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,
Confide
equipped with motor; with a generator colored green with attached dynamo colored gray or
ntial
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 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.

(c) 'Persons' includes firm, corporation, association, agent or employee.

Confide
ntial
(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 (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

Confidecourt of Sta. Cruz, Laguna, a provincial capital,
the order of d rendered by that municipal court ntial
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.

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 Confide
poisonous substances, fixed in section 76, and is not
the same as the penalty for "other violations" ofntial
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.

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
Confide
germane to the defects and purposes of the lawntialand 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.

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).ConfideAs he exercises the rule-making power by
delegation of the lawmaking body, it is a requisite
ntialthat 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 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.
Confide
The instant case is similar to People vs. Santos,ntial
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.

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."
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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.
G.R. No. 92174 December 10, 1993

BOIE-TAKEDA CHEMICALS, INC., petitioner,

vs.

HON. DIONISIO DE LA SERNA, Acting Secretary of the Department of Labor and Employment,
respondent.

G.R. No. L-102552 December 10, 1993

PHILIPPINE FUJI XEROX CORP., petitioner,

vs.

CRESENCIANO B. TRAJANO, Undersecretary of the Department of Labor and Employment, and

PHILIPPINE FUJI XEROX EMPLOYEES UNION, respondents.

Herrera, Laurel, De los Reyes, Roxas & Teehankee for Boie-Takeda Chemicals, Inc. and Phil Xerox
Corp.

The Solicitor General for public respondents.

NARVASA, C.J.:

What items or items of employee remunerationConfideshould go into the computation of thirteenth month
pay is the basic issue presented in these consolidated
ntial petitions. Otherwise stated, the question is
whether or not the respondent labor officials in computing said benefit, committed "grave abuse of
discretion amounting to lack of jurisdiction," by giving effect to Section 5 of the Revised Guidelines
on the implementation of the Thirteenth Month Pay (Presidential Decree No. 851) promulgated by
then Secretary of Labor and Employment, Hon. Franklin Drilon, and overruling petitioner's contention
that said provision constituted a usurpation of legislative power because not justified by or within the
authority of the law sought to be implemented besides being violative of the equal protection of the
law clause of the Constitution.

Resolution of the issue entails, first, a review of the pertinent provisions of the laws and
implementing regulations.

Sections 1 and 2 of Presidential Decree No. 851, the Thirteenth Month Pay Law, read as follows:

Sec 1. All employees are hereby required to pay all their employees receiving basic
salary of not more than P1,000.00 a month, regardless of the nature of the
employment, a 13th month pay not later than December 24 of every year.

Sec. 2. Employers already paying their employees a 13th month pay or its equivalent
are not covered by this Decree.

The Rules and Regulations Implementing P.D. 851 promulgated by then Labor Minister Blas Ople on
December 22, 1975 contained the following relevant provisions relative to the concept of "thirteenth
month pay" and the employers exempted from giving it, to wit:

Sec. 2. Definition of certain terms. — . . .

 a) "Thirteenth month pay" shall mean one twelfth (1/12) of the basic salary of an
employee within a calendar year;

b) "Basic Salary" shall include all remunerations or earnings paid by an employer to

an employee for services rendered but may not include cost of living allowances
granted pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174,
profit sharing payments, and all allowances and monetary benefits which are not
considered or integrated as part of the regular or basic salary of the employee at the
time of the promulgation of the Decree on December 16, 1975.

Sec. 3. Employers covered. — . . . (The law applies) to all employers except to:

xxx xxx xxx

c) Employers already paying their employers a 13-month pay or more in calendar

year or is equivalent at the time of this issuance;

xxx xxx xxx

e) Employers of those who are paid on purely commission, boundary, or task basis,
and those who are paid a fixed amount for performing a specific work, irrespective of
the time consumed in the performance thereof, except where the workers are paid on
piece-rate basis in which case the employer shall be covered by this issuance insofar
as such workers are concerned.

Confidexxx xxx xxx

ntial
The term "its equivalent" as used in paragraph (c) shall include Christmas bonus,
mid-year bonus, profit-sharing payments and other cash bonuses amounting to not
less than 1/12th of the basic salary but shall not include cash and stock dividends,
cost of living allowances and all other allowances regularly enjoyed by the employee,
as well as non-monetary benefits. Where an employer pays less than 1/12th of the
employee's basic salary, the employer shall pay the difference.

Supplementary Rules and Regulations implementing P.D. 851 were subsequently issued by Minister
Ople which inter alia set out items of compensation not included in the computation of the 13th
month pay, viz.:

Sec. 4. Overtime pay, earnings and other remunerations which are not part of the
basic salary shall not be included in the computation of the 13th month pay.

On August 13, 1986, President Corazon C. Aquino promulgated Memorandum Order No. 28, which
contained a single provision modifying Presidential Decree No. 851 by removing the salary ceiling of
P1,000.00 a month set by the latter, as follows:

Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all
employers are hereby required to pay all their rank-and-file employees a 13th month
pay not later than December 24, of every year.

Slightly more than a year later, on November 16, 1987, Revised Guidelines on the Implementation of
the 13th Month Pay Law were promulgated by then Labor Secretary Franklin Drilon which, among
other things, defined with particularity what remunerative items were and were not embraced in the
concept of 13th month pay, and specifically dealt with employees who are paid a fixed or guaranteed
wage plus commission. The relevant provisions read:

4. Amount and payment of 13th Month Pay.

xxx xxx xxx

The basic salary of an employee for the purpose of computing the 13th month pay
shall include all remunerations or earnings paid by the employer for services
rendered but does not include allowances and monetary benefits which are not
considered or integrated as part of the regular or basic salary, such as the cash
equivalent of unused vacation and sick leave credits, overtime, premium, night
differential and holiday pay, and cost-of-living allowances. However, these salary-
related benefits should be included as part of the basic salary in the computation of
the 13th month pay if by individual or collective agreement, company practice or
policy, the same are treated as part of the basic salary of the employees.

xxx xxx xxx

5. 13th Month Pay for Certain Types of Employees.

(a) Employees Paid by Results. — Employees who are paid on piece work basis are
by law entitled to the 13th month pay.

Employees who are paid a fixedConfide

or guaranteed wage plus commission are also
ntial pay based on their total earnings during the
entitled to the mandated 13th month
calendar year, i.e., on both their fixed or guaranteed wage and commission.

This was the state of the law when the controversies at bar arose out of the following antecedents:

(RE G.R. No. 92174) A routine inspection was conducted on May 2, 1989 in the premises of
petitioner Boie-Takeda Chemicals, Inc. by Labor
and Development Officer Reynaldo B. Ramos under Inspection Authority
No. 4-209-89. Finding that Boie-Takeda had not been including the commissions earned by its
medical representatives in the computation of their 13th month pay, Ramos served a Notice of
Inspection Results 1 on Boie-Takeda through its president, Mr. Benito Araneta, requiring Boie-
Takeda within ten (10) calendar days from notice to effect restitution or correction of "the
underpayment of 13th month pay for the year(s) 1986, 1987 and 1988 of Med Rep (Revised
Guidelines on the Implementation of 13th month pay # 5) in the total amount of P558,810.89."

Boie-Takeda wrote the Labor Department contesting the Notice of Inspection Results, and
expressing the view "that the commission paid to our medical representatives are not to be included
in the computation of the 13th month pay . . . (since the) law and its implementing rules speak of
REGULAR or BASIC salary and therefore exclude all other remunerations which are not part of the
REGULAR salary." It pointed out that, "if no sales is (sic) made under the effort of a particular
representative, there is no commission during the period when no sale was transacted, so that
commissions are not and cannot be legally defined as regular in nature.  2

Regional Director Luna C. Piezas directed Boie-Takeda to appear before his Office on June 9 and
16, 1989. On the appointed dates, however, and despite due notice, no one appeared for Boie-
Takeda, and the matter had perforce to be resolved on the basis of the evidence at hand. On July
24, 1989, Director Piezas issued an Order 3 directing Boie-Takeda:

. . . to pay . . . (its) medical representatives and its managers the total amount of
FIVE HUNDRED SIXTY FIVE THOUSAND SEVEN HUNDRED FORTY SIX AND
FORTY SEVEN CENTAVOS (P565,746.47) representing underpayment of thirteenth
(13th) month pay for the years 1986, 1987, 1988, inclusive, pursuant to the . . .
revised guidelines within ten (10) days from receipt of this Order.

A motion for reconsideration 4 was seasonably filed by Boie-Takeda under date of August 3, 1989.
Treated as an appeal, it was resolved on
January 17, 1990 by then Acting Labor Secretary Dionisio de la Serna, who affirmed the July 24,
1989 Order with modification that the sales commissions earned by Boie-Takeda's medical
representatives before August 13, 1989, the effectivity date of Memorandum Order No. 28 and its
Implementing Guidelines, shall be excluded in the computation of their 13th month pay.  5

Hence the petition docketed as G.R. No. 92174.

(RE G.R. No. 102552) A similar Routine Inspection was conducted in the premises of Philippine Fuji
Xerox Corp. on September 7, 1989 pursuant to Routine Inspection Authority No. NCR-LSED-RI-494-
89. In his Notice of Inspection Results, 6 addressed to the Manager, Mr. Nicolas O. Katigbak, Senior
Labor and Employment Officer Nicanor M. Torres noted the following violation committed by
Philippine Fuji Xerox Corp., to wit:

Underpayment of 13th month pay of 62 employees, more or less — pursuant to

Revised Guidelines on the Implementation
Confide of the 13th month pay law for the period
covering 1986, 1987 and 1988.ntial

Philippine Fuji Xerox was requested to effect rectification and/or restitution of the noted violation
within five (5) working days from notice.

No action having been taken thereon by Philippine Fuji Xerox,

Mr. Eduardo G. Gonzales, President of the Philxerox Employee Union, wrote then Labor Secretary
Franklin Drilon requesting a follow-up of the inspection findings. Messrs. Nicolas and Gonzales were
summoned to appear before Labor Employment and Development Officer Mario F. Santos, NCR
Office, Department of Labor for a conciliation conference. When no amicable settlement was
reached, the parties were required to file their position papers.

Subsequently, Regional Director Luna C. Piezas issued an Order dated August 23, 1990, 7 disposing
as follows:

WHEREFORE, premises considered, Respondent PHILIPPINE FUJI XEROX is

hereby ordered to restitute to its salesmen the portion of the 13th month pay which
arose out of the non-implementation of the said revised guidelines, ten (10) days
from receipt hereof, otherwise,
MR. NICANOR TORRES, the SR. LABOR EMPLOYMENT OFFICER is hereby
Ordered to proceed to the premises of the Respondent for the purpose of computing
the said deficiency (sic) should respondent fail to heed his Order.

Philippine Fuji Xerox appealed the aforequoted Order to the Office of the Secretary of Labor. In an
Order dated October 120, 1991, Undersecretary Cresenciano B. Trajano denied the appeal for lack
of merit. Hence, the petition in G.R. No. 102552, which was ordered consolidated with G.R. No.
92174 as involving the same issue.

In their almost identically-worded petitioner, petitioners, through common counsel, attribute grave
abuse of discretion to respondent labor officials
Hon. Dionisio dela Serna and Undersecretary Cresenciano B. Trajano in issuing the questioned
Orders of January 17, 1990 and October 10, 1991, respectively. They maintain that under P.D. 851,
the 13th month pay is based solely on basic salary. As defined by the law itself and clarified by the
implementing and Supplementary Rules as well as by the Supreme Court in a long line of decisions,
remunerations which do not form part of the basic or regular salary of an employee, such as
commissions, should not be considered in the computation of the 13th month pay. This being the
case, the Revised Guidelines on the Implementation of the 13th Month Pay Law issued by then
Secretary Drilon providing for the inclusion of commissions in the 13th month pay, were issued in
excess of the statutory authority conferred by P.D. 851. According to petitioners, this conclusion
becomes even more evident when considered in light of the opinion rendered by Labor Secretary
Drilon himself in "In Re: Labor Dispute at the Philippine Long Distance Telephone Company" which
affirmed the contemporaneous interpretation by then Secretary Ople that commissions are excluded
from the basic salary. Petitioners further contend that assuming that Secretary Drilon did not exceed
the statutory authority conferred by P.D. 851, still the Revised Guidelines are null and void as they
violate the equal protection of the law clause.

Respondents through the Office of the Solicitor General question the propriety of petitioners' attack
on the constitutionality of the Revised Guidelines in a petition for certiorari which, they contend,
should be confined purely to the correction of errors and/or defects of jurisdiction, including matters
of grave abuse of discretion amounting to lack or excess of jurisdiction and not extend to a collateral
attack on the validity and/or constitutionality of a law or statute. They aver that the petitions do not
Confide
advance any cogent reason or state any valid ground to sustain the allegation of grave abuse of
ntial
discretion, and that at any rate, P.D. No. 851, otherwise known as the 13th Month Pay Law has
already been amended by Memorandum Order No. 28 issued by President Corazon C. Aquino on
August 13, 1986 so that commissions are now imputed into the computation of the 13th Month Pay.
They add that the Revised Guidelines issued by then Labor Secretary Drilon merely clarified a gray
area occasioned by the silence of the law as to the nature of commissions; and worked no violation
of the equal protection clause of the Constitution, said Guidelines being based on reasonable
classification. Respondents point to the case of Songco vs. National Labor Relations Commission,
183 SCRA 610, wherein the Court declared that Article 97(f) of the Labor Code is explicit that
commission is included in the definition of the term "wage".

We rule for the petitioners.

Contrary to respondents' contention, Memorandum Order No. 28 did not repeal, supersede or
abrogate P.D. 851. As may be gleaned from the language of the Memorandum Order No. 28, it
merely "modified" Section 1 of the decree by removing the P1,000.00 salary ceiling. The concept of
13th Month Pay as envisioned, defined and implemented under P.D. 851 remained unaltered, and
while entitlement to said benefit was no longer limited to employees receiving a monthly basic salary
of not more than P1,000.00, said benefit was, and still is, to be computed on the basic salary of the
employee-recipient as provided under P.D. 851. Thus, the interpretation given to the term "basic
salary" as defined in P.D. 851 applies equally to "basic salary" under Memorandum Order No. 28.

In the case of San Miguel Corp. vs. Inciong, 103 SCRA 139, this Court delineated the coverage of
the term "basic salary" as used in P.D. 851. We said at some length:
Under Presidential Decree 851 and its implementing rules, the basic salary of an
employee is used as the basis in the determination of his 13th month pay. Any
compensations or remunerations which are deemed not part of the basic pay is
excluded as basis in the computation of the mandatory bonus.

Under the Rules and Regulations implementing Presidential Decree 851, the
following compensations are deemed not part of the basic salary:

a) Cost-of-living allowances granted pursuant to Presidential Decree

525 and Letter of Instructions No. 174;

b) Profit-sharing payments;

c) All allowances and monetary benefits which are not considered or

integrated as part of the regular basic salary of the employee at the
time of the promulgation of the Decree on December 16, 1975.

Under a later set of Supplementary Rules and Regulations Implementing Presidential

Decree 851 Presidential Decree 851 issued by then Labor Secretary Blas Ople,
overtime pay, earnings and other remunerations are excluded as part of the basic
salary and in the computation of the 13th month pay.

The exclusion of the cost-of-living allowances under Presidential Decree 525 and
Letter of Instructions No. 174, and profit-sharing payments indicate the intention to
strip basic salary of other payments which are properly considered as "fringe"
benefits. Likewise, the catch-allConfide
exclusionary phrase "all allowances and monetary
benefits which are not considered ntialor integrated as part of the basic salary" shows
also the intention to strip basic salary of any and all additions which may be in the
form of allowances or "fringe" benefits.

Moreover, the Supplementary Rules and Regulations Implementing Presidential

Decree 851 is even more emphatic in declaring that earnings and other
remunerations which are not part of the basic salary shall not be included in the
computation of the 13th-month pay.

While doubt may have been created by the prior Rules and Regulations
Implementing Presidential Decree 851 which defines basic salary to include all
remunerations or earnings paid by an employer to an employee, this cloud is
dissipated in the later and more controlling Supplementary Rules and Regulations
which categorically exclude from the definitions of basic salary earnings and other
remunerations paid by an employer to an employee. A cursory perusal of the two
sets of Rules indicates that what has hitherto been the subject of a broad inclusion is
now a subject of broad exclusion. The Supplementary Rules and Regulations cure
the seeming tendency of the former rules to include all remunerations and earnings
within the definition of basic salary.

The all embracing phrase "earnings and other remunerations" which are deemed not
part of the basic salary includes within its meaning payments for sick, vacation, or
maternity leaves, premium for works performed on rest days and special holidays,
pays for regular holidays and night differentials. As such they are deemed not part of
the basic salary and shall not be considered in the computation of the 13th-month
pay. If they were not excluded, it is hard to find any "earnings and other
 remunerations" expressly excluded in the computation of the 13th month pay. Then
the exclusionary provision would prove to be idle and with no purpose.

This conclusion finds strong support under the Labor Code of the Philippines. To cite
a few provisions:

Art. 87. Overtime Work. Work may be performed beyond eight (8) hours a day
provided that the employee is paid for the overtime work, additional compensation
equivalent to his regular wage plus at least twenty-five (25%) percent thereof.

It is clear that overtime pay is an additional compensation other than and added to
the regular wage or basic salary, for reason of which such is categorically excluded
from the definition of basic salary under the Supplementary Rules and Regulations
Implementing Presidential Decree 851.

In Article 93 of the same Code, paragraph

c) work performed on any special holiday shall be paid an additional compensation of

at least thirty percent (30%) of the regular wage of the employee.

It is likewise clear the premiums for special holiday which is at least 30% of the
regular wage is an additional pay other than and added to the regular wage or basic
salary. For similar reason, it shall not be considered in the computation of the 13th
month pay.

Confide
Quite obvious from the foregoing is that the term "basic salary" is to be understood in its common,
ntialfor a standard work period exclusive of such
generally-accepted meaning, i.e., as a rate of pay
additional payments as bonuses and overtime. 8 This is how the term was also understood in the
case of Pless v. Franks, 308 S.W. 2nd. 402, 403, 202 Tenn. 630, which held that in statutes
providing that pension should not less than 50 percent of "basic salary" at the time of retirement, the
quoted words meant the salary that an employee (e.g., a policeman) was receiving at the time he
retired without taking into consideration any extra compensation to which he might be entitled for
extra work. 9

In remunerative schemes consisting of a fixed or guaranteed wage plus commission, the fixed or
guaranteed wage is patently the "basic salary" for this is what the employee receives for a standard
work period. Commissions are given for extra efforts exerted in consummating sales or other related
transactions. They are, as such, additional pay, which this Court has made clear do not form part of
the "basic salary."

Respondents would do well to distinguish this case from Songco vs. National Labor Relations
Commission, supra, upon which they rely so heavily. What was involved therein was the term
"salary" without the restrictive adjective "basic". Thus, in said case, we construed the term in its
generic sense to refer to all types of "direct remunerations for services rendered," including
commissions. In the same case, we also took judicial notice of the fact "that some salesmen do not
receive any basic salary but depend on commissions and allowances or commissions alone,
although an employer-employee relationship exists," which statement is quite significant in that it
speaks of a "basic salary" apart and distinct from "commissions" and "allowances". Instead of
supporting respondents' stand, it would appear that Songco itself recognizes that commissions are
not part of "basic salary."
In including commissions in the computation of the 13th month pay, the second paragraph of Section
5(a) of the Revised Guidelines on the Implementation of the 13th Month Pay Law unduly expanded
the concept of "basic salary" as defined in P.D. 851. It is a fundamental rule that implementing rules
cannot add to or detract from the provisions of the law it is designed to implement. Administrative
regulations adopted under legislative authority by a particular department must be in harmony with
the provisions of the law they are intended to carry into effect. They cannot widen its scope. An
administrative agency cannot amend an act of Congress. 10

Having reached this conclusion, we deem it unnecessary to discuss the other issues raised in these
petitions.

WHEREFORE, the consolidated petitions are hereby GRANTED. The second paragraph of Section
5 (a) of the Revised Guidelines on the Implementation of the 13th Month Pay Law issued on
November 126, 1987 by then Labor Secretary Franklin M. Drilon is declared null and void as being
violative of the law said Guidelines were issued to implement, hence issued with grave abuse of
discretion correctible by the writ of prohibition and certiorari. The assailed Orders of January 17,
1990 and October 10, 1991 based thereon are SET ASIDE.

SO ORDERED.

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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".  R.A. No. 8180 ends twenty six
1

(26) years of government regulation of the downstream oil industry. Few cases carry a surpassing
importance on the life of every Filipino as theseConfide
petitions for the upswing and downswing of our
economy materially depend on the oscillation ofntial
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.  It created
3

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 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.  PNOC
5

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.  PNOC later put
6

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/orConfide
marketing petroleum products, or
ntial
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 Board to 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;

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.  The thrust of the Philippine energy program under the law was toward privatization of
9

government agencies related to energy, deregulation of the power and energy industry and
reduction of dependency on oil-fired plants.  The law also aimed to encourage free and active
10

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.Confide

7638, the government approved the privatization of
Petron Corporation in 1993. On December 16, ntial
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

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
Confide
with existing refineries. Thus, it runs counter tontial
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.

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:

x x x           x x x          x x x

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;
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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;

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.
Confide
We shall first tackle the procedural issues. Respondents
ntial 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.  The courts, as
12

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.  We held in the recent case of Tanada v. Angara:
13 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.  In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan,  we
15 16

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 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.
Confide
There is not a dot of disagreement between thential 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 provision  of
17

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 ruled  that the title need not mirror, fully index
18

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.  We hold that section 5(b) providing for tariff differential is germane to the subject of R.A.
19

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.  We shall, however, return to the validity of this provision when we examine its blocking
20

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,  this Court thru, Mr. Justice Moreland, held that "the true distinction is between the
21

delegation of power to make the law, which necessarily involves a discretion as to what it shall be,
and conferring authority or discretion as to its execution, to be exercised under and in pursuance of
the law. The first cannot be done; to the latter no valid objection can be made." 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,  thus:
22

There are two accepted tests to determine whether or not there is a valid delegation of
legislative power, viz: the completenessConfide
test and the sufficient standard test. Under the first
test, the law must be complete in all its ntial
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 States  as authority, Mr. Justice Isagani A. Cruz states "that even if the
23

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.  The fear of petitioners that these words will result in the exercise of
25

executive discretion that will run riot is thus groundless. To be sure, the Court has sustained the
validity of similar, if not more general standards in other cases. 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.  We therefore hold that the Executive department failed to follow faithfully the standards set
27

by R.A. No. 8180 when it considered the extraneous factor of depletion of the OPSF fund. The
Confide
misappreciation of this extra factor cannot be justified on the ground that the Executive department
ntial
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 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:

x x x           x x x          x x x

(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.  On the other hand, a combination in restraint of trade is an agreement or understanding
28

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
Confide
in a certain commodity, controlling its, production,
ntialdistribution and price, or otherwise interfering with
freedom of trade without statutory authority.  Combination in restraint of trade refers to the means
29

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,   while Article 28 of the New Civil Code makes any person who shall engage in unfair
31

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.  Thus too, our free
33

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. 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.  This distinct free enterprise system is dictated
34

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."  He adds with appropriateness that there is a
35

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,
Confide
this kind of competition requires the presence of not one, not just a few but several players. A market
ntial
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 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,  gives the authoritative answer and we quote:
36

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
Confide
which discourage new players to enter the market. ntial 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.

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,  viz.:
37

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,
Confide
PETRON, SHELL and CALTEX remain unthreatened by real competition yet are no longer subject to
ntial
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 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: Confide
ntial
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 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

Confide
The definition of predatory pricing, however,
ntial 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 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.
Confide
Various resolutions have also been filed in the ntial
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 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 ConcernedConfide
Of the Oil Companies If Warranted By The
Evidence, And For Other Purposes." Representatives
ntial 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.  At a time when
38

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.  The length of our return to the regime of regulation depends on
39

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 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.

Confide
ntial
G.R. Nos. L-46076 and L-46077             June 12, 1939

THE PEOPLE OF THE PHILIPPINES, plaintifff-appellee,

vs.
JACOB ROSENTHAL and NICASIO OSMEÑA, defendants-appellants.

Claro M. Recto and Hilado, Lorenzo and Hilado for appellant Rosenthal.
Jose M. Casal for appellant Osmeña.
Office of the Solicitor-General Tuason for appellee.

LAUREL, J.:

Appellants, Jacob Rosenthal and Nicasio Osmeña, were charged in the Court of First Instance of
Manila with having violated Act No. 2581, commonly known as the Blue Sky Law, under the
following informations:

CASE NO. 52365

That in or about and during the period comprised between October 1, 1935 and January 22,
1936, both dates inclusive, in the City of Manila, Philippine Islands, and within the jurisdiction
of this court, the said Nicasio Osmeña and Jacob Rosenthal, two of ten promoters,
organizers, founders and incorporators of, the former being, in addition, one of the members
of the board of directors of, the O.R.O. Oil Co., Inc., a domestic corporation organized under
the laws of the Philippines and registered in the mercantile registry of the Bureau of
Commerce, with central office in the said Confide
city, the main objects and purposes of which were
ntialearth, petroleum, rock and carbon oils, natural gas,
"to mine, dig for, or otherwise obtain from
other volatile mineral substances and salt, and to manufacture, refine, prepare for market,
buy, sell and transport the same in crude or refined condition", and the capital thereof in their
articles of incorporation, the accused herein included, consisting of 3,000 shares without par
value, 400 shares of which having been subscribed by the said accused at 200 shares each
and paid partly by them at the price of only P5 per share, according to the said agreement
which shares were speculative securities, because the value thereof materially depended
upon proposed promise for future promotion and development of the oil business above
mentioned rather than on actual tangible assets and conditions thereof, did then and there,
with deliberate intent of evading the provisions of sections 2 and 5 of the said Act No. 2581,
and conspiring and confederating together and helping each other, willfully, unlawfully and
feloniously trade in, negotiate and speculate with, their shares aforesaid, by making
personally or through brokers or agents repeated and successive sales of the said shares at
a price ranging from P100 to P300 per share, as follows:

The accused Nicasio Osmeña sold 163 shares to nine different parties, and the accused
Jacob Rosenthal sold 21 shares to seven others, without first obtaining the corresponding
written permit or license from the Insular Treasurer of the Commonwealth of the Philippines,
as by law required.

