp she was navigating the Pasig
River below the Bridge of Spain, in the city of Manila. This spot is near the mouth of the
river, the docks whereof are used for the purpose of taking on and discharging freight,
and we entertain no doubt that it was in right sense a part of the harbor, without having
recourse to the definition of paragraph 8 of Customs Administrative Circular No. 136,
which reads as follows:

The limits of a harbor for the purpose of licensing vessels as herein prescribed
(for the lighterage and harbor business) shall be considered to include its
confluent navigable rivers and lakes, which are navigable during any season of
the year.

The necessity confiding to some local authority the framing, changing, and enforcing of
harbor regulations is recognized throughout the world, as each region and each a
harbor requires peculiar use more minute than could be enacted by the central
lawmaking power, and which, when kept within the proper scope, are in their nature
police regulations not involving an undue grant of legislative power.

The complaint in this instance was framed with reference, as its authority, to sections
311 and 319 [19 and 311] at No. 355 of the Philippine Customs Administrative Acts, as
amended by Act Nos. 1235 and 1480. Under Act No. 1235, the Collector is not only

30
empowered to make suitable regulations, but also to "fix penalties for violation thereof,"
not exceeding a fine of P500.

This provision of the statute does, indeed, present a serious question.

One of the settled maxims in constitutional law is, that the power conferred upon
the legislature to make laws can not be delegated by that department to any
body or authority. Where the sovereign power of the State has located the
authority, there it must remain; only by the constitutional agency alone the laws
must be made until the constitution itself is changed. The power to whose
judgment, wisdom, and patriotism this high prerogative has been intrusted can
not relieve itself of the responsibility by choosing other agencies upon which the
power shall be developed, nor can its substitutes the judgment, wisdom, and
patriotism and of any other body for those to which alone the people have seen
fit to confide this sovereign trust. (Cooley's Constitutional limitations, 6th ed., p.
137.)

This doctrine is based on the ethical principle that such a delegated power constitutes
not only a right but a duty to be performed by the delegate by the instrumentality of his
own judgment acting immediately upon the matter of legislation and not through the
intervening mind of another. In the case of the United States vs. Breen (40 Fed. Phil.
Rep. 402), an Act of Congress allowing the Secretary of War to make such rules and
regulations as might be necessary to protect improvements of the Mississipi River, and
providing that a violation thereof should constitute a misdemeanor, was sustained on
the ground that the misdemeanor was declared not under the delegated power of the
Secretary of War, but in the Act of Congress, itself. So also was a grant to him of
power to prescribe rules for the use of canals. (U.S. vs. Ormsbee, 74 Fed. Rep. 207.)
but a law authorizing him to require alteration of any bridge and to impose penalties for
violations of his rules was held invalid, as vesting in him upon a power exclusively
lodged in Congress (U.S. vs. Rider, 50 Fed. Rep., 406.) The subject is considered and
some cases reviewed by the Supreme Court of the United States, in re Kollock (165
U.S. 526), which upheld the law authorizing a commissioner of internal revenue to
designate and stamps on oleomargarine packages, an improper use of which should
thereafter constitute a crime or misdemeanor, the court saying (p. 533):

The criminal offense is fully and completely defined by the Act and the
designation by the Commissioner of the particular marks and brands to be used
was a mere matter of detail. The regulation was in execution of, or
supplementary to, but not in conflict with the law itself. . . .

In Massachusetts it has been decided that the legislature may delegate to the governor
and counsel the power to make pilot regulations. (Martin vs. Witherspoon et al., 135
Mass. 175).

In the case of The Board of Harbor Commissioners of the Port of Eureka vs. Excelsior
Redwood Company (88 Cal. 491), it was ruled that harbor commissioners can not
impose a penalty under statues authorizing them to do so, the court saying:

Conceding that the legislature could delegate to the plaintiff the authority to make
rules and regulation with reference to the navigation of Humboldt Bay, the
penalty for the violation of such rules and regulations is a matter purely in the
hands of the legislature.

31
Having reached the conclusion that Act No. 1136 is valid, so far as sections 5 and 8
are concerned, and is sufficient to sustain this prosecution, it is unnecessary that we
should pass on the questions discussed in the briefs as to the extend and validity of
the other acts. The reference to them in the complaint is not material, as we have
frequently held that where an offense is correctly described in the complaint an
additional reference to a wrong statute is immaterial.

We are also of the opinion that none of the subsequent statutes cited operate to repeal
the aforesaid section Act No. 1136.

So much of the judgment of the Court of First Instance as convicts the defendant of a
violation of Acts Nos. 355 and 1235 is hereby revoked and is hereby convicted of a
misdemeanor and punished by a fine of 25 dollars, with costs of both instances. So
ordered.

FIRST DIVISION
[G.R. No. 151908. August 12, 2003]
SMART COMMUNICATIONS, INC. (SMART) and PILIPINO TELEPHONE
CORPORATION (PILTEL), petitioners, vs. NATIONAL
TELECOMMUNICATIONS COMMISSION (NTC), respondent.
[G.R. No. 152063. August 12, 2003]
GLOBE TELECOM, INC. (GLOBE) and ISLA COMMUNICATIONS CO., INC.
(ISLACOM), petitioners, vs. COURT OF APPEALS (The Former 6th Division)
and the NATIONAL TELECOMMUNICATIONS COMMISSION, respondents.

DECISION
YNARES-SANTIAGO, J.:

Pursuant to its rule-making and regulatory powers, the National

Telecommunications Commission (NTC) issued on June 16, 2000 Memorandum
Circular No. 13-6-2000, promulgating rules and regulations on the billing of
telecommunications services. Among its pertinent provisions are the following:

(1) The billing statements shall be received by the subscriber of the telephone service not later
than 30 days from the end of each billing cycle. In case the statement is received beyond this
period, the subscriber shall have a specified grace period within which to pay the bill and the
public telecommunications entity (PTEs) shall not be allowed to disconnect the service within
the grace period.

(2) There shall be no charge for calls that are diverted to a voice mailbox, voice prompt,
recorded message or similar facility excluding the customers own equipment.

(3) PTEs shall verify the identification and address of each purchaser of prepaid SIM
cards.Prepaid call cards and SIM cards shall be valid for at least 2 years from the date of first
use.Holders of prepaid SIM cards shall be given 45 days from the date the prepaid SIM card is
fully consumed but not beyond 2 years and 45 days from date of first use to replenish the SIM
card, otherwise the SIM card shall be rendered invalid. The validity of an invalid SIM card,
however, shall be installed upon request of the customer at no additional charge except the
presentation of a valid prepaid call card.

32
(4) Subscribers shall be updated of the remaining value of their cards before the start of every
call using the cards.

(5) The unit of billing for the cellular mobile telephone service whether postpaid or prepaid
shall be reduced from 1 minute per pulse to 6 seconds per pulse. The authorized rates per
minute shall thus be divided by 10.[1]

The Memorandum Circular provided that it shall take effect 15 days after its
publication in a newspaper of general circulation and three certified true copies thereof
furnished the UP Law Center. It was published in the newspaper, The Philippine Star,
on June 22, 2000.[2] Meanwhile, the provisions of the Memorandum Circular pertaining
to the sale and use of prepaid cards and the unit of billing for cellular mobile telephone
service took effect 90 days from the effectivity of the Memorandum Circular.
On August 30, 2000, the NTC issued a Memorandum to all cellular mobile
telephone service (CMTS) operators which contained measures to minimize if not
totally eliminate the incidence of stealing of cellular phone units. The Memorandum
directed CMTS operators to:
a. strictly comply with Section B(1) of MC 13-6-2000 requiring the presentation
and verification of the identity and addresses of prepaid SIM card customers;
b. require all your respective prepaid SIM cards dealers to comply with Section
B(1) of MC 13-6-2000;
c. deny acceptance to your respective networks prepaid and/or postpaid
customers using stolen cellphone units or cellphone units registered to
somebody other than the applicant when properly informed of all information
relative to the stolen cellphone units;
d. share all necessary information of stolen cellphone units to all other CMTS
operators in order to prevent the use of stolen cellphone units; and
e. require all your existing prepaid SIM card customers to register and present
valid identification cards.[3]
This was followed by another Memorandum dated October 6, 2000 addressed to all
public telecommunications entities, which reads:

This is to remind you that the validity of all prepaid cards sold on 07 October 2000 and
beyond shall be valid for at least two (2) years from date of first use pursuant to MC 13-6-
2000.

In addition, all CMTS operators are reminded that all SIM packs used by subscribers of
prepaid cards sold on 07 October 2000 and beyond shall be valid for at least two (2) years
from date of first use. Also, the billing unit shall be on a six (6) seconds pulse effective 07
October 2000.

For strict compliance.[4]

On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino
Telephone Corporation filed against the National Telecommunications Commission,
Commissioner Joseph A. Santiago, Deputy Commissioner Aurelio M. Umali and
Deputy Commissioner Nestor C. Dacanay, an action for declaration of nullity of NTC
Memorandum Circular No. 13-6-2000 (the Billing Circular) and the NTC Memorandum
dated October 6, 2000, with prayer for the issuance of a writ of preliminary injunction
33
and temporary restraining order. The complaint was docketed as Civil Case No. Q-00-
42221 at the Regional Trial Court of Quezon City, Branch 77.[5]
Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction to
regulate the sale of consumer goods such as the prepaid call cards since such
jurisdiction belongs to the Department of Trade and Industry under the Consumer Act
of the Philippines; that the Billing Circular is oppressive, confiscatory and violative of
the constitutional prohibition against deprivation of property without due process of law;
that the Circular will result in the impairment of the viability of the prepaid cellular
service by unduly prolonging the validity and expiration of the prepaid SIM and call
cards; and that the requirements of identification of prepaid card buyers and call
balance announcement are unreasonable. Hence, they prayed that the Billing Circular
be declared null and void ab initio.
Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc.
filed a joint Motion for Leave to Intervene and to Admit Complaint-in-Intervention.[6] This
was granted by the trial court.
On October 27, 2000, the trial court issued a temporary restraining order enjoining
the NTC from implementing Memorandum Circular No. 13-6-2000 and the
Memorandum dated October 6, 2000.[7]
In the meantime, respondent NTC and its co-defendants filed a motion to dismiss
the case on the ground of petitioners failure to exhaust administrative remedies.
Subsequently, after hearing petitioners application for preliminary injunction as well
as respondents motion to dismiss, the trial court issued on November 20, 2000 an
Order, the dispositive portion of which reads:

WHEREFORE, premises considered, the defendants motion to dismiss is hereby denied for lack
of merit. The plaintiffs application for the issuance of a writ of preliminary injunction is hereby
granted. Accordingly, the defendants are hereby enjoined from implementing NTC
Memorandum Circular 13-6-2000 and the NTC Memorandum, dated October 6, 2000, pending
the issuance and finality of the decision in this case. The plaintiffs and intervenors are, however,
required to file a bond in the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00),
Philippine currency.

SO ORDERED.[8]

Defendants filed a motion for reconsideration, which was denied in an Order dated
February 1, 2001.[9]
Respondent NTC thus filed a special civil action for certiorari and prohibition with
the Court of Appeals, which was docketed as CA-G.R. SP. No. 64274. On October 9,
2001, a decision was rendered, the decretal portion of which reads:

WHEREFORE, premises considered, the instant petition for certiorari and prohibition is
GRANTED, in that, the order of the court a quo denying the petitioners motion to dismiss as
well as the order of the court a quo granting the private respondents prayer for a writ of
preliminary injunction, and the writ of preliminary injunction issued thereby, are hereby
ANNULLED and SET ASIDE. The private respondents complaint and complaint-in-
intervention below are hereby DISMISSED, without prejudice to the referral of the private
respondents grievances and disputes on the assailed issuances of the NTC with the said agency.

SO ORDERED.[10]

34
 Petitioners motions for reconsideration were denied in a Resolution dated January
10, 2002 for lack of merit.[11]
Hence, the instant petition for review filed by Smart and Piltel, which was docketed
as G.R. No. 151908, anchored on the following grounds:
A.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT THE NATIONAL TELECOMMUNICATIONS COMMISSION (NTC) AND
NOT THE REGULAR COURTS HAS JURISDICTION OVER THE CASE.
B.
THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN
HOLDING THAT THE PRIVATE RESPONDENTS FAILED TO EXHAUST AN
AVAILABLE ADMINISTRATIVE REMEDY.
C.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT
THE BILLING CIRCULAR ISSUED BY THE RESPONDENT NTC IS
UNCONSTITUTIONAL AND CONTRARY TO LAW AND PUBLIC POLICY.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
PRIVATE RESPONDENTS FAILED TO SHOW THEIR CLEAR POSITIVE
RIGHT TO WARRANT THE ISSUANCE OF A WRIT OF PRELIMINARY
INJUNCTION.[12]
Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No.
152063, assigning the following errors:
1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE THE DOCTRINES OF PRIMARY JURISDICTION AND
EXHAUSTION OF ADMINISTRATIVE REMEDIES DO NOT APPLY SINCE
THE INSTANT CASE IS FOR LEGAL NULLIFICATION (BECAUSE OF
LEGAL INFIRMITIES AND VIOLATIONS OF LAW) OF A PURELY
ADMINISTRATIVE REGULATION PROMULGATED BY AN AGENCY IN
THE EXERCISE OF ITS RULE MAKING POWERS AND INVOLVES ONLY
QUESTIONS OF LAW.
2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE THE DOCTRINE ON EXHAUSTION OF ADMINISTRATIVE
REMEDIES DOES NOT APPLY WHEN THE QUESTIONS RAISED ARE
PURELY LEGAL QUESTIONS.
3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE THE DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE
REMEDIES DOES NOT APPLY WHERE THE ADMINISTRATIVE ACTION IS
COMPLETE AND EFFECTIVE, WHEN THERE IS NO OTHER REMEDY,
AND THE PETITIONER STANDS TO SUFFER GRAVE AND IRREPARABLE
INJURY.
4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE PETITIONERS IN FACT EXHAUSTED ALL ADMINISTRATIVE
REMEDIES AVAILABLE TO THEM.

35
 5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN
ISSUING ITS QUESTIONED RULINGS IN THIS CASE BECAUSE GLOBE
AND ISLA HAVE A CLEAR RIGHT TO AN INJUNCTION.[13]
The two petitions were consolidated in a Resolution dated February 17, 2003.[14]
On March 24, 2003, the petitions were given due course and the parties were
required to submit their respective memoranda.[15]
We find merit in the petitions.
Administrative agencies possess quasi-legislative or rule-making powers and quasi-
judicial or administrative adjudicatory powers. Quasi-legislative or rule-making power is
the power to make rules and regulations which results in delegated legislation that is
within the confines of the granting statute and the doctrine of non-delegability and
separability of powers.[16]
The rules and regulations that administrative agencies promulgate, which are the
product of a delegated legislative power to create new and additional legal provisions
that have the effect of law, should be within the scope of the statutory authority granted
by the legislature to the administrative agency. It is required that the regulation be
germane to the objects and purposes of the law, and be not in contradiction to, but in
conformity with, the standards prescribed by law.[17] They must conform to and be
consistent with the provisions of the enabling statute in order for such rule or regulation
to be valid.Constitutional and statutory provisions control with respect to what rules and
regulations may be promulgated by an administrative body, as well as with respect to
what fields are subject to regulation by it. It may not make rules and regulations which
are inconsistent with the provisions of the Constitution or a statute, particularly the
statute it is administering or which created it, or which are in derogation of, or defeat,
the purpose of a statute. In case of conflict between a statute and an administrative
order, the former must prevail.[18]
Not to be confused with the quasi-legislative or rule-making power of an
administrative agency is its quasi-judicial or administrative adjudicatory power. This is
the power to hear and determine questions of fact to which the legislative policy is to
apply and to decide in accordance with the standards laid down by the law itself in
enforcing and administering the same law. The administrative body exercises its quasi-
judicial power when it performs in a judicial manner an act which is essentially of an
executive or administrative nature, where the power to act in such manner is incidental
to or reasonably necessary for the performance of the executive or administrative duty
entrusted to it. In carrying out their quasi-judicial functions, the administrative officers
or bodies are required to investigate facts or ascertain the existence of facts, hold
hearings, weigh evidence, and draw conclusions from them as basis for their official
action and exercise of discretion in a judicial nature.[19]
In questioning the validity or constitutionality of a rule or regulation issued by an
administrative agency, a party need not exhaust administrative remedies before going
to court. This principle applies only where the act of the administrative agency
concerned was performed pursuant to its quasi-judicial function, and not when the
assailed act pertained to its rule-making or quasi-legislative power. In Association of
Philippine Coconut Dessicators v. Philippine Coconut Authority,[20] it was held:

The rule of requiring exhaustion of administrative remedies before a party may seek judicial
review, so strenuously urged by the Solicitor General on behalf of respondent, has obviously no
application here. The resolution in question was issued by the PCA in the exercise of its rule-
making or legislative power. However, only judicial review of decisions of administrative
36
agencies made in the exercise of their quasi-judicial function is subject to the exhaustion
doctrine.

Even assuming arguendo that the principle of exhaustion of administrative

remedies apply in this case, the records reveal that petitioners sufficiently complied
with this requirement. Even during the drafting and deliberation stages leading to the
issuance of Memorandum Circular No. 13-6-2000, petitioners were able to register
their protests to the proposed billing guidelines. They submitted their respective
position papers setting forth their objections and submitting proposed schemes for the
billing circular.[21] After the same was issued, petitioners wrote successive letters dated
July 3, 2000[22] and July 5, 2000,[23] asking for the suspension and reconsideration of
the so-called Billing Circular.These letters were not acted upon until October 6, 2000,
when respondent NTC issued the second assailed Memorandum implementing certain
provisions of the Billing Circular.This was taken by petitioners as a clear denial of the
requests contained in their previous letters, thus prompting them to seek judicial relief.
In like manner, the doctrine of primary jurisdiction applies only where the
administrative agency exercises its quasi-judicial or adjudicatory function. Thus, in
cases involving specialized disputes, the practice has been to refer the same to an
administrative agency of special competence pursuant to the doctrine of primary
jurisdiction. The courts will not determine a controversy involving a question which is
within the jurisdiction of the administrative tribunal prior to the resolution of that
question by the administrative tribunal, where the question demands the exercise of
sound administrative discretion requiring the special knowledge, experience and
services of the administrative tribunal to determine technical and intricate matters of
fact, and a uniformity of ruling is essential to comply with the premises of the regulatory
statute administered. The objective of the doctrine of primary jurisdiction is to guide a
court in determining whether it should refrain from exercising its jurisdiction until after
an administrative agency has determined some question or some aspect of some
question arising in the proceeding before the court. It applies where the claim is
originally cognizable in the courts and comes into play whenever enforcement of the
claim requires the resolution of issues which, under a regulatory scheme, has been
placed within the special competence of an administrative body; in such case, the
judicial process is suspended pending referral of such issues to the administrative
body for its view.[24]
However, where what is assailed is the validity or constitutionality of a rule or
regulation issued by the administrative agency in the performance of its quasi-
legislative function, the regular courts have jurisdiction to pass upon the same. The
determination of whether a specific rule or set of rules issued by an administrative
agency contravenes the law or the constitution is within the jurisdiction of the regular
courts. Indeed, the Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the courts, including the regional trial
courts.[25] This is within the scope of judicial power, which includes the authority of the
courts to determine in an appropriate action the validity of the acts of the political
departments.[26] Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of any branch or instrumentality of the
Government.[27]

37
 In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-
2000 and its Memorandum dated October 6, 2000 was pursuant to its quasi-legislative
or rule-making power. As such, petitioners were justified in invoking the judicial power
of the Regional Trial Court to assail the constitutionality and validity of the said
issuances. In Drilon v. Lim,[28] it was held:

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of
Section 187, this authority being embraced in the general definition of the judicial power to
determine what are the valid and binding laws by the criterion of their conformity to the
fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all
civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as the
accused in a criminal action has the right to question in his defense the constitutionality of a law
he is charged with violating and of the proceedings taken against him, particularly as they
contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the
Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all
cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is
in question.[29]

In their complaint before the Regional Trial Court, petitioners averred that the
Circular contravened Civil Code provisions on sales and violated the constitutional
prohibition against the deprivation of property without due process of law. These are
within the competence of the trial judge. Contrary to the finding of the Court of Appeals,
the issues raised in the complaint do not entail highly technical matters. Rather, what is
required of the judge who will resolve this issue is a basic familiarity with the workings
of the cellular telephone service, including prepaid SIM and call cards and this is
judicially known to be within the knowledge of a good percentage of our population and
expertise in fundamental principles of civil law and the Constitution.
Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case No.
Q-00-42221. The Court of Appeals erred in setting aside the orders of the trial court
and in dismissing the case.
WHEREFORE, in view of the foregoing, the consolidated petitions
are GRANTED.The decision of the Court of Appeals in CA-G.R. SP No. 64274 dated
October 9, 2001 and its Resolution dated January 10, 2002 are REVERSED and SET
ASIDE. The Order dated November 20, 2000 of the Regional Trial Court of Quezon
City, Branch 77, in Civil Case No. Q-00-42221 is REINSTATED. This case is
REMANDED to the court a quo for continuation of the proceedings.
SO ORDERED.
THIRD DIVISION
[G.R. No. 95694. October 9, 1997]
VICENTE VILLLAFLOR, substituted by his heirs, petitioner, vs. COURT OF
APPEALS and NASIPIT LUMBER CO., INC., respondents.

DECISION
PANGANIBAN ,J.:

In this rather factually complicated case, the Court reiterates the binding force and
effect of findings of specialized administrative agencies as well as those of trial courts
when affirmed by the Court of Appeals; rejects petitioners theory of simulation of
38
contracts; and passes upon the qualifications of private respondent corporation to
acquire disposable public agricultural lands prior to the effectivity of the 1973
Constitution.
The Case
Before us is a petition for review on certiorari seeking the reversal of the
Decision[1] of the Court of Appeals, dated September 27, 1990, in C.A. G.R. CV No.
09062, affirming the dismissal by the trial court of Petitioner Vicente Villaflors complaint
against Private Respondent Nasipit Lumber Co., Inc. The disposition of both the trial
and the appellate courts are quoted in the statement of facts below.
The Facts
The facts of this case, as narrated in detail by Respondent Court of Appeals, are as
follows:[2]

The evidence, testimonial and documentary, presented during the trial show that on January 16,
1940, Cirilo Piencenaves, in a Deed of Absolute Sale (exh. A), sold to [petitioner], a parcel of
agricultural land containing an area of 50 hectares, [3] more or less, and particularly described
and bounded as follows:

A certain parcel of agricultural land planted to abaca with visible concrete monuments marking
the boundaries and bounded on the NORTH by Public Land now Private Deeds on the East by
Serafin Villaflor, on the SOUTH by Public Land; and on the West by land claimed by H. Patete,
containing an area of 60 hectares more or less, now under Tax Dec. 29451 in the (sic) of said
Vicente Villaflor, the whole parcel of which this particular parcel is only a part, is assessed
at P22,550.00 under the above said Tax Dec. Number.

This deed states:

That the above described land was sold to the said VICENTE VILLAFLOR, xxx on June 22,
1937, but no formal document was then executed, and since then until the present time, the said
Vicente Villaflor has been in possession and occupation of (the same); (and)

That the above described property was before the sale, of my exclusive property having
inherited from my long dead parents and my ownership to it and that of my [sic] lasted for more
than fifty (50) years, possessing and occupying same peacefully, publicly and continuously
without interruption for that length of time.