CASE NO. 52366

That in or about and during the period comprised between October 1, 1935, and January 22,
1936, both dates inclusive, in the City of Manila, Philippine Islands, and within the jurisdiction
of this court, the said Nicasio Osmeña and Jacob Rosenthal, two of the ten promoters,
 organizers, founders and incorporators of, the former being, in addition, one of the members
of the board of directors of, the South Cebu Oil Co., Inc., a domestic corporation organized
under the laws of the Philippines and registered in the mercantile registry of the Bureau of
Commerce, with central office in the said city, the main objects and purposes of which were
"to mine, dig for, or otherwise obtain from earth, petroleum, rock or carbon oils, natural gas,
other volatile mineral substances and salt, and to manufacture, refine, prepare for market,
buy, sell and transport the same in crude and refined condition", and the capital stock of
which, as per agreement of all the incorporators thereof in their articles of incorporation, the
accused herein included, consisting of 2,800 shares without par value, 200 shares of which
having been subscribed by the accused Nicasio Osmeña, and 100 shares of which having
been subscribed by the accused Jacob Rosenthal and paid by both at the price of only P5
per share, according to the said agreement, which shares were speculative securities,
because the value thereof materially depended upon proposed promise of future promotion
and development of the oil business above mentioned rather than on actual tangible assets
and conditions thereof, did then and there, with deliberate intent of evading the provisions of
sections 2 and 5 of Act No. 2581, and conspiring and confederating together and helping
one another, willfully, unlawfully and feloniously trade in, negotiate and speculate with, their
shares aforesaid, by making personally or through brokers or agents repeated and
successive sales of the said shares at a price ranging from P100 to P300 per share, as
follows:

The accused Nicasio Osmeña sold 185 shares to nine different parties, and the accused
Jacob Rosenthal sold 12 shares to seven others, without first obtaining the corresponding
written permit or license form the Insular Treasurer of the Commonwealth of the Philippines,
as by law provided.
Confide
Upon motion of Jacob Rosenthal, the Court of First Instance of Manila granted him separate trial
ntial
although, when the cases were called for hearing, the court acceded to the motion of the prosecution
that the two cases be tried jointly inasmuch as the evidence to be adduced by the government
therein was the same, without prejudice to allowing the defendants to present their proof separately.
After trial, the lower court, on March 22, 1937, in separate decisions, found the defendants guilty as
charged in the informations. In case No. 52365 Jacob Rosenthal was sentenced to pay a fine of
P500, with subsidiary imprisonment in case of insolvency, and to pay one-half of the costs; Nicasio
Osmeña was sentenced to pay a fine of P1,000, with subsidiary imprisonment in case of insolvency,
and to pay one-half of the costs. In case No. 52366 Jacob Rosenthal was sentenced to pay a fine of
P500, with subsidiary imprisonment in case of insolvency, and to pay one-half of the costs; Nicasio
Osmeña was sentenced to pay a fine of P2,000, with subsidiary imprisonment in case of insolvency,
and to pay one-half of the costs. The defendants duly perfected their appeal from these judgments
and the cases were originally elevated to the Court of Appeals but, upon motion of the Solicitor-
General, the same were forwarded to this court in view of the fact that the constitutionality of Act No.
2581 has been put in issue by appellants. Two separate briefs have been filed by Rosenthal and
Osmeña. In the brief for appellant Rosenthal the following "joint assignment of errors" is made:

1. In declaring that according to the report of the geologist contracted by the O.R. Oil Co. and
the South Cebu Oil Co. to explore the properties leased to said companies, "no habia
ninguna indicacion de que hubiese petroleo en aquellos terrenos", when in truth what the
report stated was that in so far as the O.R.O. Oil Co. land was concerned, the territory
covered by the lease if full of possibilities; and with respect to the South Cebu Oil Co. lease,
that no further investigations and expenses be made "unless favorable test results are
obtained on the northern lease."
2. In declaring that the exploration leases were, subsequent to the findings of the geologist,
cancelled by the government, implying thereby that as no oil was found in said lands, the
leases were cancelled; when in truth the cancellation was based on supposed violation of
those provisions of the corporation law prohibiting the setting up of interlocking directorates.

3. In declaring that the defendant, of his 200 shares of stock in the O.R.O. Oil Co., sold
twenty-one shares to different persons and on different dates, one share having been sold
directly to one E.F. Pimley; five, thru a firm of brokers known as Mackay & McCormick, to
Arthur Hoyer, Wm. Scheunig, and Modesto Bautista, in the proportion of two, two and one,
respectively; and fifteen shares directly to Henry J. Belden, R.T. Fitzimmons and D.P.
O'Brien, in the proportion of five shares to each of them — when in truth only that to E.F.
Pimley was sold to the latter by the defendant, while those eventually transferred to Hoyer,
Scheunig and Bautista were sold directly to the said firm Mackay & McCormick, which
bought them on its own risk and account, and the remaining fifteen transferred to Belden,
O'Brien, and Fitzimmons were loaned by Rosenthal to Nicasio Osmeña, who was not until
now either returned those shares or paid their value.

4. In also declaring that of his 100 shares of stock in the South Cebu Oil Co., the defendant
sold twelve to various persons and on different dates, when in truth only one of these shares
was sold by the defendant to E.F. Pimley, and the remaining eleven, two of which were
transferred to Arthur Hoyer, two to William Scheunig, one to Jose de la Fuente, one to
Crispin Llamado, one to A.M. Opisso, and four to Ines Galano, were sold and transferred, in
one single transaction, to the said firm of brokers directly, which firm bought said shares on
its own risk and account.

5. In declaring that the shares sold to Mackay

Confide & McCormick were brought by the latter on
credit at P250 each, to be resold by it atntial
P300 each, and that out of the proceeds of the sale
of these shares the defendant received the price agreed upon between him and the said
brokerage firm, or P250 per share, when in truth and in fact there was no agreement
between the parties as to whether the said firm was to sell said shares to others or whether
those shares were to be kept and retained by it on its own risk and account.

6. In declaring that the corporations had not begun exploration work on the territory covered
by their leases, and that they had no tangible properties.

7. In declaring that while the defendant needed no permit to sell his own stock, the
corporations as issuer being the ones bound to obtain the permit required by the Blue Sky
Law, nevertheless he (the defendant) was guilty of a violation of said law because the
possession of the shares held and sold by him was not in good faith, in that his acquisition
thereof was not made in the ordinary and normal course of the business of the corporations,
but that said shares were purchased to indirectly promote the enterprise for which the
corporations were formed; the said defendant having paid in full to the corporations the value
of said shares of stock.

8. In holding as proven that the possession of the defendant of his own stock, which he paid
for in full, was not a possession in good faith, because he, as an incorporator (fundador),
should have known that no permit in writing had been issued the corporations by the Insular
Treasurer for the sale of said stock.

9. In overruling the objection to the admission of Exhibit 1-b, and in holding that a permit had
not been issued by the Insular Treasurer for the sale of the stocks of the corporations.
 10. In holding that there were repeated and successive sales made by the defendant
Rosenthal of his own shares of stock.

11. In holding that although the defendant was the absolute owner of the stock he sold, his
repeated and successive sales of such stock prove that this claim of ownership (esta
pretension de propriedad) was but a means employed by him to sell said stock at prices very
much higher than those he paid for them.

12. In holding that said stock was sold by the defendant without the required permit having
been first issued by the Insular Treasurer, and that the sale was effected as if such permit
had been actually issued (como si en realidad pudieran venderse por haberse expedido tal
permiso).

13. In holding that as a result of an investigation conducted by the City Fiscal, the defendant
refunded to Belden, O'Brien and Fitzimmons and others the amount they paid for the stock
they purchased.

14. In holding that the opinion given by the Chief of the Insurance Division of the Office of the
Insular Treasurer to the effect that the defendant could sell the said stock without a permit as
long as no false representations were made by the said defendant, can not and does not
exempt the latter from criminal responsibility even though no false representations
whatsoever were made by the aforesaid defendant.

15. In holding that the prima facie presumption in section 8 of the law to the effect that the
claim of ownership is not bona fide when repeated and successive sales of such stock are
effected, has been totally destroyed by Confide
the fact that said stock absolutely belongs to the
defendant, and in not further holding that because of such absolute ownership the defendant
ntial
could have legally disposed of such stock in as many sales as he saw fit without any permit
from the Insular Treasurer.

16. In not holding that the Blue Sky Law contravenes the constitutional provisions of the
Jones Act in so far as such law constitutes an undue delegation of legislative powers to the
Insular Treasurer, and in so far as it does not afford equal protection before the law.

17. In not absolving the defendant.

In the brief for appellant Osmeña the following "relacion conjunta de errores" is in turn submitted:

1. Al no sobreseer esta causa despues de promulgada la Ley No. 83 del Commonwealth, no

obstante haberse llamado su atencion al hecho de que esta Ley derogaba la Ley No. 2581
de la Legislatura Filipina, bajo cuyas disposiciones ha sido procesado el acusado.

2. Al condenar al acusado por infraccion de la "Blue Sky Law", no obstante reconocerse en

la decision que consta en las pruebas que el acusado Osmeña no ha of recido en venta
ninguna de aquellas acciones, ni ha hecho manifestaciones falsas a nadie para poder
venderlas, y que la mayor parte, si no todos los que las compraron, estaban satisfechos de
la inversion de su dinero en la adquisicion de tales acciones.

3. Al condenar al acusado por haber vendido acciones especulativas sin licencia, cuando no
se probo: (a) que las acciones de la O.R.O. Oil Co., Inc., y de la South Cebu Oil Co., Inc.,
 eran especulativas por su naturaleza, y (b) que el acusado Osmeña carecia de licencia para
venderlas.

4. Al declarar que la posesion por el acusado Osmeña de sus acciones de la O.R.O. Oil Co.,
Inc., y de la South Cebu Oil Co., Inc., no era de buena fe y que no las habia adquirido por su
propia cuenta sino para la promocion indirecta de un provecto de negocio o empresa
especulativa.

5. Al no declarar que la "Blue Sky Law" es contraria a las normas constitucionales que
gozaba al tiempo de su promulgacion : (1) porque contiene en sus disposiciones una
delegacion indebida de facultades legislativas; (2) porque es vaga e incierte en sus
disposiciones y, por tanto, nula; y (3) porque infringe el derecho de igual proteccion ante la
ley, viola la libertad de contratacion y contraviene el derecho de adquirir, gozar y disponer
libremente de la propriedad privada, siendo su promulgacion, por tanto, un acto de opresion
y de verdadera tirania.

6. Al no absolveral acusado Nicasio Osmeña..

To meet the foregoing errors assigned by the appellants, plaintiff-appellee contends:

(a) That the enactment of Commonwealth Act No. 83 did not have the effect of relieving
appellants from criminal liability.

(b) That the appellants acted as promoters of the O.R.O. Oil Co. and the South Cebu Oil Co.

Confide
(c) That the shares of the two corporations are speculative in nature.
ntial
(d) That the appellants sold their shares in said corporations without permit or knowing that
the latter did not have the permit required by law.

(e) That the appellants are not entitled to the exemption provided in section 8 of the Blue Sky
Law (Act No. 2581).

(f) That the Blue Sky Law is valid and constitutional.

Most of the errors assigned by the appellants deal with questions of fact. This is particularly true with
reference to errors one, two, three, four, five, six, seven, eight, nine, ten, eleven, twelve and thirteen
of appellant Jacob Rosenthal, and error four of appellant Nicasio Osmeña. There is no material
discrepancy regarding the facts, and we shall proceed to consider the legal questions propounded,
which are in the main set forth by the Solicitor-General in his brief.

It is contended by the appellants that Act No. 2581 is unconstitutional on three grounds. (1) That it
constitutes an undue delegation of legislative authority to the Insular Treasurer: (2) that it does not
afford equal protection before the law; and (3) that it is vague and ambiguous.

Under section 2 of Act No. 2581, every person, partnership, association, or corporation attempting to
offer to sell in the Philippines speculative securities of any kind or character whatsoever, is under
obligation to file previously with the Insular Treasurer the various documents and papers
enumerated therein and to pay the required tax of twenty pesos. Certain securities listed in section 3
are exempted from the operation of the Act. Section 5 imposes upon the Insular Treasurer the
mandatory duty to examine the statements and documents thus filed and the additional duty to make
or cause to be made, if deemed advisable by him, a detailed examination of the affairs of the
applicant. Section 5 also provides that "whatever the said Treasurer of the Philippine Islands is
satisfied, either with or without the examination herein provided, that any person, partnership,
association or corporation is entitled to the right to offer its securities as above defined and provided
for sale in the Philippine Islands, he shall issue to such person, partnership, association or
corporation a certificate or permit reciting that such person, partnership, association or corporation
has complied with the provisions of this Act, and that such person, partnership, association or
corporation, its brokers or agents are entitled to offer the securities named in said certificate or
permit for sale"; that "said Treasurer shall furthermore have authority, whenever in his judgment it is
in the public interest, to cancel said certificate or permit", and that "an appeal from the decision of
the Insular Treasurer may be had within the period of thirty days to the Secretary of Finance."

Appellants argue that, while Act No. 2581 empowers the Insular Treasurer to issue and cancel
certificates or permits for the sale of speculative securities, no standard or rule is fixed in the Act
which can guide said official in determining the cases in which a certificate or permit ought to be
issued, thereby making his opinion the sole criterion in the matter of its issuance, with the result that,
legislative powers being unduly delegated to the Insular Treasurer, Act No. 2581 is unconstitutional.
We are of the opinion that the Act furnishes a sufficient standard for the Insular Treasurer to follow in
reaching a decision regarding the issuance or cancellation of a certificate or permit. The certificate or
permit to be issued under the Act must recite that the person, partnership, association or corporation
applying therefor "has complied with the provisions of this Act", and this requirement, construed in
relation to the other provisions of the law, means that a certificate or permit shall be issued by the
Insular Treasurer when the provisions of Act No. 2581 have been complied with. Upon the other
hand, the authority of the Insular Treasurer to cancel a certificate or permit is expressly conditioned
upon a finding that such cancellation "is in the public interest." In view of the intention and purpose of
Act No. 2581 — to protect the public against "speculative schemes which have no more basis than
so many feet of blue sky" and against the "saleConfide
of stock in fly-by-night concerns, visionary oil wells,
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distant gold mines, and other like fraudulent exploitations", — we incline to hold that "public interest"
in this case is a sufficient standard to guide the Insular Treasurer in reaching a decision on a matter
pertaining to the issuance or cancellation of certificates or permits. As we observed in the case
of People vs. Fernandez and Trinidad (G.R. No. 45655, June 15, 1938), "siendo el objecto de la ley
el evitar especulaciones ruinosas, es claro que el interes publico, es, y debe ser la razon en que el
Tesorero Insular deba basar sus resoluciones." And the term "public interest" is not without a settled
meaning.

Appellant insists that the delegation of authority to the Commission is invalid because the
stated criterion is uncertain. That criterion is the public interest. It is a mistaken assumption
that this is a mere general reference to public welfare without any standard to guide
determinations. The purpose of the Act, the requirement it imposes, and the context of the
provision in question show the contrary. . . . (New York Central Securities
Corporation vs. U.S.A., 287 U.S., 12, 24, 25; 77 Law. ed., 138, 145, 146.) (See
also Schenchter Poultry Corporation vs. U.S., 295 U.S., 495; 540; 79 Law. ed., 1570, 1585;
Ferrazzini vs. Gsell, 34 Phil., 697, 711, 712.)

In this connection, we cannot overlook the fact that the Act No. 2581 allows an appeal from the
decision of the Insular Treasurer to the Secretary of Finance. Hence, it cannot be contended that the
Insular Treasurer can act and decide without any restraining influence.

The theory of the separation of powers is designed by its originators to secure action and at the
same time to forestall over action which necessarily results from undue concentration of powers, and
thereby obtain efficiency and prevent despotism. Thereby, the "rule of law" was established which
narrows the range of governmental action and makes it subject to control by certain legal devices.
As a corollary, we find the rule prohibiting delegation of legislative authority, and from the earliest
time American legal authorities have proceeded on the theory that legislative power must be
exercised by the legislative alone. It is frankness, however, to confess that as one delves into the
mass of judicial pronouncements, he finds a great deal of confusion. One thing, however, is
apparent in the development of the principle of separation of powers and that is that the maximum
of delegatus non potest delegare or delegata potestas non potest delegare, attributed to Bracton
(De Legibus et Consuetudinious Angliae, edited by G.E. Woodbine, Yale University Press [1922],
vol. 2, p.167) but which is also recognized in principle in the Roman Law (D.17.18.3), has been
made to adapt itself to the complexities of modern governments, giving rise to the adoption, within
certain limits, of the principle of "subordinate legislation", not only in the United States and England
but in practically all modern governments. The difficulty lies in the fixing of the limit and extent of the
authority. While courts have undertaken to lay down general principles, the safest is to decide each
case according to its peculiar environment, having in mind the wholesome legislative purpose
intended to be achieved.

Counsel for appellant Jacob Rosenthal also argues that the Insular Treasurer possesses "the
discretionary power to determine when a security is a speculative security and when it is not"
because "he is given the power to compel any corporation, association or partnership already
functioning, to surrender to him for examination its books and accounts enumerated in section 2,
'whenever he has reasonable ground to believe that the securities being sold or offered for sale are
of a speculative character.'" It should be observed, however, that section 1 of Act No. 2581 defines
and enumerates what are "speculative securities" and all the other provisions of the Act must be
read and construed in conjunction and harmony with said section.

Laws of the different states of the American Union similar in nature to Act No. 2581 were assailed on
constitutional grounds somewhat analogous to those involved in the case at bar, but the decisions of
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both the state courts and the Supreme Court of the United States have upheld their constitutionality.
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In the case of Hall vs. Geiger-Jones Co. (242 U.S., 539), the contention was made that the Blue Sky
Law of Ohio, which requires the commissioner before granting a license to "be satisfied of the good
repute in business of such applicant and named agents", and which empowers said commissioner to
revoke the license or refuse to renew it upon ascertaining that the licensee "is of bad business
repute; has violated any provisions of this act or has engaged, or is about to engage, under favor of
such license, in illegitimate business or in fraudulent transactions", is unconstitutional because the
law has failed to give a standard to guide or determine the decision of the commissioner leaves
"room for the play and action of purely personal and arbitrary power", but the Supreme Court of the
United States overruled the contention and held:

Besides it is certainly apparent that if the conditions are within the power of the State to
impose, they can only be ascertained by an executive officer. Reputation and character are
quite tangible attributes, but there can be no legislative definition of them that can
automatically attach to or identify individuals possessing them, and necessarily the aid of
some executive agency must be invoked. The contention of appellees would take from
government one of its most essential instrumentalities, of which the various national and
state commissions are instances. But the contention may be answered by authority. In
Gundling vs. Chicago (177 U.S., 183), an ordinance of the City of Chicago was passed on
which required a license of dealers in cigarettes and as a condition of the license that the
applicant, if a single individual, all of the members of the firm, if a co-partnership, and any
person or persons in charge of the business, if a corporation, should be of good character
and reputation, and the duty was delegated to the mayor of the city to determine the
existence of the conditions. The ordinance was sustained. To this case may be added Red
"C" Oil Manufacturing Co. vs. North Carolina (222 U.S., 380, 394, and cases cited); Mutual
Film Corporation vs. Industrial Commission of Ohio (236 U.S., 230); Brazee vs. Michigan
 (241 U.S., 340, 341). See also Reetz vs. Michigan, (188 U.S., 505); Lieberman vs. Van de
Carr (199 U. S., 552). (Pp. 553, 554.)

In the case of Leach vs. Daugherty (238 P., 160), where the contention was advanced that section 6
of the Corporate Securities Act of California which authorized the corporation commissioner to
refuse to grant a broker's certificate, if he is not satisfied of the "good business reputation of the
applicant", is unconstitutional because "no rules, regulations, or specifications are set forth in the
said Corporate Securities Act defining what shall constitute 'good business reputation,'" it was ruled
that "Considering such objection, it would appear that the leading case of Hall vs. Geiger-Jones Co.
(242 U.S., 539; 37 Sup. Ct., 217; 61 Law. ed., 480; L.R.A., 1917F, 514; Ann. Cas. 1917C, 643), is so
conclusively against the petitioner's contention that little room is left for argument", and that "it is
well-settled principle of law in this state that by legislative act a commission or board may be
empowered to ascertain the existence of facts, upon the finding of which may depend the right to
continue in the practice of a profession or a regulated business."

In the case of G.F. Redmond & Co. vs. Michigan Securities Commission (222 Mich., 1; 192 N.W.,
688), in which it was argued that the provision in section 11955 of the Compiled Laws of 1915
(Michigan Blue Sky Law), authorizing the commission to revoke a license for "good cause" upon
notice to the dealer and a hearing duly had, is unconstitutional because the term "good cause" is so
vague and indefinite that the law practically vested upon the commission arbitrary powers, the court
said:

The term "good cause" for revocation, as employed in the statute, relates so clearly to the
conduct of the licensed business, within the limits fixed by law, as to negative any arbitrary
official action, and is so comprehensive of unlawful, irregular, fraudulent, unauthorized, and
forbidden business management and transactions
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particular specification of its meaning and its
ntial application.

Must the law map out , for the guidance of the licensee, a code of ethics and post danger
signals against inhibited and dishonest practices? The defendant had no right to have the
conduct of its business charted by specifications of forbidden practices involving revocation
of the license. The general scope and expressed purpose of the law, together with open and
fair dealing, entered the license, and transgression thereof constituted good cause for
revocation thereof. (P. 689.)

In the case of State ex rel. Central Steam Heat & Power Co. vs. Gettle (Wis. [1928], 220 N.W., 201),
where it was argued that the requirement of the Wisconsin Blue Sky Law (St. 1925, sec. 184.09 [3];
Law 1927, c. 444) that the Railroad Commission shall find that the "financial condition, plan of
operation, and the proposed undertakings of the corporation are such as to afford reasonable
protection to the purchasers of the securities to be issued", is unconstitutional for the reason that (1)
the Legislature has no power to regulate the issuance of securities in order to protect the investing
public; (2) the Legislature does not provide a standard to control the commission; (3) the statute is
so indefinite and uncertain in its meaning as to be incapable of administration; and (4) the statute
delegates to the railroad commission legislative power, the court said:

This is but a usual provision found in the many so-called Blue Sy Laws, the constitutionality
of which has been upheld by the courts generally. The constitutionality of similar provisions
has been so thoroughly considered by this court that further discussion thereof is
unnecessary. The following cases abundantly establish the constitutionality of this provision.
(State ex rel. Minneapolis, St. Paul & Sault Ste. Marie Railway Company vs. Railroad
Commission of Wisconsin, 137 Wis., 80; 117 N.W., 846; Appleton Water Works
Co. vs. Railroad Commission of Wisconsin, 154 Wis., 121; 142 N.E., 476; 47 L.R.A. [N.S.],
 770; Ann. Cas. 1915B, 1160; State ex rel. City of Milwaukee vs. Milwaukee Electric Railway
& Light Co., 169 Wis., 183; 172 N.W., 230; City of Milwaukee vs. Railroad Commission of
Wisconsin, 183 Wis., 498; 196 N.W., 853; Wisconsin Southern Ry. Co. vs. Railroad
Commission of Wisconsin, 185 Wis., 313; 201 N.W., 244; Kretuzer vs. Westfahl, 187 Wis.,
463; 204 N.W., 595.)

Another ground relied upon by appellants in contending that Act No. 2581 is unconstitutional is that it
denies equal protection of the laws because the law discriminates between an owner who sells his
securities in a single transaction and one who disposes of them in repeated and successive
transactions. In disposing of this contention we need only refer to the case of Hall vs. Geiger-Jones
Co., supra, wherein the Supreme Court of the United States held:

"Discriminations are asserted against the statute which extend, it is contended, to denying
appellees the equal protection of the laws. Counsel enumerates them as follows:

"Prominent among such discriminations are . . . between an owner who sells his securities in
a single transaction and one who disposes of them in successive transactions; . . . "

We cannot give separate attention to the asserted discriminations. It is enough to say that
they are within the power of classification which a state has. A state "ay direct its law against
what it deems the evil as it actually exists without covering the whole field of possible
abuses, and it may do so none the less that the forbidden act does not differ in kind from
those that are allowed . . .. If a class is deemed to present a conspicuous example of what
the legislature seeks to prevent, the 14th Amendment allows it to be dealt with although
otherwise and merely logically not distinguishable from others not embraced in the law.
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Counsel for appellant Nicasio Osmeña further allegesntial that Act No. 2581 is unconstitutional on the
ground that it is vague and uncertain. A similar contention has already been overruled by this court
in the case of People vs. Fernandez and Trinidad, supra. An Act will be declared void and
inoperative on the ground of vagueness and uncertainty only upon a showing that the defect is such
that the courts are unable to determine, with any reasonable degree of certainty, what the legislature
intended. The circumstance that this court has no more than one occasion given effect and
application to Act. No. 2581 (Valhalla Hotel Construction Co. vs. Carmona, 44 Phil., 233;
People vs. Nimrod McKinney, 47 Phil., 792; People vs. Fernandez and Trinidad, supra) decisively
argues against the position taken by appellant Osmeña. In this connection we cannot pretermit
reference to the rule that "legislation should not be held invalid on the ground of uncertainty if
susceptible of any reasonable construction that will support and give it effect. An Act will not be
declared inoperative and ineffectual on the ground that it furnishes no adequate means to secure the
purpose for which it is passed, if men of common sense and reason can devise and provide the
means, and all the instrumentalities necessary for its execution are within the reach of those
intrusted therewith." (25 R.C.L., pp. 810, 811.)

Reaffirming our view in People vs. Fernandez and Trinidad, supra, we hold that Act No. 2581 is valid
and constitutional.

Taking up now the question raised with reference to the speculative nature of the shares of the ).
O.R.O. Oil Co. and the South Cebu Oil Co., we find that section 1, paragraph (b) of Act No. 2581, in
defining speculative securities, provides:

. . . The term "speculative securities" as used in this Act shall be deemed to mean and
include:
 xxx     xxx     xxx

(b) All securities the value of which materially depend upon proposed or promised future
promotion or development rather than on present tangible assets and conditions.

At the beginning, and at the time of the issuance of the shares of the O.R.O. Oil Co. and the South
Cebu Oil Co., all that these companies had were their exploration leases. Beyond this, there was
nothing tangible. The value of those shares depended upon future development and the uncertainty
of "striking" oil. The shares issued under these circumstances are clearly speculative because they
depended upon proposed or promised future promotion or development rather than on present
tangible assets and conditions.

Appellants next contend that in view of the repeal of Act No. 2581 by Commonwealth Act. No. 83,
they have been relieved of criminal responsibility. Assuming that the former Act has been entirely
and completely abrogated by the latter Act — a point we do not have to decide — this fact does not
relieve appellants from criminal responsibility. "It has been the holding, and it must again be the
holding, that where an Act of the Legislature which penalizes an offense repeals a former Act which
penalized the same offense, such repeal does not have the effect of thereafter depriving the courts
of jurisdiction to try, convict and sentence offenders charged with violations of the old law."
(People vs. Concepcion, 44 Phil., 126, 132; Ong Chang Wing and Kwong Fok vs. U.S., 218 U.S.,
272; 40 Phil., 1046; U.S. vs. Cuna, 12 Phil., 241; U.S. vs. Aron, 12 Phil., 778; U.S. vs. Tonga, 15
Phil., 43; U.S. vs. Molina, 17 Phil., 582.)

Appellants further contend that they come under the exception provided in section 8 of Act No. 2581.
This section provides:
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This Act shall not apply to the holder ofntial
any speculative security who is not the issuer
thereof, nor to the person who has acquired the same for his own account in the usual and
ordinary course of business and not for the direct or indirect promotion of any enterprise or
scheme within the purview of this Act, unless such possession is in good faith. Repeated and
successive sales of any speculative securities shall be prima facie evidence that the claim of
ownership is not bona fide, but is a mere shift, device or plot to evade the provisions of this
Act. Such speculators shall incur the penalty provided for in section seven of this Act.

Under this section, there are clearly two classes of persons to whom the law is not applicable: (1)
Persons who hold speculative securities but who are not the issuers thereof; and (2) persons who
have acquired the same for their own account in the usual and ordinary course of business and not
for the direct or indirect promotion of any enterprise or scheme within the purview of this Act,
provided (the law uses the term "unless") such possession is in good faith.

Passing upon the questions of fact necessarily involved in the application of section 8 of Act No.
2581, the trial court in case No. 52365 makes the following findings with reference to Nicasio
Osmeña:

. . . El acusado Osmeña no ha adquirido por su propia cuenta en el curso ordinario y

corriente de los negocios en la O.R.O. Oil Co. Las acciones por el vendidas, pues las
adquirio mediante suscripcion como uno de los fundadores de dicha corporacion, pero si
para la promocion indirecta de un proyecto de negocio o empresa para el cual se habia
organizado le corporacion, habiendo pagado totalmente el importe de dichas acciones a la
misma corporacion; ni tampoco las poseia de buena fe, puesto que como fundador y
miembro de la junta directiva de dicha corporacion debia saber que no se habia expedido
por el Tesorero Insular ningun permiso por escrito a al corporacion para la venta de dichas
 acciones. Y las ventas sucesivas y repetidas de esas acciones que tenia en la misma
corporacion, aunque tales acciones eran suyas por haberlas el obtenido de la corporacion
mediante suscripcion y pago del importe correspondiente prueban que esta pretension de
propiedad ha sido solamente un medio de que se ha valido para vender tales acciones a
precios mucho mayores que el importe por por haberse expedido tal permiso.