Also on January 16, 1940, Claudio Otero, in a Deed of Absolute Sale (exh. C) sold to Villaflor a
parcel of agricultural land, containing an area of 24 hectares, more or less, and particularly
described and bounded as follows:

A certain land planted to corn with visible concrete measurements marking the boundaries and
bounded on the North by Public Land and Tungao Creek; on the East by Agusan River; on the
South by Serafin Villaflor and Cirilo Piencenaves; and on the West by land of Fermin Bacobo
containing an area of 24 hectares more or less, under Tax Declaration No. 29451 in the name
already of Vicente Villaflor, the whole parcel of which this particular land is only a part, is
assessed at P22,550.00 under the above said Tax Declaration No. 29451.

This deed states:

That the above described land was sold to the said VICENTE VILLAFLOR, xxx on June 22,
1937, but no sound document was then executed, however since then and until the present time,
39
the said Vicente Villaflor has been in open and continuous possession and occupation of said
land; (and)

That the above described land was before the sale, my own exclusive property, being inherited
from my deceased parents, and my ownership to it and that of my predecessors lasted more than
fifty (50) years, possessing and occupying the same, peacefully, openly and continuously
without interruption for that length of time.

Likewise on January 16, 1940, Hermogenes Patete, in a Deed of Absolute Sale (exh. D), sold to
Villaflor, a parcel of agricultural land, containing an area of 20 hectares, more or less, and
particularly described and bounded as follows:

A certain parcel of agricultural land planted to abaca and corn with visible concrete monuments
marking the boundaries and bounded on the North by Public Land area-private Road; on the
East by land claimed by Cirilo Piencenaves; on the South by Public Land containing an area of
20 hectares more or less, now under Tax Declaration No. 29451 in the name of Vicente
Villaflor the whole parcel of which this particular parcel, is assessed at P22,550.00 for purposes
of taxation under the above said Tax Declaration No. 29451.

This deed states:

xxx (O)n June 22, 1937 but the formal document was then executed, and since then until the
present time, the said VICENTE VILLAFLOR has been in continuous and open possession and
occupation of the same; (and)

That the above described property was before the sale, my own and exclusive property, being
inherited from my deceased parents and my ownership to it and that of my predecessors lasted
more than fifty (50) years, possessing and occupying same, peacefully, openly and continuously
without interruption for that length of time.

On February 15, 1940, Fermin Bocobo, in a Deed of Absolute Sale (exh. B), sold to Villaflor, a
parcel of agricultural land, containing an area of 18 hectares, more or less, and particularly
described and bounded as follows:

A certain parcel of agricultural land planted with abaca with visible part marking the corners
and bounded on the North by the corners and bounded on the North by Public Land; on the East
by Cirilo Piencenaves; on the South by Hermogenes Patete and West by Public
Land, containing an area of 18 hectares more or less now under Tax Declaration No. 29451 in
the name of Vicente Villaflor. The whole parcel of which this particular parcel is only a part is
assessed as P22,550.00 for purposes of taxation under the above said Tax Declaration Number
(Deed of Absolute Sale executed by Fermin Bocobo date Feb. 15, 1940). This document was
annotated in Registry of Deeds on February 16, 1940).

This deed states:

That the above described property was before the sale of my own exclusive property, being
inherited from my deceased parents, and my ownership to it and that of my predecessors lasted
more than fifty (50) years, possessing and occupying the same peacefully, openly and
continuously without interruption for that length of time.

On November 8, 1946, Villaflor, in a Lease Agreement (exh. Q), [4] leased to Nasipit Lumber
Co., Inc. a parcel of land, containing an area of two (2) hectares, together with all the
improvements existing thereon, for a period of five (5) years from June 1, 1946 at a rental
40
of P200.00 per annum to cover the annual rental of house and building sites for thirty three (33)
houses or buildings. This agreement also provides:[5]

3. During the term of this lease, the Lessee is authorized and empowered to build and construct
additional houses in addition to the 33 houses or buildings mentioned in the next preceding
paragraph, provided however, that for every additional house or building constructed the Lessee
shall pay unto the Lessor an amount of fifty centavos (50) per month for every house or
building.The Lessee is empowered and authorized by the Lessor to sublot (sic) the premises
hereby leased or assign the same or any portion of the land hereby leased to any person, firm
and corporation; (and)

4. The Lessee is hereby authorized to make any construction and/or improvement on the
premises hereby leased as he may deem necessary and proper thereon, provided however, that
any and all such improvements shall become the property of the Lessor upon the termination of
this lease without obligation on the part of the latter to reimburse the Lessee for expenses
incurred in the construction of the same.

Villaflor claimed having discovered that after the execution of the lease agreement, that Nasipit
Lumber in bad faith x x x surreptitiously grabbed and occupied a big portion of plaintiffs
property x x x; that after a confrontation with the corporates (sic) field manager, the latter, in a
letter dated December 3, 1973 (exh. R),[6] stated recalling having made some sort of agreement
for the occupancy (of the property at Acacia, San Mateo), but I no longer recall the details and I
had forgotten whether or not we did occupy your land. But if, as you say, we did occupy it, then
(he is ) sure that the company is obligated to pay the rental.

On July 7, 1948, in an Agreement to Sell (exh. 2), Villaflor conveyed to Nasipit Lumber, two
(2) parcels of land xxx described as follows:[7]

PARCEL ONE

Bounded on the North by Public Land and Tungao Creek; on the East by Agusan River and
Serafin Villaflor; on the South by Public Land, on the West by Public Land. Improvements
thereon consist of abaca, fruit trees, coconuts and thirty houses of mixed materials belonging to
the Nasipit Lumber Company. Divided into Lot Nos. 5412, 5413, 5488, 5490, 5491, 5492,
5850, 5849, 5860, 5855, 5851, 5854, 5855, 5859, 5858, 5857, 5853, and 5852. Boundaries of
this parcel of land are marked by concrete monuments of the Bureau of Lands. Containing an
area of 112,000 hectares.Assessed at P17,160.00 according to Tax Declaration No. V-315 dated
April 14, 1946.

PARCEL TWO

Bounded on the North by Pagudasan Creek; on the East by Agusan River; on the South by
Tungao Creek; on the West by Public Land. Containing an area of 48,000 hectares more or
less. Divided into Lot Nos. 5411, 5410, 5409, and 5399. Improvements 100 coconut trees,
productive, and 300 cacao trees. Boundaries of said land are marked by concrete monuments of
the Bureau pf (sic) Lands. Assessed value -- P6,290.00 according to Tax No. 317, April 14,
1946.

This Agreement to Sell provides:

3. That beginning today, the Party of the Second Part shall continue to occupy the property not
anymore in concept of lessee but as prospective owners, it being the sense of the parties hereto
that the Party of the Second Part shall not in any manner be under any obligation to make any
41
compensation to the Party of the First Part, for the use, and occupation of the property herein
before described in such concept of prospective owner, and it likewise being the sense of the
parties hereto to terminate as they do hereby terminate, effective on the date of this present
instrument, the Contract of Lease, otherwise known as Doc. No. 420, Page No. 36, Book No. II,
Series of 1946 of Notary Public Gabriel R. Banaag, of the Province of Agusan.

4. That the Party of the Second Part has bound as it does hereby bind itself, its executors and
administrators, to pay unto the party of the First Part the sum of Five Thousand Pesos
(P5,000.00), Philippine Currency, upon presentation by the latter to the former of satisfactory
evidence that:

(a) The Bureau of Lands will not have any objection to the obtainment by the Party of the First
Part of a Certificate of Torrens Title in his favor, either thru ordinary land registration
proceedings or thru administrative means procedure.

(b) That there is no other private claimant to the properties hereinbefore described.

5. That the Party of the First Part has bound as he does hereby bind to undertake immediately
after the execution of these presents to secure and obtain, or cause to be secured and obtained, a
Certificate of Torrens Title in his favor over the properties described on Page (One) hereof, and
after obtainment of such Certificate of Torrens Title, the said Party of the First Part shall
execute a (D)eed of Absolute Sale unto and in favor of the Party of the Second Part, its
executors, administrators and assigns, it being the sense of the parties that the Party of the
Second Part upon delivery to it of such deed of absolute sale, shall pay unto the Party of the
First Part in cash, the sum of Twelve Thousand (P12,000.00) Pesos in Philippine Currency,
provided, however, that the Party of the First Part, shall be reimbursed by the Party of the
Second Part with one half of the expenses incurred by the Party of the First Part for survey and
attorneys fees; and other incidental expenses not exceeding P300.00.

On December 2, 1948, Villaflor filed Sales Application No. V-807[8] (exh. 1) with the Bureau of
Lands, Manila, to purchase under the provisions of Chapter V, XI or IX of Commonwealth Act.
No. 141 (The Public Lands Act), as amended, the tract of public lands x x x and described as
follows: North by Public Land; East by Agusan River and Serafin Villaflor; South by Public
Land and West by public land (Lot Nos. 5379, 5489, 5412, 5490, 5491, 5492, 5849, 5850,
5851, 5413, 5488, 5489, 5852, 5853, 5854, 5855, 5856, 5857, 5858, 5859 and 5860 x x
x containing an area of 140 hectares xxx. Paragraph 6 of the Application, states: I understand
that this application conveys no right to occupy the land prior to its approval, and I recognized
(sic) that the land covered by the same is of public domain and any and all rights I may have
with respect thereto by virtue of continuous occupation and cultivation are hereby relinquished
to the Government.[9] (exh. 1-D)

On December 7, 1948, Villaflor and Nasipit Lumber executed an Agreement (exh 3). [10] This
contract provides:

1. That the First Party is the possessor since 1930 of two (2) parcels of land situated in sitio
Tungao, Barrio of San Mateo, Municipality of Butuan, Province of Agusan;

2. That the first parcel of land abovementioned and described in Plan PLS-97 filed in the office
of the Bureau of Lands is made up of Lots Nos. 5412, 5413, 5488, 5490, 5491, 5492, 5849,
5850, 5851, 5852, 5853, 5854, 5855, 5856, 5857, 5858, 5859 and 5860 and the second parcel of
land is made of Lots Nos. 5399, 5409, 5410 and 5411;

42
3. That on July 7, 1948, a contract of Agreement to Sell was executed between the contracting
parties herein, covering the said two parcels of land, copy of said Agreement to Sell is hereto
attached marked as Annex A and made an integral part of this document. The parties hereto
agree that the said Agreement to Sell be maintained in full force and effect with all its terms and
conditions of this present agreement and in no way be considered as modified.

4. That paragraph 4 of the Contract of Agreement to Sell, marked as annex, A stipulates as

follows:

Par. 4. That the Party of the Second Part has bound as it does hereby bind itself, its executors
and administrators, to pay unto the Party of the First Part of the sum of FIVE THOUSAND
PESOS (P5,000.00) Philippine Currency, upon presentation by the latter to the former of
satisfactory evidence that:

a) The Bureau of Lands will have any objection to the obtainment by Party of the First Part of a
favor, either thru ordinary land registration proceedings or thru administrative means and
procedure.

b) That there is no other private claimant to the properties hereinabove described.

That the First Party has on December 2, 1948, submitted to the Bureau of Lands, a Sales
Application for the twenty-two (22) lots comprising the two abovementioned parcels of land,
the said Sales Application was registered in the said Bureau under No. V-807;

6. That in reply to the request made by the First Party to the Bureau of Lands, in connection
with the Sales Application No. V-807, the latter informed the former that action on his request
will be expedited, as per letter of the Chief, Public Land Division, dated December 2, 1948,
copy of which is hereto attached marked as annex B and made an integral part of this
agreement:

7. That for and in consideration of the premises above stated and the amount of TWENTY
FOUR THOUSAND (P24,000.00) PESOS that the Second Party shall pay to the First Party, by
these presents, the First Party hereby sells, transfers and conveys unto the Second Party, its
successors and assigns, his right, interest and participation under an(d) by virtue of the Sales
Application No. V-807, which he has or may have in the lots mentioned in said Sales
Application No. V-807;

8. That the amount of TWENTY FOUR THOUSAND (P24,000.00) PESOS, shall be paid by
the Second Party to the First Party, as follows:

a) The amount of SEVEN THOUSAND (P7,000.00) PESOS, has already been paid by the
Second Party to the First Party upon the execution of the Agreement to Sell, on July 7, 1948;

b) The amount of FIVE THOUSAND (P5,000.00) PESOS shall be paid upon the signing of this
present agreement; and

c) The balance of TWELVE THOUSAND (P12,000.00) PESOS, shall be paid upon the
execution by the First Party of the Absolute Deed of Sale of the two parcels of land in question
in favor of the Second Party, and upon delivery to the Second Party of the Certificate of
Ownership of the said two parcels of land.

9. It is specially understood that the mortgage constituted by the First Party in favor of the
Second Party, as stated in the said contract of Agreement to Sell dated July 7, 1948, shall cover
43
not only the amount of SEVEN THOUSAND (P7,000.00) PESOS as specified in said
document, but shall also cover the amount of FIVE THOUSAND (P5,000.00) PESOS to be
paid as stipulated in paragraph 8, sub-paragraph (b) of this present agreement, if the First Party
should fail to comply with the obligations as provided for in paragraphs 2, 4, and 5 of the
Agreement to Sell;

10. It is further agreed that the First Party obligates himself to sign, execute and deliver to and
in favor of the Second Party, its successors and assigns, at anytime upon demand by the Second
Party such other instruments as may be necessary in order to give full effect to this present
agreement;

In the Report dated December 31, 1949 by the public land inspector, District Land Office,
Bureau of Lands, in Butuan, the report contains an Indorsement of the aforesaid District Land
Officer recommending rejection of the Sales Application of Villaflor for having leased the
property to another even before he had acquired transmissible rights thereto.

In a letter of Villaflor dated January 23, 1950, addressed to the Bureau of Lands, he informed
the Bureau Director that he was already occupying the property when the Bureaus Agusan
River Valley Subdivision Project was inaugurated, that the property was formerly claimed as
private properties (sic), and that therefore, the property was segregated or excluded from
disposition because of the claim of private ownership. In a letter of Nasipit Lumber dated
February 22, 1950 (exh. X)[11] addressed to the Director of Lands, the corporation informed the
Bureau that it recognized Villaflor as the real owner, claimant and occupant of the land; that
since June 1946, Villaflor leased two (2) hectares inside the land to the company; that it has no
other interest on the land; and that the Sales Application of Villaflor should be given favorable
consideration.

xxx xxx xxx

On July 24, 1950, the scheduled date of auction of the property covered by the Sales
Application, Nasipit Lumber offered the highest bid of P41.00 per hectare, but since an
applicant under CA 141, is allowed to equal the bid of the highest bidder, Villaflor tendered an
equal bid, deposited the equivalent of 10% of the bid price and then paid the assessment in full.

xxx xxx xxx

On August 16, 1950, Villaflor executed a document, denominated as a Deed of Relinquishment

of Rights (exh. N),[12] pertinent portion of which reads:

5. That in view of my present business in Manila, and my change in residence from Butuan,
Agusan to the City of Manila, I cannot, therefore, develope (sic) or cultivate the land applied for
as projected before;

6. That the Nasipit Lumber Company, Inc., a corporation duly organized xxx is very much
interested in acquiring the land covered by the aforecited application xxx;

7. That I believe the said company is qualified to acquire public land, and has the means to
develop (sic) the above-mentioned land;

xxx xxx xxx

WHEREFORE, and in consideration of the amount of FIVE THOUSAND PESOS (P5,000.00)

to be reimbursed to me by the aforementioned Nasipit Lumber Company, Inc., after its receipt
44
of the order of award, the said amount representing part of the purchase price of the land
aforesaid, the value of the improvements I introduced thereon, and the expenses incurred in the
publication of the Notice of Sale, I, the applicant, Vicente J. Villaflor, hereby voluntarily
renounce and relinquish whatever rights to, and interests I have in the land covered by my
above-mentioned application in favor of the Nasipit Lumber Company, Inc.

Also on August 16, 1950, Nasipit Lumber filed a Sales Application over the two (2) parcels of
land, covering an area of 140 hectares, more or less. This application was also numbered V-807
(exh. Y).

On August 17, 1950 the Director of Lands issued an Order of Award[13] in favor of Nasipit
Lumber Company, Inc., pertinent portion of which reads:

4. That at the auction sale of the land held on July 24, 1950 the highest bid received was that of
Nasipit Lumber Company, Inc. which offered P41.00 per hectare or P5,740.00 for the whole
tract, which bid was equaled by applicant Vicente J. Villaflor, who deposited the amount
of P574.00 under Official Receipt No. B-1373826 dated July 24, 1950 which is equivalent to
10% of the bid.Subsequently, the said xxx Villaflor paid the amount of P5,160.00 in full
payment of the purchase price of the above-mentioned land and for some reasons stated in an
instrument of relinquishment dated August 16, 1950, he (Vicente J. Villaflor) relinquished his
rights to and interest in the said land in favor of the Nasipit Lumber Company, Inc. who filed
the corresponding application therefore.

In view of the foregoing, and it appearing that the proceedings had xxx were in accordance with
law and in [sic] existing regulations, the land covered thereby is hereby awarded to Nasipit
Lumber Company, Inc. at P41.00 per hectare or P5,740.00 for the whole tract.

This application should be entered in the record of this Office as Sales Entry No. V-407.

It is Villaflors claim that he only learned of the Order of Award on January 16, 1974, or after
his arrival to the Philippines, coming from Indonesia, where he stayed for more than ten (10)
years; that he went to Butuan City in the latter part of 1973 upon the call of his brother Serafin
Villaflor, who was then sick and learned that Nasipit Lumber (had) failed and refused to pay the
agreed rentals, although his brother was able to collect during the early years; and that Serafin
died three days after his (Vicentes) arrival, and so no accounting of the rentals could be made;
that on November 27, 1973, Villaflor wrote a letter to Mr. G.E.C. Mears of Nasipit Lumber,
reminding him of their verbal agreement in 1955 xxx that Mr. Mears in a Reply dated
December 3, 1973, appears to have referred the matter to Mr. Noriega, the corporate general
manager, but the new set of corporate officers refused to recognize (Villaflors) claim, for Mr.
Florencio Tamesis, the general manager of Nasipit Lumber, in a letter dated February 19, 1974,
denied Villaflors itemized claim dated January 5, 1974 (exh. V) to be without valid and legal
basis. In that 5th January, 1974 letter, Villaflor claimed the total amount of P427,000.00 x x x.

In a formal protest dated January 31, 1974[14] which Villaflor filed with the Bureau of Lands, he
protested the Sales Application of Nasipit Lumber, claiming that the company has not paid
him P5,000.00 as provided in the Deed of Relinquishment of Rights dated August 16, 1950.

xxx xxx xxx

x x x (T)hat in a Decision dated August 8, 1977 (exh. 8), the Director of Lands found that the
payment of the amount of P5,000.00 in the Deed xxx and the consideration in the Agreement to
Sell were duly proven, and ordered the dismissal of Villaflors protest and gave due course to the

45
Sales Application of Nasipit Lumber. Pertinent portion of the Decision penned by Director of
Lands, Ramon Casanova, in the Matter of SP No. V-807 (C-V-407) xxx reads:

xxx xxx xxx

During the proceedings, Villaflor presented another claim entirely different from his previous
claim -- this time, for recovery of rentals in arrears arising from a supposed contract of lease by
Villaflor as lessor in favor of Nasipit as lessee, and indemnity for damages supposedly caused
improvements on his other property xxx in the staggering amount of Seventeen Million
(P17,000,000.00) Pesos. Earlier, he had also demanded from NASIPIT xxx (P427,000.00) xxx
also as indemnity for damages to improvements supposedly caused by NASIPIT on his other
real property as well as for reimbursement of realty taxes allegedly paid by him thereon.

xxx xxx xxx

It would seem that xxx Villaflor has sought to inject so many collaterals, if not extraneous
claims, into this case. It is the considered opinion of this Office that any claim not within the
sphere or scope of its adjudicatory authority as an administrative as well as quasi-judicial body
or any issue which seeks to delve into the merits of incidents clearly outside of the
administrative competence of this Office to decide may not be entertained.

There is no merit in the contention of Villaflor that owing to Nasipits failure to pay the amount
of xxx (P5,000.00) xxx (assuming that Nasipit had failed) the deed of relinquishment became
null and void for lack of consideration. xxxx.

xxx xxx xxx

x x x The records clearly show, however, that since the execution of the deed of relinquishment
xxx Villaflor has always considered and recognized NASIPIT as having the juridical
personality to acquire public lands for agricultural purposes. xxxx.

xxx xxx xxx

Even this Office had not failed to recognize the juridical personality of NASIPIT to apply for
the purchase of public lands xxx when it awarded to it the land so relinquished by Villaflor
(Order of Award dated August 17, 1950) and accepted its application therefor. At any rate, the
question whether an applicant is qualified to apply for the acquisition of public lands is a matter
between the applicant and this Office to decide and which a third party like Villaflor has no
personality to question beyond merely calling the attention of this Office thereto.

xxx xxx xxx

Villaflor offered no evidence to support his claim of non-payment beyond his own self-serving
assertions and expressions that he had not been paid said amount. As protestant in this case, he
has the affirmative of the issue. He is obliged to prove his allegations, otherwise his action will
fail.For, it is a well settled principle () that if plaintiff upon whom rests the burden of proving
his cause of action fails to show in a satisfactory manner the facts upon which he bases his
claim, the defendant is under no obligation to prove his exceptions or special defenses (Belen
vs. Belen, 13 Phil. 202; Mendoza vs. Fulgencio, 8 Phil. 243).

xxx xxx xxx

Consequently, Villaflors claim that he had not been paid must perforce fail.
46
On the other hand, there are strong and compelling reasons to presume that Villaflor had
already been paid the amount of Five Thousand (P5,000.00) Pesos.

First, xxx What is surprising, however, is not so much his claims consisting of gigantic amounts
as his having forgotten to adduce evidence to prove his claim of non-payment of the Five
Thousand (P5,000.00) Pesos during the investigation proceedings when he had all the time and
opportunity to do so. xxx The fact that he did not adduce or even attempt to adduce evidence in
support thereof shows either that he had no evidence to offer xxx that NASIPIT had already
paid him in fact. What is worse is that Villaflor did not even bother to command payment,
orally or in writing, of the Five Thousand (P5,000.00) Pesos which was supposed to be due him
since August 17, 1950, the date when the order of award was issued to Nasipit, and when his
cause of action to recover payment had accrued. The fact that he only made a command (sic) for
payment on January 31, 1974, when he filed his protest or twenty-four (24) years later is
immediately nugatory of his claim for non-payment.

But Villaflor maintains that he had no knowledge or notice that the order of award had already
been issued to NASIPIT as he had gone to Indonesia and he had been absent from the
Philippines during all those twenty-four (24) years. This of course taxes credulity. xxx.

Second, it should be understood that the condition that NASIPIT should reimburse Villaflor the
amount of Five Thousand (P5,000.00) Pesos upon its receipt of the order of award was fulfilled
as said award was issued to NASIPIT on August 17, 1950. The said deed of relinquishment was
prepared and notarized in Manila with Villaflor and NASIPIT signing the instrument also in
Manila on August 16, 1950 (p.77, (sic)). The following day or barely a day after that, or on
August 17, 1950, the order of award was issued by this Office to NASIPIT also in
Manila. Now, considering that Villaflor is presumed to be more assiduous in following up with
the Bureau of Lands the expeditious issuance of the order of award as the payment of the Five
Thousand (P5,000.00) Pesos (consideration) would depend on the issuance of said order to
award NASIPIT, would it not be reasonable to believe that Villaflor was at hand when the
award was issued to NASIPIT on August 17, 1950, or barely a day which (sic) he executed the
deed of relinquishment on August 16, 1950, in Manila? xxx.