The same findings, mutatis mutandis, are made in case No. 52366 against the same appellant, and
against Jacob Rosenthal in the two cases. Even if we could, we do not feel justified in disturbing the
findings of the trial court. The good faith set up by appellant Rosenthal for having acted on the
advice of one Garcia, an officer in the Insular Treasury, and the subsequent devolution by him of
amounts collected from some of the purchasers of the shares may be considered as a circumstance
in his favor in the imposition of the penalty prescribed by law but does not exempt him from criminal
responsibility. (People vs. McCalla, 63 Cal. App., 783; 220 Pac., 436; 367 U.S., 585; 69 Law. ed.,
799; 45 Sup. Ct., 461; People vs. Fernandez and Trinidad, supra.)

The judgments of the lower court are affirmed, with the modification that the fines are reduced as to
accused Jacob Rosenthal from P500 to P200 in each case, and as to accused Nicasio Osmeña,
from P1,000 to P500 in case No. 52365 and from P2,000 to P1,000 in case No. 52366, with
subsidiary imprisonment for both in case of insolvency, and costs. So ordered.

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ntial
G.R. No. L-46892             June 28, 1940

ANTAMOK GOLDFIELDS MINING COMPANY, recurrente,

vs.
COURT OF INDUSTRIAL RELATIONS, and NATIONAL LABOR UNION, INC., recurridos.

Sres. DeWitt, Perkins y Ponce Enrile en representacionde la recurrente.

Sres. Paguia y Lerum en represetacion de la recurrida, National Labor Union.

IMPERIAL, J.:

Esta es una apelacion mediante certiorari interpuesta por la recurrente contra la orden dictada por el
Tribunal de Relaciones Industriales el 6 de mayo de 1939 que le obligo a que reponga en sus
anteriores trabajos o en otros substancialmente equivalentes a los 45 obreros enumerados en la
peticion del 31 de marzo de 1939 y a los 10 obreros encabezados por A. Haber que fueron
excluidos indefinidamente, dentro de 10 dias desde que reciba copia de la orden; que pague a estos
55 obreros los jornales que debieron haber percibido desde la fecha de su suspension o separacion
hasta la de su reposicion; y que pendiente de resolucion las otras cuestiones que las partes han
sometido, la recurrente se abstenga, bajo pena de desacato, de despedir o excluir, sin permiso
previo del tribunal, a cualquier obrero o empleado que se hallaba bajo su servicio en la epoca en
que surgio la disputa que este actualmente trabajando en las minas o que sea repuesto en su
trabajo de conformidad con la orden; y contra la resolucion del mismo tribunal del 17 de agosto de
1939 que denego la mocion de reconsideracion de la recurrente presentada el 26 de mayo de 1939.

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El 12 de diciembrre de 1938 la recurrida National Labor union, Inc., en representacion de los
obreros y empleados de la recurrente que eranntial
miembros de dicha union obrera, dirigio una carta a
la recurrente solicitando 21 reclamaciones en favor de sus afiliados. La carta fue recibida por la
oficina de la recurrente en Manila en un sobre timbrado por la estafeta de Baguio el 30 de mismo
mes. Los funcionarios de la recurrente convocaron a un meeting a sus empleados el 2 de enero de
1939 y en el informaron a todos sus obreros que algunad de las demandas se habian aceptado y se
habian puesto ya en practica, otras serian consideradas y las restantes iban a ser rechazadas por
ser irrazonables, y se les aconsejo que no recurrieran a la violencia y observaran metodos legales
en el arreglo de sus diferencias con la recurrentes. En la noche del mismo dia los obreros y
empleados de la recurrente se declararon en huelga y abandonaron sus trabajos. La recurrnte dio
cuenta inmediatamente de esta huelga al Departamento del Trabajo y solicito su intervencion con el
fin de solucionarla. El Secretario del Trabajo designo a Adolfo Umengan, Investigador Especial del
Departamento, y a Eladio C. Leaño, Defensor Publico de la Provincia Montañosa, para que
intervinieran y vieran la manera de solucionar la huelga. Estos funcionarios convocaron una
conferencia a la que acudieron funcionarios de la recurrente, representante de los huelguistas y Luis
Lardizabal, Jefe de la Baguio Federation of Labor, una organizacion obrera afiliada a National Labor
Union, Inc. Como resultado de la conferencia las partes convinieron en el siguiente arreglo
amistoso:

AMICABLE SETTLEMENT

In order to have the present strike of the contractors and laborers of the respondent
company who staged a walkout on January 3, 1939, amicably settled, the parties hereby
mutually agree to end the said strike under the condition that all laborers will be readmitted
upon the execution of this agreement; provided, that all laborers whose services should be
dispensed with due to lack of work in those tunnels where they are no longer needed will be
given not less than fifteen days employment from the date of this settlement or resumption of
 work, and provided, further, that as soon as the stopes in 1360 and 1460 levels are opened
and the services of men are needed, the company will give preference to efficient laborers
when reducing the personnel as above mentioned in those working places and may transfer
them to other division to replace inefficient men.

In witness hereof, the laborers represented by a committee composed of Messrs. Luis

Lardizabal, Tomas Dirige, Victoriano Madayag, Maximo Conaoi, Daniel Lambinicio, and Juan
Cerilo and the Antamok Goldfields Mining Co. as represented by its President, Mr. Andres
Soriano, have hereunto placed their signatures this 4th day of January, 1939.

El convenio fue firmado por las partes el 4 de enero de 1939, pero los obreros no se presentaron
sino a las 9 de la mañana del 6 del mismo mes. La gerencia de la recurrente no permitio, sin
embargo, a ningun obrero que entrara en la seccion subterranea conocida como "830 level" por la
razon de que el aire se habia viciado con motivo de la huelga y era necesario renovarlo con aire
puro con el fin de evitar desgracias personales. Esta precaucion la tomaron los obreros como uan
negativa de la recurrente a que ellos trabajaran de nuevo, por lo que se declararon otra vez en
huelga. A los huelguistas se unieron por simpatia los obreros que trabajaban en la mina
denominada "680 division," que es otra mina separada y situada a 3 kilometros de la fabrica. Otra
vez internivo el Departamento del Trabajo y por la mediacion de Eladio C. Leaño los obreros
volvieron al trabajo en la noche del 6 de enero de 1939 en que los trabajos de mina se reanudaron
paulatinamente.

El 9 de enero de 1939 el Departamento del Trabajo endoso la disputa al Tribunal de Relaciones

Industriales de conformidad con el articulo 4 de la Ley No. 103 del Commonwealth y dicho Tribunal
celebro la primera vista del asunto el 13 del mismo mes en la Ciudad De Baguio. En esta vista se
discutieron una por una las 21 reclamaciones de la recurrida National Labor Union, Inc., y se llego
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por las partes a un acuerdo sobre algunas de ellas,
ntial se sometieron otras a la decision del Triunal y
las demas se dejaron pendientes para ser vistas y resueltas mas tarde.

El 31 de marzo de 1939, hallandose pendiente aun de decision la mayor parte de las reclamaciones
antes mencionadas, la recurrida National Labor Union, Inc., presento una mocion en que alego que
el capataz A. Haber y otros 9 obreros de la recurrente habian sido indefinidamente suspendidos el
29 del mismo mes; que estos obreros habian sido transferidos anteriormente a trabajos exteriores
con el fin de proporcionar a la recurrente una excusa para separarles mas tarde del servicio; que
otro grupo de cerca de 30 obreros fueron despedidos por la compañia sin motivo alguno y sin
autorizacion del tribunal; y que las suspensiones y separaciones que asi se hicieron eran actos de
venganza y discriminatorios para los obreros, por cuya razon se pidio que los funcinarios de la
recurrente responsables de dichos actos sean castigados por desacato y que la recurrente sea
obligada a reponer a los obreros en sus primitivos trabajos dentro de las minas y a pagarles sus
salarios correspondientes al periodo en que fueron separados del sevicio. La recurrente contesto la
mocion negando los hechos imputados y alego que Haber y sus 9 compañeros fueron suspendidos
por su continua holgazaneria durante las horas de trabajo y por haberse negado constantemente a
trabajar, y que los 45 obreros encabezados por el capataz Victoriano Madayag fueron despedidos
por haber rehusado señalar a los responsables del maltrato del capataz Juan Moldero en la mañana
del 30 de marzo de 1939. La mocion se vio el 3 de abril de 1939 y en la vista las partes presentaron
sus testigos. El tribunal designo a uno de sus agentes especiales para que se constituya en las
minas de la recurrente y practicara una investigacion con el fin de suplementar los hechos que se
probarondurante la vista. Despues de considerar las pruebas presentadas ante el y los hechos
hallados por el comisionado nombrado, el tribunal en su orden del 6 de mayo de 1939 declaro
probados los hechos siguientes:
 1. The discharges and indefinite suspensions alleged in the motion were made by the
respondent without first securing the consent of the Court in violation of the order of this
Court of January 23, 1939.

2. The discharges and indefinite suspensions were made by the respondent without just
cause.

El la misma orden el Tribunal de Relaciones Industriales hace las siguientes consideraciones que
apoyan las conclusiones a que la llegado:

In the order of January 23, 1939, the respondent was enjoined to refrain from discharging
any laborer involved in the dispute without just cause and without previous authority of the
Court. It appears and no denial of the fact is made by the respondent that the dismissal is
one case and alleged suspension for an indefinite time in the other, which has all the effects
of a discharge, were made without seeking the authority of the Court.

The charge that Haber and the group of nine laborers were indefinitely suspended of
continuous loafing and refusal to work was not established. The real motive behind the lay
was the completion of their work "outside." Under the circumstances, the provision of the
order of March 21, to the effect that these men should be returned to their work underground
after the completion of their work "outside" should have been observed. The respondent
instead of complying with the order laid off the men.

The discharge of Victoriano Madayag and his forty-four companions as a result of the
Moldero incident also lacks justification. In the case of Madayag, although he was present
with Haber when Moldero was attacked, neither one is accused of the aggression. The two
Confide
of them were conversing with Moldero withntial the latter was stoned from behind without
anybody apparently being able to point out the aggressor. Less justification can be found for
the discharge of the forty-four men as a result of the incident. The investigation disclosed
that at the time of the assault, they were at the Creek busy with their work. Both the distance
and the topographical situation of the place where the men were working, which is far and
well below the bank of the place of the incident, precluded their hearing of seeing clearly
what transpired above them in the place where Moldero was assaulted. An ocular inspection
of the premises made by the investigator confirmed this view. So far as is known, despite the
investigations conducted by the officials of the company and the policeman of the camp and
by the constabulary authorities in Baguio, the person or persons responsible for the stoning
has not been determined. The precipitate and unwarranted dismissal of the forty-five men
after the incident seems to have been spurred by an over anxious desire on the part of the
company to get rid of these men.

As previously found, in the order of this Court of March 21, 1939, about 134 underground
laborers of the respondent were transferred and made to work 'outside of the mines' or
surface work. The majority of these men were muckers, miners, timbermen, trammers, and
mine helpers and had to their favor from 6 months to 5 years service in the mines of the
company and not a few of them have done underground work in several capacities and in
different tunnels and divisions of the mine. Among them are found leaders of the movement
of the laborers for higher pay and better working conditions which culminated in the strike
called on January 3, 1939. These leaders have been prominent in the formation of the union
its activities and in connection with the strike. The temporary transfer of these men to
"outside" work was authorized by the Court in said order on the strength of the assurance of
the respondent that no more work suited for them inside the mines existed. It was directed,
however, in the aforesaid order that as soon as their outside was completed the laborers
should be immediately returned to their respective work inside the mines. Subsequent events
and acts of the officials of the respondent in charge of the mines have convinced the Court
work existed and exists for the men inside the tunnels and their transfers were made to
provide an opportunity to the company to dispense with their services as soon as the work is
completed. The unwarranted discharges of Haber and nine others and those of Victoriano
Madayag and his forty-four companions amply demonstrated this conclusion. Upon the
company's own admission, as shown in its reports in the records and upon the findings of the
investigator of the Court, more than four hundred (400) workers of different classes among
them, muckers, miners, timbermen, trammers and capataces coming from different mines in
the region have been employed by the respondent as fresh laborers. Almost all, if not all, of
these men are not members of the petitioner, the National Laborer Union, Inc.

At the same time the work in different tunnels and division in the mines are allegedly being
completed, the old workers are being laid off. Although a small number of the men found
transfer to other divisions being operated, the majority are being left without work. Instead of
laying hands on the old men laid off and making them work in the tunnels needing hands and
reinstating in the tunnel work those laborers transferred to the 'outside' department, the
respondent preferred to take in and hire other workers coming from different places because
evidently they are not members of the union.

There is no doubt in the mind of the Court that a good number of the position given of the
men who were employed after the strike numbering more than four hundred to date could
have been offered to the strikes who are now doing work "outside" and other who have been
laid off on the allegation that the underground work in which they were engaged had been
completed. To believe that not a single man or say a few among the latter could have met
the requirements set by the technical men of the company to perform the different classes of
Confide
work for which the fresh men were engaged because they lack the required efficiency,
ntial
experience, physique. intelligence and skill of the four hundred fresh laborers would be
shutting the eyes of the court to realities. These men prior to the occurence of the dispute,
had worked for months and many for years in the mines of the respondent and it can not be
easily accepted that their experience gained in their particular lines in the very property of
the respondent would be inferior to that attained by the other workmen in other mines in the
district for an equal period of time. Their inefficiency as a whole group can not be
successfully sustained now because they were not transferred to surface work for this
reason but because of the alleged lack of work or completion of their work underground. Had
any of them been inefficient in the past, it can not be explained why the company laborer
continued in the service as the records of the company abound with instance of discharges
made in the past of laborers who were found either inefficient or incompetent or whose
services were unsatisfactory.

The company asserts ignorance of the union affiliations of the men in the mine but the
evidence stands uncontradicted that before the strike was called a petition was presented by
the men to the management carrying the signatures of about eight hundred (800) worker
demanding higher pay and better working conditions. When the men struck, the operation of
the mine was completely paralyzed and there is a strong indication that a great majority of
the workers joined openly the strike. It would not have been difficult for the respondent, with
the means at its command, to find for itself the employees and laborers who remained loyal
to the company and to consider those who struck as either members of the union or its
sympathizer.

The respondent's claim as to the motive for the suspension and discharges lacks substance
and support in the evidence and the inferences to be drawn from it. From all what appears, it
 is inferred that the respondent desire to discourage membership in the union and to rout it if
possible. The wholesale discharges were the expression of such desire. The acts in the mind
of the Court, are calculated to have two effects. They will not only immediately affect the
discharged laborers but would also discourage other laborers from joining or remaining
members of the union.

The allegation that it has always been policy to consider the laborer's connection with the
company terminated upon termination of the working place in which he is employed is not
supported by the facts. It has been shown that as a general rule when work in a place is
completed, workers are transferred to another working place in one level or to another level,
although in some instances days may elapse before all the men in a bunch can be absorbed
in different levels.

It is alleged that mining operations in the property vary and involve several types, and that a
miner, for example, may be good in one type, but that it does not necessarily follow that he
can do good work in another type. And that the employment of men in particular jobs not
suitable for them increased the cost of production as a result of lower output. Consequently,
the respondent vehemently insists in its right of selecting the men that it should employ and
that in the exercise of this right it should not be restrained or interfered with by the Court. It
contends that as to fitness of a laborer to do a particular type of work the opinion of the
management or its technical men should be respected. But all these arguments are
meaningless in the face of the finding of the Court that the underground laborers transferred
to the 'outside' work are not wanting in experience, efficiency and other conditions alleged to
be found among the fresh laborers. The special qualifications to do particular work can not
rightly be invoked in favor of the employment of new laborers most specially in those cases
of common or unskilled labor like muckers, trammers, helpers, etc.
Confide
ntial
Under normal circumstances, the exercise of judgment of the employer in selecting men he
is to employ should not be interfered with. But when such judgment is arbitrarily exercised to
the prejudice of members of a labor union whose rights should be safeguarded in
consonance with the policies of the law, the Court not only feels it justified but rightly its duty
to interfere to afford protection to the laborers affected.

La recurrente presento una extensa mocion de reconsideracion de la indicada orden, mocion que
fue denegada por la resolucion del 17 de agosto de 1939. La orden del 6 de mayo de 1939 y la
resolucion del 17 de agosto del mismo año son las que dieron lugar a la apelacion interpuesta por la
recurrente.

La recurrente sostiene que la Ley No. 103 del Commonwealth, conforme ha sido enmendada por las
leyes Nos. 254 y 355, es anticonstitucional (1) porque infringe el principio de separacion de poderes;
(2) porque por ella la Asamblea Nacional abdico de su facultad legislativa violando la doctrina sobre
delegacion de poderes; (3) porque las facultades judiciales que la ley confiere al Tribunal de
Relaciones Industriales, consideradas separadamente, son arbitrarias e irrazonables y permiten la
privacion de la libertad y propiedad sin el debido proceso de ley; y (4) porque suponiendo que la ley
es valida y constitucional en su totalidad, la porcion, por lo menos, del articulo 20 que dispone que
el Tribunal de Relaciones Industriales "adoptara sus reglamentos de procedimiento" debe
declararse nula e invalida porque infringe el articulo 13 del Titulo VIII de la Constitucion de Filipinas
que obliga al Tribunal de Relaciones Industriales a observar las reglas generales de procedimiento
aplicables a los tribunales de justicia. La recurrente alega en este respecto que como a ella se le ha
sometido a un procedimiento arbitrario y distinto del que se aplica a los demas litigantes en los
tribunales de Filipinas, se le ha negado el debido proceso de ley y el principio de igual proteccion
ante las leyes.
La Ley No. 103 del Commonwealth que, como su titulo indica, provee a la proteccion del obrero,
creando un Tribunal de Relaciones Industriales facultado para fijar un jornal minimo para los obreros
y la renta maxima que se ha de pagar por los inquilinos; para poner en vigor el arbitraje obligatorio
entre patronos o propietarios y empleados o inquilinos, respectivamente, y prescribe penas por la
infraccion de sus decretos, se ha promulgado por la Asamblea Nacional en virtud de los preceptos
contenidos en el articulo 5, Titulo II; articulo 6, Titulo XIII; y articulos 1 y 2, Titulo VIII, de la
Constitucion de Filipinas que disponen:

ART. 5. El Estado cuidara de promover la justicia social a fin de asegurar el bienestar y la

estabilidad economica de todo el pueblo.

ART. 6. El Estado debera proteger a todos los trabajadores, especialmente a las mujeres y a
los menores de edad, y debera regular las relaciones entre propietarios e inquilinos, y entre
el trabajo y el capital en la industria y la agricultura. El Estado podra establecer el arbitraje
obligatorio.

ART. 1. El Poder Judicial estara investido en un Tribunal Supremo y en otros tribunales

inferiores que se establezcan por ley.

ART. 2. La Asamblea Nacional tendra la facultad de definir, prescribir y distribuir la

jurisdiccion de los varios tribunales, . . .

En cumplimiento de los preceptos constitucionales transcritos, la Asamblea Nacional promulgo la

Ley No. 103 del Commonwealth que crea el Tribunal de Relaciones Industriales que es un tribunal
especial con facultades judiciales (Pambusco Employees Union vs. Court of Industrial Relations et
al., G.R. No. 46727; Ang Tibay et al. vs. Court of Industrial Relations et al., G.R. No. 46496, opinion
Confide
concurrente del Magistrado Jose P. Laurel). El ntial
articulo 1 de dicha ley provee que el Tribunal de
Relaciones Industriales ejercera jurisdiccion para considerar, investigar, decidir y zanjar toda
cuestion, asunto, conflicto o disputa que afecte o surja entre patronos y empleados u obreros, y
entre propietarios e inquilinos o aparceros, y para regular las relaciones entre los mismos, con
arreglo y sujecion a las disposiciones de la ley. El articulo 4 dispone que el tribunal tomara
conocimiento, para fines de prevencion, arbitraje, decision y ajuste, de cualquier conflicto agrario o
industrial que motive o de lugar a una huelga o paro a causa de diferencias que surjan en la
cuestion de jornales, participacion o compensacion, horas de trabajo o condiciones de aparceria o
empleo, entre patronos y empleados u obreros, y entre propietarios e inquilinos o aparceros,
siempre que el numero de empleados, obreros, inquilinos o aparceros afectados exceda de treinta,
y que el conflicto agrario o industrial se someta al tribunal por el Secretario del Trabajo, o por una o
ambas partes interesadas, cuando el referido Secretario del Trabajo certifique en cuanto a su
existencia y la conveniencia de la intervencion del tribunal en bien del interes publico. Y el articulo
20 preceptua que en la vista, investigacion y resolucion de cualquier cuestion o conflicto, y en el
ejercicio de cualquiera de sus deberes y facultades, el tribunal actuara de acuerdo con la justicia y
la equidad y los meritos substanciales de la causa, sin consideracion a los tecnicismos y
formulismos legales, y no estara sujeto a cualesquier reglas tecnicas de prueba legal, sino que
formara juicio de la manera que crea justa y equitativo. La Ley No. 103 confiere al Tribunal de
Relaciones Industriales plena facultad disrecional para resolver y decidir las disputas agrarias e
industriales de la manera que crea justo e equitativo, prescindiendo de los tecnicismos y
formulismos legales, y la facultad asi concedida es judicial y no legislativa, por lo que no infringe el
principio de separacion de poderes, la prohibicion sobre delegacion de facultades legislativas ni la
proteccion igualitaria ante la ley. Como se ha dicho en el asunto de Cincinnati, W. & Z. R. Co. vs.
Comm'rs, of Clinton County '1852), 1 Ohio St., 88, citado en el asunto de Rubi et al. contra La Junta
Provincial de Mindoro, 39 Jur. Fil., 675, "Existe una verdadera diferencia entre delegar la facultad
para dictar leyes, lo cual supone necesariamente discrecion en cuanto a lo que hayan de ser
aquellas, y conferir atribucion o discrecion para hacerlas cumplir, discrecion que debe ejecitarse con
arreglo a la ley. La primera no puede hacerse en modo alguno; contra la segunda no cabe
interponer objecion alguna."

Para reforzar los argumentos en favor de la anticonstitucionalidad de la Ley No. 103 la recurrente
hace hincapie en lo resuelto en el asunto de Schechter vs. United States (1935), 295 U. S., 496, 79
Law. ed. 270, en que el Tribunal Supremo de los Estados Unidos declaro anticonstitucional la
National Recovery Act. Existe, sin embargo, una marcada diferencia entre dicho asunto y el que se
considera porque la National Recovery Act en vez de crear un tribunal de justicia, creo juntas con
facultades legislativas y autorizo al Presidente de los Estados Unidos a promulgar codigos que
prescriban las reglas de precedimiento con el fin de realizar los propositos de la ley.

El ultimo fundamento que se alega en contra de la validez de la Ley No. 103 se hace consistir en
que las facultades judiciales que concede al Tribunal de Relaciones Industriales son tan artibrarias e
irrazonables que permiten la privacion de la libertad y la propiedad sin el debido proceso de ley; y
que se articulo 20, por lo menos, adolece de este defecto fundamental porque confiere al Tribunal
de Relaciones Industriales la facultad de dictar sus propias reglas de procedimiento, lo cual
contraviene el articulo 13, Titulo VIII, de la Constitucion que prescribe que el Tribunal Supremo
dictara reglas concernientes a los escritos de alegaciones, practica y procedimiento uniformes para
todos los tribunales de la misma categoria.

El articulo 20 de la Ley No. 103 se lee asi:

ART. 20. Reglamentos del Tribunal. — El Tribunal de Relaciones Industriales promulgara

sus reglas de procedimiento y tendra las demas atribuciones que en general corresponden a
un tribunal de justicia: Entendiendose, sin embargo, Que en la vista, investigacion y
Confide
resolucion de cualquier cuestion o conflicto,
ntial y en el ejercicio de cualquier de sus deberes y
faculades en virtud de esta Ley, el Tribunal actuara de acuerdo con la justicia y la equidad y
los meritos substanciales de la causa, sin consideracion a los tecnicismos o formulismos
legales, y no estara sujeto a cualquiera reglas, tecnicas de prueba legal, sino que formara
juicio de la manera que crea justo y equitativo.

Una simple lectura de dicho articulo demuestra que la ley no ha facultado al Tribunal de Relaciones
Industriales a investigar y resolver las cuestiones y conflictos entre obreros y patronos, e inquilinos y
propietarios, de una manera arbitraria y caprichosa sin someterse a una norma de conducta
determinada. El articulo dispone claramente que las reglas de procedimiento que adopte, a las
cuales debera ajustarse el tribunal, deberan insperarse en la justicia y la equidad, y prescribe que el
criterio que se forma debera fundarse en los meritos substanciales de la causa sin consideracion a
los tecnicismos o formulismos legales. La Ley No. 103 que crea un tribunal especial denominado
Tribunal de Relaciones Industriales con facultad para dictar sus propios reglamentos y para resolver
y decidir los conflictos agrarios e industriales de acuerdo con los dictados de la justicia y equidad,
no puede ser impugnada bajo el fundamento de que auoriza la privacion de la libertad y propiedad
sin el debido proceso de ley; ni pugna con el precepto del articulo 13, Titulo VIII, de la Constitucion
porque el Tribunal de Relacines Industriales no es de la misma categoria que los juzgados
municipales, juzgados de paz y juzgados de primera instancia para los cuales se han dictado los
reglamenos de los tribunales por el Tribunal Supremo.

En relacion con la validez y constitucionalidad de la Ley No. 103 y sus enmiendas, insertamos a
continuacion la opinion concurrente del Magistrado Lauren en el asunto de Ang Tibay, supra, cuyas
observaciones serviran para rebustecer la proposicion sentada de que la referida ley y sus
enmiendas es valida y no infringe la Constitucion.
It should be observed at the outset that our Constitutionwas adopted in the midst of surging
unrest and dissatisfaction resulting from economic and social distresswhich was threatening
the stability of governments theworld over. Alive to the social and economic forces atwork,
the farmers of our Constitution boldly met the problems and difficulties which faced them and
endeavored to crystallize, with more or less fidelity, the political, social; and economic
proposition of their age, and this they did, with the consciousness that the political and
philosophicalaphorism of their generation will, in the language of a great jurist, "be doubted
by the next and perhaps entirely discarded by the third." (Chief Justice Winslow in Gorgnis v.
Falk Co., 147 Wis., 327; 133 N. W., 209.) Embodying the spirit of the present epoch, general
provisions were inserted in the Constitution which are intended to bring about the needed
social and economic equilibrium between component elements of society through the
application of what may be termed as the justitia communis advocated by Grotius and
Leibnits many years ago to be secured through the counterbalancing of economic and social
forces and opportunities which should be regulated, if not controlled, by the State or placed,
as it were, in custodia societatis. "The promotion of social justice to insure the well-being and
economic security of all the people' was thus inserted as vital principle in our Constitution.
(Sec. 5, Art. II, Constitution.) And in order that this declaration of principle may not just be an
empty medley of words, the Constitution in various sections thereof has provided the means
towards its realization. For instance, section 6 of Articles XIII declares that the State "shall
afford protection to labor, especially to working women and minors, and shall regulated the
relations between landowner and tenant, and between labor and capital in industry and in
agriculture." The same section also states that "the State may provide for compulsory
arbitration." In extraordinary cases mentioned in section 16, Articles VI, of the Constitution,
the President of the Philippines may be authorized by law, for a limited period and subject to
such restrictions as the National Assembly may prescribed, to "promulgate rules and
regulations to carry out a declared national policy." Albeit, almost at the same time the
Congress of the United States approved Confide
the National Labor Regulations Act (49 Stat., 449)
on July 5, 1935, commonly known as the ntial
Wagner Act, we were in the Philippines headway
towards the adoption of our fundamental law, pursuant to congressional authority given in
the Tydings-McDuffie Independence Act, approved March 24, 1934. In our Bill of Rights we
now find the following provision "The right to form associations or societies for purposes not
contrary to law shall not be abridged." (Par. 6, section 1, art. III, Constitution.) What was an
agitation in the United States which brought about the recommendation by the Commission
on Industrial Relations created by an Act of Congress in 1912 for the adoption of a Labor Bill
of Rights as an amendment to the United States Constitution is, in our case, virtually an
accepted principle, which may be expanded and vitalized by legislation to keep pace with the
development of time and circumstances.