Third, on the other hand, NASIPIT has in his possession a sort of order upon itself -- (the deed
of relinquishment wherein he (sic) obligated itself to reimburse or pay Villaflor the xxx
consideration of the relinquishment upon its receipt of the order of award) for the payment of
the aforesaid amount the moment the order of award is issued to it. It is reasonable to presume
that NASIPIT has paid the Five Thousand (P5,000.00) Pesos to Villaflor.

A person in possession of an order on himself for the payment of money, or the delivery of
anything, has paid the money or delivered the thing accordingly. (Section 5(k) B-131-Revised
Rules of Court.

It should be noted that NASIPIT did not produce direct evidence as proof of its payment of the
Five Thousand (P5,000.00) Pesos to Villaflor. Nasipits explanation on this point is found
satisfactory.

x x x (I)t was virtually impossible for NASIPIT, after the lapse of the intervening 24 years, to
be able to cope up with all the records necessary to show that the consideration for the deed of
relinquishment had been fully paid. To expect NASIPIT to keep intact all records pertinent to
the transaction for the whole quarter of a century would be to require what even the law does
not.Indeed, even the applicable law itself (Sec. 337, National Internal Revenue Code) requires
that all records of corporations be preserved for only a maximum of five years.

47
NASIPIT may well have added that at any rate while there are transactions where the proper
evidence is impossible or extremely difficult to produce after the lapse of time xxx the law
creates presumptions of regularity in favor of such transactions (20 Am. Jur. 232) so that when
the basic fact is established in an action the existence of the presumed fact must be assumed by
force of law. (Rule 13, Uniform Rules of Evidence; 9 Wigmore, Sec. 2491).

Anent Villaflors claim that the 140-hectare land relinquished and awarded to NASIPIT is his
private property, little (need) be said. xxxx The tracks of land referred to therein are not
identical to the lands awarded to NASIPIT. Even in the assumption that the lands mentioned in
the deeds of transfer are the same as the 140-hectare area awarded to NASIPIT, their purchase
by Villaflor (or) the latters occupation of the same did not change the character of the land from
that of public land to a private property. The provision of the law is specific that public lands
can only be acquired in the manner provided for therein and not otherwise (Sec. 11, C.A. No.
141, as amended). The records show that Villaflor had applied for the purchase of the lands in
question with this Office (Sales Application No. V-807) on December 2, 1948. xxxx There is a
condition in the sales application signed by Villaflor to the effect that he recognizes that the
land covered by the same is of public domain and any and all rights he may have with respect
thereto by virtue of continuous occupation and cultivation are relinquished to the Government
(paragraph 6, Sales Application No. V-807 xxx) of which Villaflor is very much aware. It also
appears that Villaflor had paid for the publication fees appurtenant to the sale of the land. He
participated in the public auction where he was declared the successful bidder. He had fully
paid the purchase prive (sic) thereof (sic). It would be a (sic) height of absurdity for Villaflor to
be buying that which is owned by him if his claim of private ownership thereof is to be
believed. The most that can be said is that his possession was merely that of a sales applicant to
when it had not been awarded because he relinquished his interest therein in favor of NASIPIT
who (sic) filed a sales application therefor.

xxx xxx xxx

x x x During the investigation proceedings, Villaflor presented as his Exhibit (sic) (which
NASIPIT adopted as its own exhibit and had it marked in evidence as Exhibit 1) a duly
notarized agreement to Sell dated July 7, 1948, by virtue of which Villaflor undertook to sell to
Nasipit the tracts of land mentioned therein, for a consideration of Twenty-Four Thousand
(P24,000.00) Pesos. Said tracts of land have been verified to be identical to the parcels of land
formerly applied for by Villaflor and which the latter had relinquished in favor of NASIPIT
under a deed of relinquishment executed by him on August 16, 1950. In another document
executed on December 7, 1948 xxx Villaflor as FIRST PARTY and NASIPIT as SECOND
PARTY confirmed the Agreement to Sell of July 7, 1948, which was maintained in full force
and effect with all its terms and conditions x x x (Exh. 38-A); and that for and in consideration
of xxx TWENTY FOUR THOUSAND (P24,000.00) PESOS that the Second Party shall pay to
the First Party xxx the First Party hereby sells, transfers and conveys unto the Second Party xxx
his right interest and participation under and by virtue of the Sales Application No. V-807 and,
in its paragraph 8, it made stipulations as to when part of the said consideration xxx was
paid and when the balance was to be paid, to wit:

a) the amount of SEVEN THOUSAND xxx PESOS has already been paid by the Second Party
to the First Party upon the execution of the Agreement to Sell, on July 17, 1948;

b) the amount of FIVE THOUSAND xxx PESOS shall be paid upon the signing of this present
agreement; and

48
c) the amount of TWELVE THOUSAND xxx PESOS, shall be paid upon the execution by the
First Party of the Absolute Sale of the Two parcels of land in question in favor of the Second
Party of the Certificate of Ownership of the said two parcels of land. (Exh. 38-B). (Emphasis
ours)

It is thus clear from this subsequent document marked Exhibit 38 ANALCO that of the
consideration of the Agreement to Sell dated July7, 1948, involving the 140-hectare area
relinquished by Villaflor in favor of NASIPIT, in the amount of Twenty-Four Thousand
(P24,000.00) Pesos:

(1) the amount of Seven Thousand (P7,000.00) Pesos was already paid upon the execution of
the Agreement to Sell on July 7, 1948, receipt of which incidentally was admitted by Villaflor
in the document of December 7, 1948;

(2) the amount of Five Thousand (P5,000.00) Pesos was paid when said document was signed
by Vicente J. Villaflor as the First Party and Nasipit thru its President, as the Second Party, on
December 7, 1948; and

(3) the balance of Twelve Thousand (P12,000.00) Pesos to be paid upon the execution by the
First Party of the Absolute Deed of Sale of the two parcels of land in favor of the Second Party,
and upon delivery to the Second Party of the Certificate of Ownership of the said two parcels of
land.

Villaflor contends that NASIPIT could not have paid Villaflor the balance of Twelve Thousand
(P12,000.00) Pesos x x x consideration in the Agreement to Sell will only be paid to applicant-
assignor (referring to Villaflor) upon obtaining a Torrens Title in his favor over the 140-hectare
of land applied for and upon execution by him of a Deed of Absolute Sale in favor of Nasipit
Lumber Company, Inc. x x x. Inasmuch as applicant-assignor was not able to obtain a Torrens
Title over the land in question he could not execute an absolute Deed of (sic) Nasipit Lumber
Co., Inc.Hence, the Agreement to Sell was not carried out and no Twelve Thousand
(P12,000.00) Pesos was overpaid either to the applicant-assignor, much less to Howard J. Nell
Company. (See MEMORANDUM FOR THE APPLICANT-ASSIGNOR, dated January 5,
1977). xxx.

xxx Villaflor did not adduce evidence in support of his claim that he had not been paid the xxx
(P12,000.00) xxx consideration of the Agreement to Sell dated July 7, 1948 (Exh. 38 NALCO)
beyond his mere uncorroborated assertions. On the other hand, there is strong evidence to show
that said Twelve Thousand (P12,000.00) Pesos had been paid by (private respondent) to
Edward J. Nell Company by virtue of the Deed of Assignment of Credit executed by Villaflor
(Exh. 41 NALCO) for the credit of the latter.

Atty. Gabriel Banaag, resident counsel of NASIPIT who is in a position to know the facts,
testified for NASIPIT. He described that it was he who notarized the Agreement to Sell (Exh.
F); that he knew about the execution of the document of December 7, 1948 (Exh. 38)
confirming the said Agreement to Sell having been previously consulted thereon by Jose
Fernandez, who signed said document on behalf of NASIPIT xxx that subsequently, in January
1949, Villaflor executed a Deed of Assignment of credit in favor of Edward J. Nell Company
(Exh. 41 NALCO) whereby Villaflor ceded to the latter his receivable for
NASIPIT corresponding to the remaining balance in the amount of Twelve Thousand xxx
Pesos of the total consideration xxx stipulated in both the Agreement to Sell (Exh. F) and the
document dated December 7, 1948 (Exh. 39); xxx. He further testified that the said assignment
of credit was communicated to (private respondent) under cover letter dated January 24, 1949

49
(Exh. 41-A) and not long thereafter, by virtue of the said assignment of credit, (private
respondent) paid the balance of Twelve Thousand xxx due to Villaflor to Edward J. Nell
Company xxx. Atty. Banaags aforesaid testimony stand unrebutted; hence, must be given full
weight and credit. xxx Villaflor and his counsel were present when Atty. Banaags foregoing
testimony was given. Yet, Villaflor did not demur, nor did he rebut the same, despite having
been accorded full opportunity to do so.

xxx xxx xxx

Having found that both the Five Thousand xxx consideration of the deed of Relinquishment xxx
and that the remaining balance of xxx (P12,000.00) to complete the Twenty-Four Thousand
(P24,000.00) Pesos consideration of both the Agreement to Sell dated July 7, 1948, and the
document, dated December 7, 1948, executed by the former in favor of the latter, have been
paid Villaflor the issue on prescription and laches becomes academic and needs no further
discussion.

But more than all the questions thus far raised and resolved is the question whether a sales
patent can be issued to NASIPIT for the 140-hectare area awarded to it in the light of Section
11, Article XIV of the new Constitution which provides in its pertinent portion to wit:

x x x No private corporation or association may hold alienable land of the public domain except
by lease not to exceed one thousand hectares in area xxx.

The Secretary of Justice had previous occasion to rule on this point in his opinion No. 140, s.
1974. Said the Honorable Justice Secretary:

On the second question, (referring to the questions when may a public land be considered to
have been acquired by purchase before the effectivity of the new Constitution posed by the
Director of Lands in his query on the effect on pending applications for the issuance of sales
patent in the light of Section 11, Art. XIV of the New Constitution aforecited), you refer to this
Offices Opinion No. 64 series of 1973 in which I stated:

On the other hand, with respect to sales applications ready for issuance of sales patent, it is my
opinion that where the applicant had, before the Constitution took effect, fully complied with all
this obligations under the Public Land Act in order to entitle him to a Sales patent, there would
be no legal or equitable justification for refusing to issue or release the sales patent.

With respect to the point as to when the Sales applicant has complied with all the terms and
conditions which would entitle him to a sales patent, the herein above Secretary of Justice went
on:

That as to when the applicant has complied with all the terms and conditions which
would entitle him to a patent is a questioned (sic) fact which your office would be in the best
position to determine. However, relating this to the procedure for the processing of applications
mentioned above, I think that as the applicant has fulfilled the construction/cultivation
requirements and has fully paid the purchase price, he should be deemed to have acquired by
purchase the particular tract of land and (sic) the area (sic) in the provision in question of the
new constitution would not apply.

From the decision of the Director of Lands, Villaflor filed a Motion for Reconsideration which
was considered as an Appeal M.N.R. Case 4341, to the Ministry of Natural Resources.

50
On June 6, 1979, the Minister of Natural Resources rendered a Decision (exh. 9), [15] dismissing
the appeal and affirming the decision of the Director of Lands, pertinent portions of which
reads:

After a careful study of the records and the arguments of the parties, we believe that the appeal
is not well taken.

Firstly, the area in dispute is not the private property of appellant.

The evidence adduced by appellant to establish his claim of ownership over the subject area
consists of deeds of absolute sale executed in his favor on January 16, and February 15, 1940,
by four (4) different persons, namely, Cirilo Piencenaves, Fermin Balobo, Claudio Otero and
Hermogenes Patete.

However, an examination of the technical descriptions of the tracts of land subject of the deeds
of sale will disclose that said parcels are not identical to, and do not tally with, the area in
controversy.

It is a basic assumption of our policy that lands of whatever classification belong to the
state.Unless alienated in accordance with law, it retains its rights over the same as dominus,
(Santiago vs. de los Santos, L-20241, November 22, 1974, 61 SCRA 152).

For, it is well-settled that no public land can be acquired by private persons without any grant,
express or implied from the government. It is indispensable then that there be showing of title
from the state or any other mode of acquisition recognized by law. (Lee Hong Hok, et al. vs.
David, et al., L-30389, December 27, 1972, 48 SCRA 379.)

It is well-settled that all lands remain part of the public domain unless severed therefrom by
state grant or unless alienated in accordance with law.

We, therefore, believe that the aforesaid deeds of sale do not constitute clear and convincing
evidence to establish that the contested area is of private ownership. Hence, the property must
be held to be public domain.

There being no evidence whatever that the property in question was ever acquired by the
applicants or their ancestors either by composition title from the Spanish Government or by
possessory information title or by any other means for the acquisition of public lands, the
property must be held to be public domain. (Lee Hong Hok, et al., vs. David , et al., L-30389
December 27, 1972, 48 SCRA 378-379 citing Heirs of Datu Pendatun vs. Director of Lands; see
also Director of Lands vs. Reyes, L-27594, November 28, 1975, 68 SCRA 177).

Be that as it may, appellant, by filing a sales application over the controverted land,
acknowledged unequivocably [sic] that the same is not his private property.

As such sales applicant, appellant manifestly acknowledged that he does not own the land and
that the same is a public land under the administration of the Bureau of Lands, to which the
application was submitted, xxx All of its acts prior thereof, including its real estate tax
declarations, characterized its possessions of the land as that of a sales applicant and
consequently, as one who expects to buy it, but has not as yet done so, and is not, therefore, its
owner. (Palawan Agricultural and Industrial Co., Inc. vs. Director of Lands, L-25914, March
21, 1972, 44 SCRA 20, 21).

51
Secondly, appellants alleged failure to pay the consideration stipulated in the deed of
relinquishment neither converts said deed into one without a cause or consideration nor ipso
facto rescinds the same. Appellant, though, has the right to demand payment with legal interest
for the delay or to demand rescission.

xxx xxx xxx

However, appellants cause of action, either for specific performance or rescission of contract,
with damages, lies within the jurisdiction of civil courts, not with administrative bodies.

xxx xxx xxx

Lastly, appellee has acquired a vested right to the subject area and, therefore, is deemed not
affected by the new constitutional provision that no private corporation may hold alienable land
of the public domain except by lease.

xxx xxx xxx

Implementing the aforesaid Opinion No. 64 of the Secretary of Justice, the then Secretary of
Agriculture and Natural Resources issued a memorandum, dated February 18, 1974, which
pertinently reads as follows:

In the implementation of the foregoing opinion, sales application of private individuals covering
areas in excess of 24 hectares and those of corporations, associations, or partnership which fall
under any of the following categories shall be given due course and issued patents, to wit:

1. Sales application for fishponds and for agricultural purposes (SFA, SA and IGPSA) wherein
prior to January 17, 1973;

a. the land covered thereby was awarded;

b. cultivation requirements of law were complied with as shown by investigation reports

submitted prior to January 17, 1973;

c. land was surveyed and survey returns already submitted to the Director of Lands for
verification and approval; and

d. purchase price was fully paid.

From the records, it is evident that the aforestated requisites have been complied with by
appellee long before January 17, 1973, the effectivity of the New Constitution. To restate, the
disputed area was awarded to appellee on August 17, 1950, the purchase price was fully paid on
July 26, 1951, the cultivation requirements were complied with as per investigation report dated
December 31, 1949, and the land was surveyed under Pls-97.

On July 6, 1978, petitioner filed a complaint[16] in the trial court for Declaration of
Nullity of Contract (Deed of Relinquishment of Rights), Recovery of Possession (of two
parcels of land subject of the contract), and Damages at about the same time that he
appealed the decision of the Minister of Natural Resources to the Office of the
President.
On January 28, 1983, petitioner died. The trial court ordered his widow, Lourdes D.
Villaflor, to be substituted as petitioner. After trial in due course, the then Court of First
Instance of Agusan del Norte and Butuan City, Branch III,[17] dismissed the complaint
52
on the grounds that: (1) petitioner admitted the due execution and genuineness of the
contract and was estopped from proving its nullity, (2) the verbal lease agreements
were unenforceable under Article 1403 (2)(e) of the Civil Code, and (3) his causes of
action were barred by extinctive prescription and/or laches. It ruled that there was
prescription and/or laches because the alleged verbal lease ended in 1966, but the
action was filed only on January 6, 1978. The six-year period within which to file an
action on an oral contract per Article 1145 (1) of the Civil Code expired in 1972. The
decretal portion[18] of the trial courts decision reads:

WHEREFORE, the foregoing premises duly considered, judgment is hereby rendered in favor
of the defendant and against the plaintiff. Consequently, this case is hereby ordered
DISMISSED. The defendant is hereby declared the lawful actual physical possessor-occupant
and having a better right of possession over the two (2) parcels of land in litigation described in
par. 1.2 of the complaint as Parcel I and Parcel II, containing a total area of One Hundred Sixty
(160) hectares, and was then the subject of the Sales Application No. V-807 of the plaintiff
(Exhibits 1, 1-A, 1-B, pp. 421 to 421-A, Record), and now of the Sales Application No. 807,
Entry No. V-407 of the defendant Nasipit Lumber Company (Exhibit Y, pp. 357-358,
Record). The Agreements to Sell Real Rights, Exhibits 2 to 2-C, 3 to 3-B, and the Deed of
Relinquishment of Rights, Exhibits N to N-1, over the two parcels of land in litigation are
hereby declared binding between the plaintiff and the defendant, their successors and assigns.

Double the costs against the plaintiff.

The heirs of petitioner appealed to Respondent Court of Appeals[19] which,

however, rendered judgment against petitioner via the assailed Decision dated
September 27, 1990 finding petitioners prayers -- (1) for the declaration of nullity of the
deed of relinquishment, (2) for the eviction of private respondent from the property and
(3) for the declaration of petitioners heirs as owners to be without basis. The decretal
portion[20] of the assailed 49-page, single-spaced Decision curtly reads:

WHEREFORE, the Decision appealed from, is hereby AFFIRMED, with costs against plaintiff-
appellants.

Not satisfied, petitioners heirs filed the instant 57-page petition for review dated
December 7, 1990. In a Resolution dated June 23, 1991, the Court denied this petition
for being late. On reconsideration -- upon plea of counsel that petitioners were poor
and that a full decision on the merits should be rendered -- the Court reinstated the
petition and required comment from private respondent. Eventually, the petition was
granted due course and the parties thus filed their respective memoranda.

The Issues

Petitioner, through his heirs, attributes the following errors to the Court of Appeals:

I. Are the findings of the Court of Appeals conclusive and binding upon the Supreme Court?

II. Are the findings of the Court of Appeals fortified by the similar findings made by the
Director of Lands and the Minister of Natural Resources (as well as by the Office of the
President)?

III. Was there forum shopping?

53
IV. Are the findings of facts of the Court of Appeals and the trial court supported by the
evidence and the law?

V. Are the findings of the Court of Appeals supported by the very terms of the contracts which
were under consideration by the said court?

VI. Did the Court of Appeals, in construing the subject contracts, consider the contemporaneous
and subsequent act of the parties pursuant to article 1371 of the Civil Code?

VII. Did the Court of Appeals consider the fact and the unrefuted claim of Villaflor that he
never knew of the award in favor of Nasipit?

VIII. Did the Court of Appeals correctly apply the rules on evidence in its findings that Villaflor
was paid the P5,000.00 consideration because Villaflor did not adduce any proof that he was
not paid?

IX. Is the Court of Appeals conclusion that the contract is not simulated or fictitious simply
because it is genuine and duly executed by the parties, supported by logic or the law?

X. May the prestations in a contract agreeing to transfer certain rights constitute estoppel when
this very contract is the subject of an action for annulment on the ground that it is fictitious?

XI. Is the Court of Appeals conclusion that the lease agreement between Villaflor is verbal and
therefore, unenforceable supported by the evidence and the law?

After a review of the various submissions of the parties, particularly those of

petitioner, this Court believes and holds that the issues can be condensed into three as
follows:

(1) Did the Court of Appeals err in adopting or relying on the factual findings of the Bureau of
Lands, especially those affirmed by the Minister (now Secretary) of Natural Resources and the
trial court?

(2) Did the Court of Appeals err in upholding the validity of the contracts to sell and the deed of
relinquishment? Otherwise stated, did the Court of Appeals err in finding the deed of
relinquishment of rights and the contracts to sell valid, and not simulated or fictitious?

(3) Is the private respondent qualified to acquire title over the disputed property?

The Courts Ruling

The petition is bereft of merit. It basically questions the sufficiency of the evidence
relied upon by the Court of Appeals, alleging that public respondents factual findings
were based on speculations, surmises and conjectures. Petitioner insists that a review
of those findings is in order because they were allegedly (1) rooted, not on specific
evidence, but on conclusions and inferences of the Director of Lands which were, in
turn, based on misapprehension of the applicable law on simulated contracts; (2)
arrived at whimsically -- totally ignoring the substantial and admitted fact that petitioner
was not notified of the award in favor of private respondent; and (3) grounded on errors
and misapprehensions, particularly those relating to the identity of the disputed area.

54
 First Issue: Primary Jurisdiction of the Director of Lands and Finality of Factual
Findings of the Court of Appeals

Underlying the rulings of the trial and appellate courts is the doctrine of primary
jurisdiction; i.e., courts cannot and will not resolve a controversy involving a question
which is within the jurisdiction of an administrative tribunal, especially where the
question demands the exercise of sound administrative discretion requiring the special
knowledge, experience and services of the administrative tribunal to determine
technical and intricate matters of fact.[21]
In recent years, it has been the jurisprudential trend to apply this doctrine to cases
involving matters that demand the special competence of administrative agencies even
if the question involved is also judicial in character. It applies where a claim is originally
cognizable in the courts, and comes into play whenever enforcement of the claim
requires the resolution of issues which, under a regulatory scheme, have been placed
within the special competence of an administrative body; in such case, the judicial
process is suspended pending referral of such issues to the administrative body for its
view.[22]
In cases where the doctrine of primary jurisdiction is clearly applicable, the court
cannot arrogate unto itself the authority to resolve a controversy, the jurisdiction over
which is initially lodged with an administrative body of special
[23]
competence. In Machete vs. Court of Appeals, the Court upheld the primary
jurisdiction of the Department of Agrarian Reform Adjudicatory Board (DARAB) in an
agrarian dispute over the payment of back rentals under a leasehold
contract.[24] In Concerned Officials of the Metropolitan Waterworks and Sewerage
System vs. Vasquez,[25] the Court recognized that the MWSS was in the best position
to evaluate and to decide which bid for a waterworks project was compatible with its
development plan.
The rationale underlying the doctrine of primary jurisdiction finds application in this
case, since the questions on the identity of the land in dispute and the factual
qualification of private respondent as an awardee of a sales application require a
technical determination by the Bureau of Lands as the administrative agency with the
expertise to determine such matters. Because these issues preclude prior judicial
determination, it behooves the courts to stand aside even when they apparently have
statutory power to proceed, in recognition of the primary jurisdiction of the
administrative agency.[26]

One thrust of the multiplication of administrative agencies is that the interpretation of contracts
and the determination of private rights thereunder is no longer a uniquely judicial function,
exercisable only by our regular courts[27]

Petitioner initiated his action with a protest before the Bureau of Lands and followed
it through in the Ministry of Natural Resources and thereafter in the Office of the
President.Consistent with the doctrine of primary jurisdiction, the trial and the appellate
courts had reason to rely on the findings of these specialized administrative bodies.
The primary jurisdiction of the director of lands and the minister of natural resources
over the issues regarding the identity of the disputed land and the qualification of an
awardee of a sales patent is established by Sections 3 and 4 of Commonwealth Act
No. 141, also known as the Public Land Act:

55
Section 3. The Secretary of Agriculture and Commerce (now Secretary of Natural Resources)
shall be the executive officer charged with carrying out the provisions of this Act through the
Director of Lands, who shall act under his immediate control.

Section 4. Subject to said control, the Director of Lands shall have direct executive control of
the survey, classification, lease, sale or any other form of concession or disposition and
management of the lands of the public domain, and his decision as to questions of fact shall be
conclusive when approved by the Secretary of Agriculture and Commerce.

Thus, the Director of Lands, in his decision, said:[28]

x x x It is merely whether or not Villaflor has been paid the Five Thousand (P5,000.00) Pesos
stipulated consideration of the deed of relinquishment made by him without touching on the
nature of the deed of relinquishment. The administration and disposition of public lands is
primarily vested in the Director of Lands and ultimately with the Secretary of Agriculture and
Natural Resources (now Secretary of Natural Resources), and to this end--

Our Supreme Court has recognized that the Director of Lands is a quasi-judicial officer who
passes on issues of mixed facts and law (Ortua vs. Bingson Encarnacion, 59 Phil 440). Sections
3 and 4 of the Public Land Law thus mean that the Secretary of Agriculture and Natural
Resources shall be the final arbiter on questions of fact in public land conflicts (Heirs of Varela
vs. Aquino, 71 Phil 69; Julian vs. Apostol, 52 Phil 442).

The ruling of this Office in its order dated September 10, 1975, is worth reiterating, thus:

x x x it is our opinion that in the exercise of his power of executive control, administrative
disposition and allegation of public land, the Director of Lands should entertain the protest of
Villaflor and conduct formal investigation xxx to determine the following points: (a) whether or
not the Nasipit Lumber Company, Inc. paid or reimbursed to Villaflor the consideration of the
rights in the amount of P5,000.00 and what evidence the company has to prove payment, the
relinquishment of rights being part of the administrative process in the disposition of the land in
question xxx.

xxxx Besides, the authority of the Director of Lands to pass upon and determine questions
considered inherent in or essential to the efficient exercise of his powers like the incident at
issue, i.e. , whether Villaflor had been paid or not, is conceded by law.

Reliance by the trial and the appellate courts on the factual findings of the Director
of Lands and the Minister of Natural Resources is not misplaced. By reason of the
special knowledge and expertise of said administrative agencies over matters falling
under their jurisdiction, they are in a better position to pass judgment thereon; thus,
their findings of fact in that regard are generally accorded great respect, if not
finality,[29] by the courts.[30]The findings of fact of an administrative agency must be
respected as long as they are supported by substantial evidence, even if such
evidence might not be overwhelming or even preponderant. It is not the task of an
appellate court to weigh once more the evidence submitted before the administrative
body and to substitute its own judgment for that of the administrative agency in respect
of sufficiency of evidence.[31]
However, the rule that factual findings of an administrative agency are accorded
respect and even finality by courts admits of exceptions. This is true also in assessing
factual findings of lower courts.[32] It is incumbent on the petitioner to show that the

56
resolution of the factual issues by the administrative agency and/or by the trial court
falls under any of the exceptions. Otherwise, this Court will not disturb such findings.[33]
We mention and quote extensively from the rulings of the Bureau of Lands and the
Minister of Natural Resources because the points, questions and issues raised by
petitioner before the trial court, the appellate court and now before this Court are
basically the same as those brought up before the aforesaid specialized administrative
agencies. As held by the Court of Appeals:[34]

We find that the contentious points raised by appellant in this action, are substantially the same
matters he raised in BL Claim No. 873 (N). In both actions, he claimed private ownership over
the land in question, assailed the validity and effectiveness of the Deed of Relinquishment of
Rights he executed in August 16, 1950, that he had not been paid the P5,000.00 consideration,
the value of the improvements he introduced on the land and other expenses incurred by him.

In this instance, both the principle of primary jurisdiction of administrative agencies

and the doctrine of finality of factual findings of the trial courts, particularly when
affirmed by the Court of Appeals as in this case, militate against petitioners
cause. Indeed, petitioner has not given us sufficient reason to deviate from them.

Land in Dispute Is Public Land

Petitioner argues that even if the technical description in the deeds of sale and
those in the sales application were not identical, the area in dispute remains his private
property. He alleges that the deeds did not contain any technical description, as they
were executed prior to the survey conducted by the Bureau of Lands; thus, the
properties sold were merely described by reference to natural boundaries. His private
ownership thereof was also allegedly attested to by private respondents former field
manager in the latters February 22, 1950 letter, which contained an admission that the
land leased by private respondent was covered by the sales application.
This contention is specious. The lack of technical description did not prove that the
finding of the Director of Lands lacked substantial evidence. Here, the issue is not so
much whether the subject land is identical with the property purchased by
petitioner. The issue, rather, is whether the land covered by the sales application is
private or public land. In his sales application, petitioner expressly admitted that said
property was public land. This is formidable evidence as it amounts to an admission
against interest.
In the exercise of his primary jurisdiction over the issue, Director of Lands
Casanova ruled that the land was public:[35]

x x x Even (o)n the assumption that the lands mentioned in the deeds of transfer are the same as
the 140-hectare area awarded to Nasipit, their purchase by Villaflor (or) the latters occupation
of the same did not change the character of the land from that of public land to a private
property.The provision of the law is specific that public lands can only be acquired in the
manner provided for therein and not otherwise (Sec. 11, C.A. No. 141, as amended). The
records show that Villaflor had applied for the purchase of lands in question with this Office
(Sales Application No. V-807) on December 2, 1948. xxx There is a condition in the sales
application xxx to the effect that he recognizes that the land covered by the same is of public
domain and any and all rights he may have with respect thereto by virtue of continuous
occupation and cultivation are relinquished to the Government (paragraph 6, Sales Application

57
No. V-807 of Vicente J. Villaflor, p. 21, carpeta) of which Villaflor is very much aware. It also
appears that Villaflor had paid for the publication fees appurtenant to the sale of the land. He
participated in the public auction where he was declared the successful bidder. He had fully
paid the purchase prive (sic) thereor (sic). It would be a (sic) height of absurdity for Villaflor to
be buying that which is owned by him if his claim of private ownership thereof is to be
believed. xxx.

This finding was affirmed by the Minister of Natural Resources:[36]

Firstly, the area in dispute is not the private property of appellant (herein petitioner).

The evidence adduced by (petitioner) to establish his claim of ownership over the subject area
consists of deeds of absolute sale executed in his favor xxx.

However, an examination of the technical descriptions of the tracts of land subject of the deeds
of sale will disclose that said parcels are not identical to, and do not tally with, the area in
controversy.

It is a basic assumption of our policy that lands of whatever classification belong to the
state.Unless alienated in accordance with law, it retains its rights over the same as dominus.
(Santiago vs. de los Santos, L-20241, November 22, 1974, 61 SCRA 152).

For it is well-settled that no public land can be acquired by private persons without any grant,
express or implied from the government. It is indispensable then that there be showing of title
from the state or any other mode of acquisition recognized by law. (Lee Hong Hok, et al. vs.
David, et al., L-30389, December 27, 1972, 48 SCRA 379).

xxx xxx xxx xxx

We, therefore, believe that the aforesaid deeds of sale do not constitute clear and convincing
evidence to establish that the contested area is of private ownership. Hence, the property must
be held to be public domain.

There being no evidence whatever that the property in question was ever acquired by the
applicants or their ancestors either by composition title from the Spanish Government or by
possessory information title or by any other means for the acquisition of public lands, the
property must be held to be public domain.

Be that as it may, [petitioner], by filing a sales application over the controverted land,
acknowledged unequivocably [sic] that the same is not his private property.

As such sales applicant manifestly acknowledged that he does not own the land and that the
same is a public land under the administration of the Bureau of Lands, to which the application
was submitted, xxx All of its acts prior thereof, including its real estate tax declarations,
characterized its possessions of the land as that of a sales applicant. And consequently, as one
who expects to buy it, but has not as yet done so, and is not, therefore, its owner.(Palawan
Agricultural and Industrial Co., Inc. vs. Director of Lands, L-25914, March 21, 1972, 44 SCRA
15).

Clearly, this issue falls under the primary jurisdiction of the Director of Lands
because its resolution requires survey, classification, xxx disposition and management
of the lands of the public domain. It follows that his rulings deserve great respect. As
petitioner failed to show that this factual finding of the Director of Lands was
58
unsupported by substantial evidence, it assumes finality. Thus, both the trial and the
appellate courts correctly relied on such finding.[37] We can do no less.

Second Issue: No Simulation of Contracts Proven

Petitioner insists that contrary to Article 1371[38] of the Civil Code, Respondent
Court erroneously ignored the contemporaneous and subsequent acts of the parties;
hence, it failed to ascertain their true intentions. However, the rule on the interpretation
of contracts that was alluded to by petitioner is used in affirming, not negating, their
validity. Thus, Article 1373,[39] which is a conjunct of Article 1371, provides that, if the
instrument is susceptible of two or more interpretations, the interpretation which will
make it valid and effectual should be adopted. In this light, it is not difficult to
understand that the legal basis urged by petitioner does not support his allegation that
the contracts to sell and the deed of relinquishment are simulated and
fictitious. Properly understood, such rules on interpretation even negate petitioners
thesis.
But let us indulge the petitioner awhile and determine whether the cited
contemporaneous and subsequent acts of the parties support his allegation of
simulation.Petitioner asserts that the relinquishment of rights and the agreements to
sell were simulated because, first, the language and terms of said contracts negated
private respondents acquisition of ownership of the land in issue; and second,
contemporaneous and subsequent communications between him and private
respondent allegedly showed that the latter admitted that petitioner owned and
occupied the two parcels; i.e., that private respondent was not applying for said parcels
but was interested only in the two hectares it had leased, and that private respondent
supported petitioners application for a patent.
Petitioner explains that the Agreement to Sell dated December 7, 1948 did not and
could not transfer ownership because paragraph 8 (c) thereof stipulates that the
balance of twelve thousand pesos (P12,000.00) shall be paid upon the execution by
the First Party [petitioner] of the Absolute Deed of Sale of the two parcels of land in
question in favor of the Second Party, and upon delivery to the Second Party [private
respondent] of the Certificate of Ownership of the said two parcels of land. The
mortgage provisions in paragraphs 6 and 7 of the agreement state that the P7,000.00
and P5,000.00 were earnest money or a loan with antichresis by the free occupancy
and use given to Nasipit of the 140 hectares of land not anymore as a lessee. If the
agreement to sell transferred ownership to Nasipit, then why was it necessary to
require petitioner, in a second agreement, to mortgage his property in the event of
nonfulfillment of the prestations in the first agreement?
True, the agreement to sell did not absolutely transfer ownership of the land to
private respondent. This fact, however, does not show that the agreement was
simulated.Petitioners delivery of the Certificate of Ownership and execution of the deed
of absolute sale were suspensive conditions, which gave rise to a corresponding
obligation on the part of the private respondent, i.e., the payment of the last installment
of the consideration mentioned in the December 7, 1948 Agreement. Such conditions
did not affect the perfection of the contract or prove simulation. Neither did the
mortgage.
Simulation occurs when an apparent contract is a declaration of a fictitious will,
deliberately made by agreement of the parties, in order to produce, for the purpose of
deception, the appearance of a juridical act which does not exist or is different from
59
that which was really executed.[40] Such an intention is not apparent in the
agreements. The intent to sell, on the other hand, is as clear as daylight.
Petitioner alleges further that the deed of relinquishment of right did not give full
effect to the two agreements to sell, because the preliminary clauses of the deed
allegedly served only to give private respondent an interest in the property as a future
owner thereof and to enable respondent to follow up petitioners sales application.
We disagree. Such an intention is not indicated in the deed. On the contrary, a real
and factual sale is evident in paragraph 6 thereof, which states: That the Nasipit
Lumber Co., Inc., xxx is very much interested in acquiring the land covered by the
aforecited application to be used for purposes of mechanized farming and the
penultimate paragraph stating: xxx VICENTE J. VILLAFLOR, hereby voluntarily
renounce and relinquish whatever rights to, and interests I have in the land covered by
my above-mentioned application in favor of the Nasipit Lumber Co., Inc.
We also hold that no simulation is shown either in the letter, dated December 3,
1973, of the former field manager of private respondent, George Mear. A pertinent
portion of the letter reads:

(a)s regards your property at Acacia, San Mateo, I recall that we made some sort of agreement
for the occupancy, but I no longer recall the details and I had forgotten whether or not we
actually did occupy your land. But if, as you say, we did occupy it, then I am sure that the
Company is obligated to pay a rental.

The letter did not contain any express admission that private respondent was still
leasing the land from petitioner as of that date. According to Mear, he could no longer
recall the details of his agreement with petitioner. This cannot be read as evidence of
the simulation of either the deed of relinquishment or the agreements to sell. It is
evidence merely of an honest lack of recollection.
Petitioner also alleges that he continued to pay realty taxes on the land even after
the execution of said contracts. This is immaterial because payment of realty taxes
does not necessarily prove ownership, much less simulation of said contracts.[41]

Nonpayment of the Consideration

Did Not Prove Simulation

Petitioner insists that nonpayment of the consideration in the contracts proves their
simulation. We disagree. Nonpayment, at most, gives him only the right to sue for
collection. Generally, in a contract of sale, payment of the price is a resolutory
condition and the remedy of the seller is to exact fulfillment or, in case of a substantial
breach, to rescind the contract under Article 1191 of the Civil Code. [42] However, failure
to pay is not even a breach, but merely an event which prevents the vendors obligation
to convey title from acquiring binding force.[43]
Petitioner also argues that Respondent Court violated evidentiary rules in upholding
the ruling of the Director of Lands that petitioner did not present evidence to show
private respondents failure to pay him. We disagree. Prior to the amendment of the
rules on evidence on March 14, 1989, Section 1, Rule 131, states that each party must
prove his or her own affirmative allegations.[44] Thus, the burden of proof in any cause
rested upon the party who, as determined by the pleadings or the nature of the case,
asserts the affirmative of an issue and remains there until the termination of the

60
action.[45] Although nonpayment is a negative fact which need not be proved, the party
seeking payment is still required to prove the existence of the debt and the fact that it is
already due.[46]
Petitioner showed the existence of the obligation with the presentation of the
contracts, but did not present any evidence that he demanded payment from private
respondent. The demand letters dated January 2 and 5, 1974 (Exhs. J and U),
adduced in evidence by petitioner, were for the payment of back rentals, damages to
improvements and reimbursement of acquisition costs and realty taxes, not payment
arising from the contract to sell.
Thus, we cannot fault Respondent Court for adopting the finding of the Director of
Lands that petitioner offered no evidence to support his claim of nonpayment beyond
his own self-serving assertions, as he did not even demand payment, orally or in
writing, of the five thousand (P5,000.00) pesos which was supposed to be due him
since August 17, 1950, the date when the order of award was issued to Nasipit, and
when his cause of action to recover payment had accrued. Nonpayment of the
consideration in the contracts to sell or the deed of relinquishment was raised for the
first time in the protest filed with the Bureau of Lands on January 31, 1974. But this
protest letter was not the demand letter required by law.
Petitioner alleges that the assignment of credit and the letter of the former field
manager of private respondent are contemporaneous and subsequent acts revealing
the nonpayment of the consideration. He maintains that the P12,000.00 credit
assigned pertains to the P5,000.00 and P7,000.00 initial payments in the December 7,
1948 Agreement, because the balance of P12,000.00 was not yet due and
accruing. This is consistent, he argues, with the representation that private respondent
was not interested in filing a sales application over the land in issue and that Nasipit
was instead supporting petitioners application thereto in Mears letter to the Director of
Lands dated February 22, 1950 (Exh. X).[47]
This argument is too strained to be acceptable. The assignment of credit did not
establish the nondelivery of these initial payments of the total consideration. First, the
assignment of credit happened on January 19, 1949, or a month after the signing of
the December 7, 1948 Agreement and almost six months after the July 7, 1948
Agreement to Sell. Second, it does not overcome the recitation in the Agreement of
December 7, 1948:xxx a) The amount of SEVEN THOUSAND (P7,000.00) PESOS
has already been paid by the Second Party to the First Party upon the execution of the
Agreement to Sell, on July 7, 1948; b) The amount of FIVE THOUSAND (P5,000.00)
PESOS shall be paid upon the signing of this present agreement; xxx.
Aside from these facts, the Director of Lands found evidence of greater weight
showing that payment was actually made:[48]

x x x (T)here is strong evidence to show that said xxx (P12,000.00) had been paid by NASIPIT
to Edward J. Nell Company by virtue of the Deed of Assignment of Credit executed by
Villaflor (Exh. 41 NALCO) for the credit of the latter.

Atty. Gabriel Banaag, resident counsel of NASIPIT xxx declared that it was he who notarized
the Agreement to Sell (Exh. F); xxxx that subsequently, in January 1949, Villaflor executed a
Deed of Assignment of credit in favor of Edward J. Nell Company (Exh. 41 NALCO) whereby
Villaflor ceded to the latter his receivable for NASIPIT corresponding to the remaining balance
in the amount of xxx (P12,000.00) xxx of the total consideration xxxx; He further testified that
the said assignment xxx was communicated to NASIPIT under cover letter dated January 24,
1949 (Exh. 41-A) and not long thereafter, by virtue of the said assignment of credit, NASIPIT
61
paid the balance xxx to Edward J. Nell Company (p. 58, bid). Atty. Banaags aforesaid
testimony stand unrebutted; hence, must be given full weight and credit.

xxx xxx xxx.

The Director of Lands also found that there had been payment of the consideration
in the relinquishment of rights:[49]

On the other hand, there are strong and compelling reasons to presume that Villaflor had
already been paid the amount of Five Thousand (P5,000.00) Pesos.

First, x x x What is surprising, however, is not so much his claims consisting of gigantic
amounts as his having forgotten to adduce evidence to prove his claim of non-payment of the
Five Thousand (P5,000.00) Pesos during the investigation proceedings when he had all the time
and opportunity to do so. xxxx The fact that he did not adduce or even attempt to adduce
evidence in support thereof shows either that he had no evidence to offer of that NASIPIT had
already paid him in fact. What is worse is that Villaflor did not even bother to command
payment, orally or in writing, of the Five Thousand (P5,000.00) Pesos which was supposed to
be due him since August 17, 1950, the date when the order of award was issued to Nasipit, and
when his cause of action to recover payment had accrued. The fact that he only made a
command for payment on January 31, 1974, when he filed his protest or twenty-four (24) years
later is immediately nugatory of his claim for non-payment.

But Villaflor maintains that he had no knowledge or notice that the order of award had already
been issued to NASIPIT as he had gone to Indonesia and he had been absent from the
Philippines during all those twenty-four (24) years. This of course taxes credulity.xxxx

x x x It is more in keeping with the ordinary course of things that he should have acquired
information as to what was transpiring in his affairs in Manila x x x.

Second, it should be understood that the condition that NASIPIT should reimburse Villaflor the
amount of Five Thousand (P5,000.00) Pesos upon its receipt of the order of award was fulfilled
as said award was issued to NASIPIT on August 17, 1950. The said deed of relinquishment was
prepared and notarized in Manila with Villaflor and NASIPIT signing the instrument also in
Manila. Now, considering that Villaflor is presumed to be more assiduous in following up with
the Bureau of Lands the expeditious issuance of the order of award as the (consideration) would
depend on the issuance of said order to award NASIPIT, would it not be reasonable to believe
that Villaflor was at hand when the award was issued to NASIPIT on August 17, 1950, or
barely a day which he executed the deed of relinquishment on August 16, 1950, in
Manila? xxxx.

Third, on the other hand, NASIPIT has in his possession a sort of order upon itself -- (the deed
of relinquishment wherein he(sic) obligated itself to reimburse or pay Villaflor the xxx
consideration of the relinquishment upon its receipt of the order of award) for the payment of
the aforesaid amount the moment the order of award is issued to it. It is reasonable to presume
that NASIPIT has paid the (consideration) to Villaflor.

xxx xxx xxx

x x x (I)t was virtually impossible for NASIPIT, after the lapse of the intervening 24 years, to
be able to cope up with all the records necessary to show that the consideration for the deed of
relinquishment had been fully paid. To expect NASIPIT to keep intact all records pertinent to
the transaction for the whole quarter of a century would be to require what even the law does
62
not.Indeed, even the applicable law itself (Sec. 337, National Internal Revenue Code) requires
that all records of corporations be preserved for only a maximum of five years.

NASIPIT may well have added that at any rate while there are transactions where the proper
evidence is impossible or extremely difficult to produce after the lapse of time xxx the law
creates presumptions of regularity in favor of such transactions (20 Am. Jur. 232) so that when
the basic fact is established in an action the existence of the presumed fact must be assumed by
force of law. (Rule 13, Uniform Rules of Evidence; 9 Wigmore, Sec. 2491).

The Court also notes that Mears letter of February 22, 1950 was sent six months
prior to the execution of the deed of relinquishment of right. At the time of its writing,
private respondent had not perfected its ownership of the land to be able to qualify as a
sales applicant. Besides, although he was a party to the July 7, 1948 Agreement to
Sell, Mear was not a signatory to the Deed of Relinquishment or to the December 7,
1948 Agreement to Sell. Thus, he cannot be expected to know the existence of and the
amendments to the later contracts. These circumstances explain the mistaken
representations, not misrepresentations, in said letter.

Lack of Notice of the Award

Petitioner insists that private respondent suppressed evidence, pointing to his not
having been notified of the Order of Award dated August 17, 1950.[50] At the bottom of
page 2 of the order, petitioner was not listed as one of the parties who were to be
furnished a copy by Director of Lands Jose P. Dans. Petitioner also posits that Public
Land Inspector Sulpicio A. Taeza irregularly received the copies for both private
respondent and the city treasurer of Butuan City. The lack of notice for petitioner can
be easily explained. Plainly, petitioner was not entitled to said notice of award from the
Director of Lands, because by then, he had already relinquished his rights to the
disputed land in favor of private respondent. In the heading of the order, he was
referred to as sales applicant-assignor. In paragraph number 4, the order stated that,
on August 16, 1950, he relinquished his rights to the land subject of the award to
private respondent.From such date, the sales application was considered to be a
matter between the Bureau of Lands and private respondent only. Considering these
facts, the failure to give petitioner a copy of the notice of the award cannot be
considered as suppression of evidence.[51] Furthermore, this order was in fact available
to petitioner and had been referred to by him since January 31, 1974 when he filed his
protest with the Bureau of Lands.[52]

Third Issue: Private Respondent Qualified

for an Award of Public Land

Petitioner asserts that private respondent was legally disqualified from acquiring the
parcels of land in question because it was not authorized by its charter to acquire
disposable public agricultural lands under Sections 121, 122 and 123 of the Public
Land Act, prior to its amendment by P.D. No. 763. We disagree. The requirements for
a sales application under the Public Land Act are: (1) the possession of the
qualifications required by said Act (under Section 29) and (2) the lack of the
disqualifications mentioned therein (under Sections 121, 122, and 123). However, the
transfer of ownership via the two agreements dated July 7 and December 7, 1948 and
the relinquishment of rights, being private contracts, were binding only between
63
petitioner and private respondent.The Public Land Act finds no relevance because the
disputed land was covered by said Act only after the issuance of the order of award in
favor of private respondent. Thus, the possession of any disqualification by private
respondent under said Act is immaterial to the private contracts between the parties
thereto. (We are not, however, suggesting a departure from the rule that laws are
deemed written in contracts.) Consideration of said provisions of the Act will further
show their inapplicability to these contracts. Section 121 of the Act pertains to
acquisitions of public land by a corporation from a grantee, but petitioner never
became a grantee of the disputed land. On the other hand, private respondent itself
was the direct grantee. Sections 122 and 123 disqualify corporations, which are not
authorized by their charter, from acquiring public land; the records do not show that
private respondent was not so authorized under its charter.
Also, the determination by the Director of Lands and the Minister of Natural
Resources of the qualification of private respondent to become an awardee or grantee
under the Act is persuasive on Respondent Court. In Espinosa vs. Makalintal,[53] the
Court ruled that, by law, the powers of the Secretary of Agriculture and Natural
Resources regarding the disposition of public lands -- including the approval, rejection,
and reinstatement of applications are of executive and administrative nature. (Such
powers, however, do not include the judicial power to decide controversies arising from
disagreements in civil or contractual relations between the litigants.) Consequently, the
determination of whether private respondent is qualified to become an awardee of
public land under C.A. 141 by sales application is included therein.
All told, the only disqualification that can be imputed to private respondent is the
prohibition in the 1973 Constitution against the holding of alienable lands of the public
domain by corporations.[54] However, this Court earlier settled the matter, ruling that
said constitutional prohibition had no retroactive effect and could not prevail over
a vested right to the land. In Ayog vs. Cusi, Jr.,[55] this Court declared:

We hold that the said constitutional prohibition has no retroactive application to the sales
application of Bian Development Co., Inc. because it had already acquired a vested right to the
land applied for at the time the 1973 Constitution took effect.