By and large, these provisions in our Constitution all evince and express the need of shifting
emphasis to community interest with a view to affirmative enhancement of human values. In
conformity with the constitutional objective and cognizant of the historical fact that industrial
and agricultural disputes had given rise to disquietude, bloodshed and revolution in our
country, the National Assembly enacted Commonwealth Act No. 103, entitled "An Act to
afford protection of labor by creating a Court of Industrial Relations empowered to fix
minimum wages for laborers and maximum rental to be paid tenants, and to enforce
compulsory arbitration between employers or landlords, and employees or tenants,
respectively; and by prescribing penalties for the violation of the orders" and, later,
Commonwealth Act. No. 213, entitled, "An Act to define and regulate legitimate labor
organizations." (Asto this last act, vide "finding and policy," preamble [sec. 1]of the Wagner
Act [49 Sta., 449]).

Commonwealth Act No. 103, approved October 29, 1936, was originally Bill No. 700 of the
National Assembly. More light is shed by the explanatory statement of the Bill than by what
transpired in the course of the deliberation of the measure in the legislative chamber. "El
presente proyecto de ley," thus the explanatory statement of Bill No. 700, 'crea una Junta de
Relaciones Industriales . . . y provee el arbitraje obligatorio. . . de acuerdo con el Articulo 6,
Titulo XIII de la Constitucion, el provee que "El Estado podrs establacerel arbitraje
obligatorio." "Incorporating the conclusion reached by a committee appointed, a year or so
before it was observed that 'bajo la legislacion actual' " — evidently referring to Act No. 4055
— "no existe instrumento adecuado para evitar las huelgas. El Departamentode Trabajo
desempeña maramente el papel de pacificadorentre las partes en controversia y sus
decisiones no sonobligatorias ni para los patronos ni para los obreros. El pueblo la allegado
a un grado de desarrollo industrial, quehace imperiosa el que la intervencion del gobierno en
estosconflictos sea mas efectiva . . . ." The creation of a Court of Industrial Relations was
thus proposed, endowed "no solamente del poder de arbitrar sino tambien del deberde
investigar, decidir, y hacer recomendaciones sobre las cuestiones en conflicto y los problem
as que afectan al Capitaly al Trabajo en la Industria y la Agricultuta bajola direccion del
Presidente de la Mancomunidad de Filipinaso a peticion del Secretario del Trabajo.

xxx     xxx     xxx

From what has been stated, it appears that the legislation which are now called upon to
construe was enacted in pursuance of what appears to be deliberate embodiment of a new
social policy, founded on the conception of a society integrated not by independent
individuals dealing at arms' length, but by interdependent members of a consolidated whole
whose interests must be protected against mutual aggression and warfare among and
between divers and diverse units which are impelled by counter vailing and opposite
individual and group interests, and this is particularly true in the relationship between labor
and capital. Social and industrial disturbances which fifty years ago were feudal-like and of
Confide
isolated importance may now well result in a serious strain upon the entire economic
ntial
organism of the nation . In the United States labor legislation has undergone a long process
of development too long to nature here, culminating in the enactments of what were
commonly known as the Clayton Act, the Norris-La Guardia Act, and finally, the Wagner Act
and the Fair Labor Standards Act of 1938. The Wagner Act created the National Labor
Relations Board as an instrumentality of the Federal Government in the settlement of labor
disputes, which device is aimed at the avoidance of unnecessary friction between labor and
capital and the establishment of industrial peace. Scrutiny of legislation in that country and of
pronouncement made by its Supreme Court reveals a continuous renovation and change
made necessary by the impact of changing needs and economic pressure brought about by
the irresistible momentum of new social and economic forces developed there. In the light of
changes that have occured, it is doubted if the pronouncement made by the said Supreme
Court in 1905 (Lochner v. New York, 198, U.S., 45) or in 1908 (Adair v. U.S., 52 Law. ed.
430, 208 U.S., 161, and Coppage v. Kansas, 236 U.S., 1) — cases which are relied upon by
the petitioner in its printed memorandum — still retain their virtuality at the present time. In
the Philippines, social legislation has had a similar development although of course to a
much smaller degree and of different adaptation giving rise to several attempts at meeting
and solving our peculiar social and economic problems. (See Commonwealth to the National
Assembly, September 2,1936; Executive Order No. 49, S. 1936). The system of voluntary
arbitration devised by Act No. 4055 of the defunct Philippine Legislature has apparently been
abandoned by the enactment of the aforementioned Commonwealth Acts Nos. 103 and 213.
In the midst of changes that have taken place, it may likewise be doubted if the
pronouncement made by this court in the case of People vs. Pomar (46 Phil., 440) — also
relied upon by the petitioner in its printed memorandum — still retains its virtually as a living
principle. The policy of laissez faire has to some extent given way the assumption by the
government of the right of intervention even in contractual relations affected with public
interests.
 xxx     xxx     xxx

In Commonwealth Act No. 103, and it, our Government no longer performs the role of a mere
mediator or intervenor but that of the supreme arbiter.

En su siguiente senalmiento de error la recurrentealega que la conducta del investigador, la

investigacion quepracticio y la manera como conocio del asunto el Tribunalde Relaciobes
Industriales le privaron de una vista i,parcialy justa, y constituyen privacion de supropiedad sinel
debido proceso de ley. Para demostrar la carencia de fundamento del senalmiento de error,
creemos suficientereproducir a continuacion la forma como se practicio la investigacion por el
comisionado nombrado por el Tribunal de Relacionbes Industriales y la manera como secelebro la
vista por dicho tribunal, tal como se expone en laorden del 6 de mayo de 1939.

Hearing was held on April 3, 1939, where witnessesfor both the petitioners and the
respondent testified. To supplement the facts brought out at the hearing, the Court ordered
one of its Special Agents to proceed to the premises of the mines to conduct a further
investigation.

El comisionado fue nombrado por el Tribumal de RelacionesIndustriales en el su facultad

conferidapor el articulo 10 de la ley No. 103 de Commonwealth yel la inspeccion y vistas que
celebraron el comisionado y eltribunal, respectivamente, las partes estuvieron
representadasdebidamente, fueron oidas y presentaron las pruebasque tenian disponibles y
creyeron conveniente ofrecerTales inspeccion y vistas tenian el caracter de una vistajudicial
imparcial y justa y constituyen el debido procesode ley que garantiza la Constitucion.

Sostiene igualmente la recurrente que la ordenConfide

del 6 demayo de 1939 es arbitraria porque no
existen pruebassubstanciales ni competentes quential la sostengan. Sobre esteextremo, las
conclusiones de hecho que ha sentado el Tribunalde Relaciones Industriales demuestran que la
ordenimpugnada esta sostenida por el resultado de la investigacion practicada por el comisionado y
las pruebas que laspartes presentaron directamente ante el Tribunal. Endichas conclusiones se han
considerado y analizado por elTribunal de Relaciones Industriales todas las pruebas quelas partes
presentaron y resulta inevitable la conclusionde que la orden no es arbitraria y esta justificada y
sotenida por los hechos probados.

El ultimo senalmiento de error guarda relacion conla parte de la orden del 6 mayo de 1939 que
disponeque la recurrente pague a los 55 obreros repustos losjornales que dejaron de percibir
durante su separaciondel servicio. La recurrente sostiene que esta parte dela orden equivale a una
sentencia por danos y perjuiciosque el Tribunal de Relaciones Industriales no puede pronunciar por
carecer de jurisdiccion. La pretension noes meritoria. El Tribunal de Relaciones
Industriales,conforme ya se ha dicho, es un tribunal especial y comotal tiene facultad para disponer
que la recurrente paguelos jornales de sus empleados y obreros que han sido repuestos.Los
articulos 1 y 4 de la Ley No. 103 de Commonwealth,segun ha sido enmendado el primero por
elarticulo 1 de la Ley No. 254, confieren facultad y jurisdiccion al tribunal de Relaciones
Inbdustriales para conocer, resolver y decidir todas las cuestiones, controversiasy disputas entre
patronos y obreros y propietarios y terratenientes, y los jornales de los obreros repuestos, duranteel
tiempo en que fueron separados del servicio,esteban incluidos en las controverias y disputas
sometidasal Departamento del Trabajo y certificados por este al Tribunal de Relaciones Industriales.

Se deniega el recurso de certiorari y se confiman laorden del 6 de mayo de 1939 y la resolucion del
17 deagosto del mismo ano, con las costas a la recurrente. Asise ordena.

Avanceña, Diaz, Laurel y Moran, MM., estan conformes.

G.R. No. L-25024 March 30, 1970

TEODORO C. SANTIAGO, JR. Minor, Represented by his Mother, Mrs. Angelita C.

Santiago, petitioner-appellant,
vs.
MISS JUANITA BAUTISTA, ROSALINDA ALPAS, REBECCA MATUGAS, MILKITA INAMAC,
ROMEO AGUSTIN, AIDA CAMINO, LUNA SARMAGO, AURORA LORENA, SOLEDAD
FRANCISCO and MR. FLOR MARCELO, respondents-appellees.

Teodoro M. Santiago for petitioner-appellant.

Ramon C. Carag for respondent-apellees.

BARREDO, J.:

Appeal from the order of the Court of First Instance of Cotabato dismissing, on a motion to dismiss,
its Civil Case No. 2012 — for certiorari, injunction and damages — on the ground that the complaint
therein states no cause of action, and from the subsequent order of the court a quo denying the
motion for the reconsideration of the said order of dismissal.

The record shows that at the time Civil Case No. 2012 was commenced in the court below, appellant
Teodoro Santiago, Jr. was a pupil in Grade Six at the public school named Sero Elementary School
in Cotabato City. As the school year 1964-1965 was then about to end, the "Committee On The
Rating Of Students For Honor" was constitutedConfide
by the teachers concerned at said school for the
purpose of selecting the "honor students" of itsntial
graduating class. With the school Principal, Mrs.
Aurora Lorena, as chairman, and Juanita Bautista, Rosalinda Alpas, Rebecca Matugas, Milkita
Inamac, Romeo Agustin, Aida Camino and Luna Sarmago, as members, the above-named
committee deliberated and finally adjudged Socorro Medina, Patricia Liñgat and Teodoro C.
Santiago, Jr. as first, second and third honors, respectively. The school's graduation exercises were
thereafter set for May 21, 1965; but three days before that date, the "third placer" Teodoro Santiago,
Jr., represented by his mother, and with his father as counsel, sought the invalidation of the "ranking
of honor students" thus made, by instituting the above-mentioned civil case in the Court of First
Instance of Cotabato, against the above-named committee members along with the District
Supervisor and the Academic Supervisor of the place.

The corresponding complaint filed alleged, inter alia: that plaintiff-petitioner Teodoro C. Santiago, Jr.
is a sixth grader at the Sero Elementary School in Cotabato City scheduled to be graduated on May
21st, 1965 with the honor rank of third place, which is disputed; that the teachers of the school had
been made respondents as they compose the "Committee on the Rating of Student for Honor",
whose grave abuse of official discretion is the subject of suit, while the other defendants were
included as Principal, District Supervisor and Academic Supervisor of the school; that Teodoro
Santiago, Jr. had been a consistent honor pupil from Grade I to Grade V of the Sero Elementary
School, while Patricia Liñgat (second placer in the disputed ranking in Grade VI) had never been a
close rival of petitioner before, except in Grade V wherein she ranked third; that Santiago, Jr. had
been prejudiced, while his closest rival had been so much benefited, by the circumstance that the
latter, Socorro Medina, was coached and tutored during the summer vacation of 1964 by Mrs. Alpas
who became the teacher of both pupils in English in Grade VI, resulting in the far lead Medina
obtained over the other pupil; that the committee referred to in this case had been illegally
constituted as the same was composed of all the Grade VI teachers only, in violation of the Service
Manual for Teachers of the Bureau of Public Schools which provides that the committee to select the
honor students should be composed of all teachers in Grades V and VI; that there are direct and
circumstantial matters, which shall be proven during the trial, wherein respondents have exercised
grave abuse of discretion and irregularities, such as the changing of the final ratings on the grading
sheets of Socorro Medina and Patricia Liñgat from 80% to 85%, and some teachers giving petitioner
a starting grade of 75% in Grade VI, which proves that there has already an intention to pull him to a
much lower rank at the end of the school year; that several district examinations outside of teachers'
daily units and other than periodical tests were given, ratings in which were heavily considered in the
determination of periodical ratings, whereas according to the Academic Supervisor and Acting
Division Superintendent of schools of the place such district examinations were not advisable; that
there was a unanimous agreement and understanding among the respondent teachers to insult and
prejudice the second and third honors by rating Socorro Medina with a perfect score, which is very
unnatural; that the words "first place" in petitioner's certificate in Grade I was erased and replaced
with the words "second place", which is an instance of the unjust and discriminating abuses
committed by the respondent teachers in the disputed selection of honor pupils they made; that
petitioner personally appealed the matter to the School Principal, to the District Supervisor, and to
the Academic Supervisor, but said officials "passed the buck to each other" to delay his grievances,
and as to appeal to higher authorities will be too late, there is no other speedy and adequate remedy
under the circumstances; and, that petitioner and his parents suffered mental and moral damages in
the amount of P10,000.00. They prayed the court, among others, to set aside the final list of honor
students in Grade VI of the Sero Elementary School for that school year 1964-1965, and, during the
pendency of the suit, to enjoin the respondent teachers from officially and formally publishing and
proclaiming the said honor pupils in Grade VI in the graduation exercises the school was scheduled
to hold on the 21st of May of that year 1965. The injunction prayed for was denied by the lower court
in its order of May 20, 1965, the said court reasoning out that the graduation exercises were then
already set on the following day, May 21, 1965, and the restraining of the same would be shocking
to the school authorities, parents, and the community who had eagerly looked forward to the coming
Confide
of that yearly happy event. As scheduled, the graduation exercises of the Sero Elementary School
for the school year 1964-1965 was held on Mayntial 21, with the same protested list of honor students.

Having been required by the above-mentioned order to answer the petition within ten (10) days,
respondents moved for the dismissal of the case instead. Under date of May 24, 1965, they filed a
motion to dismiss, on the grounds (1) that the action for certiorari was improper, and (2) that even
assuming the propriety of the action, the question brought before the court had already become
academic. This was opposed by petitioner.

In an order dated June 4, 1965, the motion to dismiss of respondents was granted, the court
reasoning thus:

The respondents now move to dismiss the petition for being improper and for being
academic. In order to resolve the motion to dismiss, the Court has carefully
examined the petition to determine the sufficiency of the alleged cause of action
constituting the special civil action of certiorari.

The pertinent portions of the petition alleging 'grave abuse of discretion' are found in
paragraphs 3, 4, 5, 6, 7, 8, 9 and 10. These allegations may be substantially
summarized as follows: Paragraph 3 alleges that since grades one to six, the
students closely contending for class honors were Socorro Medina, Teodoro
Santiago, Jr., Dolores Dalican and Patricia Liñgat.

Socorro Medina obtained first honor thrice (grades I, V and VI); once second honor
(grade IV), and twice third place (grades II and III).
 Teodoro Santiago, Jr. obtained first place once (grade IV); four times second place
(grades I, II, III, and V) and once third place (grade VI).

Dolores Dalican obtained twice first place (grades II, III); once third place (grade I).

Patricia Liñgat once third place (grade V); and once second place (grade VI).

That as now ranked in the graduation Liñgat is given second place while Teodoro
Santiago, Jr., is given the third place only. This is the ranking now disputed by
petitioner, Teodoro Santiago, Jr.

Paragraph 4 alleges that Socorro Medina was tutored in the summer of 1964 by Mrs.
Rosalinda Alpas who became her English teacher in the sixth grade; that as such,
Mrs. Alpas unjustly favored Socorro against her rivals.

Paragraph 5 alleges that the teachers who composed the committee on honor
students are all grade six teachers while the Service Manual For Teachers provides
that the committee shall be composed of the teachers from the fifth and sixth grades.

Paragraph 6 alleges that there are direct and circumstantial evidence showing the
change of ratings of Socorro Medina and Patricia Liñgat from 80% to 85% and the
intention to junk petitioner to a lower rank.

Paragraph 7 alleges that the giving of district examinations upon which ratings were
partly based were not advisable.
Confide
ntial
Paragraph 8 alleges that the teachers rated Socorro Medina a perfect pupil which is
unnatural.

Paragraph 9 alleges that on the first grade certificate of the petitioner the word "First
Place" was erased and changed to "Second Place".

Paragraph 10 alleges that petitioner personally appealed to the school authorities but
they only 'passed the buck to each other.'

SECOND PARAGRAPH VIOLATED

Rule 65, Section 1 of the Rules of Court provides:

'Section 1. Petition for certiorari. — When any tribunal, board, or

officer exercising judicial functions, has acted without or in excess of
its or his jurisdiction, or with grave abuse of discretion and there is no
appeal, nor any plain, speedy, and adequate remedy in the ordinary
course of law, a person aggrieved thereby may file a verified petition
in the proper court alleging the facts with certainty and praying that
judgment be rendered annulling or modifying the proceedings, as the
law requires, of such tribunal, board or officer.'

'The petition shall be accompanied by a certified true copy of the

judgment or order subject thereof, together with copies of all
pleadings and documents relevant and pertinent thereto.'
 It is striking, indeed, that this petition has not been accompanied by a certified true
copy of the judgment or order complained of, together with all pleadings and
documents which are relevant thereto, as required by the second, paragraph of the
aforequoted rule. This violation renders the petition extremely indefinite and
uncertain. There is no written formal judgment or order of respondents that is
submitted for revision or correction of this Court. This violation is fatal to the petition.

ADMINISTRATIVE REMEDIES NEGLECTED

All that the petition alleges is that the petitioner personally appealed to the school
authorities who only 'passed the buck to each other.' This allegation does not show
that petitioner formally availed of and exhausted the administrative remedies of the
Department of Education. The petition implies that this is the first formal complaint of
petitioner against his teachers. The administrative agencies of the Department of
Education could have investigated the grievances of the petitioner with dispatch and
give effective remedies, but petitioner negligently abandoned them. Petitioner cannot
now claim that he lacked any plain, speedy and adequate remedy.

NO GRAVE ABUSE OF DISCRETION

Allegations relating to the alleged 'grave abuse of discretion' on the part of teachers
refer to errors, mistakes, or irregularities rather than to real grave abuse of discretion
that would amount to lack of jurisdiction. Mere commission of errors in the exercise of
jurisdiction may not be corrected by means of certiorari.

In view of the foregoing, the Court is of the opinion, and so holds, that the petition
Confide
states no cause of action and should
ntial be, as it is hereby dismissed.

Upon receipt of a copy of the above-quoted order, the petitioner moved for the reconsideration
thereof, but the same proved to be futile, hence, this appeal.

Appellant here assails the holding of the lower court that his petition states no cause of action on the
grounds — discussed by the court a quo in the appealed order above-quoted — (1) that the petition
does not comply with the second paragraph of Sec. 1 of Rule 65 because it has not been
accompanied by a certified true copy of the judgment or order subject thereof, together with copies
of all pleadings and documents relevant and pertinent thereto; (2) that administrative remedies were
not first exhausted; and (3) that there was no grave abuse of discretion on the part of the teachers
who constituted the committee referred to. On the other hand, appellees maintain that the court
below did not err in dismissing the case on said grounds. Further, they argue in favor of the
questioned order of dismissal upon the additional ground that the "committee on the ratings of
students for honor" whose actions are here condemned by appellant is not the "tribunal, board or
officer exercising judicial functions" against which an action for certiorari may lie under Section 1 of
Rule 65.

The last point raised by appellees deserves first consideration, for if really the said committee of
teachers does not fall within the category of the tribunal, board, or officer exercising judicial
functions contemplated by Rule 65, further discussion of the issues raised by appellant may no
longer be necessary. To resolve this problem the following tests may be employed:

In this jurisdiction certiorari is a special civil action instituted against 'any tribunal,

board, or officer exercising judicial functions.' (Section 1, Rule 67.) A judicial function
is an act performed by virtue of judicial powers; the exercise of a judicial function is
the doing of something in the nature of the action of the court (34 C.J. 1182). In order
that a special civil action of certiorari may be invoked in this jurisdiction the following
circumstances must exist: (1) that there must be a specific controversy involving
rights of persons or property and said controversy is brought before a tribunal, board
or officer for hearing and determination of their respective rights and obligations.

'Judicial action is an adjudication upon the rights of parties who in

general appear or are brought before the tribunal by notice or
process, and upon whose claims some decision or judgment is
rendered. It implies impartiality, disinterestedness, a weighing of
adverse claims, and is inconsistent with discretion on the one hand —
for the tribunal must decide according to law and the rights of the
parties — or with dictation on the other; for in the first instance it must
exercise its own judgment under the law, and not act under a
mandate from another power. ... The character of its action in a given
case must decide whether that action is judicial, ministerial, or
legislative, or whether it be simply that of a public agent of the country
or State, as in its varied jurisdictions it may by turns be each.' (In Re
Saline County Subscription, 100 Am. Dec. 337, 338, cited in
Southeastern Greyhound Lines v. Georgia Public Service
Commission, 181 S. E. 836-837.)

'It may be said generally that the exercise of judicial function is to

determine what the law is, and what the legal rights of parties are,
with respect to a matter in controversy; and whenever an officer is
clothed with that authority, and undertakes to determine those
Confide
questions, he acts judicially.' (State ex rel. Board of Commissioners
ntial
of St. Louis County, et al. v. Dunn, 90 N. W. 772-773.)

(2) the tribunal, board or officer before whom the controversy is brought must have
the power and authority to pronounce judgment and render a decision on the
controversy construing and applying the laws to that end.

'The phrase "judicial power" is not capable of a precise definition

which would be applicable to all cases. The term has been variously
defined as the authority to determine the rights of persons or property
by arbitrating between adversaries in specific controversies at the
instance of a party thereto; the authority exercised by that department
of government which is charged with the declaration of what the law
is and its construction so far as it is written law; the authority or power
vested in the judges or in the courts; the authority vested in some
court, officer, or persons to hear and determine when the rights of
persons or property or the propriety of doing an act is the subject
matter of adjudication; the power belonging to or emanating from a
judge as such; the power conferred upon a public officer, involving
the exercise of judgment and discretion in the determination of
questions of right in specific cases affecting the interest of persons or
property, as distinguished from ministerial power or authority to carry
out the mandates of judicial power or the law; the power exercised by
courts in hearing and determining cases before them, or some matter
incidental thereto, and of which they have jurisdiction; the power of a
court to decide and pronounce a judgment; the power which
 adjudicates upon and protects the rights and interests of individual
citizens, and to that end construes and applies the law. "Judicial
power" implies the construction of laws and the adjudication of legal
rights. It includes the power to hear and determine but not everyone
who may hear and determine has judicial power. The term "judicial
power" does not necessarily include the power to hear and determine
a matter that is not in the nature of a suit or action between the
parties.' (34 C.J. 1183-1184.) .

(3) the tribunal, board or officer must pertain to that branch of the sovereign power
which belongs to the judiciary, or at least, which does not belong to the legislative or
executive department.

... the distinction between legislative or ministerial functions and

judicial functions is difficult to point out. What is a judicial function
does not depend solely upon the mental operation by which it is
performed or the importance of the act. In solving this question, due
regard must be had to the organic law of the state and the division of
power of government. In the discharge of executive and legislative
duties, the exercise of discretion and judgment of the highest order is
necessary, and matters of the greatest weight and importance are
dealt with. It is not enough to make a function judicial that it requires
discretion, deliberation, thought, and judgment. It must be the
exercise of discretion and judgment within that subdivision of the
sovereign power which belongs to the judiciary, or, at least, which
does not belong to the legislative or executive department. If the
Confide
matter, in respect to which it is exercised, belongs to either of the two
ntial
last-named departments of government, it is not judicial. As to what is
judicial and what is not seems to be better indicated by the nature of
a thing, than its definition.' (Whealing & Elm Grove Railroad Co. Appt.
v. Town of Triadelphia, et al., 4 L.R.A. (N. S.) pp. 321, 328-329.)
[Emphasis supplied]1

'WHAT ARE JUDICIAL OR QUASI JUDICIAL ACTS. It is difficult, if

not impossible, precisely to define what are judicial or quasi judicial
acts, and there is considerable conflict in the decisions in regard
thereto, in connection with the law as to the right to the writ
of certiorari. It is clear, however, that it is the nature of the act to be
performed, rather than of the office, board, or body which performs it,
that determines whether or not it is the discharge of a judicial or
quasi-judicial function. It is not essential that the proceedings should
be strictly and technically judicial, in the sense in which that word is
used when applied to the courts of justice, but it is sufficient if they
are quasi judicial. It is enough if the officers act judicially in making
their decision, whatever may be their public character. ...' "In State ex
rel. Board of Commrs. vs. Dunn (86 Minn. 301, 304), the following
statements were made:

'The precise line of demarkation between what are judicial and what
are administrative or ministerial functions is often difficult to
determine. The exercise of judicial functions may involve the
performance of legislative or administrative duties, and the
 performance of administrative or ministerial duties, may, in a
measure, involve the exercise of judicial functions. It may be said
generally that the exercise of judicial functions is to determine what
the law is, and what the legal rights of parties are, with respect to a
matter in controversy; and whenever an officer is clothed with that
authority, and undertakes to determine those questions, he acts
judicially.'2

It is evident, upon the foregoing authorities, that the so called committee on the rating of students for
honor whose actions are questioned in this case exercised neither judicial nor quasi judicial functions in
the performance of its assigned task. From the above-quoted portions of the decision cited, it will be
gleaned that before tribunal board, or officer may exercise judicial or quasi judicial acts, it is necessary
that there be a law that give rise to some specific rights of persons or property under which adverse
claims to such rights are made, and the controversy ensuing therefrom is brought, in turn, before the
tribunal, board or officer clothed with power and authority to determine what that law is and thereupon
adjudicate the respective rights of the contending parties. As pointed out by appellees, 3 however, there is
nothing on record about any rule of law that provides that when teachers sit down to assess the individual
merits of their pupils for purposes of rating them for honors, such function involves the determination of
what the law is and that they are therefore automatically vested with judicial or quasi judicial functions.
Worse still, this Court has not even been appraised by appellant of the pertinent provisions of the Service
Manual of Teachers for Public Schools appellees allegedly violated in the composition of the committee
they constituted thereunder, and, in the performance of that committee's duties.

At any rate, the situation brought before Us in this case, the seemingly one of first impression, is not
without substantial parallel. In the case of Felipe vs. Leuterio, etc., et al.,4 the issue presented for
determination was whether or not the courts have the authority to reverse the award of the board of
judges of an oratorical contest, and this Court declared
Confidethat the judiciary has no power to reverse the
award of the board of judges of that contest and, ntial
for that matter, it would not interfere in literary contests,
beauty contests and similar competitions. It was reasoned out thus:

For more than thirty years oratorical tilts have been held periodically by schools and
colleges in this islands. Inter-collegiate oratorical competitions are of more recent
origin. Members of this court have taken part in them either as contestants in their
school days (In the College of Law, U.P. annual oratorical contest, first prize was
awarded to Justice Montemayor in 1914 and to Justice Labrador in 1916), or as
members of the board of judges afterwards. They know some few verdicts did not
reflect the audience's preference and that errors have sometimes been ascribed to
the award of the judges. Yet no party ever presumed to invoke judicial intervention;
for it is unwritten law in such contests that the board's decision is final and
unappealable.

Like the ancient tournaments of the Sword, these tournaments of the Word apply the
highest tenets of sportsmanship: finality of referee's verdict. No alibis, no murmurs of
protest. The participants are supposed to join the competition to contribute to its
success by striving their utmost: the prizes are secondary.

No rights to the prizes may be asserted by the contestants, because theirs was
merely the privilege to compete for the prize, and that privilege did not ripen into a
demandable right unless and until they were proclaimed winners of the competition
by the appointed arbiters or referees or judges.
 Incidentally, these school activities have been imported from the United States. We
found in American jurisprudence no litigation questioning the determination of the
board of judges.

Now, the fact that a particular action has had no precedent during a long period
affords some reason for doubting the existence of the right sought to be enforced,
especially where occasion for its assertion must have often arisen; and courts are
cautious before allowing it, being loath to establish a new legal principle not in
harmony with the generally accepted views thereon. (See C.J.S. Vol. 1, p. 1012.)

We observe that in assuming jurisdiction over the matter, the respondent judge
reasoned out that where there is a wrong there is a remedy and that courts of first
instance are courts of general jurisdiction.

The flaw in his reasoning lies in the assumption that Imperial suffered some wrong at
the hands of the board of judges. If at all, there was error on the part of one judge, at
most. Error and wrong do not mean the same thing. 'Wrong' as used in the aforesaid
principle is the deprivation or violation of a right. As stated before, a contestant has
no right to the prize unless and until he or she is declared winner by the board of
referees or judges.

Granting that Imperial suffered some loss or injury, yet in law there are instances
of 'damnum absque injuria'. This is one of them. If fraud or malice had been proven,
it would be a different proposition. But then her action should be directed against the
individual judge or judges who fraudulently or maliciously injured her. Not against the
other judges. Confide
ntial
But even were We to assume for the moment, as the court below apparently did, that judicial
intervention might be sought in cases of this nature, still, We are inclined to sustain the order of
dismissal appealed from for failure on the part of appellant to comply with the requirements of
Section 1 of Rule 65. To be sure, the lower court's holding that appellant's failure to accompany his
petition with a copy of the judgment or order subject thereof together with copies of all pleadings and
documents relevant and pertinent thereto "is fatal to his cause" is supported not only by the provision
of that Rule but by precedents as well. In the case of Alajar, et al. vs. Court of Industrial
Relations,5 where it was claimed by therein petitioners that the respondent court had acted with grave
abuse of discretion in estimating certain rice harvests involved in the case in terms of cavans instead of
cans, allegedly in complete disregard of the decision of the Court of First Instance of Batangas in
Expropriation Proceedings No. 84 and of this Court in G.R. No.
L-6191,6 and in ordering thereafter the division of the said rice harvests on the ratio of 70-30 in favor of
the tenants, this Court denied the petition for certiorari  on the ground, among others, of failure on the part
of said petitioners to attach to their petition copies of the decisions allegedly violated. Speaking thru Mr.
Justice J.B.L. Reyes then, this Court held:

The petition is patently without merit. In the first place, it is not even sufficient in form
and substance to justify the issuance of the writ of certiorari prayed for. It charges
that the Court of Industrial Relations abused its discretion in disregarding the
decision of the Court of First Instance of Batangas in Expropriation Proceedings No.
84 and of this Court in G.R. No. L-6191; yet it does not attach to the petition the
decisions allegedly violated by the Court below and point out which particular portion
or portions thereof have been disregarded by the respondent Court.
The same principle was applied in the more recent case of NAWASA vs. Municipality of Libmanan,
et al.,7 wherein this Court dismissed (by Resolution) the petition for certiorari and mandamus filed by the
National Waterworks and Sewerage Authority against the Court of First Instance of Camarines Sur, and
the municipality of Libmanan. In the following language, this Court emphasized the importance of
complying with the said requirement of Rule 65:

While paragraph 3 of the petition speaks of the complaint filed by the respondent
municipality with the respondent court for recovery of property with damages (Civil
Case No. L-161) no copy thereof is attached to the petition.

Similarly, paragraph 4 of the petition mentions the decision rendered by the

respondent court on December 10, 1965, but no copy thereof is attached to the
petition.

Again, paragraph 5 of the petition speaks of the order of default entered by the
respondent court and of the motion for reconsideration filed by petitioner in the case
above-mentioned, but no copy of the order of default is attached to its petition.

Bearing in mind that the petition under consideration was filed for the purpose of
enjoining the respondent court from executing the decision rendered in Civil Case
No. L-161, the importance of the missing pleadings is obvious.

Moreover, the petition is also for the purpose of securing an order commanding the
respondent court to approve either the original or the amended record on appeal filed
petition, but no copy of either is attached to its petition.
Confide
In view of the foregoing, the petition
ntial under consideration is dismissed.

It might be true, as pointed out by appellant, that he received a copy of the programme of the
graduation exercises held by the Sero Elementary School in the morning of the very day of that
graduation exercises, implying that he could not have attached then a copy thereof (to show the
decision of the committee of teachers in the ranking of students complained of) to his petition. The
stubborn fact remains, however, that appellant had known of such decision of the said committee of
teachers much earlier, as shown by the circumstance that according to him, even before the filing of
his petition with the lower court on the 19th of May, 1965, he had personally appealed the said
committee's decision with various higher authorities of the above-named school, who merely passed
the buck to each other. Moreover, appellant mentions in his petition various other documents or
papers — as the Service Manual for Teachers allegedly violated by appellees in the constitution of
their committee; altered grading sheets; and erasures in his Grade I certificate — which appellant
never bothered to attach to his petition. There could be no doubt then that he miserably failed to
comply with the requirement of Rule 65 above-mentioned. With this conclusion, it is no longer
necessary to pass upon the other two errors assigned by appellant.

FOR THE FOREGOING CONSIDERATIONS, the judgment appealed from is affirmed, with costs
against appellant.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and
Villamor, JJ., concur.
G.R. No. L-46496             February 27, 1940

ANG TIBAY, represented by TORIBIO TEODORO, manager and propietor, and

NATIONAL WORKERS BROTHERHOOD, petitioners,
vs.
THE COURT OF INDUSTRIAL RELATIONS and NATIONAL LABOR UNION, INC., respondents.

Office of the Solicitor-General Ozaeta and Assistant Attorney Barcelona for the Court of Industrial
Relations.
Antonio D. Paguia for National Labor Unon.
Claro M. Recto for petitioner "Ang Tibay".
Jose M. Casal for National Workers' Brotherhood.

LAUREL, J.:

The Solicitor-General in behalf of the respondent Court of Industrial Relations in the above-entitled
case has filed a motion for reconsideration and moves that, for the reasons stated in his motion, we
reconsider the following legal conclusions of the majority opinion of this Court:

1. Que un contrato de trabajo, asi individual como colectivo, sin termino fijo de duracion o
que no sea para una determinada, termina o bien por voluntad de cualquiera de las partes o
cada vez que ilega el plazo fijado para el pago de los salarios segun costumbre en la
localidad o cunado se termine la obra;

2. Que los obreros de una empresa fabril, Confide

que han celebrado contrato, ya individual ya
colectivamente, con ell, sin tiempo fijo, ntial
y que se han visto obligados a cesar en sus tarbajos
por haberse declarando paro forzoso en la fabrica en la cual tarbajan, dejan de ser
empleados u obreros de la misma;

3. Que un patrono o sociedad que ha celebrado un contrato colectivo de trabajo con sus
osbreros sin tiempo fijo de duracion y sin ser para una obra determiminada y que se niega a
readmitir a dichos obreros que cesaron como consecuencia de un paro forzoso, no es
culpable de practica injusta in incurre en la sancion penal del articulo 5 de la Ley No. 213 del
Commonwealth, aunque su negativa a readmitir se deba a que dichos obreros pertenecen a
un determinado organismo obrero, puesto que tales ya han dejado deser empleados suyos
por terminacion del contrato en virtud del paro.

The respondent National Labor Union, Inc., on the other hand, prays for the vacation of the
judgement rendered by the majority of this Court and the remanding of the case to the Court of
Industrial Relations for a new trial, and avers:

1. That Toribio Teodoro's claim that on September 26, 1938, there was shortage of leather
soles in ANG TIBAY making it necessary for him to temporarily lay off the members of the
National Labor Union Inc., is entirely false and unsupported by the records of the Bureau of
Customs and the Books of Accounts of native dealers in leather.

2. That the supposed lack of leather materials claimed by Toribio Teodoro was but a scheme
to systematically prevent the forfeiture of this bond despite the breach of his CONTRACT
with the Philippine Army.
 3. That Toribio Teodoro's letter to the Philippine Army dated September 29, 1938, (re
supposed delay of leather soles from the States) was but a scheme to systematically prevent
the forfeiture of this bond despite the breach of his CONTRACT with the Philippine Army.

4. That the National Worker's Brotherhood of ANG TIBAY is a company or employer union
dominated by Toribio Teodoro, the existence and functions of which are illegal. (281 U.S.,
548, petitioner's printed memorandum, p. 25.)

5. That in the exercise by the laborers of their rights to collective bargaining, majority rule
and elective representation are highly essential and indispensable. (Sections 2 and 5,
Commonwealth Act No. 213.)

6. That the century provisions of the Civil Code which had been (the) principal source of
dissensions and continuous civil war in Spain cannot and should not be made applicable in
interpreting and applying the salutary provisions of a modern labor legislation of American
origin where the industrial peace has always been the rule.

7. That the employer Toribio Teodoro was guilty of unfair labor practice for discriminating
against the National Labor Union, Inc., and unjustly favoring the National Workers'
Brotherhood.

8. That the exhibits hereto attached are so inaccessible to the respondents that even with
the exercise of due diligence they could not be expected to have obtained them and offered
as evidence in the Court of Industrial Relations.

Confideare of such far-reaching importance and effect

9. That the attached documents and exhibits
ntial the modification and reversal of the judgment
that their admission would necessarily mean
rendered herein.

The petitioner, Ang Tibay, has filed an opposition both to the motion for reconsideration of the
respondent National Labor Union, Inc.

In view of the conclusion reached by us and to be herein after stead with reference to the motion for
a new trial of the respondent National Labor Union, Inc., we are of the opinion that it is not necessary
to pass upon the motion for reconsideration of the Solicitor-General. We shall proceed to dispose of
the motion for new trial of the respondent labor union. Before doing this, however, we deem it
necessary, in the interest of orderly procedure in cases of this nature, in interest of orderly procedure
in cases of this nature, to make several observations regarding the nature of the powers of the Court
of Industrial Relations and emphasize certain guiding principles which should be observed in the trial
of cases brought before it. We have re-examined the entire record of the proceedings had before the
Court of Industrial Relations in this case, and we have found no substantial evidence that the
exclusion of the 89 laborers here was due to their union affiliation or activity. The whole transcript
taken contains what transpired during the hearing and is more of a record of contradictory and
conflicting statements of opposing counsel, with sporadic conclusion drawn to suit their own views. It
is evident that these statements and expressions of views of counsel have no evidentiary value.

The Court of Industrial Relations is a special court whose functions are specifically stated in the law
of its creation (Commonwealth Act No. 103). It is more an administrative than a part of the integrated
judicial system of the nation. It is not intended to be a mere receptive organ of the Government.
Unlike a court of justice which is essentially passive, acting only when its jurisdiction is invoked and
deciding only cases that are presented to it by the parties litigant, the function of the Court of
Industrial Relations, as will appear from perusal of its organic law, is more active, affirmative and
dynamic. It not only exercises judicial or quasi-judicial functions in the determination of disputes
between employers and employees but its functions in the determination of disputes between
employers and employees but its functions are far more comprehensive and expensive. It has
jurisdiction over the entire Philippines, to consider, investigate, decide, and settle any question,
matter controversy or dispute arising between, and/or affecting employers and employees or
laborers, and regulate the relations between them, subject to, and in accordance with, the provisions
of Commonwealth Act No. 103 (section 1). It shall take cognizance or purposes of prevention,
arbitration, decision and settlement, of any industrial or agricultural dispute causing or likely to cause
a strike or lockout, arising from differences as regards wages, shares or compensation, hours of
labor or conditions of tenancy or employment, between landlords and tenants or farm-laborers,
provided that the number of employees, laborers or tenants of farm-laborers involved exceeds thirty,
and such industrial or agricultural dispute is submitted to the Court by the Secretary of Labor or by
any or both of the parties to the controversy and certified by the Secretary of labor as existing and
proper to be by the Secretary of Labor as existing and proper to be dealth with by the Court for the
sake of public interest. (Section 4, ibid.) It shall, before hearing the dispute and in the course of such
hearing, endeavor to reconcile the parties and induce them to settle the dispute by amicable
agreement. (Paragraph 2, section 4, ibid.) When directed by the President of the Philippines, it shall
investigate and study all industries established in a designated locality, with a view to determinating
the necessity and fairness of fixing and adopting for such industry or locality a minimum wage or
share of laborers or tenants, or a maximum "canon" or rental to be paid by the "inquilinos" or tenants
or less to landowners. (Section 5, ibid.) In fine, it may appeal to voluntary arbitration in the settlement
of industrial disputes; may employ mediation or conciliation for that purpose, or recur to the more
effective system of official investigation and compulsory arbitration in order to determine specific
controversies between labor and capital industry and in agriculture. There is in reality here a
mingling of executive and judicial functions, which is a departure from the rigid doctrine of the
separation of governmental powers.
Confide
ntial
In the case of Goseco vs. Court of Industrial Relations et al., G.R. No. 46673, promulgated
September 13, 1939, we had occasion to joint out that the Court of Industrial Relations et al., G. R.
No. 46673, promulgated September 13, 1939, we had occasion to point out that the Court of
Industrial Relations is not narrowly constrained by technical rules of procedure, and the Act requires
it to "act according to justice and equity and substantial merits of the case, without regard to
technicalities or legal forms and shall not be bound by any technicalities or legal forms and shall not
be bound by any technical rules of legal evidence but may inform its mind in such manner as it may
deem just and equitable." (Section 20, Commonwealth Act No. 103.) It shall not be restricted to the
specific relief claimed or demands made by the parties to the industrial or agricultural dispute, but
may include in the award, order or decision any matter or determination which may be deemed
necessary or expedient for the purpose of settling the dispute or of preventing further industrial or
agricultural disputes. (section 13, ibid.) And in the light of this legislative policy, appeals to this Court
have been especially regulated by the rules recently promulgated by the rules recently promulgated
by this Court to carry into the effect the avowed legislative purpose. The fact, however, that the
Court of Industrial Relations may be said to be free from the rigidity of certain procedural
requirements does not mean that it can, in justifiable cases before it, entirely ignore or disregard the
fundamental and essential requirements of due process in trials and investigations of an
administrative character. There are primary rights which must be respected even in proceedings of
this character:

(1) The first of these rights is the right to a hearing, which includes the right of the party
interested or affected to present his own case and submit evidence in support thereof. In the
language of Chief Hughes, in Morgan v. U.S., 304 U.S. 1, 58 S. Ct. 773, 999, 82 Law. ed.
1129, "the liberty and property of the citizen shall be protected by the rudimentary
requirements of fair play.
(2) Not only must the party be given an opportunity to present his case and to adduce
evidence tending to establish the rights which he asserts but the tribunal must consider the
evidence presented. (Chief Justice Hughes in Morgan v. U.S. 298 U.S. 468, 56 S. Ct. 906,
80 law. ed. 1288.) In the language of this court in Edwards vs. McCoy, 22 Phil., 598, "the
right to adduce evidence, without the corresponding duty on the part of the board to consider
it, is vain. Such right is conspicuously futile if the person or persons to whom the evidence is
presented can thrust it aside without notice or consideration."

(3) "While the duty to deliberate does not impose the obligation to decide right, it does imply
a necessity which cannot be disregarded, namely, that of having something to support it is a
nullity, a place when directly attached." (Edwards vs. McCoy, supra.) This principle
emanates from the more fundamental is contrary to the vesting of unlimited power anywhere.
Law is both a grant and a limitation upon power.

(4) Not only must there be some evidence to support a finding or conclusion (City of Manila
vs. Agustin, G.R. No. 45844, promulgated November 29, 1937, XXXVI O. G. 1335), but the
evidence must be "substantial." (Washington, Virginia and Maryland Coach Co. v. national
labor Relations Board, 301 U.S. 142, 147, 57 S. Ct. 648, 650, 81 Law. ed. 965.) It means
such relevant evidence as a reasonable mind accept as adequate to support a conclusion."
(Appalachian Electric Power v. National Labor Relations Board, 4 Cir., 93 F. 2d 985, 989;
National Labor Relations Board v. Thompson Products, 6 Cir., 97 F. 2d 13, 15; Ballston-
Stillwater Knitting Co. v. National Labor Relations Board, 2 Cir., 98 F. 2d 758, 760.) . . . The
statute provides that "the rules of evidence prevailing in courts of law and equity shall not be
controlling.' The obvious purpose of this and similar provisions is to free administrative
boards from the compulsion of technical rules so that the mere admission of matter which
would be deemed incompetent inn judicial proceedings would not invalidate the
Confide
administrative order. (Interstate Commerce Commission v. Baird, 194 U.S. 25, 44, 24 S. Ct.
ntial
563, 568, 48 Law. ed. 860; Interstate Commerce Commission v. Louisville and Nashville R.
Co., 227 U.S. 88, 93 33 S. Ct. 185, 187, 57 Law. ed. 431; United States v. Abilene and
Southern Ry. Co. S. Ct. 220, 225, 74 Law. ed. 624.) But this assurance of a desirable
flexibility in administrative procedure does not go far as to justify orders without a basis in
evidence having rational probative force. Mere uncorroborated hearsay or rumor does not
constitute substantial evidence. (Consolidated Edison Co. v. National Labor Relations Board,
59 S. Ct. 206, 83 Law. ed. No. 4, Adv. Op., p. 131.)"

(5) The decision must be rendered on the evidence presented at the hearing, or at least
contained in the record and disclosed to the parties affected. (Interstate Commence
Commission vs. L. & N. R. Co., 227 U.S. 88, 33 S. Ct. 185, 57 Law. ed. 431.) Only by
confining the administrative tribunal to the evidence disclosed to the parties, can the latter be
protected in their right to know and meet the case against them. It should not, however,
detract from their duty actively to see that the law is enforced, and for that purpose, to use
the authorized legal methods of securing evidence and informing itself of facts material and
relevant to the controversy. Boards of inquiry may be appointed for the purpose of
investigating and determining the facts in any given case, but their report and decision are
only advisory. (Section 9, Commonwealth Act No. 103.) The Court of Industrial Relations
may refer any industrial or agricultural dispute or any matter under its consideration or
advisement to a local board of inquiry, a provincial fiscal. a justice of the peace or any public
official in any part of the Philippines for investigation, report and recommendation, and may
delegate to such board or public official such powers and functions as the said Court of
Industrial Relations may deem necessary, but such delegation shall not affect the exercise of
the Court itself of any of its powers. (Section 10, ibid.)
 (6) The Court of Industrial Relations or any of its judges, therefore, must act on its or his own
independent consideration of the law and facts of the controversy, and not simply accept the
views of a subordinate in arriving at a decision. It may be that the volume of work is such that
it is literally Relations personally to decide all controversies coming before them. In the
United States the difficulty is solved with the enactment of statutory authority authorizing
examiners or other subordinates to render final decision, with the right to appeal to board or
commission, but in our case there is no such statutory authority.

(7) The Court of Industrial Relations should, in all controversial questions, render its decision
in such a manner that the parties to the proceeding can know the various issues involved,
and the reasons for the decision rendered. The performance of this duty is inseparable from
the authority conferred upon it.

In the right of the foregoing fundamental principles, it is sufficient to observe here that, except as to
the alleged agreement between the Ang Tibay and the National Worker's Brotherhood (appendix A),
the record is barren and does not satisfy the thirst for a factual basis upon which to predicate, in a
national way, a conclusion of law.

This result, however, does not now preclude the concession of a new trial prayed for the by
respondent National Labor Union, Inc., it is alleged that "the supposed lack of material claimed by
Toribio Teodoro was but a scheme adopted to systematically discharged all the members of the
National Labor Union Inc., from work" and this avernment is desired to be proved by the petitioner
with the "records of the Bureau of Customs and the Books of Accounts of native dealers in leather";
that "the National Workers Brotherhood Union of Ang Tibay is a company or employer union
dominated by Toribio Teodoro, the existence and functions of which are illegal." Petitioner further
alleges under oath that the exhibits attached toConfide
the petition to prove his substantial avernments" are
so inaccessible to the respondents that even within
ntial the exercise of due diligence they could not be
expected to have obtained them and offered as evidence in the Court of Industrial Relations", and
that the documents attached to the petition "are of such far reaching importance and effect that their
admission would necessarily mean the modification and reversal of the judgment rendered herein."
We have considered the reply of Ang Tibay and its arguments against the petition. By and large,
after considerable discussions, we have come to the conclusion that the interest of justice would be
better served if the movant is given opportunity to present at the hearing the documents referred to
in his motion and such other evidence as may be relevant to the main issue involved. The legislation
which created the Court of Industrial Relations and under which it acts is new. The failure to grasp
the fundamental issue involved is not entirely attributable to the parties adversely affected by the
result. Accordingly, the motion for a new trial should be and the same is hereby granted, and the
entire record of this case shall be remanded to the Court of Industrial Relations, with instruction that
it reopen the case, receive all such evidence as may be relevant and otherwise proceed in
accordance with the requirements set forth hereinabove. So ordered.

Avanceña, C. J., Villa-Real, Imperial, Diaz, Concepcion and Moran, JJ., concur.
G.R. No. 88550               April 18, 1990

INDUSTRIAL ENTERPRISES, INC., petitioner,

vs.
THE HON. COURT OF APPEALS, MARINDUQUE MINING & INDUSTRIAL CORPORATION, THE
HON. GERONIMO VELASCO in his capacity as Minister of Energy and PHILIPPINE NATIONAL
BANK, respondents.

Manuel M. Antonio and Dante Cortez for petitioner.

Pelaez, Adriano & Gregorio for respondent MMIC.
The Chief Legal Counsel for respondent PNB.

MELENCIO-HERRERA, J.:

This petition seeks the review and reversal of the Decision of respondent Court of Appeals in CA-
G.R. CV No. 12660,   which ruled adversely against petitioner herein.
1

Petitioner Industrial Enterprises Inc. (IEI) was granted a coal operating contract by the Government
through the Bureau of Energy Development (BED) for the exploration of two coal blocks in Eastern
Samar. Subsequently, IEI also applied with the then Ministry of Energy for another coal operating
contract for the exploration of three additional coal blocks which, together with the original two
Confide
blocks, comprised the so-called "Giporlos Area."
ntial

IEI was later on advised that in line with the objective of rationalizing the country's over-all coal
supply-demand balance . . . the logical coal operator in the area should be the Marinduque Mining
and Industrial Corporation (MMIC), which was already developing the coal deposit in another area
(Bagacay Area) and that the Bagacay and Giporlos Areas should be awarded to MMIC (Rollo, p.
37). Thus, IEI and MMIC executed a Memorandum of Agreement whereby IEI assigned and
transferred to MMIC all its rights and interests in the two coal blocks which are the subject of IEI's
coal operating contract.

Subsequently, however, IEI filed an action for rescission of the Memorandum of Agreement with
damages against MMIC and the then Minister of Energy Geronimo Velasco before the Regional Trial
Court of Makati, Branch 150,   alleging that MMIC took possession of the subject coal blocks even
2

before the Memorandum of Agreement was finalized and approved by the BED; that MMIC
discontinued work thereon; that MMIC failed to apply for a coal operating contract for the adjacent
coal blocks; and that MMIC failed and refused to pay the reimbursements agreed upon and to
assume IEI's loan obligation as provided in the Memorandum of Agreement (Rollo, p. 38). IEI also
prayed that the Energy Minister be ordered to approve the return of the coal operating contract from
MMIC to petitioner, with a written confirmation that said contract is valid and effective, and, in due
course, to convert said contract from an exploration agreement to a development/production or
exploitation contract in IEI's favor.

Respondent, Philippine National Bank (PNB), was later impleaded as co-defendant in an Amended
Complaint when the latter with the Development Bank of the Philippines effected extra-judicial
foreclosures on certain mortgages, particularly the Mortgage Trust Agreement, dated 13 July 1981,
constituted in its favor by MMIC after the latter defaulted in its obligation totalling around P22 million
as of 15 July 1984. The Court of Appeals eventually dismissed the case against the PNB
(Resolution, 21 September 1989).

Strangely enough, Mr. Jesus S. Cabarrus is the President of both IEI and MMIC.

In a summary judgment, the Trial Court ordered the rescission of the Memorandum of Agreement,
declared the continued efficacy of the coal operating contract in favor of IEI; ordered the reversion of
the two coal blocks covered by the coal operating contract; ordered BED to issue its written
affirmation of the coal operating contract and to expeditiously cause the conversion thereof from
exploration to development in favor of IEI; directed BED to give due course to IEI's application for a
coal operating contract; directed BED to give due course to IEI's application for three more coal
blocks; and ordered the payment of damages and rehabilitation expenses (Rollo, pp. 9-10).

In reversing the Trial Court, the Court of Appeals held that the rendition of the summary judgment
was not proper since there were genuine issues in controversy between the parties, and more
importantly, that the Trial Court had no jurisdiction over the action considering that, under
Presidential Decree No. 1206, it is the BED that has the power to decide controversies relative to the
exploration, exploitation and development of coal blocks (Rollo, pp. 43-44).

Hence, this petition, to which we resolved to give due course and to decide.

Incidentally, the records disclose that during the pendency of the appeal before the Appellate Court,
the suit against the then Minister of Energy was dismissed and that, in the meantime, IEI had applied
with the BED for the development of certain coal blocks.

Confide
The decisive issue in this case is whether or not the civil court has jurisdiction to hear and decide the
ntial concerning a coal operating contract over coal
suit for rescission of the Memorandum of Agreement
blocks. A corollary question is whether or not respondent Court of Appeals erred in holding that it is
the Bureau of Energy Development (BED) which has jurisdiction over said action and not the civil
court.

While the action filed by IEI sought the rescission of what appears to be an ordinary civil contract
cognizable by a civil court, the fact is that the Memorandum of Agreement sought to be rescinded is
derived from a coal-operating contract and is inextricably tied up with the right to develop coal-
bearing lands and the determination of whether or not the reversion of the coal operating contract
over the subject coal blocks to IEI would be in line with the integrated national program for coal-
development and with the objective of rationalizing the country's over-all coal-supply-demand
balance, IEI's cause of action was not merely the rescission of a contract but the reversion or return
to it of the operation of the coal blocks. Thus it was that in its Decision ordering the rescission of the
Agreement, the Trial Court, inter alia, declared the continued efficacy of the coal-operating contract
in IEI's favor and directed the BED to give due course to IEI's application for three (3) IEI more coal
blocks. These are matters properly falling within the domain of the BED.

For the BED, as the successor to the Energy Development Board (abolished by Sec. 11, P.D. No.
1206, dated 6 October 1977) is tasked with the function of establishing a comprehensive and
integrated national program for the exploration, exploitation, and development and extraction of
fossil fuels, such as the country's coal resources; adopting a coal development program; regulating
all activities relative thereto; and undertaking by itself or through service contracts such exploitation
and development, all in the interest of an effective and coordinated development of extracted
resources.

Thus, the pertinent sections of P.D. No. 1206 provide:

 Sec. 6. Bureau of Energy Development. There is created in the Department a Bureau of
Energy Development, hereinafter referred to in this Section as the Bureau, which shall have
the following powers and functions, among others:

a. Administer a national program for the encouragement, guidance, and whenever

necessary, regulation of such business activity relative to the exploration, exploitation,
development, and extraction of fossil fuels such as petroleum, coal, . . .