That vested right has to be respected. It could not be abrogated by the new Constitution. Section
2, Article XIII of the 1935 Constitution allows private corporations to purchase public
agricultural lands not exceeding one thousand and twenty-four hectares. Petitioners prohibition
action is barred by the doctrine of vested rights in constitutional law.

A right is vested when the right to enjoyment has become the property of some particular
person or persons as a present interest. (16 C.J.S. 1173). It is the privilege to enjoy property
legally vested, to enforce contracts, and enjoy the rights of property conferred by existing law
(12 C.J. 955, Note 46, No. 6) or some right or interest in property which has become fixed and
established and is no longer open to doubt or controversy (Downs vs. Blount, 170 Fed. 15, 20,
cited in Balboa vs. Farrales, 51 Phil. 498, 502).

The due process clause prohibits the annihilation of vested rights. A state may not impair vested
rights by legislative enactment, by the enactment or by the subsequent repeal of a municipal
ordinance, or by a change in the constitution of the State, except in a legitimate exercise of the
police power (16 C.J.S. 1177-78).

It has been observed that, generally, the term vested right expresses the concept of present fixed
interest, which in right reason and natural justice should be protected against arbitrary State
64
action, or an innately just an imperative right which an enlightened free society, sensitive to
inherent and irrefragable individual rights, cannot deny (16 C.J.S. 1174, Note 71, No. 5, citing
Pennsylvania Greyhound Lines, Inc. vs. Rosenthal, 192 Atl. 2nd 587).

Secretary of Justice Abad Santos in his 1973 opinion ruled that where the applicant, before the
Constitution took effect, had fully complied with all his obligations under the Public Land Act
in order to entitle him to a sales patent, there would seem to be no legal or equitable
justification for refusing to issue or release the sales patent (p. 254, Rollo).

In Opinion No. 140, series of 1974, he held that as soon as the applicant had fulfilled the
construction or cultivation requirements and has fully paid the purchase price, he should be
deemed to have acquired by purchase the particular tract of land and to him the area limitation
in the new Constitution would not apply.

In Opinion No. 185, series of 1976, Secretary Abad Santos held that where the cultivation
requirements were fulfilled before the new Constitution took effect but the full payment of the
price was completed after January 17, 1973, the applicant was, nevertheless, entitled to a sales
patent (p. 256, Rollo).

Such a contemporaneous construction of the constitutional prohibition by a high executive

official carries great weight and should be accorded much respect. It is a correct interpretation
of section 11 of Article XIV.

In the instant case, it is incontestable that prior to the effectivity of the 1973 Constitution the
right of the corporation to purchase the land in question had become fixed and established and
was no longer open to doubt or controversy.

Its compliance with the requirements of the Public Land Law for the issuance of a patent had
the effect of segregating the said land from the public domain. The corporations right to obtain a
patent for that land is protected by law. It cannot be deprived of that right without due process
(Director of Lands vs. CA, 123 Phil. 919).

The Minister of Natural Resources ruled, and we agree, that private respondent
was similarly qualified to become an awardee of the disputed land because its rights to
it vested prior to the effectivity of the 1973 Constitution:[56]

Lastly, appellee has acquired a vested right to the subject area and, therefore, is deemed not
affected by the new constitutional provision that no private corporation may hold alienable land
of the public domain except by lease.

It may be recalled that the Secretary of Justice in his Opinion No. 64, series of 1973, had
declared, to wit:

On the other hand, with respect to sales application ready for issuance of sales patent, it is my
opinion that where the applicant had, before, the constitution took effect, fully complied with all
his obligations under the Public Land act in order to entitle him to sales patent, there would
seem to be not legal or equitable justification for refusing to issue or release the sales patent.

Implementing the aforesaid Opinion No. 64 xxx, the then Secretary of Agriculture and Natural
Resources issued a memorandum, dated February 18, 1974, which pertinently reads as follows:

65
In the implementation of the foregoing opinion, sales application of private individuals covering
areas in excess of 24 hectares and those of corporations, associations, or partnership which fall
under any of the following categories shall be given due course and issued patents, to wit:

Sales application for fishponds and for agricultural purposes (SFA, SA and IGPSA) wherein
prior to January 17, 1973,

a. the land covered thereby was awarded;

b. cultivation requirements of law were complied with as shown by investigation reports

submitted prior to January 17, 1973;

c. land was surveyed and survey returns already submitted to the Director of Lands for
verification and approval; and

d. purchase price was fully paid.

From the records, it is evident that the aforestated requisites have been complied with by
appellee long before January 17, 1973, the effectivity of the New Constitution. To restate, the
disputed area was awarded to appellee on August 17, 1950, the purchase price was fully paid on
July 26, 1951, the cultivation requirements were complied with as per investigation report dated
December 31, 1949, and the land was surveyed under Pls-97.

The same finding was earlier made by the Director of Lands:[57]

It is further contended by Villaflor that Nasipit has no juridical personality to apply for the
purchase of public lands for agricultural purposes. The records clearly show, however, that
since the execution of the deed of relinquishment of August 16, 1950, in favor of Nasipit,
Villaflor has always considered and recognized Nasipit as having the juridical personality to
acquire public lands for agricultural purposes. In the deed of relinquishment xxx, it is stated:

6. That the Nasipit Lumber Co., Inc., a corporation duly organized in accordance with the laws
of the Philippines, x x x.

Even this Office had not failed to recognize the juridical personality of Nasipit to apply for the
purchase of public lands xxx when it awarded to it the land so relinquished by Villaflor (Order
of Award dated August 17, 1950) and accepted its application therefor. At any rate, the question
whether an applicant is qualified to apply for the acquisition of public lands is a matter between
the applicant and this Office to decide and which a third party like Villaflor has no personality
to question beyond merely calling the attention of this Office thereto.

Needless to say, we also agree that the November 8, 1946 Lease Agreement
between petitioner and private respondent had been terminated by the agreements to
sell and the relinquishment of rights. By the time the verbal leases were allegedly
made in 1951 and 1955,[58] the disputed land had already been acquired and awarded
to private respondent. In any event, petitioners cause of action on these alleged lease
agreements prescribed long before he filed Civil Case No. 2072-III, as correctly found
by the trial and appellate courts.[59] Thus, it is no longer important, in this case, to pass
upon the issue of whether or not amendments to a lease contract can be proven by
parol evidence. The same holds true as regards the issue of forum-shopping.

66
 All in all, petitioner has not provided us sufficient reason to disturb the cogent
findings of the Director of Lands, the Minister of Natural Resources, the trial court and
the Court of Appeals.
WHEREFORE, the petition is hereby DISMISSED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 118712 October 6, 1995

LAND BANK OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS, PEDRO L. YAP, HEIRS OF EMILIANO F. SANTIAGO,
AGRICULTURAL MANAGEMENT & DEVELOPMENT CORP., respondents.

G.R. No. 118745 October 6, 1995

DEPARTMENT OF AGRARIAN REFORM, represented by the Secretary of

Agrarian Reform, petitioner,
vs.
COURT OF APPEALS, PEDRO L. YAP, HEIRS OF EMILIANO F. SANTIAGO,
AGRICULTURAL MANAGEMENT & DEVELOPMENT CORP., ET AL., respondents.

FRANCISCO, R., J.:

It has been declared that the duty of the court to protect the weak and the
underprivileged should not be carried out to such an extent as deny justice to the
landowner whenever truth and justice happen to be on his side.1 As eloquently stated
by Justice Isagani Cruz:

. . . social justice — or any justice for that matter — is for the deserving,
whether he be a millionaire in his mansion or a pauper in his hovel. It is true
that, in case of reasonable doubt, we are called upon to tilt the balance in
favor of the poor, to whom the Constitution fittingly extends its sympathy
and compassion. But never is it justified to prefer the poor simply because
they are poor, or to reject the rich simply because they are rich, for justice
must always be served, for poor and rich alike, according to the mandate of
the law.2

In this agrarian dispute, it is once more imperative that the aforestated principles be
applied in its resolution.

Separate petitions for review were filed by petitioners Department of Agrarian Reform
(DAR) (G.R. No. 118745) and Land Bank of the Philippines (G.R. No. 118712)
67
following the adverse ruling by the Court of Appeals in CA-G.R. SP No. 33465.
However, upon motion filed by private respondents, the petitions were ordered
consolidated.3

Petitioners assail the decision of the Court of Appeals promulgated on October 20,
1994, which granted private respondents' Petition for Certiorari and Mandamus and
ruled as follows:

WHEREFORE, premises considered, the Petition

for Certiorari and Mandamus is hereby GRANTED:

a) DAR Administrative Order No. 9, Series of 1990 is

declared null and void insofar as it provides for the opening of
trust accounts in lieu of deposits in cash or bonds;

b) Respondent Landbank is ordered to immediately deposit —

not merely "earmark", "reserve" or "deposit in trust" — with an
accessible bank designated by respondent DAR in the names
of the following petitioners the following amounts in cash and in
government financial instruments — within the parameters of
Sec. 18 (1) of RA 6657:

P 1,455,207.31 Pedro L. Yap

P 135,482.12 Heirs of Emiliano Santiago

P 15,914,127.77 AMADCOR;

c) The DAR-designated bank is ordered to allow the petitioners

to withdraw the above-deposited amounts without prejudice to
the final determination of just compensation by the proper
authorities; and

d) Respondent DAR is ordered to

1) immediately conduct summary administrative proceedings to
determine the just compensation for the lands of the petitioners
giving the petitioners 15 days from notice within which to submit
evidence and to 2) decide the cases within 30 days after they
are submitted for decision.4

Likewise, petitioners seek the reversal of the Resolution dated January 18,
1995,5 denying their motion for reconsideration.

Private respondents are landowners whose landholdings were acquired by the DAR
and subjected to transfer schemes to qualified beneficiaries under the Comprehensive
Agrarian Reform Law (CARL, Republic Act No. 6657).

Aggrieved by the alleged lapses of the DAR and the Landbank with respect to
the valuation and payment of compensation for their land pursuant to the
provisions of RA 6657, private respondents filed with this Court a Petition
for Certiorari and Mandamus with prayer for preliminary mandatory injunction.
Private respondents questioned the validity of DAR Administrative Order No. 6,
Series of 19926 and DAR Administrative Order No. 9, Series of 1990,7 and
68
 sought to compel the DAR to expedite the pending summary administrative
proceedings to finally determine the just compensation of their properties, and
the Landbank to deposit in cash and bonds the amounts respectively
"earmarked", "reserved" and "deposited in trust accounts" for private
respondents, and to allow them to withdraw the same.

Through a Resolution of the Second Division dated February 9, 1994, this Court
referred the petition to respondent Court of Appeals for proper determination and
disposition.

As found by respondent court , the following are undisputed:

Petitioner Pedro Yap alleges that "(o)n 4 September 1992 the transfer
certificates of title (TCTs) of petitioner Yap were totally cancelled by the
Registrar of Deeds of Leyte and were transferred in the names of farmer
beneficiaries collectively, based on the request of the DAR together with a
certification of the Landbank that the sum of P735,337.77 and P719,869.54
have been earmarked for Landowner Pedro L. Yap for the parcels of lands
covered by TCT Nos. 6282 and 6283, respectively, and issued in lieu
thereof TC-563 and TC-562, respectively, in the names of listed
beneficiaries (ANNEXES "C" & "D") without notice to petitioner Yap and
without complying with the requirement of Section 16 (e) of RA 6657 to
deposit the compensation in cash and Landbank bonds in an accessible
bank. (Rollo, p. 6).

The above allegations are not disputed by any of the respondents.

Petitioner Heirs of Emiliano Santiago allege that the heirs of Emiliano F.

Santiago are the owners of a parcel of land located at Laur, NUEVA ECIJA
with an area of 18.5615 hectares covered by TCT No. NT-60359 of the
registry of Deeds of Nueva Ecija, registered in the name of the late
Emiliano F. Santiago; that in November and December 1990, without notice
to the petitioners, the Landbank required and the beneficiaries executed
Actual tillers Deed of Undertaking (ANNEX "B") to pay rentals to the
LandBank for the use of their farmlots equivalent to at least 25% of the net
harvest; that on 24 October 1991 the DAR Regional Director issued an
order directing the Landbank to pay the landowner directly or through the
establishment of a trust fund in the amount of P135,482.12, that on 24
February 1992, the Landbank reserved in trust P135,482.12 in the name of
Emiliano F. Santiago. (ANNEX "E"; Rollo,
p. 7); that the beneficiaries stopped paying rentals to the landowners after
they signed the Actual Tiller's Deed of Undertaking committing themselves
to pay rentals to the LandBank (Rollo, p. 133).

The above allegations are not disputed by the respondents except that
respondent Landbank claims 1) that it was respondent DAR, not Landbank
which required the execution of Actual Tillers Deed of Undertaking (ATDU,
for brevity); and 2) that respondent Landbank, although armed with the
ATDU, did not collect any amount as rental from the substituting
beneficiaries (Rollo, p. 99).

69
 Petitioner Agricultural Management and Development Corporation
(AMADCOR, for brevity) alleges — with respect to its properties located in
San Francisco, Quezon — that the properties of AMADCOR in San
Francisco, Quezon consist of a parcel of land covered by TCT No. 34314
with an area of 209.9215 hectares and another parcel covered by TCT No.
10832 with an area of 163.6189 hectares; that a summary administrative
proceeding to determine compensation of the property covered by TCT No.
34314 was conducted by the DARAB in Quezon City without notice to the
landowner; that a decision was rendered on 24 November 1992 (ANNEX
"F") fixing the compensation for the parcel of land covered by TCT No.
34314 with an area of 209.9215 hectares at P2,768,326.34 and ordering
the Landbank to pay or establish a trust account for said amount in the
name of AMADCOR; and that the trust account in the amount of
P2,768,326.34 fixed in the decision was established by adding
P1,986,489.73 to the first trust account established on 19 December 1991
(ANNEX "G"). With respect to petitioner AMADCOR's property in Tabaco,
Albay, it is alleged that the property of AMADCOR in Tabaco, Albay is
covered by TCT No. T-2466 of the Register of Deeds of Albay with an area
of 1,629.4578 hectares'; that emancipation patents were issued covering
an area of 701.8999 hectares which were registered on 15 February 1988
but no action was taken thereafter by the DAR to fix the compensation for
said land; that on 21 April 1993, a trust account in the name of AMADCOR
was established in the amount of P12,247,217.83', three notices of
acquisition having been previously rejected by AMADCOR. (Rollo, pp. 8-9)

The above allegations are not disputed by the respondents except that
respondent Landbank claims that petitioner failed to participate in the
DARAB proceedings (land valuation case) despite due notice to it (Rollo, p.
100).8

Private respondents argued that Administrative Order No. 9, Series of 1990 was issued
without jurisdiction and with grave abuse of discretion because it permits the opening
of trust accounts by the Landbank, in lieu of depositing in cash or bonds in an
accessible bank designated by the DAR, the compensation for the land before it is
taken and the titles are cancelled as provided under Section 16(e) of RA 6657. 9 Private
respondents also assail the fact that the DAR and the Landbank merely "earmarked",
"deposited in trust" or "reserved" the compensation in their names as landowners
despite the clear mandate that before taking possession of the property, the
compensation must be deposited in cash or in bonds. 10

Petitioner DAR, however, maintained that Administrative Order No. 9 is a valid

exercise of its rule-making power pursuant to Section 49 of RA 6657.11 Moreover, the
DAR maintained that the issuance of the "Certificate of Deposit" by the Landbank was
a substantial compliance with Section 16(e) of RA 6657 and the ruling in the case
of Association of Small Landowners in the Philippines, Inc., et al. vs. Hon. Secretary of
Agrarian Reform, G.R. No. 78742, July 14, 1989 (175 SCRA 343).12

For its part, petitioner Landbank declared that the issuance of the Certificates of
Deposits was in consonance with Circular Nos. 29, 29-A and 54 of the Land
Registration Authority where the words "reserved/deposited" were also used.13

70
On October 20, 1994, the respondent court rendered the assailed decision in favor of
private respondents.14Petitioners filed a motion for reconsideration but respondent
court denied the same.15

Hence, the instant petitions.

On March 20, 1995, private respondents filed a motion to dismiss the petition in G.R.
No. 118745 alleging that the appeal has no merit and is merely intended to delay the
finality of the appealed decision.16 The Court, however, denied the motion and instead
required the respondents to file their comments.17

Petitioners submit that respondent court erred in (1) declaring as null and void DAR
Administrative Order No. 9, Series of 1990, insofar as it provides for the opening of
trust accounts in lieu of deposit in cash or in bonds, and (2) in holding that private
respondents are entitled as a matter of right to the immediate and provisional release
of the amounts deposited in trust pending the final resolution of the cases it has filed
for just compensation.

Anent the first assignment of error, petitioners maintain that the word "deposit" as used
in Section 16(e) of RA 6657 referred merely to the act of depositing and in no way
excluded the opening of a trust account as a form of deposit. Thus, in opting for the
opening of a trust account as the acceptable form of deposit through Administrative
Circular No. 9, petitioner DAR did not commit any grave abuse of discretion since it
merely exercised its power to promulgate rules and regulations in implementing the
declared policies of RA 6657.

The contention is untenable. Section 16(e) of RA 6657 provides as follows:

Sec. 16. Procedure for Acquisition of Private Lands —

xxx xxx xxx

(e) Upon receipt by the landowner of the corresponding payment or, in

case of rejection or no response from the landowner, upon the deposit with
an accessible bank designated by the DAR of the compensation in cash or
in LBP bonds in accordance with this Act, the DAR shall take immediate
possession of the land and shall request the proper Register of Deeds to
issue a Transfer Certificate of Title (TCT) in the name of the Republic of the
Philippines. . . . (emphasis supplied)

It is very explicit therefrom that the deposit must be made only in "cash" or in "LBP
bonds". Nowhere does it appear nor can it be inferred that the deposit can be made in
any other form. If it were the intention to include a "trust account" among the valid
modes of deposit, that should have been made express, or at least, qualifying words
ought to have appeared from which it can be fairly deduced that a "trust account" is
allowed. In sum, there is no ambiguity in Section 16(e) of RA 6657 to warrant an
expanded construction of the term "deposit".

The conclusive effect of administrative construction is not absolute. Action of an

administrative agency may be disturbed or set aside by the judicial department if there
is an error of law, a grave abuse of power or lack of jurisdiction or grave abuse of
discretion clearly conflicting with either the letter or the spirit of a legislative
enactment.18 In this regard, it must be stressed that the function of promulgating rules
71
and regulations may be legitimately exercised only for the purpose of carrying the
provisions of the law into effect. The power of administrative agencies is thus confined
to implementing the law or putting it into effect. Corollary to this is that administrative
regulations cannot extend
the law and amend a legislative enactment,19 for settled is the rule that administrative
regulations must be in harmony with the provisions of the law. And in case there is a
discrepancy between the basic law and an implementing rule or regulation, it is the
former that prevails.20

In the present suit, the DAR clearly overstepped the limits of its power to enact rules
and regulations when it issued Administrative Circular No. 9. There is no basis in
allowing the opening of a trust account in behalf of the landowner as compensation for
his property because, as heretofore discussed, Section 16(e) of RA 6657 is very
specific that the deposit must be made only in "cash" or in "LBP bonds". In the same
vein, petitioners cannot invoke LRA Circular Nos. 29, 29-A and 54 because these
implementing regulations cannot outweigh the clear provision of the law. Respondent
court therefore did not commit any error in striking down Administrative Circular No. 9
for being null and void.

Proceeding to the crucial issue of whether or not private respondents are entitled to
withdraw the amounts deposited in trust in their behalf pending the final resolution of
the cases involving the final valuation of their properties, petitioners assert the
negative.

The contention is premised on the alleged distinction between the deposit of

compensation under Section 16(e) of RA 6657 and payment of final compensation as
provided under Section 1821 of the same law. According to petitioners, the right of the
landowner to withdraw the amount deposited in his behalf pertains only to the final
valuation as agreed upon by the landowner, the DAR and the LBP or that adjudged by
the court. It has no reference to amount deposited in the trust account pursuant to
Section 16(e) in case of rejection by the landowner because the latter amount is only
provisional and intended merely to secure possession of the property pending final
valuation. To further bolster the contention petitioners cite the following
pronouncements in the case of "Association of Small Landowners in the Phil. Inc. vs.
Secretary of Agrarian Reform".22

The last major challenge to CARP is that the landowner is divested of his
property even before actual payment to him in full of just compensation, in
contravention of a well-accepted principle of eminent domain.

xxx xxx xxx

The CARP Law, for its part conditions the transfer of possession and
ownership of the land to the government on receipt by the landowner of the
corresponding payment or the deposit by the DAR of the compensation in
cash or LBP bonds with an accessible bank. Until then, title also remains
with the landowner. No outright change of ownership is contemplated
either.

xxx xxx xxx

72
 Hence the argument that the assailed measures violate due process by
arbitrarily transferring title before the land is fully paid for must also be
rejected.

Notably, however, the aforecited case was used by respondent court in discarding
petitioners' assertion as it found that:

. . . despite the "revolutionary" character of the expropriation envisioned

under RA 6657 which led the Supreme Court, in the case of Association of
Small Landowners in the Phil. Inc. vs. Secretary of Agrarian Reform (175
SCRA 343), to conclude that "payments of the just compensation is not
always required to be made fully in money" — even as the Supreme Court
admits in the same case "that the traditional medium for the payment of just
compensation is money and no other" — the Supreme Court in said case
did not abandon the "recognized rule . . . that title to the property
expropriated shall pass from the owner to the expropriator only upon full
payment of the just compensation." 23 (Emphasis supplied)

We agree with the observations of respondent court. The ruling in the "Association"
case merely recognized the extraordinary nature of the expropriation to be undertaken
under RA 6657 thereby allowing a deviation from the traditional mode of payment of
compensation and recognized payment other than in cash. It did not, however,
dispense with the settled rule that there must be full payment of just compensation
before the title to the expropriated property is transferred.

The attempt to make a distinction between the deposit of compensation under Section
16(e) of RA 6657 and determination of just compensation under Section 18 is
unacceptable. To withhold the right of the landowners to appropriate the amounts
already deposited in their behalf as compensation for their properties simply because
they rejected the DAR's valuation, and notwithstanding that they have already been
deprived of the possession and use of such properties, is an oppressive exercise of
eminent domain. The irresistible expropriation of private respondents' properties was
painful enough for them. But petitioner DAR rubbed it in all the more by withholding
that which rightfully belongs to private respondents in exchange for the taking, under
an authority (the "Association" case) that is, however, misplaced. This is misery twice
bestowed on private respondents, which the Court must rectify.

Hence, we find it unnecessary to distinguish between provisional compensation under

Section 16(e) and final compensation under Section 18 for purposes of exercising the
landowners' right to appropriate the same. The immediate effect in both situations is
the same, the landowner is deprived of the use and possession of his property for
which he should be fairly and immediately compensated. Fittingly, we reiterate the
cardinal rule that:

. . . within the context of the State's inherent power of eminent domain, just
compensation means not only the correct determination of the amount to
be paid to the owner of the land but also the payment of the land within a
reasonable time from its taking. Without prompt payment, compensation
cannot be considered "just" for the property owner is made to suffer the
consequence of being immediately deprived of his land while being made
to wait for a decade or more before actually receiving the amount
necessary to cope with his loss. 24 (Emphasis supplied)
73
The promulgation of the "Association" decision endeavored to remove all legal
obstacles in the implementation of the Comprehensive Agrarian Reform Program and
clear the way for the true freedom of the farmer.25 But despite this, cases involving its
implementation continue to multiply and clog the courts' dockets. Nevertheless, we are
still optimistic that the goal of totally emancipating the farmers from their bondage will
be attained in due time. It must be stressed, however, that in the pursuit of this
objective, vigilance over the rights of the landowners is equally important because
social justice cannot be invoked to trample on the rights of property owners, who under
our Constitution and laws are also entitled to protection.26

WHEREFORE, the foregoing premises considered, the petition is hereby DENIED for
lack of merit and the appealed decision is AFFIRMED in toto.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-32166 October 18, 1977

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,

vs.
HON. MAXIMO A. MACEREN CFI, Sta. Cruz, Laguna, JOSE BUENAVENTURA,
GODOFREDO REYES, BENJAMIN REYES, NAZARIO AQUINO and CARLO DEL
ROSARIO, accused-appellees.

Office of the Solicitor General for appellant.

Rustics F. de los Reyes, Jr. for appellees.

AQUINO, J.:têñ.£îhqwâ£

This is a case involving the validity of a 1967 regulation, penalizing electro fishing in
fresh water fisheries, promulgated by the Secretary of Agriculture and Natural
Resources and the Commissioner of Fisheries under the old Fisheries Law and the law
creating the Fisheries Commission.

On March 7, 1969 Jose Buenaventura, Godofredo Reyes, Benjamin Reyes, Nazario

Aquino and Carlito del Rosario were charged by a Constabulary investigator in the
municipal court of Sta. Cruz, Laguna with having violated Fisheries Administrative
Order No. 84-1.

It was alleged in the complaint that the five accused in the morning of March 1, 1969
resorted to electro fishing in the waters of Barrio San Pablo Norte, Sta. Cruz by "using
their own motor banca, equipped with motor; with a generator colored green with
attached dynamo colored gray or somewhat white; and electrocuting device locally
known as sensored with a somewhat webbed copper wire on the tip or other end of a
bamboo pole with electric wire attachment which was attached to the dynamo direct
74
and with the use of these devices or equipments catches fish thru electric current,
which destroy any aquatic animals within its cuffed reach, to the detriment and
prejudice of the populace" (Criminal Case No. 5429).

Upon motion of the accused, the municipal court quashed the complaint. The
prosecution appealed. The Court of First Instance of Laguna affirmed the order of
dismissal (Civil Case No. SC-36). The case is now before this Court on appeal by the
prosecution under Republic Act No. 5440.

The lower court held that electro fishing cannot be penalize because electric current is
not an obnoxious or poisonous substance as contemplated in section I I of the
Fisheries Law and that it is not a substance at all but a form of energy conducted or
transmitted by substances. The lower court further held that, since the law does not
clearly prohibit electro fishing, the executive and judicial departments cannot consider
it unlawful.

As legal background, it should be stated that section 11 of the Fisheries Law prohibits
"the use of any obnoxious or poisonous substance" in fishing.

Section 76 of the same law punishes any person who uses an obnoxious or poisonous
substance in fishing with a fine of not more than five hundred pesos nor more than five
thousand, and by imprisonment for not less than six months nor more than five years.

It is noteworthy that the Fisheries Law does not expressly punish .electro fishing."
Notwithstanding the silence of the law, the Secretary of Agriculture and Natural
Resources, upon the recommendation of the Commissioner of Fisheries, promulgated
Fisheries Administrative Order No. 84 (62 O.G. 1224), prohibiting electro fishing in all
Philippine waters. The order is quoted below: ñé+.£ªwph!1

SUBJECT: PROHIBITING ELECTRO FISHING IN ALL

WATERS ñé+.£ªwph!1

OF THE PHILIPPINES.

Pursuant to Section 4 of Act No. 4003, as amended, and Section 4 of R.A. No. 3512,
the following rules and regulations regarding the prohibition of electro fishing in all
waters of the Philippines are promulgated for the information and guidance of all
concerned.ñé+.£ªwph!1

SECTION 1. — Definition. — Words and terms used in this Order 11

construed as follows:

(a) Philippine waters or territorial waters of the Philippines' includes all

waters of the Philippine Archipelago, as defined in the t between the United
States and Spain, dated respectively the tenth of December, eighteen
hundred ninety eight and the seventh of November, nineteen hundred. For
the purpose of this order, rivers, lakes and other bodies of fresh waters are
included.

(b) Electro Fishing. — Electro fishing is the catching of fish with the use of
electric current. The equipment used are of many electrical devices which
may be battery or generator-operated and from and available source of
electric current.
75
 (c) 'Persons' includes firm, corporation, association, agent or employee.

(d) 'Fish' includes other aquatic products.

SEC. 2. — Prohibition. — It shall be unlawful for any person to engage in

electro fishing or to catch fish by the use of electric current in any portion of
the Philippine waters except for research, educational and scientific
purposes which must be covered by a permit issued by the Secretary of
Agriculture and Natural Resources which shall be carried at all times.

SEC. 3. — Penalty. — Any violation of the provisions of this Administrative

Order shall subject the offender to a fine of not exceeding five hundred
pesos (P500.00) or imprisonment of not extending six (6) months or both at
the discretion of the Court.

SEC. 4. — Repealing Provisions. — All administrative orders or parts

thereof inconsistent with the provisions of this Administrative Order are
hereby revoked.

SEC. 5. — Effectivity. — This Administrative Order shall take effect six (60)
days after its publication in the Office Gazette.

On June 28, 1967 the Secretary of Agriculture and Natural Resources, upon the
recommendation of the Fisheries Commission, issued Fisheries Administrative Order
No. 84-1, amending section 2 of Administrative Order No. 84, by restricting the ban
against electro fishing to fresh water fisheries (63 O.G. 9963).

Thus, the phrase "in any portion of the Philippine waters" found in section 2, was
changed by the amendatory order to read as follows: "in fresh water fisheries in the
Philippines, such as rivers, lakes, swamps, dams, irrigation canals and other bodies of
fresh water."

The Court of First Instance and the prosecution (p. 11 of brief) assumed that electro
fishing is punishable under section 83 of the Fisheries Law (not under section 76
thereof), which provides that any other violation of that law "or of any rules and
regulations promulgated thereunder shall subject the offender to a fine of not more
than two hundred pesos (P200), or in t for not more than six months, or both, in the
discretion of the court."

That assumption is incorrect because 3 of the aforequoted Administrative Order No. 84

imposes a fm of not exceeding P500 on a person engaged in electro fishing, which
amount the 83. It seems that the Department of Fisheries prescribed their own penalty
for swift fishing which penalty is less than the severe penalty imposed in section 76
and which is not Identified to the at penalty imposed in section 83.

Had Administrative Order No. 84 adopted the fighter penalty prescribed in on 83, then
the crime of electro fishing would be within the exclusive original jurisdiction of the
inferior court (Sec. 44 [f], Judiciary Law; People vs. Ragasi, L-28663, September 22,

We have discussed this pre point, not raised in the briefs, because it is obvious that the
crime of electro fishing which is punishable with a sum up to P500, falls within
the concurrent original jurisdiction of the inferior courts and the Court of First instance

76
(People vs. Nazareno, L-40037, April 30, 1976, 70 SCRA 531 and the cases cited
therein).

And since the instant case was filed in the municipal court of Sta. Cruz, Laguna, a
provincial capital, the order of d rendered by that municipal court was directly
appealable to the Court, not to the Court of First Instance of Laguna (Sec. 45 and last
par. of section 87 of the Judiciary Law; Esperat vs. Avila, L-25992, June 30, 1967, 20
SCRA 596).

It results that the Court of First Instance of Laguna had no appellate jurisdiction over
the case. Its order affirming the municipal court's order of dismissal is void for lack of
motion. This appeal shall be treated as a direct appeal from the municipal court to this
Court. (See People vs. Del Rosario, 97 Phil. 67).

In this appeal, the prosecution argues that Administrative Orders Nos. 84 and 84-1
were not issued under section 11 of the Fisheries Law which, as indicated above,
punishes fishing by means of an obnoxious or poisonous substance. This contention is
not well-taken because, as already stated, the Penal provision of Administrative Order
No. 84 implies that electro fishing is penalized as a form of fishing by means of an
obnoxious or poisonous substance under section 11.

The prosecution cites as the legal sanctions for the prohibition against electro fishing in
fresh water fisheries (1) the rule-making power of the Department Secretary under
section 4 of the Fisheries Law; (2) the function of the Commissioner of Fisheries to
enforce the provisions of the Fisheries Law and the regulations Promulgated
thereunder and to execute the rules and regulations consistent with the purpose for the
creation of the Fisheries Commission and for the development of fisheries (Sec. 4[c]
and [h] Republic Act No. 3512; (3) the declared national policy to encourage, Promote
and conserve our fishing resources (Sec. 1, Republic Act No. 3512), and (4) section 83
of the Fisheries Law which provides that "any other violation of" the Fisheries Law or of
any rules and regulations promulgated thereunder "shall subject the offender to a fine
of not more than two hundred pesos, or imprisonment for not more than six months, or
both, in the discretion of the court."

As already pointed out above, the prosecution's reference to section 83 is out of place
because the penalty for electro fishing under Administrative order No. 84 is not the
same as the penalty fixed in section 83.

We are of the opinion that the Secretary of Agriculture and Natural Resources and the
Commissioner of Fisheries exceeded their authority in issuing Fisheries Administrative
Orders Nos. 84 and 84-1 and that those orders are not warranted under the Fisheries
Commission, Republic Act No. 3512.

The reason is that the Fisheries Law does not expressly prohibit electro fishing. As
electro fishing is not banned under that law, the Secretary of Agriculture and Natural
Resources and the Commissioner of Fisheries are powerless to penalize it. In other
words, Administrative Orders Nos. 84 and 84-1, in penalizing electro fishing, are
devoid of any legal basis.

Had the lawmaking body intended to punish electro fishing, a penal provision to that
effect could have been easily embodied in the old Fisheries Law.

77
That law punishes (1) the use of obnoxious or poisonous substance, or explosive in
fishing; (2) unlawful fishing in deepsea fisheries; (3) unlawful taking of marine molusca,
(4) illegal taking of sponges; (5) failure of licensed fishermen to report the kind and
quantity of fish caught, and (6) other violations.

Nowhere in that law is electro fishing specifically punished. Administrative Order No.
84, in punishing electro fishing, does not contemplate that such an offense fails within
the category of "other violations" because, as already shown, the penalty for electro
fishing is the penalty next lower to the penalty for fishing with the use of obnoxious or
poisonous substances, fixed in section 76, and is not the same as the penalty for
"other violations" of the law and regulations fixed in section 83 of the Fisheries Law.

The lawmaking body cannot delegate to an executive official the power to declare what
acts should constitute an offense. It can authorize the issuance of regulations and the
imposition of the penalty provided for in the law itself. (People vs. Exconde 101 Phil. 11
25, citing 11 Am. Jur. 965 on p. 11 32).

Originally, Administrative Order No. 84 punished electro fishing in all waters. Later, the
ban against electro fishing was confined to fresh water fisheries. The amendment
created the impression that electro fishing is not condemnable per se. It could be
tolerated in marine waters. That circumstances strengthens the view that the old law
does not eschew all forms of electro fishing.

However, at present, there is no more doubt that electro fishing is punishable under the
Fisheries Law and that it cannot be penalized merely by executive revolution because
Presidential Decree No. 704, which is a revision and consolidation of all laws and
decrees affecting fishing and fisheries and which was promulgated on May 16, 1975
(71 O.G. 4269), expressly punishes electro fishing in fresh water and salt water areas.

That decree provides: ñé+.£ªwph!1

SEC. 33. — Illegal fishing, dealing in illegally caught fish or fishery/aquatic

products. — It shall he unlawful for any person to catch, take or gather or
cause to be caught, taken or gathered fish or fishery/aquatic products in
Philippine waters with the use of explosives, obnoxious or poisonous
substance, or by the use of electricity as defined in paragraphs (1), (m) and
(d), respectively, of Section 3 hereof: ...

The decree Act No. 4003, as amended, Republic Acts Nos. 428, 3048, 3512 and 3586,
Presidential Decrees Nos. 43, 534 and 553, and all , Acts, Executive Orders, rules and
regulations or parts thereof inconsistent with it (Sec. 49, P. D. No. 704).

The inclusion in that decree of provisions defining and penalizing electro fishing is a
clear recognition of the deficiency or silence on that point of the old Fisheries Law. It is
an admission that a mere executive regulation is not legally adequate to penalize
electro fishing.

Note that the definition of electro fishing, which is found in section 1 (c) of Fisheries
Administrative Order No. 84 and which is not provided for the old Fisheries Law, is now
found in section 3(d) of the decree. Note further that the decree penalty electro fishing
by "imprisonment from two (2) to four (4) years", a punishment which is more severe
than the penalty of a time of not excluding P500 or imprisonment of not more than six
months or both fixed in section 3 of Fisheries Administrative Order No. 84.
78
An examination of the rule-making power of executive officials and administrative
agencies and, in particular, of the Secretary of Agriculture and Natural Resources (now
Secretary of Natural Resources) under the Fisheries Law sustains the view that he ex
his authority in penalizing electro fishing by means of an administrative order.

Administrative agent are clothed with rule-making powers because the lawmaking body
finds it impracticable, if not impossible, to anticipate and provide for the multifarious
and complex situations that may be encountered in enforcing the law. All that is
required is that the regulation should be germane to the defects and purposes of the
law and that it should conform to the standards that the law prescribes (People vs.
Exconde 101 Phil. 1125; Director of Forestry vs. Muñ;oz, L-24796, June 28, 1968, 23
SCRA 1183, 1198; Geukeko vs. Araneta, 102 Phil. 706, 712).

The lawmaking body cannot possibly provide for all the details in the enforcement of a
particular statute (U.S. vs. Tupasi Molina, 29 Phil. 119, 125, citing U.S. vs. Grimaud
220 U.S. 506; Interprovincial Autobus Co., Inc. vs. Coll. of Internal Revenue, 98 Phil.
290, 295-6).

The grant of the rule-making power to administrative agencies is a relaxation of the

principle of separation of powers and is an exception to the nondeleption of legislative,
powers. Administrative regulations or "subordinate legislation calculated to promote the
public interest are necessary because of "the growing complexity of modem life, the
multiplication of the subjects of governmental regulations, and the increased difficulty
of administering the law" Calalang vs. Williams, 70 Phil. 726; People vs. Rosenthal and
Osmeñ;a, 68 Phil. 328).

Administrative regulations adopted under legislative authority by a particular

department must be in harmony with the provisions of the law, and should be for the
sole purpose of carrying into effect its general provisions. By such regulations, of
course, the law itself cannot be extended. (U.S. vs. Tupasi Molina, supra). An
administrative agency cannot amend an act of Congress (Santos vs. Estenzo, 109
Phil. 419, 422; Teoxon vs. Members of the d of Administrators, L-25619, June 30,
1970, 33 SCRA 585; Manuel vs. General Auditing Office, L-28952, December 29,
1971, 42 SCRA 660; Deluao vs. Casteel, L-21906, August 29, 1969, 29 SCRA 350).

The rule-making power must be confined to details for regulating the mode or
proceeding to carry into effect the law as it his been enacted. The power cannot be
extended to amending or expanding the statutory requirements or to embrace matters
not covered by the statute. Rules that subvert the statute cannot be sanctioned.
(University of Santo Tomas vs. Board of Tax A 93 Phil. 376, 382, citing 12 C.J. 845-46.
As to invalid regulations, see of Internal Revenue vs. Villaflor 69 Phil. 319, Wise & Co.
vs. Meer, 78 Phil. 655, 676; Del March vs. Phil. Veterans Administrative, L-27299,
June 27, 1973, 51 SCRA 340, 349).

There is no question that the Secretary of Agriculture and Natural Resources has rule-
making powers. Section 4 of the Fisheries law provides that the Secretary "shall from
time to time issue instructions, orders, and regulations consistent" with that law, "as
may be and proper to carry into effect the provisions thereof." That power is now
vested in the Secretary of Natural Resources by on 7 of the Revised Fisheries law,
Presidential December No. 704.

79
Section 4(h) of Republic Act No. 3512 empower the Co of Fisheries "to prepare and
execute upon the approval of the Secretary of Agriculture and Natural Resources,
forms instructions, rules and regulations consistent with the purpose" of that enactment
"and for the development of fisheries."

Section 79(B) of the Revised Administrative Code provides that "the Department Head
shall have the power to promulgate, whenever he may see fit do so, all rules,
regulates, orders, memorandums, and other instructions, not contrary to law, to
regulate the proper working and harmonious and efficient administration of each and
all of the offices and dependencies of his Department, and for the strict enforcement
and proper execution of the laws relative to matters under the jurisdiction of said
Department; but none of said rules or orders shall prescribe penalties for the violation
thereof, except as expressly authorized by law."

Administrative regulations issued by a Department Head in conformity with law have

the force of law (Valerie vs. Secretary of culture and Natural Resources, 117 Phil. 729,
733; Antique Sawmills, Inc. vs. Zayco, L- 20051, May 30, 1966, 17 SCRA 316). As he
exercises the rule-making power by delegation of the lawmaking body, it is a requisite
that he should not transcend the bound demarcated by the statute for the exercise of
that power; otherwise, he would be improperly exercising legislative power in his own
right and not as a surrogate of the lawmaking body.

Article 7 of the Civil Code embodies the basic principle that administrative or executive
acts, orders and regulations shall be valid only when they are not contrary to the laws
or the Constitution."

As noted by Justice Fernando, "except for constitutional officials who can trace their
competence to act to the fundamental law itself, a public office must be in the statute
relied upon a grant of power before he can exercise it." "department zeal may not be
permitted to outrun the authority conferred by statute." (Radio Communications of the
Philippines, Inc. vs. Santiago, L-29236, August 21, 1974, 58 SCRA 493, 496-8).

"Rules and regulations when promulgated in pursuance of the procedure or authority

conferred upon the administrative agency by law, partake of the nature of a statute,
and compliance therewith may be enforced by a penal sanction provided in the law.
This is so because statutes are usually couched in general terms, after expressing the
policy, purposes, objectives, remedies and sanctions intended by the legislature. The
details and the manner of carrying out the law are oftentimes left to the administrative
agency entrusted with its enforcement. In this sense, it has been said that rules and
regulations are the product of a delegated power to create new or additional legal
provisions that have the effect of law." The rule or regulation should be within the
scope of the statutory authority granted by the legislature to the administrative agency.
(Davis, Administrative Law, p. 194, 197, cited in Victories Milling Co., Inc. vs. Social
Security Commission, 114 Phil. 555, 558).

In case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails because said rule or regulation cannot go
beyond the terms and provisions of the basic law (People vs. Lim, 108 Phil. 1091).

This Court in its decision in the Lim case, supra, promulgated on July 26, 1960, called
the attention of technical men in the executive departments, who draft rules and
regulations, to the importance and necessity of closely following the legal provisions

80
which they intend to implement so as to avoid any possible misunderstanding or
confusion.

The rule is that the violation of a regulation prescribed by an executive officer of the
government in conformity with and based upon a statute authorizing such regulation
constitutes an offense and renders the offender liable to punishment in accordance
with the provisions of the law (U.S. vs. Tupasi Molina, 29 Phil. 119, 124).

In other words, a violation or infringement of a rule or regulation validly issued can

constitute a crime punishable as provided in the authorizing statute and by virtue of the
latter (People vs. Exconde 101 Phil. 1125, 1132).

It has been held that "to declare what shall constitute a crime and how it shall be
punished is a power vested exclusively in the legislature, and it may not be delegated
to any other body or agency" (1 Am. Jur. 2nd, sec. 127, p. 938; Texas Co. vs.
Montgomery, 73 F. Supp. 527).

In the instant case the regulation penalizing electro fishing is not strictly in accordance
with the Fisheries Law, under which the regulation was issued, because the law itself
does not expressly punish electro fishing.

The instant case is similar to People vs. Santos, 63 Phil. 300. The Santos case
involves section 28 of Fish and Game Administrative Order No. 2 issued by the
Secretary of Agriculture and Natural Resources pursuant to the aforementioned
section 4 of the Fisheries Law.

Section 28 contains the proviso that a fishing boat not licensed under the Fisheries
Law and under the said administrative order may fish within three kilometers of the
shoreline of islands and reservations over which jurisdiction is exercised by naval and
military reservations authorities of the United States only upon receiving written
permission therefor, which permission may be granted by the Secretary upon
recommendation of the military or naval authorities concerned. A violation of the
proviso may be proceeded against under section 45 of the Federal Penal Code.

Augusto A. Santos was prosecuted under that provision in the Court of First Instance
of Cavite for having caused his two fishing boats to fish, loiter and anchor without
permission from the Secretary within three kilometers from the shoreline of Corrigidor
Island.

This Court held that the Fisheries Law does not prohibit boats not subject to license
from fishing within three kilometers of the shoreline of islands and reservations over
which jurisdiction is exercised by naval and military authorities of the United States,
without permission from the Secretary of Agriculture and Natural Resources upon
recommendation of the military and naval authorities concerned.

As the said law does not penalize the act mentioned in section 28 of the administrative
order, the promulgation of that provision by the Secretary "is equivalent to legislating
on the matter, a power which has not been and cannot be delegated to him, it being
expressly reserved" to the lawmaking body. "Such an act constitutes not only an
excess of the regulatory power conferred upon the Secretary but also an exercise of a
legislative power which he does not have, and therefore" the said provision "is null and
void and without effect". Hence, the charge against Santos was dismiss.

81
A penal statute is strictly construed. While an administrative agency has the right to
make ranks and regulations to carry into effect a law already enacted, that power
should not be confused with the power to enact a criminal statute. An administrative
agency can have only the administrative or policing powers expressly or by necessary
implication conferred upon it. (Glustrom vs. State, 206 Ga. 734, 58 Second 2d 534;
See 2 Am. Jr. 2nd 129-130).

Where the legislature has delegated to executive or administrative officers and boards
authority to promulgate rules to carry out an express legislative purpose, the rules of
administrative officers and boards, which have the effect of extending, or which conflict
with the authority granting statute, do not represent a valid precise of the rule-making
power but constitute an attempt by an administrative body to legislate (State vs. Miles,
Wash. 2nd 322, 105 Pac. 2nd 51).

In a prosecution for a violation of an administrative order, it must clearly appear that

the order is one which falls within the scope of the authority conferred upon the
administrative body, and the order will be scrutinized with special care. (State vs.
Miles supra).