The decisions, orders, resolutions or actions of the Bureau may be appealed to the
Secretary whose decisions are final and executory unless appealed to the President.
(Emphasis supplied.)

That law further provides that the powers and functions of the defunct Energy Development Board
relative to the implementation of P.D. No. 972 on coal exploration and development have been
transferred to the BED, provided that coal operating contracts including the transfer or assignment of
interest in said contracts, shall require the approval of the Secretary (Minister) of Energy (Sec. 12,
P.D. No. 1206).

Sec. 12. . . . the powers and functions transferred to the Bureau of Energy Development are:

x x x           x x x          x x x

ii. The following powers and functions of the Energy Development Board under PD No.
910 . . .

(1) Undertake by itself or through otherConfide

arrangements, such as service contracts, the active
exploration, exploitation, development, ntial
and extraction of energy resources . . .

(2) Regulate all activities relative to the exploration, exploitation, development, and

extraction of fossil and nuclear fuels . . .

(P.D. No. 1206) (Emphasis supplied.)

P.D. No. 972 also provides:

Sec. 8. Each coal operating contract herein authorized shall . . . be executed by the Energy
Development Board.

Considering the foregoing statutory provisions, the jurisdiction of the BED, in the first instance, to
pass upon any question involving the Memorandum of Agreement between IEI and MMIC, revolving
as its does around a coal operating contract, should be sustained.

In recent years, it has been the jurisprudential trend to apply the doctrine of primary jurisdiction in
many cases involving matters that demand the special competence of administrative agencies. It
may occur that the Court has jurisdiction to take cognizance of a particular case, which means that
the matter involved is also judicial in character. However, if the case is such that its determination
requires the expertise, specialized skills and knowledge of the proper administrative bodies because
technical matters or intricate questions of facts are involved, then relief must first be obtained in an
administrative proceeding before a remedy will be supplied by the courts even though the matter is
within the proper jurisdiction of a court. This is the doctrine of primary jurisdiction. 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" (United States v. Western
Pacific Railroad Co., 352 U.S. 59, Emphasis supplied).

Clearly, the doctrine of primary jurisdiction finds application in this case since the question of what
coal areas should be exploited and developed and which entity should be granted coal operating
contracts over said areas involves a technical determination by the BED as the administrative
agency in possession of the specialized expertise to act on the matter. The Trial Court does not
have the competence to decide matters concerning activities relative to the exploration, exploitation,
development and extraction of mineral resources like coal. These issues preclude an initial judicial
determination. It behooves the courts to stand aside even when apparently they have statutory
power to proceed in recognition of the primary jurisdiction of an administrative agency.

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 (Antipolo Realty Corp. vs. National Housing
Authority, 153 SCRA 399, at 407).

The application of the doctrine of primary jurisdiction, however, does not call for the dismissal of the
case below. It need only be suspended until after the matters within the competence of the BED are
threshed out and determined. Thereby, the principal purpose behind the doctrine of primary
jurisdiction is salutarily served.

Uniformity and consistency in the regulation of business entrusted to an administrative

agency are secured, and the limited function
Confideof review by the judiciary are more rationally
exercised, by preliminary resort, for ascertaining
ntial and interpreting the circumstances
underlying legal issues, to agencies that are better equipped than courts by specialization,
by insight gained through experience, and by more flexible procedure (Far East Conference
v. United States, 342 U.S. 570).

With the foregoing conclusion arrived at, the question as to the propriety of the summary judgment
rendered by the Trial Court becomes unnecessary to resolve.

WHEREFORE, the Court Resolved to DENY the petition. No costs.

SO ORDERED.
G.R. No. 95694 October 9, 1997

VICENTE VILLAFLOR, substituted by his heirs, petitioner,

vs.
COURT OF APPEALS and NASIPIT LUMBER CO., INC., respondents.

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 petitioner's theory of simulation of 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  of the Court of
1

Appeals, dated September 27, 1990, in CA. G.R CV No. 09062, affirming the dismissal by the trial
court of Petitioner Vicente Villaflor's 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
Confide
ntial
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,  more or less, and particularly
3

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, . .
. 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, . .
. on June 22, 1937, but no sound document was then executed, however
since then and until the present time, 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
Confidelasted more than fifty (50) years, possessing
and occupying the same, peacefully, openly and interruption for that length of
ntial
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:

. . . (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.
Confide
On November 8, 1946, Villaflor, in a Leasential Agreement (exh. Q),  leased to Nasipit Lumber
4

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 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 . . . surreptitiously grabbed and occupied a big portion of
plaintiff's property . . ."; that after a confrontation with the corporate's (sic) field manager, the
latter, in a letter dated December 3, 1973 (exh. R),  stated recalling having "made some sort
6
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 . . . 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. BoundariesConfide
of said land are marked by concrete monuments of
the Bureau pf (sic) Lands.
ntialAssessed 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
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 attorney's fees; and other incidental expenses not
exceeding P300.00.

On December 2, 1948, Villaflor filed Sales Application No.

V-807  (exh. 1) with the Bureau of Lands, Manila, "to purchase under the provisions of
8

Chapter V, XI or IX of Commonwealth Act. No. 141 (The Public Lands Act), as amended, the
tract of public lands . . . 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 . . . containing an area of 140 hectares . . . ."
Paragraph 6 of the Application, states: "I understand that this application conveys no right to
Confide
occupy the land prior to its approval, and I recognized (sic) that the land covered by the
ntial
same is of public domain and any and all rights may have with respect thereto by virtue of
continuous occupation and cultivation are hereby relinquished to the Government."  (exh. 1-
9

D)

On December 7, 1948, Villaflor and Nasipit Lumber executed an "Agreement" (exh 3).  This 10

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;

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.

5. 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 onConfide
his request will be expedited, as per letter of the
Chief, Public Land Division,
ntial 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) 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 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 Bureau's 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
Confide
disposition because of the claim of private
ntialownership. In a letter of Nasipit Lumber dated
February 22, 1950 (exh. X)  addressed to the Director of Lands, the corporation informed the
11

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),  pertinent portion of which reads:
12

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 . . .
is very much interested in acquiring the land covered by the aforecited
application . . . ;

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

x x x           x x x          x x x

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 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"  in favor of Nasipit
13

Lumber Company, Inc., pertinent portion of which reads:

Confide
4. That at the auction salentialof 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 . . . 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 . . . 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 Villaflor's 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 (Vicente's) 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 . . . 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
(Villaflor's) claim, for Mr. Florencio Tamesis, the general manager of Nasipit Lumber, in a
letter dated February 19, 1974, denied Villaflor's itemized claim dated January 5, 1974 (exh.
V) to be without valid and legal basis. In the 5th January, 1974 letter, Villaflor claimed the
total amount of P427,000.00 . . . .

In a formal protest dated January 31, 1974  which Villaflor filed with the Bureau of Lands, he
14

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

. . . (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 . . . and the consideration in the Agreement
to Sell were duly proven, and ordered the dismissal of Villaflor's protest and gave due course
to the 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) . . . reads:

x x x           x x x          x x x

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
Confide
lessee, and indemnity for damages supposedly caused improvements on his
ntial
other property . . . in the staggering amount of Seventeen Million
(P17,000,000.00) Pesos. Earlier, he had also demanded from NASIPIT . . .
(P427,000.00) . . . 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.

x x x           x x x          x x x

It would seem that . . . 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 Nasipit's failure to

pay the amount of . . . (P5,000.00) . . . (assuming that Nasipit had failed) the
deed of relinquishment became null and void for lack of consideration. . . . .

x x x           x x x          x x x

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

x x x           x x x          x x x

Even this Office had not failed to recognize the juridical personality of
NASIPIT to apply for the purchase of public lands . . . 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.

x x x           x x x          x x x

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).
Confide
x x x  ntial
        x x x          x x x

Consequently, Villaflor's claim that he had not been paid must perforce fail.

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, . . . 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. .
. . 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 . . . 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. . . . .

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 an
August 17, 1950, or barely a day which (sic) he executed the deed of
relinquishment on August 16, 1950, in Manila? . . . .

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 . . . 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.
Confide
A person in possession of an order on himself for the
ntial
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. Nasipit's
explanation on this point is found satisfactory.

. . . (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.

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 . . . 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 Villaflor's claim that the 140-hectare land relinquished and awarded to
NASIPIT is his private property, little (need) be said. . . . . 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 latter's 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.
. . . . 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 . . .) 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.

x x x  Confide
        x x x          x x x
ntial
. . . 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 . . . 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 . . ." (Exh. "38-A"); and
that "for and in consideration of . . . TWENTY FOUR THOUSAND
(P24,000.00) PESOS that the Second Party shall pay to the First Party . . .
the First Party hereby sells, transfers and conveys unto the Second Party . . .
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 . . . was paid and when the balance was to be paid, to wit:

a) the amount of SEVEN THOUSAND . . . 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 . . . PESOS shall be paid
upon the signing of this present agreement; and

c) the amount of TWELVE THOUSAND . . . 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 July 7, 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
ConfideParty, and upon delivery to the Second Party of
the Certificate of Ownership
ntial 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 . . . 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. . . . . 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). . . .

. . . Villaflor did not adduce evidence in support of his claim that he had not
been paid the . . . (P12,000.00) . . . 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 . . . 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 . . . Pesos of the total
consideration . . . stipulated in both the "Agreement to Sell" (Exh. "F") and the
document dated December 7, 1948 (Exh. "39");
. . . . He further testified that the said assignment of credit was communicated
to (private respondent) under cover letter dated January 24, 1949 (Exh. "41-
A") and not long thereafter, by virtue of the said assignment of credit, (private
respondent) paid the balance of Twelve Thousand . . . due to Villaflor to
Edward J. Nell Company . . . . Atty. Banaag's aforesaid testimony stand
unrebutted; hence, must be given full weight and credit. . . . Villaflor and his
counsel were present when Atty. Banaag's foregoing testimony was Villaflor
did not demur, nor did he rebut the same, despite having been accorded full
opportunity to do so.

x x x           x x x          x x x

Having found that both the Five Thousand . . . consideration of the deed of
Relinquishment . . . and that the remaining balance of
. . . (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
Confide
the latter, have been paid Villaflor the issue on prescription and laches
ntial
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:

. . . No private corporation or association may hold alienable

land of the public domain except by lease not to exceed one
thousand hectares in area . . . .

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 Office's 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.

On June 6, 1979, the Minister of Natural Resources rendered a Decision (exh.

9),   dismissing the appeal and affirming
15
the decision of the Director of Lands, pertinent
Confide
portions of which reads: ntial

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.
Confide
"As suchntial
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, . . . 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).

Secondly, appellant's 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.

x x x           x x x          x x x

However, appellant's cause of action, either for specific performance or

rescission of contract, with damages, lies within the jurisdiction of civil courts,
not with administrative bodies.

x x x           x x x          x x x
 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.

x x x           x x x          x x x

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
Confide law were complied with as
ntial 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. purchased 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  in the trial court for "Declaration of Nullity of Contract
16

(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,  dismissed the complaint on the grounds that: (1) petitioner
17

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  of the trial
18

court's 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.

Confide
The heirs of petitioner appealed to RespondentntialCourt of Appeals  which, however, rendered
19

judgment against petitioner via the assailed Decision dated September 27, 1990 finding petitioner's
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 petitioner's heirs as owners — to be
without basis. The decretal portion  of the assailed 49-page, single-spaced Decision curtly reads:
20

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

Not satisfied, petitioner's 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?".

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?
Confide
ntial
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 Court's 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 respondent's 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.

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 competence.  In Machete vs. Court of Appeals, the Court upheld the
23

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.  In Concerned
24

Officials of the Metropolitan Waterworks and Sewerage

Confide System vs. Vasquez,  the Court recognized
25

that the MWSS was in the best position to evaluate

ntial 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:

Sec. 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.
 Sec. 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

. . . 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:

. . . 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 . . . to
determine the following Confide
points: (a) whether or not the Nasipit Lumber
Company, Inc. paid or reimbursed
ntial 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 . . . .

. . . . 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 bylaw.

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,  by the courts.  The findings of fact of an administrative agency must be
29 30

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.  It is incumbent on the petitioner to show that the resolution of the factual issues by the
32

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 petitioner's 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 respondent's
former field manager in the latter's February 22,Confide
1950 letter, which contained an admission that the
land leased by private respondent was coveredntialby 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

. . . 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 latter's
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. . . . There is a condition in the sales
application . . . 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 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. . . . .

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 . . . .

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).
Confide
ntial
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, . . . 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, 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, . . . 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 unsupported by substantial evidence, it assumes finality. Thus, both the
trial and the appellate courts correctly relied on such finding.  We can do no less.
37

Second Issue: No Simulation of Contracts Proven

Petitioner insists that contrary to Article 1371  of the Civil Code, Respondent Court erroneously
38

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,  which is a conjunct of Article
39

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 petitioner's 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 respondent's 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
Confide supported petitioner's application for a
patent. ntial

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
(12,000.00) 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. Petitioner's 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 that which was really executed.  Such an
40

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 petitioner's 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., . . . 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: ". . . 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 payConfide

realty taxes on the land even after the execution of
said contracts. This is immaterial because payment
ntial 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.  However, failure to pay is not even a breach, but merely an event which prevents the
42

vendor's 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 respondent's 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.  Thus, the burden
44

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
action.  Although nonpayment is a negative fact which need not be proved, the party seeking
45

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 petitioner's application thereto in Mear's 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: ". . . a) The amount of SEVEN THOUSAND
Confide
(P7,000.00) PESOS has already been paid by ntial 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; . . . . "

Aside from these facts, the Director of Lands found evidence of greater weight showing that payment
was actually made: 48

. . . (T)here is strong evidence to show that said . . . (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 . . . declared that it was he who notarized
the "Agreement to Sell" (Exh. "F"); . . . 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 . . . (P12,000.00) . . . of the total consideration . . . . ; He
further testified that the said assignment . . . 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 paid the balance . . . to Edward J. Nell Company (p. 58, ibid).
Atty. Banaag's aforesaid testimony stand unrebutted; hence, must be given full weight and
credit.

x x x           x x x          x x x

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, . . . 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. . . . . 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. . . .

. . . 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 . . . .

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
Confide on August 17, 1950. The said deed of
relinquishment was prepared and notarizedntial 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? . . . .

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 . . .
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

. . . (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.

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 . . . 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 Mear's 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.  At the bottom of page 2 of the order,
50

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.  Furthermore,
51
Confide this order was in fact available to petitioner
and had been referred to by him since Januaryntial 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 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,  the Court ruled that, by law, the powers of the
53

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.  However, this Court earlier settled the matter, ruling that said constitutional prohibition
54

had no retroactive effect and could not prevail over a vested right to the land. In Ayog vs. Cusi,
Jr.,  this Court declared:
55

We hold that the said constitutional prohibition has no retroactive application to the sales
application of Biñan 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. Petitioner's
prohibition action is barred by the doctrine of vested rights in constitutional law.

"A right is vested when the right to enjoyment

Confide 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
ntial
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 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 corporation's 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.
Confide
It may be recalled that the Secretary of ntial
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 . . . , 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:

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 . . . , it is stated:

6. That the Nasipit Lumber Co., Inc., a corporation duly organized in

Confide
accordance with the laws of the Philippines, . . . .
ntial
Even this Office had not failed to recognize the juridical personality of Nasipit to apply for the
purchase of public lands . . . 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,  the disputed land had
58

already been acquired and awarded to private respondent. In any event, petitioner's 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.  Thus, it is no longer important, in this case, to pass
59

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.

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.
G.R. No. L-49109 December 1, 1987

SANTA ROSA MINING COMPANY, INC., petitioner,

vs.
HON. MINISTER OF NATURAL RESOURCES JOSE J. LEIDO, JR. AND DIRECTOR OF MINES
JUANITO C. FERNANDEZ, respondents.

PADILLA, J.:

This is a special civil action for certiorari and prohibition with prayer for a writ of preliminary
injunction, to declare Presidential Decree No. 1214 unconstitutional and to enjoin respondent public
officials from enforcing it. On 19 October 1978, the Court required the respondents to comment on
the petition and issued a temporary restraining order continuing until otherwise ordered by the Court.

Petitioner Santa Rosa Mining Company, Inc. (petitioner, for short) is a mining corporation duly
organized and existing under the laws of the Philippines. It alleges that it is the holder of fifty (50)
valid mining claims situated in Jose Panganiban, Camarines Norte, acquired under the provisions of
the Act of the U.S. Congress dated 1 July 1902 (Philippine Bill of 1902, for short).

On 14 October 1977, Presidential Decree No. 1214 was issued, requiring holders of subsisting and
valid patentable mining claims located under the provisions of the Philippine Bill of 1902 to file a
mining lease application within one (1) year from the approval of the Decree. Petitioner accordingly
Confide
filed a mining lease application, but "under protest," on 13 October 1978, with a reservation
ntial
annotated on the back of its application that it is not waiving its rights over its mining claims until the
validity of Presidential Decree No. 1214 shall have been passed upon by this Court. 1

On 10 October 1978, or three (3) days before filing the disputed mining lease application, petitioner
filed this special civil action for certiorari and prohibition, alleging that it has no other plain, speedy
and adequate remedy in the ordinary course of law to protect its rights (except by said petition).
Petitioner assails Presidential Decree No. 1214 as unconstitutional in that it amounts to a deprivation
of property without due process of law.

Petitioner avers that its fifty (50) mining claims had already been declared as its own private and
exclusive property in final judgments rendered by the Court of First Instance of Camarines Norte
(CFI, for short) in land registration proceedings initiated by third persons, such as, a September
1951 land title application by a certain Gervacio Liwanag, where the Director of Mines opposed the
grant of said application because herein petitioner, according to him (Director of Mines), had already
located and perfected its mining claims over the area applied for. Petitioner also cites LRC Case No.
240, filed 11 July 1960, by one Antonio Astudillo and decided in 1974 against said applicant, in
which, petitioner's mining claims were described as vested property outside the jurisdiction of the
Director of Mines. 2

In answer, the respondents allege that petitioner has no standing to file the instant petition as it failed
to fully exhaust administrative remedies. They cite the pendency of petitioner's appeal, with the
Office of the President, of the ruling of the respondent Secretary of Natural Resources issued on 2
April 1977 in DNR Case No. 4140, which upheld the decision of the Director of Mines finding that
forty four (44) out of petitioner's fifty (50) mining claims were void for lack of valid "tie points" as
required under the Philippine Bill of 1902, and that all the mining claims had already been
abandoned and cancelled, for petitioner's non-compliance with the legal requirements of the same
Phil. Bill of 1902 and Executive Order No. 141.  3

We agree with respondents' contention that it is premature for the Court to now make a finding on
the matter of whether petitioner had abandoned its mining claims. Until petitioner's appeal shall have
been decided by the Office of the President, where it is pending, petitioner's attempt to seek judicial
recognition of the continuing validity of its mining claims, cannot be entertained by the Court. As
stated by the Court, through Mr. Justice Sabino Padilla in Ham v. Bachrach Motor Co., Inc.   applying
4

the principle of exhaustion of administrative remedies: "By its own act of appealing from the decision
of the Director of Lands and the Secretary of Agriculture and Natural Resources to the President of
the Philippines, and without waiting for the latter's decision, the defendant cannot complain if the
courts do not take action be fore the President has decided its appeal."  5

The decisions of the Court of First Instance of Camarines Norte in applications for land registration
filed by third persons covering the area over which petitioner had located and registered its mining
claims, as cited by petitioner, are inapplicable. Said decisions merely denied the applications of such
third persons for land registration over areas already covered by petitioner's mining claims, for failure
to show titles that were registrable under the Torrens system; that was all. While the CFI made a
statement in one case declaring that the petitioner's mining claims are its vested property and even
patentable at that time, there is nothing in said CFI decision that squarely passed upon the question
of whether petitioner had valid, patentable (but still unpatented) mining claims which it had continued
to maintain, in compliance with the requirements of applicable laws. This question, which involves a
finding of facts, is precisely the issue before the Office of the President in the petitioner's appeal from
the decision of the Secretary of Natural Resources in DNR Case No. 4140 holding that petitioner's
mining claims are considered abandoned cancelled for failure of petitioner to comply with the
requirements of the Philippine Bill of 1902 and Executive Order No. 141. In short, the decisions of
Confide
the Court of First Instance of Camarines Norte, relied upon by petitioner, do not foreclose a
ntial
proceeding, such as DNR Case No. 4140, to determine whether petitioner's unpatented mining
claims have remained valid and subsisting.

Respondents further contend that, even assuming arguendo that petitioner's mining claims were
valid at the outset, if they are deemed abandoned and cancelled due to non-compliance with the
legal requirements for maintaining a perfected mining claim, under the provisions of the Philippine
Bill of 1902,   petitioner has no valid and subsisting claim which could be lost through the
6

implementation of Presidential Decree No. 1214, thus giving it no standing to question the Decree.

Petitioner, on the other hand, would rebut respondents' argument by declaring that it already had a
vested right over its mining claims even before Presidential Decree No. 1214, following the rulings
in McDaniel v. Apacible   and Gold Creek Mining Corp. v. Rodriguez. 
7 8

The Court is not impressed that this is so.

The cases cited by petitioner, true enough, recognize the right of a locator of a mining claim as a
property right. This right, however, is not absolute. It is merely a possessory right, more so, in this
case, where petitioner's claims are still unpatented. They can be lost through abandonment or
forfeiture or they may be revoked for valid legal grounds. The statement in McDaniel v. Apacible that
"There is no pretense in the present case that the petitioner has not complied with all the
requirements of the law in making the location of the mineral claims in question, or that the claims in
question were ever abandoned or forfeited by him,"   confirms that a valid mining claim may still be
9

lost through abandonment or forfeiture.

The petitioner can not successfully plead the ruling in Gold Creek Mining Corp. v. Rodriguez, supra.
In that case, what was in issue was Gold Creek's right to a patent over its mining claim, after
compliance with all legal requirements for a patent. In the present case, no application for patent is
in issue, although as a holder of patentable mining claims petitioner could have applied for one
during all these years but inexplicably did not do so. In Gold Creek, no finding of abandonment was
ever made against the mining claimant as to deprive it of the initial privilege given by virtue of its
location; on the other hand, such a finding has been made in petitioner's case (although the finding
among others is on appeal with the President).

We now come to the question of whether or not Presidential Decree No. 1214 is constitutional. Even
assuming arguendo that petitioner was not bound to exhaust administrative remedies on the
question of whether or not its mining claims are still subsisting (not abandoned or cancelled before
challenging the constitutionality of said Decree, we hold that Presidential Decree No. 1214 is not
unconstitutional. 10 It is a valid exercise of the sovereign power of the State, as owner, over lands of the public domain, of which
petitioner's mining claims still form a part, and over the patrimony of the nation, of which mineral deposits are a valuable asset. It may be
underscored, in this connection, that the Decree does not cover all mining claims located under the Phil. Bill of 1902, but only those claims
over which their locators had failed to obtain a patent. And even then, such locators may still avail of the renewable twenty-five year (25)
lease prescribed by Pres. Decree No. 463, the Mineral Development Resources Decree of 1974.

Mere location does not mean absolute ownership over the affected land or the mining claim. It
merely segregates the located land or area from the public domain by barring other would-be
locators from locating the same and appropriating for themselves the minerals found therein. To rule
otherwise would imply that location is all that is needed to acquire and maintain rights over a located
mining claim. This, we cannot approve or sanction because it is contrary to the intention of the
lawmaker that the locator should faithfully and consistently comply with the requirements for annual
work and improvements in the located mining claim.
Confide
Presidential Decree No. 1214 is in accord with ntial
Sec. 8, Art. XIV of the 1973 Constitution which states:

All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, wildlife, and other natural resources of
the Philippines belong to the State. With the exception of agricultural, industrial or
commercial, residential and resettlement lands of the public domain, natural
resources shall not be alienated, and no license, concession, or lease for the
exploration, development, exploitation, or utilization of any of the natural resources
shall be granted for a period exceeding twenty-five years, renewable for not more
than twenty-five years, except as to water rights for irrigation, water supply, fisheries,
or industrial uses other than the development of water power, in which cases,
beneficial use may be the measure and the limit of the grant.

The same constitutional mandate is found in Sec. 2, Art. XII of the 1987 Constitution, which
declares:

All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna.
and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. ...

WHEREFORE, premises considered, the petition is hereby DISMISSED. The temporary restraining
order issued by the Court on 19 October 1978 is LIFTED and SET ASIDE. Costs against the
petitioner.
SO ORDERED.

G.R. No. 111107 January 10, 1997

LOEONARDO A. PAAT, in his capacity as Officer-in-Charge (OIC), Regional Executive

Director (RED), Region 2 and JOVITO LAYUGAN, JR., in his capacity as Community
Environment and Natural Resources Officer (CENRO), both of the Department of Environment
and Natural Resources (DENR), petitioners,
vs.
COURT OF APPEALS, HON. RICARDO A. BACULI in his capacity as Presiding Judge of
Branch 2, Regional Trial Court at Tuguegarao, Cagayan, and SPOUSES BIENVENIDO and
VICTORIA DE GUZMAN, respondents.

TORRES, JR., J.:

Without violating the principle of exhaustion of administrative remedies, may an action

for replevin prosper to recover a movable property which is the subject matter of an administrative
forfeiture proceeding in the Department of Environment and Natural Resources pursuant to Section
68-A of P.D. 705, as amended, entitled The Revised Forestry Code of the Philippines?

Are the Secretary of DENR and his representatives empowered to confiscate and forfeit
Confide
conveyances used in transporting illegal forest products in favor of the government?
ntial
These are two fundamental questions presented before us for our resolution.

The controversy on hand had its incipiency on May 19, 1989 when the truck of private respondent
Victoria de Guzman while on its way to Bulacan from San Jose, Baggao, Cagayan, was seized by
the Department of Environment and Natural Resources (DENR, for brevity) personnel in Aritao,
Nueva Vizcaya because the driver could not produce the required documents for the forest products
found concealed in the truck. Petitioner Jovito Layugan, the Community Environment and Natural
Resources Officer (CENRO) in Aritao, Cagayan, issued on May 23, 1989 an order of confiscation of
the truck and gave the owner thereof fifteen (15) days within which to submit an explanation why the
truck should not be forfeited. Private respondents, however, failed to submit the required
explanation. On June 22, 1989,  Regional Executive Director Rogelio Baggayan of DENR sustained
1

petitioner Layugan's action of confiscation and ordered the forfeiture of the truck invoking Section
68-A of Presidential Decree No. 705 as amended by Executive Order No. 277. Private respondents
filed a letter of reconsideration dated June 28, 1989 of the June 22, 1989 order of Executive Director
Baggayan, which was, however, denied in a subsequent order of July 12, 1989.  Subsequently, the
2

case was brought by the petitioners to the Secretary of DENR pursuant to private respondents'
statement in their letter dated June 28, 1989 that in case their letter for reconsideration would be
denied then "this letter should be considered as an appeal to the Secretary."  Pending resolution
3

however of the appeal, a suit for replevin, docketed as Civil Case 4031, was filed by the private
respondents against petitioner Layugan and Executive Director Baggayan  with the Regional Trial
4

Court, Branch 2 of Cagayan,  which issued a writ ordering the return of the truck to private
5

respondents.  Petitioner Layugan and Executive Director Baggayan filed a motion to dismiss with the
6

trial court contending, inter alia, that private respondents had no cause of action for their failure to
exhaust administrative remedies. The trial court denied the motion to dismiss in an order dated
December 28, 1989.  Their motion for reconsideration having been likewise denied, a petition
7
for certiorari was filed by the petitioners with the respondent Court of Appeals which sustained the
trial court's order ruling that the question involved is purely a legal question.  Hence, this present
8

petition,  with prayer for temporary restraining order and/or preliminary injunction, seeking to reverse
9

the decision of the respondent Court of Appeals was filed by the petitioners on September 9, 1993.
By virtue of the Resolution dated September 27, 1993,  the prayer for the issuance of temporary
10

restraining order of petitioners was granted by this Court.