The Miles case involved a statute which authorized the State Game Commission "to
adopt, promulgate, amend and/or repeal, and enforce reasonable rules and regulations
governing and/or prohibiting the taking of the various classes of game.

Under that statute, the Game Commission promulgated a rule that "it shall be unlawful
to offer, pay or receive any reward, prize or compensation for the hunting, pursuing,
taking, killing or displaying of any game animal, game bird or game fish or any part
thereof."

Beryl S. Miles, the owner of a sporting goods store, regularly offered a ten-down cash
prize to the person displaying the largest deer in his store during the open for hunting
such game animals. For that act, he was charged with a violation of the rule
Promulgated by the State Game Commission.

It was held that there was no statute penalizing the display of game. What the statute
penalized was the taking of game. If the lawmaking body desired to prohibit the display
of game, it could have readily said so. It was not lawful for the administrative board to
extend or modify the statute. Hence, the indictment against Miles was quashed. The
Miles case is similar to this case.

WHEREFORE, the lower court's decision of June 9, 1970 is set aside for lack of
appellate jurisdiction and the order of dismissal rendered by the municipal court of Sta.
Cruz, Laguna in Criminal Case No. 5429 is affirmed. Costs de oficio. SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-15138 July 31, 1961

82
BILL MILLER, petitioner-appellee,
vs.
ATANACIO A. MARDO, and MANUEL GONZALES, respondents-appellants.

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

G.R. No. L-15377 July 31, 1961

NUMERIANA RAGANAS, plaintiff-appellant,

vs.
SEN BEE TRADING COMPANY, MACARIO TAN, and SERGIO TAN, defendants-
appellees.

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

G.R. No. L-16660 July 31, 1961

VICENTE ROMERO, petitioner-appellee,

vs.
ANGEL HERNANDO ETC., and SIA SENG, respondents-appellants.

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

G.R. No. L-16781 July 31, 1961

CHIN HUA TRADING COMPANY, and LAO KANG SUY, petitioners-appellees,

vs.
ATANACIO A. MARDO, JORGE BENEDICTO, and CRESENCIO
ESTAÑO, respondents-appellants.

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

G.R. No. L-17056 July 31, 1961

FRED WILSON & CO., INC., petitioner-appellant,

vs.
MELITON C. PARDUCHO, ETC., and MARIANO PABILIARE, respondents-
appellees.

R. L. Resurreccion for petitioner-appellee.

Paciano C. C. Villavieja for respondents-appellants.

BARRERA, J.:

These appeals, although originating from different Courts of First Instance, are here
treated together in this single decision because they present but one identical question
of law, namely, the validity of Reorganization Plan No. 20-A, prepared and submitted
by the Government Survey and Reorganization Commission under the authority of
Republic Act No. 997, as amended by Republic Act No. 1241, insofar as it confers
jurisdiction to the Regional Offices of the Department of Labor created in said Plan to
decide claims of laborers for wages, overtime and separation pay, etc.

In G.R. No. L-15138, Manuel Gonzales filed with Regional Office No. 3 of the
Department of Labor, in Manila, a complaint (IS-1148) against Bill Miller (owner and
83
manager of Miller Motors) claiming to be a driver of Miller from December 1, 1956 to
October 31, 1957, on which latter date he was allegedly arbitrarily dismissed, without
being paid separation pay. He prayed for judgement for the amount due him as
separation pay plus damages. Upon receipt of said complaint, Chief Hearing Officer
Atanacio Mardo of Regional Office No. 3 of the Department of Labor required Miller to
file an answer. Whereupon, Miller filed with the Court of First Instance of Baguio a
petition (Civil Case No. 759) praying for judgment prohibiting the Hearing Officer from
proceeding with the case, for the reason that said Hearing Officer had no jurisdiction to
hear and decide the subject matter of the complaint. The court then required the
Hearing Officer and Gonzales to answer and, as prayed for, issued a writ of preliminary
injunction. The latter file their separate motions to dismiss the petition, on the ground of
lack of jurisdiction, improper venue, and non-exhaustion of administrative remedies, it
being argued that pursuant to Republic Acts Nos. 997 and 1241, as implemented by
Executive Order No. 218, series of 1956 and Reorganization Plan No. 20-A, regional
offices of the Department of labor have exclusive and original jurisdiction over all cases
affecting money claims arising from violations of labor standards or working conditions.
Said motions to dismiss were denied by the court. Answers were then filed and the
case was heard. Thereafter, the court rendered a decision holding that Republic Acts
Nos. 997 and 1241, as well as Executive Order No. 218, series of 1956 and
Reorganization Plan No. 20-A issued pursuant thereto, did not repeal the provision of
the Judiciary Act conferring on courts of first instance original jurisdiction to take
cognizance of money claims arising from violations of labor standards. The question of
venue was also dismissed for being moot, the same having been already raised and
decided in a petition for certiorari and prohibition previously filed with this Court in G.R.
No. L-14007 (Mardo, etc. v. De Veyra, etc.) which was dismissed for lack of merit in
our resolution of July 7, 1958. From the decision of the Court of First Instance of
Baguio, respondents Hearing Officer and Gonzales interposed the present appeal now
before us.

In G.R. No. L-16781, Cresencio Estano filed with Regional Office No. 3 of the
Department of Labor, a complaint (RO 3 Ls. Case No. 874) against Chin Hua Trading
Co. and/or Lao Kang Suy and Ke Bon Chiong, as Manager and Assistant Manager
thereof, respectively, claiming to have been their driver from June 17, 1947 to June 4,
1955, for which service he was not paid overtime pay (for work in excess of 8 hours
and for Sundays and legal holidays) and vacation leave pay. He prayed for judgment
for the amount due him, plus attorney's fees. Chin Hua Trading, et al., filed their
answer and, issues having been joined, hearing thereof was started before Chief
Hearing Officer Atanacio Mardo and Hearing Officer Jorge Benedicto. Before trial of
the case could be terminated, however, Chin Hua Trading, et al., filed with the Court of
First Instance of Manila a petition for prohibition with preliminary injunction (Civil Case
No. 26826)), to restrain the hearing officers from proceeding with the disposition of the
case, on the ground that they have no jurisdiction to entertain the same, as
Reorganization Plan No. 20-A and Executive Order No. 218, series of 1956, in relation
to Republic Act No. 997, as amended by Republic Act No. 1241, empowering them to
adjudicate the complaint, is invalid or unconstitutional. As prayed for, a preliminary
injunction was issued by the court. After due hearing the court rendered a decision
holding that Reorganization Plan No. 20-A is null and void and therefore, granted the
writ of prohibition making permanent the preliminary injunction previously issued. From
this decision, the claimant and the hearing officers appealed to the Court of Appeals,
which certified the case to us, as it involves only questions of law.

84
In G.R. No. L-15377, appellant Numeriana Raganas filed with the Court of First
Instance of Cebu a complaint (Civil Case No. R-5535) against appellees Sen Bee
Trading Company, Macario Tan and Sergio Tan, claiming that she was employed by
appellees as a seamstress from June 5, 1952 to January 11, 1958, for which service
she was underpaid and was not given overtime, as well as vacation and sick leave
pay. She prayed for judgment on the amount due her for the same plus damages. To
said complaint, appellees filed a motion to dismiss, on the ground that the trial court
has no jurisdiction to hear the case as it involves a money claim and should, under
Reorganization Plan No. 20-A be filed with the Regional Office of the Department of
Labor; and there is pending before the regional office of the Department of Labor, a
claim for separation vacation, sick and maternity leave pay filed by the same plaintiff
(appellant) against the same defendants-appellees). Acting on said motion, the court
dismissed the case, relying on the provision of Section 25, Article VI of Reorganization
Plan No. 20-A and on our resolution in the case of NASSCO v. Arca, et al. (G.R. No. L-
12249, May 6, 1957). From this order, appellant Raganas appealed to the Court of
Appeals, but said court certified the case to us.

In G.R. No. L-16660, Vicente B. Romero filed with Regional Officer No. 2 of the
Department of Labor a complaint (Wage Case No. 196-W) against Sia Seng, for
recovery of alleged unpaid wages, overtime and separation pay. Sia Seng, filed an
answer. At the date set for hearing the latter did not appear despite due notice to him
and counsel. Upon his petition, Romero was allowed to present his evidence.
Thereafter, a decision was rendered by the Hearing Officer in favor of Romero. Upon
the latter's motion for execution, the records of the case were referred to Regional
Labor Administrator Angel Hernando for issuance of said writ of execution, being the
officer charged with the duty of issuing the same. Hernando, believing that Sia Seng
should be given a chance to present his evidence, refused to issue the writ of
execution and ordered a re-hearing. As a consequence, Romero filed with the Court of
First Instance of Isabela a petition for mandamus (Case No. Br. II-35) praying that an
order be issued commanding respondent Regional Labor Administrator to immediately
issue a writ of execution of the decision in Wage Case No. 196-W. To this petition,
respondent Regional Labor Administrator filed a motion to dismiss, on the ground that
it states no cause of action, but action thereon was deferred until the case is decided
on the merits. Sia Seng filed his answer questioning the validity of the rules and
regulations issued under the authority of Reorganization Plan No. 20-A. After hearing,
the court rendered a decision ordering, inter alia, respondent Regional Labor
Administrator to forthwith issue the corresponding writ of execution, as enjoined by
Section 48, of the Rules and Regulations No. 1 of the Labor Standards Commission.
From this decision of the Court of First Instance, Sia Seng and Regional Labor
Administrator Hernando appealed to us. Appellant Sia Seng urges in his appeal that
the trial court erred in not dismissing the petition, in spite of the fact that the decision
sought to be enforced by appellee Romero was rendered by a hearing officer who had
no authority to render the same, and in failing to hold that Reorganization Plan No. 20-
A was not validly passed as a statute and is unconstitutional.

In G.R. No. L-17056, Mariano Pabillare instituted in Regional Office No. 3 of the
Department of Labor a complaint (IS-2168) against petitioner Fred Wilson & Co., Inc.,
alleging that petitioner engaged his services as Chief Mechanic, Air conditioning
Department, from October 1947 to February 19, 1959, when he was summarily
dismissed without cause and without sufficient notice and separation pay. He also
claimed that during his employment he was not paid for overtime rendered by him. He
prayed for judgment for the amount due him for such overtime and separation pay.
85
Petitioner moved to dismiss the complaint, on the ground that said regional office
"being purely an administrative body, has no power, authority, nor jurisdiction to
adjudicate the claim sought to be recovered in the action." Said motion to dismiss
having been denied by respondent Hearing Officer Meliton Parducho, petitioner Fred
Wilson & Co., Inc. filed with the Court of First Instance of Manila a petition
for certiorari and prohibition, with preliminary injunction (Civil Case No. 41954) to
restrain respondent hearing officer from proceeding with the case, and praying, among
others, that Reorganization Plan No. 20-A, insofar as it vests original and exclusive
jurisdiction over money claims (to the exclusion of regular courts of justice) on the
Labor Standards Commission or the Regional Offices of the Department of Labor, be
declared null and void and unconstitutional. As prayed for, the court granted a writ of
preliminary injunction. Respondents Hearing Officer and Pabillare filed answer and the
case was heard. After hearing, the court rendered a decision declaring that "by the
force of Section 6 of R.A. No. 997, as amended by R.A. 1241, Plan No. 20-A was
deemed approved by Congress when it adjourned its session in 1956' (Res. of May 6,
1957 in National Shipyards Steel Corporation v. Vicente Area, G.R. No. L-12249). It
follows that the questioned reorganization Plan No. 20-A is valid.".

Petitioner Fred Wilson & Co., Inc. appealed directly to us from this decision.

The specific legal provision invoked for the authority of the regional offices to take
cognizance of the subject matter involved in these cases is paragraph 25 of Article VI
of Reorganization Plan No. 20-A, which is hereunder quoted:

25 Each regional office shall have original and exclusive jurisdiction over all
cases falling under the Workmen's Compensation law, and cases affecting all
money claims arising from violations of labor standards on working conditions
including but not restrictive to: unpaid wages, underpayment, overtime,
separation pay and maternity leave of employees and laborers; and unpaid
wages, overtime, separation pay, vacation pay and payment for medical services
of domestic help.

Under this provision, the regional offices have been given original and exclusive
jurisdiction over:

(a) all cases falling under the Workmen's Compensation law;

(b) all cases affecting money claims arising from violations of labor standards on
working conditions, unpaid wages, underpayment, overtime, separation pay and
maternity leave of employees and laborers; and .

(c) all cases for unpaid wages, overtime, separation pay, vacation pay and
payment for medical services of domestic help.

Before the effectivity of Reorganization Plan No. 20-A, however, the Department of
Labor, except the Workmen's Compensation Commission with respect to claims for
compensation under the Workmen's Compensation law, had no compulsory power to
settle cases under (b) and (c) above, the only authority it had being to mediate merely
or arbitrate when the parties so agree in writing, In case of refusal by a party to submit
to such settlement, the remedy is to file a complaint in the proper court.1

It is evident, therefore, that the jurisdiction to take cognizance of cases affecting money
claims such as those sought to be enforced in these proceedings, is a new conferment
86
of power to the Department of Labor not theretofore exercised by it. The question thus
presented by these cases is whether this is valid under our Constitution and applicable
statutes.

It is true that in Republic Act No. 1241, amending Section 4 of Republic Act 997, which
created the Government Survey and Reorganization Commission, the latter was
empowered —

(2) To abolish departments, offices, agencies, or functions which may not be

necessary, or create those which way be necessary for the efficient conduct of
the government service, activities, and functions. (Emphasis supplied.)

But these "functions" which could thus be created, obviously refer merely to
administrative, not judicial functions. For the Government Survey and Reorganization
Commission was created to carry out the reorganization of the Executive Branch of the
National Government (See Section 3 of R.A. No. 997, as amended by R.A. No. 1241),
which plainly did not include the creation of courts. And the Constitution expressly
provides that "the Judicial power shall be vested in one Supreme Court and in such
inferior courts as may be established by law.(Sec. 1, Art. VII of the Constitution). Thus,
judicial power rests exclusively in the judiciary. It may be conceded that the legislature
may confer on administrative boards or bodies quasi-judicial powers involving the
exercise of judgment and discretion, as incident to the performance of administrative
functions.2 But in so doing, the legislature must state its intention in express terms that
would leave no doubt, as even such quasi-judicial prerogatives must be limited, if they
are to be valid, only to those incidental to or in connection with the performance of
jurisdiction over a matter exclusively vested in the courts.3

If a statute itself actually passed by the Congress must be clear in its terms when
clothing administrative bodies with quasi-judicial functions, then certainly such
conferment can not be implied from a mere grant of power to a body such as the
Government Survey and Reorganization Commission to create "functions" in
connection with the reorganization of the Executive Branch of the Government.

And so we held in Corominas et al. v. Labor Standards Commission, et al. (G.R. No. L-
14837 and companion cases, June 30, 1961);

. . . it was not the intention of Congress, in enacting Republic Act No. 997, to
authorize the transfer of powers and jurisdiction granted to the courts of justice,
from these to the officials to be appointed or offices to be created by the
Reorganization Plan. Congress is well aware of the provisions of the Constitution
that judicial powers are vested 'only in the Supreme Court and in such courts as
the law may establish'. The Commission was not authorized to create courts of
justice, or to take away from these their jurisdiction and transfer said jurisdiction
to the officials appointed or offices created under the Reorganization Plan. The
Legislature could not have intended to grant such powers to the Reorganization
Commission, an executive body, as the Legislature may not and cannot delegate
its power to legislate or create courts of justice any other agency of the
Government. (Chinese Flour Importers Assoc. vs. Price Stabilization Board, G.R.
No. L-4465, July 12, 1951; Surigao Consolidated vs. Collector of Internal
Revenue G.R. No. L-5692, March 5, 1954; U.S. vs. Shreveport, 287 U.S. 77, 77
L. ed 175, and Johnson vs. San Diego, 42 P. 249, cited in 11 Am. Jur 921-922.)
(Emphasis supplied.)
87
But it is urged, in one of the cases, that the defect in the conferment of judicial or
quasi-judicial functions to the Regional offices, emanating from the lack of authority of
the Reorganization Commission has been cured by the non-disapproval of
Reorganization Plan No. 20-A by Congress under the provisions of Section 6(a) of
Republic Act No. 997, as amended. It is, in effect, argued that Reorganization Plan No.
20-A is not merely the creation of the Reorganization Commission, exercising its
delegated powers, but is in fact an act of Congress itself, a regular statute directly and
duly passed by Congress in the exercise of its legislative powers in the mode provided
in the enabling act.

The pertinent provision of Republic Act No. 997, as amended, invoked in favor of this
argument reads as follows:

SEC. 6 (a) The provisions of the reorganization plan or plans submitted by the
President during the Second Session of the Third Congress shall be deemed
approved after the adjournment of the said session, and those of the plan or
plans or modifications of any plan or plans to be submitted after the adjournment
of the Second Session, shall be deemed approved after the expiration of the
seventy session days of the Congress following the date on which the plan is
transmitted to it, unless between the date of transmittal and the expiration of such
period, either House by simple resolution disapproves the reorganization plan or
any, modification thereof. The said plan of reorganization or any modification
thereof may, likewise, be approved by Congress in a concurrent Resolution
within such period.

It is an established fact that the Reorganization Commission submitted Reorganization

Plan No. 20-A to the President who, in turn, transmitted the same to Congress on
February 14, 1956. Congress adjourned its sessions without passing a resolution
disapproving or adopting the said reorganization plan. It is now contended that,
independent of the matter of delegation of legislative authority (discussed earlier in this
opinion), said plan, nevertheless became a law by non-action on the part of Congress,
pursuant to the above-quoted provision.

Such a procedure of enactment of law by legislative in action is not countenanced in

this jurisdiction. By specific provision of the Constitution —

No bill shall be passed or become a law unless it shall have been printed and
copies thereof in its final form furnished the Members at least three calendar
clays prior to its passage by the National Assembly (Congress), except when the
President shall have certified to the necessity of its immediate enactment. Upon
the last reading of a bill no amendment thereof shall be allowed, and the question
upon its final passage shall be taken immediately thereafter, and
the yeas and nays entered on the Journal. (Sec. 21-[a], Art. VI).

Every bill passed by the Congress shall, before it becomes a law, be presented
to the President. If he approves the same, he shall sign it, but if not, he shall
return it with his objections to the House where it originated, which shall enter the
objections at large on its Journal and proceed to reconsider it. If, after such
reconsideration, two-thirds of all the Members of such House shall agree to pass
the bill, it shall be sent, together with the objections, to the other House by which
it shall likewise be reconsidered, and if approved by two-thirds of all the Members
voting for and against shall be entered on its journal. If any bill shall not be
88
 returned by the President as herein provided within twenty days (Sundays
excepted) after it shall have been presented to him, the same shall become a law
in like manner as if he has signed it, unless the Congress by adjournment
prevent its return, in which case it shall become a law unless vetoed by the
President within thirty days after adjournment. (Sec. 20[1]. Art. VI of the
Constitution).

A comparison between the procedure of enactment provided in section 6 (a) of the

Reorganization Act and that prescribed by the Constitution will show that the former is
in distinct contrast to the latter. Under the first, consent or approval is to be manifested
by silence or adjournment or by "concurrent resolution." In either case, the
contemplated procedure violates the constitutional provisions requiring positive and
separate action by each House of Congress. It is contrary to the "settled and well-
understood parliamentary law (which requires that the) two houses are to hold
separate sessions for their deliberations, and the determination of the one upon a
proposed law is to be submitted to the separate determination of the other," (Cooley,
Constitutional Limitations, 7th ed., p. 187).

Furthermore, Section 6 (a) of the Act would dispense with the "passage" of any
measure, as that word is commonly used and understood, and with the requirement
presentation to the President. In a sense, the section, if given the effect suggested in
counsel's argument, would be a reversal of the democratic processes required by the
Constitution, for under it, the President would propose the legislative action by action
taken by Congress. Such a procedure would constitute a very dangerous precedent
opening the way, if Congress is so disposed, because of weakness or indifference, to
eventual abdication of its legislative prerogatives to the Executive who, under our
Constitution, is already one of the strongest among constitutional heads of state. To
sanction such a procedure will be to strike at the very root of the tri-departmental
scheme four democracy.

Even in the United States (in whose Federal Constitution there is no counterpart to the
specific method of passaging laws prescribed in Section 21[2] of our Constitution) and
in England (under whose parliamentary system the Prime Minister, real head of the
Government, is a member of Parliament), the procedure outlined in Section 6(a) herein
before quoted, is but a technique adopted in the delegation of the rule-making power,
to preserve the control of the legislature and its share in the responsibility for the
adoption of proposed regulations.4 The procedure has ever been intended or utilized or
interpreted as another mode of passing or enacting any law or measure by the
legislature, as seems to be the impression expressed in one these cases.

On the basis of the foregoing considerations, we hold ad declare that Reorganization

Plan No. 20-A, insofar as confers judicial power to the Regional Offices over cases
other than these falling under the Workmen's Compensation on Law, is invalid and of
no effect.

This ruling does not affect the resolution of this Court in the case of National Steel &
Shipyards Corporation v. Arca et al., G.R. No. L-12249, dated May 6, 1957,
considering that the said case refers to a claim before the Workmen's Compensation
Commission, which exercised quasi-judicial powers even before the reorganization of
the Department of Labor.

WHEREFORE
89
(a) The decision of the Court of First Instance of Baguio involved in case G.R. No. L-
15138 is hereby affirmed, without costs;

(b) The decision of the Court of First Instance of Manila questioned in case G.R. No. L-
16781 is hereby affirmed, without costs;

(c) The order of dismissal issued by the Court of First Instance of Cebu appealed from
in case G.R. No. L-15377 is set aside and the case remanded to the court of origin for
further proceedings, without costs;

(d) In case G.R. No. L-16660, the decision of the Court of First Instance of Isabela,
directing the Regional Labor Administrator to issue a writ of execution of the order of
the Regional Office No. 2, is hereby reversed, without costs; and .

(e) In case G.R. No. L-17056, the decision rendered after hearing by the Court of First
Instance of Manila, dismissing the complaint for annulment of the proceedings before
the Regional office No. 3, is hereby reversed and the preliminary injunction at first
issued by the trial court is revived and made permanents without costs. SO
ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-16704 March 17, 1962

VICTORIAS MILLING COMPANY, INC., petitioner-appellant,

vs.
SOCIAL SECURITY COMMISSION, respondent-appellee.

Ross, Selph and Carrascoso for petitioner-appellant.

Office of the Solicitor General and Ernesto T. Duran for respondent-appellee.

BARRERA, J.:

On October 15, 1958, the Social Security Commission issued its Circular No. 22 of the
following tenor: .

Effective November 1, 1958, all Employers in computing the premiums due the
System, will take into consideration and include in the Employee's remuneration
all bonuses and overtime pay, as well as the cash value of other media of
remuneration. All these will comprise the Employee's remuneration or earnings,
upon which the 3-1/2% and 2-1/2% contributions will be based, up to a maximum
of P500 for any one month.

Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc., through
counsel, wrote the Social Security Commission in effect protesting against the circular
as contradictory to a previous Circular No. 7, dated October 7, 1957 expressly
excluding overtime pay and bonus in the computation of the employers' and
employees' respective monthly premium contributions, and submitting, "In order to
assist your System in arriving at a proper interpretationof the term 'compensation' for
90
the purposes of" such computation, their observations on Republic Act 1161 and its
amendment and on the general interpretation of the words "compensation",
"remuneration" and "wages". Counsel further questioned the validity of the circular for
lack of authority on the part of the Social Security Commission to promulgate it without
the approval of the President and for lack of publication in the Official Gazette.

Overruling these objections, the Social Security Commission ruled that Circular No. 22
is not a rule or regulation that needed the approval of the President and publication in
the Official Gazette to be effective, but a mere administrative interpretation of the
statute, a mere statement of general policy or opinion as to how the law should be
construed.

Not satisfied with this ruling, petitioner comes to this Court on appeal.

The single issue involved in this appeal is whether or not Circular No. 22 is a rule or
regulation, as contemplated in Section 4(a) of Republic Act 1161 empowering the
Social Security Commission "to adopt, amend and repeal subject to the approval of the
President such rules and regulations as may be necessary to carry out the provisions
and purposes of this Act."

There can be no doubt that there is a distinction between an administrative rule or

regulation and an administrative interpretation of a law whose enforcement is entrusted
to an administrative body. When an administrative agency promulgates rules and
regulations, it "makes" a new law with the force and effect of a valid law, while when it
renders an opinion or gives a statement of policy, it merely interprets a pre-existing law
(Parker, Administrative Law, p. 197; Davis, Administrative Law, p. 194). Rules and
regulations when promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, partake of the nature of a statute, and
compliance therewith may be enforced by a penal sanction provided in the law. This is
so because statutes are usually couched in general terms, after expressing the policy,
purposes, objectives, remedies and sanctions intended by the legislature. The details
and the manner of carrying out the law are often times left to the administrative agency
entrusted with its enforcement. In this sense, it has been said that rules and
regulations are the product of a delegated power to create new or additional legal
provisions that have the effect of law. (Davis, op. cit., p. 194.) .

A rule is binding on the courts so long as the procedure fixed for its promulgation is
followed and its scope is within the statutory authority granted by the legislature, even
if the courts are not in agreement with the policy stated therein or its innate wisdom
(Davis, op. cit., 195-197). On the other hand, administrative interpretation of the law is
at best merely advisory, for it is the courts that finally determine what the law means.

Circular No. 22 in question was issued by the Social Security Commission, in view of
the amendment of the provisions of the Social Security Law defining the term
"compensation" contained in Section 8 (f) of Republic Act No. 1161 which, before its
amendment, reads as follows: .

(f) Compensation — All remuneration for employment include the cash value of
any remuneration paid in any medium other than cash except (1) that part of the
remuneration in excess of P500 received during the month; (2) bonuses,
allowances or overtime pay; and (3) dismissal and all other payments which the
employer may make, although not legally required to do so.

91
Republic Act No. 1792 changed the definition of "compensation" to:

(f) Compensation — All remuneration for employment include the cash value of
any remuneration paid in any medium other than cash except that part of the
remuneration in excess of P500.00 received during the month.

It will thus be seen that whereas prior to the amendment, bonuses, allowances, and
overtime pay given in addition to the regular or base pay were expressly excluded, or
exempted from the definition of the term "compensation", such exemption or exclusion
was deleted by the amendatory law. It thus became necessary for the Social Security
Commission to interpret the effect of such deletion or elimination. Circular No. 22 was,
therefore, issued to apprise those concerned of the interpretation or understanding of
the Commission, of the law as amended, which it was its duty to enforce. It did not add
any duty or detail that was not already in the law as amended. It merely stated and
circularized the opinion of the Commission as to how the law should be
construed. 1äwphï1.ñët

The case of People v. Jolliffe (G.R. No. L-9553, promulgated on May 30, 1959) cited
by appellant, does not support its contention that the circular in question is a rule or
regulation. What was there said was merely that a regulation may be incorporated in
the form of a circular. Such statement simply meant that the substance and not the
form of a regulation is decisive in determining its nature. It does not lay down a general
proposition of law that any circular, regardless of its substance and even if it is only
interpretative, constitutes a rule or regulation which must be published in the Official
Gazette before it could take effect.

The case of People v. Que Po Lay (50 O.G. 2850) also cited by appellant is not
applicable to the present case, because the penalty that may be incurred by employers
and employees if they refuse to pay the corresponding premiums on bonus, overtime
pay, etc. which the employer pays to his employees, is not by reason of non-
compliance with Circular No. 22, but for violation of the specific legal provisions
contained in Section 27(c) and (f) of Republic Act No. 1161.

We find, therefore, that Circular No. 22 purports merely to advise employers-members

of the System of what, in the light of the amendment of the law, they should include in
determining the monthly compensation of their employees upon which the social
security contributions should be based, and that such circular did not require
presidential approval and publication in the Official Gazette for its effectivity.

It hardly need be said that the Commission's interpretation of the amendment

embodied in its Circular No. 22, is correct. The express elimination among the
exemptions excluded in the old law, of all bonuses, allowances and overtime pay in the
determination of the "compensation" paid to employees makes it imperative that such
bonuses and overtime pay must now be included in the employee's remuneration in
pursuance of the amendatory law. It is true that in previous cases, this Court has held
that bonus is not demandable because it is not part of the wage, salary, or
compensation of the employee. But the question in the instant case is not whether
bonus is demandable or not as part of compensation, but whether, after the employer
does, in fact, give or pay bonus to his employees, such bonuses shall be considered
compensation under the Social Security Act after they have been received by the
employees. While it is true that terms or words are to be interpreted in accordance with
their well-accepted meaning in law, nevertheless, when such term or word is
92
specifically defined in a particular law, such interpretation must be adopted in enforcing
that particular law, for it can not be gainsaid that a particular phrase or term may have
one meaning for one purpose and another meaning for some other purpose. Such is
the case that is now before us. Republic Act 1161 specifically defined what
"compensation" should mean "For the purposes of this Act". Republic Act 1792
amended such definition by deleting same exemptions authorized in the original Act.
By virtue of this express substantial change in the phraseology of the law, whatever
prior executive or judicial construction may have been given to the phrase in question
should give way to the clear mandate of the new law.

IN VIEW OF THE FOREGOING, the Resolution appealed from is hereby affirmed, with
costs against appellant. So ordered.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-9553 May 13, 1959

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
WILLIAM ERNEST JOLLIFFE, defendant-appellant.

Benedicto C.Balderama and Mabanta and Ysip for appellant.

Assistant Solicitor General Ramon L. Avanceña and Solicitor Isidro C. Borromeo for
appellee.

CONCEPCION, J.:

This is an appeal taken by defendant William Ernest Jolliffe from a decision of the
Court of First Instance of Rizal, convicting him of a violation of Republic Act No. 256,
and sentencing him to imprisonment for one (1) year, and to pay a fine of P2,000 and
the costs, as well as decreeing the forfeiture, in favor of the Government, of four (4)
pieces of gold bullion valued P35,305.46, and a travellers' check in the sum of
$100.00.

There is no dispute about the main facts, which are set forth in the decision appealed
in the following language:

The accused, Mr. William Ernest Jolliffe is a Canadian subject, born in china and
residing permanently in Hongkong. He is the son of a former Chancellor of the
West China Union University and had been Trade Commissioner for Canada in
Shanghai and Hongkong, until 1948. The accused to a good reputable family is
quite well-known. The accused had made several trips to Manila, sometimes on
business and three times to meet his wife and children passing thru Manila. He
also came to collect the debt owed to him by one T. W. Woo, a prominent
businessman in Hongkong. He came back to Manila on December 4, 1953 to try
to collect the debt owed him by T. Y. Woo. although he had no idea how said
debt was to be paid, whether in peso or in gold. He was paid in good which be
brought with him by messenger to his room in the Bay View Hotel. At about plane
time he went to his hotel room and carried his gold around his body underneath
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 his shirt. When he was going towards the door leading to the runway he was
accosted by a woman, Amanda Arimbay, a secret service agent, and was told to
go the search room (Quoted from the statement of facts in the memorandum for
the accused.)

When the accused was searched four pieces of gold bullion were found tied to
his body a few inches above the waist. There was also found in his possession a
$100.00 travelers check issued by R. McGinty. While he was under arrest made
an offer to settle the case by offering to pay the agents who were then arresting
him. He stated also that Mr. Manikan, Deputy Collector of Customs, told him
during the search that the case could have been fixed had he told him before
hand of his desire to export gold from the Philippines. Mr. Manikan, on the other
hand, said that when the accused was about to be searched he offered him
P30,000.00 provided the case be settled and forgotten. The Court accepts the
testimony of Mr, Manikan as the true version of the incident because the accused
himself said in the course of is testimony the Mr. Manikan told him that he could
say anything in private to him after he (accused) had signed the written
statement, Exhibit I, certifying to the things found in the possession of the
accused, among which, were the four pieces of gold bullion. These facts shows
that when Mr. Manikan consented to allow the accused to talk with him about the
case after signing Exhibit I, there was no other desire on the part of Mr. Manikan
but to give the accused every opportunity to explain his side of the case but not
for any illegitimate purpose. Mr. Manikan's acts in this case are above board and
the only logical steps that an honest official could take in the present case. But
these minor incident relating to the case are of no importance, taking into
consideration the fact that the accused himself had admitted that on December 7,
1953 when he was about to board in one of the planes of the Pan American
World Airway he had with him four pieces of gold bullion of the approximate
value P35,305.46. This being a fact, the only question before the Court is purely
a question of law.

Appellant alleges that:

1. That the trial court erred in not ruling that Circular 21 of the Central Bank is the
only law in point, and that, being special law, it does not penalize attempted or
frustrated violation thereof, but merely consummated violations and, therefore,
under the facts of this case, the accused cannot be held liable;

2. That the trial court erred in not ruling that even attempted violation of Circular
21 punishable, still the accused is not criminally liable because there was no
wilful violation of said circular;

3. That the trial erred in ruling that mere possession of gold is made illegal by
Circular 21 of the Central Bank, the truth being that the said circular in fact
specially authorizes sales gold within the Philippines even without the benefit of
license;

4. That the trial court erred in not ruling Circular 21 of the Central Bank is not a
valid law, because it did not comply with the provisions of section 74 of Republic
Act 265, in that:

(a) It was approved by the President of the Philippines;

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 (b) In its promulgation, the Momentary Board exceeded the authority granted it
by the Central Bank Act, because the context of the circular does not indicate
that it was a temporary emergency measure;

(c) It can only be issued as an emergency measure or during crisis, and as

issued, has no force and effect, because the emergency it seeks to remedy
never existed or no longer exists;

(d) That the publication of the circular (original and amended) in the November
1951 and October 1952 issues of the Official Gazette are not the adequate
publications required by law, because said publications on their faces showed
them to be incomplete and defective;

(e) That granting, without admitting, that the power to promulgate it was granted
to the Monetary Board by Republic Act 265, and granting without admitting, that
the power to so promulgate was validly exercised, still it is invalid because it
constitutes an invalid delegation of legislative power and, therefore,
unconstitutional and void.

5. That the trial court erred in ordering forfeiture of the four (4) packages of gold,
Exhibit G-1, G-2, G-3 and G-4, in favor of the Government.

6. That the trial court erred in ordering the forfeiture of the travellers' check for
$100, Exhibit K, in favor of the Government, in spite of the fact that the accused
was acquitted on the charge of illegal possession of dollars under Circular 20 and
42.

Appellant does not deny that he had no license to export the gold bullions above
referred to. Under his first assignment of error, he maintains, however, that Central
Bank Circular No. 21 requiring said license and section 34 of Republic Act No. 265,
prescribing the penalty for violations of said Circular, refer to consummated
exportation, not to "attempted or frustrated exportation." Section 4 of said Circular
provides:

Any person desiring to export gold in any form, including jewelry, whether for
refining abroad or otherwise, must obtain a license from the Central Bank.
Applicant for export license must present satisfactory evidence that the import of
the gold into the country of the importer will not be in violation of the rules and
regulations of such country.

This section explicity applies to "any person desiring to export gold" and, hence, it
contemplates the situation existing prior to the consummation of the exportation.
Indeed, its purpose would be deferred if the penal sanction were deferred until after the
article in question had left the Philippines, for jurisdiction over it, and over the guilty
party, would be lost thereby.

Appellant's avowed ignorance of the necessity of license and of the illegality of the act
performed by him, alleged in support of the second assignment of error, is belied by
the fact that he had the gold bullions under his shirt; that by objecting, at first, to being
searched, he tried to prevent that the presence of said articles upon his person be
discovered; and he tried to bribe the public officers who searched him.

95
As regards the third assignment of error, it is not necessary for us to determine
whether mere possession of gold bullion is illegal under Circular No. 21, for his
conviction was due, not to such possession alone, but to the fact that appellant tried to
export said gold bullions without the requisite license.

Let us now consider the fourth assignment of error which is based upon several
grounds. The first is that the aforementioned circular has not merited the approval of
the President of the Philippines, which is required in section 74 of Republic Act No.
265. This pretense is untenable. It would appear from Exhibit S and S-1 that the
practice of the Monetary Board was to obtain said approval before the formal
enactment and promulgation of circulars necessitating presidential sanction. Indeed,
since it has no authority to subject transactions in gold to license, unless the President
agrees thereto, it is, in effect, the duty of the Board to obtain the assent of the
Executive to the policy of requiring said license at a particular time, either upon
adoption of the resolution of this effect, or prior thereto. As a consequence, it must be
presumed — in the absence of proof to the contrary, which is wanting — that such duty
has been fulfilled in the case at bar.

It is frequently said that a presumption of regularity the performance of

administrative duties. That is, when an act has been completed, it is to be
supposed that the act was done in the manner prescribed and by an officer
authorized by law to do it. The presumption is of course a rebuttable one, but the
bare allegation that there has been a failure to observe statutory requirements
has been regarded as a mere conclusion of the pleader; where the administrative
order is accompanied by a statement that there has been compliance and there
is no showing of fact to the contrary, the presumption of regularity is ordinarily
sufficient to support the official act of a public officer. (Administrative Law —
Cases and Comments by Gellhorn, pp. 315-316.)

Contrary to appellant's pretense, it is not essential that the administrative acts of the
President be made in writing, unless the law says so. Thus, for instance, in Ykalina vs.
Oricio, (93 Phil., 1076; 49 Off. Gaz., [12], 5431), this Court quoted approvingly the
following passage from Corpus Juris Secundum:

While the appointment of an officer is usually evidenced by a commission, as a

general rule it is not essential to the validity of an appointment that a commission
issue, and an appointment may be made by an oral announcement of his
determination by the appointing power.

In U.S. vs. Fletcher (148 U.S. 84, 89-90, 37 Law Ed. 387, 379-380), the Federal
Supreme Court said:

The presumption is that the Secretary and the President performed the duties
developed upon them respectively, and it would be unreasonable to construe the
Secretary's indorsement as meaning that he had reviewed the proceedings for
the action of the President in conformity with Article 65, and had approved them
himself and ordered execution of the sentence in contravention of the article. . . .
While in the case on hand it is said that the proceedings were submitted to the
President, it is stated that they had been forwarded to the Secretary of War for
the action of the President, and as that is followed by an approval and the
direction of the execution of the sentence, which approval and sentence could

96
 only emanate from the President, the conclusion follows that the action taken
was the action of the President.

We regard the certification of the Secretary of War . . . as perceive no ground

upon which the order of that date can be a sufficient certification of the judgment
of the President, and treated as null and void for want of the required approval.

What is more, in Villena vs. Secretary of the Interior (67 Phil., 451, 463), the majority of
the members of this Court expressed the view that:

After serious reflection, we have decided to sustain the contention of the

government in this case on the broad proposition, albeit not suggested,
that under the presidential type of government which we have adopted and
considering the department organization established and continued in force by
paragraph 1, section 21, Article VII, of our Constitution, all executive and
administrative organizations are adjuncts of the Executive Department, the heads
of the various executive departments are assistant and agents of the Chief
Executive, and, except in cases where the Chief Executive is required by the
Constitution or the 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, presumptively the acts of the Chief Executive. (Runkle vs.
United States [1887], 122 U.S. 543; 30 Law ed. 1167; 7 Sup. Ct. Rep. 1141; see
also U.S. vs. Eliason [1839], 16 Pet. 291; 10 Law ed. 968; Pones vs. U.S. [1890],
137 U.S. 202; 34 Law ed. 691; 11 Supp. Ct. Rep. 80; Wolsey vs. Chapman
[1880] 101 U.S. 755; 25 Law ed. 916; Wilcox vs. Jackson [1836], 13 Pet. 498; 10
Law ed. 264.)

Needless to say, the case cited by appellant herein refer to the presidential approval of
legislative enactments, which the Constitution explicity requires to be evidenced by
the signatures of the Executive (Art. VI, section 20 [1]) There is no similar provision in
Republic Act No. 265.

It is urged, however, that the authority of the Monetary Board to suspend or restrict the
sales of exchange by the Central Bank and to subject all transactions involving foreign
exchange to license, is temporary in nature and may be exercised only during an
exchange crisis, as an emergency measure to combat such crisis, and that the context
of the circular in question, as amended, does not indicate that it was a temporary
emergency measure. It is not necessary, however, for the legality of said circular that
its temporary character be stated on its face, so long as the circular has been issued
during an exchange crisis, for the purpose of combating the same. In the absence of
evidence to the contrary, which has not been introduced or offered in the present case,
it is presumed that the provision of section 74 of Republic Act No. 265, under the
authority of which the aforementioned circular was issued, has authority of which the
aforementioned circular was issued, has been complied with. Besides, the fact that
there has been an exchange crisis in the Philippines and that such crisis, not only
existed at the time of the issuance of said circular in 1949 and 1950, but, also,
remained in existence up to the present, may be taken judicial cognizance of.

Although, from a purely theoretical and legal viewpoint, the Monetary Board and the
President could have specified in Circular 21 the period of its effectivity, their failure to
do so did not necessarily impair its validity. As a measure taken under the police power
of the state, said period had to be commensurate with the crisis that led to its adoption,
97
and the duration of said crisis could not be anticipated with reasonable certainly. Upon
the termination of the aforementioned crisis, as determined by competent authority, the
circular would become inoperative. Thus, in Rutter vs. Esteban, (49 Off. Gaz.,
1807), Commercial Investment vs. Garcia (49 Off. Gaz., 1801), Salvador vs. Locsin,
(93 Phil., 225), and Nicolas vs. Matias, L-5250 (May 29, 1953), we held that, although
the moratorium laws enacted in the Philippines, upon its liberation from the Japanese
forces, could not be permanent in character and did not specify the duration thereof, it
was valid and effective until the emergency for which it was intended had already
disappeared.

It is further argued that, as published in the Official Gazette, Circular No. 21, in its
original, as well as in its amended form, did not bear the approval of the President and
that, accordingly, said publication was not sufficient to give the effect contemplated by
law therefore. This pretense is based upon false promise. The original circular
subjecting to licensing by the Central Bank "all transaction in gold and foreign
exchange", Circular No. 20, which, as approved and published, states, that, "pursuant
to the provisions of Republic Act No. 265", it had been adopted by "the Monetary
Board, by unanimous vote and with the approval of the President of the Philippines."
What is more, the last paragraph of Circular No. 20, provides that "further regulations
in respect to transactions covered by this circular will be issued separately." Thus, the
President had approved not only the licensing by the Central Bank" of "all transactions
in gold and foreign exchange," but, also, the issuance, subsequently to the
promulgation of Circular No. 20, of "further regulations in respect" of such transactions.
Said further regulations were incorporated into Circular No. 21, which thus bears the
stamp of presidential sanction, although this is not specifically required by law. It is only
the decision of the Monetary Board to subject to license by the Central Bank all
transactions in gold and foreign exchange that needs the approval of the President.
Once the same has been given, the details in the implementation of said decision may
be determined by said Board, through such regulations as may be promulgated from
time to time. The assent of the President is not a prerequisite to the validity and
effectivity of these regulations, as distinguished from the aforementioned decision
thereby sought to be enforced or executed. The authority of the Monetary Board to
make regulations is governed, not by section 74 of Republic Act No. 265, but by
section 14 thereof, in the language of which:

In order to exercise the authority granted to it under this Act the Monetary Board
shall:

(a) Prepare and issue such rules and regulations as it considers necessary for
the effective discharge of the responsibilities and exercise of the power assigned
to the Monetary Board and to the Central Bank under this Act.

Lastly, the legality of Circular No. 21 is assailed upon the ground that the grant of
authority to issue the same constitutes an undue delegation of legislative power. It is
true that, under our system of government, said power may not be delegated except to
local governments. However, one thing is to delegate the power to determine what the
law shall be and another thing to delegate the authority to fix the details in
the execution or enforcement of a policy set out in the law itself. Briefly stated, the rule
is that the delegated powers fall under the second category, if the law authorizing the
delegation furnishes a reasonable standard which "sufficiently marks the field within
which the Administrator is to act so that it may be known whether he has kept within it
in compliance with the legislative will." (Yakus vs. United Sates, 88 L. ed. 848.)
98
Referring the case at bar, section 74 of Republic Act No. 265 conferred upon the
Monetary Board and the President the power to subject to licensing all transactions in
gold and foreign exchange "in order to protect the international reserve of the Central
Bank during an exchange crisis and to give the Monetary Board and the Government
time in which to take constructive measures to combat such crisis." The Board is,
likewise, authorized "to take such appropriate remedial measures" to protect the
international stability of the peso, "whether the international reserve is falling, as a
result of payment or remittances abroad which, in the opinion of the Monetary Board,
are contrary to the national welfare" (section 70, Rep. Act No. 265). It should be noted,
furthermore, that these powers must be construed and exercised in relation to the
objectives of the law creating the Central Bank, which are, among others, "to maintain
monetary stability in the Philippines," and "to promote a rising level of production,
employment and real income in the Philippines." (Section 2, Rep. Act No. 265.) These
standards are sufficiently concrete and definite to vest in the delegated authority the
character of administrative details in the enforcement of the law and to place the grant
of said authority beyond the category of a delegation of legislative powers (Cardon vs.
Municipality of Binangonan, 36 Phil., 547; Compañia General de Tabacos vs. Board of
Utility, 34, Phil., 136; Rubi vs. Board of Mindoro, 39 Phil., 660; Alegre vs. Collector of
Customs, 53 Phil., 394; People vs. Rosentral, 63 Phil., 328; Antamok Gold vs. C.I.R.,
68 Phil., 340; Calang vs. Williams, 70 Phil., 276; Cervantes vs. Auditor General, 91
Phil., 359; Phil., Association of Colleges & Universities vs. Sec. of Education, 97 Phil.,
806; 51 Off. Gaz., (12) 6230; Mutual Films Corp. vs. Industrial Commission, 276 U.S.
230; Mulford vs. Smith, 307 U.S. 48; National Broadcasting Co. vs. U.S. 319 U.S. 225;
Yakus vs. White, 321 U.S. 414; Ammann vs. Mallonee, 332 U.S. 245).

Under the fifth assignment of error, appellant maintains that Article 45 of the Revised
Penal Code authorizing the forfeiture of the proceeds of a crime and the instruments or
tools with which it was committed, does not apply to the case at bar, the crime involved
herein being covered by a special law. However, pursuant to section 10 of the Revised
Penal Code, the provisions of said Code shall be "supplementary" to special laws,
"unless the latter should specifically provide the contrary", and there is no such
provision to the contrary in Republic Act No. 265 (U.S. vs. Parrone, 24 Phil., 29;
People vs. Moreno, 60 Phil., 712; People vs. Ramayo, 61 Phil., 225; Copiaco vs.
Luzon Brokerage, 66 Phil., 184).

The last assignment of error refers to the propriety of the order of confiscation of the
traveller's check for $100, the lower court having found that the accused had no
knowledge of the fact that it was in his physical possession, and that therefore, he had
no criminal intent in connection therewith. We feel that this point is well taken, and that,
accordingly, said travellers' check should not be forfeited to the Government.

With this modification, the decision, appealed from should be, as it is hereby affirmed,
in all other respects, with costs against the defendant-appellant. It is so ordered.

99