Invoking the doctrine of exhaustion of administrative remedies, petitioners aver that the trial court
could not legally entertain the suit for replevin because the truck was under administrative seizure
proceedings pursuant to Section 68-A of P.D. 705, as amended by E.O. 277. Private respondents,
on the other hand, would seek to avoid the operation of this principle asserting that the instant case
falls within the exception of the doctrine upon the justification that (1) due process was violated
because they were not given the chance to be heard, and (2) the seizure and forfeiture was unlawful
on the grounds: (a) that the Secretary of DENR and his representatives have no authority to
confiscate and forfeit conveyances utilized in transporting illegal forest products, and (b) that the
truck as admitted by petitioners was not used in the commission of the crime.

Upon a thorough and delicate scrutiny of the records and relevant jurisprudence on the matter, we
are of the opinion that the plea of petitioners for reversal is in order.

This Court in a long line of cases has consistently held that before a party is allowed to seek the
intervention of the court, it is a pre-condition that he should have availed of all the means of
administrative processes afforded him. Hence, if a remedy within the administrative machinery can
still be resorted to by giving the administrative officer concerned every opportunity to decide on a
matter that comes within his jurisdiction then such remedy should be exhausted first before court's
judicial power can be sought, The premature invocation
Confide of court's intervention is fatal to one's cause
of action.  Accordingly, absent any finding of waiver
11
ntial or estoppel the case is susceptible of dismissal
for lack of cause of
action.  This doctrine of exhaustion of administrative remedies was not without its practical and legal
12

reasons, for one thing, availment of administrative remedy entails lesser expenses and provides for
a speedier disposition of controversies. It is no less true to state that the courts of justice for reasons
of comity and convenience will shy away from a dispute until the system of administrative redress
has been completed and complied with so as to give the administrative agency concerned every
opportunity to correct its error and to dispose of the case. However, we are not amiss to reiterate
that the principle of exhaustion of administrative remedies as tested by a battery of cases is not an
ironclad rule. This doctrine is a relative one and its flexibility is called upon by the peculiarity and
uniqueness of the factual and circumstantial settings of a case. Hence, it is disregarded (1) when
there is a violation of due process,  (2) when the issue involved is purely a legal question,  (3) when
13 14

the administrative action is patently illegal amounting to lack or excess of jurisdiction,  (4) when
15

there is estoppel on the part of the administrative agency concerned,  (5) when there is irreparable
16

injury,  (6) when the respondent is a department secretary whose acts as an alter ego of the
17

President bears the implied and assumed approval of the latter,  (7) when to require exhaustion of
18

administrative remedies would be unreasonable,  (8) when it would amount to a nullification of a

19

claim,  (9) when the subject matter is a private land in land case proceedings,  (10) when the rule
20 21

does not provide a plain, speedy and adequate remedy, and (11) when there are circumstances
indicating the urgency of judicial intervention.22

In the case at bar, there is no question that the controversy was pending before the Secretary of
DENR when it was forwarded to him following the denial by the petitioners of the motion for
reconsideration of private respondents through the order of July 12, 1989. In their letter of
reconsideration dated June 28, 1989,  private respondents clearly recognize the presence of an
23
administrative forum to which they seek to avail, as they did avail, in the resolution of their case. The
letter, reads, thus:

xxx xxx xxx

If this motion for reconsideration does not merit your favorable action, then this letter
should be considered as an appeal to the
Secretary.24

It was easy to perceive then that the private respondents looked up to the Secretary for the review
and disposition of their case. By appealing to him, they acknowledged the existence of an adequate
and plain remedy still available and open to them in the ordinary course of the law. Thus, they
cannot now, without violating the principle of exhaustion of administrative remedies, seek court's
intervention by filing an action for replevin for the grant of their relief during the pendency of an
administrative proceedings.

Moreover, it is important to point out that the enforcement of forestry laws, rules and regulations and
the protection, development and management of forest lands fall within the primary and special
responsibilities of the Department of Environment and Natural Resources. By the very nature of its
function, the DENR should be given a free hand unperturbed by judicial intrusion to determine a
controversy which is well within its jurisdiction. The assumption by the trial court, therefore, of the
replevin suit filed by private respondents constitutes an unjustified encroachment into the domain of
the administrative agency's prerogative. The doctrine of primary jurisdiction does not warrant a court
to arrogate unto itself the authority to resolve a controversy the jurisdiction over which is initially
lodged with an administrative body of special competence.  In Felipe Ismael, Jr. and Co. vs. Deputy
25

Executive Secretary,  which was reiterated in the

26
recent case of Concerned Officials of MWSS
Confide
vs. Vasquez,  this Court held:
27
ntial

Thus, while the administration grapples with the complex and multifarious problems
caused by unbriddled exploitation of these resources, the judiciary will stand clear. A
long line of cases establish the basic rule that the courts will not interfere in matters
which are addressed to the sound discretion of government agencies entrusted with
the regulation of activities coming under the special technical knowledge and training
of such agencies.

To sustain the claim of private respondents would in effect bring the instant controversy beyond the
pale of the principle of exhaustion of administrative remedies and fall within the ambit of excepted
cases heretofore stated. However, considering the circumstances prevailing in this case, we can not
but rule out these assertions of private respondents to be without merit. First, they argued that there
was violation of due process because they did not receive the May 23, 1989 order of confiscation of
petitioner Layugan. This contention has no leg to stand on. Due process does not necessarily mean
or require a hearing, but simply an opportunity or right to be heard.  One may be heard, not solely by
28

verbal presentation but also, and perhaps many times more creditably and practicable than oral
argument, through pleadings.  In administrative proceedings moreover, technical rules of procedure
29

and evidence are not strictly applied; administrative process cannot be fully equated with due
process in its strict judicial sense.  Indeed, deprivation of due process cannot be successfully
30

invoked where a party was given the chance to be heard on his motion for reconsideration,  as in 31

the instant case, when private respondents were undisputedly given the opportunity to present their
side when they filed a letter of reconsideration dated June 28, 1989 which was, however, denied in
an order of July 12, 1989 of Executive Director Baggayan, In Navarro III vs. Damasco,  we ruled that
32

:
 The essence of due process is simply an opportunity to be heard, or as applied to
administrative proceedings, an opportunity to explain one's side or an opportunity to
seek a reconsideration of the action or ruling complained of. A formal or trial type
hearing is not at all times and in all instances essential. The requirements are
satisfied when the parties are afforded fair and reasonable opportunity to explain
their side of the controversy at hand. What is frowned upon is the absolute lack of
notice or hearing.

Second, private respondents imputed the patent illegality of seizure and forfeiture of the truck
because the administrative officers of the DENR allegedly have no power to perform these acts
under the law. They insisted that only the court is authorized to confiscate and forfeit conveyances
used in transporting illegal forest products as can be gleaned from the second paragraph of Section
68 of P.D. 705, as amended by E.O. 277. The pertinent provision reads as follows:

Sec. 68. . . .

xxx xxx xxx

The court shall further order the confiscation in favor of the government of

the timber or any forest products cut, gathered, collected, removed, or possessed, as
well as the machinery, equipments, implements and tools illegaly [sic] used in the
area where the timber or forest products are found. (Emphasis ours)

A reading, however, of the law persuades us not to go along with private respondents' thinking not
only because the aforequoted provision apparently does not mention nor include "conveyances" that
can be the subject of confiscation by the courts,Confide
but to a large extent, due to the fact that private
respondents' interpretation of the subject provision
ntial unduly restricts the clear intention of the law and
inevitably reduces the other provision of Section 68-A, which is quoted herein below:

Sec. 68-A. Administrative Authority of the Department or His Duly Authorized

Representative To Order Confiscation. In all cases of violation of this Code or other
forest laws, rules and regulations, the Department Head or his duly authorized
representative, may order the confiscation of any forest products illegally cut,
gathered, removed, or possessed or abandoned, and all conveyances used either by
land, water or air in the commission of the offense and to dispose of the same in
accordance with pertinent laws, regulations and policies on the matter. (Emphasis
ours)

It is, thus, clear from the foregoing provision that the Secretary and his duly authorized
representatives are given the authority to confiscate and forfeit any conveyances utilized in violating
the Code or other forest laws, rules and regulations. The phrase "to dispose of the same" is broad
enough to cover the act of forfeiting conveyances in favor of the government. The only limitation is
that it should be made "in accordance with pertinent laws, regulations or policies on the matter." In
the construction of statutes, it must be read in such a way as to give effect to the purpose projected
in the statute.  Statutes should be construed in the light of the object to be achieved and the evil or
33

mischief to be suppressed, and they should be given such construction as will advance the object,
suppress the mischief, and secure the benefits intended.  In this wise, the observation of the
34

Solicitor General is significant, thus:

But precisely because of the need to make forestry laws "more responsive to present
situations and realities" and in view of the "urgency to conserve the remaining
resources of the country," that the government opted to add Section 68-A. This
 amendatory provision is an administrative remedy totally separate and distinct from
criminal proceedings. More than anything else, it is intended to supplant the
inadequacies that characterize enforcement of forestry laws through criminal actions.
The preamble of EO 277-the law that added Section 68-A to PD 705-is most
revealing:

"WHEREAS, there is an urgency to conserve the remaining forest

resources of the country for the benefit and welfare of the present
and future generations of Filipinos;

WHEREAS, our forest resources may be effectively conserved and

protected through the vigilant enforcement and implementation of our
forestry laws, rules and regulations;

WHEREAS, the implementation of our forestry laws suffers from

technical difficulties, due to certain inadequacies in the penal
provisions of the Revised Forestry Code of the Philippines; and

WHEREAS, to overcome this difficulties, there is a need to penalize

certain acts more responsive to present situations and realities;"

It is interesting to note that Section 68-A is a new provision authorizing the DENR to
confiscate, not only "conveyances," but forest products as well. On the other
hand, confiscation of forest products by the "court" in a criminal action has long been
provided for in Section 68. If as private respondents insist, the power on confiscation
cannot be exercised except only through the court under Section 68, then Section
Confide
68-A would have no Purpose atntial all. Simply put, Section 68-A would not have
provided any solution to the problem perceived in EO 277, supra. 35

Private respondents, likewise, contend that the seizure was illegal because the petitioners
themselves admitted in the Order dated July 12, 1989 of Executive Director Baggayan that the truck
of private respondents was not used in the commission of the crime. This order, a copy of which was
given to and received by the counsel of private respondents, reads in part, viz.:

. . . while it is true that the truck of your client was not used by her in the commission
of the crime, we uphold your claim that the truck owner is not liable for the crime and
in no case could a criminal case be filed against her as provided under Article 309
and 310 of the Revised Penal Code. . . 36

We observed that private respondents misread the content of the aforestated order and obviously
misinterpreted the intention of petitioners. What is contemplated by the petitioners when they stated
that the truck "was not used in the commission of the crime" is that it was not used in the
commission of the crime of theft, hence, in no case can a criminal action be filed against the owner
thereof for violation of Article 309 and 310 of the Revised Penal Code. Petitioners did not eliminate
the possibility that the truck was being used in the commission of another crime, that is, the breach
of Section 68 of P.D. 705 as amended by E.O. 277. In the same order of July 12, 1989, petitioners
pointed out:

. . . However, under Section 68 of P.D. 705 as amended and further amended by

Executive Order No. 277 specifically provides for the confiscation of the conveyance
used in the transport of forest products not covered by the required legal documents.
She may not have been involved in the cutting and gathering of the product in
 question but the fact that she accepted the goods for a fee or fare the same is
therefor liable. . .
37

Private respondents, however, contended that there is no crime defined and punishable under
Section 68 other than qualified theft, so that, when petitioners admitted in the July 12, 1989 order
that private respondents could not be charged for theft as provided for under Articles 309 and 310 of
the Revised Penal Code, then necessarily private respondents could not have committed an act
constituting a crime under Section 68. We disagree. For clarity, the provision of Section 68 of P.D.
705 before its amendment by E.O. 277 and the provision of Section 1 of E.O. No. 277 amending the
aforementioned Section 68 are reproduced herein, thus:

Sec. 68. Cutting, gathering and/or collecting timber or other products without license.
— Any person who shall cut, gather, collect, or remove timber or other forest
products from any forest land, or timber from alienable and disposable public lands,
or from private lands, without any authority under a license agreement, lease, license
or permit, shall be guilty of qualified theft as defined and punished under Articles 309
and 310 of the Revised Penal Code . . . (Emphasis ours; Section 68, P.D. 705 before
its amendment by E.O. 277)

Sec. 1. Section 68 of Presidential Decree No. 705, as amended, is hereby amended

to read as follows:

Sec. 68. Cutting, gathering and/or collecting timber or other forest

products without license. — Any person who
shall cut, gather, collect, remove timber or other forest products from
any forest land, Confide
or timber from alienable or disposable public land, or
from private land, without any authority, or possess timber or other
ntial
forest products without the legal documents as required under
existing forest laws and regulations, shall be punished with the
penalties imposed under Articles 309 and 310 of the Revised Penal
Code . . . (Emphasis ours; Section 1, E.O. No. 277 amending Section
68, P.D. 705 as amended)

With the introduction of Executive Order No. 277 amending Section 68 of P.D. 705, the act of
cutting, gathering, collecting, removing, or possessing forest products without authority constitutes a
distinct offense independent now from the crime of theft under Articles 309 and 310 of the Revised
Penal Code, but the penalty to be imposed is that provided for under Article 309 and 310 of the
Revised Penal Code. This is clear from the language of Executive Order No. 277 when it eliminated
the phrase "shall be guilty of qualified theft as defined and punished under Articles 309 and 310 of
the Revised Penal Code" and inserted the words "shall be punished with the penalties imposed
under Article 309 and 310 of the Revised Penal Code". When the statute is clear and explicit, there
is hardly room for any extended court ratiocination or rationalization of the law.
38

From the foregoing disquisition, it is clear that a suit for replevin can not be sustained against the
petitioners for the subject truck taken and retained by them for administrative forfeiture proceedings
in pursuant to Section 68-A of the P.D. 705, as amended. Dismissal of the replevin suit for lack of
cause of action in view of the private respondents' failure to exhaust administrative remedies should
have been the proper course of action by the lower court instead of assuming jurisdiction over the
case and consequently issuing the writ ordering the return of the truck. Exhaustion of the remedies
in the administrative forum, being a condition precedent prior to one's recourse to the courts and
more importantly, being an element of private respondents' right of action, is too significant to be
waylaid by the lower court.
It is worth stressing at this point, that a suit for replevin is founded solely on the claim that the
defendant wrongfully withholds the property sought to be recovered. It lies to recover possession of
personal chattels that are unlawfully detained.  "To detain" is defined as to mean "to hold or keep in
39

custody,"  and it has been held that there is tortious taking whenever there is an unlawful meddling
40

with the property, or an exercise or claim of dominion over it, without any pretense of authority or
right; this, without manual seizing of the property is sufficient.  Under the Rules of Court, it is
41

indispensable in replevin proceeding that the plaintiff must show by his own affidavit that he is
entitled to the possession of property, that the property is wrongfully detained by the defendant,
alleging the cause of detention, that the same has not been taken for tax assessment, or seized
under execution, or attachment, or if so seized, that it is exempt from such seizure, and the actual
value of the property.  Private respondents miserably failed to convince this Court that a wrongful
42

detention of the subject truck obtains in the instant case. It should be noted that the truck was seized
by the petitioners because it was transporting forest products without the required permit of the
DENR in manifest contravention of Section 68 of P.D. 705 as amended by E.O 277. Section 68-A of
P.D. 705, as amended, unquestionably warrants the confiscation as well as the disposition by the
Secretary of DENR or his duly authorized representatives of the conveyances used in violating the
provision of forestry laws. Evidently, the continued possession or detention of the truck by the
petitioners for administrative forfeiture proceeding is legally permissible, hence, no wrongful
detention exists in the case at bar.

Moreover, the suit for replevin is never intended as a procedural tool to question the orders of
confiscation and forfeiture issued by the DENR in pursuance to the authority given under P.D. 705,
as amended. Section 8 of the said law is explicit that actions taken by the Director of the Bureau of
Forest Development concerning the enforcement of the provisions of the said law are subject to
review by the Secretary of DENR and that courts may not review the decisions of the Secretary
except through a special civil action for certiorari or prohibition. It reads:
Confide
ntial
Sec. 8. REVIEW — All actions and decisions of the Director are subject to
review, motu propio or upon appeal of any person aggrieved thereby, by the
Department Head whose decision shall be final and executory after the lapse of thirty
(30) days from the receipt of the aggrieved party of said decision, unless appealed to
the President in accordance with Executive Order No. 19, Series of 1966. The
Decision of the Department Head may not be reviewed by the courts except through
a special civil action for certiorari or prohibition.

WHEREFORE, the Petition is GRANTED; the Decision of the respondent Court of Appeals dated
October 16, 1991 and its Resolution dated July 14, 1992 are hereby SET ASIDE AND REVERSED;
the Restraining Order promulgated on September 27, 1993 is hereby made permanent; and the
Secretary of DENR is directed to resolve the controversy with utmost dispatch.

SO ORDERED.
G.R. No. 85439 January 13, 1992

KILUSANG BAYAN SA PAGLILINGKOD NG MGA MAGTITINDA NG BAGONG PAMILIHANG

BAYAN NG MUNTINLUPA, INC. (KBMBPM), TERESITA A. FAJARDO, NADYESDA B.
PONSONES, MA. FE V. BOMBASE, LOIDA D. LUCES, MARIO S. FRANCISCO, AMADO V.
MANUEL and ROLANDO G. GARCIA, incumbent members of the Board, AMADO G. PEREZ
and MA. FE V. BOMBASE, incumbent General Manager and Secretary-Treasurer,
respectively, petitioners,
vs.
HON. CARLOS G. DOMINGUEZ, Secretary of Agriculture, Regional Director of Region IV of
the Department of Agriculture ROGELIO P. MADRIAGA, RECTO CORONADO and Municipal
Mayor IGNACIO R. BUNYE, both in his capacity as Municipal Mayor of Muntinlupa, Metro
Manila and as Presiding Officer of Sangguniang Bayan ng Muntinglupa, and JOHN
DOES, respondents.

G.R. No. 91927 January 13, 1992

IGNACIO R. BUNYE, JAIME R. FRESNEDI, CARLOS G. TENSUAN, VICTOR E. AGUINALDO,

ALEJANDRO I. MARTINEZ, EPIFANIO A. ESPELETA, REY E. BULAY, LUCIO B.
CONSTANTINO, ROMAN E. NIEFES, NEMESIO O. MOZO, ROGER SMITH, RUFINO B.
JOAQUIN, NOLASCO I. DIAZ, RUFINO IBE and NESTOR SANTOS, petitioners,
vs.
THE SANDIGANBAYAN, THE OMBUDSMAN and ROGER C. BERBANO, Special Prosecutor
III, respondents.
Confide
Jose O. Villanueva and Roberto B. Romanillos ntial
for petitioners in G.R. No. 85439.

Alampay & Manhit Law Offices for petitioners in G.R. No. 91927.

DAVIDE, JR., J.:

These cases have been consolidated because they are closely linked with each other as to factual
antecedents and issues.

The first case, G.R. No. 85439 (hereinafter referred to as the Kilusang Bayan case), questions the
validity of the order of 28 October 1988 of then Secretary of Agriculture Hon. Carlos G. Dominguez
which ordered: (1) the take-over by the Department of Agriculture of the management of the
petitioner Kilusang Bayan sa Paglilingkod Ng Mga Magtitinda ng Bagong Pamilihang Bayan ng
Muntilupa, Inc. (KBMBPM) pursuant to the Department's regulatory and supervisory powers under
Section 8 of P.D. No. 175, as amended, and Section 4 of Executive Order No. 13, (2) the creation of
a Management Committee which shall assume the management of KBMBPM upon receipt of the
order, (3) the disbandment of the Board of Directors, and (4) the turn over of all assets, properties
and records of the KBMBPM the Management Committee.

The second case. G.R. No. 91927 (hereinafter referred to as the Bunye case), seeks the nullification
of the Resolution of 4 January 1990 of the Sandiganbayan admitting the Amended Information
against petitioners in Criminal Case No. 13966 and denying their motion to order or direct
preliminary investigation, and its Resolution of 1 February 1990 denying the motion to reconsider the
former.

The procedural and factual antecedents are not disputed.

On 2 September 1985, the Municipal Government of Muntinlupa (hereinafter, Municipality), Metro

Manila, thru its then Mayor Santiago Carlos, Jr., entered into a contract with the KILUSANG BAYAN
SA PAGLILINGKOD NG MGA MAGTITINDA SA BAGONG PAMILIHANG BAYAN NG
MUNTINLUPA, INC. (KBMBPM) represented by its General Manager, Amado Perez, for the latter's
management and operation of the new Muntinlupa public market. The contract provides for a twenty-
five (25) year term commencing on 2 September 1985, renewable for a like period, unless sooner
terminated and/or rescinded by mutual agreement of the parties, at a monthly consideration of
Thirty-Five Thousand Pesos (P35,000) to be paid by the KBMBPM within the first five (5) days of
each month which shall, however, be increased by ten percent (10%) each year during the first five
(5) years only.  1

The KBMBPM is a service cooperative organized by and composed of vendors occupying the New
Muntinlupa Public Market in Alabang, Muntinlupa, Metro Manila pursuant to Presidential Decree No.
175 and Letter of Implementation No. 23; its articles of incorporation and by-laws were registered
with the then Office of the Bureau of Cooperatives Development (thereafter the Bureau of
Agricultural Cooperatives Development or BACOD and now the Cooperative Development
Authority).  2

Following his assumption into office as the new mayor succeeding Santiago Carlos, Jr., petitioner
Ignacio Bunye, claiming to be particularly scandalized by the "virtual 50-year term of the agreement,
contrary to the provision of Section 143, paragraph 3 of Batas Pambansa Blg. 337," and the
Confide
"patently inequitable rental," directed a review of the aforesaid contract.   He sought opinions from
ntial 3

both the Commission on Audit and the Metro Manila Commission (MMC) on the validity of the
instrument. In separate letters, these agencies urged that appropriate legal steps be taken towards
its rescission. The letter of Hon. Elfren Cruz of the MMC even granted the Municipality authority "to
take the necessary legal steps for the cancellation/recission of the above cited contract and make
representations with KBMBPM for the immediate transfer/takeover of the possession, management
and operation of the New Muntinlupa Market to the Municipal Government of Muntinlupa."  4

Consequently, upon representations made by Bunye with the Municipal Council, the latter approved
on 1 August 1988 Resolution No. 45 abrogating the contract. To implement this resolution, Bunye,
together with his co-petitioners and elements of the Capital Command of the Philippine
Constabulary, proceeded, on 19 August 1986, to the public market and announced to the general
public and the stallholders thereat that the Municipality was taking over the management and
operation of the facility, and that the stallholders should henceforth pay their market fees to the
Municipality, thru the Market Commission, and no longer to the KBMBPM.  5

On 22 August 1988, the KBMBPM filed with Branch 13 of the Regional Trial Court of Makati a
complaint for breach of contract, specific performance and damages with prayer for a writ of
preliminary injunction against the Municipality and its officers, which was docketed as Civil Case No.
88-1702.   The complaint was premised on the alleged illegal take-over of the public market effected
6

"in excess of his (Bunye's) alleged authority" and thus "constitutes breach of contract and duty as a
public official."

The writ applied for having been denied,   the KBMBPM officers resisted the attempts of Bunye and
7

company to complete the take-over; they continued holding office in the KBS building, under their
respective official capacities. The matter having been elevated to this Court by way of certiorari, 8 We
remanded the same to the Court of Appeals which docketed it as C.A.-G.R. No. L-16930. 9

On 26 August 1988, Amado Perez filed with the Office of the Ombudsman a letter-complaint
charging Bunye and his co-petitioners with oppression, harassment, abuse of authority and violation
of the Anti-Graft and Corrupt Practices Act   for taking over the management and operation of the
10

public market from KBMBPM.  11

In a subpoena dated 7 October 1988, prosecutor Mothalib C. Onos of the Office of the Special
Prosecutor directed Bunye and his co-petitioners to submit within ten (10) days from receipt thereof
counter-affidavits, affidavits of their witnesses and other supporting documents.   The subpoena and
12

letter-complaint were received on 12 October 1988.

On 20 October 1988, two (2) days before the expiration of the period granted to file said documents,
Bunye, et al. filed by mail an urgent motion for extension of "at least fifteen (15) days from October
22, 1988" within which to comply   with the subpoena.
13

Thereafter, the following transpired which subsequently gave rise to these petitions:

G.R. No. 85439

In the early morning of 29 October 1988, a Saturday, respondent Madriaga and Coronado, allegedly
accompanied by Mayor Bunye and the latters' heavily armed men, both in uniform and in civilian
clothes, together with other civilians, namely: Romulo Bunye II, Alfredo Bunye, Tomas Osias,
Reynaldo Camilon, Benjamin Taguibao, Benjamin Bulos and other unidentified persons, allegedly
through force, violence and intimidation, forciblyConfide
broke open the doors of the offices of petitioners
located at the second floor of the KBS Building,ntial
new Muntinlupa Public Market, purportedly to serve
upon petitioners the Order of respondent Secretary of Agriculture dated 28 October 1988, and to
implement the same, by taking over and assuming the management of KBMBPM, disbanding the
then incumbent Board of Directors for that purpose and excluding and prohibiting the General
Manager and the other officers from exercising their lawful functions as such.   The Order of the
14

Secretary reads as follows:  15

ORDER

WHEREAS, the KILUSANG BAYAN SA PAGLILINGKOD NG MGA MAGTITINDA

NG BAGONG PAMILIHANG BAYAN NG MUNTINLUPA, INC., (KBMBPM), Alabang,
Muntinlupa, Metro Manila is a Cooperative registered under the provisions of
Presidential Decree No. 175, as amended;

WHEREAS, the Department of Agriculture is empowered to regulate and supervise

cooperatives registered under the provisions of Presidential Decree No. 175, as
amended;

WHEREAS, the general membership of the KBMBPM has petitioned the Department
of Agriculture for assistance in the removal of the members of the Board of Directors
who were not elected by the general membership of said cooperative;

WHEREAS, the on-going financial and management audit of the Department of

Agriculture auditors show (sic) that the management of the KBMBPM is not operating
that cooperative in accordance with PD. 175, LOI No. 23, the Circulars issued by
DA/BACOD and the provisions of the by-laws of KBMBPM;
WHEREAS, the interest of the public so demanding it is evident and urgently
necessary that the KBMBPM MUST BE PLACED UNDER MANAGEMENT TAKE-
OVER of the Department of Agriculture in order to preserve the financial interest of
the members of the cooperative and to enhance the cooperative development
program of the government;

WHEREAS, it is ordered that the Department of Agriculture in the exercise of its

regulatory and supervisory powers under Section 8 of PD 175, as amended, and
Section 4 of Executive Order No. 113, take over the management of KBMBPM under
the following directives:

1. THAT a Management Committee is hereby created composed of

the following:

a) Reg. Dir. or OIC RD — DA Region IV

b) Atty. Rogelio P. Madriaga — BACOD

c) Mr. Recto Coronado — KBMBPM

d) Mrs. Nadjasda Ponsones — KBMBPM

e) One (1) from the Municipal Government of Muntinlupa to be

designated by the Sangguniang Pambayan ng Muntinlupa;
Confide
2. THAT the Management Committee shall, upon receipt of this
ntial
Order, assume the management of KBMBPM;

3. THAT the present Board of Directors is hereby disbanded and the

officers and Manager of the KBMBPM are hereby directed to turnover
all assets, properties and records of the KBMBPM to the
Management Committee herein created;

4. THAT the Management Committee is hereby empowered to

promulgate rules of procedure to govern its workings as a body;

5. THAT the Management Committee shall submit to the undersigned

thru the Director of BACOD monthly reports on the operations of
KBMBPM;

6. THAT the Management Committee shall call a General Assembly

of all registered members of the KBMBPM within Ninety (90) days
from date of this Order to decide such matters affecting the
KBMBPM, including the election of a new set of Board of Director
(sic).

This Order takes effect immediately and shall continue to be in force until the
members of the Board of Directors shall have been duly elected and qualified.

Done this 28th day of October, 1988 at Quezon City.

As claimed by petitioners, the Order served on them was not written on the stationary of the
Department, does not bear its seal and is a mere xerox copy.

The so-called petition upon which the Order is based appears to be an unverified petition dated 10
October 1988 signed, according to Mayor Bunye,   by 371 members of the KBMBPM.
16

On 2 November 1988, petitioners filed the petition in this case alleging, inter alia, that:

(a) Respondent Secretary acted without or in excess of jurisdiction in issuing the

Order for he arrogated unto himself a judicial function by determining the alleged guilt
of petitioners on the strength of a mere unverified petition; the disbandment of the
Board of Directors was done without authority of law since under Letter of
Implementation No. 23, removal of officers, directors or committee members could
be done only by the majority of the members entitled to vote at an annual or special
general assembly and only after an opportunity to be heard at said assembly.

(b) Respondent Secretary acted in a capricious, whimsical, arbitrary and despotic

manner, so patent and gross that it amounted to a grave abuse of discretion.

(c) The Order is a clear violation of the By-Laws of KBMBPM and is likewise illegal
and unlawful for it allows or tolerates the violation of the penal provisions under
paragraph (c), Section 9 of P.D. No. 175.

(d) The Order is a clear violation of the constitutional right of the individual petitioners
to be heard.  17

Confide
ntial
They pray that upon the filing of the petition, respondents, their agents, representatives or persons
acting on their behalf be ordered to refrain, cease and desist from enforcing and implementing the
questioned Order or from excluding the individual petitioners from the exercise of their rights as such
officers and, in the event that said acts sought to be restrained were already partially or wholly done,
to immediately restore the management and operation of the public market to petitioners, order
respondents to vacate the premises and, thereafter, preserve the status quo; and that, finally, the
challenged Order be declared null and void.

In the Resolution of 9 October 1988,   We required the respondents to Comment on the petition.
18

Before any Comment could be filed, petitioners filed on 2 January 1989 an Urgent Ex-Parte Motion
praying that respondent Atty. Rogelio Madriaga, who had assumed the position of Chairman of the
Management Committee, be ordered to stop and/or cancel the scheduled elections of the officers of
the KBMBPM on 6 January 1989 and, henceforth, desist from scheduling any election of officers or
Members of the Board of Directors thereof until further orders on the Court.   The elections were,
19

nevertheless, held and a new board of directors was elected. So, on 19 January 1989, petitioners
filed a supplemental motion   praying that respondent Madriaga and the "newly elected Board of
20

Directors be ordered to cease and desist from assuming, performing or exercising powers as such,
and/or from removing or replacing the counsels of petitioners as counsels for KBMBPM and for Atty.
Fernando Aquino, Jr., to cease and desist from unduly interfering with the affairs and business of the
cooperative."

Respondent Bunye, by himself, filed his Comment on 23 January 1989.   He denies the factual
21

allegations in the petition and claims that petitioners failed to exhaust administrative remedies. A
reply thereto was filed by petitioners on 7 February 1989.  22
Respondent Recto Coronado filed two (2) Comments. The first was filed on 6 February 1989   by his23

counsel, Atty. Fernando Aquino, Jr., and the second, which is for both him and Atty. Madriaga, was
filed by the latter on 10 February 1989.  24

On 20 February 1989, petitioners filed a Reply to the first Comment of Coronado   and an Ex-
25

Parte Motion for the immediate issuance of a cease and desist order   praying that the so-called new
26

directors and officers of KBMBPM, namely: Tomas M. Osias, Ildefonso B. Reyes, Paulino Moldez,
Fortunato M. Medina, Aurora P. del Rosario, Moises Abrenica, and Lamberto Casalla, be ordered to
immediately cease and desist from filing notices of withdrawals or motions to dismiss cases filed by
the Cooperative now pending before the courts, administrative offices and the Ombudsman and
Tanodbayan, and that if such motions or notices were already filed, to immediately withdraw and
desist from further pursuing the same until further orders of this Court. The latter was precipitated by
the Resolution No. 19 of the "new" board of directors withdrawing all cases filed by its predecessors
against Bunye, et al., and more particularly the following cases: (a) G.R. No. 85439 (the instant
petition), (b) Civil Case No. 88-1702, (c) OSP Case No. 88-2110 before the Ombudsman, (d) IBP
Case No. 88-0119 before the Tanodbayan, and Civil Case No. 88-118 for Mandamus.  27

On 1 March 1989, We required the Solicitor General to file his Comment to the petition and the
urgent motion for the immediate issuance of a cease and desist order.  28

A motion to dismiss the instant petition was filed on 30 March 1989.   On 19 April 1989, We resolved
29

to dismiss the case and consider it closed and terminated.   Thereupon, after some petitioners filed
30

a motion for clarification and reconsideration, We set aside the dismissal order and required the new
directors to comment on the Opposition to Motion to Dismiss filed by the former.  31

The new board, on 14 June 1989, prayed that its Manifestation of 6 June 1989 and Opposition dated
Confide
9 June 1989, earlier submitted it response to petitioners'
ntial motion for reconsideration of the order
dismissing the instant petition, be treated as its Comment.   Both parties then continued their legal
32

fencing, serving several pleadings on each other.

In Our Resolution of 9 August 1989,   We gave the petition due course and required the parties to
33

submit their respective Memoranda.

On 14 August 1989, petitioners filed an urgent ex-parte motion for the immediate issuance of a

cease and desist order   in view of the new board's plan to enter into a new management contract;
34

the motion was noted by this Court on 23 August 1989. A second ex-parte motion, noted on 18
October 1989, was filed on 19 September 1989 asking this court to consider the "Invitation to pre-
qualify and bid" for a new contract published by respondent Bunye.  35

In a belated Comment   for the respondent Secretary of Agriculture filed on 22 September 1989, the
36

Office of the Solicitor General asserts that individual petitioners, who were not allegedly elected by
the members or duly designated by the BACOD Director, have no right or authority to file this case;
the assailed Order of the Secretary was issued pursuant to P.D. No. 175, more particularly Section 8
thereof which authorizes him "(d) to suspend the operation or cancel the registration of any
cooperative after hearing and when in its judgment and based on findings, such cooperative is
operating in violation of this Decree, rules and regulations, existing laws as well as the by-laws of the
cooperative itself;" the Order is reasonably necessary to correct serious flaws in the cooperative and
provide interim measures until election of regular members to the board and officers thereof; the
elections conducted on 6 January 1989 are valid; and that the motion to dismiss filed by the new
board of directors binds the cooperative. It prays for the dismissal of the petition.
Respondent Secretary of Agriculture manifested on 22 September 1989 that he is adopting the
Comment submitted by the Office of the Solicitor General as his memorandum;   petitioners and
37

respondents Coronado and Madriaga filed their separate Memoranda on 6 November 1989;   while 38

the new board of directors submitted its Memorandum on 11 December 1989.  39

The new KBMBPM board submitted additional pleadings on 16 February 1990 which it deemed
relevant to the issues involved herein. Reacting, petitioners filed a motion to strike out improper and
inadmissible pleadings and annexes and sought to have the pleaders cited for contempt. Although
We required respondents to comment, the latter did not comply.

Nevertheless, a manifestation was filed by the same board on 25 February 1991   informing this
40

Court of the holding, on 9 January 1991, of its annual general assembly and election of its board of
directors for 1991. It then reiterates the prayer that the instant petition be considered withdrawn and
dismissed. Petitioners filed a counter manifestation alleging that the instant petition was already
given due course on 9 August 1989.   In its traverse to the counter manifestation, the new board
41

insists that it "did not derive authority from the October 28, 1988 Order, the acts of the Management
Committee, nor (sic) from the elections held in (sic) January 6, 1989," but rather from the members
of the cooperative who elected them into office during the elections.

Petitioners filed a rejoinder asserting that the election of new directors is not a supervening event
independent of the main issue in the present petition and that to subscribe to the argument that the
issues in the instant petition became moot with their assumption into office is to reward a wrong
done.

G. R. NO. 91927
Confide
Petitioners claim that without ruling on their 20 ntial
October 1988 motion for an extension of at last 15
days from 22 October 1988 within which to file their counter-affidavits, which was received by the
Office of the Special Prosecutor on 3 November 1988, Special Prosecutor Onos promulgated on 11
November 1988 a Resolution finding the evidence on hand sufficient to establish a prima facie case
against respondents (herein petitioners) and recommending the filing of the corresponding
information against them before the Sandiganbayan.   Petitioners also claim that they submitted
42

their counter-affidavits on 9 November 1988.  43

In their motion dated 2 December 1988, petitioners move for a reconsideration of the above
Resolution,   which was denied by Onos   in his 18 January 1989 Order. The information against the
44 45

petitioners was attached to this order.

Upon submission of the records for his approval, the Ombudsman issued a first indorsement on 4
April 1989 referring to "Judge Gualberto J. de la Llana, Acting Director , IEO/RSSO, this Office, the
within records of OSP Case No. 88-02110 . . . for further preliminary investigation . . ."  46

Thereafter, on 28 April 1989, Bunye and company received a subpoena from de la Llana requiring
them to appear before the latter on 25 April 1989,   submit a report and file comment. After being
47

granted an extension, Bunye and company submitted their comment on 18 May 1989.  48

On 22 August 1989, de la Llana recommended the filing of an information for violation of section 3
(e) of the Anti-Graft and Corrupt Practices Act.   The case was referred to special prosecuting officer
49

Jose Parentela, Jr. who, in his Memorandum   to the Ombudsman through the Acting Special
50

Prosecutor, likewise urged that an information be filed against herein petitioners. On 3 October
1989, the Ombudsman signed his conformity to the Memorandum and approved the 18 January
information prepared by Onos, which was then filed with the Sandiganbayan.
Consequently, Bunye, et al. were served arrest warrants issued by the Sandiganbayan. Detained at
the NBI on 9 October 1989, they claim to have discovered only then the existence of documents
recommending and approving the filing of the complaint and a memorandum by special prosecutor
Bernardita G. Erum proposing the dismissal of the same.  51

Arraignment was set for 18 October 1989.  52

However, on 14 October 1989, petitioners filed with the Sandiganbayan an "Omnibus Motion to
Remand to the Office of the Ombudsman; to Defer Arraignment and to Suspend Proceedings."  53

Subsequently, through new counsel, petitioners filed on 17 October 1989 a Consolidated

Manifestation and Supplemental Motion   praying, inter alia, for the quashal of the information on the
54

ground that they were deprived of their right to a preliminary investigation and that the information
did not charge an offense.

The Sandiganbayan issued an order on 18 October 1989 deferring arraignment and directing the
parties to submit their respective memoranda,   which petitioners complied with on 2 November
55

1989.   On 16 November 1989, special Prosecutor Berbano filed a motion to admit amended
56

information. 57

On 17 November 1989, the Sandiganbayan handed down a Resolution   denying for lack of merit
58

the Omnibus Motion to Remand the Case To The Office of the Ombudsman, to Defer Arraignment
and to Suspend Proceedings. Petitioners then filed a motion to order a preliminary investigation   on
59

the basis of the introduction by the amended information of new, material and substantive
allegations, which the special prosecutor opposed,   thereby precipitating a rejoinder filed by
60

petitioners. 
61
Confide
ntial
On 4 January 1990, the Sandiganbayan handed down a Resolution   admitting the Amended
62

Information and denying the motion to direct preliminary investigation. Their motion to reconsider this
Resolution having been denied in the Resolution of 1 February 1990,   petitioners filed the instant
63

petition on 12 February 1990.

Petitioners claim that respondent Sandiganbayan acted without or in excess of jurisdiction or with
manifest grave abuse of discretion amounting to lack of jurisdiction in denying petitioners their right
to preliminary investigation and in admitting the Amended Information.

They then pray that: (a) the 4 January and 1 February 1990 Resolutions of the Sandiganbayan,
admitting the amended information and denying the motion for reconsideration, respectively, be
annulled; (b) a writ be issued enjoining the Sandiganbayan from proceeding further in Criminal Case
No. 13966; and (c) respondents be enjoined from pursuing further actions in the graft case.

We required the respondents to Comment on the petition.

On 21 February 1990, petitioners' counsel filed a motion to drop Epifanio Espeleta and Rey E. Dulay
as petitioners,   and in the Comment they filed on 30 March 1990, in compliance with Our Resolution
64

of 1 March 1990, they state that they do not interpose any objection to the motion.

On 20 March 1990, the Office of the Solicitor General moved that it be excused from filing comment
for the respondents as it cannot subscribe to the position taken by the latter with respect to the
questions of law involved.   We granted this motion in the resolution of 8 May 1990.
65
Respondent Berbano filed his comment on 10 September 1991 and petitioners replied on 20
December 1990; Berbano subsequently filed a Rejoinder thereto on 11 January 1991.   The 66

Sandiganbayan then filed a manifestation proposing that it be excused from filing comment as its
position
on the matters in issue is adequately stated in the resolutions sought to be annulled.   On 7 March
67

1991, We resolved to note the manifestation and order the instant petition consolidated with G.R.
No. 85439.

The present dispute revolves around the validity of the antecedent proceedings which led to the filing
of the original information on 18 January 1989 and the amended information afterwards.

THE ISSUES AND THEIR RESOLUTION

1. G. R. No. 85439.

As adverted to in the introductory portion of this Decision, the principal issue in G.R. No. 85439 is
the validity of the 28 October 1988 Order of respondent Secretary of Agriculture. The exordium of
said Order unerringly indicates that its basis is the alleged petition of the general membership of the
KBMBPM requesting the Department for assistance "in the removal of the members of the Board of
Directors who were not elected by the general membership" of the cooperative and that the "ongoing
financial and management audit of the Department of Agriculture auditors show (sic) that the
management of the KBMBPM is not operating that cooperative in accordance with P.D. 175, LOI 23,
the Circulars issued by DA/BACOD and the provisions and by-laws of KBMBPM." It is also
professed therein that the Order was issued by the Department "in the exercise of its regulatory and
supervisory powers under Section 8 of P.D. 175, as amended, and Section 4 of Executive Order No.
113." Confide
ntial
Respondents challenge the personality of the petitioners to bring this action, set up the defense of
non-exhaustion of administrative remedies, and assert that the Order was lawfully and validly issued
under the above decree and Executive Order.

We find merit in the petition and the defenses interposed do not persuade Us.

Petitioners have the personality to file the instant petition and ask, in effect, for their reinstatement as
Section 3, Rule 65 of the Rules of Court, defining an action for mandamus, permits a person who
has been excluded from the use and enjoyment of a right or office to which he is entitled, to file
suit.   Petitioners, as ousted directors of the KBMBPM, are questioning precisely the act of
68

respondent Secretary in disbanding the board of directors; they then pray that this Court restore
them to their prior stations.

As to failure to exhaust administrative remedies, the rule is well-settled that this requirement does
not apply where the respondent is a department secretary whose acts, as an alter ego of the
President, bear the implied approval of the latter, unless actually disapproved by him.   This doctrine
69

of qualified political agency ensures speedy access to the courts when most needed. There was no
need then to appeal the decision to the office of the President; recourse to the courts could be had
immediately. Moreover, the doctrine of exhaustion of administrative remedies also yields to other
exceptions, such as when the question involved is purely legal, as in the instant case,   or where the
70

questioned act is patently illegal, arbitrary or oppressive.   Such is the claim of petitioners which, as
71

hereinafter shown, is correct.

And now on the validity of the assailed Order.

Regulation 34 of Letter of Implementation No. 23 (implementing P.D. No. 175) provides the
procedure for the removal of directors or officers of cooperatives, thus:

An elected officer, director or committee member may be removed by a vote of

majority of the members entitled to vote at an annual or special general assembly.
The person involved shall have an opportunity to be heard.

A substantially identical provision, found in Section 17, Article III of the KBMBPM's by-laws, reads:

Sec. 17. Removal of Directors and Committee Members. — Any elected director or

committee member may be removed from office for cause by a majority vote of the
members in good standing present at the annual or special general assembly called
for the purpose after having been given the opportunity to be heard at the assembly.

Under the same article are found the requirements for the holding of both the annual general
assembly and a special general assembly.

Indubitably then, there is an established procedure for the removal of directors and officers of
cooperatives. It is likewise manifest that the right to due process is respected by the express
provision on the opportunity to be heard. But even without said provision, petitioners cannot be
deprived of that right.

The procedure was not followed in this case. Respondent Secretary of Agriculture arrogated unto
himself the power of the members of the KBMBPM who are authorized to vote to remove the
petitioning directors and officers. He cannot take refuge under Section 8 of P.D. No. 175 which
Confide
grants him authority to supervise and regulate all cooperatives. This section does not give him that
right. ntial

An administrative officer has only such powers as are expressly granted to him and those
necessarily implied in the exercise thereof.   These powers should not be extended by implication
72

beyond what may to necessary for their just and reasonable execution.  73

Supervision and control include only the authority to: (a) act directly whenever a specific function is
entrusted by law or regulation to a subordinate; (b) direct the performance of duty; restrain the
commission of acts; (c) review, approve, reverse or modify acts and decisions of subordinate
officials or
units; (d) determine priorities in the execution of plans and programs; and (e) prescribe standards,
guidelines, plans and programs. Specifically, administrative supervision is limited to the authority of
the department or its equivalent to: (1) generally oversee the operations of such agencies and insure
that they are managed effectively, efficiently and economically but without interference with day-to-
day activities; (2) require the submission of reports and cause the conduct of management audit,
performance evaluation and inspection to determine compliance with policies, standards and
guidelines of the department; (3) take such action as may be necessary for the proper performance
of official functions, including rectification of violations, abuses and other forms of mal-administration;
(4) review and pass upon budget proposals of such agencies but may not increase or add to them.  74

The power to summarily disband the board of directors may not be inferred from any of the foregoing
as both P.D. No. 175 and the by-laws of the KBMBPM explicitly mandate the manner by which
directors and officers are to be removed. The Secretary should have known better than to disregard
these procedures and rely on a mere petition by the general membership of the KBMBPM and an
on-going audit by Department of Agriculture auditors in exercising a power which he does not have,
expressly or impliedly. We cannot concede to the proposition of the Office of the Solicitor General
that the Secretary's power under paragraph (d), Section 8 of P.D. No. 175 above quoted to suspend
the operation or cancel the registration of any cooperative includes the "milder authority of
suspending officers and calling for the election of new officers." Firstly, neither suspension nor
cancellation includes the take-over and ouster of incumbent directors and officers, otherwise the law
itself would have expressly so stated. Secondly, even granting that the law intended such as
postulated, there is the requirement of a hearing. None was conducted.

Likewise, even if We grant, for the sake of argument, that said power includes the power to disband
the board of directors and remove the officers of the KBMBPM, and that a hearing was not expressly
required in the law, still the Order can be validly issued only after giving due process to the affected
parties, herein petitioners.

Due process is guaranteed by the Constitution   and extends to administrative proceedings. In the
75

landmark case of Ang Tibay vs. Court of Industrial Relations,   this Court, through Justice Laurel,
76

laid down the cardinal primary requirements of due process in administrative proceedings, foremost
of which is the right to a hearing, which includes the right to present one's case and submit evidence
in support thereof. The need for notice and the opportunity to be heard is the heart of procedural due
process, be it in either judicial or administrative proceedings.   Nevertheless, a plea of a denial of
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procedural due process does not lie where a defect consisting in an absence of notice of hearing
was thereafter cured by the aggrieved party himself as when he had the opportunity to be heard on a
subsequent motion for reconsideration. This is consistent with the principle that what the law
prohibits is not the absence of previous notice but the absolute absence thereof and lack of an
opportunity to be heard.  78

In the instant case, there was no notice of a hearing on the alleged petition of the general
membership of the KBMBPM; there was, as well, not even a semblance of a hearing. The Order was
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based solely on an alleged petition by the general
ntialmembership of the KBMBPM. There was then a
clear denial of due process. It is most unfortunate that it was done after democracy was restored
through the peaceful people revolt at EDSA and the overwhelming ratification of a new Constitution
thereafter, which preserves for the generations to come the gains of that historic struggle which
earned for this Republic universal admiration.

If there were genuine grievances against petitioners, the affected members should have timely raise
these issues in the annual general assembly or in a special general assembly. Or, if such a remedy
would be futile for some reason or another, judicial recourse was available.

Be that as it may, petitioners cannot, however, be restored to their positions. Their terms expired in
1989, thereby rendering their prayer for reinstatement moot and academic. Pursuant to Section 13 of
the by-laws, during the election at the first annual general assembly after registration, one-half plus
one (4) of the directors obtaining the highest number of votes shall serve for two years, and the
remaining directors (3) for one year; thereafter, all shall be elected for a term of two years. Hence, in
1988, when the board was disbanded, there was a number of directors whose terms would have
expired the next year (1989) and a number whose terms would have expired two years after (1990).
Reversion to the status quo preceding 29 October 1988 would not be feasible in view of this turn of
events. Besides, elections were held in 1990 and 1991.   The affairs of the cooperative are presently
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being managed by a new board of directors duly elected in accordance with the cooperative's by-
laws.

2. G. R. No. 91927.

The right of an accused to a preliminary investigation is not among

the rights guaranteed him in the Bill of Rights. As stated in Marcos, et al. vs. Cruz, 80 "the preliminary
investigation in criminal cases is not a creation of the Constitution; its origin is statutory and it exists and the right thereto can be invoked
when so established and granted by law. It is so specifically granted by procedural law. 81 If not waived, absence thereof may amount to a
denial of due process. 82 However, lack of preliminary investigation is not a ground to quash or dismiss a complaint or information. Much
less does it affect the court's jurisdiction. In People vs. Casiano, 83 this Court ruled:

Independently of the foregoing, the absence of such investigation [preliminary] did

not impair the validity of the information or otherwise render it defective. Much less
did it affect the jurisdiction of the court of first instance over the present case. Hence,
had the defendant-appellee been entitled to another preliminary investigation, and
had his plea of not guilty upon arraignment not implied a waiver of said right, the
court of first instance should have, either conducted such preliminary investigation, or
ordered the Provincial Fiscal to make it, in pursuance of section 1687 of the Revised
Administrative Code (as amended by Republic Act No. 732), or remanded the record
for said investigation to the justice of the peace court, instead of dismissing the case
as it did in the order appealed from.

This doctrine was thereafter reiterated or affirmed in several case. 84

In the instant case, even if it is to be conceded for argument's sake that there was in fact no preliminary investigation, the Sandiganbayan,
per Doromal vs. Sandiganbayan, 85 "should merely suspend or hold in abeyance proceedings upon the questioned Amended Information
and remand the case to the Office of the Ombudsman for him to conduct a preliminary investigation."

It is Our view, however, that petitioners were not denied the right to preliminary investigation. They,
nevertheless, insist that the preliminary investigation conducted by the Office of the Special
Prosecutor existed more in form than in substance. This is anchored on the failure by prosecutor
Onos to consider the counter-affidavits filed by petitioners. The same sin of omission is ascribed to
Acting Director de la Llana who purportedly failed to consider the comments submitted by the
petitioners pursuant to a subpoena dated 13 April 1989. The failure of special prosecutor Berbano to
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conduct a preliminary investigation before amending
ntial the information is also challenged.

It is finally urged that the Sandiganbayan completely disregarded the "glaring anomaly that on its
face the Information filed by the Office of the Special Prosecutor" was prepared and subscribed on
18 January 1989, while the records indicate that the preliminary investigation was concluded on 3
October 1989.

In his Comment, respondent Berbano dispassionately traces the genesis of the criminal information
filed before the Sandiganbayan. His assessment that a preliminary investigation sufficient in
substance and manner was conducted prior to the filing of the information reflects the view of the
Sandiganbayan, maintained in both the 17 November 1989 and 4 January 1990 resolutions, that
there was compliance with the requirements of due process.

Petitioners were provided a reasonable period within which to submit their counter-affidavits; they
did not avail of the original period; they moved for an extension of at least fifteen (15) days from 22
October 1988. Despite the urgency of its nature, the motion was sent by mail. The extension prayed
for was good up to 6 November 1988. But, as admitted by them, they filed the Counter-Affidavits
only on 9 November 1988. Yet, they blamed prosecutor Onos for promulgating the 11 November
1989 Resolution and for, allegedly, not acting on the motion. Petitioners then should not lay the
blame on Onos; they should blame themselves for presuming that the motion would be granted.

This notwithstanding, petitioners were able to file a Motion for Reconsideration on 13 December
1988 requesting that the reviewing prosecutor consider the belatedly filed documents; 86 thus, there is the
recommendation of prosecutor Bernardita Erum calling for the dismissal of the charges on 2 March 1989, which, however, was not sustained
upon subsequent review. The Sandiganbayan, in its 17 November 1989 Resolution, succinctly summed up the matter when it asserted that
"even granting, for the sake of argument, that prosecutor Onos . . . failed to consider accused-movants' counter-affidavits, such defect was
cured when a "Motion for Reconsideration" was filed, and
which . . . de la Llana took into account upon review."

It may not then be successfully asserted that the counter-affidavits were not considered by the
Ombudsman in approving the information. Perusal of the factual antecedents reveals that a second
investigation was conducted upon the "1st Indorsement" of the Ombudsman of 4 April 1989. As a
result, subpoenas were issued and comments were asked to be submitted, which petitioners did, but
only after a further extension of fifteen (15) days from the expiration of the original deadline. From
this submission the matter underwent further review.

Moreover, in the 18 January 1989 Order of prosecutor Onos, there was an ample discussion of the
defenses raised by the petitioners in their counter-affidavits, thus negating the charge that the issues
raised by them were not considered at all. 87

It is indisputable that the respondents were not remiss in their duty to afford the petitioners the opportunity to contest the charges thrown
their way. Due process does not require that the accused actually file his counter-affidavits before the preliminary investigation is deemed
completed. All that is required is that he be given the opportunity to submit such if he is so minded. 88

In any event, petitioners did in fact, although belatedly, submit their counter-affidavits and as a result thereof, the prosecutors concerned
considered them in subsequent reviews of the information, particularly in the re-investigation ordered by the Ombudsman.

And now, as to the protestation of lack of preliminary investigation prior to the filing of the Amended
Information. The prosecution may amend the information without leave of court before
arraignment, 89 and such does not prejudice the accused.   Reliance on the pronouncements in Doromal vs. Sandiganbayan   is
90 91

misplaced as what obtained therein was the preparation of an entirely new information as contrasted with mere amendments introduced in
the amended information, which also charges petitioners with violating Section 3 (e) of the Anti-Graft Law.

In Gaspar vs. Sandiganbayan,   We held that there

92
is no rule or law requiring the Tanodbayan to
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conduct another preliminary investigation of a casential under review by it. On the contrary, under P.D.
No. 911, in relation to Rule 12, Administrative Order No. VII, the Tanodbayan may, upon review,
reverse the findings of the investigator and thereafter "where he finds a prima facie case, to cause
the filing of an information in court against the respondent, based on the same sworn statements or
evidence submitted, without the necessity of conducting another preliminary investigation."

Respondent Sandiganbayan did not then commit any grave abuse of discretion in respect to its
Resolutions of 4 January 1990 and 1 February 1990.

The petition then must fail.

CONCLUSION

WHEREFORE, judgment is hereby rendered:

1. GRANTING the petition in G.R. No. 85439; declaring null and void the challenged Order of 28
October 1988 of the respondent Secretary of Agriculture; but denying, for having become moot and
academic, the prayer of petitioners that they be restored to their positions in the KBMBPM.

2. DISMISSING, for lack of merit, the petition in G.R. No. 91927.

No pronouncement as to costs.

IT IS SO ORDERED.
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